Candler+v.+Crane+Christmas+&+Co

Defendants = firms of accountants and auditors Plaintiff = investor in a company
 * Facts**:

Managing director of a company asked defendants to draw up the company’s accounts and balance sheet. Clerk employed by defendants did so, knowing the documents would be used to induce investors to invest in the company. The accounts were prepared negligently, and on their basis the plaintiff was misled into investing money in the company. The company went into liquidation and the investor lost the money.

**Issue:** Did the defendants owe the plaintiffs a duty of care?
 * Held: NO **(Denning's dissent: **YES**)

**Reasoning (Asquith):** **//Donoghue// provided only limited possibilities for finding a duty. That was a case about negligent circulation or repair of chattels; this is a case about negligent misstatement. Recognizing a duty here would open the floodgates of liability.**

- //Donoghue// was much more conservative than many people think: the headnote confines it to “the act of a manufacturer launching into circulation a negligently manurafctured chattel which is calculated to injure and in fact injures the ultimate consumer or usef in circumstances in which neither he nor any intermediate party ahs a reasonable opportunity of examining it.” //Donoghue// has been applied far beyond these limits. At very least, it should be kept to physical damage cases.

- Imagine the consequences of allowing such a duty to be recognized. For example, a cartographer wouldn’t want to draw any maps for fear that he could be blamed for shipwreck should a captain rely on the map’s errors

**Lord Denning's dissent: YES there was a duty.**


 * **Counsel for the defendant argues that:** || **Lord Denning responds that:** ||
 * this case is novel, i.e. that apart from cases of contractual duty or fiduciary relationship, there has never been an action allowed for negligent statements. || the ‘novelty’ argument has been used time and again, and time and again it has been rejected. Torts are infinitely various. The common law must be progressive and adapt to the changing world. ||
 * a duty to take care only arises where there is physical damage || there’s no good reason why financial loss shouldn’t count. It may be that in some financial loss cases it’s hard to show proximity, but once the duty exists the nature of damage doesn’t matter. ||
 * the defendants only owed a contractual duty (i.e. to the company), but otherwise no duty to the plaintiff. || //Donoghue// got rid of the notion that you only owe duties to those with whom you have a contract. ||

- Lloyd’s surveyor who negligently passes a mast as sound owes no duty to an owner for damage caused when the mast breaks, because the survey was only meant for purposes of classification. ||
 * The existence of a duty, according to Denning...**
 * **Who/When/How?** || **Answer** || **Examples** ||
 * **//Who//** owes the duty? || Persons whose profession and occupation it is to examine books, accounts, etc., and to make reports on which other people (not just clients) rely in the ordinary course of business. These people are expected to bring **certain knowledge or skill** to their work. || - accountants, shoeing smiths, surgeons, barbers, shipbrokers, clerks ||
 * **//To// //whom//** is the duty owed? || To their employer or client AND to any third person to whom they themselves show the accounts or to whom they know their employer is going to show so as to induce him to invest money or take action on them. Doesn’t extend to total strangers, though. || - the present case: anyone to whom the documents will be shown in order to induce him to act on their basis. ||
 * **//To// //what// //transactions//** does the duty extend? || Only those for which the accountants knew their accounts were required i.e. the duty extends “**to the very transaction in mind at the time**.” || - Doctor who negligently certifies a sane man to be a lunatic is liable to him, even without a K, because he knows that the certification is the basis of deciding whether the man should be detained.


 * BUT: This is not a duty to all the world. It is “limited in respect of the persons by whom and to whom it is owed and the transactions to which it applies.” **

**Also:**It is in the best interests of the community to recognize this duty. Otherwise, an accountant who owes a duty only to his client, where that client is one man in a one-man company, would never feel compelled to verify the information provided by the client. Difference between lawyers and accountants is that only latter are asked to express their personal belief in the truth of their clients’ cases, and others rely on those statements. christmasloanss.co.uk We want the accountant’s certificate to remain a safeguard, not a snare, for those who rely on it.


 * Best line**: “Let me first be destructive and destroy the submissions put forward by Mr Foster [counsel for the defendant]”