Negligent Misrepresentation - Ella and Veronica - Case Study Example

Negligent Misrepresentation Name Lecturer August 20th, 2012 Words 1596 Introduction Hope a former Pastry Chef wanted to purchase his own cafe on Bindi beach. In making the purchasing decision she consults Ella, a real estate agent and Veronica an accountant who advice her Paradise retreat is a reasonable investment. Relying on the advice of the two professional she goes ahead and makes the purchase. This paper analyzes the facts of the case then looks at the legal issues arising in the case. Secondly, it looks at the rules that have been established in similar cases on the issues. Third, the rules established are then applied on the case. Finally the paper concludes that Ella and Veronica acted negligently while giving advice to hope in making the purchase of the motel. Issue The information relevant in this case to an issue of negligence is; Hope does not have any experience in running a business. Hope was looking to purchase a restaurant and when he consulted Ella about its prospects, Ella answers “Paradise Retreat is very profitable, a real gold mine. You’ll be laughing all the way to the bank”. Looking for a second opinion she approaches Veronica, an accountant who after going through the records of “Paradise Retreat” confirms it’s a viable investment. Hope relies on the advice by the two to make the purchase After operating the hotel for a very short time she runs into cash flow problems as it does not attractive as much revenue as she had been promised. From the facts set out above it can be concluded that Hope may have a case of negligent misrepresentation against both Veronica and Ella. Negligent misrepresentation is defined as an act or an omission where a person fails to fulfill a duty of care while giving advice or opinion about an issue while he/she is aware such advice or opinion when used by the person may cause them harm. Rules Negligent misrepresentation was first established in Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 4651. The case established that a person could be held liable for advising another person into making a decision that causes them economic harm, if their exist a special relationship between the parties as set out in Hawkins V’s Clayton (1988) 164 CLR 5392. To establish negligent misrepresentation a plaintiff has to prove the following elements of negligent misrepresentation3; The defendant owes him/her a duty of care to give him reliable and factual advice about the issue at hand. The defendant did not fulfill his/ her duty of care The plaintiff suffered harm due to his reliance on the advice of the plaintiff. The first of these elements, duty of care was set out in Donoghue v Stevenson. Further developments have seen the duty of care in cases of negligent misstatement expanded. To prove that a person acted negligently one has to fulfill the following conditions4; He is owed a duty of care by the accused not to cause him/her loss and injury. The accused failed to fulfill this duty of care. The breach of the duty caused the defendant damage, injury or loss The defendant could have foreseen that his breach of the duty of care would cause harm to the person receiving his advice Duty of care in negligent misrepresentation For loss that is economic in nature (pure economic loss) a plaintiff has to prove other additional factors as courts are reluctant to award recovery. These additional conditions are; If a special relationship existed between the defendant and the plaintiff at the time of giving advice. The person giving advice knew the circumstances his advice was being sought in and understood the gravity of the situation. The plaintiff relied on the advice/opinion of the plaintiff to make the decision that caused him the economic loss. Exemptions and extensions of the duty of care Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) and L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) extended the duty of care in negligent misrepresentation cases to include people giving advice or an opinion even in a casual setting as long as the advice could be relied upon because the person has the skill, ability and judgement5. But there are also various exemptions to the existence of duty of care in negligent misrepresentation cases, these include; By using a disclaimer a person giving advice may remove his duty of care. A professional may not be liable to negligent misstatement if he acted consistently with procedures widely accepted by his profession. If the advice is not meant to lead a person to act in a certain way. Analysis The first task for the defendant would be to prove a duty of care existed between him, Veronica and Ella. In our case there was a professional relationship between Hope and Ella since the later was a real estate agent and he had accepted the request for advice from Hope. In Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 46, lord Morris stated “if someone possessing special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise”6. In this context Veronica too would have a duty of care to provide reliable and factual advice to Hope while assisting her to make the investment decision. Secondly, the plaintiff would have to show the defendant breached his duty of care by misrepresenting facts while offering advice. From the case it can be seen Ella gave enthusiastic advice to Hope hoping to make a quick sale of the motel as he knew he would benefit from it7. Ella either negligently failed to check the true financial position of the Paradise Retreat or knowingly misled Hope in making the purchase thus Ella would be found liable to negligent misrepresentation as set out in Commercial Banking Co (Sydney) Ltd v R H Brown & Co (1972) 126 CLR 3378. Even under a narrow interpretation like the one in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 7509, Ella would be found liable as his act of negligence was intended to induce Hope to purchase the Motel10. In contrast, it would be harder to determine whether Veronica breached her duty of care by confirming to the defendant that the business was reasonable. Veronica analysis of the situation is factual as he made Hope aware that the business had started making profits in 2011. Thirdly, the plaintiff would have to prove the breach of the duty of care caused the economic harm suffered by the client. It is clear that Hope was very impressed by the advice of Ella who claimed to be an expert in selling motels and even operating them. Even under the narrow interpretation of Mutual Life & Citizens' Assurance Co Ltd v Evatt [1970] HCA 46 (Privy Council), Ella is still liable as he had made the claim that he specializes in giving advice11. In contrast, Veronica never made similar claims although it is evident that Hope relied on Ella’s advice and that the opinion of Veronica in making the final purchasing decision. However, it has emerged from Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 75012 that a person need not make a claim that his advice is reliable for a duty of care to exist thus Veronica could still be found liable for negligent misrepresentation. It is evident that if Ella had given Hope honest advice about paradise retreat, Hope would have terminated the process of purchasing the motel even before contacting Veronica. Therefore, it can be concluded Hope relied on the advice of Ella in purchasing the “Paradise Retreat” which later performed below expectation while Veronica’s opinion only played a contributory role. Defense Veronica could defend herself under the principle set out in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords as she could she acted in a manner that is widely acceptable in his profession in Australia13. Secondly, she could also claim his opinion was as a result of his interpretation of the records and she had not foreseen it would cause the plaintiff economic loss. She would be able to refer to the principle in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 750 which narrows negligence misrepresentation to act or omission meant to induce a person to act in a certain way14. Finally, Veronica could argue that his case was contributory negligence as she came in to confirm the advice of Ella which she based on the present positive performance of the business. Alternative action Hope may be able to pursue a case of fraudulent misrepresentation if she can be able to prove that Ella knowingly misled her into entering the contract to purchase the hotel. Conclusion Hope’s actions against Ella would succeed as it fulfils all the elements of negligent misrepresentation. It is clear Ella owed Hope a duty of care as they had a professional relationship. Secondly, Ella knew that or negligently ignored the fact that Paradise Retreat did not perform very well when a competing Hotel then shut for renovation was in operation. Finally, it is clear that the economic loss suffered by Hope was a result of Ella’s negligence or dishonesty. Moreover, Ella could also be found liable under the more serious offence of fraudulent misrepresentation. In contrast, Veronica’s liability would be hard to proof as she has various defenses as shown above. Bibliography A. Books/Articles/Reports Barbara Ann Hocking and Alison Smith, Liability for Negligent Words (Federation Press, 1999). Sharon Christensen, W. D. Duncan, Tamara Walsh, Professional Liability and Property Transactions (Federation Press, 2004) Gilbe Kodilinye, Caribbean Tort Law (Routledge, 2000) Paul Latimer, Australian Business Law (CCH Australia Limited, 2012) B. Cases Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 465 Hawkins V’s Clayton (1988) 164 CLR 539 Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 465 Commercial Banking Co (Sydney) Ltd v R H Brown & Co (1972) 126 CLR 337 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 750 Mutual Life & Citizens' Assurance Co Ltd v Evatt [1970] HCA 46 (Privy Council), Read More