Harold Wildgust and Carrickowen Ltd (plaintiffs) v The Governor and Company of the Bank of Ireland and Norwich Union Life Insurance Society (defendants).

Tort - Duty of care - Insurance - Appropriate test - Negligent misstatement - Whether insurers owed duty of care to plaintiff - Whether statement by insurer constituted negligent misstatement - Whether plaintiff relied upon representations made and prejudiced by them - Whether reasonable to impose duty of care on defendant.

The High Court (before the President of the High Court, Mr Justice Morris); judgment delivered on August 17, 2001.

In deciding whether or not a duty of care existed between a plaintiff and a defendant in a case where negligent misstatement is alleged, the following test applied; firstly, it should be considered whether the injury or damage to property was reasonably foreseeable; secondly whether the "proximity" or "neighbourhood" test has been met; and lastly one must also consider whether it was it just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff?

Mr Justice Morris so stated in holding that in this instance, where the plaintiff alleged negligent misstatement, the plaintiff was at no stage aware of the fact that the misstatement had been made by the defendant nor had he relied upon it and was not prejudiced by it. The misstatement in no way contributed towards the conduct of the plaintiff. Mr Justice Morris held that in these circumstances it would not be reasonable that the law should impose a duty on the defendant for the benefit of the plaintiff.

Andrew Bradley SC, Michael Counihan SC and Robert Barron BL for the plaintiff; Paul Sreenan SC and John Gleeson BL for the second defendant.

Mr Justice Morris outlined the facts of the case. The first plaintiff ("Mr Wildgust") was a business man and the principal shareholder in the second plaintiff company ("Carrickowen"). Carrickowen was incorporated by Mr Wildgust for the purpose of holding two commercial units in an industrial estate. Mr Wildgust and his late wife wished to create an arrangement whereby smaller units within these commercial units would be sublet which would discharge the mortgage and create a pension fund for themselves. In this regard a loan was raised from Hill Samuel Merchant Bankers ("Hill Samuel"). The property was mortgaged to Hill Samuel and was backed by a personal guarantee from Mr Wildgust and the late Mrs Wildgust. In addition Mr and Mrs Wildgust obtained and assigned to Hill Samuel a policy of insurance on their joint and several lives.

Mr Justice Morris said that Mr Wildgust arranged that the rents of the tenants occupying the sub-units were paid into a company account held with the Bank of Ireland. In addition the premiums due on the life policy were to be discharged on a monthly basis to second defendant ("Norwich Union") by direct debit from the bank account. The payment in respect of the life policy due in March 1992 was not made and the life policy lapsed. The late Mrs Wildgust died in early 1993. Norwich Union claimed that the policy had lapsed and refused to pay out any sum. Mr Wildgust initiated proceedings against the defendants holding them responsible for the lapse of the policy.

Mr Justice Morris referred to the fact that when the proceedings were originally heard in 1998 a settlement was reached between Mr Wildgust and the Bank of Ireland and the action in respect of the Bank of Ireland was struck out. At this time counsel on behalf of Norwich Union sought a non suit. Mr Justice Morris refused the application and delivered a judgment on July 28,1998 in which it was stated that "I am satisfied that the plaintiffs have adduced evidence before the court which if accepted could lead the court to the conclusion that the inquiry made of the Norwich Union on April 22 by Mr O'Hanlon was made by Hill Samuel in their capacity as agents for Mr Wildgust and his company and that the making of a negligent misstatement to Hill Samuel equated in all respects to the making of the statement to the plaintiffs."

Counsel on behalf of Norwich Union had claimed that if the plaintiff had a cause of action (which was denied) such a case should have been pleaded on the basis of negligent misstatement on the Hedley Byrne v Heller principle. Such a case had not been pleaded and it was submitted that it would be unjust in the circumstances to now allow the plaintiff maintain such a case. In addition it was claimed that had counsel on behalf of Norwich Union been aware that such a case would have been made then his approach to the case and that of his clients might well have been different. Mr Justice Morris had taken the view that, although the case had not been adequately pleaded, in the interests of justice the plaintiff would be permitted to amend his pleadings. On appeal the Supreme Court had ordered on April 3, 2000 that the plaintiff should be allowed amend his pleadings to plead a claim in negligent misstatement but that Norwich Union be awarded the costs of the action to date. The Supreme Court further directed that the case be referred back to Mr Justice Morris for hearing.

Mr Justice Morris then referred to outstanding matters of fact in issue between the parties. Evidence had been given by a Mr O'Hanlon who was the manager of Hill Samuel at the relevant time. Mr O'Hanlon had become aware that there had been a breakdown in the payment of the direct debit to Norwich Union as Hill Samuel were among the persons to whom default notice was sent. It was alleged that he telephoned Mr Wildgust to inquire about payment of the premium and was told by him that the premium had been paid. In addition he gave evidence that he telephoned Norwich Union and was told that that the cheque for the premium had been received and that everything was "correct and in order." Mr O'Hanlon said that in reliance upon this he took no action and that had he known that the premium had not been paid Hill Samuel would have paid it in order to keep the policy alive. Mr O'Hanlon stated that this would have been common practice for Hill Samuel.

Mr Justice Morris stated that the plaintiff was contending that the information given to Mr O'Hanlon constituted a negligent misstatement of fact as a result of which the policy was allowed to lapse causing the plaintiff loss and damage. However Norwich Union denied that any such call was ever made or that such an assurance was given to Mr O'Hanlon by Norwich Union. Mr Justice Morris was satisfied that he must firstly determine whether such a telephone call was made and if so satisfied then the plaintiff's rights in these circumstances fell to be determined.

The President of the High Court considered the testimony of Mr O'Hanlon, the manager of Hill Samuel at the relevant time. Mr O'Hanlon had no personal recollection whatever of the transaction nor the telephone call and gave his evidence entirely from a contemporaneous note that he made on the day he made the phonecall to Norwich Union. The note was made on the file and signed. Mr O'Hanlon had since ceased in the employment of Hill Samuel. The defendants denied that any such conversation ever took place between Mr O'Hanlon and any member of their staff. On their behalf evidence was given by employees of Norwich Union. A Ms Tuite was at the relevant time the manager of the premium collection and agency department at Norwich Union. Ms Tuite gave evidence that in the direct debit section there were skilled and experienced people who were fully trained. Evidence was given that there was a system in place whereby each inquiry that came in would be written down on an action slip and sent to the image department for scanning. The inquiry would be recorded in the image department and in addition the inquiry would be electronically entered on the screen. Evidence was given that the system was absolutely reliable and was universally adopted. Furthermore no record of any such inquiry by Mr O'Hanlon had been found.

Mr Justice Morris referred to evidence which had emerged during cross-examination that no record of a request by a branch office of Norwich Union for a relodgment of a direct debit had been found on the system otherwise than by a manual note entered on the unpaid direct debit. Mr Justice Morris was not satisfied that the system had been shown to be incapable of error and therefore it would have been possible for Mr O'Hanlon's inquiry not to have been entered in the system. In addition Mr O'Hanlon had made a note in 1992 on the Hill Samuel file confirming that the conversation had taken place. No suggestion had been made that this "file note" was other than bona fide. Mr Justice Morris could not envisage circumstances in which such a "file note" would have come into existence if the facts recorded were not correct. Accordingly Mr Justice Morris accepted that Mr O'Hanlon was given the assurances by Norwich Union of which he had given evidence.

The final issue to be determined in the view of Mr Justice Morris was to consider the rights of the plaintiff in view of the Norwich Union's misstatement of fact made to a representative of Hill Samuel. In this regard Mr Justice Morris turned to the evidence of the plaintiff, Mr Wildgust. In particular Mr Justice Morris referred to the plaintiff's lack of attention to his dealings with the Bank of Ireland in late 1991 and early 1992. Mr Wildgust was preoccupied by his wife's ill health and allowed his business affairs to lapse. Mr Wildgust had stated that he never received the default notice sent by the Norwich Union in respect of the non-payment of the premium. Mr Wildgust claimed that as he had renegotiated overdraft arrangements at that time with the Bank of Ireland the direct debit should have been paid. The first time Mr Wildgust found that the premium had not been paid was in June 1992. This delay was due to the bank strike and the postal strike which finished at that time. Mr Wildgust stated: "If I had found out before, I would have paid the money straight up." The first time Mr Wildgust received communication from the Norwich Union regarding the direct debit was after June and probably around August 1992.

Mr Justice Morris continued dealing with the evidence of Mr Wildgust and referred to the plaintiff's evidence that in April 1992 he was informed by Mr O'Hanlon of Hill Samuel that the direct debit had not been paid. Mr Wildgust told Mr O'Hanlon that he had sent a cheque to cover it. The cheque referred to was believed by Mr Wildgust to be held by the Bank of Ireland to meet such a contingency. However Mr Wildgust did not know then but found out later that this reserve was not available because that cheque was returned. Mr Justice Morris was of the view that Mr Wildgust became aware that the policy had lapsed at the end of June 1992 when he got his statements.

Mr Justice Morris summed up the relevant points that emerged from Mr Wildgust's evidence: (a) At no stage up to the time when the policy lapsed was Mr Wildgust aware of the telephone conversation between Mr O'Hanlon and the Norwich Union or of any information given to Mr O'Hanlon by the Norwich Union. (b) Mr Wildgust believed at all times that the Bank of Ireland were in sufficient funds or otherwise obligated to him to discharge the direct debits due to the Norwich Union. (c) At no stage did or could Mr Wildgust have placed any reliance upon any statements made by the Norwich Union to Mr O'Hanlon.

The President of the High Court then discussed the relevant case law regarding the duty of care principle. In particular Mr Justice Morris quoted from the judgment of the Chief Justice, Mr Justice Keane, in Glencar Exploration plc v Mayo County Council (Supreme Court, 19 July 2001, unreported), where it was stated: "There is in my view, no reason why courts determining whether a duty of care arises, should consider themselves obliged to hold that it does in every case where injury or damage to property was reasonably foreseeable and the notorious difficulty and elusive test of "proximity" or "neighbourhood" can be said to have been met, unless very powerful public policy considerations dictate otherwise. It seems to me that no injustice will be done if they are required to take the further step of considering whether, in all the circumstances, it would be reasonable that the law should impose a duty of a given scope on the Defendant for the benefit of the Plaintiff as held by Mr Justice Costello at first instance in Ward v McMaster, by Mr Justice Brennan in Sutherland Shire Council v Heyman and by the House of Lords in Caparo Industries plc v Dickman. As Mr Justice Brennan pointed out, there is a significant risk that any other approach will result in what he called a massive extension to a prima facie duty of care restrained only by undefinable considerations."

Mr Justice Morris contrasted this passage with the statement of Mr Justice McCarthy in Ward v McMaster when he said "Whilst Mr Justice Costello essentially rested his conclusion on the "fair and reasonable" test, I prefer to express the duty as arising from the proximity of the parties, the foreseeability of the damage and the absence of any compelling exemption based upon public policy." Mr Justice Morris was of the view that the approach of the late Mr Justice McCarthy was no longer the full test and one must ask "Is it just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff?" Mr Justice Morris was satisfied that this was the appropriate test in cases where negligent misstatement was alleged.

Mr Bradley SC had submitted on behalf of the plaintiff that it was unrealistic to attempt to separate the coinciding interest of Hill Samuel and the plaintiff since each had an identical and corresponding interest in ensuring that the policy remained in place and accordingly a misrepresentation made to Hill Samuel must prejudice Mr Wildgust since without this misrepresentation the policy would have been renewed by Hill Samuel. However Mr Justice Morris was of the view that at no stage was Mr Wildgust aware of the fact that the misstatement had been made by the Norwich Union nor did he place any reliance upon it and was not prejudiced by it. Mr Wildgust only became aware that the premium had not been paid two months later. The misstatement in no way influenced or contributed towards the conduct of the plaintiff. The President of the High Court concluded by holding that it would not be reasonable that the law should impose a duty on the defendant for the benefit of the plaintiff in these circumstances.

Solicitors: Giles J. Kennedy & Co (Dublin), for the plaintiff; O'Keeffe & Lynch (Dublin), for the second defendant.