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[2016] ZAWCHC 47
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Herrie Windsor Construction (Pty) Ltd v Raubenheimers Inc (7533/2015, H245/2013) [2016] ZAWCHC 47 (22 April 2016)

IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CIRCUIT LOCAL DIVISION, GEORGE)
CASE
NO: 7533/2015
H245/2013
DATE:
22 APRIL 2016
REPORTABLE
In
the matter between:
HERRIE
WINDSOR CONSTRUCTION (PTY)
LTD
.............................................................
Plaintiff
And
RAUBENHEIMERS
INC
........................................................................................................
Defendant
Coram:
Yekiso, J
Dates
of Hearing: 7, 8, 9 September 2015 & 19 November 2015
Date
of Judgment: 22 April 2016
JUDGMENT
YEKISO,
J
[1]
Legal
advice by a legal practitioner to a non-client has a potential to
expose the legal practitioner concerned to liability should
the
non-client act to its detriment following that advice.  However,
in order to attract liability, it will have to be established
in
respect of the legal practitioner concerned that it owed the
non-client a legal obligation to act reasonably and, in particular,
a
duty not to make a negligent representation.  In this judgment I
find that a legal practitioner is liable to a non-client
on the basis
of failure to act reasonably and on the basis of negligent
representations which, in itself, constitutes a basis for
liability.
The reasons for holding the legal practitioner liable are contained
in the judgment which follows.
[2]
On 29
January 2010 and at George, in the province of the Western Cape,
Herrie Windsor Construction (Pty) Ltd, a company with limited

liability incorporated in terms of the laws of the Republic of South
Africa (“plaintiff”) concluded a lease agreement
with
Parexel International South Africa (Pty) Ltd (“Parexel”),
similarly a company with limited liability incorporated
in terms of
the company laws of the Republic of South Africa.  At the time
of the conclusion of the lease agreement the plaintiff
was
represented by one of its directors, J J Sieberhagen (“Sieberhagen”),
whilst Parexel was represented by A T Smith
(“Smith”),
one of its directors.  That agreement superseded an earlier
lease agreement concluded between the parties
on 1 July 2005.
[3]
At
the time of the conclusion of the lease agreement, the plaintiff was
the owner of a sectional title scheme known as Windsor Park
situate
at erf 19787, George, in the province of the Western Cape (“Windsor
Park”) and erven 1308 and 1309, George,
in the province of the
Western Cape (“the Windsor houses”).  Parexel leased
the Windsor houses and a portion of
Windsor Park (“the George
premises”).
[4]
It was a
material term of the lease agreement that the lessee would have an
option to renew the lease for a further period of five
years
commencing from 1 July 2010.  In terms of clause 13 of the lease
agreement the lessee would, if so required in writing
by the lessor,
restore the premises on termination of the lease agreement to the
condition the premises were prior to any alteration,
addition or
improvements effected thereon.   Parexel exercised its
option to renew the lease so that same was valid and
binding until 30
June 2015.
[5]
Parexel
utilised the leased premises for a specific purpose of testing
medicine.  Its main core of business was to contract
with
pharmaceutical companies to pre-test products the pharmaceutical
companies wished to release in the market. The pre-testing
and
accreditation of medicine is a specialised industry and, in order to
achieve optimal quality exercise, Parexel procured specialised
and
very expensive equipment which it had to have installed in the leased
premises over and above other alterations, additions
and improvements
it had to have effected.  Although a South African based company
operating from the leased premises in George,
Parexel was an
international company with its parent company based in the USA.
Dr Michelle Vivienne Middle (“Dr Middle”)
was one of its
directors.
[6]
Later
during 2010 Parexel announced that it would withdraw its operations
in South Africa.  Dr Middle, who happened to be a
director of
both Parexel and the plaintiff, and, thus, co-owner of the leased
premises, (she had a 10% shareholding in the property)
seized the
opportunity and decided to set up and start off the same business for
her own account under the name of Ubuntu utilising
an entity Ibunti
Trade 56 (Pty) Limited (“Ibunti”) as a vehicle to procure
the business from Parexel as a going concern.
Dr Middle and one
Daniel Petrus Wessels were the only directors of Ibunti at the
relevant time.
[7]
Dr Middle
approached Parexel and commenced negotiations with a view to procure
Parexel’s business as a going concern.
Parexel agreed to
the proposal subject to two conditions, the first being that there
would have to be concluded a sub-lease agreement
between Parexel and
the entity Dr Middle had intended to utilise in procuring and taking
over the business from Parexel.
In the event the suggested
sub-lease agreement being concluded between Parexel and the new
entity, Parexel would guarantee rental
payment for the duration of
the remaining period of the lease.   The second condition
was that Dr Middle could acquire
the equipment installed at the
leased premises for no consideration at all but that, as a
quid
pro quo
, Parexel required to be
released from its obligation arising from the restoration clause.
It was estimated that it would
cost approximately R8m to restore the
premises to the condition they were prior to any alterations,
additions and improvements
effected thereon.
[8]
In the
course of the operation of the lease agreement Parexel added fixtures
and effected certain improvements in the form of additions
and
alterations to the premises.  These were with the prior written
consent of the plaintiff.  The costs of restoring
the premises
to the condition they were prior to such additions and alterations,
as has already been pointed out, were estimated
to be in an amount of
R8m.  In the ensuing negotiation to procure Parexel’s
business operation, it was ultimately agreed
that Parexel would enter
into a sub-lease agreement with Ibunti, to be countersigned by the
plaintiff, in terms of which the George
premises were to be sub-let
to Ibunti.   It was further agreed that any and all
liabilities to have been borne by Parexel
in respect of restoration
costs would be assumed by Ibunti.  But Ibunti, being a start-up
company, did not have R8m to meet
the estimated restoration costs.
[9]
Dr Middle
discussed the idea of taking over the business of Parexel as a going
concern with the plaintiff’s board of directors.
At the
time plaintiff had five directors.  Dr Middle was part of that
board.  Johannes Zaaiman, who testified in plaintiff’s

case at this trial, is one of the five directors.   The
plaintiff’s board of directors were prepared to accommodate
Dr
Middle in her endeavour and, to this end, were prepared to consent to
the conclusion of the sub-lease agreement between Parexel
and Ibunti,
subject to plaintiff’s interest flowing from the head lease
agreement being fully protected.  It was anticipated
that it
would be a tripartite agreement which would also require plaintiff’s
signature.  After numerous discussions
amongst the plaintiff’s
board members, which included Dr Middle, it was agreed that, in order
to achieve the stated objective,
plaintiff would waive its rights
arising from the restoration clause, thereby releasing Parexel of its
obligation to restore the
premises to the condition they were prior
to any alterations and additions effected thereon; that Ibunti
assumes the obligation
arising from the restoration clause subject
thereto that Ibunti, for the duration of the sub-lease agreement,
transfer ownership
to plaintiff of all movable goods in the leased
premises and that these conditions be incorporated and/or included in
the proposed
sub-lease agreement.
[10]
From
then on, it was left to Dr Middle to instruct her attorneys to draw
the proposed sub-lease agreement between Parexel and Ibunti,
which
would have had to be countersigned by plaintiff; and would have had
to incorporate a clause in terms of which ownership of
all
improvements, equipment and movable assets in the lased premises
transferred from Parexel to Ibunti.   Ibunti, in
turn,
would have to incorporate in the sub-lease agreement a clause in
terms of which ownership of the movable assets would be
transferred
to the plaintiff, such transfer to endure for the duration of the
remaining period of the lease. The transfer of ownership
of movable
assets would be in exchange of plaintiff waiving its right against
Parexel arising from the restoration clause.
Dr Middle had
expressly agreed to these terms.  Dr Van Breda, of the defendant
firm of attorneys, who acted for Dr Middle,
was to attend to the
drafting of the sub-lease agreement.   Dr Middle acted in
her capacity as the director of Ibunti
when she instructed Dr Van
Breda to draw the proposed sub-lease agreement.
[11]
In
the course of the drafting of the sub-lease agreement, Dr Middle was
in constant contact and frequently communicated with her
fellow
directors in plaintiff’s board.  Similarly, plaintiff’s
other directors (Sieberhagen and Zaaiman) were
in constant contact
and regularly communicated with Dr Middle.  One such
communication was by way of an email of 17 June 2011
sent by
Sieberhagen to Dr Van Breda and copied to Dr Middle. The email reads
as follows:
“
Ingesluit
hierby is die basis waarop ek en Johan vanoggend met Michelle gepraat
en ooreengekom het.
Item
4 is nog nie gefinaliseer nie en Michelle sal kommentaar daarop
lewer.  Ons het egter baie sekuriteite tov die bostaande
gebou
en meubelment en gegewe dat Michelle nie sommer sal misluk nie, is
hierdie voorstel slegs geldig indien Michelle die besigheid
verkoop
binne ‘n sekere tydperk.  Hierdie item is tussen HWC en
Newco (Michelle) en het nie enige invloed op haar
relings/onderhandelings
met Parexel nie.”
[12]
The
email referred to in the preceding paragraph was preceded by an email
of 15 June 2011 sent by Zaaiman to Dr Middle and copied
to Dr Van
Breda.  That email refers to a meeting of the plaintiff’s
board of directors at which Dr Middle was present.
Attached to
this email is a document entitled “Finale Ooreenkoms –
Michelle, Parexel + HWC” the reference being
to Dr Middle,
Parexel and the plaintiff.   This email conveys a clear and
express agreement between Ibunti and plaintiff
that ownership of the
movable assets in the leased premises would be transferred from
Parexel to Ibunti and that Ibunti, in turn,
would incorporate in the
sub-lease agreement, to be drawn by Dr Van Breda, a clause in terms
of which movable goods in the leased
premises would be transferred to
plaintiff.
[13]
Prior
to the conclusion of the final draft of the proposed lease agreement,
and by way of an email dated 28 July 2011 sent by Zaaiman
to Dr
Middle, and copied to Dr Van Breda, the following was conveyed to Dr
Middle:
“
Die
hele aangeleentheid gaan oor die uitgooi van die ‘Restoration
clause’ By be-eindiging van Parexel se kontrak sou
ons ‘geld’
kon kry om die gebou terug na kantore te verander.  In jou geval
by voortydige staking van besigheid
kry ons ‘n ingerigte
gemeubileerde gebou vir ‘n moontlike ‘hospitaal’
huurder.  By hernuwing van ‘n
verdere termyn is die
verdere huurkontrak ons bate en doen ons dan afstand v/d sessie op
die ‘movable’ items.
Indien ‘n verdere huur
termyn nie realiser nie en ons nie die ‘movables’ by
verstryking v/d huurtermyn kan opeis
nie, het ons niks om die gebou
verhuurbaar aan ‘n nuwe party te kry nie.”
The
email conveyed in the clearest possible terms that, as security
against waiver by plaintiff of its right arising from the restoration

clause, a clause had to be inserted in the proposed sub-lease
agreement in terms of which ownership of movable assets would be

transferred to plaintiff.
[14]
Sometime
between the middle of June 2011 and the end of July 2011, and in the
course of the preparation and the drafting of the
proposed sub-lease
agreement, Dr Van Breda telephoned Zaaiman and, in the course of such
telephonic conversation, Dr Van Breda
pointed out to Zaaiman that
because he, (Dr Van Breda) was not furnished with an inventory of the
movable assets which Ibunti had
agreed to have transferred to the
plaintiff; and because, in the nature of things, movable assets could
change in the course of
the sub-lease agreement, the best way to
achieve the protection sought by the plaintiff could be by way of
incorporating a clause,
in the sub-lease agreement, in terms of which
Ibunti would, in the event of it (Ibunti) ceasing business operation
before the expiry
of the sub-lease agreement, transfer ownership of
all improvements, equipment and other movable assets to plaintiff.
The
plaintiff, through Zaaiman, accepted that advice.
[15]
The
advice given by Dr Van Breda was ultimately incorporated in the
sub-lease agreement in the form of clause 4 under the heading

“Movable Goods” which reads as follows:
“
Should
the sub-lessee, before the expiry date, discontinue the business
conducted by it on the premises or not renew the lease for
at least
two years, the sub-lessee shall deliver and transfer to the landlord
its right, title and interest in and to all movables
owned by it as
used in its business on the premises.”
[16]
The
waiver by plaintiff of its right against Parexel arising from the
restoration clause was communicated to Parexel by way of a
letter
dated 16 August 2011 which bears the heading “Waiver of Claim
against the Lessee for Restoration Costs”.
The waiver
itself is contained in paragraph 5 of the letter.  It reads as
follows:
“
The
lessor hereby waives any and all claims of whatsoever nature which it
may have against the lessee or in the future in respect
of the
restoration costs and undertakes to recover such restoration costs
from the sub-lessee in accordance with the sub-lease
agreement.”
[17]
The
contemplated transfer to the plaintiff of ownership of the movable
goods, its purpose and the thinking behind it, was clearly
set out in
the summary compiled by Sieberhagen and transmitted to Dr Van Breda
as early as 17 June 2011.  The document containing
this summary,
which the plaintiff referred to as “Finale Ooreenkoms”,
was transmitted to Dr Middle with instructions
that it be given it to
Dr Van Breda.   Dr Middle, in turn, transmitted the
document to Dr Van Breda as an attachment
to her email of 17 June
2011.   The impression on the part of the plaintiff’s
board was that in drawing the lease
agreement, Dr Van Breda would act
on behalf of both plaintiff and Ibunti.  Dr Van Breda, on the
other hand, in drawing the
sub-lease agreement, was aware of the
nature of the protection the plaintiff sought in the event of Ibunti
ceasing business operation
before the expiry of the sub-lease
agreement.
[18]
The
relevant portion of the summary compiled by Sieberhagen and
transmitted to Dr Van Breda via Dr Middle, reads as follows:
“
Ten
einde die gebou in die toekoms aan ‘n ander huurder te verhuur
indien Newco sou staak met besigheid, word daar ‘n
sessie vir
die los toerusting en inhoud met Newco onderteken waar hierdie
toerusting en inhoud aan HWC oorgedra word.  Hierdie
sessie bly
in plek vir ± 4 jaar (verstryking van huidige huurkontrak).
Na
4 jaar:
Indien
Newco na die huurkontrak staak met besigheid bly die sessie in plek
en word die toerusting na HWC oorgedra.”
[19]
The
sub-lease agreement and the supplement thereto was signed by Zaaiman,
on behalf of plaintiff, on 3 August 2011 and by Dr Middle,
on behalf
of Ibunti, on 17 August 2011.  Based on the sub-lease agreement
Ibunti took over Parexel’s Business of testing
medicine for its
own account.  In doing so, it concluded contracts with
pharmaceutical companies to test their pharmaceutical
products prior
to their release to the market.  However, things did not go as
anticipated as some of the contracts concluded
were either cancelled
or postponed by some pharmaceutical companies, thereby severely
affecting Ibunti’s income.  Under
these circumstances,
voluntary liquidation was the only option.   Ibunti, which
subsequently changed its name to Q Dot
Pharma (Pty) Ltd, was
provisionally liquidated on 7 June 2012.  The provisional
liquidation order was confirmed on 17 August
2012.  Upon
liquidation of Ibunti, the liquidators took possession and ownership
of all movable goods in the leased premises.
Plaintiff’s
endeavour to claim the goods from the liquidators did not succeed.
[20]
The
evidence of Zaaiman was, to a large extent, based on communication,
by way of email exchanges, between Sieberhagen and Zaaiman
on behalf
of plaintiff on the one hand, and Drs Middle and Van Breda on the
other hand.   The thrust of the communication
in these
emails was security for the plaintiff, pursuant to release of Parexel
of its obligation arising from the restoration clause,
in the event
Ibunti ceased business operation prior to the expiration of the
sub-lease agreement.  Once Zaaiman had concluded
his testimony,
plaintiff closed its case.  The defendant, on the other hand,
elected not to call any witness and closed its
case.
THE
DEFENDANT’S PLEA
[21]
As
pointed out in the preceding paragraph, the defendant closed its case
without calling any witness.  Its stance to the claim
by the
plaintiff against it, prior to the commencement of trial, can thus be
gleaned from the pleadings.  In paragraph 8 of
its amended plea
the defendant denied having received an instruction from Dr Middle to
prepare the then contemplated sub-lease
agreement.  In paragraph
8.3 thereof the defendant pleads as follows:
“
8.3
At all material times the plaintiff, Parexel and Ibunti duly
represented by its various office bearers and without
any
intervention, assistance or advice otherwise, agreed upon the terms
and conditions applicable to the sub-lease and supplementary

agreement
in ter se
.
Defendant did not hold any instructions from either Parexel or the
plaintiff and advised only Ibunti.”
[22]
The
defendant’s stance, through cross-examination of Zaaiman by
defendant’s counsel, was that the understanding between
the
plaintiff’s board and Dr Middle was that the document the
parties referred to as the “Finale Ooreenkoms”
would
merely be presented to Dr Van Breda only to be converted into a more
formal legal document and did not constitute any formal
instruction
in this regard.
[23]
Further,
the defendant, in paragraph 10 of its plea, initially denied the
telephonic discussion which allegedly took place between
Zaaiman and
Dr Van Breda as alleged by the plaintiff.  Furthermore, the
defendant also denied the very receipt of the handwritten
“Finale
Ooreenkoms” by Dr Van Breda.  The receipt thereof was only
admitted when the defendant was confronted
with an application to
make discovery of its file so that receipt thereof could be
demonstrated.  And further, apart from
denying the very
telephonic discussion which allegedly took place between Zaaiman and
Dr Van Breda, the defendant similary denied
the advice allegedly
given in the course of that telephonic discussion. It was only in the
course of defendant’s counsel
putting his client’s
version to Mr Zaaiman towards the conclusion of his
cross-examination, that it appeared to have been
conceded that the
discussion did indeed take place.
[24]
In
the further instance the defendant, in paragraph 11.3 of its plea,
denied the fact of the telephonic discussion between Zaaiman
and Dr
Van Breda and, as has already been pointed out, the advice given in
the course of such a telephonic discussion.
Zaaiman was
cross-examined at length with regards to the alleged telephonic
conversation, ostensibly on the premise that the alleged
telephonic
conversation would be placed in issue.  However, towards the
close of Zaaiman’s cross-examination and when
defendant’s
counsel was enjoined to put his client’s version to Zaaiman it
became apparent, on the basis of statements
put to Zaaiman, that such
telephonic conversation did in fact take place.
[25]
Despite
statements on these issues having been put to Zaaiman and the issue
of the receipt of written instructions and the telephonic

conversation having been raised in cross-examination, Dr Van Breda
was not called to testify in order to put such statements and

assertions into a proper perspective.
[26]
In
the final analysis in the instance of this matter, the plaintiff
complains that it suffered loss as a consequence of failure
by the
defendant, through one of its directors in the person of Dr Van
Breda, that the latter, in drafting a sub-lease agreement
between
Parexel and Ibunti, omitted to provide the security plaintiff
required in the sub-lease agreement in terms of which plaintiff
would
secure ownership of the movable assets in the leased premises in the
event Ibunti ceased business operation before the expiry
of the lease
and that such omission or failure constitutes negligence which
attracts liability.
[27]
As
plaintiff was not the party who instructed the defendant to prepare
the agreement (such instructions having been given by Dr
Middle to Dr
Van Breda on behalf of Ibunti) the issues which arise are whether the
defendant, in the circumstances of this matter,
owed the plaintiff a
legal obligation to act reasonably in preparing the sub-lease
agreement, due regard had to the various communications
between the
plaintiff and the defendant (via Dr Middle) by way of email exchanges
and, in particular, pursuant to a telephonic
conversation between
Zaaiman and Dr Van Breda in terms whereof Dr Van Breda advised
Zaaiman with regards to the contents of the
clause in the sub-lease
agreement on the basis of which plaintiff sought security of
ownership of the equipment and other movable
assets in the leased
premises; whether the defendant, having been made aware of
plaintiff’s concerns with regards to the
required security,
owed the plaintiff a legal duty, in drafting the sub-lease agreement,
to act reasonably in the circumstances
of this matter; and whether
the defendant owed the plaintiff a legal duty not to misrepresent to
the plaintiff that the security
afforded by clause 4 of the sub-lease
agreement provided the kind of security sought by the plaintiff.
[28]
In
a nutshell, the question is whether the defendant, in drafting the
sub-lease agreement, owed plaintiff a duty to act reasonably
and
whether the alleged failure by the defendant in formulating a clause
in the sub-lease agreement which fell short in providing
the
plaintiff the kind of security sought, and in terms of which
ownership of the movable assets in the leased premises would vest
in
plaintiff for the duration of the lease, as opposed to such ownership
only vesting in plaintiff on cessation of business operation
by
Ibunti.
[29]
Thus,
the question I am called upon to determine is the question as to
whether, as a consequence of the defendant’s alleged
failure to
provide plaintiff with the kind of security sought, constitutes
negligence which attracts liability by the defendant
in favour of
plaintiff arising from such alleged failure.  This, of course,
would depend whether the defendant had a duty
towards the plaintiff
to draft the contract in a reasonable manner and in the manner
required by plaintiff, which duty could lie
either by way of a
contractual obligation; or a legal duty of care; and/or a duty not to
make a negligent representation.
In the determination of this
issue, any one of the aforementioned issues would suffice for the
defendant to attract liability.
THE
LAW
[30]
In
various jurisdictions such as the United States of America; Germany;
the Commonwealth and other civil law and common law jurisdictions

legal advisors have been held liable in delict in respect of their
actions which affect parties other than their own formal clients
in a
wide variety of situations.  Our courts have not had much
opportunity to consider the specific issues relating to attorneys’

liability to non-clients.  There is justification, in my view,
to consider foreign case law dealing with such issues and to
follow
guidance from the approaches followed, and the problems encountered
in those jurisdictions in the resolution of such issues.
It
appears that in Commonwealth and American jurisdictions courts have
had little difficulty in exchanging concepts and ideas in
this area
of the law.
[31]
In
Hawkins v Clayton
1988
79 ACL 69
a firm of solicitors was held liable for failing to draw a
will timeously, causing would be beneficiaries to be disinherited; in
Midland Bank Trust Co Limited and
another v Hett, Stubbs & Camp
[1978]
3 All ER 571
a firm of solicitors was held liable for failing to
register an option to purchase land, causing the grantee of the
option to be
unable to purchase the land because it had already been
sold; in
Trustees of the Property PAF
Foster & others v Crusts
[1986]
BCLC 307
a firm of solicitors was held liable for failing to advise
sureties of a company that a suretyship securing the company’s

debt had to be registered, causing the sureties to lose their right
of subrogation in respect of the suretyship; and in
Penn
v Bristol & West Building Society
[1996]
2 FCR 729
a firm of solicitors was held liable for failing to check
with the wife of their client whether she wished her house to be
transferred,
in a case where the husband co-owner obtained the
transfer by fraudulent means.  In all these cases the omission
by the firms
of solicitors concerned attracted liability to
disappointed beneficiaries from whom they had no formal instructions
or any form
of contractual nexus.
[32]
J
R Midgley, in his work
Lawyers’
Professional Liability
1992, in a
chapter dealing with liability to non-clients, and at p92 of his
work, cites the authority of
Biakanja v
Irving
49 Cal 2d 647
where the
California Supreme Court, in the determination of liability to a
non-client, said the following:
The
determination whether in a specific case the defendant will be held
liable to a third person not in privity is a matter of policy
and
involves the balancing of various factors, among which are the extent
to which the transaction was intended to affect the plaintiff,
the
foreseeability of harm to him, the degree of certainty that the
plaintiff would suffer injury, the closeness of the connection

between the defendant’s conduct and the injury suffered, the
moral blame attached to the defendant’s conduct and the
policy
of preventing future harm.”
[33]
Midgley,
still at p92 of his work, refers to a further authority in the form
of
Lucas v Hamm
56
Cal 3d 583
, 15 Cal Rptr 821,
364 P 2d 685
(1961) which the California
Supreme Court had an opportunity to consider not long after
Biakanja
v Irving.
In that case an
attorney had negligently drafted a will and the beneficiaries sued.
In that case the court incorporated
an additional factor for
consideration into the
Biakanja
test,
namely, the profession’s interest.  Midgley notes that the
court, on that occasion, deleted the moral blame standard
from the
Biakanja
formulation.
The balancing test was therefore formulated to include:
“
the
extent to which the transaction was intended to affect the plaintiff,
the foreseeability of harm to him, the degree of certainty
that the
plaintiff would suffer injury, the closeness of the connection
between the defendant’s conduct and the injury…
the
policy of preventing future harm… [and] whether the
recognition of liability… would impose an undue burden on
the
profession”
.
In
this authority the court held that since the burden of the profession
would be the same if the clients were plaintiff, no reason
prevented
it, in cases where the other factors indicated the existence of
liability, from extending relief to third parties.
[34]
Several
other authorities in the Commonwealth, such as
Whittingham
v Crease & Co
[1978] 5 WWR 45
a
decision of the British Columbia Supreme Court in the province of
British Columbia, Canada;  the decision of the Australian
Court
in
Watts v Public Trustees Western
Australia
[1980] WAR 97
; the New
Zealand Appeal Court in the matter of
Cartside
v Sheffield, Young & Ellis
[1983]
NZLR 37
; and the Scottish Supreme Court in the matter of
Weir
v JM Hodge & Son
[1990] SLT 266
all
of which appear to follow the same approach adopted in
Biakanja
v Irving
and
Lucas
v Hamm
, supra.
[35]
There
are several cases in South Africa where legal advisors were found to
be liable to non-clients for professional liability,
such as in
circumstances where an attorney negligently advised a trustee to act
with a trust in a way that a capital beneficiary
suffered damage as
was the case in
Jowell v Bramwell-Jones
& others
1998 (1) SA 836
(WLD) at
894A-895I; for drafting a will negligently causing it to be invalid
with the consequence that beneficiaries were disinherited
as was the
case in
Pretorius & andere v
MacCallum
2002 (2) SA (C) at 423K.
[36]
Basil
Wunsh, in an article published in
Tydskrif
vir die Suid-Afrikaanse Reg
at p58-59,
opines that there is no conceptual obstacle in our law to an attorney
being held liable in delict to a non-client for
damages caused by
negligence.   He refers to the authority of
Arthur
E Abrahams & Gross v Cohen & others
1991
(2) SA 301
(C), a matter which was decided on exception, where the
court held that the plaintiffs could have a claim arising out of the
failure
of the defendants, a firm of attorneys employed by the
executors of a deceased estate to do work  for the executor, to
inform
the plaintiffs that they were beneficiaries under a
retirement-annuity policies taken out by the deceased and that they
were required
to return signed discharge forms to the insurers,
resulting in a five-year delay in payment.  In granting the
relief sought
Marais J at 309D-F summed up the position as follows:
“
a
defendant may be held liable
ex delicto
for causing pure economic loss
unassociated with physical injury, but before he is held liable it
will have to be established that
the possibility of loss of that kind
was reasonably foreseeable by him and that in all the circumstances
of the case he was under
a legal duty to prevent such loss
occurring.  It is not possible or desirable to attempt to define
exhaustively the factors
which would give rise to such a duty because
new situations not previously encountered are bound to arise and
societal attitudes
are not immutable.  However, that does not
mean that capriciousness in the adjudication of claims of this kind
is permissible.
If liability is to be imposed, a court must
satisfy itself that there are adequate grounds for doing so, and be
able to say what
they are.”
CONTRACTUAL
LIABILITY
[37]
As
is evident from the discussion in Midgley:
Lawyers’
Professional Liability
1992, supra, at
pp90-91 lawyers, despite being formally retained and paid by one
client only, in certain circumstances, inevitably
also act for other
parties and that by entering into a contractual relationship a lawyer
accepts an additional client.  This
is normally referred to as
the “privity doctrine”.
[38]
The
privity doctrine is best illustrated by Sir Robert Megarry VC in
Ross
v Caunters
(a
firm)
[1979] 3 All ER 580
(Ch) where
the learned judge made the following observation:
“
(1)
A solicitor who was instructed by his client to carry out a
transaction to confer a benefit on
an identified third party owed a
duty to that third party to use proper care in carrying out the
instructions because:
(i)
It was not inconsistent with the
solicitor’s liability to his client for him to be held liable
in tort to the third party,
having regard to the fact that the
solicitor could be liable for negligence to his client, both in
contract and in tort;
(ii)
There was a sufficient degree of proximity
between a solicitor and an identified third party for whose benefit
the solicitor was
instructed to carry out a transaction for it to be
within the solicitor’s reasonable contemplation that his acts
or omission
in carrying out the instructions would be likely to
injure the third party; and
(iii)
There were no reasons of policy for holding
that a solicitor should not be liable in negligence to the third
party, for the limited
duty owed to him of using proper care in
carrying out the client’s instructions differed from the wider
duty owed to the
client of doing for the client all that the
solicitor could properly do, and far from conflicting with or
diluting the duty to
the client, was likely strengthened.
(2)
The fact that the plaintiff’s claim in negligence was for
purely financial loss,
and not for injury to the person or property,
did not preclude her claim, for, having regard to the high degree of
proximity between
her and the solicitors arising from the fact that
they knew of her and also knew that their negligence would be likely
to cause
her financial loss, the plaintiff was entitled to recover
the financial loss she had suffered by their negligence.”
[39]
This
point is further illustrated by Wunsh in an article “Aspects of
the Contractual and Delictual Liability of Attorneys”,

published in
Tydskrif vir die
Suid-Afrikaanse Reg,
supra, at p9 where
he notes that there is in our law no reason why a client’s
mandate in terms of which an attorney acts,
cannot be analysed as a
contract which,
inter alia
,
confers rights on the non-client as a third party, so that
non-clients remedy against the attorney will be based on contract.
DELICTUAL
LAIBILITY (LEGAL DUTY)
[40]
In
the matter of
Lucas v Hamm,
cited
in paragraph [32] of this judgment, the California Supreme Court took
the view that a third party action could be founded
in contract or in
delict.  In a further authority of
Heyer
v Flaig
70 Cal 2d 223
,
449 P 2d 161
, 74
Cal Rptr 225 (1969), the California Supreme Court held that the
contractual theory, on the basis of which solicitors could
be
contractually held liable to third parties, was “conceptually
superfluous since the crux of the action must lie in tort
in any
case”.  In that authority, Tobriner J stated the
following:
“
The
duty thus recognised in
Lucas
stems from attorney’s undertaking to perform legal services for
the client but reaches out to protect the intended beneficiary.

We impose this duty because of the relationship between the attorney
and the intended beneficiary; public policy requires that
the
attorney exercises his position of trust and superior knowledge
responsibly so as not to affect adversely persons whose rights
and
interests are certain and foreseeable.”
[41]
Midgley,
in his work
Lawyers Professional
Liability
1992, supra, navigates
several authorities in the United States of America and concludes
that in Anglo- American law two tests have
been used to determine
whether contracting parties owe third parties any delictual duties,
these being: foreseeability tests and
the multi-criteria balancing
tests.  Midgley further notes that traces of both approaches can
be found in our law of delict,
but the foreseeability tests, so he
opines, has lost much of its influence.  Thus, following
guidelines as illustrated in
foreign case law, the court’s
decision as to whether liability will be founded or not depends on
policy considerations and
the multi-criteria balancing tests.
The policy considerations would include factors such as
foreseeability of harm; knowledge
of the extent to which  the
transaction was intended to affect non-clients; reliance on opinion
given; and potential excessive
burden on the profession, amongst
other factors to be taken into account.
[42]
Midgley,
in dealing with this topic, concludes that in South Africa the
foreseeability test has been the subject of judicial and
academic
scrutiny in recent years.   He cites the debunking of the
duty of care concept by the Appellate Division in
Administrateur,
Natal v Trust Bank van Afrika Bpk
1979
(3) SA 824
(A) where foreseeability of harm was relegated from being
the dominant test for wrongfulness to be merely another factor to be
considered in conjunction with others.  He concludes that
Arthur
E Abrahams & Gross v Cohen & Others,
supra,
a case involving lawyers’ liability to non-clients, is an
example of the application of the foreseeability requirement
in much
the same manner as the English and American Courts.
MISREPRESENTATION
[43]
In
as far as misrepresentation is concerned, once again, Midgley at p109
and the following pages, notes that where a lawyer makes

representations which are relied upon by a third party, there is no
need to deviate much from the usual criteria of delictual liability.

As a general rule, a lawyer who intentionally or negligently
misrepresents a fact or situation to a third party acts unlawfully.

This is no more than an application of the general principle stated
in
Administrateur, Natal v Trust Bank
van Afrika Bpk,
supra, at 824 where the
Appellate Division held that in appropriate circumstances a claim
lies in delict for pure economic loss
and that a negligent
mis-statement can give rise to a delictual liability.
EVALUATION
[44]
Based
on the guidance and approaches followed in foreign case law on the
question of attorneys’ liability to a non-client,
I shall now
proceed to determine, based on the evidence and facts found to be
proved, if a case has been made out for the relief
the plaintiff
seeks.  In the determination this issue, it is worth repeating
that once the plaintiff’s board of directors
had consented to
the conclusion of the sub-lease agreement between Parexel and Ibunti,
the plaintiffs insisted on the inclusion
in the sub-lease agreement
of a clause in terms of which Ibunti would transfer ownership of the
equipment and other movable goods
in the leased premises to the
plaintiff; although Ibunti would retain physical control of the
equipment in the leased premises,
ownership thereof would vest in
plaintiff as a quid pro quo for the release of Parexel of its
obligation arising from the restoration
clause; that delivery of the
equipment and other movable goods, in the circumstances of this
matter, would thus be in the form
of
constitutum
possessiorum
in terms of which the
transferor (Ibunti) would retain physical control of the goods,
ownership of which the transferor had agreed
to transfer to the
plaintiff; and that Ibunti would retain possession of such goods on
behalf of plaintiff. (See Badenhorst
et
al
: Silberber & Schoeman’s
The Law of Property
5
th
ed. At p188)
[45]
The
insistence by plaintiff on transfer of ownership was contained in the
document entitled “Finale Ooreenkoms” transmitted
by
Sieberhagen to Dr Middle for onward transmission to Dr van Breda.
In the course of the preparation of the sub-lease agreement
Dr Van
Breda telephoned Zaaiman when the former (Dr Van Breda) pointed out
to Zaaiman that because he (Van Breda) had not been
furnished with
the inventory of the movable goods which Ibunti had agreed to be
transferred to the plaintiff; and that because
movable goods could
change in the course of the sub-lease agreement, the best way to
achieve the form of security the plaintiff
sought could be by way of
incorporating in the sub-lease agreement a clause in terms of which
Ibunti would transfer ownership of
the movable assets to the
plaintiff in the event Ibunti ceases business operation before the
expiry of the sub-lease agreement.
As it turned out, this form
of security did not materialise as the movable goods were seized by
the liquidators on the granting
of the final order of liquidation.
The plaintiff’s claim to the liquidators for the release of the
goods to it was
unsuccessful.
[46]
Dr
Van Breda did not have formal instructions from the plaintiff to
protect its interests.  Dr Van Breda had formal instructions

from Dr Middle.  But, Dr Van Breda knew at the time of the
drafting of the lease agreement the interest the plaintiff sought
to
protect and the incorporation thereof in the sub-lease agreement.
The interest sought to be protected is clearly set out
in the
document entitled “Finale Ooreenkoms” and other email
exchanges.  As pointed out by Sir Robert Megarry
VC in
Ross
v Caunters (a firm)
, supra, “a
solicitor who [is] instructed by his client to carry out a
transaction to confer a benefit on an identified third
party owed a
duty to that third party to use proper care in carrying out the
instructions”.  Mindful of the plaintiff’s
concerns
with regards to the security the plaintiff sought and the interest
sought to be protected, Dr Van Breda clearly had a
duty to use proper
care in favour of the plaintiff in carrying out his instructions.
[47]
With
regards to the telephonic conversation between Dr Van Breda and
Zaaiman which, on the probabilities I do find did take place,
a
contractual relationship came into being once Dr Van Breda offered
Zaaiman an advice and Zaaiman, on behalf of plaintiff, accepted
the
advice given.  It later turned out that the advice so given did
not afford the plaintiff the form of security it sought
and thus, the
defendant, in the person of Dr Van Breda, failed to carry out a duty
of care it owed to plaintiff.  The assurance
to the plaintiff
that the advice given would provide the plaintiff with the security
it sought was thus clearly a misstatement
which constitutes a basis
for liability.
[48]
I
have already pointed out elsewhere in this judgment that Zaaiman was
the only witness who testified at trial.  The evidence
of
Zaaiman was satisfactory in all material respects; he was a
forthright witness at all levels; he gave evidence which, at
virtually
every level, was supported by the documentation which was
exchanged at the time; the evidence so given was entirely logical,
and
in any event, remained uncontested throughout this trial.
The evaluation of the evidence and the conclusion arising therefrom

is thus be based on the evidence tendered by Zaaiman.  It is
worth noting that in none of the authorities referred to in
paragraphs [36] to [41] of this judgment was there a direct
communication between the legal practitioners concerned and the third

party, yet the legal practitioners concerned were held to be liable.
In the instance of this matter, there is evidence of
a direct
communication with a third party in the form of the telephonic
conversation between Zaaiman and Dr Van Breda which, in
my view,
strengthens the degree of proximity between the defendant, in the
person of Dr Van Breda, and the plaintiff.
[49]
In
conclusion I find that the defendant is liable to the plaintiff for
such damages the plaintiff may have suffered by reason of
the fact
that ownership of the equipment and the other movable goods in the
then leased premises had not been transferred to the
plaintiff.
N
J Yekiso
Judge
of the High Court
Counsel
for Plaintiff: Adv R S Van Riet SC
Adv
F J Smuts
Attorneys
for Plaintiff: JS Marais & Co
Counsel
for Defendant: Adv P E Jooste
Attorneys
for Defendant: Joubert  Galpin & Searle
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CIRCUIT LOCAL DIVISION, GEORGE)
CASE
NO: 7533/2015
H245/2013
REPORTABLE
In
the matter between:
HERRIE
WINDSOR CONSTRUCTION (PTY) LTD Plaintiff
And
RAUBENHEIMERS
INC Defendant
Coram:
Yekiso, J
Judgment:
Yekiso, J
Summary:
Liability of an attorney to a non-client: Basis of liability explored
with reference to international trends
Attorney
found liable to a non-client on the basis of negligent mis-statement
and/or negligent representation.
Counsel
for Plaintiff: Adv R S Van Riet SC
Adv
F J Smuts
Attorneys
for Plaintiff: JS Marais & Co
Counsel
for Defendant: Adv P E Jooste
Attorneys
for Defendant: Joubert Galpin & Searle
Dates
of Hearing: 7, 8, 9 September 2015 & 19 November 2015
Date
of Judgment: 22 April 2016