Duty of Care in Financial Advice Cases

This assignment analyzes the legal concept of duty of care within the context of financial advice. It presents a hypothetical case study where EON Financial Services provides financial advice to Mary, who subsequently suffers losses. The analysis focuses on whether EON or Mary owed a duty of care to Paul, another party affected by the advice. The assignment applies relevant legal principles and precedents like Caparo Industries v Dickman, Hedley Byrne & Co Ltd v Heller & Partners Ltd, and others to determine the existence or absence of a duty of care in this scenario.

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Enterprise Law
Take-home mid-session Exam
13-Jan-18
(Student Details: )

Enterprise Law
Part A
Issue
Whether Ros and Brian can bring a claim of negligence against Smart Editions, and Michael and
Belinda for the injuries sustained by them, or not?
Rule
Negligence is the breach of duty of care, which results from the injury caused to the person to
whom the duty of care was owed. So, where a person A owed a duty of care to person B, due to
the actions being undertaken by A, which have the capacity of injuring or harming person B, and
this duty was not taken resulting in B getting injured, a case of negligence can be made by B
against A. The court in such cases awards remedies to person B which is to be paid by person A,
due to negligence undertaken by A. In order to make a claim of negligence, there is a need to
show the presence duty of care, breach of it, resulting damages, foreseeability, remoteness, direct
causation and proximity (Harvey and Marston, 2009).
A leading case which proves to be of help in establishing that the duty of care had been owed by
A to B, is the case of Donoghue v Stevenson [1932] UKHL. In this case, D had gone to a cafe
with one of her friends. This friend had purchased an ice cream and a bottle of ginger beer. This
ginger beer was present in an opaque bottle, as a result of which the contents of the bottle were
not visible. Half of the contents of this bottle were poured by D over the ice cream and she also
drank the ginger beer from the bottle. Once she had eaten a part of the ice cream, the remaining
contents of the bottle were poured by her over the ice cream and a decomposed snail came out
from this bottle. As a result of this, D sustained personal injured and she initiated a claim against
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the ginger beer’s manufacturer. The case was held as successful in the court and this led to the
neighbour test being born (Gibson and Fraser, 2014). The court stated that in this case the parties
were in proximity where the actions of one party had the capability of harming the other party.
Due to the manufacturer not taking care in their manufacturing process, harm was caused to the
consumer, which led to the direct causation condition being fulfilled. Here, the consumer was D
and the manufacturer was S, and irrespective of the bottle being purchased by friend of D, a duty
of care was nonetheless owed by S (Strong and Williams, 2011). The duty of care for
professionals is enhanced in comparison to normal individuals based on Rogers v Whitaker
(1992) 175 CLR 479 (Health Law Central, 2018).
Once it is shown that a duty of care was present, its breach has to be established. For this
purpose, Paris v Stepney Borough Council [1951] AC 367 proves to be of help. In this case,
failure to provide requisite safety gear, resulting in Paris getting blinded, was deemed as a breach
of duty of care (Latimer, 2012). The next requirement is to show that the injury was substantial
and not too remote. Remoteness of damages results in damages not being awarded as per
Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] UKPC 2 (H2O,
2016). Further, damages are awarded only when it can be shown that the injury would not have
taken place had the duty of care not been breached, based on “but for” test given in Barnett v
Chelsea and Kensington Hospital [1969] 1 QB 428 (Turner, 2013). There is also the requirement
of loss being reasonably foreseeable. And in this regard, the view of a reasonable individual,
based on Wyong Shire Council v. Shirt (1980) 146 CLR 40, has to be adopted (Jade, 2018).
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Enterprise Law
Application
In the given case study, for holding any of the parties liable, the above laid conditions have to be
fulfilled against them. In this context, Smart Editions was the manufacturer of this case, as they
undertook the work of renovation. As a result of this, they were required to undertake the work
in a careful manner, such that it did not cause injuries to the other party. Applying the case of
Donoghue v Stevenson, here a duty of care would be deemed to be owed by Smart Editions
towards Brian and Ross. This is true even when they did not get the renovation done, and were
merely the tenants. Like the quoted case, here the paying party was different from consumer.
Yet, as Brian and Ross were the consumers, a duty of care was owed to them.
Further, based on Rogers v Whitaker, the duty of care owed by Smart Editions was higher as they
were professionals. So, they were required to warn Michael and Belinda regarding the standard
being enclosed carpeted staircase and the risks associated with open floating timber staircase.
Their failure to do so would be deemed as a breach of duty of care, particularly when Brian and
Ros got injured as per Paris v Stepney Borough Council. Moreover, the losses sustained by the
two were not remote as per Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd,
as Ros got his arm burnt and Brian broke his leg. These were foreseeable risks in view of a
reasonable person, as the professionals should have taken care in planning the sockets
accordingly, and warning about the stairs, fulfilling Wyong Shire Council v. Shirt. Lastly, had the
care being taken by Smart Editions, Ros and Brian would not have been injured as per Chelsea
and Kensington Hospital.
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Enterprise Law
For a claim of negligence by Ros and Brian against Michael and Belinda, a case cannot be made
against them, based on Donoghue v Stevenson, as in this case, a claim of negligence could not be
made against the cafe.
Conclusion
Thus, Ros and Brian can bring a claim of negligence against Smart Editions, but not against
Michael and Belinda for the injuries sustained by them.
Part B
Issue
Whether a duty of care was owed by EON Financial Services or Mary to Paul for the financial
advice given, or not?
Rule
Misrepresentation is a term under the contract law which provides that where a person is induced
by one party by another party, to get in a contract, by making a false statement of fact or law,
such contract is voidable (Cartwright, 2012). A type of misrepresentation, which touches tort
law, is negligent misrepresentation. This aspect is better covered under negligently inflicting
economic losses. And in this context, the Caparo test proves to be of help, which was given
under the case of Caparo Industries pIc v Dickman [1990] 2 AC 605. In this case, the House of
Lords stated that in order to hold the presence of duty of care, there has to be foreseeability of
damages, proximity between the parties, and imposition of duty of scope should be deemed as
reasonable and just under the law (Lunney and Oliphant, 2013). When it comes to the
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professionals giving advices to their friends, as per Lejonvarn v Burgess & Anor [2017] EWCA
Civ 254, a duty of care is owed by them (Willans, 2017).
In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Hedley wanted to know if
extending the credit to the customer was advisable or not and this question was made to Helller.
Heller stated that this was appropriate but this advice turned out to be wrong and the customer
went out of business. This resulted in Hedley suing Heller. The question was raised on whether a
duty of care was owed by Heller to Hedley. The court stated that for a duty of care to present
regarding the careless statement, which resulted in pure economic loss in this case, certain
conditions had to be fulfilled. However, here no duty of care was present based on the given
facts (Case Brief, 2013).
Application
In the given case study, Mary was not a professional who provided advice to Paul so based on
Lejonvarn v Burgess & Anor, there is an absence of duty of care. Again, based on this case, EON
was not a friend of Paul, so no duty of care is owed. Applying the Caparo test given in Caparo
Industries pIc v Dickman, Mary could not have foreseen that Hunter would fail. Even though
there was proximity between Mary and Paul, it would be unjust to impose a duty of care in this
case on her. Here, even though as a professional, EON could have foreseen the risk of harm,
there was a lack of proximity between EON and Paul as they never gave the advice to Paul, but
to Mary. So, even this test proves no duty of care owed towards Paul by EON or Mary. More
importantly, the similarity of this case study and Hedley Byrne & Co Ltd v Heller & Partners Ltd
would show that a duty of care was not present again.
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Conclusion
Thus, a duty of care was not owed by EON Financial Services or Mary to Paul for the financial
advice given.
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References
Cartwright, J. (2012) Misrepresentation, Mistake and Non-disclosure. 3rd ed. London: Sweet &
Maxwell.
Case Brief. (2013) Hedley Byrne v Heller. [Online] Case Brief. Available from:
http://casebrief.me/casebriefs/hedley-byrne-v-heller/ [Accessed on: 08/09/17]
Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne: Pearson Education
Australia
H2O. (2016) Wagon Mound (No. 1) -- "The Oil in the Wharf Case". [Online] H2O. Available
from: https://h2o.law.harvard.edu/collages/4919 [Accessed on: 08/09/17]
Harvey, B., and Marston, J. (2009) Cases and Commentary on Tort. 6th ed. New York: Oxford
University Press.
Health Law Central. (2017) Rogers v Whitaker (1992) [1992] HCA 58; 175 CLR 479. [Online]
Health Law Central. Available from: http://www.healthlawcentral.com/rogers-v-whitaker/
[Accessed on: 08/09/17]
Jade. (2018) Wyong Shire Council v Shirt. [Online] Jade. Available from: https://jade.io/j/?
a=outline&id=66842 [Accessed on: 13/01/18]
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia
Limited.
Lunney, M., and Oliphant, K. (2013) Tort Law: Text and Materials. 5th ed. Oxford: Oxford
University Press.
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Strong, S.I., and Williams, L. (2011) Complete Tort Law: Text, Cases, & Materials. 2nd ed.
Oxford: Oxford University Press.
Turner, C. (2013) Unlocking Torts. 3rd ed. Oxon: Routledge.
Willans. (2017) Giving free professional advice? You may still owe a duty of care. [Online]
Willans. Available from:
http://www.willans.co.uk/news/article/giving_free_professional_advice_you_may_still_owe_a_d
uty_of_care/ [Accessed on: 08/09/17]
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