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Module Name: Legal Skills

Module Code: LAWS41714

SU Reference No: 22051441

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Part- A

Caparo Industries PLC v Dickman [1990] UKHL 2

Caparo v. Dickman1 is a significant case in English tort law, concerning the test for a duty of
care. This case simply discusses when a duty of care arises in cases of negligence.

Facts

The plaintiff in this case is a company called Caparo Industries, which was a shareholder in
another company called Fidelity. The defendants were auditors for this company (fidelity),
which released an audit report holding misstatements about its profit. Caparo relied on the
accounts and purchased more shares. Fidelity’s profits were not as high as they had
mentioned in their auditor's report. Although the company had not made a profit at all. The
statements showed that fidelity had made a profit of 1.3 million pounds. As a result, they
suffered economic losses. So they sued fidelity’s auditors for being negligent in preparing the
accounts and making their report, stating the making of the report is needed under the
Companies’ Act of 19852.

Issue

The issue was whether a duty of care was owed to Caparo by the accounting firm under the
tort of negligence.

Judgement & Rationale

The appeal was upheld by the houses of lords and held, there was no duty of care owed to the
current or future shareholders by the accountants, but only to the governance of the firm;
thereby, the appeal was granted in favour of Dickman. In cases of negligent misstatement, the
reliance on the defendant’s statement has to be reasonable. Depending on a statement for a
reason distinct from the one it was originally given is not reasonable. The initial cause of the
statutory requirement of an audit of companies according to the Companies’ Act of 19853
was to let shareholders to utilise their class rights in annual general meetings. . It was not
expected to abet shareholders in their decision-making as to future investment in the
company. It could not be reasonably relied upon by them. It was not expected to assist
shareholders in their decision-making as to future investment in the company. It could not be
reasonably relied upon by them. in the case of Smith v. Eric S Bush4 It’s established that
when a duty of care does arise, this case holds the principle that it is fair to impose a duty of
care for valuers of a property on those purchasing a family home because this was a

1 Caparo Industries PLC v Dickman [1990] UKHL 2, [1990]1 ALL ER 568.

2 Companies Act 1985, c 6.
3 ibid
4Smith v Eric S Bush[1990] UKHL 1, [1990] 1 AC 831
Catherine Elliot and frances Quinn , Tort Law (11th edn, Longman pub Group 2009)22
craig purshouse , Essential Cases : Tort Law ( 6th edn , oxford university press 2023)
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commonplace transaction and thus foreseeable. Applying these rules in this case, there had to
be an understanding that the shareholders would depend on the report in terms of
transactions. But in this case, the reason the audit was undertaken differs from reports carried
out for particular purposes and identified audiences. Thus, the accountants don’t owe a duty
of care to the entire public, who might rely on the report when making financial decisions.

According to the three-stage test established by Lord Bridge on determining when a duty of
care is owed, at the time the audit was carried out, the defendant wouldn’t reasonably expect
the shareholders to depend on this audit to make decisions on their future investments. And
there is no proximate relationship between the parties, so it wouldn’t be just and reasonable to
impose liability as there are no policy factors to justify.
A limitation must be set for duty of care as identified in JEB Fasteners Ltd. v. Marks Bloom
& Co5. It would open the floodgates by increasing the liability. There are situations where an
auditor might owe a duty of care to shareholders. Situations where an audit report was made
for a specific group. This was addressed in Law Society v. KPMG Peat Marwick6.
Analysis

Caparo v. Dickman7 is a landmark judgement in the UK that has had a significant impact on
the tort of negligence. Particularly concerning the establishment of the duty of care. This case
established a tripartite test for determiningwhether a duty of care exists in a specific situation,
which is described as the caparo test. The first element of the test requires that it be
reasonably foreseeable that the defendant's conduct could harm the claimant, and the second
element is to decide whether there is a proximate relationship between the parties. The third
element of the test requires the courts to examine whether it is just and reasonable to
implement duty of care in a certain situation. The caparo test departs from Donoghue v.
Stevenson8 and Anns Merton v. London Borough Council9 Wilberforce test, which states that
there is a duty of care if the harm was foreseeable. The legal foundation for finding a duty of
care has its roots in these two cases. It was developed in the Caparo case.

The Lord Bridge acknowledged the lack of any single common principle to provide a practi-
cal test that can be relevant to every situation to decide whether a duty of care is owed. Thus,
a multi-factored test was developed; the caparo test was developed only as a guide and not as
a strict test.
Earlier cases on negligent misstatements had come under the principle of Hedley-Byrene v.
Heller10. This means that when a person makes a statement, he willingly assumes responsibil-
ity for the person he makes it to; if the statement was made negligently, he would be liable
for the loss. The Capro11 case refined the Hedley-Byrene test and set out a three-stage test.

5 [1983] 1 ALL ER 583.

6 [2000] 4 ALL ER 540.
7 Caparo (n 1).
8 [1932] UKHL 100,[1932] AC 562.
9[1978] UKHL 4, [1978] AC 728.
Craig Purshouse , Essential Cases : Tort Law ( 6th edn , oxford university press 2023)
Catherine Elliot and frances Quinn , Tort Law (11th edn, Longman pub Group 2009)22

10[1964] AC 465, [1964] 2 ALL ER 575.

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The Caparo test has been influential in shaping the evaluation of the tort of negligence in the
UK. This has been enforced in various cases to decide whether a duty of care exists in a wide
range of scenarios, from professional negligence to product liability cases. Caparo and its
extent were considered in Moore Stephan v. Stone Rolls Ltd12 case.

The Caparo case has played a huge role in clarifying the duty of care. The caparo test
defines that not every negligent act or omission certainly results in a duty of care. This case
has interpreted there needs to be close connections between the parties and foreseeability
alone is not enough to determine duty of care. Before the Crapo13 case, the law concerning
duty of care was less clear and often depended on judgments. This case introduced a
structured approach to determining duty of care; it gave clarity and predictability in cases of
negligence.

The Capro case and the principles established by it have had an influence on the develop-
ment of the tort of negligence in common law jurisdictions, including Canada, Australia, and
the United States. These countries have considered and adopted this test in the issues of duty
of care. In Australia, caparo was followed in the case of Esarda Finance Cooperation Ltd. v.
peat Marwick Hunger Fords, and in Canada, in the case of Hercukes Management Ltd. v.
Ernst & Young, caparo was followed. Also in India, in the case of Rajkot Municipal Corpo-
ration v. manjuben Jsysntisl Nakum, it has not been followed in New Zealand in the case of
Scott Group Ltd. v. mcfarlane
This case is adaptable to a wide range of situations and can be applied in various contexts,
from professional negligence to personal injury.
When establishing duty of care, judgment on caparo14 prefers novel facts to already existing
categories of duty; this is known as an incremental approach. The tripartite test established
by Lord Bridge is only to be used when the incremental approach fails. In the case of Robin-
son v. Chief Constable of West Yorkshire15 and Steel v. NRAM Ltd16., the court acknowledged
that where a case falls within an established category, the absence of duty should be decided
according to the principles set down for that category, and where a case contains a novel sit-
uation where the existing principles cannot be applied, the law must be developed incremen-
tally by analogy with the established category. Crucially, the analogous meant is that it is not
important to use the three-stage test as these were not novel situations.
Although Caparo17 is a landmark case that established important principles to determine the
existence of a duty of care, it has also faced criticism. In the case of Caparo, it was expected
that the law would rapidly change to a categorical approach, but there is still confusion in
the general application of this test, mainly in the cases of personal injury. For example, in
the case of Perrett v. Collins18 the last two stages of this test were debated because there is a
difference between economic loss and person

11 (n 1 )
12[2009] UKHL 39,[2009], 1 AC 1391
13 (n 1 )
14 Caparo (n 1)
15 [2018] UKSC 4,[2018] 2 WLR 595.
16[2018] UKSC 13, [2018] 1 WLR 1190.
17 caparo ( n1 )

18 [1998] 2 Lolyd’s Rep 255.

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Caparo19 is more of a restrictive approach. In the case of Robinson20, it was said and
reinterpreted that the Caparo case found there was no single test to decide the duty of care.
The court would go beyond these principles. Also, there is complexity in applying the caparo
test in novel situations. And the subjectivity of this case, especially fairness, is subjective and
open to interpretation, which could lead to inconsistent judgements. The overreliance on
proximity could be too restrictive because it may exclude cases where a duty of care should exist
but the parties are not in a traditionally recognised proximate relationship.

Conclusion

This case established that auditors owe a duty of care to shareholders but not to potential
investors or the ones who purchase the shares. The House of Lords held that existing
shareholders were to depend on accounts to secure their collective interest in the right
management of the company and not to make their investment decisions. The judgement of
this case made clear that foreseeability solely is not sufficient to prove a duty of care, and
the statutory duty of making audit accounts must be looked at in imposing liability. The
House of Lords initiated a three-stage test for the purpose of determining whether duty of
care is owed in a given situation, which includes foreseeability, proximity, and policy factors.
According to this test, auditors were not liable, and this case highlights the importance of
auditors' exercising reasonable care in preparing accounts and the limits of reliance on
accounts by shareholders and potential investors. The caparo case and its associated caparo
test continue to be Because it provides an established and structured framework for
analysing duty of care in negligence, while it has faced criticism and debate, it remains
relevant and valuable in the field of the tort of negligence. Its established precedent, which
provides clarity and consistency in legal decision-making, and its influence on legal thinking
beyond the UK, serving as a model for other legal systems, and its contribution to legal
education make it a significant and invaluable case.

Part-B

confusion, contradiction and chaos within the house of lords post caparo v dickman

Caparo v. Dickman21 is a landmark case that marked an insignificant moment in the

evaluation of the duty of care. However, the aftermath of this judgement has not been one of
certainty and clarity. The article, confusion, contradiction, and chaos within the House of
Lords post-Caparo v. Dickman22, authored by John Hartshorne, aims to illustrate how the
decision of the House of Lords in the Caparo case and the principle established by this case
to analyse the duty of care have created confusion, inconsistency, and unpredictability. Also,
the challenges to those who apply it, the author discusses various concepts employed by the
House of Lords when determining duty of care and assesses its clarity. Also focuses on the
intelligibility of the policy-based arguments and how it has caused confusion.
19 caparo (n 1 )
20 Robinson ( n 15)
21 Caparo (n 1 )
Kanika Satyan, ‘Case Analysis:Caparo Industries Plc v Dickman’ [2015],available
at:SSRNhttps://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2626806_:.pdf?abstractid=2626806&mirid=1
22 John Hartshorne , ‘confusion, contradiction and chaos within the House of Lords post Caparo v Dickman’
[2008] 16 (1) Tort Law Review 8
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I chose this article to summarise because it addresses significant and complex matters
related to the duty of care. This article explains how the decisions made by the House of
Lords in the Caparo23 case have caused confusion and inconsistency in the law. Which is
crucial for legal professionals and law students to understand. Also, I personally faced many
challenges when I applied this case to problem questions and cases. And also in
understanding the test. Especially the policy factors, which are subjective. This article's
examination of the decision-making process of the House of Lords, the role of policy factors
in the decision-making process, and the clarity of legal principles are highly important in
law. It brings up crucial questions about the balance between reaching a just decision and
creating clear laws. Overall, this article provides valuable insights into the complexities of
applying this case, which made me choose it for my summary and analysis.

This article highlights the confusion, contradiction, and chaos within the House of Lords and
the confusion caused by the concepts introduced by the House of Lords post-Caparo case,
considering one of the confused areas, which is, should the decisions in Caparo and the test
laid by it be used as a test to determine duty of care? The Caparo case departed from the
Ann’s test established in the Anns Metrton24 case and established a proper framework to
determine duty of care, in the daily practice of law it’s still encouraged. For example, in the
case of Brooks v. commissioner of the Police of the Metropolis 25 , anyhow the House of
Lords judgements have sent mixed signals on whether to rely on this framework to determine
duty of care, which has caused confusion for legal professionals.

The concept of assumption of responsibility in duty of care, which was established in the
Hedley Byrne v. Heller case26, is mainly applied to cases involving carelessly made
statements resulting in pure economic loss, and the approach ‘extended Hedley Byrne
principle’ introduced in the Spring v. Guardian Assurance plc27case, which says if a person
assumes responsibility for some services, he should be liable for negligent performance of
those services. Which provided a more straightforward way of determining duty of care.
However, the lack of clarity of this approach has led to uncertainty in its application. It can
be seen in the McFarlane v. Tayside 28case. Judicial observation criticises this concept
because it lacks proper definition and scope, as noted in the case of custom and exercise in
Commissioner v. Barclays Bank29.

The concept of proximity has been explained to view as part of the boarder assessment of
policy factors in deciding duty of care after Caparo judgment, by Lords Bridge and Oliver.
Although proximity became less important in the 2000s because of policy considerations,
since 2005, proximity has gained recognition in decisions. The author also highlights the on-
going debate on whether proximity should be considered a separate concept or an expression
of policy factors when assessing duty of care.

23(n 1)
24 (n 9 )
25 [2005] UKHL 24, [2005] 1 WLR 1495.
26 (n 10)
27 [1994] UKHL 7, [1995] 2 AC 296

28 [2000] 2 AC 59
29[2006] UKHL 28,[2006] 4 ALL ER 256
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If we examine clearly, there is uncertainty in the relationship between fair, just, and reason-
able requirements and policy in duty of care, and the lack of clarity in the role of policy re-
mains unclear in duty of care in novel situations, which has led to confusion. For example,
the caparo test didn’t explicitly mention policy. and in cases like x (minor) v. Bedfordshire
Council30, its stated fairness test might involve policy considerations and the other decisions
of the House implied that policy could operate as a separate factor. also considering the
conflicting approaches in cases like Arthur js. Hall and Co v. Simons31, where the role of
policy differs in assessing duty of care. these different interpretations have caused confusion
to people who apply them.
The concept of policy in determining whether a duty of care is owed has been a confusing
concept due to its various interpretations and lack of clear definition by the House of Lords.
Policy was used to encompass non-legal factors, while public policy refers to policy
arguments of greater social significance. Due to lack of practice, a new concept called legal
policy emerged in the House of Lords. It aimed to achieve justice and fairness in
concordance with the law. The distinction between public and legal policy was unclear in
some decisions. This inconsistency and lack of clarity made it hard for practitioners to
understand the legal decisions, also the emerging legal policy added more confusion in the
understanding of policy.

Distributive justice is a concept that entered the House of Lords recently. It first appeared in
White v. chief Constable of South Yorkshire32, where the police officer sought compensation
for a physical injury by assisting in the Hillsborough football stadium tragedy. This concept
was used to stop awarding compensation for police officers. while deprived relatives
received nothing. This concept is used to examine fairness in granting remedies. This concept
contrasts with just, reasonableness, and fairness has become confusing. In negligence
claims, policy factors have been used inconsistently, which has created doubt on their
reliability. Distributive justice has created inconsistency and ambiguity in the duty of care.

Arguments of policy, fairness, and reasonableness have influenced negligence cases in the
House of Lords since Caparo decided whether a claim must be struck out under procedural
rules or lead to trial.
Considering the various policy arguments used in negligence cases to determine whether
duty of care should be imposed, defensive practices is an argument that suggests imposing
duty of care could set back the efficiency of some activities by creating the temptation to
postpone decisions to avoid potential liability and diversion of resources, while the flood-
gates argument concerns that exaggerated amount of claims could be made if a duty were
imposed.
The argument danger of attracting bogus vexatious claims examines the concerns about the
bother factor given by baseless claims rather than possible members. And the alternative
mechanism for seeking redress already exists; a tort remedy is unnecessary. Cutting across
existing arrangements argues regarding the concerns that implementing duty of care might

30 [1995] 3 ALL ER 353

31[2000] 3 WLR 543
32 [1999] 2 AC 455
Hartshorne j , ‘confusion, contradiction and chaos within the House of Lords post Caparo v Dickman’ [2008] 16
(1) Tort Law Review 8
KM Santon , ‘decsision making in the tort of negligence in the House of Lords’ [2007] 15 (2) Tort Law Review
93
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confuse existing systems. The duty of care and the argument impacting insurance relate to
concerns about the cost and availability of the insurance.
This article examines the challenges created by the House of Lords due to its evolving ap-
proaches to determining the duty of care in negligence cases. The shift from strict tests to
policy-based decisions, as discussed above, has created confusion because it hasn’t been
consistently applied, resulting in uncertainty surrounding these concepts. As the supreme ap-
pellate tribunal, the House of Lords did not establish clear principles. Which has led to diffi-
culties for lower court judges, lawyers, and other legal practitioners

One notable approach of the recent House of Lords judgment is the willingness to consider
comparative materials as aids in making decisions. Reviewing such matters in the conditions
of establishing a duty of care could help bring order to the current state of intellectual chaos
in negligence law.

If we devolve into the method taken by the Supreme Court of Canada, which employs a par-
ticular method in addressing duty of care issues. The Supreme Court of Canada has adopted a
distinctive approach to dealing with duty of care matters, first in the case of Cooper v. Ho-
bart. This approach is characterized by consideration of policy factors at two important stages
in the process of decision-making. In the first stage of assessing proximity, the court assesses
whether a proximate relationship exists among the parties involved. This proximity is a key
factor in deciding whether a duty of care should be recognized. The Canadian approach ex-
plicitly recognizes that policy considerations play a role in this determination. The court eval-
uates whether, from policy perspectives, it is reasonable to impose a duty of care in the given
circumstances, and the second stage involves the court examining whether a duty of care
should be dismissed on residual grounds of policy. This step acknowledges that even if de-
gree proximity exists, there may still be policy-based reasons to deny the imposition of duty
of care. The courts evaluate whether, on policy grounds, it would be inappropriate to impose
such a duty.

This approach in Canada recognises that policy considerations are an integral part of
determining the existence and scope of a duty of care in negligence cases. This method
provides a structured framework for analysing duty of care issues, fostering clarity and
transparency in the decision-making process. Moreover, by requiring policy arguments to be
supported by evidence or logically sustainable, it helps ensure that policy considerations are
rigorously assessed, reducing the potential for confusion, contradiction, or chaos in legal
decisions. Adopting this approach in the UK could help eliminate confusion and
inconsistency in the House of Lords’ decisions
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Bibliography

Table of Authorities

Primary Sources

Cases

Anns Merton v. London Borough Council [1978] UKHL 4, [1978] AC 728

Arthur js. Hall and Co v. Simons [2000] 3 WLR 543

Brooks v. commissioner of the Police of the Metropolis [2005] UKHL 24, [2005] 1 WLR 1495.

Caparo Industries PLC v Dickman [1990] UKHL 2, [1990]1 ALL ER 568

Commissioner v. Barclays Bank [2006] UKHL 28,[2006] 4 ALL ER 256

Donoghue v. Stevenson [1932] UKHL 100,[1932] AC 562

Hedley Byrene v. Heller [1964] AC 465, [1964] 2 ALL ER 575.

JEB Fasteners Ltd. v. Marks Bloom & Co [1983] 1 ALL ER 583

Law Society v. KPMG Peat Marwick [2000] 4 ALL ER 540

McFarlane v. Tayside [2000] 2 AC 59

Moore Stephan v. Stone Rolls Ltd [2009] UKHL 39,[2009], 1 AC 1391

Perrett v. Collins [1998] 2 Lolyd’s Rep 255

Robinson v. Chief Constable of West Yorkshire [2018] UKSC 4,[2018] 2 WLR 595

Smith v Eric S Bush [1990] UKHL 1, [1990] 1 AC 831.

Spring v. Guardian Assurance plc [1994] UKHL 7, [1995] 2 AC 296

Steel v. NRAM Ltd [2018] UKSC 13, [2018] 1 WLR 1190

White v. chief Constable of South Yorkshire [1999] 2 AC 455

x (minor) v. Bedfordshire Council [1995] 3 ALL ER 353

Legislation

statutes

Companies’ Act 1985, c 6

Bibiliography

Secondary Sources
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BOOKS

Horsey k and Rackley E, Tort Law ( 7th edn, Oxford university Press 2021)

Elliot C and Quinn F, Tort Law (11th edn, Longman pub Group 2009)

purshouse c , Essential Cases : Tort Law ( 6th edn , oxford university press 2023)

Steele J, Tort law, cases, and materials ( 5th edn Oxford university press 2022)

witting c, Street On Torts( 16th edn, oxford university press 2021 )

Journal Articles

Hartshorne j , ‘confusion, contradiction and chaos within the House of Lords post Caparo v Dickman’ [2008] 16
(1) Tort Law Review 8

Santon k, ‘decsision making in the tort of negligence in the House of Lords’ [2007] 15 (2) Tort Law Review 93,

Satyan k, ‘Case Analysis: Caparo Industries Plc v Dickman’ [2015]. Available at SSRN:
(https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2626806_code2418628.pdf?
abstractid=2626806&mirid=1) accessed 11 october 2023
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