BUS107 T1 Case Study Answer

Background

Negligent misstatement is the careless representation of a fact that is relied upon by the other party to their disadvantage. Usually, there exists a special relationship between the advisor and the other party where the advisor is aware that the other party is relying on them for their skills, expertise, and knowledge. When a person voluntarily takes upon themselves the responsibility to act on behalf of, or to advise another within a professional capacity, it is assumed that they owe a duty of care to that person to act or advise with care (O’Riordon, 2007). In the present scenario, since Anika was a client of Hari, there Hari owed a duty of care toward Anika in carrying out his part of the obligations between the two parties keeping into consideration his duty of care to advise her in a reliable manner. The House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1964) held that a person can be held liable for negligent statements that they know can be relied upon by the other party.

Issues

The following are the issues in the present case:

1. Whether Anika can successfully sue Hari for negligent misstatements made by him, if yes then what are the grounds that she must prove in furtherance of the same?
2. Whether Hari has any possible defenses that he can rely on?

Rule

Negligent misstatement is a type of tort that takes place when a person makes a false statement that they reasonably believe is likely to be relied upon by another person, as a result of which, that person incurs loss or damage. Anika, in order to succeed in her claim for negligent misstatement against Hari, must prove the following:

1. Duty of Care: Anika must successfully be able to prove that Hari owed a duty of care toward Anika by providing her with accurate and reliable information about the investment opportunity. Such duty of care is an outcome of the special relationship between the two parties, namely, Hari and Anika, where Hari is a business manager who provides investment advice to Anika, one of his clients ( Caparo Industries plc v. Dickman , 1990).
2. Breach of Duty of Care: In this case, Hari has breached the duty of care that he owed to Anika when he failed to conduct thorough research on the start-up, as a result, his recommendations were based on limited information. 
3. Causation: Hari’s negligent misstatement caused Anika to suffer financial loss and damage.
4. Foreseeability: the financial losses suffered by Anika due to the negligent misstatement of Hari in the present case were reasonably foreseeable ( Donoghue v. Stevenson , 1932).

In order to succeed in her claim for negligent misstatement against Hari, Anika must prove these elements in court ( Hedley v. Heller, 1964). However, Hari has certain defenses that he can rely on against the claim of Anika including the defenses of good faith and contributory negligence. In order to use the defense of good faith, it is required that Hari must prove that he acted honestly and reasonably while making the statement to Anika. Further, he must prove that he believed that the statement was not false at the time of making such a statement. The defense may not be substantially available to Hari in case it is established or proved beyond doubt that he failed to exercise reasonable care when he made the statement. Moreover, he can use the defense of contributory negligence against Anika’s claim by proving that the claimant’s own negligence caused her to suffer losses since she had an opportunity to verify whether the advice given by Hari was reliable or not, but she chose not to (LeMance, 2018).

Application:

In the present case, Anika seeks to claim that Hari, being her business manager failed to administer his duty of care by providing her with reliable information and advice on the investment opportunity. Hari owed her a duty of care to provide her with accurate information and advice on investment opportunities. Hari, however, breached this duty of care by lagging behind in conducting thorough research on the start-up and thereon making a recommendation that was based on finite information. Consequently, Anika had to bear financial losses and damages when the business filed for bankruptcy. This financial loss was reasonably foreseeable and a result of negligence on the part of Hari. Thus, it can be concluded that Anika can successfully initiate a suit for negligent misstatement against Hari, provided she is able to prove all the above-stated elements in court ( Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., 1964).

As for the defense of good faith, it is likely that Hari may not be able to use it unless it is proved that he did not fail to exercise reasonable care when he made the statement. In the present case, Hari has admitted to the fact that he did not conduct thorough and adequate research on the start-up and thus, made the recommendation based on inadequate information and knowledge. It can therefore be suggested that Hari may not have exercised reasonable care while making the statement due to which, he would not be able to successfully use the defense of good faith against the claim made by Anika. However, if he proves that there was contributory negligence on Anika’s part since she could have sought further advice on the same (Davies, 2022).

Conclusion

Considering the above, it is advised to Anika that she shall be able to build a strong claim for the negligent misstatement made by Hari, provided she successfully proves that Hari owed her a duty of care that was breached by him, due to which she suffered a financial loss since she relied on Hari’s negligent misstatement, and finally, that such loss was reasonably foreseeable. Additionally, Hari may not be able to enjoy the defense of good faith if it is proved that he failed to exercise reasonable care when he made the statement. He may, however, be able to use the defense of contributory negligence if he proves that Anika failed to seek further advice on the same.

References

Caparo Industries plc v. Dickman (1990) UKHL 2

Davies, D. (2022). Misrepresentation: Do you have a claim?. Cardium Law. https://cardiumlaw.com/misrepresentation-do-you-have-a-claim/

Donoghue v. Stevenson Stevenson (1932) UKHL 100

Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1964) AC 465

LeMance, K. (2018). Negligent Misrepresentation Defenses. Legal Match. https://www.legalmatch.com/law-library/article/negligent-misrepresentation-defenses.html

O’Riordon, J. (2007). Negligent Misstatement. Dillon Eustace. https://www.dilloneustace.com/uploads/files/Negligent-Misstatement.pdf

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