Facts[ edit ] A company called Fidelity plc, manufacturers of electrical equipment, was the target of a takeover by Caparo Industries plc. Fidelity was not doing well. In March Fidelity had issued a profit warning, which had halved its share price. This confirmed the position was bad.
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The decision arose in the context of a negligent preparation of accounts for a company. Previous cases on negligent misstatements had fallen under the principle of " Hedley Byrne v. Heller ". Heller "  AC ] This stated that when a person makes a statement, he voluntary assumes responsibility to the person he makes it to or those who were in his contemplation.
If the statement was made negligently, then he will be liable for any loss which results. The question in "Caparo" was the scope of the assumption of responsibility, and what the limits of liability ought to be. Fidelity was not doing well. In March Fidelity had issued a profit warning, which had halved its share price. This confirmed the position was bad. The share price fell again. At this point Caparo had begun buying up shares in large numbers. In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo.
Caparo reached a shareholding of It sued Dickman for negligence in preparing the accounts and sought to recover its losses. This was the difference in value between the company as it had and what it would have had if the accounts had been accurate. On a preliminary issue as to whether a duty of care existed in the circumstances as alleged by the plaintiff, the plaintiff was unsuccessful at first instance but was successful in the Court of Appeal in establishing a duty of care might exist in the circumstances.
Had Caparo been a simple outside investor, with no stake in the company, it would have had no claim. This was overturned by the House of Lords, which unanimously held there was no duty of care.
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. But for outside investors, a relationship of proximity would be "tenuous" at best, and that it would certainly not be "fair, just and reasonable". He used the example of a shareholder and his friend both looking at an account report. 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.
So it would not be sensible or fair to say that the shareholder did either. Leave was given to appeal. The "three stage" test which is what the case is best known for was first formulated by Bingham LJ currently the Senior Chief Justice of the House of Lord in his judgment at the Court of Appeal. It in 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.
T 98 , Others have spoken to similar effect. Evatt "  A. Takaro Properties Ltd. One of the considerations underlying certain recent decisions of the House of Lords Governors of the Peabody Donation Fund v.
Attorney-General of Hong Kong  A. Merton London Borough Council  A. Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. 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.
The first is foreseeability. 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 "  A. It is also common ground that reasonable foreseeability, although a necessary, is not a sufficient condition of the existence of a duty. This, as Lord Keith of Kinkel observed in " Hill v. Chief Constable of West Yorkshire "  A.
The second requirement is more elusive. It is usually described as proximity, which means not simple physical proximity but extends to "such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act:" " Donoghue v.
Stevenson "  A.
Caparo Industries v Dickman
Caparo Industries Plc v Dickman 
Caparo Industries Plc. v Dickman