Business Law Essay: Negligence and Misrepresentation in Business

This essay examines the crucial role of tort law in business, specifically focusing on negligence and misrepresentation. It defines negligence as a breach of the duty of care, detailing its essential components like duty of care, breach, harm, and causation. The essay references key case laws such as Donoghue v Stevenson and Caparo Industries plc v Dickman to illustrate the application of these elements. Misrepresentation, both under contract and tort law, is defined as a false statement inducing contract formation, with cases like Bisset v Wilkins highlighted. The essay emphasizes the importance of businesses mitigating risks of tort claims, referencing cases like Smith New Court Securities v Scrimgeour Vickers. Defenses available to businesses, including contributory negligence and volenti non fit injuria, are also discussed, with reference to cases like ICI Ltd v Shatwell. The essay concludes by underscoring the significance of avoiding tortious activities to prevent hefty penalties and protect business reputation, including a discussion of statutory laws like the Civil Liability Act.

KENT INSTITUTE AUSTRALIA
Business Law
Assessment 3
(Student Details: )
18-Sep-17

ESSAY 2
Tort is such an area of law, which is crucial for not only individuals, but also for the
organizations, as it applies to a number of business situations. This is particularly for the torts of
negligence and misrepresentation, along with certain other torts. There are a number of case laws
which present the real life situations whereby not only the common people, but also the
businesses had been indulged in tortious activities (Statsky, 2011). The rationale behind steering
away from such torts lies in the fact that they are coupled with liabilities, which can cause huge
losses to the businesses. There are a lot of requirements which have to be fulfilled for
establishing the presence of any form of tort and this is dependent upon the particular type of tort
in question. The torts not only attract the liability under the common law, but also attract the
statutory laws particularly the Civil Liability Act of the particular jurisdiction in which the
tortious act was undertaken (Trindade, Cane and Lunney, 2007). Through this essay, all these
aspects which surround the torts related to the business situations have been elaborated, along
with detailing certain other related aspects.
Negligence is the very first and the most prominent tort which the businesses come across in
their daily activities. The best manner of defining a tort is such a contravention of “duty of care”,
which results in one party being injured due to the actions which the other party undertook, and
this takes place when the first party knew that their actions could potentially injure the second
party (Kennedy, 2009). As has been stated in the introductory section, there are some
components/ elements/ rudiments which are required to establish a case of negligence. These are
the “duty of care”, its resultant breach, harm or injury, foreseeable loss, proximity between
parties, direct causation, and remoteness of loss. In case where any of these rudiments are
missing, the claimant would fail in their claims (Kolah, 2013).

ESSAY 3
The first step which is required to make a case of negligence is “duty of care”. The leading case
in this regard is that of Snail in the bottle, which is fully known Donoghue v Stevenson [1932]
AC 562. D was the consumer in this case, who bought a ginger beer bottle in a cafe. This bottle
was manufactured by S and in this bottle was found a dead snail, which led to the contamination
of the contents of this bottle and when D consumed it, she fell sick. As a result of this sickness,
D brought an action before the court against S for negligence. S denied owing a “duty of care”
and stated that the cafe should be made liable. However, the court ruled in favour of the plaintiff
and upheld the negligence of D. The rationale for this decision was cited as the proximity
between S and D, and the reasonable foreseeability of such contamination leading to sickness of
consumer (Latimer, 2012).
Another helpful case for establishing “duty of care”, through the threefold test given in it was
that of Caparo Industries plc v Dickman [1990] 2 AC 605 (Lunney and Oliphant, 2013). This
test requires that the need to establish that there have to be risk of harm in a foreseeable manner;
there has to be proximity between parties; and lastly, if the penalties are to imposed, they would
be deemed as fair (E-Law Resources, 2017a).
Negligence

ESSAY 4
The next requirement is to establish that the duty of care was contravened by the defendant. For
this, the case of Paris v Stepney Borough Council [1951] AC 367 proves to be of help. In this
case, the defendant did not provide the safety gear to the plaintiff even when his work had risk of
the plaintiff getting hurt, where he had been employed by the defendant and the defendant knew
that the plaintiff was already blind in one eye. When the plaintiff got blind, as a rusty bolt got
loose and flew in plaintiff’s good eye, effectively blinding the plaintiff completely, the court
upheld the case of negligence due to the failure of the defendant in giving their worker, the
requisite safety material (Martin and Lancer, 2013).
There is a need for the loss to be reasonably foreseeable and in this regard, the view of an
unbiased prudent person has to be undertaken, as was held in Wyong Shire Council v Shirt
(1980) 146 CLR 40, by the judges of this case (Jade, 2017a). Where the losses are remote, the
damages are not awarded to the plaintiff as was seen in the Wagon Mound case, i.e., Overseas
Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] UKPC 2 (H2O, 2016). There is
also a need to show that the injury resulted directly from the breach of “duty of care” of the
defendant. Once all these requirements are present, a case of negligence would stand (Turner,
2013).
Misrepresentation refers to the false statement which is made by an individual to induce the other
party in getting into the contract. Misrepresentation falls both under the contract law and tort law
due to it touching both the jurisdictions of this law. The false statement which is made needs to
be one of fact and not an opinion (Cartwright, 2012). A leading real life example of this can be
established through the case of Bisset v Wilkins [1927] AC 177, where the statement was of
opinion and not fact (E-Law Resources, 2017b). Smith v Land and House Property Corp (1884)
28 Ch D 7 presented another key point which is required to make a case of misrepresentation. As
per this case, if the person was in position of knowing that the statement being made is false,
then the case of misrepresentation would stand (E-Law Resources, 2017c). Also, reliance has to
be made on the false statement which had been made. Due to the lack of reliance in Horsfall v
Thomas [1862] 1 H&C 90, the claim of misrepresentation was quashed (E-Law Resources,
2017d).
In the day to day business, the entities have to deal with customers and they interact with them
regularly. This interaction can often result in a misrepresentation or a case of negligence being

ESSAY 5
made against the company (Gibson and Fraser, 2014). In such cases, the businesses have to take
extra care that the chances of such a case being made are reduced, by being diligent in their
work. A case of misrepresentation was made in Smith New Court Securities v Scrimgeour
Vickers [1996] 3 WLR 1051, where the company claimed that they had certain bids. But, they
actually had zero bids. Hence, the case of misrepresentation succeeded (E-Law Resources,
2017e).
When the party is injured, as a result of negligence of another party, such party can make a claim
of tort against the breaching party in the relevant court of law. And in making the case of tort, be
it misrepresentation or negligence, the components stated above have to be shown to exist in a
clear manner. And on the basis of their claim, they can apply for damages for physical injury,
economic loss, or emotional distress. In case of misrepresentation, the aggrieved party can get
the contract rescinded, or can apply for monetary compensation (Latimer, 2012). As there was an
absence of the defendant paying heed to the warnings regarding possibility of fire, it was deemed
as a failure of duty, and so, in Vaughan v Menlove (1837) 132 ER 490, the defendant was not
awarded any damages (Commonlii, 2017).
There are different defences which the defendants can use, when a case of tort is made against
them. The very basic one in this regard is to show that the components required to make the
relevant case, were absent. Further, for a case of misrepresentation, they can show that they had
reasons to believe that the statement being made by them was true, or at least were true at that
particular instance (Poole, 2014). In cases of negligence, the businesses can apply the defense of
contributory negligence and volenti non fit injuria (Navin, 2016). Under volenti non fit injuria, it
is established that the plaintiff was clearly aware of the fact that there was presence of a
particular risk of injury or harm. Once a case of volenti non fit injuria is shown successfully, the
injured party is not required to be reimbursed in any manner (Turner, 2013). A real life example
of this is that of ICI Ltd v Shatwell [1965] AC 656. In this particular instance, the court rejected
the plea of the brothers and held that they clearly knew that risk was present by using short wire
(E-Law Resources, 2017f). Similarly, in Insurance Commissioner v Joyce [1948] HCA 17, by
wilfully accepting the ride from a drunk driver, the passenger voluntarily assumed the risk of
harm (Jade, 2017b).

ESSAY 6
The discussion which was carried on till now was related only to the common law. For instance,
in the jurisdiction of South Australia, the Misrepresentation Act, 1972 is applicable (Austlii,
2017). As per this act, the court can give the verdict that a particular sale is unlawful and this
gives the consumer the right to rescind the contract (Legal Services Commission, 2009).
Similarly, for the case of negligence, the Civil Liability Act, 2002 is applicable in the state of
New South Wales. The requirements for making a case of negligence are stated under different
sections. For instance, in section 5B the duty of care is not considered to be violated, as long as it
can be proved that there was a presence of significant risk of harm, in a foreseeable manner and a
prudent person would have taken all the steps to avoid its occurrence. This act also provides
sections for contributory negligence, which is another defence which can be used by the
businesses. Under section 5S, the damages awarded to the plaintiff can be reduced fully where
the court considers it fit to do so (Legislation NSW, 2015). Hence, the public and statutory
authorities play a crucial role when it comes to establishing cases of torts.
There is also a need to clearly provide that the businesses do not face only possibilities of these
two torts, but also different other torts; included in this are the business torts like fraud,
defamation, tortious interference, and injurious falsehood. So, when the businesses communicate
with their consumers, they need to make sure that they do not insult them or state something
against their competitor which is not true and which is stated with the aim of bringing the image
of the competitor down, as it can give rise to a claim of defamation. Every tort brings with it
penalties, which are particularly hefty in terms of monetary compensation which is to be
awarded to the injured or hurt parties. Not only the company suffers monetary losses, which
could be used for other purposes, the company also has to bear a negated impact over its
reputation, which needs to be avoided (Barnett and Harder, 2014).
Thus, it can be effectively concluded that the torts are such a civil liability, which needs to be
avoided by the businesses as they bring with them, hefty penalties. There are a number of torts
which have to be taken care of, while running the daily business of the organization and the key
one in these are that of negligence and misrepresentation. The preceding parts highlighted the
different requirements which have to be present to make a case of negligence and
misrepresentation, along with the possible defences which can be cited under the common law,
as well as, under the statutory law, based on the jurisdiction in which the tort was committed.

ESSAY 7
The case laws quoted in the discussion showed the different instances in which different parties
were held accountable and were made to pay damages owing to the presence of a tortious
element. Hence, it is crucial for the businesses to conduct its operations in such a manner that no
tort is committed. And where it is committed, the companies need to adequately compensate the
injured party, before the court imposes a penalty for undertaking the tortious act.

ESSAY 8
References
Austlii. (2017) Misrepresentation Act 1972. [Online] Austlii. Available from:
http://www.austlii.edu.au/cgi-bin/viewdb/au/legis/sa/consol_act/ma1972224/ [Accessed on:
18/09/17]
Barnett, K., and Harder, S. (2014) Remedies in Australian Private Law. Victoria: Cambridge
University Press.
Cartwright, J. (2012) Misrepresentation, Mistake and Non-disclosure. 3rd ed. London: Sweet &
Maxwell.
Commonlii. (2017) Vaughan v Menlove. [Online] Commonlii. Available from:
http://www.commonlii.org/uk/cases/EngR/1837/424.pdf [Accessed on: 18/09/17]
E-Law Resources. (2017a) Caparo Industries PLC v Dickman [1990] 2 AC 605 House of Lords.
[Online] E-Law Resources. Available from: http://e-lawresources.co.uk/cases/Caparo-Industries-
v-Dickman.php [Accessed on: 18/09/17]
E-Law Resources. (2017b) Bisset v Wilkinson [1927] AC 177 Privy Council. [Online] E-Law
Resources. Available from: http://www.e-lawresources.co.uk/Bisset-v-Wilkinson.php [Accessed
on: 18/09/17]
E-Law Resources. (2017c) Smith v Land and House Property Corp (1884) 28 Ch D 7. [Online]
E-Law Resources. Available from: http://www.e-lawresources.co.uk/Smith-v-Land-and-House-
Property-Corp.php [Accessed on: 18/09/17]
E-Law Resources. (2017d) Horsfall v Thomas [1862] 1 H&C 90. [Online] E-Law Resources.
Available from: http://www.e-lawresources.co.uk/Horsfall-v-Thomas.php [Accessed on:
18/09/17]
E-Law Resources. (2017e) Smith New Court Securities v Scrimgeour Vickers [1996] 3 WLR
1051. [Online] E-Law Resources. Available from: http://www.e-lawresources.co.uk/Smith-New-
Court-Securities-v-Scrimgeour-Vickers.php [Accessed on: 18/09/17]

ESSAY 9
E-Law Resources. (2017f) Imperial Chemical Industries Ltd v Shatwell [1965] AC 656 House of
Lords. [Online] E-Law Resources. Available from: http://www.e-lawresources.co.uk/Imperial-
Chemical-Industries-Ltd-v-Shatwell.php [Accessed on: 18/09/17]
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: 18/09/17]
Jade. (2017a) Wyong Shire Council v Shirt. [Online] Jade. Available from: https://jade.io/j/?
a=outline&id=66842 [Accessed on: 18/09/17]
Jade. (2017b) Insurance Commissioner v Joyce. [Online] Jade. Available from:
https://jade.io/article/64545 [Accessed on: 18/09/17]
Kennedy, R. (2009) Duty of Care in the Human Services: Mishaps, Misdeeds ad the Law.
Victoria: Cambridge University Press.
Kolah, A. (2013) Essential Law for Marketers. 2nd ed. United States: Kogan Page Limited.
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia
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Legal Services Commission. (2009) Misrepresentation. [Online] Legal Services Commission.
Available from: http://www.lawhandbook.sa.gov.au/ch10s02s10.php [Accessed on: 18/09/17]
Legislation NSW. (2015) Civil Liability Act 2002 No 22. [Online] New South Wales
Government. Available from: http://www.legislation.nsw.gov.au/#/view/act/2002/22 [Accessed
on: 18/09/17]
Lunney, M., and Oliphant, K. (2008) Tort Law: Text and Materials. 3rd ed. New York: Oxford
University Press.
Lunney, M., and Oliphant, K. (2013) Tort Law: Text and Materials. 5th ed. Oxford: Oxford
University Press.

ESSAY 10
Navin, M. (2016) Values and Vaccine Refusal: Hard Questions in Ethics, Epistemology, and
Health Care. Oxon: Routledge.
Poole, J. (2014) Textbook on Contract Law. 13th ed. Oxford: Oxford University Press.
Statsky, W.P. (2011) Essentials of Torts. 3rd ed. New York: Cengage Learning.
Trindade, F., Cane, P., and Lunney, M. (2007) The law of torts in Australia. 4th ed. South
Melbourne: Oxford University Press.
Turner, C. (2013) Unlocking Torts. 3rd ed. Oxon: Routledge.