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 sued Dickman for negligence in preparing the accounts and sought to recover its losses. 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 share price fell again. Sometimes the alternative expression “neighbourhood” is used, as by Lord Reid in the Hedley Byrne case  A.
But the focus of the inquiry is on the closeness and directness of the relationship between the parties. In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo. Had Caparo been a simple outside investor, with no stake in the company, it would have had no claim. In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo.
This was overturned by the House of Lords, which unanimously held there was no duty of care. 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.
This confirmed the position was bad. Contractors Ltd  Q. 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. 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.
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 a duty of care will arise: 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.
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. Sign In Don’t have an account? It is incumbent upon the courts in different jurisdictions to be sensitive to each other’s reactions; but what they are all searching for in others, and each of them striving to achieve, is a careful analysis and weighing of the relevant competing considerations.
In May Fidelity’s directors made a preliminary announcement in its annual profits for the year up to March confirming the negative outlook. I believe this argument to be fallacious. He reasons that when deeming if negligence has occurred one should compare cases to precedent cases with similar facts, rather than simply having an overarching test. J New York Court of Appeals. 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.
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The first is foreseeability. The requirement cannot, perhaps, be better put than it didkman by Weintraub C. House of Lords cases English tort case law in case law in British law. In March Fidelity had issued a profit warning, which had halved its share price.
Caparo Industries v Dickman
But once it had control, Caparo found that Fidelity’s accounts were in an even worse state than had been revealed by the directors or the auditors. He used the example of a shareholder and his friend both looking at an account report. So it would not be sensible or fair to say that the shareholder did either. 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.
Others have spoken to similar effect. A company called Fidelity plc, manufacturers of dickan equipments, was the target of a takeover by Caparo Industries plc.
Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. Both the analogy with contract and the assumption of responsibility have been relied upon as induztries test of proximity in foreign courts as well as our own: The second requirement is more elusive.
Caparo Industries v Dickman
Bingham LJ held 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.
The content of the requirement of proximity, whatever language is used, is not, I think, capable of precise definition. At this point Capado had begun buying up shares in large numbers. 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: But the crucial question concerns the extent of the shareholder’s interest which the auditor has a duty to protect.
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 indjstries protect. dicckman
This page was last edited on 26 Novemberc In determining this, foreseeability must, I think, play an important part: Contents [ kndustries ]. The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be. 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.
It is always necessary to determine the scope of the duty by reference to the kind of damage from which A vv take care to save B harmless. There can be no distinction in law between the shareholder’s investment decision to sell the shares he has or to buy additional shares. It is necessary to consider the particular circumstances and relationships which exist.
Sometimes, as in the Hedley Byrne caseattention is concentrated on the existence of a special relationship. If he sells at an undervalue he is entitled to recover the loss from the auditor. Sometimes it is regarded as significant that the parties’ relationship is “equivalent to contract” see the Hedley Byrne caseat p. Views Read Edit View history.