Case law summary · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed
The foundational authority recognising that a professional adviser may be liable in negligence for careless words causing pure economic loss, provided there is an assumption of responsibility and reasonable reliance.
Hedley Byrne & Co Ltd was a firm of advertising agents in London. The agency had entered into substantial advertising commitments on behalf of a client, Easipower Ltd, for which Hedley Byrne would itself be personally liable to the television and newspaper organisations who carried the advertisements. Concerned about Easipower’s financial standing, Hedley Byrne asked their own bankers, the National Provincial Bank, to obtain a credit reference from Easipower’s bankers, Heller & Partners Ltd, a London merchant bank.
In response to two separate enquiries (one made in 1958, the other in 1959), Heller & Partners provided references describing Easipower as “respectably constituted” and “considered good for its ordinary business engagements”. Crucially, each reply was prefaced or appended with a disclaimer stating that the information was given “without responsibility on the part of this bank or its officials”. The references were communicated to Hedley Byrne through their own bankers.
Relying on the favourable credit references, Hedley Byrne placed further advertising orders on behalf of Easipower. When Easipower subsequently went into liquidation in 1959, Hedley Byrne were left to honour advertising commitments and suffered losses of approximately £17,000 (a substantial sum at the time). They sued Heller & Partners in tort, alleging that the references had been given negligently and without reasonable care.
At first instance and in the Court of Appeal the claim failed on the ground that there was no contractual relationship between the parties and that English law had not, to that point, recognised a general duty of care in respect of negligent statements causing purely economic loss. The Court of Appeal followed the orthodox position derived from the majority in Candler v Crane, Christmas & Co [1951] 2 KB 164 that no such duty existed, in preference to the prescient dissent of Denning LJ. Hedley Byrne appealed to the House of Lords.
The principal issue was whether, in the absence of a contractual or fiduciary relationship, a party who gives information or advice to another upon which that other foreseeably relies, can be liable in the tort of negligence for purely economic loss caused by careless misstatement. A secondary issue was whether the express disclaimer of responsibility was effective to exclude any duty that might otherwise have arisen.
The case required the House of Lords to consider the proper boundary of Donoghue v Stevenson [1932] AC 562 and whether the neighbour principle, developed in the context of physical damage caused by acts, could extend to economic loss caused by words. It also required their Lordships to confront the policy concern, articulated in Ultramares Corp v Touche 174 NE 441 (1931), that liability for negligent words could expose advisers to “liability in an indeterminate amount for an indeterminate time to an indeterminate class”.
The House of Lords unanimously held that, in principle, a duty of care to avoid negligent misstatement could arise in tort where there was a “special relationship” between the maker of the statement and the recipient. However, on the facts, the appeal was dismissed because the express disclaimer was effective to negate any assumption of responsibility by Heller & Partners.
Lord Reid (paraphrased) observed that a reasonable person who knows their skill and judgement are being relied upon must either decline to answer or carefully consider the matter and respond as honestly and carefully as the circumstances require. Lord Morris held that where a person possesses a special skill and undertakes, irrespective of contract, to apply that skill for the assistance of another who relies on it, a duty of care arises.
Lord Devlin’s speech, often cited, drew an analogy with relationships “equivalent to contract” and stressed the importance of a voluntary assumption of responsibility. His Lordship observed (paraphrased) that the categories of special relationship giving rise to a duty of care should not be confined to professional or business contexts but extend wherever an adviser has, expressly or by implication from the circumstances, accepted some responsibility for their advice.
The disclaimer, however, was treated as an effective answer. Because Heller & Partners had made clear they accepted no responsibility, no assumption of responsibility could be imputed.
A duty of care in respect of statements (as opposed to acts) causing pure economic loss arises where: (i) the maker of the statement possesses, or holds themselves out as possessing, some relevant skill or judgement; (ii) the maker knows, or ought to know, that the recipient will rely on the statement for a particular purpose; (iii) the recipient does in fact reasonably rely on the statement; and (iv) it is reasonable in the circumstances to impose a duty. The duty is founded on a voluntary assumption of responsibility, express or implied, which an effective disclaimer may negate.
Hedley Byrne is the cornerstone authority underpinning the entire architecture of modern professional indemnity insurance. By establishing that professionals can be liable in tort to clients and, in appropriate circumstances, to third parties for purely economic loss caused by careless advice, the decision created the very risks that PI policies are written to address. Accountants, surveyors, solicitors, financial advisers, brokers, engineers and consultants of every description owe their potential exposure for negligent misstatement to the special-relationship doctrine articulated here.
For insurance buyers, the case has several practical implications. First, PI policies should be written on a “civil liability” or at least a “negligence including negligent misstatement” basis; older “negligent act, error or omission” wordings can leave gaps. Second, the assumption-of-responsibility analysis means that limits of liability, scope-of-engagement letters and disclaimer wording materially affect risk, and brokers should ensure clients understand the interaction between contractual exclusions and tortious duties. Third, the case opened the door to claims by non-clients who foreseeably rely on professional output — a theme later confined by Caparo v Dickman but never extinguished.
Hedley Byrne also explains why most PI wordings respond to claims notified rather than acts committed: a single piece of negligent advice may generate liabilities decades later when reliance and loss eventually crystallise.
Author: Matt Bartlett, Director, Apex Insurance Brokers Ltd. Authorised and regulated by the Financial Conduct Authority (FRN 724952). Company registration 07014570 (England & Wales). This article is general information, not legal advice. Last reviewed: June 2026.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
Get a quote