SCENARIO 4 Ready and Co, a firm of accountants and auditors, were engaged to pre
ID: 427643 • Letter: S
Question
SCENARIO 4
Ready and Co, a firm of accountants and auditors, were engaged to prepare the accounts and balance sheet for Products for People plc, knowing the accounts were to be sent to Hind, a private investor, who was thinking of buying shares in Products for People plc. The accounts were negligently prepared and showed the company as financially stable, even though the opposite was true and the company had large unpaid debts. Hind showed the accounts to her friend Imran. Hind bought AED1 million worth of shares and Imran bought AED 500,000 worth of shares. Within 6 months, Products for People plc went into liquidation and both Hind and Imran lost their investments.
Advise (1) Hind, and (2) Imran whether they are likely to be successful in their claims in negligence against Ready and Co and what defences the company may have.
1. What must be proved in a claim for ‘negligent misstatement? What is the duty of care? Must establish a ‘special relationship’?
2. Would Hind be successful in a claim for ‘negligent misstatement’ against Ready and Co? (point for help: This is a claim in tort not contract)
3. Would Ready and Co have any defences?
Explanation / Answer
1. In order to prove the claim for negligent misstatement, Hind and Imran needs to prove the elements of negligence and the presence of special relationship. In order to prove the elements of negligence they need to show that Ready and Co had the duty of care towards Hind while sending the accounts and they have breached their duty which resulted into the injury. They also need to show that the injuries were reasonably foreseeable for Ready and Co and the breach of duty resulted into actual damages. The duty of care includes that Ready and Co had to exercise reasonable care while preparing the accounts and balance sheet for Products for People plc and sending the same to Hind. Though the company had large unpaid debts, they showed company as financially stable based on which Hind and Imran bought huge shares in People plc. Special relationship must be established to prove the claim for negligent misstatement and the same can be proved by showing the fact that Hind and Imran bought the shares based on the accounts information shared by Ready and Co which is normally not made available to the general public.
2. Hind would be successful in the claim because Hind would be able to show based on the above details that Ready and Co had the duty of care and they have breached the duty which resulted into huge loss for Hind and Imran. The injuries were reasonably foreseeable for Ready and Co because they knew that Hind would use the information to buy the shares and he would suffer loss as the company is under huge debt. The losses suffered by Imran and Hind are enough to prove the actual damages. Hence all the elements of negligence can be proved. The element of special relationship also can be established by showing that the accounts information is not available to the public under normal circumstances.
3. Ready and Co would not have any defenses as the elements of negligence can be proved with evidence and the presence of special relationship also can be established without doubt.
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