Negligent Advice

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Negligent Advice

• Sweeney OReilly
• 1st Ed. pp 42 50
• 2nd Ed. Pp 63 - 70

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• Elements of Negligence
• Defendant owed a duty of care to the plaintiff to
  take reasonable care to prevent him for suffering
  injury, loss or damage
• There was a breach of the duty of care by failing
  to adhere to the standard of care expected
• The breach of duty caused damage to the plaintiff
• The plaintiff suffered damage that was of a kind
  which was reasonably foreseeable i.e. was not too
  remote

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• Duty of Care Negligent Advice
• When is a duty of care owed for negligent advice
• Prior to 1963 Never
• Hedley Byrne Heller established there could be
  a duty of care in giving advice
• High Court has confirmed in L Shaddock Assoc v
  Parramatta City Council (SO p 43\64)

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• Duty of Care Negligent Advice (cont.)
• Whenever a person gives information or advice
  to another upon a serious matter in circumstances
  where the speaker realises, or ought to realise,
  that he is being trusted to give the best of his
  information or advice as a basis for action on
  the part of the other party and it is reasonable
  in the circumstances for the other party to act
  on the information or advice, the speaker comes
  under a duty to exercise reasonable care in the
  provision of the information or advice he chooses
  to give
• - per Barwick CJ in MLC v Evatt (SO p 44\64)

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• Elements
• Give information or advice
• On a serious matter
• Speaker realises, or ought to realise, he is
  being trusted
• It is reasonable for recipient to act on advice
• See Tepko v Water Board SO 2nd Ed. p 64)

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• Duty of Care Negligent Advice (cont.)
• A duty of care can exist between parties
• During pre contractual negotiations
• Esso v Mardon (SO p 44\65)
• As part of a concluded contract
• After the contract?
• Kite v Malycha (1998) SASC 6702

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• Duty of Care of Auditors
• Information is not provided at the request of the
  recipient
• Contract is between company and auditor
• Audit report is a public document
• May be relied on by others
• No contract between auditor and others

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• Duty of Care of Auditors (cont.)
• Audit Report may be relied on by
• Company
• Shareholders
• Investors
• Bankers
• Creditors

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• Duty of Care of Auditors (cont.)
• A duty of care may exist
• San Sebastian Pty Ltd v The Minister (1986) 162
  CLR 340
• A precise description when and to whom an auditor
  owes a duty of care has proved to be elusive
• It is not easy to establish a duty of care for an
  auditor

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• Duty of Care of Auditors (cont.)
• English ApproachCaparo Industries v Dickman (SO
  1st Ed p 45)
• Advice is required for a purpose which is made
  known to the advisor
• The advisor knows that his advice will be
  communicated to the recipient
• The advisor knows that the recipient will act on
  the advice without further inquiry
• The recipient acts on the advice to its detriment

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• Duty of Care of Auditors (cont.)
• Caparo Industries v Dickman (SO p 45)
• Based on English requirement for a special
  relationship to exist before can claim for pure
  economic loss
• Perre v Apand has expand class of potential
  claimants in Australia

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• Duty of Care of Auditors (cont.)
• Australian Approach
• Esanda Finance Corporation v Peat Marwick
  Hungerfords (SO p 47)
• R Lowe Lipman v AGC (Advances) (SO p 47)
• These decisions were before Perre v Apand

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• Duty of Care of Auditors (cont.)
• However, creditors or shareholders can wind up
  company and liquidator can sue auditor
• Such actions are often funded by creditors or
  shareholders on basis they receive a greater
  share of the distribution
• e.g. Southern Equities Corp v Arthur Andersen
  Co 2002 SASC 148

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• Factors Affecting Duty of Care
• Did recipient request advice (Shaddocks case)
• Did defendant assume responsibility for risk
  being taken by recipient (Esanda case)

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• Factors Affecting Duty of Care (cont.)
• Otherwise
• Was advisor aware that recipient could by injured
  by advisors words or conduct
• Degree of recipients vulnerability (Perre v
  Apand)
• Advisors knowledge of recipients vulnerability
  (Perres case)
• Did advisor intend recipient to act on the advice
• Can the class of recipients be ascertained (Hill
  v Van Erp (SO p20\30)

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• Standard of Care
• That which the community reasonably expects from
  a person of those qualifications
• Persons professing to be specialists within a
  profession have a higher standard of care
• Rogers v Whittacker (1992) 175 CLR 479

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• Remoteness of Damage
• Recipient must prove that
• Losses were not too remote and
• Losses were caused by the negligent advice
• Kenny Good v MGICA (SO p 49\71)
• Advisor may be liable for primary loss but not
  consequential loss

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• Disclaimers
• A disclaimer may remove the duty of care
• Hedley Byrne v Heller (SO p 49\69)
• As against a contracting party, a disclaimer acts
  as an exclusion clause and the usual rules apply

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Exam Problems

• Semester 1, 2001