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Examination Timing: 00H00M49S

John and Jane, two investors, bought shares in a company called GreenTech Ltd. After the acquisition, they discovered that the company was worth significantly less than they had expected. They sued the company's accountants, claiming that the financial reports prepared by the accountants were negligently compiled and led them to overvalue the company's shares. In such circumstances, did the accountants owe a duty of care to John and Jane?

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In this scenario, the accountants did not owe a duty of care to the investors, John and Jane, because there was no sufficient proximity between the accountants and the potential investors to justify imposing a duty of care. The key case here is Caparo Industries plc v Dickman [1990] 2 AC 605, where the House of Lords established a three-part test for imposing a duty of care: foreseeability of damage, a proximate relationship between the parties, and that it is fair, just, and reasonable to impose a duty of care. In Caparo, the court ruled that auditors did not owe a duty of care to potential investors as there was no sufficient relationship of proximity between them, even if the investors relied on the audit reports. The decision highlights the principle that duty of care in negligence claims for economic loss requires a closer relationship than that of general foreseeability. 


Key Point: The Caparo v Dickman case is fundamental in understanding the limits of duty of care in claims for pure economic loss. The decision established the 'Caparo test', which requires foreseeability of harm, a sufficiently proximate relationship, and that it is fair, just, and reasonable to impose a duty. This case limits the scope of liability for economic losses to avoid exposing professionals to extensive liability to a potentially unlimited class of claimants, thereby safeguarding against indeterminate liability.

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