Business Law Chapter 4 and 5 PDF

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CHAPTER 4 – The Law of Torts  Tort: a wrongful act causing harm to the person or property of another  A tort is improper behaviour by one person that causes injury to another, sometimes intentionally but more often unintentionally  The injury may be physical, emotional, or financial  Tort law determines in which circumstances the person who causes an injury must compensate the victim  Reason for tort law is to compensate The Scope of Tort Law  The purpose of tort law is to compensate victims for harm caused by the activities of others - generally not to punish  As a general statement, a tort identifies a set of circumstances that creates a right to claim compensation  Tort law is one way of apportioning loss, along with other approaches such as insurance and government compensation schemes Development of the Tort Concept  Initially anyone who caused direct injury to another had to pay compensation  No inquiry was made into the reasons for the injury or whether the conduct of the injurer was intentional or unintentional  Strict liability: liability that is imposed based upon causation regardless of fault  Over time, the idea developed that a person should not be responsible for harm caused to another if he acted without fault  Today’s tort law involves 2 principles: - the fault of the defendant (that is, whether the behaviour was improper) - the causation of harm (that is, whether the plaintiff’s injury was the result of the defendant’s conduct) The Basis for Liability  Fault  Fault: unjustifiable injurious conduct that intentionally or carelessly disregards the interests of others  Refers to the blameworthy or culpable conduct – conduct that in the eyes of the law is unjustifiable because it intentionally or carelessly disregards the interests of others  One reason for basing liability upon fault is a belief in its deterrent effect: people will be more inclined to be careful if they must pay for the consequences of their carelessness  Accident victims who cannot establish fault on the part of some other person go uncompensated, and the costs and delays of litigation deter many other claims  Strict Liability  Some activities are inherently dangerous regardless of the amount of care taken – for example, transporting high explosives - it seems logical that a person knowingly undertaking an inherently dangerous activity should

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be strictly liable for resulting damage, regardless of fault - why? Because that person could charge for his services according to the degree of risk, and could carry adequate insurance to compensate for possible harm done to others In the absence of legislation, Canadian courts typically consider fault to be the primary basis of liability However, the expected level of care rises as the danger increases Public Policy The most radical policy proposal would eliminate lawsuits for all personal injuries and compensate victims through government run compensation schemes No Fault Insurance: a system of compulsory insurance that eliminates fault as a basis for claims Another example of an alternative to the tort approach is found in the scheme governing workers’ compensation in Canada Workers’ Compensation: a scheme in which employers contribute to a fund used to compensate workers injured in industrial accidents regardless of how the accident was caused Employers must contribute to a fund that is used to compensate workers injured in industrial accidents, even when the employer is blameless and the injury is the result of the employee’s own carelessness Vicarious Liability Refer to page 388-389 Employers without fault may also be liable for harm caused by the acts of an employee when those acts arose in the course of employment An employer may even be found liable when he has given strict instructions to take proper care or not to do the particular act that causes the damage, and he may be held liable for criminal – as well as intentional and unintentional – tortious acts of an employee Vicarious liability: the liability of an employer to compensate for torts committed by an employee during the course of his or her employment Figure 4.1 2 public policy reasons for taking this approach: 1. Although an employee is personally liable for the torts he commits while acting for himself or his employer, employees often have limited assets available to pay compensation for the potential harm they can cause 2. It seems only fair that the person who makes the profit from an activity should also be liable for any loss

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Torts are divided into 2 types: intentional and unintentional Intentional torts are those where the activity or conduct is done deliberately, not by accident Unintentional torts are those where the behaviour itself is accidental and not done deliberately In both cases, the harm may be unexpected, and intention relates only to the behaviour, not the resulting damage  Harm or damage must occur for any tort to be actionable  Assault: the threat of violence to a person  Nuisance

 The tort of private nuisance protects an occupier’s right to the reasonable use and enjoyment of her own land, without substantial interference from direct or indirect activity on neighbouring property  Private nuisance: interference with an occupier’s use and enjoyment of her land  An occupier does not have a right to absolute freedom from trivial annoyance  The level of interference that a community as a whole already tolerates and that individual members of it can be expected to tolerate also varies according to local conditions  Example on page 79  False Imprisonment and Malicious Prosecution  False arrest: causing a person to be arrested without reasonable cause  Malicious prosecution: causing a person to be prosecuted for a crime without an honest belief that the crime was committed  Defamation  Defamation: making an untrue statement that causes injury to the reputation of another person  Defamation torts require publication – that is, communication of the offending (written or oral) statement to someone other than the person defamed  One defence against defamation is that the alleged defamatory statements are true; the onus is on the defendant to prove the truth of the statements  Words spoken in parliamentary debate, in proceedings in law courts and inquests, and before royal commissions are subject to absolute privilege  Absolute privilege: complete immunity from liability for defamation  Qualified privilege: immunity from liability for defamation provided a statement was made in good faith  The law gives a qualified privilege to anyone giving such information  Provided he gives it in good faith, with an honest belief in its accuracy, he is not liable for defamation even if the statements turn out to be untrue  Responsible communication on matters of public interest: a defence to defamation when the publication of the statement is in the public interest and was done responsibly - ex: media cases  Other Intentional Torts Related to Business  Inducing breach of contract: intentionally causing one party to breach his contract with another - ex: bribe  Unlawful interference with economic relations: attempting by threats or other unlawful means to induce one person to discontinue business relations with another Unintentional Torts    

The second type of tort is an unintentional tort It follows that the resulting harm is also unintentional Negligence By far the most common basis for legal actions in tort, and the one that best illustrates the fault theory of liability, is the unintentional tort of negligence  Negligence: the careless causing of injury to the person or property of another  Elements of Proof

 The first element concerns the identity of the plaintiff – should the defendant have been aware of the risk of harm to this victim?  The second element relaltes to the behaviour of the defendant – did the defendant’s conduct fall below the standard of behaviour required in the circumstances?  The third and fourth elements involve what harm was suffered and whether the defendant’s conduct “caused” the plaintiff’s “injury”  Elements of a Negligence Action  In establishing the right to recover compensation for negligence, a plaintiff must prove 4 things: 1. The defendant owed the plaintiff a duty of care 2. The defendant breached the required standard of care 3. The plaintiff suffered injury or damage 4. The defendant’s conduct caused the plaintiff’s damage o 1. Duty of Care  Duty of care: a relationship so close that one could reasonably foresee causing harm to the other  First, the closeness of the relationship between the plaintiff and defendant is examined to see if it was reasonably foreseeable that the defendant conduct would cause harm to the plaintiff - foreseeability  The duty will arise only where an ordinary person, sometimes called “the reasonable man”, in the defendant’s position would have foreseen a risk of harm to the plaintiff or to someone in the plaintiff’s position o 2. Standard of Care  “how much care”?  Standard of care: the level of care that a person must take in the circumstances  The law places a general duty on every person to take reasonable care to avoid causing foreseeable injury to other persons and their property  Used for ideas: 1. Likely hood of harm 2. Degree of harm 3. Utility of actuality 4. Feasibility of eliminating risk  The risk of harm and feasibility of eliminating it are considerations in setting the standard – a defendant need not take “all” care, only “reasonable” care  It may not be practical to take every possible precaution where the risk of serious damage or injury is small, but where there is danger of a major catastrophe, it would be unreasonable not to take every known precaution o 3. Damage to the Plaintiff  Damage focuses on the type of harm or injury actually suffered by the plaintiff  Damage or loss is always a requirement of tort liability, as compensation for loss is its goal  Loss required; no harm no foul  For torte law, you need fault causing loss o 4. Causation of Damage  Causation: injury resulting from the breach of the standard of care  The test of legal causation is much narrower

 The basic test is known as the “but for” test – the plaintiff must show that “but for” the negligent conduct of the defendant, the injury would not have occurred  Example pg 86  “material contribution test”  This test finds causation when the type of injury suffered is that for which the behaviour of the defendant created an unreasonable risk  More than one person could have caused o Remoteness of Damage  Even when a person is considered to have factually caused the injury, he may not be considered to have legally caused the injury if it is too remote  Remote: unrelated or far removed from the conduct  “reasonably foreseeable” has been defined as a real risk: “one which would occur to the mind of a reasonable man in the position of the defendant … which he would not brush aside as farfetched”  A court undertakes an objective assessment of what a reasonable defendant would foresee as likely injury to the average defendant  The damage is considered from the perspective of the “normal” victim – a person of “ordinary fortitude”  CASE 4.8  The “reasonable foreseeability test” referred to in Case 4.8 should not be confused with the legal doctrine of “thin skull” or “egg shell” plaintiff, which requires a defendant to take the victim as he or she finds him  The thin skull doctrine allows the injured plaintiff to recover all of his damages even though they may be much greater than an ordinary plaintiff would have suffered  If the type of damage is considered reasonably foreseeable, the court will compensate the victim for his actual damage  Example pg 87  Defences to Negligence: The Plaintiff’s Own Conduct  The courts at one time took a rather narrow and mechanical approach to this issue  If the defendant could establish that the plaintiff contributed in any way to her own loss, the plaintiff would fail, even if the defendant was mainly at fault  The harshness of the contributory negligence rule was changed by legislation pioneered in Canada  Contributory negligence: a partial defence to a negligence action when the plaintiff’s or another defendant’s conduct also contributed to the injury  These statutes required courts to apportion damages according to the respective degree of responsibility of all the parties - comparative blameworthiness some portion losses  CASE 4.9  Another partial defence arises after the injury has occurred  Her own post-injury conduct may contribute to the extent of her original injuries  The plaintiff’s own conduct has contributed to or increased the seriousness of the injury  It may also be regarded as an application of the principle that a plaintiff is expected to act reasonably to minimize, or mitigate, any damage suffered

 Mitigate: duty to act reasonably and quickly to minimize the extent of damage suffered  Voluntary assumption of risk: a defence to a negligence action when the plaintiff was aware of the risk and continued with the activity anyway  This is the legal risk management strategy underlying the use of medical consent forms advising patients of the risk of surgery prior to an operation  The Relevance of Insurance  When an insured party recovers first form her insurance company, her right to claim against the wrongdoer passes to the insurance company  It “stands in the insured person’s shoes” – that is, it undergoes subrogation to the insured party’s rights and may sue the defendant and collect  Subrogation: where on person becomes entitled to the rights and claims of another  Figure 4.2 pg 89  Illustration 4.2 & 4.5  In illustration 4.2, X sold the soft drink to A rather than to B, the injured party: there was no contract with B  The complexity and sophistication of modern manufactured products makes it increasingly difficult for consumers and distributors to detect dangers in those products, and places manufactures in a position of growing responsibility for the safety of consumers  It will be up to the manufacturer to show that the cause of the defect was not something for which it should be held responsible, or at least that it had taken all reasonable precautions to prevent defective goods from reaching the distribution system  Proving Breach of the Standard of Care  Manufacturers who choose to reduce costs by omitting necessary safety features or by adopting quality control processes that are below prevailing industry standards will have difficulty rebutting the inference of negligence  Inherently Dangerous Products  Courts have ruled that manufacturers owe a duty to consumers to give proper warning of known dangers or dangers they ought to have known  Duty to warn: manufacturer’s responsibility to make users aware of the risks associated with the use or misuse of the product Remedies  Purpose of the law of torts is to compensate an injured party, the usual remedy for a tort (intentional or unintentional) is an award of a sum of money, known as damages, to compensate for physical and economic losses - rule of tort  Damages: a sum of money awarded as compensation for loss or injury  Courts were initially reluctant to award damages for only economic loss without some corresponding physical damage, but now often do  Punitive or exemplary damages: damages awarded with the intention of punishing a wrongdoer  Restitution: an order to restore property wrongfully taken  Injunction: a court order restraining a person from doing, or continuing to do, a particular act  Mandatory injunction: an order requiring a person to do a particular act 

CHAPTER 5 Professional Liability: The Legal Challenges  “professionals” here to apply to people who have specialized knowledge and skills that are relied upon by clients and others  Professionals increase a good result, but results are not guaranteed  If the courts go too far and award damages to compensate everyone who relies on bad advice, the increased costs will likely discourage people from entering the profession and increase the price of advice beyond reach  A proper balance must be found  Inhibiting useful activities Liability of Professionals  Obligations may arise from 3 relationships, generating three different causes of action: - the contractual relationship generates a breach of contract cause of action - the fiduciary relationship generates a breach of fiduciary duty - the tort of negligent misrepresentation is available when a tort duty of carer is owed  Contractual Obligations  An agreement to provide professional services to a client contains a promise, whether stated expressly or not, to perform those services competently  Fiduciary Duty  Fiduciary duty: a duty imposed on a person who stands in a special relation of trust and loyalty to another  3 characteristics of fiduciary relationships: - the fiduciary (often a professional) has undertaken to act in the best interests of the beneficiary (often the client) - the beneficiary is vulnerable to or at the mercy of the fiduciary’s control or discretion - a legal or practical interest of the beneficiary could be harmed by the fiduciary’s exercise of discretion or control  But not every professional relationship is automatically a fiduciary one, and these must be evaluated using the above criteria  For example, the broker and client relationship depends on the particular facts of the case  If a fiduciary duty is found to exist, the law imposes a wider range of obligations on the professional than is expressly stated in the contract or required under tort law  The professional must act honestly, in good faith, and only in the best interests of the client  Liability for breach of fiduciary duty may arise without any negligence  Case 5.1 & 5.2 & 5.3  Conflict of interest: a situation where a duty is owed to a client whose interests conflict with the interests of the professional, another client, or another person to whom a duty is owed  A fiduciary obligation requires complete loyalty to the other party to the relationship  Consequently, a professional who acts on behalf of two or more clients who have competing interests  Tort Liability  Tort liability extends the range of possible plaintiffs beyond clients who have paid for the advice

 Sometimes “other” people may rely on a professional opinion given to a single client or to the public at large  Examples on pg 106 (top)  These “others” are known as third parties and any liability to them is referred to as third party liability  Third-party liability: liability to some other person who stands outside a contractual relationship  Choosing a Cause of Action  In the case of breach of fiduciary duty, a defendant may be under a duty to account for any profit derived from the breach in addition to or as an alternative to damages  Duty to account: the duty of a person who commits a breach of trust to hand over any profits derived from the breach Tort Liability for Inaccurate Statements  Misrepresentation  A misrepresentation is an untrue statement  If it is made knowing it to be untrue or without an honest belief in its truth, and with the intention to mislead some other person, the misrepresentation is fraudulent and amounts to the intentional tort of deceit  Deceit: an intentional tort imposing liability when damage is caused by a false statement made with the intention of misleading another person  Deceit also known as fraudulent misrepresentation requires at least some knowledge or willful disregard for the falseness of the information  The unintentional tort of negligent misrepresentation does not require knowledge of the falseness of the information, only carelessness in its creation  Negligent misrepresentation: an unintentional tort imposing liability when an incorrect statement is made without due care for its accuracy, and injury is caused - reliance - duty of care owed to whom? You owe a duty to people who will rely on their statement  The Hedley Byrne Case  Case 5.6  Heller should have foreseen that its information would be used by a customer of the other bank  It therefore owed that cu...