Business Law and Law of Negligence - Case Study Example

Business Law The possible issue that requires discussion in this question are the law of negligence, to be precise the negligent ment that had resulted by the actions of Bumble & Co. in preparing the financial statement. The possible claim by Peter and Alison in respect of such negligent statement needs to be discussed. Furthermore, the claim of Peter in respect of the negligence of the local authority because of which the accident occurred and the loss in earnings need to be discussed. For a possible claim for negligence the elements that need to be established are duty of care, breach of duty, causation and damage. Each issue in the current question requires an analysis of the elements and so each of these will be discussed in turn, with respect to each question. The definition of law of negligence is said to be the of conduct which tends to fall below the standard that has been established by law so as to protect others against any unreasonable risk of harm. The landmark decision in which the doctrine of negligence was developed was Donoghue v. Stevenson1 and in particular Lord Atkin’s formulation is till today said to be the benchmark. The material facts of the case were that Donoghue who consume a ginger beer found a decomposed snail in the bottle and claimed negligence against Setevenson. The basic contention was that a duty of care was owed by the manufacture to the person who used or consumed what had been produced and so an act of negligence had been committed when the person who consumed or used the product was injured, even though the bottle in this particular case had been purchased from a retailer. Therefore since the injury had been caused to the final consumer it was contended that whether the beer was purchased from the manufacturer. Thus it was contended that the manufacturer should be held liable to the final consumer as duty was owed by him in the current situation and he was negligent in respect of the duty that he owed. Even though the case was settled out of court the court found all the elements to be present and stated that there had been negligence on part of the manufacturer. The main establishment in this case was the neighbor principle.Thus the case stated that a person must take reasonable care so as to avoid acts or omissions which if seen with reasonable foreseeability are likely to cause an injury to that person’s neighbour. Lord Atkin found a neighbour to be a person who would be so closely and directly affected by the act that he should have been contemplated of when doing the act or omission. This is what is known as the neighbour principle. This case therefore developed what is now a well established law on negligence. (Wild et al 2010) The test in respect of the law of negligence was reformed in the decision of the House of Lords in Anns v Merton2 where Lord Wilberforce even though accepted the neighbor principle went on to lay down a two staged test for the establishment of duty of care, the first requirement was to ascertain the‘sufficient relationship of proximity based upon foreseeability’ and secondly considerations of reasons why there should not be a duty of care. However, this decision was subsequently changed by the House of Lords. (Horsey et al 2009) The current position thus in respect of the establishment of a duty of care is that in Caparo v. Dickman3 whereby the two staged test was changed into a three stage test. The first requirement is that, that from the acts/omissions or in its entirety the conduct of the defendants,it must be reasonably foreseeable that it would cause damage to the claimant. Secondly, there must be sufficient proximity between the parties, that is a proximate relationship can be found out between the parties and finally ‘the situation must be one in which the court considers it fair, just and reasonable that the law should impose a duty of care of a given scope on the one party for the benefit of the other’. This test for establishment of the duty of care has been firmly embedded in the law of negligence. (Turner 2010) The facts of the case in Caparo were that a public company had its statutory audit undertaken by its auditors and due to the negligence in preparation of the audit accounts many people suffered loss and claimed against the company. The courts stated that the public company was under a duty by way of contract with its shareholders collectively and it was further stated that any individual purchasers of the shares of the company, who relied on any such documents were not owed any duty even if the fact was that they were existing shareholders nor did any liability arise in respect of the creditors of the company. It can be clearly seen by practical situations that the accounts of the company are relied upon and the auditors’ manuals and other material may clearly point out to the fact that there has been reliance. However, the main reason that the court have disallowed such claims is because of public policy and the avoidance of any possibility of multiplicity of claims, this is what is commonly known as the floodgates argument. Furthermore, the courts have taken into account the business practices and factors and have thereby disallowed such claims. Thus when the reason for negligence not being established in this situations is because of the reason of the courts that auditors do not owe a duty to any potential investors and their only duty lies with the company. Thus reliance must not be placed on such audit reports and where reliance is placed on such audit reports there is clearly a lack of proximate relationship between the investors and the auditors. An additional reason that can be cited is that an added burden would be placed on auditors apart from the main duty that they owed to the company. (Deakin et al 2008) After looking at the law of negligence, the position of Peter and Alison will now be analyzed. Both, Peter and Alison can argue that they have a possible claim against Bumble & Co. and they can base their claim on the fact that Bumble owed a duty of care to Peter on account of him being an existing shareholder of it. In respect of Alison, she would argue that she being a potential investor was owed a duty by Bumble. However, it is pertinent to point out to the case of Caparo where it was clearly illustrated that a duty was owed only to the shareholders collectively and it was further stated that an existing shareholder who in his capacity as a potential investor was unable to establish a duty of care being owed to him by the auditors and the preparation of his accounts and as a result an existing shareholder purchasing further shares failed to establish proximity in relationship. Thus as discussed before due to the public policy reasons Peter would be unable to claim for the losses that he has suffered as a result of the further investment that he made in the shares. As far as Alison is concerned, the case of Caparo has stated that potential investors do not suffice for proximity and thus she would not be able to claim negligence against Bumble. However, in respect of Peter there is a possible claim against Bumble for the existing shares that he had in respect of which there can be a claim that due to the negligence of Bumble in preparing the accounts there has been a fall in the value of the company which has resulted in the shareholders losing out. It is clear from the case of Caparo that a duty is owed to shareholders and in this respect there has been breach if the duty and it is clear that there is proximity as well as causation because on the facts it is because of the inadvertent preparation of the accounts that such losses have resulted and therefore a claim of negligence arises and Bumble cannot rely on any defence. As far as the claim of Peter against the local council is concerned, that points that would be taken into consideration are that is there an attraction of a duty of care absent statute and the fact that such a duty is not amended or excluded by the statute. The courts in respect of this issue have used differing approaches and have made differing suggestions. The first case that can be cited is that of X v Bedfordshire County Council4 where the courts found that the local authority could not be held liable for acts for which it had been authorized by Parliament and had done so accordingly, however, there was an exception that is if it was found that the decision of the authority was so unreasonable that it fell outside of such discretion, then there would be no reason to exclude such liability and thus the authority would be held accountable. The next case that needs to be looked upon is Barrett v Enfield London Borough5 where it was stated that when determining the discretionary powers, the common law concept of negligence should be applied directly and subsequently the Wednesbury test of reasonableness should be applied thereby determining whether the decision outside the ambit of the authority that had been provided.(Wild et al 2010) The case that can be said to be the most relevant one, in respect of the facts that have been provided that is of omission of Council so as to cover the pothole, maintain the road and cur financial budgets in that respect is Stovin v Wise6. In the case an action was bought against Council whereby it was stated that it had been negligent. The judges in a majority decision left open the possibility of common law claim of duty of care for a statutory power that had been conferred upon the Council. It was stated that a duty of care would arise where two situation were satisfied, the first condition was that the decision by the Council not to perform an action would have been improper exercise of discretion, and would have been irrational in the circumstances that had been provided, and the second one being that there exist exceptional grounds under which the statute and its policy requires compensation for such failure and therefore loss to be paid to the person who suffered it. It is important to mention that in the case of Stovin the claim failed and it was stated by the courts that if an action were to be brought against a public authority then the appropriate channel was by means of judicial review. (Elliot et al 2005) On the facts of the question Peter has prove that the Council had incorrectly used its discretion to maintain road and it was due to this discretion that the event occurred. This can be quite easily proved as there had been an obligation on the Council to maintain roads but it used the discretion in an inappropriate manner and decided to cut back on its finances and incorrectly used its discretion. The second situation requires the existence of exceptional circumstances, this can be said to be dependent on the interpretation the courts give it, if it is considered that non maintenance by the local council and as a result Peter’s injury are exceptional circumstances, then there would be a claim on the grounds of negligence and Peter would be successful. However if the courts adopts the view to the contrary then Peter would not be able to claim under negligence and would not to claim under administrative review. The decision in this regard is dependent upon the approach that the courts take and in majority of the cases the courts have been reluctant to establish negligence of Council and public authoritites. References WILD, C., WEINSTEIN, S., SMITH, K., & KEENAN, D. J. (2010). Smith and Keenans English law: text and cases. Harlow, England, Longman DEAKIN, S., JOHNSTON, A. C., & MARKESINIS, B. S. (2008). Markesinis and Deakins tort law. Oxford, Oxford university press. ELLIOT, C., & QUINN, F. (2005). Tort law. Harlow [etc.], Pearson Longman TURNER, C. (2010). Tort law. London, Hodder Education HORSEY, K., & RACKLEY, E. (2009). Tort law. Oxford, Oxford University Press Read More