Legal Practice Briefing No. 6

Number 6

1 September 1993

NEGLIGENT ADVICE

As a result of the various developments of the law in
this area, it is now well established that in certain circumstances
a Government can incur liability for the giving of negligent
advice. Briefly, liability will arise where:

  • a duty to exercise reasonable care in giving the advice
    exists;
  • there has a been a breach of that duty (negligence);
    and
  • the recipient of the advice has suffered reasonably
    foreseeable and proximate loss as a result of relying
    on the advice.

This briefing provides a general outline of the relevant
principles.

When Does A Duty of Care Exist?

In the leading Australian statement of the position the
High Court has said the following:

'Whenever a person gives information or advice
to another upon a serious matter in circumstances where
the speaker realizes, or ought to realize, that he is being
trusted to give the best of his information or advice as
a basis for action on the part of the other party and it
is reasonable in the circumstances for the other party
to act on that information or advice, the speaker comes
under a duty to exercise reasonable care in the provision
of the information or advice he chooses to give': Shaddock
v Parramatta City Council (1980-81) 150 CLR 225 per
Mason J at 250.

In relation to the above formulation, the following points
can be made:

  • the requirement that the matter be a serious matter
    will normally be met where advice is being given in relation
    to financial entitlements, (for example, pensions, remuneration);
  • as a general proposition it is doubtful that casual
    advice given over the telephone will give rise to liability:
    however, it cannot be assumed that all telephone advice
    will be immune from liability;
  • to establish liability it is necessary that the speaker
    realize, or ought reasonably to realize, that the recipient
    of the advice is proposing to rely on it as a basis for
    action: this will not normally be the case in relation
    to advice contained in a publication (for example, a
    text book or journal), published for the general information
    of its readers and without a particular transaction in
    mind;
  • an appropriately worded disclaimer can render it unreasonable
    for the recipient to rely on the advice and thus avoid
    liability.

What Constitutes a Breach of the Duty?

The duty of care is not breached simply because the advice
is wrong. The duty is only to exercise reasonable care
in the giving of the advice. What amounts to reasonable
care can only be determined by reference to the circumstances
of a particular case. Basically, however, carelessness
will constitute a breach of the duty (that is, negligence).

It follows that, in considering whether incorrect advice
was negligent, it is necessary to consider the reason why
the advice was incorrect. Liability will generally not
arise if the reason for the advice being incorrect was
that the recipient of the advice had provided incorrect
information, at least where there was no reason to doubt
the accuracy of the information. Also, no liability will
arise if the reason for the advice being incorrect was
that the officer had reached a view of the law which, although
erroneous, was reasonable. The Privy Council has stated "As
is well known, anybody, even a judge, can be capable of
misconstruing a statute; and such misconstruction, when
it occurs, can be severely criticised without attracting
the epithet 'negligent'": Rowling v Takaro Properties
Ltd (1988) 2 WLR 418 at 430. However, where an officer
does not bother to check the relevant law, or where the
officer carelessly misreads a clear statement of the law,
the officer will have been negligent.

What Loss is Recoverable?

It must be shown that the recipient of the advice suffered
a loss as a result of relying on the advice. Thus, if the
recipient in fact relied on other sources of advice, or
if the recipient would have acted in the same way without
having received the advice, the recipient has suffered
no recoverable loss.

Also, the loss suffered in reliance on the advice must
be reasonably foreseeable and proximate. What loss is reasonably
foreseeable can only be determined by reference to the
circumstances of a particular case. In relation to the
requirement of 'proximity', the courts have declined to
give a definition of that expression. However, in Caparo
Industries PLC v Dickman (1990) 2 AC 605, it was pointed
out that the duty of care arises with respect to specific
risks and that, accordingly, damages are confined to loss
arising out of use of the information or advice for a specific
purpose of which the maker was aware. The courts will avoid
subjecting a giver of advice to 'liability in an indeterminate
amount for an indeterminate time to an indeterminate class'
(Caparo at page 621). In Caparo the plaintiffs
claimed damages against the auditors of a company based
on alleged negligence by the auditors in their report of
the company's annual accounts. The plaintiffs, who were
already shareholders of the company before the report was
issued, alleged that they relied on the report to purchase
shares in the company and suffered loss as a result. The
House of Lords held that the auditors owed no duty of care
to the plaintiffs in relation to any such loss. The court
noted that the purpose of the auditor's report was to enable
shareholders of the company to exercise their rights in
general meeting. That purpose did not extend to the provision
of information to assist shareholders (or non-shareholders)
in the making of decisions as to future investment in the
company. In the circumstances, there was insufficient proximity
to give rise to a duty of care.

Additional questions can arise where incorrect advice
has been given to a person in relation to that person's
entitlement to a pension or a similar benefit. For example,
a person may be incorrectly advised that he/she is entitled
to a pension and the person may, in reliance upon that
advice, cease employment. In such a case, the loss suffered
by the person is not the loss of pension because the person
was not in fact entitled to the pension. Rather, the loss
is likely to be the value to the person of the employment
which was terminated. The amount of the expected pension
might, however, be a limiting factor on the recoverable
loss because it reflects the value which the person placed
on his/her employment. Also, it would be necessary to assess
the prospects of the person regaining employment and the
likely amount of its remuneration.

Conversely, in some cases the recoverable loss will in
fact be a loss of pension or other benefit. For example,
where a person is in fact entitled to a pension but is
given negligent advice that there is no entitlement, and
in reliance on that advice the person refrains from applying
for the pension, the recoverable loss might well be the
amount of pension foregone.

Effect of Right of Review

In Jones v Department of Employment (1989) 1 QB
1, The English Court of Appeal has held that as a general
principle, where an exercise of statutory power is subject
to a right of review, the exercise of the power in good
faith will not give rise to a common law duty of care.
This decision has not yet been the subject of any authoritative
consideration by the High Court of Australia and its full
implications are not yet clear. However, it is arguable
that the principle underlying the decision in that case
should apply to the giving by an officer of advice concerning
entitlement to pension or benefit in circumstances where,
if a decision was made concerning that entitlement, there
would be a right of review of that decision. In this regard,
it is arguable that there is no relevant distinction between,
for example, an officer giving advice to a person that
causes that person to refrain from applying for a pension
or benefit, and a situation where an officer rejects an
application for pension or benefit which has actually been
made.

Failure to Give Advice

A mere failure to give advice will not by itself give
rise to liability. However, there can be circumstances
in which silence is in fact properly construed as a statement
that a particular situation exists. For example, in Shaddock's
case a solicitor lodged with a Council a commonly used
document containing a question whether certain property
was affected by road widening proposals. The Council had
a practice, of which the solicitor was aware, of referring
to such proposals, where they existed, in response to that
question. In those circumstances, the Council's failure
to answer that question was properly construed by the solicitor
as a positive statement that there were no road widening
proposals.

It is important to note the qualifications to a situation
where a failure to provide information can properly be
construed as positive advice. Basically, there must have
been a practice to provide advice in the circumstances
under consideration and the person concerned must have
been aware of that practice.

Leaving aside situations where silence can properly be
construed as positive advice, a failure to give advice
will only give rise to liability where there is a duty
to give the advice. A duty to give advice might be imposed
by a statute (in which event the precise terms of the statute
would need to be considered in order to ascertain the nature
and extent of the duty). Also, it is possible for a person
to so conduct himself/herself as to give rise to a duty
to provide advice. For example, if an officer undertakes
to inform another person when the officer becomes aware
of a risk to the safety of that person, the officer will
generally become subject to a duty to provide advice when
the officer becomes aware of such a risk. Also, if an officer
expressly or impliedly indicates that he/she is prepared
to provide comprehensive advice to a person on a matter,
a failure to advise that person of a particular relevant
factor could give rise to liability. However, apart from
specific situations such as these, there is no general
duty to provide comprehensive advice to a person. Accordingly,
the mere fact that advice provided to a person is incomplete
does not by itself give rise to liability.

How Can Liability be Avoided?

A fundamental means of avoiding liability is to exercise
reasonable care. It is not possible to define 'reasonable
care' in the abstract but it includes:

  • taking care to ensure that all relevant facts are
    known and understood;
  • taking care to ensure that the relevant law is identified
    and understood; and
  • taking care to express the advice in clear and accurate
    terms.

As already indicated, it is also possible to avoid liability
by use of an appropriately worded disclaimer. A disclaimer
should be prominent and clearly expressed. There is, however,
an inherent tension between the desire of a Government
Department/Agency to provide reliable advice to its clients,
on the one hand, and the use of a disclaimer in relation
to that advice, on the other hand. The resolution of this
tension is a matter of policy for each Department/Agency
to determine.

It is also possible for legislation to override common
law liability. There are, however, substantial policy issues
involved in seeking to gain legislative immunity from the
consequences of a failure to exercise reasonable care.

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
the Legal Practice before any action or decision is taken
on the basis of any of the material in this briefing.

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