The article has been written by Pravin Kumar Ray, a 3rd Year Law student at Sarsuna Law College, Kolkata
Also known as an economic tort, a business tort refers to a wrongful action taken against a business intending to cause it harm. These specific types of torts may result in lost profits, negatively affected reputation, loss of competitive advantage, and loss of market share, among other issues. Business torts can be committed intentionally by a competing business or they can be the result of negligent behavior by individuals or other companies.
Tortious Interference
Tortious interference can happen prior to a contract being formed between two parties and is the deliberate and unlawful interference within a company’s contractual dealings or business relationships. Such interference with a contract can happen when a third-party intentionally causes a contracting party to commit a breach of contract or when the third party disrupts the ability of another to perform their obligations under the contract. This results in the business not receiving the performance promised within the contract terms.
Restraint of Trade
Restraint of trade is a type of economic injury involving meddling with a business’s ability to conduct business freely. This can refer to any activity that limits sales, trade, and transportation via interstate commerce, or otherwise severely affects interstate commerce. Additionally, different businesses and individuals must not partake in certain actions or enter into agreements that would result in another business ceasing to operate as normally.
Injurious Falsehood
Injurious falsehood is an intentionally false statement made in order to cause damage to another business. Injurious falsehood is classified as a business tort, as false statements can damage a person’s business reputation or the reputation of a business as a whole. In order to prove an injurious falsehood occurred, malice must be proven – that the individual or competing business knew the statement was false when it was made.
Unfair Competition
Unfair competition refers to the competing of two businesses on unequal terms as a result of favorable or disadvantageous conditions that had been applied to some competitors, but not others. Additionally, unfair competition can also be found in situations where the actions of certain competitors harm others by preventing competition on equal terms.
Fraudulent Misrepresentation
Fraudulent misrepresentation is deliberate deception in order to secure unfair or unlawful gain. The intent behind this business tort makes it one of the most deliberate types of misrepresentation that carries severe penalties. Fraudulent misrepresentation can be any act that would ultimately deceive another person or business including gestures, innuendos, half-truths, or even silence.
Chandler Vs Cape plc: Company’s Duty of Care to Subsidiary Company’s Employees
In this case, the claimant contracted asbestosis through exposure to asbestos dust during the course of his employment with Cape Building Products Ltd. In considering the parent’s liability to the subsidiary’s employees, the Court held that the relevant question was whether the parent’s actions meant that it had taken on a direct duty to the subsidiary’s employees. In appropriate circumstances, the law might impose on a parent responsible for the health and safety of its subsidiary’s employees. Those circumstances include where;
1) the business of the parent and subsidiary were in a relevant respect the same;
2) the parent had, or ought to have had, superior knowledge of some relevant aspects of health and safety in the particular industry;
3) the subsidiary’s system of work was unsafe as the parent company knew, or ought to have known; and
4) the parent had known or ought to have foreseen that the subsidiary or its employees would rely on it using that superior knowledge for the employee’s protection.
For the purposes of the final element, it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary, the relationship between the companies would be viewed more widely. However, if the parent company had a practice of intervening in the trading operations of the subsidiary, for example, production and funding issues, that may be enough to satisfy the final element.
The court emphasized that there would not be an assumption of responsibility simply by reason only that a company is the parent of another.
JUDGEMENT: The Court of Appeal, it was held that a parent company, in appropriate circumstances, owes a direct duty of care for the health and safety of its subsidiary’s employees.
Caparo Industries Plc v Dickman (1990)
Facts
The defendants were auditors for a company (Fidelity) which released an auditor’s report containing misstatements about its profits. Caparo was a shareholder in Fidelity who relied on this report when making a decision to purchase further shares. They suffered economic loss as a result. Caparo sued the defendants in the tort of negligence, arguing that they owed a duty of care to their shareholders when preparing the auditor’s report.
Issue(s)
- Under what circumstances does a person owe another a duty of care in the tort of negligence?
- In particular, in what circumstances is a duty is owed by auditors to shareholders and investors when making public statements and reports?
This case is key in establishing a tripartite test for the existence of a duty of care. According to the House of Lords, in order for a duty of care to arise in negligence:
- The harm must be reasonably foreseeable as a result of the Defendant’s conduct;
- the parties’ relationship must be proximate; and
- it must be fair, just and reasonable to impose liability.
No duty is owed by a company’s auditors to existing shareholders seeking to invest further or to potential investors with respect to public statements and reports, due to a lack of proximity and foreseeability.
A duty of care for negligent misstatement is more likely where the defendant is aware of the transaction the claimant is contemplating, knows that the defendant’s advice will be communicated to the claimant and knows that it is ‘very likely’ that the claimant will rely on the statement when making the relevant decision. It is unlikely to arise in relation to statements put in general circulation that could be relied on by anybody: this would lead to a floodgate of liability.
JUDGEMENT: The House of Lords held in favour of defendants. The defendants did not owe Caparo, as future investors or existing shareholders of Fidelity, a duty of care.
United States v. Carroll Towing Co.
Facts
Connors Company (Connors) (plaintiff) owned a barge called the Anna C. The barge carried a load of flour owned by the United States (plaintiff). Connors hired Carroll Towing Co. (Carroll) to tow the barge with its tug boat. Carroll chartered its tug boat to Grace Line (Grace) (defendant), another tug company. On January 4, 1944, Connors’ barge was docked at Pier 51 on the North River. Connors’ employee who was tasked with watching the barge had gone ashore. Carroll’s tug boat attempted a tricky move of the Anna C to another dock, but this maneuver failed and ultimately set loose all other boats at the dock. The boats floated down the river and the Anna C sank. Connors brought suit against Carroll and Grace for damages from the loss of the boat, and the United States brought suit against Carroll for the loss of the flour. At trial, Carroll and Grace defended on the ground that Connors was contributorily negligent because its employee was absent from the barge at the time of the incident. The trial judge found that Carroll, but not Grace was responsible for one-half the damage to the Anna C and for the entire loss of the flour. The parties appealed.
Issue. At issue is whether the Appellants should be held partly liable for damage to the barge and for the lost cargo by not having an attendant aboard the barge when it broke free from the pier.
Held. Appellants held partly liable. The court applied the “burden was less than the injury multiplied by the probability” formula and found that the burden of having an attendant aboard the barge was less than the gravity of injury of a runaway barge multiplied by the probability that the barge would break free if unattended.
Synopsis of Rule of Law. There is no general rule to determine when the absence of an attendant will make the owner of the barge liable for injuries to other vessels if she breaks away from her moorings. If he is found to be liable for injuries to others, then he must reduce his damages proportionately, if the injury is to his own barge. Vessels invariably suffer accidents. The owner’s duty, as in other similar situations, to prevent against resulting injuries is a function of three variables:
(1) The probability of the kind of incident in question;
(2) the gravity of the resulting injury; and
(3) the burden of adequate precautions.
Liebeck v. McDonald’s Restaurants.
Facts:
Stella Liebeck, a 79-year-old woman from Albuquerque in New Mexico, bought a cup of coffee at McDonald’s drive-in restaurant. She opened the cup of coffee and placed between her legs. She spilled the cup all over her lower body and she suffered third-degree burns on this part of body.
Legal issue: Legal issue is whether McDonalds is responsible for the claimant’s injuries or not.
Procedural history: Stella Liebeck tried to settle out-of-court, but all of these attempts failed. After this, Liebeck sued the McDonald’s for gross negligence.
Reasoning of the court:
Served coffee was very hot (82-88 °C), this temperature causes third-degree burns in two to seven seconds. Very important documents were more than 700 reports of people burned by McDonald’s coffee. McDonald’s admitted that it did not warn customers of the nature and extent of this risk and could offer no explanation as to why it did not.
JUDGEMENT: The jury decided that Liebeck is responsible for 20% and McDonald’s is responsible for 80%, despite the fact that on the cup of coffee was warning sign, that this beverage was hot. According to the court, this sign was too small. Liebeck was awarded $200 000 in compensatory damages and $2.7 million in punitive damages. These damages were later reduced.
Both parties appealed against this decision. Later, parties decided to settle out-of-court and they agreed on damages less than $600 000.
BIBLIOGRAPHY
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