Foundation of Business Law: Australia Law - Case Study Example

Foundation of Business Law (Australia Law) Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Foundation of Business Law (Australia Law) Question 1 Kosmo wants to know what kind of legal action, if any, he might have against Gerry. Issue In the current situation, Kosmo wants to know what kind of legal action he can take against Gerry. This is after Kosmo has lost 50% of his investment in the Facebook’s shares after the first month of his investment. Gerry is a financial advisor at ‘Tom and Gerry Limited’ and is a financial advisor to George’s business in which Kosmo is an associate. Gerry had advised George, a business associate of Kosmo that investing the Facebook’s initial public offer is a good investment opportunity for George’s business to invest in. However, the value of the Facebook’s share has dropped by 50% in its first month of trading. The issues of the case can be identified as below: Is Gerry to blame for Kosmo’s loss? Is Kosmo entitled to Gerry’s financial advice? Does Gerry have an obligation to advise Kosmo financially? Law In this scenario, Gerry is the financial advisor to ‘George’s business. As the financial advisor, he has several liabilities to the company. Since he is an advisor, he has a ‘duty of care to his clients’ (UNISA, 2012a, p.41). This is due to the following reasons: His advice is business related; hence any inappropriate advice leads to an adverse effect on the company’s financial situation. Secondly, Gerry knows what George’s business wants to do. To be specific, George is looking for an investment to invest in which will have a high return on capital in addition to reducing the amount of taxes on the business. This is the reason as to why George is asking for advice from Gerry. Thirdly, Gerry knows that he is the sole financial advisor to George’s business. The business relies on him for any financial advice hence it is due to use the advice he gives to the management. The law governing such a situation is indicating below. One is not supposed to cause harm to someone because of his / her negligence. This happens if one gives information to a person which leads to harm, with full knowledge that the person is relying on the information to make a decision. This amounts to a Tort of Negligence. According to Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 24, information given to a person can also cause harm to a third party if used (). This is in line with Kosmo who uses the advice given to George to invest in the Facebook’s IPO. In such a situation, liability to third parties is subject to the information pointed out below. Authority Under a tort of Negligence, Kosmo is a third party to Gerry’s advice. He is entitled to Gerry’s advice due to the following reasons: Gerry must have known that George will communicate the information he had given about a possible investment into Facebook’s shares. This is because Gerry is an associate to George hence it is more likely that the money that George’s business would invest in the Initial Public Offer would be a collective amount from all the associates in the business, and not George’s. Secondly, before the financial advice on investing into the Facebook’s Initial Public Offer, Gerry knew that his client was relying upon the information to make a decision on which investment to make using the profits which was accumulated in the just concluded financial year. Thirdly, Gerry knew if that the advice given was wrong, it would surely lead to a financial loss. Since Gerry is a financial advisor, he has full knowledge the implications of investing wrongly in shares and securities and he must have the ability to predict on the likely performance of the Facebook’s shares. Application According to the law, Kosmo can charge Gerry of negligence and a duty of care due to the following reasons. To start with, Gerry knew that George would surely communicate the information to Kosmo who was his business associate. Gerry knew that George and his associates would use the advice which he gave to them in making a decision on where to invest in. Lastly, Gerry knew that is the advice given on the investment in Facebook’s shares was not correct; it would lead to a financial loss to George and his business. For this reason, Gerry owes Kosmo a duty of care due to the following reasons. The advice which he was giving was of a business nature. Gerry knows that George and his associates, Kosmo included intends to use the information which he is giving in order to know is the best place to invest their profits in. It was reasonable in the given circumstances for Kosmo to rely on the information given. However, on the side of defence, Gerry was giving advice on the shares and securities field. In the stock exchange, the prices of shares are subject to change due to market forces which are beyond the control of an investor. Trading in shares is in itself a risk. For this reason, Gerry saw an opportunity for George’s business to invest. He was optimistic and did not think of any changes in the market forces which would lead to a fall in the prices of the company. If investments in the stock exchange are to be profitable, they are meant to be a long term investments while Kosmo had only invested in the shares for one month only. One month is not enough to make a conclusion about the value of a share. Under the breach of duty, the court would consider that: Gerry did not intend harm to George and his associates ‘Bolton v Stone [1951] AC 850’ (DC Tek Solutions, 2010, p1). In his mind, he was thinking of an investment which had low taxes and one which would have a high return on investment. Long term investment in shares has that ability. Secondly, Gerry did not have the ability to change the market forces which would lead to the fluctuation of share prices. For this reason, he did not know of the seriousness of the price falls ‘Paris v Stepney Borough Council [1951] AC 367’ (Docstoc, 2011, p.1). Conclusion Due to the fact that Gerry does not have power over the market forces which affect the prices of shares, he is not responsible for Kosmo’s loss. Secondly he is an advisor to George’s and Associates business. However, Kosmo had invested in the Facebook’s shares as an individual, not as the business. Gerry is not responsible for individual investments. Thirdly, the advice given to George was a suggestion, but not a formal financial advice. For this reason, Kosmo is acquitted off the charges. Question 2 Newman wants to know what kind of legal action, if any, he might have against Kosmo Issue One month after Kosmo had invested in the Facebook’s shares, the prices had fallen by 50% leading to Kosmo lose 505 of his money. Due to frustration he had decided to go and confront Gerry for the advice he had given to George. While he was coming out of the building in agitation to go to confront Gerry, he slams the door on Newmans face which results to injury. This causes him not to participate in the Adelaide Pétanque Club Championship, which he had won for the past 3 years, earning $40 000 cash prize each time. The issue of the situation is: Is Kosmo to blame for Newman’s injury? Is Newman entitlement to be paid by Kosmo? Law According to the Australian law, the injuring of Newman’s face by Kosmo which led to him not participating in the championship is a civil wrong which the law ought to address by awarding damages incurred by Newman, hence it is a tort (UNISA, 2012b, slide 19). Since Kosmo did not intend to injure Newman, he is to be charged with a tort of negligence. Authority Under the tort of negligence and a duty of care in Australian law, Kosmo has a case to answer due to his neglect of care. Under the circumstances, Kosmo had a duty of care to Newman due to the following reasons: First, at the time of the incident, Kosmo knew that his conduct could cause harm to someone who was behind him. For this reason, the damage was foreseeable ‘Donoghue v Stevenson [1932] AC 562’ (UK Law Online, (1998, p.1). Secondly, Kosmo was in control of the situation since he was the one holding the door. He ought to have chosen to let the door go slowly rather than slamming it. Thirdly, it is immoral to slam a door. This act goes against social values in Australia. Slamming the door may also lead to its damage hence leading to financial losses due to damages caused on the door ‘Jaensch v Coffey(1984) 155 CLR 549’ (Owen, K., n.d. , p.1). Application With reference to the case, Kosmo acted in a negligent manner, slamming the door without taking into consideration the person who might be behind it. To start with, Kosmo knows of the effects of slamming a door and injuring a person behind it is one of the effects. Because of his action, he injured Newman causing him not to participate in the championship and as a result loses $ 40,000 which he has won in each of the last 3 years. Secondly, Kosmo was in control of the door. He would have chosen to slam it or just release it slowly. He chooses to slam in and in turn hurting Newman’s face. Because of his action, he injured Newman causing him not to participate in the championship and as a result loses $ 40,000 which he has won in each of the last 3 years. Thirdly, Kosmo is negligent since he slams the door which is immoral. In addition to this, it has adverse financial implications if the door gets damaged. Conclusion Kosmo is guilty of a tort of negligence. He has a duty of care to Newman, a person who was behind the door. In effect of this, Kosmo should pay Newman the physical damages incurred. He is responsible for all the expenses incurred as a result of his action. He should also pay him an equivalent sum of $40, 000 which Newman lost by not competing in the Adelaide Pétanque Club Championship. References Docstoc, 2011. Paris V Stepney Borough Council [1951] AC 367, Viewed on 30th September 2012 from DC Tek Solutions, 2010. Case - Bolton v. Stone, A.C. 850, 1951 Viewed on 30th September 2012 From http://www.onlinelawtutoring.com/Case_Reference/Bolton_v_Stone_AC_850_1951.htm Owen, K., n.d. Tort Reform (There is Movement at the Station), pp.1-14 UK Law Online, 1998. Donoghue v Stevenson, Viewed on 30th September 2012 From < http://www.leeds.ac.uk/law/hamlyn/donoghue.htm > UNISA, 2012. Foundations of Business Law, COML 1001 Study Guide, pp. 41- 48 UNISA, 2012. Foundations Of Business Law, COML 1001, Lecture 3. Slides 1-40 Read More