Business Law Essay Example | Topics and Well Written Essays - 1250 words - 10

Business Law - Essay Example Stevenson1 in which it was stated that a person must take reasonable care to avoid acts or omissions which if seen with reasonable foreseeability are likely to cause an injury to that person’s neighbour. The definition of neighbour was stated to be a person who would be so closely and directly affected by the act that he should be contemplated of when doing the act or omission. This is what is known as the neighbour principle. The test was reformed in Anns v Merton2 where Lord Wilberforce suggested a twos tagged test. The current position is that of House of Lords in Caparo v. Dickman3 whereby a three stage test was laid down. First, it must be reasonably foreseeable that the conduct of defendant would cause damage to the claimant. Secondly, there must be sufficient proximity between the parties and finally ‘the situation must be one in which the court considers it fair, just and reasonable the law should impose a duty of care of a given scope on the one party for the be nefir of the other’. (Wild et al 2010) The courts in Caparo stated that the defendant, who had undertaken the statutory audit of the public company was under a duty by way of contract to the shareholders as a collectivity and went on to say that individual purchasers of the shares of the company were not owed any duty even if they were existing shareholders nor did any liability arise in respect of the creditors of the company. It is more than evident that the accounts of the company are relied upon and the auditors’ manuals and other material may clearly point out to the fact that there has been reliance. However, the courts have due to policy reasons that the possibility of multiplicity of claims (floodgates argument) and business factors have disallowed such claims. Therefore the main reason of the courts has been that the auditors do not owe a duty to investors where reliance is placed on such audit reports because of lack of proximity; the other reason would be an