Caparo v Dickman [1990] 2 AC 605

Key points

  • An incremental approach should be adopted in relation to duty of care
  • The intended purpose of a statement can restrict the scope of the duty of care imposed by the courts on the defendant who made the statement

Facts

  • C was a public limited company that took over F plc and discovers fraud in F plc’s accounts
  • C sues F’s auditors for negligence in its audit of F’s accounts and the writing of the audit report
  • C asserts that the auditors owe shareholders and potential investors a duty of care to in respect of the certification of accounts

Held (House of Lords)

  • C’s claim was rejected; the auditors did not owe C a duty of care

Lord Bridge

Incremental approach to duty of care

  • His Lordship stated a that a duty of care consists of the three factors of reasonable foreseeability, proximity and it being ‘fair, just and reasonable’ for the courts to impose the duty 
  • However, he stressed that an incremental approach to finding a duty of care should be applied rather than a general test
    • “But since the Anns case a series of decisions of the Privy Council and of your Lordships’ House, notably in judgments and speeches delivered by Lord Keith of Kinkel, have emphasised the inability of any single general principle to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope”: p. 617
    • “Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes”: p. 618

The purpose of a statement limits duty of care

  • Economic loss due to negligent misstatement is confined to cases where advice is given for specific purpose to a known recipient
  • The purpose of the act requiring the audit report was for the shareholders to exercise class rights in a general meeting and not to inform investment decisions
  • There is therefore no special relationship between auditors and non-shareholders
  • Although C was a shareholder, auditors are under duty to protect shareholders from the loss of their existing holdings but not additional purchases, which amount to an independent transaction with no connection to current shareholding

Commentary

  • Although a general tripartite test for duty of care was stated, Lord Bridge did not intend for it to be used as a test for finding a duty of care
  • Lord Bridge’s confusing judgment led to the tripartite test being applied in subsequent cases before the incremental approach was clarified as the ratio of his judgment by Lord Reed in Robinson