Professional negligence: cases involving negligent misstatement are usually concerned with establishing whether or not a duty of care was owed by a professional. This area of common law has developed gradually:
1. Donoghue v Stevenson 1932:
The case marks the start of modern tort of negligence. Later common law has gradually refined the Neighbour principle in respect of professional negligence.
2. Candler v Crane, Christmas & Co 1951:
A. Investors relied on the audited accounts prepared by auditors and made the decision to invest in the company. The audited accounts turned out to be false and misleading and investors lost all of their investment after the company went insolvent and was wound up. Investors then sued the auditors for professional negligence.
B. The court held that liability of professionals for their careless statements was depended upon the existence of a contractual or fiduciary relationship.
3. Hedley Byrne v Heller and Partners Ltd 1963:
A. Before HB was to transact with a customer, HB requested information from HP (the customer’s Bank) regarding the financial position of a company. HP relied “without responsibility on the part of the this bank…(the customer) was considered good for its ordinary business engagements”. HB relied on the statement and entered into the transaction with that customer, who went bankrupt afterwards. HB lost £17,000 and subsequently sued HP for professional negligence.
B. The court stated as obiter dicta that professionals would be liable to those who had a special relationship with them.
C. A special relationship exists where a professional person advises a known person who relies on the statement for a known purpose.
D. The court, at the time, did not extend the duty of care to those users who the advisor might merely foresee as a possible user of the statement.
4. The Caparo Decision in 1990:
A. Caparo bought all shares in a company in reliance on the audited accounts. The company went insolvent. Does the auditor, Dickman, owe Caparo a duty of care?
B. The court held that：
Auditors do not owe a duty of care to the public at large or shareholders trying to increase shareholding. Auditors only owe a duty of care to the company, i.e. shareholders of the company as a whole, not to any individual shareholder.
The purpose the auditor’s report was to assess the performance of managers so the general meeting may decide whether the company should appoint or remove directors. It was not for the purpose of making investment decisions.
C. Whether a duty of care exists, the court will consider a 3-stage test:
Foreseeability: was the harm reasonably foreseeable?
Proximity: was there a relationship of proximity - closeness between the parties?
Fairness: considering all the circumstances, is it fair, just and reasonable to impose a duty of care?
5. ADT Ltd v Binder Hamlyn 1995:
In some situations, auditors may be held liable to shareholders and investors of its audited companies. The key distinction is that advisor in the ADT case assumed liability for its statements at a board meeting held to discuss the audited results.
6. Statutory reform in 2000:
In light of the harsh results in the ADT Ltd case, the Limited Liability Partnership Act 2000 was passed and LLPs have permitted under statute law to help professionals, e.g. lawyers and accountants, limit their liabilities arising from malpractice and misstatements.
Address 徐汇区龙漕路200弄28号（宏润大厦） 3楼
Address 松江考研：上海松江大学城文汇路一期678弄202室 松江会计：上海松江大学城文汇路新天地1-08室