1. 14 The Law of Negligence and Liability for Negligent Professional Advice © Oxford University Press, 2007. All rights reserved.

2. 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).

3. 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.

4. 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.

5. 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.

6. The Tort of Negligence

7. 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.

8. 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.

9. Law of Negligence cont... 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).

10. Law of Negligence cont... The need for statutory intervention arose out of difficulties at common law: (i) plaintiff must establish three pre-conditions of liability ie. 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).

11. 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.

12. Law of Negligence cont... 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

13. Law of Negligence cont... 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).

14. Law of Negligence cont... 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.

15. Law of Negligence cont... 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.