Mastering concept of Negligence

Hong Kong Clinical Psychologists Association

Charterlloyd Insurance Brokers LtdRaymond Chow and Lewis Lam

Chartered Insurance Broker (UK)Tel: 25236350

• - a city with rising legal litigation - Each and Every businessman and ordinary person worry about their legal liability

Negligence• Law of tort - civil wrong• based on the principle that people must

be able to live on assumption that others will respect their person and possessions

• both tort and contract are civil wrongs

• contractual parties vs any person

• European Bank has filed a claim for HK$20 million against its investment adviser and stock broker for giving him inaccurate investment advise which causes the bank financial loss. Investment adviser recommends the bank to hold a share when its value is HK$2.5 per share. But the share drops to HK$0.5 per share six months after.

Negligence - Duty of Care

• Not all careless acts or omissions causing injury or damage give rise to liability

• there is no liability - if a person owes no duty to another

• duty of care - consists of four necessary conditions

Duty of Care• 1) defendant owes a duty of care to

another• 2) defendant has breached that duty• 3) breach of duty has, in fact, caused

injury or damage• 4) injury or damage is not too remote • (a foreseeable result of defendant’s

breach of duty)

• Peter, Paul and Mary buys three air tickets flying to London at Four Clouds Travel Agency. The airplane explodes when it is flying.

• Will Four Clouds Travel Agency owe the duty?

• Who will owe the duty?

Existence of duty of care

• Donoghue vs Stevenson 1932• laid down the “duty situations” where a

person owes a duty of care to another• e.g. surgeons to their patients, lawyers to

their clients, insurance brokers or agents to their insured, manufacturers to consumers

• the rule laid down: “ you must not injure your neighbour”

Who is neighbor?• Question: who is my neighbor?• A person must take reasonable care to

avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor

• a persons who is so closely and directly affected by my act that I ought reasonably to have them in contemplation

Neighbor Principle• Three elements:• a) foreseeability of harm• b) proximity• c) fairness, justice and

reasonableness

Foreseeability • Plaintiff must establish that he is

likely to be affected by the defendant’s negligent act or omission

• duty is to avoid causing to the particular plaintiff damage

• A man carrying the explosives gets on the MTR to TST. He burns the explosives during the journey and causes twelve passengers suffered injury.

• Will the MTR be liable?• Will MTR foresee this?• Who will be liable?

• A pregnant woman watches the TV news reporting the tsunami. She feels so scary and she suffers miscarriage a week after.

• Will the TV station be liable?

Proximity• foreseeability of harm does not

lead to a duty of care automatically, but also a close and direct relationship of proximity is required

• A man attempts to commit suicide while in police custody. The man’s life is saved but the brain suffers permanent injury. He brings an action against Police Commissioner alleging that he fails to prevent him from attempting to commit suicide

• Will police be liable?

Fairness, justice and reasonableness

• In addition to foreseeability of harm and proximity, elements of fairness, justice and reasonableness are considered by judge to determine existence of a duty of care

• there is no duty of care if the court thinks that it is not fair, just and reasonable to impose a duty on the defendant

Policy Immunities• To protect government

departments to carry out daily job• e.g. police for crime, Commission

for Financial Institution for commercial fraud

• H.K. Future Exchange / Stock Exchange to stock investors

Duty of Care: Pure Economic Loss caused by negligent act

• Original principle - economic loss not consequent upon any physical injury or damage to property shall not be entitled to claim against wrongdoer in negligence

• a pure economic loss is not related to or result from any physical injury or damage

• pure economic loss may be caused by a negligent act or by a negligent statement

Pure economic loss resulted

from negligent statement • Pure economic loss arising from

negligent act still cannot be recovered

• economic loss caused by negligent statement can be recovered - provided that there is a duty of care owed by maker of statement to claimant

• What will the Uncle No. Eight case be different if Uncle No. Eight is your personal investment adviser that he writes a report to you to advise you to buy MTR shares.

• Considerations:• What advice has Uncle No. Eight given to

you?• What kind of information he relies on?• Is there any careless mistake he has

committed in interpreting this information?

• Is there any other important information he has missed in giving his advice

• It is unfair, unreasonable and unjust to impose a duty of care on “Uncle Seven” if his advice is broadcasting.

Tortious Liability for Negligent Misrepresentation

• Hedley Byrne & Co Ltd v Heller & Partnership Ltd 1963 - there is potential liability for giving negligent advice

• the recipient of advice can recover his pure economic losses from adviser in absence of contractual relationship provided that there is a special relationship between adviser and advisee or there is assumption of responsibility by adviser

Existence of a special relationship

• Mere giving of a negligent advice or information does not create any liability even if it is foreseeable that such advice or information may cause financial loss to others.

• Plaintiff must establish there exists a “special relationship” between him and the other party

• Judicial interpretations on this “special relationship is confused and is even conflicting in some court cases

Proximity and voluntary assumption of responsibility

• Where the advisers knows that his advice will be communicated to plaintiff and the advisee relies and acts upon it and suffers loss, the adviser will be liable for it

• test of proximity: Caparo Industries plc V Dickman 1990

• Caparo Industries plc v Dickman• held that:• three criteria for imposing duty of care:• a) foreseeability of damage• b) proximity of relationship between

plaintiff & defendant• c) fair, just and reasonable

• Test of Proximity :• whether adviser knows at time advice is

given that advice was required for a purpose• adviser knows that his advice will be

communicated to advisee• adviser knows that his advice will be relied

on or acted on without independent inquiry

• Advice has been acted on which resulted in loss

• purpose of audited account for public company is the informing shareholders but not to enable individual shareholders to buy shares

Yue Xiu Finance Co Ltd & Another vs Dermot Agnew &

Others • Two firms of accountants prepared and

signed the statutory audit reports for two companies. Audit report stated that the companies had a combined profit of HK$11 million. However, the auditors failed to make provision of HK$28 million of doubtful debts so that a combined loss of HK$17 million should have incurred.

• Yue Xiu Finance relied on the audit report to extend credit facilities to these two companies. These two companies broke in one year after and Yue Xiu Finance could not recover the loan.

• Whether the auditors owed to Yue Xiu Finance a duty of care in respect of audited accounts

• foreseeability and proximity relationship

• The auditors prepared the audit reports for shareholders

• it is foreseeable that banks or finance company will rely on it

• however, the plaintiff must establish a proximity relationship

• must prove reliance on a particular transaction and relationship

• defendant did not owe any duty

Breach of duty• Objective standard - test of reasonable

person• plaintiff must prove that the defendant has

breach his duty by failing to measure up to an reasonable standard

• a person breaches a duty of care if he fails to do something which a reasonable person would do or has done something which a reasonable person would not have done

• Special standards are applied in case of children and professional persons

• children - conform to the standard of reasonable children of their age

• professional person - a higher standard is expected of professionals

• in accordance with the standard of an ordinary skilled person exercising to have that skill

• Professional must measure up to the standard required in those professions

Defences to Negligence• 1) Contributory negligence• where the plaintiff’s injury has been

caused partly by defendant’s fault and partly by his own

• S 21 Law Amendment & Reform (Consolidation) Ordinance

• plaintiff’s fault should be taken into account to determine the damages that the plaintiff will be awarded

• 2) Volenti Non Fit Injuria (voluntarily acceptance of risk)

• the defendant can establish that plaintiff has expressly or impliedly agreed to take risk that materializes in injury

• plaintiff cannot claim any damages because of doctrine of volenti non fir injuria

• a complete defense• e.g. boxing game, surgical operation

• To succeed in defense, defendant must establish plaintiff is aware of risk and had freely agreed to taking it

• 3) Exclusion of liability - Control of exemption clause Ordinance - cannot exclude bodily injury or death

• 4) Illegality• requires court to examine all

circumstances: the nature of illegality complained of, the moral and criminal culpability and plaintiff’s conduct, casual connection between defendant’s negligence & illegality

• Public Conscience Test

• Joint criminal enterprise - no standard of care test

• 5) Limitation period • basic period: 6 years (property damage)• 3 years (bodily injury) from• injury was significant, injury was

attributable to negligence, identification of defendant

Professional Liability Insurance designed for you

• Cover: your professional negligence in acting out as a clinical psychologist

• Limit: HK$10 million per incident and HK$20 million for all claims shared among all insured members (including legal expenses)

• Insurance Company: Allianz Insurance Hong Kong Ltd (the top three global insurer)