Notes for Negligent Misstatement PDF

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Notes for Negligent MisstatementDefinitionNegligent misstatement can be defined as when a person made a statement where a reasonable reliance on that matters can cause a foreseeable financial loss for the party depending on the said statement. In the case of Candler v Crane Christmas & Co, i...

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Notes for Negligent Misstatement

Definition Negligent misstatement can be defined as when a person made a statement where a reasonable reliance on that matters can cause a foreseeable financial loss for the party depending on the said statement. In the case of Candler v Crane Christmas & Co, it was stated that any issues on the matters of duty of care owed on by an accountants that are negligent in giving advice to the claimants fall under the law of contract. Leading Case Negligence misstatement first developed in the case of Hedley Byrne & Co Ltd v Heller & Partners. To chiefly examine whether negligent misstatement is present, there are several test needed to be established. As has been laid down in the landmark case of Hedley Byrne & Co. Ltd v Heller & Partners Ltd , it is that the Plaintiffs had requested the defendant to give comment regarding a potential customer with whom the Plaintiffs were intended to do business with. The defendant bank, complemented with a disclaimer, advised that the customer was financially sound only to be informed later that the customer went into liquidation. The House of Lords held that the disclaimer made had effectively precluded any duty of care for the defendant. Duty of care could be imposed in such a situation where there is a special relationship between the parties relying on the defendant’s advice. Also in that case, few elements has been laid down and needed to be fulfilled conjunctively. Elements to be fulfilled:  

Special relationship Voluntary assumption responsibility

of

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Plaintiff would rely on the statement Reasonable for plaintiff to rely

1. Special relationship between both parties. -Hedley Byrne, an advertising firm, sued Heller, a national provincial bank, for negligence, claiming that the information in Heller’s letter was provided negligently and was misleading. Based on the case of Hedley Byrne, the courts went on to examine the principles on which liability arises for careless statements. A duty of care for negligent misstatement arises when there is a special relationship between the plaintiff and defendant. In order to establish special relationship, three factors must be determined which are that plaintiff must believe and relies on the defendant’s information, the defendant knows that the plaintiff believes and relies on his information, and it is reasonable in the circumstances for the plaintiff to believe or rely on the defendant’s information. - In the case of Mutual Life & Citizens’ Assurance Co Ltd v Evatt which affirmed the principle set in Hedley Bryne, where the Privy Council held that a duty of care would only arise if the defendant is in the business of giving advice or information, or professes to have expertise in a particular field. It must also be vivid that the plaintiff truly required such opinion from the advisor.

2. Voluntary assumption of responsibility - Hedley Byrne, there is disclaimer by the bank. Therefore there is no voluntary assumption of responsibility. - According to the case of Smith v Eric S Bush , the plaintiff relied on a report made by a firm of surveyors, the defendant, in purchasing a house. The report contained disclaimer of liability for the accuracy. Later, the chimney of the house purchased by the plaintiff collapsed. In claim for the plaintiff, the defendants relied on the disclaimer in the report and application form. House of Lord held that based on Unfair Contract Term 1977, the defendants could not rely on the disclaimer to exclude liability. The relationship between the parties were such that it was fair to impose a duty of care. Therefore, there is a voluntary assumption of responsibility by the party giving the advice.

4. It was reasonable for the plaintiff to rely on the statement. - In the case of Caparo Industries plc v Dickman ,it was held that an auditor of a public company’s account owes no duty of care to members of the public at large who relies on the accounts to buy shares in the company. This is to deduce a relationship proximity between the auditor and a member of the public or else it would give rise to an unlimited liability on the part of the auditor. An auditor also owes no duty of care to an individual shareholder in a company who wishes to buy more shares in the company because an individual shareholder is in no better position than a member of the public at large.

Additional Test: 3. The defendant could anticipate that the plaintiff would rely on his statement. - In the case of KGV & Associates Sdn Bhd v The Co-Operative Central Bank Ltd , where a report was not commissioned by the plaintiff, rather, it was commissioned by Tan, who was not a true borrower. Kong was the true borrower. There was no evidence to show that the defendant knew the report that was given to Tan would be used by Kong. The plaintiff having seen the report did not want it because it was not addressed to Kong. There was no evidence to show that the defendant permitted Kong to use the report after the plaintiff had rejected it. There had been no assumption of responsibility by the defendant.

According to the case of Caparo Industries plc v Dickman , the House of Lords derived five principles. -Firstly, the defendant must have duty of care towards the plaintiff. -Secondly, there are three criteria for the imposition of a duty of care are foreseeability of damage, proximity of relationship and the reasonableness of imposing a duty. - Thirdly, the defendant must know that the plaintiff will rely on his statement. - Fourthly, a relationship of proximity can exist if the maker of the statement knows that his statement will be communicated to the plaintiff. - Lastly, the plaintiff is very likely to rely on the statement for the purpose of deciding whether to enter into that transaction....