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Citation(s) [1951] 2 KB 164; [1951] 1 All ER 426; 36 Digest (Rep 1) 17; [1951] 1 TLR 371 Court Court of Appeal of England and Wales Judge sittings Lionel Cohen, Baron Cohen, Cyril Asquith, Baron Asquith of Bishopstone, Alfred Denning, Baron Denning Keywords negligent misstatement, duty of care Similar Hedley Byrne and Co Ltd v Heller and Partners Ltd, Spartan Steel and Alloys Ltd v Martin and Co (Contractors) Ltd, Smith v Eric S Bush | ||
Candler v Crane, Christmas & Co [1951] 2 KB 164 is an English tort law case. In it, Denning LJ delivered an important dissenting judgment, arguing for a duty of care for negligent statements. This was later upheld in Hedley Byrne v Heller & Partners Ltd [1963] 2 All ER 575 by the House of Lords.
Contents
GROUP 3 : CANDLER V CRANE CHRISTMAS & CO.
Facts
Donald Ogilvie was the director of a company called Trevaunance Hydraulic Tin Mines Ltd, which mined tin in Cornwall. He needed more capital, so he put an advertisement in The Times on July 8, 1946, which said,
"£10,000. Established Tin Mine (low capitalisation) in Cornwall seeks further capital. Install additional milling plant. Directorship and active participation open to suitable applicant - Apply"
Mr Candler responded, saying he was interested in investing £2000, if he could see the company's accounts. Mr Ogilvie instructed Crane, Christmas & Co, a firm of auditors, to prepare the company’s accounts and balance sheet. The draft accounts were shown to Mr Candler in the presence of Crane, Christmas & Co’s clerk. Mr Candler relied on their accuracy and subscribed for £2,000 worth of shares in the company. But the company was actually in a very bad state. Ogilvie used the investment on himself and then went bankrupt. Mr Candler lost all the money he invested. He brought an action against the accountants, Crane, Christmas & Co. for negligently misrepresenting the state of the company. As there was no contractual relationship between the parties, the action was brought in tort law for pure economic loss.
Judgment
The majority of the Court of Appeal (Cohen LJ and Asquith LJ) relied on the case of Derry v Peek to refuse a remedy to the plaintiff, holding that loss resulting from negligent misstatement was not actionable in the absence of any contractual or fiduciary relationship between the parties.
Lord Denning MR delivered a powerful dissent, in which he argued that any person in the reasonable contemplation of someone making a statement who might rely on that statement is owed a duty of care in tort. He was asked to read his decision first.
Denning LJ MR’s Dissenting Statement On Duty Of Care
Denning LJ delivered a well-known dissent to the decision made in Candler v Crane, Christmas and Co. He argued that an accountant’s duty of care is not only owed to their direct employer or clients but also to any other person that the accountant authorized their employer to show the financial statement.
In this case, the accounts presented by the defendant’s junior clerk were clearly misleading. The accounts included freehold cottages as company assets, even though they were actually personal assets of the company’s owner-director. The accounts also included leasehold buildings for which leases had been forfeited due to non-payment. Based on these misstatements, Denning LJ concluded that the firm of accountants should be held liable for the actions of its employee.
Denning LJ’s opinion was rejected by the majority who preferred to follow the existing law (that a contractual relationship must exist between parties). Asquith LJ accepted the authority of Le Lievre v Gould and said that certainty in the law was more important than individual justice.
Establishing “Special Relationships” Without A Contractual Relationship
The arguments Denning LJ made in the Candler v Crane, Christmas and Co were referenced when the House of Lords reviewed Hedley Byrne & Co Ltd vs Heller & Partners Ltd [1963]. In this case, the plaintiff failed to get compensation because the advice given by the defendant had a disclaimer of responsibility related to the statement’s accuracy.
Still, the House of Lords maintained that the duty of care can arise when there is economic loss caused by negligent misstatements. This can happen under two conditions:
1. The plaintiff's economic loss can be foreseen
2. The defendant and the plaintiff have a “special relationship.” The “special relationship” does not necessarily mean a contractual relationship, but a business relationship where a person gives advice and another person seeks advice.
Before this “special relationship” can be established, it must meet the following conditions:
1. The plaintiff must rely on the advice given by the defendant
2. The defendant must be aware that his advice will be the basis of the plaintiff’s decisions
3. The plaintiff’s reliance on the defendant’s advice must be reasonable in all circumstances
Another condition was later added before this special relationship can be established. This condition states that a defendant who gives advice must be an expert in that specialization/field or a professional.
Accountants’ Scope Of Liability For Defective Financial Reports
Aside from the statement made by Denning LJ, other writers also argued that the duty of care of an accountant should extend further. That’s because 1.) public accountancy is a public calling and 2.) third parties are forced to rely on the accuracy of an accountant’s report because of the difficulty of independently checking their work.
Negligence By Words
The ruling in Candler v Crane, Christmas and Co served as a foundational element for the judicial dissent by the Supreme Court of Canada in the case of Guay v Sun Publishing Co. In this case, the plaintiff suffered nervous shock after reading a misstatement of fact negligently inserted in the Sun newspaper. The plaintiff failed to recover damages, but a minority of the Supreme Court thought that she should have done so.
Some of the Supreme Court judges argued that the tort of negligence cannot be committed through word of mouth. Others thought that in cases where there was no duty of care owed to the plaintiff or that the damage by the plaintiff cannot be blamed on the defendant’s negligently written news article.
In light of this decision, there is some justification for some courts to reconsider whether courts administering English law should recognize a duty of care not to make statements that are untrue.