Why the duty is limited
A careless act usually harms people within a limited and foreseeable range, such as other road users or the occupiers of a building. A careless statement has no such natural limit, because it can be repeated, published and relied on for purposes its author never contemplated. If every reader who relied on careless words could sue, advisers would face liability in an indeterminate amount, for an indeterminate time, to an indeterminate class, which is the concern the House of Lords expressed in Caparo. The law responds by asking whether the adviser assumed responsibility towards the particular claimant.
The Caparo conditions
For a careless statement that causes pure financial loss, a duty of care usually depends on what the adviser knew. It is usually found only where the adviser knew that the advice would be communicated to the claimant, either as an individual or as a member of an identifiable group, in connection with a particular transaction or a transaction of a particular kind. The adviser must usually also have known that the claimant was very likely to rely on it for that purpose without independent inquiry. The claimant must then actually have relied on it.
In Caparo, the auditors of a public company owed no duty to Caparo, a company that bought shares in it, and then made a takeover bid, in reliance on the audited accounts. This was so even on the assumption that the auditors should have foreseen that a bidder might rely on the accounts. The statutory audit is prepared so that the shareholders as a body can supervise the management of the company, not to help anyone, whether an outsider or an existing shareholder, decide whether to buy shares. Foreseeing reliance is not enough. The auditors had not prepared the accounts for the purpose for which Caparo used them.
Smith v Eric S Bush: when a duty does arise without a contract
In Smith v Eric S Bush, a valuer instructed by a building society to value a modest house for mortgage purposes owed a duty of care to the purchaser, even though the purchaser had no contract with the valuer. The valuer knew that the valuation would be passed to the purchaser, who was buying that particular house, and knew that purchasers of modest houses very often rely on the lender's valuation rather than paying for their own survey. In the joined appeal, Harris v Wyre Forest District Council, the purchasers never saw the report at all, and relied on it through the lender's decision to lend. The duty was owed in both cases.
The building society, on behalf of the valuer, had given Mrs Smith a disclaimer of the valuer's liability. The House of Lords held that, because of s.13(1), the Unfair Contract Terms Act 1977 applied even though the notice was framed to prevent a duty arising. Under ss.2(2) and 11(3) it had to be fair and reasonable to allow reliance on the notice, and it was not, so it did not protect the valuer. On facts like these today, the disclaimer would be a consumer notice tested for fairness under the Consumer Rights Act 2015.
A worked example
A company is negotiating to sell its subsidiary to a named buyer. At the buyer's request, the company's finance director prepares profit forecasts for the subsidiary, knowing that the buyer will use them to decide what to offer and will not prepare its own forecasts. The forecasts are prepared carelessly, and the buyer pays more than the subsidiary is worth. The director knew who would rely on the forecasts, for what transaction and that the buyer would rely on them without independent inquiry, so a duty of care is likely to arise.
Change the facts so that the same forecasts are later included in a press release, and a member of the public reads them and buys shares in the parent company. That reader was unknown to the director and relied on the forecasts for a different purpose, so no duty arises.
The traps SQE1 questions set
- No contract is needed between the adviser and the claimant. The question is whether the adviser assumed responsibility to the claimant.
- The claimant need not have seen the report personally, provided the reliance was of the kind the adviser contemplated (Harris v Wyre Forest).
- Publication to the world does not create a duty to everyone who reads it. Knowledge of the particular claimant and purpose is what matters (Caparo).
- A disclaimer can prevent a duty from arising, but it is controlled by statute. Where the adviser is a trader and the claimant a consumer, such as a professional valuer and a homebuyer, the disclaimer is a consumer notice under the Consumer Rights Act 2015 and does not bind the consumer if it is unfair (s.62). It can never exclude liability for death or personal injury (s.65). In other cases the Unfair Contract Terms Act 1977 applies, and the disclaimer must satisfy the requirement of reasonableness (s.2(2)).
The auditors of a private company are told by the directors that this year's audited accounts will be shown to a named bank, which will rely on them to decide whether to lend to the company without carrying out its own investigation. The audit is careless, and the bank lends and loses money. Do the auditors owe the bank a duty of care?
Show the answer
A duty is likely. Unlike the auditors in Caparo, these auditors knew the identity of the person who would rely on the accounts, the transaction for which it would use them and that it would rely on them without independent inquiry. The absence of a contract between the bank and the auditors does not prevent the duty.
Sources
- Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
- Caparo Industries plc v Dickman [1990] 2 AC 605
- Smith v Eric S Bush; Harris v Wyre Forest District Council [1990] 1 AC 831
- Unfair Contract Terms Act 1977, ss.2, 11 and 13
- Consumer Rights Act 2015, ss.61, 62 and 65
Law as at 4 October 2026.