Caparo Industries plc v Dickman
Facts of the case
C, a company, owned shares in F plc. F’s accounts were audited by D and published. C then purchased further shares in F, ultimately taking over F. They suffered a substantial financial loss. C sued D in negligence, claiming that the shares in F had been purchased in reliance on D’s audit and that the financial position of F had been misstated (and was
thus misleading): in particular that an apparent pre-tax profit of £1.3m should have beenshown as a loss of over £400,000 and that had these accounts been correct, C would not have bought further shares in F.
The judge at first instance held that D did not owe C a duty of care either as ashareholder of F or as an investor holding no shares. On appeal by C, the Court of Appeal, by a majority, held that a duty of care was owed to C as shareholders but not as investors. D appealed to the House of Lords.
The House of Lords allowed the appeal, holding that D had not owed a duty of care to C in respect of its purchase of F’s shares (even though the affairs of the company were known to be such as to render it susceptible to an attempted takeover). To establish a claim in negligent misstatement, particularly with regard to the ‘special relationship’, the claimant must prove that the defendant must have known that:
■ the statement would be communicated to the claimant;
■ the statement would be made specifically in connection with a particular transaction;
■ the claimant would be very likely to rely upon it in deciding whether or not to proceed with the transaction.
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