Caparo Industries Plc v Dickman [1990] UKHL 2

References: [1990] 2 AC 605; [1990] 1 All ER 568; [1990] UKHL 2

Link: Bailii

Judges: Lord Bridge of Harwich, Lord Roskill, Lord Ackner, Lord Oliver of Aylmerton and Lord Jauncey of




  • The respondents in this case and the plaintiffs in the court of first instance are Caparo Industries Plc, a manufacturing company
  • The appellants in this case and defendants in the court of first instance are Dickman, a well-known firm of chartered accountants. They had prepared an audit report required by statute for their client, Fidelity Plc, certifying their accounts. These accounts showed that Fidelity Plc had made a pre-tax profit of £1.3 million, significantly lower than originally thought by shareholders
  • On the basis of this report, the stock price of Fidelity fell significantly. Caparo Industries then bought up the cheaper shares to take over the firm
  • The successful bids made by Caparo Industries to take over Fidelity were based on the accounts published by Dickman. It subsequently transpired that the accounts, which appeared to claim that Fidelity was due to make a pre-tax profit of £1.3 million for the year, should have shown a loss of £400,000
  • Caparo duly initiated proceedings against Dickman, claiming that had they been aware of this information, they would never  have  made  the  bid  for  Fidelity  and  therefore  accusing  Dickman  of  negligent misstatement in the accountancy report
  • In the court of first instance, a firm of accountants were held not to owe a duty of care for negligent misstatement to shareholders
  • Caparo Industries successfully appealed the decision, which was then again challenged by the firm of accountants in the House of Lords


  • The factual issue in this case was whether there was a duty of care
  • The legal issue was therefore how the courts establish whether a duty of care is owed
  • While this case dealt specifically with duty of care in relation to negligent misstatement, its ruling would have ramifications for other aspects of tort law, such as general negligence
  • The question before the House of Lords required their Lordships to scrutinise the effectiveness of the duty of care test as articulated first in Donoghue v Stevenson [1932] AC 562 and then developed in Anns v Merton LBC [1978] AC 728
  • The House of Lords held that there was no duty of care, thereby allowing the appeal in favour of Dickman
  • There was a duty of care owed by the accountants, but only to the governance of the firm, not to existing or potential shareholders
  • The duties of an auditor are derived from contract and must be understood in the context of the relevant statutory provisions and the relevant auditing standards. The duty of reasonable care is owed to the client company. This does not extend to shareholders, who have their own legal relationship with the company
  • While this was the factual finding of the court, the ratio of the decision had important implications for the legal concept of establishing duty of care.
  • While previously the law began with the assumption that there is a duty of care and that harm is foreseeable unless there is good reason to the contrary, the House of Lords held that the assumption is that no duty is owed unless the criteria of three-stage test are satisfied
  • The three factors which must exist in order for there to be a duty of care (otherwise known as the ‘tripartite test’) are:

o The damage must be foreseeable; and

o There must be proximity of relationship between the parties; and

o It  must  be  ‘fair,  just  and  reasonable’  for  such  a  duty  to  exist  (this  element  allows  policy considerations to be factored in)

  • Lord Bridge, whose judgment outlined the tripartite test, also endorsed an ‘incremental approach’ when determining duty of care. This means that each case should be considered on the basis of analogy with earlier comparable categories of duty
  • Their Lordships held that the case of Smith v Eric S Bush [1989] 2 WLR 790 illustrated when a duty of care does arise as an established category. In Smith, it was held that it was reasonable to impose a duty of care  for  valuers  of  a  property  to  the  subsequent  purchasers  because  this  was  such  a  commonplace transaction, therefore it was foreseeable
  • Applying these principles to this case, there would have to be knowledge that the shareholders or investors would rely on the report in regards to the transaction. In this case, an audit was carried out as part of a routine  process,  as  opposed  to  an  audit  for  a  specific  purpose,  such  as  in  anticipation  of  a  takeover. Therefore, the accountants could not hold a duty of care to the entire public
  • As identified in JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583, this would ‘open the floodgates’ by widening liability too far. Limitations for duty of care must be set, particularly in the case of pure economic loss, in the absence of contractual agreements between parties
  • Thus, the  reasoning  in  this  case  can  be  summarised  as  a  successful  appeal  because  the  defendants  /appellants did not have sufficient proximity to Caparo to establish duty of care
  • Note that this reasoning means that there are circumstances in which an auditor might owe a duty of care to shareholders, or specific shareholders, such as if an audit report was prepared for a specific group. This was noted in Law Society v KPMG [2000] 4 ALL ER 540


  • The Caparo case again highlights the difficulty in creating a single test or relying on a single factor to establish duty of care
  • As highlighted by Lord Bridge, ‘since the Anns case a series of decisions of the Privy Council and of your Lordships’ House… have emphasised 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’
  • Therefore, a multi-factorial test was developed, but still only as a guide and not to be seen as a strict test.
  • It was envisioned that the law will increasingly move to a more categorical approach, recognising distinct categories
  • There is therefore, unhelpfully, still confusion as to the general application of this test. This is particularly relevant to cases of personal injury. For instance, in Perrett v Collins (1998) 2 Lloyd’s Rep 255 the last two stages of the Caparo test were debated based on the distinction that there is a difference between economic loss and personal loss
  • Caparo can be seen as part of an incremental and pragmatic development of the law which is fundamentally a fact-sensitive area
  • While Caparo did develop the law on from Donoghue v Stevenson, judges have increasingly used their discretion in cases of both physical injury and pure economic loss, thereby limiting the scope of Caparo

How to use this case

  • Whenever using the Caparo test, be sure to understand when it is appropriate
  • When establishing duty of care, the judgment in Caparo favours first comparing novel facts to previously existing categories of duty. This is known as the incremental approach
  • The three-stage test set out by Lord Bridge is only to be applied when this incremental approach fails
  • Some sets of facts are common and so fit neatly into pre-existing categories, such as motoring offences
  • For example, in Robinson v Chief Constable of West Yorkshire [2018] UKSC 4 a passer-by was injured during a street arrest of a suspected drug dealer. She sued the police in negligence. It was held that the police owed a duty of care to the public. In reaching this decision the Supreme Court held it was not a case of omission (as in Hill v Chief Constable of West Yorkshire [1989] AC 53) but rather a positive act by the police (as in the case in Knightley v Johns & Ors [1982] 1 WLR 349). Crucially, the existence of analogous cases meant that it was unnecessary to apply the Caparo three-stage test as this was not a novel situation.