Spring v Guardian Assurance plc (1994)

A bad reference can end a career, and the law of defamation protects the referee: a reference is covered by qualified privilege, so the subject cannot sue unless he proves malice. Malice is very hard to prove — and an honest but careless referee is not malicious.

This case asks whether the subject can therefore sue in negligence instead. The House of Lords, by a majority, held that he can: an employer who gives a reference owes the subject a duty to take reasonable care in preparing it.

The reasoning matters as much as the result. A negligence duty here is a duty in respect of pure economic loss in circumstances where the claimant did not rely on the statement — the person who relied was the prospective employer. So the case extends the Hedley Byrne principle beyond reliance by the claimant, and it does so over a powerful dissent.

Mr Spring was a company representative selling life assurance, engaged under a contract for services by Corinium, and acting as Guardian Assurance's authorised representative.

The industry was regulated by the LAUTRO Rules, and the trial judge found that their legal framework rested on five principles:

"1. No one can sell life assurance products without authorisation from a self-regulating organisation; [2.] Gre, all its subsidiaries and all its sales consultants are bound by the LAUTRO Rules; and [3.] Everybody knows that everybody else involved is also so bound; [4.] A company representative can act as such for only one company at a time; [5.] If he leaves that company he is unemployable in the industry without a reference which must be obtained from his former employers."

That fifth principle is the heart of the case. Under rule 3.5(1) a member could not appoint a company representative without taking up "references relating to character and experience", and by rule 3.5(2) "A member who receives an enquiry for a reference in respect of a person whom another member is proposing to appoint shall make full and frank disclosure of all relevant matters which are believed to be true to the other member."

When Scottish Amicable sought a reference, it was disastrous. The statement that Mr Spring "could not be regarded as honest" came from his former superior Mr Siderfin; an allegation of a serious case of mis-selling came from Mr Beard and Mr Dixon. That allegation concerned a Mr Fennell, to whom Mr Spring had tried to sell "a highly unsuitable policy which would have generated a very large commission for him."

The trial judge's findings are crucial and should be stated in any answer:

• Mr Spring had acted incompetently, and not dishonestly.
• Mrs Lee-Moore, who compiled the reference, "accurately stated what she had learnt from her sources of information and ... was not guilty either of malice or of negligence."
• Neither Mr Siderfin nor Mr Dixon "had acted out of malice", each genuinely believing what he said — "but ... each of them had failed to exercise reasonable care" by making the allegations "without carrying out a thorough investigation into their truth." Such an investigation "would have shown that Mr. Spring had not acted dishonestly."

Mr Spring sued in malicious falsehood, breach of contract and negligence. Malicious falsehood failed on the finding of no malice. The judge found for him in negligence. The Court of Appeal reversed. He appealed to the House of Lords on negligence and contract only.

Does an employer who gives a reference owe the subject of the reference a duty of care in preparing it — or does the defamation defence of qualified privilege, which requires proof of malice, exclude such a claim?

Appeal allowed (Lord Keith dissenting). An employer giving a reference owes the subject a duty to take reasonable care in its preparation, and is liable in negligence if the subject suffers economic loss as a result of a carelessly prepared reference. The matter was remitted to the Court of Appeal on the extent to which the appellant's damage was caused by the breach.

Why qualified privilege does not answer the question

Lord Keith, dissenting, stated the difficulty with characteristic clarity — and his statement is the best summary of the objection:

"In this present case the reference was defamatory of Mr. Spring ... Mrs. Lee-Moore was under a duty to give the reference and Mr. Siderfin and Mr. Dixon were under a duty to make the communications to her which they did make. So an action in defamation by Mr. Spring against any of them or against their employers would have been defeated by the defence of qualified privilege unless Mr. Spring proved malice."

He accepted that on ordinary principles a duty might be made out — "it was reasonably foreseeable that damage to him would result if the reference were prepared without reasonable care ... there was proximity ... and it would be fair, just and reasonable to impose a duty of care" — but thought policy should negative it, since "this would, however, extend the ambit of liability in negligence for pure economic loss", and noted that "in the present case there is no question of reliance by the plaintiff on the carelessly prepared reference."

The majority disagreed: the policy of the defamation defence protects freedom of communication against untrue statements honestly made; it was never designed to license carelessness causing foreseeable economic ruin to a person who, under the regulatory scheme, could not work at all without a reference.

An employer who provides a reference in respect of a former employee owes that person a duty to take reasonable care in its preparation, and is liable in negligence for economic loss caused by a careless reference. The availability of qualified privilege in defamation does not bar the negligence claim.

• Direct question: Can an employer be liable for a negligent reference? Yes — this case. Explain the duty, the pure economic loss point, and that reliance by the claimant is not required, which distinguishes it from Hedley Byrne.
• Compare the torts: defamation protects reputation and is met by qualified privilege unless malice is shown; negligence protects against careless causing of economic loss. Same facts, different questions.
• Note the findings: honest belief plus failure to investigate equals no malice but negligence — the precise gap this case fills.
• Read with: Hedley Byrne v Heller, Smith v Eric S Bush and Caparo v Dickman on the limits of liability for careless words.