Peters Claim against Bumble&Co - Case Study Example

COURSE WORK ASSESSMENT 1. Peter’s claim against Bumble&Co I believe that Peter is entitled to sue Bumble&Co for the suffered economic loss because of the neglected duty of care on behalf of Bumble&Co. Peter’s buying the 10000 Horizon shares is a direct consequence of the Bumble&Co’ financial statement which stated that Horizon was making profit. Due to the untrue information in this statement, the shares ‘value decreased, which caused financial losses to the shareholders, including Peter. In Peter’s case, at a first glance, the application of the tort of deceit seems appropriate: The case of Paisley v. Freeman (1789) is a leading one in this matter. The Defendant was asked by the Plaintiff for a credit reference regarding a third party. The Defendant provided untrue information, which caused economic loss to the Plaintiff. Judge C.J. Lord Kenyon held: “There are many situations in life, and particularly in the commercial world, where a man cannot by any diligence inform whom he deals; in which cases he must apply to those whose sources of intelligence enable them to give that information. If no injury is occasioned by that lie, it is not actionable; but if it be attended with a damage, it then becomes the subject of an action. It is admitted that Defendant’s conduct was highly immoral, and detrimental to society. And I am of opinion that the action is maintainable on the grounds of deceit in Defendant, and injury and loss to Plaintiff.”1 The next steps in proving the existence of tort of deceit is the fact that the claimant relied on the provided information and this caused loss to him. Even though it seems that Peter’s situation fits under these regulations, there is one big “On the other hand”: “in an action for deceit, it is not enough to establish misrepresentation alone; Fraud is established where it is proved that a false statement is made: (a) knowingly; or (b) without belief in its truth; or (c) recklessly, careless as to whether it be true or false.” 2 This is the House of Lords’ ruling in the case of Derry v Peek (1888). Therefore, the rules of breach of duty are more appropriate. Breach of duty occurs in the situation when the defendant owed a duty of care and his actions were lower than the reasonable standard. Smith and Keenan (2010, p.464) state that the test of a reasonable man should be applied to individuals “who have held themselves out as possessing a particular skill”3 as to average specialist in that domain. For example, as in Peter’s case, Bumble&Co – recommending themselves as a company which conducts financial analysis – were expected to act as an average accountant. By providing a financial statement of poor quality, Bumble&Co actually provided misinformation to the shareholders. The company ignored its duty of care, established by objective standards, and provided false information. It accepted to conduct a financial statement on Horizon plc. and, thus, Bumble&Co, just like in Hedley Byrne v. Heller (1963), established a “special relationship” with the company. In Hedley Byrne v. Heller (1963), the Court held that “the relationship between the parties was "sufficiently proximate" as to create a duty of care. It was reasonable for them to have known that the information that they had given would likely have been relied upon … This would give rise to a "special relationship", in which the defendant would have to take sufficient care in giving advice to avoid negligence liability.”4 Moreover, a financial statement is not equivalent to informal advice, but to a statement upon which the customer (in this case – the shareholders of Horizon) would rely on. In the case of Rowley & Ors v Secretary of State for Department of Work and Pensions (2007) the Court held that “a solicitor owes a duty of care in tort because, like any professional person, he or she voluntarily assumes responsibility towards an individual client”5, which applies to Bumble&Co assuming responsibility towards the shareholders of Horizon. If we were to apply the test established by Lord Oliver in Caparo plc. v Dickman (1990), it would be clear that the facts of Peter’s situation do fall within this case: 1. “The adviser was aware that the advice was required for a purpose” 6 - Bumble&Co was aware that the financial statement was necessary in order to be presented to the shareholders 2. “The adviser knew that the advice was to be communicated to the advisee”7 - obviously, the financial statement was to be made official to the shareholders, and not held in secret 3. “It was known that the advice will be acted upon by the advisee without independent injury”8- again, generally, a financial statement is necessary in order to see the company’s economic situation and, depending on the financial statement’s conclusions, act upon it 4. “It was acted upon the advice” 9 - relying on the financial statement, Peter bought 10000 extra shares of Horizon. Therefore, I believe that Peter has a well-grounded action of breach of duty, caused by negligence, against Bumble&Co and is entitled to recover the suffered economic loss. 2. Alison’s claim against Bumble&Co Whilst in Peter’s case he is lawfully entitled to recover the economical loss from Bumble&Co, Alison’s situation is completely different. In her case, I would believe that applying the Court’s ruling in the case of Caparo plc. V Dickman (1990) would be appropriate. The case involved Dickman – an auditor, who, by negligence, stated a company’s profitability to be better than it was in reality. Caparo – a third party, believing in the stated profitability of the company, after having bought the company’s shares and control, discovered that the reality did not match the stated profitability and that in fact – the company’s finances were in bad shape. This made Caparo sue the auditor for negligence. However, the House of Lords held that “there was no duty of care between an auditor and a third party pursuing a takeover bid. The auditor had done the audit for the company, not the bidder. The bidder could have paid for and done its own audit. Consequently there was neither a relationship of "proximity" nor was it "fair, just and reasonable" to make the auditor liable for the lost sums of money that the takeover incurred.”10 Alison’s situation falls within the facts of Caparo v Dickman (1990). She was a third party in this equation; Bumble&Co performed the financial analysis for Horizon and not for third parties. Her relying on that financial statement did not impose any duty on Bumble&Co. Therefore, Alison is not entitled to recover the financial loss caused by Bumble&Co’s negligent financial statement. 3. Peter’s claim against the local council In case of Peter filing an action against the local council for not taking proper care of the road and, by this, causing physical damage to Peter, I would apply the following: First of all, we should draw attention to the neighbour principal, stated by Lord Atkin in Donoghue v Stevenson (1932): “The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer’s question ‘Who is my neighbour?’ receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.”11 If a Court were to take into consideration this principle, then Peter would have a strong case of negligence against the local council. However, in Stovin v Wise (1996) the Court held that the defendant’s action was a “simple omission and therefore excluded as a matter of policy from the arena of tort liability”.12 If the Court would turn to this matter, then the local council’s not maintaining the roads in proper state would be considered omission and, therefore, the council would not be held liable for Peter’s crash. On the other hand, in the recent case of Mitchell v Glasgow City Council (2009) Lord Hope stated that “ ….I would also hold, as a general rule, that a duty to warn45 another person that he is at risk of loss, injury or damage as a result of the criminal act of a third party will arise only where a person who is said to be under that duty has by his words or conduct assumed responsibility for the safety of the person who is at risk”13 Therefore, although not maintaining the road would be considered an omission, the duty of warn can be imposed on the local council. However, the fact that the road had not been maintained as a consequence of the local council’s decision to cutback finances must not be ignored. This is a positive action which caused physical injuries to Peter. Therefore, I would apply the statement made by Lord Rodger in the case of Home Office v Dorset (1970): “…Similarly, if A specifically creates a risk of injury…he may be liable for the resulting damage….Similarly, A may be liable if he assumes specific responsibility for B’s safety but carelessly then fails to protect B..” Therefore, by deciding to cut back finances, the local council made a positive action which later harmed Peter. In conclusion, Peter is entitled to sue the local council for the loss suffered, no matter how the Court decides to view the facts. References: 1. Wild C., Weinstein S., 2010. Smith and Keenan’ English Law. Text and Cases. 16th edition. Pearson Education. 2. Caparo plc. v Dickman (1990) 3. Derry v Peek (1889) 4. Donoghue v Stevenson (1932) 5. Hedley Byrne v. Heller (1963) 6. Mitchell v Glasgow City Council (2009) 7. Pasley v. Freeman (1789) 8. Rowley & Ors v Secretary of State for Department of Work and Pensions (2007) 9. Stovin v Wise (1996) Read More