Business Law and Negligent Misstatement - Case Study Example

Business Law Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 11th September 2012 Words count: 2000 Introduction Negligence is a tort that is meant to compensate people who have suffered due to the slack judgment of others. It exists in law to make sure people do not neglect the duty of care they have towards their neighbors in their actions and omissions. Max can be said to have owed Hope a duty of care while advising her about the viability of Bruno’s as an investment opportunity. By urging Charlie to purchase the restaurant without being objective about the prospects of its success Charlie may have broken the duty of care owed to Charlie thus he can be said to have acted negligently. This essay analyzes the facts of the case and establishes the legal issue they raise. Secondly it establishes the rules and principles that can be used to decide the cases in a court of law. Thirdly, it applies the rules in the Case to Max and Harley’s cases to establish it is actionable. In the conclusion it is established that Max owed Charlie a duty of care but his breach of the duty cannot be proved to be the cause of Charlie’s loss. Legal Issue in the Case study To establish the Legal issues in any case a person has to carefully analyze the facts of the case to unearth the issue (s). In this case the relevant facts are; a) Max is Charlie’s friend. b) Charlie is looking to invest in a restaurant but has no experience in running or owning a restaurant. c) Max’s finds a restaurant called Bruno’s on King’s Avenue which appears to be doing brisk business. d) Next day he expresses his intention to buy the restaurant to Max who endorses with the following statement “Bruno’s is a very successful restaurant; you are almost guaranteed to make a profit in the first 12 months” e) Charlie makes up his mind to purchase the restaurant with his Brother Harley. f) A year later the business is collapsing and revenues continue declining. From the case it can be urged that Max acted negligently in endorsing the purchase of Bruno’s by presenting an overly positive outlook to Charlie. In law where reliance on ones words causes person harm the person is said to have committed a tort of negligent misstatement1. The law Negligent misstatement is categorized in Negligence which also includes defective structures and defective products. Negligence is defined as ignoring ones duty to ensure others are not harmed by ones actions or omissions. For Charlie’s and/or Harley’s case to be actionable they would have to prove all the elements of negligence against Charlie’s conduct. The elements of Negligence are; a) Does the plaintiff owes a duty of care to the defendant in relevance to the negligent action or omission? b) Did the plaintiff breach the duty of care? c) Did the breach of duty cause harm to the defendant. In negligent misstatement a defendant also has to prove additional elements as words are distinctly different from actions when it comes to causing harm. The case of Queen v. Cognos Inc., [1993] 1 S.C.R. 87 which developed on the ideas of negligent misstatement espoused by Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (1964) AC 465 2by establishing five elements that a plaintiff must prove. These elements are3: a) A special relationship has to exist for a duty of care to arise. b) The statement must lack truth, accuracy and or be misleading. c) The plaintiff must have acted negligent in making the statement. d) The person receiving the advice/information must have relied on the misstatement. e) The person must have been harmed as a result of relying on the misstatement. Although the elements were set out in a ruling at the supreme court of Canada they have also been used in several Australian cases to prove negligent misstatement. Secondly, these elements are also very relevant while proving negligent misstatement in Australia as they only develop the test set out in Hedley4. Application For Charlie and/or Harley to prove that Max was guilty of negligent misstatement they have to prove each of the elements listed above. The first element to be proved is the question of whether a special relationship existed between Max and Charlie or Max and Harley. The element of a special relationship is easy to prove as courts do not set the bar of special relationships is not high in negligent misstatement. In Hedley the case that established liability for misleading words a special relationship only has to be sufficiently proximate for a duty of care to arise5. In Donoghue v Stevenson special relationships are with any person where your actions or omissions may harm6. In the case Max’s friendship with Charlie is sufficiently proximate for Max to owe Charlie a duty of care while advising him on whether Bruno’s was a good investment opportunity. However, the relationship between Harley and Max was not sufficiently proximate for Max to owe him a duty of care as regards the advice. Therefore, Harley case would fail at this point as it is impossible for him to prove The second element involves proving whether the statement made by Max lacked truth, accuracy and was misleading. When Charlie asked Max about Bruno’s max asserted that the restaurant was very successful and he was almost guaranteed to make a profit in the first 12 months. This statement is too optimistic and did not represent the actual financial position of the restaurant as revenue dropped after a year instead of realizing the profits Max had promised. The third element that Charlie has to prove is whether Max acted negligently while advising him about the investment. This would be a question of whether Max could have foreseen that his advice would lead Charlie into financial ruin. In Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 (28 October 1981) the council was held liable for negligent misstatement as they possessed the knowledge about the road widening proposal and if they had not acted negligently it’s would not have led to a loss to the defendant7. Max having run a restaurant for several years was in a position to give accurate information about investing in a restaurant around the same area as his own. He was also aware that Charlie knew nothing about the restaurant business and thus would most probably use his advice. The fourth element Charlie would also have to prove in an action of negligent misstatement is that he relied on Max’s bad or inaccurate advice in purchasing Bruno’s. Before consulting Max it is clear that Charlie was already impressed by the restaurant having many customers. He went to Max to hear an expert’s opinion and Max endorsed the restaurant as a good performer and thus Charlie made his final decision to purchase Bruno’s based on the advice of Max. The final element that Charlie would have to prove to get a decision against Charlie is that his reliance on the advice of Max was the cause of his loss. This element would be hard to prove for Charlie as there are two competing views of the cause of his loss. First, it may be said Bruno’s was not performing as well as Max had asserted and thus Max had misled Charlie in making the decision to invest in the restaurant. Alternatively, it can also be urged that since Charlie had no experience of running a restaurant business he had mismanaged the business and thus caused it to go into bankruptcy. Max could also defend himself from the accusation of negligent misstatement as his may have contained a disclaimer. In Hedley a statement of caution may exempt a plaintiff from liability for negligent misstatement. In his advice Max told Charlie that he was almost guaranteed to make a profit in 12 months. Almost in the context may mean that profit was not a certainty and therefore it could constitute a disclaimer. Conclusion It is evident from that it is not possible for Charlie to satisfactorily fulfill all the elements needed to find Max liable for negligent misstatement. As negligent misstatement is a category of negligence all the element of negligence must also be present, these are; a) does the plaintiff owes a duty of care to the defendant in relevance to the negligent action or omission? b) Did the plaintiff breach the duty of care? c) Did the breach of duty cause harm to the defendant. Causation the third of the elements of negligence cannot be proved in this case as it cannot be established whether the bankruptcy of the business due to reliance on Max’s advice or the inexperience of Max in running the business. Harley action against Max is farfetched as there was no proximal relationship between them as their contact is through Charlie his brother. Therefore Charlie’s and/or Harley case against Harley is not actionable under the tort of negligent misstatement. Bibliography A. Article/Book/Reports Christian Witting, ‘Duty of Care: An Analytical Approach’ (2005) 25 Oxford Journal of Legal Studies 33. Daniel More, ‘The Boundaries of Negligence’ (2003) 4 Theoretical Inquiries in Law 339-347 B. Others Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (1964) AC 465 Queen v. Cognos Inc., [1993] 1 S.C.R. 87 Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 (28 October 1981) Read More