Caparo Industries v. Dickman et al., (1990) 108 N.R. 81 (HL)

• Case Date: February 09, 1990
• Jurisdiction: Canada (Federal)
• Citations: (1990), 108 N.R. 81 (HL)

Caparo Ind. v. Dickman (1990), 108 N.R. 81 (HL)

MLB headnote and full text

Caparo Industries Plc. (respondents) v. Dickman and Others (appellants) Caparo Industries Plc. (original cross-respondents and cross-appellants) v. Dickman and Others (original appellants and cross-respondents)

Indexed As: Caparo Industries v. Dickman et al.

House of Lords

London, England

Lord Bridge of Harwich, Lord Roskill, Lord Ackner, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle

February 9, 1990.

Summary:

An accounting firm audited and approved the accounts of a company, which showed that profits fell short of those predicted. As a result, the price of the company's shares fell and rendered the company vulnerable to a takeover bid. Caparo Industries began to purchase the shares, ultimately acquiring all of them. The accounts were wrong and should have shown a loss. Caparo brought an action against the company directors, claiming that the overvaluation was fraudulent, and against the accountants on the ground of negligence. The preliminary issue of whether the accountants owed a duty of care to Caparo as a potential investor and a shareholder was referred for decision.

The Queen's Bench Division in a judgment reported [1988] B.C.L.C. 387, held that the accountants had no duty at common law to Caparo as an investor and that auditors owed no common law duty to shareholders on which a shareholder could recover losses sustained in acting on audited accounts. Caparo appealed.

The Court of Appeal, in a judgment reported [1989] Q.B. 653, allowed the appeal and held that there was no relationship between accountants and a potential investor sufficiently proximate to raise a duty of care, but that there was such a relationship within individual shareholders, so that an individual shareholder could recover in tort for losses incurred in selling, retaining or buying shares in reliance on negligently prepared accounts. The accountants appealed and Caparo cross-appealed the rejection of its claim on the basis of a duty of care to it as a potential investor.

The House of Lords allowed the accountants' appeal and dismissed the cross-appeal.

Professional Occupations - Topic 1501

Accountants - Duty to third parties - General - Accountants audited and approved the accounts of a company, showing that profits fell short of those predicted - The price of the company's shares fell, rendering the company vulnerable to a takeover bid - Caparo Industries began to buy shares, ultimately acquiring them all - The accounts were wrong and should have showed a loss - The House of Lords held that the accountants were not liable to Caparo Industries as a potential investor or as a shareholder for their negligence - Although the loss was foreseeable, the element of proximity or neighbourhood was lacking between the accountants and Caparo - The House of Lords noted that corporate accountants owe a duty to the shareholders as a body and not as individuals.

Torts - Topic 49

Negligence - Standard of care - Accountants - [See Professional Occupations - Topic 1501].

Torts - Topic 77

Negligence - Duty of care - Relationship required to raise duty of care - [See Professional Occupations - Topic 1501].

Torts - Topic 81

Negligence - Duty of care - Requirement that duty be owed to plaintiff - [See Professional Occupations - Topic 1501].

Cases Noticed:

Donoghue v. Stevenson, [1932] A.C. 562, appld. [paras. 7, 44].

Dorset Yacht Co. Ltd. v. Home Office, [1970] A.C. 1004, appld. [paras. 7, 46].

Anns v. Merton London Borough Council, [1978] A.C. 728, appld. [paras. 8, 32, 46].

Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd., [1985] A.C. 210, appld. [paras. 8, 56, 72].

Yeu v. Attorney General of Hong Kong, [1988] A.C. 175; 82 N.R. 321, appld. [paras. 8, 46, 56].

Rowling v. Takaro Properties Ltd., [1988] A.C. 473, appld. [para. 8].

Hill v. Chief Constable of West Yorkshire, [1989] A.C. 53; 102 N.R. 241, appld. [paras. 8, 45, 73].

Sutherland Shire Council v. Heyman (1985), 60 A.L.R. 1, appld. [paras. 8, 28, 45].

Elliott Steam Tug Co. Ltd. v. Shipping Controller, [1922] 1 K.B. 127, consd. [para. 9].

Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453, consd. [para. 9].

Candlewood Navigation Corpn. v. Mitsui O.S.K. Lines Ltd., [1986] A.C. 1, consd. [para. 9].

Leigh & Sillivan Ltd. v. Aliakmon Shipping Co., [1986] A.C. 785; 66 N.R. 60, consd. [para. 9].

Le Lievre v. Gould, [1893] 1 Q.B. 491, disapprvd. [para. 10].

Cann v. Willson, 39 Ch. D. 39, consd. [paras. 10, 72].

Candler v. Crane, Christmas & Co., [1951] 2 K.B. 164, disapprvd. [paras. 10, 31, 48, 72, 74].

Hedley Byrne & Co. Ltd. v. Heller Partners Ltd., [1964] A.C. 465, appld. [paras. 10, 31, 44, 72].

Smith v. Bush, [1989] 2 W.L.R. 790; 104 N.R. 355, appld. [paras. 15, 32, 52, 79].

Ultramares Corporation v. Touche (1931), 174 N.E. 441, consd. [paras. 16, 51, 88].

Al Saudi Banque v. Clark Pixley, [1989] 3 All E.R. 361, consd. [paras. 20, 54, 92].

Scott Group Ltd. v. McFarlane, [1978] 1 N.Z.L.R. 553, consd. [paras. 22, 57].

JEB Fasteners Ltd. v. Marks, Bloom & Co., [1981] 3 All E.R. 289, disapprvd. [paras. 23, 61].

Rondel v. Worsley, [1969] 1 A.C. 191, refd to. [para. 45].

P. Perl (Exporters) Ltd. v. Camden London Borough Council, [1984] Q.B. 342, refd to. [para. 46].

Smith v. Littlewoods Organisation Ltd., [1987] A.C. 241, refd to. [para. 46].

Ministry of Housing and Local Government v. Sharp, [1970] 2 Q.B. 223, refd to. [paras. 46, 47].

Ross v. Caunters, [1980] Ch. 297, refd to. [paras. 46, 47].

Clayton v. Woodman & Son (Builders) Ltd., [1962] 2 Q.B. 533, refd to. [para. 47].

Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt, [1971] A.C. 793, consd. [para. 48].

Glanzer v. Shepard (1922), 135 N.E. 275, consd. [para. 51].

Twomax Ltd. v. Dickson, McFarlane & Robinson, [1983] S.L.T. 98, disapprvd. [paras. 62, 93].

McLoughlin v. O'Brian, [1983] 1 A.C. 410, refd to. [para. 63].

The Wagon Mound, [1961] A.C. 388, refd to. [para. 67].

Grant v. Australian Knitting Mills Ltd., [1936] A.C. 85, consd. [para. 68].

Junior Books v. Veitchi, [1983] 1 A.C. 520, consd. [para. 68].

Counsel:

P.H. Goldsmith, Q.C., and S. Moriarty, for the appellants;

Christopher Bathurst, Q.C., Michael Brindle and C. Orr, for the respondents.

This case was heard on November 16, 20, 23, 27 and 28, 1989, at London, England, before Lord Bridge of Harwich, Lord Roskill, Lord Ackner, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle, of the House of Lords.

On February 9, 1990, the judgment of the House of Lords was delivered and the following speeches were given:

Lord Bridge of Harwich - see paragraphs 1 to 29;

Lord Roskill - see paragraphs 30 to 35;

Lord Ackner - see paragraph 36;

Lord Oliver of Aylmerton - see paragraphs 37 to 71;

Lord Jauncey of Tullichettle - see paragraphs 72 to 94.