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Peter & Alison Vs Bumble & Co

Essay by   •  December 22, 2011  •  Case Study  •  1,806 Words (8 Pages)  •  1,862 Views

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This case will look at two types of torts; tort of deceit and tort of negligence. The purpose of a tort is to be remunerated for damage endured due to the breach of duty fixed by law.

Negligence entails a civil action for reimbursement for damage filed by an individual who claims to have suffered an injury or loss caused by another's neglect.

Tort of deceit or tort of false statement is also known as fraud. This will be done knowingly, without belief in its truth or recklessly. In order to uphold an action of deceit, there must be proof of deception.

In order to make a successful claim, you must be able to prove the duty of care owed, breach of that duty and the loss and/or damage caused.

Peter is a current shareholder at Horizon plc. Horizon plc accounts prepared by Bumble & Co declared that they are making a profit of £10 million. Upon viewing the financial statements, Peter invested a further 10,000 shares into Horizon plc. He then advised a friend (Alison) to invest in the company also. Although, an audit had taken place and results showed that Horizon plc in truth were making a minor loss. Bumble & Co had prepared financial accounts which were misleading and inaccurate resulting in shareholders loss.

The two torts of Liabilities of false statements are tort of deceit and tort of negligent statements. A false statement is made either knowingly or carelessly. Whether the defendant gave a distorted statement to deceive the claimants, or erroneously presented the information, it is known as a negligent statement. Negligent statement isn't the same as presenting information carelessly, as the individual may be exercising as much care as they are capable of, however it falls below the standards that are expected of them.

HEDLEY BYRNE VS HELLER (1963) , states that if and when a party presents a statement, it is understood that they are accountable for whomever they give the statement to. Thus, if the statement is made negligently they are immediately responsible for any losses the claimant encounters. Nonetheless, after the case of CAPARO INDUSTRIES PLC VS DICK (1990) the House of Lords established the following, that if the claimant is to sue successfully they are to prove that the financial loss that occurred was reasonably foreseeable. There also must be a satisfactory amount of proximity or even a special relationship between the parties involved and also the obligation imposed must be reasonable, just and fair.

DERRY VS PEEK (1889) the tort of deceit or a deceitful declaration is when a statement was done in a deceptive and untruthful manner with the purpose to mislead anyone relying on the information.

There are four factors which must be present;

 Defendant is aware of the contract between the parties

 Claimant relies on the information for a rational reason

 Defendant communicated the statement to the Claimant

 Defendant is aware that the claimant will rely on the information

Bumble & Co, did not have a contract with Peter, therefore it can be said that they aren't liable for any of Peters losses. It had been found that Crane Christmas wasn't responsible for any third parties as there had been no contract drawn up, meaning there isn't a duty of care owed. CANDLER VS CRANE CHRISTMAS (1951).

HEDLEY VS HELLER (1964) suggests that Bumble & Co were in a contract with Horizon plc as their accountants. Horizon plc expected the financial accounts to be drawn up with a true and fair view of the company. Horizon plc were in a contract with the current shareholders (Peter) therefore owed a duty of care to him. Bumble & Co could not have rationally foreseen the economical loss of Alison. As a result, Alison and Bumble & Co have no special relationship as she was not a previous shareholder and there was no proximity. They could not have been aware in any way that Peter would advise Alison to invest into the company CAPARO VS DICKMAN CASE (1990) auditors have no duty of care to possible investors or shareholders. For that reason a duty of care is not owed to Alison.

Bumble & Co have fallen under the standards of a reasonable accountant. They had provided Horizon plc inaccurate financial accounts, providing misleading information for others. As a result there was a breach of duty, as it had been done intentionally. LLOYD CHEYHAM & CO VS LITTLE JOHN & CO (1987)

In order for Alison and Peter to sue successfully, they must provide evidence that the careless act on the defendant behalf resulted in their loss. In this case, this is easily proven as the inaccurate accounts caused them to lose money.

It is more likely for the court to assume that the misleading information on the accounts was done deliberately. Showing that a company is making a huge amount of profit such as ten million pounds, to be mistaken for a loss in the company is highly unlikely.

In conclusion, Peter has a case against Bumble & Co. they had produced them false accounts in order for present shareholders to take a look at and rely on and to invest further into the company which in turn could have helped the company, as they were making a loss.



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