Negligent Misstatement: What is a Negligent Misstatement?

What is a negligent misstatement?

Negligent misstatement under English and Welsh law pertains to the provision of incorrect or misleading information by one party to another, leading to economic loss.

This legal concept is particularly significant in tort law, as it addresses the responsibilities of individuals or entities in the accuracy of the information they provide.

Negligent misstatement straddles the line between contractual obligations and tortious duties, highlighting the complexities of negligence claims in professional and advisory contexts.

Negligent misstatement and duty of care

The duty of care in negligent misstatement cases is a critical element. It requires the claimant to prove that the defendant owed them a duty to provide accurate and reliable information.

This duty is not universally applicable; it arises under specific circumstances, particularly when the information is provided in a professional context, and the provider knows or ought to know that the recipient would rely on it for a particular purpose.

The criteria for establishing a duty of care were significantly shaped by the case of Caparo Industries plc v Dickman, which introduced a threefold test: foreseeability of damage, a relationship of proximity, and that it is fair, just, and reasonable to impose a duty.

Examples of negligent misstatement

Property valuation

A property surveyor conducts a valuation on a house and negligently overestimates its value, failing to notice significant structural issues that a competent surveyor would have identified. Based on this valuation, the buyer purchases the property at a significantly inflated price. When the structural issues are later discovered, the buyer faces unexpected repair costs and a devaluation of the property. The buyer might claim for negligent misstatement, alleging reliance on the surveyor’s professional valuation.

Legal advice

A solicitor provides legal advice to a business about the compliance requirements for a new operation. The solicitor negligently fails to inform the business of a specific regulation that applies to their operation.

As a result, the business incurs fines and has to make costly adjustments to their operation to meet the legal requirements. The business might have a claim for negligent misstatement against the solicitor, based on the financial losses incurred due to the reliance on incorrect legal advice.

Making a claim for negligent misstatement

A claim for negligence, at its core, requires the claimant to demonstrate that a duty of care was owed and breached, resulting in damage. I

n the context of negligent misstatement, this translates to proving that incorrect information was provided negligently, rather than merely inaccurately, and that this led to a financial loss.

The distinction between negligence and innocent misstatement hinges on the defendant’s conduct in ascertaining the truthfulness and reliability of the information given.

For a successful claim for negligent misstatement, the claimant must clearly demonstrate that they suffered loss as a direct consequence of relying on the incorrect information. This loss is typically financial and must be quantifiable.

The courts require a causal link between the misstatement and the loss, meaning that the claimant would not have incurred the loss had the information been accurate. This aspect highlights the importance of evidence in substantiating the claim.

Case study: Hedley Byrne v Heller

The case of Hedley Byrne v Heller is seminal in the development of the law on negligent misstatement.

This case established that a duty of care can exist in purely economic losses resulting from reliance on professional advice or information.

In this case, the House of Lords held that a bank, which provided a credit reference without charge and disclaimed any responsibility for its accuracy, did not owe a duty of care to the recipient.

However, the judgment laid the groundwork for recognising that such a duty could exist if the disclaimer had not been made, setting a precedent for future claims of negligent misstatement.

Tort of negligent misstatement

The tort of negligent misstatement is different from general negligence due to its focus on economic loss stemming from reliance on incorrect information.

To establish a claim, the claimant must prove the existence of a duty of care, breach of that duty, causation, and quantifiable loss.

Unlike other negligence claims that may involve physical harm or property damage, negligent misstatement is confined to economic losses, reflecting its unique position within tort law.

How long do you have to make a claim?

the limitation period for making a claim for negligent misstatement is generally six years from the date when the cause of action accrues. This is outlined in the Limitation Act 1980. The “cause of action” in cases of negligent misstatement is typically considered to have accrued when the claimant suffers loss as a result of relying on the incorrect statement.

However, there are circumstances under which this limitation period can be extended. One notable exception involves cases where the claimant was unaware of the facts constituting the negligence at the time it occurred. In such instances, the limitation period may start from the date the claimant became aware, or could reasonably have been expected to become aware, of the relevant facts. This is referred to as the date of knowledge.

Under the Limitation Act 1980, Section 14A provides for a “latent damage” rule, which allows for a maximum extension of three years from the date of knowledge, subject to an absolute long-stop limit of fifteen years from the date of the act or omission which gave rise to the claim.

Damages for negligent misstatement

The amount of damages a person can receive in a claim for negligent misstatement depends on various factors. this includes the extent of the financial loss suffered and the specific circumstances of the case. Damages are awarded to put the claimant in the position they would have been in had the negligent misstatement not occurred. Here are several key considerations that influence the calculation of damages:

Direct financial loss

The primary factor is the direct financial loss that the claimant can prove resulted from the negligent misstatement. This includes any money lost or expenses incurred directly due to relying on the incorrect information.

Consequential loss

In addition to direct losses, claimants may also recover for consequential losses. These are secondary losses that naturally flow from the primary loss. For instance, if a business was misled into entering a poor investment, consequential losses might include lost profits or additional operational costs.

Mitigation of loss

The law requires claimants to take reasonable steps to mitigate (or reduce) their losses. The amount of damages awarded can be affected by the claimant’s actions post-misstatement. If a court finds that the claimant failed to mitigate their losses adequately, the damages awarded may be reduced.

Interest

Claimants may also be entitled to interest on the damages awarded. The rate and period for which interest is calculated can vary, depending on the specifics of the case and judicial discretion.

How Expert Commercial Law can assist

 Are you still wondering “What is a negligent misstatement?” If so, speak to our team today.

If you believe you have been affected by a misstatement, please contact us today and we will put you into contact with a solicitor who can assist with your case.

Our panel of commercial solicitors has a strong track record of successful outcomes.

All of the solicitors on our panel have the experience and expertise required to take on your case. Each solicitor is vetted before being allowed onto our panel, and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our commercial litigation lawyers also help with other commercial claims, such as director disputes and CCJ removal.

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