Australian Commercial Law

Question: Discuss about theAustralian Commercial Law. Answer: Issue: Whether negligence has occurred on the part of chartered accountant firm, Tom, Jane Co (TJC) while auditing the accounts of Sunflower Bank Limited or not. Rule: Section 5 of the Civil Liability Act, 2002 defines negligence. Negligence has been defined as failure to exercise reasonable care and skill.[1] Under the provisions laid down under Section the harm includes economic loss, personal injury and damage to property. Sub section (1) of Section 5B lays down that a person would not be held liable for negligence if he fails to take precaution against a risk of causing harm to others unless it can be shown that the risk was not unforeseeable the risk was a significant risk and the precaution would have been taken by a reasonable man under similar circumstances to avoid the risk.[2] Sub section (2) of Section 5B lays down that for determining whether precaution would have been taken by a reasonable person against the risk of harm, the factors which the Court would consider are as follows: the possibility of causing of harm in case no precautions were taken the seriousness of the harm likely to arise if such precautions were not taken the burden of taking precautionary measures for avoiding the risk of harm and the social utility of the activity, because of which the risk of harm is created.[3] Section 5D lays down guidelines to determine whether the harm has been caused by negligence or not. The elements which need to be present for determining whether the harm has been caused by negligence or not are as follows: that the harm would not have caused if negligence had not occurred. that it is appropriate for the scope of the negligent persons liability to extend to the harm so caused[4] Application: In the instant case, TJC has committed a grave error while auditing the account of Sunflower Bank Limited. It has failed to detect a $65 million fraud committed by the chief financial officer of the Company and her assistant. Under the terms of the contract which was entered into between TJC and Sunflower Bank Limited, TJC was to audit the account of Sunflower for a period of 4 years. TJC agreed not to take any fee for the first one year. Under the present circumstances, TJC had the duty to exercise reasonable care and skill while auditing the business of Sunflower. The audited accounts were required to be submitted to the Australian Stock Exchange. Thus, the risk involved in the auditing was foreseeable. It was not an insignificant risk as TJC was aware of the consequences of submission of incorrect audited accounts to the Australian Stock Exchange. Had any reasonable person been allowed to take the responsibility of auditing accounts of Sunflower, he would have taken proper precaution to avoid the risk of harm. To determine whether or not a reasonable man would have taken precaution under similar circumstances, the factors to be considered are: Possibility of harm: Auditing of accounts is a very important part of doing business. It is mandatory to submit a true and correct audit to the Australian Stock Exchange. Therefore, any error in auditing would have the possibility of causing harm to the entire business. Seriousness of harm: The harm would be mainly in the form of economic loss to the Company and its shareholders. The value of the shares of the Company would decrease in case an incorrect audited report is submitted to the Australian Stock Exchange. Therefore, there is no doubt regarding the fact that the harm would be a serious one if correct auditing is not done. Burden of taking precaution: There is a burden on every chartered accountant firm to do proper auditing one it undertakes to audit the accounts of some business entity because the entire business of the company is dependent on such auditing. Thus, elements of negligence as required under Section 5B of the Civil Liability Act, 2002 has been fulfilled in the present case. Moreover, the present case also fulfils the requirement under Section 5D. In the instant case, the harm would never have been caused, had the negligence not occurred on the part of TJC. A $65 fraud was ought to have been detected by TJC and the failure to do so has resulted in the loss to the company. Under the circumstances, it would be appropriate to make TJC liable for all the losses suffered Sunflower. Conclusion: In the instant case, negligence has been committed by TJC in auditing the account of Sunflower and hence it is liable for all the losses suffered by Sunflower. Bibliography Barker, Kit, et al.The law of torts in Australia. Oxford University Press, 2012. Beran, Roy G. "SUDEP revisitedA decade on: Have circumstances changed?."Seizure27 (2015): 47-50. Horvath, Michal, and Greg Lauritsen-Damm. "Liability issues in single vehicle accidents."Precedent (Sydney, NSW)114 (2013): 13. Sekendiz, Betul, Robin Ammon, and Daniel P. Connaughton. "An Examination of Waiver Usage and Injury-Related Liability Claims in Health/Fitness Facilities in Australia."Journal of Legal Aspects of Sport26.2 (2016): 144-161.