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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But the focus of the inquiry is on the closeness and directness of the relationship between the parties.
Sometimes, as in the Hedley Byrne caseattention is concentrated on the existence of a special relationship. 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.
The requirement indutsries, perhaps, be better put than it was by Weintraub C. Moreover, the loss in the case of the sale would be of a loss of part of the value industeies the shareholder’s existing holding, industriea, assuming a duty of care owed to individual shareholders, it might sensibly lie within the scope of the auditor’s duty to protect.
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. I believe this argument to be fallacious. So it would not be sensible or fair to say that the shareholder did either. A claim to recoup a loss alleged to flow from the purchase of overvalued shares, on the other hand, can only be sustained on the basis of the purchaser’s reliance on the report.
In May Fidelity’s directors made a preliminary announcement in its annual profits for the year up to March. He used the example of a shareholder and his friend both looking at an account report.
Caparo Industries Plc v Dickman  | Case Summary | Webstroke Law
There can be no distinction in law between the shareholder’s investment decision to sell the shares he has or to buy additional shares. J New York Court of Appeals. The purpose of the statutory requirement for an audit of public companies under the Companies Act was the making of a report to enable shareholders to exercise their class rights in general meeting.
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.
Retrieved from ” http: 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.
This page was last edited on 26 Novemberat Contractors Ltd  Q. It is never sufficient to ask simply whether A owes B a duty of care. Bridge of Harwich, writing for a unanimous court, states that the two part test employed in Dobson should not be used, and subsequently it has been abandoned in England. As a purchaser of additional shares in reliance on the auditor’s report, he stands in no different position from any other investing member of the public to whom the auditor owes no duty.
But on this part of the case your Lordships were much pressed with the argument that such a loss might occur by a negligent undervaluation of the company’s assets in the auditor’s report relied on by the individual shareholder in deciding to sell his shares at an undervalue.
The decision arose in the context of a negligent preparation of accounts for a company.
But the crucial question concerns the extent of the shareholder’s interest which the auditor has a idckman to protect. In March Fidelity had issued a profit warning, which had halved its share price.
But in practice no problem arises in this regard since the interest of the shareholders in the proper management of the company’s affairs is indistinguishable from the interest of the company itself and any loss suffered by the shareholders, e.
The share price fell again. But for outside investors, a relationship of proximity would be “tenuous” at best, and that it would certainly not be “fair, just and reasonable”. The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be.
Caparo Industries v Dickman
It did not extend to the provision of information to assist shareholders in the making of decisions as to future investment in the company. The second requirement is more elusive.
It follows, therefore, that the scope of the duty of care owed to csparo by the auditor extends to cover any loss sustained consequent on the purchase of additional shares in reliance on the auditor’s negligent report. 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. Leave was given to appeal. It is necessary to consider the particular circumstances and relationships which exist.
It is also c ground that reasonable induetries, although a necessary, is not a sufficient condition of the existence of a duty.
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.
Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. He referred to the Companies Act sections on auditors, and continued.
In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo. Contents [ show ].
Caparo Industries Plc v Dickman 
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.
In some cases, and increasingly, reference is made to the voluntary assumption of responsibility: The majority of the Court of Appeal Bingham LJ and Taylor LJ, O’Connor LJ dissenting held that a duty was owed by the auditor to shareholders individually, and although it was not necessary to decide that in this case and the judgment was obiterthat a duty would not be owed to an outside investor who had no shareholding.
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. 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.
This was the difference in value between the company as it had and what it would have had if the accounts had been accurate. The argument then runs thus. At this point Caparo had begun buying up shares in large numbers. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc. In order for a duty of care to arise in negligence:.