Caparo Industries plc v Dickman [1990] UKHL 2 (8 February 1990)

CAPARO INDUSTRIES PLC v DICKMAN [1990] UKHL 2; [1990] 2 AC 605 House of Lords 8 February 1990

Judges: Lord Bridge of Harwich, Lord Roskill, Lord Ackner, Lord Oliver of Aylmerton, Lord Jauncey of Tullichettle

Facts

Caparo bought shares in Fidelity plc and later launched a takeover, relying on audited accounts prepared by Touche Ross. The accounts overstated profits. Caparo sued the auditors for negligent misstatement. The Court of Appeal held that the auditors owed a duty to individual shareholders but not to the public at large. Caparo appealed.

Held

The House of Lords allowed the auditors' appeal. No duty of care was owed to Caparo either as an existing shareholder or as a bidder. A duty arises only where three conditions are met: foreseeability of harm, proximity, and that it is fair, just and reasonable to impose the duty. The statutory audit is prepared for the company and its shareholders as a body, not for individual investors or take-over bidders.

Key Principles

1. The three-stage test for a duty of care: foreseeability, proximity, and fairness, justice and reasonableness.

2. Novel duties should be developed incrementally and by analogy with established categories.

3. Auditors do not owe a duty to the public or to potential bidders who rely on the accounts.

4. The case replaced the broader two-stage test in Anns v Merton.

Why It Matters in Sierra Leone

Caparo is persuasive authority in Sierra Leone on the modern test for a duty of care, particularly in claims for pure economic loss and professional negligence. It is the standard framework used when the court considers whether a new category of duty should be recognised.