ACCT90015

Legal Issues for

Business
Semester 1 2024

Topic 7
Business and Negligence

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 REFLECTION
https://todayspaper.heraldsun.com.au/html5/reader/production/default.aspx?pubname
=&edid=715f3dd9-07b4-41a5-b642-44f4ee8f042a
https://www.accc.gov.au/media-release/accc-takes-court-action-alleging-qantas-adve
rtised-flights-it-had-already-cancelled
https://www.klgates.com/ACCC-takes-off-against-airlines-no-refund-policies-02-08-
2019
 LEARNING OUTCOMES
1. Understand the concept of “duty of care” and negligence from a business
perspective;
2. Explain and apply the elements of negligence to a business case;
3. Understand the defences available to a business in an action for negligence;
4. Differentiate between damages and pure economic loss;
5. Understand the duties of a professional adviser;
6. Apply risk strategies to mitigate business negligence;

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 CONSIDER…
Read the following problem:
Microsoft Word
Document

During this session we will be identifying issues that should assist you in discussing
the problem.

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 NEGLIGENCE ELEMENTS
Duty Breach

Negligence

Causation Damages

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 OVERVIEW
All persons have the duty to act reasonably and to exercise a reasonable amount of care in their dealings
and interactions with others.
Breach of that duty, which causes injury, is negligence. (Tort law - A tort is a legal wrong which one
person or entity (the tortfeasor) commits against another person or entity and for which the usual
remedy is an award of damages.) Negligence is doing or failing to do something that a reasonable
person would, or would not, do and which causes another person damage, injury or loss as a result.

There is a lack of intent to cause harm.

To prove negligence the plaintiff (the person harmed or injured) must demonstrate four (4) elements:
1. The defendant (e.g., the business) owed a duty of care to the plaintiff
2. The defendant (business) breached that duty;
3. The defendant’s conduct caused the injury or harm;
4. The plaintiff has to demonstrate legally recognisable injuries or harm 6
 NAME THE CASE…
The plaintiff entered the supermarket of the defendant to purchase some cheese. The foyer
area was vinyl-tiled and due to it being a rainy day the floor was wet and moist. Before the
plaintiff entered the supermarket she slipped and fell heavily and sustained serious
physical injuries. The plaintiff initiated a claim for negligence against the defendant.

Decision: This is the standard of care owed by an occupier of premises to those entering
the premises. The court said that the plaintiff was a lawful entrant to the shop and that the
defendant owed a duty of care to avoid the risk of injury to all persons entering the
premises. The duty was breached.

Case? Australian Safeway Stores v Zaluzna

What actions would you take as a landlord or owner of a building?

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 DUTY OF CARE
Duty that one person owes to another person to avoid causing reasonably foreseeable
harm to that person. It is not owed by every person to every other person. There must be
sufficient relationship of proximity or closeness between two (2) people in order for a
duty of care to exist.
There is no single test that exists to assess whether a duty of care exists. The most
commonly cited test is the “neighbour principle” from Donoghue v Stevenson. Lord
Atkin said:
“You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be
likely to injure your neighbour. Who, then, is law, is my neighbour? The answer seems to be – persons
who are so closely and directly affected by my act that I ought reasonably to have them in contemplation
as being so affected when I am directing my mind to the acts or omissions which are called in question.”
Can you identify some common examples that give rise to a duty of care? Go to:
https://unimelb.padlet.org/dannyburton/ghy2p2w97bcxj98s
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 REASONABLE PERSON
The duty owed is based on what a reasonable person would do. Who is a reasonable person?
The reasonable person refers to a hypothetical person who demonstrates average judgment or skill. The reasonable person
has various generalised attributes including risk aversion, sound judgment, and a sense of self-preservation, which
prevents them from walking blindly into danger.
The reasonable person is pure legal fiction. It was crafted by judges to represent the concept of the Common Law and
used as a tool to standardise the application of the law.
How can the reasonable person test be used in business?
The reasonable person test is a legal standard. However, because it represents community standards of behaviour, it is also
a helpful benchmark to use to make good business decisions.
The reasonable person test
In an age of ethical consumerism, it is important to ensure that business decisions are made in a way that would not lead
to a boycott of a business’s goods or services.
The reasonable person test is said to be purely objective.

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 REASONABLE CARE
Reasonable care is “the degree of caution and concern for the safety of the self and others an
ordinarily prudent and rational person would use in the same circumstances.” It acts as a minimum
standard that must be met, and failure to provide reasonable care in a situation can leave a defendant
in a position to be accused of negligence.
Examples of Reasonable Care?
1. There is a duty of “reasonable care” for drivers of vehicles on public highways. A driver may
fail to abide by the State of Victoria rules of the road, while driving and cause an accident. In this
case the driver would have failed to provide “reasonable care” and may be held responsible for
damages under the tort theory of negligence.
2. A childcare centre has a duty of reasonable care to the children that attend the centre. Recently a
child went through an open gate and was seen walking down the footpath next to a busy road.
See: https://7news.com.au/news/vic/melbourne-mum-demands-answers-after-toddler-daughter-escapes-childcare-centre-unsupervised-c-6848865

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 DUTY OF CARE
LEGISLATION/ARTICLES
Victoria - https://www.armstronglegal.com.au/commercial-law/vic/tort-law/wrongs-act/
New South Wales -
https://www.armstronglegal.com.au/commercial-law/nsw/tort-law/duty-of-care/
South Australia - https://tgb.com.au/injured-people/but-what-about-duty-of-care/
ACT - https://www.armstronglegal.com.au/commercial-law/act/tort-law/duty-of-care/
Queensland - https://www.armstronglegal.com.au/commercial-law/qld/tort-law/duty-of-care/
Western Australia -
https://www.armstronglegal.com.au/commercial-law/wa/tort-law/duty-of-care/
Northern Territory -
https://legislation.nt.gov.au/Legislation/PERSONAL-INJURIES-LIABILITIES-AND-DAMAGES
-ACT-2003
Please note: Claims can also be made under the Common (Case) law.
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 EMPLOYER’S DUTY OF CARE
What does it mean?
There are a number of duties that are owed by an employer to an employee including:
• The duty to provide competent staff;
• The duty to provide a safe place of work;
• The duty to provide proper and adequate materials; and
• The duty to provide a safe system of work and supervision.
One of the most important duties owed by an employer to an employee is to take
reasonable care to protect the employee against foreseeable injury arising out of their
employment. This duty is personal and non-delegable ie duty can’t be delegated to some
other party!
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 EMPLOYER’S DUTY OF CARE
Note: The employer’s obligation is not(CONT.)
merely to provide a safe system of work, but it is also an
employer’s obligation to “establish, maintain, and enforce such a system…” Mclean v Tedman [1984] 155
CLR 306 at 313

If you are injured at work doesn’t workers compensation legislation allow you to claim damages?
Yes
However, most worker’s compensation legislation has capped amounts for such injuries or harm.
This reduces the amount available to the worker.
Discuss the employer’s duty of care:
Benny Elliott suffers from claustrophobia ( an extreme or irrational fear of confined spaces). As part of an office reorganization Benny’s desk
is moved to an area within the factory with no windows and space for only one (1) desk. Within the first hour of the move to the new work area
Benny suffers a reaction and psychological injuries.

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 EMPLOYER – REASONABLE
Employers should: CARE?
a) Have an employment contract for each employee outlining their role and duties;
b) Have clear policies and procedures to management risk and complaints including bullying an harassment
policies;
c) Be mindful of the risks associated with a workplace investigation and employees suffering psychological
injuries;
d) Engage external parties who are trained and experienced;
e) Provide training to management in order to recognise and address safety risks including mental health;
f) Where a breach of policy occurs, take steps to address the complaint or safety risk
appropriately;
g) Provide support to management to recognise and respond to employee concerns regarding managing
workloads, being alert to absenteeism or significant changes in the employee’s performance;
h) Provide employee training on mental health and how to manage stress. 14
 BREACH
You have established that a duty of care exists.
OF DUTY
What is the standard of the duty of care? That is, what specifically did the duty of care require to be
done or not done?
Standard of care is that of a reasonable ordinary person.
(The standard is higher in cases involving professional negligence – see later)
If a person has failed to meet the standard of conduct by doing something less than would be
expected of a reasonable person, they will have breached their duty of care.
Examples:
The most common examples are those that apply to everyday activities such as driving. All road users (including
pedestrians) are expected to behave according to what is reasonable. Examples of failure to meet a standard of care:
• where a driver fails to keep a lookout and as a result runs into the car in front of them
• where a driver is travelling too close to the car in front of them and fails to allow an adequate stopping distance between
their car and the one in front. 15
 BREACH
When is Duty of Care Important?
OF DUTY (CONT.)
Duty of care is important because it guides the way you interact with others. The main time
you will hear about it is when an individual alleges that the duty has been breached. It is
breached when the following criteria are met:
A person experiences harm because of the action (or occasionally inaction) by another person.
•It was known that the harm encountered would be caused by that individual’s action (or
inaction).
•The risk that injury occurring was not minimal and not insignificant
•The action (or inaction) is unreasonable in the circumstances.
Establishing a breach of the duty of care—the four factors
1.probability of harm occurring.
2.seriousness of the harm should it occur.
3.utility of the defendant's activity.
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 BREACH OF DUTY - STATUTES
Wrongs Act 1958 (Vic)
See: http://www5.austlii.edu.au/au/legis/vic/consol_act/wa1958111/s48.html
Factors:
1. Risk was foreseeable;
2. Risk was not insignificant; and
3. In the circumstances, a reasonable person would have taken precautions

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 BREACH OF DUTY – CASE
LAW
Case: Wyong Shire Council v Shirt (1980) 146 CLR 40
“Foreseeable” and “not insignificant” risk
• A risk is real and foreseeable if it is not far-fetched or fanciful, even if it is extremely
unlikely to occur;
• The assessment of the risk of harm is one made by looking forward before the injury
happens not backwards from the time of the claim (prospective not retrospective);
• The probability of the occurrence of the risk is both a quantitative and a evaluative
measurement;
• Depends upon the context of facts, matters and circumstances for its meaning;
• Objective test of the defendant’s actions – judged at from an outside point of view
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 BREACH OF DUTY –
CONSIDER…
Probability – harm would occur if care were not taken
Baseball was hit nearly 100 metres over a 3 metre fence and injured a person outside
(If the risk of injury is low, no action needs to be taken. If the risk of harm is high, more likely precautions required)

Gravity – likely seriousness of the harm

Plaintiff was blind and footpath and roadworks were being completed
(If there is a serious risk of injury a higher standard of care is expected)

Practicality – burden of taking precautions to avoid the risk of harm

A worker, one of 500, slipped on the factory floor after the floor had been flooded. The owners had
mopped up, put warning signs out, and put saw dust down to reduce the likelihood of anyone slipping.
(Need to balance the risks against the costs for taking different types of precautions eg closing the factory)

Social utility – of the activity that creates the risk of harm

If the activity is a benefit to society, the courts will balance this against the risks 19
 CAUSATION
Section 51 (1), Wrongs Act 1958 (Vic), states that causation comprises the following
elements:
a) that the negligence was a necessary precondition of the occurrence of the harm (factual
causation or the “but for” test) and
b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm
so caused (scope of liability; reasonable foreseeability or the “Remoteness” test).
For factual causation ask the following:
Would the plaintiff have suffered harm “but for” (if not for) the defendant’s act (or except for the
defendant’s act)?
And then for remoteness ask:
Did the act cause the type or kind of damage that was reasonably foreseeable but the damage
caused by the act was too remote
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 CAUSATION – CASE LAW
Overseas Tankship v. Morts Dock & Engineering Co., Ltd. “Wagon Mound No. 1”
Brief facts: The defendants negligently caused oil to spill into the Port of Sydney and
did minimal damage to the plaintiff’s wharf. The oil subsequently caused a fire when
molten metal dropped into the water and ignited cotton waste floating in the port.
Issue: Whether the fire that destroyed the Plaintiff’s wharf was a foreseeable
consequence of the Defendant’s negligence.
Held. The injury to Plaintiff’s property, though a direct result of the defendant’s
negligence, was an unforeseeable consequence and liability does not attach.

(Note: When discussing causation make sure you link the chain of events.)

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 CAUSATION
Example:
A van with the name, “Side by Side” is involved in an accident caused by the driver using a
mobile phone whilst driving. He injures, David and Denise Daicos, and they sue the company
that owns the van. Matt McGuire did not see the accident and does not know the Daicos
family. However, every time he sees a “Side by Side” van he suffers a panic attack. He sues
the company for damages.
Discuss

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 DEFENCES
As a business owner (or as we will consider later, a professional adviser) it is important firstly to
try an limit, reduce or mitigate any claims for negligence or any type of legal action.
However, there are two (2) defences that may be used to be either a complete
defence or a partial defence. These defences are:
1. Voluntary Assumption of Risk (“VAR”); and
2. Contributory negligence

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 VOLUNTARY ASSUMPTION OF
RISK (“VAR”)
A defendant can avoid liability by establishing ‘voluntary assumption of risk’ by
the plaintiff. The defendant must show that the plaintiff:
•was fully aware of the risk involved in the activity
•had a full appreciation and comprehension of the nature and extent to the risk and
•voluntarily accepted the whole of that risk.
If the risk is an obvious risk, the plaintiff is presumed to have been aware of the risk
unless the plaintiff proves otherwise

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 CONTRIBUTORY NEGLIGENCE
Contributory negligence is a failure by a plaintiff to take reasonable care for their own safety in the circumstances where
that failure contributed to the accident.
In other words, the plaintiff contributed to their own injuries because of their own actions or omissions. A court may
reduce damages by an amount it considers fair and equitable having granted the extent of the plaintiff’s share of
responsibility for the harm. It may also reduce the plaintiff’s damage by 100% on account of contributory negligence if it
considers it just and equitable to do so.
Common examples of contributory negligence include:
• failing to wear a seat belt
• intoxication
• a pedestrian running out onto the road
• an employee failing to wear proper safety equipment provided by the employer.
When considering the question of apportionment of responsibility, the court will consider the entire conduct of both
parties in relation to the circumstances of the accident and make a comparison between their respective departures from
their obligations.
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 IN CLASS DISCUSSION
Can you now answer/discuss the problem presented at the start of the session?
ACCT90015 Legal Issues in Business
Topic 7
Business and the Duty of Care
Problem
National Hoopball Pty Ltd (“National”) have developed a basketball ring, using recycled
materials, that can attach to a brick wall. The director, Maji Johnson, had discussed some of
the legal issues with a non-lawyer friend and he was sure that the business was covered in the
event of any issues with the basketball ring.
National had prepared user instructions in three (3) languages, English, Chinese, and Arabic.
The instructions included warnings regarding the following:
 The basketball ring must not be attached to a plaster wall;
 Dyna bolts are to be used when attaching the basketball ring to a brick wall;
 Users should not ‘hang off’ the ring;
National knows that the basketball ring may not support the weight of an adult when it is
attached to a plaster wall.
Charlie, Han and Rami were keen basketball players and often watched the NBL on Foxtel.
They purchased the new National basketball ring from In Sports and read the instructions.
They purchased the necessary dyna bolts and attached the basketball ring to the brick wall at
the side of their house. They do not realise that the brick wall is actually faux brick and the
dyna bolts were actually bolted into plaster.
Charlie’s family was hosting some Ukrainian
students who had been left homeless due to the
current crisis. They did not speak English but they
were also all keen basketball players and watched
the NBL on ESPN when they could. They loved
hanging off the ring after a slam dunk and
showing off.
Faux brick wall One of the Ukrainian students, Anton, went for a
huge slam dunk and grabbed hold of the ring to
show off. The ring detaches from the wall, Anton
lands on his back and the ring hits Anton in the head causing cuts, bruises and a black eye.
Anton tries to get up but he cannot move his legs. It is later discovered that Anton has
become paralysed from the waist down as a result of his fall.

Required: 28
Discuss the implications for National Hoopball Pty Ltd.
 OTHER TYPES OF DAMAGES…
So far, we have considered such damages as personal injury, nervous shock, and damage to
property…
We have identified the elements of negligence when considering who is liable for the damages…
Duty of care, breach of duty, causation, and damages
However, what if the damage is not an injury, nervous shock or damage to property?
What if the damage is a financial loss or an economic loss and there are no injuries, nervous shock
or damage to property?
What if the advice you were given was negligent?
Remember the meaning of negligence – “doing or failing to do something that a reasonable person
would, or would not, do and which causes another person damage, injury or loss as a result.”
We will now consider a loss caused by negligent misstatement…

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 WHAT WE KNOW…
Negligence arises(OR
from a dutySHOULD
of care, a breach of thatKNOW!!!)
duty, a direct link between the breach and
damage/injury, and the damage/injury.
There are recognised relationships where a duty of care exists – manufacturer, doctor, lawyer, road
user, employer etc.
The duty of care exists when there is a sufficient relationship of proximity or closeness between two
(2) people. The duty is based on what a reasonable person would do.
Then…
Establishing a breach of duty requires consideration of four factors:
• Probability (likelihood) of harm occurring
• Seriousness (gravity) of the harm should it occur
• Utility of the defendant’s activity; and
• Cost of precautions (practicality). 30
 WHAT WE KNOW…(CONT.)
Re-read the duty of care legislation articles in Topic 8
See Wyong Shire Council v Shirt (1980) 146 CLR 40
Defines ‘foreseeable’ and ‘not insignificant’ risk
Then…
Causation
Consider:
a) Would the plaintiff have suffered harm “but for” (if not for) the defendant’s act (or except for the
defendant’s act) (Factual causation); and
b) Did the act cause the type of kind of damage that was reasonably foreseeable but the damage caused by
the act was too remote (Remoteness)
See Overseas Tankship v Morts Dock and Engineering Co. Ltd
Held: the injury/damage to plaintiff’s property, though a direct result of the defendant’s negligence, was an
unforeseeable consequence and liability does not attach. 31
 WHAT WE KNOW…(CONT.)
The plaintiff has the onus (burden of proof) in proving the elements of negligence.
Our damages include:
• Personal injury
• Nervous shock (a psychiatric/mental illness); or
• Damage to property

Then…

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 WHAT WE KNOW…(CONT.)
Defences (onus is now on the defendant)
Voluntary assumption of risk (VAR) – must show that the plaintiff was:
- Fully aware of the risk involved in the activity
- Full appreciation and comprehension of the nature and extent of the risk; and
- Voluntarily accepted the whole of that risk

Note: if the risk is an obvious risk the plaintiff is presumed to have been aware of the risk
unless the plaintiff proves otherwise
Contributory negligence
Failure by the plaintiff to take reasonable care for their own safety

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 OTHER TYPE OF DAMAGES
Not
• Personal injury
• Nervous shock; or
• Damage to property
What if the damage is a financial loss or economic loss and there are no injuries or damage
to property?
What is pure economic loss?
Where the plaintiff suffers a financial loss due to the negligence of the defendant.
Each decision of a superior court touching on this issue is eagerly anticipated in the hope that such
decisions may clarify the law.
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 PURE ECONOMIC LOSS
A defendant will then be liable for economic damage due to his negligent conduct when he can reasonably foresee that a
specific individual, as distinct from a general class of persons, will suffer financial loss as a consequence of his conduct.
This approach eliminates or diminishes the prospect that there will come into existence liability to an indeterminate class of
persons; it ensures that liability is confined to those individuals whose financial loss falls within the area of foreseeability“
(Mason J)
There are at least three considerations which have been, and will remain, influential in restraining acceptance of such a duty
of care in particular cases, or categories of case.
First, bearing in mind the expansive application which has been given to the concept of reasonable foreseeability in relation
to physical injury to person or property, a duty to avoid any reasonably foreseeable financial harm needs to be constrained
by "some intelligible limits to keep the law of negligence within the bounds of common sense and practicality‘’.
Secondly, to permit recovery of foreseeable economic loss, which may or may not occur in a commercial setting, for any
negligent conduct, may interfere with freedoms, controls and limitations established both by common law and statute in
many legal contexts.
Thirdly, in those cases where the loss occurs in a commercial setting, a third party, C, may suffer financial harm as a result
of conduct which is regulated by a contract between A and B. It may be that the consequences of such conduct, as between A
and B, are governed and limited by the contract...

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 CONSIDER THE FOLLOWING…
Remember the Overseas Tankship v Morts Dock & Engineering case
Held: the damage to the plaintiff’s property, though a direct result of the defendant’s negligence,
was an unforeseeable consequence and liability did not attach.
Could the plaintiff have sued for economic loss if the damage to the wharf resulted in a financial
loss?
When will a duty exist to protect another person from pure economic loss?
Current criteria discussed in Frank Perre & Ors v Apand Pty Ltd (12 August 1999) High Court of
Australia:
• Foreseeability
• Proximity
• Indeterminacy
• Vulnerability
• Reliance and assumption of responsibility
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Foreseeability
CRITERIA
It remains clear that a precondition to the existence of a duty of care in economic loss cases is reasonable foreseeability of the risk of
harm. In all cases there must be factual inquiry into whether the loss sustained by members of an identified class was foreseeable.

Proximity
The test of proximity has historically been a necessary ingredient of a duty of care. Proximity in this context means that it is necessary to
show that a plaintiff and a defendant are in a proximate relationship to each other. Proximity is one of those legal concepts where judges
speak with slightly differing voice. The classic definition of proximity involves analysis of the relationship between the parties and
establishing if the person injured is a neighbour. “Nearness and closeness” remain a very important starting point.
Parallel to neighbourhood is whether there exists any policy or other reason which militates against a finding of proximity. These are
called policy considerations. Traditionally the courts ask whether it is fair, just and reasonable to impose a proximate relationship.

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 CRITERIA (CONT.)
Indeterminacy
One of the factors militating against the existence of a proximate relationship in past cases has been a concern that to
impose liability would amount to imposing an indeterminate liability without appropriate control
mechanisms. Determinacy remains a factor which establishes the existence of a duty of care as a result of this
judgement. It remains a legitimate and justifiable concern. In this case, the court’s general view was that there was
no risk of an indeterminate liability. This appreciation was critical to its success. Determinacy is always a question
of fact.

The High Court has provided some useful guidelines on the issue of what amounts to indeterminate
liability. Claimants which can be identified are not an indeterminate class. Provided there are objective criteria, the
class can be large. It follows therefore that the size of the class and the number of potential claims does not appear to
be relevant.

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 CRITERIA (CONT.)
Vulnerability
An interesting issue to arise out of the judgements of the High Court is focus on vulnerability as a factor specific to
the existence of the duty of care. Where persons are vulnerable and not in a position to protect themselves, the court,
it appears, is more likely to impose a duty. McHugh J, who dealt with the issue of vulnerability at considerable length
said:
“if the plaintiff had taken or could have taken steps to protect itself from the defendant’s conduct and was not induced
by the defendant’s conduct in taking steps, there is no reason why the law should step in and impose a duty on the
defendant to protect the plaintiff from the risk of pure economic loss.”
There are interesting passages in some of the judgements on other steps of self-protection. Self-protection varies
naturally from case to case based upon the relevant facts. One specific issue raised was insurance and whether the
fact that a plaintiff is able to buy insurance is relevant to the issue of vulnerability.

Reliance and assumption of responsibility

As in all cases any claimant must prove that he or she relied upon the conduct complained of and that there was an
assumption of responsibility by the defendant.
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 CASE STUDY
Refer Handout

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