Why Caparo Industries plc v Dickman is important
In Caparo v Dickman, the House of Lords endorsed Lord Bridge’s three-stage approach to the duty of care. The three strands are: (1) foreseeability of harm, (2) proximity between the claimant and defendant, and (3) policy.
The claimant company invested in shares of a company. They made this decision based on a public audit conducted by the defendants, which in fact overvalued the company’s shares. As a result, Caparo suffered a loss of around £400,000, compared to its expected profits of £1.3 million.
The company argued that the defendant auditor owed it a duty of care in the tort of negligence, and breached that duty causing it reasonably foreseeable (and therefore recoverable) loss.
In the House of Lords, the only issue to be determined was whether the auditors owed individual shareholders a duty of care in the tort of negligence.
No duty was owed.
The case is important for Lord Bridge’s three-stage approach to the duty.
Lord Bridge documents the development of the duty (and a guiding ‘general principle’) in Donoghue v Stevenson, Home Office v Dorset Yacht, and Anns v Merton LBC, as well as the criticism of a general principle offered in privy council cases. (p 616-17)
Lord Bridge agrees that the search for a single general principle is unsuitable, and therefore proposes that in each case the Court should consider the following three factors (p 617-18):
- foreseeability of damage”
- “there should exist between the party owing the duty and the party to whom it A is owed a relationship characterised by the law as one of “proximity” or “neighbourhood””
- “the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.”