Negligent Misstatement

  1. Introduction

    The majority of professionals are aware that the provision

    of negligent advice or a negligent misstatement may expose them

    to liability. However, such professionals may not be aware of

    the extent of their potential liability.

    Negligent misstatement relates to a representation of fact,

    which is carelessly made, and is relied on by another party to

    their disadvantage.

    For some time it has been possible to claim for economic

    loss arising out of a negligent misstatement where no

    contractual or fiduciary relationship exists between the

    parties. This is provided however that a special relationship

    or a sufficient proximity1 exists between the


  2. Special Relationship

    Generally, a special relationship will exist where the

    adviser knows that the other party is justifiably relying on

    him for his skill, expertise or knowledge.

    Where a person voluntarily takes it upon themselves to act

    on behalf of, or to advise, another in a professional capacity,

    they assume a duty to that other person to act or advise with


    A court will not impute a duty of care following informal

    discussions or during social courtesies.

    In attempting to define the scope of the term "special

    relationship", a court will consider whether or not:-

    (i) the plaintiff relied on the defendant's skill and


    (ii) the person who gave the advice knew, or ought to have

    known, that the other party was relying on him, and

    (iii) it was reasonable in the circumstances for the

    plaintiff to rely on the defendant.

  3. Proximity Test

    The Supreme Court2 recently addressed the issue

    of whether or not a claim could arise when the negligent

    misrepresentation was not made to the plaintiff directly but to

    another individual making an inquiry of the defendant which

    concerned the plaintiff. The defendant asserted that as the

    statement was not made to the plaintiff directly there could be

    no liability.

    The Supreme Court unanimously rejected the defendant's

    argument. It held that if it was foreseeable that a statement

    made would be relied upon by the plaintiff and there was

    sufficient proximity between the parties, it was "fair

    just and reasonable" that the party in question should be

    liable and that they should compensate the plaintiff for the

    losses incurred.

    The Supreme Court held that in order to fulfil the

    "proximity" test in respect of negligent


    (i) the person effected must include persons in a limited

    and identifiable class,

    (ii) the maker of the statement...

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