International Shipping Co (Pty) Ltd v Bentley

• Jurisdiction: South Africa
• Citation: 1990 (1) SA 680 (A)

International Shipping Co (Pty) Ltd v Bentley
1990 (1) SA 680 (A)

1990 (1) SA p680

Citation	1990 (1) SA 680 (A)
Court	Appellate Division
Judge	Corbett CJ, Botha JA, Hefer JA, Smalberger JA and Friedman AJA
Heard	September 25, 1989; September 26, 1989
Judgment	November 10, 1989

Flynote : Sleutelwoorde G

Damages — Remoteness of — Auditor sued by financing company (appellant) for loss caused by negligent misstatements contained in report of auditor of a group of companies — Report misleading in that it did not give accurate picture of bleak financial situation of the group of companies for which appellant was providing financial facilities — Court finding that auditor had acted negligently and H unlawfully — Factual causation established — Court holding, on appeal, however, that appellant's loss too remote for auditor to be held liable therefor — Factors relevant in determining whether loss too remote set out.

Headnote : Kopnota

The appellant, a company carrying on the business of financiers and I shippers, agreed to make certain financial facilities available to the D Group of companies early in 1976. The respondent was appointed auditor to the D Group in November 1977. In March 1979 the respondent issued reports in respect of the financial statements of each of the companies comprising the D Group, as well as the Group financial statements, for the year ended 20 December 1978. In each of these reports, which were not qualified in any way, the respondent stated that he had examined the financial statements in question and had complied with the requirements J of s 300 of the

1990 (1) SA p681

A Companies Act 61 of 1973, that in his opinion the statements fairly represented the financial position of the company concerned as at 20 December 1978 and the results of its operations for the period then ended, in the manner required by the Companies Act. The appellant continued to provide these financial facilities until the liquidation of the companies comprising the D Group in April 1981. At the time of such liquidation the total indebtedness of the D Group to the appellant amounted to R977 318, of which only the sum of R593 826 was recovered by the appellant who thus sustained a loss in the amount of R383 492. In B April 1982 the appellant instituted an action for damages against the respondent in a Local Division, alleging that the aforementioned financial statements were materially false and misleading in a number of respects; that in so reporting the respondent acted fraudulently or, alternatively, negligently towards the appellant, who had relied thereon in reviewing and deciding to maintain and increase the facilities accorded to the D Group; that had the 1978 financial statements fairly C presented the financial position of the D Group and its constituent companies, the appellant would have terminated the facilities and have required the Group to make good its indebtedness to the appellant; and that the loss sustained by the appellant constituted damage which the respondent was accordingly liable to compensate the appellant for. The action was dismissed by the Court a quo and the appellant thereafter brought the instant appeal in which the Court held (a) that the financial statements were, to some extent, false and misleading; (b) D that there was no reason for interfering with the Court a quo's finding that fraud had not been established but that negligence had been established in regard to some aspects of the financial statements; and (c) that unlawfulness had been established in that it could not be said that the respondent had properly complied with his statutory duties in terms of s 300 of the Companies Act. The only remaining issue was that of causation.

Held, that, as far as factual causation was concerned, the respondent's negligent report on the 1978 financial statements unquestionably E constituted a causa sine qua non of the appellant's loss since a proper, non-negligent, performance by the respondent of his duties as auditor would have obviated the appellant's ultimate loss.

Held, further, with regard to legal causation, that there were a number of factors which tended to separate cause and effect in the instant case, viz the time factor (two years had elapsed between the F respondent's reporting and the loss); the decision by the appellant to provide a support programme for the Group at a stage when it already knew that the Group's financial situation was fairly bleak; the fact that the appellant allowed the D Group's indebtedness to escalate, the changed relationship between the parties as a result of the implementation of the support programme - appellant and the D Group ceased dealing at arm's length with each other and the appellant became intimately involved in the administration (or lack thereof) of the G Group; the fraud committed by the managing director of the D Group which played an important part in causing the financial loss which the appellant ultimately incurred; the fact that to some extent the appellant did not rely on the 1978 financial statements prepared by the respondent; and, lastly, the foreseeability of the support programme - the support programme amounted to uninhibited lending to the D Group without added security, which was the real cause of the appellant's loss and such a situation was hardly foreseeable in March 1979.

Held, further, having regard to the above-mentioned factors, that the H ultimate loss suffered by the appellant was too remote for legal liability on respondent's part to arise. Appeal dismissed.

The decision in the Witwatersrand Local Division in International Shipping Co (Pty) Ltd v Bentley confirmed.

Case Information

Appeal from a decision in the Witwatersrand Local Division (Gold- I stone J). The facts appear from the judgment of Corbett CJ.

M D Kuper SC (with him N N Lazarus) for the appellant referred to the following authorities: Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A); Siman & Co (Pty) Ltd v Barclays National Bank Ltd 1984 (2) SA 888 (A); Standard Bank of South Africa Ltd v Coetsee 1981 (1) SA 1131 (A); Vorster and Another v AA Mutual Insurance Association J Ltd

1990 (1) SA p682

A 1982 (1) SA 145 (T); Union National South British Insurance Co Ltd v Vitoria 1982 (1) SA 444 (A); Candler v Crane Christmas and Co [1951] 2 KB 164; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; Ultramares Corporation v Touche [1931] 174 NE 441; The American Restatement of the Law of Torts 2nd ed s 552; The Scott Group Ltd v MacFarlane and Others 1978 (1) NZLR 553 (CA); Anns v Merton London B Borough Council [1978] AC 728; Dimond Manufacturing Co Ltd v Hamilton 1968 NZLR 705 (1st instance); 1969 NZLR 609 (CA); The Scott Group Ltd v MacFarlane 1975 (1) NZLR 582 (1st instance); JEB Fasteners Ltd v Marks Bloom and Co [1981] 3 All ER 289 (QB); R v Meyer 1948 (1) SA 375 (A); Reese River Silver Mining Co Ltd v Smith [1969] LR 4HL 64; Pawson v C Watson 98 ER 1361; Schneider v Heath 3 CAMP 506; New Zealand Construction (Pty) Ltd v Carpetcraft 1976 (1) SA 345 (N); Galante v Dickinson 1950 (2) SA 460 (A); Thompson v Thompson 1949 (1) SA 445 (A); Leeds Estate, Building and Investment Co v Shepherd (1887) 36 Ch 787; London & General Bank (No 2) [1895] 2 Ch 673 (CA); Fomento (Sterling D Area) Ltd v Selsdon Fountain Pen Co Ltd [1958] 1 All ER 11 (HL); Pacific Acceptance Corp Ltd v Forsyth [1970] 92 WN (NSW) 29; Kingston Cotton Mill Co (No 2) [1896] 2 Ch 279 (CA); Collen v Rietfontein Engineering Works 1948 (1) SA 413 (A); Middleton v Carr 1949 (2) SA 374 (A); D 9.2.11.3, 9.2.15.1; Scott v Shepherd (1773) 2 W Bl 892; Re City Equitable Fire Ins Co [1925] Ch 407; Berlin Village Management Board v E Richter 1929 EDL 59; Joffe & Co Ltd v Haskins; Joffe & Co Ltd v Bonamour 1941 AD 431; R v Mouton 1944 CPD 399; Aliston and Another v Marine & Trade Insurance Co Ltd 1964 (4) SA 112 (W); Kruger v Van der Merwe 1966 (2) SA 266 (A); Mafesa v Parity Versekeringsmaatskappy Bpk 1968 (2) SA 603 (O); Fischbach v Pretoria City Council 1969 (2) SA 693 (T); S v Motau 1968 (4) SA 670 (A); Minister of Police v Skosana 1977 (1) SA 31 F (A); Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N); JEB Fasteners Ltd v Marks Bloom and Co [1983] 1 All ER 583 (CA); In re Polemis v Furness Withey & Co Ltd [1921] 3 KB 560; Boberg The Law of Delict vol 1; Joubert (ed) The Law of South Africa vol 8; Da Silva v Coutinho 1971 (3) SA 123 (A); Herschel v Mrupe 1954 (3) SA 464 (A); G Lamb and Another v London Borough of Camden and Another [1981] 2 All ER 408 (CA); Strougar v Charlier 1974 (1) SA 225 (W); Netherlands Insurance Co of SA Ltd v Van der Vyver 1968 (1) SA 412 (A); Re Thomas Gerrard & Sons Ltd [1968] 1 Ch 455; Wilson v Birt (Pty) Ltd 1963 (2) SA 508 (D) H ; Ocean Accident & Guarantee Corporation Ltd v Koch 1963 (4) SA 147 (A); Botes v Van Deventer 1966 (3) SA 182 (A); Union Government (Minister of Railways & Harbours) v Warneke 1911 AD 657; De Jager v Grunder 1964 (1) SA 446 (A); Vlotman v Landsberg (1890) 7 SC 301; Berkemeyer v Woolf 1929 CPD 235; West Rand Estates Ltd v New Zealand Insurance Co Ltd 1926 AD 173; Schoeman t/a Billy's Garage v Marine & Trade Insurance Co Ltd 1976 (3) SA 824 (W). I

W H Trengove SC (with him G E Turner) for the respondent referred to the following authorities: Marine and Trade Insurance Co Ltd v Van der Schyff 1972 (1) SA 26 (A); Titus v Shield Insurance Co Ltd 1980 (3) SA 119 (A); Macu v Du Toit en 'n Ander 1983 (4) SA 629 (A); Minister of Police v Skosana 1977 (1) SA 31 (A); Siman and Co (Pty) Ltd v Barclays National Bank 1984 (2) SA 888 (A); Boberg The Law of Delict vol 1; J Standard Bank

1990 (1) SA p683

of South Africa Ltd v Coetsee 1981 (1) SA 1131 (A); Joubert (ed) The Law of South Africa vol 8; Candler v Crane Christmas and Co [1951] 1 All ER 426...