Assignment 1: Patrick & Mary v Don
1. Issue
This incident revolves around 3 parties where Patrick and Mary are the investors of a company called Kill Cancer Pty Ltd, particularly for an up and coming drug named “Miracle”. They are the plaintiff in this case. The defendant is Don, who is a financial adviser by profession and a friend of Patrick.
This case involves action taken by the plaintiff due to the advice given by the defendant, and as such it is a case for the tort of negligent misstatement. It is not a fraudulent misrepresentation because the defendant did not make any false statement or aseems to have decent in mind.
2. Rule

2.1 Step 1: Duty of care
The very first rule to establish is whether the defendant, Don, owes a duty of care to the plaintiff, Patrick and Mary. Following the case of Donoghue v Stevenson (1932) , it is clear that the duty of care is not dependent on whether a contract exists, which there is none between Patrick and Don or Mary and Don. It is very much dependent on these things:
a) A duty of care can be owned when giving advice/supplying information
The defendant, Don, ought to know that while dispelling information that has crucial implications, he is being trusted to give the best kind of advice to the other party (L Shaddock and Associates Pty Ltd v Parramatta City Council, 1981) . The principals of this case states that whenever a person gives information or advice to another upon a serious matter in circumstances where the speaker realises, or ought to realise, 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 the 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. It is reasonable to conclude that the other party will act on such advice and as such Don owes a duty of care through the provision of his advice.
b) The representee must reasonably rely on the advice or information
It is critical not only that the plaintiff relied on the defendant’s advice or information, but also that the reliance was reasonable in all the circumstances.
Since Patrick was an ambitious young businessman who was looking for a high return investment, any advice given to Patrick which included a high return of investment by an experienced financial advisor would be taken into much consideration by Patrick.
Furthermore, Don said to Patrick that if the drugs were to reach the market, the value of shares would rise 15 times which is from $10 to $150 or even more.
Thus, due to Don’s profession as a financial advisor, any advice given by Don is reasonable for Patrick to act upon the advice or information. This is clear as in the case of EssoPetroleum Co Ltd v Mardon (1976) where professional advisers owe a duty in taking reasonable care while providing information.
c) Spectre of indeterminacy
The spectre of indeterminacy pertains to advices provided not under the request of the plaintiff. The issue of duty here lies in the reasonableness of the plaintiff’s reliance. Since the information provided by the defendant was in fact told to him for the purpose of inducing the representee to act in a certain way, that is to say to inform of the potential of the new drug so that Patrick will consider investing in it, there is a duty of care owed to Patrick. This is highlighted by McHugh J (Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, 1997) where the liability of economic loss consist of a statement where there is an intention to induce the recipient to act on it. From the case, it is obvious that Don wishes Patrick to invest in the drug as it was stated that Don advised Patrick.
Thus from the points listed above, Don owes a duty of care to Patrick.

2.2 Duty of care to Mary
The issue on whether Don owes a duty of care to Mary is a more difficult one to ascertain. The defendant can argue that the advice was offered solely to Patrick and hence any losses sustained by parties other than Patrick would matter not to Don as he owes no duty of care to them. In fact, should the event arises where Patrick tells of this investment to a large group of people and they all acted upon it, it is very improbable for the defendant to pay all of these people for these losses.
The treatment to this question hinges on how closely related the third party is to the second party as well as the issue of remoteness. Mary in this case suffers as a third party, and the fact remains that she acted on the information provided by Don. Following the verdict of Bill v Van Erp (1997) , there are considerable implications for professionals like bankers and accountants such as Don when it comes to affecting third parties. It can be said that Patrick informing Mary of what was discussed between him and Don is reasonably foreseeable, as such the negligent misrepresentation can be taken to task by the third party Mary.
2.2 Step 2 : Standard of care
After being certain that the defendant owes a duty of care, it is necessary for the plaintiff to prove that Don failed to exercise the proper standard of care.
The general principles on to determine whether the defendant has exercised the required level of care are set out in statute. Under the civil Liability Act , a person is not negligent in failing to take precautions against a risk of harm unless the risk was foreseeable and not insignificant.
The risk of losses incurred through the investment is no doubt very much foreseeable. Don himself made remarks of the potential pitfalls should the drug fail to take off. Following that argument, as Don warns of potential losses, it must had been of significant value or else he would not had list it as “risky”.
Secondly, the ‘reasonable person’ test can also be used to provide a clearer standard, by which a reasonable person is someone who would have taken precautions against certain harm, considering that the probability of the harm that would occur if the care were not taken, the likely seriousness of the harm, the burden of taking precautions to avoid the harm as well as the social utility of the activity that creates the risk of harm.
Judging by the flippant manner of how the advice was thrown towards Patrick, it is clear that a reasonable person would have said it was not done fulfilling the proper standard of care. Knowing that the losses could be great, Don should had use specific numbers to coach Patrick and how he can invest in the company. Don could had done it easily, as such there is little burden in fulfilling this duty.
A person providing professional services is to be taken to have exercised reasonable care if it is established that the person acted in a manner that (at the time the service was provided) was widely accepted in Australia by a significant number of respected practitioners in the field (peer professional opinion).
The standard of care owed therefore by Don is heavily weighted by his profession. The advice offered by the defendant is a peer professional opinion in line of the job scope of Don, as such a certain standard of care is expected (Wyong Shire Council v Shirt, 1980) . Such standard of care depends on the precautions taken by Don to warn of the risk of harm involved while acting on his advice. From the case study, the only warning of potential harm exist in a few statements by which Don said that “it might not hit the market and it is a risky investment” but he then quickly turned the focus back to the “amazing returns” that entails with success. There was no contract or bill involved through the exchange of privilege information which would have outlined the potential risk spelled out for Patrick to know what is in stored for him.
Furthermore, Don only highlighted the potential returns, which was 15-fold, but failed to brief on what sort of losses the investment would entail, which was later seen to be 10-fold. Patrick also informed that he was going to act on this advice, through the purchasing of a “large number of shares in Kill Cancer”, making it clear that Don owes a duty of care but did not fulfil the standard of care owed to him. 2.3 Step 2 : Remoteness of Damage
Since a duty of care is established and the defendant has failed to meet the necessary standard of care, he is liable for the damage caused by the breach, provided that the damage is not too remote (Kenny & Good Pty Ltd v MGICA, 1992) . In this case study, the compensation of losses incurred through the falling of share is not remote. It is foreseeable that should the drug fail to hit the market, as acknowledged by Don, the share prices are bound to fall.
3. Possible defences
A possible defence that will be attempted by the defendant is firstly, as mentioned above, Don would argue that no duty of care is owed to Mary. It might even be the case where Don has never met Mary in person, much less owe a duty of care to her. The response to this is that third party implications must be considered when professional advice is given, as seen in Bill v Van Erp (1997) .
A second possible defence is the remoteness of damages. What is foreseeable is the decrement of value in the shares should the product fail. The defendant can argue that the amount invested by Patrick and Mary on the other hand, is not foreseeable. Don might not be able to anticipate the large amount of money placed in the investment, which eventually led to high losses. This can be countered by the knowledge of risk appetite of Patrick held by Don. Patrick specifically mentioned that he was not “adverse” to taking calculated risk, indicating that should the risk be properly managed, he is not afraid to commit large sums of money, which Patrick later mentioned that he will be purchasing “a large amount” of shares. Don thus cannot say that he is not aware of the potential amount of money that will be invested by Patrick. Another possible defence would like in the standard of care owed by Don. In this case, the losses are purely economic, and as such more rules or test can be used to measure how responsible the defendant was when the plaintiff incurred the losses. As seen in Perre v Apand Pty Ltd (1999) , a heavy portion of the ruling lies on how vulnerable the plaintiff is. The defendant can argue using the ‘salient features test’ that the plaintiff should had done more research into his investment and sought more legal advices instead of basing his decision solely on one opinion. This is coupled by the fact that information is not withheld and the defendant, Don, is by no means the only source of information. For this argument, the plaintiff may be at the losing end as the decision to invest was made freely by Patrick as well as Mary, and hence they voluntarily assumed the risk of sustaining losses (Agar v Hyde, 2000) .
4. Conclusion
In conclusion, the defendant, Don, should stand liable towards his negligent misrepresentation, as he owed a duty of care towards the plaintiff as well as the third party involved Patrick and Mary and he had breached the duty of care owed to them.
However it is unreasonable and unlikely that the ruling towards the damages paid out to be the full sum of economic losses sustained by Patrick and Mary, a total of $1,800,000. This is because the plaintiff also failed to take reasonable care in their act of investing and thus they voluntarily took up the risk of possible losses. Thus compensation will be paid out, but it would be a portion of the full sum lost.