If a company's business involves dealing in goods, the accounting records require to contain statements of stock at the end of each financial year and all statements of stocktaking from which such statements of stock derive. Lord Bridge of Harwich who delivered the leading judgment restated the so-called "Caparo test" which Bingham LJ had formulated below. Peter Goldsmith Q.C. Also see: Exceptions to privity of contract rule. Yet Lord Atkin himself sounds the appropriate note of caution by adding, at p. 580: "To seek a complete logical definition of the general principle is probably to go beyond the function of the judge, for the more general the definition the more likely it is to omit essentials or to introduce non-essentials.". I turn, therefore, to the question raised by the appellants' appeal. This proximity does not only refer to physical closeness, but also refers to such closeness that would cause the person who claims to be owed a duty, to be directly affected by the action of the person he alleges, owes him a duty. It was found that three factors had to exist for there to be a duty of care which where: Proximity, Knowledge of who the report would have been communicated to and for what purposes it would have been used. The nearest that one gets to the establishment of a criterion for the creation of a duty in the case of a negligent statement is the emphasis to be found in all the speeches upon "the voluntary assumption of responsibility" by the defendant. In the present case, the purpose of providing the report is to advise, the mortgagee but it is given in circumstances in which it is highly probable that the purchaser will in fact act on its contents, although that was not the primary purpose of the report. But on reflection, this only means that the auditor of the accounts of a public company knows that the accounts and his report will become available to the public generally and, consequently, may be relied on by one or more members of the public, to some greater or lesser degree, as the basis of some business transaction. dissenting) allowed the appeal holding that, whilst there was no relationship between an auditor and a potential investor sufficiently proximate to give rise to a duty of care at common law, there was such a relationship with individual shareholders, so that an individual shareholder who suffered loss by acting in reliance on negligently prepared accounts, whether by selling or retaining his shares or by purchasing additional shares, was entitled to recover in tort. The Court of Appeal, whilst rejecting unanimously the respondents' contention that the appellants owed them a duty of care simply as potential investors in the market, nevertheless by a majority allowed their claim that a similar duty was owed to them in their capacity as shareholders from the date when they first became registered in respect of shares which they had purchased. It is equally foreseeable that if it is inaccurate in a material particular the recipient who acts upon it may suffer a detriment which, if the statement had been accurate, he would not have undergone. Probably, in such a case, there should be satisfied a further requirement that there be some factor more closely linking the maker of the statement to the plaintiff: for example, the payment, to the knowledge of the valuers, by the intending purchasers in Smith v. Eric S. Bush [1990] 1 A.C. 831 of their valuation fee. .". instance of. It follows that I would dismiss the respondents' cross-appeal. I will take accountants, but the same reasoning applies to the others. 373; Smith v. Eric S. Bush [1990] 1 A.C. 831, 872B-C, perLord Jauncey of Tullichettle; Pacific Associates Inc. v. Baxter [1990] 1 Q.B. In the case it was considered whether the bank owed a duty of care when given knowledge that Customs had acquired a freezing order over the accounts of some of their customers. To do otherwise would be to expose defendants to "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class": Ultramares Corporation v. Touche (1931) 174 N.E. 553.] This distinction is echoed by many academics who state that personal loss is the very substance on which the law of negligence is established. In the light of the requirement of "proximity," the relationship between an auditor and a third party investor like Caparo who buys shares in reliance upon an audit report is not such as to give rise to a duty of care. Dickman Case Analysis: Caparo Industries Plc v. Dickman January 2015 Authors: Kanika Satyan Abstract The Caparo Industries Plc v. Dickman was a landmark case regarding the test for a duty of. In Candler v. Crane, Christmas & Co. [1951] 2 K.B. There was no special relationship between Caparo and the auditors: the ability to inspect the accounts and the chance to buy shares are enjoyed by the world at large. Yet this approach has been critiqued [7] by over complicating neighbour principle in Donoghue. According to Lord Bridge of Harwich, the purpose of the audit of public companies under the Act was to make it possible for shareholder to exercise their rights in the meetings and not to make future investment decisions. As I have already indicated, I am not, for my part, able to share this view of the intention of the legislature. Caparo Industries PLC v Dickman [1990] UKHL 2 is a leading English tort law case on the test for a duty of care. [Reference was made to In re Allen, Craig & Co. (London) Ltd. [1934] Ch. I venture to repeat what I said in John Pfeiffer Pty. Those limits appear to me to be correctly and admirably stated in the passages from the judgment of Richmond P. in the Scott Group case to which I have already referred. Hence the legislative provisions requiring the board annually to give an account of its stewardship to a general meeting of the shareholders. At the time of publishing, the company had fixed assets and investments (having been quoted), of 26 million. This stance is upheld by the dissenting opinion of Lord Lloyd in Mark Rich & Co. v Bishop Rock Marine[25] who concluded that in order to resolve the case the clear-cut application of Donoghue need only apply. He poured ginger beer in Donoghues ice cream and later, the remaining was poured from the bottle, to reveal a decomposed snail. There are, of course, cases where, in any ordinary meaning of the words, a relationship of proximity (in the literal sense of "closeness") exists but where the law, whilst recognising the fact of the relationship, nevertheless denies a remedy to the injured party on the ground of public policy. An example, no doubt, would be the banker asked to make substantial advances on the security of the company undertaking. 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 obiter, that a duty would not be owed to an outside investor who had no shareholding. In Smith v. Eric S. Bush [1990] 1 A.C. 831 it was probable, if not highly probable, that the potential purchaser would rely on the valuer's report. 441, 444; it is also to confer on the world at large a quite unwarranted entitlement to appropriate for their own purposes the benefit of the expert knowledge or professional expertise attributed to the maker of the statement. In order for a duty of care to arise in negligence: The final conclusion arose in the context of a negligent preparation of accounts for a company. For instance, in the present case it extends to the original investment of 2,000. An existing category grows as instances of its application multiply until the time comes when the cell divides. 161, C.A. I would agree, though, that the provisions are probably not aimed, or at least not primarily, at protecting purchasers of shares in the market.". 687, C.A. Recommended: Reasons why Lawyer Put On Wigs in Court. The more restrictive view was expressed by Richmond P. in the following terms, at pp. 529, H.L.(E.). Held, allowing the appeal and dismissing the cross-appeal, that liability for economic loss due to negligent mis-statement was confined to cases where the statement or advice had been given to a known recipient for a specific purpose of which the maker was aware and upon which the recipient had relied and acted to his detriment; that since the purpose of the statutory requirement for an audit of public companies under the Act of 1985 was the making of a report to enable shareholders to exercise their class rights in general meeting and did not extend to the provision of information to assist shareholders in the making of decisions as to future investment in the company, and since, additionally, there was no reason in policy or principle why auditors should be deemed to have a special relationship with non-shareholders contemplating investment in the company in reliance on the published accounts, even when the affairs of the company were known to be such as to render it susceptible to an attempted take-over, the auditors had not owed any duty of care to the plaintiffs in respect of their purchase of F. He receives his remuneration from the company. By the same section, the report was required to be read before the company in general meeting. Thus the postulate of a simple duty to avoid any harm that is, with hindsight, reasonably capable of being foreseen becomes untenable without the imposition of some intelligible limits to keep the law of negligence within the bounds of common sense and practicality. There is a natural tendency for directors to seek to present the company in a positive way. A firm of accountants appealed against a decision of the Court of Appeal in which it was decided that the accountants owed a duty of care to the appellant shareholders when producing an audit report required by statute. The Caparo Industries Plc v. Dickman was a landmark case regarding the test for a duty of care. Case Information. 249; [1962] 1 W.L.R. Do you have a 2:1 degree or higher? I think that before the existence and scope of any liability can be determined, it is necessary first to determine for what purposes and in what circumstances the information in question is to be given. Denning L.J. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount. A copy of the company's accounts, including the auditor's report, must be sent to every member: section 240. In support of that duty of care Caparo will rely upon the following matters: (1) Touche Ross knew or ought to have known (a) that in early March 1984 a press release had been issued stating that profits for the financial year would fall significantly short of 2.2m., (b) that Fidelity's share price fell from 143p per share on 1 March 1984 to 75p per share on 2 April 1984, (c) that Fidelity required financial assistance. It is also to be assumed that, when they certified the accounts, the appellants knew or would, if they had thought about it, have known that Fidelity was vulnerable to take-over bids, that a potential bidder would be likely to rely upon the accuracy of the accounts in making his bid and that investors in the market generally, whether or not already members of Fidelity, would also be likely to or might well rely upon the accounts in deciding to purchase shares in that company. More is required. This case, therefore, falls into the same category as the other two cases. The requirement cannot be satisfied by the assumed facts of this case. . The defendants were auditors for a company (Fidelity) which released an auditors report containing misstatements about its profits. Cooke J., on the other hand, whilst concurring with Woodhouse J. that the respondents did in fact owe a duty of care to the appellants, held that the appeal failed because they had failed to show any recoverable loss. The real value of Donoghue v. Stevenson to the argument in this case is that it shows how the law can be developed to solve particular problems. The House of Lords, following the Court of Appeal, set out a "three-fold test". Grant v. Australian Knitting Mills Ltd. [1936] A.C. 85, P.C. Caparo Industries PLC v Dickman [1990] UKHL 2 Facts Caparo industries plc lead brought Fidelity plc shares with a takeover in mind. The respondents, whilst accepting that it is no part of the purpose of the preparation, certification and publication of the accounts of a public company to provide information for the guidance of predators in the market, nevertheless argue that the appellants' knowledge that predators might well rely upon the accounts for this purpose sufficiently establishes between them and potential bidders that relationship of "proximity" which founds liability. Whether there was a negligent preparation of accounts, and as a result, a negligent misstatement. Thus where (as here) a company is particularly vulnerable, the auditor foresees a plain risk of a bid and the virtual certainty of reliance. ", "The essential distinction between the present case and the situation being considered in Hedley Byrne [1964] A.C. 465 and in the two earlier cases, is that in those cases the advice was being given with the intention of persuading the recipient to act upon it. Paragraph 4 alleges that the accounts were issued on 12 June 1984 "to shareholders, including Caparo" but it is now accepted that at that date Caparo, although a purchaser of shares, had not been registered as a shareholder in Fidelity's register of members. 297 or the purchaser in Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. (3) In respect of each financial year the directors - (a) shall deliver to the registrar of companies a copy of the accounts for the year. But it is now clear that mere foreseeability is not of itself sufficient to ground liability unless by reason of the circumstances it itself constitutes also the element of proximity (as in the case of direct physical damage) or unless it is accompanied by other circumstances from which that element may be deduced. Cattle v. Stockton Waterworks Co. (1875) L.R. He said, at p. 682: "The publication of accounts must limit, if it cannot eliminate, the scope for rumour-inspired speculation and thus promote an informed and orderly market. In both cases the surveyors' fees were paid by the plaintiffs and in both cases it turned out that the inspections and valuations had been negligently carried out and that the property was seriously defective so that the plaintiffs suffered financial loss. Yet they are dangerous and can cause vast financial damage. The case has also effectively redefines the neighbourhood principle as laid down in the case of Donoghue v. Stevenson. The duty will not be imposed if it would be oppressive to do so, especially if the liability will be indeterminate. For present purposes, it is unnecessary to attempt a resolution of the difference of opinion arising from the Mutual Life case, since there is no question here but that the certifying of the accounts was something done in the course of the ordinary business of the appellants. It is clear from the speeches which were delivered that the facts which created the proximate relationship between the surveyor and the plaintiff were that the former knew that the valuation had been paid for by the plaintiff and would be shown to and probably relied upon by her in deciding whether or not to buy the house. 583 can be supported only on the basis that the statement was impliedly confirmed directly to the plaintiff without any such intention, but with a particular transaction in contemplation, and it was foreseeable that the plaintiff would rely upon it in that transaction. Phrases such as "foreseeability," "proximity," "neighbourhood," "just and reasonable," "fairness," "voluntary acceptance of risk," or "voluntary assumption of responsibility" will be found used from time to time in the different cases. That is sufficient for the decision of this case. The plaintiffs made such a bid successfully and when the accounting error was discovered claimed from the auditors in respect of the shortfall in the assets. Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is of sufficient proximity to give rise to a duty of care, I do 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. His report was not shown to the plaintiff, but the plaintiff rightly assumed from the local authority's offer of a mortgage loan that the property had been professionally valued as worth at least the amount of the loan. The extent of the liability is limited to the purchaser of the house - I would not extend it to subsequent purchasers.". 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. On appeal by the auditors and cross-appeal by the plaintiffs: -. 164, 179, 180-181, 182-184 in the following passages: "Let me now be constructive and suggest the circumstances in which I say that a duty to use care in statement does exist apart from a contract in that behalf. Not only is the auditor under no statutory duty to such a bidder but he will have reason at the material time to know neither of his identity nor of the terms of his bid. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it.". 441; 255 N.Y. 170. in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind. 453. Whether the defendant owed the plaintiff a duty of care. Caparo Industries PLC v Dickman [1990] UKHL 2 is a leading English tort law case on the test for a duty of care. 's profits were not as high as projected and its share price had fallen significantly, that it was susceptible to a take-over bid and that reliance on the accuracy of the accounts would be placed by any potential bidder such as the plaintiffs. The same approach is, I think, reflected in that passage in the speech of Lord Devlin in the Hedley Byrne case [1964] A.C. 465, 524-525 in which he considered the impact of Donoghue v. Stevenson on the facts of that case and in which he analysed and described the method by which the law develops: "In his celebrated speech in that case Lord Atkin did two things. "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 [1932] A.C. 562 , 581, per Lord Atkin. In the context of a claim for economic loss flowing from a negligent statement proximity has been strictly required both in economic claims generally and negligent statement claims specifically so as, importantly, to avoid liability being imposed upon a person which is out of all proportion to culpability, the fee earned or the ability to insure against the consequence of any negligence. That's according to the Prosecutor General's Office, Ukrinform reports.. As of the morning of March 27, a total of 139 children had been killed and more than 205 wounded amid Russia's armed aggression. 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: Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] A.C. 210 , 241, per Lord Keith of Kinkel. The first and second defendants did not appear and were not represented. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent. 483. company's assets in the auditor's report could be sustained at all, it would not be by reason of any reliance by the shareholder on the auditor's report in deciding to sell; the loss would be referable to the depreciatory effect of the report on the market value of the shares before ever the decision of the shareholder to sell was taken. Thus the Lord Ordinary, Lord Stewart, in Twomax Ltd v Dickson, McFarlane & Robinson 1983 SLT 98, 103. applies to jurisdiction. McInerny v. Lloyds Bank Ltd. [1974] 1 Lloyd's Rep. 246, C.A. ", But since the Anns case a series of decisions of the Privy Council and of your Lordships' House, notably in judgments and speeches delivered by Lord Keith of Kinkel, have emphasised the inability of any single general principle to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope: see Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] A.C. 210, 239f-241c; Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175, 190e-194f; Rowling v. Takaro Properties Ltd. [1988] A.C. 473, 501d-g; Hill v. Chief Constable of West Yorkshire [1989] A.C. 53, 60b-d. What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there. In the first court, the High Court, it was held that there was no duty of care. In March 1984 Fidelity had issued a profit warning, which had halved its share price. This distinction, that the duty only extends to the very transaction in mind at the time, is implicit in the decided cases. In many situations that purpose will be obvious. held that the duty of care arose from the probability that the company would attract a take-over bid and the bidder would rely on the audited accounts, although Cooke J. held that the shortfall in the assets below that erroneously shown in the accounts did not amount to a loss recoverable in tort. Foreseeability can be assumed in the present case, and so is not in issue. My Lords, the appellants are a well known firm of chartered accountants. There is nothing in Part VII which suggests that the accounts are prepared and sent to members for any purpose other. 150, P.C. Finally, in Smith v. Eric S. Bush [1990] 1 A.C. 831, the plaintiff applied for a mortgage to a building society which in pursuance of its statutory duty under the Building Societies Act 1962 instructed independent surveyors to prepare a written report as to the value of the house in question. Possibility of reliance on a statement for an unspecified purpose will not impose a duty of care on the maker to the addressee. more than a consideration of whether harm was foreseeable, thus equating the "proximate relationship" as comprehending foresight and nothing more. 2) [1988] Q.B. Proximity is the second element to prove to establish duty of care and it entails that, in order to impose a duty of care on a person, there must be a proximate relationship between such a person and the person harmed. The surveyor was found to have been negligent in failing to discover the defect. Their role is thus purely investigative rather than creative; (3) that the company's accounts, including the auditors' report, will be furnished to all members of the company as well as to debenture holders and any other persons entitled to receive notice of general meeting. Perhaps, therefore, the most that can be attempted is a broad categorisation of the decided cases according to the type of situation in which liability has been established in the past in order to found an argument by analogy. Woodhouse J. would have allowed the appeal. (2) The auditors' report shall be read before the company in general meeting, and be open to the inspection of any member of the company. From that decision the appellants now appeal to your Lordships' House with the leave of the Court of Appeal, and the respondents cross-appeal against the rejection by the Court of Appeal of their claim that the appellants owed them a duty of care as potential investors.
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