Caparo Industries plc v Dickman

Caparo Industries PLC v Dickman [1990] UKHL 2 is a leading English tort law case on the test for a duty of care.But because the auditors' work is primarily intended to be for the benefit of the shareholders, and Caparo did in fact have a small stake when it saw the company accounts, its claim was good.Caparo reached a shareholding of 29.9% of the company, at which point it made a general offer for the remaining shares, as the City Code's rules on takeovers required.Bingham LJ held that, for a duty owed to shareholders directly, the very purpose of publishing accounts was to inform investors so that they could make choices within a company about how to use their shares.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:[3] "It is not easy, or perhaps possible, to find a single proposition encapsulating a comprehensive rule to determine when persons are brought into a relationship which creates a duty of care upon those who make statements towards those who may act upon them and when persons are not brought into such a relationship.One of the considerations underlying certain recent decisions of the House of Lords (Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] A.C. 210 ) and of the Privy Council (Yuen Kun Yeu v Attorney-General of Hong Kong [1988] A.C. 175 ) is the fear that a too literal application of the well-known observation of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, 751-752, may be productive of a failure to have regard to, and to analyse and weigh, all the relevant considerations in considering whether it is appropriate that a duty of care should be imposed.It is one upon which all common law jurisdictions can learn much from each other; because, apart from exceptional cases, no sensible distinction can be drawn in this respect between the various countries and the social conditions existing in them.It is incumbent upon the courts in different jurisdictions to be sensitive to each other's reactions; but what they are all searching for in others, and each of them striving to achieve, is a careful analysis and weighing of the relevant competing considerations.It is not, and could not be, in issue between these parties that reasonable foreseeability of harm is a necessary ingredient of a relationship in which a duty of care will arise: Yuen Kun Yeu v Attorney-General of Hong Kong [1988] A.C. 175, 192A.This, as Lord Keith of Kinkel observed in Hill v Chief Constable of West Yorkshire [1989] A.C. 53, 60B, has been said almost too frequently to require repetition.Both the analogy with contract and the assumption of responsibility have been relied upon as a test of proximity in foreign courts as well as our own: see, for example, Glanzer v Shepard (1922) 135 NE 275, 276; Ultramares Corporation v Touche (1931) 174 N.E.In determining this, foreseeability must, I think, play an important part: the more obvious it is that A's act or omission will cause harm to B, the less likely a court will be to hold that the relationship of A and B is insufficiently proximate to give rise to a duty of care.This requirement, I think, covers very much the same ground as Lord Wilberforce's second stage test in Anns v Merton London Borough Council [1978] A.C. 728, 752A, and what in cases such as Spartan Steel & Alloys Ltd v Martin & Co. (Contractors) Ltd [1973] Q.B.It was considerations of this kind which Lord Fraser of Tullybelton had in mind when he said that "some limit or control mechanism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence:" Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1, 25A.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.Lord Bridge concluded by answering the specific question of whether auditors should be liable to individual shareholders in tort, beyond a claim brought by a company.The judgment overturned the decision of a judge at first instance in JEB Fasteners Ltd v Marks Bloom & Co.[6] Caparo and its extent were further discussed in Her Majesty's Commissioners of Customs and Excise v Barclays Bank Plc[7] and Moore Stephens v Stone Rolls Ltd.[8] The three-stage test given in Caparo is used to deal with novel issues of duty of care.Policy factors are inherently fact specific, but they have included concerns about "opening the floodgates", as well as the desire to avoid medical professionals and emergency services becoming overly cautious and defensive in their practices.