Caparo Industries plc v Dickman (1990): the issue of proximity and policy.

Areas of applicable law: Tort law – duty of care – negligence

Main arguments in this case: Even though harm or damage may have been caused, proximity and policy reasons still have to be satisfied for a liability for duty of care to exist.

The fact of the case: Caparo Industries plc v Dickman (1990) is a leading tort law case which extended the neighbour principle applied in the Donoghue v Stevenson by adding the third test of “justice, fairness and reasonability”  to ascertain duty of care in negligence cases.

Caparo industry had some shares in a company called Fidelity and was planning to take over it by increasing its stake in the company. To buy additional stake, Caparo relied in the account statements which the accountancy firm called Dickman had prepared for Fidelity. In the statements the accountant had shown that Fidelity had made a profit of £1.3 million though in fact the company had not made a profit at all.  Caparo based their decision to buy additional shares in Fidelity on that statement and hence made a wrong investment decision. Once Caparo found out that Fidelity was doing worse than what the account statements had claimed, it brought an action for the financial loss against the accountant.

The issue before the court was if the defendant owed a duty of care to the claimant. To establish if a duty of care existed, the court took into consideration if there was sufficient proximity of relationship, and if it was just, fair and reasonable to impose such liability.

The court found that the defendants did not owe a duty of care to the claimant on the basis that claimant was an individual investor and though the accountant owed a duty of care to the company’s shareholders as a group, they were not individually responsible to each individual investor. Therefore there was no proximity between the two parties. And secondly if it was to assume that the claimants were entitled to recover their losses from the defendant on the basis that there was proximity of relationship between the claimant and the defendant, imposing such duty would create liability for any potential investor as well as the shareholders creating endless claims.

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