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Negligence of Wollongong Council for Economic Loss

You are required to read the following case study and prepare a 1,200 (+- 10%) word assignment following the IRAC structure.

Peter the Real Estate Developer

Peter is a real estate developer. He develops residential apartment complexes in the Wollongong

local area. He purchases a large block of land for $2 million and plans to build a large apartment

complex on the block at a considerable profit. But Wollongong Council denies his development

application on the basis of a road widening proposal that will substantially reduce the size of the

block. This road widening proposal reduces the value of the block of Peter’s land to $1 million.

Peter obtained a council certificate from Wollongong Council before he purchased the

block of land. He reviews the information in the certificate. If the block of land had been subject to a road widening proposal then it should have been disclosed by Wollongong Council in the certificate. There is no such disclosure in the certificate. As Peter didn’t bother to read the certificate before he purchased the land, he is relieved to find the council has made this mistake. He secretly knows that if Wollongong Council had been careful and included the road widening disclosure in the certificate, he would not have seen it and gone ahead with the land purchase anyway.

Peter now wants to sue Wollongong Council in negligence for economic loss. Wollongong Councilclaims that negligence only applies to physical actions, not written words, and is only applicable to physical damage to people or their property, not economic loss.

Advise Peter.

Answer

Duty of Care

Issue: The issue is related to circumstances where a local governing body can be held responsible for the information supplied by it to the members of the general public.

Rule: In this case the court stated that a person has a duty of care regarding the provision of advice on information in case the person carries on a business or profession and in the course of such business or profession, the person has provided advice or information of the kind that requires skill and competence or if otherwise the person professes to have such skill and confidence and has provided advice or information when the person was aware that the other person is going to act all rely on such advice or information (Caparo Industries plc v Dickman 1990).

Application: The facts that are given in this question are somewhat similar to the famous case of Shaddock v Paramatta City Council (1981). 

Conclusion: Therefore the principles that have been provided by the High Court in this case can be applied to the facts of this case.

Is there any Breach?

Issue: At this point it needs to be noted that the responsibility for negligent misstatement is not restricted to the persons who carry on or profess to carry on a business, profession or occupation in which the possession of skill and competence is involved. 
Rule: in this case, the court had stated that it is not concerned with the advice given by life insurance company regarding an investment regarding which it had special knowledge, but it is related with information that is provided by the local authority, regarding a proposed road widening proposal.

Application: It is required in such cases that the party making the statement should hold itself to have certain special skill. 

Conclusion: Therefore it is not sufficient if the statement has been made in context of business and if the person making the statement has not hold himself to possess expertise in that particular field. 

Damages

Issue: This issue was decided by the court in Mutual Life & Citizens Assurance Co Ltd v Evatt. Rule: In this case the court stated that a special room relationship arises between the parties only in cases where the party giving the advice is related involved in the business of giving advice and allows it to be known that such party claims to have the skill and the competence in that particular field, and thereby such party is ready to exercise the usual level of skill and competence that is generally exercised by the persons who are involved in some profession. Application: Moreover, the court stated in this case that the defendant was an insurance company and therefore, although it had given the advising context of business, but it did not hold itself as possessing the special skill of a financial advisor.

Conclusion: As a result, the party was held not liable for merely supplying a report related with the affairs of a subsidiary to the policyholder at its request.

Defenses

Issue: The tort of negligent misstatement has been described as an inaccurate statement that has been made honestly but carelessly.

Rule: Generally such statement is made in the form of advice that is given by one party claiming to have special skills or knowledge to the other party that does not have such skill or knowledge (Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, 1997). In the modern society, we see different types of tort, some having their roots dating back to the medieval times, and since then, they have been recognized by the courts.

Application: In order to prove negligent misstatement, the claimant is required to establish the breach of elements of negligence as most torts have common elements as follows:-

Element of Fault: it has to be established that proof is present, which reveals that one party has committed the tortious act, either negligently or intentionally.

Element of actual damage: the onus is on the plaintiff to establish that it had suffered actual damage due to the tortious act of the other party.

Element of remedy: due to the reason that the law of Tort is related with providing compensation to the victim instead of punishing the wrongdoer, the courts apply the rule to place the victim in the same position, where it was before the infringement took place, possible by providing monetary compensation (Chambers, 1989). 

Conclusion: In this way, a person has a legal duty of care towards the other person in the case. Based on negligence. 

First of all it has to be seen if it was reasonably foreseeable that the actions of the defendant are going to result in loss to the other party. For example in the present case, it has to be seen in Wollongong local area Council had a duty of care towards Peter

The next step is step is to consider how vulnerable the plaintiff (Peter) was? 

Standard of care: the standard of care is, what is going to be considered to be observed by an ordinary prudent person. Therefore, the standard of, reasonably prudent person has to be applied in case of the party giving the advice (Brown, 1975).

Compensation

Issue: Under the Australian law, negligence claims related with your economic loss has always been considered as being different from other types of negligence claims as in these cases the claimant has suffered monetary loss, but not any physical injury. 

Rule: Traditionally the courts in Australia have been reluctant to allow the debris of such claims, as the courts were concerned that if such claims were allowed the defendant may have to deal with in determining the liability (Katter, 1999). On the other hand, if although it has now been properly established that the law in Australia allows the claims related with pure economic loss under certain circumstances, the legal basis for distinguishing between such claims that are going to be allowed and those are not going to be allowed, has not been explained completely yet.

Application: In order to establish that Wollongong Council, it is required that the harm suffered by the other parties with the reasonably foreseeable. It is also required that the defendant should have knowledge, giving inaccurate information regarding the road widening project is going to result in economic loss for persons who are going to directly rely upon the use of such information. The imposition of duty under the circumstances is not going to impair the legitimate personal of commercial interests by the defendant and the damage suffered by the claimant is the result of the occurrence of activities that were within the control of the defendant. 

However in the present case, the development application made by Peter was denied by Wollongong Council due to the reason that there was a road widening proposal as a result of which the size of the block was going to be reduced significantly. Moreover, as a result of the road widening proposal, the value of the block of land belonging to Peter was going to be reduced to $1 million from its current price of $2 million. However, even Peter obtained a Council certificate from Wollongong Council and reviewed the information provided in the certificate, he came to know that the council had not made any disclosures regarding the road widening proposal. As Peter did not read the certificate before purchasing the land, he now wants to rely on the certificate and claim damages for the mistake made by the Council even if he secretly knew regarding the road widening proposal. 

Conclusion: Under the circumstances, be they cannot be allowed to sue Wollongong Council for economic loss. Even if the courts allow the recovery of purely economic loss but in the present case, Peter had not relied on the information provided by Wollongong Council and as a result we have not suffered any loss on account of the misrepresentation made by Wollongong Council. 

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