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Problem
Zain, an accountant and Gary, a barista, travel into the city each morning on the same tram. They have travelled on the same tram for many years and have become friends. Gary has recently inherited $60,000 from his Grandmother and asks Zain whether he should invest his inheritance in Widget Ltd. Zain tells Gary that he thinks Widget Ltd is a good investment. Gary then purchases a large parcel of shares in the company with his $60,000. However, the following week, Widget Ltd goes into liquidation and Gary losses all of his inheritance. Gary discovers that many accountants were aware of the poor financial position of the company and warnings had been published in several accounting journals and financial newspapers that Widget Ltd was in trouble.
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In order to determine whether Gary has any legal rights against Zain, it is imperative to appreciate the particular facts and circumstances leading to the point where Gary lost all of his inheritance worth $60,000. It is clear from the facts that Zain and Gary had become friends after travelling on the same tram for years. Upon inheriting $60,000 from his grandmother, Gary sought the opinion of Zain before investing in Widget Ltd. It can be reasonably inferred that Gary sought Zain's opinion since being an accountant; Zain was in a better position to advise on the matter. It has also been made clear in the facts that the poor financial position of the Widget Ltd. was widely known in the circle of accounting professionals after it was published in accounting journals and financial newspapers.
Upon the liquidation of the Widget Ltd., Gary has lost all of his inheritance. It is pertinent to note here that the investment made into the company was done on the advice of Zain, an accountant. Therefore, it can be clearly said that Gary has certain legal rights against Zain.
This is a clear case for negligent misstatement resulting in pure economic loss. There is sufficient amount of jurisprudence in this area of law which explains the prerequisites for establishing a duty of care. The following issues need to be determined before pursuing any claim against Zain.
As explained in the Hedley Byrne case, a special relationship could be understood as a relationship with an individual who was in the particular profession or that it represented that he/she is engaged in that profession about which the advice was being sought. Here, clearly, Zain was an accountant and the advice sought by Gary was also related to the profession of Zain. Therefore, it can be concluded that there was a special relationship between Gary and Zain.
In the case of Evatt, Lord Diplock held that for a duty of care to raise the subject matter of the advice must require the application of an ascertainable standard of skill beyond that possessed by the “reasonable man”, and the person must be willing to give such advice. In the present case, Zain did possess the skill of accountancy which made him competent to advise on matters related to investment. Also, Zain knew that Gary was going to rely upon his advice and hence, it can be said there was a special relationship between Zain and Gary.
