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parties/their legal representatives by e -mail and by uploading it to the electronic file of
this matter on CaseLines. The date for hand -down is deemed to be10h00 on 24
January 2025.

MALUNGANA AJ
[1] The three plaintiffs instituted a delictual action against the defendant. a firm of
chartered accountants, in which they seek payment of R62,237, 984.50 and R12,
527,049 respectively, for damages arising out of the defendant’s professional
negligence.
[2] The defendant has taken exception to the particulars of claim on the basis that
they are vague and embarrassing and, alternatively they lack the necessary
averments to sustain the cause of action.
[3] Before deal ing with the defendant’s grounds of exception, I find it apposite to
sketch out the salient averments made by the plaintiffs in advancing the
aforementioned claims :
(i) In 2018 the defendant was contracted by Noris Fresh Produce (Pty) Ltd
(“Noris ”) to perform the latter ’s annual audit for the year ending F ebruary
2018.

(ii) At the end of August 2018, the defendant delivered its audit ed report to
Noris. The report is shown in annexure “POC1 ” of the particulars of claim.


(iii) According to the defendant, Noris ’ annual financial statements , presented
fairly, in all material respects , the financial position, statement of
comprehensive income, statement of charges in equity and statement of
cash flows of Noris for the year ended 28 February 2018.

(iv) The financial statements audited by the defendant, and which the defendant
stated in its report were, in all material respects, presented fai rly Noris ’
financial position and income, recorded that Noris ’ revenue for the financial
year ended 28 February 2018, was R1,397,500,863.00.
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(v) In performing its duties and preparin g its report, the defendant acted
negligently a aforesaid figures were false and incorrect and as the result of
transfers of stock between various branches of Noris which were recoded
as sales when they were in fact not. The correct revenue figure for the year
ended 28 February 2018, was in fact R1,03 5,360,075.00.

(vi) The plaintiff avers that the defendant, in conducting the audit of Noris ’
annual financial statements for the relevant year, did not do so with the
requisite professional and reasonable skill and care.


(vii) The defendant knew, or ought to have reasonably known the directors of
Noris intended to use the report to induce the first plaintiff into purchasing
all the issued shares in Noris, at a price based on the report.

(viii) Further, the defendant knew, or to have reasonably known that the plaintiffs
would rely on the opinion, report or statement in concluding the agreement
with third parties, in relation to the purchase of shares in Noris.

(ix) Relying on the defendant ’s report and the correctness of its conte nts


(a) The first plaintiff purchased the shares in Noris on or after May 2020;

(b) The first plaintiff advanced the amount of R12,527,049.00 to Noris
pursuant to the first plaintiff ’s purchase of the shares in Noris, and


(c) The Plaintiffs bound themselves as sureties for Noris, for all amounts
owed by Noris to Mercantile Bank, now owned by Capitec Bank Limited
(“Capitec ”) arising from the purchase of the shares in Noris.

(x) Had the plaintiff been aware of the correct revenue fi gures, they would not
have committed the acts set out in paragraph 12 of the particulars of claim.
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(xi) The defendant owed the plaintiffs a duty to warn it that the report was
incorrect, alternatively that the audit was not properly conducted.


(xii) The defendant failed to issue such warnings, which failure was negligent
and constituted a representation within the meaning of the Audit Profession
Act 26 of 2005, to the effect that the financial statements were accurate and
fairly presented as the financial position of Noris at the end of February
2018.
[4] I now turn to the grounds of exception . According to the excipient’s heads of
argument, there are two grounds of exceptions. The first ground relates to the
plaintiff s’ averments to the effect that defendant owed the m a legal duty to warn
them if the auditor’s report was incorrect, alternatively to warn it if the audit was
not properly conducted. In this regard t he defendant states that if it were
negligent and caused the plaintiff s’ loss, such conduct is not wrongful , in that
auditors do not owe a legal duty to third parties or companies or buyers entering
into transactions with other third parties.
[5] In respect of the two amounts claimed as damages arising out of the negligence
of the defendant, the defendant states that there is no logical or casual
connection between the Defendant allegedly furnishing an incorrect report and;
(a) the first plaintiff purchasing the shares in Noris;

(b) more specifically, the plaintiff advancing the amount of R12 527 049.00.

(c) even more specifically, the plaintiffs binding themselves as sureties for Noris
for all amount owed by Noris to Mercantile Bank, now owned by Capitec
Bank Limited arising out of the purchase of the shares in Noris, and being
allegedly liable for amounts allegedly ow ed by Noris to Capitec.
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[6] The defendant further complain ed that the plaintiff s do not plead that the amount
paid by the first plaintiff to Noris in the sum of R12 527 049.00 was in respect of
the purchase price , but merely allege i t as “an amount paid by the first plaintiff to
Noris.”
[7] Under the circumstances, the defendant alleges that the particulars of claim fail
to disclose the cause of action; alternatively, are vague and embarrassing.
[8] Citing Axiam Holding v Deloitte & Touche 2006(1) SA 237 (SCA) at para 8, the
defendant submitted that the auditors are only accountable to the companies
they audit and not the shareholders or the employees of such company. It is not
liable to buyers entering into transactions with the company. Such liability would
be too remote to accrue.
[9] The next basis upon which the defendant contends that it does not owe the
plaintiff any legal duty is referred to in the case of Cape Empowerment Trust Ltd
v Fisher Hoffman Sithole 2013 (5) SA 183 (SCA) at para 2 1 which dealt with the
element of wrongfulness in the context of pure economic loss. The Court held
the following:
“ …as opposed to a loss of resulting from injury to person or property -
wrongfulness is not presumed. More is needed. Considerations of publ ic and
legal policies dictate whether FHS should be held liable for the loss resulting
from the misstatements of whether it should be afforded legal immunity. …With
reference to these considerations of policy some categories have been
crystallized where le gal liability for pure economic loss will be imposed as a
matter of course (see eg. Telematrix para [15]; Fourways Haulage SA (Pty) Ltd
v SA National Roads Agency Ltd 2009 (2) SA 150 (SCA) para[21]. But negligent
misstatement by an auditor is not one of th ose.
None of these authorities, incidentally, mention the degree of negligence as one
of the considerations and, for the reason given, I believe rightly so. Two
considerations they do mention as relevant in the context of negligence
misstatements are, first, wh ether the representation was made I the business
context a nd in response to a serious request and, secondly, whether the Plaintiff
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was dependent upon the defendant to provide the information or advice
sought. ”
[10] The defendant submitted that the two last cons iderations stated above were not
pleaded by the plaintiffs. Counsel for the defendant argued further that there is
no logical or legal connection between the defendant furnishing an incorrect
report and the plaintiff purchasing the Noris shares or the firs t plaintiff advancing
the amount of R12 527 049.00 to Noris.
[11] The Plaintiffs on the other hand, submitted that the defendant’s exception is
based on the misunderstanding of the plaintiffs’ claim. It construed the plaintiffs’
case as one where the opinion o f the auditor is sent out to the world upon which
the third party places reliance. In actual fact, counsel for the plaintiffs argued that
the auditor in the present case knew and /or ought to have known that an opinion
expressed in respect of annual finan cial statements of the company would be
utilized by shareholders of that company in negotiating a sale agreement with a
purchaser , and would determine the purchase price to be paid in respect of that
sale transaction. Properly interprete d, the case pleaded by the plaintiffs
establishes that the defendant’s conduct was the cause of damages suffered by
the plaintiffs.
[12] In arguing the issue of wrongfulness in relation to negligence, counsel for the
plaintiffs cited Hlumisa Investment Holdings RF Limited and A nother v Kirkinis
and Others [2020]JOL 47567 (SCA) in which the Court held at 61 as follows:
“[61] In Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA
747 (A) this Court had regard to the context in which the alleged negligent
misstatement in that case was made, the purpose for which it was sought and
made, the reliance placed on it by the third party, the relationship between the
parties and finally and significantly for present purposes, public policy and
fairness, and significantly for p resent purposes, public policy and fairness. It is
true that Axiam, having regard to those factors , it was held that the question of
wrongfulness could not be decided at exception stage. The mino rity in Axiam
held that the exception ought to have been uphe ld. As in Standard Chartered
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Bank, this Court in Axiam did not find any policy factors that militated against a
finding at that stage against the auditors being held liable. The facts in Standard
Chartered and Axiam are far removed from the facts in this c ase. In Axiam the
question was whether the auditors of one company owed legal duties to other
companies, who were in the process of negotiating agreements for share
purchases and business financing and for this purpose relied on the audit
statements and op inion which allegedly. Misrepresented the company ’s
financial position. In both cases there was no claim by shareholders based on
a diminution in share value. ”
[13] As in Axiam Holdings v Deloitte & Touche [2005] 4 All SA 157 (SCA), 2006 (1)
SA 237 (SCA) (1 Jun e 2005), the plaintiffs submitted that the appropriate time
for the Court to assess an exception of this nature is at the trial where a full factual
matrix will be placed before the Court.
[14] It is trite law that an exception that a cause of action is not dis closed by a pleading
cannot succeed unless it be shown that ex facie the allegations made a plaintiff
and any document upon which his or her cause of action may be based, the claim
is (not may be) bad in law.1
[15] A delictual action for pure economic loss woul d arise if, in the words of Corbett
CJ in Beyer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A) at 568B: ‘(i) the
defendant or someone for whom the defendant is vicariously liable made a
misstatement to plaintiff, (ii) that in making the misstatement the person
concerned acted (a) negligently and (b) unlawfully (iii) the misstatement caused
the plaintiff to sustain loss and (iv) that the damage claimed represent proper
consideration for such loss.2
[16] It is the duty of the excipient to persuade the court that upon every interpretation
which in the particulars of claim including the contract between the parties, can
reasonably bear, no cause of action is disclosed.3

1 Vermeulen v Goose Valley Investments (Pty) Ltd 2001 (3) SA 986 (SCA) at 997,
2 Van Zyl NO v Kantey & Templer (Pty) Ltd [2005] 4 All SA 225 (C)
3 Lewis v Oneanate (Pty) Ltd and Another 1992 (4) SA 811(A) at 817F -G).
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[17] It is averred in the particulars of claim (paragraph 11) , that when the defendant
prepared the report knew and ought to have reasonably known that Noris
directors intended to use it , including annual financial statements in respect of
which the report was to induce the first plaintiff into purchasing all the iss ued
shares in Noris, as at the price based on the report.
[18] As a point of departure it is instructive to have regard to section 46 (3) of the
Audit ing Profession Act, 26 of 2005 (‘the Act’). It provides that a registered auditor
incurs liability to third pa rties who have relied on an opinion, report or statement
of that registered auditor for financial loss suffered as a result of having relied
thereon, only if it proved that the opinion was expressed or the report or
statement was made, pursuant to a neglig ent performance of the registered
auditor’s duties and registered auditor - (a) knew, or could in particular
circumstances reasonably have been expected to know, at the time when the
negligence occurred in the performance of the duties pursuant to which the
opinion was expressed or the report or statement was made.
[19] A copy of the defendant’s audit report or financial statement, which the plaintiffs ’
claim is predicated upon is shown in the plaintiff’s particulars of claim as
annexure “POC1”.
[20] A close scrutiny of the Act, defines a “third party” as “any person other than a
client.” It follows that if a third party, the plaintiff in this case, is able to establish
a legal duty within the ambit of section 46(3) of the Act, then the auditor in
question would incur liability. In terms of section 46(7) of the Act, a n auditor may
also incur liability to a shareholder, creditor or investor of an entity if the auditor
fails to report a reportable irregularity in accordance with section 45.
[21] Having regard to the provisions of section 46 of the Act and the averments
contained in the plaintiffs’ particulars of claim it cannot be said at this stage of
the exception, that the particulars of claim do not disclose the cause of action.
Much of what has been pleaded by th e plaintiffs are plainly matters for evidence,
which can be properly ventilated at the trial by way of evidence. As in Standard
Chartered Bank of Canada supra, the court will consider the context within which
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