Legal Analysis: Negligent Misstatement In Property Investment Advice

Charles is the sole owner of a business called “Homeguru Property Investments”, a property valuation and property investment advice firm. After the global financial crisis, many people are too nervous to invest in the share market (which is seen as too risky and volatile) and are turning to the property investment market instead. Business is booming for Charles and he is very busy.

In September 2018, Charles attends his 20 year high school reunion. During the party, he runs into Andrew, his former best friend from high school who he hasn’t seen in 15 years. On hearing about Charles’s business,  Andrew tells him that he has heard about a veryexciting property investment opportunity on the Gold Coast and says that he would like to get Charles’s opinion about the investment. Charles suggests that they catch up the following day over lunch, and they can talk about it then after he has had a chance to look into the investment in a bit more detail.

The next day, before meeting Andrew for lunch, Charles looks into the potential investment. He conducts the standard property searches, however as he is running late for lunch, he forgets to complete a flood search for the property. Charles meets Andrew for lunch and after an hour of sharing fond memories of high school, Charles shows Andrew the results of the property searches. Charles tells Andrew that the investment looks good and there are no potential issues with the property. Andrew is very excited about Charles’s positive report and decides to invest his life savings of $800,000 in the property.

If Charles had remembered to do a flood search for the property, he would have discovered that the property is in an area classified as being at “Very High Risk of Flooding”. The search would also have stated that the Gold Coast City Council advises against anyone constructing buildings in that area as they could be damaged by flood waters. It is standard practice in the industry to conduct a flood search when considering whether to invest in property.

Unfortunately in November 2018, there is a long period of heavy rain at the Gold Coast and the property floods, significantly damaging some of the buildings erected on the property. It is estimated that Andrew’s investment is now worth only half of its original value. He blames Charles for his financial losses, stating that he would not have invested in the property if he had been adequately warned of the potential for flooding. Charles claims that Andrew could have obtained the flood information directly from Council, or he could have consulted with a lawyer.

Andrew would like to know if he is entitled to claim damages from Charles for the reduction in the value of his investment on the basis of negligent misstatement. Using the ILAC method, advise Andrew by making reference to any relevant provisions of the Civil Liability Act 2003 (Qld) as well as the relevant common law.

1. What was the main argument raised by Ms Masson’s estate? What did the State of Queensland claim?

2. Why was the case determined by reference to the common law and not to the provisions of the Civil Liability Act 2003 (Qld)? Was Ms Masson’s estate successful with its claim?

3. In which court was the case heard? What was the name of the judge who heard the case?

4. Was the plaintiff able to establish a breach of the duty of care? Why, or why not?

5. Was the plaintiff able to establish causation of harm? Why, or why not?

Charles former friend Andrew sought his opinion about the investment opportunity on the Gold Coast. Charles Conducts the standard property searches but forgets to complete a flood search for the property. Charles tells Andrew that the investment looks good and there are no potential issues with the property. Based on the Charles’s positive report Andrew decides to invest his life savings of $800,000 in the property. Unfortunately in November 2018, property floods due to the heavy rain as a result of which the value of Andrew’s investment reduced to half of its original value. He blames Charles for the damage and the financial loss suffered by him. However, Charles defends that Andrew could have obtained the flood information directly from Council, or he could have consulted with a lawyer. Correspondingly, the key issues that arise from the given scenario is whether there existed duty of care on the part of Charles towards Andrew and if so whether there was breach of duty by Charles and finally whether he is liable for the financial loss suffered by Andrew.

“A tort is a breach of a duty of care, potentially owed to the whole world, imposed by law and is a “civil wrong” (slide). Law of torts is governed under the Civil Liability Act 2003 (Qld) and the common law. Among many types of torts, negligent misstatement is one of them. Negligence/ Negligent misstatement under the Law of Torts can be applied in given scenario. The most celebrated case that lay the foundation of modern tort law is Donoghue v Stevenson [1932]. In this case the Justice Atkins held that “a Defendant will owe a Plaintiff a duty of care if it is reasonably foreseeable that their actions could harm the Plaintiff” (slide). In order to succeed in the claim under negligent misstatement against an individual, the plaintiff must be able to establish before the court three essential conditions:

1. There existed the duty to care
2. There was breach of duty
3. The loss or damage is caused to someone due to this breach of duty and the cause is not so remote.

 It is observed from the Wagon Mound” Case [1961] that the foreseeability of the loss is very important for the claim. Thus, it must be established that the Negligence on the part of the defendant has caused damage or loss to the plaintiff.

In this hypothetical scenario, Charles is a sole owner of a property valuation and property investment advice firm. This makes him to act as a responsible adviser and demonstrate sufficient duty of care those seeking advice from him. The case scenario clearly depicts that it was Andrew has invested in the property based on the favourable opinion provided by Charles. Correspondingly, under the negligent misstatement rule of Law of Torts, flood search is supposed to have conducted flood search for the property and had the duty to tell Andrew that the property is in an area classified as being at “Very High Risk of Flooding. However, he failed to conduct flood search and thus nothing was told to Andrew about the flood risk which indicates that there was a breach of duty on the part of Charles. Due to this act of Charles, Andrew suffered huge financial loss resulting in decline in the value of property to half of the original value. Thus under the negligent misstatement rule of Law of Torts, loss to Andrew was directly related to the failure of duty to care by Charles.

Conclusion

From the above points, it is clear that Andrew is entitled to claim damages from Charles for the reduction in the value of his investment on the basis of negligent misstatement.

1. The main argument raised by Ms Masson’s estate was that the ambulance officers should have been administered adrenaline instead of salbutamol at the scene and thus contended that there was a breach of duty on the part of ambulance officers.

The State of Queensland claimed the administration of salbutamol was a reasonable response by the ambulance officers given Ms Masson's condition of tachycardia and hypertension.

2. The case was determined by reference to the common law and not to the provisions of the Civil Liability Act 2003 (Qld) because the case occurred before the commencement of the Civil Liability Act 2003 (Qld).

No, Ms Masson’s estate was not successful with its claim.

3. The case heard in Supreme Court. The name of the judge who heard the case was Justice Henry.4. No, the plaintiff was not able to establish a breach of the duty of care because the standard of care observed by the ambulance officers was in accordance to the guidelines of the Queensland Ambulance Services on asthma.5. No, the plaintiff was not able to establish causation of harm because it was held by the Justice Henry that even if he was not able to establish breach of duty on the part of the ambulance officers, it 'cannot be determined on any informed basis’ the administration of adrenaline would have mitigated the injuries suffered by Ms Masson.