Legal Practice Briefing
1 September 1993
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.
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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.