An Analysis of Liabilities of Hatchet & Co - Case Study Example

An analysis of liabilities of Harchet & Co and a critical evaluation of the effects of misrepresentation made in negotiations prior to a contract being made by Student’s Name       Code+ Course Name Professor’s Name University Name City Date Liabilities of Harchet & Co The fact that Hatchet & Co audited the financial report of Giant Plc. means that they entered a contractual agreement with Plc1. Since in the statement we are not told the form in which the contract was made, we can assume that it was an oral contract. The acceptance of the terms and conditions of the contract is evidenced by the fact that Harchet & Co audited the accounts of Giants Plc. Hatchet & Co has contravened torts law of negligence. According to the specifications of the law, an individual, company, group or organization must ensure that actions in a scenario and omissions that one has perceived to be capable of causing serious harm in the future must be taken under serious consideration2. It can thus be argued that Hartchet & Co as an auditing firm was aware of the consequences of their actions, which in this particular case was the auditing, and could foresee the consequences of such actions, here referred to as fall in shares, resulting in the consequence of Giant Plc. losing profits . In M’Alister (or Donoghue) v Stevenson [1932] AC 562, [1932], the beer manufacturing company was accused of negligence on its part during the manufacturing process by providing room for a snail to enter into the drinking bottle. Allowing such an occurrence was a contravention of the responsibility of the manufacturing company; allowing any a manner of foreseeable danger to occur, which in this case was the snail entering the beer. The client in this case had placed his trust in the manufacturing company to provide him with safe to drink beer, hence had the legal right to demand for compensation. The first liability that Harchet & Co has is to Giants Plc. As a professional auditing farm, Harchet & Co are directly responsible for any errors, omissions or otherwise in their audit report. It has a legal responsibility to provide Giants Plc with accurate audit results as agreed in the contract. The provision of information contrary to this would be deemed a breach of contract3. It is also liable for the consequences of the breach of contract which in this case are the losses made by Giants Plc. Harchet and Co hence would be liable to Giants Plc on three accounts. These include breach of contract, negligence in accorded duty and losses incurred as a result of inaccurate information. The information provided also tells us that Giants Plc made an investment of 2 million as a result of the accounts provided by Harchet & Co. The company later made losses when the actual accounts of the company were computed. The company is liable for losses attributed to negligence. In M’Alister (or Donoghue) v Stevenson [1932] AC 562, [1932], the decision to make a further investment of 2 million was as a direct result of the false information provided by Harchet and Co. It is thus liable for the losses that Giants Plc made since the investment was a direct result of the audit results. Hartchet and Co are also liable to Henry who bought shares from Giant Plc. In this case, liability stems from the trust that Henry has on the audit results of Hartchet and Co. We can assume from fact that Harchet & Co audited Giant Plc, that it is a registered and qualified auditing agency. Henry hence, as an account holder, has no reason to mistrust the audit results of a registered auditing agency. Harchet and Co has taken the responsibility of providing accurate data on its audit reports and hence it is directly responsible for any consequences that may arise due to errors. The information provided tells us that Henry bought the shares on seeing the accounts provided by Harchet & Co. We can hence deduce that the act of buying the shares was only as a direct result of seeing the accounts given by Harchet & Co; thus, if Henry had not seen those accounts or if they had been accurate, he would not have made the losses. A conclusion is then made that Harchet & Co as a legally bonded entity that provides audit information, assumes responsibility over that information, especially when it is as delicate as is in this case4. In Jennings v Forestry Commission (2008), an employer was accused of neglect of duties to its employees; the employee in this scenario was an independent contractor, hence the employer argued that his control over the circumstances were limited. The court however ruled in favor of the complainant on the basis that there was an assumed responsibility by the employer to fulfill its obligations as pertains that position. Similarities can be drawn from these two circumstances on the basis that Hatchet & Co was not directly involved with Henry but there was an assumption of its responsibility on the audit report and its consequences Harchet & Co is, however, not liable to Gloria. Its non-liability stems from the fact that Gloria`s decision to invest in Giants Plc. is not linked in any way to the audit report. From the text, we learn that Gloria made the investment because her friend Henry had told her that he had also made an investment. The text however does not detail whether or not Henry told her that the reason he had invested in Giants Plc. Using the available information, we can conclusively say that Harchet & Co do not have any liability to Gloria since her decision to invest was not in any way related to the audit report5. In Knucklehead v Goodfellow (2007), the claimant, Mr Knucklehead, accused Mr Goodfellow of a tort of negligence. In his description of the events that occurred, Mr Knucklehead said that he had been walking in the streets when Mr. Goodfellow came out of nowhere and knocked him. He claimed that his pride had been punctured and his reputation destroyed as a result of the collision. The courts however ruled against him on the basis that his claims were invalid due to lack of sufficient evidence. Parallels can be drawn between this case and the claims that Gloria would have should she decide to pursue the case since there is no evidence to show that her loss was directly or indirectly related to the audit report6. A critical look into the effects misrepresentation made in negotiations prior to a contract being made. According to Australian law, statements that are made before the contract is signed constitute the meanings expressed in `terms` hence they define representation. When the representations are, however, not designed to be promissory, they no longer remain part of representations. The statute can be found in section eighteen of Australia`s consumer law. In cases where a contract was signed under the provision of false or in accurate representation, the representee has the legal right to seek the rescinding of the contract as provided under common law7. Misrepresentation has been determined to have a continuing effect on the contract. The continuing effect in this case implies that the consequences of the misrepresentation are felt throughout the life of the contract. The effect can induce the life of the contract before the time interval for its conclusion. The continuing effect can however end if the other party is made aware of the correct state of the situation on time. Its effect usually forces the party that created it to maintain it for accuracy, the continuing effect sometimes continues even when the terms and the parties involved in the contract have changed8. The effects of misrepresentation include the formulation of an assumption of loss to national government9. In a scenario where it is discovered that an individual knowingly involved him or herself in misrepresentation, the guilty party will be charge to pay the courts an equivalent worth of the contract. Suspension of the party involved and its debarment from business activities .The misrepresenting party will also suffer from criminal and civil penalties as stipulated by the courts. The individuals will also face civil charges which include suspension from normal business operation and debarment. Debarment in this case will mean that parties involved will no longer be able to practice business or enjoy the profits accrued or benefits gained as pertains to misrepresentation. On the business perspective, misrepresentation can lead to the closure of profitable businesses when losses are incurred as a consequence. It can also lead to a lot of legal bureaucracies which in the end lead to the fall of businesses10. Misrepresentation if detected early, can lead to the cancelling of contracts that would have been profitable in the long run. Bibliography Eroglu, M,. 2008. Multinational Enterprise and Tort Liability. : Oxford University Press Hesselink, M and Crattwhite, J,.2008. Procontractual Liability in European Private Law.Santa Barbara, Calif.: Praeger Faure, M, 2009.Tort Law and Economics. Oxford: Oxford University Press Mckendrick, E,.2012. Contract law: Text cases and materials. Oxford University Press Jennings, M and Twomey, D, 2010. Business law: Principles for todays Business law. Santa Barbara, Calif.: Praeger Schneid, T. (2011) Legal Liabilities in safety and loss prevetion Oxford: Oxford University Press Schneid, T, .2014.Legal Liabilities in Emergency Medical services;. Santa Barbara, Calif.: Praeger. Stone,P and Carr,I .2013. InternationalTrade Law. Santa Barbara, Calif.: Praeger Villa, J,. (2011) Bank Directors Officers lawyers’ civil liabilities: Oxford University Press Walsh, T,.Duncan, W and Christen, S.2004.Professional liability and Property Transaction. Santa Barbara, Calif.: Praeger Read More