Negligence Law regarding Bad Investment Advice - Coursework Example

Negligence Law Ian v. Bradley The first relationship that will be examined is the relationship between Ian and Bradley. As d in the facts, Bradley gave Ian bad advice about investments. Bradley should have known that the investment advice that he was giving to Ian would end up with Ian losing his money, because the investment was deemed to be too speculative for a novice investor. Ian was a novice investor, as this was his first real investment. The UK has determined cases such as this one with a series of cases. Hedley Byrne v. Heller1 is the most important case in this regard. Before this case, if a professional person made a statement to another, and the other person relied upon this statement, the only remedy for this would be a remedy in contract, not in tort.2 Hedley Byrne changed this basic rule, and now parties may recover for purely economic loss, even if there is not a contractual relationship. The facts in Hedley are similar to the case at bar. In Hedley, Hedley Byrne was a firm of advertising agents with a customer, Easipower Ltd., who put in a large order. Hedley carried out this large order, but not before it got a report from the Heller & Partners Ltd. Bank regarding Easipower’s creditworthiness. The bank replied that Easipower was creditworthy, Hedley relied upon this statement, gave Easipower its orders, Easipower went out of business, and Hedley Byrne lost £17,000 on the deal. Hedley Byrne sued Heller & Partners for their statement. Heller replied that there was not a duty of care, and that liability was excluded. What the Hedley court found was that there was a special relationship between the parties, and the court found that the special relationship was formed because the defendant reasonably should have known that the plaintiff would rely upon the statements that they gave to them. This foreseeable reliance creates a special relationship. Since the decision in Hedley, the UK courts have expanded upon the definition of special relationship and what would give rise to an action in negligence, with regards to people who are professionals. For instance, 3expanded upon the Hedley principle, and stated that if something is common practice, then it is not unreasonable to rely upon the word of that professional, as opposed to being expected to get a second opinion. Moreover, the Smith case expanded the Hedley principle to third parties. However, the Hedley principle is not absolute. For instance, in Caparo Industries plc. V. Dickman4 , a company who was pursuing a takeover relied upon an auditor’s statements regarding the soundness of a company. After Caparo took over, however, it was discovered that the company that was taken over had finances that were considerably less sound than what the auditor had stated. Caparo sued, but it was held that there was not a duty of care, nor was there proximity, between the auditor and Caparo. The reasoning of the court was that the auditing company who made the negligent audit was not hired by the Caparo company, and Caparo should have hired their own, independent audit. Moreover, when looking at the facts of Ian verses WTW, one must also look at the standard of care by which WTW will be judged. According to Bolam v. Friern Hospital 5, professionals will be judged by the same standard as those possessing the same set of skills and abilities. When looking at the case law surrounding professional negligence, it is clear that WTW would be liable to Ian in negligence. Hedley established that a client can reasonably rely upon the word of a professional, because the professional has to know that, when he or she gives advice, the person would rely upon their word. The Smith case expanded the definition of “reasonably rely” to state that a person may rely upon something if it is common practice. Moreover, there was proximity between Ian and WTW – Ian had actually hired WTW for the purpose of investing his money. This means that there is proximity between the parties, and a duty of care is owed. If, for instance, WTW had given out general advice, and Ian didn’t hire them, but took their general advice that was meant for the world, then there would not be liability under Caparo. But this isn’t the case – Ian did specifically hire WTW, and WTW specifically gave advice to Ian. Ian isn’t expected to get a second opinion, because giving financial advice is common practice for WTW. Moreover, according to Bolam, WTW is supposed to be judged by the standard of care that would hold for all other investment firms. Since a reasonable investment firm would not recommend an investment for a new investor, if that investment was specifically labeled as too speculative for the novice investor, then they breached the standard of care. For all of these reasons, WTW should be liable to Ian for the money that they lost. Ian v. Marcus Mel is Ian’s ex-wife. Mel tried to leave her fortune to Ian. However, Marcus did not draw up the will on time, and Mel died without a will. Mel had told Marcus to draw up the will six months prior, and Marcus did not get around to doing so. Ross v. Caunters 6 held that lawyers owe a duty of care to a third party who suffer loss or damage because of their negligence. The court found that the principles in Hedley allowed them to extend liability to a third party, because a third party is somebody who is closely and directly affected, so that the third party may be injured by a solicitor’s acts or omissions. Moreover, the very omission of which Ian is accusing Marcus is precisely the facts in White v. Jones 7, which was an expansion upon the Hedley principle. In White, the testator had told the solicitor to draw up a new will for him. The solicitor failed to do so, and the testator died, leaving the old will in place. The daughters, who stood to gain from the new will, as the new will would have split the testator’s estate between the two daughters, sued the solicitor for negligence. The White court stated that a special relationship was assumed by the solicitor towards the two girls, which means that the solicitor had a duty of care towards them. He breached this duty of care when he negligently failed to draw up the will before the testator’s death. This is a case that extended Hedley liability to a third party, as was the case in Smith above. And, since this case is exactly on point for the fact pattern about Ian and Marcus, this case would be precedence to say that Ian would have a case against Marcus for negligence, and Marcus would have to indemnify Ian for his loss. Peggy v. Ian In this case, Peggy is a bystander, and, such, she is a secondary victim, and she is the grandmother of Ben, who was hit by a car by Ian. Peggy is now suffering for PTSD. Peggy may recover, in some instances, for nervous shock. Therefore, even though she did not suffer any kind of physical damages, she may, nevertheless, recover for mental damages. This was established in the case of Page v. Smith 8. In Page, the plaintiff was in a traffic accident, but was not hurt physically. However, he had a pre-existing condition known as ME (myalgic encephalomyelitis). Page’s ME flared up after the traffic accident, so he brought suit on this basis. The Page court found that Mr. Page could recover for damages, even though he was physically unhurt. However, in the Page case, Mr. Page was a primary victim – that means that he, himself, was the victim of negligence. He was not a bystander to negligence. In the case at bar, Peggy is considered to be a secondary victim, as she, herself, was not the victim of negligence, but, rather, was a witness to negligence. Because of this, ordinarily, she would not be able to recover. However, in limited cases, a bystander may recover, and these limited circumstances are outlined by Alcock v. Chief Constable of South Yorkshire Police 9. In this case, some 96 Liverpool futbol fans died in a stampede. The families of these dead fans had a cause of action for negligence, and those who were hurt in the stampede did, as well. However, there were some bystanders who also brought suit, even though they were not physically harmed. They also were not in danger of being harmed. The Alcock court stated that, if the bystanders were in danger, they would be considered to be primary victims. If they were in danger of being trampled, but were not trampled, then they could recover, on the assumption that physical injury would be a foreseeable consequence of being trampled, therefore the fear of being physically injured would also be foreseeable. Therefore, in this case, Peggy would have to rely upon the holding in Alcock in order to win a judgment against Ian. Peggy was a secondary victim – she, herself, was never in danger of being hit by the car driven by Ian. The Page case, which concerned a primary victim, would therefore be inapplicable to this matter at hand. The Alcock factors are that the plaintiff must actually witness, with an unaided eye, a shocking event. The shock must be sudden, and not gradual. The injury that is suffered by the person viewing the event must be an injury to somebody who has a “sufficiently proximate” relationship with the claimant, which means that there is a close tie of love and affection. Examples are between parents and children, and spouses and fiancés – in any of these relationships, the love and affection is presumed. In other relationships, such as siblings, there is not a presumption of love and affection, therefore there must be proof of this love and affection. The final element is that a person of normal fortitude would suffer the same type of psychiatric damage, although, if there is a pre-existing condition that is exacerbated, the eggshell skull rule is invoked, which means that one must take the victim as they find them.10 Peggy is the grandmother, therefore it is not presumed that there is a bond of love and affection between herself and Ben. However, Peggy is also the caretaker for Ben, which means that she is acting more like a parent than a grandparent to the child. This should be enough to establish love and affection. The shock was sudden to Peggy, it wasn’t gradual, and she did witness the accident first-hand. Therefore, the Alcock factors are met, and Peggy should be able to recover for her PTSD. There is a possible defense that Peggy might have a pre-existing condition, in that her son is in prison, therefore this might be cause for depression. Seeing the accident might just exacerbate her depression. However, the eggshell skull rule states that Ian must take Peggy as he finds her, so, even if she were depressed before witnessing the accident, if the accident made the depression worse, than Ian is still liable. For all of these reasons, Peggy would have a cause of action against Ian for negligence, even though she is a secondary victim. Ian v. Ben Ian was negligent towards Ben – he was speeding in a school zone. There is not a need to analyze the breach of a duty in this case. The only issue is whether Ben would be considered to be contributorily negligent. Ben is aged 12, and he ran across the road without looking for cars. Since 1809, if a victim is guilty of negligence, then the victim could not recover from a negligent action - Butterfield v. Forrester11 established this. In this case, a pole was put in the ground negligently, and an inattentive rider ran into it. Since, if the rider was paying attention, as would a reasonable rider using ordinary care, he would have seen the pole, the rider was deemed contributorily negligent and denied compensation. Contributory negligence law was reformed in 1945, with the Contributory Negligence 1945. This Act issued in the doctrine of comparative fault – a victim who is contributorily negligent is not totally denied compensation, but, rather, his or her compensation is reduced by the percentage he or she is at fault. So, in the case of Ben and Ian, if, say, Ben is found by the trier of fact to be 50% negligent, and the jury awards Ben £100,000 in damages from Ian, then Ben could only collect £50,000 – since he is deemed to be 50% at fault, his award would be reduced by 50%. There is also a question as to whether Ben, as a child, can even be held contributorily negligent, or be assessed comparative fault. This question has been answered by Gough v. Thorns .12 The Gough court recognizes that children shouldn’t be held to the same standards as adults, because they don’t have the same level of experience as an adult. Very young children might not be held contributorily negligent at all. However, older children may be contributorily negligent if reasonable children of the child’s age would not act as the child did. In other words, the standard of reasonable behavior for a child is assessed by looking at other children of that age. In this case, Ben is 12 years old. He crossed the street, without a light, and without looking for cars. There is little doubt that, if Ben were an adult, he would be held to be contributorily negligent. But Ben is not an adult, he is a child. Would a child of 12 years old be expected, if the child was reasonable, to not walk out in front of cars without looking? That would be the question in front of the trier of fact. In this case, 12 years old is presumably old enough so that the child would already know that he or she must look both ways before crossing the street. Bibliography Alcock v. Chief Constable of South Yorkshire Police [1992] 1 AC 310 Bolam v. Friern Hospital (1957) 1 WLR 583 Butterfield v. Forrester 11 East 60 (K.B. 1809) Candler v. Crane, Christmas & Co. [1951] 2 KBA 164 Caparo Industries plc. V. Dickman [1990] 2 AC 605 Gough v. Thorns [1966] 1 WLR 1387 Hedley Byrne v. Heller [1964] AC 465 Page v. Smith [1995] UKHL 7 Ross v. Caunters [1979] 3 AER 580 Smith v. Eric S. Bush [1989] UKHL 1 Smith v Leech Brain & Co [1962] 2 QB 405 White v. Jones [1995] 2 AC 207 Read More