Lloyd's Maritime and Commercial Law Quarterly
AUDITORS’ DUTIES: A NARROW APPROACH
Caparo Industries Plc v. Dickman
For those concerned with an evident increase in negligence claims against auditors and indeed with a spiralling number of professional negligence claims generally,1 no doubt the decision of the House of Lords in Caparo Industries Plc v. Dickman
2 will provide solace. Some concern arises, however, over the manner in which such claims are to be restricted. Following Caparo, the task appears to be achieved by some novelty in the judicial conception of what circumstances will give rise to a duty of care in the context of a negligent misstatement. A question must arise as to whether the decision represents a judicial attempt to reduce the unwarranted extent of such professional liability when more acceptable means of doing so have been proposed for consideration by the Law Commission.3
The Caparo case arose out of the take-over of Fidelity Plc by Caparo Industries Plc in June to September 1984. The take-over was said to have been based on the accounts of Fidelity for the year to 31 March 1984, which accounts had been audited by Touche Ross. As it turned out, the accounts did not provide a true picture of Fidelity’s profitability; in particular, they failed to indicate that that company had suffered a loss of over £400,000 instead of a pre-tax profit of some £1.3 million. It was this disparity which resulted in a claim against Touche Ross among others. The case raised a question over the duty of care owed, not only to investors, as Caparo undoubtedly were in their purchases of shares in June 1984, but also to shareholders, which status Caparo also acquired by the time the annual general meeting of Fidelity was held at which the relevant accounts and audit report were read. It was this question which was directed to be tried as a preliminary issue.
At first instance, Sir Neil Lawson sitting as a judge of the Queen’s Bench Division4 held that no duty was owed by the auditors to Caparo as investors and that,
1. See, in particular, “Professional Liability: The Report of the Study Teams” (HMSO, 1989).
2. [1990] 2 W.L.R. 358.
3. See infra, text to fns. 18–20.
4. [1988] B.C.L.C. 387.
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