lOMoARcPSD|3248894

Tutorial.topic 4.solutions(Carelessly Causing Harm.

Negligence and Negligent Misstatement)
Commercial Law (RMIT)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by ahmad as (ksa-m29@hotmail.com)
 lOMoARcPSD|3248894

Commercial Law Topic 4 Tutorial selected solutions

Carelessly Causing Harm:

Negligence and Negligent Misstatement

Problem 1:

Outline the elements necessary to prove to succeed in the tort of negligence.

Negligence requires three elements, all of which must be established:

(a) Duty of care

(b) Breach of duty of care
(c) Damage caused by the breach which is reasonably foreseeable.

There are two defences:

(a) Voluntary assumption of risk

(b) Contributory negligence

Problem 2:
See pages 220-225 of the 4th edition of the textbook (or pages 184-189 of the 3rd edition).

Problem 3:
As problems 3 and 4 deal with similar issues in negligence law, please refer to the answer to
problem 4 below for the law relevant to problem 3.

Problem 4:

First issue: is the rock concert organiser liable in negligence to Cameron?

Relevant rules:
To succeed in an action in negligence, the plaintiff must prove on the balance of probabilities
that (a) a duty of care is owed, (b) that the duty of care has been breached and (c) that the
breach caused damage which is not too remote from the breach.

(a) To establish a duty of care, the plaintiff must satisfy the “neighbour principle” established
by Lord Akin in Donoghue v Sureshnson. Under the neighbour test, a person must take
reasonable care to avoid acts or omissions that they can reasonably foresee would be
likely to injure their neighbour. In law, your neighbour is “those persons so closely and
directly affected by your acts that you ought reasonably have them in contemplation as
being so affected when directing your mind to the acts or omissions which are called into
question.”

It is also useful to consider whether there are any relevant established duties of care.
Precedent has established that occupiers owe a duty of care to entrants to the premises.
With respect to lawful entrants, occupiers owe a duty of care to avoid any reasonably
foreseeable risk of injury (Australian Safeway Stores v Zaluzna). In some circumstances, a
duty of care is also owed to uninvited visitors such as trespassers. In Hackshaw v Shaw, it
was held that the defendant farmer owed a duty of care to a trespasser to avoid “ultra-
hazardous” acts (firing bullets). However, in Bryant v Fawdon the occupier was held not to
Downloaded by ahmad as (ksa-m29@hotmail.com)
 lOMoARcPSD|3248894

owe a duty of care to the plaintiff trespasser, given that the injury was not reasonably
foreseeable (the plaintiff climbed a 1.8 metre fence to get to a toilet and was knocked
unconscious when she attempted to flush the toilet’s disused concrete cistern in the dark).

(b) There must be a breach in the standard of care. A person breaches their duty of care if
they fail to meet the standard of care that the reasonable person is required to show to
avoid unreasonable risk of harm (Imbree v McNeilly). The reasonable person need not
respond to a risk that is “far-fetched and fanciful”.

How a reasonable person would act in the shoes of the defendant may be gauged by
reference to certain criteria, including the probability of the risk of injury (Bolton v
Stone), the seriousness of the consequences (Paris v Stepney Bourough Council), the
possibility of eliminating those risks (Latimer v AEC), compliance with usual practice
(Mercer v Commissioner for Road Transport and Tramways) and the utility of the
defendant’s conduct (Watt v Hertfordshire County Council).

(c) The breach must have caused damage. This is established by way of two tests:
(i) causation – ‘but for’ the breach the damage would not have happened (Yates v Jones,
other cases: Chappel v Hart; Cork v Kirby McLean); and
(ii) remoteness – is the damage reasonably foreseeable? (The Wagon Mound case).

Once negligence is established, it is necessary to consider whether any defences apply. If the
defendant can show the plaintiff voluntarily assumed the risk, the defendant escapes all
liability (Agar v Hyde). In the case of contributory negligence, the plaintiff’s compensation is
reduced to the extent that the court considers just and equitable having regard to the plaintiff’s
share in the responsibility for the damage (s 26 Wrongs Act 1958 (Vic)).

Application: Students should consider all aspects of the issue, including arguments for both
sides.

In considering whether the rock concert organiser owed Cameron a duty of care, it is necessary
to apply the “neighbour test” of Donoghue v Sureshnson. Arguably, it would appear to be
reasonably foreseeable that, if it were to rain, concert-goers would seek shelter under the
tarpaulin. Furthermore, it would appear to be reasonable foreseeable that, if the tarpaulin were
to collapse, people sheltering under it would be injured. Clearly, lawful entrants are owed a
duty of care by the occupier of the premises (Zaluzna’s case). The question is whether a duty of
care is owed to Cameron, given that he has not paid for a ticket and, hence, had no legal right to
be there. In this regard the trespasser cases need to be considered. If the concert organiser
engaged in “ultra-hazardous” behaviour as in Hackshaw v Shaw, it owed Cameron a duty of
care. Arguably, it did so by failing to prevent Cameron from sheltering under the water-heavy
tarpaulin. On the other hand, the facts in Cameron’s case bear some similarity to those of
Bryant v Fawdon, where the plaintiff climbed a 1.8 metre fence to use a toilet she saw at the
rear of the premises. It was held there was no reasonably foreseeable risk of injury and that the
defendant did not therefore owe her a duty of care. (Whatever conclusion is drawn, students
should proceed to argue the next two steps in establishing negligence - breach and damage.)

In determining whether the concert organiser has breached the duty of care, it is necessary to
consider the standard of the reasonable person. Did the concert organiser act as the reasonable
person of ordinary prudence in the circumstances? Would the reasonable concert organiser
have taken action to avoid the injury that occurred? Two factors in particular would indicate
that the concert organiser did breach this duty. First, it appears highly probable that people are
likely to be injured by the collapse of the tarpaulin under the weight of rainwater, thus
necessitating some preventative action. Secondly, the burden of eliminating the risk does not
appear to be prohibitive, difficult or expensive. The reasonable concert organiser arguably need
only have cordoned off the area and/or placed warnings as to the risks of standing under the
Downloaded by ahmad as (ksa-m29@hotmail.com)
 lOMoARcPSD|3248894

tarpaulin. Furthermore, under s 14G of the Wrongs Act 1958 (Vic) the court is to take into
account the fact that the plaintiff (Cameron) was involved in an illegal activity, in determining
whether the defendant was in breach of its duty.

Lastly, Cameron’s injuries were caused by the concert organiser’s breach of the duty of care
and his injuries are not too remote. “But for” the defendant’s breach, Cameron would not
have suffered these injuries. His injuries are reasonably foreseeable losses arising from the
breach. Cameron may therefore recover damages for his medical costs and compensation for
his study and employment losses.

After negligence has been established, the concert organiser’s defences should be discussed.
Voluntary assumption of risk does not appear relevant on the facts, as Cameron was not
aware of the risk. However, there may be a successful claim in contributory negligence, given
that Cameron was trespassing (Hackshaw v Shaw). The illegality of the plaintiff’s conduct is
also taken into account under s 14G of the Wrongs Act 1958 (Vic).

Conclusion: The rock concert organiser is liable in part to Cameron.

Second issue: is the rock concert organiser liable in negligence to Alec?

Legal Principles: The same legal principles as were discussed above in relation to Cameron,
also apply to Alec. To succeed in an action in negligence, the plaintiff must prove on the
balance of probabilities that (a) a duty of care is owed, (b) that the duty of care has been
breached and (c) that the breach caused damage which is not too remote from the breach.

Application: Alec may argue that under the “neighbour” test a duty of care was owed to him,
it being reasonably foreseeable that Alec’s witnessing Cameron’s injury could cause Alec
psychological harm. As a witness of the actual accident, Alec is likely to be affected by the
defendant’s negligence. Alec’s witnessing the accident indicates physical proximity. Alec’s
case is to be compared to Bourhill v Young where the plaintiff did not see the accident, but only
heard the accident and saw its aftermath. Furthermore, it is not necessary to show that the harm
actually suffered was reasonably foreseeable, but that some kind of harm someone in Alec’s
position as a witness could by caused by the defendant’s negligence (Chapman v Hearse). The
psychological distress which Alec suffered from witnessing Cameron’s injury would not have
occurred but for the rock concert organiser’s breach of its duty of care. Alec’s psychological
distress is not too remote and is a reasonably foreseeable consequence of witnessing Cameron’s
injury.

Conclusion: The rock concert organiser is liable to Alec in negligence and Alec may therefore
recover damages for the psychological distress that he has suffered as a result of witnessing
Cameron’s injury.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

Problem 5:

ISSUE

The legal issue in this matter is whether the caterers are liable in negligence to compensate you
for (a) food poisoning and (b) your broken arm at the hospital.

RULE

In order to succeed in a legal action in the tort of negligence you must satisfy three
requirements:
1. The caterer owed you a duty of care;
2. The caterer breached their duty;
3. The caterer’s breach caused you to suffer reasonably foreseeable harm.

APPLY

Duty of care

To establish that the caterer owes you a duty of care, you must establish:
1. That it was reasonably foreseeable that the caterer’s act could cause harm to someone
in your position;
2. That the salient features of the case are consistent with the existence of a duty.

In Donoghue v Stevenson (1932) AC 562 it was established that a person owes a duty of care to
those people they can reasonably foresee as likely to be affected by their conduct. In this matter,
you could argue that it is reasonably foreseeable that failure to provide safe food is likely to
cause harm to people eating it.

The court will consider the relationship between the parties and compare the salient (relevant)
features to other cases. In this matter, the argument that a caterer owes a duty of care to those
consuming their food is consistent with the Donoghue v Stevenson (1932) AC 562 principle.
With respect to the hospital fall, whilst it is foreseeable that you would be taken to hospital after
contracting food poisoning, the caterer does not owe you a duty of care whilst you are in the
care of the hospital.

Breach of duty

The next matter you must establish is that the caterer has breached their duty of care. You are
required to take into account several factors:
 The probability of harm: Bolton v Stone [1951] AC 850
 The likely seriousness of the harm: Paris v Stepney Borough Council [1951] AC 367
 The burden of taking precautions: Latimer v AEXC Ltd [1953] AC 643
 The social utility of the activity creating the harm: Watt v Hertfordshire County
Council [1954] 1 WLR 835

In this matter, it is highly probable that if the caterers do not exercise a high degree of care
when preparing and serving food, a person may contract food poisoning. It is highly probable
that a person would become ill from eating a mouse. You could argue the harm could be
significant, as eating a mouse can cause a person to become very sick and require medical
attention. The caterer could have avoided the risk by taking precautions to ensure their food
complies with safety standards.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

The breach caused the harm

You are required to establish that the caterer’s breach caused you harm. You must satisfy the
court:
1. The breach of duty was a necessary condition of the occurrence of the harm (factual
causation);
2. It is appropriate for the scope of the liability of the defendant to extend to the harm
(scope of liability).

In order to satisfy the first requirement, you must ask: did the careless act cause, either directly
or indirectly, the harm suffered by the plaintiff? A test often used by courts is the ‘but for’ test
(Chappel v Hart (1998) 195 CLR 232): the court asks whether, but for the defendant’s
carelessness, the plaintiff would have suffered the harm. Here, the caterer’s careless act in
serving food with a mouse in it, directly caused you to contract food poisoning. Arguably, but
for the contaminated food, you would not have become sick.

In order to satisfy the second requirement, the court must be satisfied that it is appropriate for
the defendant’s liability to extend to the harm suffered by the plaintiff. The damage cannot be
too remote: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (Wagon Mound
No 1) [1961] AC 388. In this matter it does not appear that remoteness of damage is an issue
because the contaminated food directly caused your food poisoning.

With respect to liability for your broken arm in hospital, it is unlikely you would be able to
satisfy the factual causation component. Was the broken arm caused by the caterer’s
negligence? Based on the precedent in Yates v Jones [1990] Aust Torts Reports 81-009 the
court is likely to find that your broken arm was not caused by the caterer’s negligence, but
rather by your own carelessness or the hospital’s negligence.

Defences

The caterer has two defences available to a negligence action: voluntary assumption of risk and
contributory negligence. Neither appear to be available to the caterer because you did not have
full knowledge and appreciation of the risk of eating the caterer’s food and you did not
contribute to your loss or injury.

CONCLUSION

Based on the preceding analysis, it is likely that you will be successful against the caterers in
your claim of negligence for the food poisoning, but not for your broken arm.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

Problem 6:

The tort of negligent misstatement requires that in order for a duty of care to arise
between persons, there needs to be a ‘special relationship’.

(a) What are the factors a court will have regard to in determining whether such a
relationship exists?

MLC v Evatt (1968) 12 CLR 556 established that a professional adviser owed a duty of
care to clients to whom they supplied information. Building on Hedley Byrne v Heller, in
L Shaddock and Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 the
duty was widened to include any persons supplying information to others where they
knew that the information would be relied upon for a serious purpose.

The following requirements must be satisfied:

1. The advice was of a business or serious nature
2. The defendant knew or should have known that the plaintiff intended to rely on the
advice.
3. It was reasonable in the circumstances for the plaintiff to rely on the defendant’s
advice.

(b) Do you agree with the statement that “where a professional relationship exists (for
example; accountant and client, lawyer and client, marketing executive and client)
there is a duty of care owed by the professional to their client”?

If the professional gives careless advice that leads to economic loss then the cases referred
to in question 6(a) support that professional being held accountable.

Problem 7:

The legal issue in this matter is whether you are liable in your capacity as an accountant for
providing incorrect advice and causing economic loss.

RULE

In order to succeed in a legal action in the tort of negligence the client must satisfy three
requirements:

1. The accountant owed a duty of care;

2. The accountant breached their duty;
3. The accountant’s breach caused economic loss.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

In negligent misstatement actions, the duty of care is differently ascertained. Three criteria are
required to be satisfied:

1. The advice was of a business or serious nature

2. The defendant knew or should have known that the plaintiff intended to rely on the
advice.
3. It was reasonable in the circumstances for the plaintiff to rely on the defendant’s advice.
(Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465; L Shaddock and Associates
Pty Ltd v Parramatta City Council (1981) 150 CLR 225)

APPLY

Duty of care
The first step your client must establish is that the advice was of a business or serious nature.
Evidently, an enquiry about a taxation return to an accountant is a serious matter because if a
taxation return is completed incorrectly your client may face penalties. In this case, it was a
$2,500 mistake.

The second step is that you as an accountant should have known your client intended to rely on
your advice. The plaintiff called you seeking your advice as his accountant therefore you
should have been aware your client would rely on your advice.

The third step is to enquire whether it was reasonable for your client to rely on your advice? In
this case the answer is yes. This is a professional relationship of trust. Therefore you most
likely owe your client a duty of care.

Breach of duty

The next step to be satisfied is that you breached your duty of care. It is highly probable that if
you provide your client incorrect advice, they will act on it and may incur economic loss. The
harm in this case is serious, given the $2,500 additional tax your client is required to pay.
Therefore there has been a clear breach of your duty.

The breach caused the harm

Your client must satisfy the following:

1. The breach of duty was a necessary condition of the occurrence of the harm (factual
causation);

2. It is appropriate for the scope of the liability of the defendant to extend to the harm (scope
of liability).

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

In order to satisfy factual causation you must satisfy the ‘but for’ test (Chappel v Hart (1998)
195 CLR 232). Here, your negligent advice clearly caused your client to incur a liability of
$2,500.
In order to satisfy the second requirement, the court must be satisfied that it is appropriate for
the defendant’s liability to extend to the harm suffered by the plaintiff. The damage cannot be
too remote: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (Wagon Mound
No 1) [1961] AC 388. In this matter, incurring a tax liability as a result of an accountant’s
negligent advice is not too remote.

CONCLUSION

Based on the preceding analysis, it is likely that your client will succeed in a claim for negligent
misstatement.

Problem 8:

The facts give rise to a claim in negligent misstatement.

An action for economic loss caused by negligent misstatement may succeed if the following can
be established: (1) duty of care, (2) breach in the requisite standard of care and (3) damage
(caused by the breach and which is reasonably foreseeable).

Defences should also be considered.

The main issue is whether the Meadows Shire Council (MSC) owed Oanh a duty of care.

A duty of care in negligent misstatement claims arises where there is a “special relationship”
between the parties (Hedley Byrne v Heller). This exists “where the recipient of the advice
trusts the other to exercise such a degree of care as the circumstances require, where it is
reasonable to do that, and where the speaker knows or ought to know the other is reliant on
him/her.

The test for establishing a “special relationship” was set out in Shaddock v Parramatta City
Council:

1. The subject matter must be of a business or serious nature

2. The speaker must realise or ought to realise that the recipient intended to act on the advice
3. The circumstances must be such that it is reasonable for the recipient to rely on the
advice.

Reasonable reliance is the key to establishing a duty of care in negligent misstatement cases.

Application to facts:

1. At the outset, it can be said that MSC is vicariously liable for Suresh’s negligent advice,
as Suresh acted in the course of his authority as an MSC employee.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

2. In giving professional advice, Suresh ought to realise that he is being trusted, in particular
where his advice has been sought as an agent for the MSC.
3. The advice given deals with land use rights and has a bearing on investment decisions. It
is clearly of a business or serious nature.
4. Suresh ought to realise that Oanh intends to act on his advice as it was sought for
ascertaining the purposes for which the land could be used.
5. It is reasonable for Oanh to rely on advice given by Suresh based on his special skill, in
that he had access to knowledge not otherwise available. It would therefore be reasonable
for Oanh to act in reliance on the advice given. The nature of the occasion made clear the
gravity of the inquiry and the importance and influence attached to the answer (both
Shaddock’s and Hedley Byrne’s cases support this). Because it was reasonable for Oanh
to rely on Suresh’s advice, a relationship of proximity or closeness arises between them.
Accordingly, Oanh is owed a duty of care by MSC (acting through Suresh).

The other elements of negligence should be canvassed in your answer, although there is not a
great deal to discuss with regard to the breach in the standard of care (since the MSC
probably has not acted as the reasonably careful and prudent advisor, i.e. it should have checked
and confirmed the validity of Suresh’s advice).

Damage is obviously apparent, in that the value of the land and the economic benefits of its
exploitation have been negatively affected. “But for” the MSC’s breach of its duty of care,
Oanh would not have suffered such loss. This satisfies the causation test. The loss was certainly
not caused by some other factor, such as an economic downturn (Alexander v Cambridge Credit
Corp). Secondly, the damages were not too remote, in that they were a reasonably foreseeable
consequence of the breach (the Wagon Mound case).

None of the defences is applicable on the facts.

Accordingly, Oanh should be successful in an action against the MSC for negligent
misstatement.

A final note: there is the possibility of an action under s 18 of the Australian Consumer Law for
misleading and deceptive conduct.

Problem 9:

The facts give rise to claims in negligent misstatement.

An action for economic loss caused by negligent misstatement may succeed if the criteria for
(1) duty of care, (2) breach in the requisite standard of care, (3) damage caused by the breach
that was reasonably foreseeable. Defences should also be considered.

The main issue is whether Andrew Garrett owed Victoria Spence a duty of care.

A duty of care arises where there is a “special relationship” between the parties (Hedley Byrne
v Heller). This exists “where the recipient of the advice trusts the other to exercise such a
degree of care as the circumstances require, where it is reasonable to do that, and where the
speaker knows or ought to know the other is reliant on him/her.

Downloaded by ahmad as (ksa-m29@hotmail.com)

 lOMoARcPSD|3248894

10

The test for establishing a “special relationship” was set out in Shaddock v Parramatta City
Council:

(a) The subject matter must be of a business or serious nature

(b) The speaker must realise or ought to realise that the recipient intended to act on the
advice
(c) It was reasonable for the recipient to rely on the speaker’s advice.

Reasonable reliance is the key to establishing a duty of care in negligent misstatement claims.

Application to facts:

1. While Andrew gives professional advice, it is unlikely that he would realise that he is
being trusted in such a social context. On the other hand, given that he is a well- known
personality, perhaps he ought to realise that he might be trusted.
2. The advice is investment advice which is certainly of a business or serious nature.
3. Andrew ought to realise that the recipient intends to act on his advice notwithstanding
that his advice was flippant and constituted only a single-word answer to a question.
4. While it is reasonable for Victoria to rely on advice given by Andrew based on his
special skill, it would not be reasonable to act in reliance of the advice given casually
while they were putting rubbish bins out. The nature of the occasion did not make clear
the gravity of the inquiry and the importance and influence attached to the answer (both
Shaddock’s and Hedley Byrne’s cases support this). Because it is not reasonable for
Victoria to rely on Andrew’s advice no relationship based on a duty of care arises
between them. Accordingly, Victoria probably is not owed a duty of care by Andrew
(and accordingly will probably not have a successful action in negligent misstatement).

The other elements of negligence should be canvassed in your answer, although there is not a
great deal to discuss regarding the breach in the standard of care (since Andrew probably has
not acted as the reasonably careful, prudent investment advisor i.e. he should have arranged a
more detailed appointment).

Also damage is obviously apparent i.e. the loss of Victoria’s assets. Causation is usually
worth some consideration in this context because while the “but-for” test would attribute
Victoria’s losses to Andrew’s advice, it might equally be argued that Victoria’s losses were
caused by bad company management in ASA Pty Ltd, a downturn in the economy, poor
accounting practices in the company, a decline in the foreign currency exchange rate, etc.

Finally, there is also probably some contributory negligence in Victoria’s failure to seek more
detailed advice and rely on a one-word answer with a significant amount of money.

Advice given on the radio:

A duty of care is more likely to arise here. It is more reasonable in the circumstances for
Victoria to rely on Andrew’s advice. It was in Andrew’s line of business and provided it was
given with reasonable formality and seriousness, Victoria may argue that a duty arose.

A final note: students should also consider the possibility of an action under s 18 of the
Australian Consumer Law for misleading or deceptive conduct.

Downloaded by ahmad as (ksa-m29@hotmail.com)