Foundations of Business Law - Assignment Example

Although George decides not to go with the suggestion, Kosmo invests a large sum of his profit in the Facebook shares. A month after the release of Facebook shares their value has reduced by 50%. In discovering this, Kosmo becomes really agitated and decides to go and talk to Gerry. As he burst out of the building he slams the door on the face of Newman, his neighbour who was also rushing in. As a result Newman is injured and will not be able to participate to the Adelaide Petanque Club Championship, which he has won for the past 3 years, also earning $40 000 cash prize each time.

Question 1 Kosmo wants to know what kind of legal action, if any, he might have against Gerry. Gerry, a financial advisor in Tom & Gerry Limited advised George to buy shares in Facebook. In advising George on buying Facebook shares, Gerry acted on behalf of Tom & Gerry Ltd as his financial adviser. Since Gerry was working on behalf of Tom & Gerry Limited, it must be seen whether Tom & Gerry Limited would be liable on the principles of vicarious liability. The principle of vicarious liability states that the Employee shall be liable to compensate the Plaintiff, for any tortuous conduct by the employee committed in the course of the employee’s duties.

In determining what is in the course of employment, a broad approach should be adopted in assessing the scope of employment. The closeness of the act to the scope of employment is the determining factor in this regard (House of Lords, 2001). The act of advising on investment options is closely related to Gerry’s role as a financial advisor. Therefore, on the principles of vicarious liability, it can be safely Tom & Gerry Limited would be liable for any tortuous act committed by Gerry in the course of his duties (House of Lords, 2001).

Therefore, given that it is the company that is liable for the tortuous conduct of those acting with authority on its behalf, there is no cause of action against Gerry. The cause of action, if any may lie against Tom & Gerry Limited. However, in the absence of additional facts, the mere fact that the stock price of Facebook collapsed after the purchase is no ground to sustain a claim for negligence against the Company. Without commenting on whether the act amounted to negligence, it must be determined whether the company owed any duty of care to Kosmo who invested in the shares of Facebook on the basis of such advice and suffered a loss on such investment.

For imposing a duty of care there must be proximity of relationship between the plaintiff and the Defendant and nature of the harm caused must be foreseeable. Pertinently, the advice was given to George and not to Kosmo. Kosmo acted upon it without the knowledge of Gerry. Given that there was no proximity of relationship between Gerry and Kosmo, it follows that the reliance by Cosmo on such advice was not foreseeable by Tom & Gerry Limited. The facts of this case are similar to the decision of the House of Lords in Caparo v Hickman (Jovis, 1990).

It was held that an auditor who negligently issues misstatements in financial reports is not liable to outside investors who were not intended recipients of the report. Similar observations are found in the speech of Lord Denning, when he observed that for imposing a duty of care and skill, the relationship must be such where the advisor (in that case the accountant) is aware of the person for whom and purpose for which the advise would be used (Wikipedia, 1951) The