ACCAspace Provided by ACCA Research Institute ACCA F4 Corporate and Business Law (CL) 公司法与商法 ACCA Lecturer: Eli Qiu ACCAspace 中国 ACCA 特许公认会计师教育平台 Copyright ACCAspace.com
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a) Explain the meaning of tort b) Explain the tort of passing off c) Explain the tort of including the duty of care and its breach d) Explain the meaning of causality and remoteness of damage. e) Discuss defences to actions in f) Explain and analyse the duty of care of accountants and auditors 3
The law of torts Definition of Tort civil wrongdoing Passing off Duty of care Neighborhood principle Donoghue v Stevenson auditors Breach of duty Fails to act reasonably Adjusting the standard of care Res ipsa loquitur Causation But for test Remoteness of damages defences 4
Professional Accountants and auditors Restriction of neighborhood Principle Caparo v dickman Negligent misstatements Special relationships Hedley byrne v heller 5
1 Explain the meaning of tort A tort is a wrongful act against an individual which give rise to a civil claim. As a tort is a breach of a legal duty, there is no liability unless the law recognizes that the duty exists. 6
2 explain the meaning of the tort of passing off In such cases one party is accused of misrepresenting themselves to the public in a calculated manner designed to allow them to benefit from parties goodwill. These actions are most commonly associated with trademarks and company names per Stringfellow v Mccain and HFC bank v midland bank Where it can be proved in passing off cases that there is a chance of genuine public confusion all lost trading profits can be awarded to the injured party in addition to an injunction over the use of names 7
3 Explain the tort of including the duty of care and its breach 3.1 Negligence is the breach of a legal duty to take care which results in damage to another. In order for an action in to succeed, the claimant must prove the following: a) A duty of care is owed to the claimant b) There has been a breach of that duty of care, being that the defendant has failed to act reasonably c) The breach of duty caused the harm to the claimant d) The losses were not too remote 8
3.2 duty of care A person is not automatically liable for the wrongful acts they commit. The first step in establishing liability is to prove that the defendant owed a duty of care to the injured party. A person s duty of care in tort was initially defined in Donoghue v Stevenson via the neighbor principle: You owe a duty of care to anybody who it may be reasonably foreseen will be affected by your negligent acts or omissions In this way it was established that a manufacturer owed a duty of care to the ultimate consumer of a product. 9
A consequence of the Donoghue ruling was that the scope of duty of care was extremely wide. The courts have subseq uently narrowed this duty in many areas as seen in follow on auditors. The current qualification of the duty of care was laid down in Caparo v Dickman via a three stage test: Was the harm caused reasonably foreseeable? Is there sufficient proximity between the defendant and the claimant? Would it be fair, just and reasonable to impose a duty of care? 10
In relation to the tort of, which Two of the following criteria are required to establish the existence of a duty of care? 1) The claimant suffered a financial loss 2) The harm suffered was reasonably foreseeable 3)A relationship of proximity existed between the parties 4) The claimant did not consent to cause the injury suffered 2014.12 11
3.3 Breach of duty of care Once it has been successfully proved a duty of care exists the claimant next has to prove that this duty has been breached. In order to do this it must be proved that the defendant failed to act reasonably per Blyth v Birmingham. This is an objective test, but not one intended to condone the incompetence of the wrongdoer 12
The standard of care owed by an individual defined in Blyth can be adjusted by the following: a) Skilled persons- i.e a qualified accountant owes a higher duty of care to a client than an unqualified bookkeeper- though all qualified accounts owe the same standard of care b) Likelihood of injury- where this is high the more the defendant will have to do fulfill his duty- Bolton v Stone c) The seriousness of the risk- the more serious the risk the more the reasonable man would do to mitigate this- Paris v Stephen d) Cost and practicability- the foreseeable risk must be balanced against the cost and practicality of eliminating the danger 13
e) Common practice Where an individual can prove their actions were in line with common practice or custom it is likely that they would have met their duty of care. This is unless the common practice itself is found to be f) Social benefit Where an action is of some benefit to society, defendants may be protected from liability even if their actions create risk. For example fire engine that speeds to a major disaster provides a social benefits may outweigh the greater risk to the public 14
Which of the following is the consequence when a patient s igns a medical consent form before an operation? A The patient gives up right of action for any injury suffered B any action for any injury suffered during the operation is l imited to C The level of any potential payment for any injury suffered is reduced 2014.12 15
Ordinarily the burden of proof in tort lies with the claimant. However where the facts speak for themselves the burden may be reversed Res lpsa Loquitur. It is now up to the defendant to prove they have not acted negligently. 16
4.1 Damage or loss A claim for compensation for will not succeed if damage or loss is not proved. A person will only be compensated if they suffered actual loss, injury damage or harm as a consequence of another s actions. Examples of such loss may include: Personal injury Damage to property Financial loss which is directly connected to personal injury, for example loss earnings Pure financial loss is rarely recoverable(spartan steel and alloys Ltd v Martin CO) 17
4.2 The next hurdle in tort is for the claimant to prove a clear link between the harm caused, and the breach of duty of care. This is a two-limbed test: 4.2.1 Causation in fact The but for test is used to establish a physical link between the breach and the harm suffered i.e. the claimant must prove that but for the defendant s actions the damage would not have occurred anyway- Barnett v Chelsea. 18
4.2.2 Causation in law Next the claimant must prove that there is no break in the chain of causation a a novus actus interveniens These are unforeseen events that break the link between the defendant and the eventual harm suffered and include: a) A natural event- earthquake, floods, fires b) Act of a third party- knightly v Johns c) Act of the claimant Mckew v Holland 19
4.3 Remoteness 4.3.1 The claimant must finally prove that losses sustained were reasonably foreseeable- The Wagon Mound (note hadlet v Baxendale in chapter 6 relates to foreseeability in contract law only it holds no relevance in the law of tort) 4.3.2 The thin skull principle may overrule the law of remoteness allowing the tortfeasor to be held liable for acts that would ordinarily be unforeseeable per the Wagon Mound test.the principle states that you must take your victim as you find them smith v leech 20
5 Discuss defenses to actions in The defendant has the following available where liability for tort has been established by the claimant: a) avoid- an employee can claim under the law of vicarious liability that it is their employer who is liable for their own per Limpus v London general Omnibus Co and Bread v London general omnibus co b) Avoid volenti non fit injuria (that to which you consent ) applies when there is a known risk on behalf of the claimant, such as accepting a lift from a drunk driver, in such cases though it must be proved that the claimant knew of,and voluntarily consented to, such risks. 21
c) Reduce- the contributory of the claimant can result typically in a reduction in damages of between 10-75%.where it can be proved that the claimant has contributed to their injury in some way fitzgerald v Lane&pate d) Limit the limitation act 1980 states that claims in tort should be brought to court within six years from the date of. For personal injury claims this has been reduced to three years. 22
In relation to defenses to the tort of, which of the ollowing is the consequence of a finding of volenti non fit injuria A It removes the requirement to pay damage B It reverses the burden of proof as to who can claim damages C It increases the level of damages D It decreases the level of damages 2014.12 f 23
6.1 negligent misstatements Historically it was not possible to sue for torts where the amounted to incorrect statements or advice. It was not until the case of Hedley byne v heller that a duty of care for negligent misstatements was established. In such instances the claimant must prove they were in a special relationship with the defendant to establish a duty of care i.e a) A client requested a professional opinion from their accountant/auditor b) The accountant/auditor gave an opinion acting in a professional capacity. The client relied upon the opinion,when it was deemed reasonable to do so. 24
c) The client suffered an economic loss as a result of reliance upon the opinion In such cases the tortious auditor/accountant may be liable for damages in tort subject to the usual governing breach of duty, causation and remoteness (unless a valid exclusion clause has been incorporated into the engagement letter) 25
6.2 Accountants and auditors The ruling in Hedley Byrne v Heller established that actions for negligent misstatement were possible. However it is still necessary to establish that you were owed a duty of care at that time the negligent misstatement occurred. When performing audit services the duty of care was defined in Caparo v Dickman: The duty of care when accounts are prepared extends only to the members of a company. This does not extend to members as individuals,or to potential purchasers of shares in a company.however this presumption can be rebutted where the accounts were prepared after express representations that they would be used for the purposed of a takeover- Morgan Crucible v Hill Samuel Bank or where an express statement is given by the auditor ADT v BDO binder Hamlyn 26
Which of the following are owed a duty of care by auditors when preparing a company s audit report? A A potential investor with no current holding B An existing shareholder looking to increase their holding C A company looking to make a takeover bid for the company D The company and the existing shareholders in the company as a body 27
6.3 Limitation of auditors liability Per the companies act 2006(CA 2006) it is now possible for an auditor to limit their liability for, default, breach of duty or breach of trust occurring in the course of the audit of accounts to a stated amount. Limited liability is not,however, a right and in order to secure such indemnity the members of the company must approve such agreements by resolution before the date that such an agreement becomes effective. 28
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