Caparo v Dickman  1 All ER 568 has effectively redefined the ‘neighbourhood principle’ as enunciated by Lord Atkin in the case of Donoghue v Stevenson  AC 562.
Prior to Donoghue v Stevenson  AC 562, liability in negligence was restricted by the finding of a duty of care on a case-by-case basis and it was held that a duty of care was only owed in very specific circumstances, such as whether a contract existed between the two parties or whether the manufacturer was making inherently dangerous products or was acting fraudulently.
There was neither a contractual relationship between Donoghue with the drinks manufacturer nor the ginger beer was a dangerous product, and the manufacturer had not fraudulently misrepresented it, the case of Donoghue v Stevenson  AC 562 fell outside the scope of the established cases on product liability. On the face of it, the law therefore did not provide a remedy for Donoghue .
The wide importance of Donoghue v Stevenson lay in the test which Lord Atkin employed for the existence of a duty of care. It is known as the “neighbour principle”:
The [Biblical] rule that you are to love your neighbour becomes in law, you must not injure your neighbour and the lawyer’s question ‘Who is my neighbour?’ receives a restricted reply. 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 reasonably to have them in contemplation as being so affected when I am directing my mind to the acts and omissions which are called into question.
Lord Atkin was using the word ‘neighbour’, not to describe the physical closeness, but in terms of those we might reasonably foresee as in danger of being affected by our actions if we are negligent and extends to “such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act.”
Lord Atkin judgment was eloquent, elegant and so persuasive that not only did his neighbour principle become rules of law, but the particular words he used were also retained over the years. Lord Atkin used the word “neighbour” to make it clear that there must not merely be a connection but the connection must be capable of giving rise to a duty of care.
However the neighbour principle was not immediately or widely adopted as the definitive test for duty in the courts but over time it has become the foundation on which later approaches have been based.
Lord Macmillan in his judgment observed that ‘the categories of negligence are never closed’and indeed new duty situations continue to arise and came to be recognised by the courts. A key case that illustrates the above is Home Office v Dorset Yacht Co Ltd  AC 1004. A group of young Borstral inmates were taken to Brownsea Island in Poole Harbour for a weekend’s leave and training. During the night five of the Borstral boys escaped their guards and found their way to the claimants’ yacht club where they vandalised several yachts. When the Home Office was sued for the alleged negligence of their employees failing to restrain the boys, the preliminary point which arose was whether the Home Office could be said to owe a duty of care in negligence in this situation.
The House of Lords held, by a majority of four to one, in the affirmative. They recognised that in doing so they were extending the neighbourhood principle laid out in Donoghue v Stevenson into a novel set of circumstances, for two reasons. Firstly because the wrong against the claimants had not been committed directly by the defendants but rather by a third party in this case the Borstral boys. Any liability of the defendants would then be based upon an omission, that is, their failure to control the actions of the inmates. The appellants ought to reserve a duty of care to prevent the inmates from escaping from their care or custody. Secondly, there were two possible relationships of ‘neighbourhood’, in the Donoghue v Stevenson sense: that between the defendants and the boys and that between the defendants and the nearby yacht owners.
Lord Diplock felt that the situation came within the group of cases in which there could be liability for a failure to act that is when the wrongdoer should have been under the care of the defendants. However his Lordship emphasised the necessity to focus or narrow the scope of who would be owed that duty of care:
… To give rise to a duty on the part of the custodian owed to a member of the public to take reasonable care to prevent a Borstral trainee from escaping from his custody before the completion of the trainee’s sentence there should be some relationship between the custodian and the person to whom the duty is owed which exposes that person to a particular risk of damage in consequence of that escape which is different in its incidence from the general risk of damage from criminal acts of others which he shares with all members of the public…
I should therefore hold that any duty of a Borstral officer to use reasonable care to prevent a Borstral trainee from escaping from his custody was owed only to persons whom he could reasonably foresee had properly situated in the vicinity of the place of detention of the detainee which the detainee was likely to steal or to appropriate and damage in the course of eluding immediate pursuit and recapture…
Analysing between the lines of the above judgment, His Lordship’s concept of duty of care is based upon reasonable foreseeability of harm and a closeness or proximity of those in the yacht club who were more at risk than the general public.
Lord Reid observed:
… Donoghue v Stevenson  AC 562 may be regarded as a milestone, and 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. But I think that the time has come when we can and should say that it ought to be apply unless there is some justification or valid explanation for its exclusion.
The above judgment clearly states that the law courts were willing to adopt the neighbourhood principles laid out by Lord Atkins and found that there was nothing to prevent the Lordships from approaching the case using Donoghue v Stevenson “neighbourhood” principles in mind. The reach of negligence was further expanded in the landmark case of Hedley Byrne v Heller  AC 465 by the House of Lords. The appellants relied on statements made by the defendant that the financial positions of their customers were considered good for ordinary business engagements. However that was not the case, their customers went into liquidation causing the plaintiff to lose a considerable sum of money.
Lord Morris in his judgment was in favour of the plaintiff:
…if someone possessed of a special skill undertakes, quite irrespective of the contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise.
The development of the general principle which could be applied to all cases was taken a stage further in the judgment of Anns v Merton London Borough Council  2 All ER 492. The facts of the case concerned a local authority’s liability for the negligent inspection of building plans. The plaintiff wanted to sue the local authority, whether their action could succeed depends on whether they could establish that the local authority owns them a duty of care and had been in breach of that duty.
In the judgment of Lord Wilberforce become relevant in the situation:
…There was a situation of proximity between the council and P; this was not based on the neighbourhood principle because this would neglect the fact that a local authority is a public body with powers and duties definable in terms of public not private law. The exercise of a statutory duty did not exclude the common law duty of care…
Lord Wilberforce attempted to tackle the case by introducing a “two-stage test”. The first stage was to establish whether the Donoghue neighbour principle can be satisfied. If so, a duty of care prima facie exists. The second stage involves looking at whether there are any reasons, or policy considerations, that this duty should not exist.
The “Anns two-stage test” was in many ways hugely successful in negligence actions, it provided a principle which could be applied to all cases and the effect of its application was to expand considerably the boundaries of the tort of negligence. One of the most radical manifestations of this expansive reliance on the above test was Junior Books Ltd v Veitchi Co Ltd  3 All ER 201 HL where the House of Lords held that a duty of care was owed by flooring sub-contractors, who were liable to the owner of the factory whose floor they negligently laid. The court relied on the fact that the relationship between the parties was as close as it could be without being directly contractual. Junior Books was a controversial decision because the Law Lords were seen to have evaded the doctrine of privity of contract in order to find liability for damage which was technically pure economic loss and thus not normally allowable in negligence.
Anns has since come under heavy fire and criticisms that judges began to make decisions which restricted this potential expansion of negligence, showing awareness that it could open the floodgates. Lord Keith had actively disapproved of the “too literal application of the well known observation of Lord Wilberforce in Anns ” and his oppositions were clearly demonstrated in his judgZDment in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd  3 All ER 529:
…A relationship of proximity in Lord Atkin’s sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case … so in determining whether or not a duty of care of particular scope was incumbent… upon a defendant it is material to take into consideration whether it is just and reasonable that it should be so.
In Yuen Kun Yeu v Att-Gen of Hong Kong  AC 175, Lord Keith further in rejecting the Anns test:
…the two stage test formulated by Lord Wilberforce for determining the existence of a duty of care in negligence has been elevated to a degree of importance greater than its merits, and greater perhaps than its author intended… Lordships consider that for the future it should be recognised that the two-stage test in Anns is not to be regarded as in all the circumstances a suitable guide to the existence of a duty of care.
Finally in Murphy v Brentwood District Council  2 All ER 908, Lord Keith stated that he considered the incremental approach adopted by Brennan J in the High Court of Australia was preferable to the two stage test adopted by Lord Wilberforce in Anns , which the decision has been overruled.
The current test of duty which is currently regarded as definitive was decided before Murphy is that described by Lord Bridge in Caparo Industries PLC v Dickman  1 All ER 568 HL. The case itself concerned with professional negligence and the question of whether auditors could be liable when their statements were relied on detrimentally by investors. This case reflects the long policy considerations that to open the floodgate of damages due to negligence has to be avoided. Thus, in order to determine whether a duty should be imposed upon the defendant, the consideration is whether it would be just and reasonable to do so. It is important to consider the view of Lord Bridge:
…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 characterised 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 upon the party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes.
We must now, I think, recognise the wisdom of the words of Brennan J in the High Court of Australia in Sutherland Shire Council v Heyman (1985) 60 ALR 1, 43-44, where he said:
‘It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by massive extension of prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of duty or the class of person to whom it is owed.’
The Caparo “Three-Stage Test” placed greater significance towards traditional approaches and effectively polished the “neighbourhood” proximity principle stated by Lord Atkin in Donoghue v Stevenson . Thus, the law had moved back slightly towards more traditional “categorisation of distinct and recognisable situations” i.e. the “neighbourhood” principle from Donoghue , The law Lords approved the three requirements in establishing duty: (a) reasonable foreseeability of harm to the claimant, (b) proximity or neighbourhood between the claimant and defendant, i.e. Atkin’s “neighbour” test and (c) that it is ‘fair, just and reasonable’ to impose a duty of care in such situation. It is generally accepted that Lord Bridge’s third element, ‘fair, just and reasonable’, combines the policy factors with what is regarded as just between the parties. The three elements are given equal weight and, contrary to the position in Anns where there appeared to be a primary assumption of duty which could be cancelled by policy considerations.
At the same time as setting out the Caparo Three-Stage Test, it is significant that Lord Bridge also endorsed an incremental approach to duty of care, as described by Brennan J in his excerpt judgment above.
Lord Bridge’s test for duty was put into practice in Murphy v Brentwood District Council  2 All ER 908. The House of Lords was in favour of the defendants because no duty of care was owed to the local authority over the pure economic loss and hence departed from the judgment of Anns resulting all the decisions subsequent to Anns which purported to follow it should also be overruled.
Atkin’s “proximity of relationship” is up for interpretations. The context “relationship” does not mean only a relationship between one person and another but it also refers to the proximity between people and events. The latter was represented in the “foreseeability” factor as stated on the first requirement of Caparo’s Three-Stage Test. Although a slight back step, nonetheless the Caparo itself is an evolution towards the “traditional approaches” prescribed by the courts pre- Ann . Lord Oliver recognised in Caparo itself:
…It is difficult to resist a conclusion that what have been treated as three separate requirements are, at least in most cases, in fact merely facets of the same thing, for in some cases the degree of foreseeability is such that it is from that alone that the requisite proximity can be deduced, whilst in others the absence of that essential relationship can most rationally be attributed simply to the court’s view that it would not be fair and reasonable to hold the defendant responsible.
- Rogers WVH, Winfield and Jolovicz on Tort, 17th ed., London: Sweet & Maxwell, (2006)
- Associate Professor Dr Mohaimin Ayus case notes on negligence