Caparo Industries plc v. Dickman

Facts

• The plaintiff company relied on an audit report prepared by the defendant accountants when making an investment decision. The audit report proved negligently inaccurate, causing financial loss. The plaintiff was not the specific party the audit was prepared for, and the auditors had not contemplated this specific plaintiff's reliance for this purpose.

Issue

1. What test should govern establishing a duty of care in novel situations not already covered by established precedent, particularly where foreseeability alone might expand liability too broadly.

Held

• The House of Lords formulated a three-stage test: first, whether harm was reasonably foreseeable; second, whether there was sufficient proximity between the parties; third, whether it is fair, just, and reasonable to impose a duty in this context. On the facts, the auditors did not owe a duty to this specific plaintiff, since the audit was not prepared with this party's reliance in contemplation, meaning proximity was lacking. Policy considerations regarding indeterminate liability also weighed against imposing a duty.

Ratio Decidendi

Duty of care in novel situations requires satisfying all three elements: reasonable foreseeability of harm, sufficient proximity between the parties (assessed by directness of connection, specific knowledge, and the relationship's nature), and whether imposing the duty is fair, just, and reasonable given relevant policy considerations.