Chapter 8: Negligent Misconduct In Business

Question 1

What is a tort?

Answer 1

The word ‘tort’ comes from a Latin root ‘tortus’ meaning twisted or crooked.

Tort is any form of twisted or crooked conduct that causes another person to suffer loss.

More fully, we can define a tort as wrongful of unauthorised acts or omissions that cause harm to an individual’s person, property or economic interests.

The tort of negligence is the most important with regards to commercial life.

Question 2

Explain criminal law.

Answer 2

Like the law of torts, criminal law is concerned with unlawful interference with an individual’s person or property.

Question 3

Liability in tort and criminal liability.

Answer 3

In some cases, a wrongdoer’s conduct may amount to both a tort and a crime. However, there is an important difference between the two forms of liability.

Question 4

What is the difference between the law of torts and criminal law?

Answer 4

A crime is considered to be an offence against the state
- therefore criminal proceedings are conducted in the name of the state.

The law of torts is an area of civil law

• concerned with private legal rights and duties between individuals, the state is not involved
• concerned with the individual’s right to compensation for the loss suffered because of the wrongful conduct

Question 5

The law of torts and contract law.

Answer 5

From a commercial perspective, the law of contract is the other significant area of civil law. However, there are impact differences between the rights protected by the law of torts and the law of contract.

The law of contract

• concerned with the rights that are imposed by the law itself
• eg. Duty to take reasonable care to avoid harm to another (essence of the law of negligence) is a duty imposed on il all by the courts (and, to a lesser extent, the parliament)
• it does not depend upon an agreement made by the parties

Question 6

Explain the law of negligence.

Answer 6

The essence of the tort of negligence is that, in certain circumstances, the law imposes a duty on a person to take reasonable care not to cause harm to other persons.

When a person is in breach of such duty of care, he or she is liable for any loss or damage suffered if it was a reasonably foreseeable consequence of the breach of duty. As a result, they are required to compensate for the harm caused to other persons.

Question 7

How did the the tort of negligence emerge?

Answer 7

It emerged as an independent tort particularly following the landmark decision of the House of Lords in Donoghue V Stevenson [1932] AC 562.

Question 8

Summarise the Donoghue V Stevenson case.

Answer 8

Page 130

Question 9

What happened after the Donoghue V Stevenson decision?

Answer 9

Following the decision negligence has assumed prime importance in the law of torts. More actions in negligence are brought than any other tort and litigation in this area accounts for a large proportion of the courts’ work.

Damages are now recoverable not only for negligent infliction of physical damages, but also financial loss.

Question 10

Not every case of careless behaviour is actionable in negligence. When will the defendant be liable?

Answer 10

If the plaintiff can prove that:
. The defendant owed the plaintiff a duty of care
. The defendant was in breach of this duty of care
. The defendant’s breach of duty was the cause of the plaintiff’s loss (“causation”) and
. The damage suffered by the plaintiff was not too remote (“remoteness of damage”)

Question 11

Civil liability reform.

Answer 11

The common law principles governing negligence have been reformed by legislation enacted in all Australian States and Territories. One aspect of the operation of these laws is to limit the scope of potential liability for negligence.

This effect is achieved in two ways:

• By modifying common law principles governing the general ingredients of the cause of action in negligence such as breach and causation as well as the circumstances in which a defendant can raise a defence to a plaintiff’s negligence claim and
• By restricting the plaintiff’s right to recover in a number of particular categories of negligence action. For instance, liability is limited in circumstances where the plaintiff’s injury arise from having been engaged in a “recreational activity”.

Question 12

Explain duty of care.

Answer 12

Liability for negligence will not arise unless the defendant owed the plaintiff a duty of exercise reasonable care. The duty can arise in a number of situations.

Question 13

Duty of care and the positive infliction of physical harm

Answer 13

In the case of a positive infliction of harm, the existence of w duty of care depend on whether the harm suffered by the plaintiff was reasonably foreseeable.

The requirement of responsibly foreseeability of harm involves the application of an objective test (court asks whether a reasonable person would have foreseen the possibility of injury to certain individuals involved in a particular event).

Question 14

Duty of care and liability for omissions.

Answer 14

In the case of a negligence omission, the plaintiff’s harm is brought about the defendant’s failure to act, not by a positive infliction of harm.

The courts are less willing to impose liability for a failure to act than they are to recognise a duty to take care in the course of positive conduct.

Accordingly, foreseeability of harm has never been regarded as appropriate as the sole test of liability for a failure to act.

Question 15

Rogers V Whitaker.

Answer 15

Page 132

Question 16

Cal No 14 Pty Ltd V Motor Accidents Board.

Answer 16

Page 132

Question 17

The duty of care in cases of pure economic loss.

Answer 17

Special rules apply in cases concerning pure economic loss, where the plaintiff suffers no personal injury or physical damage to their property but is financially worse off as a result of the defendant’s negligence.

To establish a duty of care in such cases, it must be showed that the plaintiff and the defendant were in a relationship where the plaintiff was vulnerable to or dependant upon the defendant and the defendant was aware of this or should have been aware of this fact.

Question 18

What are the two main areas in relation to pure economic loss?

Answer 18

. First where an act causes the loss

. Second where the negligent advice causes the loss

Question 19

Perre V Apand Pty Ltd.

Answer 19

Page 132

Question 20

What are the key factors upon which liability was based in Perre V Apand Pty Ltd?

Answer 20

Page 132-133

Question 21

Duty of care and negligent misstatement.

Answer 21

Initially, liability for carelessly made statement was virtually non-existent. A distinction was drawn between negligent words and negligent acts because the courts recognised that a statement may have far wider repercussions than a physical act.

Recovery for economic loss arising out of statement made by another person was limited to cases where the statement was intentionally false or was made in breach of a fiduciary relationship (eg. a solicitor-client relationship).

The breakthrough came in 1964 with the decision of the House of Lords in Hedley Byrne & Co Ltd V Heller & Partners Ltd.

Question 22

Hedley Byrne & Co Ltd V Heller & Partners Ltd.

Answer 22

Page 133

Question 23

Hedley Byrne & Co Ltd V Heller & Partners Ltd “special relationship”.

Answer 23

Page 134

Question 24

Shaddock & Associates Pty Ltd V Parramatta Cory Council.

Answer 24

Page 134

Question 25

San Sebastian Pty Ltd V Minister Administering Environmental Planning and Assessment Act 1979.

Answer 25

Page 134

Question 26

Liability to a third party for negligent advice.

Answer 26

An issue that has arisen in respect of the liability of a professional (most commonly an auditor) for a negligent misstatement is whether the duty of care is limited to the client for whom the advice (usually audited accounts) is prepared, or whether the duty extends to any person who relies on a statement contained in the advice of he report.

In the UK the liability of an auditor does not extend to the situation where the audit statement was relied on by a third party for a purpose other than the particular purpose for which it was prepared: Caparo Industries V Dickman [1990] 2 AC 605. The situation in Australia is similar.

Question 27

Esanda Finance Corporation Ltd V Peat Marwick Hungerfords.

Answer 27

Page 135

Question 28

Breach of the standard of care.

Answer 28

Whether there has been a breach of the duty of care in the particular circumstances involves consideration of whether the defendant met the standard of care required by the law of negligence. The standard expected is that of the “reasonable person”.

Question 29

Civil Liability Act 2002 (NSW) - part 1.

Answer 29

The reform legislation referred to earlier deals with the breach of duty issue. Section 5B of the Civil Liability Act 2002 (NSW) mirrors the common law principle in that it provides a two-stage inquiry for determining whether there has been a breach of duty.

First, is there a foreseeable risk of harm? Section 5B(1) alters the common law by requiring a greater degree of probability in determining whether there is a foreseeable risk of harm to which a reasonable person would have responded.

Under the act, the defendant will only be in breach of duty for a failure to respond if the risk of harm is “not insignificant”.

Question 30

Under common law, what is a reasonable person?

Answer 30

Someone that would respond to a risk of harm that is not “far-fetched and fanciful”.

Question 31

Civil Liability Act 2002 (NSW) - part 2.

Answer 31

Second, s5B(2) of the Civil Liability Act 2002 (NSW) adopts the common law approach of taking into account various factors to consider whether, and if so how, a reasonable man would have responded to the risk.

These factors which are not looked at in isolation but are weighted against one another, include the following:

(a) the probability of the risk of injury
(b) the gravity of the harm
(c) the burden of eliminating the risk, and
(d) the utility of the defendant’s conduct.

Question 32

Civil Liability Act 2002 (NSW) s 5B(2)(a) - the probability of the risk of injury.

Answer 32

Decision in Bolton V Stone (1951) established that a defendant may be justified in disregarding a foreseeable risk of injury where the probability of that risk occurring is small and the circumstances are such that a reasonable man would think it right to neglect the risk.

Question 33

Bolton v Stone (1952).

Answer 33

Page 136 (within (a) paragraph).

Question 34

Romeo v Conservation Commission of the Northern Territory (1998)

Answer 34

Page 136

Question 35

Shaw V Thomas (2010).

Answer 35

Page 136.

Question 36

Civil Liability Act 2002 (NSW) s 5B(2)(b) - gravity of the harm.

Answer 36

The more serious the risk, the greater the demand for precautions on the part of the defendant. There are two ways in which this factor can be relevant:

(a) in the case of dangerous substances or activities, a reasonably prudent person would exercise a higher degree of care, and
(b) where the plaintiff, to the defendant’s knowledge, has a particular susceptibility which increases the seriousness or gravity of the risk.

Question 37

Paris V Stephey Borough Council (1951).

Answer 37

Page 137

Question 38

Civil Liability Act 2002 (NSW) s 5B(2)(c) - burden of eliminating the risk.

Answer 38

The easier it is to eliminate the risk, the less likely a defendant’s failure to take precautionary steps will be justifiable.

In considering this factor, the court can take into account not only the cost and inconvenience involved in taking precautionary measures but also any risk that these steps may themselves involve.

In NSW, s 5C of the Civil Liability Act 2002 (NSW) restates three common law principles relating to the reasonableness of the defendant’s response:

(a) the burden of taking precaution to avoid risk of harm includes the burden of taking precautions to avoid similar tasks
(b) the fact that the risk could have been avoided by doing something a different way does not itself five rise to liability, and
(c) the subsequent taking of action does not constitute an admission of liability.

Question 39

Graham Oysters Pty Ltd V Ryan (2002).

Answer 39

Page 137

Question 40

Woods V Multi-Sport Holding Pty Ltd.

Answer 40

Page 137

Question 41

Civil Liability Act 2002 (NSW) s 5B(2)(d) - utility of the defendant’s conduct.

Answer 41

The gravity of the risk is also weighted against the utility or social value of the defendant’s conduct.

Eg. In Watt V Hertfordshire CC (1954), the risk of injury to the plaintiff fireman (a heavy duty jack had not been secured on the truck and rolled onto the plaintiff’s leg causing massive injuries) was weighed against the urgency and life-saving activity engaged in by the fire service.

Question 42

Watt V Hertfordshire (1954).

Answer 42

The risk of injury to the plaintiff fireman (a heavy duty jack had not been secured on the truck and rolled onto the plaintiff’s leg causing massive injuries) was weighed against the urgency and life-saving activity engaged in by the fire service.

Question 43

Additional breach of standard of care information.

Answer 43

More generally, in determining whether there has been a breach of the duty of care, the defendant’s compliance or non-compliance with applicable statutory standards may also be relevant. However, compliance with relevant statutory standards is not conclusive of the issues.

Eg. A defendant who has complied with the appropriate traffic regulations may still be found to have been in breach of the duty of care they owed to other road-users. Similarly, in profession negligence and industrial cases, evidence of compliance with the common practices and customs in the particular profession or industry is relevant but not conclusive.

Question 44

The “reasonable person” test.

Answer 44

The standard of the reasonable person, which is used it determine the issue of whether there has been a beach of the duty of care, involves an objective, impersonal test.

The personal idiosyncrasies of the defendant, such as a quick temper or low intelligence, ate not taken into account. However, in some cases the objective standard can be defined in more detail (McHale V Watson).

The reasonable man is also equipped with the same skills and expertise expected of a person exercising a particular trade or profession (Keow V Government of Malaysia).

The reform legislation deals with the liability of professional persons including doctors. For instance, in NSW the Civil Liability Act 2002 (NSW), s50 provides that a professional person is not negligent if it is established that he or she acted in a manner that was “widely accepted in Australia by peer profession opinion as competent professional practice.”

Question 45

McHale V Watson (1964).

Answer 45

In a case involving a very young defendant, the reasonable man test gives way to the standard of a child of similar age and experience.

Question 46

Keow V Government of Malaysia (1967).

Answer 46

In an action against a doctor for profession negligence, the relevant standard is that of an ordinary competent doctor exercising ordinary professional skill.

Question 47

What is the last element of the tort of negligence?

Answer 47

Damage.

Causation and remoteness of damage need to be considered.

Question 48

Causation.

Answer 48

It is not enough for the plaintiff to establish the existence of a duty of care and its breach by the defendant. The plaintiff must also be able to prove that the defendant’s negligence caused the damage suffered. The reform legislation also deals with the issue of causation.

Question 49

s5D(1)(a) of the Civil Liability Aft 2002 (NSW).

Answer 49

The New South Wales s5D(1)(a) of the Civil Liability Aft 2002 (NSW) provides that the decision whether s breach of duty caused the particular harm involves a test or element of “factual causation”.

Question 50

The determination of factual causation under s5D(1)(a) of the Civil Liability Aft 2002 (NSW).

Answer 50

The determination of factual causation under this provision is a statutory statement of the common law “but for” test of causation.

The application of this test involves the consideration of a hypothetical situation where the circumstances are the same as the facts of the case except for the defendant’s negligence. If in this hypothetical situation, the plaintiff would not have suffered damage, then the defendant’s negligence is taken to be the effective cause of the plaintiff’s damage.

Eg. Strong V Woolworths Limited

Question 51

Strong V Woolworths Limited (2012)

Answer 51

The plaintiff was able to show that she would not have slipped on a greasy chip if Woolworths had fulfilled its duty to inspect and remove the slipping hazard from a sidewalk sales area at intervals not greater than 20 minutes.

Accordingly, Woolworths’ negligent failure to act was found to be the cause of the injuries sustained by the plaintiff.

Question 52

What happens if the plaintiff would have suffered damage in any event?

Answer 52

If the plaintiff would have suggested damage in any event, them the defendant’s negligence is not the effective cause of the plaintiff’s damage.

Eg. Modbury Triangle Shopping Centre Pty Ltd V Anzil (2000)

Question 53

Modbury Triangle Shopping Centre Pty Ltd V Anzil (2000).

Answer 53

A shopping centre worker was injured when set upon by assailants one night in an unlit shopping centre car park. The high court held that while the poor lighting may have facilitated the criminal attack, the lack of lighting did not cause the plaintiff’s injuries.

Question 54

Where was the “but for” test also applied?

Answer 54

In Chappel V Hart (1998).

It was held that damage to the plaintiff patient’s vocal chords and resultant voice loss was caused by the defendant specialist doctor’s failure to warm the plaintiff patient of that risk.

Although the defendant surgeon performed the operation with reasonable care and skill and surgery would have been required at some later stage in any event, the plaintiff, had she been made aware of the risk, would have delayed the surgery and taken steps to have it performed by the most experienced surgeon in the field.

Question 55

Remoteness of damage.

Answer 55

Section 5D(1)(b) of the Civil Liability Act 2002 (NSW) sets out an additional test or element for deterring whether a breach of duty of care caused the particular harm.

This requirement relates to the “scope of liability”.

It involves a consideration of policy issues including the “remoteness of damage” question considered at common law to determine whether, and to what extent, a defendant should have to answer for the consequences of their negligent conduct.

Test for determining whether the damage is too remote, and therefore not recoverable, is whether the damage was reasonably foreseeable the defendant.

Eg. Overseas Tankship (UK) Ltd V Morts Dock and Engineering Co Ltd (The Wagon Mound No 1) [1961]

Question 56

Overseas Tankship (UK) Ltd V Morts Dock and Engineering Co Ltd (The Wagon Mound No 1) [1961]

Answer 56

There defendant charterer of a ship negligently split a quantity of oil while it was being loaded. The oil floated on the surface of the Sydney Harbour. The oil was ignited by so,e molten metal falling from the plaintiff’s wharf.

The ensuing fire extensively damaged the plaintiff’s wharf. The flashpoint of the oil was 170 degrees fahrenheit and would not normally have ignited on water. The privy council held that the defendant charterer was not liable to the plaintiff’s for the damage caused to their wharf because the kind of damage resulting from the spillage of the oil was not reasonably foreseeable in the circumstances.

Question 57

Rowe V McCartney (1976).

Answer 57

The plaintiff, at the defendant’s request, had allowed the defendant to drive her powerful car. The defendant drove negligently, struck a telegraph pole and suffered severe injuries that resulted in him becoming quadriplegic.

The plaintiff (was a passenger at the time) incurred only minor physical injury. However, they suffered mental illness brought on by her sense of guilt in allowing the defendant to drive her car.

The court held that the psychiatric illness suffered by the plaintiff was neither reasonably foreseeable, nor was it of the same type of kind of injury that was reasonably foreseeable in the circumstances.

Question 58

What are the defences to an action of negligence?

Answer 58

The principal defences to an action for negligence are:
. Contributory negligence and
. Voluntary assumption of risk.

Question 59

Explain the defence of contributory negligence.

Answer 59

This is concerned with the plaintiff’s failure to take precautions for their own safety. To be “contributory” , the plaintiff’s negligence must be casually relevant to the damage suffered.

Question 60

Contributory negligence under common law.

Answer 60

At common law, contributory negligence was a complete defence. No compensation could be recovered where plaintiff’s suffered damage partly through their own negligence and partly through the negligence of another.

Question 61

Contributory negligence under legislation.

Answer 61

The defence of contributory negligence is now governed by legislation that allows for an apportionment of damage (S26 Wrongs Act 1958 (Vic)).

The reform legislation provides that the same principles that apply to determine a breach of duty to another are to be applied to determine whether there has been a failure to take reasonable care for ones own safety.

Eg. Liftronic Pty Ltd V Unver (2001).

Question 62

Liftronic Pty Ltd V Unver (2001).

Answer 62

The high court held that it was open for the jury to reduce the plaintiff’s damages by 60%. In that case, the plaintiff sustained back injury lifting heavy objects in the course of his employment with the defendant.

However, the defendant had in place a safe system of lifting which, if the plaintiff had used it, would have prevented the plaintiff’s injury.

Question 63

Explain the defence of voluntary assumption of risk.

Answer 63

Unlike contributory negligence, a successful plea of voluntary assumption of risk may be a complete defence. The rationale behind this defence is encapsulated in the Latin maxim “volenti non fit injuria” (“to a willing person, injury is not done”). The strict requirements of the defence mean that it is now rarely successful.

The plaintiff must:

(a) be fully aware of the risk
(b) have fully appreciated the nature and extent of the risk and
(c) accepted it freely and willingly.

Eg. Canterbury Municipal Council V Taylor (2002)

Question 64

Canterbury Municipal Council V Taylor (2002).

Answer 64

The Canterbury council ran a dual-use sports complex with a cycle track bordering a playing field. A cyclist was riding on the cycle trash while football players were concluding a match on the playing field.

A footballer stepped back onto the track and the cyclist collided with him. The footballer was killed and the cyclist injured. The cyclist sued the council and established negligence.

The council pleaded the volenti defence. The court rejected the defence as they held that although the cyclist knew of and appreciated the risk of dual-use facilities it did not mean that he assumed the risk.

He had not agreed that, if he were injured, he, rather than any other negligent party (such as the council) would bear the loss.