The legal framework of business is the structure by which commercial decision is made. Basic knowledge is that legal issues are important in forming a solid foundation for the study of business (Pentony, 2011). There are different aspects of business law, they include the law of agency contract law, taxation, trust insurance, etc. To understand the functioning of business law it’s important to define the term law. These are rules established both by parliament and case law in the case of a common-law system (Feinman, 2010).
specifically for you
for only $16.05 $11/page
The Australian legal system developed from the English legal system, this was not coincidental but due to the conditions found by the British colonialists and the demands of the developing country. This led to a distinctive legal system based on the English one (Vines,2009).
The Australian legal system gives priority to some laws over others; it is for this reason that the Commonwealth of Australia Constitution Act (1903) is the supreme law of our country; all other laws are subordinate to it. The constitution further prescribes that parliament has the power to make laws; the laws made by parliament are referred to as statutes. In the common law system like ours, previous decisions of the court take precedent over future decisions and are legally binding as law, therefore, in interpreting a matter the past decisions of the courts should be taken into consideration. The Laws of Equity are another important source of law in our country; they are followed by customary law and international law (Vines, 2009).
The duty of care is central to the tort law of negligence. The underlying principle of duty of care is that a person is free to act in whatever way he pleases provided that the action does not infringe on the rights of others. When someone suffers injury because another person fails to act in a certain way or exercise his duty of care, he will commit a tortuous crime of negligence, and thus he is liable to pay damages for his action (Miller, 2009).
There are three main elements that a claimant must prove through a preponderance of facts to show that the defendant is liable in a negligence action. The first element is the one that the defendant owes a duty of care to the claimant. The second element to be established is that of breach of duty. It must be shown that the defendant fell below the standards required by law. Generally, the standard required to show a breach of duty is that of a reasonable man, this standard is an objective one. A person cannot be assumed to be flawless, but a reasonable man should be careful and prudent (Tufal,2008).
Duty of Care for Negligent Acts
Negligence is an unintentional tort deal with conduct that causes unreasonable risk; this is as opposed to intentional tort, which has a high degree of certainty of causing harm. The foundation of the law of negligence is the failure of a person to take reasonable care while acting under a given circumstance.
Negligence as a tort first began to be realized in the nineteenth century, before that, the action taken in case of an injury to a person was a writ of trespass. Initially, the trespass was focused on intentional injury; this focus was shifted to unintentional trespass commonly referred to as negligence in the 19th century. There was an evolution of the law of negligence due to the loss shifting in the ninetieth century; this is especially since the law of insurance was not developed well.
100% original paper
on any topic
done in as little as
The 19th-century industrial revolution increased the rate of injury, especially for those working in the factories. This was further highlighted by the development of railway transport, whereby the risk of being affected by the actions of strangers was increased. In addition, the developments of incorporations brought another dimension to the law as the option to sue a company instead of an individual was brought forth (Negligence, 2004).
The first step in the development of negligence law was the passing of the Workers’ Compensation Act 1897. It entitled certain workers to compensation in case of an injury in the course of employment. With this development, it meant that Tort law was not the only support that victims of negligence had support (Tufal, 2008).
The case of Anne v London Borough of Merton  A.C.728 signifies the expansion of the tort law of negligence. This case involved the liability of the local authority to inspect the building’s plans. Lord Wilberforce summarized the principles required to determine the duty of care.
- Whether the alleged wrongdoer and the defendant had sufficient proximity
- Whether there are considerations that might negate or reduced the scope of the duty owed.
On its part, the recent case of Caparo v Dickman (1990) 2 AC 605 introduced the test for establishing whether a duty of care exists. The first test is whether the damage was reasonably foreseeable, and the second is whether there is a relationship between the plaintiff and the defendant to create a proximate relationship between the plaintiff and the defendant. If the two are proven, then imposing liability will be just.
This is one of the most important tests for establishing whether the duty of care exists; if it is unreasonable to foresee the risk, then the duty of care will not exist. A defendant will also be liable if the claimant proves that the damages were foreseen. If it is proven otherwise or thought to be impossible by a reasonable person for the damages to occur, then the duty of care does not exist.
This can be contrasted with the case of Page v Smith UKHL 7 concerned foreseeability of psychotic damage. It creates a distinction in the English common law of negligence between primary victims and secondary victims. In this case, Mr. Page, the plaintiff was physically unhurt after a minor road accident. He suffered from myalgic encephalomyelitis a recurring condition which he had for 20 years but had remised. The court held that Mr. Page was a primary victim because he had been directly involved in the accident contrary to the previous cases brought before the House of Lords.
Similarly, in the case, Mcfarlane v EE Caledonia Limited  2 All ER 1 the court held that a claim by the plaintiff was possible as he was not a man of ordinary fortitude, and thus his claim was not reasonably foreseeable.
The case of Chadwick v British Railway Board  1 WLR 912 established that primary victims who helped in the accident directly can recover damages against the defendants as the defendant could reasonably foresee the injury suffered by rescuers. The court, in that case, held that a rescuer cannot be deprived of his remedy even though the shock suffered by him is not the same suffered by the accident victim.
Analogies – recognized duties of care
In business, directors and officers of companies should be prudent in the discharge of their obligations. The ‘business judge rule’ presumes that directors and officers of a company in carrying out their duties are doing so in good faith. This rule is envisioned in the Corporations Act 2001(Commonwealth) under section 180. In the recent case of Australia Securities and Investment Commission v Fortescue Metal Group  FCAFC 19 the court held; The CEO Mr. Forrest did not act appropriately by failing to prevent Fortescue from disclosing misleading information to the ASX in his defense Mr. Forrest had argued that he had taken reasonable steps to ensure the information Fortescue was releasing to the public was correct. The proceeding emanated from the information disclosed to the market by Fortescue.
Three major states owned by Chinese companies entered a framework agreement with Fortescue relating to the development of a mine and associated infrastructure. There was a clear demonstration to enter a binding contract by the two parties; however, there were unresolved issues left for future deliberation. In media announcements and investor, presentations made to ASX; Fortescue disclosed information on the nature of the framework agreements. The information consisted of the fact that Fortescue had entered a binding agreement with the Chinese company (Parlin, 2011).
Section 180 of the corporation act establishes a statutory obligation for directors and officers of the company to act diligently and in care for the shareholders under subsection 1; a director is required to exercise a degree of care and diligence in discharging his duties to the corporation. The standard required is that of a reasonable person. Subsection 2 qualifies the directors to make judgments in good faith, with no material interest in the subject matter, if he strongly believes that the judgment is in the best interest of the corporation. In addition, the directors or the company officers should inform themselves on the subject matter of the judgment.
Donoghue v Stevenson  AC 562 set a very important rule in establishing the existence of the duty of care that a person owes to others even though no relationship existed before the act or omission. Lord Atkins established the very important test in establishing the existence of a duty of care he called the test the neighbor principle. He employed the use of the 2nd commandment of the laws of mosses in the bible; the rule that you must love your neighbor from that he asked the lawyerly question, who is a neighbor? He suggested that a neighbor is that person who is directly or closely affected by your acts or omissions and whom you should contemplate as to be affected by one’s deeds. Lord Atkin’s intention in using the word neighbor was not describing geographical closeness based on Lord Atkin’s statement the existence of a duty of care depends on the reasonable foreseeability of harm, whether by omission or commission. The neighbor principle also introduced the dimension of omission to the law of negligence.
This duty of care must be imposed by law or operation of law. This duty of care is a form of “Social Contract” which individuals owe each other in a society, It often develops from common law. Before the landmark case of Donoghue v Stevenson  AC 562, privity had to be proved in one way or another (Tufal,2008).
Duty of Care for Negligent Advice
Negligent liability can arise out of negligent acts and omissions; however, the courts have been reluctant to accept liability for negligent misstatements and negligent advice. A negligent misstatement is a statement made to the claimant to his disadvantage; it might involve careless misstatements made in public.
Development of the law
Liability for misrepresented statements has been complicated by other legal bête such as liability for pure economic loss. Physical damage for a misrepresented statement has often been taken for granted and only claims for economic losses made. The case of Bourhill v Young  AC 92 established the jurisprudence on the circumstances to which a bystander can recover damages, in a negligent case whereby physical harm did not occur. The court decreed that a woman who suffered psychiatric harm was not deemed to be a foreseeable victim after she walked into a motorcycle accident scene( Handford, 2009).).
100% original paper
written from scratch
specifically for you?
In Clayton v Woodman (1962) 2 QB 544 where a building collapsed and injured a bricklayer after he was negligently misdirected by the architects; the court decreed that the architect was liable for the accident, the court chose to deviate from the earlier case of Derry v Peek (1889) LR 14, which applied to economic loss only. Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465 brought forth the first major shift in the case-related negligent misstatement. In this case, the court adjudged that giving inaccurate information that led to liability if relied on was a tortuous offence. Hedley Bryne was focused on the liability of statements and not pure economic loss. However, it paved way for the expansion of litigation involving pure economic loss.
Subsequently, after Hedley Bryne, a lot of cases focused on proving the existence of a special relationship. In determining special responsibility, the key factor to prove is whether the defendant assumed responsibility in making his statements, another important factor to determine is whether the claimant relied on the statements. It is now well established that where the defendant has assumed responsibilities, the damages suffered might be recovered. This decision was appealed to the Privy Council who took a more restrictive approach, concluded that the person must be carrying on the business of giving advice and make special skills in the field known.
Shaddock test, reliance and assumption of responsibility
Subsequently, the courts have taken a different direction from this ruling by the Privy Council. In Shaddock v Parramatta City Council (1981) ALR 385, the court decreed that it was not necessary that the speaker possessed a special skill since even silence could be considered a misrepresentation (Feinman, 2010).
Shaddock wanted to purchase property within the council’s jurisdiction. His solicitors asked the council if they had any plans of widening the roads subject to the property. The council carelessly informed him that they had no such plans when, in fact, the plan existed. The misrepresentation eventually reduced the value of the property. The trial was held in favor of the local council. Shaddock appealed and the issue which came up was whether a local government could be held liable for information that it gave to the public. The High Court of Australia believed that a person owes a duty of care to the other concerning the provision of information and is liable for negligent misrepresentation, whether or not he is involved in the business, occupation or profession involving the possession of competence and skills.
Breach of Standard of Care
This is the degree of prudence and caution that is required for a person who has a duty of care to another. Each circumstance has its standard in determining if the breach occurred. It is for this reason that the terms are based on those of a reasonable person. In certain professions, the standard of care is established by determining how a prudent person in that line of work acted. This test is referred to as the Bolam test and has been used especially in determining the standard of care required for medical practitioners (Palmiter 2006).
The Reasonable Person
A ‘reasonable person’ is the standard of measuring individual conduct concerning a breach of duty. A legal question that has been in the mind of jurists for a long time is, “who is a reasonable person?” Many English law courts have used the hypothetical man on the ‘Clapman omnibus’ to determine who a reasonable man is. A reasonable man should be a person who is non-special but is educated and intelligent. It should be noted that the test of a reasonable person is an objective one and varies on a case-to-case basis (Larson 2003).
Guidelines to establish a breach
Proving the existence of a breach, the plaintiff is required to prove that the defendant caused a pecuniary injury. It is a general rule that a plaintiff should rely on legal remedies available to him for the loss suffered, for example, the court has recognized emotional distress as an actionable tort; a plaintiff can recover damages provided it is followed by physical or pecuniary injury.
Once it’s been established that the risk is foreseeable a calculus is provided to decide on what precautions the defendants would have reasonably taken. Four components have been provided by the calculus.
- The probability of the harm occurring in the care has not been taken.
- The seriousness of that harm
- Costs and opportunities of avoiding or reducing risk
- Value of defendant’s conduct
Probability of harm
The plaintiff proves that there was a high probability of the harm occurring since proper care was not taken by the defendant.
Seriousness of possible injury
The seriousness of an injury is placed under monitory terms. The court intends to restore the plaintiffs to the original position he had been before the injury occurred. It is always important to quantify the injury suffered (Ashcraft, 2002).
Costs and opportunities of avoiding or reducing risk
The burden of avoiding the harm from occurring depends on the defendant; if the plaintiff proves that the defendant did not take enough precautions to avoid the harm, then he would breach the standard of care (Ashcraft, 2002).
Value of defendant’s conduct
Some risks are worth taking for the good of society, and if it proved that the risk was for the public’s good, then the standard of care will be breached.
Conformity with established standards
The act of the defendant should conform to the established culture in the fact that when taking that risk, he was merely conforming to the set standard.
The effect of Donoghue v Stevenson  AC 562 place in the tort of negligence.
In Donoghue v Stevenson  AC 562 Lord McMillan observed that the categories of negligence are never closed and are always expanding. Lord Atkin established that no chronological or physical proximity was required to show a duty of care. It was a groundbreaking ‘narrow rule’ established that manufacturers owed a duty of care to the ultimate consumers. Common law jurisdictions have a different test to the limit to the duty of care owed to a claimant. For example, in Australia, the claimant must show reasonable foreseeability, proximity and that the claim is fair and reasonable.
The Law of negligence continues to grow as envisioned by the lords of law in the case of Donoghue v Stevenson  AC 562 especially with the enactment of legislation in various fields. Our statute books have continued to reinforce and close the loopholes and cater for the inadequacies within our common law system, for example, the laws relating to omissions of acts an area which has brought great confusion and debates. This is probably what informed the enactment of the corporations acts especially the sections concerning the role of the directors in disclosing information to the public continuously.
Ashcraft, H. (2002), Standard of Care in Professional Liability Actions. Web.
Commonwealth of Australia Constitution Act 1903.
Corporations Act 2011(Commonwealth).
Feinman, J. (2010). Law 101. New York: Oxford University Press.
Hughes G. (1989). The Beloit-Valmet Saga Continues, London: Lexisnexis.
Handford, P (2006). Tort Liability for Psychiatric Harm, Australia: Law Book Co.
Larson, J. (2003) Negligence and Tort law. Web.
Lawiki.Org.(2012). Negligent Misstatement. Web.
Miller R. & Gaylord, A. (2009) Business Law Today; the Essentials, Australia: CencageBooks.
Negligence: Duty of Care. (2009). Web.
Parlin, J. (2011) ASIC v Fortescue: A Warning about Corporate Disclosure and Misleading Conduct. Web.
Palmiter, A. (2006) Corporations: Examples and Explanations, New York: Aspen Publishers.
Pentony, J (2011). Understanding Business Law, Australia: Cencage Books
Tufal, A. (2000). The Tort of Negligence. Web.
Vines, P. (2009). Law & Justice: Foundation of the Legal System, London: Oxford University Press.
Table of Cases
Anns v London Borough of Merton  A.C.728.
Bourhill v Young  AC 92.
Caparo v Dickman (1990) 2 AC 605.
Chadwick v British Railway Board  1 WLR 912.
Clayton v Woodman (1962) 2 QB 544.
Derry v Peek (1889) LR 14.
Donoghue v Stevenson  AC 562.
Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465.
Mcfarlane v EE Caledonia Limited  2 All ER 1.
Page v Smith UKHL 7.
Rondel v Worsley (1969)1 AC 191.
Shaddock v Parramatta City Council (1981) ALR 385.