Caparo three part test

A modern approach to establish that a duty of care is owed.

This modern approach comes from the case of Caparo Industries pIc v Dickman & Ors [1990] UKHL 2 (08 February 1990). This case relates to a company, Fidelity, which was not doing well and was the target of a takeover by Caparo Industries plc.  Fidelity's shares were halved in March 1984 after issuing a profit warning. A preliminary announcement in May of the same year confirming that their position was bad and again their share price fell.

At this time Caparo Industries started buying shares in large numbers.  The following month the accounts, prepared with the help of Dickman, were issued to the shareholders including Caparo.

Caparo reached a shareolding of 29.9% of Fidelity and at this time made an offer for the remainder of the shares.  On taking over control Caparo then realised that the accounts for Fidelity were in a worse state than the directors or auditors had revealed.

Caparo sued Dickman for negligence in preparing the account in an attempt to recover their losses.

The case laid down what is called the 'incremental approach' or what is known as the Caparo three part test.  To establish whether a duty of care has been established three questions are raised;

Was the damage or loss forseeable?

Is the relationship between the wrongdoer and the victim sufficiently close?

Is it just and reasonable to impose a duty of care?

If the answer to these three questions is yes, then it can be said that a duty of care exists.

Duty of Care AS - YouTube Uploaded by The Law Bank

 

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