Question

SCENARIO 4

Ready and Co, a firm of accountants and auditors, were engaged to prepare the accounts and balance sheet for Products for People plc, knowing the accounts were to be sent to Hind, a private investor, who was thinking of buying shares in Products for People plc. The accounts were negligently prepared and showed the company as financially stable, even though the opposite was true and the company had large unpaid debts. Hind showed the accounts to her friend Imran. Hind bought AED1 million worth of shares and Imran bought AED 500,000 worth of shares. Within 6 months, Products for People plc went into liquidation and both Hind and Imran lost their investments.

Advise (1) Hind, and (2) Imran whether they are likely to be successful in their claims in negligence against Ready and Co and what defences the company may have.

1. What are the 3 points to be proved in any claim based on negligence?

2. What must be proved in a claim for ‘negligent misstatement?

3. Would Imran be successful in a claim for ‘negligent misstatement’ against Ready and Co?

4. Would Ready and Co have any defences?

Answer 1

1. What are the 3 points to be proved in any claim based on negligence?

Breach of duty : The defendent(Ready and Co) had a duty towards the complainant (Hind and Imran) to excersise caution and carry out it's duties with care, but it failed to do so.

Cause : The breach of the duty by Ready and Co. must be the legal cause of the harms suffered by the victim (Hind and Imran).

Damages : The victim must have suffered some harm that can be compensated by monetary compensation.

2. What must be proved in a claim for ‘negligent misstatement'?

‘Negligent misstatement' is nothing but an inaccurate statement maybe made with good intentions but without care normally in the form of advice with expert knowledge to a person that doesn’t possess this expertise.

The above three points of duty, cause, and damages should be primarily proved in a claim for negligent misstatement.

3. Would Imran be successful in a claim for ‘negligent misstatement’ against Ready and Co?

No, only if Hind registers a case against Ready and Co. will he be successful. Because Ready and Co don't know Imran nor Imran knew Ready and Co. Imran trusted his friend Hind and invested. Though Ready and Co. are a firm of accountants and auditors hence they possess the expertise about financial books and accounts. But Imran does not have any link to them so he might find it difficult to claim a negligible misstatement against Ready and Co.

4. Yes, they ,may have some defences like:

Contributory Negligence : Simply put, the victim, by his own behaviour, contributes partly to the negligent action of the defendent. Maybe Hind and Imran could have shown the accounts to other accountants to make sure that information is true.

Comparative Negligence : It's a toned down version of the above negligence, contributory negligence can lead to zero recovery of damages but comparative gives part damage recovery. Ready and Co. may only partially compensate Hind and Imran.

Assumption of Risk : In any kind of investment, there is always an element of risk. Hind and Imran assumed a risk of an investment going south as soon as the entered into the agreement to buy shares.

So Ready and Co. have the above three defences.