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Parties Involved Defendant: Mr Don Plaintiff: Mr Patrick and Miss Mary Cause of Action: Tort of Negligent Misstatement

Step 1
Issue Was the duty of care owed to the plaintiff Mr Patrick and Miss Mary while providing information by Mr Don?

Rule The view on misrepresentation was, the damages could be claimed by the plaintiff if the representation was a part of contract, or a fraud was committed. In Hedley Bryne v Heller, Lord Pearce articulated the issue as follows:1 Negligence in words creates problem different from those of negligence in act. Words are more volatile than deeds. They travel fast and far afield. They are used without being expanded and take effect in combination with innumerable facts and other words. Yet they are dangerous and can cause vast financial damage. Here with there is no doubt that negligence applies to words as well as acts, provided the plaintiff can show there is exist a special relationship between the plaintiff and the defendant.

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465,534(Lord Pearce)
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In Mutual life & citizens Assurance Co Ltd v Evatt(Mutual Life)2 (1968), Barwick CJ said of the special relationship:3 The circumstance must be such as to have caused the speaker to realise that he is being trusted by the recipient of the information or advice to give information which the recipient believes the speaker to possess or to which the recipient believes the speaker to have access or to give advice, about a matter upon or in respect of which the recipient believes the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious business nature. The speaker may invite the recipient to act on the basis of the information or advice, or intend the recipient to act in a particular way. The speaker may actually have an interest in the recipient so acting

This test was approved and used by Mason J in shaddocks case4 (1981) and also by McHugh J in Esandas case5 (1997), in concern with the reasonableness of the plaintiff reliance, which could establish duty of care between the plaintiff and defendant.

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Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556

Ibid 572 (Barwick CJ)

L Shaddock and Associates Pty Ltd v Parramatta City Council (1981) 55 ALJR 713 (High Court)

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 71 ALJR

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Application: Mr Patrick upon hearing Mr Dons advice at the party about taking consideration to invest in Kill Cancer Pty, a company that was reported to be developing a drug, Miracle that might cure cancer. This lead Mr Patrick to invite Mr Don to discuss his investment options further at an expensive restaurant. The Following statement was made by Mr Don to Mr Patrick whilst having lunch gives rise to cause of action in Tort for Negligent Misstatement:

If the drug went onto the market, the value of share in Kill Cancer could rise from their current price of $10 to $150 or even more

Mr Don had full knowledge that Mr Patrick was not averse in taking calculated risk, and is likely to buy a large number of shares in Kill Cancer. Therefore, it is a serious matter because Mr Patrick may incur economic loss due to the advice. From the facts we know that Mr Don was an experienced financial adviser and accountant, showing that he was well equipped with special or professional skill and good friend. So it is reasonable for Mr Patrick to rely on the Mr Dons advice without making further inquiry. Establishing a special relationship between the two parties without any disclaimer about the information or advice given. Where in Miss Mary had not requested for the information or advice nor did she know Mr Don directly to rely on the information. Leaving Miss Mary without any kind of special relationship with Mr Don. Conclusion Thereby Mr Don owes a duty of care to Mr Patrick but was not extended to Miss Mary.

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Step 2

Issue Did Mr Don, through his words of advice or information, breach the duty of care to Mr Patrick? Rule of Law The weighting Test6 Consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. Application Here the magnitude of risk involved is very high, as a misstatement in advice, could lead Mr Patrick to suffer huge economic loss when relied on without any further inquiry, as he was fully aware of Mr Patrick behaviour on taking calculated risk. The probability of the loss is high as well, as without the drug, Miracle which was under development process by Kill Cancer Pty Ltd being successful in curing cancer. The expense, difficulty and inconvenience of reducing or eliminating the risk is low as nonexecutive director Mr Don would have access to the information about the ongoing drug trial conducted by Kill Cancer Pty Ltd. before the announcement to the public. As non-executive director Mr Don is not an employee of the company or affiliated with it in any other way. Here in bearing no conflicting responsibilities to Kill Cancer Pty Ltd. while sharing the information about the drug trials. Conclusion Mr Don breached the duty of care by not maintaining the necessary standard of care owed to Mr Patrick.

Wyong Shire Council v Shirt (1980) 146 CLR 40 AT 48

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Step 3
Issue Will Mr Dons breach in duty of care while giving advice or information have a direct effect on Mr Patricks loss? Rule of Law Causation-but for Test7

To determine if the breach of duty caused the loss.

Remoteness / Foreseeability of Damage8

The Loss must not only have been a direct consequence of

the negligent misstatement, but must also have been reasonably foreseeable Application But for Mr Dons Negligent Misstatement, Mr Patrick would have not agreed to invest in Kill Cancer Pty Ltd. if the drug would be successful in curing cancer. The loss of $900, 00 is not too remote because it is reasonably foreseeable that if the drug was not successful in curing cancer, Mr Patrick would not have gained any profit. Also, Mr Patrick would have not invested in Kill Cancer Pty Ltd. which costed him $ 1 Million.

Conclusion Mr Dons breach in duty of care did have a direct effect on Mr Patricks loss.

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Chappel v Hart (1998)72 ALJR 1344.

Overseas Tankship (U.K) Ltd v The Miller Steamship Co Pty Ltd. [The Wagon Mound (No. 2) 2 All ER 709].
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Step 4

Issue Does Mr Don have any defence against Mr Patrick? Rule of Law Voluntary assumption of risk9

The plaintiff knowingly and willingly undertook to take the risk of incurring losses. Contributory Negligence10 The plaintiff failed to exercise reasonable care for his or
her own safety and that failure contributed to the loss that he or she suffered


There is voluntary assumption of risk up to a certain degree by Mr Patrick, but he could argue that this was a calculated risk which was biased on the advice given to him by Mr Don. But it can be noted that even though Mr Don constantly warned Mr Patrick about the risk involved, this cannot be considered as disclaimer11. However, Mr Don may argue that Mr Patrick had contributed partially to the negligence as Mr Patrick should have done his homework while investing such huge sum of money into one portfolio. But can be noted despite the suggestion from Mr Patrick about sending him a bill on the financial advice given by Mr Don, Mr Don said not to worry about it as they were friends. Showing negligence on the part of Mr Don as he could have easily avoided the case if he had got the bill done with the disclaimer.

Moore v Woodforth (2003) NSWCA 9 March v Stramare (1991) 171 CLR 506

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Disclaimer: A disclaimer is a defensive written measure, used generally with the purpose of protection from unwanted claims or liability.
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Conclusion It appears from above analysis that there are no defence available to Mr Don and thus making him fully liable for the losses caused to Mr Patrick.

Closing Statement
From the thorough discussion, it makes Mr Don fully liable for the negligent misstatement through words. Mr Don is thereby liable to compensate the losses incurred by Mr Patrick.

Sweeney, B., OReilly, J. N., & Coleman, A. Law in Commerce( 4th Edition ). Australia.

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