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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Others have spoken to similar effect. At this point Caparo had begun buying up shares in large numbers. The approach will vary according to the particular facts of the case, as is reflected in the varied language used.
Fidelity was not doing well. But the crucial question concerns the extent of the shareholder’s interest which the auditor has a duty to protect.
It was considerations of this kind which Lord Fraser of Tullybelton had in mind when he said that “some limit or control mechanism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence: A company called Fidelity plc, manufacturers of electrical equipment, was the target of a takeover by Caparo Industries plc.
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. Lord Bridge then proceeded to analyse the particular facts of the case based upon principles of proximity and relationship. At this point Caparo had begun buying up shares in large numbers. A loss, on the other hand, resulting from the purchase of additional shares would result from a wholly independent transaction having no connection with the existing shareholding.
It follows, therefore, that the scope of the duty of care owed to him by the auditor extends to cover any loss sustained consequent on the purchase of additional shares in reliance on the auditor’s negligent report.
It is never sufficient to ask simply whether A owes B a duty of care. It sued Dickman for negligence in preparing the accounts and sought to recover its losses. If the imposition of a duty on a defendant would be for any reason oppressive, or would expose him, in Cardozo C. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc.
The shareholder, qua shareholder, is entitled to rely on the auditor’s report as the basis of his investment decision to sell his existing shareholding.
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. Views Read Edit View history.
In some cases, and increasingly, reference is made to the kndustries assumption of responsibility: The third requirement to be met before a duty of care will be held to be owed by A to B is that the court should find it just and reasonable to impose such a duty: As industfies 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.
The first is foreseeability. 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. The content of the requirement of proximity, whatever language is used, is not, I think, capable of precise definition.
But in practice no problem arises in this regard since the interest of the shareholders in the proper management of the induztries affairs is indistinguishable from the interest of vickman company itself and any loss suffered by the shareholders, e.
In May Fidelity’s directors made a preliminary announcement in its annual profits for the year up to March confirming the negative outlook. Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is sickman sufficient proximity to give rise to a duty of care, I daparo not understand how the scope of that duty can possibly extend beyond the protection of any individual shareholder from losses in the value of the shares which he holds.
This was the difference in value between the company as it had and what it would have had if the accounts had been accurate.
Caparo Industries Plc v Dickman 
His decision was, following O’Connor LJ’s dissent in the Court of Appeal, that no duty was owed at all, either to existing shareholders or to future investors by a negligent auditor. Retrieved from ” http: The share price fell again. There can be no distinction in law between the shareholder’s investment decision to sell the shares he has or to buy additional shares. If he sells at an undervalue he is entitled to recover the loss from the auditor.
Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. I find it difficult to visualise a situation arising in the real world in which the individual shareholder could claim to have sustained a loss in respect of his existing shareholding referable to the negligence of the auditor which could not be recouped by the company. It is necessary to consider the particular circumstances and relationships which exist.
Caparo Industries plc v Dickman – Wikipedia
In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo. In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo. 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.
Once it had control, Caparo found that Kndustries accounts were in an even worse state than had been revealed by the directors or the auditors. The inquiry involves a weighing of the relationship of the parties, the nature of the risk, and the public interest in the proposed solution. 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 capxro to call the directors to book and to ensure that errors in management are corrected, the shareholders ought to be entitled to a remedy.
Lord Bridge of Harwich who delivered the leading judgment restated the so-called “Caparo test” which Bingham LJ had formulated below. The argument then runs thus. 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 caapro the audited accounts. 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.