Corporations Law Case Study Analysis

Running head: CORPORATIONS LAW
CASE STUDY ANALYSIS
Name of the Student:
Name of the University:
Author Note:

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CORPORATIONS LAW
Answer 1:
Pure economic loss is regarded as a tort that refers to the financial damage and loss
incurred by an individual instead of a physical injury to such person or property destruction. In
negligence, pure economic loss could not be recovered till 1963. It has been represented under
the Fatal Accidents Act1. For the negligent misstatement, the classic authority to recover the
economic loss in the field of tort is the case of Hedley Byrne & Co Ltd v Heller & Partners
Ltd (1964)2. Till it was decided, it was considered to be in the ambit of contract law. The three
step Caparo test is generally applied to decide whether a tort feasor had a duty of care to the
victim in relation to the victim’s economic interests. This forms the first step of the Caparo test.
To decide whether the second condition of the Caparo test is fulfilled, it is seen that the general
rule is to be followed to deduce the proximity. The relation of the claimant with the tort feasor is
said to be proximate when the defendant either knows or has reason to know the economic
interest of the particular group of persons of which the claimant is the member which will be
affected by the failure of the defendant to exercise due care. The presence of the configuration
deduced in Hedley Byrne case is a conclusive proof but not ultimate ways of determining unless
the claimant seeks to avert the physical injury that can be foreseen to property or persons.
Moreover, the duty of care in relation to economic loss should be denied when there are policy
considerations that can make the presence of the duty of care unjust, unfair or unreasonable.
In the field of negligent misstatement resulting into financial loss there lies three
remarkable cases that tried to establish the conditions needed for the presence of the duty of care.
The cases were Mutual Life & Citizens' Assurance Co Ltd v Evatt3, Hedley Byrne & Co Ltd v
1 The Fatal Accidents Act 1976.
2 Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964).
3 Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628.

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Heller & Partners Ltd4 and Shaddock (L) & Associates Pty Ltd v Parramatta City Council5.
When the decision of the case of Hedley Byrne was given, the damages for pure economic loss
can be recovered in negligence but since pure economic loss can be generally anticipated and
differently allocated in contract, the party who seeks compensation for that loss must show that a
compelling cause was there to change the contract terms by tort liability.
All the answers in relation to this question can be answered in the light of the case of
Shaddock (L) & Associates Pty Ltd v Parramatta City Council. The argument put forwarded was
that the respondent council had a common law duty of care to the plaintiff to ensure that their
responses towards the written and oral requests for getting information was correct and this duty
was breached. The plaintiffs here depended on the decision of the Hedley case, however, the
defendant council referring to the case of Mutual Life & Citizens' Assurance Co Ltd v Evatt
denied the duty of care.
The major issues covered here are who had the duty of care for negligent misstatements
and also whether the principle of liability extends to negligent misstatement. The Hadly Byrne
case that proved the liability in case of negligent misstatement when there exists no fiduciary or
contractual relation among the parties, the connection required to raise the duty of care was not
elaborately discussed. The usage of the term ‘special relationship’ made very little contribution
to any certainty in the place. But it was held that such type of relation to exist, the advisee should
depend on the advisor to exercise due care and it has to be reasonable to do so.
The decision of the Shaddock case has unexpected consequence for people who advices
or gives information irrespective of where they operate in private or public sector. There lies no
4 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
5 Shaddock (L) & Associates Pty Ltd v Parramatta City Council (1981) 36 ALR 385.

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doubt that the government sectors must work under a duty to take reasonable care while passing
information to public. It is to be taken into consideration that public bodies cannot exclude their
liabilities for negligent misstatements. Moreover, they cannot delimit their activities to make less
effective while performing their duties.
Further it was seen in the decision of Ministry of Housing v Sharp 5 [19701 2 QB 2236
that the public bodies will be responsible if they negligently exercise their statutory duties when
such duties include duty to give information or advice. The suggestion of voluntary
responsibility assumption was strictly quashed. But few questions were not answered by the
judges in the case. For instance, they did not discuss how the liability of negligent misstatement
is related to the liability for negligent acts causing economic loss in case of public law.
Moreover, the role played by vicarious liability was only briefly discussed.
The boundaries of duty have not been clearly identified in this case as it was not clear
whether giving raw information will raise the duty. This case mainly concentrates on the issue of
who has the duty and not to whom the duty lies. Finally, there lies a problem that whether the
duty has to be excluded or not. The Hedley Brown case held that the duty could be excluded.
However, it is unfortunate if it shows that a person can invite reliance but deny the duty of care
at the same time. Inviting dependence and denying the duty are contradictory to one another.
Considering the rudimentary stage of the law of the negligent misstatement and taking into
account the facts of the case, it is seen that problems in the law area must be approached with
proper guidelines instead of strict rules given by limitations and qualifications.
The term ‘pure’ in this context refers that the loss must be untainted and self
representation different from loss like personal injury. Common types of pure economic loss are
6 Ministry of Housing v Sharp 5 [19701 2 QB 223.

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CORPORATIONS LAW
loss of profit, expenditure or loss from financial gain. Hence, it is important to recognize whether
the loss is pure economic loss or consequential loss as the former cannot be recovered as
damages in law. It is revealed in the case of Spartan Steel & Alloys Ltd v Martin & Co
(Contractors) Ltd7 that the English law had issues while dealing with the cases involving pure
economic loss as limitations given in tort or common law indicates that they are in place for the
fear of unquantifiable claims. Though the courts have not defined the parameters for claiming
pure economic loss because of the fear of the court that if the pure economic loss is actionable,
then the courts may be over burdened with claims. Till 1960’s, economic loss was regarded as a
distinct entity outside the ambit of negligence which was held by Lord Denning in Candler -v-
Crane Christmas & Co8 case. This decision was again followed by the Opposition from the
House of Lords as given in the Hedley Byrne & Co Ltd v Heller & Partners Ltd9 where it was
decided that the pure economic loss out of negligent misstatement can be recovered in theory but
depends on special relation between the parties. By referring to this case, it is found that the
courts could define clearly what is recoverable in case of pure economic loss but their approach
may be reluctant to implement them.
Answer 2:
Issue:
The issues to be determined here are whether Jeff can succeed in the claims brought
against him due to the tort committed by him and the damages to be paid by him if such claims
are successful.
7 Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27.
8 Candler -v- Crane Christmas & Co [1951] 2 KB 164; [1951].
9 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.

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CORPORATIONS LAW
Rules:
The tort of negligence is being established in the famous case of Donoghue v
Stevenson10. In this case, the plaintiff Mrs Donoghue went with her friend to a café. Her friend
purchased a bottle of ginger beer along with ice cream for her. The beer came in a opaque bottle
such that its content was not seen. She poured half of the contents of the bottle on her ice cream.
She also drank some from the bottle. After having little bit of the ice cream, she poured leftover
of the bottle on ice cream and discovered a decomposed snail from the bottle. She suffered from
a personal injury due to it. She sued for a claim against the ginger beer manufacturer. It was held
in the case that her claim was successful. This particular case laid the foundation stone of the
modern law of negligence. It was held that in order to be successful in the negligence claim, the
claimant has to prove the following:
 That the defendant had a duty of care towards the plaintiff,
 That the defendant had breached such duty,
 That the breach of duty caused damage in the form of personal injury, and
 That such damage was not very remote.
Duty of care refers to the situations and circumstances which have been recognized as giving
rise to a legal obligation of taking care. The failure of taking care can make the defendant liable
for the tort of negligence due to which he had to pay damages to the party who suffers a loss or is
injured because of the breach of the duty. Hence it is necessary that the claimant must establish
that the defendant owes a duty of care. The presence of the duty of care for personal injury was
originally decided in the neighbor test by Lord Atkin in the Donoghue v Stevenson case.
However in the present day, a new test is applied which is known as the Caparo test. This test
10 Donoghue v Stevenson [1932] AC 562.