Preparing Risk Management Guidelines - Assignment Example

Preparing Risk Management Guidelines (A). Introduction Risk management is an essential component of anefficient management structure in the business. Effective business management should provide strategies for recognizing the available business opportunities and the process of managing risk (Stone & Devenney, 2014). In the business, liabilities arise due to failure to implement the contract or inadequate performance of the contract or due to negligence of one party thus resulting to third party claims. “Risk management involves the identification, assessment and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor and control the probability and /or impact of unfortunate events (Howells & Schulze, 2009, p. 89). There are various causes of business risks such as natural causes, financial risks, market risks, credit risks, accidents, legal liabilities, and projects failures among others. A business should have well defined strategies to manage and control various risks that may occur in business including the contractual and vicarious liabilities (Austen-Baker, 2011). The risk management guidelines will help the business management to establish resources for designing and delivering professional and effective risk management strategies during execution of business its operations. (B). Background of Risk Management Process in a contract The parties in a contract must follow the right channel of communication in order to minimize liability. For example, if some conditions arise that makes discharge of the contractual duties impossible or delayed the party should communicate with the other party immediately and agree on the best course of action to take (Austen-Baker, 2011). The most common methods of managing risks in business includes averting of risks, transfer of risk to a third-party such as insurance, reducing the negative impact of risks and acceptance of some or all consequences of risks (Stone & Devenney, 2014). The parties to the contract should do all they can to avoid the occurrence of risk during the implementation of the contract. If one party failed to perform according to the contract and the other party had an opportunity to mitigate the loss suffered due to partial performance or lack of performance of the contract, both parties will be held responsible, and the offended will be liable for contributory negligence. The damages that the offender can pay in such a case are reduced by the amount of damage contributed by the offended person as stated in the case of Nettleship v Weston [1971] 2 QB 691 in which the trainee driver was held partly accountable for the accident of the car during training. (C). TASK 1: Theory 1. Contractual liability and Liability in Tort A contract is a legal relationship that subsists between two parties under mutual consent to perform specific duties for each other (Austen-Baker, 2011). The agreement sets out the duties of each party and responsibilities of each party to the other. The parties accept to adhere to the consequences of the contracts at the time of forming a contract. The liabilities due to negligence of duties and duty of each party to the other as defined in the agreements are referred as contractual liabilities as stipulated in the case of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd., in which the claimant were compensated for defendants violation of the contract. The liability in tort is under civil law, and it refers to wrongs between persons against other persons or the state (Stone & Devenney, 2014). The person wronged may claim for compensation from the defendant. Negligence is an involuntary tort resulting from the failure to exercise the degree of sensible care that a reasonable person would exercise. Unintentional tort of negligence occurs where a person acts recklessly and their actions results to an injury of another person or property. Intentional tort occurs when one party to the contract intentionally commits or omits an action that results to negative consequences to the other party. These may include battery, defamation assault and false imprisonment among others (Austen-Baker, 2011). In the case of Donoghue v Stevenson [1932] AC 562 House of Lords, the plaintiff’ friend had bought her some ice cream and ginger beer from the shop. After consuming the content of the ginger beer, the plaintiff discovered a decomposed snail in the bottle. She could not have seen it before since the beer was in an opaque bottle. She suffered personal damages and sued the manufacturer of the ginger beer for negligence. Lord Atkin held that the manufacturer was "responsible for the damages suffered by the plaintiff" even though there was no contract between them prior to that incidence. The manufacturer had acted negligently by packaging the beer with a snail inside an opaque bottle. Neither the shopkeeper nor the plaintiff’s friend could be held responsible since the inside of the bottle was invisible. It was for this reason that the consumer was able to sue the manufacturer for negligence even though there was no legal agreement between the consumers and the manufacturer. Therefore, for the claimant to succeed in the claim of negligence, they must affirm that the "defendant had a duty of care and that they violated that duty" either willingly or unintentionally. The principle in this case implies that one has to exercise appropriate caution to avoid causing injuries to the persons who are likely to suffer directly as a result of one’s acts or failure to act (Austen-Baker, 2011). Therefore, regardless of the contractual agreement the producers or brand owners are liable for the injuries suffered by consumers upon consumption of the goods they manufactured of sold in the market. 2. Nature of Liability in Negligence According to Austen-Baker (2011), negligence is a wrongful act by one person to another and has legal liability. In Donoghue v Stevenson, the court claimed "that there should be a duty of care for one to be liable", and breach of that duty makes the person in violation of duty liable. In addition, the rule regarding the neighbour was established, and Lord Atkins stated that a neighbour as someone who is close to you. The implication of the claim of a neighbour was to establish whom one was responsible for in case of negligence. For example, a manufacturer of ginger beer was responsible for the rotten snail in a bottle of beer and this could imply consumers of the beer were his/her neighbour because they were directly affected by the manufacturers’ actions. The plaintiff must give evidence of defendant’s negligence to the court and substantiate the sufferings sustained as a result of defendants’ negligence. The damages must be sufficient to warrant compensation (Austen-Baker, 2011). Also, the plaintiff should proof that they did all they could to stop the loss from occurring. However, in this case customer or the seller could not have prevented the occurrence of damages since the bottle was dark and its content invisible. Probably is the bottle was transparent the manufacturer of the beer could not have been held liable since the court could assume that consumer could see the rotten snail and avoid taking the beer. The law requires the loss suffered by the plaintiff be as a result of negligence of the defendant. In Overseas Tankship (UK) Ltd v, The Miller Steamship Co or Wagon Mound (No. 2) [1967] 1 AC 617, the defendant owned a freighter ship (Wagon Mound), and the plaintiff owned two ships both of which were anchored at a nearby dock. The Wagon Mound was under repair and some oil spill in the water. The sparks from welding machine ignited fire that consumed the three ships. The issue was whether the risk of fire ignited by the sparks from welding machine could have been perceived by an ordinary person. The judge concluded that due to the magnitude of the damage the defendant was liable for the damage. 3. Damage and Damages in Negligence Negligence refers to conducts that results to unreasonable threat of injuries to another person or property, and that could have been avoided under reasonable care. Damages are harms and losses caused to persons or property whether intentional or unintentional. They could be physical or mental injuries, and harm caused on someone’s reputation, loss of property and so on (Austen-Baker, 2011). Damages in negligence are injuries or losses caused by one person to another that could have been prevented had the person exercised care. For example, the damages caused to the plaintiff in Donoghue v Stevenson could have been prevented if the manufacturer of beer had acted carefully. There are some injuries or damages that cannot be avoided such as those caused by act of God or nature like illness. However, a person should take enough precautions to avoid severe loss once those risks occur. The law requires the risk caused by the defendant’s negligence not be too remote. In Smith v Leech Brain & Co [1962] 2 QB 405, the defendant was a galvaniser working for the defendant. Their duty involved lifting articles using a crane into a tank of molten metal. Unfortunately, some articles spattered and burned the plaintiff’s lips and caused cancer that killed him three years later. The issue was to determine whether the damage was remote or not. The rule of the court was that the fact that the plaintiff sustained sufficient injuries as a result of defendant’s negligence could not be remote. 4. Vicarious Liability and Strict liability Vicariously liable is where a person is held responsible for the tort committed by another person to a third-party (Howells & Schulze, 2009). That may occur where the person who committed a tort was either acting under the directives of another person as in the case of an employee acting under employer’s instructions. For example, an employer and the employee in which the employer may be held responsible for the torts committed by an employee who was operating in line of his or her duty. Also, in master and servant or principal and agent relationship it is possible for one party to cause liability to the other party due to their actions to third parties. In a contract between parties who are presumed not to hold equal powers, the Respondeat Superior principle is assumed whereby, the party who posses more power is held accountable for the torts committed by the inferior party (Stone, 2013). For example, in the employment contract the employer is considered superior to the employee thus employer is responsible for the torts committed by the employees. It is upon the defendant to prove that the offender was not acting under defendants’ directive or did not act in the normal discharge of their duties if they have to avoid liability. However, in case of an independent contractor the employer is not held liable for the negligence of an independent contractor as was stated in the case of Tinseltime Ltd. v Eryl Roberts, M & J. T. Davies, Denbighshire County Council and the Welsh Assembly Government [2011] EWHC 1199 (TCC. The independent contractor is held liable for their negligence unless the contractor was employed to undertake something that would pose danger irrespective of the caution exercised by an independent contractor. For example, in the case of Century Insurance Co. V. Northern Ireland Road Transport Board (1942), a lorry driver was involved in transferring petrol into an underground storage tank when he struck a match to light a cigarette but it exploded into flames and caused severe damages. The employer was held responsible for the negligence of the driver during the performance of his duty. To avoid vicarious liabilities, the business should ensure they hire competent workers and exercise great control when dealing on the actions of those who are under them. On the other hand, strict liability refers to liability that occurs from one’s actions even though that person did not act negligently or commits the act intentionally (Stone & Devenney, 2014). The person is found legally accountable for the damages or injuries they cause to other people or property even though they did not act negligently or commit the wrong intentionally. Even in some situations where a person may not be judged by law there is a moral obligation for every person to avoid activities that may cause injuries to the public. In Callow v Tillstone (1900) 64 JP 823 322, a butcher was prosecuted for selling unfit meat despite the fact that the meat had been inspected by a veterinary officer. However, in case of an independent contractor the employer will be accountable under strictly liable for the torts of an independent contractor if the activity itself was risky in nature. For example, if the employers hire an independent contractor to install a gas system that may explode and cause damages the employer will not be liable under vicarious liability, but will liable under strict liability because the nature of work posed risk irrespective care exercised by the contractor (Austen-Baker, 2011). Under vicarious liability, the defendant has to prove that that the person who committed tort was acting outside their ordinary duty if they have to avoid liability. Under strict liability the person held liable for the tort should prove the act risk was beyond human control in order to avoid liability (Howells & Schulze, 2009). 5. Contributory Negligence Contributory negligence is principle of defence against the tort of negligence. The defendant applies this principle in order to establish that they were not entirely liable for the tort and that the plaintiff or claimant was partly responsible for the negligence (Stone & Devenney, 2014). In Nettleship v Weston [1971] 2 QB 691, the plaintiff agreed to train the defendant to drive a car using the car of defendant’s husband after acquiring insurance policy for the car. In the course of training, the defendant was involved in an accident and the plaintiff sustained injuries. The defendant argued that the claimant was aware of her inexperience thus she requested for the charges to be reduced. The judge cited that inexperience was not a defence against driver’s negligence. However, the plaintiff was partly liable because he was responsible for directing the trainee driver and could have prevented the accident. He was held responsible for contributory negligence thus the charges against the defendant were reduced by half. 6. UK Statutes Safeguarding consumers and traders Sale of Goods Act 1979 is a UK statute that regulates how goods are sold or bought in relation to transfer goods in chattel upon the payment of consideration. The Act requires the goods meet the contractual standards such as quality, right for a specific purpose if it was disclosed in the contract and be of the right description. The Act determines the party responsible for bearing the risk and the extent in relation to the products and the rights of the buyer and the seller. Breach of the Act empowers the consumer to return the goods and end the contract and raise a claim for the damages. The Act ensures manufacturers or sellers are cautious when selling products to the consumers and that the consumers are not deceived by producers who may decide to defraud consumers by selling goods that do not meet the descriptions and those products put on display. The Consumer Protection Act 1987 (1987 c. 43), is UK’s Act of parliament that imposes liability in tort for defective products on the producers, importers and brand owners among others. The liability is strict, and the consumer is not required to demonstrate the producer’s negligence. It imposes liabilities on damages such as death, damage to property and personal injuries. Whereas most of the cases involving consumer damages are settled out of the court, the Act enables the consumers to sue the brand owners or producers of goods whenever they have suffered economic loss as a result of consumption of defective goods. The Act has enabled the producers and brand owners to exercise a lot of care and even make legal consultation ensure products are safe for consumption and get rid of all products likely to cause damages to consumers. In addition, the producers ensure they give appropriate information regarding the products to the consumers. Those who are found in breach of the Act have to face charges in a court of law, and the court is empowered to issue an order to forfeiture the products that are considered unsafe for human consumption. The Supply of Goods and Services Act 1982 deals with a contract where services are being offered by the sellers in addition to the sale of goods. This occurs where the seller has to deliver the goods purchased and provide the service of expertise such installation services. The implication of this Act is that suppliers must satisfy the implied terms of the sale of goods and provide the professional services by exercising care and skills that pertain to their profession as required in the implied terms. The seller must provide those goods and services within “reasonable time” and charge “reasonable price” for the services if they are not stipulated in the terms of the contract. The Act enables the buyer to sue the seller where the services or goods or both goods and services provided by the seller fail to meet the required standards. (D). TASK 2: Accident Assessment & Legal Liability: Tesco Cases Incident 1 i. Facts Mrs. Marcela Novakova went around shopping in Tesco Supermarket with her two children aged nine and seven years. Her daughter Matilda dropped six containers of yoghurt, and it spill on the floor. Also, a container of liquor fell on her son Roy, who tried to reach for the crates in the shelves, and he was hurt severely by broken bottles. ii. Claim Mrs. Novakova decided to sue the supermarket for the damages caused her sons for injuries and the loss of his career and the hospital charges for her son. Also, Tesco management was responsible for negligence that resulted to the fall of her daughter. iii. Legal position of the claimant The issue in this case was about Tesco’s negligence in for not protecting the children against injuries. The case is to establish whether Tesco was negligent for the damages caused to her son under Occupiers Liability Act 1957. iv. Possible Defence The liquor was placed in upper shelves, and no one would expect a child to climb the shelves. The future career of the child cannot be determined with precision at such a tender age. Also, the mother of the child had a duty to control the behaviour of her child. Also, the daughter was responsible for the spill of yoghurt and she did not sustain injuries. v. Possible outcome The claimant is likely to succeed in court because the supermarket had not taken due care to protect the customers. In Beardmore v Franklins Management Services P/L[2002] QCA 60; [2003] 1 Qd R, a child pushed a trolley and caused injury to another person in a supermarket. The court issued a ruling that the management of the supermarket was liable for not controlling the child even though irrespective of whether the other of the child was present or not. Similarly, the Tesco management was aware children would be attracted to such products and should have put an attendant to take care of the shelves. In Jolley v Sutton [2000] 1 WLR 1082, the court decided that when the owner of the property keep something likely to allure children to it and that property poses a foreseeable risk to the children then the owner is liable for the injuries suffered by the child. Therefore, Tesco had may be held liable for stacking crates of yoghurt that attracted the boy, and he suffered an injury when the crates fell on him. Furthermore, when they heard one of the children screaming they were supposed to take reasonable care because they could not expect a mother to refrain the two children and continue with her shopping. Furthermore, it was not unusual for mothers to go shopping with their children. Incident 2 i. Facts Mrs. Trixie Spangelova, a renowned Prague Cabaret dance, stepped in a sea of the pink yoghurt after her Manolo Blahnik stilettos lost grip, and she fell and broke her back. She was taken to hospital in a stretcher, underwent a lot of pain despite administration of heavy doses of morphine and barbiturates. ii. Claim Mrs. Spangelova has raised a legal claim against Tesco for her lost income of 12,000kc per month, 100, 000kc per month for ancillary services, fees for her three children, claim against morphine and barbiturates addiction, a new pair of Manolo Blahnik stilettos and a replacement of the sequinned dress she was wearing at the time of the accident. iii. Claimant’s legal position Mrs. Spangelova has a legal claim against Tesco for negligence because they left the spilt yoghurt on the floor and did not put a warning sign thus they were responsible for the injuries sustained by the plaintiff under Occupiers Liability Act 1957. iv. Possible defence Tesco may decline the claim against payment of school fees of the children who were not known prior to the case. In addition, the defendant may argue that the plaintiff was partly responsible for the injury because she had other things in her mind, and the slippery was contributed by Manolo Blahnik stilettos that are not common in their business. v. Possible outcome The plaintiff is may succeed on a claim of negligence since the supermarket’s management did not clean the yoghurt spilt on the floor. The case is similar to that of Ward v Tesco Stores Ltd [1976] 1 W.L.R. 810 in which ward sustained injuries when she fell after stepping on the spilt yoghurt. She raised a claim of negligence by Tesco management and was awarded compensation for damages to the tune of £137.50. Therefore, the claimant is likely to succeed on the principle of res ipsa loquitur on all the claims. Incident 3 i. Facts Mr. Klaus had bought fish head from the discounted section of Tesco. After eating the fish, he became unconscious and was hospitalized. The results of the test indicated food poisoning, and now he has decided to sue Tesco. ii. Claim Mr. Klaus has raised a claim of medical cost, lost income for one week amounting to 750kc and the cost of the fish head dinner. iii. Legal position of the claimant Under the Consumer Protection Act 1987, the seller is responsible for the injuries caused to the consumers by “defective products” or “goods not fit for the purpose.” Therefore, Mr. Klaus has legal right to claim for compensation of injuries caused by the fish he had bought from Tesco’s discounted section. iv. Possible defence Tesco may deny the claim by arguing that Mr. Klaus was not poisoned by the fish from Tesco, but probably other food taken from another place. Also, it is possible that the claimant did not store the fish properly or cook it immediately. Furthermore, there was no evidence other or claims from consumers who had bought fish from Tesco on the same day. vi. Possible ruling Mr. Klaus may succeed if he can prove to the court that he suffered as a result of food poisoning from the fish. The record indicates that Tesco was selling the fish at a discounted price because they were about to expire thus the fish were probably not good for human consumption. In the case of Callow v Tillstone (1900) 64 JP 823 322, the butcher sold unsafe meat and was held liable for the injuries suffered by those who consumed the meat. Therefore, Tesco is likely to be held responsible for the injuries suffered by Mr. Klaus, but he has to prove to the court that the injuries he suffered were caused by the fish he consumed after buying it from Tesco. (E). Conclusion Both parties to a contract are susceptible to various risks thus it is essential to understand the requirements and the causes of risks and how one can protect himself or herself legally against those risks. Every business should establish risk management process that is proportionate with the intensity of risk and intensity of the third-party involvement as well as the business structures. If the business does not effectively manage its relationship with the other party, it may suffer severe consequences in case the third-party fails to perform to the expectations. The consequences of ineffective risk management could have undesired consequences on the customer and business resources. Both parties should continue to get satisfaction from the contract operations. The contract should achieve the anticipated benefits and value for money. The parties to the contract should continue to enjoy a cordial relationship with each other and understand the duties they owe each other. In addition, the parties should maintain effective communication throughout the contract period and inform each other of the changes that may occur during the performance of the contract if they are likely to change the position of the contract. Bibliography Austen-Baker, R. 2011. Implied Terms in English Contract Law. UK: Edward Elgar Publishing. Pp. 1-192 Beardmore v Franklins Management Services P/L[2002] QCA 60; [2003] 1 Qd R Callow v Tillstone (1900) 64 JP 823 322 Century Insurance Co. V. Northern Ireland Road Transport Board (1942) Donoghue v Stevenson [1932] AC 562 House of Lords Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd. Howells, G.G. & Schulze R. 2009. Modernising and Harmonising Consumer Contract Law. Sellier. European law publishers. Pp. 64-186. Jolley v Sutton [2000] 1 WLR 1082 Nettleship v Weston [1971] 2 QB 691 Overseas Tankship (UK) Ltd v The Miller Steamship Co or Wagon Mound (No. 2) [1967] 1 AC 617 Occupiers Liability Act 1957. Smith v Leech Brain & Co [1962] 2 QB 405 Stone, R., & Devenney, J. 2014. Text, Cases and Materials on Contract Law. Routledge Pp. 325- 385 Stone, R. 2013. The Modern Law of Contract. Routledge Pp. 231-453. The Consumer Protection Act 1987 (1987 c. 43) The supply of goods and services Act1982 Tinseltime Ltd. v Eryl Roberts, M & J. T. Davies, Denbighshire County Council and the Welsh Ward v Tesco Stores Ltd [1976] 1 W.L.R. 810 Read More