Duty of Attorney to Warn a Client of Cyber Fraud

Jan 19, 2023 | , , , | News

On 16 January 2023 the Johannesburg High Court handed down judgment in the matter of Hawarden v Edward Nathan Sonnenbergs Inc [2023] ZAGPJHC 14.

Herewith a link to the complete case Hawarden v Edward Nathan Sonnenbergs Inc (13849/2020) [2023] ZAGPJHC 14 (16 January 2023) (saflii.org).

Cyber Fraud

The plaintiff, Judith Hawarden, issued summons against the defendant, Edward Nathan Sonnenbergs Incorporated (“ENS”), for damages in the sum of R 5,5 million plus interest.  The matter centred around emails that Ms Hawarden received from ENS on 21 August 2019.

Ms Hawarden had entered into an offer of purchase agreement of a property in Johannesburg.  The purchase price was R 6 million, she was required to pay a deposit of R 500 000.00 to Pam Golding and the remainder of the purchase price was to be secured by way of a guarantee issued, or by way of another undertaking in favour of the seller(to be delivered to ENS). 

When Pam Golding sent Ms Hawarden their banking details to make payment, their correspondence contained warnings about “email hacking, phishing and scans”, and in their emails, they advised Ms Hawarden to, prior to making payment, to a certain employee of theirs in order to verify the banking details.  Ms Hawarden subsequently made payment of the deposit. 

Ms Hawarden then exchanged various written and verbal correspondence, with ENS (one Ms Maninakis), most of which related to interest that Ms Hawarden’s money would earn in the ENS trust account. Their written communication were intercepted and altered by fraudsters, specifically regarding the banking details of ENS. 

When Ms Hawarden called various other witnesses, the totality of the evidence (in summary), proved that a pdf document was manipulated to show different banking details and the amount of R 5,5 million was transferred by Ms Hawarden to a fake account.  This fraudulent account was therefore part of a “business email compromise” (BEC) perpetrated by an unknown cybercriminal. 

Ms Maninakis testified that she did not know that a pdf document could be manipulated, and she further testified that she only send the details and warnings of ENS fraud detection systems, after Ms Hawarden had made payment. 

The Court therefore had to answer the question as to whether the attorneys, as conveyancers, can be held liable in delict for pure economic loss sustained by Ms Hawarden, who fell victim to cybercrime through BEC, as a result of ENS’ negligent omission to forewarn her of the known risks of BEC and to take the necessary safety precautions that are designed to safeguard against the risk of harm occasioned by BEC from eventuating. 

The evidence at the Trial established that ENS was aware of the risks of BEC prior to the fraudulent incident, that it failed Ms Hawarden of the known risk of email manipulation, and pdf manipulation, or of precautions that could be taken against BEC prior to her effecting an electronic payment.  Further, the evidence showed that ENS had control over the way in which it conveyed its bank account details to Ms Hawarden, in unprotected pdf attachments to an email it transmitted to Ms Hawarden – whilst technically safe measures, amongst others, for example multi-channel verification (in person or telephonic confirmation of banking details) were also available to be used to avert cyber fraud. 

The Court therefore held that ENS was liable, on various grounds, including: 

  1. A duty of care exists between a purchaser in a conveyancing transaction and the conveyancing attorneys handling the transaction to prevent harm resulting from the conveyancer’s failure to warn the depositor of the dangers of cyber hacking and spoofing of emails or of the fact that pdf attachments to emails containing sensitive information such as bank account details are not invulnerable to BEC; 
  1. Further, as an experienced conveyancer, ENS understood the risks inherent in conveyancing transactions by virtue of its own prior knowledge of the dangers of BEC, the risk of BEC was thus foreseeable and ENS was under a duty to guard against the harm eventuating – its omission to do so was negligent in the circumstances; 
  1. ENS was the proximate cause of Ms Hawarden’s loss in that it provided its own bank account details and was responsible for their accuracy and for the safety of the transmission – in failing to safeguard the safety of the transmission, ENS acted wrongfully; 
  1. As regard to wrongfulness, Ms Hawarden’s loss in the case of this nature is quantifiable and determinate and the risk of indeterminate liability as a policy consideration that militates against the recognition of liability for pure economic losses thus averted; 
  1. Factual causation was established in that but for the negligent transmission by ENS of its bank account details, Ms Hawarden would not have suffered a loss. Legal causation was also established as the negligent conduct of ENS was linked sufficiently closely to the loss suffered by Ms Hawarden for legal liability to ensue, given that the loss was reasonable foreseeable under the circumstances. 

I am of the view that ENS will appeal this decision  – the potential ramifications thereof are enormous, and creates a substantive duty on especially conveyancers in these types of transactions. 

I recommend that any person making an EFT payment must protect themselves – do not only accept the email that you have received (especially if it is an unknown individual, or an unknown entity) as proof of the banking details.  Insist on a telephonic discussion, or an in person meeting where these details are verified. 

The fact that documents are so easily manipulated and correspondence can be intercepted, is an aspect that each individual, in my view, should safeguard against – if one takes the circumstances of the above matter into consideration, this cybercrime occurred three years ago, we can therefore only assume that Ms Hawarden has, for three years, not received her money, she has had to incur legal costs, and we assume that the transfer of the property never took place. 

Any individual in similar circumstances should therefore, in order to prevent such a delay, and time periods, including legal costs, protect themselves, make sure who it is that you are dealing with, pick up the phone and make a call. 

Be safe in your business dealings and safeguard your money. 

We will monitor the appeal process, and should the above judgment change, report.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@cklaw.co.za or 021 556 9864 to speak to one of our attorneys.


Michele Engela

Michéle Engela

Michéle Engela is a director at CK Attorneys.

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