Chapter 14. The Law of Negligence and Liability for Negligent Professional Advice

Transcription

1 Learning Objectives Chapter 14 The Law of Negligence and Liability for Negligent Professional Advice At the end of these lectures, students should understand: the difference between a breach of contract action and an action in tort; the elements required to be proved in an action for negligence; the principles that apply to liability for negligent mis-statement at common law; the need for, and various forms of, statutory intervention; liability for negligent professional advice under the Trade Practices Act and the state and territory Fair Trading Acts for misleading or deceptive conduct. Lecture Outline Defining a tort: Explain the meaning of a tort. It is a civil wrong other than an action for breach of contract. Explain the distinction between an action for breach of contract and an action in tort for negligence. Explain the difference between a tort and a crime in terms of their underlying objectives. Ie. the criminal law, which is an offence against the state, seeks to punish the offender. The law of torts, on the other hand, exists primarily to compensate the person injured or who suffers damage. The Law of Negligence elements: The elements required to be proved in an action for negligence: Describe each of the elements and elaborate. Stress that the traditional order of analysis must be applied, as follows: (i) the duty of care. The leading cases: Donoghue v Stevenson; Jaensch v Coffey. (ii) breach of the required standard of care. Apply the reasonable person test at the time of the alleged negligence. If relevant, were reasonable precautions taken? (iii) damage. The breach must have caused the damage in fact, as well as being not too remote in law. It must be damage of a kind that was a foreseeable consequence of the breach. Defences: Assuming the plaintiff makes out all three elements, then the defendant may raise the partial defence of contributory negligence. If this is successful, then the court will apportion (divide) damages in such a way as to reflect each party s contribution to the loss. The defence of consent or voluntary assumption of risk (ie. volenti non fit injuria he who consents is not injured), if successful, acts as a complete defence to defeat a claim of negligence. However the courts have read the defence down and it is seldom possible to succeed with this line of argument at common law. Liability for Negligent Professional Advice: 1

2 Liability for negligent mis-statement at common law. Explain the early reluctance of the courts to extend liability to negligent advice or information. Concern not to open the floodgates of litigation. Breakthrough in 1964 with Hedley Byrne v Heller. Extension of neighbour principle. Depended on the existence of a special relationship. Note subsequent developments: especially Shaddock s case. Statutory Intervention: Statutory intervention has taken a number of different forms. Background: Initially, statutory intervention was motivated by the difficulties of bringing an action in negligence at common law. It is a difficult, and expensive, undertaking to satisfy the three common law elements of negligence. Moreover, there was doubt whether professional liability (eg. of auditors) extends to third parties. ie. members of the general public. Courts in both England and Australia have adopted tests which make it extremely difficult for third parties to sue auditors for negligently prepared audit reports. Describe and explain the leading case: Esanda Finance. Liability for professional advice under the TPA and FTAs. Section 52 of the TPA (and state equivalents) widen and extend the scope of liability beyond that which exists at common law. See Power Point slides. Speak to the issues raised in the power points. This is revision for students who will have studied s 52 in relation to misleading or deceptive conduct as an overlay to the common law of misrepresentation in earlier lectures. Also mention Part VA of the TPA, introduced in 1993, which imposes liability on manufacturers (defined broadly) for defective products. Persons who suffer injury or property damage as a result of a defective product have a right to compensation against the manufacturer without the need to prove negligence. The most recent major wave of reform has been prompted by government attempts to rein in negligence claims, massive damages awards and spiralling insurance premiums. Recent statutory initiatives modify the common law of negligence in order to limit liability and the amount of damages recoverable for economic and non-economic loss. See, for example, the Wrongs and Other Acts (Law of Negligence) Act 2003 (Vic). These are beyond the scope of the course. Tutorial Exercises Answers to short-answer questions (p 247 of Law and Business) 1. The elements of the tort of negligence are three-fold. Briefly, the plaintiff must prove all of the following: - that the defendant owed him or her a duty of care. Discuss the tests of reasonable foreseeability and proximity of relationship. Leading cases: Donoghue v Stevenson and Jaensch v Coffey. - that there has been a breach of that duty of care. This requires consideration of whether the defendant has met the standard of care required by the law of negligence. The reasonable person test is applied. If relevant, discuss whether reasonable precautions were taken. - that he or she has suffered loss, damage or injury as a result of that breach. This is usually dealt with in terms of causation and remoteness. In other words, the 2

3 damage suffered by the plaintiff must be regarded as caused in fact by the defendant s wrongdoing. And furthermore, the damage must not be too remote in law. The test here is whether the damage was reasonably foreseeable, or if it was not, whether it was of the same type or kind as the foreseeable damage. There are countless fact scenarios which may give rise to a claim in negligence. Some examples include a negligently caused road accident; a negligently performed operation; and negligently given professional advice by a solicitor, accountant, or financial adviser. 2. A duty of care is owed to those persons who satisfy the tests of reasonable foreseeability of risk of injury and proximity of relationship. Discuss the leading cases of Donoghue v Stevenson and Jaensch v Coffey and the fact that in Australia at present the law seems to be in a state of flux. Policy considerations and whether or not the case resembles other established categories of duty of care may also be relevant factors for the court in deciding whether or not a duty of care is owed. 3. Section 52 and state equivalents have widened the scope of professional liability in the following ways: - liability is strict (no need to prove negligence or a relationship of proximity); - third party liability is open-ended; - representations concerning future matters are deemed misleading by virtue of s 51A, unless they can be supported on reasonable grounds; - exclusions clauses as such are ineffective; Also note that a wide range of statutory remedies is available (s 80 injunctions, s 82 damages and s 87 orders). Answers to Problems (p 248 of Law and Business) 1. Note that Sasha must be considered the main tortfeasor (the defendant) on the facts since she drove over the centre of the road. Students need to briefly mention the elements of negligence and apply them to the fact situation: - there must be a duty of care owed to Mark. Discussion of the test of reasonable foreseeability and proximity of relationship. Donoghue v Stevenson and Jaensch v Coffey. - there must be a breach of the duty. Ie, failure to meet the standard of care required of a reasonable driver. - damage: causation. The final element which the plaintiff must prove is that the defendant s negligence causally contributed to his or her injuries. There is no issue of remoteness here. Apply the law to the facts: - clearly a duty of care is owed to all users of the road. This is an established category of duty of care. - here Sasha was in breach of the standard of care required of a reasonable driver as, on the facts, she is making a call on her mobile phone to her boyfriend, and is distracted, when she veers over the centre of the road and collides with Mark s car. - here Sasha s breach of duty was the immediate cause of the accident. Therefore all the elements of common law negligence are satisfied. It remains to consider the issue of contributory negligence on the part of Mark (the plaintiff). Not every failure to be careful is regarded as operative negligence. The courts ask whether the plaintiff s damage was caused by the defendant s negligence rather than by the plaintiff s own fault in other words the plaintiff s failure to take care for his or her own safety. 3

4 Here you could plausibly argue that Mark s drunkenness, self-induced, impaired his ability to take defensive measures on the road to avoid the oncoming car driven by Sasha, thus contributing to the accident. (Some students may not recognise the contributory negligence of Mark since we are told that, although drunk, he drove at the speed limit and in a straight line.) Because Sasha was more culpable than Mark, and because her negligence was more causally significant than his (ie the accident would probably not have happened at all but for her negligence), she should bear a higher proportion of the loss. Possibly a 70%/30%apportionment of liability would be appropriate (ie, her award of damages would be reduced by 70%; Mark s award would be reduced by 30%). Bottom line: students should present a convincing argument in support of whatever apportionment they are advocating. Note: since mid-1980s, those injured in road accidents claim from the Transport Accident Commission on a no-fault basis. So this scenario is a hypothetical. 2. The issue here is whether an action can be brought against Barry for negligent professional advice. Three elements must be satisfied to sustain the action at common law: - that a duty of care was owed you need to show assumption of responsibility by the adviser and reasonable reliance by the other party; - that there was a breach of the duty. ie. failure to meet the standard of care required of a reasonable financial adviser; and - that the breach of duty (if any) caused the loss. The first issue is whether Barry owed Ian a duty of care. It is doubtful that he did. In Mohr v Cleaver, no duty was held to exist where advice was given over the telephone. The recipients asked for an off-the-cuff opinion, not considered advice. In Shaddock s case, it was held that no duty of care was owed re information given over the telephone due to the informality of the occasion. Here the facts reveal that the two parties, whilst travelling to work on the train, chatted informally about their various hobbies and family matters. The context suggests an informal discussion and an informal setting and an offthe-cuff query about the suitability of Epcon Limited as an investment. There is no suggestion that Barry assumed responsibility for the accuracy of his advice, nor that any reliance that Ian may have placed on it was reasonable in all the circumstances. Even if a duty was held to exist (contrary to the argument presented above), Ian must still show that there has been a breach of the standard of care reasonably required of a financial adviser. More information is needed, as the advice may have been perfectly sound when it was given, but circumstances may have suddenly changed for the company causing it to go into liquidation one week later. If the first two elements (above) are satisfied, then Ian must also prove a causal connection between the (allegedly) negligent advice and his loss. In other words that it was the advice, and not media reports for example, that caused him to purchase the shares in Epcon. The decision to invest is often a complex one and this may be a difficult onus for Ian to discharge. On balance, it seems likely that Ian has no common law rights in negligence against Barry. Note that if students raise misleading or deceptive conduct under the state and territory equivalents to the TPA, similarly no liability arises as Barry was not acting in trade or commerce. 3. These facts essentially replicate those of the Esanda Finance case, which deals with the issue of whether auditors owe a duty of care to third parties. ie. unidentified members of the public who may see and rely upon the auditors report. The High Court in Esanda s case limited the duty of care owed by auditors to third parties. The mere foreseeability of the possibility that the information/advice might be communicated to the plaintiff (a third party), and that he/she might enter into some 4

5 transaction as a result and suffer loss, is insufficient to establish the duty of care on the part of auditors. All these elements have to be very likely, not mere possibilities. 5