Tort law assignment. Brian fell against the standard of care a reasonable man would take as he advised John to buy the shares to be on a winner

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Tort law assignment

Advise John as to claims that he may have against Brian in tort.

For John to make a claim against Brian in tort the following three elements must be proved: whether Brian owes a duty of care to John, if that duty was breached and if the breach caused the damage.

Liability for negligent misstatements causing pure economic loss have the usual requirements of duty, breach and damages but special  treatment is necessary as people are less careful in what they say than in what they do on social and informal occasions. Lord Pierce in Hedley Byrne stated: “word are more volatile than deeds, they travel faster and are used without being expended”

To establish the difference between ‘pure economic loss’ and economic loss which is consequent upon physical damage to property. This was defined in Spartan Steel v Martin 1973, where the loss was foreseeable but Lord Denning held a line must be drawn, and that the loss was better borne by the insures than by the defendants alone.

The Misrepresentation Act 1967 states where there is a fiduciary relationship (a person to whom property or power is entrusted for the benefit of another) for example between a solicitor and a client liability arises here in contract and tort.  There is no need to prove a duty of care exists. Brian who is a part qualified accountant advised John about the shares, but there was no contract involved so he wouldn’t be liable under contract and tort.

Brian advised John to buy shares from Brighwater Ltd. so it was something Brian said to John and not did. Therefore, the area of deceit must be looked at. Deceit occurs when a person knowing or recklessly makes a false representation to the claimant. The leading case Derry v Peek 1888 outlined that no duty would be required in relationship to negligent misrepresentations. Therefore this case can’t be applied to Brian and John’s scenarios as action was only available for fraudulent misrepresentations.

This was then overruled in Hedley Byrne v Heller 1964 where the possibility of claims for negligent misstatement was opened up. That a duty of care would arise in appropriate circumstances to give careful advice and that failure to do so would result in liability for economic loss. The House of Lords laid down strict guidelines for when this could apply:

If there was a special relationship between the two partes, based on the defendants skill and judgement and the reliance placed upon it.

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The defendant (advisor) must posses a special skill relating to the type of advice given and must have realise that the claimant (advisee) would rely on that skill.

The claimant receiving the advice must have acted in reliance on it as longs as it was reasonable to rely on the advice.

To establish whether there was a special relationship between Brian and John the meaning of a special relationship must be looked at. In Chaudry V Prabhaker 1988 it showed that a purely social relationship can give rise to a duty of care, when carefully considered advice was being sought ...

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