Supreme Court allows negligence appeal against insurer, finding a special relationship existed due to voluntary assumption of responsibility for premium payments.

THE SUPREME COURT

Record No. 2002/177

Denham J.

Geoghegan J.

Kearns J.

BETWEEN:

HAROLD WILDGUST AND CARRICKOWEN LIMITED

Appellants/Plaintiffs

and

THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

First-named Defendant

and

NORWICH UNION LIFE INSURANCE SOCIETY

Respondent/Second-named Defendant

JUDGMENT of Mr. Justice Geoghegan delivered the 22nd day of March 2006

1 This is an appeal by the above-named appellants/plaintiffs from an order of the High Court (Morris P.) dated 15th October, 2001

dismissing an action for damages for negligence against the above-named respondent/second-named defendant. There is also a

cross-appeal by the said respondents against the particular costs order made in the High Court and I will return to that in due course.

2. I gratefully adopt the full account of the relevant facts in the case as well as its complex procedural history set out in the

judgment about to be delivered herein by Kearns J. I will content myself by giving a shorthand account of the salient facts as found

by the trial judge. The first-named appellant (hereinafter referred to as “Mr. Wildgust”) and his late wife had effected a life policy of

insurance on each of their lives with the respondent insurance company. Mr. Wildgust carried on business through a company

controlled by him namely, the second above-named appellant, Carrickowen Limited. In the late nineteen eighties Carrickowen Limited

purchased certain properties and for that purpose obtained loan facilities from Hill Samuel Bank Limited (“Hill Samuel”). In accordance

with normal practice, Hill Samuel required collateral security for the loan. As a consequence, personal guarantees were entered into

by Mr. Wildgust and his late wife, Margaret Wildgust. The properties acquired were to be mortgaged to Hill Samuel and two life policies

including the policy already referred to were to be assigned by way of mortgage to Hill Samuel. Carrickowen Limited held an account

with the first-named defendant, Bank of Ireland, and the arrangement was that the premiums on the relevant life policy were to be

paid for by way of direct debit from that account. The mortgage assignment of the life policy to Hill Samuel contained a covenant by

Mr. Wildgust and his wife to pay and keep up the premiums on the policy. A monthly premium became due on the 23rd March, 1992

but the direct debit for that month was not paid.

3. I should explain that Mr. Wildgust took the view that the Bank of Ireland had wrongly neglected to pay the direct debit and in that

connection the Bank of Ireland was originally a defendant in these proceedings. In the course of the hearing, the claim against the

Bank of Ireland became settled and that bank is no longer involved.

4. Returning to the action against the respondent on the appeal, i.e. the Norwich Union, that company notified Hill Samuel but not the

Wildgusts or their insurance broker that there had been default in the direct debit. Mr. Declan O’Hanlon was the relevant manager of

Hill Samuel at the time and when he received the notification of the default, he contacted Mr. Wildgust. It was of considerable

concern to Mr. O’Hanlon that the policy should not be allowed to lapse and he was aware at the time that Mrs. Wildgust was seriously

ill. Indeed around that time, she was diagnosed as terminally ill. Mr. Wildgust assured Mr. O’Hanlon that he, Mr. Wildgust, had sent a

cheque or more accurately a bank draft that would cover the premium. In giving this assurance, Mr. Wildgust appears to have acted

bona fide but as is explained in the judgment of Kearns J. that particular payment had been treated as an excess payment and was

refunded not to Mr. Wildgust but to his company, Carrickowen Limited, a fact of which Mr. Wildgust only became aware after the

policy lapsed in May, 1992.

5. On the 22nd April, 1992, Mr. O’Hanlon, working off his diary, telephoned the respondent to make absolutely sure that the March

payment had been made notwithstanding the assurance given to him by Mr. Wildgust. He did not personally remember making the call

but he had a clear file note which showed that it had been made and detailing the contents of the call. The learned trial judge

accepted that the file note was accurate.

6. The file note read as follows:

“File note

Carrickowen Limited

With regard to the above account I have been advised by Mr. Harry Wildgust that Mrs Margaret Wildgust has been diagnosed

with cancer. We hold as security a policy assigned to ourselves with Norwich Union Life Insurance Society.

On the 6th April 1992 we received an advice from Norwich Union Life Insurance Society that the direct debit on the policy had

been returned unpaid. I contacted the clients and was informed that they had forwarded a cheque to Norwich Union to keep

the policy in order.

I rang Norwich Union today, 22nd April, to confirm that the policy was correct and in order. Norwich Union confirmed that the

cheque had been received and everything was correct and in order.”

7. Although the respondent, at the trial, disputed the facts contained in that file note, the learned President, as I have already

mentioned, accepted them as true. In fact the policy was not “correct and in order” and it became a lapsed policy.

8. Mr. O’Hanlon had not informed Mr. Wildgust that he had sought confirmation from the respondent that the premiums were paid up.

Mr. Wildgust, therefore, cannot be said to have personally relied on the information given to Mr. O’Hanlon by the respondent. By

reason of that fact, the learned President held that Mr. Wildgust was not entitled to recover damages in negligence against the

respondent for loss resulting from the lapse of the policy. As is clear from the summary of facts which I have given and indeed the

more detailed account of the facts set out by Kearns J. in his judgment, Mr. Wildgust was successful in the High Court on every

relevant issue of fact. On some crucial facts there was no real controversy, such as for instance that it would generally have been

known that where a life policy is mortgaged to a bank, the bank in its own self-interest would pay up any default premiums so as to

prevent the policy lapsing. Mr. Wildgust failed, however, on the single legal ground of non-reliance. As it is quite crucial, it is

worthwhile in my view quoting in full the final paragraph in the second reserved judgment of the President as it contains the basis on

which the action was dismissed.

“In my view the one major insurmountable difficulty for the plaintiff is that at no stage did he, Mr. Wildgust become aware of

the fact that the misstatement had been made by the Norwich Union nor did he place any reliance upon it. He was not misled

by the misstatement because he was not aware of it. He was not prejudiced by it. It was not until two months later that he

became aware of the fact that the premium had not been paid. In my view the misstatement in no way influenced or

contributed towards the conduct of the plaintiff. It did not influence him or cause him to act to his detriment. I do not believe

that it would be reasonable that the law should impose a duty on the defendant for the benefit of the plaintiff in these

circumstances. In my view to do so would, as Brennan J., said in Caparo Industries Limited Plc v. Dickman BA ‘massive

extension of a prima facie duty of care’ which is not my understanding of the law in this jurisdiction.”

9. The quote from Brennan J. comes of course from Sutherland Shire Council v. Heyman 60 A.L.R. 1, 43-44 an Australian case but it is

cited in the speech of Lord Oliver of Aylmerton in Caparo Industries Plc v. Dickman [1990] 2 A.C. 605. Even if the learned President is

right in his apparent view that reliance on the statement by the actual plaintiff is essential to recovery, a proposition which I will be

examining, I find it surprising that a win for Mr. Wildgust in this case could conceivably be thought of as a “massive extension of a

prima facie duty of care”.

The law

10. If the former President is correct in his view that reliance by the actual plaintiff on the truth of an incorrect statement negligently

made is an essential ingredient of liability in all cases of negligent misstatement then this appeal must obviously be dismissed. Having

read all the relevant authorities, I am not satisfied that such personal reliance is always essential. The facts of this particular case

are most unusual and I have not come across any reported case sufficiently analogous to this case as to be of definitive assistance.

The wide interpretation of Donoghue v. Stevenson [1932] A.C. 562 in relation to liability for negligence prevalent until recently made it

important to make a sharp distinction between negligence in act on the one hand and negligence in a statement on the other hand.

Pragmatically, some kind of control mechanism was necessary in relation to liability for negligent misstatement as otherwise an action

might lie at the suit of large numbers of people influenced and reasonably foreseen to be influenced by the erroneous statement. By

contrast a negligent act will for the most part foreseeably damage only a small category of people. The more recent English case law

coming from the House of Lords with particular reference to Caparo Industries v. Dickman [1990] 2 A.C. 605 has introduced a third

element into liability for negligence in addition to reasonable foreseeability and proximity and that is reasonableness in the imposition

of a duty of care. That principle has been endorsed albeit obiter by Keane C.J. in his judgment in this court in Glencar Exploration Plc

v. Mayo County Council (No. 2) [2002] 1 I.R. 84. The different route ultimately traversed by the courts in England in relation to

negligent statements was partly based on the necessity for a control mechanism for the reason which I indicated and partly because

of pre Donoghue v. Stevenson authorities which were not mentioned and still less expressly overruled by that case. Those earlier

authorities would not be binding in this jurisdiction and now that the concept of reasonableness in imposing a duty of care appears to

be accepted, concepts which run through the English case law relating to negligent misstatements and negligent misrepresentations

such as reliance by the plaintiff on the truth of the statement, “assumption of risk” by the maker of the statement, “special

relationship”, “relationship analogous to contract”, or even for that matter the will-o’-the-wisp concept of “proximity” may not be all

that necessary. For the purposes of this case however, I am prepared to assume that the law of negligent misstatements is a

separate code from the law of negligent acts. This has the advantage that I do not have to consider the law relating to the

recoverability of damages for economic loss arising from negligence in general as it has always been accepted that such loss is

recoverable if it derives from an actionable negligent misstatement.

11. The tort of negligent misstatement has its origins in England in Hedley Byrne and Co. Limited v. Heller and Partners Limited [1964]

A.C. 465. It has an even earlier link with the famous minority Court of Appeal judgment of Denning L.J. (as he then was) in Candler v.

Crane, Christmas and Co. [1951] 2 K.B. 164. As Kearns J. has pointed out, at an early stage Hedley Byrne was accepted by the Irish

High Court as representing the law in this jurisdiction also (see Securities Trust Limited v. Hugh Moore and Alexander Limited [1964]

I.R. 417 (Davitt P.) and Bank of Ireland v. Smyth [1966] I.R. 646 (Kenny J.). There has not been much discussion or analysis of the

problems however in this court. The most relevant case law is essentially a succession of judgments from the House of Lords. In his

speech in Hedley Byrne Lord Reid cited with approval a passage from the speech of Viscount Haldane LC in Naughton v. Lord

Ashburton [1914] A.C. 932. He clearly indicated that quite apart from contractual or fiduciary relationships a duty of care in the

making of a statement may arise “from other special relationships which the courts may find to exist in particular cases.” Lord Reid

attached considerable importance to the expression “other special relationships” and he went on to observe as follows at p. 486:

“I can see no logical stopping place short of all those relationships where it is plain that the party seeking information or advice

was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to

do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was

relying on him.”

12. In Hedley Byrne the only relationship alleged was the relationship between the enquirer and the person giving the information.

Hence the emphasis on reliance by the enquirer. It is, however, a small extension of this and justified in my view by later case law,

that where a person who is not the enquirer is damaged as a consequence of the wrong answer and where the existence of such a

person and the reasonable foreseeability of such damage ought to have been present in the mind of the person giving the information,

there was a special relationship with that person also which gave rise to a duty of care.

13. There were nuanced differences of emphasis in the speeches of the Law Lords in Hedley Byrne but overall, the concept of

“special relationship” was accepted even though different characterisations were given. Lord Devlin, for instance, made a distinction

between social and professional relationships and between those which are of a contractual character or equivalent to contract. He

pointed out that

“it may often be material to consider whether the adviser is acting purely out of good nature or whether he is getting his

reward in some indirect form. The service that a bank performs in giving a reference is not done simply out of a desire to

assist commerce. It would discourage the customers of the bank if their deals fell through because the bank had refused to

testify to their credit when it was good.”

14. Before I further travel into the case law, I would pause here to consider the facts of this case. The person in the Norwich Union

giving the information had reason to believe that Mr. Wildgust may have been under the impression that his account was in order and

he would also be aware or ought to have been aware that the respondent would have paid the premium if a negative answer had

been given. It should have been clear, therefore, that an incorrect answer would potentially damage Mr. Wildgust. That was enough,

in my view, to create the “special relationship”, if such is needed but quite apart from that, given that the assignment of the policy

to the respondent was by way of mortgage, Mr. Wildgust had an equity of redemption in the policy. Even though Hill Samuel was

making the request in its own business interest, nevertheless in providing the information the Norwich Union would reasonably be

expected to treat the respondent and their customer the mortgagor as identified with each other. Even if one might quibble with the

word “identified” there was sufficient linkage to create a special relationship but as I have already indicated, I think that such

relationship existed at any rate. I do not think that Hill Samuel or Mr. O’Hanlon can be said to have been an agent of Mr. Wildgust in

making the enquiry or in relying on the answer but proof of such agency is not necessary in my view to establish liability.

15. In Smith v. Bush [1990] 1 A.C. 831 at 846 Lord Templeman cited with apparent approval dicta of Lord Denning M.R. in Ministry of

Housing and Local Government v. Sharp [1970] 2 Q.B. 223 at 268 where Lord Denning rejected the argument

“that a duty to use due care (where there was no contract) only arose when there was a voluntary assumption of

responsibility … Lord Reid in Hedley Byrne’s case … and Lord Devlin at p. 529 … used those words because of the special

circumstances of that case (where the bank disclaimed responsibility). But they did not in any way mean to limit the general

principle. In my opinion the duty to use due care in a statement arises, not from any voluntary assumption of responsibility,

but from the fact that the person making it knows, or ought to know, that others, being his neighbours in this regard, would

act on the faith of the statement being accurate.”

16. Lord Templeman also cited from the judgment of Salmon L.J. in that case where he indicated that he did not accept that in all

cases the obligation to take reasonable care necessarily depends on the voluntary assumption of responsibility. Of course, the

citation from Lord Denning must itself be related to the case with which he was dealing. It is in that context, in my view, that he

speaks of “neighbours” who “would act on the faith of the statement being accurate”. It is quite true and it is not in dispute that Mr.

Wildgust did not himself personally rely on the information given. But on any reasonable view of the case he was nevertheless vis-à-

vis the person giving the information a proximate “neighbour” who could foreseeably be damaged. As I have already pointed out, the

facts of this case simply do not fit into the facts of any other relevant case. But I take the view that all the qualifications and

controlled mechanisms referred to in the different cases are just that. They are to prevent a potential liability to large numbers of

people. That is simply not a problem here.

17. The case from which I found the greatest assistance is White v. Jones [1995] 2 A.C. 207 and in particular the speech of Lord

Browne-Wilkinson. This is the famous case in which the House of Lords held by a majority that the assumption of responsibility by a

solicitor to his client who had given instructions for the drawing up of a will for execution extended to an intended beneficiary under

the proposed will in circumstances where the solicitor could foreseeably foresee that a consequence of his negligence might be a

resultant loss of the intended legacy without either the testator or his estate having a remedy against him; and that accordingly in

the circumstances the plaintiffs were entitled to the relief sought. Interestingly, though perhaps irrelevantly, the Irish High Court

(Barrington J.) had long before that made a similar decision in Wall v. Hegarty [1980] ILRM 124. I say “irrelevantly” because the

importance of White v. Jones lies more in the further analysis by the Law Lords of the principles underlying Hedley Byrne. With

reference to that case, Lord Browne-Wilkinson at p. 272 made the following observation:

“… since this House was concerned with cases of negligent misstatement or advice, it was inevitable that any test laid down

required both that the plaintiff should rely on the statement or advice and that the defendant could reasonably foresee that

he would do so. In the case of claims based on negligent statements (as opposed to negligent actions) the plaintiff will have no

cause of action at all unless he can show damage and he can only have suffered damage if he has relied on the negligent

statement. Nor will a defendant be shown to have satisfied the requirement that he should foresee damage to the plaintiff

unless he foresees such reliance by the plaintiff as to give rise to the damage. Therefore, although reliance by the plaintiff is

an essential ingredient in a case based on negligent misstatement or advice, it does not follow that in all cases based on

negligent action or inaction by the defendant it is necessary in order to demonstrate a special relationship that the plaintiff

has in fact relied on the defendant or the defendant has foreseen such reliance. If in such a case careless conduct can be

foreseen as likely to cause and does in fact cause damage to the plaintiff that should be sufficient to found liability.”

18. That quotation does not fully avail the appellant in this case. However, he does place some of the apparent principles enunciated

in Hedley Byrne in the context of the particular facts of that case. At p. 274 Lord Browne-Wilkinson says the following:

“The law of England does not impose any general duty of care to avoid negligent misstatements or to avoid causing pure

economic loss even if economic damage to the plaintiff was foreseeable. However, such a duty of care will arise if there is a

special relationship between the parties. Although the categories of cases in which such special relationship can be held to

exist are not closed, as yet only two categories have been identified namely (1) where there is a fiduciary relationship and (2)

where the defendant has voluntarily answered a question or tendered skilled advice or services in circumstances where he

knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special

relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff’s affairs

or by choosing to speak. If he does so assume to act or speak he is said to have assumed responsibility for carrying through

the matter he has entered upon. In the words of Lord Reid in Hedley Byrne [1964] A.C. 465, 486 he has ‘accepted a

relationship … which requires him to exercise such care as the circumstances require’ i.e. although the extent of the duty will

vary from category to category, some duty of care arises from the special relationship.”

19. If interpreted literally those words again do not establish a case for the plaintiff but if the underlying principles are adopted I think

that they do. The essence of this case was that the person in the Norwich Union giving the information in response to the request

ought to have known that it would be relied on at least by the respondent and that if the statement was incorrect, the policy could

lapse to the detriment not just of Hill Samuel but to their customer who was paying the premiums and who had a beneficial interest in

the form of the equity of redemption in the policy. I fail to see how that did not amount to a special relationship. Put shortly, Mr.

Wildgust was a “neighbour” for the purposes of the law of negligence and a specially close one at that. There is no question here of

the respondent being liable to large numbers of perhaps unknown persons. In my view, the respondent is liable to the appellants and I

would, therefore, allow the appeal. The terms of the order can be discussed with counsel.

20. On the amended pleadings there are issues of contributory negligence both directly and vicariously by reason of the involvement

of the Bank of Ireland. I express no views on these matters as they were not raised in argument.

21. As regards the cross-appeal that is essentially a costs matter which can be dealt with when the costs of the appeal as a whole

are being considered by the court.