Negligent Misstatement

There are two important types of negligence which are required for this assignment; one of its
which is negligent misstatement and the other is medical negligence. A negligent
misstatement is a claim or action which is brought up by one party against another party at
common law in tort (ORiordan, 2007). This claim takes places if the party against whom the
claim is brought made a statement which was considered to be negligent which is the
"Defendant" and the party which is bringing the claim which is the "Claimant" relied this
statement to its injury and suffered a loss as a result (Serota, 2012). In order for a claim for
negligent misstatement to be successful, the claimant must be able to show the court that on
a balance of probabilities the defendant owed them a duty of care (ORiordan, 2007). This
duty of care is not to case such harm which was suffered by their negligent misstatement,
further that the defendant had breached the duty of care owed and that the claimant has
indeed suffered loss. If the claimant cannot satisfy the aforesaid then they will not have a
claim for negligent misstatement (ORiordan, 2007). Lastly, if the claimant can show that
there was a contract in place between the parties then he or she may be able to sue under
the contract for negligent misrepresentation as well as under tort. The hallmark case for
Negligence misstatement is Hedley Byrne & Co Ltd V Heller & Partners Ltd (1964)
which is an advertising agency sought references from a bank as to the creditworthiness of
their client, as they were to act as personal guarantors for payment of advertising, and the
bank stated that the client was creditworthy when it was not
Negligent Misstatement Case Malaysia
The case that I have chosen for negligent misstatement is ( Balakrishnan A/L Devaraj.
Girija Devy A/P Gopinathan Nair V Admiral Cove Development Sdn Bhd). The case
involves breach of duty of care and contract. The plaintiff ( Balakrishnan A/L Devaraj and
Girija Devy A/P Gopinathan Nair) is suing the defendant ( Admiral Cove Devlopment
Sdn Bhd) for negligent misstatement and misrepresentation. The plaintiffs are the purchasers
of a unit, namely an apartment in the project from the defendant. However the proposed
project purchased from the defendant was different from what the defendants representative
or agent has previously agreed on resulting loss is suffered to the plaintiffs.
The plaintiffs have viewed a miniature model of the project displayed at the launching of the
project at Shangri-La Hotel, Kuala Lumpur on 13 May 1995. The defendants miniature model
and a printed brochure of the proposed project "showing a sandy beach front, umbrellas,
relaxing easy chairs and sail boats close to the beach" and the defendant representatives or
agent represented to plaintiffs that the plaintiffs will be able to swim directly upon exiting the
said unit. The defendants sales and purchased agreement even stated that the plaintiffs
apartment will fulfill to the above facilities upon completion of the proposed project. Upon
completion of the proposed project and handover of the said premises to the plaintiffs on 30
June 1998, the plaintiffs found out that the aforesaid representations were false when a wall
was erected right across the sea fronting and rocks, stones and boulders all along the front of
the sea outside the plaintiffs property. Moreover sewerage discharges being led off visibly
into the sea in front of the plaintiffs property. The plaintiffs calms that the wall and rocks have
affected their enjoyment of the aforesaid unit by the diminished aesthetic and or
environmental conditions.
To make the matter even worst, road alterations were being conducted in front of the
plaintiffs property and neighboring properties due to sewerage leakage caused by improper
fittings. The defendant issued a statement to the plaintiffs notifying them that the plaintiffs
property will not be affected during the alteration process. However the defendant found out
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that the root cause of the sewerage leakage is within the plaintiffs premise which requires
demolishing a portion of the premises retaining wall which causes inconvenience to the
plaintiffs.
The plaintiffs contended that as a consequence of the above, they suffered loss and expense
and seek compensations amounting of RM 100,000.00. However the decision of the court
allowed the plaintiffs to entitle RM 45,000.00 as compensation from the Defendant.
The defendant owes duty of care to the plaintiff as the defendant must take responsibilities as
a developer to their purchaser. The defendant has breach the duty of care by making
representation which were false due to the presence of a wall, rocks, stone, boulders and the
presence of sewerage discharge being led off visibly into the sea in front of the plaintiffs
property. The defendant even further breached the duty of care by providing false statements
to the plaintiffs, stating that their property will not be affected during the road alteration
process. Theres a causal link between the plaintiff damages to the defendant negligence
which satisfied the "but for" test. The plaintiffs damages is reasonable foreseeable. Therefore
the defendant is liable for causing the damages. Hence the plaintiff is entitled to acquire a
reduced compensation from RM 100,000.00 to RM 45,000.00 from the defendant.
Conclusion
In conclusion, negligence is the breach of a duty caused by the omission to do something
which a reasonable man, which is guided by those considerations which ordinarily regulate
the conduct of human affairs, would do. The two types of negligence required for this
assignment are medical negligent and negligence misstatement. The elements that constitute
negligence are duty of care, breached of duty of care, causation and damages.
Furthermore, it is important for medical practitioners to be aware that they owe a legal duty of
reasonable care to their patients and must exercise appropriate reasoned and responsible
judgment at all times. Lastly, developers and other people from all traits must also be aware
that they owe a duty of reasonable care and responsibilities to their clients and must exercise
appropriate ethical standards in providing information which will not cause any damages to
their clients.

Tort Of Negligent Misstatement

A tort can be defined as a wrongful act or omission which gives rise to a civil action in a court of
law against the party that committed the wrongful act.
The tort of negligent misstatement is defined as an inaccurate statement made honestly but
carelessly usually in the form of advice given by a party with special skill/knowledge to a party that
doesnt possess this skill or knowledge (Willesee Bill, Law management 252, Curtin Handbook
2010),
In todays society we can observe that there are various forms of tort, some of which have roots
back in medieval times and have been recognised by courts since. In order to prove that negligent
misstatement occurred, we have to prove that the elements of negligence were breached as most
torts have common elements which include;
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ELEMENT OF FAULT; There has to be proof presented showing that one party committed the
tortuous act either intentionally or negligently.
ELEMENT OF ACTUAL DAMAGE; the plaintiff would have the onus to prove that they suffered
actual damage/injury/loss as a result of the tortuous act by the tortfeasor.
ELEMENT OF OBTAINING REMEDY; as the law of Torts is concerned with compensating the
victim rather than punishing the wrongdoer, the rule applied by the Courts is to put the
plaintiff/victim into a position they enjoyed before the wrongful act took place.
For example; if a person was wrongfully imprisoned, the courts would seek to put the victim back
into the position they previously enjoyed before the imprisonment took place possibly through
monetary compensation.
For the Court to decide whether a tortuous act took place, it would have to take into account
additional factors that make the wrongdoer responsible for the outcome of the tortuous act. Such
factors include;
1-DUTY OF CARE
A person/party must initially owe a legal duty of care to the other person/party in order to be held
liable for negligence.
Duty of care can be defined as a duty to take reasonable care/skill that a normal reasonable
person would (Latimer Paul; Australian Law Handbook (2009) Chapter 4; Torts)
The onus is therefore on the plaintiff to show that a duty of care was owed to him /her by the
defendant. The plaintiff will have to consider the three state test of proving that the duty of care did
exist between the plaintiff and defendant which considers;
@ FORESEEABILITY; was it reasonably foreseeable to the alleged wrongdoer that his/her
conduct/omission would be likely to cause harm?
@PROXIMITY TEST; was there a physical? Factual or circumstantial link between the parties
involved?
@VULNERABILITY; is it possible that the plaintiff was vulnerable to harm as a result of the
defendants conduct/course of action?
These pre-requisites need to be addressed in order to prove that the element of duty of care was
present when pursuing a case in negligence or negligent misstatement.
With reference to duty of care, we may observe in COLE V SOUTH TWEED RUGBY LEAGUE
FOOTBALL CLUB LTD [2004] HCA 29
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FACTS; Mrs Cole left the club on foot at 5.30pm with a blood alcohol limit of 0.238 and was hit by
a car
RULING; the court held that the club management had fulfilled its duty of care and could not have
legally prevented her from leaving.
HACKSHAW V SHAW [1984] HCA 84
FACTS; A farmer shot at a car of a trespasser stealing petrol from the farm following a series of
robberies at his farm. The shooting occurred in darkness when the thief was standing beside his
car and his girlfriend was crouched in the front seat of the car and was eventually wounded...
RULING; The Court held that the use of firearms was excessive force and the risk of killing/serious
injury was out of proportion to the wrongful acts of the plaintiff.
The second Factor to be considered by the court would be;
2-STANDARD OF CARE
Once we have ascertained that a duty of care was present between the parties, we need to
address if the standard care was breached by the wrongdoer by observing his/her conduct
towards the plaintiff.
An appropriate standard of care can be defined as the standard of care that an ordinary,
reasonable and prudent person would follow (Willesee Bill, Law management 252 Curtin
Handbook 2010)
As there are various cases with varying degrees of the amount of care needed to be present,
basic principals are considered such as;
-the risks inherent in the conduct
-the severity of the likely outcome should any of the risks materialise
-if the defendants conduct can be gauged with existing standards
- And whether the defendant has kept up with changes in professional standards.
The third element to consider is DAMAGES CAUSED
As the area of Torts is concerned with compensating the victim, it is paramount that the Court
ascertains that the defendants actions led to the plaintiff suffering loss/injury.
Once we have ascertained that there was a duty of care present between the parties and that duty
was breached, the Court will look at the resulting loss/injury and its connection to the standard of
care breached by the defendant. This is also referred to as the remoteness test.

With reference to the Remoteness Test, we may observe in; LINDEMAN LTD V COLVIN [1946]
HCA 35 - FACTS; A Person was hospitalised following a work-related injury to his head. Due to a
pre-existing condition brittle bones, he fractured his leg while in hospital adding to his stay in
hospital and medical expenses.
RULING; The Court held that the employer was not liable for the injuries received in hospital as
the broken leg was a separate injury with separate cause independent from the initial injury to the
head.
When we try and tackle the concept of negligent misstatement, we can conclude that this area of
tort has morphed into a branch of its own though the basic fundamentals of negligence have to be
present first such as establishing the presence of a duty of care, standard of care provided and
possible breach and damages caused.
Negligent misstatement also takes into account another aspect; the existence of special
relationship that exists between the parties involved.
This special relationship has been found to be present when one of the parties has special
skills/knowledge of a particular field and the second party (plaintiff/receiver of information) has
sought the services of the defendant in order to make a sound decision. If the provider of such
information put across information that later proves to be detrimental to the plaintiff, the plaintiff
can seek action in a Court of Law for compensation/damages.
The Courts have formulated a four point test which seeks to prove whether there was a special
relationship between the parties and include;
-The defendant realises that the plaintiff has sought the services of the defendant as he/ she
possess special knowledge/skill in a chosen profession and that the plaintiff trusts the
advice/information given by the defendant.
-The information exchanged by the parties involves a serious/business matter
-The defendant realise that the plaintiff intends to act on the information/advice given
-It would be reasonable in the circumstances for the plaintiff to seek out and rely on the
information given. (Willesee Bill, Law management 252, Curtin Handbook 2010, Chapter
four; Torts)
When examining the special relationship concept, we may observe in; SHADDOCK&
ASSOCIATES PTY LTD V PARRAMATTA CITY COUNCIL [1981] HCA 59; 150 CLR 225
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FACTS; A solicitor acting on behalf of Shaddock contacted the Parramatta city council to enquire if
a property would be affected by road widening proposals. The council employees issued a form
and made other statements, none of which indicated if the property was under threat.
Consequently shaddock purchased the property and the road widening proposals were effected
and Shaddock suffered losses which he sued for under negligent misstatement.
RULING; The Court held that the council was at fault for not providing the correct information to a
person who relies on that information.
Also it is possible for this special relationship to be non-existent by referring to; SAN SEBASTIAN
PTY LTD V MINISTER ADMINSTERING THE ENVIROMENTAL PLANNING AND ASSESSMENT
ACT (1986) HCA 68
FACTS; The New south Waless state planning authority and the Sydney city council were held not
liable to a property developer for their publicly displayed study documents on the proposed
development of Woolloomooloo in inner Sydney. The developer purchased properties in reliance
on the documents but sold them at a loss when the proposals were drooped due to being
unviable.
As the proposal offered no assurance about the ultimate level of development, there was no
specific representation by the planning authorities necessary to establish of a duty of care. Such
proposals were subject to frequent alteration, variation or revocation.
APPLICATION OF LAW
When examining Ivans claim to negligent misstatement, we have to firstly consider the presence
of the elements that exist in an ordinary claim for negligence and lastly the presence of a special
relationship.
DUTY OF CARE; A person/party must owe a legal duty of care to the other person/party in order
to claim for negligence. As the onus of proving that a duty of care exists between the parties is on
the plaintiff, he/she needs to tackle the three state tests;
Firstly; was it reasonably foreseeable that the actions of the defendant (Catherine) would cause
harm/loss/injury? As Catherine is a financial adviser by profession, it is reasonably foreseeable
that her conduct/omission is likely to impact on Ivan in a positive and negative manner
Secondly; is there a physical, factual or circumstantial link between Ivan and Catherine?
We can deduce that their relationship was factual as Ivan has contracted Catherine to be his
financial adviser.
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Thirdly; how vulnerable was the plaintiff (Ivan)? We can also deduce that the risk
exposure/vulnerability to Ivan was very high as he was relying on her advice in order to make a
sound financial decision.
Another facet to consider is STANDARD OF CARE; this standard of care is what we consider
would be what an ordinarily prudent person would observe. How would we gauge such a
standard? We need to consider what a normal prudent financial adviser would do under the
circumstances, which may be a thorough investigation of the proposed scheme after obtaining
clear intentions from the client. In this case, Ivan had asked for an investigation into the accounts
of Midget Widget as he sought to invest some of his funds in the company. This intention would
have been relayed to Catherine during the course of their dealings.
A prudent financial adviser would have made thorough enquiries before making any
recommendations. A breach of the standard of care provided can be observed as Catherine
misread the accounts of the proposed investment.
The third facet to consider is ACTUAL DAMAGES CAUSED; what is the likely outcome if Ivan
invested his life savings into the company only for it to become insolvent? There would be
disastrous consequences for Ivan if he was relying on the investment to fund his
lifestyle/retirement.
While we know the company became insolvent soon after investing and Ivans funds were lost,
this loss can be taken by the Courts as sign of actual loss suffered by the plaintiff and form
grounds for a claim in negligent misstatement if the duty of care can be shown to have existed and
the standard of care was breached.
The fourth element to prove would be; EXISTENCE OF SPECIAL RELATIONSHIP
In order to make a claim for negligent misstatement, we have to prove that the basic elements of
negligence existed at the time of the tortuous act in addition to the link of special relationship.
A person/party would have to seek out the one on one service of a financial adviser or accountant
in order to enjoy exclusive information/knowledge that normally would not be present to the
general public. This special relationship only existed between Ivan (Client) and Catherine (financial
adviser) and did not extend to the general public.

When we also consider the four point test, it is also possible to conclude that a special relationship
did exist between Ivan and Catherine as
-The defendant realises/should realise that the plaintiff believes the defendant possess
special skill/knowledge/information as a financial adviser and that the plaintiff trusts the
judgement of the defendant.
-The advice sought relates to an investment/business matter
-The defendant realises/should realise that the client intends to act on the information
acquired in this case Ivan intends to invest in the company if it is viable.
-It is highly reasonable in the circumstances for the plaintiff to seek and rely on the
advice/information given by the defendant.
CONCLUSION
In conclusion, it is highly likely that Ivan has suitable grounds to make a claim under the Tort of
negligent misstatement as the criteria for making such a claim currently exist such as the
existence of duty of care, breach of standard of care, actual loss was incurred and the existence of
a special relationship.

The effect of Hedley Byrne

The above case created a new duty situation by recognising liability for negligent misstatement
causing economic loss in circumstances where a special relationship exists between the parties.
Special relationship
A special relationship exists where a professional person advises a known person who relies on
the statement for a known purpose. For an action in negligent misstatement to succeed there must
be a special relationship.
It is clear that liability will only arise where the defendant is in the business of giving professional
advice and the statement is given in that context i.e. not on a social or informal occasion.
The concept of special relationship has now been redefined in the following leading case: Caparo
Industries Plc v Dickman and Others (1990)
Facts: C, a shareholder in F plc, bought more shares in the company after receiving the audited
accounts. He later made a takeover bid. After the takeover C sued the auditors alleging that the
audited accounts had been misleading as they showed a profit when in fact there had been a loss.
C said the auditors owed a duty of care to investors and potential investors as they should have
been aware that a press release saying that profits would fall significantly had made F vulnerable
to a takeover bid and that bidders might rely on the accounts.
Held: The court set out three criteria which had to be fulfilled in order to give rise to a duty of care:
1. The standard test of foreseeability applied
2. The concept of proximity limits the duty to circumstances where the statement would be
communicated to the claimant either as an individual or a member of an identifiable group
in respect of transactions of a particular kind and that the claimant would rely on the
statement. It is therefore necessary to look at the purpose for which the statement is made,
the statement makers knowledge of the person relying on the statement and the type of
transaction in which it is used.
3. Whether it is just and equitable that a duty of care should be imposed so that imposing it
would not be in contrary to public policy.

When the court applied these criteria to the Caparo case they found that auditors of a public
company owe no duty of care to the public at large who neither rely on accounts when purchasing
shares in a company nor was any duty owed to individual shareholders who purchase additional
shares
Further cases have discussed the concept of the special relationship and judges in
subsequent cases have tended to take the view that two of the most important things to consider
when determining whether a special relationship exists are:
1. Has the person making the statement voluntarily assumed responsibility for the
recipient acting on this statement? For example, where an advisor knows that a person will
receive and read advice given, the advisor may assume responsibility towards the recipient
of this advice, and if his advice is negligent the recipient may well have a claim against him
for any loss which results.
2. Is it fair, just and reasonable for the person to whom a statement has been made to rely on
that statement? For example, in the 1990 case of Smith v. Eric Bush it was suggested
that it might be reasonable for someone who is buying a small property to rely on the
valuation carried out for the mortgage company, whereas the purchaser of an expensive
property could not reasonably rely on this and should commission a full structural survey of
his own. In the same year the court in Caparo v. Dickman decided that it was not
reasonable for investors to rely on a an internal company audit report as this report was not
prepared for their benefit or as the basis for any investment and was merely prepared to
discharge a statutory duty. In the 1995 case of Henderson v. Merret Lord Goff suggested
that the fair just and reasonable test wasnt really an independent requirement and was
really just a way of helping to determine whether there had been a voluntary assumption of
responsibility.

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