Introduction to Business Law - Problem Solving Assignment

INTRODUCTION TO BUSINESS LAW - PROBLEM SOLVING ASSIGNMENT

HYPOTHETICAL ILAC QUESTION
Issues
Charles former friend Andrew sought his opinion about the investment opportunity on the
Gold Coast. Charles Conducts the standard property searches but forgets to complete a flood
search for the property. Charles tells Andrew that the investment looks good and there are no
potential issues with the property. Based on the Charles’s positive report Andrew decides to
invest his life savings of $800,000 in the property. Unfortunately in November 2018, property
floods due to the heavy rain as a result of which the value of Andrew’s investment reduced to
half of its original value. He blames Charles for the damage and the financial loss suffered by
him. However, Charles defends that Andrew could have obtained the flood information
directly from Council, or he could have consulted with a lawyer. Correspondingly, the key
issues that arise from the given scenario is whether there existed duty of care on the part of
Charles towards Andrew and if so whether there was breach of duty by Charles and finally
whether he is liable for the financial loss suffered by Andrew.
Law
“A tort is a breach of a duty of care, potentially owed to the whole world, imposed by law
and is a “civil wrong” (slide). Law of torts is governed under the Civil Liability Act 2003
(Qld) and the common law. Among many types of torts, negligent misstatement is one of
them. Negligence/ Negligent misstatement under the Law of Torts can be applied in given
scenario. The most celebrated case that lay the foundation of modern tort law is Donoghue v
Stevenson [1932]. In this case the Justice Atkins held that “a Defendant will owe a Plaintiff a
duty of care if it is reasonably foreseeable that their actions could harm the Plaintiff” (slide).

In order to succeed in the claim under negligent misstatement against an individual, the
plaintiff must be able to establish before the court three essential conditions:
1. There existed the duty to care
2. There was breach of duty
3. The loss or damage is caused to someone due to this breach of duty and the cause is
not so remote.
It is observed from the Wagon Mound” Case [1961] that the foreseeability of the loss is very
important for the claim. Thus, it must be established that the Negligence on the part of the
defendant has caused damage or loss to the plaintiff.
Application
In this hypothetical scenario, Charles is a sole owner of a property valuation and property
investment advice firm. This makes him to act as a responsible adviser and demonstrate
sufficient duty of care those seeking advice from him. The case scenario clearly depicts that it
was Andrew has invested in the property based on the favourable opinion provided by
Charles. Correspondingly, under the negligent misstatement rule of Law of Torts, flood
search is supposed to have conducted flood search for the property and had the duty to tell
Andrew that the property is in an area classified as being at “Very High Risk of Flooding.
However, he failed to conduct flood search and thus nothing was told to Andrew about the
flood risk which indicates that there was a breach of duty on the part of Charles. Due to this
act of Charles, Andrew suffered huge financial loss resulting in decline in the value of
property to half of the original value. Thus under the negligent misstatement rule of Law of
Torts, loss to Andrew was directly related to the failure of duty to care by Charles.