Caparo Industries plc v Dickman is a landmark case in the field of English tort law. The case involved a dispute between a group of shareholders of Caparo Industries plc and the company’s auditors, Ernst & Whinney. The case revolved around the question of whether the auditors owed a duty of care to the shareholders, and whether this duty had been breached.
Caparo Industries PLC v Dickman Case Facts
Caparo Industries plc was a public company that operated in the manufacturing industry. The company’s auditors were Ernst & Whinney, a well-known accounting firm. In 1983, Caparo issued a prospectus inviting the public to buy shares in the company. The prospectus contained a set of financial statements that had been audited by Ernst & Whinney. The financial statements showed that Caparo had made a profit of £1.3 million in the previous year.
Based on this information, a group of shareholders purchased shares in Caparo. However, shortly after the shares were issued, it became apparent that Caparo’s financial position was not as strong as had been suggested by the audited financial statements. In fact, Caparo had made a loss of £400,000 in the previous year.
The shareholders claimed that Ernst & Whinney had been negligent in auditing Caparo’s financial statements, and that they had breached their duty of care to the shareholders. The shareholders argued that Ernst & Whinney had been aware of the true financial position of the company, but had failed to disclose this information in the prospectus.
The case went to trial, and the judge held that Ernst & Whinney did not owe a duty of care to the shareholders. The judge held that the relationship between auditors and shareholders was too remote to give rise to a duty of care. The judge also held that even if a duty of care did exist, Ernst & Whinney had not breached this duty. The judge held that the auditors had not been aware of the true financial position of Caparo at the time the prospectus was issued, and that they had acted in good faith.
The shareholders appealed the decision, and the case went to the Court of Appeal. The Court of Appeal upheld the decision of the trial judge, but on different grounds. The Court of Appeal held that a duty of care did exist between Ernst & Whinney and the shareholders, but that this duty had not been breached. The Court of Appeal held that the auditors had not been aware of the true financial position of Caparo, and that they had not been negligent in auditing the financial statements.
The case of Caparo Industries plc v Dickman is significant because it established a new test for determining whether a duty of care exists in cases of negligent misstatement. This test, known as the Caparo test, is still used by courts today.
Under the Caparo test, a duty of care exists if three criteria are met. First, the defendant must have known or ought to have known that their statement would be relied upon by the claimant. Second, there must be a sufficient proximity between the defendant and the claimant. Third, it must be fair, just and reasonable to impose a duty of care.
The Caparo test has been applied in a number of subsequent cases, and has been seen as a more flexible and adaptable test than the previous tests that had been used in cases of negligent misstatement. The Caparo test allows courts to consider the specific circumstances of each case, and to weigh up the competing interests of the parties involved.
In conclusion, the case of Caparo Industries plc v Dickman is a landmark case in the field of English tort law. The case established a new test for determining whether a duty of care exists in cases of negligent misstatement, and this testRegenerate response