BTC1110 Lecture Notes - Lecture 8: Misrepresentation, Benjamin N. Cardozo, Australian Story
15 Jun 2018
School
Department
Course
Professor
Professional Negligence, Breach of Duty, the
Statutory Defence, Damage
• Liability for negligent misstatement (advice) is governed by the same broad rules as for
ordinary' negligence - a plaintiff needs to prove that the defendant owed a duty of care that
has been breached and loss resulted
• The major conceptual difference with 'ordinary' negligence is that 'words' rather than 'acts'
cause the loss and the loss is 'pure economic loss' (rather than physical injury, psychological
loss, etc.)
• For a long time, courts said no duty of care was owed by professionals - Cardozo J said that no
duty of care was owed by the auditor to its client because such a finding of liability may lead
to liability for an indeterminate amount of money for an indeterminate time to an
indeterminate class of possible plaintiffs
• For cases of negligent misstatement, we follow same process of ordinary negligence.
However, there are some differences in applying those steps:
o Main difference concerns duty of care - need more than 'reasonable foreseeability'
under the 'neighbour' test from Donoghue v Stevenson
o Closer look at breach of duty and causation
Negligent Misstatement - Duty of Care
• To succeed the plaintiff must prove that there was a special relationship based on
o An assumption of responsibility the defedat adise ad…
o Reasonable reliance by the plaintiff
The breakthrough case: Hedley Byrne v Heller
• No liability on the facts of the case (disclaimer in advice)
• BUT: recognised (for the first time) that a duty of care could arise
• Issue: is Heller liable for the negligent advice it gave to HB that caused pure economic loss?
• Decision: A duty of care can exist provided there is a special relationship based on some
element of reliance (though the limitation clause saved Heller in this case)
The Australian Story: MLC v Evatt
• Facts: MLC made statements to Evatt about the state of Palmer Ltd
• Evatt acted on the advice and lost money
• Issue: Did MLC owe a duty of care in these circumstances?
• Decision: Privy Council (used to be our highest court) said no duty of care existed unless
advice was given by an expert with specific skills. However, earlier, when the case was heard
by the HCA, the HCA decided there was a duty of care. Barwick CJ explained the nature of
the special relationship and when it arises
find more resources at oneclass.com
find more resources at oneclass.com
Whe does a speial elatioship aise? Baik CJ:
• Whenever a person gives information or advice;
• Whether that information is actively sought or merely accepted by the other person;
• Upon a serious matter (especially a business matter); and
• The relationship of the parties arising out of the circumstances is such that the
speaker realises or ought to realise that they are being trusted;
• Particularly if they have access to information or expertise on the matter in question;
• THEN: The speaker, choosing to give information and advice, comes under a duty to
provide that information or advice with reasonable care
Shaddock v Paramatta City Council (1981)
• The Parramatta City Council was asked by Shaddock, a developer, whether the land that it
intended to acquire was affected by a road-widening proposal
• The Council advised the developer that the land was not affected by a road-widening
proposal, when in fact it was
• Shaddock suffered pure economic loss as a esult of the Couils failue to dislose the
information (the development had to be scaled back)
• The High Court posed three questions:
• was the advice given in respect of a serious/business matter?
• were the circumstances such that the adviser should have realized that the defendant
was being trusted to give correct advice on which the advised intended to act?; and
• in the circumstances, was it reasonable for the advised to have relied on the advice?
• HCA answered these questions in the affirmative – and said there was no distinction between
providing advice (as an auditor does) and eel poidig ifoatio (as the PCC council
offie did eause it as the kid of ifoatio that euied skill ad opetee that
the Council had. Where else do you get this information?
• This as suffiiet to eate a speial elatioship.
• NB – o ideteia issue hee – just one plaintiff with finite loss
San Sebastian v Minister
• Facts: SS was a private developer. Development plan by Minister encouraged private
developers to buy land sites and build skyscrapers. On the basis of the plan SS bought land
with a view to development. Plan abandoned. SS suffered pure economic loss.
• Issue: Did M owe SS a duty of care?
• Decision: No duty of care.
• Reasons:
o SS failed to establish that M made the representations with the intention of inducing
developers to act in reliance on the representations.
o HCA said that usually there would be an antecedet euest fo P to D eg please
poide e ith ifoatio aout oad ideig o edit othiess as a eas of
establishing reliance and the special relationship that must exist but not necessary.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
For cases of negligent misstatement, we follow same process of ordinary negligence. However, there are some differences in applying those steps: main difference concerns duty of care - need more than "reasonable foreseeability" under the "neighbour" test from donoghue v stevenson, closer look at breach of duty and causation. Negligent misstatement - duty of care: to succeed the plaintiff must prove that there was a special relationship based on, an assumption of responsibility (cid:271)(cid:455) the defe(cid:374)da(cid:374)t ad(cid:448)ise(cid:396) a(cid:374)d , reasonable reliance by the plaintiff. Issue: is heller liable for the negligent advice it gave to hb that caused pure economic loss? element of reliance (though the limitation clause saved heller in this case) Facts: mlc made statements to evatt about the state of palmer ltd: evatt acted on the advice and lost money, decision: privy council (used to be our highest court) said no duty of care existed unless.
