Caparo is Dead, Long Live Caparo! English Supreme Court Decides Foundational Principles Regarding Duty of Care

Kevin Kee

The history of the modern law of negligence has been shaped by competing impulses of unity and division. One court seeks to formulate general principles to identify whether a person owes a duty of care to another. Later courts reject or qualify those formulations. Lord Atkin’s seminal decision in Donoghue v Stevenson [1932] AC 562 was itself an attempt to formulate general guidance by reference to the “neighbour” principle. This principle, though rightly celebrated as an inspired rationalisation of previously decided cases, was ultimately found by later courts to be inadequate to deal with the diverse range of fact situations that came before those courts.

The wheel of this history has turned again in two recent English Supreme Court decisions, Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4 (8 February 2018) (Robinson) and Steel v NRAM Ltd [2018] UKSC 13 (28 February 2018) (Steel).

These decisions appear to herald the demise in English law of the most recent formulation of a general test for recognising a duty of care. This test is sometimes known as the “three stage test” or the “Caparo test” after the House of Lords decision that supposedly endorsed this test, Caparo Industries plc v Dickman [1990] 2 AC 605 (Caparo).

The three stage test required consideration of the reasonable foreseeability of harm to the plaintiff, the proximity of the relationship between the plaintiff and the defendant, and whether it was fair, just and reasonable to impose a duty in all the circumstances.

In both Robinson and Steel, the Court held that the House of Lords in Caparo had not in fact endorsed this three stage test. Rather, the proper approach as set out in Caparo, and endorsed by the Court, was as follows:

  • Where a case falls within an established category, the existence of the duty should be determined in accordance with the principles laid down for that category.
  • Where a case involves a novel situation where the existing principles cannot be readily applied, the law should be developed incrementally by analogy with established categories.

In the remainder of this blog, we will discuss:

  • the facts of Steel and the Court’s decision on those facts;
  • the facts of Robinson and the Court’s decision on those facts;
  • the demise of the three stage test and rise of the incremental approach in English law;
  • the convergence of English law towards Australian law on this issue; and
  • the Hong Kong law position.

Facts and Decision in Steel

The question before the Court in Steel was whether a solicitor for one party to a transaction owed a duty of care to the counterparty for a misstatement that caused loss to the counterparty.

The defendant solicitor had mistakenly told the plaintiff bank’s officers that the transaction between her client and the bank involved a discharge of the bank’s mortgages over her client’s properties. This statement was incorrect. The bank’s officers relied on this statement, and without checking the bank’s own files regarding the nature of transaction, arranged a discharge of the bank’s mortgages. Years later, the client went into liquidation and the bank discovered its loan was unsecured. The bank then brought proceedings against the solicitor for breach of duty by negligent misstatement.

Lord Wilson delivered the lead judgment with which the rest of their Lordships agreed. Following a review of the authorities, Lord Wilson concluded that in actions for negligent misstatement causing economic loss, the question whether the defendant owed a duty of care to the plaintiff would usually turn on whether the defendant had assumed responsibility for their statement towards the plaintiff. This in turn required consideration whether it was reasonable for the defendant to have relied on the plaintiff’s statement, and whether the plaintiff should have foreseen that the defendant would rely on that statement.

Turning to the facts of the case, Lord Wilson held that the bank’s officers had not acted reasonably in relying on the solicitor’s statement without checking the bank’s own files, and conversely, the solicitor could not reasonably have foreseen that the bank’s officers would do so. His Lordship stated: “a commercial lender about to implement an agreement with its borrower referable to its security does not act reasonably if it proceeds upon no more than a description of its terms put forward by or on behalf of the borrower”.

As a result, the Court concluded that the solicitor did not owe the bank a duty of care with respect to her statement regarding the terms of the transaction.

Facts and Decision in Robinson

In Robinson, the plaintiff was knocked over in the street and injured by a group of men consisting of two police officers and a drug dealer whom the police officers were at the time trying to arrest. The plaintiff brought an action in negligence against the police force claiming that the police officers had acted negligently.

Lord Reed delivered the lead judgment for the majority of the Supreme Court. His Lordship held that, as this case fell within established categories of negligence actions against public authorities generally and the police in particular, the question whether the police officers owed a duty of care to the plaintiff was to be determined by applying the principles laid down by the authorities with respect to these established categories. His Lordship further held that, since this case fell within established categories, the Court of Appeal below had been mistaken in applying the three stage test to this case.

Lord Reed concluded that, in accordance with the principles laid down for this category of case, the police officers in Robinson owed a duty of care to the plaintiff. His Lordship further held that the duty was breached and the plaintiff’s injuries were caused by the breach of duty.

Demise of the Three Stage Test and Rise of the Incremental Approach in English Law

Both Robinson and Steel were determined by applying principles derived from established categories to the facts of the case. It was therefore unnecessary for the Court in either case to deal with the proper approach in novel cases where existing principles do not readily apply. Despite this, in both cases, both Lord Reed and Lord Wilson went on to discuss the proper approach in such cases.

Many courts and practitioners have regarded the decision of the House of Lords in Caparo as endorsing the three stage test in novel cases. Both Lord Reed in Robinson and Lord Wilson in Steel pointed out that the House of Lords had done no such thing. Although their Lordships in Caparo had referred to the three stage test in their speeches, they had also variously noted the limited usefulness in practice of the three stage test and described the search for a single formula as akin to pursuit of a will-o’-the-wisp.

Further, both Lord Reed and Lord Wilson noted that the House of Lords did not decide Caparo by applying the three stage test. Rather, their Lordships in Caparo had applied an incremental approach, which emphasised the need for the law to develop novel categories of negligence incrementally and by analogy with established categories.

Both Lord Reed in Robinson and Lord Wilson in Steel endorsed this incremental approach. Lord Reed in Robinson explained this approach in the following terms:

“In cases where the question whether a duty of care arises has not previously been decided, the courts will consider the closest analogies in the existing law, with a view to maintaining the coherence of the law and the avoidance of inappropriate distinctions. They will also weigh up the reasons for and against imposing liability, in order to decide whether the existence of a duty of care would be just and reasonable.”

Convergence with Australian Law

In Australian law, proximity as a useful concept in recognising a duty of care in novel cases has long been interred in the legal graveyard. Buried with it was the idea that a single test could be applied in all cases to determine whether a duty of care is owed. Rather, novel duty cases are determined by incremental development by analogy with established categories, with a focus on the “salient features” of the relationship between the plaintiff and the defendant: Perre v Apand Pty Ltd [1999] 198 CLR 180; Sullivan v Moody [2001] 207 CLR 562; Graham Barclay Oysters Pty Ltd v Ryan [2002] 211 CLR 540.

It can be seen that the English law position is converging towards the Australian position. In light of this, it may well be that Australian case law and jurisprudence can assist the English courts to navigate duty of care issues in a post-three stage test world.

Salient factors that Australian courts have identified as tending to support recognising a duty of care in a novel case include where:

  • the plaintiff is vulnerable to the risk of harm;
  • the defendant has the power to protect the plaintiff or to exercise control over the plaintiff in a way that can affect the risk of harm;
  • the defendant knew or ought to have known that its acts or omissions could affect the risk of harm.

Salient factors that tend against recognising a duty of care in a novel case include where:

  • finding a duty of care would cut across or undermine other legal rules;
  • the duty asserted would be incompatible with another duty;
  • recognising a duty would expose the defendant to indeterminate liability.

Hong Kong Law Position

The leading case in Hong Kong regarding the approach for determining whether a duty of care exists is Luen Hing Fat Coating & Finishing Factory Ltd v Waan Chuen Ming [2011] HKCFA 4; [2011] 2 HKLRD 223 (Luen Hing Fat).

In Luen Hing Fat, Bokhary PJ, with whom all their Lordships agreed, adopted the “Caparo approach”, by which he meant the three stage test. However, it is important to note his Lordship’s qualifications in adopting the three stage test. His Lordship referred to statements in cases after Caparo to the effect that the elements of the three stage test are no more than labels under which the court weighs the pros and cons of imposing a duty, and that while a general formula can help organise thinking they cannot provide the answers.

Given its endorsement by the Court of Final Appeal in Luen Hing Fat, the three stage test is likely to continue to be part of the Hong Kong legal landscape at least until the Court of the Final Appeal has the opportunity to reconsider this issue.

Despite this, Bokhary PJ’s qualified endorsement of the three stage test can be seen as endorsing a methodology for working through duty of care issues, without altering the substantive evaluation that the court must undertake in deciding those issues. By contrast, the Supreme Court’s emphasis in Robinson and Steel on the incremental development of the law in novel cases can be seen as making a substantive point regarding in what circumstances the Court should recognise a duty in novel situations. From this perspective, it may well be that the incremental approach endorsed in Robinson and Steel will be influential in Hong Kong even absent further consideration of the three stage test by the Court of Final Appeal.

The wheel of this history remains in motion. As Bokhary PJ stated in Luen Hing Fat:

“No common law landmark … can be expected to stand alone and sufficient on its own forever. That is one of the clearest lessons that legal history teaches. While having due regard to the importance of predictability and continuity, the courts will, as they must, develop the common law to provide such fresh or adapted solutions as may be needed to cope with new problems as and when they emerge.”

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