Law of Negligence Essay Example
Law of negligence is part of the common law and considered a tort in many countries. The law of negligence has found its usage in solving cases involving negligent acts that could have been avoided if adequate precautions had been fostered. In everyday life, there are a number of activities that go on; some can result in foreseeable and non foreseeable accidents. The main aim of the law of negligence is to prevent accidents that can be avoided by ensuring that the person negligent pays for the damages which result from his or her careless act. Everyone has a duty of care to their immediate neighbor and they need to ensure that their actions do not result in injuries or damages to other people. This discussion discusses the law of negligence and dwells on the law as it would apply for a company’s auditors which results in economic loss.
Negligence is a part of the common law, there is generally no written negligent act. The law is however notably similar in all the English speaking countries. The law of negligence has been developed by judges over the past years. There have been a number of landmarks concerning the negligent decision making process. One of the most imperative decisions was the case of Donoghue v. Stevenson, this case was decided by the British House of Lords in 1932 (Lankford & Blaze 2012, p.123). In this case, Mrs Donoghue went into a bar in Paisley in Scotland with a friend. Her friend invited her for a drink of ginger-beer. After Mrs Donoghue had consumed the contents, she noted a decomposed body of a snail floating in the bottle. She suffered shock as a result and had severe gastroenteritis. She sued the manufacturer of the ginger beer. The manufacturer defended the case unsuccessfully (Robert 2001, p.38). The ground of the manufactures defense was that there was no contract between the manufacturer of the ginger-beer and Mrs Donoghue. In this case, there was indeed a contract of sale between the seller and the manufacturer. But there was also a similar contract between Mrs Donoghue friend and the seller of the beer whilst there was no direct contract between the manufacturer and Mrs Donoghue. Despite the claim by the manufacture that there was no contract between them and Mrs Donoghue and hence owed her no duty of care and therefore not liable to Mrs Donoghue in any way. The House of Lords decided that actually the manufacturer had a duty of care to Mrs Donoghue and hence liable to pay her for the damages caused. In their conclusion, it was decided that it was not necessary for a direct contractual connection between the manufacturer and Mrs Donoghue to be there (John & Benjamin 2001, p.13). The manufacturer was therefore held responsible for the damages that were caused by their negligence.
As evident from this case, negligence occurs when there is sufficient evidence on a person’s failure to take precautions in order to avoid injury to their neighbor. The conduct of everyone is therefore based on the ordinary standards of humanity that is faced on a daily basis. Negligence is therefore an act that contradicts the norm and is likely to cause harm or loss if inadequate actions to prevent the damages are not taken (Sawyer 2003, p.23). The basis of the judgment is normally based on what an ordinary person would do in such circumstances. In order for negligence to be committed, there must be a duty of care on the person found to have breached the duty of care. In general, anyone who has been negligent in his actions or utterances and consequently caused damage is bound to be sued. Anyone can be sued or sue in a court of law on the grounds of negligence or breach of duty of care. It is therefore the responsibility of everyone to take adequate precautions against causing an injury to their neighbor. This is involves avoiding acts which one can reasonably foresee would likely cause injury to their neighbor (Magnus & Martín-Casals 2004, p.39).
Law of negligence as it would apply to a company auditor
Negligence law also goes beyond the normal daily activities to professional services performed by professionals from different fields such as doctors, auditors and directors of companies. The loss as a result of negligence is also not limited to physical harm but also economic harm that may be realized as result of negligent actions. Hedley Byrne & Co Ltd v Heller & Partners  AC 465 is a common English tort law case which resulted in economic loss because of negligent misstatement. Prior to this case, the notion that a party owes another the duty of care as a result of their utterances or statements made had not been considered and this was only limited to contract law. In this case, the House of Lords overruled this position by recognizing economic loss as a result of statements which do not necessarily emanate from the contract law. In the process, the House of Lords introduced the idea of “assumption of responsibility”. In Hedley Byrne & Co Ltd v Heller & Partners, Hedley Byrne was an advertising agent, and Heller & Partners Ltd was a company which was responsible for giving the former credit worthiness of the client mentioned in the case, Easipower Ltd which later became bankrupt and hence leading to losses on the side of Hedley Byrne. While Hedley Byrne ltd held that they had no duty of care, the court contradicted their stand by stating that there was a relationship and subsequent proximity which demanded a duty of care. According to Deering (2010, p.23) it was therefore reasonable for them to have known that and provide information which would have been relied upon before making any commitment. Hedley Byrne ltd were therefore held liable for their misinformation which led to the misinformed actions that Hedley Byrne committed to and led to financial loss of up to £ 17,000 on contracts.
Notably in the case of economic loss unlike the physical loss subject to anyone, there must be “proximity” or degree of relationship between the parties involved in a case of negligence. As an example, if company ABC engages auditors to audit their financial statements and before commencing the exercise, the directors of the company make it known to the auditors that the purpose of the process is to secure a bank loan and hence the bank will be relying on the audited statements to give the loan. If the auditors go ahead and conduct their responsibilities negligently and hence certifying that the company is in good financial health, a fact that is contrary since the company is facing bankruptcy. Based on the auditor’s information, the company goes ahead and presents their audited financial statements to the bank, which consequently uses the information to give the company the loan amount requested only for the company to go bankrupt later. Later, a member of the public sees the information and uses it to purchase shares in the company. The company is then declared bankrupt and as a result, the bank loses its money while the investor loses his investment (Fulbrook 2005, p.19). The question raised in this case is whether the company, the bank and the member of the public can sue the auditors for their negligence. The issue of proximity comes in as follows, the company will be able to sue the auditors because they had made it clear of the purpose of the auditing process, and the bank also used the report published by the auditors in granting the load to the company. In this case, the company can sue of the negligence on the ground of “proximity” as well as the bank. The member of the public who invested as a result of using misleading information printed cannot use because he is too remote in this case and there is no adequate ground of “proximity”. As noted, the law of negligence which results in economic loss is viewed to be categorical for who can sue and who cannot on the basis of negligence. This is the main difference between negligence resulting in economic loss and negligence resulting in physical harm (Andrew 2007, p.5).
In order for a court to decide a case involving economic loss, there are a number of considerations. Firstly, there should be adequate reliance which is broken into two main areas, knowledge and reliance. The defendant ought to know that the plaintiff will rely on his words and the plaintiff was acting reasonably when deciding defendant’s words. The defendant needs to be an expert in the field, there is evidence of requesting of information from the defendant and there was a direct or indirect financial gain involved in the process. In the event that the economic loss was a consequence of a negligent act or omission, the court will consider the following factors: reasonable foreseeability, indeterminacy of the liability and burden on commercial activity as well as knowledge of the defendant and vulnerability of the plaintiff (Amanda 2010, p.34). The court is normally faced with challenges in deciding negligent acts that result in purely economic losses as a result of the difficulty in proving the reliance of the plaintiff on the statements given by the defendant, the court is also reluctant to interfere with competition present in a capitalistic environment. Notably, professionals that are entrusted in giving information that may be relied upon by vulnerable persons of companies are expected to conduct their duties with care in order to avoid giving misleading information which may consequently result in economic loss. It is also the duty of companies and persons to ensure that they get professional information from experts in order to avoid economic loss as a result of negligent information (Patrick 2001, p. 15).
As discussed, the aim of the law of negligence is to reduce acts that can potentially cause damages to innocent people. People involved in activities that cause harm to other people should be made to pay for their actions. It is the responsibility of everyone to be vigilant and avoid statements and actions that could result in losses. The general law of negligence protects all people against harm and hence anyone can sue and be sued. The law of negligence in a professional line is limited to professionals in that line. In this case, the auditors responsible for auditing company’s financial statement are responsible for any economic loss that results from their negligent work. Most importantly, the element of proximity should be there in order to determine if one can sue in negligent act resulting in economic loss. Proximity means direct connection to auditors work and they were fully aware of the existing connection.
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