BUSE4024A Liability For Professional Negligence 2023 PDF

UNIVERSITY OF THE WITWATERSRAND SCHOOL OF BUSINESS SCIENCES BCOM. HONOURS INSURANCE AND RISK MANAGEMENT BUSE4024A Advanced Liability Insurance and Risk Management 2023 Lecturer: Ms Penny Spentzouris Lecture 5 LIABILITY FOR PROFESSIONAL NEGLIGENCE Introduction The economic loss rule states that the...

UNIVERSITY OF THE WITWATERSRAND SCHOOL OF BUSINESS SCIENCES BCOM. HONOURS INSURANCE AND RISK MANAGEMENT BUSE4024A Advanced Liability Insurance and Risk Management 2023 Lecturer: Ms Penny Spentzouris Lecture 5 LIABILITY FOR PROFESSIONAL NEGLIGENCE Introduction The economic loss rule states that the plaintiff cannot recover damages for a pure financial loss. A pure economic loss is a loss without antecedent harm to the plaintiff’s person or property. It is different from a consequential loss that flows directly from damage to the plaintiff’s property or harm to his person. In most jurisdictions, the law of tort or delict restricts recovery of damages for pure economic losses. Pure economic losses result from the interdependence of relationships and interests in the broader economy. This may involve 2 or 3 parties. A common rationale for restricting liability is that allowing recovery in such cases would place too much a burden on enterprises because pure financial losses open the door to many plaintiffs arising from one act (Bussani, Palmer & Parisi, 2003)1. In European jurisdictions, there is no common approach to pure financial losses. In France, for instance a pure economic loss is not recognised as an autonomous form of damage (Bussani, et al 2003). Germany and England recognise the category of pure economic loss under the rule of no liability i.e. as a general rule such a loss does not lead to the recovery of damages. Classical Roman jurists were aware of the pure economic loss problem hence under the acti certi a creditor could not recover the lost economic profit due to the breach of an obligation (Bussani et al, 2003). Some authors have argued that other reasons behind restricting liability for pure economic losses lie in the quest to achieve economic efficiency or optimal deterrence (Bishop, 1982). Types of Pure Economic Losses Bussani et al (2003) highlight four distinct types of pure economic losses. These are summarised in the following section. (a) Ricochet Loss This is a loss arising from physical damage to the property or person of one party and in turn causes impairment of the rights of the plaintiff. A ricochet loss is three-dimensional-the direct 1 Mauro Bussani, Vernon Valentine Palmer and Francesco Parisi ‘Liability for Pure Financial Loss in Europe: An Economic Restatement’ The American Journal of Comparative Law Vol. 51, No. 1 (Winter, 2003), pp. 113-162. 1 victim sustains a physical damage while the plaintiff is a secondary victim who incurs a pure economic loss. In a ricochet loss, the plaintiff suffers a pure economic loss since no property interest of his is impaired. The following example typifies a ricochet loss: A has a beachside hotel. B’s ship negligently spills oil at sea which contaminates the coastline causing A to lose business. (b) Transferred Loss In this type of a pure economic loss, C causes physical damage to B’s property or person but a contract between A and B or the law itself transfers the loss that ordinarily would be B’s onto A. Therefore, a loss ordinarily falling on a primary victim falls on a secondary victim. The following example illustrates this type of pure economic loss in practice: B who works for A is injured by the negligent driving of C and is disabled for 3 months and is therefore unable to work for that period. Nevertheless, the law may require A to continue to pay B’s salary even though B is unproductive. In this case, what ordinarily would be B’s loss is transferred by operation of law or by contract to A. (c) Closure of Public Services and Infrastructure Here an economic loss results from no injury to anyone or damage to property at all. A mere negligent act by a member of the public or an employee of a given entity may necessitate closure of markets or highways which closure may inflict economic loss on individuals whose livelihoods depend on the use of those facilities. This version of economic loss presents the biggest problem of liability to an indeterminate class to an indeterminate extent. Suppose A negligently spills toxic chemicals into a river or waterway and all traffic on that waterway is suspended for 2 weeks to enable clean-up operations to be conducted. Shippers must use alternative routes that are more expensive and fishermen who depend on the waterway for their livelihood are out of business for an unknown period of time. The liability coming out of this fact situation can be open-ended. After the September 11, 2001 attacks on the World Trade Center, a number of public facilities in Manhattan and the surrounding areas closed forcing many businesses to close as well to enable the process of debris removal to be conducted. The businesses forced to close during this period suffered this type of pure economic loss. (d) Reliance upon flawed Information or Professional Services People who offer advice to others are aware that the information they give may be relied on by 3rd parties with whom they have no contractual relationship. If the information is carelessly prepared then such 3rd parties may suffer pure economic loss outside of contract. Assume X an accountant negligently conducts an audit of Y a publicly owned company and overstates the company’s profitability. Relying on the accuracy of the audit, investor A buys shares in the company at twice their actual value thus suffering economic loss. An alternative version of this type of pure economic loss is the Hedley Byrne v Heller & Partners [1964] AC 465 type. In that case, information was negligently given which induced the claimant to offer a loan to a party who was in financial trouble causing the claimant to lose his money when the borrower went insolvent. Professional services to a client may cause loss to a non-client e.g. B asks his lawyer C to prepare a will in which he will leave $100 000 to A. C takes no action for 6 months and B dies intestate and A gets nothing. A’s loss is a pure economic one and is of the type the court had to deal with in White v Jones [1995] 2 AC 207. 2 Professional negligence refers to the failure of a professional to exercise reasonable care and skill in the provision of their services, which results in harm or loss to their client or a third party. This can include doctors, lawyers, accountants, engineers, and other professionals who provide specialised services. Professional negligence is important as it allows individuals who have suffered harm or loss due to the actions or omissions of professionals to seek legal recourse and obtain compensation. It also helps to maintain high standards of professionalism and accountability among professionals, which is crucial for the public's trust and confidence in professional services. Economic Loss Doctrines There are different doctrinal explanations for and against recovery for pure economic loss. One argument against allowing recovery for pure economic loss holds that these losses are difficult to foresee. Liability in tort or delict relies on whether the harm suffered by the plaintiff would have been foreseeable to a reasonable man. Therefore, rules of tort based on foreseeability of harm primarily focus on physical damage and are not suited for dealing with pure economic losses. Another concern with allowing recovery for pure economic loss is the danger of exposing the plaintiff to excessive liability i.e. open-ended liability and derivative litigation. In other words, those against finding liability for pure economic loss point to the problem of extending liability of the plaintiff ad infinitum following the commission of a wrongful act. In the modern economy, pure economic losses are likely to be linked to one another and invariably result in downstream liability that may be difficult to control (Bussani et al, 2003). Thus in connection with pure economic losses, the general principle of law holding that losses lie where they fall generally applies. From a law and economics perspective, remedies in delict are necessary to specify and quantify externalities. An externality is a cost imposed on a 3rd party outside the voluntary mechanism of the market-place. Ideally, the law of delict should ensure that the entire social cost of any activity is borne by the responsible party or economic agent. Liability rules should aim to address socially relevant externalities while socially irrelevant ones should be left uncompensated (Bussani et al, 2003). In this context, rules governing liability for pure economic loss are a way of limiting liability to only socially relevant externalities i.e. those that reduce social welfare. Accordingly, rules on liability for pure economic loss should distinguish between private losses that generate a corresponding social loss and a loss that is merely private in the sense that while it prejudices some individuals, the loss also generates an offsetting benefit for others so as not to result in no net loss (Bussani et al, 2003). Along the same lines, Bishop (1982) argues that a private economic loss caused by a negligent act is not a cost to society and ought not to result in recovery. On this basis of this analogy, the perspective of law and economics holds that a plaintiff cannot recover damages for a purely private economic loss. However, lack of compensation for pure economic loss becomes inefficient if such uncompensated loss also involves social externalities i.e. social costs. In such cases, liability is desirable and necessary. Most judicial interpretations of liability for pure economic loss place little or no importance on the social cost aspects of the defendant’s conduct but instead place more emphasis on such issues as the directness of the loss and the number of potential victims. However, determination of what constitutes a social cost can itself present serious difficulties. Other authors have argued that the distinction between economic losses that result in social costs 3 and those that do not is fallacious as all economic losses always involve social costs (Rizzo, 1982). Whatever the rationale for imposing or not imposing liability for pure economic loss one thing is clear-different jurisdictions have different rules governing liability in this area. From a liability insurance standpoint, pure economic losses are not insurable but this does not derogate from their significance from a corporate liability viewpoint. A company could still be sued for this type of loss and what is makes this type of exposure very dangerous is its non-transferability using devices such as insurance. Where liability is held to attach, the company will almost certainly have to rely on its own resources to finance the loss. In Canada, the economic loss rule was until 1991 largely based on the approach in England. The 2 jurisdictions parted ways when the case of Murphy v Brentwood District Council [1991] 1 AC 398 was decided in England and Canadian courts refused to adopt its reasoning. Today Canadian courts appear to follow the so-called categorization approach when dealing with claims for pure economic loss (Giliker, 2003). In terms of this approach, liability for pure economic loss revolves around common questions of fact and in light of the policy issues raised by each area of law. These categories are: • • • • • The independent liability of statutory public authorities Negligent misrepresentation Negligent performance of a service Negligent supply of goods or structures; and Relational economic loss The above categories are not exhaustive but they provide a framework for the development of legal thought in Canada. Although the differences between English and Canadian law on liability for pure economic loss may appear significant at first glance, in practice it is not as the following two cases one Canadian and the other English would reveal. The cases are Hercules Management Ltd v Ernst & Young [1997] (Canada) and Caparo plc v Dickman [1990] 2 AC 605 (England). Facts of the two cases are very similar-auditors had negligently produced reports for a public limited company. In turn, shareholders relied on the reports to their detriment. Despite the use of divergent tests both the House of Lords and the Supreme Court of Canada denied the plaintiffs recovery of damages and held that no liability attached to the auditors. In the Caparo case, the House of Lords focused on proximity and held that recovery of damages should be confined to cases where the statement or advice had been given to a known recipient for a specific purpose. The court observed that in this case the auditor’s report sought to provide the company and shareholders with an overview of the financial state of the company and not to assist them in making investment decisions. The Supreme Court of Canada on the other hand in Hercules approached the issue from a different perspective noting that liability depended on: (a) Whether a duty of care is owed by the defendant to the plaintiff; and (b) Whether that duty if it exists is negative or limited by policy considerations. In both cases, the courts refused to impose liability where the identity of the potential claimant is not reasonably foreseeable. 4 Liability for Pure Economic Loss in South Africa The first case which attempted to impose liability for a pure economic loss in South Africa is Cape of Good Hope Bank v Fischer 1886 (4) SC 368 but eventually no liability was imposed. Next is the case of Perlman v Zoutendyk 1934 CPD where Z was a property valuator and P was a moneylender. Z gave a valuation certificate on a certain property that turned out to grossly inaccurate. P lent money on the basis and security of that valuation and lost his money when the property against which he had lent money turned out to be far less than the loan he had issued. Z sued P for his loss which was pure economic in nature and the court held that he was entitled to succeed. The decision was widely criticized by academics and other Roman Dutch law purists who argued that such an action did not exists under South African law. The approach used in South Africa in the area of liability for pure economic loss is not fundamentally different from that seen in the other jurisdictions discussed above. Courts have dealt with this form of liability from the perspective of accepting that damages are claimable for pure economic loss. Blanket exclusion of liability for pure economic loss was abolished by the case of Administrateur Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 where the Appellate Division held that the distinction between causing damage by words on the one hand and by deeds on the other is of immaterial significance legally. This reasoning was again followed in Coronation Brick (Pty) Ltd v Strachan Construction Co (Pty) Ltd 1982 (4) SA 371 where the court held that the fact that the patrimonial loss suffered did not result in physical injury to corporeal property or person of the plaintiff but was purely economic is not a bar to the Aquilian action. It is rather less clear from South African case law on pure economic loss is the policy considerations that should weigh in favour of imposing liability in each case. Thus in Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd 2009 (2) SA 150 (SCA) Brand JA observed that a claim for pure economic loss calls for a different approach to the element of wrongfulness. The learned judge pointed out that negligent conduct in the form of a positive act causing physical damage to the property or person of another is prima facie wrongful. By contrast, a negligent act causing a pure economic loss is not prima facie wrongful. Its wrongfulness depends on the existence of a legal duty. Further, the judge stated that the imposition of this duty is a matter for judicial determination involving criteria of public or legal policy consistent with constitutional norms. Accordingly, the net result of all this is that conduct causing pure economic loss is only wrongful and therefore actionable if public or legal policy considerations require that such conduct if negligent should attract legal liability. In the case of Freddy Hirsh Group (Pty) Ltd v Chickenland (Pty) Ltd 2011 ZASCA 22 the Supreme Court of Appeal identified the policy considerations that must be evaluated when determining whether or not liability should be imposed for pure economic loss. These are: 1. Whether such liability would be in an indeterminate amount for an indeterminate time to an indeterminate class. 2. Whether there was privity of contract between the plaintiff and the defendant such that the former had a chance to protect itself by contract or by other means against the sort of harm inflicted by the defendant’s conduct. 3. Whether the imposition of liability would place an additional burden on the defendant than that already imposed by law and good practice internationally in the industry concerned. 5 4. Whether a legal duty existed for the defendant to take reasonable measures to prevent the type of loss suffered by the plaintiff. In that case, the court found that all the above elements were present and imposed liability. From an insurance perspective, liability for pure economic loss is not insurable. Reasons for this are not difficult to see. For instance, the fact that this form of liability can result in an indeterminate number of claimants suing the defendant breaches one of the fundamental conditions for insurability i.e. for a risk to be insurable, it must be quantifiable in financial terms. Further, insurers are comfortable insuring those exposures where it is possible to implement loss prevention measures. With liability for pure economic loss it is very difficult to do so not least because the range of potential plaintiffs and hence the potential liability is virtually unknown. Professional Liability in South Africa In South Africa, professional negligence is governed by both common law and statutory law. The legal framework is largely based on the English law of negligence, with the courts applying the principles of duty of care, breach of duty, causation, and damages to determine liability in professional negligence cases. In addition, certain professions are regulated by professional bodies, which may have their own codes of conduct and disciplinary procedures for dealing with professional negligence. Finally, the law provides defences to professional negligence, such as contributory negligence, assumption of risk and professional judgement. Elements of Professional Negligence Professional negligence also known as malpractice, is a legal term that refers to the failure of a professional to perform their duties with the level of care and skill that is expected of them. Professional negligence can have serious consequences, including harm to clients, loss of reputation, and legal liability. There are several elements that must be present in order to establish professional negligence. The first element of professional negligence is that the professional must have owed a duty of care to the client. This duty of care is based on the relationship between the professional and the client, and it requires the professional to act in the best interests of the client. For example, a doctor owes a duty of care to their patient to provide competent medical treatment. The second element of professional negligence is that the professional must have breached their duty of care. This means that the professional failed to act in a manner that was consistent with the level of care and skill that is expected of them. For example, a lawyer who fails to file a legal document on time may be considered to have breached their duty of care to their client. The third element of professional negligence is that the breach of duty must have caused harm to the client. This harm can take many forms, including physical harm, financial harm, or emotional harm. For example, a financial advisor who gives poor investment advice that results in significant financial losses for their client may be considered to have caused harm. The fourth element of professional negligence is that the harm must have been foreseeable. This means that the professional should have been able to anticipate the harm that would result from their breach of duty. For example, a builder who fails to install proper safety features in a building may be considered to have foreseen the harm that could result in the event of a fire or other emergency. 6 The final element of professional negligence is that there must be a causal link between the breach of duty and the harm suffered by the client. This means that the harm must have been a direct result of the professional's breach of duty. For example, a doctor who fails to diagnose a serious medical condition may be considered to have caused harm if the condition worsens as a result of the delay in diagnosis. In conclusion, the elements of professional negligence are the duty of care, breach of duty, harm, foreseeability, and causation. These elements are important in determining whether a professional has acted negligently and can be held liable for their actions. It is essential for professionals to be aware of these elements and to take steps to ensure that they are providing their clients with the highest level or care and skill. Examples of professional negligence in South Africa • Medical malpractice: cases of misdiagnosis, surgical errors, or negligence in treatment. In the case of M and another v MEC Health, Western Cape (2020)2 the court held that a doctor is not negligent if they act in accordance with a practice accepted at the time as proper by a reasonable and respected body of medical opinion. This is so even if other doctors might have acted differently based on other acceptable medical opinions. The court found that the hospital’s protocols and provincial guidelines which informed the doctor’s clinical judgment were consistent with a body of responsible and respectable medical opinion. The doctor cannot be found negligent merely because another body of opinion holds a different view. The court found that the hospital’s protocols and provincial guidelines which informed the doctor’s clinical judgment were consistent with a body of responsible and respectable medical opinion. The doctor cannot be found negligent merely because another body of opinion holds a different view. The court is however, not bound to absolve the doctor from liability just because the treatment or diagnosis accorded with sound medical practice. The court must be satisfied that the experts responsible for the body of professional opinion considered comparative risks and benefits, and reached a defensible conclusion on the matter. If a body of professional opinion overlooks an obvious risk which could have been guarded against, it will not be reasonable, even if that opinion is almost universally held (Bolitho v City and Hackney Health Authority). Interesting article: https://theconversation.com/legal-claims-for-medical-mistakes-areon-the-rise-in-south-africa-whats-behind-the-trend-187393 • 2 Legal malpractice: cases of lawyers failing to act in their client’s best interest, mishandling cases or providing poor advice. An adversarial system of dispute resolution, in which the parties at dispute present their cases and a neutral factfinder attempts to resolve the dispute based on the parties’ representations, naturally leads to a victor and loser. Hence, this system allows for an appeal (focus is on the factfinder’s decision on the merits of the dispute) and a judicial review (focus is on the factfinder’s approach to the procedural aspects of the dispute). Another less (1258/2018) [2020] ZASCA 89 (31 July 2020). 7 conventional avenue is that of a losing client building a case against their legal practitioner with a view to proving a case of negligence in the execution of their mandate. The loser (if successful) is then able to claim for relief against the legal practitioner who will in all likelihood claim from the Legal Practitioners’ Indemnity Insurance Fund NPC (LPIIF). In the latter cases, courts have to walk a thin line between: o preventing the sore loser that is not confident enough to take the case on appeal or judicial review and instead falls back on their legal practitioner’s prowess – or the alleged lack thereof; and o protecting the vulnerable non-lawyer that fell for their legal practitioner’s false claim of competence. Contractual liability As a general rule, the action against a legal practitioner for professional negligence should be based on the contract between the client and the legal practitioner. By accepting the client’s instruction and undertaking to provide them with the legal services necessitated by such instruction in exchange for a fee, a contract is formed between the client and the legal practitioner. It is implied in such contract that the legal practitioner represents to the client that they have the necessary skill, knowledge and diligence to perform their duties as would be expected of a legal practitioner with ordinary skill (see Honey and Blanckenberg v Law 1966 (2) SA 43 (R) at 46E-F). The legal practitioner will be guilty of negligence if they lack such skill, care and diligence as would be expected of a legal practitioner with ordinary skill and such lack of skill, care and diligence causes harm to their client (see Honey and Blanckenberg at 46F). Goldin J set out two riders to these principles in Honey and Blanckenberg (see 46H): o Generally, the legal practitioner will not be guilty of negligence if they took and acted on the opinion of counsel. o The legal practitioner will not be guilty of negligence if they erred in judgment on legal or discretionary matters. This relates to, for example, instances where the legal practitioner might have erred in their determination of the legal nature of a document or in the interpretation of a statute (see Mouton v Die Mynwerkersunie 1977 (1) SA 119 (A) at 123H-124A). Furthermore, this principle was qualified in Mouton v Mynwerkersunie, in that it will not excuse a legal practitioner where the error in judgment was due to the lack of skill, care and diligence as would be expected of an average legal practitioner (Mouton v Mynwerkersunie para 143A-143B). Goldin J went on to point out the inherent difficulty in making the value judgment of whether the legal practitioner has used reasonable skill, care, and diligence – the conclusion on this point was that it is ultimately a matter of degree (see Honey and Blanckenberg at 47A). A good illustration of the degree at which the legal practitioner’s conduct will not be accepted as being of ordinary competence is available in the case of Mazibuko v Singer 1979 (3) SA 258 (W), where an legal practitioner had allowed a client’s claim to prescribe and Colman J concluded that ‘no attorney of ordinary competence and diligence’ would allow a client’s claim, which was clearly of importance to such client to become prescribed (Mazibuko at 264G-H). It can, therefore, be argued that a legal practitioner will be guilty of negligence for harm caused to a client owing to the lack of skill, care, and diligence only where such negligence is manifestly clear from the facts of the case. 8 It should be noted that the existence of a contractual relationship between the legal practitioner and the client must be proved before the court (see Broderick Properties (Pty) Ltd v Rood 1964 (2) SA 310 (T) at 314A-B). In this regard, the client must either have a documented contract with the legal practitioner or demonstrate circumstances that prove the existence of an implied contractual relationship (Broderick Properties (Pty) Ltd at 314A – B). Delictual liability Should the client fail to prove the existence of a contract or to discharge the onus of proof to succeed in the contractual claim, then a claim in delict may be made in the alternative. In this regard, the client will have to prove the existence of all the elements of delict – conduct, damage, causation, negligence and wrongfulness. While it is important to prove all the elements of delict to succeed, I will only look at some of these elements that have received attention from the courts in cases relating to an legal practitioner’s liability for negligence in executing their mandate. The aggrieved client must prove on a balance of probabilities that the legal practitioner’s negligent conduct caused the harm suffered (see for example Broderick Properties (Pty) Ltd at 315E-F). That is, the harm must ‘fairly and reasonably’ be considered to flow naturally from the legal practitioner’s conduct and the legal practitioner must have foreseen such consequences for them to be considered as flowing naturally from their conduct (see Bruce, NO v Berman 1963 (3) SA 21 (T) at 24A). Negligence is the ‘failure to observe that degree of care which a reasonable [person] would have observed’ (Broderick Properties (Pty) Ltd at 314H). In particular, the client must prove on a balance of probabilities that the legal practitioner foresaw the harm their conduct would cause but failed to guard against it – the establishment of the duty to care (see Broderick Properties (Pty) Ltd at 315A). Moreover, the client must prove on a balance of probabilities that the negligent conduct of the legal practitioner amounted to a failure to exercise the level of skill, care and diligence as would be expected of a reasonable person (see Broderick Properties (Pty) Ltd at 315D-E). Concurrence of action One needs to take notice of the potential concurrence of action that might be present in these cases – at face value it seems that the client has a choice between a contractual action or delictual action. In a seminal judgment on the issue of concurrence of action, Grosskopf AJA concluded that delictual liability should not be imputed for a breach of contract (Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) at 501G-H). The Supreme Court of Appeal later clarified the principle set in the Lillicrap case in that it only applies to cases based on the breach of a contractual duty and is not teaching us that delictual liability cannot be imputed in general where a contractual claim exists (Holtzhausen v Absa Bank Ltd 2008 (5) SA 630 (SCA) at para 7). It is, therefore, clear that at the first instance the legal practitioner’s liability for negligence in executing their mandate must be based on the breach of the contract between the legal practitioner and their client, only in cases where the existence of such contract cannot be proved should the delictual claim be made. It might be good practice to make the delictual claim in the alternative even if the contractual claim seems to have prospects of success. 9 • Accounting malpractice: cases of accountants providing incorrect financial advice or mismanaging funds. Eg. Meechan and Another v VGA Chartered Accountants Partnership t/a PKF (VGA) Chartered Accountants 3. This case involved a claim advanced in delict the plaintiffs make claims for pure economic losses they contend they suffered as a result of a report issued by the defendant to the members of a Dutch foundation on 19 October 2016 (‘the report’). The report, so the plaintiffs aver, was issued in breach of a “duty of care” which the defendant owed to them. The defendant filed an amended exception to the plaintiffs’ amended particulars of claim on the basis that they do not contain averments necessary to sustain a cause of action, alternatively, are vague and embarrassing. The defendant’s exception contained 6 grounds. Pursuant thereto the plaintiffs filed a notice to amend their particulars of claim which amendment was effected on the day of the hearing of the exception and the particulars so amended will herein be referred to as “the amended particulars”. This amendment addressed 3 of the 6 grounds of the defendant’s exception. The hearing was thus confined to grounds 1 to 3 of the defendant’s exception only. The defendant’s exception focuses on three distinct elements necessary for the plaintiffs to sustain a cause of action. In summary: • The first ground of exception impugns the plaintiffs’ contentions as to what the report (alleged to contain the misstatement) conveyed – i.e. the pleaded meaning of the alleged misstatement or misrepresentation in the report is challenged. • The second ground of exception is that the amended particulars do not contain sufficient averments to sustain a finding of wrongfulness, and consequently do not disclose a cause of action. • The third ground of exception places in issue the requirement of legal causation. The thrust is that the damages claimed by the plaintiffs are too remote and therefore not recoverable from the defendant. This case provides an example of a claim for accounting malpractice and the court considered the requirements as discussed for professional negligence. The ultimate outcome for this interlocutory application was that the amended particulars of claim were held to be vague and embarrassing as they did not contain the averments necessary to support a claim for professional negligence against the chartered accountants. The plaintiffs were given time to amend the particulars of claim to support their claim. 3 (7999/2019) [2020] ZAGPJHC 53; [2020] 2 All SA 510 (GJ) (28 February 2020). 10 • Engineering malpractice: cases of engineers designing or constructing faulty structures that lead to harm. Labuschagne NO and Others v Theron and Another 4-The plaintiffs, property developers, instituted an action against the defendants jointly and severally for the damages they suffered as a result of the defendants’ breach of contract and /or alternatively the defendants’ negligent performance or non-performance of their professional services in a proper manner. Glynden Props 21 (Pty) Ltd v Powell Boswell & Associates and Others 5- Mr and Mrs Willcocks, through the plaintiff, Glynden Props 21 (Pty) Ltd (Glynden), as their property holding company, purchased a piece of land on the western slope of the Boskruin Hill in Randburg, Johannesburg (the site) for the purpose of building a new residence on it with spectacular views. A team of professionals was appointed to attend to the task, which ultimately cost a total of about R20 million. Design errors relating to part of the foundation system were made causing structural defects which required extensive remedial work to be undertaken, below ground level and to the superstructure. The cost thereof is what Glynden sought to recover, either from the first defendant, Powell Boswell & Associates (a firm of consulting civil and structural engineers), which was appointed as the structural engineer for the project, or from the third defendant, Gauteng Piling (Pty) Ltd, which designed and installed the reinforced concrete piles that form an element of part of the foundation system of the house, or from both. Judgment was made in favour of the Plaintiffs against the First Defendant, based on the principles discussed above. Defences to professional negligence • • • Contributory negligence: when the plaintiff’s own actions contributed to their harm or loss Voluntary assumption of risk: when the plaintiff knowingly took on a risk associated with the professional service. Professional judgment: when the professional acted reasonably according to their expertise and judgement. Pure economic loss and insurance Most liability insurance products exclude or restrict coverage for pure economic loss. Public and products liability policies cover consequential loss but exclude liability for pure economic loss. Professional indemnity insurance provides the most direct cover for pure economic loss. It is important however, not to generalise because in developed markets, product liability 4 5 (14523/09) [2013] ZAGPPHC 56 (15 February 2013). (13620/2013) [2015] ZAGPJHC 8 (27 January 2015). 11 policies cover pure economic loss. Products like representation and warranties insurance also cover pure economic loss. Concluding thoughts • • • Importance of holding professionals accountable for negligence How to prevent professional negligence through better training, supervision and regulation Future challenges and developments in professional negligence 12