CLWM4000 Business & Corporations Law

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Topic objectives

  1. Explain what is negligence and identify the elements necessary to establish negligence.
  2. Explain when the defendant owes a duty of care, whether the duty has been breached and damages suffered as a result.
  3. Explain what defences a defendant can raise to a negligence claim.
  4. Explain what is necessary to establish negligence for maters involving negligent misstatement and economic loss.

Business & Corporations LawNegligence – defined

“Negligence is the omission to do something which a reasonable person would do, or doing something which a prudent and reasonable person would not do.

Negligence is the failure to exercise reasonable care and skill.”

The Tort of negligence

  • In negligence, a person is only liable for harm that is the foreseeable consequence of their actions, that is, failure to exercise reasonable care and skill.

Step 1 – duty of care

Does D owe a duty of care to P?

A duty of care was first formulated by Lord Atkin in Donoghue v. Stevenson and is a question of law for the judge to decide.

The elements of the duty of care – often referred to as ‘the neighbour test’ – may be summarised as follows:

Who is a reasonable person?

  • Much of the law of negligence relates to what a “reasonable person” would do.
  • The reasonable person is someone of normal intelligence, credited with such perception of the surrounding circumstances and such knowledge of other pertinent matters as a reasonable person would possess.

Step 2 – Breach of duty

  • Has D breached their duty of care to P ?
  • If the duty of care question is decided in favour of the plaintiff, it then becomes a question of fact whether the particular conduct complained of is a breach of that duty.
  • The standard of care is an objective one and the standard required is that of a reasonable person.

This is a question of law.

Step 3 – Damage (con’t)

Consider the following two factors:

  1. Factual causation – If the defendant had acted carefully, would the plaintiff have suffered this particular loss?
  2. Scope of liability – Is it appropriate for the scope of the negligent person’s liability to extend to the harm caused AND should the defendant be held responsible for the harm?
  • The court considers whether, and to what extent, the defendant should be responsible for the consequences of their conduct.
  • It is a question of law & the test is whether a reasonable person could foresee such a happening.

Cases – physical loss (con’t)

Grant v Australian Knitting Mills (1935) Privy Council

  • The “itchy” underwear case, where Dr Grant suffered severe dermatitis after wearing woollen underwear manufactured by AKM.
  • We determined earlier that the retailer was liable for a breach of an implied term into the contract that the goods be of acceptable quality.
  • Privy Council also ruled that manufacturer was liable in negligence to Dr Grant as it failed to take reasonable precautions in the manufacturing process to remove the harmful sulphites (which caused the dermatitis).

Cases – physical loss (cont)

Romeo v Conservation Com. of NT (1998) High Ct

  • Romeo was a 16 year old girl who fell 6.5m off a cliff while drunk (after having drunk a few too many Bundy & Cokes).
  • Cliff was in a park (near beach) controlled by Commission
  • At the cliff face there was no fence and no warning signs
  • However, the danger would have been apparent to any sober person
  • She suffered serious injuries (paraplegic) due to fall.
  • HELD (High Court) : Commission owed her a duty of care – Issue was, had the Commission failed to discharge its duty?
  • Possibility of someone falling off cliff was foreseeable & risk obvious. But probability was not strong.

Lack of a fence didn’t breach this duty as risk to park users was obvious.

  • Commission not held liable.

What defences will D raise?

2 defences can be raised by a defendant and the burden of proof rests with them:

Contributory negligence

Voluntary assumption of risk

Contributory negligence

The plaintiff has failed to take reasonable care for their safety or the safety of their property

This contributed to the accident which caused the damage resulting in apportionment (reduction) of damages on what is fair and reasonable

Contributory negligence- case

March v Stramare (1991) High Court

  • Stramare operated a fruit & vegetable shop in Adelaide
  • Parked truck in middle of the road with hazard lights on (usual practice at the time).
  • March drove into the back of the truck while drunk & suffered injuries & so sued Stramare in negligence.
  • Held: – that both caused the accident (70%- March & 30%-Stramare) & that causation is a question of fact.
  • Stramare in parking his truck in the middle of the road created a situation of danger. March was drunk & should not have been driving & so showed a lack of care for his own safety.
  • March won case but his claim was reduced to only 30%.

Voluntary assumption of risk

– The plaintiff consents to or voluntarily assumes the risk of injury and it is a complete defence.

–  There must also be precise knowledge and full appreciation of the risk. If successfully pleaded, the plaintiff will not be able to recover anything.

Voluntary assumption of risk- case

Woods v Multi-Sport Holdings Pty Ltd (2002) High Ct

  • Woods was batting when he was hit in the eye by a ball during his second game of indoor cricket.
  • No helmets were supplied.
  • Nor were there any warning signs that indoor cricket was dangerous or that there was a risk of eye injury.

Held: – Evidence provided that eye injuries were fairly common in indoor cricket

  • Organisers owed a duty to players.
  • Lack of helmets did not breach that duty as not unreasonable as no special helmets were designed for indoor cricket.
  • Also failure to give warning was not unreasonable-risks were obvious.
  • Therefore, Woods lost case as voluntary assumption of risk.

What will the plaintiff recover?

Step 3 in establishing a negligenc action – damage

Other categories of Negligence – Defective products

  • Manufacturers liability exists in both common law & statute.

The defect must be hidden and unknown to the consumer:

Grant v. Australian Knitting Mills (1936)

Defective structures

  • Where the premises suffer a defect and it could be reasonably foreseen that a person could suffer injury as a result, the builder, architect or engineer may be liable if the plaintiff suffers damage as a result of the defect

Negligent misstatement

A plaintiff must establish the following to recover damages:

  • A duty of care – professional relationship or causal;
  • A breach of duty – D ought to have known that P would rely upon the statement and was requested for a serious purpose; and
  • Damage – causal connection between D’s omission and the damage suffered – the causative element.

Negligent misstatement

A statement of fact, advice or opinion made in business that is relied upon by another but which is inaccurate or misleading”

  • Duty on the defendant to avoid making careless statements which cause harm.
  • Hedley Byrne v. Heller (1964) established that the law will imply a duty of care in the making of statements.
  • A doc extends not only to professional advisers but also to persons who provide information
  • This doc also extends to advice given in ‘serious circumstances’
  • A doc also arises & exists where there is a ‘special relationship’ between the parties
  • An inadequate response can amount to a negligent misrepresentation if it is relied upon by the plaintiff

Cases on Negligent misstatement

Shaddock v Parramatta City Council (1981) H Ct.

  • Shaddock was a land developer interested in buying certain land in Parramatta.
  • It enquired of the Council whether there were any proposals for road widening which would affect the property. The Council said there were no such proposals.
  • Shaddock purchased the land.
  • There was in fact a proposal for the Council to compulsorily acquire 1/3rd of the land for road widening.
  • There was no contract between council & Shaddock, so Shaddock sued for the tort of negligent misstatement.
  • Shaddock was successful

 

Held: Council owed a doc to advice re existence of the proposal. It was reasonable for Shaddock to rely on the information provided.

Cases on Negligent Misstatement (con’t)

Hedley Byrne v Heller & Partners (1964) House of Lords

  • HB was an advertising agency.
  • Before it would provide services to a customer (Easipower Ltd) – it asked its Bank to check with Easipower’s Bank as to the financial security of Easipower.
  • Easipower’s Bank was Heller & Partners.
  • Heller gave its reference (for Easipower) in a letter which had a disclaimer (“no responsibility taken for this advise”)
  • HB relied on the reference and lost a lot of money as Easipower could not pay for the advertising services provided (went into liquidation).

Cases on Negligent Misstatement (con’t)

  • HB sued Heller for its economic losses.
  • Heller Bank argued it owed no duty.
  • Court – Heller and Partners not liable only because there was a “disclaimer” at the top of the letter
  • Otherwise they would owe a d.o.c because there was a “special relationship” between them and plaintiff because:
    • claimed special knowledge or skill
  • knew that someone would rely on advise

Cases on economic loss (cont)

Perre v Apand Pty Ltd (1999) High Court

  • Perre grew potatoes on a farm in SA. He sold most of his crop to WA.
  • Apand was the largest producer of potato crisps in Australia and grew potato seed in a swamp infected area of Victoria. This seed carried bacterial disease
  • Sparnon was also a potato farmer in SA and his farm was near to Perre’s. He acquired seed from Apand.
  • Sparnon’s potatoes were infected with a bacterial disease.
  • Perre’s potatoes were not affected but WA would not allow potatoes into the State from any area affected by bacterial disease.
  • Held: Apand owe duty of care to Perre and the other potato farmer. In certain cases a duty of care may be owed to avoid damage to the economic interests of others.

Misstatement and Auditors

  • An auditor will only owe a doc to the immediate.
  • This differs if a 3rd party can show that the auditors made the statement with the intention of inducing the 3rd party to act in reliance on the statement.
  • A duty will not be imposed upon the maker of a statement where it is used for a different purpose

Misstatement & Auditors – case

Esanda Finance v Peat Marwick (1997) H Ct.

  • Peat M, as auditors for Excel certified the accounts presented “true & fair”.
  • EF was a finance company which made loans to companies associated with Excel.
  • EF obtained as security for these loans guarantees from Excel.
  • EF claimed it only made these loans because of the audited financial statements.
  • The audit was not done specifically for EF.
  • EF claimed the audit was done negligently.

High Court held:

  • Auditor did not owe a doc to EF (no single test provided by the Court)
  • ‘insufficient proximity’.
  • no ‘intention to induce’ the loan.
  • Even though obvious that lender would rely on the accounts.
  • EF could have appointed its own accountant to check the accounts.

In Summary

  • No simple definition of test to use.
  • A variety of factors to be taken into account
  • Did plaintiff request the advice or information?
  • If not a request then much harder to establish liability – would need to look at:
  • was D aware that P was likely to rely on the advice?
  • is it reasonable to rely on this advice?

 Has there been a disclaimer provided?

  • Did D intend P to act upon the information?

 Easier to establish liability if the injured is clearly determinable

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