CAPARO INDUSTIES PLC VS DICKMAN CASE

JUDGEMENT

The decision of court of appeal was challenged in the house of lord by Dickman (Appellant) in
the house of lord. The court of appeal held that auditor owed a duty of care to shareholders this
decision was given by majority in court of appeal and proposed by Bingham L J(Lord justice of
appeal) and Taylor L J (lord justice of appeal).

The decision of court of appeal was reversed in the House of Lords; declaring that no duty of
care was owed by the auditor to exiting or potential shareholders the decision was in the favor of
Dickman. The duty auditor owed was only governance of firm. For duty of care three factors had
to be found

 Proximity
 Knowledge of who the report would have been committed
 For what purposes it would have been used
Lord Bridge of Harwich following the decision of O’Connor L J (lord justice of appeal)
commented that case where duty of care arises was illustrated in Smith V Eric S Bush. For duty
of care he must have knowledge that investors would completely rely on his report. However
judges noticed that reports of plc.’s are regularly carried out which are different from the reports
carried out for specific purpose and are also different which are carried for an identified
audience. As a result the accountants owed no duty to the any person who may or may not place
reliance on the report when making financial decisions.
These are conditional that at the time the report is prepared that is known by the auditors that the
results are for a specific class for a specific purpose .This is acknowledged in Morgan Crucible v
Hill Samuel and Law Society v KPMG Peat Marwick.

CAPARO TEST
Caparo test tells us about a specific case in which judges have to decide that duty of care is going
to be imposed in this case or not. This test was developed in the case of Caparo industries plc vs
Dickman in 1990. In this case the court set out the requirements and principals that in a specific
case the duty of care has to be imposed or not among the parties involved in cases. The House of
Lords which was the court in the case of Caparo industries plc vs Dickman sets out a three folds
test in order to imposed the duty of care in case of negligence.
Here are its three stages with example
1. In this the court sees that the plaintiff claiming his loss on defendant must be reasonably
foreseeable to the dependent. In courts a rational person is imagined and he is put in the
place of defendant that what a common person will think about the result of this act if he
 knows that if I will make this mistake the following loss can happen than duty of care is
imposed on him. We will take an example of a case which I have come to know about. In
a street two cars meets collision due to over speeding and this collision makes a
tremendous notice. A woman living 3 streets away files a case in court that this notice
made due to collision gives me mental injury. In this court can clearly see that the drivers
of both the care were unaware of what will happen 3 streets away although if someone
was hatted during this incident than drivers were aware of the results so the court would
have imposed duty of care on their negligence.
2. The second test is proximity. Proximity means that in a case there must be a relationship
between plaintiff and defendant. It means that on the specific time the incident happens
the plaintiff and defendant must be in some kind of relation with each other. For example
a boxing match was happening in a boxing league in which one of the opponent got
serious injury the management of the boxing league fails to provide him the first aid and
his injuries become more severe so he files case against the management of the boxing
league and court imposed the duty of care on the management. As we can see here the
boxer and the management of the boxing league have some relation at the time of
incident.
3. The third test that the court sees is that is it just and fair to imposed the duty of care. We
can take an example of this from a case in which there was a couple in which the husband
went to doctor to operate him so that he can lose his fertility so he got operated and after
some times he be imposed. Files the case against the doctor that he has done his operation
and still his wife got pregnant but  in this case the court said that if the court imposed the
duty of care here than it will be unjust because a healthy baby is not a loss instead if due
to surgery the baby was unhealthy than duty of care will
 Caparo test with reference to test
Caparo industries bought some shares in plc. They thought it was a good investment because
when they saw the account prepared by Mr. Dickman they saw that the company makes
1.3millions. They completely trusted Mr. Dickman’s report and didn’t bother their own
assessment even though they have never met Mr. Dickman themselves. After that they come to
know that the reports were wrong and the PLC had made a loss of 400k. After this they file a
case against Mr. Dickman. As we can see court didn’t imposed duty of care on Mr. Dickman
because of following reason.

 Mr. Dickman was not reasonable foresight of the loss as he didn’t knew that his report
will give loss to Caparo industries
    Secondly there was not sufficient proximity among them as at the time of incident Mr.
Dickman and the Caparo industries were not in a relation.
 It was not just and fair to imposed duty of care on Mr.Dickmen