To establish a claim of negligence, the plaintiff bears the burden of proving three critical elements.

These include whether the defendant owes the plaintiff a duty of care, whether the defendant

breached the standard of care and whether the defendants breach caused the plaintiff harm. From

there, the onus shifts to the defendant to establish any possible defences.

Should a Duty of Care be owed? Whether Gavin owes Gail a duty of care is a question of law, not fact. Thus, to distinguish whether a

duty of care exists we can apply the neighbour test which was developed by Lord Atkin as a result of

the seminal case Donoghue v Stevenson. This test claims a duty of care to be present if a

neighbour relationship between parties exists. In this pivotal case the plaintiff suffered from brain

damage after consuming a bottle of ginger beer which contained decomposed remains of a snail.

Since the manufacturer would not want to harm the individual drinking the ginger beer, a neighbour

relationship exists and a duty of care is owed. Similarly, since Gavin wants to ensure Gail makes a

return on her investment, a neighbour relationship is present. As mentioned in Shaddock and

Associates Pty Ltd v Parramatta City Council (1981) when an individual is relying on another parties

special knowledge or skill for a serious purpose, a duty of care is owed. Likewise, Gail lacks

knowledge of investments therefore; she is heavily relying on Gavins expertise in the industry to

advise her on a profitable investment. Thus, it can be concluded that Gavin owed Gail a duty of care

due to his proficiency in the profession.

Was there a breach of Duty of Care? Under s 5B of the Civil Liability Act 2002 (NSW) to determine whether a standard of care exists we

need to see if risk is foreseeable, if the risk is insignificant and if a reasonable person in that position

would have taken precautions. Gavin, acted like an ordinary person in the profession, as he relied on

the prospectus to advise Gail on a profitable investment. The prospectus showed that Australian

National Reserve Limited (ANRL) was in a good financial position, thus he advised Gail to invest all of

her $500,000 into an unsecured note, where he was aware that she has no other significant assets

and was hoping to live off the positive return. Thus, he did not exercise all reasonable care as he

placed Gail in risk as most people know the high risks associated to an unsecured note. Therefore, it

can be concluded that Gavin breached his duty of care.

Furthermore, s 5C of the Civil Liability Act 2002 (NSW) addresses a range of factors to determine

whether a duty of care has been breached. Since Gavin advised Gail to invest in an unsecured note

which has high risks associated to it, the probability of the harm is quite high. In addition, Gail has

warned him that she lacks investment knowledge, does not own any significant assets and is hoping

to live off the return she makes from the investment; therefore the harm is quite serious. Gavin

advised Gail to invest all her money in an unsecured note which is known for its high risk and he also

relied purely on the prospectus and failed to gain a second opinion on the investment therefore, he

did not take precaution to avoid the risk of harm. Thus, once again it can be concluded that Gavin,

breached his duty of care.

Moreover, as established in MLC v Evatt (1968) and Hedley Byrne & Co v Heller & Partners Ltd (1964)

an individual who holds special skills or expertise and gives advice in the course of their business,

owes a duty to take reasonable care in supplying accurate advice. Gavin did not take reasonable care

to supply accurate advice, instead he could have asked for a second opinion, advised Gail to invest in

a more secured investment or could have requested her to invest a portion of her redundancy

payment. Therefore, it is reiterated that the defendants actions breached a duty of care.

Did the breach cause the damage? To determine the proximate cause of a negligent injury, in this case economical loss, the but for

test can be applied, which considers whether the injury would not have occurred but for the

defendants negligent act. Gail would have not lost all her money if she did not listen to Gavins

advice. Therefore, the defendants negligent action was the proximate cause of the economic harm.

However, this does not necessarily establish liability since a variety of other factors come into play.

Since Gavin acted purely like an ordinary financial advisor, observing the Prospectus to determine

whether the investment is profitable, he cannot be held liable for Gails economical loss, the

negligence shifts onto the auditors. The auditors did not present a fair and true representation of

ANRLs financial statements in line with accounting standards. Since the auditors failed to request an

official copy of valuations thus, they can be held liable for Gails economical loss. In Esanda Finance

Corporation Ltd v Peat Marwick Hungerfords, it was concluded that auditors are not liable to third

parties as Esanda as a corporation could have made its own enquiries regarding the financial

position of the borrower. However, in Gails situation, Gavin relied virtuously on the audited

accounts and in his profession corporations are not contacted, therefore Slack & Co are liable for the

economic injury caused by making the investment.

Are there any defences? The defence of contributory negligence applies to this situation, which results in reduced damages

for Gail since a majority of people would know of the high risk associated with unsecured notes. This

notion is highlighted in Liftronic Pty Ltd v Unver (2001) where a mechanic did not use the proper

method to move steel rails. This resulted in a back injury therefore; the mechanics damages were

reduced by 60% due to contributory negligence. Likewise, even though Gail had a lack of knowledge

in investments, she should have been aware of the high risk associated with unsecured notes; due to

the absence of security therefore the damages she can claim for Gavins negligence can be

significantly reduced.

In addition, Gavin relied on the audited accounts which were not prepared in accordance with the

seta accounting standards, therefore Slack & Co has contributed to this negligence. Although, it must

be distinguished whether a duty of care is owed which will be discussed later on.

Moreover, under s 5S of the Civil Liability Act 2002 (NSW) liability can be reduced by 100% if

contributory negligence exists, thus defeating the claim for damages. Therefore, Gail could possibly

claim no damages from Gavin, as he acted like an ordinary person in that profession, the onus can

then be shifted onto Slack & Co because they did not prepare accurate audited accounts.

Can Gail claim damages from Slack & Co? Gavins opinion was based on the audited accounts prepared by Gail v Slack & Co, therefore it must

be considered whether a duty of care is owed to provide accurate financial information. As

established above, in line with Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, Gail &

Co owe a duty of care to external parties because Gavins decision was based only on the audited

accounts, which were not in line with accounting standards. Moreover, since the Corporations Act

2001 (Cth) states that preparation of audits and accounts are a statutory requirement, a duty of care

is owed to the public, investors and creditors.

In Mutual Life and Citizens Assurance Company Ltd v Evatt, the plaintiff sought financial advice

similar to Gail. Based on the advice received the plaintiff invested in the company but lost money as

a result. Therefore, he sued for negligent misstatement and the High Court concluded that a duty of

care was owed to Evatt. However, this decision was reversed by the Privy Council upon appeal. This

is due to the application of the Barwick test where the knowledge of being trusted, known reliance

and reasonable reliance must be satisfied. The auditors Slack & Co, have special skills, therefore,

third parties trust that they have the expertise to prepare financial statements that are a true and

fair representation of the business. In addition, Slack & Co were aware that the financial statements

they were preparing would be used by third parties for investments and other uses. External parties

such as Gavin have solely relied on the Prospectus of ANRL to determine whether it is a good

investment, thus relying on the documentation developed by Slack & Co. In line with the Barwick

test, Slack & Co owe a duty of care to external parties since they satisfy the three requirements and

thus under tort law Gail has the capacity to sue them for a breach of duty of care.

Hence, it can be settled that Gavin owed Gail a duty of care and breached it due to his careless

actions. This caused her economical loss, however Gavin can defend himself claiming that the

negligence was contributory due to the audited accounts not being prepared accurately and Gails

acceptance to invest in an unsecured note. Therefore, the onus shifts to Slack & Co the auditors

who owe a duty of care to third parties since the prospectus is being used for a significant matter.

Since they did not act in a proper manner to that in their profession, Slack & Co can be held liable for

breaching their duty of care.