THE LAW OF COMMERCIAL CONTRACT Negligent Advice Sweeney & O’Reilly 1 st Ed. pp 42 – 50 2 nd Ed. Pp 63 - 70

THE LAW OF COMMERCIAL CONTRACT

Negligent Advice

Sweeney & O’Reilly

1st Ed. pp 42 – 50

2nd Ed. Pp 63 - 70


Elements of Negligence1. Defendant owed a duty of care to the plaintiff to

take reasonable care to prevent him for suffering injury, loss or damage

2. There was a breach of the duty of care by failing to adhere to the standard of care expected

3. The breach of duty caused damage to the plaintiff

4. The plaintiff suffered damage that was of a kind which was reasonably foreseeable i.e. was not too remote


Duty of Care – Negligent Advice When is a duty of care owed for negligent

advice: Prior to 1963 – Never Hedley Byrne & Heller established there could

be a duty of care in giving advice High Court has confirmed in L Shaddock &

Assoc v Parramatta City Council (S&O p 43\64)


Duty of Care – Negligent Advice (cont.)

“Whenever a person gives information or advice to another upon a serious matter in circumstances where the speaker realises, or ought to realise, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on the information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give”

- per Barwick CJ in MLC v Evatt (S&O p 44\64)


Elements1. Give information or advice

2. On a serious matter

3. Speaker realises, or ought to realise, he is being trusted

4. It is reasonable for recipient to act on advice

See Tepko v Water Board S&O 2nd Ed. p 64)


Duty of Care – Negligent Advice (cont.) A duty of care can exist between parties:

During pre contractual negotiations Esso v Mardon (S&O p 44\65)

As part of a concluded contract After the contract?

Kite v Malycha (1998) SASC 6702


Duty of Care of Auditors Information is not provided at the request of the

recipient Contract is between company and auditor Audit report is a public document May be relied on by others No contract between auditor and others


Duty of Care of Auditors (cont.) Audit Report may be relied on by

Company Shareholders Investors Bankers Creditors


Duty of Care of Auditors (cont.) A duty of care may exist

San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340

A precise description when and to whom an auditor owes a duty of care has proved to be elusive

It is not easy to establish a duty of care for an auditor


Duty of Care of Auditors (cont.) English Approach

Caparo Industries v Dickman (S&O 1st Ed p 45)1. Advice is required for a purpose which is made

known to the advisor

2. The advisor knows that his advice will be communicated to the recipient

3. The advisor knows that the recipient will act on the advice without further inquiry

4. The recipient acts on the advice to its detriment


Duty of Care of Auditors (cont.) Caparo Industries v Dickman (S&O p 45)

Based on English requirement for a “special relationship” to exist before can claim for pure economic loss

Perre v Apand has expand class of potential claimants in Australia


Duty of Care of Auditors (cont.) Australian Approach

Esanda Finance Corporation v Peat Marwick Hungerfords (S&O p 47)

R Lowe & Lipman v AGC (Advances) (S&O p 47)

These decisions were before Perre v Apand


Duty of Care of Auditors (cont.) However, creditors or shareholders can wind

up company and liquidator can sue auditor Such actions are often funded by creditors or

shareholders on basis they receive a greater share of the distribution

e.g. Southern Equities Corp v Arthur Andersen & Co [2002] SASC 148


Factors Affecting Duty of Care Did recipient request advice (Shaddock’s case) Did defendant assume responsibility for risk

being taken by recipient (Esanda case)


Factors Affecting Duty of Care (cont.) Otherwise

Was advisor aware that recipient could by injured by advisors words or conduct

Degree of recipient’s vulnerability (Perre v Apand) Advisor’s knowledge of recipient’s vulnerability

(Perre’s case) Did advisor intend recipient to act on the advice Can the class of recipients be ascertained (Hill v Van

Erp (S&O p20\30)


Standard of Care That which the community reasonably expects

from a person of those qualifications Persons professing to be specialists within a

profession have a higher standard of care Rogers v Whittacker (1992) 175 CLR 479


Remoteness of Damage Recipient must prove that

Losses were not too remote; and Losses were caused by the negligent advice

Kenny & Good v MGICA (S&O p 49\71) Advisor may be liable for primary loss but not

consequential loss


Disclaimers A disclaimer may remove the duty of care

Hedley Byrne v Heller (S&O p 49\69) As against a contracting party, a disclaimer acts

as an exclusion clause and the usual rules apply


Exam Problems

Semester 1, 2001

Documents

THE LAW OF COMMERCIAL CONTRACT Negligent Advice Sweeney & O’Reilly 1 st Ed. pp 42 – 50 2 nd Ed. Pp 63 - 70