Duty To Third Party

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Duty To Third Party

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Duty To Third Party

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Question:
Discuss about the Duty to Third Party.
 
 
Answer:
Duty of care is an essential thing in case of any business or profession. It particularly attracts the provision of the Tort Law and it requires everyone to act in a manner so that the interest of others should not be harmed. According to the provision of the English Tort Law, everyone has a duty to take care of others and if this duty has been breached, the wrongdoer has to face punishment. The principle of duty of care was established in the case of Donoghue v Stevenson (1932) AC 562. Duty of care can be breached if the act of a person harm the other party either physically, mentally or economically. Duty of care is the first essential of negligence. However, the harm should be foreseeable in nature and justified as stated in Caparo Industries plc v Dickman [1990] UKHL 2.

Professional negligence is a part of the English law of Tort. It has been stated that every professional should have to act as a prudent person. They owe certain duties to the customers and to the third parties. However, in case of the professional negligence, provision of the Tort law and Contract law will apply in parallel ways. Every professional should meet the standard of care to others and should act in accordance with the terms and conditions of the contract. In case of Hedley Byrne & Co Ltd v Heller & Partners Ltd[1] , it was decided that if a person rely on the acts of a professional and the professional is unable to perform his duties properly, he shall be liable for the breach of duty. However, it has been observed in case of Henderson v Merrett Syndicates Ltd[2] that in case of concurrent liability, the compensation will be given for the actual loss and not for other co-related losses.
In Customs & Excise Commissioners -v- Barclays Bank Plc[3], it has been observed by the court that if there is any assumption regarding the liability of one person to any third party, he will be held liable in case of breach of the duty. In that case, three essentials of responsibility have to be established such as foreseeability, proximity and reasonableness. In case of Arrowhead Capital Finance Limited (In Liquidation) -v- KPMG LLP, Court observed that if all these essentials have been fulfilled, the third party can claim damage under professional negligence.
 
The provision of professional negligence for the auditors is different in different countries. In Canada, section 310 of the Companies Act 1985 regulates the liability of the Auditors to the third party and enables to limit their liability if breach of duty has been proved against them. However, the accountant could not get liable under Contract but under Tort. In Smith v Eric S Bush (1990) 1 AC 831, it was held that the auditors will be responsible if their acts cause financial loss to the third party. The case of Law Society v KPMG Peat Marwick (2000) 4 All ER 540 establish the duty of the auditor to the third party. The doctrine of privity test is applied in Canada through the case of Haig v Bamford[4].         
In case of Scott Group Ltd v Macfarlane [1978] 1 NZLR 553, the New Zealand court held that if the breach of duty by an auditor is foreseeable in nature, he shall be held liable to the third party. It has also held that if a third party is wholly liable upon the auditor and the auditor failed to perform his duties properly, he shall be held liable under professional negligence.
In Singapore, one leading technology group named DMX Technologies Group had brought an action against its auditor firm Deloitte & Touche under professional negligence and alleged that the firm was unable to detect fraud regarding its auditing. Based on the commission report, High Court of Singapore held the firm liable and decreed that the auditors of the firm had failed to maintain their standard of duty.
Australia has adopted the principle of privity test established in Ultramares Corporation v Touche 174 NE 441 (1931). In Malaysia, the base of professional negligence for the auditors has been discussed in JSI Shipping (S) Pte Ltd v. Teofoongwonglcloo[5]. It has been held that the auditor must work with accuracy to avoid any fraud and need to keep record regarding the all account works. If these rules have not been followed up properly, he will be liable under the professional negligence. 
 
References:
Customs & Excise Commissioners -v- Barclays Bank Plc  [2006] UK HL28.
Haig v Bamford [1976] 72 DLR (3d) 68.
Hedley Byrne & Co Ltd v Heller & Partners Ltd  (1964) AC 465. 
Henderson v Merrett Syndicates Ltd  [1995] 2 AC 145.
JSI Shipping (S) Pte Ltd v. Teofoongwonglcloo [2007] 4 SLR (R) 460.
Rosenblum Inc v Adler 461 A 2d 138 (NJ 1983)
(1964) AC 465
[1995] 2 AC 145
[2006] UK HL28
[1976] 72 DLR (3d) 68.
[2007] 4 SLR (R) 460

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