CASE NOTE. SHADDOCK (L) & ASSOCIATES PTY LTD and ANOTHER v PARRAMATTA CITY COUNCIV

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1 CASE NOTE SHADDOCK (L) & ASSOCIATES PTY LTD and ANOTHER v PARRAMATTA CITY COUNCIV Torts-Negligence- Negligent mis-statement- Duty of care- Persons on whom a duty of care exists- Advice and information -Liability of public bodies for negligent mis-statement - Hedley Byrne v Heller and MLCvEvatt In the burgeoning field of negligent mis-statement causing financial loss there are now three cases which attempt to establish the prerequisites for the existence of a duty of care: Hedley Byrne & Co Ltd v Heller & Partners Ltd,2 Mutual Life & Citizens' Assurance Co Ltd v Evatt,3 and Shaddock (L) & Associates Pty Ltd v Parramatta City Council.4 The Facts In July 1973 the appellant companies purchased property in the Sydney suburb of Parramatta for the purpose of redevelopment. In February 1974 the respondent council, confirming a resolution of August 1971, determined that two streets adjoining the appellants' property were to be widened reducing the area of the property by almost forty per cent. It was, therefore, unsuitable for redevelopment. The appellants would not have gone through with their purchase had they known of the council's resolution. Early in 1973 a representative of Shaddock and Associates had stressed to the company's solicitor, a Mr Carroll, the importance of acquiring the whole property for redevelopment. Mr Carroll, therefore, took steps to establish whether the local council had any intention to widen or re-align any of the various roads nearby. He telephoned the council's town planning department and asked an unidentified employee whether there were any such proposals in existence. The employee said there were not. Mr Carroll then applied for various certificates under the Local Government Act 1919 (NSW). The application form (one commonly used by solicitors) contained the following question: "Is the property affected or proposed to be affected by... Road widening or re-aligning proposals... "?The council supplied Mr Carroll with a certificate pursuant to section 342AS. It was the practice of the council, if there were any such proposals, to note the fact on this certificate. Mr Carroll knew of this practice, however the certificate he received made no mention of any proposals. Mr Carroll and the appellants took this to mean that there were none and proceeded with the purchase. Before the trial judge, Waddell J, Shaddock and Associates raised four arguments in support of their damages claim. 5 Only one of these need concern us, the rest having been rejected and abandoned at this stage. 1 '(1981) 36 ALR 385; (1981) 55 ALJR 713. High Court of Australia; Gibbs CJ, Stephen, Mason, Murphy and Aickin JJ. 2 [1964] AC (1970) 122 CLR (1981) 36 ALR 385. li [1978] 38 LGRA 23,

2 96 Federal Law Review [VOLUME 13 The substantive argument put forward was that the council owed the plaintiffs a common law duty of care to ensure that their response to both the oral and written requests for information was correct, and that this duty had been breached. The plaintiffs relied on the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd;6 the defendant council based its denial of a duty of care on Mutual Life & Citizens' Assurance Co Ltd v Evatt.7 Waddell J had no doubt that the council had been innocent but negligent, both in the way it responded to the telephone inquiry, and in failing to respond to the written request.8 However, His Honour held that the council had only been under a duty to act honestly,9 and thus the plaintiffs' claim failed at first instance. The New South Wales Court of Appeal10 (Rutley and Mahoney JJA, Moffitt P dissenting) dismissed the plaintiffs' appeal, though only Mahoney JA did so on the ground that no duty could have been owed by the council. In the High Court this decision was unanimously reversed.u The Major Issues The facts raised a number of important questions, the most significant being: (a) Who owes a duty of care for negligent mis-statements? Is the test in Australia that stated by Lord Diplock for the majority of the Privy Council in Evatt's case, or that enunciated by the minority, or something else again? (b) Does the principle of liability for negligent mis-statement, whatever it may be, extend to public bodies? Preliminary Matters The substance of this case note will deal with these questions, but it is pertinent first to discuss some preliminary matters of general relevance. (a) The oral inquiry The High Court had no doubt that the oral inquiry by Mr Carroll was insufficient to create a "special relationship" between the council and the appellants. The council owed no duty of care in answering that inquiry.12 The answer was not confirmed in writing, the informant remained unidentified, and a reasonable person in his position could not have been expected to realise that the appellants were intending to purchase the relevant property, or otherwise rely on the information he gave. Both Stephen and Murphy JJ suggested that rarely would a duty exist in such circumstances, particularly when there was a more formal means of obtaining the infor- 6 [1964] AC (1970) 122 CLR 628. s [1978] 38 LORA 23, Jbid 41. 1o [1979] 1 NSWLR (1981) 36 ALR 385. Four judgments were delivered. Aickin J agreed with the judgment of Mason J. 12 (1981) 36 ALR 385, 393 per Gibbs CJ, 395 per Stephen J, 407 per Mason J, 409 per Murphy J. See also [1979] 1 NSWLR 566, 591 per Hutley JA.

3 1982] Case Note 97 mation.13 However, an oral inquiry may in some circumstances raise a duty of care. Their Honours' remarks were directed at inquiries by telephone. 14 (b) The written inquiry and reply by "omission" The council argued that it could not be liable for negligent mis-statement in failing to note the road widening proposals on the section 342AS certificate because no statement, as such, was made. In the Court of Appeal Rutley JA accepted this, holding that one could not be liable "where the supply of information is made by implication... ".15 The High Court, however, had no trouble rejecting this contention.16 Gibbs CJ drew an analogy with evidence cases in which it had been suggested that where a reply to correspondence is expected, a failure to reply is tantamount to evidence of the truth of the statements contained thereinp In the light of past conduct in answering inquiries by endorsing the section 342AS certificate, "the failure to answer... amount[ed] to an intimation of fact".18 There was no duty on the council to answer but this was irrelevant.19 Thus while the facts disclosed an "omission" on the part of the council it was of the sort that is towards the "commission" end of the spectrum. Whether a duty may be owed for a pure omission is a matter still unsettled and not advanced by this case.20 (c) Advice/lnformationZ1 Is liability for negligent mis-statement confined to advice or does it extend to information?22 The alleged mis-statement in this case was more characteristic of information than advice. That is, "There are no road widening proposals", as opposed to, "Buy and redevelop the site, it is suitable as there is no intention to widen the adjoining roads". Framed as such, however, it can be seen that the difference between information and advice may, because of the nature of the question asked, be very slight. The members of the High Court found it unnecessary to distinguish between them.23 Indeed, the weight 13 (1981) 36 ALR 385, 395 per Stephen J, 409 per Murphy J. 14 Eg Howard Marine v Ogden & Sons [1978] QB 574; and N P Gravells, "Negligent Misrepresentation: A Restrictive Approach" (1978) 94 LQR 334, [1979] 1 NSWLR 566, (1981) 36 ALR 385, per Gibbs CJ, per Stephen J, 402 per Mason J; [1979] 1 NSWLR 566, per Moffitt P, per Mahoney JA. 17 (1981) 36 ALR 385, Ibid 402 per Mason J. 19 Ibid 387 per Gibbs CJ, per Stephen J, 401 per Mason J. 20 Eg P Cane, "The Metes and Bounds of Hedley Byrne" (1981) 55 ALJ 862, ; Argy Trading v Lapid Developments [1977] 1 WLR 444, ; Tracy v Atkins (1978) 83 DLR (3d) 46, 54; Lietzke (Installations) Pty Ltd v EMJ Morgan (1973) 5 SASR 88, 99 per Bray CJ. For the related question of whether advice or information must be "requested": Town of the Pas v Porky Packers Ltd (1976) 65 DLR (3d) 1, 10; MLC v Evatt (1968) 122 CLR 556, 573 per Barwick CJ. Z1 The terms have been used conjunctively in many cases, but this is not to say that when so used they are being treated as synonymous: eg Hedley Byrne v Heller [1964] AC 465, 482 per Lord Reid; Esso Petroleum v Mardon [1976] QB 801, 820 per Lord Denning MR; Presser v Caldwell [1971] 2 NSWLR 471,490 per Mason JA. 22 This question is relevant also to the "skill" limitation suggested in Evatt's case, below p 98, for as pointed out by Gibbs CJ, (1981) 36 ALR 385, 391, the giving of advice will always involve the exercise of skill whereas the provision of information may not necessarily do so. 23 (1981) 36 ALR 385, per Gibbs CJ, 398 per Stephen J, 405 per Mason J.

4 98 Federal Law Review [VOLUME 13 of authority supports such a view.24 It seems that it is more appropriate to ask whether the prerequisites to the forming of the "special relationship" between the parties have been satisfied, rather than to deny liability on the basis of some inflexible and mythical division between information and advice. The Substantive Question: Who Owes the Duty of Care? In Hedley Byrne, which established liability for negligent mis-statement where there is no contractual or fiduciary relationship between the parties, the nexus necessary to invoke the duty of care was not rigorously defined. 26 The use of the term "special relationship" contributed little to any certainty in the area. Essentially, however, it was held that for such a relationship to exist an advisee must rely on an adviser to exercise due care, it must be reasonable for him to do so (this is generally implied from a business as distinct from a social context), and it must be, or ought to be, apparent to the adviser that the advisee is relying on his skill or judgment.26 In Evatt's case the Privy Council put what many since have considered to be an unnecessary gloss on this formulation of the duty.27 Lord Diplock, delivering the judgment of the majority, held that for a duty to exist the subject matter of the inquiry must call for the application of skill or competence beyond that possessed by the "reasonable man", and the adviser must hold himself out as having such skill or competence, and as willing to exercise it. This may be implicit, that is, by being in the business of giving advice on that type of matter, or express, that is, by stating that he is willing to apply the standard of skill or competence of a person who does advise on that sort of matter.28 Alternatively, a duty will exist where the adviser has "a financial interest in the transaction on which he gives his advice". 29 Lords Reid and Morris disagreed entirely with this formulation,30 re-stating the general principles formulated in Hedley Byrne Eg MLC v Evatt (1970) 122 CLR 628, , (1968) 122 CLR 556, 573 per Barwick CJ; Shaddock v Parramatta City Council [1979] 1 NSWLR 566, 574 per Moffitt P; Jenkins v Godfrey Hirst (1974) 3 NSWDCR 214, 221 per Redapple DCJ; cf Presser v Caldwell [1971] 2 NSWLR 471, per Mason JA; contra MLC v evatt (1968) 122 CLR 556, 591 per Taylor J. There are also cases in which a duty has been held to be owed though the mis-statement seems only to involve misinformation: eg Windsor Motors v District of Powell River (1969) 4 DLR (3d) 155 (a list of addresses); Esso Petroleum v Mardon [19761 QB 801 (throughput of servicestation); Howard Marine v Ogden [1978] QB 574 (capacity of barge); Jenkins v Godfrey Hirst (1974) 3 NSWDCR 214 (code name for carpet); Coats Patons (Retail) Ltd v Birmingham Corporation (1911) 69 LGR 356 (no proposals for building subway). 25 So much so that one author said the case had "led people out into the wilderness and left them there"-r Stevens, "Hedley Byrne v Heller: Judicial Creativity and Doctrinal Possibility" (1964) 27 Mod L Rev 121, [1964] AC 465, 484 per Lord Reid. 27 Eg L L Stevens, ''Two Steps Forward and Three Back! Liability for Negligent Words" (1972) 5 NZ Universities L Rev 39, 45-47; K E Lindgren, "Professional Negligence in words and the Privy Council" (1972) 46 ALJ 176, 181; P L Bradbury, "In Memory of Hedley Byrne" (1971) New Zealand Law Journal 203, 208; J B K Rickford, "A Mirage in the Wilderness: Hedley Byrne Considered" (1971) 34 Mod L Rev 328, 332; Howard Marine v Ogden [1978] QB 574, 591 per Lord Denning MR, 600 per Shaw U; Esso Petroleum v Mardon [1976] QB 801, 827 per Ormrod U; Box v Midland Bank [1919] 2 Lloyd's Rep 391, 399 per Lloyd J. 28 (1970) 122 CLR 628, 633, Ibid Ibid Above p 98.

5 1982] Case Note 99 (a) Is the duty limited to advisers? In Shaddock, Gibbs CJ thought it unnecessary to decide between the conflicting views expressed in Evatt's case, but added that he could see no need for the requirement that the defendant be in the business of giving advice, or hold himself out as such. He saw no reason why... [the duty] should not extend to persons who, on a serious occasion, give considered advice or information concerning a business or professional transaction.32 His Honour distinguished Evatt's case on the ground that it was not concerned with a public body whose practice it was to answer inquiries put by members of the public.33 In any case, the council could be seen to fall within the parameters of the Evatt test for there is little, if any, difference between such a body and a business which gives advice on financial matters. For Stephen J the general principles stated by the majority in Evatt were correct in the context of that case. Their Lordships, in his opinion, were concerned essentially with establishing a "holding out" requirement.84 Being in the business of giving advice was but one way to satisfy it. In the present case, the requirement was satisfied by virtue of the fact that the council had a monoply over certain information which it collected and disseminated. And given this, it was unnecessary for the council to have used skill or competence in answering Mr Carroll's inquiry to attract the duty.35 It could be inferred from the fact that the council acted as a centre for the distribution of such information that it would exercise the requisite care. The concern expressed in Evatt's case that there must always be an ascertainable standard of skill to which the defendant should conform did not worry Stephen J, for here it was that of the reasonable council.36 This explodes Lord Diplock's contention that there is no "half-way house" between the duty to be honest and the duty owed by the specially skilled man. 37 If the concept of the "reasonable man" can apply to negligent acts performed by "the man in the street" and "the man in the white coat", then surely it can apply to negligent words, no matter where on the continuum from "ordinary" to "skilful" their purveyor falls. Mason J took the approach of a "bold spirit" and saw the facts as directly raising the conflict in views expressed in Evatt's case. Further, it presented the opportunity to resolve the conflict for Australia.38 His Honour could find no reason to support a restrictive definition of the circumstances in which the duty of care would arise, and expressed agreement with the liberal view taken by Barwick CJ in Evatt's case.39 It is worth quoting Mason J's abbreviated version for, in the writer's opinion, the Australian courts should, and will, adopt it in the future: 32 (1981) 36 ALR 385, Ibid. 84 Ibid Ibid Stephen J thought that the council had exercised skill and competence in any case. 36 Ibid (1970) 122 CLR 628, (1981) 36 ALR 385, [1968] 122 CLR 556, 512.

6 100 Federal Law Review [VOLUME whenever a person gives information or advice to another upon a serious matter in circumstances where the speaker realizes, or ought to realize, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give.40 His Honour's judgment is all the more persuasive for its recognition that policy goals play an important role in this area of the law.41 He thought the goal in this field should not be to restrict liability "to those who can best afford to meet it",42 for that would deny a remedy to many who suffer financial loss. His Honour argued that insurance is available as a method of protection, but he did not point out that those most likely to insure, and who will find it easiest to insure, are the professional advisers. Nevertheless, it is refreshing to have insurance expressly mentioned, a quirk normally confined to the pen of the Master of the Rolls.43 Murphy J considered it enough for the purposes of the appeal "to hold that liability extends to those whose profession or business it is to give advice or information... ",44 but also saw "no justification for adhering to the error expressed by the Privy Council in... [Evatt's case]". 45 His Honour's judgment is notable for its brevity, its absence of any reference to Hedley Byrne, and lack of analysis of Evatt's case. (b) Does the duty extend to public bodies? Unlike Hedley Byrne and Evatt, the defendant in the present case was a public body. However, none of the judges had any difficulty in applying the principles they extracted from those cases to the Parramatta City Council. Gibbs CJ used Ministry of Housing v Sharp.w as authority for this extension. 47 But that case can be distinguished, for there the local council was under a statutory duty to note a charge on land, which it failed to do, whereas the respondent in this case was under no duty to answer questions relating to road widening proposals. Stephen J relied on a series of Canadian decisions which had applied the reasoning in Hedley Byrne to municipal authorities,48 while Mason J discussed the matter as one of principle and concluded that the duty could 40 (1981) 36 ALR 385, Ibid See also Glasbeek, "Negligent Mis-statements in the Privy Council -Area of Liability Clearly Delimited" (1972) 50 Canadian Bar Review 128, 135; C R Symmons, "The Duty of Care in Negligence: Recently Expressed Policy Elements" (1971) 34 Mod L Rev 394, Ibid Eg Ministry of Housing v Sharp [1970] 2 QB 223, ; SCM v Whittall [1970] 3 WLR 694, (1981) 36 ALR 385, Jbid..w [1970] 2 QB (1981) 36 ALR 385, Ibid 397, 399. There are also English and Australian authorities to this effect: eg Coats Patons (Retail) Ltd v Birmingham Corporation (1971) 69 LGR 356; Hull v Canterbury Municipal Council [1974] 1 NSWLR 300; GJ Knight Holdings v Warringah Shire Council [1975] 2 NSWLR 796; Johnson v State of South Australia (1981) 26 SASR 1.

7 1982] Case Note 101 extend to "a government department, a statutory authority or a local authority... ".49 In the Court of Appeal Mahoney JA distinguished between public bodies with a statutory duty to give information and those without.50 It was his contention that placing a duty to be careful on the latter would severely restrict the information they would give the public. Elsewhere it has been argued that such a duty would be "unduly burdensome".51 Only Mason J responded to this argument, and considered it an "unsupported assertion".' 52 His Honour said that as responsible bodies exercising functions valuable to the public, they would surely continue to provide information to which they alone had access. While this strikes one as also being something of an "assertion", it does contain an element of common sense. Mason J recognised that public bodies might attempt to exclude liability, or charge a fee for their services,53 but considered this to be irrelevant. Surely, though, if all public bodies could exclude liability, the recognition of a duty will have been pointless. CONCLUSION The decision in this case has ramifications for those who give advice or proffer information, whether they operate in the private or public sphere. There now seems no doubt that government departments and agencies, many of which by their nature have a monopoly of certain information, will be under a duty to take reasonable care in passing it on to members of the public. Exactly how wide liability will range remains a question for the future. It is to be hoped, however, that public bodies will not attempt to exclude all liability for negligent mis-statement nor to so delimit their activities as to be less effective in carrying out their duties and responsibilities. It would seem, given the support by Gibbs CJ54 for the decision in Ministry of Housing v Sharp,55 that public bodies will also be liable for the negligent exercise of statutory obligations which are in the nature of obligations to give advice or information. The suggestion that there must be a "voluntary assumption of responsibility"56 has been rightly quashed. But other questions remain unanswered. For example, Their Honours did not discuss how liability for negligent mis-statements relates to that for negligent acts which cause economic loss, in the field of public law,57 and the role vicarious liability might play was only briefly touched upon. 58 Furthermore, it would seem clear that a person need no longer be in the business of giving advice, or hold himself out as such in order to owe a duty 49 Ibid [ NSWLR 566, R Hayes, "The Duty of Care and Uability for Purely Economic Loss" (1979) 12 Melb UL Rev 79, (1981) 36 ALR 385, Ibid. 54 Ibid [ QB Eg Hedley Byrne v Heller [1964] AC 465, 529 per Lord Devlin. 57 For an analysis of the latter: N Seddon, "The Negligence Liability of Statutory Bodies: Dutton Reinterpreted" (1978) 9 FL Rev (1981) 36 ALR 385, 405 per Mason J.

8 102 Federal Law Review [VOLUME 13 to be careful in the field of private enterprise. The mis-statement need merely be made in a business context. This is more in line with the present English position.09 Nor need a man be a professional to owe a duty of care: an anomalous requirement, though whether the duty can extend to "ordinary men... doing quite mundane tasks"60 is another matter. While only Mason J disapproves of the Evatt formulation as ratio, the remarks of Gibbs CJ and Murphy J, in their context, render the distinction between obiter and ratio superfluous. While Stephen J appeared to accept the actual decision in Evatt's case as correct, he also contemplated more than one means of holding out. In a practical sense, in any case, it will be easiest to satisfy even the wide test of Mason J when the defendant is in the business of giving advice, or is at least a professional. The metes and bounds of the duty have not been entirely clarified, however. For example, it is unclear whether the passing on of raw information, a monopoly of which is not held, will raise the duty. 61 Further, the case concentrates on the issue of "who owes the duty" as distinct from "to whom it is owed".62 Lastly, there remains the problem of whether the duty may be excluded. Only Gibbs CJ expressly dealt with this, and following Hedley Byrne held that it could be. While Mason J approved of the judgment of Barwick CJ in Evatt's case in which the latter had suggested that liability could sometimes not be exempted,63 Mason J also seems to contemplate exclusion as possible.64 It would appear therefore that the view of Gibbs CJ will prevail. This is unfortunate if it means that a person or body can invite reliance yet at the same time deny a duty of care. Inviting reliance and denying a duty seem contradictory and in this writer's view the former should prevail. 65 On the positive side, the decision overcomes many of the difficult problems left in the wake of Evatt's case. There will be no need to define "skill or competence" or "professional", terms which beg definition, 66 or establish what was meant by the phrase "financial interest".67 Most importantly, it has clarified the conflict in Evatt in a rational and responsible way. Given the embryonic state of the law of negligent mis-statement, and the novel fact situations that may arise, it would seem that problems in this area of the law should be approached with broad guidelines like those 09 Eg Esso Petroleum v Mardon [1976] QB 801; McNally v Welltrade [1978] IRLR Mcinerney v Lloyds Bank [1974] 1 Lloyd's Rep 246, 253 per Lord Denning MR. 61 (1981) 36 ALR 385, compare 389 per Gibbs CJ with 404 per Mason J. See also Presser v Caldwell [1971] 2 NSWLR For an examination of the authorities on this other question see: G H L Fridman, "Negligent Misrepresentation: A Postscript" (1976) 22 McGill Law Journal 649, 652; P Cane, "The Metes and Bounds of Hedley Byrne" (1981) 55 ALI 862, (1968) 122 CLR 556, (1981) 36 ALR 385, N C Seddon, "Fault Without Liability-Exemption Clauses in Torts" (1981) 55 ALJ 22, See Shaddock v Parramatta City Council [1979] 1 NSWLR 566, per Moffitt P; P L Bradbury, "In Memory of Hedley Byrne" (1971) New Zealand Law Journal 203, (1970) 122 CLR 628, 642. At least two interpretations have been given, neither being satisfactory; C S Phegan, "Hedley Byrne v Heller in the Privy Council-The Continuing Story" (1971) 45 ALI 20, 28.

9 1982] Case Note 103 suggested by Mason J in mind, rather than strict rules surrounded by many limitations and qualifications. The merit in this case is that it enables Australian courts in the future to take a more flexible approach to this area of the law in general and to any given set of facts in particular.68 GRAEME E J JOHNSON* 68 In an editorial comment in the Australian Law Journal, (1982) 56 ALJ 55 Shaddock is said to have "made a radical extension of the 'bounds' of Hedley Byrne". It is said to be "a clear case of judicial legislation" (at 56). In the1 present writer's opinion the decision is a legitimate development within the framework of the law as expressed in Hedley Byrne, and by the High Court in MLC v Evatt. It conforms with the law as it existed in England as long ago as *BA (ANU).