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CLWM4000 Business & Corporations Law

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CLWM4000 Business & Corporations Law

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Course Code: CLWM4000
University: Kaplan Business School

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Country: Australia

Question:

Case Study
You are required to read the following case study and prepare a report 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 Council claims 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:

Issue 1
Whether Wollongong Council owes a duty of care towards Peter?
Rule 1
While filing a suit for negligence to recover damages from a party, it is important for the party to establish a duty of care. The duty is referred to a legal obligation which the party owes in order to maintain a standard of care while doing or not doing certain acts. In case the defendant did not owe a duty of care, then a suit for negligence cannot be filed for recovery of damages. In Donoghue v Stevenson (1932) AC 562 case, the court provided the ‘neighbour test’ which can be used to determine whether a person owes a duty or not. In this case, the claimant suffered illness after drinking ginger beer which was ordered from a café. The remains of a dead snail were present in the beer due to which the claimant suffered the illness. The court provided that a duty is owed by the defendant based on the neighbour test. The test provides that the parties must have proximity relationship between themselves and the risk must be foreseeable based on which a duty is established.
Application 1
Wollongong Council is the main authority in the Wollongong area which is responsible for managing the future investment projects in the area. Since Peter was investing in the area, proximity relationship exists between both parties. Moreover, the risk of damages was foreseeable as well because parties can suffer negative consequences in case they did not get the correct information about the future projects.
Conclusion 1
To conclude, Wollongong Council owes a duty towards Peter.
Issue 2
Whether the duty was breached by Wollongong Council?
Rule 2
In order to recover damages from a party in the suit for negligence, the aggrieved party is required to establish that the defendant violated the duty. An objective test is applied by the court to determine whether the duty is breached or not. In Vaughan v Menlove (1837) 3 Bing N.C. 467 case, the claimant suffered a loss because a fire caught in his haystack due to the failure of the defendant to maintain a standard of care. The defendant provided that as per his best judgement the risk of fire was not foreseeable. The court provided that the best judgement is not enough and the parties are required to take appropriate steps which a reasonable person would take in the particular situation as per the objective test.
Application 2
Before purchasing land in the Wollongong area, people read the certificate issued by Wollongong Council to learn about any future projects which might affect their investments. Any reasonable person would have included the information in the certificate regarding the road widening project since it could adversely affect the investment of people.
Conclusion 2
Therefore, the duty was breached by Wollongong Council.
Issue 3
Whether the damages suffered by Peter are caused due to the action of Wollongong Council and whether they are too remote?
Rule 3
The element of causation must be present while filing a suit for damages which provides that there must be a direct link between the damages suffered by a party and the negligent actions of the defendant. Moreover, it is necessary that the damages suffered by a party must not be too remote. The damages which are too remote cannot be recovered by a suit for negligence. A good example was given in the Wagon Mound no 1 (1961) AC 388 case in which a wharf was damaged because oil was leaked in Sydney Harbour due to the negligence of few crew members. The court rejected the claim by providing that the damages are too remote.
Application 3
Peter would not have suffered the loss if Wollongong Council had not breached the duty, thus, the element of causation is present. The damages are not too remote because the risk was foreseeable because people read the certificate of Wollongong Council before investing in the area.
Conclusion 3
To conclude, Peter suffered the loss due to the negligence of Wollongong Council and damages were not too remote.
Issue 4
Whether Wollongong Council can rely on the defence of contributory negligence?
Rule 4
The defence of contributory negligence provides that if a party fails to maintain a standard of care himself, then the amount of damages recovered from the negligence of the defendant is reduced by the court as per the contribution. In Imbree v McNeilly (2008) HCA 40 case, the claimant gave his car to the defendant who was a learner driver and had a little experience in driving. Both parties were involved in an accident, and a suit for negligence was filed by the claimant. The court reduced the amount of damages by 30 percent as per the contribution of the claimant.
Application 4
A standard was not maintained by Peter as he failed to read the certificate issued by Wollongong Council before making the decision for investment. However, the council did not have the information regarding this mistake, and there is no evidence available to provide the negligence of Peter.
Conclusion 4
Therefore, Wollongong Council cannot rely on the defence of contributory negligence.
Issue 5
Whether Wollongong Council can rely on the defence of voluntary assumption of risk?
Rule 5
The defence of voluntary assumption of risk provides that if a party accepts the risk involved in a particular act, then the suit for negligence cannot be filed by the party to recover the damages which caused due to the particular act. Certain elements must be present to rely on this defence. Firstly, the consent of the party must be given voluntarily, and secondly, an agreement must be formed between the parties prior to the incident. In Wooldridge v Sumner & Anor (1963) 2 QB 43 case, the court provided that the claimant must have the knowledge of the risk involved in a particular act.
Application 5
No agreement was formed between Peter and Wollongong Council, and Peter did not give his consent to accept the risk.
Conclusion 5
Therefore, the defence of voluntary assumption of risk cannot apply in this case.
Issue 6
Whether Peter can recover the economic loss suffered due to negligence of Wollongong Council?
Rule 6
Parties cannot recover the damages which resulted due to “purely economic loss” which means losses that did not result in physical injury or damages caused to the property. However, the party has the right to recover the compensation for the loss which is purely economic if it is caused due to negligent misstatement or another party as given by the court in Hedley Byrne & Co v Heller (1963) 3 WLR 101 case.
Application 6
The loss suffered by Peter is a purely economic loss for which a claim for compensation cannot be filed. However, the loss caused due to the negligent misstatement of Wollongong Council since it failed to provide correct information in the certificate.
Conclusion 6
Therefore, Peter has the right to recover the economic loss which is suffered due to the negligence of Wollongong Council.
References
Donoghue v Stevenson (1932) AC 562
Hedley Byrne & Co v Heller (1963) 3 WLR 101
Imbree v McNeilly (2008) HCA 40
Vaughan v Menlove (1837) 3 Bing N.C. 467
Wagon Mound no 1 (1961) AC 388
Wooldridge v Sumner & Anor (1963) 2 QB 43

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