Caparo Industries pIc v Dickman [1990] 2 AC 605 House of Lords
Caparo Industries purchased shares in Fidelity Plc in reliance of the accounts which stated that the company had made a pre-tax profit of £1.3M. In fact Fidelity had made a loss of over £400,000. Caparo brought an action against the auditors claiming they were negligent in certifying the accounts.
Held:
No duty of care was owed. There was not sufficient proximity between Caparo and the auditors since the auditors were not aware of the existence of Caparo nor the purpose for which the accounts were being used by them.
Lord Bridge:
(The Caparo test)
“What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of "proximity" or "neighbourhood" and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.”
In relation to economic loss:
“One of the most important distinctions always to be observed lies in the law's essentially different approach to the different kinds of damage which one party may have suffered in consequence of the acts or omissions of another. It is one thing to owe a duty of care to avoid causing injury to the person or property of others. It is quite another to avoid causing others to suffer purely economic loss… To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Cardozo C.J. to "liability in an indeterminate amount for an indeterminate time to an indeterminate class" (Ultramares Corporation v. Touche (1931) 174 N.E. 441, 444).”
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