1 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

Question 1 Theory

1. What is the test of duty of care in personal injury actions and how does this
test differ in cases where the plaintiff has suffered pure economic loss?

Refer to the following lecture slides:

Week 2 – slides 22-23 (duty of care and focussing on duty of care in personal
injury/property damage context).
Week 3 – see slides 11-13 which considers duty of care in an economic loss context, with
a focus on negligent misstatement.

• -personal injury (physical or mental harm): Reasonable foreseeability

• -Negligent misstatement—statement that is careless
• -test: Special relationship
• Skill/knowledge/expertise
• Realized plaintiff would rely on defendant's statement
• Reasonable for plaintiff to act on defendant’s active

2. How do courts determine whether the defendant has breached their duty of care?
Refer to the following lecture slides:

Week 3 – slides 2 and 7, and refer to slides 3-6 for illustrations.

Breach:

• -what they actually said/did

• -what would a reasonable person in person’s position have done (probability,
seriousness)
• -compare to what our person actually done. (if they didn’t do what a reasonable
person would have done, they have breached their duty of care.)
•

3. What is the approach to determining causation in negligence?

See Week 3 lecture slides – slide 8.

• Damage
è Causation—did the breach cause the loss?

“But For” test: but for person’s breach, the loss would not have occurred.

-if multiple causes did the breach materially contribute

è Remoteness

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 2 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

Question 2
Norris was interested in purchasing a motel. After looking at several different areas,
he decided to buy a motel in Port Stephens in New South Wales, which he thought
offered both good investment potential and the lifestyle he desired. Norris telephoned
a number of real estate agents, enquiring whether they had any motels listed for sale.
Norris finally found a motel business listed with a real estate agent called Evatt. Evatt
told Norris that, “once you get going this business will be a real gold mine” and that
“you will be laughing all the way to the bank”. Norris then sought an accountant’s
advice and proceeded to buy the motel. Six months later Norris had to close down the
motel which was making losses, as there were neither sufficient tourist numbers nor
enough interest in the local population to sustain the business.

Can Norris sue Evatt in negligence? Advise Norris.

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 3 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

This problem is loosely based on a real life case (Norris v Sibberas [1990] V.R
161), and the answer below is basically consistent with the conclusions that the
court came to in the real case (some variations have been made however; the
facts in our problem have been changed to make breach more arguable). As
discussed in tutorials, I accept that students could come to different conclusions
on aspects of this question; the important point is to identify the relevant legal
tests and apply them to the facts, giving reasons for your answer.

The question that needs to be answered is whether Norris can recover the financial
losses resulting from the failed business, from Evatt the estate agent. The relevant
area of law is negligent misstatement.

[note that an action in contract is not available, there being no contract between Norris
and Evatt (Evatt is the vendor’s agent)]

In order to succeed in a negligence action, Norris will have to prove to the court that
the following elements are satisfied on the balance of probabilities:

• That Evatt owed Norris a duty to take care in relation to the statement made;

• That Evatt breached his duty of care;

• That it was Evatt’s carelessness that caused Norris’s financial loss (and that
the damage suffered is not too remote).

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 4 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

Considering each of these elements in turn:

Did Evatt owe Norris a duty of care?
To establish that Evatt had a duty to be careful in relation to the statements made,
Norris will have to show that a “special relationship of trust and reliance” existed
between the parties: MLC v Evatt per Barwick CJ. There will be a special relationship
of trust and reliance, if:
• Evatt had particular access to information, or special skill or expertise in
relation to the subject being discussed;
• Evatt realized his statements would be used as the basis for action by Norris;
and
• It is reasonable for Norris to seek or accept the information/advice of Evatt.

Does Evatt have special skill or access to information in relation to the subject being
discussed i.e. whether the motel will succeed or not. On the facts he makes a
prediction that the business will be very successful (once Norris “gets going”). While
it is well known that real estate agents are in the habit of making extravagant
statements in order to try and sell property, the court is very unlikely to take the
position that a real estate agent therefore has the freedom to say anything, without any
regard to the accuracy of their statements. A real estate agent is a professional, and
here Evatt is making statements in a business setting, in a context where he realizes
that Norris is making an important purchase decision. In particular, the key point to
note, is that Evatt has voluntarily chosen to make various claims about the motel - he
has through his statements conveyed a message that he expects the motel to be a
success. Because Evatt has chosen to make these statements, this carries an
implication that there is some kind of factual basis for these statements. In other
words, because Evatt has represented that the motel is likely to be a success, a
reasonable person in Norris’s position is entitled to think that Evatt has some
knowledge or information to support his claims. Therefore I think there is enough to
conclude that Evatt has some special knowledge/skill in relation to the matter being
discussed i.e. whether the motel will be a success (the first bullet point above is
satisfied).

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 5 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

Further, it is clear that Evatt would realize that his statements might be relied upon
(the second bullet point above) – Evatt has deliberately made the statements in order
to try and persuade Norris to purchase the property. It is Evatt’s intention that Norris
rely upon the statement; note – this is a different issue to whether Norris does in fact
rely upon the statement - this is discussed below under causation.

Given that Evatt has essentially represented that he has special knowledge in relation
to the motel, and given that Evatt clearly realizes his statements might influence
Norris in the purchase decision (that is precisely Evatt’s intention), we can conclude
that it would be reasonable for Norris to rely upon Evatt (the third bullet point above).

I would therefore conclude that the estate agent, Evatt, did have a duty of care in
relation to the statements made to Norris. Note that the duty of care would only
extend to those matters upon which Evatt has knowledge/expertise. I would say that
Evatt had a duty to be careful in relation to any statements made concerning the likely
demand (market) for the business (this is within his area of knowledge). Of course
factors apart from demand affect the likely success of a business (e.g. Norris’ cost
structures), and Evatt would have no responsibility in relation to such other matters.

[In the real life case (Norris v Sibberas [1990] V.R 161) upon which this problem is
based, the estate agent held herself out as an expert in relation to motel businesses
much more strongly than in this case. The estate agent said that she had owned motels
herself and had a lot of experience in the motel business.]

Was there a breach of the duty of care?

Having established above that Evatt did have a duty to Norris to be careful in relation
to any statements made, we must examine the actual words used by Evatt. The
statements that Evatt made to Norris were that, “once you got going this business will
a real gold mine” and that “you’ll be laughing all the way to the bank”.

A difference between our problem and Norris v Sibberas is that we are told that “there
were neither the tourist numbers nor local population to sustain the business”. In the
real life case it was not so clear that the location had a disadvantage in terms of local
population/tourist numbers. Here in our problem there is a stronger case for arguing

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 6 BUSN7052 – TUTORIAL 3, WEEK 4 - NOTES

that Evatt has breached his duty of care, compared with the real life case. Evatt has no
factual basis for creating the impression that the motel will be a great success, given
that it appears that there were objective factors to suggest that it would be difficult to
make the business profitable because the market was too small. A real estate agent
acting with reasonable care and skill would not make such optimistic statements
without any factual basis. Even if Norris in our case is able to establish breach, he will
have serious difficulty in satisfying the court in relation to causation (below).

Causation
Assuming Evatt has breached his duty of care, did Evatt’s breach of duty cause Norris
to suffer financial loss? (in the form of the failed business). I believe Norris’ action
will fail on the issue of causation for the following reasons:
• It appears that the advice of the accountant was critical to Norris in deciding to
purchase the business. The argument that Evatt would make is that it was the
accountant’s advice that induced Norris to purchase the motel, rather than
Evatt’s statements (Norris was relying on the accountant, and not the agent).
In the real life case of Norris v Sibberas, the court considered that the
purchaser had really relied upon the accountant (whose advice was obtained
subsequent to the agent’s statements as in our problem) rather than the estate
agent;
• Secondly, it appears that matters relating to Norris’s own financial
circumstances could be responsible for the failure of the business. Norris only
worked in the business for six months. In the context of trying to get a
business established, this is a very short period of time (perhaps he began with
insufficient capital).

[remoteness of damage is not an issue; if Norris was able to establish the other
elements of the negligence action (which I don’t think he can), then remoteness would
not present a problem for him]

Conclusion
For the reasons given above, I conclude that Norris would not succeed against Evatt
in an action in negligent misstatement.

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