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Commercial Law

Essay Questions

Bob wants to build a brick wall at the front of his house. So, at 8.00 am on Monday morning, he starts work building the wall, although the sky is quite dark and light rain is forecast. He has completed part of the wall when a heavy storm begins around 1.00 pm and Bob was forced to stop work for the day. He goes inside without bothering to cover the wall or its foundations with a plastic sheet he bought in case of rain. At 3.30 pm, children from the nearby school are running down the footpath to the bus stop when suddenly the wall falls over onto the footpath, its foundations having been soaked by the storm water.

A schoolboy, Craig, is hit by some of the falling bricks and suffers minor cuts to his leg. When he gets home, Debra, Craig’s mother, sees his leg, which is covered in blood, and suffers a mental breakdown, as Craig’s leg looks bad. Steve, also a schoolboy, is riding his bike along the footpath when the wall collapses. The bricks hit him causing him to fall off his bike, break his nose and arm and suffer concussion. Steve was riding back from a friend’s house where they had been secretly drinking some of his friend’s parent’s private whiskey collection.

Ian, who was on the opposite side of the street, sees the wall collapse and runs over to help Steve after the accident. Ian cleans Steve up while they are waiting for the ambulance to arrive and gets a few scratches on his fingers in doing so. Ian later contracts a rare form of blood poisoning which is attributed to bacteria in the soil in the wall foundations entering through the broken skin around his scratches.

Advise Craig, Debra, Steve and Ian of any rights they may have arising out of this situation and whether Bob will be liable under the tort of negligence or any relevant negligence-related statute law (ONLY). Your answer should refer to relevant law such as legislation and cases and explain how these legal principles apply to the situation. 

Question 2

Barry is considering investing funds in the stock market. So, he approaches Superior Stockbrokers Pty Ltd, a reputable stockbroking company in Parramatta for advice. Superior Stockbrokers are currently preparing a report for clients on a little-known mining company in Western Australia called Phoenix Mining Pty Ltd. The report is being prepared by Adam, a senior manager at the broking firm, and Angela, a trainee broker. Adam informs Barry about the report they are preparing which should be ready in a few days and suggests Adam wait for their report before investing.

Barry is quite impatient to invest and so calls Angela, who he knows is a trainee, two days later about progress on the report. Angela had just been working on calculating the mining company’s revenue and she tells Barry that, while the report is not quite finalised yet, she has calculated that the company’s revenue has increased by 50 per cent over the past 12 months. Adam has previously mentioned to Angela, over lunch at a nearby café, that she should always check with him before she gives any information to a client. Angela did not check with Adam before telling Barry about the revenue as it was just an off-the-cuff comment over the phone.

Based on that phone call, Barry invests $80 000 in shares in Phoenix Mining. He is keen to invest before the other clients of the broking firm read the final report and invest. However, it turns out that the mining company’s revenue has, in fact, fallen by 5 per cent over the past 12 months. Further, the company also has very significant liabilities. As a result, the company goes into insolvency, soon after. Barry loses his entire $80 000 investment.

Advise Barry, Angela, Adam and Superior Stockbrokers of any legal rights or liabilities they may have in these circumstances. Give full legal reasons for your answers with reference to relevant legislation and cases and explain how these laws apply to this situation.

Sample Answer

Q2:
Issue:
The issue in the case is whether Barry, Adam, Angels and Superior Stockbrokers are entitled to any legal rights or remedies under the given facts and circumstances of the case.

Rules:
NEGLIGENT MISSTATEMENT: it is a claim which can be actionable under the law of torts. In this claim, the action is brought against the party who has carelessly made a statement to another party where the relationship between the two parties is such that one party owes duty of reasonable care towards the another, then such careless statement results in breach of duty, resulting in damages being caused to the party who has been breached (Roberts 2017). Thus, the elements of negligent misstatement are:

Duty of Care owed by one party to another against the harm. However, such harm should be foreseeable in nature (Cole vs. South Tweed Rugby League Football Club Ltd (2004) HCA 29).
Such duty of care is breached when one person carelessly makes a statement to the other person.
The other person suffers damages due to such misstatement made by the party. (Lindeman Ltd vs. Colvin (1964) HCA 35).
The other person has relied upon the statement to act upon the decisions (Caparo Industries plc vs. Dickman (1990) 2 AC 605).
The negligent misstatement can be made with or without the existence of contractual relationship between the parties.
However, in Hedley Byrne vs. Heller & Partners Ltd (1964) AC 465, it was held by the court that the action under the negligent misstatement arises only when such statements were made in the circumstances where the party to whom the statement has been made has sufficient reason to believe the statement and rely upon it for the decisions made and hence the consequences. This was further applied and confirmed in Shaddock & Associates Pty Ltd vs. Parramatta City Council (1951) HCA 59.

VICARIOUS LIABILITY: it is a form of secondary or strict liability under the doctrine of agency under which the principal or the superior would be held responsible for the wrongs committed by the agent or the subordinate during the course of employment (Lloyd vs. Grace (1912) AC 716).

Remedy:
As laid down in the Law of Torts, the remedy available to the person who has suffered loss would either be compensation towards the actual amount of damages suffered unlike the criminal law under which the person committing the wrong is punished under the law. However, the compensation is assessed on the basis of the rule of torts according to which the Courts put the party suffering the damages in the original position which the party used the enjoy before such negligent misstatement took place.

Application:
Applying Cole vs. South Tweed Rugby League Football Club Ltd (2004) HCA 29, it can be explained that the company owed duty of care to Barry and such care was against the harm of financial losss which is foreseeable in such case. Applying Lindeman Ltd vs. Colvin (1964) HCA 35, the loss incurred to Barry was due to the misstatement of Angela based on which he made the investments to the company (Caparo Industries plc vs. Dickman (1990) 2 AC 605). Applying Hedley Byrne vs. Heller & Partners Ltd (1964) AC 465 and Shaddock & Associates Pty Ltd vs. Parramatta City Council (1951) HCA 59, it can be explained that the misstatement given by Angela was relied upon by Barry to make investments. Therefore, it can be explained that Angela had committed negligent misstatement.

Applying Lloyd vs. Grace (1912) AC 716, it can be explained that Angela committed a wrong, under the employment of Superior Stockbrokers Pty Ltd., and such wrong was committed during the course of action and hence making the company vicariously liable for the wrongs committed by her during the course of employment.

Conclusion:
It can be concluded that Adam had not committed any wrong, Angela had committed negligent misstatement for which the Superior Stockbrokers Pty Ltd would be held vicariously liable. Barry has the right to initiate the suit against the Superior Stockbrokers for the loss of 80,000$ due to negligent misstatement committed by Angela during her course of employment.

 
References:
Caparo Industries plc vs. Dickman (1990) 2 AC 605

Cole vs. South Tweed Rugby League Football Club Ltd (2004) HCA 29

Hedley Byrne vs. Heller & Partners Ltd (1964) AC 465

Lindeman Ltd vs. Colvin (1964) HCA 35

Lloyd vs. Grace (1912) AC 716

Roberts, M., 2017. Negligent Misstatement in the Court of Appeal.

Shaddock & Associates Pty Ltd vs. Parramatta City Council (1951) HCA 59.

 

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