Professional negligence

2021 MLD 1402 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Professional negligenceProof

Plaintiff sought recovery of damages from defendant hospital for issuing medical test report alleged to be with false results and plaintiff had to travel abroad from where he got another report with different results

Suit was decreed partially in favour of plaintiff but Lower Appellate Court dismissed the suit

Validity

No evidence was available to show any professional negligence of carelessness in preparation of test result

Doctors abroad did not declare disputed report as false and evidence on record reflected that defendant hospital acted with extreme professionalism and second report on return of plaintiff to Pakistan corroborated the report of foreign hospital, which reflected due professionalism and care in testing and preparing reports by defendant hospital

As to foreign visit Witness of plaintiff, as to foreign visit of plaintiff deposed that he had been visiting abroad sometime alone and at others with his family

No assumption could be inferred that plaintiff had any panic attack or went abroad especially because of disputed test report

Claim of plaintiff as to financial losses or mental agony was declined by Trial Court which was not challenged in appeal or cross-objections and the same had attained finality

Findings recorded by Lower Appellate Court to the effect that plaintiff was not entitled to any compensation and that suit of plaintiff was liable to be dismissed, did not suffer from any misreading or non-reading of record

Revision was dismissed, in circumstances.

2018 SCMR 605 SUPREME-COURT-OF-CANADA Judicial Precedent

Professional negligenceDuty of careScopeNegligent misrepresentation or performance of service by auditorFinancial manipulation/fraud committed by Directors of a companyAuditor failing to discover such fraudCompany going into liquidation

Question as to whether auditor breached his duty of care and therefore was liable for company's losses, and, if yes, then what would be the quantum of damages

[Per Gascon and Brown JJ (Majority view)] Duty of care was established where "proximity" between parties and "reasonably foreseeability of injury" were established

In the present case, while the Directors were engaged in financial manipulation the auditor issued a press release and a comfort letter for the purpose of soliciting investment for the company, and also carried out the audit

First requirement of "proximity" between the parties was thus established

As for the second requirement of "reasonably foreseeability of injury" auditor's negligence in relation to the press release and the comfort letter resulted in injuries that were not reasonably foreseeable

Auditor's services in such regard were engaged for the purpose of soliciting investment, not management oversight

As company's losses did not flow from a failure to solicit investment, company could not be allowed to recover for the increase in its liquidation deficit

However, recovery for the increase in company's liquidation deficit which followed or resulted from the audit should be allowed

Increase in company's liquidation deficit fell within the duty of care owed by the auditor to the company in relation to the preparation of a statutory audit, the express purpose of which was to assist the company in management oversight

Auditor owed the company duty of care, which it breached

Remoteness of loss was not a bar to the company's recovery

Auditor could not rely on either the defence of illegality or of contributory fault, because the fraudulent acts of company's Directors could not be attributed to the corporation

[Per McLachlin C.J (Minority view)]: Scope of auditor's duty of care was defined solely by the purposes for which the audit statements were prepared

Auditor's wrongful act did not deprive the company of the ability to attract investment capital, and it did not prevent the company from detecting misfeasance in the company's management

Company did not prove that auditor's wrongdoing prevented its shareholders from exercising supervision in a manner that would have ended the company's loss-creating activities at an earlier date

Loss at issue had not been shown to fall within the scope of auditor's duty of care

Policy considerations of 'unfair allocation of loss' and 'indeterminacy' would also preclude imposing liability on the auditor.

2018 SCMR 605 SUPREME-COURT-OF-CANADA Judicial Precedent

Professional negligenceNegligent misrepresentation by auditorAuditor, liability ofScope'Duty of care' and 'remoteness of loss'

Auditor that provided a year-end report for the purpose of enabling a company's shareholders to supervise management did not, absent proof, assume responsibility for what the shareholders decided to do with that information

Purpose of an annual audit report was to inform shareholder decision making, not to govern it

Auditor did not underwrite the entire risk associated with the shareholders' exercise of business judgment; it was liable only for exposing shareholders to the risk of the information it had provided being wrong

Even if the whole loss would have been avoided if the auditor had met the standard of care, the company may recover in damages only that part of the loss that may be attributed to the auditor's breach of its duty of care, which was restricted by the purpose or purposes for which it provided its opinion

Auditor was not liable for the indeterminate quantum of loss that the shareholders' course of action (or inaction) may trigger, since determining that course of action was beyond the auditor's undertaking of responsibility, and thus outside the scope of its duty of care

Similarly, loss that could not be attributed to the auditor's breach would be too remote to recover.

2018 SCMR 605 SUPREME-COURT-OF-CANADA Judicial Precedent

Professional negligenceNegligent misrepresentationRecovery of pure economic (financial) lossLimitations'Duty of care' and 'remoteness of loss'Scope

Recovery of pure economic loss flowing from negligent misstatement could be limited on two basis; first where the scope of the duty of care of the advice-giver did not cover the loss claimed; and, second where the loss was too remote from the negligent act and thus was not legally caused by that act

Both inquiries invoked similar considerations and arrived at the same point

Scope of the duty of care inquiry looked to the relationship between the defendant's advice and the plaintiff's loss; it asked if that relationship was proximate

In cases of economic loss, it inquired into the purpose for which the advice was given and asked whether a reasonable person would have expected, or foreseen, that negligent advice would lead to the loss in question by virtue of the plaintiff's reliance on the advice

Remoteness inquiry looked at the wrongdoing and its proximity to the loss claimed

Factors to be considered in such regard were not closed; the advice-giver's knowledge of the claimant's circumstances, the reasonable expectations arising from the relationship, and the presence of intervening factors that led to the loss were some of the factors required for such inquiry.

2018 SCMR 605 SUPREME-COURT-OF-CANADA Judicial Precedent

Professional negligencePure economic (financial) loss, recovery ofDuty of careScopeNegligent misrepresentation or performance of service by auditor

General test/framework to be examined by court in cases of pure economic loss arising from an auditor's negligent misrepresentation or performance of a service comprised of two stages; whether a prima facie duty of care existed between the parties, and if so, whether there were any residual policy considerations that may negate the imposition of a duty of care

Principles stated.

2017 SCMR 907 SUPREME-COURT-OF-UK Judicial Precedent

Professional negligence'Res inter alios acta' doctrine ofApplicability'Transferred loss, principle ofApplicabilityUnjust enrichment, principle ofApplicabilityNegligent advice given by a professionalDamages, quantum ofClaimant-company had lent a sum to the borrower company to buy a medical businessDefendants were accountants who carried out due diligence for claimant-company on the purchase and did so negligentlySubsequently the medical business collapsed and borrower-company defaulted on its loan

To improve claimant-company's balance sheet and for reasons of tax efficiency, owner of claimant-company entered into a re-finance arrangement and provided an interest-free loan to the borrower-company, which it used to discharge the loan to claimant-company, so that instead a loan was now owed to the owner of claimant-company

Issue for the court was whether quantum of damages to be awarded to the owner of claimant-company were to be reduced to reflect repayment of loan by borrower-company to claimant-company

[Per Lord Sumption, Lord Mance and Lord Neuberger (President)]

Payments made by owner of claimant-company to borrower-company (under the refinance arrangement) and in turn by the borrower company to the claimant-company to pay off the loans could not be recovered under the doctrine of 'res inter alios acta', as the same could not be classed as any kind of collateral payment since they were not independent of the circumstances giving rise to the loss

Firstly, such refinance arrangement/transaction discharged the very liability whose existence represented claimant-company's loss; secondly, the loan made by owner of claimant-company to the borrower-company and the earlier agreements of claimant-company to lend money to borrower-company were distinct transactions between different parties, each made for valuable consideration; and thirdly, the consequences of refinancing by owner of claimant-company could not be recoverable as the cost of mitigation, because the re-financing loan to borrower-company was not an act of claimant-company and was not attributable to accountants' breach of duty

Alternative argument of 'transferred loss' that claimant-company could sue for its owner's loss did not arise in the present case

'Transferred loss' only arose where the object of the transaction was to benefit a third party or a class of third parties and the anticipated effect of breach of a duty owed to the claimant was that loss would be caused to the third party

In the present case, however, it was not part of the accountants' engagement to benefit owner of claimant-company, and it was common ground that they owed the owner no duty

Regarding 'equitable subrogation' as a remedy for unjust enrichment against the accountants, the accountancy firm was not unjustly enriched by the owner's indirect repayment of the loan to claimant-company

Principle of unjust enrichment was essentially limited to cases where there was some defect in the subject transaction itself, but in the present case the loan from owner of claimant-company to the borrower-company had operated exactly as intended: he had obtained the security and covenant he anticipated and the loan to claimant-company was repaid

Neither the claimant-company nor its owner had any claim against the accountancy firm in relation to 'res inter alios acta', 'unjust enrichment' or 'transferred loss'

Appeal was allowed accordingly.

2015 PCrLJ 1628 ISLAMABAD Judicial Precedent

Ss. 22-A & 22-BConstitution of Pakistan, Art.199Constitutional petitionRegistration of criminal caseProfessional negligenceTwo remedies, availing of

Petitioners were medical practitioners who were alleged to have committed professional negligence resulting into death of complainant's wife

Earlier, complainant made a complaint to Pakistan Medical and Dental Council and thereafter filed complaint before Ex-officio Justice of Peace, who directed police to register criminal case against petitioner

Validity

Initially complainant moved Pakistan Medical and Dental Council through a written complaint, where an inquiry was conducted and Disciplinary Committee had held petitioner negligent and was issued censure with further direction to the hospital to improve their system

No impediment existed to initiate criminal or civil action after inquiry of the Council, when petitioner was found guilty to some extent and was awarded penalty of censure

Specific allegations were made in complaint which required probe and investigation to ascertain factum of mala fide or mens rea

High Court declined to exercise discretion in favour of petitioner and normal procedure provided in Criminal Procedure Code, 1898, could not be halted

Petition was dismissed in circumstances.