Jakub already owns 3% of the shares in Ravensworth plc. Relying on its published accounts, which carry an unqualified audit report from Pell & Co, he buys a further 20% of the shares. The auditor had negligently failed to spot that inventory was overstated, and the value of Jakub's shares falls when this comes to light. Pell & Co knew nothing of Jakub's plans. Applying Caparo, does Pell & Co owe Jakub a duty of care in respect of his new purchase?

Correct answer: B) No, because the statutory audit is for the shareholders as a body to oversee management, not to guide individual decisions to buy shares

Explanation

In Caparo the claimant was already a shareholder when it bought more shares relying on the audited accounts. The House of Lords held that the statutory audit report is prepared for the shareholders as a body so that they can exercise their governance rights, not to help individual shareholders or investors decide whether to buy shares. Being a shareholder therefore does not give Jakub a duty of care for his investment decision. Foreseeability and causation are not enough without proximity, and auditors can owe a duty to particular third parties where they know the accounts will be relied on for a specific transaction.