Nelson Attorneys v Smit N O & Others

The Van den Bergs and Mrs Kelbrick owned adjoining properties in Westering, Port Elizabeth in the mid-2000s. They entered into deeds of sale with Status Homes Developers to sell their properties for a residential development. Instead of cash, the purchase price would be paid by transfer of new sectional title units to be constructed in the future. The Van den Bergs' property was worth approximately R500,000 but the agreed purchase price was R1.4 million, reflecting the value of two units they would receive. Mr Nelson, an attorney and conveyancer, drafted the deeds of sale (acting for Status) and handled the property transfers. The properties were transferred to Status and consolidated in July 2007. A mortgage bond was registered in favour of Standard Bank to secure development finance. The development failed due to market downturn and Status was liquidated while Mr Lamour (Status's director) was sequestrated. The respondents sued Status and Mr Lamour for breach of contract but could not recover damages due to their insolvency. They then instituted a delictual action against Nelson Attorneys claiming pure economic loss, alleging he negligently failed to warn them of risks and failed to secure adequate protection for their interests.

• Whether wrongfulness was admitted on the pleadings in a claim for pure economic loss
• Whether the elements of wrongfulness and fault (negligence) were properly distinguished
• Whether wrongfulness was established in a claim for pure economic loss against an attorney/conveyancer
• Whether the respondents were vulnerable to risk or could have taken steps to avoid their loss
• Whether the attorney acted negligently in failing to advise on security and delaying transfer
• Whether factual and legal causation were established

The appeal was upheld with costs, including costs of two counsel. The order of the full court was set aside and substituted with an order dismissing the appeal with costs.

In claims for pure economic loss: (1) Wrongfulness and negligence are distinct elements that must not be conflated. An admission of a 'duty of care' relates to negligence, not wrongfulness. (2) Conduct causing pure economic loss is not prima facie wrongful; wrongfulness must be established through legal policy considerations. (3) A key policy consideration is whether the plaintiff was 'vulnerable to risk'. If the plaintiff could reasonably have taken steps (including contractual measures) to protect against the loss, wrongfulness is not established. (4) The law of delict will not extend liability where the plaintiff voluntarily assumed risk in pursuit of expected gains and had multiple opportunities to withdraw or protect their interests. (5) For causation to be established, both factual ('but for' test) and legal causation (remoteness) must be proven. Harm caused by market forces and third-party conduct beyond the defendant's control will generally not satisfy the causation requirement.

The Court observed that the trial court and full court should have considered all elements of Aquilian liability, including causation, even where other elements were found not to be established. The Court noted that conveyancers are expected to be fastidious in their work under section 15(A) of the Deeds Registries Act 47 of 1937, but this obligation relates to the correctness of facts in conveyancing documents, not to broader advisory duties regarding commercial risk. The Court emphasized that expert evidence must be based on complete and accurate facts; an expert opinion formed without consulting the parties or considering material background facts may be unpersuasive. The Court also noted that judges cannot extend delictual liability based on personal views of what is fair but must apply identifiable legal policy norms consistently with constitutional values.

This case is significant for clarifying the distinction between wrongfulness and fault (negligence) in pure economic loss claims, particularly in the context of professional liability. It confirms that: (1) an admission of a 'duty of care' is not an admission of wrongfulness; (2) wrongfulness in pure economic loss cases requires separate establishment through legal policy considerations; (3) vulnerability to risk is a key policy consideration - where plaintiffs could have taken reasonable steps (including contractual measures) to protect themselves, wrongfulness is not established; (4) courts must guard against conflating the elements of wrongfulness and negligence, as they involve different inquiries; (5) the law of delict will not extend liability to protect parties from risks they voluntarily assumed in pursuit of profit, particularly where they had opportunities to withdraw or protect themselves. The judgment reinforces the reluctance of South African law to recognise pure economic loss claims beyond established categories and emphasizes that professional advisors cannot be held liable for market forces and third-party breaches beyond their control.