Caparo Industries plc v Dickman [1990] 2 AC 605 reshaped the test for a duty of care in negligence, replacing the Anns presumption with a cautious, incremental method. It arose from a claim for pure economic loss from reliance on a company audit.

Facts of the Case

The case concerned whether auditors, potentially liable to existing shareholders for a negligent audit, owed a duty of care to those merely proposing to invest in the company. The House of Lords held that no duty was owed to prospective investors in this context.

The Judgment

The House of Lords moved away from the presumption of duty in Donoghue v Stevenson and Anns, where foreseeability alone often raised a prima facie duty, and doubted the idea of a single universal test. Lord Bridge identified three “necessary ingredients”:

  1. Reasonable foreseeability that carelessness could cause damage to the claimant.
  2. Proximity — a relationship the law characterises as one of “proximity” or “neighbourhood”.
  3. Fair, just and reasonable — that it is fair, just and reasonable to impose a duty of the given scope.

Core Legal Principles and the “Caparo Test”

Although later courts and textbooks wrongly treated this as a universal “three-stage test”, the House of Lords actually intended to repudiate the search for a single test:

  • Proximity: a “slippery word” and a “convenient label” for a relationship that makes it fair to impose a duty, rather than a definable concept.
  • Policy considerations: the “fair, just and reasonable” stage lets courts weigh the public interest and the risk of “crushing” liability against the claimant’s loss.
  • The incremental approach: the “true message” is that the law develops incrementally and by analogy with established categories, not by a high-level test. As Lord Oliver put it, the search for a single test is to “pursue a will-o’-the-wisp”.

When to Use the Caparo Approach

  1. Look to precedent: if an existing category covers the situation (e.g. doctor and patient), it is followed and the stages are not revisited.
  2. Check specific rules: for pure psychiatric injury or pure economic loss, concrete area-specific principles apply.
  3. Novel cases only: the incremental approach is a “residual discretion” for the small minority of cases with no clear precedent.

Wider Context

Caparo was a “rowing back” from the expansionary Anns era: there is now no presumption of duty; the court weighs all arguments for and against recognising one.

Related and Subsequent Cases

  • Anns v Merton London Borough Council: the two-stage test Caparo effectively replaced.
  • Murphy v Brentwood District Council: formally overruled Anns shortly after.
  • Michael v Chief Constable of South Wales Police: clarified that Lord Bridge’s speech was misread as a “blueprint”.
  • Robinson v Chief Constable of West Yorkshire: the “Caparo test” does not apply to established categories; it is for novel cases only.
  • Darnley v Croydon Health Services NHS Trust: a “fair, just and reasonable” analysis was unnecessary as the case fell within an established category.
  • Donoghue v Stevenson: the origin of the modern duty of care that Caparo refined.