Caparo Industries plc v Dickman
In novel cases, a duty of care arises only if the damage was foreseeable, there was a relationship of proximity, and it is fair, just and reasonable to impose a duty.
Facts
Caparo owned shares in Fidelity plc. After receiving Fidelity's audited accounts, it bought more shares, and then made a takeover bid for the company. It later claimed that the accounts, audited by Touche Ross, had been prepared negligently, showing a profit when Fidelity had in fact made a loss, and that it would not have bought the shares if it had known the true position. It sued the auditors in negligence.
Legal principle
The House of Lords held that the auditors owed no duty of care to Caparo, either as an existing shareholder or as a potential investor. Lord Bridge said that, in addition to foreseeability of damage, there must exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of proximity or neighbourhood, and the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope. He endorsed an incremental approach, developing the law by analogy with established categories. The purpose of the statutory audit was to allow shareholders to exercise their governance rights, not to guide investment decisions.
Related cases on duty of care
- Anns v Merton London Borough Council [1978] AC 728
- Capital & Counties plc v Hampshire County Council [1997] QB 1004
- Darnley v Croydon Health Services NHS Trust [2018] UKSC 50, [2019] AC 831
- Donoghue v Stevenson [1932] AC 562
- Gorringe v Calderdale Metropolitan Borough Council [2004] UKHL 15, [2004] 1 WLR 1057
- Hill v Chief Constable of West Yorkshire [1989] AC 53
- Home Office v Dorset Yacht Co Ltd [1970] AC 1004
- Kent v Griffiths [2001] QB 36
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