Legal Concept of Negligent Misstatement

Order Instructions

Textbook: Business and corporations law – 2nd e. by Fitzpatrick, Jeffrey F; Symes, Christopher F; Veljanovski, Angelo; Parker, David.

Case Brief

George and Mabel are neighbours. George has recently retired and now has $750,000 in superannuation.

One Sunday afternoon, while their families were having a BBQ and a few glasses of beer together, George asks Mabel, an accountant, if he should invest $200,000 of his superannuation funds in Midget Widget Ltd. Mabel tells George that she had looked at the accounts of that company a couple of months ago and it was a good investment. She tells George that she will check on the company again when she got to her office.

Two days later she rang George to tell him that he should talk to a registered financial planner before proceeding. Unfortunately, George had already gone ahead and purchased the shares.

Mabel does NOT charge George for her services, as they are neighbours. Mabel’s main area of accounting work is preparing small-scale tax returns where she is extremely diligent and follows industry ‘best practice and standards’. She and her staff always keep up to date by attending all of the continuing professional development events that are required of them by the profession.

Unfortunately, Mabel had previously misread the accounts of the company, which was almost insolvent. After George invested his money, Midget Widget immediately goes into liquidation and George loses all $200,000. George discovers that many accountants/financial planners were aware of the poor financial position of the company and warnings had been published in several accounting journals and financial newspapers that Midget Widget was in financial trouble.

Do not discuss the elements of contracts.

TASK 1 – PROBLEM SOLVING QUESTIONS:

  1. Discuss whether George has any legal rights in negligent misstatement against Mabel.
  2. Consider whether the legal position would be different if:
  3. a) Mabel had charged George for her services.
  4. b) Mabel had given George her business card before telling him that the company was a good investment. George read on the back the clearly printed words – “Any investment advice we give is not guaranteed because the share market can be extremely volatile. We take no responsibility for the accuracy of any such advice.”

Requirements:

With reference to the legal concept of negligent misstatement, advise George and Mabel of the possible legal issues involved including the elements of negligent misstatement and discuss the likelihood of their success with each of the issues. In doing this your answer should deal with any tests or indicative factors that have been established by the courts, so as to show whether the elements have been established or not.

Your answer should be well structured. You must use the ILAC method wherever necessary. You are required to cite relevant and appropriate Australian laws, Australian cases.
ILAC: The basic procedure is that an answer should:

  • I = Identity the relevant issue/s in the question
  • L = State the legal principles (law) that relate to the issue
  • A = Apply that law to the facts in the question
  • C = Give a conclusion

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