This preview shows page 1. Sign up to view the full content.
Unformatted text preview: f a corporation include limited liability and continued existence if one of the
owners leaves or dies. It is also easier to transfer ownership. Disadvantages include the formality of
the entity such as the requirement for Articles of Incorporation and a greater cost of administration
in the annual update of corporate records and filing tax returns.
Richard and Thomas likely do not have substantial assets and they want to return to school. It is
recommended that they form a partnership, which is less costly. 68 QUESTION 9 (8 marks)
Part A (5 marks)
The possible defendants are Trilaws, Big City Public Health, senior management and Health
Claim against Trilaws Inc.
1) Claim of Negligence
For a claim of negligence you need to prove that there was a duty of care, a breach of duty, damages,
and a direct causal link between the breach of duty and the damages. The people who became ill
were customers and therefore were owed a duty of care. There was a possible breach of duty since
there appears to be a lack of hygiene policies in that Trilaws should require employees to wear
gloves or have a Hepatitis vaccine. It is foreseeable that their lack of action could cause damage. A
possible defence is that Trilaws complied with Health Canada regulations and were not mandated to
have these policies. Another issue is that Trilaws was aware of the danger and yet there was no
action to warn the public. The customers who became ill contacted Hepatitis and will suffer possible
liver damage. There is a direct causal link between Trilaw’s breach and the damages sufferd by the
customers. If Trilaws had taken action the damages could have been prevented or minimized.
2) Claim Under Contract Law
A possible claim under contract law could result from the implied term that the goods would be fit
for consumption or free from health dangers. The Sales of Goods Act should also be considered.
Claim against Big City Health
The Public health department owes a duty of care to the public. There was a possible breach of duty
with the failure to warn the public of the potential dangers and the lack of vaccination program.
Similar to the claim against Trilaws, there are damages and a direct causal link.
Part B (3 marks)
The auditor’s liability would have to be based on negligent misrepresentation as there is no direct
contract with the bank. One issue is whether the bank is owed a duty of care. The Hercules v. Ernst
& Young decision limits the parties an auditor owes a duty of care to. It could be argued that as the
auditor was aware of the bank’s reliance, there was an element of proximity resulting in a duty of
care. Indications that the auditor breached the duty of care include:
• the auditor’s failure to require that the matter be included in the legal letter as it was not in
their area of expertise;
the auditor’s failure to comply with GAAS by relying on management’s assessment of the
contingency and not completing appropriate testing; and
the financial statements failed to conform with GAAP if further testing indicated the
contingency was likely and an accrual or note disclosure was required.
69 The bank has incurred damages through a loss on the loan to Trilaws. Determining if there was a
causal link between the breach and the damages would depend on the bank’s awareness of this
contingency and if the bank completed due diligence prior to granting Trilaws the line of credit. Due
to the uncertainty of whether the Bank is owed a duty of care and if the breach was a direct cause of
damages, it is unlikely the claim would be successful. 70 PART C – RULES OF PROFESSIONAL CONDUCT
QUESTION 10 (23 marks)
Part A (8 marks)
Franken, Chare and LC each broke the following rules of professional conduct:
Maintaining the good reputation of the profession as indicated by the specific rules
of professional conduct.
RPC 205 RPC 202 Requires that members report breaches of the rules of professional conduct.
Franken was obligated to report LC and LC was obligated to report Franken.
Prohibits members from signing or associating themselves with reports or statements
which they know are false or misleading. Franken deliberately overstated the budget
by $5 million.
Requires that a member perform professional services with due care and integrity.
The deliberate deception on the budget suggests a lack of integrity. Note RPC 203.1 was not breached by failing to keep current on income tax law as Franken does not
practice in this area.
RPC 208.1-.2 Prohibits a member from improperly disclosing or using confidential information.
The information provided by Franken and information on the car allowance
obtained from doing the tax return could be considered confidential.
RPC 210 Prohibits a member from having a conflict of interest. There may be a conflict of
interest with respect to the relationship between Chare and Franken
Provincial Government. It may have been possible to avoid this conflict of interest. RPC 215 P...
View Full Document
This note was uploaded on 10/27/2013 for the course LAW 10-100 taught by Professor Parsons during the One '10 term at Bond College.
- One '10