Axiam Holdings Limited v Deloitte & Touche

Deloitte & Touche audited the 1999 financial statements of The Business Bank Limited (TBB) and issued an unqualified audit opinion stating that the statements fairly presented TBB’s financial position. The statements were materially inaccurate, overstating profits and misclassifying bad debts. During early 2000, companies in the PSG group relied on these audited statements when concluding agreements to purchase shares in and finance TBB, suffering losses exceeding R241 million. Deloitte allegedly knew, or ought reasonably to have known, both that the statements were inaccurate and that PSG entities would rely on them, yet failed to warn them. The PSG bank ceded its damages claim to Axiam Holdings Limited, which sued Deloitte for negligent misstatement by omission under s 20(9)(b)(ii) of the Public Accountants’ and Auditors’ Act 80 of 1991. Deloitte raised an exception to the particulars of claim.

The appeal was upheld with costs. The order of the High Court was set aside and replaced with an order dismissing Deloitte’s exceptions with costs.

The case is significant for clarifying that auditors’ potential liability to third parties under South African law, particularly under s 20(9)(b)(ii) of the PAA Act, cannot readily be disposed of on exception. It confirms that negligent misstatement by omission and post-audit conduct may, depending on the facts, give rise to delictual liability, and emphasises a cautious, fact-driven approach to wrongfulness and legal duty in claims for pure economic loss.