Name: IBADULLAH SHAH

Roll no: BL-1465

Class: BA-LLB
Section: A
Subject: LAW OF TORTS - I

RESEARCH PROJECT

Topic: SIGNIFICANCE OF THE DONOGHUE vs

STEVENSON CASE AND CAPARO
INDUSTRIES PLC vs DICKMAN CASE.

Submitted to: Ms. ROMANA AHMED (Solicitor)

DONOGHUE vs STEVENSON [1932] Doctrine of Negligence
INTRODUCTION:
Donoghue vs Stevenson, a Scottish dispute, is a famous case in English law which was
instrumental in shaping the law of tort and the doctrine of negligence in particular. It is a
remarkable example of common law judges at work, distinguishing, over-ruling, criticizing and
explaining hundreds of decisions extending over a century before arriving at an obvious
principle of liability for negligence.” Lord Atkin’s leading judgement in this case created the now
fundamental aspect of negligence law, the “neighbour principle” which derived from the
Christian principle “love thy neighbour”. However it was a ground-breaking decision when it
was made in 1932.

FACTS:
The events of the case took place in Paisley, Scotland in 1928. While attending a store,
Ms. May Donoghue was given a bottle of ginger beer, purchased for her by a friend. The bottle
was later discovered to contain a decomposing snail. Since the bottle was not made of clear
glass, Donoghue consumed most of its contents before she became aware of the snail. She later
fell ill and a physician diagnosed her with gastroenteritis.
Mrs. Donoghue was not able to claim through breach of warranty of a contract: she was
not party to any contract. Therefore, she issued proceedings against Stevenson, the
manufacture, which snaked its way up to the House of Lords.

ISSUES:
The question for the House of Lords was if the manufacturer owed Mrs. Donoghue a
duty of care in the absence of contractual relations contrary to established case law. Donoghue
was effectively a test case to determine if she had a cause of action, not if she was owed
compensation for any damages suffered.
The law of negligence at the time was very narrow and was invoked only if there was
some established contractual relationship. An earlier case, involving two children and floating
mice, held that:

 Absent a contract, a manufacturer owed no duty of care to a consumer when putting a

product on the market except:
1. If the manufacturer was aware that the product was dangerous because of a
defect and it was concealed from the consumer (i.e., fraud). or
2. The product was danger per se and failed to warn the consumer of this.
Unlike Mullen, which stopped at the Court of Session, Mrs. Donoghue took her case to
the House of Lords.

JUDGEMENTS/DECISIONS:
The judgements of Donoghue v. Stevenson established several legal principles and
precedents:

Negligence: Firstly, the House of Lords ruling affirmed that negligence is a tort. A plaintiff can
take civil action against a respondent if the respondent’s negligence causes the plaintiff injury
or loss of property. Previously, the plaintiff had to demonstrate some contractual arrangement
for negligence to be proven, such as the sale of an item or an agreement to provide a service.
Since Donoghue had not purchased the drink, she could prove no contractual arrangement with
Stevenson – yet Lord Atkin’s judgement established that Stevenson was still responsible for the
integrity of his product.
Duty of care: Secondly, the case established that manufacturers have a duty of care to the end
consumers or users of their products. According to Lord Atkin’s ratio decidendi, “a
manufacturer of products, which he sells___ to reach the ultimate consumer in the form in
which they left him… owes a duty to the consumer to take reasonable care”. This precedent has
evolved and now forms the basis of laws that protect consumers from contaminated or faulty
goods. These protections began as common law but many have since been codified in
legislation, such as the Trade Practices Act (Commonwealth, 1974).
Neighbour principle: Thirdly, the Donoghue v. Stevenson case produced Lord Atkin’s
controversial “neighbour principle”, which extended the tort of negligence beyond the
tortfeasor and the immediate party. It raised the question of exactly which people might be
affected by negligent actions. In Donoghue’s case, she had not purchased the ginger beer but
had received it as a gift; she was a “neighbour” rather than a party to the contract. Atkin said of
this principle: “You must take reasonable care to avoid acts or omissions which you can
reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my
neighbour? The answer seems to be persons who are so closely and directly affected by my act
that I ought to have them in [mind] when I am [considering these] acts or omissions.”
CASE ANALYSIS:
Donoghue was not the first case to attempt to sever the dependence of negligence on
contract; a few years previously, Lord Ormidale in Mullen, said, ‘it would appear to be
reasonable and equitable to hold that, in the circumstances and apart altogether from contract,
there exists a relationship of duty as between the maker and the consumer of the beer.’ Thus,
the doctrine is based in law and morality. The impact of Donoghue on tort law cannot be
understated; it was a watershed moment effectively establishing tort as separate from contract
law.
However, it is important to remember that Donoghue was a milestone in a new
principle which needed refining, as Lord Reid said, ‘the well known passage in Lord Atkin’s
speech should, I think, be regarded as a statement of principle. It is not to be treated as if it
were a statutory definition. It will require qualification in new circumstances.’
The next major development in the ‘neighbour principle’ came from Hedley Byrne v
Heller which concerned economic loss. However, the locus classicus of the ‘neighbour test’ is
found in another economic loss case called Caparo Industries v Dickman.
What emerges is that, in addition to the foreseeability of damage, necessary ingredients
in any situation giving rise to a duty of care are that there should exist between the party owing
the duty and the party to whom it is owed a relationship characterized by the law as one of
‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court
considers it fair, just and reasonable that the law should impose a duty of a given scope on the
one party for the benefit of the other.
Thus, boiled down the requirements are: foreseeability, proximity, and fairness (policy
considerations). There has been a certain degree of overlap between the requirements with
Lord Hoffman stating that the distinctions between them, ‘somewhat porous but they are
probably none the worse for that.’
It was argued unsuccessfully in Mitchell and another v Glasgow City Council that
because Caparo was concerned with economic loss it had little application to personal injury
claims; Lord Hope said that, “The origins of the fair, just and reasonable test show that its utility
is not confined to that category.”
The outcome of Donoghue has reverberated through law as a whole. It essentially
birthed a new area of law to the benefit and detriment of some. For example, personal injury
which is steeped in both statutory duty and the ‘neighbour principle’. Indeed, it has grown to
the point where there are concerns of an American style ‘compensation culture’ best expressed
by Lord Hobhouse17 when he linked it to the restriction of the liberty of individuals: ‘the pursuit
of an unrestrained culture of blame and compensation has many evil consequences and one is
certainly the interference with the liberty of the citizen.’

SIGNIFICANCE:
A principle developed by Lord Atkin in the famous case of Donoghue v Stevenson [1932]
AC 562 (HL Sc) (Snail in the Bottle case) to establish when a duty of care might arise. The
principle is that one must take reasonable care to avoid acts or omissions that could reasonably
be foreseen as likely to injure one's neighbour. A neighbour was identified as someone who was
so closely and directly affected by the act that one ought to have them in contemplation as
being so affected when directing one's mind to the acts or omissions in question.
 CAPARO INDUSTRIES PLC vs DICKMAN [1990] UKHL 2
INTRODUCTION:
Caparo is the landmark case which has created the tripartite test in establishing duty of
care. This test departs from Donoghue v Stevenson and the Wilberforce test laid down in Anns
v Merton London Borough Council which starts from the assumption that there is a duty of care
and that harm was foreseeable unless there is good reason to judge otherwise. Whereas
Caparo starts from the assumption no duty is owed unless the criteria of the three stage test is
satisfied. These criteria are: Foreseeability, Proximity and whether it is fair, just and reasonable
to impose such a duty. Yet this approach has been critiqued by over complicating “neighbour”
principle in Donoghue. Moreover, there is an abundance of case law which moves away from
the Caparo test altogether.

FACTS:
A company called Fidelity plc, manufacturers of electrical equipment, was the target of a
takeover by Caparo Industries plc. Fidelity was not doing well. In March 1984 Fidelity had issued
a profit warning, which had halved its share price. In May 1984 Fidelity's directors made a
preliminary announcement in its annual profits for the year up to March. This confirmed the
position was bad. The share price fell again. At this point Caparo had begun buying up shares in
large numbers. In June 1984 the annual accounts, which were done with the help of the
accountant Dickman, were issued to the shareholders, which now included Caparo. Caparo
reached a shareholding of 29.9% of the company, at which point it made a general offer for the
remaining shares, as the City Code's rules on takeovers required. But once it had control,
Caparo found that Fidelity's accounts were in an even worse state than had been revealed by
the directors or the auditors. It sued Dickman for negligence in preparing the accounts and
sought to recover its losses. This was the difference in value between the company as it had
and what it would have had if the accounts had been accurate.

ISSUES:
To conclude the issues of the case is surmised perfectly by the legal stance in Coulthard
and others v Neville which concludes that the application of Caparo is: “In a state of transition
or development as the House of Lords pointed out this is an area of law which is developing
pragmatically and incrementally. It is pre-eminently an area in which the legal result is sensitive
to the facts.”
Thus, judges are more and more using their discretion not only in cases of physical injury
but in cases of pure economic loss in order to achieve the best result deriving from the specifics
of that case, limiting the scope and application of Caparo.

JUDGEMENTS/DECISIONS:
The House of Lords reversed the decision of the COA and held that no duty of care had
arisen in relation to existing or potential shareholders. The only duty of care the auditor`s owed
was to the governance of the firm. It was found that three factors had to exist for there to be a
duty of care which where: Proximity, Knowledge of who the report would have been
communicated to and for what purposes it would have been used. Lord Bridge commented that
cases where duty of care did arise was illustrated in Smith v Eric S Bush. The case holds the
principle that it is reasonable to impose a duty of care for valuers of a property to those those
purchasing a family home as this was commonplace. Finally, there had to be knowledge that
the shareholders or investors would rely on the report in regards to the transaction.
Furthermore, the judges noted that audit reports of plc`s are regularly carried out which differs
from reports carried out for specific purposes and for an identified audience. Thus, the
accountants owed no duty to the entire public who might or might not place reliance on the
report when making financial decisions. Moreover, appointing liability would open the
floodgates to society as JEB Fasteners Ltd v Marks Bloom & Co distinguished. Thusly, limitations
have to be set when pure economic loss occurs in the absence of contractual agreements
between parties. It is also noted that the judgement accepts that there are circumstances
where an auditor will owe a duty of care in respect of reports produced. These are conditional
that at the time the report is prepared that is known by the auditors that the results are for a
specific class for a specific purpose. This is acknowledged in Morgan Crucible v Hill
Samuel and Law Society v KPMG Peat Marwick.
CASE ANALYSIS:
Although the facts of Caparo where based on the pure economic loss, the HOL
developed the tripartite test in establishing a general duty of care. Yet Lord Bridge
acknowledged: “The inability of any single general principle to provide a practical test which can
be applied to every situation to determine whether a duty of care is owed and if so, what is its
scope.”
Thus, rendering the general application unclear. This is poignant in cases of physical
injury illustrated by Perrett v Collins in which the last two stages of the Caparo test where
debated. It was Hobhouse LJ who argued that adopting the stipulations of Caparo:
“extend decisions upon `economic` loss to cases of personal injuries”. Mirroring Lord Bridge in
Caparo itself. Hobhouse LJ added that: “In the common law there has always been a distinct
category for causing physical injury to the human body and to goods“. This distinction is echoed
by many academics who state that personal loss is the very substance on which the law of
negligence is established. Therefore, the courts contend that it is this reasoning that issues that
derive from economic loss, are different from issues of personal loss .Furthermore, Lord
Hobhouse uses case law which corresponds with the case rather than the tripartite test. This
stance is upheld by the dissenting opinion of Lord Lloyd in Mark Rich & Co. v Bishop Rock
Marine who concluded that in order to resolve the case the clear-cut application of Donoghue
need only apply.
This stance has been reiterated in the 21 st Century, even in cases of pure economic
loss. This is exemplified in Arthur JS Hall & Co. v Simons, which mainly considers the third stage
of the test, in which stage one and two where so obvious that discussion was left absent. This
same approach in which judges see no reason to create a complicated three stage test is
reverberated further in Customs & Excise v. Barclays Bank. In the case it was considered
whether the bank owed a duty of care when given knowledge that Customs had acquired a
freezing order over the accounts of some of their customers. The judges ruled upon analysis of
the third stage of the tripartite test. Which has been regarded by some academics as: “A simple
search for the best result“. Further examination of the tripartite test in regards to pure
economic loss is considered by Lord Geoff in Henderson v Merrett Syndicates Ltd which is,
identified as falling within the “Hedley Byrne principle” in which the test of Caparo is set aside.

SIGNIFICANCE:
 The judgment overturned the decision of a judge at first instance in JEB Fasteners Ltd v
Marks Bloom & Co.
 Caparo and its extent were further discussed in Her Majesty's Commissioners of
Customs and Excise v Barclays Bank Plc and Moore Stephens v Stone Rolls Ltd.
 In New Zealand, Caparo stands in disagreement with a decision of the New Zealand
Court of Appeal in Scott Group Ltd v McFarlane. In both of these cases a duty of care was
found in substantially similar circumstances.
 In Australia, Caparo was followed in Esanda Finance Corporation Ltd v Peat Marwick
Hungerfords. Caparo is also noted for the comments made as to the analysis of Brennan J of
the Australian High Court in Council of the Shire of Sutherland v Heyman espousing the
proposition that the law should develop novel categories of negligence 'incrementally and
by analogy with established categories'. That observation was subsequently rejected
in Sullivan v Moody.
 In Canada, Caparo was followed in Hercules Managements Ltd. v. Ernst & Young. Cooper
v Hobart is sometimes acknowledged to be the Canadian equivalent of Caparo.
 This decision allows auditors to escape negligence claims from investors and
shareholders potentially leading to a decline in their effectiveness.

REFERENCES:
1. “Basic Questions of Tort Law From a Comparative Perspective” by Bjarte Askeland, W. Jonathan
Cardi, Michael D. Green, Helmut Koziol, Katarzyna Ludwichowska-Redo, Attila Menyhárd, Olivier
Moréteau, Ken Oliphant, Keizô Yamamoto.
2. “Essentials Tort Law” by Richard Owen.
3. https://www.lawteacher.net/
4. https://en.wikipedia.org/