Potential Liability for Negligent Misstatement
According to Christensen, Duncan, and Walsh (2014), liability for negligence arises in cases where a duty of care owed to an individual is breached and a loss incurred or caused to the person as a result of the said breach. While there are various categories of negligence, liability incurred following negligent misstatement is of significant concern. Morgan (2009) assert that negligent misstatement arises where one party offers a careless statement to another whereby the relationship dictates that the former owes the latter a duty of care. Moreover, Christensen, Duncan, and Walsh (2014) state that the negligent misstatement is actionable in tort if the former (Party A), breaches a duty of care in such a way that the statement or advice causes damage or loss to or for the claimant. For instance, if the statement or advice makes the advisee to enter into a contract that leads to a loss or damage, the advisor is liable. However, as stated in Chaudhry v Prabhakar 1989, it is important for the party offering the advice should have special skills in the particular field failure to which, as stipulated in Mutual Life & Citizens Assurance v Evatt 1971, it is not liable to any loss the claimant incurs (Morgan, 2009).
The professional has the duty to provide accurate information for which the client acts upon. For instance, in the real estate industry, real estate agents have the duty to provide advice or information to potential buyers, value analysts must provide advice on the values to the client or any other third parties, and solicitors have the duty to provide third parties with accurate information on property as seen in Ross v Caunters 1980. The professional, in the given instances, should ask what advice the client requires due to the non-existence of a contractual duty. When the client suffers loss from the advice given, there is a need to analyze what the situation would have been had the professional given the correct information or advice. However, the determination of whether the professional was aware that the advice would be relied on is important as stated in JEB Fasteners v Marks Bloom & Co 1983 (Morgan, 2009). Moreover, in reviewing the case on the basis of causation, there is a need to determine what the client would have done if the negligent misstatement had not been made.
As stipulated in the case of Hedley Byrne v Heller & Partners 1964, significant proof that there is professional breach of duty to the client that caused loss to the client counts as negligence. The proof that the breach caused the loss and the consideration of the possible outcomes had the breach of contract not occurred serves an important role in the determination of the negligence. Liability occurring from the inability of the professional to advise the client accordingly or the failure of the professional to warn the client amounts to a breach of contract, in this case negligence misstatement. The law follows that the required information or advice should have been given in accordance to the contract. The professional must consider the different alternatives or options available before advising the client. Moreover, there is a need for balancing the probabilities and understanding that had the professional offered the true advice then the client would not have incurred a loss by entering a particular transaction or contract. However, as in Weller v Foot and Mouth Research Institute (1966), in cases of pure economic loss the claimant cannot recover their claims from the defendant.
Moreover, in the application of the causation to breach of professional duty, the test is subjective and dependent on proof that had the professional offered the correct or true advice then the client would have acted on the advice and refused to enter the transaction. The law, through the court system regards all of the circumstances to determine with certainty the state of mind of the client in the quest to determine the possibility of acting on or failing to act on the advice. If the proof shows that the client would not have taken the right professional advice in any event places certainty in denying the client compensation for any loss accrued from the breach of the professional duty. In addition, in cases where the professional fails to offer relevant advice or provides negligent advice, the client must prove that had s/he received the correct advice, s/he would have acted differently by failing to enter the relevant transaction (Christensen, Duncan, & Walsh, 2014).
Morgan (2009) identifies types of liability arising from civil or criminal offences. Criminal offences occur when the professional advisor breaches a government imposed law. Such laws govern the relationships between the state and entities. On the other hand, civil offences occur when the advisor breach a contract reached with the client. As such, liabilities occurring from criminal offences assert that the professional advisors commit acts like fraud and insider trading which breach a criminal law such as offering inappropriate audit opinion. Moreover, the breach of civil laws gives the claimant the chance to sue the professional advisor for negligence that causes the loss or damage to him or her.
The professional advisor can take various steps to avoid liability from negligent misstatement. To start with, the avoidance of negligence is critical for any professional and ensures the avoidance of liability that may arise from the reckless and careless advice. The professional must always follow the code of ethics and the contractual agreement or any other agreements to the latter. Apart from this, another critical way of avoiding liability is through exposure of the professional to litigation from other parties to whom s/he has not disclaimed liability. Auditors include a disclaimer of liability to the parties benefiting from the advice or statements made in their audit reports (Royal Bank of Scotland (RBS) vs Bannerman Johnstone MacLay). Additionally, liability limitation agreements are critical for avoiding liability. For instance, the application of liability limitation agreements reduces the threat clients pose of litigation (Christensen, Duncan, & Walsh, 2014).
In conclusion, if the professional advisor offers a negligent advice or a statement to another person in whom he or she owes a duty of care then the advisor is liable and the determination of the different facts determines the possibility of the claimant receiving compensation from the advisor. For instance, the advice given must have been required for a purpose, generally described or particularly stated, and which is made known either inferentially or actually to the professional advisor at the time of giving the advice. Additionally, as stipulated in Caparo Industries plc v. Dickman and in JEB Fasteners v Marks Bloom & Co (1983), the advisor must have knowledge that the communication of the advice to the advisee will be used for the particular purpose outlined. Also, the court must determine that the advice was used and that it caused the detriment the client demands. However, the advisor and the client must prove the arguments in consideration of what would have happened had the right advice been given.
Elements of Negligence in a Case: Sanjit & Tina vs. Roger
In the situation where a plaintiff seeks compensation for injuries arising from the negligent actions of the defendant, there are many provisions that must hold true for the defendant to be proven liable for the claims by the plaintiff. Ideally, the necessity to establish the above provisions comes from the fact that negligence, in its sense of law, stands out as a failure to act out in the manner that a reasonable person under the given circumstances would have done. In light of the above, it thus becomes necessary for the plaintiff to provide substantial proof that the defendant is by all means liable.
Consequently, Sanjit and Tina, in the pursuit of seeking compensation from Roger for his act of negligence, must be in a position to provide the following three aspects. First, Sanjit and Tina must prove that Roger owed them a duty of care. The second thing that Sanjit and Tina must prove to the courts in the pursuit of getting compensation from Roger is the fact that Roger breached the identified breach of the duty of care (if it is identified). Finally, the third thing that Sanjit and Tina must prove to the courts of law is that the personal injuries for which they seek compensation from Roger are as a result of the breach of the duty of care by Roger (Barnett v Chelsea and Kensington Hospital Management Committee, 1967). The success of the compensation claim by Sanjit and Tina against Roger depends on how well each of the above three things stands out in the case.
In light of the above, it is necessary to establish what facilitates the duty of care in cases concerning negligence. In the process of determining whether Roger owed the duty of care to Sanjit and Tina, the court must account for specific legal policy factors and principles. Some of the factors include the kind and extent of harm suffered by the plaintiff, the control over the situation by the defendant, as well as the vulnerability of the plaintiff (Paris v Stepney Borough Council, 1950). Additionally, the relationship between the defendant and the plaintiff as well as various ethical and moral considerations also feature as necessary factors necessitating the establishment of the duty of care. In some cases, it is relatively easy to establish the existence of the duty of care. However, it is significantly complex in others.
After establishing the existence of the duty of care, the next aspect important in the necessitating of compensation follows – the establishment of the breaching of the identified duty of care. Notably, there are some key aspects that facilitate proof for breaching the duty of care. Ideally, Sanjit and Tina must be in a position to prove that Roger knew about the risk of such an occurrence, that is, reasonable foreseeability (Donoghue v Stevenson, 1932). The other provision that Sanjit and Tina must be in a position to prove is that the significance of the risk. Finally, it is important for Sanjit and Tina to prove that a reasonable person in Roger’s position would have undertaken various precautionary measures in the pursuit of avoiding the risk (Chapman v Hearse, 1961; Swain v Waverley Municipal Council, 2005). Notably, the national statutes help in the establishment of the considerations for determining what a reasonable person would do in a given risk situation.
Upon the establishment of the duty of care and proving that the defendant breached the identified duty of care, it is finally important to illustrate that the injuries or damage upon which the plaintiff seeks compensation are a direct result of the defendant’s breach of contract (Bolton v Stone, 1951). That is, establishing the causation. The above conclusion means that there must be a direct connection between the defendant’s duty of care breaching allegation with the harm or injury sustained b y the plaintiff. It is a question of fact (Paris v Stepney Borough Council, 1950).
In light of the above, the pursuit of Sanjit and Tina in seeking compensation from Roger for the injuries sustained in the accident may proceed as follows. First, Roger owes care of duty to both Sanjit and Tina. As a certified driver, Roger has sworn to drive with utmost care bearing in mind to observe the driving regulations for the purpose of necessitating the security of his life, the life of his passengers such as Sanjit, as well as the life of pedestrians such as Tina. By losing control for no apparent reason, it means that Roger was driving carelessly. Therefore, he breached the duty of care he owed to both his passenger Sanjit and the pedestrians, such as the victim Tina. The breach on the care of duty is strong since he was must have been aware of the risk of unfocused driving. More so, the risk was significant concerning injuries sustained by the victims as a result (Paris v Stepney Borough Council, 1950). More so, in the position of Roger, a reasonable would net drive without focus, especially within the vicinity of a school. However, the causation aspect varies between the two plaintiffs. For Tina, it is easy to get full compensation for her injuries since Roger’s careless driving is the only primary reason behind her injuries. However, the case for Sanjit is relatively different. Although he might be in a position to receive compensation, it will only be a fraction of the entire compensation. The rationale for the above finds its basis in the fact that his lack of wearing the seat belt may have played a significant role too in his sustenance of the head injuries as a result of Roger’s negligence (Soper v GCCC, 2015).
Christensen, S., Duncan, W. D., & Walsh, T. (2014). Professional liability and property transactions. Annandale: Federation Press.
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Kaplan Financial Ltd. (2012). Professional Advice and Negligent Misstatement. [online] Kaplan Financial Ltd. Available at: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Professional%20advice%20and%20negligent%20misstatement.aspx [Accessed 1 Feb. 2016].
Morgan, L. (2009). The law relating to negligent misstatement and its impact on professionals such as Accountants and Solicitors. The New Researcher, 1 , 24-27.
Chaudhry v. Prabhakar 1989
Donoghue v Stevenson, Hist.Pols.258.2 562 (House of Lords 1932)
Bolton v Stone, E.R. 1078 850 (House of Lords 1951)
Chapman v Hearse, CLR 112 106 (High Court of Australia 1961)
Mutual Life & Citizens Assurance v. Evatt 1971
Paris v Stepney Borough Council, E.R. 42 367 (House of Lords 1950)
Soper v Gold Coast City Council, QCA 118 1 (Court of Appeal 2015)
Swain v Waverley Municipal Council, HCA 4 256 (High Court of Australia 2005)
Ross v. Caunters 1980
JEB Fasteners v. Marks Bloom & Co 1983
Hedley Byrne v. Heller & Partners 1964
Weller v. Foot and Mouth Research Institute (1966)
Caparo Industries plc v. Dickman 1990
Royal Bank of Scotland (RBS) v. Bannerman Johnstone MacLay
Barnett v Chelsea and Kensington Hospital Management Committee, E.R. 1068 428 (Queen’s Bench Division 1967)