Analysis of Negligence Liability Issues
Contemporary tort law is one of the most dynamically developing areas of legal science and practice nowadays, and the area of professional liability becomes one of the most intricate and the sophisticated legal issues therein (McBride, Bagshaw, 2008). The global economy becomes more and more complicated and specialized. As a result, the business people's reliance on professional advice services is growing heavier (Elliot & Quinn, 2007). Statistically, they global follow of consulting business grows on 13% rate annually, showing that more and more professional advisors enter the market, and therefore more business people become dependent on their professional services.
In many situations, a professional advice delivered by a specialist in a particular field may be of critical importance for the business (Rotman, 2011; Rotman, 1996). A lawyer may advise the business how avoid ‘lethal’ taxation penalties, and an auditor can conclude whether a takeover bid is friendly or not, whereas an investment consultant can professionally say whether a particular project is worth funding. Yet, these professionals may sometimes be carelessly erroneous, and the errors can cost the business million dollars (Frankel, 2011). The objective of this paper is to analyze professional negligent misstatements and their impact on professional liability of the consultants.
The practice demonstrates that there is no distinct difference between liability, which arises from negligent actions and professional liability which is the result of negligent statements. In other words, relying on incorrect advice, a party can be significantly injured financially and organizationally. Before Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) the law was reluctance to develop the standards of duty of care for the professional consultancy services. However, with the ruling of that case the situation became considerably different (Keith, 2012).
The concept of the statement is one of the most controversial elements in the contemporary law. Not only does not define any stated, but also the scope of this concept significantly varies across different jurisdictions of the Commonwealth. A common understanding of this idea is that it should be construed as a false statement of a specific fact, which was made honestly, but carelessly and therefore resulted in some sort of factual mistake (Cane, 1996). In contemporary English tort law, and negligent misstatement is actionable only if a breach of duty of care occured, and inflicted some damages to the claimant. Today's case law, in particular (Hedley Byrne v Heller & Partners Ltd [1964] AC 465 (HL) and Caparo Industries plc v Dickman [1990] 2 AC 605 (HL) made the rule that it is possible to raise responsibility issues in the context of negligently statements only if the claimant had sufficient grounds to reasonably rely on such statements (Capuano, 2010).
In the meantime, the concept of professional negligent misstatement should be distinguished from the idea of contractual misstatement (Deakin, Johnston & Markesinis, 2003). The first scenario occurs when a professional consultant (a lawyer, and auditor, in medical practitioner or a financial specialist) provides professional advice and assistance to the client; the second one happens when a party uses misstatement to induce another party into a contract (Lunney & Oliphant, 2003; Jackson & Powell, 2002). The first group of cases is governed by the tort law, while the second deals with the provisions of Misrepresentation Act 1967 and is mostly contractual in its nature (Frankel, 2011; Cane & Atiyah, 2004)).
The practice demonstrates that this area of remains one of the most conceptually and organizationally dysfunctional (Tettenborn, 2002). Despite the fact that some sort of unanimity has been achieved after Caparo Industries plc v Dickman [1990] 2 AC 605 and Smith v Eric S Bush [1989] 1 AC 831, still the legal community experiences serious problems in defining whether the law can be applied to a particular working scenario (Nunen, 2008) . Most importantly, in Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) the court ruled that in order to invoke professional misstatement, the claimant should prove that some sort of special relationship existed between the litigants (Jonathan, 1986; Gerven, Lever & Larouche, 2000).
The concept of special relationship revolves around the axis of the defendant’s professionalism, and on the scope of the claimant's reliance on his advice (Castle, 2003). Furthermore, the defendant should be in business of giving professional advice (Smith & Burns, 1983). In other words, statements made in the course of social or informal interaction do not qualify under this rule. Evidently, two main difficulties arise out of this principle of law. Firstly, it is always difficult to determine what was the scope of claimant's reliance on the defendants professional advice (Buxton, 2009). In other words, it is not always clear whether the advice given by a professional works as the ultimate arguments, which it used the claimant to pursue a particular course of actions, or simply reinforced his desire to act so (Castle, 2003). However, determining this fact is of critical importance, because if a client had simply his intense reinforced by the professional advice given by the defendant, in that case liability should not arise (Hedley, 1995). Secondly, it is important to understand whether the defendant had prior knowledge of the fact, that his client would be using his advice for a particular purpose (Rotman, 1996).
One of the key legal precedents regulating the issue was Caparo Industries Plc v Dickman and Others (1990). In that case, a shareholder of the company purchased more shares, after he accessed the accounts audited by the defendant for the company shareholders. However, when the transaction was completed, the claimant realized that the audited accounts were misleading, and demonstrated that the company was profitable, while in reality it had incurred substantial financial losses. The claimant sued the auditors on the grounds that they already a duty of care to those, that might have read the results of the audit and use it. The Court ruled in favor of the defendant, stating that the duty of care is owed only to the party, with whom some sort of proximity exists. In Caparo the proximity existed only between the auditor and the shareholders of the company, while outside investors had no relationship with either party (Steele, 2007).
The main result of the Caparo decision was the introduction of three-fold test to determine whether there was a duty of care, and therefore the possibility of negligence between the parties (Brinig, 2011; Powers, Harris & Barton, 2008). Firstly, following their ideas of Donoghue v Stevenson [1932] UKHL 100, harm must be reasonably foreseeable from the results of the defendant's professional conduct. When a reasonably prudent person, engaged in a similar kind of business could not predict the occurrence of particular outcomes under similar circumstances, there is no foreseeability (Castle, 2003; Hedley, 1995; Weir, 2002). Secondly, the parties must be in your relationship of proximity, which is regulated by Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964). Finally, the grounds to impose liability must be fair and reasonable, so that liability cannot be invoked technically only (Deakin, Johnston & Markesinis, 2003). This landmark case lead to further ramifications of the professional negligent misstatement liability discussed by the English courts in Her Majesty's Commissioners of Customs and Excise v Barclays Bank Plc [2006] UKHL 28, where the principle of fairness was underscored by the House of Lords, Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, where the court ruled that providing false information to the consultants bars the affected creditors from suing the consultants. Internationally, the principles of Caparo were used by the Canadian Corporate in Hercules Managements Ltd. v. Ernst & Young.
Overall, it is obvious that the area of professional liability is a highly delicate one. Therefore, in order to avoid being sued by the damaged client, a professional lawyer or audit should always take the steps:
1. A professional should always say which of his words constitute professional advice and which do not.
2. A professional should always inquire about the purposes of this consulting.
3. Whenever possible, he/she should tell the clients to take into consideration other factors, then the professional opinion of the consultant.
The areas of professional legal and financial consultancy keep on growing (Coase, 1988). Although entering the profession becomes somewhat dangerous, because the chances of being sued grow simultaneously with the demand for the services, taking reasonable precautions explained above will protect a specialist from civil liability, or at least it will help to mitigate the damages.
Two potential claims arise out of this scenario. Firstly, the damage pedestrian may sue the driver. Secondly, the passenger of the car may sue the driver. Yet, in the both scenarios there are viable defenses to attempt proving that he should not be held liable for his actions.
that the duty of care existed between the two parties ('Caparo Industries Plc v. Dickman' [1990]; Rogers & Winfield, 2002; Cane & Atiyah, 2004);
that this duty of care should be breached by the defendant and that the speech should have been foreseeable to the defendant (Bolton v. Stone [1951] AC 850)
that the impact inflicted upon the claimant directly resulted from the actions of the defendant (Adeels Palace Pty Ltd v Bou Najem [2009] HCA 4; Castle, 2003)
and that the claimant sustained some damages (Constantine v Imperial Hotels Ltd [1944] KB; Buxton, 2009; Weir, 2002))
Relating to the passenger and the pedestrian, the driver owed a duty of care to the both of them. This idea is supported to post by the strict liability rules, and the existing theoretical opinion (Hedley, 1995; Jonathan 1986). The only exception to this rule occurs, when the situation, which gave grounds to the legal claim, occurred due to the actions of the claimant (Coase, 1988). In this case, the passenger of the car was using his mobile phone while his colleague was driving. Although that is not explicitly stipulated in the case, the mobile phone could have potentially distracted the defendant from driving and cause the resultant consequences of this case. Yet, although the situation with the passage is rather contestable, the pedestrian was in no way implicated in the creation of this situation. Therefore, while it is possible to contest the claims against the driver from the passenger, in the context of duty of care the pedestrian will undoubtedly succeed.
Secondly, in Adeels Palace Pty Ltd v Moubarak the court ruled that there should be factual causation between the actions of the defendant and the damages inflicted on the plaintiff. In this case, the causation between the physical damages inflicted to the pedestrian and the activities of the plaintiff are obvious. However, as far as the question whether the claim of the car passenger is actionable is concerned, in Lamb v Camden LBC (1981) QB 625 the judge ruled that if conduct of the claimant somehow contributed to the negative consequences, then the defendant should be held liable in proportion to his contribution (Coase, 1960; Cane, 1996). In our case, if the passenger used safety belt, the outcomes of the situation for him might have been completely safe. Therefore, personally to the passenger, his commitment to the negative result was critical. Therefore, there was no direct causation between the actions of the defendant and the traumas suffered by his passenger, because it was a contributory negligence of the passenger (Butterfield v. Forrester, 11 East. 60, 103 Eng. Rep. 926 (K.B. 1809). With regard to the harm inflicted to the pedestrian, it is logical to argue that they are natural consequences of the defendant's actions.
Finally, in order to make a negligence claim actionable, a claimant must prove that some harm has been inflicted to him as a result of the defendant's actions (Elliot & Quinn, 2007; Kidner, 1987)). In the present case both, the pedestrian and the passenger sustained severe physical traumas. The majority of scholars and the legal practitioners unanimously agree on the idea that temporary physical dysfunctionality should be recognized as eligible harm in the negligence cases (McBride & Bagshaw, 2008; Jackson & Powell, 2002; Rodger, 1992).
References
Authorities
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Cane, P. (1996). Tort law and economic interests. Oxford New York: Clarendon Press Oxford University Press.
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Cases
Adeels Palace Pty Ltd v Bou Najem [2009] HCA 4
Before Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465
Bolton v. Stone [1951] AC 850
Butterfield v. Forrester, 11 KB. 1809
Caparo Industries plc v Dickman [1990] 2 AC 605 (HL)
Constantine v Imperial Hotels Ltd [1944] KB.
Donoghue v Stevenson [1932] UKHL 100
Her Majesty's Commissioners of Customs and Excise v Barclays Bank Plc [2006] UKHL 28
House of Lords, Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39
Lamb v Camden LBC (1981) QB 625
Smith v Eric S Bush [1989] 1 AC 831
