Business Law Case Study

Business Law Case Study

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The University of Rummidge organises a conference entitled "Law for small Businesses" which is followed by a luncheon at the Grand Hotel. Jim, a law lecturer, is a speaker at the conference and the conference is attended by Albert who has just started a graphic design business and Percy a well-established market gardener.

At the conference Albert meets Barry, a fellow student from University days, whom he has not seen for some time. During lunch, while discussing pension investments, Barry tells Albert that if he (Albert) invests some money in Dunmore Limited (of which Barry is a director), he will obtain a good return on his investment. As a result of this advice, Albert subsequently purchases 20,000 £1 shares in Dunmore Limited. A few months later Dunmore Limited goes into liquidation and Albert loses his money.

After the conference Jim, returns to his office in the Law Faculty and finds a student from the Campus Law Centre waiting for him to request him to deal with a client's problem. Jim has agreed to support the students' efforts to provide free legal advice at the Centre and the problem concerns a claim by a Mrs Smith on her insurance policy. Jim speaks to Mrs Smith and advises her that she cannot claim but unfortunately he has failed to note an important change in the law six months earlier which affects her position. Some months later, Mrs Smith reads a story in the newspaper where someone has succeeded in identical circumstances to her own. However, it is now too late for her to make a claim on her policy.

Percy also returns to work after the conference, only to discover that while he was away a petrol tanker driven by George had veered across the road, hit a lamp post, rupturing the tank of petrol and flooded Percy's field with petrol. The crops in that field, which were just ready for harvesting at the time of the accident, are damaged and Percy is unable to sell the damaged crops . He is also unable to plant and sell a further field of crops because of the state of the land.

Advise Albert, Mrs Smith and Percy.

TO advice Albert

This case can be classified as mis-statement causing financial loss. Barry is the person who negligently gave Albert an advice. Albert acted upon those words causing his financial loss.

Lord Reid limited claims in negligence to cases where

-the advice is given in a professional capacity

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-the speaker knows that the advice will be relied upon by the listener and so he implied undertakes a responsibility to ensure that it is accurate

-the listener acts upon those words to his detriment

If the inaccurate information/advice is given negligently and these three criteria are satisfied the speaker will be liable in negligence unless he had effectively excluded that liability.

It was stressed however, in the recent case of Caparo Industries v Dickman 1990 that there must be a special relationship between the parties before the plaintiff can rely on the information.

In that case, Lord Bridge said that the adviser must know that his statement is to be communicated to the plaintiff (either as an individual or as a member of an identified class of people) and that the plaintiff would be likely rely on it.

To see if Barry is liable and have to response for compensation, it is necessary to carry on the Caparo test

Negligence statements: must satisfy the three-stage duty test (CAPARO test)

1.Proximity: Barry gave advice while discussion to his friend Albert in a situation socially not professionally, not in a professional capacity. Barry is the director of a company, he may not have any finance analysing skill, and he is not an experienced person who can give advice on investment to others. There was not proximity in this situation, no close relationship between the parties when mis-statement was given, no highly degree of trust involved

2.Reasonable foresee ability: Albert was Barry's fellow student from university days; they have not seen each other for some time. Barry reasonably either foreseen that Albert relied upon his words, or undertook a responsibility to ensure accurately that Albert will obtain good return on his investment.

3. It must be just and reasonable to impose a duty: It was not reliable enough to just follow what Barry said in the meeting without doing more searching about Dunmore Company's finance position. The courts do not wish to encourage a lack of responsibility in parties with access to independent advice, particularly when pursuing a speculative deal with high stakes.

Albert loss £20,000 but he may not get compensated. Barry does not own Albert a duty of care, because this advice is given when they met in a meeting by accident. Albert's claim could be success if Barry gave the advice to Albert in his company and knew that the information is for specific purpose which is Albert's investment in the company.


To advice Mrs Smith

Again, this is the case of negligence statement causing loss from insurance claiming. However, it satisfied all three criteria given by Lord Reid, shown in the case above. It also conducts the CAPARO test.

1.Proximity: Jim works in the Law Faculty; he agreed to give free legal advice to Mrs Smith in his office. The advice is given professionally. There was proximity here, because the advice is given for specific person - Mrs Smith, and for specific purpose - claim on her insurance policy.

2.It is reasonably foreseeable that Mrs Smith is going to rely on Jim's advice. And she acted upon those words to her detriment.

3.It was just and reasonable to impose a duty: it is necessary for Jim to update all the legal information before giving advice to any person who is clearly foreseen that will rely upon Jim's words. It is stated in the case that the law has changed six months earlier, which is a long enough period for any law firm to notice it. So did Jim; but Jim failed to do it to give advice negligently. Therefore, Mrs Smith loss her right to claim on her Insurance Policy which was accepted in another similar case.

Basically, Jim owns a duty of care to Mrs Smith when gave her free legally advice. From considering, it is possible to say Jim had breach his duty to Mrs Smith, consequently causing loss to Mrs Smith. The advice was given by Jim's negligence, in spite of that, Jim did not state that Mrs Smith should experience more legal advice from others because it was not accurate to just rely on his advice. Mrs Smith can obtain compensation from Jim's negligence statement.


To advice Percy

This is the case of economic loss from negligence act. Percy is the person who suffered damage to his property by George's negligence act. In Spartan Steel v. Martin (1973,QB 27), the Lord of Appeal characterised the loss in value of the casting in the process of being made at the time of the power cut as a physical loss which is recoverable, and the loss of profit from the 14 hours lost production as pure economic loss - which is non-recoverable. However, it had decided that the loss profit on the castings that were in the process of being made at the time of the power cut was recoverable - as "truly consequential on the physical damages ". In this case, Percy had suffered the following damage:

1.The crops in Percy's field were damage - this is classified as physical damage which is recoverable.

2.Percy could not sell the damage crops, which were just ready for harvesting at the time of accident. - This is profit loss which is count as recoverable as long as it is associated with physical harm

3. Percy could not plant and sell further field of crops because of the state of the land - this is just pure economic loss. In Spartan Steel v. Martin, Lord Denning, denying the claim for the "pure economic loss" part of damage, said: "such a hazard is regarded by most people as a thing they must put up with, without seeking compensation from anyone. Some there are who install a stand-by system. Others seek refuge by taking out an insurance policy against breakdown in the supply. But most people are content to take the risk on themselves. When the supply is cut off, they do not go running around to their solicitor. They just put up with it. They try to make up the economic loss by doing more work the next day. This is a healthy attitude which the law should encourage". If Percy had noticed that his field is easily violated by by-passing, he could have had some protection-way for the crops in his field. Or he might have signed economic insurance for his crops. So he could not get compensate for what he might earn from further fields of crops.

To conclude, Percy can claim for loss rising from the first and the second damages, but not the third one. George had driven negligently which caused harm to Percy so George is liable.
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