Business Law: Negligence and Recovery of Economic Loss

This article discusses the principles of negligence and recovery of economic loss in business law. It explains the duty of care, breach of duty, causation, and remoteness of damage. The article also provides case studies of Donoghue v Stevenson, Caparo Industries PLC v Dickman, and Hedley Byrne v Heller. It concludes with the application of these principles in two case studies.

Running Head: BUSINESS LAW
BUSINESS LAW
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Issue
The issue in this given case study is whether Kimberley and Charles are entitled to claim
damages from Elle due to her Negligence
Rule
The case Donoghue v Stevenson [1932] AC 562 laid the foundation of claims in Negligence by
establishing the neighbour principle. Lord Atkin in the this case stated that it is the responsibility
of a person to take reasonable care so as to prevent any harm likely to be caused to the neighbour
of the person by his negligent acts or omissions. The essential elements for proving negligence
as held in the case are enumerated below:
Duty of Care
Breach of duty of care
Causation of damage
Remoteness of damage
Duty of care
In order to prove negligence it is essential for the claimant to prove duty of care of the
defendant towards the claimant. Duty of Care is assessed by the Caparo test as established in the
case Caparo Industries PLC v Dickman [1990] UKHL 2. The Caparo test considers:
 Whether injury or loss sustained by the claimant was reasonably foreseeable to the
defendant
 Whether there was a relationship of proximity between the parties

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 Whether it is fair and reasonable to impose the duty on the defendant
As held in the case Australian Safeway Stores Pty Ltd v Zaluzna [1987] HCA 7; (1987) 162 CLR
479) the occupier of a premises has a duty to take reasonable care so as to ensure that such
premises is safe to the visitors
Breach of duty of care
In the case Vaughan v Menlove (1837) 3 Bing. N.C. 467, an objective test was applied to assess
whether the defendant had breached his duty of care. Such test assess whether a reasonable
person would have taken any additional steps to prevent any damage likely to be caused any
person.
Causation
The causation of the damage sustained by the claimant is assessed by the “But For” test as
established in the case Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
Remoteness of damage
To claim damages for Negligence it is important to establish that the damage sustained by the
claimant was not too remote to the defendant. In the case Wagon Mound no1 [1961] AC 388, it
was held a defendant can be personally held liable for the damage sustained if such damage was
of a foreseeable kind.
Application
As provided in the facts of the given case study it can be stated that Elle had a duty of are
towards Kimberley as Kimberley was a guest in the Bread and breakfast house. Thus a

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relationship of proximity existed between the parties. The injury sustained by Kimberly was
reasonably foreseeable to Elle. Therefore it is fair and reasonable to impose the duty of care on
Elle.
By the application of the Hackinshaw v. Shaw, it can be said that Elle also had a duty of care to
Charles as well as she was a visitor.
However, she breached her duty of care. This statement can be substantiated by the objective
test. Any reasonable person would have fixed the shutters to prevent any damage to any
individual.
The damage caused to the victims was a direct result of the negligent omission of Elle. Further it
can be said that the damage sustained by the victims was not too remote as such injury was of a
foreseeable kind. Therefore the victims sue Elle for Negligence.
Conclusion
Thus, Kimberley and Charles can sue Elle for Negligence
Answer 2
Issue
The issue that is present in the given case study is who owed a duty of Care to John to avoid pure
economic loss
Rule
The case Hedley Byrne v Heller serves as the authority in case of recovery of economic loss
sustained by any party due to negligent misstatement. It had been held in this case that a party

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who possesses specialized skill or knowledge has a duty of care to any person who relies on the
advice provided by the former party. The Australian case Mutual Life & Citizens’ Assurance Co
Ltd v Evatt (1968) 122 CLR 556 is based on the principle of the aforementioned English case. In
the Australian case the judge deviated from the English concept of negligent misstatement. It
was held that for determining negligent misstatement no specialized knowledge or skill is
required to be possessed by the party to provide advice to the other party and for the latter to rely
upon such advice.
Application
In this given case study it has been provided that Jacob had relied on the information that was
provided by Water Accounting services for purchasing the business “Sport and Surf”. Water
Accountant services had negligent misrepresented the profits earned by the business to be
120,000 dollars however it in reality it was only 12,000 dollars. Thus in this case it can be said
by the application of the Hedley Byrne & Co v Heller & Partners case Water Accounting
services had a duty of care towards Jacob.. They breached such duty and therefore Jacob can
claim damages for facing pure economic loss due to relying on such misstatement.
Conclusion
Thus in conclusion it can be stated that Water Accounting Services had a duty of care towards
Jacob

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Reference List:
Australian Safeway Stores Pty Ltd v Zaluzna [1987] HCA 7; (1987) 162 CLR 479)
Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
Caparo Industries PLC v Dickman [1990] UKHL 2.
Donoghue v Stevenson [1932] AC 562
Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465
Vaughan v Menlove (1837) 3 Bing. N.C. 467
Wagon Mound no1 [1961] AC 388