Caparo Industries plc v Dickman  UKHL 2 is a leading English tort law case in Caparo was the scope of the assumption of responsibility, and what the. Caparo Industries Plc v Dickman . Facts. Caparo, a small investor purchased shares in a company, relying on the accounts prepared by. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc. Fidelity was not doing well. In March.
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The decision arose in the context of a negligent preparation of accounts for a company. But for outside investors, a relationship of proximity would be “tenuous” at best, and that it would certainly not be “fair, just and reasonable”.
The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be. Caparo reached a shareholding of He reasons that when deeming if negligence has occurred one should compare cases to precedent cases with similar facts, rather than simply having an overarching test.
Bridge of Harwich, writing for a unanimous court, states that the two part test employed in Dobson should not be used, and subsequently it has been abandoned in England. This was the difference in value between the company as it had and what it would have had if the accounts had been accurate.
But the focus of the inquiry is on the closeness and directness of the relationship between the parties. Retrieved from ” https: In it he extrapolated from previously confusing cases what he thought were three main principles to be applied across the law of negligence for the duty of care. This was overturned by the House of Lords, which unanimously held there was no duty of care.
Caparo Industries Plc v Dickman  | Case Summary | Webstroke Law
Contractors Ltd  Q. But once it had control, Caparo found that Fidelity’s accounts were in an even worse state than had been revealed by the directors or the auditors.
Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. The second requirement is more elusive. His decision was, following O’Connor LJ’s dissent in the Court of Appeal, that no duty was owed at all, either to existing shareholders or to future investors by a negligent auditor.
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On a preliminary issue as to whether a duty of care existed in the circumstances as alleged by the plaintiff, the plaintiff was unsuccessful at first instance but was successful in the Court of Appeal in establishing a duty of care might exist in the circumstances.
Fidelity was not doing well. I indusries this argument to be fallacious. I believe it is this last distinction which is of critical importance and which demonstrates the unsoundness of the conclusion reached by the majority of the Court of Appeal. In May Fidelity’s directors made a preliminary announcement in its annual profits for the year up to March. But because the auditors’ work is primarily intended to be for the benefit of the shareholders, cqparo Caparo did in fact have a small stake when it saw the company accounts, its claim was good.
A company called Fidelity plc, manufacturers of electrical equipment, was the target of a takeover by Caparo Industries plc. In May Fidelity’s directors made indistries preliminary announcement in its annual profits for the year up to March confirming the negative outlook. In determining this, foreseeability must, I think, play indudtries important part: Sometimes it is regarded as significant that the parties’ relationship is “equivalent dcikman contract” see the Hedley Byrne caseat p.
It did not extend to the provision of information to assist shareholders in the making of decisions as to future investment in the company. Views Read Edit View history. The shareholders of a company have a collective interest in the company’s proper management and in so far as a negligent failure of the auditor to report accurately on the state of the company’s finances deprives the shareholders of the opportunity to exercise their powers in general meeting to call the directors to book and to industriess that errors in management are corrected, the shareholders ought to be entitled to a remedy.
So it would not be sensible or fair to say that the shareholder did either. A claim to recoup a loss alleged to flow from the purchase of overvalued shares, on the other hand, can only be sustained on the basis of the purchaser’s reliance on the report. It sued Dickman for negligence in daparo the accounts and sought to recover its xaparo. Sometimes, as in the Hedley Byrne caseattention is concentrated on the existence of a special relationship. At this point Caparo had begun buying up shares in large numbers.
On capaaro other hand, a duty will be the more readily found if the defendant is voluntarily exercising a professional skill for reward, dickan the victim of his carelessness has in the absence of a duty no means of redress, if the duty contended for, as in McLoughlin v O’Brian  1 A.
The shareholder, qua shareholder, is entitled to rely on the auditor’s report as the basis of his investment decision to sell his existing shareholding. It follows, therefore, that the scope of the duty of care owed to him by the auditor extends to cover any loss sustained consequent on the purchase of additional shares in reliance on the auditor’s negligent report.
The content of the requirement of proximity, whatever language is used, is not, I think, capable of precise definition. Others have spoken to similar effect.
Caparo Industries Plc v Dickman 
There can be no distinction in law between the shareholder’s investment decision to sell the shares he has or to buy additional shares. It sued Dickman for negligence in preparing the accounts and sought to recover its losses. Applying those principles, the defendants owed no duty of care to potential investors in the company who might acquire shares in the company on the basis of the audited accounts.
The purpose of the statutory requirement for an audit of public companies under the Companies Act was the making of a report to enable shareholders to exercise their class rights in general meeting. In order for a duty of care to arise in negligence:. But the crucial question concerns the extent of the shareholder’s interest which the auditor has a duty to protect.
It may very well be that in tortious claims based on negligent misstatement these notions are particularly apposite. It is usually described as proximity, which means not simple physical proximity but extends to “such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act: