Negligence and Negligent Misstatements

Accident Compensation Act & Negligence

Section 3,171 of the Accident Compensation Act

Bars lawsuits for personal injury claims if coverage exists under the act.
Plaintiff must state, "I suffered personal injury."
Exemplary damages are unlikely unless the situation is extreme.
Litigation should be avoided if coverage applies.

Negligent Misstatements

Statements vs. Actions

Statements are treated differently than negligent actions.
Foreseeability alone is insufficient to establish a duty of care, especially in negligent misstatement cases.
Foreseeability is more significant in cases involving statements leading to personal injury, such as mislabeling of pharmaceutical products.
These cases are distinct from typical negligent misstatement cases like Hadley Byrne & Co. v Heller & Partners Ltd. $[1964] AC 465$

Kaparo Case

Facts: The plaintiffs relied on certified accounts to make investment decisions, specifically a takeover of Fidelity company.
Allegation: Negligence in the certification of accounts led to financial loss.
Loss Type: Pure economic loss.

Pure Economic Loss

Defined as loss that is not consequential on physical damage; it's "just money."
In general negligence law, pure economic loss is not recoverable, except in cases of negligent misstatement causing pure economic loss, known as the "Hedley Burn exception" in English tort law.
This applies when there is a duty of care owed, the speaker fails to exercise reasonable care, and this failure causes loss.

New Zealand's Approach to Pure Economic Loss

Differing from the UK, New Zealand courts have a different stance, especially in negligent building situations.
Example: A builder negligently installs foundations or a supporting beam in a house.
If a buyer discovers these defects, their loss is characterized as pure economic loss because they likely overpaid for the house.

Courts' Perspective

New Zealand courts are less impressed by the distinction between physical damage and pure economic loss.
Scenario: A negligently installed beam crashes onto a Steinway piano, causing property damage. The English courts would distinguish this from pure economic loss.
New Zealand courts find it illogical to allow recovery only when negligent building causes physical damage.

Building Context

In New Zealand, the Hedley Burn exception isn't seen as an exception to the rule against recovering for pure economic loss.
The New Zealand courts departed from the English view, adopting a different approach to liability in the building context.

Koparo Case

Two Problems

The case involves a negligent statement, not a negligent act, and it caused pure economic loss.
This differs from classic negligence causing physical injury or property damage.
The courts adopted a different approach due to concerns about proximity and the relationship between the defendant and the plaintiff.

Proximity Analysis Factors:

Auditors are highly trained professionals.
Reliance on the auditor's statement by the plaintiff.
Lack of alternative means of obtaining the information.
Company's asset value exceeds its market value, making it a takeover target.

Auditors' Role (Explanation by Fong Chuang)

Responsibilities

External auditors review financial statements to ensure they provide a true and fair view of the company's past performance and current financial position.
They ensure financial statements are free from material misstatement and comply with relevant accounting standards.
Materiality levels depend on the size and scale of the company.

Accounting Standards

Approximately 50% of entities worldwide comply with U.S. GAAP (Generally Accepted Accounting Principles).
The rest, including the European Union, Australia, and New Zealand, comply with International Financial Reporting Standards.

Independence of Auditors

Independence from the client is crucial.
After the Arthur Andersen case, non-audit and audit services were separated to ensure independence.
Requirements for audit firm rotation and audit partner rotation exist to maintain independence.

Independent Auditors' Report

Reports are for the members of the company, including shareholders.
This reflects Lord Oliver's analysis about who the report is for.

Sources of Liability

Criminal liability.
Prosecution.
Liability under contract law.
Tort law: Auditors can be sued for negligence if they breach a duty of care.
Kuparo focuses on whether a duty of care existed towards a third party who suffered a loss.

Standards and Breach

If a duty of care existed, the standard of care required is determined by regulations and statutes.
Question: Did the auditors apply the right standards and exercise reasonable care?

Plaintiff's Argument

Proximity: Auditors are professionals, highly trained, independent, and provide assurance about the corporation's financial state.
Corporations have potential for fraud or inaccuracy.
Auditors use conventions for sampling and modeling to certify accounts.

Defendant's Argument

The plaintiff relied on the auditor's statement for reasons beyond the intended purpose.
Legislative framework: Auditors are not there to provide investment advice to the public but to advise the company members.

Investment Decisions

The plaintiff used audited accounts to decide whether to invest in Fidelity, suffering pure economic loss as a result.
Lord Oliver's perspective: This is a preliminary question of law; assuming carelessness, reliance, the focus is on the duty question.

Scott Group and McFarlane

New Zealand Court of Appeal decision: Justice Woodhouse and Justice Cook found that auditors owed a duty of care to the party that invested in the company.
Classic proximity analysis: Auditors are professional; the company was right for takeover; auditors knew of potential investment.

Lord Oliver's Response

Based on the legislative framework within which auditors act under company legislation.
Companies Act 1993: Section about who has the right to receive information and for what purposes.
The plaintiffs relied on the accounts for reasons beyond the statutory purpose.

Agency Problem

Shareholders use the statement of accounts to hold directors of companies accountable.
Agency problem: Exists in publicly listed companies where there is a gap between ownership and management.
Investors are vulnerable to the decisions of directors and managers.
Shareholders cannot constantly second-guess directors' activities.
Structured system for shareholders to assess managers, with general meetings offering an opportunity to ask questions.

Professor Lin's Research

Explores how shareholders act and whether theories about investment opportunities are reflected in practice.
Examines the role of institutional investors in large corporations.

Scott Group and McFarlane Revisited

Decided during the "high watermark of negligence."

ANS Case

Mentioned in the Kupari decision.
Duty analysis structure: Once loss is reasonably foreseeable, a duty of care exists unless negatived by policy reasons.
This differs from the current structure, which requires foreseeability as a filtering device, an open proximity analysis, and consideration of policy factors.

Lord Oliver's View

President Richmond's dissent was correct; the Court of Appeal in New Zealand operated at a time when it was easier to establish a duty of care.
Auditors' work is not intended for the reasons the plaintiffs used it.

Company Insiders vs. Outsiders

Court of Appeal in England and Wales: Distinction between company outsiders and existing shareholders, with a potential duty to insiders.
Lord Oliver's response: This is an arbitrary distinction, such as a shareholder giving the report to an outsider.
Argument mirrors that in the Michael case, where the New Zealand Supreme Court's approach in Couch was suggested to be arbitrary.

The Kuparo Approach

Lord Oliver's Question

When might a duty of care be owed?

Necessary Relationship

Proximity exists when advice is required for a specified or generally described purpose, made known to the advisor.

Auditor's Responsibility

Auditors have been held to owe a duty of care when there's clarity about the plaintiff's reliance and the auditor's knowledge of that reliance.

Key Factors

The advisor knows the advice will be communicated to the advisee.
The advice is likely to be acted upon by the advisee without independent inquiry.
The advisee acts upon it to their detriment (a causation factor).

Huani Problem

Duty of Care Question

Does Sarah owe Huani a duty of care based on the facts?

Analysis

The advice is required for a known purpose (reference letters).
However, reference letters are typically confidential.
Huani is not the advisee nor did he act on the advice.
The facts do not fit the Kuparo structure.

Lord Oliver's Conditions

The advisor must know the advice will be communicated to the advisee.
The advice must be acted upon by the advisee to their detriment.

Importance of Facts

The absence or presence of a fact might reasonably give rise to a different outcome.
The key issue is that Huani was not the recipient of the information.

Alternatives to Applying the Kuparo Approach

Although this can't be applied, there may be a novel duty where we can come up with a new test.

Vulnerability

The person asking for the reference should be able to rely on getting it right and be accurate in what they say.
The Right is absolutely vulnerable to her getting this right with these closed references.
It's Confidential and there is no independent opportunity to check this.

Novel Duty

It also opens it up if someone's, you know, been a good employee and you write a reference to their new job, they do something that messes that up, that person could then go back and say, you gave me a wrong impression.

Honesty vs. Liability

If you're thinking about the loss to the line, it's a loss that it's going to happen if you are honest. And so you must experience this just for a quiet life and say nice things to avoid liability.

Issue, Difficulty & Conclusion

Structural Help

State the issue(s).
State the difficulty, if any.
Provide the conclusion at the beginning to provide the reader the information they need.
Hedge one's bets.

Tasman and District Council V Buchanan

Facts

The plaintiffs bought a trophy house with a pool not compliant with regulations.

Timeline

Building consent issued, house built in 2002/2006.
Plaintiffs buy the property in 2008.
2019: Discovery that the pool did not comply with the law (Fencing of Swimming Pools Act 1987, now in the Building Act).
Plaintiffs bring proceedings against the council.

Key Point

By 2019, the plaintiffs' claim for negligence in 2004 and 2006 were time-barred under section three thousand nine thirty two of the Building Act (10-year limitation period).

Council Statements

In 2012, the council inspected the pool and advised that it complied with FOSPA twice.

Argument

Counsel for the plaintiffs argued successfully in the High Court before Justice Palmer that when the council spoke in 2012 and said everything's okay with the pool, the plaintiffs lost the chance to sue for the negligence in 2004 and 2006. At that point, if they'd been provided with accurate information, their claims for the earlier negligence would not be out of time.

High Court Decision

Determined the value of the lost chance and negligent inspection in 2004 and 2006 if they had been able to sue.

Negligent Statement Case

Case needs to focus on those late statements in 2012.