Tort; Negligence; duty of care; liability for misstatements causing purely economic harm; indirect representations.
Facts: Esanda made loans of money to various companies. Repayment of those loans was guaranteed by Excel. Before accepting Excel's guarantees, Esanda had relied on the financial information in Excel's audited accounts, which were provided to Esanda by Excel. The information in the audits was wrong and Esanda suffered loss as a result. Esanda sued Peat Marwick Hungerfords, who had audited the accounts, in Negligence on the basis that the accountants' misstatements in the accounts had caused Esanda's economic loss.
Issue: Did Peat Marwick Hungerfords owe a duty of care to Esanda?
Decision: In the circumstances of this case, Peat Marwick Hungerfords did not owe a duty of care to Esanda.
Reason: The court noted that Esanda had not requested the accounts directly from Peat Marwick Hungerfords; the accounts had been passed on to Esanda by Excel. McHugh J said (at 275) that in the absence of a request for information, liability for purely economic loss caused by negligent misstatement requires "an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough."
The following circumstances must be established.
1. The defendant knew, or should have known, that the information or advice would be communicated to the plaintiff, either as an individual or as a member of an identified class of persons.
2. The information or advice was communicated to the plaintiff for a purpose that would very likely lead the plaintiff to enter a transaction of the kind the plaintiff did in fact enter.
3. It was very likely that the plaintiff would enter the transaction relying on the information or advice given, and by so doing risk economic loss if the advice or information was wrong or unsound.
If all these questions are answered positively, the person making the statement is responsible for what they say and there is a duty of care even if they had no special skill or knowledge. The requirements were not satisfied in the present case.