Caparo v Dickman [1990]

Plaintiffs were shareholders in company and as such
entitled to audited annual accounts.
On basis of these accounts they launched a takeover
bid by purchasing shares.
But bad bargain – company had made a loss, not profit
as indicated by accounts.
Plaintiffs sued auditors for negligence.
Did auditors owe plaintiffs duty of care:
1.  As potential
investors in company?
2.  As existing
shareholders in company?
House of Lords unanimously held no duty of care owed
to individuals in either group.
Lord Oliver, with rider that he was not intending to
lay down conclusive conditions, described necessary relationship as having four
1.  Advice is
made for purpose, made known to advisor at time given.
2.  Advisor
knows his advice will be communicated to advisee, either specifically or as
member of an ascertained class, in order that it should be used by advisee for
that purpose.
3.  It is known
that advice so communicated is likely to be acted upon by advisee for that
purpose without independent inquiry, and
4.  It is so acted upon by advisee to his
In this case Lord Bridge gave three-stage test which
must met in general cases for duty of
care to exist:
(i)  Foreseeability
of damage.
(ii)  Relationship
of close proximity.
(iii)  Fair,
just and reasonable to impose duty of care.
[In cases of negligent misstatement, ‘special’
relationship requirement, satisfied by voluntary assumption of responsibility,
seems to be ‘supercharged’ stage (ii) requirement.]