Topic 3 - Agency and Negligence

Question 1

Agent has authority and is known to be an agent

Answer 1

• principal and third party may sue and be sued in the contract
• agent has no rights or liabilities

Agent acts within scope of their authority

Question 2

Agent has authority but is not known to be an agent

Answer 2

Where a principal becomes known at a later date
* Either the agent or the principal may sue on the contract
* Either the agent or the principal may be sued (3rd party can choose)

Question 3

Agent has no authority

Answer 3

Principal cannot sue or be sued on the contract unless they choose to ratify it
* knowing that they have no authority: they may be liable for the tort and deceit
* genuinely believes they have authority but are mistaken: may be liable for breach of warranty of authority

Question 4

Special Relationship is made where

Answer 4

• A client requests a professional opinion from their accountant/auditor
• accountant/auditor gives opinion acting in professional capacity (special skills)
• client relies upon the opinion
• client suffers an economic loss as a result of reliance on that opinion

No liability for advice given informally or on a social occasion

Question 5

No duty of care arises where

Answer 5

• there is no duty of care where an individual relies on annual audited accounts to invest in or lend to or bid for a company, unknown to the professional who prepared them
• statements prepared for general circulation will not give rise to a duty of care
• potential investors/lenders

Question 6

Duty of care

Answer 6

• bidder has been identified to the defendant - sufficient proximity between parties
• it was intended that the bidder should rely on the accounts
• express representations had been made to the bidder by the defendant
• reasonably foreseeable
• public policy

Question 7

Defences for negligence

Answer 7

• Limitation act - six years from breach of contract or three years for personal injury claims
• contributory negligence
• Exclusion clause
• No harm is done to the willing

Question 8

Tort of negligence

Answer 8

• duty of care is owed
• breach of that duty
• that breach caused harm to claimant

Question 9

Causation and damages

negligence

Answer 9

• a person will only be compensated if they suffered actual loss, injury or damage as a consequence of another’s actions
• ‘but for’ test
• damages are intended to put the person in a position they would’ve been if the loss didn’t occur
• claimant must prove harm suffered was foreseeable

Question 10

Limitation of auditors’ liability

Answer 10

• any provision which exempts an auditors liabiliy for negligence in relation to auditied accounts is void
• However, a company may enter into a liability limitation agreement with an auditor limiting the auditors’ liability for negligence to a fair and reasonable amount