Business Law - The Doctrine of Negligence - Essay Example

Business Law The issue in this question relates to negligence and in particular the claim of negligent ment for Peter and Alison’s claim againstBumble & Co. and negligence in respect of the local council. The issue of duty of care, breach of duty, causation and damage would be discussed and then the liability for negligence will be determined. The law on negligence has been defined as conduct which falls below the standard established by law for the protection of others against unreasonable risk of harm. The doctrine of negligence was developed by Lord Atkin in Donoghue v. Stevenson1 in which it was stated that a person must take reasonable care to avoid acts or omissions which if seen with reasonable foreseeability are likely to cause an injury to that person’s neighbour. The definition of neighbour was stated to be a person who would be so closely and directly affected by the act that he should be contemplated of when doing the act or omission. This is what is known as the neighbour principle. The test was reformed in Anns v Merton2 where Lord Wilberforce suggested a twos tagged test. The current position is that of House of Lords in Caparo v. Dickman3 whereby a three stage test was laid down. First, it must be reasonably foreseeable that the conduct of defendant would cause damage to the claimant. Secondly, there must be sufficient proximity between the parties and finally ‘the situation must be one in which the court considers it fair, just and reasonable the law should impose a duty of care of a given scope on the one party for the benefir of the other’. (Wild et al 2010) The courts in Caparo stated that the defendant, who had undertaken the statutory audit of the public company was under a duty by way of contract to the shareholders as a collectivity and went on to say that individual purchasers of the shares of the company were not owed any duty even if they were existing shareholders nor did any liability arise in respect of the creditors of the company. It is more than evident that the accounts of the company are relied upon and the auditors’ manuals and other material may clearly point out to the fact that there has been reliance. However, the courts have due to policy reasons that the possibility of multiplicity of claims (floodgates argument) and business factors have disallowed such claims. Therefore the main reason of the courts has been that the auditors do not owe a duty to investors where reliance is placed on such audit reports because of lack of proximity; the other reason would be an added burden on auditors and so the duty is merely owed to the company and not any other persons. (Deakin et al 2008) In the current situation of Peter and Alison, both can argue that they have a claim against Bumble on the basis that a duty of care was owed by Bumble to Peter on the basis that he was an existing shareholder and Alison as a potential investor. However, the duty as established by Caparo is owed to the shareholders collectively and the fact that reliance has been placed on auditors accounts and as a result an existing shareholder purchasing further shares has failed to establish proximity. Thus due to the flood gates argument Peter would be unable to claim for the losses that he has suffered for the further investment that he made. In respect of Alison Caparo has stated that potential investors do not suffice for proximity and therefore she cannot claim negligence against Bumble. However, Peter does have a claim against Bumble in respect of the existing shares that he had in respect of which he and other shareholders might claim that due to the negligence of Bumble in preparing the accounts has resulted in the fall in value of the company. There is clear cut duty of care owed in this respect which has been breached and it is clear that there is proximity as well as causation because it is because of the poor accounts that such losses have accrued and therefore a possible negligence claim arises. In respect of Peter claiming against the local council the factors that have been taken into account is the attraction of a duty of care absent statute and the fact that such a duty is not amended or excluded by the statute. There have been differing approaches that have been suggested by the courts. The first one being that of X v Bedfordshire County Council4 where it was that the local authority could not be held liable for acts which the Parliament had authorized it to do, however, if it was found that the decision of the authority was so unreasonable that it fell outside of such discretion, then there would be no reason to exclude such liability. Furthermore, in Barrett v Enfield London Borough5 it was stated that the common law concept of negligence should be applied directly and then the Wednesbury test of reasonableness should be applied so as to determine whether the decision was outside the discretion that had been provided. (Wild et al 2010) In the facts at hand the current situation is of omission of the council to cover the pothole the law on which is dealt with in Stovin v Wise6 where the action was brought against the Council. The majority in the case left open the option of a possible common law duty of care in respect of a statutory power. Such duty would arise if two situations were satisfied, the first one being the fact that the decision not to do so would have been improper exercise of discretion, and would have been irrational, and the second one being that there exist exceptional grounds under which the statute and its policy requires compensation for such failure and therefore loss to be paid to the person who suffered it. Even though the claim in this particular case failed and it has been constantly reiterated by the courts that the proper action against the public authority should be way of administrative review, the possibility of negligence claim has been accepted. (Elliot et al 2005) Thus what has to be proved by Peter is the fact that leaving the pothole open was an incorrect use of the discretion. This aspect can be proved because the council was under an obligation to maintain the road and had improperly exercised its discretion for a long period of time. The second situation requires exceptional circumstances, the interpretation of which is dependent upon the view of the courts, if it is considered that non maintenance by the local council and as a result Peter’s injury are exception circumstances, then Peter would be able to claim on the grounds of negligence and could recover damages in respect of the claim. However if the failure is not found to be an exceptional circumstance then the claim would not succeed. The case lies in the balance because on the one the court have been reluctant to allow claims for negligence against local council and public authorities and on the other they laid the principles which have been clearly proved. Therefore the issue is one which would weigh both the options and a decision would be reached in that respect accordingly. References WILD, C., WEINSTEIN, S., SMITH, K., & KEENAN, D. J. (2010). Smith and Keenans English law: text and cases. Harlow, England, Longman DEAKIN, S., JOHNSTON, A. C., & MARKESINIS, B. S. (2008). Markesinis and Deakins tort law. Oxford, Oxford university press. ELLIOT, C., & QUINN, F. (2005). Tort law. Harlow [etc.], Pearson Longman Read More