Caparo Industries plc v Dickman

The existence of a duty of care for negligent statements depends on three linked requirements: (1) foreseeable harm from reliance, (2) a relationship of "proximity" or special relationship between maker and recipient, and (3) that it is fair, just and reasonable to impose liability. Auditors of a public company do not owe a duty of care to investors generally or to potential takeover bidders simply because reliance was foreseeable. Instead, liability to protect reliance arises only where the auditor knew (or ought to have known) that the statement was to be used by an identifiable person or class for a particular transaction and it was reasonable to impose the duty.

This appeal concerned whether auditors who certify a public company's statutory accounts owe a common law duty of care to individual investors or potential takeover bidders who rely on those accounts. Caparo alleged losses after acquiring shares in Fidelity Plc in reliance on audited accounts. A preliminary issue was tried: whether the auditors owed a duty to Caparo as potential investors or as shareholders after registration. The Queen's Bench Division dismissed Caparo's claims on proximity grounds. The Court of Appeal allowed Caparo's claim in respect of registered shareholders but rejected a duty to potential investors. The House of Lords was called on to decide the proper scope of duties of auditors under the Companies Act regime and in tort, and whether reliance by market investors or by registered shareholders attracts liability.

• House of Lords: Allowed appeal; dismissed cross-appeal. [1990] UKHL 2
• Court of Appeal (England & Wales): Majority allowed claim as to individual shareholders; dismissed claim as to potential investors. [1989] Q.B. 653
• Queen's Bench Division (Chambers): Preliminary issue trial held no common law duty to investors; held no duty to individual shareholders in the circumstances. [1988] B.C.L.C. 387