Cape Empowerment Trust Limited v Fisher Hoffman Sithole

Cape Empowerment Trust Limited (CET), a listed black economic empowerment company, concluded a complex sale-of-business transaction to acquire the Intella business from a Paradigm subsidiary. During negotiations, CET relied on a profit warranty that the business had generated at least R10 million between March and June 1999. CET requested and received an audit profit certificate from Fisher Hoffman Sithole (FHS), Intella’s auditors, confirming this profit. The certificate, issued by partner Justin Nield, was grossly negligent and based on a fictitious Ubunye debt. Relying on the certificate, CET’s shareholders approved the transaction. The transaction later unravelled amid findings of fraud, lapse of suspensive conditions, and complex settlement arrangements. CET sued FHS for delictual damages of approximately R17 million, claiming wasted expenses allegedly caused by the negligent misstatement.

The appeal by CET was dismissed with costs. The cross-appeal by FHS was upheld. The order of Binns-Ward AJ was set aside and replaced with an order dismissing CET’s claim with costs, including the costs of two counsel.

The case is a leading authority on negligent misstatement and auditors’ liability for pure economic loss in South African law. It reinforces the strict separation between negligence and wrongfulness, clarifies that gross negligence does not by itself justify imposing liability, and affirms the policy-based control function of wrongfulness in delict. It also underscores the evidentiary burden on plaintiffs to prove actual loss.