ISSUE:

Whether Emira can be made liable for the negligent misstatement that she has made towards
James and Harry.

1) SPECIAL RELATIONSHIP
In the case of Hedley Byrne & Co Heller & Partners Ltd
A duty of care would only arise when there is special relationship between the plaintiff and the
defendant.
Special relationship is said to exist:
- the plaintiff believes and relies on the defendant's information or advice
- the defendant knows, or ought reasonably to know, that the plaintiff would relies on his advice
- it is reasonable in the circumstances for the plaintiff to believe on the advice
LAW:
Hedley Byrne & Co Heller & Partners Ltd
Hedley Byrne was a firm of advertising agents. A customer, Easipower Ltd put in a large order.
Hedley Byrne wanted to check their financial position and creditworthiness and ask their bank, to
get a report from Easipower’s bank, Heller & Partners Ltd. Easipower Ltd went into liquidation
and Hedley Byrne lost 17,000 pounds on contract. Hedley Byrne sued Heller for negligent
misstatement. Based on this case, in order to claim for economic loss due to negligent
misstatement, the claimant needs to establish a special relationship exists between the claimant
and defendant.
Caparo Industries Plc v Dickman [1990] 1 All ER 568
The defendant auditors who acted for a public limited company prepared annual accounts which
showed that the company was of sound financial standing. The plaintiff, relying on this report,
bought shares in the company and thereafter mounted a successful bid. The accounts were in
fact inaccurate. Plaintiff brought the action to claim for negligent misstatement that caused loss.
It was held that, the defendant owed no duty of care to plaintiff. There was no relationship of
proximity existed because the defendant had no knowledge that the statement made was relied
on by plaintiff.
Mutual Life & Citizen’s Assurance Co Ltd v Evatt
The plaintiff, a policy holder with the defendant company asked the latter for some advice relating
to the financial soundness of another company, P Ltd. On the basis of incorrect advice which he
received; the plaintiff invested in P Ltd. He lost his money. It was held that the defendant was not
liable as it was not in the business of giving advice and it therefore owed no duty of care to the
plaintiff.
Application- James and Emira
James believes and relies on the opinion and report given by Emira as he invested in Star after
getting the opinion and report from Emira. This can be seen in the case of Caparo Industries Plc
v Dickman. Emira knows and ought reasonably to know that James believes and relies on the
opinion and report that she gave because James wanted Emira’s opinion on whether shares in
Star a good investment and a month after that would be, James went to see Emira at her office
to get the report. This can be distinguished from the case of Caparo Industries Plc v Dickman.
It is reasonable for James to believe and rely on the opinion and report given by Emira because
Emira is an accountant who works as an investment adviser at an established investment bank
in Petaling Jaya. The report was given in business setting which is at Emira’s office when James
came there a month after getting the opinion during the school reunion. This can be distinguished
from the case of Mutual Life & Citizen’s Assurance Co Ltd v Evatt.

Application – Harry and Emira

Harry believes and relies on the Emira’s report regarding the article on Star Enterprises Bhd when
James informed him about the investment in Star after obtaining the report from Emira. Emira has
no knowledge that Harry believes and relies on the report that she gave because she was giving
the report to James but not Harry and James were the one who demanded for her opinion and
report concerning the Star company. This can be seen in the case Caparo Industries Plc v
Dickman. It is not reasonable for Harry to believe and rely on Emira’s report because he did not
receive the report by Emira in business setting, which is at Emira’s office, but he was only being
informed by his brother, James.

2) VOLUNTARY ASSUMPTION OF RESPONSIBILITY BY THE PARTY GIVING THE

ADVICE

LAW:
When duty of care arises due the voluntary assumption of responsibility by the advisor.
The responsibility is voluntarily undertaken by the advisor in giving advice for the purpose of a
particular transaction.
The usage of this concept could be illustrated in the case of:
Smith v Eric S Bush [1990] 1 AC 831
Smith v Eric Bush
Issue: Is the reliance on the exclusion clause in the contract reasonable to exclude duty of care?
Brief Facts: The plaintiff (P) had paid Abbey National (a former bank) to employ the defendant (D)
to assess the value of property for the sake of his purchase. The D had provided a statement
saying the property in question is in good condition, and not requiring any form of repairs. This
was incorrect because the building suffered from structural damage. Soon after the P bought the
property on the reliance of the statement, its’ chimney had collapsed. Unfortunately, there was an
exclusion clause in the contract which could potentially exempt the D from liability.
Held: The reliance on the exemption clause was unreasonable under the Unfair Contract Terms
Act 1977. This is because it was a property of low value being purchased by normal people who
would rely on valuations. This instance would have been decided differently had it been a property
of higher value for business.
Application:
In this present case, Emira would have voluntarily assumed responsibility over James as she had
known that James would rely on the report made by her, as James had personally gone to her
office to obtain independent advice from Emira. Emira would also not be able to use her disclaimer
that the advice she had given to James was ‘for the sake of their friendship’ instead of the usual
business terms because as can be inferred from the case of Smith v Eric S Bush, disclaimers are
not always effective, and only effective in business investments by large companies, due to the
unreasonableness. Emira would not have voluntarily assumed responsibility over Harry as she
had personally given the report to James, and not Harry. Harry had been convinced by James
through the report given by Emira, and not Emira herself.

3) THE CLAIMANT RELIES ON THE DEFENDANT’S SKILL AND JUDGEMENT

LAW:
KGV & Associates Sdn Bhd v The Co-operative Central Bank
The report was not commissioned by the plaintiff. It was commissioned by Tan. But he was not
the true borrower but instead Kong was true borrower. There was no evidence to show that the
defendant knew the report it gave Tan would be used by Kong. The plaintiff having seen the report
did not want it because it was not want addressed to Kong. There was no evidence to show that
the defendant permitted Kong to use the report after the plaintiff had rejected it. There had been
no assumption of responsibility by the defendant.
Application:
In this present case, contrast to Kgv case, James was relied on the skill of Emira because she’s
an accountant who specializes in investment by ask an opinion from Elmira on whether shares in
Star a good investment would be. He also voluntarily goes to Emira’s office a month later, obtains
a report from Emira to confirm the article about Star and invests in Star after relying solely on the
report made to him. On behalf of Harry, he also can be said relied on the report made by Emira
when his brother told him about the investment after his brother got the assurance based on that
report. However, based on Kgv’s case, there is no assumption of responsibility by the Emira
towards Harry as the report just made for James.
 4) IT WAS REASONABLE FOR HIM TO RELY ON THE ADVICE
Caparo Industries v Dickman
The issue is whether the defendant can be made liable.
The defendant’s auditors who acted for a public limited company, prepared annual accounts
which showed that the company was of sound financial standing. The plaintiff relied on the report
and bought shares in the company and thereafter mounted a successful takeover bid without the
knowledge that the report is inaccurate. It was held that the defendant was not liable, and the
auditor of a public company’s account owes no duty of care to the actual or potential shareholders.
Application:
As referred to the fact of the question, it was reasonable for James to rely on the report made by
Emira because she is an accountant who works as an investment adviser at an established
investment bank. Hence, the report made by Emira is reliable. Furthermore, Emira made the
report which confirmed what was written in the article specifically to James as she agreed to
investigate the matter. It also reasonable for Harry to rely on the report as his brother told him and
he was persuaded to invest in Star.

ADDITIONALREQUIREMENTS
The advice is required for a purpose, whether particularly specified or generally described, which
is made known, either actually or inferentially, to the adviser at the time when the advice is given
Elmira must have the knowledge that James and Harry would have relied on her report for their
investment in Star Enterprises Bhd (“Star”). However, in this case, Elmira only know that James
who is the one ask her opinion and went to her office and took the report, not Harry.
The adviser knows, either actually or inferentially that his advice will be communicated to the
advisee, in order that it should be used by the advisee for that purpose.
Elmira has the knowledge that James took her opinion whether shares in Star would be a good
investment and took her report as assurance for Star’s financial and it involvement in multimillion
ringgit project, but not Harry.
It is known either actually or inferentially, that the advice communicated is likely to be acted upon
by the advisee for that purpose without independent inquiry.
James solely relied on the confirmation by Elmira’s report as they did not went for any other advice
from any other people and experts. Similar to Harry who relied on Elmira’s report, but Harry did
not directly get the confirmation and advice from Elmira, as he just knew about it after he told and
persuaded by his brother to invest in Star.nIt is so acted upon by the advisee to his detriment.
Both James and Harry had invested, and then during the late last year, they lost a substantial
sum of money when there was a significant drop in the value of shares in Star. Star’s financial
situation had been declining since the last 2 years and Elmira failed to detect it.

CONCLUSION:
Emira can be made liable for the negligent misstatements that she had made towards James, but
not towards Harry. This is because she had fulfilled every single requirement needed to establish
a duty of care towards James for negligent misstatements, but not towards Harry.
NEGLIGENT MISTATEMENT
JULY 2017
PART B
QUESTION 2
ISSUE
Whether there is existence of special relationship between the parties
HEDLEY BYRNE & CO LTD V HELLER & PARTNER
Hedley Byrne were advertising agents placing contracts on behalf of a client on credit term.
Hedley Byrne would be personally liable should the client default. Hedley Byrne asked their
banker to obtain credit reference from heller & partner, the client's banker. The reference (orally
writing) was given gratuitously and was favourable but has exclusion clause ' without responsibility
on the part of this bank or its official ‘s. Hedley Byrne relied upon this reference and subsequently
suffered financial loss when the client went into liquidation. Law implies duty of care when a party
seeking information from a party possessed of a skill trust him to exercise due care and that party
knew that the reliance was being placed on his skill.
SPECIAL RELATIONSHIP BETWEEN CLAIMANT AND DEFENDANT
FIRST TEST
3 factors have been arisen to prove special relationship.
Plaintiff believes and relies in defendant's information or advice.
Defendants know that plaintiff rely on his information and advices.
It is reasonably circumstances for the plaintiff to rely on defendant's information.
Plaintiff believes and relies in defendant's information or advice

FIRST FACTOR
SMITH V ERIC S BUSH
Plaintiff applied to a building society for a mortgage to assist her in purchasing a house. The
bulding society instructed the defendant (firm surveyor and valuer) to report on the value of the
house. Defendant gave a favourable report which was fact inaccurate. The mortgage application
form and valuation report contained disclaimer in liability for the accuracy of report covering both
the building society and the valuer.
APPLICATION
We could see that James solely believe and rely on emira's report because he went to the emira's
office to get the financial report on star even after he already seek opinion from emira. Plus, Jamal
does not meet anyone or relied on any survey about star, and because the sake of their friendship,
it clearly shows james believe and put his only trust on emira's report. This can be seen in the
case of smith v eric s bush, whereby the plaintiff believes and rely on the report made by
defendant by purchasing the house without obtaining any other survey. The defendant knows or
ought reasonably to know that the inquirer or plaintiff believes and relies on his information or
advice.
SECOND FACTOR
MUTUAL LIFE AND CITIZEN’S ASSURANCE CO LTD V EVATT [1971] ALL ER 150, PC
Based on the incorrect advice which he received; the plaintiff invested in P Ltd. He lost his money.
Privy Council held the plaintiff cannot claim their economic cost loss because the defendant was
Insurance Company although they give an advice but the financial advice, they had given was
not an expert in their professional. It is reasonable in the circumstances for the inquirer or plaintiff
to believe or rely on the defendant’s information or advice.
APPLICATION
Amira is reasonable to know that James relies on her advice because she is the one who make
and prepare the report which confirmed what was written in the article in national financial
magazine. Emira should know when she prepares the report James would rely on the report as
she is an investment adviser and his friend. However, Emira is not reasonable to know that Harry
would rely on her advice because the report was nor purposely made for her.
IT IS REASONABLE IN THE CIRCUMSTANCES FOR THE INQUIRER OR PLAINTIFF TO
BELIEVE OR RELY ON THE DEFENDANT’S INFORMATION OR ADVICE

THIRD FACTOR
Esso Petroleum Co Ltd v Mardon
In 1961 Esso acquired a site on a busy main street of a town for development as a petrol filling
station. Mr Allen also told the defendant that “"with all due respect we are the experts. You are,
we should say, the layman” Mr Leitch, an Esso representative, who had had 40 years’ experience
in the petrol trade, told defendant in good faith that Esso had estimated that the throughput of
petrol would reach 200,000 gallons a year in the third year of operation of the station Defendant
was aware of the deficiencies of the station and suggested that a lower estimate would be more
realistic, but L’s greater expertise quelled his doubts.
HELD
The defendants were not in business of giving advice. The court took into consideration that they
were experienced and had a special and expert knowledge in estimating the contents of petrol at
a petrol station, compared to the plaintiff who did not possess the requisite knowledge and a duty
of care imposed to the defendants.
APPLICATION
As Emira who works as a an investment advisor at an established investment bank, she deemed
as an expert in the field. Therefore, she should reasonably know whether Star Enterprises Sdn
Bhd is financially stable or not when she investigate and prepares the report for James. James
rely on the report prepared by Emira because he believe that Emira is an expert in accounting.
James did not have requisite knowledge about accounting compared to Emira who is an expert.
After a month, James went to see Emira at her office obviously shows a formal agreement
between Emira and James has been made.
VOLUNTARY ASSUMPTION OF RESPONSIBILITY BY THE PARTY GIVING ADVICE
SECOND TEST
VOLUNTARY ASSUMPTION OF RESPONSIBILITY BY THE PARTY GIVING ADVICE
This can be seen in the case of Smith v Eric S Bush, whereby duty of care arouse based on the
deemed assumption of responsibility on the part of surveyor.
First, defendant knew that the survey fee had been paid by the purchaser.
Second, the defendants knew that the survey report would be relied on by the purchaser in order
to decide whether or not to purchase the house.
APPLICATION
Emira knew that James would invest in Star Company after conforming the statement made by
national finance magazine through report made by Emira.
Emira knew that James would rely on the report in order to decide whether or not he would invest
in the Star company.
THE PLAINTIFF RELIES ON THE DEFENDANT’S SKIL AND JUDGMENT

THIRD TEST
KGV & ASSOCIATES SDN BHD V THE CO-OPERATIVE CENTRAL BANK LTD [2006] 5 MLJ
513
The report was not commissioned by the plaintiff. It was commissioned by Tan. But he was not
the true borrower. Kong was the true borrower. There was no evidence to show that the defendant
knew the report it gave Tan would be used by Kong.
There had been no assumption of responsibility by the defendant.

APPLICATION
In this situation, James relies on Emira’s skill and judgement because Emira is an accountant
who works as an investment advisor at an established investment bank. However, Harry invest
to Star because he was persuaded by James. Harry was only being adviced by James to invest
in Star but not by Emira’s.
Therefore, only James who may pass the test but not Harry.
This can be seen in KGV Case, whereby the report was made to the plaintiff but not to his friend.
There was no evidence to prove that the defendant knew the report given to Tan would be used
by Kong.
IT WAS REASONABLE FOR HIM TO RELY ON THE ADVICE

FOURTH TEST
CAPARO INDUSTRIES PLC V DICKMAN [1990] 1 ALL ER 568
The defendants’ auditor, prepared annual accounts which showed that the company was of sound
financial standing. The plaintiff, relying on this report bought shares in the company and thereafter
mounted a successful takeover bid. The accounts were in fact inaccurate.
HELD
In an action against the defendants, the House of Lords held the defendants not liable.
An auditor also owes no duty of care to an individual shareholder in a company who wishes to
buy more shares in the company because an individual shareholder is in no better position than
a member of the public at large.
APPLICATION
Contrary to above case, the report made by Emira was purposely intended to the use of James.
Also, since Emira has the skill to give advice on the matter of investment. So it was reasonable
for him to rely on the advice made by Emira through the report.

LORD OLIVER INTRODUCE 4 ADDITIONAL TEST

THE ADVISE IS REQUIRED FOR A PURPOSE, WHETHER PARTICULARLY SPECIFIED OR
GENERALLY DESCRIBED, WHICH IS MADE KNOWN, EITHER ACTUALLY OR
INFERENTIALLY, TO THE ADVISER AT THE TIME WHEN THE ADVISE IS GIVEN
FIFTH TEST
APPLICATION
Emira’s report was particularly made for James for the purpose of investment. Plus, and the report
(advice) was given at the time James met Emira at her office.
THE ADVISER KNOWS, EITHER ACTUALLY OR INFERENTIALLY THAT HIS ADVICE WILL
BE COMMUNICATED TO THE ADVISEE, IN ORDER THAT IT SHOULD BE USED BY THE
ADVISEE FOR THAT PURPOSE
SIXTH TEST
APPLICATION
James: Since the report was handed by Emira herself, it shows that she knows that her advice is
communicated to James either actually or inferentially to be used for the purpose of investment.
Harry: Emira did not know that her advice will be communicated to Harry because the report was
purposely made for James. Harry was persuaded by James.
IT IS KNOWN EITHER ACTUALLY OR INFERENTIALLY, THAT THE ADVICE
COMMUNICATED IS LIKELY TO BE ACTED UPON BY THE ADVISEE FOR THAT PURPOSE
WITHOUT INDEPENDENT INQUIRY

SEVENTH TEST
APPLICATION
James acted based on the advice given by Emira solely by invest in the Star company without
depend on any other advice.
IT IS SO ACTED UPON BY THE ADVISEE TO HIS DETRIMENT
EIGHT TEST
APPLICATION
James and Harry suffer losses when there was a significant drop in the value of shares in Star
CONCLUSION
Emira is liable towards James under negligent mistatement but not Harry.