Third Party Reliance on Negligent Advice

Abstract

THE giving of advice can be a perilous undertaking. All the more so where there is the possibility that it will fall into the hands of the wrong persons. Ever since the landmark decision in Hedley Byrne in 1964 the English, Australian and New Zealand courts have assiduously endeavoured to contain within reasonable bounds this action for negligent misstatement. If Hedley Byrne evokes the genie of the ring then, in Australia, section 52 of the Trade Practices Act 1974 (Cth) surely conjures up the more powerful genie of the lamp. Recently, in Caparo Industries plc v. Dickman,1 the House of Lords has held that an auditor of a public company (in the absence of special circumstances, for example where the report is commissioned on behalf of the plaintiff for a particular purpose) does not owe a duty of care with respect to financial losses suffered by either an outside investor or an existing shareholder who purchases shares in the company at an overvalue, in reliance on the report. The purpose of this article is to explore the ramifications of this decision and to attempt a prediction of the response to be expected from Australian courts if and when the same issue arises. In addition, it will be argued that the received view that section 52 will make for an easier road for an Australian plaintiff in this situation cannot be held with absolute certainty. General principles will be addressed to some extent, but the article will focus on the facts illustrated by Caparo and close variants. In this sense the title might appear to be a little grandiose.