The elements of negligence and negligent misrepresentation

Negligence and negligent misrepresentation are important legal concepts that all professionals should be aware of because they can give rise to liability when all of their constituent elements are present

Negligence

The purpose of lawsuits based on alleged negligence is to deter careless conduct and encourage responsible behaviour. A successful action in negligence requires the following elements:

a. a duty of care between the parties;

b. a breach of that duty; and

c. damage resulting from that breach.

a) Duty of care

A duty of care is owed to people who might reasonably be injured if that duty was not observed. Appraisers may owe a duty of care to their clients if the clients rely on the skills of the appraiser when determining whether or not to make a purchase. In that case, it is reasonable for the appraiser to appreciate that, if the duty is breached, the clients may suffer losses.

b) Breach of the duty of care

A Court will decide if the duty of care has been breached by reference to the standard of care to which it chooses to hold the allegedly negligent party. Those norms are set by reference to how a reasonable person would act in the specific, unique circumstances. Negligence is always determined in context and, therefore, there is no absolute definition.

Industry standards/guidelines play an important role in setting the 'reasonable' standard of care. When dealing with a group of people, like appraisers, with specialized skills, the required level of competency will generally be based on what a reasonable person with those skills would have done in the circumstances.

c) Damages

A negligent act from which no damage arises cannot found a successful action. The claimant must prove both that he or she suffered loss, and that such loss was caused by the negligent act. To decide if the negligent act caused the loss the Court will apply the 'but for' test - if the loss would not have occurred 'but for' the negligent act, then the negligent act is the cause of the injury. If the loss would have occurred anyhow, no liability will arise.

Negligent misrepresentation

The following are required elements for a successful action for negligent misrepresentation:

i. there must be a duty of care based on a 'special relationship' between the representer (the person making the representation) and the representee (the person receiving the representation);

ii. the representation must be untrue, inaccurate or misleading. The failure to divulge needed information is an equally misleading representation;

iii. the representer must have acted negligently in making the representation. Liability will not attach if the information is accompanied by a relevant verification or a direction to verify the information;

iv. the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and

v. the reliance must have been detrimental to the representee in the sense that damages resulted.

A negligent misrepresentation may occur where an appraiser tells a client that property is in good condition or suitable for a specific purpose, knowing that statement to be untrue or if the appraiser reasonably should have known that the statement was not accurate. If the client then relies on this representation to their detriment the appraiser may be liable.

Two key elements in this action are establishing reliance on the statements, and that such reliance was reasonable. If the statements were made in the course of normal business dealings, it will usually be reasonable for a client to rely on them.

Conclusions

The best way to prevent lawsuits is to practice prudently and in accordance with prescribed guidelines and accepted professional standards. While you may nevertheless find yourself named in a negligence or negligent misrepresentation lawsuit, your likelihood of a successful defence significantly improves if your practice consistently meets the appropriate standards.