Week 10 - Negligent misconduct Flashcards
3 categories of duty of care
LIABILITY FOR PHYSCIAL HARM
LIABILITY FOR PURE ECONOMIC LOSS
LIABILITY OFR OMISSION / FAILURE TO ACT
explain the duty of care test
- expand principle
- ‘reasonably foreseeable test’ a reasonable person
- wether sufficient proximity
Generally, the elements that must be present to make negligence actionable are:
a duty of care is owed;
there has been a breach of that duty;
damages resulted from the breach; and
the damage suffered was not too remote from the breach.
Duty of care - yes or no “it is implied there is a duty of care as…”
Breach - eco/physcial harm/omission
Causation - prove negligence caused damage suffered “factual consideration” “but for” application of hypothetical situation where circumstances are the same
Remoteness (likley/unlikley) reasonable foreseeable
Damage
explain economic loss
Economic loss is obviously a factor in actionable negligence and may result from an act, or even from negligent advice (termed “negligent misstatement”).
In Pere v Apand Pty Ltd (1999) 198 CLR 180, potato farmers suffered economic loss as a result of diseased potato seeds supplied to a farm 20 kilometres from the plaintiff’s property. The diseased seeds resulted in the growth of a crop with “bacterial wilt”. The plaintiff’s economic loss arose because they were unable to export their potato crop because of legislative restrictions within a 20 kilometre radius from the outbreak.
The High Court held that a number of factors entitled the plaintiffs to succeed in their claim. In summary (read [8.150] for a detailed explanation) these were:
reasonable foreseeability;
indeterminancy of liability;
individual autonomy factor;
vulnerability to risk; and
the defendant’s knowledge of the risk and its magnitude.
Another area of loss relates to that which results from NEGLIGENT STATEMENTS - where a person holds himself out as having a special skill or knowledge upon which another person will rely.
The concept relates to a “special relationship” between the parties:
Hedley Byrne & Co Ltd v Heller & Partners Ltd
Frank, Sally and Guido are directors of a property development company. Their chief accountant Robin oversees the financial team and reports to the board of directors on a weekly basis. The directors trust Robin’s financial expertise and decide not to check over her reports. Penalty proceedings are commenced against the company when it is discovered that the company’s financial reports have under-reported liabilities and over-reported profits for many years. ASIC launches civil penalty proceedings against the directors of the company for failing to act in accordance with their duties under theCorporations Act 2001. Explain the duties and liabilities of directors under the Corporations Act 2001.
Explain whether Frank, Sally and Guido have breached their duties, in light of statute and case law.
Directors govern a company on behalf of the shareholders of that company. The Corporations Act 2001 states in s 198A (1) that ‘The business of a company is to be managed by or under the direction of the directors’. All directors have certain basic legal duties and responsibilities. The duties and responsibilities imposed on directors under the Corporations Act 2001 apply to many different organisational structures, such as public companies, proprietary companies, etc.
The term “director” is defined in s 9 of the Corporations Act 2001 to mean:
A person validly appointed as a director or an alternate director;
A person, even though not validly appointed as a director, if that person acts in the position of a director (‘de facto’ director);
A person, even though not validly appointed as a director, if the directors are accustomed to act in accordance with that person’s instructions or wishes (‘shadow director’). For simplicity, the term ‘director’ will be used in this Director Q&A to refer to all those who are considered to be directors.
The Corporations Act 2001 specifies four main duties for directors:
Care and diligence - to act with the degree of care and diligence that a reasonable person might be expected to show in the role (s 180). The same duty is imposed on directors at common law. This duty is subject to a business judgment rule that requires a director making a business judgment to:
make the judgment in good faith and for a proper purpose;
not to have a material personal interest in the subject matter of the judgment;
inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate;
rationally believe that the judgment is in the best interests of the corporation (s.180(2)).
Good faith - to act in good faith in the best interests of the company and for a proper purpose (s 181), including to avoid conflicts of interest, and to reveal and manage conflicts if they arise. This is both a duty of fidelity and trust, known as a ‘fiduciary duty’ imposed by general law and a duty required in legislation;
Improper use of position - to not improperly use their position to gain an advantage for themselves or someone else or to the detriment to the company (s 182);
Improper use of information - to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else or to the detriment to the company (s 183).
Not to trade when insolvent. (s.588g)
HYPERLINK “http://www.companydirectors.com.au/membership/the-informed-director/what-are-the-general-duties-of-directors” http://www.companydirectors.com.au/membership/the-informed-director/what-are-the-general-duties-of-directors
Applying these duties to the facts at hand it does appear that there has been a breach of s.180 which is the duty of care, skill and diligence. It is unlikely that the directors will satisfy the business judgment rule because these are financial matters that they should oversee. The directors should have checked over the financial team’s reports. It is a core duty of directors to ensure the veracity of financial reports. The pecuniary penalty under the Corporations Act can be an order for payment up to $200,000 (s.1317E and s.1317G) or an order to prohibit a person from managing a corporation for a specified period (s.206c). Note that all three directors may also be required to compensate the company for their contravention of s.180 (s.1317H). ASIC can apply for a compensation order under s.1317J provided the proceedings are started within 6 years. (s.1317K)
On the facts would appear that Frank, Sally and Guido will be liable under the Corporations Act for a breach of s.180 and ASIC may order remedies in favour of the company or sanction them in accordance with the said penalties.
Janine has owned a café in a ski village for many years. She decides to incorporate and transfers her interest in the business to the company, as the director and shareholder. Janine decides to keep the business insurance in her own name. There is a fire and the café is significantly damaged. Janine makes a claim on her insurance, but the insurer refuses to pay the claim on the basis that the café property damaged by the fire does not belong to her. Janine seeks your advice about members’ rights and whether she has an insurable interest in the café property. Discuss.
Issues: What are Janine’s member’s rights and does she have an insurable interest in the café’s property?
Rule: Members have no interest In a company’s property (Macaura v Norhtern Assurance (1925)). In Macaura v Northern Assurance (1925) the owner of a timber estate sold all the timber to a company which was owned almost solely by him. He was the company’s largest creditor. He insured the timber against fire, but in his own name. After the timber was destroyed by fire the insurance company refused the claim.
The House of Lords held that in order to have an insurable interest in property a person must have a legal or equitable interest in that property. The claim failed as “the corporator even if he holds all the shares is not the corporation… neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.” (per Lord Wrenbury, at pg 633). ( HYPERLINK “https://www.lawteacher.net/cases/company-law/macaura-v-northern-assurance.php” https://www.lawteacher.net/cases/company-law/macaura-v-northern-assurance.php) A company is a seprate legal entity from its members (Saloman v Saloman (1897))
Apply: Janine, although she is a member and director is separate to the company and therefore because she has not tranferred the insurable interest to the company’s name cannot claim on the policy.
Conclude: Janine cannot successsfully claim under the insurance policy.
Adam buys a hamburger from Hungry Johns for his best friend, Eve. As Eve eats the hamburger she notices a rat’s tail poking out from under the lettuce. She then realises the unusual taste that she had just mentioned to Adam was not a figment of her imagination. She later suffers terrible gastro, has nervous shock and is off work for a month. Hungry Johns is unable to explain how the contamination occurred because it complies with every health regulation and is acknowledged to have the most hygienic premises in the country. Advise Eve of any claim she may have in the tort of negligence.
This is a straightforward Donoghue v Stevenson problem – the facts are similar and raise issues of:
(a) duty of care (NB: see Donoghue v Stevenson which has: (i) a general neighbour principle – who is my neighbour?/reasonable forseeability; as well as (ii) the narrower ratio, which is a specific test for manufacturers of consumer products);
(b) breach (virtual strict liability with manufacturer – but still raise the Wyong/Bolton matrix of factors); and
(c) damage (causation and remoteness).
Can Eve successfully claim negligence against HJs?
In order for Eve to successfully prove that HJ’s were negligent she will have to show the following:
HJs owed her a duty of care
HJs breached the standard of care to Eve
It was HJs breach of duty of care that caused the damage to Eve (sickness and off work for a month)
The damage to Eve was not too remote
There is no need to show duty of care on these facts, because this is a restaurant so they will most definitely have a DOC to all their customers. (Donoghue v Stevenson)
Issue: The difficult question will be whether HJs breached the standard of care to Eve.
Rule: The classic test for breach of standard of care is the ‘reasonable person test’ (Wyong Shire case and Bolton v Stone). Also see McHale v Watson.
Negligence Calculus for the reasonable person test - consideration of the magnitude of the risk of harm (Paris v Stepney Borough Council) - the degree of the probability of its occurrence (Bolton v Stone), along with the expense - difficulty and inconvenience of taking alleviating action or precaution (Woods v Multisport), and the social utility.
The greater the magnitude of harm the more likely the breach, however if the probability of harm is very low, then despite the gravity of harm, there may be no breach. This was the decsion in the case of Bolton v Stone.
Not the Civil Laibility Act 2002 (NSW) and other state statutes provide for tests in relation to breach of duty.
Apply: On the facts Eve has seen a rats tail poking from her burger. If indeed this is a rats tail then the gravity of harm could be severe illness or possibly even death (Paris v Stepney). It is very likely that sickness will result from this careless conduct. It is not expensive or difficult for HJs to ensure that their food is free from such contamination so the lack of precaution is unacceptable (Woods v Multisport). The conduct of HJs does not pass the reasonable person test, no food outlet would allow such contamination in any circumstances, (McHale v Watson) and it is not enough that ‘it complies with every health regulation and is acknowledged to have the most hygienic premises in the country’.
Conclude: HJs have breached their standard of care to Eve.
Issue: Did the contaminated burger cause Eve’s sickness. Would Eve have not suffered illness ‘but’ for the contaminated burger?
Rule: Causation: the ‘but for’ test. CLA 2002 (NSW) s.5(1)(a) (Strong v Woolworths)
This test asks: would the harm not have occurred but-for (if not for) the defendant’s wrongdoing? If yes, causation is satisfied.
Apply: It is clear that Eve would not have fallen ill and missed work had it not been for the contaminated burger. (Strong v Woolworths)
Conclude: HJs breach of duty of care, on the basis of the test for factual causation, has caused Eve’s illness.
Issue: Was the damages to Eve too remote?
Rule: The test for legal causation is the reasonable foreseeability test. (Overseas Tankship v Morts Dock); CLA 2002 (NSW) s.5D(1)(b).
Apply: It is reasonably foreseeable to HJs that any customer will suffer severe illness because of the contaminated food. (Overseas Tankship v Morts Dock)
Conclude: The damage suffered by Eve is not too remote.
Issue: Are there any defences available to HJs?
Issue: Defences include for example contributory negligence and voluntary assumption of risk.
Apply: There is no contributory negligence on Eve’s part nor an issue of volenti non fit injuria.
Conclude: No defences appear to be available to HJs.
Bob a 10-year-old boy is badly injured when he falls down from the top level of a double bunk when attempting to get down from the bed. He was staying with friends. There is no ladder or guard-rail. Assume a duty of care exists. How would you go about assessing whether there been a breach of the duty of care?
For this question see 8.220 and as per the question above take into account the Wyong Shire and Bolton v Stone negligence calculus. Ensure to also cite the CLA 2002 (NSW) sections that relate to the standard of care. NB this question only asks you to discuss ‘breach of standard of care’, that is all!! If you discuss duty of care and causation or defences, you will LOSE marks!
Jack is using a grader to excavate his backyard in preparation for a tennis court when he slices through an electrical cable. This affects the electricity supply to Kevin’s factory located nearby. Jack is aware of the factory but had no idea the cable ran through his block. As a result of the disruption, Kevin suffers a financial loss until the cable is repaired. Advise Jack whether he owes a duty of care to Jack
issue concerns liability for acts that cause pure economic loss. Refer to the policy fleshed out by the HCA in Apand. See 8.140.
Students to discuss how these principles – reasonable foreseeability of injury, proximity, and other ‘salient features such as indeterminancy, assumption of responsibility by the defendant and vulnerability of the plaintiff’ – apply to the facts in this particular problem. There are arguments going both ways: for P - no indeterminancy issues because as far as we know there is only one plaintiff, damage is reasonably foreseeable if not careful and reasonably close proximity. On the other hand D may argue that P is not as vulnerable as Perre (he could have insured against loss of this kind). See 8.140.
Jack, the CEO of Dax Pty Ltd, had just introduced an O2, chemical-free cleaner that he hoped would transform the cleaning industry. He needed to achieve sales quickly because he was having cash-flow problems so he retained the services of Wizard, a marketing company. He told Wizard that Dax was unable to pay upfront for its services and would thus need credit. Wizard did its due diligence, obtaining a credit history from Dax’s bank (Mac Bank Ltd). The report was negligently prepared and did not accurately present Dax’s financial position. Wizard accepted the contract and provided $50,000 worth of services. Unfortunately, 02 flopped. Dax was put into liquidation and Wizard was paid only $56,000. Advise Wizard whether it should take action against Mac Bank Ltd in tort for negligence.
Wizard may be successful in recovering its pure economic loss because of the negligent misstatements of Mac Bank. Students should discuss the duty of care element – use Hedley Byrne v Heller. There must be a “special relationship” as discussed in Hedley Byrne and MLC v Evatt and Shaddock.
Once the duty is established, need to show that the duty has been breached. Note the statutory reforms, particularly in relation to the standard of care expected of professionals: Wrongs Act (Vic) s 59. Standard of care for professionals. See 8.300.
Conclusion: the bank owed Wizard a duty of care when it made the incorrect statements regarding Dax’s financial position. The duty has been breached. Loss resulted.
