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Caparo Industries PLC v Dickman: Fact Summary, Issues & Judgment

Caparo Industries PLC v Dickman: Facts Summary, Issues, Judgment and Analysis: Negligence is a wrong or a tort under Torts Law. It is a situation whereby a person does not take care to do a thing or say a thing where such person has a duty to another to do so, and as a result, there is harm done to the person who is owed the duty.

In order to impose a duty of care on a person, certain conditions have to be met. They are: foreseeability, proximity or the neighborhood principle, and that the court finds it just and reasonable to impose such a duty of care.

Foreseeability, being the first condition to be fulfilled to find a duty of care, entails that there should be a reasonable foreseeability of harm when care is not taken by the defendant. It must be possible to foresee a future harm to the person at the receiving end of the action, if care is not taken by the person acting.

Proximity is the second element to prove to establish duty of care and it entails that, in order to impose a duty of care on a person, there must be a proximate relationship between such a person and the person harmed. This proximity does not only refer to physical closeness, but also refers to such closeness that would cause the person who claims to be owed a duty, to be directly affected by the action of the person he alleges, owes him a duty. The court will look at the special relationship that exists between the parties, sometimes, that of a contract, to determine proximity.

The third element is the determination of whether it is fair, just and reasonable, to impose a duty of care on the defendant. According to Lord Fraser, there has to be a limit on the liability imposed on a wrongdoer. The duty will not be imposed if it would be oppressive to do so, especially if the liability will be indeterminate.

It has been shown that if the defendant exercises a professional skill, voluntarily, and for a reward, it would be fair to impose a duty of care on him, in the exercise of that skill. If the plaintiff was caused harm and has no other means of redress, that would also be a just reason to impose a duty of care on the defendant.

Facts Summary, Issues, Judgment & Analysis of Caparo Industries PLC v Dickman

Facts Summary, Issues, Judgment & Analysis of Caparo Industries PLC v Dickman

The case of Donoghue v Stevenson established the principle of duty of care and is the foundation of  the tort of negligence. In that case, May Donoghue went to Wellmeadow Cafe, with her friend, where she ordered a Scotsman Ice-cream float. The Ice cream float was made of Ice cream and ginger beer, so the owner brought a tumbler of Ice cream and ginger beer.

He poured ginger beer in Donoghue’s ice cream and later, the remaining was poured from the bottle, to reveal a decomposed snail. Donoghue claimed illness from the sight of the snail and pain. She was later diagnosed with shock and gastroenteritis. A suit was brought against Stevenson and it was held in favour of Donoghue.

The case of Hedley Byrne v Heller, is instructive in the case of negligent misstatement. The principle established in this case was that, where a statement was made negligently, the maker of the statement would be liable for whatever loss results from the making of such statement.

In the case of Caparo Industries Plc v Dickman, the court determined whether there was a duty of care and scope of that duty of care.

Also see: Exceptions to privity of contract rule

Facts Caparo Industries PLC v Dickman

Fidelity Plc was the manufacturer of electrical equipment. The company was doing badly and the price of its shares was reducing drastically. Caparo Industries Plc. wanted to do a takeover of the company and so it began to buy its shares in large quantities.

In June 1984, the annual accounts were done by Fidelity Plc. by Dickman and given to the shareholders, Caparo, included. According to the City Code’s rules on takeover, by the time Caparo had reached 29.9% shareholding, it made an offer for the remaining shares. Once Caparo had control, it found that Fidelity Plc. was in a worse state than the accounts revealed and so it sued Dickman for negligence in preparing the accounts.

It sued for damages to recover the difference between what the company had and what the company was stated to have in the prepared accounts.

Issues determined in Caparo Industries PLC v Dickman

a. Whether the defendant owed the plaintiff a duty of care.

b. Whether there was a negligent preparation of accounts, and as a result, a negligent misstatement.

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Judgment of the court in Caparo Industries PLC v Dickman

Fact summary of Caparo Industries PLC v Dickman

Fact summary of Caparo Industries PLC v Dickman

The House of Lords held that there was no duty of care.

Three tests were put forward by the courts to determine whether a duty of care was owed. The tests are: whether the defendant’s conduct was one that would result in a reasonably foreseeable harm, as established in the case of Donoghue v Stevenson; whether there was a relationship of proximity between the party claiming a duty of care and the party from whom the duty of care was claimed; whether it is just, fair and reasonable for the court to impose a liability.

The case was determined in three courts. In the first court, the High Court, it was held that there was no duty of care. On appeal, this decision was overturned and the court found that there was a duty of care because the plaintiffs were shareholders and relied on the statement of accounts.

Bingham LJ, in the Court of Appeals, stated that the essence of the accounts prepared was to inform the shareholders of the company in order for them to make choices based on that information.

Bingham LJ, also stated, obiter, that a duty of care would not be owed, an outside investor who was not a shareholder, as there was no relationship of proximity between such an investor and the company, to warrant such duty of care.

O’Connor LJ, in his dissenting judgement held that neither the shareholder, nor the investor was owed a duty of care.

In the House of Lords, it was held, unanimously, that there was no duty of care.

According to Lord Bridge of Harwich, the purpose of the audit of public companies under the Act was to make it possible for shareholder to exercise their rights in the meetings and not to make future investment decisions. He further stated that an individual shareholder cannot sue the auditor for his inability to make an accurate audit, and thus, the auditor had no liability beyond that brought by the company itself.

Different Judges have held in different cases that it is not easy or possible to formulate a comprehensive rule as to what will determine a duty of care in every given situation.

Also see: Boulton v Jones: Fact Summary, Issues and Judgment of Court

Conclusively, a duty of care is owed in different situations where the elements of foreseeability, proximity and fairness are existent. However, limits have to be put on this duty, in order not to make the duty limitless and burdensome.

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