Caparo Industries plc v Dickman

English Tort Law

Caparo Industries plc v Dickman
Image: ‘Takeover Target’ by Denise Finney

Note: To read about this case in greater depth, and with the benefit of full OSCOLA referencing, simply purchase a copy of ‘The Case Law Compendium: English & European Law’ at Amazon, Waterstones or Barnes & Noble (or go here for a full list of international outlets)


When predatory investors choose to act upon the advice or information given outside the remit of those assigned to prescribe it, they do so under risk of their own suffering, and within the rules of industry and commerce. On this occasion, the cross-appellants argued that their reliance upon the annual statement provided by a company’s accountants, led to increased investment, despite the fact that the statement turned out to be inaccurate.

When the appellants, a public limited company,  fell victim to poor financial trading, their stock market share values began dropping, and were in turn bought up in considerable number by the cross-appellants. While buying as outside investors, they secured an almost thirty percent share of the failing company, after which they became registered investors, and acted quickly to gain a majority controlling hold of the firm. These additional purchases were made after learning from the annual shareholder statement, that the company was due a healthy pre-tax profit. However, after the purchases had been made, it became apparent that the accounts had been poorly prepared, and showed instead a considerable loss of profit.

During the appeal, it was claimed that the accountants owed a duty of care to the now primary shareholders of the company when drafting the legally required statement, and that such care rendered them liable for the losses inherited by the investors. In this instance, a duty of care was determinable by the relationship between (or proximity to) both accountants and investors. Citing Hedley Byrne & Co Ltd v Heller and Partners, the distinction was made between expert advice (albeit subjective) from a banker, and an annual submission from a firm of accountants; and despite an implied culpability on the part of the accountants, an error was made upon which a negative investment took place.

What distinguished the two activities, was that the former was expressly undertaken to prevent loss upon lending of monies, whereas at no point did the accountants have knowledge of a planned takeover bid, despite suggestions made by the investors during the hearing. This clear divide presented the notion that duty of care is always applicable, as the two events were less similar than first appeared, however the accountants were only held liable for the losses made as shareholders, and not those of outside investors.

In conclusion, the Court held that if it were reasonable to place conscious liability upon all acts of certain parties, it would be impossible to distinguish responsibility from neglect, and in this instance there was clear frustration at an unforeseen outcome, but one must always be mindful that the very nature of financial investment is itself, riddled and prone to loss.

Key Citations

“They owe the duty, of course, to their employer or client; and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers…”

“I do not think that such a relationship should be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied upon by a particular person or class of persons for the purposes of a particular transaction or type of transaction.”

“It is never sufficient to ask simply whether A owes B a duty of care. it is always necessary to determine the scope of duty by reference to the kind of damage from which A must take care to save B harmless.”

“As a purchaser of additional shares in reliance on the auditor’s report, he stands in no different position from any other investing member of the public to whom the author owes no duty.”

“I find it difficult to believe, however, that the legislature, in enacting provisions clearly aimed primarily at the protection of the company and its informed control by the body of its proprietors, can have been inspired also by consideration for the public at large and investors in the market in particular.”

“To widen the scope of the duty to include loss cause to an individual by reliance upon  the accounts for a purpose for which they were not supplied and were not intended would be to extend it beyond the limits which are so far deductible from the decisions of this House.”

Author: Neil Egan-Ronayne

Author, publisher, scholar, researcher, humanist and humble foodie...

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