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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It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. This was the difference in value between the company as it had and what it would have had if the accounts had been accurate.

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.

This was overturned by the House of Lords, which unanimously held there was no duty of care. Contents [ show ]. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc.

Caparo Industries Plc v Dickman [1990]

There can be no distinction in law between the shareholder’s investment decision to sell the shares he has or to buy additional shares. Moreover, the loss in the case of the sale would be of a loss of part of the value of the shareholder’s existing holding, which, assuming a duty of care owed to individual shareholders, it might sensibly lie within the scope of the auditor’s duty to protect. But on this dickmn 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.

Others have spoken to similar effect. I believe this argument to be fallacious.

Caparo Industries v Dickman

It is necessary to consider the particular circumstances and relationships which exist. No doubt these provisions establish a relationship between the auditors and the shareholders of a company on which the shareholder is entitled to rely for the protection of his interest. In some cases, and increasingly, reference is made to the voluntary assumption of responsibility: There could not be a duty owed in respect of “liability in an indeterminate amount for an indeterminate time to an indeterminate class” Ultramares Corp v Touche[5] per Cardozo C.


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. 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.

Assuming without deciding that a claim by a shareholder to recover a loss suffered by selling his shares at an undervalue attributable to an undervaluation of the 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.

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.

Lord Bridge then proceeded to analyse the particular facts of the case based upon principles of proximity and relationship. J New York Court of Appeals.

The argument then runs thus. So it would not be sensible or fair to say that the shareholder did either.

In March Fidelity had issued a profit warning, which dickkman halved its share price. He referred to the Companies Act sections on auditors, and continued. 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: It is not, and could not be, in issue between these parties that reasonable foreseeability of harm is a necessary ingredient of a relationship in which capar duty of care will arise: Both the analogy with contract and the assumption of responsibility have been relied upon as a test of proximity in foreign courts as well as our own: 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.


The requirement cannot, perhaps, be better put than it was by Weintraub C. The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be.

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Retrieved from ” http: O’Connor LJ, in dissent, would have held that no duty was owed at all to either group. Bingham LJ cxparo that, for a duty owed to shareholders directly, the very purpose of publishing accounts was to inform investors so that they could make choices within a company about how to use their shares.

Applying those principles, the defendants industrjes no duty of care to potential investors in the company who might acquire shares in the company on the basis of the audited accounts. Retrieved from ” https: In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo. The decision arose in the context of a negligent preparation of accounts for a company. Sometimes, as in the Hedley Didkman caseattention is concentrated on the existence of a special relationship.

In March Fidelity had issued a profit warning, which had halved its share price.

Heyman60 A. This page was last edited on 26 Novemberat At this point Caparo had begun buying up shares in large numbers. Caparo reached a shareholding of It sued Dickman for negligence in preparing the accounts and sought to recover its losses. It follows, therefore, that the scope of the duty of care owed to him by the auditor extends to dickmaan any loss sustained consequent on the purchase of additional shares in reliance on the auditor’s negligent report.

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.

Sometimes it is regarded as significant that the parties’ relationship is “equivalent to contract” see the Hedley Byrne caseat p.

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 is also common ground that reasonable foreseeability, although a necessary, is not a sufficient condition of the existence of a duty.