14 The Law of Negligence and Liability for Negligent Professional Advice © Oxford University Press,...

14

The Law of Negligence and Liability for Negligent

Professional Advice

© Oxford University Press, 2007. All rights reserved.

The Law of Negligence

Objectives - to understand:• the difference between a breach of contract action and

an action in tort• the elements required to be proved in an action for

negligence• liability for negligent mis-statement at common law• the need for statutory intervention• liability for negligent professional advice under the

TPA and FTAs (misleading or deceptive conduct).

The Law of Negligence cont ...What is a tort?• a civil wrong (as opposed to a criminal wrong), other than a

breach of contract, which the law will redress by an award of damages

• distinguish between an action for breach of contract and an action in tort for negligence

Also note underlying policies:• criminal law: punishes the offender

• tort liability: primarily compensates person injured.

The Law of Negligence cont ...

Elements: traditional order of analysis -

The injured party (plaintiff) must prove that:

(i) the defendant owed them a duty of care –

Donaghue v Stevenson, per Lord Atkin (‘snail in the bottle’ case)

(ii) the defendant breached required standard of care – ie. negligence, and

(iii) the breach caused the damage which was not too remote.

The Law of Negligence cont ...

Defences:• voluntary assumption of risk (consent to risk) by

plaintiff - if so, defendant not liable• contributory negligence by plaintiff – ie. conduct

by injured party which prevents their right to full recovery for loss suffered - if so, damages are apportioned.

The Tort of Negligence

Law of Negligence cont ...

Liability for negligent mis-statement at common law:

• traditional reluctance to grant remedy for negligent advice leading to financial loss

• concern not to ‘open the floodgates of litigation’• but see Hedley Byrne & Co Ltd v Heller & Partners

Ltd (House of Lords): -cause of action depends on the existence of a ‘special relationship’ between the parties

• this concept an extension of neighbour principle of Donaghue v Stevenson.

Law of Negligence cont ...Negligent mis-statement at common law (cont):

• note test in Shaddock & Associates Pty Ltd v Paramatta City Council where High Court broadened scope of duty of care: -

special relationship can exist even where advisor does not profess to possess any actual skill or judgment.


Negligent mis-statement at common law (cont):

• test requires:

(i) advice upon a serious matter and

(ii) circumstances justifying reasonable reliance (eg. financial advice, but not when given in social context).


The need for statutory intervention arose out of difficulties at common law:

(i) plaintiff must establish three pre-conditions of liabilityie. duty of care; breach of required standard of care/negligence; and consequential loss or damage

(ii) doubt as to whether professional liability (eg. of auditors) extends to third parties: -

- courts in both England and Australia have adopted test which may make it hard for third parties to successfully sue auditors:see Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (HC).

Law of Negligence cont ...The need for statutory intervention (cont):High Court in Esanda Finance established test for duty of care to

a third party- To be successful, third party (C) must prove:

• communication: defendant auditor (A) knew (or ought reasonably to have known) that the information or advice given to B (A’s client) would be communicated to C (or a class of which C is a member), and

• purpose: would be very likely to lead C to enter into a transaction of the kind C usually enters into, and

• reliance: it would be very likely that C would enter into such a transaction in reliance on the information or advice from A and thereby risk suffering economic loss.


Liability for professional advice under TPA and FTAs - provisions that widen and extend liability beyond that which exists at common law

Section 52 TPA:

• liability extends to natural persons (s 6), including providers of professional services

• liability is strict – s 52 does not require negligence or a relationship of proximity

• third part liability is open-ended


Liability for professional advice under TPA and FTAs (cont):

• note what constitutes misleading or deceptive conduct: any means, active or passive, whereby a false impression is created

• representations concerning future matters: effect of s 51A – such representations are deemed to be misleading, unless they can be supported on reasonable grounds

• exclusion clauses: ineffective to limit application of s 52 • wide range of remedies (only civil, no criminal sanctions).


Manufacturers’ liability for defective goods:

• see Part VA TPA - strict liability regime to overcome need to prove elements of negligence

• goods must be defective according to objective community standards of safety.


Further tort law reform:• states are introducing statutes to modify common

law of negligence • objective: to limit liability in certain situations and

damages awards• these statutory overlays presuppose knowledge of

common law.

14 The Law of Negligence and Liability for Negligent Professional Advice © Oxford University Press,...

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