The tort of negligent statement was established in 1964 and before that date, the cases relied upon contract law or considered as the tort of deceit, as judges were hostile to allow compensation for pure economic loss (Turner, 2010). The consequence of negligent misstatement is pure economic loss, which in early decades was concerned to compensate only for physical damage (Cooke, 2011). Deceit is a fraudulent misrepresented made knowingly or recklessly. Derry v Peek (1889) established that deceit is proven when the statement is made intentionally, whereas negligent misstatement it is not made intentionally (Murphy and Witting, 2012).
The first case where arose the need to owe a duty of care for negligent misstatement by an accountant was found in Candler v Crane Christmas (1951), where no duty was owed as the professionals had no contractual relationship with the claimant, although Lord Denning’s dissenting judgement (Harpwood, 2003).
Candler was later on overruled by Hedley Byrne v Heller & Partners (1963), which included also Lord Denning dissents judgement. The verdict of this case was that the professionals owe a duty of care also to people which are not in contact with them, as a result, this widened the liability of all professionals. In Hedley Byrne, Heller (defendant) was not liable as there was a valid disclaimer that exempted him from any responsibility.
The House of Lords decided to restrict the imposing of foresight test, established by Lord Atkin in Donoghue v Stevenson (1932), as it would result in a floodgate (Wild and Weinstein, 2013). In addition, the House of Lords decided that in negligent misstatement cases there is need of a “special relationship” between who makes the statement and the party which is injured by. Though, it was decided that accountants owe a duty of care to whom they know will rely upon, rather than just foresee who might rely on them (Buckley, 1988).
A person, in order to give advice needs special skills required to practice his profession. This was established by Mutual Life & Citizens Assurance v Evatt (1971), where no duty was owed by the insurance company as they had not the required professional skills to give such advice (Gillies, 2004). People cannot be sued if they give advice on social occasions, but in other occasions an advice from a friend could result in a liability as it is established in Chaudry v Prabhakar (1988). In a situation where the defendant is silent or do not take initiative, rarely can be sued for misstatement, unless there was a specific duty on the defendant to disclose or take action, as it is established by Legal and General Assurance Ltd v Kirk (2002).
The main problem with professionals such as accountants and...