The Tort of Negligence and Breach of Duty of Care - Case Study Example

Running Head: Tort of Negligence Tort of Negligence Customer’s Name: Customer’s Course: Tutor’s Name: August 11th, 2012 Charlie and/or Harley are seeking legal advice on whether they are able to take any action against Max following advice offered by Max to Charlie on the purchase of a restaurant. The argument should be based on the law of negligence. I wish to argue from two perspectives; that of Charlie who sought advice from Max and Harley who did not participate in seeking advice. Background Max’s friend Charlie wishes to purchase a restaurant. One evening he finds a Greek restaurant, Bruno’s, for sale, located on King’s Avenue, around the corner from Max’ restaurant, The Hercules. The restaurant is full of customers. A few days later, Charlie speaks to Max about his plans. Charlie explains that he is very keen to buy the business but that he has never owned a restaurant or even worked in the industry before, and he would appreciate Max’s advice and guidance. Max assures Charlie that Bruno’s appears to be a very successful restaurant and that he is ‘almost guaranteed’ to make a profit in the first 12 months. Charlie immediately decided to purchase the restaurant with his brother Harley. One year later they are on the verge of bankruptcy; the restaurant was not as popular or as profitable as they expected, and turnover has declined even further since they took over business. Advice Breach of Duty of Care A breach of duty of care occurs when one party fails to take action or does something that he knows could harm someone else. The principle of duty of care was set out in Donoghue v. Stevenson [1932] AC 5321 which established that an individual is responsible for his neighbour welfare. In the case the plaintiff had consumed a bottle of beer that contained a decomposed snail. Later, she claimed she suffered emotional harm and stomach trouble. In the ruling the judge found the plaintiff guilty of not ensuring the contents of his product would not harm their consumer. This case established the principle of foreseeable harm when dealing with negligence. The birth of the duty of care led to the establishment of another tort; the tort of negligent misstatement. Liability for a duty of disclosure can only be established in the plaintiff can prove: a) he relied on the advice of the defendant, b) it is reasonable to assume the advice of the defendant can be relied upon as he has the necessary skill, ability and judgment as regard the issue at hand c) if the advice given cause him harm2. A person is found to be liable to negligent misstatement if they negligently offer advice to another person knowing that person will rely on that information to make a decision that may harm them economically3. It then follows that the advice given by Max was relied upon by Charlie when he bought the restaurant and it later caused him economic loss. However, the question of whether Max could foresee his advice could cause Charlie economic harm arises. In the case Shaddock & Associates PTY. LTD. v. Parramatta City Council (No. 1) [1981] HCA 59; (1981) 150 CLR 225 the council was found liable for misstating information about a road widening proposal that caused the claimant economic loss4. The case established that a person has a duty of care where they are giving advice or on opinion that is relied upon because of their skill, ability or judgement regardless of whether there is a fiduciary or contractual relationship. It was ruled that the council was in the best position to provide information about a planned road expansion that would affect the plaintiff’s investment negatively5. It then, follows that if Max had carelessly given Charlie the investment information carelessly knowing it might lead him to financial ruin Charlie may have a case of negligent misstatement against him. As the principle set out in Donoghue v. Stevenson had already been rejected in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt [1968] HCA 74; (1968) 122 CLR 556 (High Court) and [1970] UKPCHCA 2; (1970) 122 CLR 628; (1971) AC 793 (in the Judicial Committee), 6it was not clear how the duty of care is established in negligent misstatement. Therefore, the high court set out the following principles: a). For negligent words to constitute negligent misstatement it must be shown they were relied upon by the defendant to make a decision that later caused him harm b). People speaking on social occasions cannot be reasonably relied upon for advice. Charlie knew that Max had the skills, ability and judgement to advice him correctly whether Bruno was good investment opportunity. Max also knew that Charlie would rely on the advice he would led to him to purchase the restaurant. However, Max took some level of caution in advising him as he told him it is “almost guaranteed he will make a profit within the first 12 months”. This cautious statement may constitute a disclaimer which would reduce his liability in a case of negligent misstatement as seen in the decision of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 where a disclaimer by the client was accepted as a defence for negligent misstatement7. Charlie could also defend himself as he does not engage in the business of offering financial advice as Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt cast the duty of care for advice or information on professional investment advisors8. Negligence as a tort can be termed as the breach of legal duty to take care consequently leading to damages to the claimant9. For the claimant to be fully compensated, she or he must establish the three elements contained in the definition of the negligence as a tort. That is, does the company owe the claimant a duty of care, has the defendant breached the duty, and has the breach in one way or another caused any damage which is legally recognizable to the claimant. Harley did not directly seek for advice from Max but his did it through his brother Charlie. Therefore, it would be unlawful for him to take any legal action against Max. One would argue that Harley was not in any contract with Max for him to fail to fulfill his duty of care. Similarly, his brother-Charlie was not in any legal contract for him to breach the duty of care. It is therefore logical to argue that, Harley’s can only sue Max on behalf the organization of which he is a shareholder. Based on the fact that Harley was not mentioned during the process of advice, it means that the advice provided by Max was based only on Charlie as the sole proprietor of the restaurant. It would be argued that in the process of running the business, Harley and Charlie made errors that caused the business to lose its popularity hence the losses. Remember the fact that both Charlie and Harley did not have any prior knowledge on how to run such a business. Moreover, Max was advising based on how he knew the restaurant from “outside” and not from “inside” where he could tell the returns of the restaurant with more certainty. Finally, though Harley incurred loss from the advice given, it is also logical to argue that the advice was on the purchase but not on how to run the business. Mitigation In all professional negligence claims, the plaintiff has a right to try and mitigate his/her losses before going ahead and claim for any damages that may exist and as caused by the defendant10. Therefore, before suing the defendant in a court of law; one should consult a legal solicitor and ask for his/her chance of recovering the losses. This is because, one can proceed and prosecute the defendant and in the long run the decision be made in the favour of the defendant, hence increasing the losses. One should therefore seek for legal advance to mitigate the losses. Like in the case of Herrmann v Withers LLP, though the claimant had consulted a legal solicitor on the legality of the matter, the court’s decision was in the favour of the defendant11. This followed after the solicitor had ill-advised the claimants on their legal position in the case. In our scenario, the claimants (Charlie and Harley) should therefore seek the advice of a professional to establish the facts before suing Max. Consequently, they will have mitigated their losses as explained above. The solicitor should establish whether Max afforded the advice in good faith our otherwise. If he did it in good faith, then Charlie and Harley have no legal basis to claim for compensation from Max. On the other hand, if Max either through error of omission or commission ill-advised Charlie; then Charlie and Harley stand a chance of claiming for compensation. Conclusion It would be hard for Charlie to get a decision in his favour if he takes legal action against Max as the judgement will rely on the test for duty of care which is rigorous and the judge’s interpretation of common law Bibliography Herrmann and Another v Withers LLP [2012] EWHC 1492 (Ch) Trindade, F. Cane, P & Lunney, M. (2007) .The Law of Torts in Australia. New York: Oxford University Press. Latimer P. (2011). Australian Business Law. Sydney: CCH. Simon, D, Johnston, A & Markesinis, B (2003). Markesinis and Deakin's Tort Law. Oxford University Press. Elliott, Catherine; Quinn, Frances (2007). Tort Law. Longman. Beever, A. (2009). Rediscovering the Law of Negligence. Oxford: Hart Publishing. Read More