Tort of Negligence Platform to Base Charlie and Harley against Max - Case Study Example

Negligent words Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 5th October, 2012 Introduction Generally, the tort is an area of law that seeks to ensure people take reasonable care not to harm other through reckless or careless conduct by remedying their losses1. In common law, Negligence misstatement is a tort concerned with giving someone else non-factual information that they rely on to make a certain decision. The tort of negligent misstatement was brought about by the existence of a duty of care as espoused in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 in a situation where one party gives information that can cause harm to another party2. The principle of duty of care as set out in Donoghue v. Stevenson [1932] AC 532 states that an individual should be responsible of their neighbor’s well being in regards to their acts or omissions that may harm other persons. In the case the plaintiff is accused the defendant with negligence for the presence of a decomposed snail in his bottle of beer which later caused her negative health effects3. In the ruling, the plaintiff was found guilty because the product caused harm and the producers of the beer were held liable for being negligent. This therefore is the tort of negligence platform to base Charlie and/or Harley case against Max. Issue The legal issue in this case study is whether Max acted negligently in advising Max and Harley to go ahead with the Purchase of a restaurant that he alleged was performing very well. Charlie already had an interest in buying the restaurant and therefore he seeks Max’s advice on whether to buy Bruno’s restaurant located near his own restaurant. Charlie explains to Max that he has never engaged in such a business but is very interested in investing in a restaurant. Charlie follows max’s advice as he states that by investing in this restaurant, it is guaranteed that he will make large profits by the first 12 months. With the exciting idea that Max gives to Charlie, Charlie decides to incorporate his brother Harley in purchasing the restaurant. After its inception, the restaurant is bankrupt and in contrast to Max’s assurance, the hotel is not profitable and the turnover has been deteriorating since they took it over. The Law Donoghue v. Stevenson [1932] AC 532, Lord Atkin established a duty for individuals to ensure their daily acts or omissions do not cause harm to people who are affected by their actions4. The breaking of this duty gives rise to the tort of Negligence. From this original principle negligence has developed into three division; negligent misstatement, defective structure and defective products. Unlike the other two negligent misstatements is concerned with the careless use of word and is therefore harder to prove. However, it is still necessary for a plaintiff to satisfy the three elements of negligence for them to succeed in negligent misstatement action. The elements of negligence include5: a. The defendant owes the plaintiff a duty to take reasonable care in relations to the subject matter. b. The defendant has broken this duty of care by a negligent act or omission. c. The breach of duty is the actual cause of the plaintiff’s injury, in cases of negligent misstatement this injury suffered is in terms of pure economic loss. The ruling in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 gave rise to the new tort of Negligent misstatement6. The judge recognized that a person commits a tort; if they give misleading or non-factual advice to another party pertaining to commercial matter and reliance on that advice leads to that person suffering economic loss. An action of negligent misstatement has to prove the following five elements: a. The defendant relationship with the plaintiff should give rise to a duty of care as pertaining the subject of the advice given; b. The statement made by the defendant in regard the transaction must be untrue, inaccurate or misleading; c. The plaintiff could have reasonably foreseen that the information they were given could be a possible source of harm to the plaintiff; d. The Plaintiff must have relied on the advice given by the defendant as it was reasonable to do so; e. The economic loss suffered by the Plaintiff was as a result of reliance on the misstated words or advice The burden of proof for these elements lies with the plaintiff, should he/she fail to satisfy any of these conditions then the case fails. Application In this case the first element that Charlie and/or Harley would have to prove is whether Max owed them a duty of care as regard the advice for the purchase of the restaurant. A special relationship between Max and Charlie can be established since they had been close friends. It is evident Charlie knew about Max’s experience in running restaurants. As set out Lord Pearce in Hedley Byrne & Co Ltd v Heller & Partners Ltd, if a person has a level of expertise and knowledge about a subject matter he owes a duty of care to people who seek advice about that area of expertise7. It follows then that Max owed a duty of care his friend Charlie but not to Harley. The duty of care arises from the fact that he experience in running restaurants and had set out to give advice to Charlie. Secondly, Charlie would have to prove that the information or advice given by Max was inaccurate and did not represent the true state of affairs as regard the financial performance of Bruno’s restaurant. He misled Charlie by advising him that he was almost guaranteed to make a profit in the first 12 months. From the losses made later this statement was inaccurate and misleading. Thirdly, Charlie would have to satisfy the court that Max could have foreseen that his advice as regards the Charlie’s intended purchase of Bruno’s could cause harm. As an experienced restaurant owner and competitor to Bruno’s, Charlie would have enough information as regard the financial wellbeing of Bruno’s. It is clears his advice is overly optimistic and does not reflect how a person with his skill and ability should analyze an investment opportunity. In the fourth element, Charlie relies on Max’s view as Charlie considers him as an expert in the field of restaurant management. Charlie might have trusted in Max’s advice which led to loss being suffered as a result of his negligent statement. The idea behind purchasing Bruno restaurant was as a result of Charlie’s own interest because he saw many customers flocking to it and thereafter consulted Max for advice on whether to take up the restaurant by buying it. He choose Max as his adviser because he dealt in the same business and more so Max would predict the performance of that restaurant as his own restaurant was located on the same street. Similarly, Shaddock & Associates PTY. LTD. v. Parramatta City Council (No. 1) [1981] HCA 59; (1981) 150 CLR 225 set out that it is reasonable to rely on the advice of a person who is best placed to give accurate information as regards a matter8. A person is regarded as being in the best placed position to give advice regarding a certain matter if they have the necessary expertise, ability and judgment as regards the subject matter. The final element that Charlie would have to prove is sometimes referred to as “causation or cause in fact”9. In this element, Charlie has to satisfy the court that the loss he suffered is a result of his reliance on the Charlie’s misleading advice and not other factors. It urged that Charlie should not accuse Max of causing his loss as he had no experience in running a restaurant. In his defence max can argue that since Charlie had never managed a restaurant before his inexperience led to the poor performance of the business. Secondly, it is shown that since Harley and Charlie took over the restaurant revenues continued declining further. Furthermore, it is also not a guarantee that more customers would continue coming to the restaurant because the hotel was now under new management which would mean the services offered might have been different. Conclusion It is clear that both Harley and Charlie cannot satisfy all the elements of negligent misstatement in a suit against Max. Any action by Harley would be too far-fetched as a he is a third party who only comes in after Max had advised Charlie, and therefore a Max does not owe him a duty of care. On the other hand Charlie can also only satisfy four of the elements of negligent misstatement. As it is not clear whether the lack of managerial experience or reliance on Max’s advice is the cause of the poor performance of Bruno’s, Max can escape liability for negligent misstatement. Therefore, a case of negligent misstatement by Charlie and/or Max is not actionable as they would not be able to prove all the elements of negligent misstatement. Bibliography Articles/Books/Reports Jane Stapleton, ‘The Golden Thread at the Heart of Tort Law: Protection of the Vulnerable’ (2003) 24 Australian Bar Review 135, 137 Kenneth S Abraham, ‘The Trouble with Negligence’ (2001) 54 Vanderbilt Law Review 1187, 1190 Peter Cane, ‘The Anatomy of Private Law Theory: A 25th Anniversary Essay’ (2005) 25 Oxford Journal of Legal Studies 203, 212 B. Cases Donoghue v. Stevenson [1932] AC 532 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Shaddock & Associates PTY. LTD. v. Parramatta City Council (No. 1) [1981] HCA 59; (1981) 150 CLR 225 Read More