Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is the foundation of professional liability for negligent misstatement causing pure economic loss. Before it, the law was reluctant to compensate financial loss caused by careless words rather than careless acts. The House of Lords held that a duty of care can arise where one party gives information or advice to another who is known to rely on it, in circumstances where a reasonable person would recognise that reliance.
The organising idea is that the adviser voluntarily assumes responsibility for the accuracy of the statement, and the recipient relies on it. Later decisions - Henderson v Merrett Syndicates [1995] 2 AC 145 and Williams v Natural Life Health Foods [1998] 1 WLR 830 - refined this into a workable test. Assumption of responsibility is judged objectively, from what was said and done, not from what the adviser privately intended.
Because liability follows assumption of responsibility, accountants routinely qualify their reports. A clear, prominent disclaimer stating that a report is prepared for a named client and may not be relied on by third parties can defeat the proximity that would otherwise arise. The disclaimer must be reasonable within the meaning of the Unfair Contract Terms Act 1977, a point examined in the Bannerman line of authority.
Hedley Byrne is why an accountant's exposure is not limited to formal engagements. A negligent oral assurance, a carelessly worded reference or an email confirming a figure can each found a claim if the recipient relied on it. This is why Apex encourages firms to think about the full range of communications a PI policy needs to respond to, not merely signed reports - a theme developed on the accountants PI guide. The same negligent-misstatement principle underpins claims against insurance brokers who give coverage advice.
Assumption of responsibility and the Caparo threefold test are two routes to the same question - did a duty exist. Modern accountant claims usually plead both.
Not every helpful remark creates liability. The courts distinguish advice given in a professional context, where the recipient is expected to rely on the adviser's skill, from casual or social observations where no such reliance is reasonable. Factors the courts weigh include whether the adviser knew the purpose for which the information was required, whether the recipient could reasonably be expected to rely on it without independent enquiry, and whether the adviser was acting in the course of a business. An accountant answering a technical question in a meeting, or confirming a figure for a transaction, is usually in the professional category whether or not a formal engagement exists.
Because assumption of responsibility is judged objectively, an accountant can shape it by making the basis of any statement explicit. Marking draft figures as unaudited, stating that a report is for a named recipient only, and recording that no reliance should be placed on informal indications are all ways of preventing an unintended duty from arising. These are not evasions of responsibility but a proper matching of the duty to the work actually undertaken, which is exactly what a PI insurer expects a well-run firm to do.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.