Wildgust v. Bank of Ireland
Negligence - Duty of care - Negligent misstatement - Scope of liability for negligent misstatement - Insurance company - Proximity - Whether special relationship creating duty of care - Whether plaintiffs sufficiently proximate so as to be persons reasonably within contemplation of defendant as being likely to be affected by its acts or omissions - Whether personal reliance on statement necessary for recovery of damages - Whether plaintiffs entitled to damages.
The Supreme Court (Denham J; Geoghegan and Kearns JJ); judgment delivered March 22nd, 2006
The proximity test in respect of a negligent mis-statement included persons in a limited and identifiable class when the maker of the statement could reasonably expect, in the context of a particular inquiry, that reliance would be placed thereon by persons to act or not to act in a particular manner in relation to that transaction. There was a special relationship between the plaintiffs and the second defendant sufficient to create a duty of care on the defendant for the accuracy of its statement, even though the statement was not made directly to the plaintiffs but to a person identified with them. Moreover, the plaintiffs were, vis-à-vis the person giving the information, proximate neighbours who could foreseeably be damaged by the inaccuracy of the information.
The Supreme Court so held in allowing the appeal from the order of the High Court.
Andrew Bradley SC, Michael Counihan SC and Robert Barron BL for the plaintiffs; Paul Sreenan SC and John Gleeson SC for the second defendant.
Mr Justice Kearns said that the case gave rise to a question as to whether a claimant, under the principles of law established in Hedley Byrne v. Heller AC 465, could recover damages in circumstances where he was not the person to whom a negligent misstatement was addressed, had not relied on it, but nonetheless had suffered loss and damage because an intermediary to the whom the negligent mis-statement was addressed was in consequence prevented from acting to protect both the claimant and the intermediary from the loss which in fact occurred.
The matter came before the Supreme Court by way of appeal from a decision of the High Court wherein the plaintiffs' claim for damages for negligent misstatement against the second defendant was dismissed, the claim against the first defendant having been previously settled between them. In the High Court judgment delivered on July 28th, 1988, Mr Justice Morris summarised the background facts as:
"The first named plaintiff is a businessman and is the principal if not the sole shareholder in the second named plaintiff company. That company, Carrickowen Ltd., was incorporated for the purpose of holding two commercial units in the Coolock Industrial Estate. The first named plaintiff and his late wife wished to create an arrangement whereby they would sublet smaller units within these commercial units at a rent sufficient to pay the mortgage on the property and thereby create a pension fund for themselves. With this intention they applied for and obtained from Hill Samuel merchant bankers a loan of £215,000 (which sum was subsequently increased by an additional £50,000) which loan was secured by the primary security of a mortgage over the property in favour of Hill Samuel and was backed by a personal guarantee from Mr Wildgust and the late Mrs Wildgust. As an additional secondary security, Mr & Mrs Wildgust were required to obtain and assign to Hill Samuel a policy of insurance on their joint and several lives. All of these transactions were satisfactorily carried through. Mr Wildgust put in place an arrangement whereby the rents of the tenants occupying the sub-units were paid direct, in the first instance, into a company account with Allied Irish Banks, but this arrangement was subsequently changed to one whereby the rents were paid into a company account in the Bank of Ireland at their Ballsbridge branch and arrangements were made with the bank that the premiums on the life policy were to be discharged to Norwich Union by direct debit. The premiums were due monthly on the 23rd of each month.
"A breakdown in the system occurred as a result of which the direct debit payment due on the 23rd of March, 1992, was not paid. Mr Wildgust held the Bank of Ireland responsible for this fact. They were accordingly joined as defendants in the present claim. However, after the hearing had progressed for some days a settlement was reached between Mr Wildgust and the Bank of Ireland as a result of which they were struck out of the case.
"Because of the failure to discharge the premium due on March 23rd, 1992, the life policy lapsed. The late Mrs Wildgust died on January 1st, 1993. The amount payable under the terms of the policy on her death was not paid as the Norwich Union claimed that the policy had lapsed. Mr Wildgust brings this action to enforce payment of that amount and claims that as a result of withholding payment consequential loss has been suffered by him and by his company."
Having quoted at length from the judgment of the High Court, Mr Justice Kearns observed that the High Court accepted the truth and accuracy of the plaintiffs' version of events grounding the claim for damages and, following Hay v. O'Grady 1 IR 210, the Supreme Court had to accept as correct the primary findings of fact made by the trial judge. The first plaintiff was the principal shareholder in the second plaintiff which was incorporated to hold commercial premises as a pension fund for the first plaintiff and his wife. To that end, they obtained from Hill Samuel merchant bankers a loan which was secured by a mortgage over the property. As an additional security, the first plaintiff and his wife were required to obtain and assign to Hill Samuel a policy of insurance on their joint and several lives. Arrangements were made whereby the premiums on the life policy were to be discharged to the second defendant by monthly direct debit from an account with the first defendant.
A breakdown in the system occurred causing a premium due on March 23rd, 1992, not to be paid, which caused the life policy to lapse. The manager of Hill Samuel became aware of the non-payment of the direct debit and in April, 1992, telephoned the second defendant who assured him that payment of the premium had subsequently been made, when in fact it had not, and, in reliance on that misstatement, took no further action to prevent the policy lapsing. When the first plaintiff's wife died, the second defendant refused to pay on the life policy, leading to the institution of the within proceedings.
Whilst the High Court accepted that the second defendant had made a negligent misstatement, it held that it would have been necessary for the plaintiffs to have actually been misled by the statement and to have actually relied on it before it would have been reasonable to impose a duty of care.
The plaintiffs submitted, inter alia, that it was artificial to suggest that the plaintiffs had no case simply because the inquiry had been made by another interested party and they had not, in fact, been aware of the relevant communication and consequently did not act upon it.
Reviewing the law, Mr Justice Kearns said that the House of Lords in Hedley Byrne v. Heller AC 465, which was followed in Ireland in Securities Trust Ltd. v. Moore & Alexander Ltd IR 417, held that a negligent, though honest, misrepresentation could give rise to an action for damages for financial loss caused thereby on the basis that a duty of care was implied when a party seeking information from a party possessed of a special skill trusts him to exercise due care, and that party knew or ought to have known that reliance was being placed on his skill and judgment. In Caparo v. Dickman 2 AC 605 the House of Lords held that liability for economic loss due to negligent misstatement was confined to cases where the statement or advice had been given toa known recipient for a specific purpose of which the maker was aware and upon which the recipient had relied and acted to his detriment.
Mr Justice Kearns held that it must have been in the contemplation of the official giving the information that it would either by relayed to the first plaintiff or acted upon by the bank to prevent the lapse of the policy and would be absurd to treat Hill Samuel as though it had become the sole insured under the policy so as to exclude the plaintiffs from the limited and determinate category of persons with an interest in the transaction. They were thus both neighbours in the legal sense to whom a duty was owed. Either of the parties, had they received accurate information, would have acted to ensure the premiums were immediately paid. The fact that the representation only reached Hill Samuel made no difference once it was established that Hill Samuel, as part of the category of persons intended to be affected by the representation, would have acted upon it to prevent the loss to the plaintiffs which occurred.
The proximity test in respect of a negligent misstatement included persons in a limited and identifiable class when the maker of the statement could reasonably expect, in the context of a particular inquiry, that reliance would be placed thereon by such persons to act or not to act in a particular manner in relation to that transaction. As the plaintiffs and Hill Samuel had virtually an identical interest in preserving the policy and that both formed such an identifiable class, either of whom could have acted to prevent the plaintiffs' loss, it was just and reasonable to ascribe to the second defendant a duty of care to the plaintiffs. Accordingly, Mr Justice Kearns allowed the appeal.
Mr Justice Geoghegan gave a concurring judgment, adding that by reason of the fact that the first plaintiff had not personally relied on the information given to the manager of Hill Samuel by the second defendant, the High Court held that the plaintiffs were not entitled to recover damages against the second defendant for loss resulting from the lapse of the policy. The plaintiffs therefore failed in the High Court on the single legal ground of non-reliance. Having considered all of the relevant authorities, Mr Justice Geoghegan said that such personal reliance was not always essential. He said that for the purposes of the appeal, he was prepared to assume that the law of negligent misstatement was a separate code from the law of negligent acts and had its origins in England in Hedley Byrne v. Heller. In that case, the only relationship alleged was between the enquirer and the person giving the information. It was a small extension of that and justified in the view of Mr Justice Geoghegan that where a person who was not the enquirer was damaged as a consequence of the wrong answer and where the existence of such a person and the reasonable foreseeability of such damage ought to have been present in the mind of the person giving the information, there was a special relationship with that person also which gave rise to a duty of care.
Mr Justice Geoghegan referred to Lord Reid in his speech in Hedley Byrne who cited with approval a passage from the speech of Viscount Haldane LC in Naughton v. Lord Ashburton AC 932. He clearly indicated that quite apart from contractual or fiduciary relationships a duty of care in the making of a statement may arise "from other special relationships which the courts may find to exist in particular cases". Lord Reid attached considerable importance to the expression "other special relationships" and he went on to observe as follows at p. 486:
"I can see no logical stopping place short of all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him."
It should have been clear that an incorrect answer by the second defendant would potentially damage the plaintiffs.
Moreover, in providing the information, the second defendant would reasonably be expected to treat Hill Samuel and the plaintiffs as identified with each other. That was enough to create the special relationship. Whilst the first plaintiff did not personally rely on the information given, he was nevertheless, vis-à-vis the person giving the information, a proximate neighbour who could foreseeably be damaged.
Ms Justice Denham agreed with both judgments.
Solicitors: Giles J. Kennedy & Co. (Dublin) for the plaintiffs; O'Keeffe & Lynch (Dublin) for the second defendant.
Paul Christopher, barrister