|The First and Second Plaintiffs (“The Plaintiffs”) are respectively employed as the Chief Operating Officer and Chief Executive Officer, in a company duly registered and incorporated in terms of the company laws of the State of Delaware, USA named Reliance Inc (“FMLR”). FMLR is wholly owned by a Netherlands foundation, FML Asset Management (“FMLAM”). The Defendant is VGA Chartered Accountants, represented by Mr. Schalekamp, who acted as the outsourced Chief Financial Officer of FMLAM and FMLR.|
The Plaintiff’s contented that, as a result of the release of a financial report, by the Defendant, alternatively its representative, without having conducted the necessary due diligence into the correctness of such report, the Plaintiffs suffered patrimonial damages and loss of earnings. This contention was premised on the argument that the report represented that FMLAM had access to current assets of US$1 trillion. This representation, the Plaintiff’s argued, caused them to stay in the employ of FMLR, in that FMLAM and subsequently FMLR, had sufficient cash to pay the Plaintiff’s their annual salaries. These salaries were in fact not paid by FMLR to the Plaintiffs.
The Defendant took exception to the Plaintiff’s particulars of claim and alleged the following:
1. the report upon which the Plaintiff’s laid their claim did not contain the representations as contended nor did it disclose a cause of action;
|2. the Plaintiff’s particulars of claim did not contain sufficient averments to sustain a finding of wrongfulness and thus did not disclose a cause of action; and |
3. the damages claimed by the Plaintiffs were too remote to be recoverable from the Defendant.
In assessing the first ground of exception, the court stated that the fact that a foundation has access to cash, does not represent that an unnamed subsidiary of that foundation is possessed of same cash. As such, because FMLAM is the funder of FMLR, this does not necessarily mean that FMLR had enough money to pay the Plaintiff’s salaries. Additionally, the court stated that because the report was the only document relied upon by the Plaintiffs, which document made no mention of them or FMLR, the Plaintiffs would be compelled to seek to interpret, add or modify how they understand the contents of the report.
In this regard, the court made reference to KPMG Chartered Accountants (SA) v Securefin Limited and Another 2009 (4) SA 399 (SCA) and specified that “the parole evidence rule provides that if a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning.” Thus, it was affirmed that the Plaintiffs could not adduce additional evidence to infer the meaning of the report. As such, the representations pleaded by the Plaintiffs were not contained in the report.
Secondly, in establishing if wrongfulness or unlawfulness had been founded by the Plaintiffs, the court held that wrongfulness is not presumed when dealing with pure economic loss. Instead, a policy-based determination of whether legal liability should be imposed on an auditor must be conducted. Additionally, the court found that wrongfulness could be decided upon in exception proceedings.
In this respect, the court stated that an auditor’s knowledge that employees of an entity had not been paid their salaries, did not give rise to a legal duty, owed to such employees when preparing a report to members of the entity. The duty is only owed to the entity to who the report is addressed. The Defendant, or its representative, thus only owed a duty to FMLAM. In consideration of additional factors, the court held that it was not reasonable to impose a legal duty upon the Defendant, to which wrongfulness may be established.
|In her judgement, Ingrid Opperman J, held that the Plaintiff’s particulars of claim did not contain the averments necessary to sustain a cause of action, in respect of both the first and second grounds of exception. The court opined further that the third ground of exception, namely causation, falls to be considered after the hearing of evidence. As such, this ground was not explored further.|
The Plaintiff’s claim was struck out by the court however, the Plaintiffs were granted leave to deliver a notice of intention to amend their particulars of claim within 20 days of the date of the order.
|A request for an extension of delictual liability, not previously recognised in our law, must be pleaded taking into account considerations of public or legal policy, which would warrant such extension in our law.|
Written by Jayna Hira and Tayla Bruce