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Law In Commerce : Reasonable Care And Skill

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Discuss about the Law in Commerce for Reasonable Care and Skill.



In case of a breach of contract, the law allows innocent party to terminate the contract if a condition of the contract has been breached. On the other hand, in case of a breach of warranty, the law of contract provides that in such a case the other party can only claim damages. When an innominate term has been breached, the other party can be allowed to terminate the contract if the breach of contract is so serious that it has deprived the other party of nearly the whole of the benefit under the contract. The contract is not automatically terminated in case of a breach. Therefore the innocent party is required to indicate its acceptance of the breach and in such a case, you can rescind the contract. Otherwise it will be considered that the innocent party has affirmed the contract and the obligation of the party and of the contract will continue. In case of a termination of contracts for breach, the innocent party is discharged from any further performance. Under the contract and in such a case, the contract comes to an end prospectively.

A misrepresentation can be described as a statement of fact, that has been made by a party to the contract and due to this statement, the other party has been induced to enter the contract that is less advantageous for it. For the purpose of deciding if a particular statement can be considered as a misrepresentation, it is required to be established that it is:-

A statement of fact and not a statement regarding intention, opinion or law;

The statement was made to the innocent party; and

Due to the statement, the other party was induced to enter into a contract that was less beneficial for such party.

The law provides that in some cases, half truths can also be treated as misrepresentation. When a misrepresentation has been made by a party to the contract, the other party gets the remedy of the recession of contract.[1] The bars to recession, prescribed by the law are the permission of the contract, the rights of third party, delay or the impossibility of restitution. In case of the recession of the contract, the contract is set aside.[2] This means that the parties are placed in the same position, as far as possible in which the parties before entering into the contract. The recession of contract may be available to the innocent party when the misrepresentation is fraudulent, negligent or wholly innocent.[3] While in case of a breach of warranty, the other party can only claim damages, in case of misrepresentation, the law provides that the innocent party is also entitled to the signed the contract.

In the present case, a statement was made by Bert that he was fully licensed in New South Wales. At the same time, Bert also told Adam that he had applied for mutual recognition registration in Queensland. He further stated that he and his employees were fully capable of carrying out the building work in Queensland as he was fully aware of the building standards applicable in Queensland. He told Adam that all his work will comply with the applicable standards, and he also had full builder's insurance anything went wrong. However the reality was that all these statements were untrue. In this way, it can be said in this case that a false statement has been made by Bert and due to this false statement Adam was induced to enter into an agreement with Bert for the repair of his roof.

Hence, Adam can take action for breach of contract against Bert, and in such a case he can rescind the contract and claim compensation from Bert.

The Australian Consumer Law has replaced the Trade Practices Act, 1974 and the earlier Commonwealth, State and Territory legislations related consumer protection. This Act came into force on the 1 January 2011. It is a part of Schedule 2 of the competition and consumer act, 2010 (Cth) and is applicable any state and territory. The ACL has provided the same protections and prescribed the same obligations for the businesses throughout Australia.[4] The responsibility to enforce the provisions of ACL has been provided to the Australian courts and tribunals. The consumer guarantees mentioned in the ACL provides a wide range of rights related goods and services to the consumers. In this way, the consumer guarantees are based on the same court principles as were the warranties and conditions that were present in fair trading laws of states and territories as well as the Trade Practices Act.[5] Under the ACL, the consumer guarantees do not create any significantly different rights and obligations however, they prescribe these rights and obligations in the clearer way and also provide a wide range of statutory remedies. The earlier case law that was applicable to the previous law is still useful when the consumer guarantees are being interpreted and applied.


In view of these, statutory guarantees, it is automatically provided by the suppliers and manufacturers that the goods sold by them and the services provided by them to the consumers will contain these guarantees. These rights are present, irrespective of any warranty that has been provided by the supplier or the manufacturer.[6] In case of services, the consumer guarantees that are applicable include the statutory guarantees according to which the services will be provided with due care and skill, the services will be fit for any specified purpose and the services will be provided within a reasonable time (if no time has been mentioned). In case the goods or services do not fulfill a consumer guarantee, the consumer has been provided rights against the supplier and in certain cases, against the manufacturer, who have to provide a remedy to put right, a deficiency, fault or the failure to fulfill an obligation. Therefore the law provides that in case the supplier had failed to fulfill a guarantee, the remedies that may be available to the consumer include repair, or refund or replacement; the cancellation of service, and compensation for loss and damages. 

In this way, according to the ACL when a consumer buys products or services, there is an automatic guarantee. The law provides that the businesses should guarantee the products and services sold, hired or leased by them for less than $40,000 or more than $40,000 if the goods or services generally purchased for personal or household use. These statutory guarantees have to be provided by the businesses irrespective of any other warranty that they have provided to the consumers. In the present case, it can be said that there had been a breach of statutory guarantees by Bert. The reason is that he failed to provide satisfactory services to Adam. It was revealed in the building inspectors report that the repair work was 'shoddy' and the work also did not comply with the Queensland building standards as promised by Bert. Under these conditions, it can be clearly said that there has been a breach of statutory guarantee by Bert. Therefore the above-mentioned remedies available to the consumers for the breach of statutory guarantees will be available to Adam. As a result, Adam can see compensation from Bert for the breach of consumer guarantees and the loss suffered by him.

Answer (c): In this question, it needs to be decided if Bert can be held liable to Adam under the law of negligence. In this context, negligence can be described as doing or the failure to do something that would be done or not done by any reasonable person when one person has a duty of care towards the other and in such a case, damage injury or loss has been caused to the other person. When a person sues the other person in the negligence, such person is seeking financial compensation for the damage caused to it.[7] In such a case the person wants to be put in the same place where such person would have been if the negligence would not have taken place. Some of the examples of the situation where negligence can be alleged include the cases of car accidents where personal injury or damage to the property has been caused.

For the purpose of deciding if negligence has taken place in the particular case or not, it has to be seen if the below mentioned for questions are satisfied or not:-

  • If the defendant had a duty of care towards the plaintiff;
  • If this duty has been breached by the defendant;
  • If an injury or the damage has been caused to the plaintiff; and
  • If such injury or damage was the result of the breach of duty by the defendant

All these factors need to be satisfied. On the other hand, even if contractors not satisfied, the plaintiff cannot bring a successful claim under negligence against the defendant.

Duty of care: This duty can be described as the legal obligation of the defendant to avoid causing harm to other persons. This duty arises when the harm can be considered as reasonably foreseeable if care is not exercised by the defendant. In this way, it is required under the law of negligence that a relationship of sufficient closeness (also known as proximity) should be present between the defendant and the plaintiff.[8] So that it can be concluded that the defendant had the duty of care. For instance, the driver of a motor vehicle has this duty towards the other road users.

In order to see if the duty of care has been reached in a particular case or not, the court is required to consider the standard of care that can be applied in a particular case. For deciding the standard of care applicable in a particular case, it needs to be seen what would have been done by any other reasonable person under similar circumstances.[9] If it can be said that the actions of the defendant were unreasonable or if the actions of the defendant were below the standard of care that can be expected in a particular case, it can be said that the duty of care has been breached by such a defendant.

Vicarious liability: If in the present case, it is found that the defects in the roof had been caused as a result of poor workmanship by the employees of Bert, he can still be held liable to Adam. The reason is that in such a case, the vicarious liability of Bert arises. The vicarious liability of a person takes place when one person is considered to be liable for the negligence of the other person. Generally, the parties rely upon the doctrine of vicarious liability of the employer for the negligence of the employees.[10] In most of the cases, the law provides that an employer can be held vicariously for the negligence of its employees.

In the present case also, it can be said that the factors required for bringing a successful claim under negligence are present against Bert and as a result, Adam take action against Bert under negligence and seek compensation. On the other hand, if it is found that the loss has been caused as a result of the negligence of the employees of Bert, he can still be held liable to pay damages to Adam, because in this case, but is vicariously liable for the negligence of his employees.



Sweeney, O’Reilly & Coleman, 2013, Law in Commerce, 5th Ed., LexisNexis

Lipton P, Herzberg A and Welsh, M, Understanding Company Law, 18th edition 2016 Thomson Reuters

Deakin, S., Johnston A and Markesinis B (2003) Markesinis and Deakin's Tort Law, Oxford University Press

Kujinga, Benjamin (2009). "Reasonable Care And Skill — The Modern Scope Of The Auditor's Duty". GAA Accounting

Tomasic, Roman; Bottomley, Stephen; McQueen, Rob (2002) “Audits and Auditors”, Corporations Law in Australia, Federation Press

David Gardiner and Frances McGlone, (1998) Outline of Torts (2nd ed,), Butterworths Bisset V Wilkinson (1927) AC 177

Derry v Peek (1889) L.R. 14 App. Cas Smith v Land and House Property Corporation (1884) 28 Ch D 7 148


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