Caparo Industries PLC v Dickman [1990] UKHL 2
Facts
Caparo industries plc lead brought Fidelity plc shares with a takeover in mind. According to them this was a decent deal for the reason that when they looked at the Fidelity’s accounts. The accounts which had been arranged by the accountant.
They saw the company made 1.3 million before tax, they wholly trusted Mr. Dickman’s report and didn’t trouble doing their own valuation. Later they found out the report was incorrect and Fidelity has made a loss. Over so later, Caparo discovered that Fidelity’s accounts were in an even poorer state than had been revealed by the directors or the auditors.
It prosecuted the accountant for negligence in concocting the accounts and sought to recover its losses. At first occurrence, Dickman thrived and the decision was appealed.
Issue
Whether auditors owe the shareholder a duty of care and is duty of care ultimately a question of fairness.
Rule
In order for a duty of care to arise in negligence, damage must be reasonably probable as a result of the defendant’s conduct, the parties must be in a relationship of proximity, and it must be just, fair and reasonable to enforcel liability.
Held
The House of Lords upheld the appeal, holding that there was no duty of care owed to the shareholder indebted.
The court held that no duty of care had get up in relation to prevailing or probable shareholders in between the auditors and shareholder Lord Bridge deliberated the proximity.
Moreover, the negligence should not apply to an “unclassified time to an indeterminate class Lord Bridge mentioned declaring. Consequently, the test for negligence was edited to a three-part test, known as the Caparo test.
Although the facts of Caparo which based on the economic loss Lord Bridge acknowledged: This is moving in cases of physical injury illustrated by Perrett v Collins in which the last two stages of the Caparo test where discussed.
In affirming that that negligence should not put on to an “indeterminate time to an indeterminate class” to earlier comments of Lord Denning he mentioned completely. It was very pertinent that the accounts had not been systematized for the determinations that Caparo used them for.
Rationale
The pronouncement arose in the framework of a negligent research of accounts for a company. Previous cases under the principle of Hedley Byrne v Heller on negligent misstatements had dropped .
The auditors did not know of the existence of Caparo.
The three factors had to occur and it was found that for a duty of care there must be : Propinquity, Knowledge of who the report would have been consistent and the purposes would have been used.
In the statuses introductory issue as to whether a duty of care be existent as alleged by the plaintiff, the plaintiff was disastrous at first occurrence but was efficacious in the Court of Appeal in establishing that a duty of care might exist in the circumstances.
Current day of significance
The House of Lords overturned the conclusion of the COA and held that no duty of care had arisen in relation to prevailing or probable shareholders. The only duty of care the auditor`s owed was to the governance of the firm.
References
Perrett v Collins 1998 2 Lloyd’s Rep 25
This case brief has been written by Jagriti Thakur of Lloyd Law College.
