Negligent Misstatement In Tort Law: Liability And Duty Of Care

The Story

Discuss about the Contractual Construction Ambiguity Abandoned.

Alexia, who is a developer, owns a large tract of land between Ipswich and Toowomba. She wants to develop a township by the name Torrensvillle and therefore submits a development application to the local council. Alexia is concerned that her land should not be used for the freeway which shall pass her land and clearly mentions that in her development application. The council clerk advices that the freeway will not be resumed. Alexia takes his words seriously and believes him. Later, she gets her development application approved from the council but the verbal statement of the clerk finds no mention in the signed agreement. The written statement has no mention of the resumption.  After the work progresses and building commences, the inspector comes to the site and says that there will be a resumption of the 24 blocks of land bordering on the road. By the resumption, Alexia is afraid she will incur huge loss and as a result contemplates suing the council.

The parties are governed by tort law. The parties are governed by tort law, more specifically negligent misstatement arising out of the misinformed advice of the clerk. As has been held in the Shaddock v Parramatta case, there lies a case of negligent misstatement, which is a special kind of tort (Roberts 2017). Byrne & Co. Ltd. V Heller & Partners Ltd and Mutual Life and Citizens’ Assurance Co. Ltd. V Evatt, it was decided that there lies a case of liability in case of any financial loss that occurs due to any misstatement.

Tort is a civil wrong committed by one party on the other resulting as a result of an omission or failure to perform a promise (Kysar 2017). Tort is a wrongful act giving rise to a remedy to claim damages. Misstatement is a false statement which has been made without taking proper consideration of facts. A misstatement is a negligent statement not made carefully and which has the capability to mislead anyone. Misstatement can be in the nature of fraudulent misstatement and non fraudulent misstatement. Negligent misstatement is given by a party who seemingly has more knowledge or expertise on a party to a party who doesn’t possess any knowledge in that regard (Barker 2015). A person in legal terms has a duty of care to the other party because based on his words; the other party takes an action only to face loss in the future.

Legal duty of care: Any person giving any advice to another party owes a duty of care to impart any information which any prudent man would give (Goldberg, Sebok and Zipursky 2016). Legal advice is owed to the plaintiff and he has to prove that based on someone’s knowledge and skill, any decision was taken which resulted in the loss. Negligent misstatement is only actionable in court if it can be proved that there has been a breach of the legal duty of care which gave rise to damage (Best, Barnes and Kahn-Fogel 2018).

Negligent Misstatement: Definition and Types

Damage: The person committing the tort is called the tortfeasor. The tortfeasor has to have a legal duty of care and by abiding by those advices; the plaintiff has to show that he has suffered economic loss. Based on the person’s advice, if the plaintiff can prove that he entered into a contract that made him liable or suffer loss, there can be a case of negligent misstatement (Ferrara et al. 2016).

Reasonable foreseeability: The principle of reasonable foreseeability helps infixing liability. It needs to be proved that the wrongdoer had an intention to cause harm and had made the statements negligently. The alleged wrongdoer has to prove that he did not foresee the alleged harm (McDonald 2015). The plaintiff has to show that he took the decision based on the wrongdoer’s statements and did not have any knowledge of the loss he could have incurred.

Shaddock v Parramatta City Council (1980-81) 150 CLR 225 is a landmark Australian court judgment which discusses the liability in case of negligent misstatement. The landmark judgment deals with duty of care and negligent misstatement and lays the principle of liability (Thyagarajan 2014). In simple words, the judgment says that whenever a person is trusted with some information or advice, he should give the advice to the best of his knowledge. Whenever the speaker gives any information knowing that the other party will act on act, he is duty bound to give information to the best if his skill and shall not give any false or misleading information.  Byrne & Co. Ltd. V Heller & Partners Ltd. held that any financial loss arising out of any misstatement makes the informer liable for the loss even though there was no contractual relation between them (Campbell 2016).

Applying the above mentioned principle as laid down by the landmark Australian case, it can be said that the clerk of the council owed a duty of care and gave Alexia information knowing very well that it will be taken into consideration by Alexia. Alexis trusted the clerk because of the position he holds and believed that due to the position he holds in the council’s office, he will have the knowledge and therefore trusted him. Alexia trusted the clerk with the information and therefore carried on with the construction. Based on the advice of the clerk, Alexia commenced construction and did not anticipate that there will be a resumption of 24 blocks which the clerk had assured Alexia wouldn’t happen. As a result of the resumption of the blocks, Alexia will suffer huge loss and is due to the negligent misstatement of the clerk.

The clerk has given wrong information to Alexia assuring her that there will no resumption of the land for the freeway and based on the verbal assurance, Alexia commences the construction of the land. The inspector tells her that there will be a resumption of 24 blocks of land. Alexia is afraid she will lose a huge amount of money and will incur loss from the block of land. The principle of negligent misstatement can be used in the present case as the clerk has given out uninformed and deceiving statements thereby inducing Alexia to commence construction and believe in his words. Even though there lies no contractual or fiduciary relation between Alexia and the clerk, Alexia can file a case of negligent misstatement. The Council has performed his obligations and is not liable for anything said by the clerk. Therefore, Alexia cannot bring a case against the council but can sue the clerk for negligent misstatement.

Legal Duty of Care and Negligent Misstatement

A contract has been entered into between RoadRUs (the contractor) and the State Government regarding the completion of a work. Alexia had already discussed with the Government regarding the amount of time that will be taken to complete. Though initially the terms of the contract were clear regarding the stipulated time that will be required but later the contract was attacked by injunction of the Court asking the construction to stop from 7 am to 9 pm. Initially, the terms of the contract fixed the time and the schedule of the work that is, the workers will work 24 hours in 3 shifts. After the injunction from the court, the contractors came up with a condition that the work can only be completed when 4 months of extension is allowed and that the terms of the agreement should be negotiated which was rejected by the State Government. The major issue in the present situation is whether the doctrine of frustration as laid down by Lord Simon can be applied in the case and whether there was a mutual mistake that could not have been anticipated by the parties. The issue majorly concerns itself with the question whether there has been a major fundamental difference in the conditions after the injunction has been passed by the court.

Codelfa v State Rail Authority (NSW) deals specifically with frustration of contract and implied mistake in relation to the terms of the contract that was mutually agreed between the parties. Lord Radcliffe in Davis Contractors Ltd. v. Fareham Urban District Council has also spoken about frustration of contract in the mentioned landmark judgment. Bell (1932) AC at, pp 225-226 by Lord Atkin has laid down in details the conditions when doctrine of frustration can be applied. Along with Lord Atkin, Mason J. Has also concurred on the same decision talking at length about when to apply doctrine of frustration (Fried 2015). The Codelfa Case acts as a strong precedence which can be applied to the given case. The arbitrators had made some pertinent observations in paragraphs of 14,15,16.18 and 19 which make the relation between the parties very clear. Special emphasis has to be given to pages 361-363 of the judgment and paragraph 14 of the judgment by the esteemed and learned judges. Mason J. Gives a very general rule of frustration which might be applied in cases of frustration and how extrinsic factors can be considered while understanding the implications of the contract whereas Lord Atking gives a more specific judgement (Stone and Devenney 2017). Doctrine of frustration has to be understood along with the concept of mutual mistake, that is, what the understanding of the terms of the contract and whether the parties had factored in injunction or whether they were oblivious to the terms of the contract and what implications could have arisen.

Codelfa v State Rail Authority (NSW) is an important precedent in the case concerning frustration of contract (Harris 2015). As has been mentioned earlier, frustration of contract occurs when due to the unforeasibility of any act; a contract becomes difficult to be fulfilled. Frustration of contract happens without the fault of either party but the situations are such that the contract becomes difficult to be performed.  The reason behind applying the principles as laid down in the Codelfa Case is because the facts of both the cases are similar and bears an important relevance to the present situation between RoadRUs and the State Government. The relation between RoadRus and the State Government are similar, that is, both are bound by the principle of frustration of contract. The conditions in this case are difficult to be honoured and therefore have become frustrated. The contents of the contract in the Codelfa case is similar to the present case as the agreement of the case was regarding the contract between the parties stipulating specified day and shift which later attracted the injunction of court. The arbitrators in the case after analysing the conditions came to the findings that the parties had mutual mistake of facts regarding injunction, that is, they were not aware that the agreement could attract an injunction of court (Foreman 2015). Similarly, in the present case, the parties had agreed on the shift and timing to complete the construction. The nature of the work was noisy which had the potential to harm the neighbours. When the contract was signed there were no residents in the area but later after the construction was on its way, the residents object to the noise and filed a case as a result of which the court ordered an injunction (Eldridge 2015). The injunction which was later filed by the court was not a remote consideration when the contract was signed between the parties. Both the parties are not at fault as they could not have guessed that their contract would attract injunction and that residents would come while the work was in the middle of completion.

Damage and Negligent Misstatement

Lord Atkin held that the situations in the case were radically different after the injunction was granted and when the parties had signed the agreement. As held by Lord Atkin in P363 that the conditions were fundamentally different because after a major change in the shift and reduction of time span allowed, the conditions were not similar for the contractors to continue the work in the same situation (Botero 2014). The same can be said in the present case that after the major reduction in 2 shifts from 3 and change of time, that is stoppage of work from 9 am to 7 pm, it was not possible to finish the work in the stipulated time as there has been a drastic change in the situation. If a comparative analysis is done between the situation that existed before the contract was signed and after the injunction was passed, there seems to sea change in the terms of the contract. After the reduction in work shift and change in time, it can be clearly said that the conditions are not the same. Instances when radical difference in conditions appear, the parties are not bound to honour the contract in the same light.

The contract envisaged that the work will go on without any interference by the residents and that injunction will not apply to the court. Both the parties were unaware of a situation arising out of an injunction. Lord Atkin in P361 held that the parties could not guess that there work will be attacked by injunction, hence there has been a mutual mistake in the contract. There has been a change in the surrounding circumstance as from when the parties had entered into the contract. Lord Simon of Glaisdale said in National Carriers Ltd. v. Panalpina that whenever the surrounding circumstances change which was not anticipated, the parties are discharged from liability (Vos 2017).

Parties are bound by the clause of mutual mistake because they could not have foreseen that the terms of the contract would attack injunction. The conditions have totally altered and the parties.

Reference

Barker, K., 2015. Negligent Misstatement in Australia-Resolving the Uncertain Legacy of Esanda: Chapter 13.

Best, A., Barnes, D.W. and Kahn-Fogel, N., 2018. Basic tort law: cases, statutes, and problems. Wolters Kluwer Law & Business.

Botero, D.E., 2014. Contract Interpretation Law in Australia: It Is a Maze, Not a Straight Way. IUSTA, 2(41).

Campbell, I.D., 2016. The absence of negligence in Hedley Byrne v Heller. Law Quarterly Review, 132(2), pp.266-277.

Eldridge, J., 2015. Case note: Admissibility of'surrounding circumstances' in contractual interpretation: High Court's decision in Wright Prospecting. Bulletin (Law Society of South Australia), 37(11), p.42.

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Foreman, R., 2015. Contracts: Contractual construction ambiguity abandoned (again)?. LSJ: Law Society of NSW Journal, (8), p.88.

Fried, C., 2015. Contract as promise: A theory of contractual obligation. Oxford University Press, USA.

Goldberg, J.C., Sebok, A.J. and Zipursky, B.C., 2016. Tort Law: Responsibilities and Redress. Wolters Kluwer law & business.

Harris, D., 2015. Contract: Ambiguity remains when it comes to the true rule of contractual interpretaion. LSJ: Law Society of NSW Journal, (18), p.90

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McDonald, C., 2015. Torts Law: Blurred Elements: The Nebulous Nature of Foreseeability, the Confounding Quality of Misfeasance, and the Minnesota Supreme Court's Decision-Doe 169 v. Brandon. Wm. Mitchell L. Rev., 41, p.365.

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Thyagarajan, R., 2014. Constructing a Negligence Case under Australian Law against Statutory Authorities in Relation to Climate Change Damages. Carbon & Climate Law Review, pp.208-222.

Vos, G., 2017. Contractual interpretation: Do judges sometimes say one thing and do another?. Canterbury Law Review, 23, p.1.