Caparo v Dickman Case Summary
Legal Case Summary
Caparo Industries Plc v Dickman [1990] UKHL 2
Summary: The tripartite test in establishing duty of care.
Introduction
Caparo [1] is the landmark case which has created the tripartite
test in establishing duty of care [2]. This test departs
from Donoghue v Stevenson [3] and the Wilberforce test laid
down in Anns v Merton London Borough Council [4] which starts
from the assumption that there is a duty of care and that harm
was foreseeable unless there is good reason to judge otherwise
[5]. Whereas Caparo starts from the assumption no duty is
owed unless the criteria of the three stage test is satisfied.
These criteria are: Foreseeability, Proximity and whether it is
fair, just and reasonable to impose such a duty [6]. Yet this
approach has been critiqued [7] by over complicating
“neighbour” principle in Donoghue. Moreover, there is an
abundance of case law which moves away from the Caparo test
altogether [8].
Also Known As: Caparo
Facts in Caparo
A firm of accountants appealed against a decision of the Court
of Appeal in which it was decided that the accountants owed a
duty of care to the appellant shareholders when producing an
audit report required by statute. The claim was for negligent
misstatement. Caparo had bought shares in the company of
which the report was about as part of a takeover. The appellant
had relied upon the results of the report. However, it was later
found that the results of the report had misrepresented the
profits of the firm, in turn causing a loss for Caparo[9].
Decision in Caparo
The House of Lords reversed the decision of the COA and held
that no duty of care had arisen in relation to existing or
potential shareholders. The only duty of care the auditor`s
owed was to the governance of the firm. It was found that three
factors had to exist for there to be a duty of care which where:
Proximity, Knowledge of who the report would have been
communicated to and for what purposes it would have been
used. Lord Bridge commented that cases where duty of care
did arise[10] was illustrated in Smith v Eric S Bush.[11] The
case holds the principle that it is reasonable to impose a duty
of care for valuers of a property to those those purchasing a
family home as this was commonplace. Finally, there had to be
knowledge that the shareholders or investors would rely on the
report in regards to the transaction. Furthermore, the judges
noted that audit reports of plc`s are regularly carried out which
differs from reports carried out for specific purposes and for an
identified audience. Thus, the accountants owed no duty to the
entire public who might or might not place reliance on the
report when making financial decisions. Moreover, appointing
liability would open the floodgates to society as JEB Fasteners
Ltd v Marks Bloom & Co[12] distinguished. Thusly, limitations
have to be set when pure economic loss occurs in the absence
of contractual agreements between parties. It is also noted that
the judgement accepts that there are circumstances where an
auditor will owe a duty of care in respect of reports produced.
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[13]. This is acknowledged
in Morgan Crucible v Hill Samuel[14] and Law Society v
KPMG Peat Marwick[15].
Analysis of Caparo
Although the facts of Caparo[16] where based on the pure
economic loss, the HOL developed the tripartite test in
establishing a general duty of care.[17] Yet Lord Bridge
acknowledged:
“The inability of any single general principle to provide a
practical test which can be applied to every situation to
determine whether a duty of care is owed and if so, what is its
scope.[18]”
Thus rendering the general application unclear. This is poignant
in cases of physical injury illustrated by Perrett v Collins[19] in
which the last two stages of the Caparo test where
debated[20]. It was Hobhouse LJ who argued that adopting the
stipulations of Caparo: “extended decisions upon `economic`
loss to cases of personal injuries”.[21] Mirroring Lord Bridge in
Caparo itself. Hobhouse LJ added that: “In the common law
there has always been a distinct category for causing physical
injury to the human body and to goods[22]“. This distinction is
echoed by many academics who state that personal loss is the
very substance on which the law of negligence is established.
[23] Therefore, the courts contend that it is this reasoning that
issues that derive from economic loss, are different from issues
of personal loss .Furthermore, Lord Hobhouse uses case law
which corresponds with the case rather than the tripartite
test[24]. This stance is upheld by the dissenting opinion of Lord
Lloyd in Mark Rich & Co. v Bishop Rock Marine[25] who
concluded that in order to resolve the case the clear-cut
application of Donoghue need only apply.
This stance has been reiterated in the 21st Century, even in
cases of pure economic loss.[26] This is exemplified in Arthur JS
Hall & Co. v Simons[27], which mainly considers the third stage
of the test, in which stage one and two where so obvious that
discussion was left absent. This same approach in which judges
see no reason to create a complicated three stage test is
reverberated further in Customs & Excise v. Barclays Bank[28].
In the case it was considered whether the bank owed a duty of
care when given knowledge that Customs had acquired a
freezing order over the accounts of some of their customers.
The judges ruled upon analysis of the third stage of the
tripartite test[29]. Which has been regarded by some
academics as: “A simple search for the best result[30]“. Further
examination of the tripartite test in regards to pure economic
loss is considered by Lord Geoff in Henderson v Merrett
Syndicates Ltd[31] which is, Identified as falling within the
“Hedley Byrne[32] principle”[33] in which the test of Caparo is
set aside[34].
Issues in Caparo
To conclude the issues of the case is surmised perfectly by the
legal stance in Coulthard and others v Neville[35] which
concludes that the application of Caparo is:
“In a state of transition or development as the HOL pointed out
…. this is an area of law which is developing pragmatically and
incrementally. It is pre-eminently an area in which the legal
result is sensitive to the facts.”
Thus, judges are more and more using their discretion not only
in cases of physical injury but in cases of pure economic loss in
order to achieve the best result deriving from the specifics of
that case, limiting the scope and application of Caparo.
Footnotes
1 1990 UKHL 2
2 Mark Godfrey, `The categories of negligence revisited:
Harrison v West of Scotland Kart Club & Noble v De Boer`. 2005
2 SLT 9
3 1932 UKHL 100
4 1978 AC 728
5 Kirsty Horsey & Erica Rackley , Tort Law (4th edn, OUP Oxford
2015) 60
6 Ibid at 66.
7 Mark Godfrey , `The categories of negligence revisited :
Harrison v West of Scotland Kart Club & Noble v De Boer 9
8 Ibid at 9-15
9 1990 UKHL 2
10 Jenny Steele, Tort Law: Text Cases & Materials (3rd edn,
OUP Oxford 2014). 369
11 1990 1 AC 831
12 1981 3 ALL ER 289
13 Jenny Steele, Tort Law: Text Cases & Materials (3rd edn,
OUP Oxford 2014). 370
14 1991 1 ALL ER 148
15 2000 4 ALL ER 540
16 1990 UKHL 2
17 Mark Godfrey, `The categories of negligence revisited:
Harrison v West of Scotland Kart Club & Noble v De Boer`. 2005
2 SLT 9
18 1990 UKHL 2 p 617
19 1998 2 Lloyd’s Rep 255
20 Aleka Mandaraka-Sheppard, Modern Maritime Law:
Managing Risks and Liabilities (2nd edn, CRC Press United
States 2013) 381
21 1998 2 Lloyd’s Rep 255
22 Ibid p 260
23 Nicolai I. Lagoni, The Liability of Classification Societies
(Springer New York 2007) 131
24 Ibid. 131
25 1996 AC 211
26 Keith Stanton, `Professional negligence: A duty of care
methodology in the 21st century`. 2006 22 (3) 135
27 2002 1 AC
28 2006 UKHL 28
29 Keith Stanton, `Professional negligence: A duty of care
methodology in the 21st century`. 2006 22 (3) 135
30 Ibid. 136
31 1994 UKHL 5
32 Hedley Byrne & Co Ltd v Heller & Partners Ltd 1964 AC 465
33 1994 UKHL 5 p 181
34 Rt. Hon Lord Justice Buxton, ` How the Common Law gets
made: Hedley Byrne and other cautionary tales`. 2009 125 LQR
60-78
35 1998 PLNR 276
