Fundamentals of Law (BL502)
Week 6
The Law of Torts
Negligence
Negligent Misrepresentation
Fundamentals of Law (BL502)
Negligent Misrepresentation
 Most often results in purely financial loss
 Recovery of “pure economic loss” was denied
by the courts for many years as:
 No duty of care
 Damage too remote
 Donoghue v Stevenson was confined to physical
damage
 Economic effects may be more extensive than
physical effects
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Now allowed, but very narrow
 Difficult to Develop tests to avoid too onerous
a duty
 Hedley Byrne v Heller (1964)
 A duty of care can be owed where a
careless statement causes economic loss
 To prevent too wide a duty being owed, it
only applied where there was a “special
relationship”
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Special relationship where
 the advisor had special knowledge, skill or
ability
 There was an assumption of responsibility
by the advisor; and
 Their was reliance on the advice by the
person being advised
 Effectively limited to professional advisors
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Special relationship test not followed in
Australia (MLC v Evatt (1968) 122 CLR 556
at 723)
 Overruled by Privy Council
 Reinstated by High Court in Shaddock &
Assoc. v Parramatta City Council (1981) 150
CLR 225
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 “Whenever a person gives information or advice to
another upon a serious matter in circumstances
where a person realises, or ought to realise, that he
is being trusted to give the best of his information or
advice as a basis for action on the part of the other
party and it is reasonable in the circumstances for the
other party to act on the information or advice, the
speaker comes under a duty to exercise reasonable
care in the provision of the information or advice he
chooses to give” per Barwick CJ in MLC v Evatt
(1968) 122 CLR 556 at 723
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Shaddock v Parramatta City Council (P p405)
 Was advice given in respect of a serious
business matter
 Were the circumstances such that the
advisor should have realised that he was
being trusted to give correct advice
 In the circumstances, was it reasonable for
the person being advised to have relied on
the advice
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 San Sebastian v Minister Administering
the Environment (P p 405)
 “Element of reliance” is the
“prominent” factor
 “special skill and knowledge” not a
factor
 No need for an antecedent request
for information
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Duty can be owed where there is no contract
 Esso v Mardon (S&OR p44)
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
 Advice involving third parties
 Lowe Lipman Figdoe & Franck v AGC
(S&OR p47)
 Esanda Finance Corporation Ltd v Peat Marwick
Hungerfords (1997) 188 CLR 241 (P p406)
 Emphasised proximity between advisor
and person receiving advice
Fundamentals of Law (BL502)
Negligent Misrepresentation (cont.)
Important factors:
 Whether plaintiff requested the advice
 Whether defendant assumed responsibility for the
risk being taken by the plaintiff
 Where no request and no assumption of
responsibility:
 Whether defendant was aware that the plaintiff could be
injured by the defendant’s advice
 The degree of the plaintiff’s vulnerability
 The defendant’s knowledge of the plaintiff’s vulnerability
 Whether the defendant intended the plaintiff to rely on the
advice
Fundamentals of Law (BL502)
The Law of Torts
Negligence
Vicarious Liability
Fundamentals of Law (BL502)
Vicarious Liability
 Definition
The law holds a person liable for the wrongs
of another even though the person has
personally done no wrong
 Examples
 Employer\Employee
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Rationale
 Economic
The employer is usually insured
 Safety
Provides an incentive for employers to
choose staff carefully and provide training
 Policy
Employers profit from their enterprise and
therefore should be responsible for any
loss it causes
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Indemnities
 A contract can contain a clause requiring
the employee to indemnify the employer
 Some jurisdictions have abolished this
right (e.g. s27C Wrongs Act (SA))
 Employee is usually covered by employer’s
insurance and insurer cannot recover
against him (s66 Insurance Contracts Act)
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Requirements
 Commission of a tort
 Not contract or other legal liabilities
 By an employee
 A Principal is not liable for acts of an
Independent Contractor
 Acting in the course of his employment
 What was the employee employed to do.
Employer will be liable for acts in that area or
incidental to it or if the employer otherwise
authorised the wrongful act.
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
Who is an Independent Contractor?
 Control test
 Does the employer have the right to
exercise control over what the employee
does and how he does it?
 Employer need only have power to control
the employee’s work to the extent to which
there is scope for such control
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Control test (cont.)
 Factors
 Can the employer tell the employee
what to do, how to do it, when to do it
etc.?
 Does the employer have the power of
dismissal
 Does the employer provide equipment
 Does the employer pay holiday pay, sick
leave, workers compensation?
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Control test (cont.)
 Integration test
How closely has the employee been
integrated into the employer’s business
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Control test (cont.)
 Multi-factor test
A worker is likely to be an independent
contractor and not an employee if he:






Owns and maintains his own equipment
Is paid by results
Takes the chance of profit\loss
Has the right to delegate work
Has the right to work for others
Is not entitle to sick pay, workers compensation, sick
leave or superannuation
 Does not have PAYE tax installments deducted
Fundamentals of Law (BL502)
Vicarious Liability (cont.)
 Acting in the course of his employment
 Wide meaning
 Employer is liable even when the employee does
something that is not part of his job
 Century Insurance Co Ltd v Northern Ireland
Road Transport Board [1942] AC 509 (P p417)
 Employer is liable even when the employee
commits an intentional or illegal act
 Poland v John Parr & Sons [1927] 1 KB 236 (P
p418)
 Lloyd v Grace, Smith & Co [1912] AC 716 (P
p417)
Fundamentals of Law (BL502)
The Law of Torts
Negligence
Reforms
Fundamentals of Law (BL502)
Reforms
 Why is there an “insurance crisis”?
 What are the alleged causes?
 What are the proposals for reform?