Caparo Industries plc v Dickman [1990] 2 AC 605
Caparo Industries plc v Dickman is a leading authority on duties of care in novel situations and on liability for negligent statements causing economic loss. Its familiar three considerations must now be understood alongside the later clarification in Robinson.
Facts
Fidelity plc's statutory accounts showed a pre-tax profit when the company had in fact made a substantial loss. Dickman, Fidelity's auditor, had certified the accounts. Caparo Industries began acquiring shares in Fidelity before the accounts were published, received the accounts as a shareholder, bought further shares and eventually made a successful takeover bid. After discovering the company's true financial position, Caparo alleged that it had paid too much for the shares and sued the auditor for negligent preparation of the accounts. Caparo argued that the auditor owed it a duty both as an existing shareholder buying additional shares and as an investor pursuing control. The auditor maintained that the statutory audit was prepared for shareholders as a body, not to guide individual investment decisions or takeover bids.
Legal Issue
Did the auditor owe Caparo a duty of care in respect of economic loss caused by its reliance on statutory accounts when buying additional shares and launching a takeover?
Held
The House of Lords held that the auditor owed Caparo no duty for either purpose. Reasonable foreseeability of reliance was not enough. The relationship lacked the required proximity because the accounts were not prepared for Caparo, or for a known transaction of the kind it undertook. Their statutory purpose was to enable shareholders collectively to supervise the company and exercise governance rights in general meeting, not to advise individual shareholders whether to buy more shares. Imposing liability to investors using published accounts for transactions outside that purpose would expose auditors to an indeterminate class of claims. Lord Bridge identified reasonable foreseeability and proximity, followed by the policy question whether recognising the proposed novel duty would be fair, just and reasonable.
⭐ Legal Principle
In a novel duty situation, reasonable foreseeability is necessary but not sufficient. The court also considers proximity between the parties and whether recognising the duty would be fair, just and reasonable. For negligent statements, proximity commonly depends on the maker knowing the statement's purpose and the person or limited class expected to rely on it.
Significance
The case restrained the broad approach previously associated with Anns v Merton LBC and remains central to negligent-misstatement problems. However, Robinson v Chief Constable of West Yorkshire Police explains that Caparo did not create a universal checklist to be applied mechanically in every negligence case. Courts should normally apply established authorities and develop the law incrementally; the three considerations are most useful where a genuinely novel duty is proposed. Hedley Byrne v Heller remains important where an assumption of responsibility for advice or information can be shown.
Common exam questions about this case
Why did foreseeability of investor reliance not establish a duty in Caparo?
Foreseeability alone could not define the proper scope of the auditor's responsibility. The accounts were produced for shareholders collectively to exercise corporate governance rights, not to advise Caparo on buying shares or making a takeover bid. Caparo's use of them therefore fell outside their known purpose, and there was insufficient proximity between the auditor and the particular transaction.
Should the Caparo considerations be applied as a fixed test in every duty-of-care problem?
No. Robinson clarifies that courts should first ask whether established authority already governs the relationship. Ordinary principles, including the rule that a person must take care not to cause foreseeable physical injury by a positive act, may resolve the case. Foreseeability, proximity and fairness guide the incremental treatment of genuinely novel duties rather than replacing all existing duty rules.
How does Caparo limit liability for a negligent statement causing pure economic loss?
The claimant must show more than publication of inaccurate information and foreseeable reliance. A duty is more likely where the defendant knew the statement would be communicated to the claimant, or a limited class, for a particular transaction or purpose and expected reliance without independent checking. Caparo could not satisfy that relationship because the statutory accounts served a different corporate purpose.