Non-Contractual

Risks and Obligations

Business Law
BTF11010
Semester 1, 2016

Seminar 3, week 3
Dr. Kerstin Steiner

Structure of the Seminar

General Matters
Seminar Content: Statements & Behaviour:

Negligent Misrepresentation and Misleading and Deceptive Conduct

A.

Overview of liabilities for statements

B.

Australian Consumer Law (hereafter called ACL)

C.

Tort

Summary

General Matters

Material
Moodle: location for everything!

How to Study: Study Approach section with details on online tasks

What to study: Unit Content section with details of weekly activities

Written material

Unit Guide: short overview

Student Activity Guide:

How to study: detailed instructions and explanations including the

online activities

What to study: overview of topics, objectives, readings, cases &

legislation, exercises for the seminar and tutorials

Tips for succeeding

The perfect expandable study organisation
Pre-class activities

Read the textbook

Do the studyplan exercise in MyBusLawLab
Prepare the in-class activities

In-class activities

Attend and participate

Post-class activities

Organise your notes, ask question in consultation times

Check understanding with the homework in MyBusLawLab
Have fun?
.

Assessment post-class activities

Weekly online test in MyBusLawLab
Prepare answers to questions and check in consultation times

Practice: Weekly Online Quiz

160
140
120
100
80
60
40
20
0
1

Total number of attempts: 473

10

Statements & Behaviour:

Negligent Misrepresentation and
Misleading and Deceptive Conduct

Topic Objectives

Ch
ec

klis

On completion of this topic, you should be able to:

Describe the law of torts, its general principles and the statutes of limitations for tort actions;

List and explain the necessary elements required to establish negligent misstatement and
apply them to a practical situation;

Identify the defences a defendant can raise in an action for negligence, and their potential
impact on damages paid;

Explain negligence and the introduction of civil liability legislation by federal, state and
territory governments;

Explain the elements of misleading and deceptive conduct and apply them to a practical
situation; and

Explain the distinction between common law and statute law, using the liability for
statements as an example.

Scenario: The knowledgeable Archie

Archi Pty Ltd is a company which provides architectural services and advice.
By letter Archi advised X, one of its builder clients, about the types of building materials that
must be used in the construction of residential buildings to comply with the fire prevention
regulations. X passed this letter of advice on to another builder, Budget Builders Pty Ltd
(Budget). Budget built several houses based on this advice. The local building authority
refused to approve the constructions stating that the wrong materials had been used. The
building authority advised that the incorrect material must be replaced. This will cost Budget
approximately $100,000.
When Budget investigates the situation it is told that Archi Pty Ltd based its advice on the
old regulations. Apparently Archi had not kept up to date with the new regulations.

Advise Budget if it has an action against Archi Pty Ltd under

(a) common law, or

(b) statute.

Legal Risks for Advice Giver

S 18 ACL,
Statute

Incorrect Advice

S 12 DA (1) ASIC
and
Corporations Act
2001 (Cth)

Seminar 3,
Chapter 3 PT

Seminar 10

Deceit/ Fraud

Not covered in
the subject

Negligent
Misrepresentatio
n

Seminar 3,
Chapter 3 PT

Breach of a term

Seminars 6, 8
Chapters 6, 7,9
and 9 PT

Common Law

Contract

Australian Consumer Law

Misleading or Deceptive Conduct

ACL s 18 provides:

A person shall not, in trade or commerce, engage in conduct that is misleading

or deceptive or is likely to mislead or deceive.

Section 18 ACL focuses on the NATURE OF THE REPRESENTATION, NOT

THE CONDCUT OF THE REPRESENTOR.

Therefore it is not necessary to prove fraud or negligence

Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982)
ATPR 40-307

Yorke v Ross Lucas Pty Ltd (1983) ATPR 40 -401 (Federal Court)

Legal Risk under s 18 ACL

1. Step
Applicability
A person
In trade or
commerce

Disclaimer as usual

2. Step
Breach
Misleading or deceptive
or likely to do so
Conduct
Half truths
Opinions, usually not
covered except for
Lies
Expert opinion as
statement of fact
If totally
unsupported by the
facts.

3. Step
Damages
Causation

4. Step
Defences
Exclusion
clauses and
disclaimers
Not very
effective, see
Bateman v
Slatyer
(1987) ATPR
40-762
(Federal
Court)

1. Step: Applicability

A trader whose conduct, objectively determined, is misleading will

contravene s 18, whether or not he or she has acted honestly and/or
reasonably: Equity Access.

It is necessary to prove a causal connection between the claimed loss

or damage and the conduct complained of.

But it is not necessary that the claimant be misled.

It may be, for example, that a trader has suffered loss of business
because his or her customers have been misled by a competitors
misleading advertising.

2. Step: Key Term

Conduct

The use of another traders distinctive words or products, features and slogans;

Similar business names (Taco Bell of Australia Inc v Taco Bell Pty Ltd.);

Comparative advertising when comparisons between products are claimed not to be accurate
(Eveready Australia Pty Ltd v Gillette Australia Pty Ltd [2000] ATPR 41-751);

Defamatory comments;

Misleading conduct in employment;

Character merchandising;

Silence, where there is an obligation to disclose (Henjo Investments Pty Ltd & Ors v Collins
Marrickville Pty Ltd (1988) 79 ALR 8).

The plaintiff is assisted by s 4 ACL which provides that a representation as to a future matter
shall be taken to be misleading if the author did not have reasonable grounds for making the
representation.

2. Step: Key Term

Misleading or Deceptive

Conduct that may result in confusion in the mind of consumers is not

sufficient to establish a breach of s 18 ACL: see McDonald's System of
Australia Pty Ltd v McWilliams Wines Pty Ltd (1980) 33 ALR 394 case.

Whether conduct is misleading or is likely to mislead or deceive is an

objective question to be determined by the court.

Evidence as to persons in the target class having been misled will be

persuasive but not determinative.

Need a real or remote chance or possibility of possible victims being

misled.

NB: Intention is not an element of the contravention.

Activity: Working with Cases

Taco Company of Australia v Taco Bell Pty Ltd (1982) ATPR 40-303

In 1981, Taco Bell of Australia Pty Ltd, a subsidiary of a United States

chain of Mexican restaurants, opened a Mexican food restaurant called
'Taco Bell' at Bondi in Sydney. Both companies complained of the use of
the name of the other.
Has there been any infringement of the ACL and, if so, which section/s
and by whom?
Ple

a
the se no
dec case te tha
w
not ided, as or t when
t
wa in forc he AC iginall
s
y
TP its pr e, ins L was
A
t
con that edece ead it
w
sso
sid
ere as
r, th
d.
e

Solution
Taco Company of Australia v Taco Bell
Pty Ltd
Issue: Breach of s 18 ACL by Taco Bell of Australia Pty Ltd?
1. Applicability

person

in trade or commerce

This
a
h o w n s w er i s l
to so
lve th eft in on p
ese p
u
roble rpose to
show
ms!
yo

2. Breach

conduct that is misleading?

The court set down four guidelines in relation to whether the conduct complained of is likely to mislead or
deceive.
1.

It is necessary to identify the relevant section of the public who might be likely to be misled.

2.

2. Once the relevant section of the public has been identified, the matter is to be considered by reference to
all those who come within it.

3.

Evidence that some have been misled or deceived is admissible and may be persuasive, but it does not
itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive.

4.

It is necessary to inquire why proven misconception has arisen because it is only by this investigation that
the evidence of those who are shown to have been misled can be evaluated and it can be determined
whether they are confused because of misleading or deceptive conduct on the part of the defendant.

Solution continued
Courts decision

'Taco Bell' had become associated with the Bondi restaurant some considerable time before the
United States Taco Company commenced operations in Sydney under the same name.

3. Damages

Causation

The cause of any actual or likely misconception was the use of the name by the United States
company which had come after the Bondi restaurant had established its reputation throughout
Sydney and accordingly should be restrained

As long as the Cronulla 'Taco Bell' can establish that it has acquired a reputation throughout
Sydney for Mexican food in that name, any later competitor who wished to use the same name
is likely to cause actual or likely misconception and could be met with an action under s. 52.

Important Points

Mere confusion does not amount to conduct that is misleading or deceptive: McWilliams
Wines Pty Ltd v McDonalds System of Australia

Even if a product has a close resemblance to the product of another manufacturer to the
point where the consumer would be likely to be misled, if the product is properly
labelled with the name of its own manufacture, there generally will not be a breach:
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd

The operation of s 18 is not limited to transactions involving consumers.

Much of the litigation involves traders attacking each others advertising or other
representations, i.e. Eveready Australia Pty Ltd v Gillette Australia Pty Ltd (2000)

Unfair trading will not be caught as such: it must involve some element of misleading
conduct.

This will only occur if the conduct contains or conveys a misrepresentation: see Taco
Bell of Australia Inc v Taco Bell Pty Ltd.

Tort of Negligence

Donoghue v Stevenson
and Negligent Misrepresentation.

House of Lords (HoL) decided a person could be liable for

negligence even though no contract

HoL set out the elements of negligence action:

Duty of care

Standard of care

Causation & Remoteness tests

But Donoghue v Stevenson concerned with negligently

manufactured goods, not words

Issue: Could a person owe a duty of care when giving advice or

information?

Definition:
Negligent Misrepresentation
A statement of fact, advice or opinion made in business that is relied upon by
another but which is inaccurate or misleading.

Historical Detour

Development of the Common Law

Candler v Crane, Christmas & Co [1951] 2 KB 164

Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465

MLC Assurance Co Ltd v Evatt (1968) 122 CLR 556

Early Decisions
Candler v Crane Christmas & CO [1951] English Court of Appeal

Facts

CC & Co was a firm of accountants

CC prepared accounts for TH Mines Ltd

CC knew accounts were to induce Candler to invest in TH

Candler invested but lost when TH went broke.

CC had been extremely careless - but NOT dishonest

Candler sued CC for damages for negligence
Decision

Asquith & Cohen LJJ - [ the majority ] - held that:

Donoghue v Stevenson did not apply to negligent advice

Damages only in fraud case, following Derry v Peek as there was no evidence of
dishonesty, no liability for deceit

Denning LJ - [dissenting] - held that:

Donoghue v Stevenson applied

Candler was entitled to damages

Case:
Hedley Byrne & Co v Heller & Partners [1964] AC 465
Facts

Hedley Byrne was an advertising agency.

Heller was a bank.
Easipower (E) was a customer of the bank.
Before taking work from E, HB asked Bank for reference.
Reference was good and marked:
Confidential. For private use & without responsibility on part of bank
Easipower went broke owing HB money

HB sued Bank for damages for giving negligent advice

DECISION:
Hedley Byrne & Co v Heller & Partners
House of Lords held:

Person could be liable for giving negligent advice or information if

they owed a duty of care to the plaintiff not to be negligent.

However, on the facts, Bank not liable because of disclaimer

Side Issue: We will look at disclaimers later on when we are talking

about contract!

Disclaimers

Li n k

to C

ontr
a

ct L

aw

Confidential: For your private use and without responsibility on the

part of Xor its officials

It is clear from the cases that in appropriate circumstances a

representor may remove a duty of care by using a suitable
disclaimer: Hedley Byrne.

Disclaimers will not work in all situations, but where appropriately

worded it will be difficult to show that the plaintiffs reliance was
reasonable.

Case:
MLC Assurance Co v Evatt (1968) 122 CLR 556
Facts

MLC Assurance Ltd and Palmer Ltd were both subsidiaries of MLC Ltd

Evatt held policy with MLC Assurance.

E sought advice from MLC Assurance regarding financial stability of

Palmer

MLC Assurance said Palmer stable & safe investment

E invested in Palmer

Palmer insolvent & E lost investment + interest

E sued MLC Assurance for damages for giving negligent advice.

DECISION:
MLC Assurance Co v Evatt
The High Court - (1968) 122 CLR 556 held that the defendant was
liable for their negligent misstatement.

Duty extended not only to professional advisors but also to persons who
give advice in serious circumstances as per Barwick CJ

The High Courts decision was overturned when the case was
appealed to the Privy Council.

Case:
Shaddock & Assocs. v Parramata City Council (1981) HIGH
COURT OF AUSTRALIA

Shaddock = land developer

S asked PCC if any road-widening

proposals for land

PCC said no & S bought land

Later PCC compulsorily acquired 1/3

of land for road-widening.

S sued for damages for

negligent misrepresentation

Decision: Shaddock

1.

Hedley Byrne is clearly adopted as law in Australia.

2.

When is duty of care owed?

Whenever a person gives advice or info.;

to another on a serious matter;

he/she realises or ought to realise that the other person will act on it;

it is reasonable for the other person to so act on it; and

he/she owes a duty to exercise reasonable care when giving the advice or
information.

End of Historical Detour

Roadmap: Overview
Liability under Common Law
1. Step
Duty of Care
Advice given in
serious manner
Advice giver should
realise trust and that
advice will be acted
upon
Reasonable that the
other person will act
upon it
Possible limitations
as per s48(1) Wrongs
Act
Risk forseeable
Risk not
insignificant
Reasonable person
would have taken
precautions

2. Step
Breach Standard of Care
Probability
Practicability
Gravity
Justifiability
Possible limitations as per
s 48(2) Wrongs Act
Duty to warn of risk, s
50
Reasonable person
would have taken
precautions, s 48 (2)
Standard of care for
professionals
Other principles
(alternative behaviour,
change of behaviour), s
49

3. Step
Damages
Causation
remoteness

4. Defences
Contributory
negligence
Voluntary risk
assumption

Disclaimer: This is one of my so called ROADMAPS no they are not giving you an answer to a legal problem
They provide you with a structure on how to answer a legal question
IMPORTANT: They are also sometimes incomplete, now, for instance, they are missing case studies. This means YOU have to complete it

1. Step: Duty of Care

When is it owed?

Duty on the defendant to avoid making careless statements which cause harm.
Hedley Byrne v Heller (1964) established that the law will imply a duty of care
in the making of statements.

A duty of care extends not only to professional advisers but also to persons who
provide information: MLC v Evatt (1968)

This duty of care also extends to advice that is given in serious circumstances:
Shaddock v Parramatta City Council (1981)

A duty of care also arises and exists where there is a special relationship
between the parties: San Sebastian v Minister Responsible for Administering
Planning and Assessment Act (1986)

1. Step: Duty of Care

Special Relationship
1.

Speaker must be aware that he/ she is being trusted by the

representee to give information/advice which the representee
believes the speaker to possess or to have access to;

2.

The subject matter of the information/ advice must be of a serious

or business nature.

3.

The speaker must realise that the representee intended to act on the
advice.

4.

In the circumstances, it must be reasonable for the representee to

rely on the speakers information/advice.

1. Step: Duty of Care

In Practice: 3rd Party Auditors

Accounting firm (ABC) acted as auditors for X Company.

After auditing X in 2006, ABC certified Xs accounts as a true and fair view of
Xs financial position.
S (a shareholder in X) relied upon accounts to take-over X.
Accounts overstated value of Xs inventories & therefore the value of X.
ABC made no checks on inventories relied on one of Xs managers.
S has lost a lot of money as a result of the take-over.
Can S sue ABC (the auditors) for damages for negligence?

1. Step: Duty of Care

Types of Relationship
Simple (direct) relationship

Auditor

Representee

Company
Company

Shareholde
Shareholde
rr

Creditors
Creditors

Audito
r

Adviso
r

Potential
Potential
investors
investors

Banker
Banker

1. Step: Duty of Care

Case: Esanda Finance Corporation (1997) 188 CLR 241

PMH was the auditor for a company called Excel.

As auditors, PMH certified the accounts of Excel for the year ending
June 1989.

Esanda made loans to a number of companies associated with Excel.

As security for the repayment of those loans, Esanda accepted

guarantees from Excel.

Esanda claimed that its decision make loans was in part due to its
reliance on the audited accounts of Excel.

Decision: Esanda Finance Corporation

No suggestion that the audit had been done especially for Esanda.

Esanda sued PMH.

PMH claimed that it owed no duty of care to Esanda.

Held: PMH owed no duty of care to Esanda.

Ultimately, this seemed to be due to the reasonableness of the

plaintiffs reliance.

1. Step: Duty of Care

Auditors/Accountants/ Financial Advisors/ Anyone giving Professional
Advice
Auditors etc only owe a duty of care if:

Auditor etc prepared report for purpose of inducing plaintiff (or a

determinate class of persons which included the plaintiff) to act in a
certain way, &

Auditor etc knew or ought to have known that plaintiff would rely
on the report without seeking further advice

Esanda Finance Corp v Peat Marwick Hungerfords

Duty often only owed to company, not investors

2. Step: Breach of Standard of Care

The level of care of a reasonable person in the position of the defendant in

the circumstances

Factors Wyong SC v Shirt now codified in Wrongs Act

Probability
Gravity
Practicability
Justifiability

Professional advisers - the level of skill & care is that appropriate to a

person with that professional status/qualifications/expertise

s.59 Wrongs Act 1958 (S&OR p 120)

2. Step: Breach of Standard of Care

S48(2) Wrongs Act

S 48(2) To determine if reasonable person would have taken precautions, Court

considers (among other things):
(a) probability that harm would occur
(b) likely seriousness of harm
(c) burden of taking precautions
(d) social utility of activity

3. Step: Damages

The plaintiff must show some link between the damage suffered and the
defendants conduct. Two factors for consideration are:

that the loss or damage was directly caused by the defendants breach causation;
and

that the loss was not too remote from the breach - remoteness

Would a reasonable person with the knowledge and experience to be expected of

a advisor etc of the advice have foreseen the kind of damage that occurred?

4. Step: Defences

Defences

Contributory
Negligence

Proportionate
reduction of
damages

Disclaimer as usual

Can be up to
100%

Voluntary Risk
Assumption

No defence

Total defence,
the plaintiff
will recover
nothing

Full amount
recovered

Summary

Overview
Applicabilit
y

Breach

Damages

Defences

Duty of
Care

Breach of
Standard of
Care

Damages

Defences

Products:
Part 3-5
ACL
Statements
:
S 18 ACL

Products:
Tort of
negligence
Statements
: Tort of
Negligence

Dont forget
This weeks topic
Tutorials, attendance and preparation
Homework, online activity testing your knowledge and preparing for
-> Weekly Online Test, starting and visible from Saturday onwards and counting towards
your grade!

Next weeks topics

Reading the material

Online Studyplan exercises

Preparation for seminars and tutorials