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Business Law in Action: Negligence Video and Scenario

Business Law in Action: Video

Why do you need to understand negligence in the business world? In this video, Nathan Pearc the relevance of Module 2 to his professional accounting practice. Discuss your thoughts on th and share how these concepts are relevant in your own professional path.

Negligence Scenario

Preview this scenario before you study Topics 3 and 4, so you know what you should be able to do at the end. Then, when you have completed your study of Topics 3 and 4, return to this scenario and follow the directions below to practise the ILAC method with other students on the forum.

Directions: When you complete the readings and activities in Topics 3 and 4, you should be able to conduct a legal analysis of the following scenario. All students should participate in the threaded forum discussion about this scenario. Your subject coordinator will start a thread for each of the steps in the ILAC method, and facilitate the discussion so you can practise and get feedback on using this method to analyse legal scenarios like those you will see on assessments and the exam.

Scenario: Frank works as an investment advisor with a bank. Bob, who has $ 20 000 to invest, asks Frank for advice on how he should invest his money. Frank is busy that day and does not bother to do any research on what shares would be best to invest in – which is a basic step required by the Investment Advisors' Professional

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Standards Manual. Frank writes a letter in which he advises Bob to invest in a hotel company that operates in Afghanistan. Bob follows Frank's advice, and loses his $ 20 000 as the hotel company eventually becomes insolvent because no-one wants to travel to a war-torn country. Bob's sister, Frances, who saw the letter on Bob's desk a few weeks after Bob received it invested $ 5000 in the hotel company, which she too loses.

What liability does Frank have arising from these facts?

Topic 3: Torts - Elements of liability

Learning Outcomes

The law of tort has already been mentioned in other topics in a comparative sense. After studying this topic you should be able to:

discuss the nature of tort law;

explain the various interests protected by tort law; describe the three essentials of the tort of negligence;

apply the test of reasonable foreseeability in relation to the duty of care; explain the circumstances in which a duty of care arises when giving advice; explain the factors used to determine the breach of the standard of care; describe the 'but for' test of causation; and

apply these principles of liability to factual situations.

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Readings

Textbook: Gibson Chapter 4

Discussion Task - 'Chip on a giant's shoulder'

Read the following article and think about the possible reasons why the court of Appeal may have delivered a judgment in favour of Woolworths?

http://www.smh.com.au/national/high-court-rules-on-potato-chip-580000-for- slip-injury-20120307-1ujlj.html (http://www.smh.com.au/national/high-court-rules-on-pota to-chip-580000-for-slip-injury-20120307-1ujlj.html)

Post your answers to the Forum for Topic 3. You are also encouraged to read over and respond to the posts made by others in the class.

Topic Review Quiz

When you have finished the prescribed readings, taken notes, answered the exercise questions, and discussed issues on the forum, you should take the Topic 3 Review Quiz at the end of this topic.

This quiz is a learning activity and will not affect your marks in the subject. It is designed to help you assess your understanding of key concepts from this topic before moving on to the next one. You may take the quiz as many times as you like. You should take time to review the answers to each question and study the concepts you did not understand.

A. Law of Torts

A 'tort' is a civil wrong which the law redresses by an award of damages. A 'wrong' is an infringement or violation of a person's legal right by another. There are many torts, each relating to a different type of harm:

Negligence:

careless causation of injury to person, damage to property or economic loss

Defamation:

damage to reputation

Nuisance:

conduct that interferes with a neighbour's enjoyment of their property

Trespass:

to person (physical assault), to goods (unlawful entry onto property) to goods (interference in a person's use of their goods)

In this Topic we will focus on the tort of negligence, which is a failure to take reasonable care towards another person which results in that person suffering harm. There is no need for the plaintiff to prove that harm was intended by the defendant – the essence of the action is that insufficient care was taken, and

that that resulted in harm. Negligence can also be defined as the doing of something that a reasonable person would not do, or, not doing something that a reasonable person would do, which causes harm. In other words, both acts and omissions can amount to a tort.

In recent years all Australian jurisdictions have enacted statutes (such as the Civil Liability Act 2002 (NSW)) which effect reforms in the area of torts law, such as capping the amount of damages that can be awarded for certain claims. Each jurisdiction enacted a similar Act in 2002-03, but for the sake of convenience, section numbers in this subject refer to the NSW Act.

However, it is important to note that, apart from these specific reforms, the Civil Liability Act mediumly re- states the common law, is not inconsistent with the common law and so does not replace the common law. Indeed, where the Act refers to terms such as 'duty of care', it assumes that such terms will continue to be interpreted in light of the existing case law. Therefore, when you are answering questions to do with the law of torts and you are stating what the law is, you should refer to sections in the Act (where there is a relevant section - many parts of the common law are left unmentioned by the Act, and so carry on being governed by the common law on its own) and to cases which give meaning to concepts mentioned in the Act, in order to give a complete statement of the law.

B. Three essentials of negligence

Download a PDF of the flowchart

, or

Open the interactive flowchart (http://www.mindmeister.com/427491252/negligence) on MindMeister.com (you may view the flowchart without creating an account, or you may create a free account to save a copy and add your own notes)

There are three essentials that a plaintiff needs to prove on a balance of probabilities in order to establish a claim in negligence:

that the defendant owed the plaintiff a duty of care

that the defendant breached the standard of care of a reasonable person that the defendant's conduct caused harm to the plaintiff

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C. Duty of care – 1st essential

The plaintiff must establish that the defendant owed him or her a duty of care. The test for establishing duty of care re negligent acts was formulated in the famous case of Donoghue v. Stevenson [1932] All ER 1. In this case two women went to a cafe. One of them bought the other, Mrs Donoghue, a bottle of ginger beer. Mrs Donoghue drank the ginger beer, and found a decomposed snail at the bottom of the bottle. She became severely ill with gastro-enteritis. Because Mrs Donoghue had not been the person to buy the ginger beer, she could not sue for breach of contract. Her only course of action was in negligence. The issue was whether the defendant (Stevenson, who owned the factory that made the ginger beer) owed the plaintiff a duty of care. The court formulated a test for determining whether a duty of care is owed (sometimes called the 'neighbour' test), stating as follows:

There must be, and is, some general conception of relations giving rise to a duty of care...The rule that you are to love your neighbour becomes in law you must not injure your neighbour; and the lawyer's question: Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be - persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions that are called in question . . . a manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer's life or property, owes a duty to the consumer to take that reasonable care.

The key test that emerges from Donoghue v Stevenson is that of reasonable foreseeability. The test is also adopted in s 5B(1) of the Civil Liability Act 2002 (NSW), but it is the case law which continues to dominate this issue, because the cases contain the tests for determining whether a duty of care exists and which contain the factors that the courts will refer to in making that determination.

The test of whether a duty of care exists, as enunciated in Donoghue v Stevenson depends on whether a reasonable person in the position of the defendant would have foreseen that their conduct could cause harm to someone in the position of the plaintiff. This must be established by the plaintiff in order to satisfy the first element of the tort of negligence. Note that 'reasonable foreseeability' is an objective test - 'what would a reasonable person have foreseen?' not, 'What did the defendant actually foresee?' Note also that the plaintiff does not have to prove that the defendant owed a duty of care to him or her as a specific person (after all, as for example in a motor accident, the plaintiff may be completely unknown to the defendant). The issue is whether the defendant owed a duty of care to a person in the position of the plaintiff – i.e., that they belong to the class of person who the defendant should have been aware of when doing the culpable act.

A problem that the courts have had to grapple with is how far liability should extend. There may be many persons to whom harm could be foreseen because of an act or omission by the defendant, however whether the defendant should be liable to all of them is a different question. For example, in the famous case of Ultramares Corp v Touche, Niven & Co 174 NE 441 (1931), in which accountants had been negligent in auditing a company, and that company had then shown the audited reports to another company which lent it money in the belief that the accounts were accurate, the court had to decide whether the accountants would be liable to the lender. The court said that they would not, because to hold that they owed a duty of care to anyone who happened to read the reports would create liability 'in an indeterminate amount for an indeterminate time to an indeterminate class'. In other words, it would be unfair to impose liability even if, theoretically, it was foreseeable that if the accounts were shown to 3rd parties, they might suffer loss, because the liability could be limitless.

In addressing the problem of how to determine whether harm is reasonably foreseeable, the courts have used a variety of tests. The current law is a as was stated in the Perre v Apand (1999) 198 CLR 180, in which the High Court said it will pay attention to a number of factors (none of which is decisive) in deciding whether a duty of care is owed, including:

whether harm was reasonably foreseeable because of the proximity, or closeness in relationship, between the plaintiff and the defendant,

other cases in which a duty of care has been found to exist,

the salient features of the relationship between the plaintiff and the defendant (for example, whether the plaintiff relied on the defendant, whether the plaintiff was vulnerable to the defendant's conduct, whether the defendant could control whatever caused the harm)

whether there are any policy reasons not to impose liability (for example, because the potential number of claims or the size of the liability would be impossible to meet, as in Ultramares)

Perhaps the most useful of these factors is the first, that of proximity, which focuses on how close the connection, or relationship, was between the defendant and the plaintiff, and requires the court to consider whether the defendant should have anticipated that someone in the position of the plaintiff would suffer harm. In Perre v Apand the defendant was a chemical company which had carelessly sprayed a farm with a harmful product. The crops on that and adjacent farms were destroyed by the chemical. The State government imposed a prohibition on crops grown within a certain radius of these farms from being sold (even if those farms had not showed any sign of being affected), as it was unknown how far the chemical had drifted. The High Court held that the defendant owed a duty of care to the plaintiff, who owned one of these quarantined farms and who suffered economic loss because they could not sell their crop, because it was reasonable to foresee that a careless spraying of chemicals could lead to such consequences - in other words, quarantining of surrounding farms was a reasonably foreseeable consequence of careless spraying of a poison.

Proximity can be of various types:

Physical proximity – where there is closeness in time and space between the defendant and the plaintiff, as when one motorist crashes into another.

Circumstantial proximity – where the relationship between the defendant and the plaintiff gives rise to a duty of care, as between a doctor and patient or investment adviser and client.

Causal proximity – where harm is foreseeable to the plaintiff as an expected cause of the defendant's conduct, even if the plaintiff is physically removed from the defendant and is not known by them, as in Jaensch v Coffey (1984) 155 CLR 549, where a defendant who crashed into a motor cycle rider was held liable not only to the rider but also to his wife, who suffered emotional shock and psychological illness as a result of hearing of her husband's injuries. Note that under s 31 of the Civil Liability Act 2002 (NSW), where A negligently injures B, a plaintiff C can recover for emotional shock only if the shock resulted in psychiatric illness that goes beyond ordinary levels of grief and, under s 30(2) if they (i) either witnessed the injury or (ii) did not witness the injury but were an immediate family member of B.

Over the decades, case law has established many of categories in which there is a recognised duty of care of which these are some of the more prominent:

employer to employee; legal adviser to client; doctor to patient;

road users to other road users and to pedestrians; and school to student.

The courts have also recognised certain categories of duty of care which are 'non-delegable'. This means that the defendant cannot escape liability simply by giving to a 3rd party the job of ensuring that due care is taken. A good example of such a category is the non-delegable duty of care owed by a landlord to a tenant to ensure that rented premises are maintained in a safe condition. If a tenant suffers injury from electric shock because an electrician employed by the landlord did not do his job properly, the landlord cannot plead that, as the electrician was properly qualified, he (the landlord) had discharged his duty of care by hiring the electrician to do maintenance. The tenant could still sue the landlord (although the landlord could in turn recover from the electrician, but that would be a separate case).

Specific rules on duty of care in cases of negligent advice

Specific issues arise in determining whether a duty of care exists in cases of negligent advice. People give advice in numerous contexts, including to friends and casual acquaintances. On the other hand, the law

should impose liability for negligent advice given in professional contexts (for example, by doctor to patient, lawyer to client, engineer to builder).

In Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 36 ALR 285, the High Court held a local government liable for negligently failing to check what roads were going to be widened before advising a property developer that a road would not be widened adjacent to the land he was buying. That advice was not correct and, after the sale, 1/3 of the property was compulsorily bought by the government, making redevelopment of the remainder impossible, resulting in loss of profit by the developer. The court held that a duty of care in relation to advice is foreseeable if:

the advice is given in a professional context;

the speaker ought to have realised, that his or her advice would be acted on; and it was reasonable for the recipient to act on the advice.

Whether a duty of care exists between the giver of advice and someone who acts on it is of particular importance to accountants, as is shown by Esanda Finance Corporation v Peat Marwick Hungerfords (1997) 188 CLR 241. This is currently the leading case on negligent mis-statement. In this case, Peat Marwick Hungerfords, a firm of accountants, conducted an audit of a company called EX Ltd. The audit was conducted negligently in that Peat Marwick failed to detect fraud by an employee in EX Ltd, and overstated EX ltd's financial position. Clearly the accountants would have been liable if they had been sued by their clients, EX Ltd, as they clearly owed them a duty of care. But that is not what happened: Some months later, EX Ltd wanted to borrow money from Esanda, who asked for information of EX Ltd's financial position. EX Ltd gave Esanda a copy of the audit report, and on the basis of the information in it, Esanda lent EX Ltd money. EX Ltd was unable to pay the money. Esanda sued Peat Marwick, alleging that they had conducted the audit negligently, that it was because Esanda relied on the audit that it had lent EX Ltd the money, which it (Esanda) would not have done had it known EX Ltd's true financial position. The court held Peat Marwick were not liable to Esanda, as they did not owe Esanda a duty of care. They had written the report for EX Ltd, not for Esanda. They did not foresee that the report would be used by a 3rd party for loan risk purposes - it had been written solely for EX Ltd's audit purposes. Esanda was not someone the defendants had in mind As in the US case of Ultramares Corp v Touche, Niven & Co 174 NE 441 (1931) the court was influenced by the fact that if liability was imposed on a defendant in respect of any and all 3rd parties who might act on the advice, liability would be potentially limitless.

D. Breach of standard of care – 2nd essential

How much care must be exercised, assuming a duty of care is owed? The answer is that one must take reasonable care - i.e., must act as a reasonable person would in the circumstances. What are the attributes of the 'reasonable person'? The 'reasonable person' is: a person who behaves with due care in all circumstances and is presumed to be of average intelligence. If they engage in an activity requiring any particular qualifications, they are presumed to have the level of knowledge and skill that it would be reasonable to expect such a qualified person to have – so in performing an operation, a surgeon's conduct is compared to that of the reasonable surgeon, not the reasonable ordinary person. Minors are judged against normal children of the same age. Persons with disabilities are judged against similarly disabled persons.

Factors determining breach of standard

Section 5B(2) of the Civil Liability Act (2002) NSW refers to four factors in determining whether the standard of reasonable care has been breached. These factors must be balanced against each other in order to determine whether the plaintiff's conduct was negligent (i.e., breached the required standard of care).

The courts balance

the likelihood that the defendant's acts would cause harm; the seriousness that harm would occur and

the social utility (ie importance to society) of the defendant's conduct

against

the cost and effort that would have been required to avoid the harm.

This means that the outcome of each case is different, because it depends on the facts of the case. What the court is doing is comparing what the reasonable person would have done with what the plaintiff did by asking itself: 'In light of the likelihood of the harm occurring, the its seriousness if it did and the importance of the activity, what steps would a reasonable person have taken to avoid the harm, and did the plaintiff in this case take those steps?'

(i) Likelihood (or probability) of harm

In Bolton v. Stone [1951] AC 850, the plaintiff was struck by a cricket ball, which had been hit from a cricket pitch in the town gardens opposite her house. Such event (i.e., a cricket ball being hit out of this ground) had occurred only six times in the previous 30 years and no one had been injured. It was decided that the risk of a ball actually striking someone on the road was so small that a reasonable person would have been justified in disregarding it, and thus so too was the defendant.

(ii) Seriousness of harm if it does occur

In Paris v. Stepney Borough Council [1951] AC 367 a garage mechanic with sight in only one eye was removing a rusted bolt with a hammer when a metal chip flew into his good eye blinding him totally. His employer (the Council) had not provided goggles for him to wear. The court held that, in view of the fact that this employee would suffer particularly serious harm if his eye was injured (i.e., he would become totally blind) a reasonable person in the position of his employer would have taken care to provide him with goggles.

(iii) Steps needed to avoid the risk of harm

After evaluating the likelihood of harm and its seriousness, the court looks at what steps a reasonable person, in the position of the plaintiff, would have done to avoid the harm. This will depend on the effort and cost that would be required to avoid the harm. For example, if the likelihood of harm is small, and the cost (or difficulty) of avoiding the risk is great, then a court is likely to find that a reasonable person would not have bothered to take those steps, and so if the plaintiff did not take those steps, he or she was not

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negligent. But if the likelihood of harm and / or its seriousness were so great that the reasonable person would have taken steps (even if they required great effort or expense) so as to avoid the harm, and the plaintiff did not take those steps, then the plaintiff will be held to have been negligent. Complex cases arise where, for example, the likelihood of harm occurring is small, but if it does occur it will be significant (or vice versa). In those cases, determining what steps the reasonable person would have taken can be difficult.

An example of the application of this factor is Latimer v. AEC Ltd [1953] AC 643, in which a factory had been flooded with oil. The owner put sawdust on the floor in order to prevent workers from slipping. However, one worker did slip and injure himself. The factory was found not liable. The court held that it had done everything a reasonable employer would do, given the moderate degree of risk involved, to avoid harm.

Risk could have been completely avoided only by shutting down the factory completely, and this was beyond what was reasonably required. Denning L. J. said 'In every case of foreseeable risk it is a matter of balancing the risk against the measures necessary to eliminate it.'

In other words, you need to consider the facts of each case carefully in order to determine whether the plaintiff fell below the standard of the reasonable man. The important thing to remember is that in most cases it will not be possible to eliminate risk entirely - the question then becomes what the reasonable person would have done to reduce the risk to an acceptable level, and whether the defendant did the same.

(iv) Social utility of the defendant's activity

This factor, added by the Civil Liability Act 2002 (NSW) is one that was not taken into account by the common law. Its operation in concrete circumstances is therefore yet to be fully fleshed out. Some have argued that an activity that is of higher benefit to society may warrant the taking of greater risks, but no court has concluded that as yet.

Relevance of professional standards

Note that, if the negligence is alleged to have occurred in the course of providing services as part of a profession or occupation, then whether the defendant conformed to what was required under current standards of practice in that profession will be taken into account in determining whether reasonable care was exercised. This is also provided by s 5O(1) of the Civil Liability Act 2002 (NSW). So, whether a surgeon was negligent will depend in part on what a reasonable surgeon would have done in the same situation.

Thus in Pacific Acceptance Corporation v Forsyth (1970) 92 WN (NSW) 29 where the defendant auditors failed to detect fraud by an employee of the plaintiff, the auditors were held liable because they way they conducted the audit did not meet the standard of a reasonable auditor.

E. Causation of harm – 3rd essential

The plaintiff must show that they suffered harm and then that the defendant's act or omission was the cause of the harm. This is a common law requirement, re-iterated by s 5D(1) of the Civil Liability Act 2002 (NSW).

Harm can take a variety of forms, for example:

personal physical injury, psychological injury ('nervous shock') damage to property

financial loss.

Causation

In addressing causation, the question is whether the defendant's culpable act caused the plaintiff's loss? The plaintiff must show that, if the defendant had not acted as he did, the plaintiff would not have suffered harm. The test to determine causation is called the 'but for' test, which was formulated by Lord Denning in Cork v Kirby Maclean [1952] 2 ALL ER 402 where it was stated:

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If you can say that the damage would not have happened but for(or in the absence of) a particular fault, then that fault is in fact a cause of the damage; but if you can say that the damage would have happened just the same, fault or no fault, then the fault is not a cause of the damage.

So if the harm would not have happened 'but for' the defendant's negligent act, then that act is a cause of the harm (note that it doesn't have to be the sole or even major cause) but if the harm would have happened even if the defendant had not been negligent, then the defendant's act is not a cause of the harm, and so the defendant will not be liable for the harm. What the 'but for' test requires us to do is take away the defendant's negligent act from the story, and see if the harm would still have happened. The test is also found in s 5D(1)(a) of the Civil Liability Act 2002 (NSW). Under the Act the test is known as the 'necessary condition' test.

Example

An example of the application of the 'but for' test is provided by Barnett v. Chelsea & Kensington Hospital [1969] 1 QB 428. The facts were that after drinking tea and vomiting, the plaintiff went to the hospital's casualty section. He was examined cursorily by a doctor, who told him to go home and see his own doctor in the morning. Five hours later plaintiff died. An autopsy revealed that this was due to arsenic poisoning. It was held that although the defendant hospital obviously owed the patient a duty of care and had breached the required standard of care (because the doctor had not examined him properly), the hospital was not liable because the patient would have died even if the correct diagnosis had been made. In other words, because at the stage that he came in there was nothing that medicine could have done for him, it could not be said that plaintiff would not have died 'but for' the failure to treat him – but, it could be said that he would have died with treatment.

Even if one removed the hospital's negligence from the story, the man would still have died, so there was no causation and thus no liability for negligence.

Remoteness

An important factor that must be considered whether a defendant caused damage suffered by the plaintiff is the issue of remoteness. In determining causation, the issue of remoteness is relevant, in that the courts have held that whereas one event may be the factual cause of another, it may not be the legal cause if it is too remote, as is illustrated by Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd [1961] AC 388, (often referred to as The Wagon Mound (No 1) case). Once it has been established (using the 'but for' test) that, as a matter of fact, the defendant caused the harm to the plaintiff, the next question is whether that causation was reasonably foreseeable, because defendants are liable only for kinds of damage that is reasonably foreseeable (that is, damage that is not too remote or unpredictable). A defendant can only be expected to guard against eventualities that they could predict, so if harm is caused in a way that could not be reasonably predicted, the defendant will not be liable.

This doctrine was laid down in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd [1961] AC 388, after a ship involved in the case). In this case, the defendant company had disposed of waste oil by pouring it into the harbour. Several hundred metres cross the harbour, welders were working on a ship called The Wagon Mound, owned by the plaintiffs, and sparks were falling into the sea. Unknown to the defendants, there was cotton lint floating on the water in the harbour, and it absorbed the oil, and the oil- soaked lint was carried it across the harbour by currents. The sparks fell onto the cotton which ignited the oil, resulting in the adjacent wharf being burnt down. The court held that although the defendants owed a duty of care to other people in the harbour, had been negligent in pouring the oil into the water and had, in a factual sense, caused the fire, it was not reasonably foreseeable that the oil would ignite. For this reason legal causation was not satisfied, and so they were not liable. Because it was not reasonably foreseeable that oil floating on water would burn down a wharf, the defendant was not liable.

Note that this is the second issue in the law of negligence where you encounter a foreseeability test - the other being in relation to whether a duty of care exists - but the tests are used differently. In the case of the duty of care foreseeability is used to identify the class of people who might suffer harm because of the

defendant's acts. In the case of causation, foreseeability is used to determine whether the way in which the actual type of harm caused to the plaintiff was foreseeable or not. If the way in which the harm was caused is not reasonably foreseeable, the defendant will not be liable.

Finally in relation to causation, it is necessary to mention the 'egg shell skull' rule, which qualifies the issue of remoteness / reasonable foreseeability, but only in cases personal injury. The rule is to the effect that if the plaintiff has some physical weakness or illness which leads to them suffering greater harm that would usually be foreseeable, then, provided that some injury was reasonably foreseeable, the defendant will be liable for all the injuries suffered by the plaintiff – including those not reasonably foreseeable. The rule is sometimes referred to by the dictum 'You must take your victim as you find him'.

Discussion Exercise ( Bob D'Buildere)

Post your answers to the Forum for Topic 3. You are also encouraged to read over and respond to the posts made by others in the class.

Bob works on a building site. He is told to keep his tools in a box, but does not do this, as he finds it too bothersome to put each tool into the box after he has finished using it. Instead he simply leaves the tools around him as he works. He knocks a hammer off the building. The hammer hits Frank on the foot, cutting it open. An ambulance is called to take Frank to hospital. The building site is in a very busy part of town. The police stop the traffic in order to allow the ambulance a clear run to the hospital. Because of the resultant delays Tom, an electrician, is stuck in traffic for an hour. Because Tom cannot get to his next repair job of fixing the refrigerators in Sam's restaurant, Sam has to destroy $5,000 worth of meat which goes bad. When Frank arrives at the hospital, it is discovered that the cut in his foot is small, and would usually not be serious, but that because Frank suffers from a rare circulatory disease, his foot has to be amputated. Advise on all the legal liabilities that arise out of this situation. Cite case authority where relevant.

Topic 3 Review Quiz

Topic 4: Torts - Damages and defences

Learning Outcomes

After studying this topic you should be able to:

outline the various heads of damage and explain how they are calculated; explain the principles of proportionate liability and vicarious liability; explain what defences are available to a claim in negligence; and

apply the common law principles of tortious liability to factual situations.

Readings

Textbook: Gibson Chapter 5

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Forum Discussion

Post your questions and thoughts to the forum as you study.

Topic Review Quiz

When you have finished the prescribed readings, taken notes, answered the exercise questions, and discussed issues on the forum, you should take the Topic 4 Review Quiz at the end of this topic.

A. Calculation of damages

'Damages' is the sum of money that is awarded for loss or damage suffered. The purpose is fair compensation, not punishment or retribution – that is, to put the plaintiff back in the same financial position they would have been in if the harm had not occurred. The law of torts recognises various types of loss or harm that are compensable:

physical injury;

damage to property; and pure economic loss.

When a plaintiff goes to court they must make sure that they have calculated all the amounts they are suing for. Once judgment is entered, they cannot go back to court to sue for more - this is known as the 'once and for all' rule.

Losses - for which damages in Negligence may be awarded are categorised as either:

pecuniary = a loss that can be readily determined in monetary terms.

non-pecuniary = a loss that is difficult to determine precisely in monetary terms, and so has to be estimated by the courts.

The type of damages that will be claimable depend on the type of harm caused. Thus, for physical injury, one could claim:

pecuniary damages to compensate the plaintiff for the calculable financial losses flowing from the injury such as

· medical expenses (e.g., hospital, dental, optical, physiotherapy, psychiatric or psychological counselling expenses - past and future);

· loss of earning capacity (e.g., loss of profits, bonuses, wages, salary, other remuneration etc);

· rehabilitation expenses (e.g., cost of providing wheelchairs, modifying cars, home-carers, conveyances or dwellings, prosthetic devices etc); and

non-pecuniary damages, to compensate the plaintiff for other (non-financial) consequences of the injury, such as

· pain and suffering arising from physical or mental injury;

· shortening of life expectancy;

· loss of amenities (i.e., inability to enjoy normal activities because of, for example, the loss of a limb, teeth, etc.); and

· loss of faculties (e.g., loss of smell, taste, hearing, sight, touch, etc.).

In the case of harm to property, only pecuniary losses would be recoverable, for example, repair of damage caused to plaintiff's motor vehicle by defendant's negligent driving.

Nominal /contemptuous damages

These damages which provide less than full compensation. These involve a token amount and may be awarded by a judge and a jury in a case where the plaintiff establishes that the defendant committed a breach of a legal right. Nominal damages are usually awarded in situations where the judge is of the opinion that the plaintiff should not have brought the action because there was no compensable damages.

Aggravate damages

These are awarded if the plaintiff's injury has been made worse by the conduct of the defendant, or where the defendant's conduct has caused humiliation or insult to the plaintiff's feelings.

Exemplary damages

These are punitive in nature and intend to punish rather than to compensate. The plaintiff may receive these damages if the defendant has acted in a 'high- handed, insolent, vindictive or malicious' manner or 'had in some other way exhibits a contumelious disregard for the plaintiff's rights' (Uren v John Fairfax and Sons Pty Ltd [1966] HCA 40

If the wrongdoer has been punished under the criminal law, exemplary damages won't be awarded in an action involving the same facts (Gray v Motor Accidents Commission [1998] HCA 70.

Damages for pure economic loss similarly results in pecuniary damages being awarded - for example, recovery of lost investment due to negligent financial planning advice. For economic loss to be recovered there must be a sufficiently close relationship between the defendant and the plaintiff, which puts the defendant under a duty of care to the plaintiff, such that:

The defendant knows that physical damage would cause economic loss to plaintiff.

The plaintiff is unable to protect him or herself from the consequences of breach of duty by the defendant , and

The defendant assumes responsibility, and knows that the plaintiff is relying on him or her.

There are four types of economic loss:

1. Economic loss to the plaintiff as a result of physical damage to the plaintiff's person or property.

2. Economic loss to the plaintiff as a result of physical damage to person or property suffered by a third party. Case examples- Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstead' [1976] HCA 65. The cases confirmed that a person can claim damages for economic loss without having to show injury to person or property.

3. Economic loss actionable by the plaintiff caused by a defective product with no injury to person or property. Under these circumstances, loss is recoverable, provided that the plaintiff can establish that a duty of care is owe to person or property. It is also available to a person able to avert a foreseeable injury.

4. Economic loss actionable by the plaintiff following negligent statements which may or may not be accompanied by damage to person and /or property

LAW110 - Topic 3-4

A person who gives information or advice is under a duty to use reasonable care when that person knows or ought to know that the recipient may or will act on it.

Accident Compensation Schemes

Compensation in addition to or as an alternative to remedies in negligence may be available under the following schemes:

Workers compensation system Criminal injuries compensation Social security

No-fault motor accident benefits in Vic, Tas and The Northern Territory Sporting injuries in NSW under the Sporting Injuries Insurance Act1978 (NSW).

Note that the Civil Liability Act 2002 (NSW) places caps on damages for pain and suffering and for loss of earnings consequent on personal injury. Different caps apply in different jurisdictions.

B. Proportionate liability

It may sometimes occur that more than one person contributes to a plaintiff's loss - for example where A is driving in his car, B swerves carelessly in front of him, damaging the side of his car, and C, who is following too closely, crashes into him, damaging the rear of his car. In such circumstances, A can sue B and C, and B and C are said to share proportionate liability. The court will apportion the amount of damages each of them has to pay A (for example 70% - 30%) in accordance with the court's estimate of how much loss each of them caused. This common law doctrine is recognised in s 34(1) of the Civil Liability act 2002 (NSW).

C. Vicarious liability

The doctrine of vicarious liability applies where the law makes someone jointly liable for a tort committed by someone-else because of the relationship between them. The most important example of this is the liability that attaches to employers because of the negligent acts of their employees. If the employee's negligent act was performed during the 'course and scope' of their employer's business, the plaintiff can sue both the employee and (which will be more useful) the employer. So if, for example, a bricklayer working on a building-site drops a brick onto a passer-by, the passer-by will be able to sue the worker directly, and the company that employs him vicariously, for damages. The court will award damages against the bricklayer and the company jointly, and the plaintiff can enforce the judgment against either or both. In practical terms, successful plaintiffs who have won a case against employee and employer usually enforce the judgment against the latter, as they will be likely to be able to meet the entire judgment.

Although employers are vicariously liable to third parties for the actions of their employers in the course of their employment, it is essential that the tortuous action must be within the scope of the employer's actual or implied authority, or incidental to it. The employee is personally liable if he or she acts outside the scope of the employment.

Defences for an employer

Showing that they took reasonable steps to prevent employees or agents from breaching the law. Reasonable care steps could include adequate training and staff awareness.

Independent contractors are regarded as principals and liable for their own torts. Some jurisdictions stipulate that an employer must indemnify an employee except where the employer's liability was due to serious and wilful misconduct' (Law Reform (Miscellaneous Provisions ) Act 1946 (NSW) s 5.

An employer found to be vicariously liable may be able to recover indemnity from the employee. This is possible provided that the employee's wrongful act amounts to a breach of contract (Lister v Romford Ice and Cold Storage Co Ltd [1957] AC555)

LAW110 - Topic 3-4

In addition the employer may be able to claim indemnity from the employee as a 'j oint tortfeasor ' under the laws of contribution (Law Reform (Miscellaneous Provisions) Act 1946 (NSW) S 5)

D. Defences to negligence

In response to a plaintiff's claim the defendant can raise various defences (apart, of course, from the obvious defence of arguing that they did not owe a duty of care / were not negligent / did not cause the harm). The following are the defences that can be raised:

Contributory negligence

A defendant may escape liability or diminish it by proving that a defence is applicable. One of these is contributory negligence (see Mak Woon King v Wong Chiu [2000] 2 HKLRD 295) which exists where the defendant proves that the harm to the plaintiff was in part caused by the plaintiff's own negligence. This is a partial defence, which means that it serves to reduce, not eliminate, the defendant's liability. Pursuant s 5S of the Civil Liability Act 2002 ( NSW) the court will determine the relative percentages of responsibility that the defendant and the plaintiff bear for the harm suffered by the plaintiff, and it may , where it thinks it fit and equitable, reduce a plaintiff's claim by 100 percent, thereby defeating the plaintiff's claim. The principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who has suffered harm has been contributorily negligent, although it should be noted that it is not necessary that the plaintiff owe a duty of care to the defendant ( s5R(1)). The standard of care is based on a reasonable person in the position of the plaintiff, and the matter will be decided on the basis of what the person knew or ought to have known (s 5R(2)).

Examples

In Mak Woon King v Wong Chiu [2000] 2 HKLRD 295, a factory-owner had failed to adjust safety-guards on an industrial saw, and a worker was killed. The worker had himself failed to comply with safety instructions relating to the use of the saw. The court held that the factory and the worker were liable for the worker's injury in the proportions of 85% - 15%, and so the worker's estate was awarded only 80% of the damages he claimed.

In Imbree v McNeilly [2008] HCA 40 the plaintiff had allowed the defendant, who had no licence, to drive his (the plaintiff's) 4WD on a gravel road while under the plaintiff's supervision. The defendant swerved to avoid rubbish on the road and crashed, injuring the plaintiff. The plaintiff's claim was reduced by 30% on the basis that, as the supervising driver, he was partially responsible for his own injury in allowing the defendant to drive the vehicle.

Discussion Exercise (Brad D'Brat)

Answer the following question, taking into account all the legal principles you have learned in this Topic:

Frances owns a florist's shop, Fancy Flowers Pty Ltd. She employs Brad to drive a delivery vehicle. One night, contrary to Frances' instructions, Brad exceeds the speed limit while delivering flowers because he wants to have a longer dinner break. He crashes into Edward's car. Edward's car did not have functioning rear lights.

Advise Edward on his legal rights.

Post your answers to the Forum for Topic 4. You are also encouraged to read over and respond to the posts made by others in the class.

Voluntary assumption of risk ('volenti non fit injuria')

The phrase volenti non fit injuria means 'no harm can be done to one who consents' - in other words, a plaintiff who, with full knowledge of a risk, accepts the risk freely and voluntarily will not be able to recover damages. The defence applies if it can be established that the plaintiff was fully aware of the risk at the time of the harm was cause and he or her voluntarily assumed that risk, the defendant is relieved of all liability. The defence is relevant in cases involving risky recreational activities like bungy jumping and paragliding.

Section 5G of the Civil Liability Act 2002 (NSW) creates a presumption that someone who engages in activities that are inherently and obviously risky - such as parachuting or hang-gliding – is aware of the risks thereof. By engaging in such activities, which are commonly known to be risky, the plaintiff is deemed to have accepted that risk, and can therefore not sue the person who organised the activity.

Voluntary participation in a sport does not necessarily imply a voluntary assumption of risk which would cancel out a duty of care by players, and others involved in the sport such as officials (Agar y Hyde [2000]HCA 41).According to this principle, consent must therefore be consent to the full risk of injury. Just knowing about the risk is not voluntary assumption of the risk.

Other examples

Compensation for injuries received after accepting a lift with a drunk driver cannot be recovered (The Insurance Commissioner v Joyce [1948] HCA 17

Use of pre-release or experimental computer software may involve Volens

A participant in a sporting event voluntarily assumes only the risks of the sport (Frazer v Johnston

(1990) 21 NSWLR 89)

In other circumstances, there is a duty to warn of risks. Voluntary assumption of risk is a complete defence

- in other words, the plaintiff cannot recover anything from the defendant.

Web Resources

Please carefully read ss 5F-5M of the Civil Liability Act 2002 ( NSW).

http://www.austlii.edu.au/au/legis/nsw/consol_act/cla2002161/ (http://www.austlii.ed u.au/au/legis/nsw/consol_act/cla2002161/)

To sum up, under the Civil Liability Act 2002 (NSW):

There may be a duty to warn a person of a risk (5 (I)(3).

Some injured persons are presumed to be aware of obvious risk ( s 5G)

There is no proactive duty to warn of obvious risk, except in limited circumstances There is no liability for the materialisation of an inherent risk (NSW Part I A, Div 4)

An inherent risk is a risk of something occurring that cannot be avoided by the exercise of reasonable care and skill.(5I (2)), and

Professionals are under a proactive duty to warn if D 'is a professional and the risk is a risk of death of or personal injury to the plaintiff from the provision of a professional service by the defendant (s5H(2)(C)

Express exclusion of liability

It is possible for a person to expressly advise potential plaintiffs that they (the defendants) engage in conduct towards the plaintiffs, or provide advice to plaintiffs, on the basis that liability for negligence is excluded. Thus, an entrance to a building site may have a notice in which the public is warned that liability on the part of the builder is excluded when people enter the site, and an investment adviser may expressly disclaim liability for advice they provide. Note, however, that exclusion notices are 'read down', or strictly interpreted by the courts – i.e., against defendants' relying on them, as they run counter to the general common law principle that a defendant should be liable for his or her conduct.

It is also important to note that under s 64 of the Australian Consumer Law (discussed in Topic 9), it is not

possible to exclude liability under provisions of that Act – including liability arising from a breach of the implied guarantee in s 54(2)(d) that goods are safe.

Expiration of time (prescription)

Statutes require legal proceedings to be commenced within a certain time. If the plaintiff does not bring his case before the courts within the required time, he loses his right to sue the defendant because of expiration of time, and the claim is said to be prescribed. The standard period for prescription of claims in Australian jurisdictions is six years. Thus s 14 of the Limitation Act 1969 (NSW) provides a general rule that a claim expires within six years of the right of action arising. (However, note that the act provides different periods for some specific types of claim). Expiration of time is a complete defence.

Topic 4 Review Quiz