Business Law in Australia (Tort) - Case Study Example

Since such affected people are described as neighbours, the doctrine of duty is usually described as the neighbour principle. For the purpose of this doctrine a person's neighbours are individuals who are directly and proximately affected by act of commission or omission of that person. Subsequently, most of the developments have taken place in the rule of negligence. These developments have given another definition to the neighbour principle by Lord Wilberforce. In Anns v Merton London2, the House of Lords established a two - stage test.

First, there should be an adequate Proximity or neighbourhood relationship in the reasonable observation of the defendant's negligence which would cause damage to the interests of the claimant. If this holds good then a prima facie duty of care becomes apparent. Second, it is essential to determine whether any issues exist, which hinder the applicability of the duty of care that is owed to persons, or that try to negate it wholly, or reduce its scope. However the two - stage test faced much criticism in respect of its applicability which is broad in its scope.

As such the current test of duty of care in the areas of proximity, foresight and fairness in establishing the former had been adopted by the courts. Under this test, claimants were required to establish three aspects which they consider to be a duty of care. First, there should be a violation that could have been reasonably foreseen and which was certain to cause injury to persons in the claimant's position. Second, there should be a reasonable and adequate proximity between the parties and third, it should be fair, justifiable and reasonable to impose the liability.

This test's interpretation has been evidenced in the case of Caparo Industries v Dickman3. In this case the decision of the Court of Appeal was rescinded by the House of Lords. If one accepts that the principle in Donoghue v. Stevenson4 to be precise, then by implication the decision of the House of Lords in the cases of Murphy5 is correct. In the Murphy case, the House of Lords did not grant compensation for the economic loss in relation to the damage caused to the building. It was considered to be unimportant, that this ruin was capable of harming other buildings and persons.

Moreover, it was held that an impeachment of actual damage would result if there was public justification of negligence based entirely on the decision in Donoghue v. Stevenson. Furthermore, it was opined on the basis of the principle established in Donoghue v. Stevenson, that the normative importance of information that a flaw was hazardous was irrelevant after such a defect was noticed6. Lord Bridge opined in this context that if injury to a person or damage to a building was due to a latent flaw in the chattel, then the manufacturer was to be held liable for the damage caused.

In addition, he stated that if the latent defect came to light prior to the occurrence of damage, then the principle established in the Donoghue v. Stevenson case would be inapplicable. Accordingly, the chattel, under consideration, would be deemed to be defective but not dangerous7. In the context of real estate, a builder would be liable for constructing a building that had dangerous defects. The builder would be held liable in the event of such a defect remaining undisclosed until personal injury or damage to some other property transpired. 250. This latency requirement has been abandoned and accordingly, the principle of