What is the ratio in Caparo Industries Plc v Dickman?

The ratio is that auditors owe no duty of care to potential investors or existing shareholders making investment decisions based on audited accounts. The threefold test for duty of care requires: (1) reasonable foreseeability of harm, (2) proximity of relationship, and (3) that it be fair, just and reasonable to impose a duty. The purpose of statutory audits is to enable shareholders to exercise class rights in general meetings, not to guide individual investment decisions.

What is the Caparo three-stage test?

The Caparo three-stage test for establishing a duty of care in negligence requires: (1) reasonable foreseeability that the defendant's carelessness could cause damage to the claimant, (2) sufficient proximity of relationship between the parties, and (3) that it must be fair, just and reasonable in all circumstances to impose a duty of care. All three elements must be satisfied.

Why is Caparo v Dickman significant?

Caparo is significant because it established the modern threefold test for duty of care, replacing the Anns two-stage test. It remains the leading case on auditors' liability and the scope of duty for negligent misstatement. It emphasizes incremental development of negligence law and the importance of the purpose for which professional statements are made in determining the scope of any duty.

What is the ratio in Caparo Industries Plc v Dickman?

The ratio is that auditors owe no duty of care to potential investors or existing shareholders making investment decisions based on audited accounts. The threefold test for duty of care requires: (1) reasonable foreseeability of harm, (2) proximity of relationship, and (3) that it be fair, just and reasonable to impose a duty. The purpose of statutory audits is to enable shareholders to exercise class rights in general meetings, not to guide individual investment decisions.

What is the Caparo three-stage test?

The Caparo three-stage test for establishing a duty of care in negligence requires: (1) reasonable foreseeability that the defendant's carelessness could cause damage to the claimant, (2) sufficient proximity of relationship between the parties, and (3) that it must be fair, just and reasonable in all circumstances to impose a duty of care. All three elements must be satisfied.

Why is Caparo v Dickman significant?

Caparo is significant because it established the modern threefold test for duty of care, replacing the Anns two-stage test. It remains the leading case on auditors' liability and the scope of duty for negligent misstatement. It emphasizes incremental development of negligence law and the importance of the purpose for which professional statements are made in determining the scope of any duty.

General2 min read

Caparo Industries Plc v Dickman

[1990] UKHL 2House of Lords1990

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“Auditors owe no duty of care to potential investors relying on company accounts”

Facts

Caparo Industries purchased shares in Fidelity plc and launched a takeover bid. Caparo relied on statutory accounts audited by Dickman showing a profit, but the company was actually making a loss. After acquiring Fidelity, Caparo sued the auditors in negligence, claiming the accounts were prepared negligently and caused financial loss. The question was whether auditors owed a duty of care to potential investors and existing shareholders making investment decisions.

Issues

Did auditors owe a duty of care in negligence to (1) potential investors who relied on audited accounts when purchasing shares, and (2) existing shareholders making further investment decisions?

Caparo Industries Plc v Dickman

Facts

Issues

Held

Significance

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