LAW8500 Australian Commercial and Corporations Law Issue 2022

Running Head: BUSINESS AND CORPORATION LAW 0
Australian Commercial and Corporations Law
9/27/2019
Student’s Name

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Question 1
Issue
Whether First National Bank has (the bank) can sue Dave or not? What would the basis to take
the legal action against FirstRate Accounting. Whether the bank will have any course of action
against Dave if Dave was aware of the fact that the financial statements prepared by him would
also be submitted to First National Bank.
Law
A tort refers to civil wrong that one party commits to others. Different types of torts are there
whereas negligence is of the most common type. As the name implies negligence refers to
ignorance by a person. Negligence consists of a situation where the defendant does not fulfill the
duty of care that he/she owes to the claimant and such breach caused damage to the claimant. By
this definition, it is clear that to amount negligence certain factors are required to be there. These
factors are commonly known as essentials of negligence or requirements of negligence. These
requirements are mentioned as hereunder:-
 Duty/standard of care: - A duty of care brings a responsibility to act reasonably and
responsibly to prevent all the foreseeable harms that the other person can be suffered
with. Under a claim of negligence, a standard of care must be due on the part of the
defendant. In the decision of the case titled Donoghue v Stevenson [1932] UKHL 100, it
was provided that a person owes a duty of care to his/her neighbors. Now the issue arises
in respect to the identification of neighbor (E-lawresources 2019). It was given that every
person who is close and directly affected by the act of others treated as a neighbor for that

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other person. Court uses this decision to determine the presence or absence of duty of
care.
Another test is also there to check the existence of a duty of care in the account of
defendant ad is known as the Caparo test. The subjective test has been given in the case
of Caparo v Dickman [1990] 1 All ER 568. This is a three-step test. The very first
requirement of the act states that to establish a duty of care, the relationship of claimant
and defendant is required to be proximate (Horsey & Rackley 2017, p. 62). The second
requirement of this test states that the risk must be foreseeable. It means the risk must be
of nature that could assume to be there by the defendant. Moreover, the last requirement
demands that holding liable to the defendant or to establish a duty of care to the same
must be just and reasonable under the law (Mitchell 2008, p. 283). Many of the times, the
defendant is a person who is minor or mentally sick. Such persons do not seem capable to
carry any liability under the law. If all these requirements are satisfied then a duty of care
concludes as existed in a case.
 Breach of duty of care: - It is another requirement of negligence. Breach of the standard
of care involves falling below the standard of a reasonable man and posing an
unreasonable risk of loss to claimant.
 Damage, injury, or loss: - The third and final requirement states that if there is a duty of
care and breach of the same but no negative consequences out of it then negligence does
not seem to be there. In this manner, the claimant is required to be suffered from
consequential damage. Such damages can have various forms such as physical injury,
pure economic loss, and psychiatric injury (Findlaw 2019). Here this is necessary to

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mention that the term consequential demands that the loss suffered by the claimant must
happen because of negligence of the defendant.
If all the above-mentioned three requirements meet in a case then claimant becomes eligible to
initiate action against the defendant. In many of the cases, more than one party effect from the
negligence of one party and most of such cases are related to purely economic losses out of
negligent misstatement. In such cases, courts develop their focus on the proximate relationship.
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is one such case. In this case, a
company named Easipower Ltd placed a large order to an advertisement firm named Hedley
Byrne & Co Ltd. Advertisement company was not sure about the payment capacity of Easipower
and therefore made an inquiry to the bank of the same. The bank provided written advice to
Hedley Byrne where the same stated financial condition of Easipower strong which was a
negligent statement in actual (Crossan 2017). In the decision of the case, the court provided that
the between there was a proximate relationship between the bank and Hedley Byrne as the bank
was aware with the fact that the other party, Hedley Byrne is going to rely on the provided
information and could expose risk in case of using false information (Furmston 2017, p. 357). It
means for a proximate relationship, the defendant must be aware of the situation of the claimant
and with the fact that such claimant would rely on the defendant.
Vicarious liability: - Vicarious liability is an important principle of Tort Law that held the
employer liable for the negligent action of employees that has been conducted in the regular
course of employment.

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Research methodology
The case is related to the common law of tort as reflected through research question. To check
the relevant law primary as well as secondary sources have been studied. Firstly some secondary
sources such as books and website have been studied whereas the references of primary sources
were mentioned. Later on, the decision of such leading cases such as Donoghue v Stevenson,
Caparo v Dickman and Hedley Byrne & Co v Heller & Partners Ltd have been checked and
studied to write the appropriate law.
Application
In the case presented hereby, Dave prepared financial statements of the business named Excel
Group company limited. He had no idea that any third party is there who can use the information
containing in financial statements or can be relied upon. Firstly applying the neighborhood test
given in Donoghue v Stevenson, a duty of care does not seem to be there at the part of Dave
because as per his knowledge bank was not the party who could directly affect by his action.
Secondly shifting the focus to Caparo test, this is to state that again a duty of care cannot be
established at the part of Dave because of lack of proximate relationship of Dave with First
National Bank. Dave was not even aware that any such third party would use the financial
statements prepared by him for taking business-related information. Further, the risk of harm
happened to First National Bank was also not foreseeable to Dave and hence applying the
decision of Caparo v Dickman also, no duty of care seems to be there.
Nevertheless, the bank can initiate an action against FirstRate accounting using the doctrine of
vicarious liability as Dave has provided his services in the regular course of business.

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Nevertheless, the bank cannot be successful as Dave had no duty of care and therefore there was
no negligence on his part.
If Dave knew the fact that the bank will use financial statement and will rely upon the same then
in such a situation, a proximate relationship seems to be there. The situation is similar to the case
of Hedley Byrne & Co v Heller & Partners Ltd and a proximate relationship between bank and
Dave is there. Further to move another requirement of the Caparo test, Dave had reason to
believe that any misstatement under financials can lead harm to the bank as the same was
granting a loan to Excel Group Company Limited. Further holding Dave liable does not seem
unjust or unfair under law. In this manner all the requirement of the Caparo test are satisfied and
Dave has a duty of care. Further applying the neighborhood test given under Donoghue v
Stevenson, again a duty of care seems to be there because a direct relationship is there and Dave
is aware that his action would affect the bank. Further, Dave acted negligently and failed to
behave as a reasonable person by making omission. In this manner, the second condition of
negligence also satisfied. At third, due to the negligence of Dave, the bank had suffered from
harm. The harm came in the form of economic loss. As all the essentials of negligence present in
this case hence to state that, the bank can sue Dave in such a situation.
Conclusion
Due to lack of proximate relationship, Dave did not have any duty of care in the presented
situation hence bank cannot sue the same for negligence. However, if Dave was aware of
reliance of bank on financial statements prepared by him, then in such a situation a duty of care
seems to be there in addition to breach of the same and bank can sue Dave successfully.

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Question 2
Issue
The issue is to determine whether Crystal Motor Company Pty Ltd (Crystal Motor) has any
liability to pay the debt to the seller Elite Car Ltd or not. Further to check whether can take any
defenses to avoid such payment liability or not?
Rules
An agency is a relationship between agent and principal whereas principal grants some authority
to an agent to conduct the activities on his/her behalf and to held the principal liable by such
activities towards a third person. In this manner, this is to state that an agent creates legal
relationship between the principal and third parties/outsiders. Principal, agent and outsider are
three lead parties of an agency agreement. Under an agency relationship, authorities can be
granted to the agent in a different manner. These authorities include actual and ostensible
authority. Actual authority can further be divided into two types. The first kind of actual
authority is expressed actual authority. When the authority is granted under specific terms then
the same is known as an actual express authority. In such authority, powers are given clearly to
the agent. For instance authority to buy a Honda city car not older than 3 years for a
consideration up to $50000. Another kind of actual authority is implied authority. Such authority
occurs when an agent does something which is incidental to do to comply with express authority.
It means implied authority supports to express authority. In the case of business organizations,
many of the times people hold certain positions. In such a situation, the third party assumes that a
person has the authority to do all those acts, which falls, within the scope of a particular position.

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Here to mention that any mutual agreement between agent and third-party, which limits the
authority of an agent under implied authority will not have any impact on the assumption or
rights of the third party unless the third party is aware of such limitation. Watteau v Fenwick
[1893] 1 QB 346 is an important case to mention while discussing implied authority and impact
of the same to the parties. If to discuss facts of this case, a person was appointed on the position
of pub manager. In this manner, an outsider had reason to assume that the person had the
authority to do all the activities that fall in the scope of a manager's capacity. In this case, the
owner of the pub expressly limited authority of manger and told the manager that he was not
authorized to buy cigars for the pub but manager purchased the same. In the case, it was decided
that the principal was liable for the conduct of agent even when the agent did not act in given
capacity. Law secured the right of the third party in that situation and provided that an outsider
cannot check the scope of authority of an agent and can rely upon the implied authority of the
same (Webstroke 2019).
Lastly, the third type of authority comes which is the ostensible authority and also known as an
apparent authority. In some of the circumstances, the agent has no actual authority yet principal
shows the person as an agent by making some statements or conduct. Such authority is ostensible
authority. After the discussion of the type of authority, the next thing is to understand the rights
and obligations of parties under an agency relationship. To answer this is to state that a principal
is responsible to the outsider for the conduct done by its agents and the third party has
entitlement to sue the principal in such a manner.
In case of partnership firm, provisions related to the agency can be seen. Every state of Australia
has different partnership act. For instance in Queensland state, Partnership Act 1891 (QLD) is
there which provides the provisions of an agency relationship between partners. Every partner of

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the firm is an agent of other partners and firm and can bind them with their conduct towards the
third party. Section 8 of the said Act prescribe that every partner has ability to bind firm and
other partners with his/her conduct (Queensland Legislation 2019). Nevertheless, for binding the
firm it is necessary for a partner to act within the scope of the ordinary business of the firm. This
section has two important aspects.
The most significant thing to mention here is that the agency relationship is a mutual relationship
of a principal and agent and the third party cannot examine the level of authority that a principal
provides to the agent. A third party may check whether a person is agent or not but cannot check
that up to what limit authority or rights are granted to such agent. Law is there to protect the right
of an outsider in these situations. The facts and decision of the case of Mercantile Credit Ltd v
Garrod [1962] 3 All ER 1103 seems important to discuss here. In this case, two of the people
were running garage business and have mutually decided that to not to sell or purchase any car.
Later one of the partners breached this authority by selling a car to an outsider. This car was not
even owed by the business. The outsider retuned the car to the true owner and sued garage
business for this fault. Partners who were not engaged in the business sought to be free from any
liability. In the decision of the case, the court determined liability on the part of every partner,
i.e. sale of the car was related to the ordinary business of garage and the third party had reason to
believe that the partner was acting so in given authority (Jones 2013, p. 503). Here to state that if
partners do any act in pursuance of the regular business of the firm then the outsider has right
against the firm as well as other partners even when a partner does act going outside of the
allowed authority. However, later on, the principal can recover the loss from the agent. Further,
when a third party knows about the scope of authority granted to a partner or agent under an
agency and still entered into a contract where agent deals going outside of the authority.

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Research methodology
To answer the research question, firstly the issues were tried to understand. Later on, the relevant
law i.e. agency law has been researched using secondary sources such as books and websites. As
was given in the requirement file, partnership act of Queensland state also been studied and
provisions related to the agency has been highlighted and mentioned under the rules section.
Following cases related to agency law have also been discussed:-
 Watteau v Fenwick Mercantile Credit Ltd v Garrod
These laws are relevant and eligible to solve the query mentioned in the research question.
Application
In the presented case, Sam and John mutually decided their authority and according to the same,
they could enter into contracts worth not exceeding $20000 on behalf of their business. The
business was engaged in the activities of selling and buying cars. The issue started when Sam
developed a contract with a third party, Elite Car Sale Ltd to buy a sports car worth $40000. By
doing this, he breached his actual authority that was limited to up to $20000.
Applying the provisions of agency law in this situation this is to state that in addition to the
actual express authority Sam also had implied authority. Being a partner in business, buying and
selling fall in the scope of his position. A third party, in this case, had the assumption that Sam is
dealing on behalf of his business and had the required level of authority to enter this transaction.
The fact of this case is closely related to the facts of Watteau v Fenwick and Mercantile Credit
Ltd v Garrod. In the given case also by purchasing a sports car on behalf of the business, Sam
acted in his implied authority. It means a third party had reason to believe that as Sam is a

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partner in business, he can buy or sell the car but could not check uoto what limit. Further
Crystal Motor Pty Ltd did not serve any notification of limited authority of Sam and John to third
parties.
Not under the agency law only but under section 8 of the Partnership Act 1891 also he can bind
the business by his conduct as he acted in the regular course of business. Partners mutually
decided the limit of their authority to enter into a transaction and Elite Car Sale Ltd was not
aware of such limited authority. Law will protect the interest of Elite Car Sale Ltd in this
situation.
Conclusion
Crystal Motor Company Pty Ltd will be have to pay $40000 to Elite Car Sale Ltd. Further, the
company would not have any defense to make for not paying the debt. Nevertheless, later Crystal
Motor Company Pty Ltd can be held Sam liable for balanced $20000.

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References
Crossan, S. 2017, Introductory Scots Law Third Edition: Theory and Practice, Hachette UK,
UK.
E-lawresources 2019, E-lawresources, UK, viewed 28 September 2019, <http://www.e-
lawresources.co.uk/Duty-of-care.php>.
Findlaw 2019 Findlaw, Thomson Reuters, viewed 28 September 2019
<https://injury.findlaw.com/accident-injury-law/elements-of-a-negligence-case.html>.
Furmston, MP 2017, Cheshire, Fifoot, and Furmston's Law of Contract, Oxford University
Press, UK.
Horsey, K & Rackley, E 2017, Tort Law, Oxford University Press, UK.
Jones, L 2013 Introduction to Business Law, OUP Oxford, UK.
Mitchell, A 2008, AS Law, Routledge, Oxon.
Queensland Legislation 2019, Queensland Legislation, Queensland Government, Queensland,
viewed 28 September 2019 <
https://www.legislation.qld.gov.au/view/pdf/inforce/2006-03-15/act-1891-007>.
Webstroke 2019 Webstroke, Webstroke Law, UK, viewed 28 September 2019
<https://webstroke.co.uk/law/cases/watteau-v-fenwick-1893>.
Legislation and Legal authorities
Caparo v Dickman [1990] 1 All ER 568

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Donoghue v Stevenson [1932] UKHL 100
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103
Partnership Act 1891 (QLD)
Watteau v Fenwick [1893] 1 QB 346