Company Registration No: 4964706. The management is confided to a board of directors which operates in a fiduciary capacity and is answerable to and removable by the shareholders who can act, if they act at all, only collectively and only through the medium of a general meeting. 313. And this, with respect, must be correct, for there can be no logical distinction according to whether an investor is likely to acquire many shares or only a few. Such distinction as there is lies only in the scale of the potential loss which may be little or great according to the magnitude of the investment. It was already clear that the law recognised the existence of such a duty in the category of articles that were dangerous in themselves. Sir Thomas Bingham MR held that as a small shareholder, Caparo was entitled to rely on the accounts. If a would-be investor or predator commissions a report which he will use, and which the maker of the report knows he will use, as a basis for his decision whether or not to invest or whether or not to make a bid, it may not be difficult to conclude that if the report is negligently prepared and as a result a decision is taken in reliance upon it and financial losses then follow, a liability will be imposed upon the maker of that report. Indeed, it is readily foreseeable by anyone who gives the matter any thought that it might well be relied on to a greater or less extent for all or any of such purposes. Amy Millross. Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 is a leading United Kingdom company law case relating to directors' liability. This, as Lord Keith of Kinkel observed in Hill v Chief Constable of West Yorkshire [1989] A.C. 53 , 60B, has been said almost too frequently to require repetition. Alongside contracts and unjust enrichment, tort law is usually seen as forming one of the three main pillars of the law of obligations. Sometimes, as in the Hedley Byrne case , attention is concentrated on the existence of a special relationship. It only remains to mention Twomax Ltd. v. Dickson, McFarlane & Robinson, 1982 S.C. 113 to which your Lordships were referred. Caparo accordingly commenced proceedings on 24 July 1985 against two of the persons who were directors at the material time, claiming that the overvaluations were made fraudulently, and against the appellants, claiming that they were negligent in certifying, as they did, that the accounts showed a true and fair view of Fidelity's position at the date to which they related. The House of Lords, following the Court of Appeal, set out a "three-fold test". There are, for instance, at least four and possibly more situations in which damage or loss may arise from reliance upon the spoken or written word and it must not be assumed that because they display common features of reliance and foreseeability they are necessarily in all respects analogous. Words are more volatile than deeds. This confirmed the position was bad. The third requirement to be met before a duty of care will be held to be owed by A to B is that the court should find it just and reasonable to impose such a duty: Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] A.C. 210 , 241, per Lord Keith of Kinkel. There can be no distinction in law between the shareholder's investment decision to sell the shares he has or to buy additional shares. This probable reliance was an essential ingredient in establishing proximity. No doubt these provisions establish a relationship between the auditors and the shareholders of a company on which the shareholder is entitled to rely for the protection of his interest. Yet Lord Atkin himself sounds the appropriate note of caution by adding, at p. 580: “To seek a complete logical definition of the general principle is probably to go beyond the function of the judge, for the more general the definition the more likely it is to omit essentials or to introduce non-essentials.” Lord Reid gave a large impetus to the modern approach in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004, 1026–1027, where he said: “In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that, when a new point emerges, one should ask not whether it is covered by authority but whether recognised principles apply to it. For whose protection were these provisions enacted and what object were they intended to achieve? At p. 335–336 of his judgment, Millett J. gives what I find a helpful analysis of that case and of the features which distinguished it from the Hedley Byrne case and from the instant case: “In each of the cases considered by the House of Lords, therefore, there was a tripartite transaction in which the valuation could realistically be regarded as provided by the valuer to the purchaser. So I think that when auditors deliberately undertake to provide their formal report upon the accounts of a public company they must be taken to have accepted not merely a direct responsbility to the shareholders but a further duty to those persons whom they can reasonably foresee will need to use and rely upon them when dealing with the company or its members in significant matters affecting the company assets and business. This is a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. I would think that it must almost inevitably follow, once the maker of the statement is aware of a specific purpose for which his information will be used, that he will also have in direct contemplation a specific person or class of persons, even though unidentified by name.” The New Zealand Companies Act 1955 contained provisions relating to the auditors' report which is similar in substance to those contained in the United Kingdom legislation but with this variation, that the “true and fair view” which group accounts are certified to give are qualified by the words “so far as concerns members of the company.” In relation to these provisions, Richmond P. observed, at p. 568: “The provisions of the Act to which I have just referred are aimed essentially at the protection of the members of the company and of course the auditors, whose contract of employment is with the company itself, are under a contractual duty of care to the company. [3], "It is not easy, or perhaps possible, to find a single proposition encapsulating a comprehensive rule to determine when persons are brought into a relationship which creates a duty of care upon those who make statements towards those who may act upon them and when persons are not brought into such a relationship.". I believe this argument to be fallacious. To begin with, it is to be assumed against the appellants that they showed a lack of reasonable care in certifying that the accounts of Fidelity for the year ended 31 March 1984 gave a true and fair view of Fidelity's position. The only duty of care the auditor`s owed was to the governance of the firm. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent …. Those limits have been found by the requirement of what has been called a “relationship of proximity” between plaintiff and defendant and by the imposition of a further requirement that the attachment of liability for harm which has occurred be “just and reasonable.” But although the cases in which the courts have imposed or withheld liability are capable of an approximate categorisation, one looks in vain for some common denominator by which the existence of the essential relationship can be tested. On a preliminary issue as to whether a duty of care existed in the circumstances as alleged by the plaintiff, the plaintiff was unsuccessful at first instance but was successful in the Court of Appeal in establishing a duty of care might exist in the circumstances. (i) in the balance sheet, of the state of the company's affairs at the end of the financial year; (ii) in the profit and loss account (if not framed as a consolidated account), of the company's profit or loss for the financial year ….” Section 237(1) defines auditors' duties as follows: “It is the duty of the company's auditors, in preparing their report, to carry out such investigations as will enable them to form an opinion as to the following matters — ( a) whether proper accounting records have been kept by the company and proper returns adequate for their audit have been received from branches not visited by them, ( b) whether the company's balance sheet and (if not consolidated) its profit and loss account are in agreement with the accounting records and returns.” Section 241 provides, inter alia: “(1) In respect of each financial year of a company the directors shall lay before the company in general meeting copies of the accounts of the company for that year. Disclaimer: This work was produced by one of our expert legal writers, as a learning aid to help you with your studies. 164, Denning L.J. Negligence in word creates problems different from those of negligence in act. In Glanzer v. Shepard (1922) 135 N.E. If this conclusion involves a return to the traditional categorisation of cases as pointing to the existence and scope of any duty of care, as my noble and learned friend Lord Bridge of Harwich, suggests, I think this is infinitely preferable to recourse to somewhat wide generalisations which leave their practical application matters of difficulty and uncertainty. Finally, there had to be knowledge that the shareholders or investors would rely on the report in regards to the transaction. 10 Q.B. A claim that such a duty was owed by auditors to a bank lending to a company was emphatically and convincingly rejected by Millett J. in Al Saudi Banque v. Clarke Pixley [1990] Ch. In the case of Harris the mortgagees were the local authority who employed a member of their own staff to carry out the inspection and valuation. In fact Fidelity had made a loss of over £400,000. 's formulation was expanded in the Hedley Byrne case, where it is clear that, but for an effective disclaimer, liability would have attached. referred to the approval by Cardozo C.J. Donoghue v Stevenson[1932] UKHL 100 was a landmark court decision in Scots delict law and English tort law by the House of Lords. Fidelity was not doing well. Caparo Industries Plc v Dickman CAPARO INDUSTRIES PLC. There could not be a duty owed in respect of "liability in an indeterminate amount for an indeterminate time to an indeterminate class" ( Ultramares Corp v Touche , [5] per Cardozo C.J New York Court of Appeals). Caparo Industries purchased shares in Fidelity Plc with faith they would be successful as the accounts that the company stated showed the company had made a pre-tax profit of £1.3 million. My answer is those persons such as accountants, surveyors, valuers and analysts, whose profession and occupation it is to examine books, accounts, and other things, and to make reports on which other people — other than their clients — rely in the ordinary course of business.” “Secondly, to whom do these professional people owe this duty? The audited consolidated accounts of a New Zealand public company and its subsidiaries overstated the assets of the group because of an admitted accounting error. It sued Dickman for negligence in preparing the accounts and sought to recover its losses. Bingham L.J. In both Candler v. Crane, Christmas & Co. [1951] 2 K.B. And yet the duty which is common to all the cases where liability is established must logically be based upon some element common to the cases where it is found to exist.” It is this last sentence which signifies the introduction of the more modern approach of seeking a single general principle which may be applied in all circumstances to determine the existence of a duty of care.
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