Elvis and Dionnes Claim against Mercury - Assignment Example

? Business Law By Due Elvis and Dionne’s claim against Mercury Elvis and Dionne purchasedshares of Holly plc believing on the audit report prepared by Mercury & Partners which stated that the company’s asset were worth $8 million. It was later revealed that the audit report was carelessly prepared and that the assets of Holly plc were worth only $1 million. Elvis and Dionne each had to suffer a loss of $100,000 as a result. As their loss resulted due to the negligence of Mercury & Partners, Elvis and Dionne are suing them for tort of negligence. They can succeed if it is established that Mercury & Partners owed a duty of care to them and that duty has been breached. On the other hand, Mercury & Partners might look to contend that they had no relation with Elvis and Dionne. There is no privy as there is not contract between them. A contractual liability is different from being liable for negligence. Negligence liability does not require the parties involved to be in a contract. The tort of negligence emanates from the landmark case of Donoghue v Stevenson (1932)1 in which the defendant drank from a bottle of ginger beer which had a snail. It was held that the manufacturer of the bottle had a duty of care to keep the ginger beer free from snails as his bottles were opaque and any unsuspecting user could have drank it. The tort of negligence has five elements: i. Duty of care; ii. Breach of duty; iii. Factual causation; iv. Legal causation or remoteness; v. Harm; Firstly, in order to establish a duty of care, courts apply a “threefold test” that was introduced in Caparo v Dickman (1990)2. The three conditions are: i. The harm must be foreseeable; ii. There must be a relation of proximity between the parties involved; iii. It must be fair, just and reasonable to impose liability. In Caparo v Dickman (1990)3, Lord Oliver made it clear that once it is maintained that the harm was foreseeable, the relationship of proximity is automatically established. The courts have to examine whether it is just and reasonable to impose liability. Sometimes, the harm that is done is so remote that it fails the criterion of reasonableness. Most importantly, the individual circumstances of a particular case play a huge role in the establishment of duty of care. The aforementioned criteria are not necessarily the benchmark on which duty of care is to be established in each and every case. For tort of negligence, when duty of care is established, there must a breach of duty and harm must be caused which is the direct result of the breach of duty. Factual causation is very important as a plaintiff cannot look to hold the defendant liable for a loss or harm that is not a direct result of the defendant’s act of negligence. It is unfair, unjust and unreasonable to hold the defendant liable for an unforeseeable harm. However, a physical harm poses a different question. In the given case, Mercury & Partners are the auditors and they have a duty to prepare their audit reports with reasonable care. There is a wide variety of users that uses audit reports to make important economic decisions. Reliability is a principle that sits at the very base of preparing audit reports. Elvis and Dionne made investments in Holly plc because of the information that they received from the audit report prepared by Mercury and Partners. Their loss was reasonably foreseeable which means that there was a relation of proximity too. There has been a breach of duty which has directly resulted in Elvis and Dionne losing $100,000 each. All the elements of tort of negligence are there. However, the recovery of the loss might not be possible. In Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)4, Lord Reid explained that when a negligently made article is broadcast so that a variety of ultimate consumers act on the advice, it is unfair to hold the advisor liable to each and every one of them. Therefore, Elvis and Dionne might just be one of the many ultimate consumers who trusted the audit report and made investments in Holly plc hence suffering losses. Therefore, the courts might not hold Mercury and Partners liable for the economic loss of Elvis and Dionne. On the other hand, since Elvis was already a shareholder in Holly plc, his loss might be regarded as being in the reasonable foresight of Mercury and Partners. Hence, they might be held liable for the economic loss of $100,000 of Elvis but not for Dionne’s economic loss of the same amount because of non-existence of proximity. Ivy plc’s claim against Mercury Ivy plc held some shares in Holly plc. They contracted Mercury & Partners to gain some financial projections regarding Holly plc. They told Mercury & Partners that they were considering acquisition of Holly plc. Mercury provided the information and Ivy plc purchased sufficient shares to take over the company. Later, the financial projections provided by Mercury turned out to be wrong and this resulted in a huge loss for Ivy plc. Ivy plc is suing Mercury for negligence and to recover their loss. In the case of auditors, it is very important to establish whether there is a duty of care. In Caparo v Dickman (1990)5, shareholders in a company bought shares on the basis of an audit report which showed a surplus when there was actually a deficit. They sued the defendants for negligence. Their claim failed when it was held that there was no duty of care because the company accounts were not prepared for the users who wanted to take over the company. There is a variety of users of audit reports but being liable to each and every one of the users is not just and reasonable. In Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)6, Lord Morris explained that when a person possesses a special skill and another person, relying on his skill, asks him for an advice, duty of care might arise. Without a shadow of a doubt, duty of care exists in cases when before seeking advice, the advisor is informed of the purpose for which advice is being taken. When this duty is breached and results in loss, there is negligence. In the given case, Ivy plc explicitly informed Mercury of the purpose for which the financial projections were required. There was a duty of care on the part of Mercury to give accurate and reliable information to Ivy plc. They were negligent in performing this duty and this directly resulted in a huge loss for Ivy plc. Therefore, Mercury and Partners would be held liable for their negligence and would have to compensate Ivy plc for their loss. Edward and Kate’s against Elvis Elvis was driving Kate to airport. They were getting late and, instigated by Kate, Elvis violated a stop signal. As a result, he hit a bicycle ridden by Edward who was wearing dark clothes and the bicycle had no lights. Kate got injured as she was not wearing a seat-belt. Edward suffered from a heart condition and the stress of the accident resulted in a heart-attack. As the accident happened due to Elvis’ negligence, Kate and Edward are suing him for their physical injuries. According to Caparo v Dickman (1990)7, the first step is to establish whether there is a duty to care in this case. Being the driver of a car does not automatically create a duty of care. It is established by envisaging a reasonable man in the place of the driver. In Glasgow Corporation v Muir (1943)8, Lord Macmillan said that a reasonable man is a man of a moderate character. But what exactly constitutes a reasonable man depends on the individual circumstances of the case. In Nettleship v Weston (1971), Denning MR observed that the student driver owed a duty of care to the people in her surroundings including the instructor because the car was in her control. A driver cannot be expected to have foresight of all the things that could go wrong but there is a standard of care that he should observe while driving. The most important of all is the observation of the traffic rules which are designed to prevent any unfortunate accidents. The passengers and the pedestrians fall in the category of proximate relationship with the motorist. Finally, if the courts are convinced that it is just, fair and reasonable to impose the liability, the driver is held liable for tort of negligence. While holding the driver liable for damages, the courts also consider whether there has been any contributory negligence. Contributory negligence is a partial defence for the defendant which lessens the damages payable by him for negligence. S1(1) Law Reform (Contributory Negligence) Act 1945 9states that, “Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage...” In the given case, Kate was sitting in the car with Elvis. By the application of Nettleship v Weston (1971)10, Elvis owes a duty of care to her. Elvis performed a very negligent act by violating the traffic signal which resulted in Kate’s injury. However, Kate was almost equally responsible for this act as she forced Elvis to break the signal through her derogatory remarks. According to the given facts, Kate was not wearing a seat belt. If there was no seat belt in the car, there is no fault on Kate’s part and it is Elvis’ negligence. However, if there was a seat belt in the car, it is partly Kate’s fault because it is not fair to blame Elvis altogether for a grown woman who did not wear her seat belt. In Davies v Swan Motor Co (1949)11, the plaintiff was standing on steps at the side of a dust lorry; in a dangerous place. The road was narrow and when a bus tried to pass the lorry, he was unfortunately killed. It was held that the plaintiff himself was one-fifth responsible for the accident. Therefore, his damages were reduced in the same proportion. In the given case, Kate’s responsibility for the accident is probably more than that of Elvis. However, contributory negligence is still a partial defence. Therefore, Kate would be awarded damages but significantly reduced. A tortfeasor is expected to have reasonably foreseen the consequences of his risk but he is not expected to foresee the indirect consequences. In Smith v. Leech Brain & Co (1962)12, an employee died when a latent cancer was triggered by burning of his face by molten metal. The employer was held liable by the court even when he could not have foreseen the death of his employee because of a latent cancer. The courts applied the “egg-shell” rule according to which the tortfeasor is held liable for all the consequences of his actions. Edward was hit by Elvis’ car and suffered a heart attack. As Elvis drove the car, he could have reasonably foreseen the possibility of an accident but he could not have known that Edward suffered from a heart condition. By the application of Smith v. Leech Brain & Co (1962)13 and the “egg-shell” rule, Elvis would be held liable for Edward’s heart attack. However, Edward is also responsible to some extent as his bicycle had no lights. Therefore, his damages would be reduced due to his contributory negligence by the application of S.1(1) Law Reform (Contributory Negligence) Act 194514 and Davies v Swan Motor Co (1949)15. References Caparo Industries plc v Dickman [1990] UKHL 2 Davies v Swan Motor Co [1949] 2 KB 291 Donoghue v Stevenson [1932] UKHL 100 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Muir v Glasgow Corporation 1943 SC(HL) 3 Nettleship v Weston [1971] 2 QB 691 Law Reform (Contributory Negligence) Act, 1945 (UK) S1(1) Smith v Leech Brain & Co [1962] 2 QB 405 Read More