Caparo is Dead, Long Live Caparo!

English Supreme Court Decides

Foundational Principles Regarding
Duty of Care
The history of the modern law of negligence has been shaped by competing
impulses of unity and division. One court seeks to formulate general principles to
identify whether a person owes a duty of care to another. Later courts reject or
qualify those formulations. Lord Atkin’s seminal decision in Donoghue v
Stevenson [1932] AC 562 was itself an attempt to formulate general guidance by
reference to the “neighbour” principle. This principle, though rightly celebrated as
an inspired rationalisation of previously decided cases, was ultimately found by
later courts to be inadequate to deal with the diverse range of fact situations that
came before those courts.

The wheel of this history has turned again in two recent English Supreme Court
decisions, Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4 (8
February 2018) (Robinson) and Steel v NRAM Ltd [2018] UKSC 13 (28 February
2018) (Steel).

These decisions appear to herald the demise in English law of the most recent
formulation of a general test for recognising a duty of care. This test is sometimes
known as the “three stage test” or the “Caparo test” after the House of Lords
decision that supposedly endorsed this test, Caparo Industries plc v Dickman
[1990] 2 AC 605 (Caparo).

The three stage test required consideration of the reasonable foreseeability of harm
to the plaintiff, the proximity of the relationship between the plaintiff and the
defendant, and whether it was fair, just and reasonable to impose a duty in all the
circumstances.

In both Robinson and Steel, the Court held that the House of Lords in Caparo had
not in fact endorsed this three stage test. Rather, the proper approach as set out in
Caparo, and endorsed by the Court, was as follows:

Where a case falls within an established category, the existence of the duty
should be determined in accordance with the principles laid down for that
category.
Where a case involves a novel situation where the existing principles cannot
be readily applied, the law should be developed incrementally by analogy
with established categories.

In the remainder of this blog, we will discuss:

the facts of Steel and the Court’s decision on those facts;

the facts of Robinson and the Court’s decision on those facts;
the demise of the three stage test and rise of the incremental approach in
English law;
the convergence of English law towards Australian law on this issue; and
the Hong Kong law position.

Facts and Decision in Steel

The question before the Court in Steel was whether a solicitor for one party to a
transaction owed a duty of care to the counterparty for a misstatement that caused
loss to the counterparty.

The defendant solicitor had mistakenly told the plaintiff bank’s officers that the
transaction between her client and the bank involved a discharge of the bank’s
mortgages over her client’s properties. This statement was incorrect. The bank’s
officers relied on this statement, and without checking the bank’s own files
regarding the nature of transaction, arranged a discharge of the bank’s mortgages.
Years later, the client went into liquidation and the bank discovered its loan was
unsecured. The bank then brought proceedings against the solicitor for breach of
duty by negligent misstatement.

Lord Wilson delivered the lead judgment with which the rest of their Lordships
agreed. Following a review of the authorities, Lord Wilson concluded that in
actions for negligent misstatement causing economic loss, the question whether
the defendant owed a duty of care to the plaintiff would usually turn on whether
the defendant had assumed responsibility for their statement towards the plaintiff.
This in turn required consideration whether it was reasonable for the defendant to
have relied on the plaintiff’s statement, and whether the plaintiff should have
foreseen that the defendant would rely on that statement.

Turning to the facts of the case, Lord Wilson held that the bank’s officers had not
acted reasonably in relying on the solicitor’s statement without checking the
bank’s own files, and conversely, the solicitor could not reasonably have foreseen
that the bank’s officers would do so. His Lordship stated: “a commercial lender
about to implement an agreement with its borrower referable to its security does
not act reasonably if it proceeds upon no more than a description of its terms put
forward by or on behalf of the borrower”.

As a result, the Court concluded that the solicitor did not owe the bank a duty of
care with respect to her statement regarding the terms of the transaction.

Facts and Decision in Robinson

In Robinson, the plaintiff was knocked over in the street and injured by a group of
men consisting of two police officers and a drug dealer whom the police officers
were at the time trying to arrest. The plaintiff brought an action in negligence
against the police force claiming that the police officers had acted negligently.

Lord Reed delivered the lead judgment for the majority of the Supreme Court.
His Lordship held that, as this case fell within established categories of negligence
actions against public authorities generally and the police in particular, the
question whether the police officers owed a duty of care to the plaintiff was to be
determined by applying the principles laid down by the authorities with respect to
these established categories. His Lordship further held that, since this case fell
within established categories, the Court of Appeal below had been mistaken in
applying the three stage test to this case.

Lord Reed concluded that, in accordance with the principles laid down for this
category of case, the police officers in Robinson owed a duty of care to the
plaintiff. His Lordship further held that the duty was breached and the plaintiff’s
injuries were caused by the breach of duty.
Demise of the Three Stage Test and Rise of the Incremental Approach in English
Law

Both Robinson and Steel were determined by applying principles derived from
established categories to the facts of the case. It was therefore unnecessary for the
Court in either case to deal with the proper approach in novel cases where existing
principles do not readily apply. Despite this, in both cases, both Lord Reed and
Lord Wilson went on to discuss the proper approach in such cases.

Many courts and practitioners have regarded the decision of the House of Lords in
Caparo as endorsing the three stage test in novel cases. Both Lord Reed in
Robinson and Lord Wilson in Steel pointed out that the House of Lords had done
no such thing. Although their Lordships in Caparo had referred to the three stage
test in their speeches, they had also variously noted the limited usefulness in
practice of the three stage test and described the search for a single formula as
akin to pursuit of a will-o’-the-wisp.

Further, both Lord Reed and Lord Wilson noted that the House of Lords did not
decide Caparo by applying the three stage test. Rather, their Lordships in Caparo
had applied an incremental approach, which emphasised the need for the law to
develop novel categories of negligence incrementally and by analogy with
established categories.

Both Lord Reed in Robinson and Lord Wilson in Steel endorsed this incremental
approach. Lord Reed in Robinson explained this approach in the following terms:

“In cases where the question whether a duty of care arises has not previously been
decided, the courts will consider the closest analogies in the existing law, with a
view to maintaining the coherence of the law and the avoidance of inappropriate
distinctions. They will also weigh up the reasons for and against imposing
liability, in order to decide whether the existence of a duty of care would be just
and reasonable.”

Convergence with Australian Law

In Australian law, proximity as a useful concept in recognising a duty of care in

novel cases has long been interred in the legal graveyard. Buried with it was the
idea that a single test could be applied in all cases to determine whether a duty of
care is owed. Rather, novel duty cases are determined by incremental development
by analogy with established categories, with a focus on the “salient features” of
the relationship between the plaintiff and the defendant: Perre v Apand Pty
Ltd [1999] 198 CLR 180; Sullivan v Moody [2001] 207 CLR 562; Graham
Barclay Oysters Pty Ltd v Ryan [2002] 211 CLR 540.

It can be seen that the English law position is converging towards the Australian
position. In light of this, it may well be that Australian case law and jurisprudence
can assist the English courts to navigate duty of care issues in a post-three stage
test world.

Salient factors that Australian courts have identified as tending to support

recognising a duty of care in a novel case include where:

the plaintiff is vulnerable to the risk of harm;

the defendant has the power to protect the plaintiff or to exercise control over
the plaintiff in a way that can affect the risk of harm;
the defendant knew or ought to have known that its acts or omissions could
affect the risk of harm.

Salient factors that tend against recognising a duty of care in a novel case include
where:

finding a duty of care would cut across or undermine other legal rules;
the duty asserted would be incompatible with another duty;
recognising a duty would expose the defendant to indeterminate liability.

Hong Kong Law Position

The leading case in Hong Kong regarding the approach for determining whether a
duty of care exists is Luen Hing Fat Coating & Finishing Factory Ltd v Waan
Chuen Ming [2011] HKCFA 4; [2011] 2 HKLRD 223 (Luen Hing Fat).

In Luen Hing Fat, Bokhary PJ, with whom all their Lordships agreed, adopted the
“Caparo approach”, by which he meant the three stage test. However, it is
important to note his Lordship’s qualifications in adopting the three stage test. His
Lordship referred to statements in cases after Caparo to the effect that the
elements of the three stage test are no more than labels under which the court
weighs the pros and cons of imposing a duty, and that while a general formula can
help organise thinking they cannot provide the answers.

Given its endorsement by the Court of Final Appeal in Luen Hing Fat, the three
stage test is likely to continue to be part of the Hong Kong legal landscape at least
until the Court of the Final Appeal has the opportunity to reconsider this issue.

Despite this, Bokhary PJ’s qualified endorsement of the three stage test can be
seen as endorsing a methodology for working through duty of care issues, without
altering the substantive evaluation that the court must undertake in deciding those
issues. By contrast, the Supreme Court’s emphasis in Robinson and Steel on the
incremental development of the law in novel cases can be seen as making a
substantive point regarding in what circumstances the Court should recognise a
duty in novel situations. From this perspective, it may well be that the incremental
approach endorsed in Robinson and Steel will be influential in Hong Kong even
absent further consideration of the three stage test by the Court of Final Appeal.

The wheel of this history remains in motion. As Bokhary PJ stated in Luen Hing
Fat:

“No common law landmark … can be expected to stand alone and sufficient on its
own forever. That is one of the clearest lessons that legal history teaches. While
having due regard to the importance of predictability and continuity, the courts
will, as they must, develop the common law to provide such fresh or adapted
solutions as may be needed to cope with new problems as and when they emerge.”