“House of Lords establishes three-stage test for duty of care in negligence”
The House of Lords held that no duty of care was owed. Auditors preparing statutory accounts owe duties to the company and existing shareholders as a body, but not to individual shareholders making investment decisions or to potential investors.
Caparo Industries purchased shares in Fidelity plc and later mounted a successful takeover bid, relying partly on audited accounts prepared by Touche Ross. The accounts showed a profit but the company had actually made a loss. Caparo sued the auditors in negligence for their losses.
Whether auditors preparing statutory accounts owe a duty of care to potential investors and members of the public who might rely on those accounts when making investment decisions.
The court established that duty of care requires: (1) reasonable foreseeability of harm, (2) sufficient proximity between parties, and (3) that it be fair, just and reasonable to impose a duty. While harm was foreseeable, there was insufficient proximity and policy reasons made imposing a duty inappropriate given the potential for indeterminate liability.
This case fundamentally reshaped negligence law by departing from the Anns test in favour of the more restrictive three-stage approach, significantly limiting when duties of care will be found to exist. Anns itself was formally overruled shortly afterwards in Murphy v Brentwood DC [1991] 1 AC 398. In Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4 at [21], Lord Reed confirmed there is no universal 'Caparo test': the three factors are relevant only in novel cases, with established categories of duty governed by precedent and incremental development.
The ratio is the three-stage test for establishing duty of care in negligence: reasonable foreseeability, sufficient proximity, and whether it's fair, just and reasonable to impose liability.
The House of Lords held that auditors owed no duty of care to potential investors who relied on statutory accounts, as there was insufficient proximity between the parties.
It set out the three-stage approach to duty of care, departing from the Anns test. Since Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4, however, the three factors apply only in novel cases; established categories of duty are governed by precedent and incremental development.
Lord Bridge emphasized that the law should develop incrementally by analogy with established categories rather than through broad application of foreseeability alone.
OSCOLA Citation
Caparo Industries plc v Dickman [1990] 2 AC 605 (HL)
Multiple official and mirror sources — pick whichever loads cleanly on your network.
[2026] EWHC 1095 (KB)
Common Room
0 comments · About the Common Room →
No comments yet — start the discussion.
Voted-best comments help future students and feed Caselaw's AI study tools.