Caparo Industries plc v Dickman – Case Summary

Caparo Industries Plc v Dickman

House of Lords

Citations: [1990] 2 AC 605; [1990] 2 WLR 358; [1990] 1 All ER 568; [1990] BCC 164.

Facts

The defendants were auditors for a company (Fidelity) which released an auditors 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 auditors report.

Issue(s)
  1. Under what circumstances does a person owe another a duty of care in the tort of negligence?
  2. In particular, in what circumstances is a duty is owed by auditors to shareholders and investors when making public statements and reports?
Decision

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.

This Case is Authority For…

For a defendant to owe another a duty of care in the tort of negligence, the following requirements must be met:

  1. It must be foreseeable that the defendant might cause the claimant loss;
  2. There must be a sufficient degree of proximity between the parties;
  3. It must be fair, just and reasonable to impose a duty.

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.

Other

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 floodgates of liability.

Advertisements