Commercial Law Tutorial

Negligence and Negligent Misstatement

belinda.clarence@rmit.edu.au
 Methodology to answer law questions:
IRAC
Issue spot what the dispute or controversy is
Rule legislation & cases
Application apply rule to the facts of the
problem by analysis of both sides and
Conclude
Tips on answering law questions:
Try to answer yourself before reading sample answer during exam
prep write a few points in the space below the question
IRAC State what the required elements are, and then apply the
test
Even if you only identify the issues mentally during tutes that is
better than nothing
When writing the exam, ask yourself what the central issue is
leave enough space in the intro so you can go back later
Use paragraphs and leave lots of lines blank so you have space to
put your arguments in the right places, as you will think of extra
things to say as you go along

Take note of the structure I have used you dont have to use that
one but you simply MUST have a structure if you want to do well in
the exam use IRAC
Answering law questions is like building a brick wall every brick
(element) must be in place to make a wall
 Essential Elements of the tort of negligence
1. Duty of care (DoC) owed by defendant to plaintiff
2. Defendant has breached that duty of care
3. That breach caused
4. forseeable harm

Remember that when answering these questions you

absolutely must address the elements it is the starting
point of every answer. You need to have it straight in your
mind that this is what you have to do.
Negligence is not proven until every element is made out.
Then you must switch hats, and

5. go through defences
 DoC - Salient features p187
Sullivan v Moody (2001)

Need for coherency in the law precedent

Conflicting DoCs patient v parent?
Possibility of indeterminate liability when does DoC end?
Control the D has over the situation & vulnerability of the P
Relative knowledge & experience of parties
Type of the harm suffered & moral issues
Need for personal responsibility (eg drunk cases see p 188)
Causation
Question of fact examine what actually
happened
Liability for forseeable conseqs only where
real and substantial risk Wagon Mound
Plaintiffs own negligence? Yates v Jones
Be on the alert for any break in the chain of
causation also the chain has to stop
somewhere (think what is practical)
Sinh is a student at RMIT. The female toilets at RMIT have recently
been cleaned and when Sinh uses the toilets she slips on a very wet
floor in the wash room and breaks her leg. As a result of the accident
she has incurred significant medical expenses and is out of her part
time work for four months.

(a) What legal action could Sinh take against RMIT or the cleaners of
the toilets and how likely will she be to succeed?

(b) Is the situation different if Sinh suffered her injury after breaking
into RMIT when its closed with the intention of stealing a Commercial
Law examination?
 Structure of Answer use the Elements
Duty of Care
Donoghue v Stevenson neighbour test (if its not recognised relationship)
- salient features
- reasonable forseeability
-
Breach of Standard of Care
Look at factors for what reasonable person would have done

Damages / causation and remoteness

Causation use But For test
Remoteness
- exception of the thin skull/eggshell principle

Defences
- voluntary assumption of risk
- contributory negligence.
 Duty of Care (DoC)
Firstly, does RMIT owe Sinh duty of care?
Recognised category?
- Eg dr/patient, Owner/invitee, Accountant/client,
Architect/Users of building, Parent/child

If recognised category you dont have to prove a DoC

If no recognised category you do have to prove DoC using

salient features

DoC is owed to Sinh because she was invited to enter RMIT, so

RMIT owes Sinh a DoC to take reasonable care to avoid foreseeable
risk of injury.

Australian Safeway Stores Pty Ltd v Zaluzna direct case authority

for the duty owed by occupiers to entrants on the occupiers premises
 Causation Wagon Mound no 1
Oil carelessly released into water oil spread cotton
waste from unloading in harbour too welding ignited
the oil
Held: Although DoC was owed & breached, the damage
was not reasonably forseeable as a result of oil spill
 Identifying Breach of DoC (factors) p189
Test is what reasonable person would have done in relation to:
- probability of harm
Bolton v Stone - risk low (outdoor cricket)
Woods v Multisport Holdings risk obvious (indoor cricket)
- likely seriousness of the harm
Paris v Stepney Borough Council blind in one eye
- burden of taking precautions
Latimer v AEC need to close factory? Cost of eliminating risk
- social utility of the Ds activity
Watt v Hertfordshire CC fireman
- lower duty of care?
McHale v Watson standard was that of a child
Imbree v NcNeilly standard of L driver that of a reasonable driver
Note: no breach for failing to act (only if not recognised relationship)
 Applying Breach of DoC (factors)

probability of harm
wet polished floor - high
likely seriousness of the harm
fairly serious hard floors, hit head on basin/tap
burden of taking precautions
low warning sign, close while cleaning
social utility of the Ds activity
high what if no toilets at RMIT!!
lower duty of care
no
 It is very likely that a person could get injured if there is a
slippery floor & people are not made aware of the risk. The
cost of eliminating such risk of people slipping is low and thus
not a hard risk to eliminate or at least minimise. As none of
this has occurred, it seems RMIT has not acted as the
reasonable occupier/owner of premises. Sinh has suffered
harm so the elements have been made out.
Note the eggshell plaintiff those who cause harm have to
find their victims as they are, so pre-existing condition is no
excuse for tortfeasor
 Defences & other parties
Having made out Sinhs negligence claim, students should then
consider:
voluntary assumption of risk and
contributory negligence.

Even trespassers are owed a duty of care. Hackshaw v Shaw. There

may be some reduction in damages award on the basis of a defence
such as contributory negligence especially if she broke in at night
when it was dark.

Cleaner vicarious liability

Manufacturers ACL defective products
 Sinh Loss of earnings
Causation - a link between the breach and Sinhs injury, however

- the seriousness of his injury (hereditary condition) may be

grounds to limit the extent of damages as too remote (ie not
reasonably foreseeable consequence of Sinhs negligence),
however

- thin skull shell principle is an exception to the remoteness

argument. It extends the defendants liability to cover those
injuries which are idiosyncratic (peculiar) to the plaintiffs
individual medical condition particularly when in unsafe
workplace

- Loss of earnings from employment is not too remote a

damage to suffer if reasonable care has not been taken and a
physical injury results.
Cameron was attending a rock concert in the park. He had not
purchased a ticket but had climbed over a two metre fence to join the
spectators who had purchased tickets. Strong wind and heavy rain
forced the spectators to take cover from a storm under a temporary
tarpaulin set up by the organisers to protect the musicians and their
equipment. During the storm the tarpaulin became heavy with water
and collapsed onto the musicians, their equipment and spectators
who had taken shelter under it. Camerons back was seriously injured.
As a result of the accident he required emergency surgery. Cameron
was unable to complete his university studies that year. Another
spectator standing nearby, Alec, saw Cameron have his back crushed
and consequently suffered psychological distress.

Advise both: Cameron; and Alec as to their common law

rights respectively (if any) for compensation.
 Structure of answer use the elements

Duty of Care
Donoghue v Stevenson neighbour test (if its not recognised relationship)
- salient features
- reasonable forseeability
Breach of Standard of Care
Look at factors for what reasonable person would have done
Damages / causation and remoteness
Causation use But For test
Remoteness
- exception of the thin skull shell principle
Defences
- voluntary assumption of risk
- contributory negligence.
 DoC - Salient features
Sullivan v Moody (2001)
Need for coherency in the law need to protect can conflict
with law of defamation (child abuse case)
Conflicting duties of care (owed by drs for eg)
Possibility of indeterminate liability (where does it end)
Control the D has over the situation & vulnerability of the P
Relative knowledge & experience of parties
Type of the harm suffered & any relevant moral/ethical issues
Need for people to take personal responsibility (personal
behaviour)
 DoC owed by organisers to Cameron?
Firstly, do organisers owe C a duty of care?
Recognised category? Eg doctor/patient, Owner/invitee,
Accountant/client, Architect/Users of building
Even trespassers are owed a duty of care. Hackshaw v Shaw.
There may be some reduction in damages award on the basis
of a defence such as contributory negligence especially if he
broke in at night when it was dark.
If not recognised category, need to show DoC using
Salient features
Reasonable forseeability
 Identifying Breach of DoC (factors)
Test is what reasonable person would have done in relation to:
- probability of harm
Bolton v Stone - risk low (outdoor cricket)
Woods v Multisport Holdings risk obvious (indoor cricket)
- likely seriousness of the harm
Paris v Stepney Borough Council blind in one eye
- burden of taking precautions
Latimer v AEC need to close factory for wet floor? Cost of
eliminating risk
- social utility of the Ds activity
Watt v Hertfordshire CC fireman
- lower duty of care?
McHale v Watson standard was that of a child
Imbree v NcNeilly standard of learner driver was that of a
Note: no breach for failing to act (only if not recognised relationship)
Moral v Legal responsibility
Applying factors re breach of DoC
probability of harm
weather turning bad - high
likely seriousness of the harm
fairly serious crowds, unpredictability, storm
burden of taking precautions
low permanent structure? got $$ from ticket sales
social utility of the Ds activity
medium
lower duty of care
no
It is very likely that at a open air rock concert the weather might turn bad. Common
practice would be to ensure the shelter could withstand the usual weather conditions or
that dangerous areas be sectioned off. The cost of eliminating such risk of water on the tent
is low and thus not a hard risk to eliminate or at least minimise.

Conclusion: As none of this has occurred, it seems the organisers have not acted as the
reasonable occupier/owner of premises so amounting to a breach of the duty of care..
Damages & Causation - Remoteness

but for test

- Cameron would not have been injured but for sheltering
under tarp
- thin skull/ egg shell principle does not apply here

- irrelevant that C was not ticket holder because he would

have been injured in any case
- C did not suffer injury from climbing over wall
- Loss of earnings from employment is not too remote a
damage to suffer if reasonable care has not been taken and a
physical injury results: Perre v Apand
Defences
Having made out Cs negligence claim, students
should then consider:
voluntary assumption of risk and
contributory negligence.

Even trespassers are owed a duty of care. Hackshaw v Shaw.

There may be some reduction in damages award on the basis
of a defence such as contributory negligence especially if he
broke in at night when it was dark.

However, this seems unlikely because he was not being

reckless and his injury was not a result of his scaling the wall
Duty owed to Alec
Defendant must take reas steps to prevent harm
- How likely
- How serious
- Can it be realistically avoided
- Can inflicting harm be justified in circs
- Policy -

Romeo v Conservation Comm of NT [1998] risk of harm

was so unlikely that by failing to take action to avoid it,
the Commission had not breached its DoC.
You are at your office Christmas party. Whilst speaking to your boss
you start to choke on the rice ball hors-doeuvre you are eating. You
look down and realise you have been eating half a mouse which is
inside the rice ball. You immediately feel sick and contract severe
food poisoning. You are rushed to hospital and whilst recovering in
hospital you fall down the hospital stairs on your way to visit the
hospital garden. You break your arm in the fall and have to stay in
hospital for an extra one month incurring further medical expenses.

Evaluate whether you would be likely to receive compensation in a

negligence claim against the caterers at the Christmas party for both

the food poisoning; and

your broken arm.

Clue:
 Significance of Donoghue v Stevenson
Development of law of negligence by House of
Lords example of how judges make law
Freed Consumers from Iron Grip of Contract Law
Duty of care is owed to those around us
Reflected changes in post Industrial Revolution
society as mass production was taking hold
The neighbour principle has subsequently been
modified by case law (salient features) and
overtaken by consumer legislation (ACL)
Duty to you owed by your employer
Defendant must take reas steps to prevent harm
- How likely
- How serious
- Can it be realistically avoided
- Can inflicting harm be justified in circs
- Policy
Romeo v Conservation Comm of NT [1998] risk of harm was
so unlikely that by failing to take action to avoid it, the
Commission had not breached its DoC
Donoghue v Stevenson manufacturer of products with the
knowledge that the absence of reas care will result in an
injury to consumers life or property owes a duty to consumer
to take reas care
Chapman v Hearse [1961] subseq injury by passing traffic to
those rendering aid after a collision was not unlikely
Causation

Was the mouse the direct cause of the accident? Chapman v

Hearse, but for the mouse would that accident have occurred?

Trivial Harm? Break in chain of causation

Question of Fact Adeels Palace
Liability for foreseeable conseqs only: Wagon Mound

Is it reasonably foreseeable that you would fall down the stairs?-

Yates v Jones, Rowe v McCartney
Has there been a break in the chain of causation?
 The tort of negligent misstatement requires that
in order for a DoC to arise between persons,
there needs to be a special relationship.

What are the factors a court will have regard to in

determining whether such a relationship exists?

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?
 Negligent Misstatements causing economic loss

Hedley Byrne & Co Ltd v Heller

DoC Special Relationship
- Where a person voluntarily takes it upon themselves to act in a
professional capacity, they assume a duty to that other person to act or
advise with care.
- No DoC if informal discussion or during social courtesies.

In deciding if special relationship exists, court will consider

whether:

(i) the plaintiff relied on the defendants skill and judgement,

(ii) the person who gave the advice knew, or ought to have known,
that the other party was relying on him, and
(iii) it was reasonable in the circumstances for the plaintiff to rely
on the defendant.
You are an accountant in practice. It is the 29 June
2015. You are busy doing outstanding tax returns
for your clients. A client telephones you to ask
what is the maximum deductible contribution he
can make to superannuation for the year ended 30
June 2015? You tell him $15,000. However you are
incorrect and the amount is $25,000 because of his
age. As a result of your error the client needs to pay
additional tax of $2,500.
Are you, the accountant, negligent for your advice?
 Go through the elements:
(i) the plaintiff relied on the defendants skill
and judgement
(ii) the person who gave the advice knew, or
ought to have known, that the other party was
relying on him, and
(iii) it was reasonable in the circumstances for
the plaintiff to rely on the defendant.
Oanh decided to invest in rural property. While
investigating the suitability of the land for the purpose of
establishing a boutique vineyard, she approached the
Council for advice as to the possible establishment of a
vineyard. She was advised that the property was zone
two and suitable for agricultural use. The Council told
her that there were no restrictions that would impact the
land. In fact, there was a restriction warning that the land
was subject to a State Government order that zone two
land was to be used for residential purposes only. Oanh
bought the land and employed viticulturalists to establish
a vineyard. She then received a notice from the State
Government requiring that her land be only used for
residential purposes.

Advise Oanh.
Be sure you know the facts of the cases so that
you can quickly see where a case has a very
similar fact pattern.
 Shaddock v Parramatta City Council (1981)
FACTS Shaddock wanted to purchase property, Shaddocks solicitor
asked the council whether the property was the subject of any plans
to widen roads. The council carelessly said there were none when in
fact there were. The value of the property was reduced. Shaddock
claimed that they had sustained loss by reason of their reliance on
erroneous info supplied innocently but negligently.

ISSUE The court had to decide the circumstances in which a local govt
body could be held liable for info it supplied to the general public.

HELD A person comes under a DoC in relation to the provision of

advice or information if he carries on a business or profession and in
the course of it provides advice or information of a kind which calls for
skill and competence when he knows or ought to know that the
recipient intends to act or rely on it.
Andrew, a well-known radio investment advisor was cornered by
Victoria, his neighbour, whilst putting out his rubbish bins early one
morning. Victoria, in her dressing gown, asked Andrew if he considered
ASA Pty Ltd to be a company with bright prospects. Andrew replied
"yes" and promptly left. The next day Victoria bought $10,000 worth of
shares in ASA. A week later ASA went into liquidation and Victoria
learned that she would be highly unlikely to recover her $10,000.
Victoria seeks your advice as to whether she has a cause of action
against Andrew. Advise her accordingly, giving reasons.
Would it have made any difference to your advice had Victoria
telephoned Andrew for his investment advice whilst he was on the
radio?
 Negligent Misstatements causing economic loss

Hedley Byrne & Co Ltd v Heller

DoC Special Relationship
- Where a person voluntarily takes it upon themselves to act in a
professional capacity, they assume a duty to that other person to act or
advise with care.
- No DoC if informal discussion or during social courtesies.

In deciding if special relationship exists, court will consider

whether:

(i) the plaintiff relied on the defendants skill and judgement,

(ii) the person who gave the advice knew, or ought to have known,
that the other party was relying on him, and
(iii) it was reasonable in the circumstances for the plaintiff to rely
on the defendant.
 Factors to establish DoC in Negligent Misstatement
Shaddock & Associates v Parramatta City Council
1. D gives info/advice to P
2. About a serious matter
3. D knows she is being trusted
4. P reasonably relies on D's advice
Did Andrew know he was trusted by Victoria? - Possibly
Did Andrew know she was reasonably relying on his advice?
- No, not reasonable to rely on advice in social situation
On the radio? - Yes, giving advice about a serious matter, Andrew knows or
ought to know he is being trusted & its reasonable that a caller would rely on
the advice. For that reason radio stations usually provide disclaimers (ie this
advice is not to be relied on please consult your own advisor) if they have
say a financial advice phone in. After establishing special relationship and DoC
you would then go through breach of DoC, harm that was forseeably caused
& defences.