The Issues Pertaining to Business Law - Case Study Example

Business Law The issues pertaining to this question are the law of negligence, in particular the law on negligent mis ments which can be alleged to have been made by the acts of Bumble & Co. that is the preparation of the financial statement of Horizon. Thus the law on such negligent misstatements will be discussed and in line with the law analysis of the claim of Peter and Alison in respect of such misstatements would be made. Finally, Peter’s claim against the Local Council in respect of their potential negligence to maintain roads will be made, after analyzing the law pertaining to such authorities. Negligence has been defined as conduct that falls below the standard established by law which tends to protect other against any unreasonable risk of harm being caused. The main elements that require proving for a claim of negligence are firstly the establishment of a duty of care, second a breach of that duty, thirdly causation in respect of the breach, proximity and damages caused as a result of the breach. Each of these would be discussed and then an analysis of the elements in respect of the issue would be made. The most important authority which led to the establishment of the principle of negligence is the case of Donoghue v. Stevenson1 under which the final consumer, that is, Donoghue, while consuming a ginger beer found a decomposed snail in the bottle and went on to claim negligence against the manufacturer. In the case the most important discussion was whether the manufacturer owed a duty of care to the final consumer, this question was important as in the current situation the ginger bottle went through different people before reaching the final consumer. Thus the question was of the manufacturer’s duty and the subsequent negligence committed by him when the final consumer consumed the ginger beer, even though the beer had been purchased from a retailer. The main arguments by the manufacturer were that he should not be held liable because the final consumer did not purchase the beer from him. It was found that even though the beer was not brought from the manufacturer, he owed a duty of care to the final consumer and had been negligent.Lord Atkin’s speech in this respect, whereby he laid down the neighbor principle is considered to be vital. The neighbor principle was said to be the fact that a person must take all reasonable care so as to avoid acts or omissions which if seen with reasonable foreseeability are likely to cause an injury to that person’s neighbour. Lord Atkin defined a neighbour to be a person who was so closely and directly affected by the actions that he should have been in contemplation of by the person when doing the act or omission. Thus the case can be attributed to be a guideline for the establishment of the law of negligence. (Wild et al 2010) The case and the test was subsequently changed in Anns v Merton2, a decision of the House of Lords. Even though the neighbor principle was accepted to be important, Lord Wilberforce provided for a two stage test which needed to be fulfilled so as to establish a duty of care. The first tier of the test the ascertainment that there must be a‘sufficient relationship of proximity based upon foreseeability’ and second on considerations of the reasons provided for, why there should not be a duty of care. (Horsey et al 2009) This test was subsequently changed by a recent decision of the House of Lords However, this decision was subsequently changed by the House of Lords in Caparo v. Dickman. (Harpwood 2009) Thus the change made by the House of Lords is the current position in respect of the duty of care and that test must be fulfilled in order to establish a duty of care. In Caparo v. Dickman3 the test laid down in Anns was changed from two to three stage test. The first aspect of the test is that whether from the acts or omission or the entire conduct of the defendant it was reasonably foreseeable that damage would be caused to the claimant. The second element that requires proving is there must be proximity of relationship that is found out between the parties and to the actions of the parties. Finally the situation and the scenario must be such that the court considers it be just, fair and reasonable by law to impose a duty of care, given the scope on the one party for the benefit of the other. This is the current situation in respect of the establishment of a duty of care and is used as the basis to establish a duty of care in respect of a party. (Elliot et al 2005) The main issue in Caparo was a claim of negligence by potential investors against the auditors who had undertaken statutory audits of the public company. The facts were that the public company in order to fulfill its statutory requirement of audit, had engaged auditors who prepared the audit accounts and due to the accounts many people were caused losses and subsequently made a claim of negligence. The courts when analyzing the duty and obligations of the public company stated that the company was under a duty by way of contract, to its shareholder collectively, however it was provided that any potential investors/purchaser of the shares of that company, who by placing reliance on any document including the audit accounts was not owe a duty and this was extended to existing shareholders who wished to invest in the company. Furthermore no liability would arise as to the creditors of the company. It is pertinent to mention that the courts did take into account the fact that people tend to place reliance on the accounts of the company and such reliance can be seen from the auditors’ manuals and other material. However, the courts while disallowing the claim took into account the floodgates argument/public policy (multiplicity of claims). The courts have not only restricted their approach to such reasons, they have taken into account the commercial factors which include the practices of business, the additional burden of compliance that would be placed on the auditors in respect of the potential investors and have gone to disallow such claims on the basis. The courts have therefore relied on the reasoning that auditors only owe a duty to the company and not any potential investors and so reliance on audit reports, accounts should not be made as a subsequent claim would lack proximity of relationship between an investor and the auditor.(Deakin et al 2008) The claim of Alice would therefore be that Bumble owed a duty of care to her, as she was a potential investor and so that duty has been breached. However, as seen by the decision of Caparo she cannot succeed in her claim against Bumble on the basis that there is no duty owed to potential investors. In respect of Peter’s claim he would argue that he was a shareholder and thus a duty was owed to him. There are two aspects to this issue. The first one being that even though Peter was an existing shareholder his claim for the additional investment would fail as he being a potential investor would not be owed a duty by Bumble. Thus this claim would fail on the grounds of public policy that has been cited above. The second aspect as discussed in Caparo was that a duty of care is owed to the shareholders collectively and so Peter can claim that due to the negligent preparation of the financial statements he has suffered a loss. This duty is owed by the auditors and so a breach in that respect has been committed as can be seen from the facts. There is proximity of relationship, but only to the extent of shareholders collectively and damages have been suffered. There can be no plausible defence that can be relied upon by Bumble and thus they would be held negligent in respect of their actions to Peter, in his capacity as a shareholder of Horizon. The next aspect of the question requires an analysis of the law on negligence in respect of an action brought against a public authority. The important illustrations that are taken into account are a duty of care absent statute is attracted and that such duty has not been excluded by any statute. The first point that needs to be made is that the courts have been reluctant to allow a claim of negligence against public authorities and have preferred administrative review over negligence. However, it is important to mention that there have been differing approaches in this respect. In X v Bedfordshire County Council4 it was found that if the Parliament had authorized a local authority to do certain acts and the authority had done so, then the local authority would not be held liable for such actions, however, this was subject to the exception that if such actions were found to be unreasonable and did not fall under the discretion provided, then liability could be excluded and so the authority might be held accountable for its actions. In Barrett v Enfield London Borough5 the courts said that when an analysis of the discretionary powers of the authority were to be made, the concept of negligence would be ordinarily applied and then the Wednesbury test of reasonableness would be applied so as to evaluate as to whether the decision fell outside the realm of the authority that had been granted to such body. (Weir 2006) The most important case that can be cited in respect of the facts at hand is Stovin v Wise6 where it was alleged that Council had been negligent because of its actions. Even though the claim in Stovin failed because the courts found the appropriate action to be by way of an administrative review, the courts in the case stated that the could be the possibility of a common law claim of negligence against the Council in respect of the statutory power that had been conferred upon it. The duty of care would be found if two conditions were fulfilled. The first being that inaction on part of the Council in respect of the discretionary power that had been conferred upon it was improper and it was irrational in the circumstances and secondly that there were exceptional grounds which existed under statute and the policy required for compensation and loss to be paid to the person who suffered so. (Elliot et al 2005) In the instance of Peter’s claim against the local council the two conditions that have been listed above need to be fulfilled, that is the Council had incorrectly used the discretion that had been conferred upon it and that due to the inaction on the part of the Council Peter suffered the loss. This aspect from the facts can be proved on the basis that there had been a power that had been conferred upon it to maintain the roads and the Council had failed to abide by its obligation and had used its power to curb finances and thus failed to maintain the road. As far as the second condition is concerned, Peter needs to prove that there were exceptional circumstances, and in order to prove this he would rely on the accident and the circumstances and other factors. However, it needs to be mentioned that this condition would depend on what interpretation the courts put to such a requirement and whether they considered Peter’s injury to be an exceptional circumstance. If these conditions are satisfied then Peter can claim negligence against the Local Council. If the argument of exceptional circumstances fails, then a claim cannot be made against the Local Council and the court may point out to the fact that administrative review is the best course of action. As pointed out before the courts have adopted a restrictive approach when finding a public authority to be negligent. References DEAKIN, S., JOHNSTON, A. C., & MARKESINIS, B. S. (2008). Markesinis and Deakins tort law. Oxford, Oxford university press. ELLIOT, C., & QUINN, F. (2005). Tort law. Harlow [etc.], Pearson Longman HARPWOOD, V. (2009). Modern tort law. London, Routledge-Cavendish. HORSEY, K., & RACKLEY, E. (2009). Tort law. Oxford, Oxford University Press TURNER, C. (2010). Tort law. London, Hodder Education WILD, C., WEINSTEIN, S., SMITH, K., & KEENAN, D. J. (2010). Smith and Keenans English law: text and cases. Harlow, England, Longman WEIR, T. (2006). An introduction to tort law. Clarendon law series. Oxford, Oxford University Press. Read More