Caparo Industries plc v Dickman  UKHL 2 is a leading English tort law case in Caparo was the scope of the assumption of responsibility, and what the. Caparo Industries Plc v Dickman . Facts. Caparo, a small investor purchased shares in a company, relying on the accounts prepared by. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc. Fidelity was not doing well. In March.
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A claim to recoup a loss alleged to flow from the purchase of overvalued shares, on the other hand, can only be sustained on the basis of the purchaser’s reliance on the report. The argument then runs thus. Lord Bridge concluded by answering the specific question of whether auditors should be liable to individual shareholders in tort, beyond a claim brought by a company. Assuming without deciding that a claim by a shareholder to recover a loss suffered by selling his shares at an undervalue attributable to an undervaluation of the company’s assets in the auditor’s report could be sustained at all, it would not be by reason of any reliance by the shareholder on the auditor’s report in deciding to sell; the loss would be referable to the depreciatory effect of the report on the market value of the shares before ever the decision of the shareholder to sell was taken.
A loss, on the other hand, resulting from the purchase of additional shares would result from a wholly independent transaction having no connection with the existing shareholding. But for outside investors, a relationship of proximity would be “tenuous” at best, and that it would certainly not be “fair, just and reasonable”.
Views Read Edit View history. This page was last edited on 26 Novemberat It may very well be that in tortious claims based on negligent misstatement these notions are particularly apposite. It sued Dickman for negligence in preparing the accounts and sought to recover its losses.
The share price fell again. The second requirement is more elusive. Bridge of Harwich, writing for a unanimous court, states that the two part test employed in Dobson should not be used, and subsequently it has been abandoned in England.
Caparo reached a indusrties of I believe this argument to be fallacious. No doubt these provisions establish a relationship between the auditors and the shareholders of industriee company on which the shareholder is entitled to rely for the protection of his interest. It follows, therefore, that the scope of the duty of care owed to him by the auditor extends to cover any loss sustained consequent on the purchase of additional shares in reliance on the auditor’s negligent report.
This was overturned by the House of Lords, which unanimously held dickmam was no duty of care. At this point Caparo had begun buying up shares in large numbers. The shareholder, qua shareholder, is entitled to rely on the auditor’s report as the basis of his investment decision to sell his existing shareholding. O’Connor LJ, in dissent, would have held that no duty was owed at all to either group.
Had Industriies been a simple outside investor, with no stake in the company, it would have had no claim.
Applying those principles, the defendants owed no duty of care to potential investors in the company who might acquire shares in the company on the basis of the audited accounts.
Moreover, the loss in the case of the sale would be of a loss of part of the value of the shareholder’s existing holding, which, assuming a duty of care owed to individual shareholders, it might sensibly lie within the scope of the auditor’s duty to protect.
Sign In Don’t have an account? On a preliminary issue as to whether a duty of care existed in the circumstances as alleged by the plaintiff, the plaintiff was unsuccessful at first instance but was successful in the Court of Appeal in establishing a duty of care might exist in the circumstances. But in practice no problem arises in this regard since the interest of the shareholders in the proper management of the company’s affairs is indistinguishable from the interest of the company itself and any loss suffered by the shareholders, e.
Contractors Ltd  Q. The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be. The decision arose in the context of a negligent preparation of accounts for a company.
It is one upon which all common law jurisdictions can learn much from each other; because, apart from exceptional cases, no sensible distinction can be drawn in this respect between the various countries and the social conditions existing in them. Both the analogy with contract and the assumption of responsibility have been relied upon as a test of proximity in foreign courts as well as our own: Fidelity was not doing well.
Their Lordships consider that question to be of an intensely pragmatic character, well suited for gradual development but requiring most careful analysis. Retrieved from ” https: I find it difficult to visualise a situation arising in the real world in which the individual shareholder could claim to have sustained a loss in respect of his existing shareholding referable to the negligence of the auditor which could not be recouped by the company.
Bingham LJ held that, for a duty owed to shareholders directly, the very purpose of publishing accounts was to inform investors so that they could make choices within a company industriess how to use their shares. It is not, and could not be, in issue between these parties that reasonable foreseeability of harm is a necessary ingredient of a relationship in which a duty of care will arise: