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South Africa: SCA overturns High Court ruling because it exposed attorneys and all creditors to indeterminate liability

13 June 2024
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Overview

  • In 2023, the High Court in Johannesburg delivered a contentious judgment in which it held that a conveyancer/ attorney owes a duty of care to warn a third-party depositor of, and take reasonable steps to guard against, the interception of electronic payments by cyber criminals.
  • With regard to public policy considerations, the High Court found that the omission was wrongful and effectively opened the floodgates to litigation, and exposed attorneys to indeterminate liability by third parties for similar loss.
  • The decision was taken on appeal and, in a ruling handed down on 10 June, Dawood AJ overturned the High Court’s decision, reiterating that the general position in South African law is that wrongfulness for the causation of pure economic loss must be proved based on public policy considerations. The High Court should have appreciated the real danger of indeterminate liability and dismissed the claim.

Last year, the Johannesburg High Court in Hawarden v Edward Nathan Sonnenberg Inc 2023 (4) SA 152 (GJ) awarded a ZAR 5.5 million claim against Edward Nathan Sonnenberg Inc (ENS) for pure economic loss suffered by a third party, Ms Hawarden.

Ms Hawarden was a purchaser in a sale of land agreement and had no contractual relationship with ENS, the conveyancer acting for the seller in the sale. Email correspondence between Ms Hawarden and ENS was intercepted by cyber criminals in a business email compromise (BEC) scam. As a result, ENS’ bank account details were altered, and Ms Hawarden unknowingly transferred the balance of the purchase price into the fraudster’s bank account.

The legal issue for determination was whether ENS, as the conveyancer and attorney for the seller, was delictually liable for the financial loss suffered by Ms Hawarden. In particular, whether ENS owed a legal duty to reasonably prevent the loss suffered by Ms Hawarden and whether its failure to do so was wrongful.  

In 2023, the High Court in Johannesburg delivered a contentious judgment in which it held that a conveyancer/ attorney owes a duty of care to warn a third-party depositor of, and take reasonable steps to guard against, BEC by cyber criminals. With regard to public policy considerations, the High Court found that the omission was wrongful and held ENS responsible. This effectively opened the floodgates to litigation, and exposed attorneys to indeterminate liability by third parties for similar loss.

ENS took the High Court’s decision on appeal and, on 10 June, the High Court judgment was overturned by the Supreme Court of Appeal (SCA), ruling in favour of ENS.

Dawood AJ reiterated that the general position in South African law is that wrongfulness for the causation of pure economic loss must be proved based on public policy considerations. To this end, the risk of indeterminate liability was identified as the main policy consideration against delictual liability for pure economic loss.

The SCA recognised that the finding of the High Court would have profound implications for attorneys as well as all creditors to the extent that they would owe a legal duty to their debtors to protect them against the risk of BEC. As stated by Dawood JA, such a finding is untenable. The High Court should have appreciated the real danger of indeterminate liability and dismissed the claim.

Whilst the plaintiff’s vulnerability to risk is an important policy consideration in favour of a finding of wrongfulness, it is settled law that this is not applicable where a plaintiff could have taken reasonable steps to guard against the loss suffered. 

As Ms Hawarden had ample means available to her, the SCA ruled that she must take responsibility for her failure to protect herself against known risk.

If the High Court’s decision had stood, it would have meant that lawyers and other professionals would have an onerous duty to take steps to safeguard third parties against potentially myriad cyber and other risks. This judgment is good news for professionals and for professional indemnity insurers.