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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It is usually described as proximity, which means not simple physical proximity but extends to. In March Fidelity had issued a profit warning, which had halved its share price. At this point Caparo had begun buying up shares in large numbers. 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 question in Caparo was the scope of the assumption of responsibility, and what the induwtries of liability ought dickma be. 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: He referred to the Companies Act sections on auditors, and continued. The inquiry involves a weighing of the relationship of the parties, the nature of the risk, and the public interest in the proposed solution.
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 ensure that errors in management are corrected, the shareholders ought to be entitled to a remedy.
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.
So it would not be sensible or fair to say that the shareholder did either. Contractors Ltd  Q.
Lord Bridge then proceeded to analyse the particular facts of the case based upon principles of proximity and relationship. Sometimes it is regarded as significant that the parties’ relationship is “equivalent to contract” see the Hedley Byrne caseat p. This was overturned by the House of Lords, which unanimously held there was no duty of care.
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 many decided cases on this subject, if providing no simple ready-made solution to the question whether or not a duty of care exists, do indicate the requirements to be satisfied before a duty is found. Moreover, the loss in the case of the sale would be of a loss of part of the value of the shareholder’s existing holding, which, assuming a duty of care owed to individual shareholders, it might sensibly lie within the scope of the auditor’s duty to protect.
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. The third requirement to be met before a duty of care will be held to be owed by A to B is that the court should find it just and reasonable to impose such a duty: In some cases, and increasingly, reference is made to the voluntary assumption of responsibility: But the crucial question concerns the extent of the shareholder’s interest which the auditor has a duty to protect.
It is also common ground that reasonable foreseeability, although a necessary, is not a sufficient condition of the existence of a duty. Sometimes, as in the Hedley Byrne caseattention is concentrated on the existence of a special relationship. Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is of sufficient proximity to give rise to a duty of care, I do not understand how the scope of that duty can possibly extend beyond the protection of any individual shareholder from losses in the value of the shares which he holds.
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. He thought that if both went and invested, the friend who had no previous shareholding would certainly not have a sufficiently proximate relationship to the negligent auditor. 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: The argument then runs thus.
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.
I believe this argument to be fallacious. Caparo reached a shareholding of Retrieved from ” http: Previous cases on negligent misstatements had fallen under the inrustries of Hedley Byrne v Heller. 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.
Caparo Industries v Dickman
O’Connor LJ, in dissent, would have held that no duty capado owed at all to either group. On the other hand, a duty will be the more readily found if the defendant is voluntarily exercising a professional skill for reward, if the victim of his carelessness has in the absence of a duty no means of redress, if the capar contended for, as in McLoughlin v O’Brian  1 A.
Heyman60 A. The share price fell again.
J New York Court of Appeals. The content of the requirement of proximity, whatever language is used, is not, I think, capable of precise definition. Contents [ show ]. Views Read Edit View history. 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.
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I find it difficult to visualise a situation arising in the real world in which the individual shareholder could claim to have sustained a loss in respect of his existing shareholding referable to the negligence of the auditor which could not be recouped by the company. Fidelity was not doing well. It is incumbent upon the courts in different jurisdictions to dickamn 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.