Ellen is a graduate of The College of Alternative Medicine and is looking to start her own business. She decides to open a meditation studio and looks around the inner city suburb of Paddington for suitable premises. She eventually finds a terrace house near to Oxford St., the main street of Paddington in Sydney, NSW

The owner of the premises is willing to enter a 12 month lease however Ellen asks him to wait for a week so that she can check with the local council as to the suitability of her business.  Ellen attends the council offices and goes to the counter marked “Business Inquiries”.

She asks several questions of the council employee including a question about building work in the area.  She says “my meditation studio requires a calm environment is there anything that could cause noise nearby?”

The council officer is called away before being able to answer.  When he returns he has a very quick look at the computer and says to Ellen “relax everything will be fine”.  Ellen signs the lease the next day however within 2 weeks of opening the meditation studio she sees builders arrive next door.

She asks one of them how long they will be working next door. The builder replies “It’s a big job, a total renovation. It should take at least 6 months”.  Ellen tries to run her meditation studio but the noise from the building is too stressful on Ellen and her clients.  A month into the lease, Ellen is so stressed by the development noise from next door, that she develops a nervous disorder that threatens her career in alternative medicine.

Ellen reduces the operating hours of her meditation studio to avoid the builders’ noise but starts to fall behind in her rent for the premises.

Issue 1:

Explain whether Ellen has a claim against the council in relation to the advice she received.

Issue 2: Contract Law

Has there been a breach of contract between Ellen and Land Lord for non-payment of rent?

Issue 3: Tort of negligence

Has there been a negligent misstatement by the Council Worker?

                                                          SAMPLE SOLUTION

Issue 1:

Does Ellen have a claim against the council in relation to the advice she received?

Rule

In order to prove that Ellen has a claim against the council, it must first be proven that there was some negligence on the part of the council. Before Ellen could set up shop, if she had any inquiries to make or any matters that need clarification, the best person to consult was the local council. In order to prove professional negligence, there is need to prove that a duty of care was owed and that duty of care was breached resulting in loss.

The law on this matter has mainly been built based on stare decisis. On several instances, courts have succinctly given directions on this matter. One such instance was in the landmark case of Barnes v. Commonwealth of Australia (1937) 37 S.R. (N.S.W.) 511. In this case, a memorandum was sent to the plaintiff informing her that her husband had been admitted to a mental institution and that his pension certificate needed to be returned (Phegan, 1973). Having received this news, the plaintiff suffered from nervous shock. The news was however false. The Supreme Court of New South Wales held that she had the right to sue the Commonwealth and Davidson J., further commented on this matter by indicating that; if someone in carrying out his official duty knows that the information he is communicating is serious and that the recipient of the information is going to place reliance on it, then he owes the duty of care to ensure that the information being communicated is correct (Phegan, 1973). Further, in the case of Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] A.C. 465, if the negligent supply of information caused economic loss, the scope of liability was extended (Latimer, 2012). It was also established that there ought to be a relationship of sufficient proximity and to that effect the court determined that there was no sufficient proximity between the bankers who prepared the credit reference and the corporation that provided the credit, having relied on the credit reference. This was also reaffirmed in the case of Caparo Industries plc v Dickman [1990] 2 AC 605. The salient feature of the direction given by the courts in these two cases is that for liability to accrue especially with respect to economic loss, the party giving the advice should be aware of the nature of transaction that the plaintiff is contemplating (Phegan, 1973). The party should also have cause to know that the advice will be relied upon, in making the decision on whether the transaction in contemplation should be carried out.