PriceWaterhouseCoopers Inc and Others v National Potato Co-operative Ltd and Another (451/12) [2015] ZASCA 2; [2015] 2 All SA 403 (SCA) (4 March 2015)

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[2015] ZASCA 2
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PriceWaterhouseCoopers Inc and Others v National Potato Co-operative Ltd and Another (451/12) [2015] ZASCA 2; [2015] 2 All SA 403 (SCA) (4 March 2015)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
no: 451/12
In
the matter between:
PRICEWATERHOUSECOOPERS
INC
....................................................................
First
Appellant
HOEK
&
WIEHAHN
..............................................................................................
Second Appellant
WIEHAHN
MEYERNEL
..........................................................................................
Third
Appellant
PRICE
WATERHOUSE
MEYERNEL
..................................................................
Fourth
Appellant
PRICE
WATERHOUSE
.............................................................................................
Fifth Appellant
and
NATIONAL
POTATO CO-OPERATIVE
LTD
.....................................................
First
Respondent
IMF
(AUSTRALIA)
LTD
....................................................................................
Second
Respondent
Neutral
citation:
PriceWaterhouseCoopers Inc
& others v National Potato Co-operative Ltd & another
(451/12)
[2015] ZASCA 2
(4 March 2015)
Coram:
WALLIS JA and FOURIE and KOEN AJJA.
Heard
:
9 to 13 February 2015
Delivered
:
4 March 2015
Summary:
Auditor – relationship with
client contractual – duties – whether audit conducted
negligently – damages
– causation.
Opinion
evidence – when admissible – need to establish facts on
which expert’s opinion is based – hearsay
–
qualifications of expert witness – duties of expert witness –
independence – not to act as advocate for
party calling expert.
Causation
– need for causal link between loss and contents of auditor’s
reports – losses arising from trading
– not recoverable
from the auditor.
Prescription
–
s12(3)
of the
Prescription Act 68 of 1969
– knowledge
of facts giving rise to claim – acquisition of knowledge by the
exercise of reasonable care – corporate
entity –
knowledge of directors to be attributed to entity – no special
rule of attribution when claim arising from
auditor’s alleged
failure to report properly to members of entity.
Conduct
of trial – objections to hearsay evidence to be dealt with
expeditiously – proper approach to the leading of
expert
evidence – need for judge to prevent proceedings from becoming
unduly prolonged.
ORDER
On
appeal from:
North Gauteng High Court
(Botha J sitting as court of first instance):
1
.
The appeals by the second to fifth
appellants, and the appeals by the first appellant against paragraph
1 of the order of 14 March
2012 and the orders referred to in
paragraphs 5, 6 and 7 of this order, are upheld with costs, such
costs to include the costs
consequent upon the employment of two
counsel.
2
.
The judgments of the court below and the
orders granted on 24 January 2011, 14 December 2011 and paragraphs 1,
6, 7 and 9 of the
order of 14 March 2012 are set aside and replaced
by the following:
‘
The
first plaintiff’s claim is dismissed with costs, such costs to
be paid jointly and severally by the first and second plaintiffs,
the
one paying the other to be absolved, and to include the costs of two
counsel and the qualifying expenses of Mr Wixley.’
3.
The cross-appeal is dismissed with costs, such costs to include the
costs consequent upon the employment of two counsel.
4.
The costs orders
in paragraphs 1 and 3 are to be paid by the respondents jointly and
severally, the one paying the other to be absolved.
5.
The last
sentence of paragraph 2 of the order of 28 July 2011 is set aside and
replaced by the following:
‘
Die
tweede tot vyfde verweerders moet die koste van opposisie betaal.’
6.
Paragraph 8 of the order of 18 November
2011 is set aside and replaced by the following:
‘
Die
tweede tot vyfde verweerders moet die koste van opposisie betaal.’
7.
Paragraph 2 of the order dated 27 April
2011 is set aside and replaced by the following:
‘
Die
eisers word gesamentlik en afsonderlik gelas om die koste van die
aansoek te betaal.’
JUDGMENT
Wallis
JA (Fourie and Koen AJJA concurring)
[1]
Four
firms (the second to fifth appellants, to which I will refer
collectively as PWC) acted as auditors of the first respondent,
the
National Potato Co-operative Ltd (NPC) from 1984 to 1997. Whether
they breached their contractual obligations as auditors,
thereby
causing NPC to suffer damages, is the issue in this appeal. NPC
alleged that the annual financial statements of NPC, throughout
that
period, failed to make adequate provisions for bad and doubtful debts
that had arisen through on-going reckless mismanagement
of its
affairs in regard to the extension of credit to its members.
[1]
They said that PWC should have identified this reckless mismanagement
in the course of the audits and either insisted on changes
to the
financial statements to reflect the true position, or disclosed the
under-provisions in their auditors’ reports. If
they had done
so, NPC alleged that remedial measures would have been instituted.
Instead NPC was obliged to write off substantial
sums as bad debts
causing it to suffer loss, which it sought to recover from PWC. Botha
J upheld its claims and judgment was entered
against the four
different firms of auditors in varying amounts totalling
R62 884 905,45. Interest was ordered to run
on that amount
at a rate of 15,5 per cent per annum from 15 December 2000 and a
number of costs orders were made in NPC’s
favour. The main
appeal lies against the judgment holding PWC liable in damages and
against the quantum of the damages. It is brought
with the leave of
the trial court, although the judge limited the grounds for that
appeal by excluding issues that PWC wished to
raise, such as
prescription. This court removed those limitations after argument and
in addition it granted leave to appeal against
certain costs orders
granted by the trial court.
[2]
[2]
The
core issue set out above, simply stated as it is, engaged the high
court in a hearing on the merits of the claim for 264 days
and a
further hearing on quantum for 31 days. In addition we were informed
that the hearing was due to continue on 121 additional
days but was,
for one or other reason, stood down. Two judgments were produced on
the merits running to nearly 1100 pages. Over
and above those
judgments there was a separate hearing on costs and a separate
judgment on that issue. A number of interlocutory
applications were
dealt with separately, both before the trial commenced and during it.
The case has already engaged the attention
of this court on four
prior occasions, once on the propriety of NPC receiving funding from
an outside source in order to pursue
this litigation,
[3]
twice on issues relating to the provision of security
[4]
and, as already mentioned, most recently on the scope of this appeal.
We are now confronted with a record that has been abbreviated
when
viewed against the size of the trial bundle, but is still some 85 000
pages long. The heads of argument, together with
the core bundles
presented by the parties and the bundles of authorities, add another
5 000 pages. This material was provided
to us on computers
loaded with appropriate software to enable us to work with it. The
court has been specially constituted to hear
the appeal without
disrupting the ordinary work of the SCA and to that end sat in the
week prior to the commencement of the court
term.
[5]
[3]
It
is appropriate at the outset for us to express our gratitude to the
attorneys and counsel for the efforts they have made to enable
the
appeal to be disposed of with reasonable expedition. However, it is
also appropriate to echo a recent comment by Lord Toulson,
[6]
that the case assumed a complexity that we do not think was
necessary, as a result of the manner in which it was conducted, and,

in consequence, the trial court, for which we have sympathy, was led
into a forest relatively impenetrable to light. I will deal
with
these matters at a later stage when addressing the issue of costs.
History
of the litigation
[4]
Summons was issued on 16 November 1999. The
initial particulars of claim were struck out on exception and fresh
particulars were
delivered in December 2000. These ran to 450 pages
and referred to 304 files containing more than 100 000 pages of
documents.
The trial commenced before Hartzenberg J in 2002, but,
during the course of the cross-examination of the first witness, he
granted
an amendment to the plea raising the funding issue. This was
eventually resolved in NPC’s favour in June 2004. The trial was

then set to resume in October 2005 and two pre-trial meetings were
held with Hartzenberg J on 9 June 2005 and 19 July 2005 at which
an
agreement was made to separate the merits and the assessment of any
damages payable to NPC. Hartzenberg J recused himself, at
the
instance of NPC, before the trial recommenced and it then proceeded
before Botha J on 4 October 2005. Shortly before the commencement
of
the hearing before Botha J, the particulars of claim were
substantially amended to abandon certain claims and amend others.
[5]
On 24 January 2011 Botha J delivered his
judgment on the merits. The first part of 943 pages contained his
synopsis of the evidence
led before him. The second part, a mere 123
pages, set out his reasons. He made an order upholding two claims
arising from the
writing off of bad debts and declaring the four
firms of auditors liable to compensate NPC for damages represented by
the amounts
written off by NPC in respect of a number of specified
debtors. The other claims by NPC were dismissed. One of those is the
subject
of a cross-appeal by NPC. The appellants’ initial
attempt to appeal against the declaratory order immediately after it
was
handed down and before the quantum was assessed was set aside as
an irregular step. That decision and the concomitant costs order
are
challenged as a subsidiary issue in the appeal.
[6]
In a judgment delivered on 14 December
2011 Botha J quantified the liability of PWC in terms of the
declaratory order. He dealt
with the costs of the action and various
interlocutory applications in a separate judgment delivered on 14
March 2012. PWC seeks
to overturn the declaratory order and the
consequential award of damages and asks for the dismissal of the
claim with costs on
the attorney and client scale.
[7]
There are in addition several subsidiary
appeals. The first relates to the limited order for costs made in
favour of PriceWaterhouseCoopers
Inc, the first appellant (PWC Inc),
which was not the auditor at any of the relevant times and against
which no award of damages
was made. The judge confined his order for
costs in its favour to costs up to the earliest time when it could
have taken exception
to the claims against it, without defining when
that time was. PWC Inc says that it could not except to the claim
against it, as
it was based on factual allegations that were never
proved. Accordingly it seeks its costs of the trial.
[8]
The declaratory judgment annexed a schedule
of the bad debts written off for which the court held the auditors to
be liable in damages.
After judgment NPC applied for two amendments
to the claim, which were granted over the opposition of PWC and PWC
Inc. The grant
of those orders involved a significant enhancement of
the award of damages, and forms the subject of the appeal against
quantum
if the main appeal fails. There are separate appeals in
relation to the two costs orders arising from those amendments. The
appeals
against the subsidiary costs orders are dealt with in the
judgment of Koen AJA. Lastly there is a general appeal by PWC
against
the overall costs order made by the trial judge.
The
parties
[9]
NPC was an agricultural co-operative
constituted in terms of the Co-operatives Act 91 of 1981 (the Act)
and active among potato
farmers. It was originally established in
1963 under the name Transvaal Potato Co-operative Ltd (TPC). During
the period from 1983
to 1997, which is when the breaches of contract
allegedly occurred, it twice merged with other co-operatives but,
other than resulting
in the change of its name to NPC in 1989, on
each occasion the merged entity continued to operate in the same
form. It was not
suggested that the mergers had any bearing on the
issues in this case. In 2000, whilst retaining its identity, it
effectively merged
with Northern Transvaal Co-operative Ltd, which
has conducted NPC’s business operations on an agency basis
since then. By
that time the bulk of its membership had left. It has
not been a going concern since 1997. In substance it exists solely
for the
purpose of pursuing this claim. It is convenient to refer to
it throughout as NPC notwithstanding the fact that it was operating

under a different name at the earliest stage of the period in
dispute.
[10]
The
second respondent, IMF (Australia) Ltd (IMF), is a listed company in
Australia that carries on business as a litigation funder
and since
28 January 2009 has provided NPC with funding to pursue this
litigation. It did so on the basis that, if the litigation
succeeded
it would be fully reimbursed for its costs and paid a management fee
for its services in regard to the conduct of the
litigation. In
addition it would receive a proportion, exceeding fifty five per
cent, of the gross proceeds of the litigation.
Potentially, depending
upon the gross amount recovered, it could be the sole beneficiary of
a judgment in favour of NPC. Counsel
for NPC and IMF informed us that
this would very likely be the case. It was joined as a party at the
instance of the auditors with
a view to obtaining a costs order
against it if its defence to the claim succeeded.
[7]
[11]
PWC Inc is a firm of auditors as were the
other four appellants. It is the only firm that still exists, and
indeed the only one
that existed when this litigation commenced. The
firm of Hoek & Wiehahn, the second appellant, were the auditors
of NPC between
1983 and 1987. In 1988, as a result of a merger or
amalgamation, Wiehahn Meyernel, the third appellant was established
and became
NPC’s auditors. That continued until 1991 when Price
Waterhouse Meyernel, the fourth appellant, came into being. Finally,

in 1995, Price Waterhouse, the fifth appellant, was formed and took
over the task of auditor for NPC until 1997 when it resigned.

Throughout this entire period Mr Odendaal, who was the principal
witness for the appellants, was involved in the audit of NPC,

initially under the supervision of others, but for most of the period
as the principal auditor.
[12]
It
may strike the reader as odd that an entity such as NPC should remain
in existence solely for the purpose of conducting litigation,
a major
beneficiary of which is intended to be a party unconnected with the
dispute and unconnected, so far as the court can discern,
with this
country. Indeed it is wholly unclear who, other than IMF, stands to
gain from the litigation that has taken up so much
court time over so
protracted a period. It is debatable whether that is a desirable
state of affairs. It is one thing to enable
an impecunious litigant
to obtain legal relief to which that litigant is entitled.
[8]
It is another matter altogether to have a situation where an outsider
to a dispute, motivated solely by considerations of profit,
may be
the sole beneficiary of a judgment. That is something that may have
to engage this court on another occasion. Litigation
exists for the
proper settlement of disputes in society in the interests of the
parties to those disputes. It comes at a social
cost. It is
undesirable that outsiders driven purely by commercial motives should
be able to take over these disputes for their
own benefit. When that
occurs it is difficult to see how the constitutional guarantee of
access to courts is engaged.
[9]
It may perhaps be necessary at some future date to consider the
precise ambit of our earlier decision in this regard and to what

extent it permits a departure from the previous law in relation to
champerty.
[13]
Another
apparent incongruity is that the auditors concerned, that is PWC, as
opposed to PWC Inc, no longer exist and have not done
so since a date
prior to the commencement of this litigation. In the result the
judgment granted by the trial court lies against
entities that have
not existed at any time during the course of protracted litigation.
The explanation lies in the principle that,
notwithstanding its
dissolution, a partnership – and each of the four firms was a
partnership – is said to continue
in existence, notwithstanding
its dissolution, for the purposes of any claims against the
partnership.
[10]
In terms of
rule 14(2) of the Uniform Rules it may be sued in its own name
[11]
and after judgment has been obtained, if the judgment is not
satisfied, the courts may be approached for an order identifying the

partners at the relevant times and declaring the judgment to lie
against the partners.
[12]
PWC
does not appear to have been handicapped in its opposition to this
action by the fact that the firms did not exist.
[14]
PWC Inc was never the auditor of NPC. It
was joined in the action on the basis of an allegation that it came
into existence as the
result of an amalgamation involving the fifth
appellant, Price Waterhouse, and that it had taken over the assets of
Price Waterhouse
and assumed liability for the debts and liabilities
of its predecessor. A similar allegation was made in relation to each
of the
firms constituting PWC, but that allegation was not proved and
it was accepted that PWC Inc bore no liability to NPC for any of
its
claims. Although not said expressly in the judgment on the merits it
was implicit in it that the claim against PWC Inc was
dismissed. Its
involvement in this appeal relates only to costs.
The
pleaded claim
[15]
The particulars of claim were lengthy,
repetitive and burdened by masses of documents. The following can be
distilled from them.
NPC’s claim was based on the contract, or
contracts, that it alleged it concluded with PWC for the performance
of audit services.
PWC was appointed annually at its annual general
meeting as the auditor of NPC in terms of s 145 of the Act and
this appointment
was accepted, giving rise to a contract between NPC
and PWC for the rendering of audit services by the latter to the
former. Arising
from this it pleaded that PWC owed to NPC various
duties in relation to the performance of the audit and that PWC
breached these
duties in various ways. As is often the case the
pleaded duties went further than could be sustained by either
evidence or argument.
In this court, however, it was common cause
among all the expert witnesses that PWC owed NPC the following
duties.
[16]
PWC
was in the first instance obliged to perform those functions imposed
upon an auditor by the provisions of ss 153 and 154
of the Act.
It was obliged to perform these duties with proper skill and care and
without negligence in accordance with the standards
of the auditing
profession.
[13]
The standards
of the auditing profession were to be derived from the provisions of
the Public Accountants and Auditors Act 80 of
1991 (the Auditors Act)
and the standards issued from time to time by the profession in the
form of generally accepted auditing
standards (GAAS). Which of those
standards were relevant and how they should have been applied in a
particular case might properly
be the subject of expert evidence and
such evidence was led at the trial. Its impact will be assessed at a
later stage. The documents
embodying these standards at the relevant
times were placed before the trial court.
[17]
NPC alleged that during the entire period
there were material irregularities in the management, control and
administration of credit.
It attributed this to the members of the
credit department and the executives granting credit in conflict with
the statute of NPC,
the credit policy determined from time to time by
the board and the provisions of the drought aid scheme. The staff in
the credit
department and executive employees were said to have
behaved recklessly, irregularly and dishonestly in granting credit to
members:
·
who were technically insolvent;
·
in excess of authorised credit limits;
·
without obtaining sufficient security;
·
where the creditworthiness of the member
was questionable;
·
where the member’s credit history
revealed that they were not accounting to NPC for the proceeds of
their crops, or were evading
the statutory pledge.
It
was alleged that this conduct was concealed from the board and the
members by various stratagems. In particular it was said that
the
extent and escalation in bad debts, that would otherwise have
revealed the increased risk to which NPC was exposed as a result
of
this misconduct, was misrepresented to the board. This prevented the
board and the members from taking remedial steps to resolve
the issue
of mismanagement. NPC characterised this as the reckless
mismanagement of credit.
[18]
The
consequence of this reckless credit mismanagement was said to be that
NPC suffered substantial damages by way of the writing
off of bad
debts. These had not been reflected in the annual financial
statements, which therefore disclosed a misleading picture
of the
financial position of NPC. This persisted from 30 September 1984,
covering the financial year prior to that date, until
28 February
1997. The complaint in each year was essentially the same, namely,
that the provision for doubtful debts reflected
in the annual
financial statements, which was R300 000 in every year, save for
1996/7, was too low to provide an accurate
picture of the potential
bad debts of NPC.
[14]
If
proper provision had been made in each year for doubtful debts, far
larger amounts would have had to be shown and, had this
been done,
NPC would have shown a loss rather than a profit in virtually every
year. Certainly the accounts would have reflected
the financial
position of NPC as being parlous if not actually insolvent.
Notwithstanding this, PWC either certified the annual
financial
statements as being a fair reflection of the financial state of
affairs of NPC as required by s 154(2) of the Act
(1992 to
1995), or qualified its certification (1983 to 1991 and again in
1997) in a way that was said to have diverted attention
away from the
true underlying problem, of reckless mismanagement of the grant of
credit and the recovery of debts from members.
[19]
NPC alleged that if PWC had properly
discharged its duties as auditor it would have identified the
wholesale reckless mismanagement
of credit. A far higher proportion
of the debts reflected in NPC’s books would have been regarded
as doubtful and treated
as such in the annual financial statements.
This would have resulted in the profit figure being restated to
reflect the greater
write-offs required in respect of the provision
for bad and doubtful debts. If the directors were not prepared to
alter the annual
financial statements accordingly (and it was assumed
in the pleadings that they would not have done so) then PWC should
have qualified
them, spelling out in detail their deficiencies and
highlighting what were said to be misstatements in the directors’
reports.
In every year, so it was alleged, PWC should have refused to
certify the annual financial statements as a true and fair reflection

of the financial affairs of NPC. In not doing so it was in breach of
its contractual obligations.
[20]
The
pleadings took a curious turn when it came to the issue of damages.
One would have expected that after the lengthy recitation
of PWC’s
duties; the mismanagement of NPC’s affairs; the defects in its
annual financial statements and the alleged
breaches by PWC of its
contractual obligations, there would have been allegations setting
out the respects in which NPC was said
to have suffered losses in
consequence of the alleged contractual breaches. Instead there was a
single paragraph reading as follows:
[15]
‘
All
NPC’s aforementioned damages flow naturally from PWC’s
breach of contract and are damages that are normally to be

anticipated, and are in law to be regarded as, within the
contemplation of the parties as the probable consequences of a breach

of contract. Alternatively, it was at the time of concluding each of
the annual contracts within the contemplation of the parties,
as
represented, or ought reasonably to have been within the
contemplation of the parties as aforesaid, that all the damages as

aforesaid, alternatively all the type of damages aforesaid, probably
would follow from a breach of contract. Alternatively it was
at the
time of concluding each of the annual contracts so within the actual
contemplation of the parties as aforesaid, that the
contract in each
case was in truth concluded on that basis.’
[21]
In the following paragraphs it was
explained that, notwithstanding anything in the particulars of claim,
the damages claimed by
NPC were confined to various heads. Of those
only two remain relevant, the others having been rejected by the
trial court. The
first consisted of losses arising from bad debts
written off. These were divided into two components, namely bad debts
written
off before 28 February 1998 and bad debts that had not yet
been written off by that date, but fell to be written off later. The

latter were assessed as having been bad on that date, but, when the
pleadings were amended in 2011, allowance was made for amounts
that
had in fact been recovered by that date and for any amounts that the
attorney attending to collections expected still to recover,
less the
costs of collection which included an insurance premium. The second
head, which is the subject of the cross-appeal, related
to the losses
that NPC alleged it had suffered because it had not recovered these
amounts from debtors and hence had not had these
amounts available to
it for further investment or to discharge liabilities. This amount
was calculated at the rate of interest
that the Land Bank had, during
the relevant period, charged NPC on loans made to it.
[22]
In summary, NPC sought to recover from its
auditors, amounts it claimed to have written off as bad debts or that
it would have to
write off as bad at some future stage. There was no
allegation that the auditors were in any way involved in granting
credit to
the debtors concerned. Nor did they have any responsibility
for the collection of debts. The bad debts arose because NPC, acting

through its own staff and management, extended credit to debtors who
either were not creditworthy when the debts were incurred
or had
become unable to repay them by the time the action commenced. No
allegations were made connecting the auditors to the granting
of
credit to these debtors or to the inability to recover these amounts
from them.
[23]
This was an undoubted deficiency in the
pleadings and it could possibly have been a ground for a further
exception. No legally relevant
connection was alleged to exist
between the allegations of breach of contract and the amounts that
NPC wished to recover from PWC
by way of damages. But no exception
was lodged. The basis upon which the case was conducted emerged from
the opening address delivered
in October 2005 when the hearing
commenced before Botha J. NPC argued that had PWC performed its
contractual obligations properly
either the directors, or failing
them the members of NPC, would have been aware of the gross
deficiencies in the implementation
of the credit policy and the
reckless mismanagement of the grant and recovery of credit, and would
have taken steps to recover
debts and put an end to the
irregularities. Instead it was alleged that the mismanagement was
allowed to flourish. Had it been
checked, then in relation to each
bad debt making up the overall claim for damages, either credit would
not have been granted to
these debtors or the debts would have been
recovered.
[24]
The plea added little of moment to the
definition of the dispute. It placed in issue virtually every
material allegation in the
particulars of claim. That included a
denial that any contracts had been concluded between NPC and the
firms making up PWC; a denial
that those firms owed any duty to NPC
beyond those set out in ss 153 and 154 of the Act; a denial that
there had been reckless
mismanagement of credit in the activities of
NPC; a denial that PWC had in any respect breached any obligations
that it owed to
NPC; a denial, if it had, that NPC had suffered any
loss as a result and a denial of all aspects of the quantum of the
claim. In
addition PWC pleaded that any claim against its constituent
firms had prescribed and that the additional claims imported by NPC

after the declaratory order was granted had been waived when the
amendment of the particulars of claim occurred in 2005 prior to
the
resumption of the trial.
The
issues
[25]
From the foregoing the following issues
arise in this appeal:
(a)
Was the relationship between NPC and PWC
contractual?
(b)
If so, what were the obligations assumed by
PWC thereunder?
(c)
Did officials of NPC recklessly mismanage
credit as alleged?
(d)
Did PWC breach any of its contractual
obligations?
(e)
If so, did those breaches cause NPC to
suffer any loss?
(f)
What was the proper basis for determining
the amount of that loss?
(g)
Did the recoverable loss include the claim
for interest that was the subject of the cross-appeal?
(h)
Had the whole, or any part, of the claim
prescribed before the institution of this action?
(i)
What costs order should have been made in
relation to the main trial?
(j)
What costs orders should have been made in
relation to the subsidiary issues?
Before
turning to deal with these questions it is desirable to sketch some
of the relevant background and history.
NPC’s
business
[26]
NPC operated on co-operative principles, to
assist farmers who grew potatoes in obtaining seed potatoes,
packaging, fertiliser,
insecticides and other items necessary for the
cultivation of potatoes. It also had facilities for testing and
certifying the quality
of seed potatoes, a limited cold storage
facility for seed potatoes, and field officers to provide advice to
farmers. Whilst initially
based at Bethal in what is now Mpumalanga,
its activities eventually extended to all the major potato growing
areas of South Africa.
Unlike many other agricultural co-operatives
it did not store or market its members’ products or, in
general, engage in other
business activities. This was due to the
nature of potatoes as an agricultural commodity that was not
centrally marketed or subject
to any form of price control, but would
be sold by farmers through the fresh produce markets in major centres
and informally from
their farms, with prices being determined by
supply and demand. It was also a market that producers might enter on
an opportunistic
basis when prices were high and offered the
opportunity for a quick profit, but this had the effect of depressing
those high prices
because of over-supply.
[27]
NPC did not itself keep stocks of the items
required by its members but purchased them on their behalf and
on-sold them. In the
case of seed potatoes it would purchase them
from its own members and then sell them to other members. The debts
incurred by members
through these activities were referred to as
production credits. In order to finance its business NPC borrowed
money on favourable
terms from the Land and Agricultural Bank of
South Africa (the Land Bank). Its profitability was dependent upon
any mark-up it
charged to its members on the supply of production
materials and the difference between the rate of interest that it
charged its
members and the rate of interest that it was being
charged by the Land Bank. That did not make for substantial profits
especially
as the Land Bank asked co-operatives to limit to one per
cent the margin they charged on loans funded by the Land Bank.
[28]
NPC was dependent upon the Land Bank in
order to remain in business. Without the financial support it
received from that source
it could not have continued its activities.
Its liability to the Land Bank was by far its largest liability.
Conversely the principal
asset of NPC was the debts owed to it by
members to whom it had granted production credits. These debts were
the security for the
Land Bank’s claims. NPC had not built up
reserves of capital to cushion it against any significant downturn in
its financial
fortunes. Accordingly if it failed in any significant
degree to collect what was owing to it by its members it faced
closure.
[29]
The financial challenges facing NPC were
exacerbated by protracted droughts during the 1980s, which made it
difficult for its members
to grow the crops necessary to enable them
to repay the production credits they had received from NPC. Whilst
these sometimes led
to shortages in the market place and hence higher
prices, the higher prices were insufficient to compensate for the
loss of production.
Drought caused widespread problems in the
agricultural sector and the government of the day put in place
various schemes designed
to assist farmers who were struggling to
remain in business as a result of the drought. Many members of the
NPC participated in
these drought aid schemes, which in practice
involved the Land Bank granting extended repayment terms in respect
of certain farmers’
debts against the security of a government
guarantee (‘die staatswaarborg’).
[30]
There were also problems in obtaining
security for members’ indebtedness to NPC. The best form of
security in the form of
a mortgage bond over the member’s farm
was rarely available. Usually farms would be mortgaged to the Land
Bank or some other
financial institution. Potatoes were not the
principal crop of most members of NPC and the majority were also
members of other
larger co-operatives, in particular the grain
co-operatives. Although this allowed for some measure of
cross-subsidisation, so
that in years where the potato crop was poor
the grain harvest might be good and vice versa, when both crops were
poor this aggravated
the problem of repayment of debts. Because of
their greater financial muscle these larger co-operatives were often
able to obtain
security of better quality and ranking ahead of any
that NPC could obtain. In addition they usually marketed their
members’
produce so that they had the advantage of receiving
the proceeds directly. If NPC wished to obtain direct payment of the
proceeds
of selling potatoes they had to obtain a written authority
from the member, addressed to the market agents used by the farmer to

market the potatoes, authorising the agent to pay the proceeds of
sales directly to NPC. In addition NPC would obtain notarial
bonds
over movables as security, but in the nature of things, if it had to
rely upon such a bond, it rarely proved adequate to
cover the entire
indebtedness.
[31]
The principal security held by NPC was the
statutory pledge over its members’ crops, in terms of
s 173(1)
(c)
of
the Act. But the pledge had its limitations. It applied to potatoes
held by the member at the time the debt arose or any potatoes

produced or acquired in the period of 18 months thereafter. It was
not therefore a long-term form of security. Furthermore, as
there was
no obligation on farmers to deliver their potato crops to NPC or its
nominated agents, it was relatively easy to circumvent.
The evidence
showed that the efforts by NPC to enforce this security were limited
and sporadic and it frequently agreed to waive
the pledge or made
fresh advances to members from the proceeds of their crops, in
effect, creating carry-over debts (‘oorlaatskulde’).
[32]
The uncomfortable financial position of NPC
was reflected in its annual financial statements for the year after
the introduction
of the first drought aid scheme. This was the year
ended 30 September 1983 and these statements were not attacked in
these proceedings.
They showed that the total capital of NPC was a
little over R2.5 million. Its fixed assets were a little less than R2
million and
its current assets slightly less than R14 million. Of
that figure, debtors represented nearly R13 million, which was nearly
double
the figure for the previous year. The amount owing to the Land
Bank was nearly R10 million. The surplus for the year was R340 000

on a turnover of over R20 million and that was determined after
writing off bad debts of R430 000, an increase from the previous

year of 165 per cent.
[33]
The board of directors were clearly aware
of this situation and aware also that NPC was heavily dependent upon
its debtors meeting
their obligations for its financial health. That
was made clear to them by the auditor – not at that stage Mr
Odendaal –
who told the directors at the meeting when they
approved the annual financial statements that special attention
needed to be given
to debtors. He is recorded in the minutes as
saying that bad debts had their origin in the decision to grant
credit and that it
was therefore necessary to ensure that information
available at that time should be considered carefully and that staff
should
be properly trained in these matters. This caused the board to
resolve that immediate attention be given to the credit policy. At

the same time it would have been under pressure to provide financial
support to its members at the very time that the members were
facing
great financial constraints and were most likely to default on their
obligations to NPC. Accordingly, satisfying the purpose
for which it
was established and simultaneously implementing stringent credit
policies was a source of tension if not outright
conflict.
[34]
The members of NPC were also made aware of
the dangerous financial situation in which it found itself. In the
directors’ report
forming part of the annual financial
statements for that year their attention was drawn to the effects of
the drought and the massive
increase in NPC’s debtors.
According to the report, if the government had not put forward its
drought aid scheme ‘your
Co-operative as well as its producers
would have been in a serious financial disposition (sic)’.
Although there had been
an increase in membership this was not caused
by farmers entering the potato business but reflected ‘producers’
need
for financing of crops’. That was also reflected in the
increase in turnover during the year.
[35]
That is how matters stood at the financial
year end in 1983 and it remained unaltered during the period under
consideration. The
allegation that the annual financial statements
did not reflect the true financial position of NPC from 1984 to 1997
renders it
necessary to consider the picture painted by those
statements and other documents in those years. To avoid undue
prolixity and
simplify reading the detailed analysis is contained in
the appendix to this judgment. In what follows the conclusions drawn
from
it are summarised. In doing so I will highlight the problems
that existed; the concerns raised by the Land Bank and the auditors;

the knowledge of the directors of the financial situation; the steps
taken by the directors to address the problems that existed;
and the
information given to members about that situation.
Summary
of the position from 1984 to 1997
[36]
From October 1983, and the beginning of the
1984 financial year, to November 1997, and the finalisation of the
financial statements
for the year ended 28 February 1997 the
financial statements reflected that NPC was financially insecure. It
lacked capital resources
to withstand any vicissitudes in trading
conditions. Its operations extended throughout the country, but were
controlled centrally
from Bethal, so that it was heavily dependent on
the field officers and credit officers in the regions for the
implementation of
credit policies. The business of the provision of
production materials to its members was conducted almost entirely on
credit and
was dependent upon Land Bank financing. The Land Bank
repeatedly expressed concern over its practices in regard to the
grant of
credit and the recovery of amounts owing to it, especially
by the exercise of its statutory pledge. Withdrawal of Land Bank
support
or any significant diminution thereof would have been
catastrophic. When it demanded repayment of debts and reduced its
willingness
to provide credit in 1997 this rapidly led to the
effective demise of NPC’s business.
[37]
From 1983 to 1992 there were persistent
droughts that eventually affected all areas of agriculture in South
Africa and the government
intervened by establishing the series of
drought aid schemes referred to in para 29. These schemes were
administered by the Land
Bank, which was already responsible for much
agricultural credit in the country. Its ability from 1983 until 1992
to extend credit
to co-operatives under these schemes was itself
dependent on the state guarantee. If that were withdrawn, large
amounts would have
become due to the Land Bank and would have had to
be recovered from farmers, who
ex
hypothesi
had been enduring difficult
times. On a broader front there was always a risk of the government
withdrawing its support from agriculture,
particularly in the
uncertain political climate through the late 1980s and early 1990s.
The Land Bank itself, if not satisfied
that a co-operative was
implementing the drought aid scheme properly could refuse to pay
claims under the scheme and it could always
withdraw, limit or impose
onerous conditions on the cash credit account of the NPC.
[38]
The NPC had a persistent problem with bad
debts. In every year a relatively small increase in bad debts written
off would have tipped
the balance sheet into negative territory and
reflected that the NPC was trading unprofitably and potentially in
insolvent circumstances.
Mr Odendaal and the members from time to
time of the board of directors knew this. So did the members of NPC
because it was apparent
from the annual financial statements and
(insofar as members attended such meetings) the reports made by Mr
Odendaal at annual
general meetings. The adoption of more and more
stringent credit policies did nothing to alleviate this but
nonetheless the board
consistently reported that the credit policy
was being implemented stringently. This was never queried,
notwithstanding the fact
that these policies seemed to make no
difference to the on-going increases in and concerns about the bad
debts.
[39]
Despite these difficulties the NPC expanded
its operations and its turnover increased virtually every year,
sometimes by very large
amounts. For example between 1986 and 1987 it
increased from R29.5 million to R48.5 million and again the following
year to R71
million, where it remained for a year before increasing
to R102 million in 1990. Over the same period debtors increased from
R27
million to R70 million and the indebtedness to the Land Bank by
an equivalent amount from R22 million to R65 million. Over R7 million

had been written off as bad debts during this period and the extent
of drought aid debt was consistently close to 50 per cent of
all
debtors.
[40]
In 1992 NPC was saved from closure by the
receipt of R28.5 million from the government when the drought aid
scheme and the corresponding
state guarantee were terminated. The
opportunity was taken to write off large amounts of debt. However,
nothing thereafter changed
in NPC’s business operations. Its
turnover increased from 1992 to 1996 from R123 to R142 million, but
its debtors increased
over the same period from R66 million to R111
million, that is, by the same amount. In 1997 the Land Bank reduced
its support substantially
and imposed conditions on continuing to
provide credit. As a result the business largely collapsed. Massive
amounts were written
off as bad debts resulting in a loss of R34
million in 1997. According to the directors’ report in 1999,
its turnover fell
from R119 million in 1997, to R 83.4 million in
1998 and R53.6 million in 1999. It was utterly dependent on the Land
Bank’s
support if it was to remain a going concern. When the
Land Bank commenced action against it that was the straw that broke
the camel’s
back. Membership was falling fast from a peak of
906 to 572 and then a little over 100. In 2000 it effectively merged
with Northern
Transvaal Co-operative Ltd, and ceased trading.
[41]
In 1997 PWC resigned as auditors. They
concluded for various reasons that they could not express an audit
opinion on the financial
statements for the year ended 28 February
1997 and withheld an opinion. Mr Collett, who played a key role in
this litigation, had
come on the scene and was conducting an
investigation that led to the present claim being made against the
auditors. By May 1998
Mr Collett was recorded as informing the
directors that he was confident that the claim against the auditors
would succeed.
[42]
The
directors who held office from time to time throughout this period
were well aware of all these matters. As experienced farmers

themselves, engaged in growing potatoes and in some instances serving
on other agricultural committees and bodies, they were in
a good
position to judge the state of the agricultural industry,
particularly as it related to potatoes. They would have known
about
the impact of weather conditions, such as drought, rain and snow, on
crops; whether pests and disease were affecting crops;
the costs of
farming potatoes at any particular time; the prices being obtained in
fresh produce markets at various times; and,
in general, the state of
the potato growing industry. Furthermore, as the directors were
elected to represent the different regions
in which potatoes were
being farmed, each director could be expected to have particular
knowledge of farming conditions in the
area he (and they were all
men) represented, as well as a degree of personal knowledge of the
potato farmers in his areas,
[16]
which would encompass the nature and extent of their farming
activities, the problems they were encountering and whether they were

‘good’ or ‘bad’ farmers. Lastly, while they
might not have had advanced education in financial matters,
a number
of them were successfully operating large farming businesses and
could have been expected to have a reasonable understanding
of
financial matters and financial statements. The suggestion that they
were simple farmers easily duped by management does not
hold water.
[43]
The members too would have been generally
aware of the matters described in paras 26 to 34 and 36 to 42 above.
These were all matters
that were communicated to them in the annual
financial statements of NPC. There were other communications to them
in the form of
a newsletter, the NAKBLAD, and one must accept that as
farmers they would have paid attention to the information available
through
public media and the like. It is against that general
background that I turn to the specific dispute in the present case.
The
dispute
[44]
Although
the pleadings (and at times the judgment of the trial court) suggest
that it was PWC’s responsibility to determine
the proper level
of provisions for bad debts and the amounts to be written off each
year as bad debts, and that the annual provisions
they made were
inadequate, that was plainly incorrect and it was not pursued before
us. The case was based on the contention that
the reason for the high
level of bad debts was mismanagement of the function of granting
credit and recovery of debts by the officials
of NPC, who were acting
recklessly or dishonestly and irregularly, through deliberate
breaches of the statute of NPC and its credit
policy,
[17]
and that this was either known to Mr Odendaal or should have become
apparent to him had he undertaken a proper audit. The nature
and
extent of this reckless mismanagement was concealed from the
directors and members and PWC’s reports facilitated this.
The
reports did not disclose the reckless mismanagement of credit, and
the amounts written off as bad debts, as well as the standard
annual
provision for bad debts, were not a reasonable reflection of the
financial position of NPC in respect of these items.
[45]
NPC contended that, had PWC complied with
their contractual obligations, they would have known the full extent
of the reckless mismanagement
of credit and would have insisted that
the financial statements be amended to reflect a more realistic
position. Alternatively,
they should have qualified their reports by
saying that in their view there was reckless mismanagement of credit;
that the write-offs
and provision were substantially inadequate; and,
drawn attention to the consequences for the financial statements of
their views
being given effect. Had they done so it was argued that
from the commencement of the period under consideration, the reckless
mismanagement
of credit and the consequent parlous financial
circumstances of NPC would have emerged and this would have caused
the board, or
failing it, the members to take steps to remedy the
position. Instead the situation was allowed to deteriorate until
matters came
to a head in 1997. It was contended that the alleged
breaches of contract by PWC had led to NPC providing credit to
farmers who
were not creditworthy and in due course having to write
these debts off as irrecoverable. The amounts so written off, in
respect
eventually of 46 farmers, constituted the damages for which
it said that PWC was liable.
[46]
PWC’s stance was that the audits were
all conducted properly and that the approach by NPC has the effect of
making the auditors
the insurers of the viability of the business.
They accepted that from time to time it was appropriate for the
auditor’s
report to be qualified, but said that the
qualifications included from 1985 to 1991 and again in 1997 were
appropriately phrased
to convey to NPC and its members the nature and
extent of the problems facing the co-operative and from then on it
was for them
to determine what should be done to address the
situation. They disputed the allegations of reckless mismanagement
and, to the
extent that the grant of credit in any particular
instance was inappropriate or unwise, they said that this was no more
than the
consequence of a poor decision taken in the conduct of NPC’s
business, and therefore that responsibility rested ultimately
with
the directors. If the business was run badly and this could be
characterised as mismanagement they said that it was for management

and the directors to identify and deal with the problem.
[47]
It is important to note that NPC founded
its attack on the audits on the proposition that there was
overwhelming evidence of material
mismanagement of credit that could
be attributed to recklessness or dishonesty on the part of the
responsible officials. I will
refer to this as reckless mismanagement
to distinguish it from a situation where the business was not well
run; or where there
was poor decision-making in regard to the grant
of credit; or where inadequate steps were taken to recover
outstanding debts, all
of which could possibly be described as
mismanagement, but arising for other reasons, such as incompetence,
carelessness or inefficiency.
The alleged reckless mismanagement
broadly encompassed credit being granted contrary to the provisions
of the statute of NPC and
the credit policy laid down from time to
time by the board and the failure to enforce strictly the statutory
pledge against debtors.
It included the irregular inclusion of some
debtors under the drought aid scheme; the unlawful advance of loans
to subsidiaries;
the failure to obtain proper security; manipulation
and renewing of debts so that they appeared to have arisen more
recently than
was in truth the case; the incorrect levying of
interest and ultimately the under provision for bad debts. This is
the way in which
the case was expressed in the pleadings and it was
reiterated in the heads of argument in this court.
[48]
NPC’s case was not that the affairs
of the co-operative were run badly or unwisely, and that the failure
of PWC to demand
that higher provisions for bad debts be made in the
annual financial statements, or to qualify their audit reports, was
the cause
of their loss. No doubt that was because it would have
raised intractable problems of causation. Holding the auditors liable
for
that kind of mismanagement would effectively make them the
underwriters of the NPC’s business failures, a risk that they
did not agree to run when they undertook the audit. It follows that
if the cause of NPC’s problems was that it was a poorly
run
business, with a mixture of over generous granting of credit and a
less than zealous approach to the recovery of payment from
debtors,
exacerbated by adverse farming conditions and inadequate prices, this
could not be laid at the door of PWC.
[49]
NPC pinned its colours firmly to the mast
of reckless mismanagement of credit by the responsible officials and
the failure by PWC
to discover or disclose this and its consequences
in its audit reports. At a minimum NPC ascribed that failure to
negligence in
the performance of the audit. However, in the court
below and in its heads of argument, as well as from time to time its
oral argument
in this court, NPC suggested that Mr Odendaal’s
reports were either deliberately dishonest and misleading or that he
allowed
himself to become a pawn of management so that his reports
were a mere smokescreen for their misconduct. I turn then to outline

the evidence led by the parties in support of their respective cases.
The
evidence
[50]
A massive number of documents were placed
before the court on the basis that they were what they purported to
be, but the correctness
of their contents was not admitted. In the
course of the trial much use was made of many of these and other
documents. However,
some potentially important documents were no
longer available, such as the audit working papers for the period
prior to 1990 and
those for 1991. In addition Mr Collett said that
when he and his team were undertaking their investigation there were
files of
bad debtors that were not available, which raises the
possibility that the files furnished by the NPC were incomplete. That
is
reinforced by the fact that Mr Odendaal’s notes in some of
the audit files refer to balance sheets in respect of debtors,
when
Mr Collett’s team found none. It suggested that documents might
have gone astray and that the files might be incomplete.
[51]
NPC presented its case largely through the
evidence of Mr Collett. He had conducted the investigation into the
affairs of NPC after
the departure of the chief executive, Mr
Boonzaaier, in 1997 and prepared the report that formed the basis for
the action against
PWC. He gave evidence as an expert on the basis of
his report and the files of documents prepared in the course of his
investigation.
Messrs Marais, Greyling and De Jager, who were
previously employed by NPC, gave some supporting evidence of a
factual nature. Mrs
van der Merwe explained how the files for each
debtor whose debt formed part of the claim were assembled from files
obtained from
NPC and Mr van Schalkwyk dealt with interest rates
charged by the Land Bank from time to time. Dr Wentzel was a
qualified accountant
who had spent his working life working in the
Noord-Westelike Koöperatiewe Landboumaatskapy, and he testified
in regard to
the working operations of co-operatives, the drought aid
scheme and certain accounting issues in relation to co-operatives.
[52]
Mr Hopkins and Professor Wainer gave expert
evidence on accounting issues. They were well qualified to do so. Mr
Hopkins was a former
professor of accountancy at the University of
Cape Town and had then had a successful career in business with
various companies.
Professor Wainer had extensive academic experience
as well as substantial involvement in practice with a leading firm of
accountants
and auditors, of which he had eventually become chief
executive, and subsequently as senior partner of another firm. He has
also
served on various professional bodies, particularly those
responsible for setting standards. At the end of the day, however,
all
of this was merely supplementary to the evidence of Mr Collett
upon which the entire case for NPC depended. The evidence of both

Professor Wainer and Mr Hopkins was premised upon there having been
reckless mismanagement of the affairs of NPC, and that, in
turn,
depended upon Mr Collett’s evidence.
[53]
It is no surprise therefore that PWC
attacked Mr Collett’s evidence on two grounds. The first,
raised at an early stage of
his evidence, was that the opinions he
was expressing were based upon facts of which there was no proof and
that, insofar as he
was being used to place those facts before the
court, his evidence was inadmissible hearsay. In turn, as there was
no proof of
the facts on which his opinions were based, those
opinions were irrelevant and inadmissible. The second, raised in
argument rather
than in the course of his evidence, was that he was
not in truth an expert and was accordingly unqualified to express the
opinions
that lay at the heart of his evidence regarding the
existence of reckless mismanagement and the adequacy of the audit
undertaken
by Mr Odendaal.
[54]
PWC led only two witnesses. Their primary
witness was Mr Odendaal, who testified both as to what he had done in
the course of conducting
the audits over this period and as an expert
witness as to the standards required of an auditor in the performance
of an audit.
In addition they called Mr Tom Wixley, a senior and
experienced accountant and auditor, who had a 41 year career with one
of the
largest accounting firms in the world, of which he ultimately
became the local chairman, as well as a member of the international

council of that firm. He also had extensive experience serving on
professional bodies especially those responsible for setting

professional standards. Like Professor Wainer he has on many
occasions given evidence as an expert witness in relation to
accounting
matters.
[55]
NPC
launched a ferocious attack on Mr Odendaal’s evidence, both in
regard to its substance and in regard to his honesty and
reliability.
He was described in the submissions to this court as a shocking
witness whose evidence was studded with contradictions.
NPC argued
that his evidence was evasive and that he repeatedly avoided
answering questions or simply refused to do so. Although
the trial
court had heard and rejected a similar attack on his credibility, NPC
persisted in contending in this court that Mr Odendaal’s

evidence should be rejected as untruthful. It submitted that,
although an appeal court is reluctant to overturn a finding of
credibility
made by a trial court, based on that court’s
impression of the witness,
[18]
the trial court had erred in not adopting the approach to his
evidence laid down by this court in
Martell
.
[19]
[56]
The principal evidential dispute appeared
therefore to be a conflict between Mr Collett and Mr Odendaal, the
former criticising
and the latter defending the quality of the audits
undertaken by the latter. The dispute between them lay at the heart
of the central
issues whether PWC breached its contractual
obligations during this period and, if so, whether that occasioned
loss to NPC, recoverable
by way of an award of damages. However,
before reaching those issues, it is necessary to address the anterior
questions of the
nature of PWC’s relationship with NPC as a
result of its appointment as its statutory auditor; the obligations
that rested
on PWC as a result of that appointment; and whether the
evidence established that there was indeed reckless mismanagement of
credit
by NPC’s officials and concealment of that
mismanagement. It is to those issues that I now turn.
Legal
basis for the auditor’s appointment
[57]
PWC’s argument under this head was
that the appointment of an auditor was a requirement of the Act (s
143(1)) and had to be
undertaken by the members of NPC at the annual
general meeting (s 145(1)). The co-operative was obliged to pay the
auditor the
agreed fee for rendering the audit services (s 155(1)).
Accordingly the decision by the annual general meeting was the sole
source
of the auditor’s appointment as such and was not in any
way dependent upon a contractual relationship existing between the

auditor and the co-operative. They submitted that the Act provided a
comprehensive code covering the appointment and duties of
the auditor
(ss 152 -154). In those circumstances it was contended that the
source of the auditor's appointment in this case
was statutory and
not contractual. Furthermore PWC contended that there was no evidence
of any contract in the particular circumstances
of this case that
would alter that situation.
[58]
The argument is one with potentially
far-reaching consequences, as it would apply with equal force to the
appointment of auditors
by companies, something that has been a
feature of legislation governing companies for many years both in
this country and elsewhere.
Yet no authority was cited for the
proposition and my own researches have not revealed that it has
occurred to any lawyer to argue
a similar point in this or any other
jurisdiction. Whilst novelty alone is not a ground for rejecting a
legal point the fact that
over a protracted period an otherwise
obvious contention does not appear to have been raised anywhere is a
ground for suspecting
that it may not be sound.
[59]
In my judgment the point is not sound. The
fallacy lies in approaching the matter solely from the perspective of
what must occur
at the annual general meeting of the co-operative or
company and not from what must necessarily precede it. The decision
at the
annual general meeting to appoint a particular person or firm
as auditor must necessarily be preceded by the board of directors

(or, if there is opposition to their proposal, the opposing faction
in relation to their own nominee) approaching a firm of auditors
and
asking whether they are willing to accept the appointment. Auditors
like PWC are firms that offer specialist auditing services
in return
for remuneration. They are under no obligation to accept an
appointment as auditor and will only do so if the terms of

appointment offered to them are sufficiently attractive and
acceptable. A proposal to appoint them as auditor will always follow

upon agreement having been reached upon these matters. Only then will
it be proposed to the members at the annual general meeting
that they
should agree to make the appointment.
[60]
It
does not seem to me to matter in those circumstances whether one
analyses the legal position on the basis that the co-operative
or
company making the appointment offers to appoint the auditor on the
terms agreed, such appointment to be finalised by the approval
of the
members at the annual general meeting, and the auditor accepts that
offer, or as an offer by the auditor to accept an appointment
on
agreed terms accepted by the co-operative or company by way of the
resolution of members at the annual general meeting. The
only
apparent difference between those two analyses might be as to the
precise moment when the contract comes into existence. The

relationship in either event is contractual. It is noteworthy that
this is the view of it taken by the auditing profession in its

published auditing standards (Audit statement 211). It is also the
consistent view of legal writers dealing with the relationship

between an auditor and the enterprise being audited.
[20]
[61]
For
those reasons I hold that the relationship between the various
iterations of PWC as auditor of NPC from time to time and NPC
was
contractual. Bearing in mind the provisions of s 145(3) of the
Act, which in this respect paralleled the provisions of
s 270(2)
of the Companies Act 61 of 1973, which was in force at the time, this
was not a single continuing relationship such
as that created by a
contract of employment. Under the Act each annual appointment of an
auditor gave rise to a separate contract.
That has an important
bearing on not only the issue of prescription, but also the issues of
negligence and causation. This is especially
so because there were
four different firms that contracted with NPC during the years in
question. A breach of contract by the one
cannot therefore be
‘carried over’ or attributed to another. There is no
question of a continuing breach of contract.
As the authors of
Jackson
and Powell
[21]
point out:
‘
The
fact that auditors have negligently performed their duties in one
year does not by itself establish that the absence of a report
about
the same matter in the next year is negligent. Where what is
complained of is an omission to note a particular point the

circumstances giving rise to that omission in the year in question
need to be examined.’
[62]
The
entire case was conducted without this important point being raised
or canvassed. NPC’s approach was that there was a
continuing
breach of contract by a single entity compendiously described as PWC.
That was erroneous. If there were breaches of
contract by any of the
four firms so described they were independent breaches occurring in
different years and having different
consequences. It was necessary
to identify the consequences flowing from each such breach. As the
case lay in contract, not delict,
there was no question of joint
wrongdoing and no basis for judgment to be entered jointly against
different firms as happened when
the issue of quantum was addressed.
Cases of true joint liability in contract are most likely to arise in
circumstances where the
parties being held liable are parties to the
same contract and the claim arises out of the same breach, but for
some or other reason
they are not jointly and severally liable.
[22]
The present was a situation where the possibility existed of saying
that the different firms were separately and independently
liable for
the same or similar loss,
[23]
but the case was not pursued on that footing.
PWC’s
contractual obligations
[63]
The
role of the auditor has been the subject of numerous judgments, none
more lucid than that of Bingham LJ in
Caparo
v Dickman
,
[24]
where he said:
‘
At
the heart of this case lies the role of the statutory auditor. That
role is, I think, without close analogy. Its peculiar characteristics

derive from the nature of the public limited liability company. The
members, or shareholders, of the company are its owners. But
they are
too numerous, and in most cases too unskilled, to undertake the
day-to-day management of that which they own. So responsibility
for
day-to-day management of the company is delegated to directors. The
shareholders, despite their overall powers of control,
are in most
companies for most of the time investors and little more. But it
would, of course, be unsatisfactory and open to abuse
if the
shareholders received no report on the financial stewardship of their
investment save from those to whom the stewardship
had been
entrusted. So provision is made for the company in general meeting to
appoint an auditor … whose duty is to investigate
and form an
opinion on the adequacy of the company's accounting records and
returns, and the correspondence between the company's
accounting
records and returns and its accounts … The auditor has then to
report to the company's members (among other things)
whether in his
opinion the company's accounts give a true and fair view of the
company's financial position … In carrying
out his
investigation and in forming his opinion the auditor necessarily
works very closely with the directors and officers of
the company. He
receives his remuneration from the company. He naturally, and
rightly, regards the company as his client. But he
is employed by the
company to exercise his professional skill and judgment for the
purpose of giving the shareholders an independent
report on the
reliability of the company’s accounts and thus on their
investment.’
Save
that the members of NPC were not investors, but became members in
order to facilitate and further their own farming interests,
I think
that this correctly states the function that PWC was obliged to
fulfil for NPC.
[64]
The
auditors’ obligation was to express an opinion on the financial
statements prepared by management, an expression that
encompasses
both the board of directors and the officials acting under their
direction. Under the Act the responsibility for managing
the affairs
of NPC, covering both the conduct of the business and the adoption of
appropriate accounting practices in accordance
with GAAP, lay with
the board of directors. They were also responsible for preparing the
financial statements on which PWC expressed
an opinion. PWC were not
an adviser and it was not part of their audit function to advise on
the manner in which NPC should have
conducted its business or whether
it was being run in a prudent fashion.
[25]
They were, however, obliged to conduct the audit in a reasonably
skilled manner and without negligence.
[26]
If in the course of the conduct of the audit they discovered matters
concerning the manner in which the business was being conducted
that
might materially affect the accuracy of the financial statements it
was part of their audit responsibility to investigate
and report it
to the appropriate level of management. Depending on the outcome of
their investigations they might have required
the financial
statements to be amended or have qualified or withheld their report
to members.
[65]
The primary source of a statutory auditor’s
rights and obligations under its contract with its client is the
statute. In this
case, although NPC sought in its pleaded case to
burden PWC with obligations going beyond its statutory duties, it led
no evidence
to support that approach. It contended that PWC was
obliged to audit its accounting records; to investigate its system of
internal
controls and report on it; to evaluate its accounting
policies and report on them; and to comply with unspecified
provisions of
NPC’s statutes. An endeavour was made to
sub-divide the audit function into separate compartments, but that
was inappropriate.
It overlooked that the function of the auditor
under the Act was a global one, namely to audit and evaluate the
financial statements
of NPC and to determine and report whether they
fairly reflected its financial affairs and the result of its
activities (s 145(2)).
In the course of that they would need to
examine many of the matters identified in the particulars of claim,
but it is necessary
to keep in mind that their task was a global one.
[66]
The relevant provisions of s 153 of
the Act provided that the auditor was obliged to:
‘
(a)
examine the co-operative's annual financial statements …
(b)
satisfy himself that proper accounting records in accordance with the
requirements of this Act have been kept by the co-operative
and that
proper returns, adequate for the purposes of his audit, have been
received from branches and depots not visited by him;
(c)-(e)
…
(f)
obtain all the information and explanations which to the best of his
knowledge and belief are necessary for the purpose of carrying
out
his duties;
(g)
satisfy himself that the co-operative's annual financial statements
are in agreement with its accounting records;
(h)
examine the accounting records of the co-operative and carry out such
tests in respect of such records and such other auditing
procedures
as he may consider necessary in order to satisfy himself that the
annual financial statements fairly reflect the financial
state of the
affairs of the co-operative and the results of its operations in
conformity with generally accepted accounting practice
applied on a
basis consistent with that of the preceding year;
(i)
satisfy himself that statements made by the directors in their report
do not conflict with a fair interpretation or distort
the meaning of
the annual financial statements and the company notes …’
[67]
Having
conducted an audit in accordance with those provisions PWC was then
obliged to render its report to the members of NPC. If
satisfied that
the annual financial statements fairly reflected its financial state
of affairs and the result of its trading activities
it would report
accordingly. If unable to do so, or only able to do so with
qualifications, PWC was obliged to report to that effect
and to set
forth the facts and circumstances that prevented it from giving a
report. or an unqualified report, as the case might
be
(s 154(3)).
[27]
Whether
PWC properly discharged its obligations in this regard was central to
the dispute in this case.
[68]
The audit standards dealt with the nature
of the qualifications that an auditor could attach to their report,
and to when such qualifications
were justified and when an audit
report should be declined or an adverse report given. Audit standard
AU 321 in GAAS set out the
following position from 1982 until 1990,
during which PWC consistently issued qualified audit reports. An
unqualified audit report
was one that expressed the view that the
financial statements fairly represented the financial position of the
audited entity and
the result of its activities. The need to qualify
a report could arise either from uncertainty about matters that
prevented the
auditor from expressing an unqualified opinion, or
disagreement between the auditor and management as to the
presentation of matters
in the financial statements. If the
uncertainty related to a material matter then the auditor could
report that ‘subject
to’ the relevant matter the
financial statements fairly reflected the financial position.
However, if the uncertainty was
fundamental, because, for example, it
would affect the solvency of the enterprise or its status as a going
concern, then the auditor
was obliged to disclaim an opinion, that
is, to report that they were unable to form a view on whether the
financial statements
fairly reflected the entity’s financial
position and activities.
[69]
Where the problem was a disagreement
between the auditor and management on the proper presentation of
matters in the financial statements,
and the disagreement was
material, but not fundamental, the auditor was required by the audit
standard to express the opinion that,
‘except for’ the
area of disagreement, the financial statements fairly reflected the
financial position and the activities
of the enterprise. If the
disagreement was fundamental the auditor was obliged to express the
opinion that the financial statements
did not fairly reflect the
enterprise’s financial position and activities.
[70]
In
its original form AU 321 said that the explanatory paragraph in which
an auditor set out the reasons for qualifying should include
‘a
brief résumé of the reasons for the qualification, the
implications thereof for the financial statements
and where possible
the amounts involved’. Sufficient information had to be given
to enable the reader to understand clearly
the reason for the
qualification. This had to be construed in the light of the
requirement in s 154(3) of the Act that obliged
the auditor to
set forth the facts and circumstances preventing them from giving a
report or an unqualified report. The statute
demanded a full
statement of matters giving rise to that situation and the auditing
standard could not detract from that. It is
important to note that
compliance with the provisions of GAAS, while possibly a necessary
condition for an auditor not to be held
in breach of contract, may
not be a sufficient condition therefor, if the GAAS standard is less
stringent than a statutory obligation.
Similarly, such compliance
goes some way towards showing that the auditor was not negligent, but
is not necessarily decisive.
[28]
[71]
In 1991 AU 321 was revised to exclude the
possibility of a ‘subject to’ opinion being expressed in
the case of material
uncertainty. The circumstances that hitherto had
attracted that kind of qualification would now require an ‘except
for’
qualification or a disclaimer of opinion. If the auditor
disclaimed an opinion they had to set out the reasons therefor. This
is
what Mr Odendaal did in 1991, although the grounds for his
disclaimer were challenged. The revised standard contained the same
provision in regard to the explanation for a qualified opinion or a
disclaimer, save that it added that all material matters about
which
the auditor had reservations should be mentioned. The audit standard
made it clear that, as with many other aspects of an
audit, it was a
matter for the professional judgment of the auditor to determine
whether something was material.
[72]
Apart
from the issues surrounding the auditor’s duties in relation to
the report made to members at the end of the audit,
ultimately there
was little controversy over their obligations in terms of the audit
standards. They were required to approach
the audit from an
independent and slightly sceptical standpoint
[29]
recognising that there are many reasons why financial statements may
be materially misstated. The audit had to be planned so that
areas of
material risk would be identified and suitable audit evidence
obtained to enable the auditor to express an opinion on
the financial
statements. Such evidence could either come from testing the internal
controls of the enterprise, or from other sources,
referred to as
substantive evidence. If the audit revealed areas of potential risk
the auditor was obliged to investigate sufficiently
to satisfy
themselves that they did not result in misstatements in the financial
statements, or to ascertain the extent to which
they did and affected
fair presentation of the enterprise’s financial position and
report accordingly. In the latter case
this could result in the
financial statements being redrawn or in a qualified report.
[73]
On
the central question of the audit of debtors all the experts agreed
that the auditor’s task was to assess whether management’s

view of the extent to which the debts were likely to be recoverable
and to result in a cash flow to the enterprise was reasonable.
[30]
It was accepted that this was a matter of judgment based on the audit
evidence available to the auditor. A dispute over this issue
raged
between the experts with the NPC’s experts, Professor Wainer
and Mr Hopkins, being strongly critical of the approach
adopted by Mr
Odendaal, and Mr Wixley saying that his approach was acceptable. In
addition Mr Odendaal, as was to be expected,
defended his approach. I
will revert to this in dealing with the allegations of breach of
contract.
[74]
The only other significant point to note at
this stage is that throughout the relevant period there was no
published audit standard
dealing with audit assessments of the
recoverability and value of debtors. SAAS 540 dealing with the audit
of accounting estimates
was only published in January 1997. It
provided, somewhat unhelpfully, that the auditor should obtain
sufficient appropriate audit
evidence regarding accounting estimates
and whether they were reasonable. The auditor could either obtain
such evidence by reviewing
and testing the process used by management
to develop the estimate, or by using an independent estimate, or by
reviewing subsequent
events confirming (or presumably not confirming)
the estimate. It said that in evaluating the data and process used by
management
the auditor should test whether the data was accurate,
complete and relevant and had been analysed appropriately. A
comparison
of previous estimates with actual experience would enable
the auditor to determine whether the estimates were reliable. Where
available,
events after year end tending to reflect on the
reliability of such estimates might provide helpful audit evidence.
The auditor
could only demand a revision of the estimate by
management if the difference between management’s estimate and
that of the
auditor was unreasonable. If management was unwilling to
revise its estimate the difference should, in terms of this standard,
be treated as a misstatement and might lead to the qualification of
the auditor’s report.
[75]
Two other points warrant brief mention. The
first is that, apart from the duty to report to members on the
financial statements,
the auditor had a duty to report to the
appropriate levels of management about weaknesses discovered in
internal controls and accounting
systems. A number of Mr Odendaal’s
audit reports, which were addressed to senior management and the
board, highlighted failures
to adhere strictly to the requirements of
the credit policy and to other weaknesses in the internal systems of
NPC. For the purpose
of NPC’s complaints, however, these were
only relevant to the extent that it was contended that their contents
revealed that
the auditor should have undertaken further
investigations or incorporated reference to the contents of these
reports in the auditor’s
report in the annual financial
statements. Second, it was accepted that the auditor should maintain
records in the form of audit
working papers of the work undertaken,
containing details of the audit evidence obtained in the course of
the audit and the investigations
undertaken in the procurement of
that evidence. Mr Odendaal’s notes on many of the central
issues were criticised as being
cryptic – an apt description –
and it was argued that they showed that he had not undertaken the
work he claimed to
have done in the course of the audit. This becomes
relevant when considering his evidence.
Was
there reckless mismanagement of credit at NPC?
[76]
NPC’s case, as described in para 47
above, was that there was reckless mismanagement by its officials in
the grant of
credit and the recovery of debts and that such reckless
mismanagement had led to material under-provisions in respect of
doubtful
debts. The trial court found this to be established, albeit
in somewhat broad and general terms. Its conclusions were expressed

as follows:
‘
If
there is one overwhelming impression left by the evidence it is that
there was mismanagement at NPC …
The
mismanagement primarily took two forms: the injudicious or irregular
grant of credit and the ineffective collection of debts,
primarily in
company with a failure to enforce the pledge.’
[31]
(My translation)
It
is by no means clear what the judge intended to convey by this. It
was not NPC’s case that its affairs had been mismanaged
in the
limited sense of having been badly run and unwise business decisions
having been taken. Its case was that the employees
responsible for
the grant of credit and the recovery of debts had acted recklessly or
dishonestly or deliberately in breach of
policies binding upon them
and then concealed their own misconduct. However, there is no such
finding in the judgment of the trial
court and that notion seems
inconsistent with the judge having held that the directors of NPC had
full knowledge of the mismanagement.
[77]
NPC’s case on this issue rested on
the documents that were placed before the court, primarily in the
form of debtors’
files prepared by Mr Collett and his team of
investigators, and on Mr Collett’s evidence and, in particular,
the conclusions
he drew and the opinions he expressed on those
documents. That renders it appropriate at this stage of the judgment
to deal with
the objections raised by PWC to the use made of those
documents and to Mr Collett’s standing as an expert witness. I
will
deal with them separately under the general, but not necessarily
comprehensive, headings of ‘hearsay’ and ‘expert

evidence’ and then revert to the issue of reckless
mismanagement.
Hearsay
[78]
Both
when the trial initially commenced before Hartzenberg J with the
evidence of Mr van Rensburg and again when it re-commenced
before
Botha J with the evidence of Mr Collett, counsel then appearing for
PWC recorded an objection to either witness giving evidence
that
amounted to hearsay. On both occasions, however, he indicated that,
rather than seeking a ruling whenever hearsay evidence
was led, or
perhaps a general ruling, he would wait until the end of the witness’
evidence to deal finally with the objection.
That was (and still is)
a common practice in trials and finds some limited sanction in the
provisions of
s 3(3)
of the
Law of Evidence Amendment Act 45 of
1988
. Where the scope of the evidence is limited and its
admissibility may be contestable, to admit it provisionally may be a
convenient
way for the trial to proceed. However, in a case of the
scope and magnitude of this one it was disastrous because, as Lord
Tomlin
said in 1935
[32]
in
regard to the evidence of expert witnesses on the meaning of a patent
specification:
‘
In
the first place time is wasted and money spent on what is not
legitimate. In the second place there accumulates a mass of material

which far from assisting the Judge renders his task the more
difficult, because he has to sift the grain from an unnecessary
amount
of chaff.
In
my opinion the trial Courts should make strenuous efforts to put a
check upon an undesirable and growing practice.’
[79]
It
was apparent from the outset of Mr Collett’s evidence that,
insofar as he spoke of facts concerning the affairs of NPC,
he was
entirely dependent upon the documents he had looked at and assembled
into the extensive trial bundles. He was led in chief
from his two
summaries of expert evidence. These showed that the source of his
knowledge of the facts was the documents, not least
because of the
copious references to those documents in those summaries.  When
PWC’s counsel objected that this was
hearsay, NPC’s
counsel responded that much of Mr Collett’s evidence would be
hearsay.
[33]
He added that,
unless supported by other admissible evidence or an application had
been made to admit it in terms of
s 3
of the
Law of Evidence
Amendment Act 45 of 1988
it should be ignored. No such application
was ever made or foreshadowed. Nor was it argued that the documents
were proof of their
contents and admissible in terms of s 34 of
the Civil Proceedings and Evidence Act 25 of 1965. Nor did the
evidence of Messrs
Marais and Greyling take the matter any further.
[80]
In
my view, notwithstanding the stance of PWC’s counsel, the trial
court should have intervened once it became apparent, as
it must have
done within a couple of days of Mr Collett commencing giving
evidence, that it was overwhelmingly based upon hearsay.
The basic
principle is that, while a party may in general call its witnesses in
any order it likes, it is the usual practice for
expert witnesses to
be called after witnesses of fact, where they are to be called upon
to express opinions on the facts dealt
with by such witnesses.
[34]
While the conduct of the trial is usually a matter for the parties to
determine as they present their cases,
[35]
I have no doubt that, in the exercise of a judge’s power to
control trial proceedings, the judge may intervene to ensure
that
they are conducted in a manner that avoids delay and the unwarranted
escalation of costs. Two courses of action were open
to the judge.
The first would have been to require NPC to identify the hearsay
evidence that it wished to have admitted and make
application for its
admission on any available ground, and then to make a ruling on its
admissibility. Such a ruling could always
have been revisited at a
later stage of the trial if necessary. The second, insofar as it was
indicated that witnesses would be
called to substantiate the hearsay
evidence, was to require that Mr Collett’s evidence stand down
until such evidence had
been led and was properly before the court.
That would have been an appropriate and permissible course for the
judge to adopt.
Instead Mr Collett was allowed to continue unchecked.
[81]
The
next stage at which this issue could have been addressed was when Mr
Collett finished giving evidence and before he was cross-examined.

Instead he was cross-examined on the very evidence that was said to
be inadmissible. The third time it should have been dealt with
was at
the close of NPC’s case,
[36]
but the court was not asked to make a ruling. Then at the end of the
trial, after some 160 days had been spent on this evidence,
it was
submitted that it was all inadmissible hearsay. By then of course it
was impossible to sort the wheat of admissible evidence
from the
chaff of inadmissible hearsay.
[82]
The judge was correct to say that the
expert accounting witnesses could properly express an opinion on the
appropriateness of Mr
Odendaal’s audit work where that was
based solely on documents. That was permissible, because they were
‘walking in
Mr Odendaal’s shoes’. In other words to
the extent that they looked at the same documents as Mr Odendaal and
expressed
views as to the audit consequences flowing from those
documents, all that was necessary was that the documents be
identified as
those on the basis of which Mr Odendaal had conducted
his audit. Of course, to the extent that Mr Odendaal said that he
relied
for his audit on material not emerging from those documents,
that would affect the validity of those opinions, but it would not

render the documents inadmissible for that limited purpose. However,
when used, as Mr Collett did, for other purposes such as those

described in the following paragraphs, that was impermissible.
[83]
Over
and above his opinions on auditing questions, Mr Collett described in
detail the business of NPC, the terms of its statutes
and the history
of its mergers with other co-operatives. He told the court what role
the directors played in its operations, what
the credit policy was
and how it fell to be applied. He said how the production accounts
were conducted and, as counsel for NPC
put it in oral argument before
us, described ‘every facet of its business’.
[37]
Lastly, he dealt with what had occurred with each of fifty debtors in
the conduct of their accounts with NPC over the entire period.
[84]
These were plainly matters of which Mr
Collett had no personal knowledge and this evidence should have come
from the directors and
employees of NPC, who were familiar with them.
His knowledge was gleaned entirely from the documents he had read and
the interpretation
he put on those documents. Thus one finds him at
one stage reading into the record an extract from a minute of a
directors’
meeting and telling the court that he was not sure
what one sentence meant, but that a later sentence meant that the
directors
had taken a particular decision. He said that the directors
had played a non-executive role and that their only engagement with

NPC’s management was at the directors’ meetings held
three times a year. He explained that debtors had been given credit

without authority merely because he was unable to find a credit
application form in the debtor’s file and could not find
a
resolution of directors authorising the extension of credit. No-one
responsible for granting credit gave evidence as to the circumstances

in which it was extended or how it could have been extended without
authority.
[85]
The overall extent of the hearsay evidence
introduced by Mr Collett is apparent from a consideration of the
various headings to
different sections of his first expert summary.
These started (I translate) with ‘The business of the TPC and
the foundation
of the NPC (1983 to 1988)’. They continued with
‘The merger between TPC and Markpro that brought the NPC into
existence’;
‘The NPC from 1988 to 1993’; ‘The
merger of NPC and Peko (Co-operative) Ltd on 31 December 1993 to
bring the
NPC (after merger) into existence’; ‘The NPC
after merger (1993-1998)’ and ‘The nature of NPC’s
business’.
This demonstrated unequivocally that the suggestion
made to us in argument, that Mr Collett was only dealing with the
operations
of NPC’s business in 1997 and 1998 when he was
directly involved in its affairs, was unfounded. The summary, which
was closely
followed in evidence, dealt with the potato harvest from
1985 to 1997 for NPC members and nationally, as well as the prices
prevailing
in markets around the country, apparently derived from NPC
records and information from the Potato Board. This formed the basis

for various calculations made by Mr Collett largely for the purpose
of comparing conditions in the potato industry with those in
regard
to mealies.
[86]
After an excursus by Mr Collett into the
provisions of the Act and the statute of NPC, which involved him in
expressing opinions
on legal issues, he then dealt extensively with
the credit policy of NPC, analysing which of its provisions were of
the greatest
importance. After expressing an opinion on the
importance of this to the risk undertaken by NPC in giving credit to
members, he
passed on to an analysis of non-compliance with the
credit policy. Later he was to deal with the system of internal
controls. He
also dealt with the drought aid scheme, before
explaining in some detail the basis upon which the government
withdrew the state
guarantee. Other factual matters dealt with in his
evidence were the terms of the loans advanced by the Land Bank to
NPC; the manner
in which NPC charged interest on debts; and the
operations of the subsidiaries. This summary is by no means
comprehensive.
[87]
It was submitted that many of these
apparent problems were overcome in the light of other evidence at the
trial and that NPC had
little option but to follow this course,
particularly in relation to the history of the debtors. That
proposition can be disposed
of summarily. Mr Pieterse, a director
from 1987 and the chair of the board from 1996 attended much of the
trial and was available
to deal with these matters. There was no
indication that employees working in the credit department and the
different regions could
not have been called to explain why credit
was given in the case of the farmers whose bad debts made up the
claim and what was
done to recover those debts, or why the statutory
pledge was relaxed or not enforced. The decision to conduct the case
by leading
the evidence of Mr Collett on the history and the relevant
facts was seriously and obviously flawed and it should not have been

permitted.
[88]
The argument on admissibility was advanced
on the footing that Mr Collett’s evidence fell into five
components. First, insofar
as he relied on the contents of minutes of
meetings, Mr van Rensburg testified that the minutes of directors’
meetings and
meetings of the credit committee were an accurate
reflection of what occurred at those meetings. That meant, so it was
argued,
that what was recorded in those minutes could be taken as
factually correct. However, that went further than Mr van Rensburg’s

evidence. The agreement between the parties prior to the trial
commencing was that documents were what they purported to be and

could be used without producing the originals. Mr van Rensburg’s
evidence was that the minutes were accurate. However, that
meant no
more than that the minutes reflected what had transpired at the
meetings and excluded the possibility that matters other
than those
shown in the minutes had been the subject of discussion. It was not a
basis for asserting the factual correctness of
statements in regard,
for example, to debtors and their accounts.
[89]
Second,
it was argued that the contents of the debtors’ files could be
accepted as proof of the facts contained therein, and
that Mr
Collett’s evidence and conclusions about the credit histories
of those debtors was correct. This submission was advanced
on the
following basis. Mr Collett prepared the files and the summaries used
in court from files furnished to him by NPC. PWC were
invited before
the trial to co-operate to arrive at an agreed summary of their
contents but declined to do so. However, during
the course of the
trial they allocated a team of auditors to audit Mr Collett’s
work at a cost of R6.5 million and, to assist
them in doing so, leave
was sought and granted for Mr Collett to be cross-examined by more
than one advocate. Yet at the end of
this exercise no real challenge
was raised to Mr Collett’ evidence in regard to these
files.
[38]
Furthermore when
the trial reached the quantum stage the parties were able to reach
agreement on the bulk of the amounts written
off as bad debts to be
included in computing the amount of the judgment. Accordingly, so the
argument ran, there was no dispute
about the contents and accuracy of
the debtors’ files and they were admissible as proof of their
contents.
[90]
This
is an attractive argument to a court confronted by the mass of
documents such as that in this case, especially when many of
those
were brought into existence in order to record factual matters.
However, on reflection, I do not think that it is sound.
The evidence
went no further than saying that Mr Collett had been placed in
possession of debtors’ files held by NPC and
had analysed their
contents on the footing, firstly, that they were complete insofar as
the documents were concerned and, secondly,
that a mere reading of
their contents would furnish an accurate history of each debtor’s
dealings with NPC. At that level
it was factual evidence but of no
relevance unless the underlying premises were well founded.
[39]
However, there was no evidence to establish either of them. Mr
Collett said that there were debtors whose records could not be
found
and so were excluded from his investigation. It could not therefore
be accepted that the files were complete especially bearing
in mind
that they extended over a lengthy period during which documents could
easily have been lost or destroyed, either deliberately,
because they
were no longer regarded as necessary, or inadvertently. As to the
second in a relatively small co-operative dealing
with farmers
throughout the country employing field officers and credit officers
in the different regions one would have expected
many interactions
between the members and NPC to have occurred telephonically, or
during visits to the farm by officials or by
the farmers to NPC’s
offices. Such interactions would by and large have been informal and
one would not expect them to be
recorded in the way in which
professional people, such as, doctors and lawyers conventionally
record matters. There were records
of farm visits and other dealings
between field officers and credit officers and individual farmers,
but it does not appear from
Mr Collett’s evidence that he had
any regard to them. In fact, consistent with his belief that there
was reckless or dishonest
management of credit, he treated them as
entirely self-serving.
[91]
Once the underlying premises were absent
the debtors’ files were of limited relevance. They contained
documents in the possession
of NPC that embodied records of some, but
not necessarily all, of their dealings with their debtors. As such
they might properly
have been used for certain purposes in the course
of the trial, but they could not be used for the purpose for which Mr
Collett
used them, namely to provide a supposedly complete and
accurate history of each debtor’s dealings with NPC. At most
they
reflected some aspects of those dealings, but no more. That in
turn impacts upon the conclusions drawn from them, which I will deal

with under the heading of ‘expert evidence’.
[92]
Thirdly, it was argued that Mr Collett’s
evidence was admissible in regard to the circumstances of his
appointment, investigation
and methodology as well as events in which
he was actively engaged such as the merger with Northern Transvaal
Co-operative Ltd
and the litigation with the Land Bank. That was
clearly correct and I do not understand it to have been disputed.
However that
evidence was not relevant in regard to any issue in the
case.
[93]
Fourthly and fifthly, it was said that Mr
Collett’s analyses of the debtors’ files was admissible
as merely collating
that which the judges would otherwise have to do
for themselves. This encompassed the absence of application forms and
verification
of assets and liabilities in the files and that security
had not been registered, all of which it was said was not hearsay.
Similarly
it was said that his summary of the credit history and the
depiction thereof was objectively ascertainable by reference to the
files themselves so that his conclusions merely placed this material
in a more understandable and usable form. However, that was,
like the
general evidence concerning the debtors’ files, dependent on
the underlying premise of completeness that was never
established.
[94]
In summary, the evidence given by Mr
Collett concerning matters in which he was involved was not hearsay
and, where relevant, was
admissible. His evidence concerning the
history and business of NPC was all hearsay and inadmissible. The
documents on which he
and others relied in expressing opinions about
the quality of Mr Odendaal’s audit work were admissible for
that purpose,
but the validity of those opinions depended upon
whether these documents were the only ones upon which Mr Odendaal’s
audit
was based, or independently justified those opinions
irrespective of any additional material relied on by Mr Odendaal. The
other
documents on which Mr Collett relied for his credit history of
the debtors and for his opinions in regard to reckless mismanagement

of credit were not admissible as proof of the underlying facts in
relation to those debtors. They may have been admissible for
other
purposes, such as the cross-examination of Mr Odendaal, or as forming
the foundation for the auditing experts to express
their opinions,
but that did not affect their admissibility for the purpose for which
Mr Collett’s evidence was tendered.
[95]
The broad contention, that all of Mr
Collett’s evidence should be disregarded as hearsay, cannot
therefore succeed. In the
light of the course that the trial took in
regard to his evidence it is not feasible at this stage to separate
that which was admissible
from that which was not, or to separate
inadmissible hearsay evidence from opinions and conclusions derived
by him from that evidence.
Instead, in considering the factual issues
relating particularly to whether there was reckless mismanagement of
credit, breaches
of contract and causation it will be borne in mind
that in many respects NPC’s case rests upon inadmissible
evidence.
Expert
evidence
[96]
Whilst not all opinion evidence is expert
evidence the evidence of Mr Collett was tendered on the basis that he
was an expert witness
and qualified to express opinions in regard to
the alleged deficiencies of Mr Odendaal’s audit; the proper
management of
NPC; the respects in which it was subject to reckless
mismanagement of credit; the losses suffered as a result and the
reasons
why PWC should be held liable for those losses. It is
necessary therefore, in considering his evidence relative to the
question
of reckless mismanagement of credit, to consider when a
witness may give evidence as an expert and what constraints operate
in
relation to such evidence. Mr Collett’s evidence can then be
measured against those standards.
[97]
Opinion
evidence is admissible ‘when
the
Court can receive “appreciable help” from that witness on
the particular issue’.
[40]
That will be when:
‘…
by
reason of their special knowledge and skill, they are better
qualified to draw inferences than the trier of fact. There are some

subjects upon which the court is usually quite incapable of forming
an opinion unassisted, and others upon which it could come
to some
sort of independent conclusion, but the help of an expert would be
useful.’
[41]
As
to the nature of an expert’s opinion, in the same case, Wessels
JA said:
[42]
‘…
an
expert's opinion represents his reasoned conclusion based on certain
facts or data, which are either common cause, or established
by his
own evidence or that of some other competent witness. Except possibly
where it is not controverted, an expert's bald statement
of his
opinion is not of any real assistance. Proper evaluation of the
opinion can only be undertaken if the process of reasoning
which led
to the conclusion, including the premises from which the reasoning
proceeds, are disclosed by the expert.’
[98]
Courts
in this and other jurisdictions have experienced problems with expert
witnesses, sometimes unflatteringly described as ‘hired
guns’.
In
The
Ikarian Reefer
[43]
Cresswell J set out certain duties that an expert witness should
observe when giving evidence. Pertinent to the evidence of Mr
Collett
in this case are the following:
‘
The
duties and responsibilities of expert witnesses in civil cases
include the following:
1.
Expert evidence presented to the Court should be and should be seen
to be the independent product of the expert uninfluenced
as to form
or content by the exigencies of litigation …
2.
An expert witness should provide independent assistance to the Court
by way of objective unbiased opinion in relation to matters
within
his expertise … An expert witness in the High Court should
never assume the role of advocate.
3.
An expert witness should state the facts or assumptions on which his
opinion is based. He should not omit to consider material
facts which
detract from his concluded opinion. . . .
4.
An expert witness should make it clear when a particular question or
issue falls outside his expertise.’
These
principles echo the point made by Diemont JA in
Stock
[44]
that:
‘
An
expert … must be made to understand that he is there to assist
the Court. If he is to be helpful he must be neutral. The
evidence of
such a witness is of little value where he, or she, is partisan and
consistently asserts the cause of the party who
calls him. I may add
that when it comes to assessing the credibility of such a witness,
this Court can test his reasoning and is
accordingly to that extent
in as good a position as the trial Court was.’
[99]
Lastly
when dealing with the approach to an expert witness I have found
helpful the following passage from the judgment of Justice
Marie
St-Pierre in
Widdrington
:
[45]
‘
Legal
principles and tools to assess credibility and reliability
[326] “
Before
any weight can be given to an expert’s opinion, the facts upon
which the opinion is based must be found to exist
”
[327] “
As
long as there is some admissible evidence on which the expert’s
testimony is based it cannot be ignored; but it follows
that the more
an expert relies on facts not in evidence, the weight given to his
opinion will diminish”
.
[328] An opinion
based on facts not in evidence has no value for the Court.
[329] With respect
to its probative value, the testimony of an expert is considered in
the same manner as the testimony of an ordinary
witness. The Court is
not bound by the expert witness’s opinion.
[330] An expert
witness’s objectivity and the credibility of his opinions may
be called into question, namely, where he or
she:
accepts
to perform his or her  mandate in a restricted manner;
presents
a product influenced as to form or content by the exigencies of
litigation;
shows
a lack of independence or a bias;
has
an interest in the outcome of the litigation, either because of a
relationship with the party that retained his or her services
or
otherwise;
advocates
the position of the party that retained his or her services; or
selectively
examines only the evidence that supports his or her conclusions or
accepts to examine only the evidence provided by
the party that
retained his or her services.’
[100]
Mr Collett’s evidence did not measure
up to these standards. His area of expertise was said to be that of a
qualified chartered
accountant and auditor. The primary thrust of his
evidence was to explain how an auditor should have gone about the
audit of NPC’s
financial statements in the years in question
and to criticise the audits undertaken by Mr Odendaal. His only
qualification to
give expert evidence of this nature arose from the
fact that he held the degrees B Comm (1979) and Hons B Compt
(1981) and
had passed his board examinations and qualified as a
chartered accountant in 1983. His only practical experience had been
acquired
while he was in training. He gave no evidence to suggest
that he had kept abreast of developments in the profession since he
had
left it fourteen years prior to commencing his investigation and
22 years prior to his giving evidence. He had never been responsible

for an audit and had only once had some involvement in the audit of
an agricultural co-operative. On leaving the accounting profession
he
had worked for a bank and been an adviser on the preparation of
claims under a government export incentive scheme. Before turning
his
hand to ‘forensic audits’ he had been involved with a
group of companies that apparently operated bottle stores.
At every
possible level his qualifications to express opinions on matters
relating to an audit pales into insignificance when measured
against
that of Professor Wainer, Mr Hopkins, Mr Wixley and Mr Odendaal. The
issues on which he was called to give evidence were
not
straightforward and concerned the judgment of an experienced auditor.
He was in no position on the basis of either qualification
or
experience to express opinions on those matters and he should not
have been permitted to do so.
[101]
But Mr Collett’s evidence went far
beyond that of an expert witness in auditing matters. He professed to
have been someone
with experience in forensic and auditing
investigations. Reference to his curriculum vitae showed that this
was a field into which
he ventured in the very year that he commenced
the investigation into the affairs of NPC. Indeed the manner in which
he set out
his areas of alleged expertise in his expert summary
suggested to the reader that the experience he claimed arose largely
from
his involvement in this case. Counsel rightly submitted that it
was an unusual situation where the expertise claimed by the witness

arose from the very matters in regard to which he was giving
evidence.
[102]
Mr Collett expressed strong views on how
the business of NPC should have been run and concluded that its
affairs were characterised
by reckless credit mismanagement. He
lacked any apparent qualification or experience to express these
views. Unlike Dr Wentzel,
for example, he did not come to the witness
stand with many years of experience in the management of an
agricultural co-operative.
This lack of qualification did not deter
him, as shown by the following examination of his principal reasons
for concluding that
something more than conditions in the
agricultural sector and a shortage of capital were to blame for NPC’s
dire financial
position.
[103]
An important aspect of Mr Collett’s
thinking emerged early on in his expert summary when he made a
comparison between the
NPC and seven grain co-operatives dealing with
mealies, in order to ascertain the tendencies and norms generally
applicable in
the agricultural industry in relation to the drought
aid scheme, bad debts and provisions for bad debts. From the
financial statements
of the grain co-operatives and some industry
figures obtained from another source he reached the conclusion that
during the period
under review the potato industry was more stable
than the mealie industry and had done better than the mealie
industry. He then
undertook a comparison between the bad debt
percentage of NPC and those of the grain co-operatives, from which he
concluded that
the members of NPC had generally generated sufficient
funds from their crops to discharge their indebtedness to NPC and
that the
level of bad debts at NPC was abnormal and outside the norms
for comparable co-operatives. This could not, so he said, be
explained
or justified by circumstances in the agricultural sector or
poor potato harvests or any relatively greater risks attaching to the

potato industry. Upon this conclusion he built his contention that
the explanation was to be found elsewhere in reckless mismanagement

of credit by the credit department, its personnel and executive
management. He repeated all this in his evidence in chief.
[104]
The fundamental problem with this entire
analysis was that, to use a homely expression, he was not comparing
apples and apples,
or, in its converse form applicable to this case,
he was comparing potatoes and mealies, without any basis for doing
so. From the
evidence there are significant differences between the
two. Five of the seven co-operatives he used for his comparison were
far
larger than NPC both in membership and in the extent of their
business operations. Many members of NPC grew potatoes on a
supplementary
and subordinate basis to their growing mealies and were
members of grain co-operatives, which they regarded as their
principal
co-operative. This would have affected at least some of
their purchases. In the board minutes of 22 May 1992 there is
reference
to other co-operatives having financed their members’
ventures into growing potatoes. The other co-operatives dealt with
crops in addition to mealies, supplied equipment to their members
that NPC did not supply and had additional sources of revenue,
such
as income from storage fees, which were not available to NPC. The
marketing channels of the two were wholly different, with
the grain
co-operatives controlling the marketing of their members’
crops, while NPC had little control over their members’

marketing of potatoes. Enforcement of the statutory pledge was far
easier for the grain co-operatives than for NPC. In addition
during
the period until 1992 the marketing of the produce of grain
co-operatives was controlled under the Marketing Act of 1936.
Another
difference is that there was no evidence that it is possible, if
mealie prices are high, for farmers to grow crops of mealies
on an
opportunistic basis, whilst there was evidence that this occurred
with potatoes. A large portion of the mealie crop is sold
to millers
who produce staple food items such as mealie meal and mealie rice and
provide a stable market. The only similar outlet
for potatoes
mentioned in the papers is the production of potato chips.
[105]
It
was incumbent on NPC to lay a proper factual basis for this
comparison but it did not do so. It was well aware that this evidence

would be challenged, because PWC delivered an expert summary for
Professor Blignaut challenging the comparison. Undeterred by his
lack
of comparable qualifications and experience to those of Professor
Blignaut, a further expert summary was delivered in respect
of Mr
Collett in which he criticised in sarcastic tones the views of
Professor Blignaut.
[46]
He
then gave this evidence and sought to defend it in cross-examination.
[106]
Mr Collett’s attempts to defend this
comparison under cross-examination showed him to be an unsatisfactory
witness. He avoided
answering questions, gave answers that were
unresponsive and failed to deal with the substance of the challenge
that his comparison
was invalid and the conclusions drawn from it
unjustified. The first and obvious reason for this was that he was
testifying to
matters far outside his area of expertise. This lack of
expertise was highlighted at a later stage of his cross-examination
when
he was unwilling to deal with an auditing textbook directed at
the factors to be taken into account in auditing an agricultural

enterprise that said, contrary to his opinion, that the auditor had
to take into account in the audit of debtors the likely realisation

of standing crops. The reason given, that this was an American
textbook and their standards might be different, was risible. Equally

risible was his contention, after reluctantly conceding that the crop
in the ground should be taken into account in assessing a
debtor’s
likely ability to pay, that this would only be the case if harvesting
the crop had commenced.
[107]
The other key factor in Mr Collett’s
conclusion that there was something wrong in the credit department of
NPC, arose from
his rejecting the notion that its capital reserves
were inadequate. This in turn flowed from his view of the true nature
of NPC’s
business. The evidence in that regard was clear and is
summarised in para 26. It showed that NPC had very little by way of a
capital
buffer to protect itself when faced with adverse trading
circumstances of which the increase in bad debts was the most
important.
The need to build up its capital resources had been a
constant theme throughout the period in reports by the Land Bank, the
auditor
and the directors at annual general meetings. While
additional shares had been issued from time to time these were not
paid-up
but merely represented claims upon members at some future
date. If the members were not discharging their indebtedness to NPC
it
is difficult to see how they could have met any such calls. In any
event, apart from circumstances in the agricultural sector, another

reason for NPC being unable to withstand the continued accumulation
of bad debts was its poor capital position and its dependence
on loan
capital.
[108]
Mr Collett was dismissive of the notion
that the poor capital position of NPC had contributed to its
financial woes. Although the
Registrar of Co-operatives recommended
that a capital base of 30 per cent of fixed capital from members and
own resources and no
more than 70 per cent loan capital should be the
goal, he did not agree. His view was that NPC’s business was
essentially
that of a financial institution providing credit to its
members that they would otherwise have had to obtain from sources
such
as commercial banks. To that end he compared NPC’s capital
ratio with those of two financial institutions, namely, Nedcor
Bank
and Standard Bank, two of the largest banks in South Africa, and
found it to be adequate. He said that the Land Bank and other
banks
had less than 8 per cent own capital and asked why the NPC needed
more. Furthermore he suggested that NPC’s approach
to credit
control should follow the lines of these commercial banks and similar
financial institutions.
[109]
These views were challenged in
cross-examination. It was suggested to Mr Collett that the Registrar
of Co-operatives, with the expertise
available to him, would better
appreciate the capital requirements of co-operatives. His response
was to say that a number of co-operatives
did not meet the
Registrar’s standard. Elsewhere he said that he could never
discover the basis for this norm. That was hardly
to the point.
Notwithstanding the views of the Registrar, supported by the board
and the auditor, he did not see any reason to
strengthen NPC’s
capital base. It was put to him that the
modus
operandi
of NPC was that it purchased
its members’ production requirements from suppliers, thereby
incurring a liability to those suppliers,
which it discharged, and
then sold those items to its members who, as a result, became
indebted to NPC, but he demurred. His attitude
was that the members
of NPC purchased their own production requirements from suppliers and
financed the purchases through loans
from NPC. That was simply
incorrect. The comparison with two large banks was unjustified.
[110]
Throughout his evidence Mr Collett
persisted with his contention that NPC could be properly compared
with the grain co-operatives
notwithstanding all the evidence to the
contrary. He steadfastly supported his comparison between NPC and
commercial banks. He
was adamant that his investigation had uncovered
serious mismanagement of the credit department of the NPC,
characterised by him
as reckless and even dishonest. Yet he produced
no evidence identifying any individual as having been guilty of such
conduct. He
was happy to tar the entire credit department and
executive management with this brush, without identifying a single
case where
either the grant of credit, or the failure to recover an
amount owing to NPC, was the result of recklessness or dishonesty.
His
approach was simply that everything was irregular, reckless or
dishonest. He even went so far as to level allegations of tax fraud

against Mr Odendaal in the face of evidence that the tax returns in
regard to bad debts written off were in accordance with specific

discussions with the revenue authorities.
[111]
The trial judge identified many of these
weaknesses in Mr Collett’s evidence without linking them
specifically to his standing
and reliability as an expert witness. He
noted that Mr Collett was reluctant to accept that climatic
circumstances might have contributed
to NPC’s problems. As the
judge correctly pointed out, had that not been a factor the
experienced farmers making up the board
and membership of NPC would
not have accepted it as an explanation. He said that Mr Collett was
reluctant to blame the directors
for the problems or to accept that
they had knowledge of the problems, but correctly held that the
directors were fully aware of
the situation. He accurately described
Mr Collett as pedantic, rigid and dogmatic. He would brook no
departure from the literal
application of the credit policy, NPC’s
statute and the provisions of the Act. This led him to say that the
loans by NPC
to its subsidiaries were evidence of reckless
mismanagement because the statutory formalities had not been
observed, when the loans
were reflected in the financial statements
and both the Land Bank and members were fully aware and approved of
them.
[112]
The trial judge also criticised Mr Collett for his lack of
understanding of the business of NPC and his suggestion in a business

plan that it should phase out the extension of credit and concentrate
its efforts on the production of paper bags for potatoes.
He had
preconceived notions of how interest should be charged on outstanding
accounts. His advice to the Northern Transvaal Co-operative
diverged
from his stance in regard to NPC. As a witness he contradicted
himself and sought to avoid answering hypothetical questions.
When he
made concessions he did so reluctantly. All of this I endorse.
[113]
This analysis exposed fundamental flaws in
Mr Collett’s approach and undermined his qualification to
testify as an expert
and the reliability of his evidence. When the
standards enunciated by Justice Cresswell, and the approach suggested
by Justice
St-Pierre, are applied to his evidence, it is immediately
apparent that it did not satisfy the tests for admissibility as
expert
opinion evidence. First, he laid no foundation for being
regarded as an expert, save his qualifications as an accountant who
had
not been in practice for many years and had limited practical
experience. Second, his opinions were based largely upon the hearsay

evidence he had culled from various documents and were not founded on
proven facts. Third, his evidence, fairly viewed, was nothing
more
than that of an advocate advancing the case of his client the NPC.
Fourth, it was not objective but was directed at justifying
the
conclusions he had formed. He was unwilling to defer to the
experience of those with far greater expertise in the matters under

consideration than he. Fifth, it must be borne in mind that he not
only undertook the original investigation leading to the claim,
but
was intimately involved in the gathering of evidence and the pleaded
formulation of the claim. He was also involved in the
claim by and
against the Land Bank and its resolution as well as being the moving
spirit in the merger with Northern Transvaal
Co-operative Ltd. In the
result the clear impression and conclusion is that he was not truly
independent of his client from whom
his firm had undoubtedly earned
very large sums of money.
[114]
In summary therefore I conclude that Mr Collett was not an expert in
any of the various areas in which he gave evidence, namely,

accountancy standards, the proper conduct of an audit, the
agricultural economy or the proper conduct of the business of an
agricultural
co-operative and in particular the administration of
credit. Even had he any expertise in these areas, qualifying him to
give opinion
evidence as an expert:
his
opinions were expressed without any factual basis having been
established by way of admissible evidence;
he
gave evidence in areas where he lacked expertise and not only did
not identify them but pretended to an expertise he lacked;
he
was the person who devised the claim (as the judge said it was ‘sy
maaksel’) and was for that and the other reasons
set out in
para 113 not truly independent;
he
effectively became the advocate for the claim’s merits;
he
disregarded or discounted any facts inconsistent with his own
theories and conclusions;
the
presentation of his evidence was not only influenced by the
exigencies of litigation, but directed the entire course of the

litigation.
For
all those reasons Mr Collett’s evidence is of little or no
value in this case and no finding adverse to PWC could or should
have
been based thereon.
Was
reckless mismanagement nonetheless proved to have occurred?
[115]
The judge’s finding, referred to in
para 76, that there was mismanagement of the credit department of
NPC, cannot be supported,
if by that he meant reckless mismanagement
of credit. In my view all that the judge intended to find was that
there had been mismanagement
of the affairs of NPC in the respects he
indicated, but without a finding of recklessness. His criticisms of
Mr Collett’s
evidence as well as his favourable view of Messrs
Marais and Greyling suggest that he would have rejected any such
notion had it
been made clear to him that this was the basis of NPC’s
case. He said of Mr Marais that if he was typical of the quality and

calibre of NPC’s personnel it was a pity that NPC could not
overcome its difficulties. Mr Greyling likewise made a favourable

impression on him.
[116]
This highlighted the inexplicable failure
of NPC to call a single witness to testify to the factual matters
that were the subject
of much of Mr Collett’s evidence. Mr
Pieterse, a director of NPC from 1987 and its chairman from 1995, as
well as a member
of its credit committee from inception, was
available to give evidence but did not do so. We accordingly have no
direct evidence
of what the board did about the implementation of the
credit policy and the grant and recovery of credit. Although the
entire credit
department was described as having been reckless or
dishonest there was no suggestion that any individual had been
disciplined
for such conduct. Apart from generalities no individual
was pointed out as having been responsible for reckless or dishonest
conduct.
None of the officials who worked with Mr Odendaal during the
course of the audits were called to support the contention that the

audits were merely a smokescreen, in which he simply endorsed the
views of management without demur or investigation and that there

were in reality no audits worthy of the name.
[117]
The expert evidence of Professor Wainer and
Mr Hopkins, both of whom were instructed to express their opinions on
Mr Odendaal’s
audits on the hypothesis that there had been
reckless mismanagement of credit at NPC, was contaminated by that
assumption. It also
renders it problematic to rely on their evidence
for the purpose of identifying the mismanagement they had been told
to assume
was present.
[118]
The shortcomings in the evidence were
debated with counsel who responded by saying that if we ourselves
examined the files Mr Collett
had prepared, we would draw the same
inferences as he had done. For this purpose it was suggested that we
did not need to rely
on any expertise claimed by Mr Collett and
should simply treat his evidence as a helpful way in which to reduce
a vast amount of
factual material to manageable proportions. I doubt
very much whether that is a permissible approach for the court to
take, but
a brief survey of the various respects in which it was said
that there was reckless mismanagement does not to my mind support Mr

Collett’s conclusions.
[119]
Nine grounds were advanced in the
particulars of claim for saying that reckless mismanagement had
occurred, but in the heads of
argument reliance was only placed on
six. Two of these were that in many of the debtors’ files Mr
Collett’s investigation
team had not found either applications
for credit or current balance sheets for the applicants and that no
verification of assets
and liabilities of debtors was undertaken. It
was said that the absence of these documents meant that the risk of
granting credit
was raised and this warranted further investigation
by the auditors when they audited the financial statements. There are
two problems
with this. The first is that there was no evidence that
the documents available to Mr Collett were complete and his evidence
was
that there were missing files and that his access to documents
was often restricted. The fact that Mrs van der Merwe from his
investigating
team testified that the files they prepared included
all the documents they received from NPC was of no assistance in the
absence
of evidence from within NPC that the files were complete and
no documents had been lost, disposed of or destroyed during this
period
of fourteen years. In some instances Mr Collett said that no
balance sheets were provided, for example, with Mr T G van Zyl, when

Mr Odendaal’s notes showed that he had seen balance sheets. The
second problem is, that in the absence of any evidence about
the
circumstances in which credit was granted to these individuals or the
reasons therefor, it is impossible to say that the presence
or
absence of credit application forms and balance sheets would either
have altered the decision to grant credit or had any bearing
on the
risk undertaken by NPC. If Mr Collett’s investigation had
extended to all the debtors’ files instead of the
120 that he
started with and narrowed down over time, it might well have been
discovered that the same situation in regard to credit
applications
and balance sheets prevailed in regard to the grant of credit to
people who were entirely creditworthy. That would
have tended to
refute the conclusion that he drew from their absence in certain
cases.
[120]
It was argued that credit was granted
without authorisation. This was based on the fact that the so-called
‘green book’,
recording decisions of the credit committee
on credit limits, and the computer records showing the extent of
credit granted did
not coincide. However, Mr Greyling, who dealt with
this in his evidence, said expressly that Mr van Vuuren had the
ability by using
a password (and presumably therefore the authority)
to alter the credit limits reflected on the system. Mr Greyling was
at pains
to say that he was not able to say that the grant of
additional credit over and above that reflected in the green book was
unauthorised.
That disposed of this point.
[121]
The next ground for contending that there
was reckless mismanagement of credit was that debtors were enrolled
in the drought aid
scheme although they did not qualify therefor. In
evidence it emerged that the Land Bank investigated every claim made
under the
scheme to see whether the claim was justified and that
every claim had been paid so that there were none outstanding. The
final
review of claims by the Land Bank had taken place in 1993 and
all the claims submitted were paid. Accordingly the state
institutions
concerned with the implementation of the scheme
satisfied themselves that the claims submitted under it were valid.
In those circumstances
this ground was without substance. That it was
persisted in, and indeed that it was used as the basis for including
in the particulars
of claim and pursuing until the stage of judgment
a claim for over R11 million, suggested that Mr Collett’s
approach
to the problems he allegedly discovered through his
investigations was directed at devising claims rather than
undertaking an independent
investigation.
[122]
The last two grounds pursued in argument
were linked. They were the alleged failure to obtain adequate
security from debtors and
the failure to enforce the statutory pledge
strictly, contrary so it was said, to the credit policy laid down by
the board. The
argument ignored the fact that obtaining such security
was extremely difficult as pointed out above, in paras 30 and 31. It
also
assumed that the strict enforcement of the statutory pledge was
feasible in practical terms. However, the evidence of Mr Marais

suggested otherwise. The members were under no obligation to market
their potatoes through the agents appointed by NPC and many
did not
do so. That immediately caused problems in enforcing the pledge.
Second, the pledge was of limited duration so it could
not be used to
cover carry-over debt. Third, there was evidence that in a number of
cases NPC agreed to release part of the proceeds
of a member’s
crops to the member notwithstanding that they had not discharged
their entire indebtedness to NPC. There was
no evidence of why this
was done in any particular case and, in the absence of such evidence,
one cannot conclude that the reasons
for doing so were anything other
than straightforward business decisions at the time.
[123]NPC’s
counsel rightly said that the only question in this regard was
whether the writing off of bad debts was, on the
probabilities, the
result of reckless credit mismanagement or the result of ordinary
trading and legitimate decisions by NPC’s
directors and
management. It was for NPC to show that it was the former and for
that purpose it relied on the evidence, both factual
and opinion, of
Mr Collett. Once that evidence is rejected, as in my view it must be,
it follows that NPC failed to prove that
there was reckless
mismanagement of credit. On that ground alone its claim should have
failed and this appeal must succeed. However,
that would follow even
if the mismanagement on which NPC relied involved no recklessness or
irregularity or dishonesty, but arose
from a flawed business approach
and an unduly lenient approach to the grant of credit and the
recovery of debts. Assuming that
PWC nonetheless breached it
contractual obligations in the performance of the annual audits and
that this was due to negligence
on its part, the damages claimed by
NPC were not in my view caused by their negligence.
Causation
[124]
For the purposes of this portion of the
judgment I will assume against PWC that it did indeed breach its
contractual obligations
in regard to the assessment of the value to
be ascribed to debtors in the annual financial statements from year
to year and that
this was due to negligence on the part of the audit
team lead by Mr Odendaal. Were I convinced that this was not the case
I would
have said so, but it seems to me that some at least of the
criticisms by Professor Wainer and Mr Hopkins, when viewed in the
light
of the at times somewhat cautious support given to Mr Odendaal
by Mr Wixley, were warranted.
[125]
Mr Odendaal’s approach to the
assessment of the recoverability of debtors was to review a list of
suggested write-offs prepared
by management in the light of each
debtor’s file in discussion with the regional field officer or
credit officer. In the
course of this process he would identify
additional debtors or amounts that in his view should also have been
treated as bad or
potentially irrecoverable, and the overall figure
included in the accounts would then be resolved between him and
management. From
1984 until 1990 he nonetheless reported that he
could not express a view on the recoverability of the debts and that
his audit
was subject to that qualification. In 1991 he withheld any
audit opinion on the grounds that he was unable to express a view on

the recoverability of debtors or the continued availability of
finance.
[126]
I think there is force in the criticism
that Mr Odendaal should have been more concerned at the annual
escalation in both debtors
and bad debts, as well as the fact that
from 1984 to 1990 such a high proportion of debts fell under the
drought aid scheme. That
warranted a closer examination of the credit
history of the debtors, something that Mr Odendaal said that he did
not undertake.
It appears that where a debtor had furnished security
he was inclined to accept that security at face value. That was not a
safe
approach particularly with notarial bonds. The judge correctly
said that his approach of taking the likely harvest at year end into

account as the primary source of recovery of debts made sense.
However, the records, in the form of his audit working papers, do
not
suggest that he made in-depth enquiries in that regard beyond the
estimates furnished to him by the officials. Whilst those
were
generally 85 per cent accurate according to Mr Marais, there is no
indication in the case of major troublesome debtors that
he enquired
further about such estimates or drew any conclusions from the failure
of those debtors to reduce their indebtedness
from year to year. His
disregard of events, such as the remittal to debtors of part of the
proceeds of their harvests, after the
end of the financial year but
prior to the completion of the audit, on the grounds that this was
irrelevant in the light of the
matching principle, made little sense
when he was aware that this was a regular feature of NPC’s
business and its extent
across the board could have been estimated
from past history.
[127]
Mr Odendaal was undoubtedly aware that the
credit policy laid down by the board was not strictly adhered to and
that the board did
not always sanction departures from it. There is
merit in the trial judge’s criticism that he appeared to try
and distance
himself from any responsibility for the way in which
credit was granted. This ignored the fact that it was for him to
report on
whether the financial statements, in which debtors played a
key role, reflected a fair picture of NPC’s finances. If credit

was being granted too leniently then this could impact on the
recoverability of debtors and the matters on which his opinion was

sought. He was also aware that the statutory pledge was not well
enforced. Both of these had great potential significance for the

recoverability of debts and there is substance in the criticism that
he should have investigated them further.
[128]
I also think that the brief reasons given
by Mr Odendaal for qualifying his reports from 1984 to 1991 did not
meet the statutory
standard of setting forth the facts and
circumstances that prevented him from giving an unqualified report.
The terms of those
qualifications have been set out elsewhere. They
were elliptic, expressed as a broad generality (‘current
economic circumstances
in the agricultural industry’) and
lacking the detail one expects when facts and circumstances have to
be set out. They certainly
did not convey to anyone that he had
reservations about the ability of NPC to recover debts under the
drought aid scheme or about
the continued availability of Land Bank
finance, although those reasons featured prominently in his notes and
his evidence. That
was clearly important in view of the extent of
those debtors and the heavy dependence on the Land Bank for finance.
[129]
One other issue was the manner in which NPC
dealt with bad debts. These were written off against a suspense
account and then a sum
would be written back in each year as
recoveries. As early as 1990 the Land Bank had objected to this mode
of accounting and despite
attempts by NPC to justify it insisted that
it should be changed and that a proper provision should be made in
the accounts for
bad debts. Not only did NPC not act upon this
instruction from the Land Bank, but Mr Odendaal was happy to allow it
to continue.
I do not agree with Mr Wixley when he says that this was
acceptable because it was a fairly widespread practice at the time in
a number of companies and could be regarded as permissible in terms
of what he referred to as ‘little GAAP’. It was
not a
satisfactory mode of reflecting the position in regard to provisions
for bad debts and the writing off of bad debts and Mr
Odendaal
should, in my view, have raised a clear objection to it.
[130]
Accepting
for present purposes that these and possibly other shortcomings in
the audit amounted to breaches of contract and were
the result of
negligence, the issue of causation of loss looms large. The loss that
NPC sought to recover from PWC was the amounts
written off in respect
ultimately of 46 debtors. In order to lay that at the door of PWC it
was necessary to show that had PWC’s
reports in the financial
statements been qualified in far greater detail so as to highlight
the problems NPC was experiencing with
bad debts, or it had gone to
the extent of withholding an audit opinion, steps would have been
taken by the members in general
meeting to ensure that the problems
were resolved and that either credit would not have been extended to
those debtors, or it would
have been recovered. This is always the
first step in any enquiry into causation.
[47]
[131]
The
judge thought that it was obvious that the members would have done
something about the problems, had they received proper reports
from
PWC, and that it was unnecessary for there to be any evidence on the
point.
[48]
The heads of
argument on behalf of NPC also adopted this approach saying that
steps would have been taken immediately to set things
to rights,
either by the members or the Land Bank or the Registrar of
Co-operatives. It was said that it should be assumed that
the members
would have acted in a responsible fashion.
[132]
I am unconvinced that this is correct. The
evidence does not suggest, much less establish on a balance of
probabilities, that more
strident warnings from the auditor about
NPC’s vulnerability to bad debts, and expressly that the credit
policy was not being
stringently applied and the statutory pledge was
not being enforced, would have had any impact upon the members of
NPC.  The
possibilities postulated in the particulars of claim
were the taking of disciplinary steps against responsible employees
including
possibly dismissal and the appointment of new management
and officials or additional staff in conjunction with further
instructions
from the board in relation to compliance with the credit
policy. Yet there is no evidence that any of these steps were taken
in
1997 when matters came to a head. Why then would it have happened
at an earlier stage? It is true that attorneys were instructed
in
conjunction with Mr Collett’s enquiry to pursue debtors, but
the result seems to have been insolvencies on a large scale
rather
than recovery of debts. And this was accompanied by the resignation
of members and the effective collapse of NPC’s
business over
the following three years.
[133]
For seven years from 1984 to 1991 the
members of NPC were told every year that the auditors were unable to
express any opinion on
the recoverability of the debtors that
constituted the major asset and the principal source of income for
NPC, as well as the security
for its indebtedness to the Land Bank.
Every year the amounts written off as bad debts mounted
significantly. In addition they
received regular warnings from the
directors regarding the need to control debtors and recover what was
owing to NPC. Those who
attended annual general meetings – and
only a handful did in person and a slightly greater number by proxy –
were given
further warnings by both the auditor and on occasions
representatives of the Land Bank. In 1983 they had been told that but
for
the intervention of state aid NPC would have been in a serious
financial disposition (sic). In 1993 they were told that the payment

received on the withdrawal of the state guarantee was a godsend
without which NPC could not have survived. They would have seen
that
bad debts written off in that year were over R11 million. They
would also have seen that the provision for bad debts
remained
static.
[134]
Yet, notwithstanding the constant drumbeat
of bad news about NPC’s poor financial position and its hand to
mouth approach
to running its affairs, there is not the slightest jot
or tittle of evidence that any member at any stage expressed concern
or
disquiet at the position or asked any questions or reacted in any
way to what they were being told. Neither Mr Pieterse, nor any
other
board member, came to give evidence about their own conduct during
this period and what they did to address and resolve the
situation.
Nor did he or anyone else explain what steps were taken in 1997 and
why those were unsuccessful or why other steps taken
at an earlier
stage would have resolved the problem. No-one gave evidence to the
effect that the form and tenor of the financial
statements and the
audit reports led them to believe that all was well and could safely
be left to continue.
[135]
There
may be cases where it can be said with confidence that if a
particular breach of contract or wrongful act had not occurred
it
would be obvious what would have resulted. One is entitled, in
looking at causation, to use some common sense.
[49]
But whether the obvious would have occurred must be measured against
the objective facts confronting the court. A recent example
of a
situation where the apparently obvious had to give way to other facts
is provided by
Newcastle
International Airport Ltd v Eversheds LLP
.
[50]
There the plaintiff engaged the defendant, a well-known firm of
solicitors, to prepare new service contracts for the directors
of the
company. They did so on the instruction of one of the directors and
the contracts contained provisions for the payment of
a substantial
bonus to the directors if they were able successfully to negotiate a
refinancing arrangement for the company. The
court held that the
solicitors were under an obligation to the company when presenting
the draft contracts to the remuneration
committee to provide the
chair with a user friendly memorandum explaining in clear language
the terms and effect of the contract.
They were negligent in not
doing so and the company brought an action against the solicitors for
damages represented by the amount
of the bonuses the two directors
had received.
[136]
In dealing with causation Rimer LJ said
that had the solicitors prepared such a memorandum, the obvious
answer to whether the chair
of the remuneration committee would have
read and acted upon it was ‘of course’, especially as the
chair was described
by the judge as being ‘capable,
experienced, worldly and intelligent’ with a ‘long and
impressive track record
of work in the field of corporate finance’.
But, in the light of the evidence given by her, the court concluded
that her
antipathy to lawyers and contracts; her preference for the
broad picture rather than detail; her practice of ‘skimming’

documents and ignoring attachments; and the fact that she consciously
delegated the issues surrounding the contracts to the directors

concerned, led to the conclusion that she would not have read any
memorandum had the solicitors prepared one, or, if she had read
it,
she would not have understood it, and that the contracts would have
been signed in any event.
[137]
In this case, however obvious it may have
seemed to the judge that a more alarmist report from the auditors
would have provoked
not only a reaction, but also the taking of
effective remedial steps by the members, I am unable to share his
view in the light
of the facts summarised above. The members were not
– contrary to Mr Collett’s evidence – interested in
NPC as
an investment that would generate a return. They were
concerned with its ability to harness their collective purchasing
power to
extract reasonable prices from suppliers of their needs in
relation to production material, and its ability to assist them by
allowing
them credit on their purchases. They may well have thought,
especially in the 1980s, that the government, via the Land Bank,
would
be unwilling to withdraw support from the agricultural sector
and therefore NPC. It did not serve their interests to restrict the

basis upon which NPC made credit available to them and they would no
doubt have supported a flexible or even benevolent approach
to the
grant of credit and the recovery of payment. It would also not have
served their interests to have the statutory pledge
strictly
enforced, which in many instances would have meant that they received
no return on their potato crops.
[138]
I am fortified in this view by the fact
that the reports that were made by the auditors, when read in the
light of the financial
statements, did not attract any reaction from
members. The 1991 and 1992 financial years provide the clearest
possible example
of this. An amount of R1.3 million was written
off as bad debts in 1991, but the directors’ report said that
potentially
another R5.2 million might be irrecoverable. This did not
attract any response from members. Then in 1992, when NPC received
the
sum of R28.5 million from government the accounts showed R11.5
million being written off against bad debts, although it was
explained
that this was in effect some R18 million. This too
attracted no response from members. For my part I am unable against
that
background to see that it was obvious that the members would
have taken effective remedial steps if the auditors had reported
differently.
If those simple facts did not cause disquiet, or even
panic, I fail to see what would.
[139]
We
cannot ignore what did happen when the auditors withheld an opinion,
on the grounds that the uncertainties surrounding NPC’s

finances and its ability to continue as a going concern precluded
them from expressing an opinion. In effect the business collapsed.
It
is difficult to see how an equally adverse audit opinion at an
earlier stage would not have had a similar result. But one cannot

build a claim for damages against the auditor on the basis that, if
they had done their job properly, the business would have gone
into
liquidation at an earlier date and therefore the auditors must be
held liable for all debts incurred after that date. Such
a claim was
rejected in
Galoo
[51]
on the grounds that any negligence by the auditor had merely given
rise to the opportunity for the business to suffer loss in the
future
and not to the loss caused by its continuing to trade. The losses
claimed by NPC in this case are losses that flowed from
the conduct
of its business in the ordinary course and such losses do not
ordinarily flow from statements in the accounts of the
company, but
from its trading activities. Whether it suffers a loss from those
activities will depend upon the prudence of its
trading decisions,
market conditions and the like.
[52]
[140]
There was one other insuperable hurdle for
NPC to surmount if it was to show that it had suffered any loss
flowing from deficiencies
in PWC’s reports to members. It
formulated its claim on the basis of 46 debts that were written off
at various times between
1990 and 1998, according to its schedule of
damages. In order to substantiate that claim it needed to prove that
if PWC had reported
differently either these debts would not have
been incurred or they would have been repaid. It was quite unable to
do this as emerged
at an early stage of Mr Collett’s
cross-examination. He was asked if, in his opinion, that would have
been the result, and
he answered that both were possible.  It
was put to him that at one pole was a situation where none of the
farmers received
credit and at the other was a situation where they
all received credit and all repaid it. In between those poles there
were an
enormous variety of possibilities. This he accepted. When it
was put to him that it was mere guesswork as to what would have
happened,
he answered:
‘
Wel
dit sou die een of die ander moes wees of gedeeltelik die een of die
ander.’
(Well
it would have been the one or the other or partly the one or the
other.’)
Further
cross-examination elicited the response that only an in in-depth
audit of each individual farmer would have revealed what
would have
happened had the auditors reported differently. The answer lay
somewhere in the uncertain terrain between the two extremes.
What
could not be said was that NPC would not have suffered any of these
losses. Where it gave credit either the whole debt or
a great deal of
the debt or some of the debt could probably have been recovered .
[53]
[141]
This
evidence alone should have spelled the death knell of NPC’s
case. That conclusion was reinforced by an examination of
some of the
debtors’ files, which indicated that some matters simply could
not be laid at the door of the auditors. In the
case of the largest
of all, Mr Coleman, who eventually owed over R7 million, a
meeting was held with the vice-chairman of
NPC, Mr van Rensburg, in
June 1995 to discuss his situation. He already owed some R2 million
and Mr Marais’ note of
the meeting recorded that the NPC found
itself in a bind, where it either had to withdraw and try to recover
what he owed, or continue
and extend further credit.
[54]
The decision was made, unwisely as it transpired, to make available a
further R3 million in credit. It was, however, supported
by
various estimates of the likely proceeds of his crop that suggested
that it would suffice to discharge all or most of his debts.
[142]
Other similar situations emerge from the
documents. The debt of Junior Boerdery was incurred entirely in the
period after PWC ceased
to be NPC’s auditors. Yet, even with Mr
Collett’s input, NPC was unable to prevent the loan being made.
That is hardly
surprising. From the time it first became a member of
NPC in 1991 Junior Boerdery had been an impeccable debtor. Going back
in
time to 29 August 1990, at a directors’ meeting on that day
the board approved an extension of time for payment of Tonkin
Uitval
Boerdery’s (Tonkin) debt of some R573 264. At the same
time it approved an increase in its credit limit to R1 085 000.

Two years later in 1992 Tonkin was liquidated owing NPC nearly
R1.3 million. But in the meantime it had made payments exceeding

R3 million to NPC and at all times its crop estimates and actual
income from those crops exceeded its indebtedness to NPC.
The
decisions to afford it additional credit may in retrospect have been
unwise, but they were decisions in the ordinary course
of business
and Mr Odendaal lacked any proper basis for disagreeing with
management on their impact on NPC’s business.
[143]
These instances not only reinforce the
point that it was impossible to say what would have happened with
these debtors had the auditors
reported differently at different
times, but they demonstrate that there were other intervening factors
involved including conscious
decisions by the board to extend credit
to members whose financial circumstances were poor. Four of the major
debtors included
in NPC’s claim, namely, Messrs Ferreira,
Bekker, Coleman and Van Vuuren, representing in all more than one
quarter of the
amount for which judgment was given, were considered
and discussed at board meetings. The credit committee discussed the
position
of Messrs Saaiman and Wilson and the two Van der Walts, all
of whom were ultimately large debtors, whose debts were written off.

Yet, despite the allegation that the board was misled in regard to
the position of debtors, no member of the board was called to

substantiate this.
[144]
It follows that even had NPC pursued its
claim on a narrower basis, alleging merely that the administration of
credit by its credit
department had been inept and that a proper
audit would have revealed this, it would not justify the claims that
it advanced in
this action. On that ground also the appeal has to be
upheld.
Prescription
[145]
Summons
in this case was issued on 16 November 1999.  By 15 November
1996 all of the claims, bar possibly any that arose in
relation to
the 1996/1997 financial year, had arisen. The question is therefore
whether by that date NPC had knowledge of the identity
of the debtor
and of the facts from which the claim arose or could by the exercise
of reasonable care have acquired that knowledge.
(Section 12(3)
of
the
Prescription Act 68 of 1969
). In a line of cases commencing with
Drennan
Maud & Partners v Pennington Town Board
[55]
this court has consistently held that all that is required is
knowledge of the minimum facts required to institute action. It is

unnecessary for the claimant to be aware of the legal consequences of
those facts. Where the claimant does not have actual knowledge
of
those facts, but could by the exercise of reasonable care have
acquired that knowledge, that is equivalent to actual knowledge.
[146]
The issue in this case relates to the
identity of the persons whose knowledge is relevant to the
commencement of prescription. The
trial court held that, as the
responsibility of the auditors was to report to the members of NPC,
it was their knowledge that was
relevant and it held that they did
not have knowledge of facts giving rise to a claim against PWC, nor
could they have acquired
them by the exercise of reasonable care.
[147]
I am not sure that I share the judge’s
view on the knowledge or ability to acquire it of the members of NPC.
As recorded earlier
there were many warnings given to them about the
potential problems with bad debts and, had they responded to this
information
by insisting that the board make diligent enquiries into
the situation, they would have discovered all the information known
to
the board. But, be that as it may, it is unnecessary for me to
take this any further because it was not in my opinion their actual

knowledge or the knowledge that they could have acquired by the
exercise of reasonable care that mattered, but the knowledge of
the
board members.
[148]
When
one is concerned with the knowledge of a corporate entity such as NPC
it is necessary to identify the natural persons whose
knowledge is to
be taken to be the knowledge of the corporate entity. This is a
search for what Lord Hoffmann
[56]
referred to as the rules of attribution by which courts determine:
‘
Whose
act (or knowledge, or state of mind) was for this purpose intended to
count as the act etc of the company?’
[149]
The
present claim is one by NPC, not by its members. Indeed, one of the
reasons that it has been held that shareholders of a company
do not
have a claim for damages against the auditors for damages arising
from negligent audit reports is that the company has such
a claim and
is taken to pursue it in the interests of its members.
[57]
But that cannot mean that in the context of a claim by the corporate
entity against its auditors it is the knowledge of the shareholders

or, as in this case, the members, that is relevant for the purposes
of the commencement of the running of prescription. When prescription

is raised against a corporate entity the ordinary rule of attribution
of knowledge to the company of the knowledge of natural persons
of
the facts giving rise to the claim, is satisfied if the members of
the board of directors have that knowledge, or could acquire
it if
they took reasonable care. It is unnecessary for the purposes of this
case to consider whether the knowledge of other persons
within the
entity would also be attributed to it for the purposes of
prescription. It suffices that the directors had knowledge
of the
facts giving rise to the claim, or could have acquired such knowledge
by taking reasonable care. It was pointed out to counsel
for NPC that
he was in effect urging us to formulate a special rule of attribution
of knowledge for the purposes of prescription
and applicable only to
claims against auditors arising from deficiencies in their reports to
members. Understandably he made no
submissions in support of such a
rule.
[150]
On that factual question there is a clear
finding by the trial court that the directors had that knowledge. It
was in my view justified
on the evidence, but even if they did not
have actual knowledge they could have acquired it by the exercise of
reasonable care.
The directors knew of all the problems relating to
bad debts and the shortage of capital other than loan capital. They
laid down
the credit policy, and either knew that it was not being
implemented as strictly as their reports to members suggested, or
could,
by taking reasonable care, have ascertained the true position.
They were regularly told who the major problem debtors were and they

could readily have investigated and unearthed the true position in
relation to these debtors, if in fact they did not do so. All
of this
would have enabled them to assess whether the financial statements in
regard to debtors painted a fair picture and if they
did not, enabled
NPC to proceed against the auditors for any loss it had suffered as a
result of their defective audits.
[151]
In those circumstances the plea of
prescription should have succeeded in relation to the claims against
the second, third and fourth
appellants and at least in part against
the fifth appellant. As their appeal in any event succeeds on the
other grounds set out
in this judgment it is unnecessary to explore
the extent to which the plea should have been upheld in relation to
the fifth appellant.
Costs
[152]
The appeals of all the second to fifth
appellants (PWC) against the judgments in terms of which they were
declared to be liable
to compensate NPC for damages and the judgment
in which that liability was quantified must succeed. That success
carries with it
an order of costs including the costs of two counsel.
Concomitantly NPC’s cross-appeal against the quantum of the
damages
awarded to it must be dismissed with costs, including the
costs of two counsel. Before the issue of the practice directive in
regard
to the set-down and hearing of this appeal, PWC brought an
application for the separation of the issues relating to hearsay
evidence
and prescription. In the practice directive that application
was adjourned on the basis that it would be dealt with in the course

of the appeal. It attracted no argument, written or oral. Accordingly
we make no order in respect of the costs of that application.
[153]
PWC Inc has a separate appeal against the
limited order for costs granted in its favour by the trial court. The
justification for
that order was that it should have taken exception
to the claim. That was fallacious as its potential liability arose
from the
factual allegation that it had assumed liability for the
debts of the earlier partnerships constituting PWC. Its appeal must
therefore
succeed. However, as the trial and appeal were conducted by
PWC and PWC Inc through the same attorneys and counsel using the same

witnesses, it seems to me that it would be appropriate to order that
the respondents bear the appellants’ costs of the trial
and the
appeal jointly and severally the one paying the other to be absolved,
without distinguishing between the costs of PWC Inc
and those of PWC.
[154]
Not content with an order for costs in
their favour, PWC and PWC Inc urged us to make an order for costs on
the attorney and client
scale against the respondents on the basis of
the treatment of Mr Odendaal, both in regard to the allegations of
dishonesty that
peppered both his cross-examination and the
submissions made in both the trial court and this court concerning
his integrity and
reliability as a witness, and in regard to the
allegations of tax fraud levelled against him. As to the
cross-examination it was
in my view hostile and aggressive, with
constant and frequently misplaced statements that Mr Odendaal was not
answering the question
and liberally speckled with comments by
counsel about the quality of Mr Odendaal’s answers. On many
aspects the cross-examiner
quibbled over matters of fine detail to
little purpose. But, as the judge noted in his judgment, Mr Odendaal
was not always a responsive
witness and he allowed himself to become
irritated with questions. There were undoubtedly weaknesses in his
recollection of matters
– hardly surprising after the passage
of many years – but some of the shortcomings in his evidence
were borne of a
desire to defend himself and his work at all costs,
even when not supported by his own audit notes. Whilst the
cross-examiner’s
approach and manner of cross-examination and
his attitude towards Mr Odendaal are to be deprecated and verged on
the abusive, that
does not in my view justify an order for attorney
and client costs, especially as the beneficiaries of that order would
be the
appellants and not Mr Odendaal.
[155]
The allegations of tax fraud were more
serious, as one would expect when that type of allegation is levelled
against a person whose
work must frequently bear the scrutiny of the
revenue authorities. However, I think that Mr Odendaal’s
standing and stature
as an accountant and auditor will be more than
adequately vindicated by saying that in my view there was no
substance in those
allegations and that Mr Odendaal was entitled to
take umbrage, as he did, when they were levelled against him. It does
not call
for a special order of costs in favour of the appellants.
[156]
It is desirable that at this point I deal
with one other matter in regard to which Mr Odendaal’s
credibility was subjected
to attack. Indeed, in this court, it became
the cornerstone for the argument about his credibility. That was a
note made by Mr
Wixley in the course of a conference he had with Mr
Odendaal for the purpose of informing himself of matters relevant to
his own
expert testimony. The note dealt with Mr Odendaal’s
approach to the assessment of the amounts to be written off as bad
debts
and to the assessment of the value and recoverability of the
debtors’ book. It recorded that his methodology was to look at

the state of the current crop, the strength of the individual
debtor’s balance sheet and security. Doubtful debtors were

marked and discussed and the note recorded that, unless further
information was obtained, Mr Odendaal would ‘insist’
on
the debtor being written off. Then follows the sentence on which the
attack on his credibility depended. It read:
‘
In
some years the co-op could not afford the full write-off & in
those years the audit report was qualified.’
[157]
After this note was disclosed, in the
course of the cross-examination of Mr Wixley, it was put to Mr Wixley
that it showed that
Mr Odendaal colluded with management to present
false accounts to members and made a false report to members. Mr
Wixley made some
concessions in that regard, but said in
re-examination that he could not be sure that his note was entirely
accurate or that he
had correctly understood and recorded Mr
Odendaal’s point. When his cross-examination was finished, an
application was made
to recall Mr Odendaal to deal with the note’s
contents. That application was opposed by NPC and refused. I have no
doubt
that NPC was wrong to oppose it and that the judge erred in
refusing to permit Mr Odendaal to be recalled to testify and be
cross-examined
in relation to it. It was apparent that counsel for
NPC intended to make use of the note for the purpose of impugning Mr
Odendaal’s
credibility and the result of the judge’s
order was that it was used for that purpose without Mr Odendaal
having been afforded
any opportunity to defend himself. The note was
succinct and in my view did not necessarily bear the meaning
attributed to it by
counsel. But it is not for this court at this
stage of the matter to speculate about the circumstances in which Mr
Wixley came
to make a note in those terms, or whether he
misunderstood Mr Odendaal. It suffices to say that in my view the
attacks upon Mr
Odendaal’s credibility and personal integrity
based on the contents of this note were unwarranted in circumstances
where
he was denied an opportunity to defend himself.
[158]
Earlier in this judgment I said that I
would comment on the conduct of the trial and how it assumed the
proportions that it did.
Much of the blame must be laid at the doors
of those responsible for the presentation of the case. There was no
justification for
it to have been conducted on the basis of Mr
Collett being the principal witness, instead of following the obvious
course of calling
the witnesses of fact from NPC who could have
described the manner in which it conducted business over the years in
question and
given first-hand evidence concerning its problems.
Calling Mr Collett instead of those with personal knowledge gives
rise to the
suspicion that had those witnesses been called their
evidence would not have supported his conclusions.
[159]
I have already dealt with the fact that
much of Mr Collett’s evidence was hearsay and how that should
have been dealt with
to forestall a situation where the bulk of the
evidence had been presented on an inadmissible basis impossible to
remedy at the
later stages of the trial. The same is true of that
part of his evidence that was presented as the opinion evidence of an
expert
witness. It is impossible to discern why his expertise was not
challenged at a very early stage of the case on the grounds that
he
was not an expert in the fields in which he claimed expertise, namely
accountancy and auditing. Nor was he an expert in the
matters on
which he intended to give evidence such as the agricultural industry;
the nature of NPC’s business; and the proper
way in which to
operate the credit function of an agricultural co-operative. In
respect of these he was not an expert at all. Had
such a challenge
been advanced on the basis of what was contained in his expert
summary and some evidence in respect of his credentials
as an expert
witness, it should have been upheld. It may be that counsel judged
that raising these objections would not have led
to a favourable
ruling from the trial judge, but it is unfortunate that we cannot
know that because the issue was not raised directly.
All that I can
say is that if these objections had been timeously raised and upheld,
as they ought to have been, it is unlikely
that this litigation would
have become the marathon that it did.
[160]
One other factor that must be mentioned as
a cause of the inordinate length of this litigation is the manner in
which the principal
witnesses were led and cross-examined. Invariably
the experts were led by taking them through their expert summaries
and related
documents in inordinate, dreary and unnecessary detail.
All of the accountants trawled through the provisions of GAAS even
though
the text had been agreed, and was both readily understandable
and available for the judge to read.  It turned out, hardly
surprisingly, that they were all reading the same text and understood
it in much the same way. That was unnecessary and is not the
purpose
of expert evidence. There was a complete failure on both sides to
recognise that:
‘
The
expert may be tendered for cross-examination upon his report alone,
without additional oral examination, or after only limited

questioning:
“
as
a general rule the report of an expert witness can be read as his
evidence in chief, subject only to supplementary questions
necessary
for explanation or amplification of the report.”’
[58]
[161]
Lastly not only was the evidence in chief
quite unnecessarily prolix, but in general the same was true of the
cross-examination.
I exempt from this comment the cross-examination
of leading counsel who originally appeared for PWC and PWC Inc. When
he commenced
his cross-examination Mr Collett’s evidence
stretched over some 6 800 pages of transcript and had canvassed
something
in excess of 100 000 documents. Measured against that
his cross-examination from the outset was to the point and exposed
many
of Mr Collett’s weaknesses as a witness. But as to the
balance far too much time was spent examining him on documents about

which he had no personal knowledge. The cross-examination of Mr
Odendaal has already been commented on and I highlight the point
the
judge made that, in many respects, it was simply quibbling over
detail of little relevance and seeking to advance hopeless
arguments.
The cross-examination of all the experts also tended towards
nit-picking examination of relatively minor points, instead
of
focussing on the central issues. This contributed greatly to the
duration of the trial. It did little to clarify issues and
led as I
said in paragraph 3 to a situation where it was very difficult to
discern the wood for the trees. It is incumbent upon
judges seized
with the task of hearing cases of this potential magnitude to
exercise control over the conduct of proceedings, by
taking the kind
of steps indicated in this judgment, to prevent them from assuming
unmanageable proportions, to the detriment and
cost of the parties
and society, by consuming scarce judicial resources.
Result
[162]
I make the following order, incorporating
the orders flowing from my brother Koen AJA’s judgment dealing
with the ancillary
costs orders. The order is as follows:
1.
The appeals by the second to fifth
appellants and the appeal by the first appellant against paragraph 1
of the order of 14 March
2012 and the orders referred to in
paragraphs 5, 6 and 7 of this order, are upheld with costs, such
costs to include the costs
consequent upon the employment of two
counsel.
2.
The judgments of
the court below and the orders granted on 24 January 2011, 14
December 2011 and paragraphs 1, 6, 7 and 9 of the
order of 14 March
2012 are set aside and replaced by the following:
‘
The
first plaintiff’s claim is dismissed with costs, such costs to
be paid jointly and severally by the first and second plaintiffs,
the
one paying the other to be absolved, and to include the costs of two
counsel and the qualifying expenses of Mr Wixley.’
3.
The cross-appeal is dismissed with costs, such costs to include the
costs consequent upon the employment of two counsel.
4.
The costs orders
in paragraphs 1 and 3 are to be paid by the respondents jointly and
severally, the one paying the other to be absolved.
5.
The last
sentence of paragraph 2 of the order of 28 July 2011 is set aside and
replaced by the following:
‘
Die
tweede tot vyfde verweerders moet die koste van opposisie betaal.’
6.
Paragraph 8 of the order of 18 November
2011 is set aside and replaced by the following:
‘
Die
tweede tot vyfde verweerders moet die koste van opposisie betaal.’
7.
Paragraph 2 of the order dated 27 April
2011 is set aside and replaced by the following:
‘
Die
eisers word gesamentlik en afsonderlik gelas om die koste van die
aansoek te betaal.’
M
J D WALLIS
JUDGE
OF APPEAL
Koen
AJA (Wallis JA and Fourie AJA concurring)
[163]
This
judgment, as foreshadowed in paragraph [8] of the main judgment of
Wallis JA, deals with the two costs orders
[59]
granted in respect of the amendments to NPC’s particulars of
claim following the initial judgment, and the costs order made
in
respect of the appellants’ abortive application for leave to
appeal.
[60]
The same
terminology as in the main judgment is adopted.
[164]
The two costs orders relating to the
amendment of NPC’s claim can conveniently be dealt with
together. Although chronologically
they followed after the abortive
application for leave to appeal, I deal with them first, in the
sequence that they appear as appeals.
[165]
The initial declaratory judgment determined
the liability of PWC with reference to a schedule annexed thereto.
Following that judgment
NPC applied to amend its claim and the
quantum thereof. Despite opposition, the court on two separate
occasions allowed NPC to
amend its particulars of claim, giving rise
to the two costs orders forming the subject of these two appeals. The
first order was
granted on 28 July 2011. Paragraph 2 thereof directed
that NPC pay the costs of the amendments then sought on an unopposed
basis,
including the costs of two counsel where applicable. The
appellants (PWC and PWC Inc) were directed to pay the costs of
opposition
to that application, such costs to include the costs of
three counsel. The second order was granted on 18 November 2011. It
directed
that the same appellants pay the costs of opposition to the
application, such costs to include the costs of three advocates. The

trial court granted the second to fifth appellants leave to appeal
against these orders and this court granted PWC Inc leave to
appeal
against them.
[166]
Whether the amendments to the particulars
of claim should have been granted, has now been rendered largely
academic in the light
of the conclusion reached on the main appeal.
It remains relevant, however, to determine whether this court should
interfere with
the costs orders that were granted. It is therefore
necessary to consider the merits of the applications for amendment.
[167]
During the presentation of NPC’s
evidence in the first stage of the trial it emerged that NPC had not
accounted for amounts
it had recovered or could recover in respect of
its alleged damages. Accordingly, after the last witness for NPC had
testified,
but before closing its case, the NPC’s leading
counsel applied from the bar for further issues to be separated for
determination
during the second stage of the trial. That application
was successful resulting in the following ruling in terms of
rule
33(4):
‘
1.1
The plaintiffs will be entitled to adduce evidence of the amounts
recovered from debtors and subsidiaries whose debts have been
written
off, and the reasonableness of such recoveries, in the second round
or stage of the trial, provided that this will not
detract from the
defendants’ right to apply for absolution from the instance at
the close of the plaintiffs’ case at
the end of the first round
or stage of the trial on any basis other than that the amount
recovered from debtors and subsidiaries,
or the reasonableness
thereof, were not proved.
1.2
The plaintiffs will be entitled to adduce evidence of the cash credit
interest rates levied by the Land Bank after 6 July 1995
in the
second round or stage of the trial, provided that this will not
detract from the defendants’ right to apply for absolution
from
the instance at the close of the plaintiffs’ case at the end of
the first round or stage of the trial on any basis other
than that
the cash credit interest rates levied by the Land Bank after 6 July
1995 were not proved.’ (My translation)
[168]
NPC contended that the amendments sought
reflected its revised claim, calculated in accordance with the ruling
in terms of
rule 33(4).
In its amended form the amount claimed in
respect of bad debts was R56 951 978.62 after taking into
account amounts recovered
in respect of debts previously written off.
The schedule itemising how this amount was calculated reflected gross
amounts recovered,
as well as legal costs, insurance and finally net
recoveries. The legal costs were incurred in recovering or
endeavouring to recover
amounts from debtors, whether or not
successfully. The insurance was in respect of life insurance on the
lives of debtors. NPC
maintained that in having to account for what
could reasonably be recovered from debtors, the net amount of the
recovery, after
deducting all costs and charges incurred in respect
of such recoveries, had to be taken into account and not simply the
gross amount
recovered without regard to any legal costs. Accounting
for the cost of the insurance was considered to be part of the
quantification
of damages, which stood over for determination at the
second stage of the trial. The schedule also reflected that an amount
of
R54 052 224.76 was claimed in respect of the Land Bank
interest component of its claim.
[169]
PWC argued that the trial court was
functus
officio
after the initial judgment was
delivered and that NPC by these amendments was seeking to claim
amounts outside PWC’s liability
as determined by the initial
judgment. It accordingly contended that the amendments and the costs
orders against it should not
have been granted.
[170]
The amendments mainly sought to introduce
adjustments to the net recoveries made from debtors of NPC and the
Land Bank interest
claim. In some instances the adjustment to what
was previously written off resulted in an increased liability, for
example where
the legal costs incurred in respect of a particular
recovery from a debtor exceeded the amount recovered from that
debtor, or where
the costs of insurance exceeded the net recovery.
But when this was pointed out in argument it was accepted that it was
impermissible
to increase the claim on that basis.
[171]
I am not persuaded that the trial court
erred in concluding that these accounting differences were simply
part of the quantification
of damages, a matter it had to determine
during the second stage of the trial in respect of the debtors of NPC
whose debts had
been written off. The contractual measure of damages
sought to be recovered required that the net financial position of
NPC allegedly
caused by PWC’s breach would have to be
determined, and that required that the net amounts recovered from
debtors had to
be taken into account. But in any event, to the extent
that there might have been any reservations as to whether the amounts
claimed
pursuant to the amendments fell within the parameters of the
initial judgment, convenience dictated that the amendments be granted

and if objectionable, PWC could raise its objections in the course of
the hearing on quantum. The court could then during the
quantification stage of the trial determine whether what was claimed
properly fell within or beyond the scope of the initial judgment.
[172]
The amendments were correctly granted. They
were not, however, of such complexity and importance to the
respondents as to justify
an award of the costs of three counsel. In
my view the employment of only one counsel was justified. The appeals
against these
costs orders succeed to the extent that they are
limited to the costs of one counsel as set out in paragraphs 5 and 6
of our order
at the end of the main judgment.
[173]
I
turn next to the appeal
[61]
against the costs order granted against PWC Inc and PWC on 27 April
2011, when its application for leave to appeal against the
initial
judgment was set aside as an irregular step. Paragraph 2 of that
order directed that the appellants pay the costs of the
application,
including the costs consequent upon the employment of three counsel.
The appellants appeal against the whole of that
costs order, with the
leave of this court, seeking a variation thereof by deleting it in
its entirety and replacing it with an
order granting them the costs
of that application.
[174]
It
is not in dispute that the application for leave to appeal complied
with the requirements of
rule 49.
It was nevertheless set aside as an
irregular step on the basis that the parties had agreed that there
would be no appeal until
the entire action had been finalised.
Rule
30
dealing with irregular proceedings applies only to irregularities
of form and not to matters of substance.
[62]
A notice of application for leave to appeal, in compliance with the
rules of court, however, cannot be an irregular step or proceeding

simply because of some alleged agreement between the parties not to
pursue an appeal until the action is finally completed before
the
trial court.
[175]
Even if there was such an agreement, the
notice of application for leave to appeal was not irregular, but had
to be considered on
its merits. A court is not bound by any such
agreement between the parties. The declaratory order contained in the
initial judgment
was a ‘judgment or order’ in terms of
s 20(1) of the Supreme Court Act 59 of 1959, which then applied
to appeals,
and was susceptible to immediate appeal with the leave of
the court. The agreement of the parties could not detract from that,
although it was plainly relevant to the judge’s consideration
of whether it was appropriate in the interests of justice to
permit
an appeal at that stage. There might have been very sound reasons, in
the best interests of the administration of justice,
which would have
persuaded the court to grant leave to appeal in respect of its
judgment even though the parties had agreed otherwise.
If the trial
court had concluded that there were no such reasons and that the
agreement between the parties should prevail, the
application should
have been dismissed for that reason and not on the basis that the
notice of application was an irregular step
or proceeding.
[176]
In any event, it seems clear that whatever
agreement the parties had reached at the outset, by the time the
application for leave
to appeal was pursued, that agreement no longer
applied. The agreement reached at the commencement of the trial,
following an exchange
of correspondence, is recorded in the signed
minute of the meeting before Hartzenberg J. It recorded that:
‘
1.1
The parties confirm the agreement that the trial will be conducted in
stages. The merits, (that is all the issues in dispute
excluding any
calculation of any damages to which the plaintiff may be entitled)
will be adjudicated first and after findings have
been made in this
regard (including findings on the basis on which the quantum of the
plaintiff must be calculated, if applicable)
the trial shall be
adjourned to afford the parties’ experts the opportunity to
endeavour to agree the quantum in accordance
with the findings made
by the court on the merits.
1.2
Plaintiff is of the view that the appropriate time to address this
issue would be after the findings have been made. (My translation)
[177]
This minute made no reference to there
being no appeal until the end of the trial. It did, however, give
effect to a proposal previously
suggested by PWC’s attorneys in
their letter of 11 July 2005 which recorded that:
‘
Our
clients are agreed that, provided they are not prejudiced in any way,
they will  not – should the case go against
them –
apply for leave to appeal until the quantification has been
undertaken in accordance with the suggestions made above.
We
underscore that this agreement applies only if our suggestions are
accepted. In the event of any other configuration, we would
have to
take instructions afresh.’
[178]
The trial however took a different turn to
that contemplated in the aforesaid correspondence, when the judge
separated the further
issues after the last witness for the NPC
testified. The judge reasoned that the agreement reached between the
parties was an ‘unqualified’
agreement that the trial
would be addressed in two phases and that there would not be an
appeal in the interim. I am unable to
agree with that conclusion. The
agreement, such as it was, provided that PWC would not pursue an
appeal until the action was complete,
so long as it was ‘not
prejudiced’ and on the underlying basis of a certain factual
‘configuration’. The
agreement must be viewed, as PWC
argued, ‘within the context of the matrix of facts that
pertained at the time’.
[179]
At the stage PWC’s attorney’s
letter was written, ‘everything’, that is all issues, was
supposed to have
been addressed in the first phase and only the
calculation of the quantum would occur during the second phase in
accordance with
directions to be made by the court during the first
phase. The rule 33(4) ruling introduced a different ‘configuration’.

Not allowing an appeal at the time when such leave was sought was
potentially prejudicial to PWC and PWC Inc.
[180]
It was competent for the court to issue the
order it did in terms of rule 33(4). The effect of that order was
that considerably
more evidentiary issues were left to be dealt with
in the second phase of the trial than were contemplated when the
agreement to
finalise the trial without an interim appeal was
concluded. Accordingly, insofar as it may be relevant, the agreement
not to pursue
an appeal before at the end of the trial no longer
applied and there was nothing to preclude PWC from applying for leave
to appeal.
[181]
The judge erred in dismissing the
application for leave to appeal as an irregular proceeding and
awarding costs, including the costs
of three counsel against PWC Inc
and PWC. The correct fate of the application now only has relevance
as regards the costs order.
The court did not address the question
whether leave to appeal was appropriate at that time. It set aside
the application as an
irregular proceeding on erroneous grounds. The
application in terms of rule 30 should not have succeeded and should
have been dismissed.
It follows that the costs order should have been
in favour of the appellants. The argument as to whether the notice of
appeal constituted
an irregular proceeding was, however, not of such
complexity as to warrant the employment of two counsel. Accordingly,
only the
costs of one counsel should be allowed.
[182]
In the result the appeal on this issue
succeeds and an order in terms of paragraph 7 of the order in the
main judgment must be made.
________________
P
A KOEN
ACTING
JUDGE OF APPEAL
APPENDIX
The
years from 1984 to 1990
[1]
Early in 1984 the Land Bank raised with NPC
concerns about its credit and debt recovery policies. In a letter
dated 12 April 1984,
the managing director of the Land Bank pointed
out that NPC had extended additional credit of nearly R11 million
during the previous
year, but only recovered R5 million. He said that
this raised concern with the Land Bank (‘wek kommer by die
Bank’)
and that it was in NPC’s best interests to review
its policies on the granting of credit and debt recovery.
Representatives
of the bank met with the board of directors and the
then principal auditor, Mr Hugo, on 28 June 1984 to stress
these
points. They were blunt in their assessment of affairs. They
said that NPC granted credit too freely, that it was not effectively

exercising its statutory pledge and that the collection of debts was
inadequate. They stressed that the collection of debts must
be
carefully followed up and that a proper credit policy had to be
implemented. NPC’s participation in the 1984 drought aid
scheme
was dependent upon the formulation of a credit policy approved and
monitored by the bank.
[2]
In July 1984 the Land Bank established an
emergency assistance scheme for farmers who had been hard hit by
drought, backed by a
government guarantee given to the Land Bank. One
element of the scheme was the postponement of the obligation of
members of co-operatives
to repay their production credits to their
co-operative. Many farmers had arrear debts (‘oorlaatskulde’)
in respect
of the 1984 crop. These would be consolidated with debts
owing under the 1983 drought assistance scheme and the repayment
period
would be extended for up to six years, on the basis that the
farmers would repay as much as possible each year. These debts would

carry a subsidised rate of interest for two years, after which the
position would be reviewed. In the meantime the co-operatives
would
continue to finance new production credits for the 1984/85 season.
The nett effect of this was that the farmers would incur
additional
debts, it being the underlying premise of the scheme that with good
harvests in future years they would be able to pay
their debts.
[3]
The entire scheme was to be monitored by
the Land Bank. It stressed that the extension of credit by
co-operatives would have to
follow careful policies in determining
how much credit to give. This was, however, subject to an overriding
intention to assist
farmers who should still be assisted (‘in
dié gees word daar dus van koöperasies verwag om die boer
te help wat
nog gehelp te word’). Follow-up letters addressed
by the bank to the chair of the board of directors of NPC stressed
the
need to follow credit policies and warned that the bank would not
authorise payments unless its requirements were satisfied.
[4]
Against this background PWC conducted the
audit for the year ended 30 September 1984. Mr Odendaal was by now
involved in the audit
although it was still under the overall control
of Messrs Hugo and Naudé. In a letter addressed by the latter
to the chair
of the board of directors he complained that computer
problems had caused difficulties in conducting the audit. That had
made the
audit of debtors difficult because of the absence of
debtors’ trial balances and the inability to reconcile the
control accounts.
This was embodied in the auditor’s report in
the annual financial statements. That referred to gaps in internal
controls
and the fact that there was an un-reconciled debit balance
in the debtors’ account.
[5]
The directors’ report for that year
said that there had been a far larger harvest than in previous years,
but a substantial
drop in prices had accompanied this, frequently to
below production costs. On a marginally higher turnover debtors had
increased
from R12.7 million to R20 million and borrowings from the
Land Bank from R9.9 million to R16.6 million, of which drought relief

accounted for over R12 million. Bad debts increased from R432 058
to R509 333. The drought relief scheme stood at 60
per cent of
debtors. The directors’ report understandably said that the
board and the Land Bank were deeply disturbed by
this situation. An
appeal was made to members to comply strictly with the credit policy,
although the board noted that strict compliance
would inconvenience
many farmers.
[6]
In September 1985 the board noted that 15
per cent of accounts encompassing 31 per cent of outstanding debts
were in arrears. At
the same meeting it approved the grant of further
production credits of over R900 000 to farmers whose arrears
collectively
amounted to over R750 000. None of those farmers
were among the bad debtors that later formed the subject of NPC’s
claim.
[7]
In
each of the years from 1985 to 1990 PWC qualified the annual
financial statements. They said that they had been prepared on a

going concern basis, but that as a result of current economic
circumstances in the agricultural industry it was not possible for

the auditors to form a view on the recoverability of the total
indebtedness of members.
[63]
In argument in both this court and below NPC launched a fierce attack
on this qualification and that is dealt with in the body
of the main
judgment.
[8]
The annual financial statements for 1985
and, in particular, the directors’ report painted a gloomy
picture. It was said that
a crisis stared NPC and its members in the
face and that the debtors’ position did not make for a
favourable picture. Although
harvests had improved prices were low
and, on average, below production costs. For the first time farmers
were finding themselves
unable to repay their production credits from
the proceeds of other crops. When prices were high opportunistic
producers entered
the market depressing prices. Drought aid now
represented 70 per cent of debtors. Progress was not being made in
collecting outstanding
debts, notwithstanding the employment of a
financial manager with responsibility for granting credit and
collection of outstanding
debts. The board said that without
assistance from the state NPC could not continue to assist members
who were struggling. A summary
of the debtors over the previous four
years showed that they had virtually quadrupled whilst turnover had
changed little. Between
1984 and 1985 debtors not entitled to drought
assistance increased by nearly 50 per cent to over R12 million.
Whilst the bad
debt provision remained static at R300 000,
write-offs of bad debts had increased to just short of R1 million,
nearly
doubling in one year. Once these were taken into account the
operating surplus became an operating loss.
[9]
In 1986 the new financial manager produced
a report for the board that stressed the deteriorating financial
position and the urgent
need for NPC to build up its capital
reserves. That would require significant further capital inputs from
members or other sources.
If this could not be obtained the financial
position of NPC would deteriorate. At its meeting on 15 August 1986
the board took
note of the high risks attendant upon debtors and
resolved to adopt a conservative view and write off doubtful debts
‘as
far as possible’ (‘sover as moontlik’).
The heart of the problem remained that, even though there had been a
30 per cent increase in turnover, production credit debtors had only
declined by 2 per cent. The collection of debts owing under
the
drought aid scheme remained a problem. A new issue arose of farmers
seeking assistance to stave off other creditors, particularly

creditors under hire purchase agreements, and funds being released to
them in order that they could harvest their crops. In addition
a
number of insolvencies were occurring among members and this was
emphasised at the annual general meeting. The 1986 directors’

report said that the board remained deeply concerned about both the
financial position of members and the continued existence of
NPC. The
level of debtors under both the drought aid scheme and production
credits increased by R4 million on an increased
turnover of
R9 million. Recoveries in respect of bad debts previously
written off remained minimal.
[10]
Little change was reflected in the 1987
accounts. The level of debtors increased by a further R6 million
on an increased turnover
of R18 million. The indebtedness to the
Land Bank grew correspondingly. Bad debts written off exceeded R1
million and when
taken into account meant that a trading surplus
became a deficit. In addition the category of ‘sundry debtors’
increased
markedly from a nominal amount to over R2 million. The
board said it remained optimistic about the future of the industry
provided that greater co-ordination in planting and greater price
stability could be achieved. However, it continued to say that
the
general state of debtors was unsatisfactory and that it remained
concerned at the financial position of a number of members
of NPC.
[11]
Although the board received a report from
the financial manager in February 1988 that both the liquidity and
solvency position of
NPC was under pressure, it resolved not to
impose a levy on members. This notwithstanding that the report
pointed out that profitability
was minimal; that the level of debt
per share was increasing, especially if the debtor suspense account
was brought into the reckoning;
that NPC was overly dependent on Land
Bank financing; and that if urgent corrective measures were not taken
the result would be
catastrophic. At the annual general meeting on 24
and 26 February 1988, the chair reported on the level of bad debts
written off
and said that rising debt levels were due to price
increases in production inputs. He expressed concern at the
increasing debt
burden. Mr Odendaal, from PWC, said he was concerned
at the fact that the ratio between members’ funds and total
funds had
deteriorated and stressed that this ratio needed to be
improved.
[12]
1988 saw a continuing increase in
membership, presumably in part as a result of a merger with the
Markpro Co-operative that led
to the change in name to NPC, and a
corresponding increase in the level of debtors. By February 1988 it
was anticipated that rising
input prices would place further pressure
on members’ ability to repay debt. After the merger the
financial year end changed
from 30 September to 31 December. There
was, however, no change in the problems facing NPC of which the
obtaining of fresh capital
remained critical. Production increased
both among members and new entrants to the market resulting in lower
prices. The directors
reported in the 1988 annual financial
statements that as a result it was anticipated that members would
find it difficult to meet
their obligations. In comparison with the
full year to 30 September 1987, the ten months to 31 December
1988 showed an increase
in turnover from R48.6 million to R71
million, an increase in debtors from R33 million to R50 million
and an increase
in indebtedness to the Land Bank from R28 million
to nearly R47 million. Bad debts of R1.3 million were
written
off in addition to the R880 000 in bad debts written off
in the five months between 30 September 1987 and 28 February

1988.
[13]
The audit report provided to the board by
Mr Odendaal in respect of that period highlighted that credit limits
were regularly exceeded
and production inputs were sometimes supplied
to members who were not creditworthy. Debtors’ balances were
not reconciled
with ledger accounts on a regular basis with a
consequent loss of interest to NPC. Credit was given for seed without
the approval
of the credit committee. Undertakings were given to deal
with this.
[14]
In May 1989, after a visit by its officials
to NPC, the managing director of the Land Bank wrote to the chief
executive in strong
terms. He pointed out that NPC was heavily
dependent on external financing and the result was that exposure to
the risk of non-payment
to the tune of some R43 million lay with
the bank and the state. The increase in debtors over the previous 28
months had been
financed almost entirely with external finance,
giving rise to a substantial obligation in respect of interest. It
was therefore
of fundamental importance to improve NPC’s
capital position and place limits on the extension of credit. The
bank’s
concluded that the situation in regard to the debts of
members was disturbing. If nothing were done to address the problems
it
said it would be obliged to make further extensions of credit
dependent upon compliance with stringent conditions.  This
letter
was placed before the board. At that meeting the board gave an
instruction to management to take steps to recover arrear amounts
and
to implement the credit policy strictly. At a later meeting it
resolved not to impose a levy on purchases, but to raise the
capital
contributions of members over a period of three years.
[15]
The Land Bank continued to express
unhappiness at the financial situation of NPC. It pointed out that in
the period of 27 months
to 31 December 1998 credit extended by NPC
exceeded recoveries by R13 million. In addition there had been
an astronomical
increase in provisions for bad debts (‘astronomiese
toename in voorsiening vir slegte skulde’). This prompted the
initiation
(but not necessarily the implementation in practice) of
further and more stringent credit requirements and the Land Bank was
advised
accordingly. The bank was assured that the board and
management shared its concerns about the financial position.
[16]
Despite the Land Bank’s intervention,
the instructions from the board to officials and the auditors
expressing concern in
their audit report for 1989 about
non-compliance with credit control measures, the 1989 annual
financial statements showed that
the position continued to
deteriorate. Debtors increased by a further R15 million from the end
of the previous year. In its report
to management on the audit PWC
described the overall increase over three years as enormous (‘ʼn
geweldige toename’).
They advised that four steps had to be
taken to remedy the situation. These were: stricter application of
the credit policy; prior
determination of credit limits and the
maintenance of arrears within those limits; timely action to recover
arrears; and obtaining
security for new and existing debts. For the
first time the amounts owing by NPC to the Land Bank exceeded the
amounts owing to
NPC by members.
[17]
Not surprisingly the Land Bank continued to
be concerned about the financial situation at NPC. A further visit by
officials in April
1990 led to a letter being written by the chief
executive of the Land Bank to NPC. An accompanying letter addressed
to the chair
of the board said that aspects of the letter demanded
the urgent attention of the board. It asked for a meeting with him
and his
management committee. The accompanying letter highlighted the
peculiar accounting treatment of bad debts, which involved an amount

of over R5 million being written off as bad and being
transferred to a suspense account, from which nearly R4 million

was then written back as recoveries of bad debts. The letter asked
that a proper assessment of bad debts be made, and that the
R300 000
figure in the annual financial statements be revised to a more
realistic level acceptable to the bank. The bank expressed
doubt that
sufficient collection of debts would occur within a foreseeable
period to prevent the debtors’ book aging, that
is, the average
period for which the debts had been outstanding increasing. There was
a threat, if this was not addressed, that
the bank would review the
basis upon which it was financing members’ production credits
and that this could cause NPC a cash
flow problem. In addition the
bank queried the basis upon NPC had invested in a company that
manufactured bags for potatoes.
[18]
At the annual general meeting of NPC in May
1990 (attended by only 13 members in person and 46 by proxy, a mere 5
per cent of the
membership) the chair told those present that the
Registrar of Co-operatives, the Land Bank, the auditors, the board
and management
were all worried about the poor ratio between own and
borrowed capital. However the biggest worry remained the high
percentage
of overdue accounts. An explanation of the treatment of
doubtful debtors was furnished to the Land Bank, but was not
accepted,
which meant that those debts were no longer regarded as
providing security for the money owing to the Land Bank. The Land
Bank
was clear that the position in regard to doubtful and bad debts
was unacceptable. After a meeting with members of the board it
expressed the view that of the R40 million in unrecovered debts
a large portion could be regarded as irrecoverable (‘ʼn

groot gedeelte van hierdie bedrag as oninvorderbaar beskou te word’).
It also warned that the indiscriminate granting of
credit, with all
its attendant risks linked to the recovery of debts, could land NPC
in a financial crisis and stressed the need
for a stringent
application of the credit policy.
[19]
The affairs of NPC then attracted the
attention of the Registrar of Co-operatives, who sent inspectors to
examine its affairs. Their
concern was the rapidly deteriorating
financial position of NPC over the previous five years in relation to
debtors and capital.
The report stressed the same points as had the
Land Bank, management, the auditors and the board, namely that NPC
needed to generate
surpluses in order to improve its capital position
and make it less dependent on borrowing and it needed to operate a
stringent
credit policy. The board discussed both this report and the
letters received from the Land Bank and the credit policy was
revised.
[20]
It emerges clearly from this that the board
was well aware of the financial problems facing NPC. It understood
what was necessary
in order to resolve those problems. It adopted a
strategic policy and a credit policy to address the problems relating
to both
the grant of credit and the recovery of debts. That was
hampered by the fact that members were responsible for their own
marketing
through market agents and it was difficult to secure that
the agents paid the proceeds of the sales to NPC. A new form, the
so-called
K-form, was introduced to improve this. Instructions were
given to field agents in regard to the implementation of the revised
credit policy. At a meeting in July 1990 the Land Bank’s
representatives said that these were steps that should have been

taken many years before. The reaction of management was that it was
apparent that the Land Bank viewed the position with debtors
in a
very serious light and there was a risk that it would take steps
against NPC. In December 1990, however, there was some relief
because
of the extension of the drought relief scheme.
[21]
The financial position of NPC remained
dire. Members were advised that the credit policy would be strictly
implemented. In ten years
debtors had increased from R2.6 million
to R67 million. Accounts handed over for collection stood at
R8.6 million
and provisions for bad debts at R7.3 million. A
list of these bad debts was tabled at the board meeting on 28
February 1991. However,
although these were the provisions in the
books of NPC, in its annual financial statements for 1990 the bad
debt provision remained
the same at R300 000 and an amount of
close to R1.7 million was written off as uncollectable. PWC continued
to report that
they were unable to express an opinion on the
recoverability of the members’ debts. There was no mention of
the fact that
the internal records of NPC reflected a far higher
figure in respect of doubtful debts.
The
years from 1991 to 1996
[22]
Some relief came in 1991 as a result of an
extension of the drought aid scheme and a good year from a production
and price point
of view. But by the end of that year the Land Bank
indicated that it now required a twenty per cent margin on the
financing of
production credits. The grant of credit remained
problematic, with the bank complaining that in some instances NPC was
granting
credit to members, when other co-operatives of which those
members were also members had refused to do so. It also expressed
concern
at the departure of a senior staff member, but was reassured
that new and competent staff had been appointed in their place.
[23]
When the audit for that year was being done
PWC prepared a schedule of debtors that reflected doubtful debts as
over R19.5 million.
Of those, over R8.5 million had already been
handed over for collection. This appears to have been done in about
December 1991.
Thereafter these figures were revised downwards until
a figure of around R1.3 million appeared in the financial statements
together
with a statement in the directors’ report that a
further amount of R5.2 million ‘may be irrecoverable’.
Regrettably,
however, the difference between the original schedule
and the figures in the financial statements and the intervening
documents
showing the progressive reduction of the bad debt provision
was not canvassed with Mr Odendaal, so that care must be taken not to

attach too much weight to them. What they do show is that at this
stage there was considerable scope for thinking that the debtors
were
overstated in the balance sheet and the provision for bad debts and
bad debts written off may have been insufficient.
[24]
At a meeting of the board prior to the
annual general meeting Mr Odendaal, by then in charge of the audit,
expressed his concern
over the recoverability of debtors. However,
this was not carried through to the annual financial statements
themselves. The provision
for doubtful debts remained unchanged at
R300 000 and the debts written off as bad were smaller than the
previous year at
a little over R1.3 million. The auditors’
report read:
‘
As
mentioned in section 6 and section 7 of the directors’ report,
there is uncertainty about the general recoverability of
debtors and
the ability of the co-operative to obtain further financing.
Because
of the significance of the uncertainties referred to in the preceding
paragraph, we do not express an opinion on the annual
financial
statements for the year ended 31 December 1991.’
Notwithstanding
the concerns that might have arisen from the matters dealt with in
the preceding paragraph, Professor Wainer regarded
this qualification
as adequate. He added that no-one could obtain any assurance form the
auditor in that event because the auditor
had specifically withheld
any such assurance.
[25]
The directors’ report said that the
debts written off were mainly more than three years old. Various
reasons were given for
their having become irrecoverable. It then
added that there was a further amount of R5 222 000 ‘that
may be irrecoverable’.
A description was given of measures
taken to improve debt collection and credit control and the report
finished on the optimistic
note that ‘taking into account these
positive factors’ the board believed that future bad debts
could be limited to
a level that NPC could absorb. Notwithstanding
this optimism and the repeated emphasis on the stringent application
of the credit
policy, the audit report to management said that
security for debts was frequently insufficient, drought scheme
payments were in
many instances in arrear and credit regulations were
not always complied with. At the annual general meetings held in
various centres,
attended by 47 members in all, the chairman reported
that there were difficulties with Land Bank financing and that it
would be
necessary to enforce the credit policy strictly. It was
plain that in 1991 NPC was in dire financial straits and unless
something
changed dramatically it was unlikely to survive.
[26]
In 1992 the government took steps to
provide further drought aid assistance to farmers while at the same
time aiming to remove the
state guarantee from the system and restore
and promote market-oriented financing to agriculture. It is apparent
from the government
announcement of this revised policy that
carry-over debt of farmers enjoying drought relief assistance had
reached alarming proportions.
What had started in 1983 as a guarantee
of R800 million had reached the stage where carry-over debt owed
by farmers in respect
of production credit had reached R2.4 billion
and covered virtually all food producing areas in South Africa. In
order to
extricate itself from this situation the government proposed
to distribute to the various affected co-operatives an amount of R2.4

billion, after which the government guarantee would be withdrawn.
[27]
The precise mechanism within which this
revised scheme would work was at first unclear. In the meantime the
minutes of directors’
meetings during 1992 continued to reflect
concern over NPC’s finances. It was agreed that a deposit would
be sought on purchases
and fresh capital would be sought in order to
provide the Land Bank with a guarantee. A revised credit policy was
adopted and a
credit committee was established consisting of Mr Dürr,
the chairman of NPC, Mr Pieterse, who succeeded him as chairman, and

one other. They were to decide whether credit should be granted in
difficult cases. According to a letter addressed by the chief

executive to the Land Bank, current debtors amounted to nearly
R38 million and drought relief debtors to R43 million.

Apart from the problems with debtors a subsidiary company that made
potato pockets was losing money. At a directors’ meeting
in
November 1992 there was continuing concern over the level of debtors
and the ability of NPC to make recoveries. It was recorded
that the
provision for bad debts in the books of NPC stood at R4.4 million,
which was less than the R5.2 million of the previous
year. This
amount appeared to reflect those debts that had been handed over for
collection. It is apparent that the internal figures
being used by
management for the purpose of reporting to the board reflected bad
debt provisions at a level considerably higher
than the annual
financial statements.
[28]
When
the fund to remove the state guarantee was distributed NPC received
an amount of R28.5 million. That discharged the state
from any
further liability in respect of the drought aid scheme and this fact
was minuted by the board at its meeting on 5 December 1992.
The
board then instructed management ‘in conjunction with the
auditors’ to assess in what way this amount could be
reflected
in the annual financial statements to influence the balance sheet in
the most favourable possible light.
[64]
It was common cause in argument that but for this payment NPC would
have been insolvent and would have ceased operations very rapidly.
[29]
Instead the financial position improved
markedly as a result of this cash injection and the auditor’s
report to the annual
financial statements for 1992 was unqualified.
It said that in the opinion of the auditors the financial statements
fairly represented
the financial position of NPC. The directors’
report said that in view of the assistance measures announced by the
government
that removed the government guarantee, it was not possible
to compare the debtors’ position with that in previous years.
Debts totalling R11.5 million were written off, the bulk of them
against the drought assistance accounts, the explanation being
that
the government no longer guaranteed these debts. However, the income
statement showed a different picture. In the income statement
R 18.35
million was written off of which R6.885 million was used against
the state guarantee allotment, this being, according
to the notes to
the financial statements, ‘an appropriate share’ of bad
debts to write off. The effect was to leave
an amount of
R21.5 million, which was used to create a contingency reserve,
so that the capital of NPC on the balance sheet
tripled from
R7 million to R21 million. However, while the drought aid
indebtedness of members was reduced from R35 million
to
R23.5 million and the liabilities to the Land Bank fell by
R34 million, total debtors declined by only R18 million.
In
the result the net cash position of NPC did not improve at all
notwithstanding the injection of over R28 million from
government. One subsidiary became dormant and the other two made
losses.
[30]
In its report to the annual general
meetings the board described the receipt of this money as a godsend
from the state. However,
it did not resolve NPC’s financial
problems. The indebtedness of members to NPC arising under the
drought aid scheme still
stood at over R23 million and no longer
had the backing of a government guarantee. Capital formation remained
a problem and
the board was faced with a dilemma in that members
wanted the co-operative both to make a profit and to assist them by
adopting
a sympathetic approach to requests for credit. The internal
reports during 1993 revealed that the same problems continued to
plague
NPC. The cash flow position improved slightly in August 1993
with the negotiation of a cash credit facility (‘kaskredietrekening’

or ‘KKR’) for the following year through the Land Bank.
The facility also covered some existing debts but was subject
to
stringent conditions. Concerns continued to be expressed over the
basis for the extension of credit and where the amount involved

exceeded R500 000 it required board approval if the applicant’s
debt levels exceeded sixty per cent. When Mr Odendaal
made a
presentation of the annual financial statements to the board he yet
again stressed the need to control costs, to recover
debts and to
deal with the high provisions for bad debts.
[31]
Minutes show that the credit committee and
the board were both being required to consider particular cases where
debtors were seriously
problematic. Thus at the directors’
meeting in February 1994, prior to the annual general meeting, the
cases of Messrs P
L Ferreira, P J Bekker, R Coleman and T G van Zyl
received attention. All four were among those in respect of whom
judgment was
granted in favour of NPC.  In excess of R18.5
million, or more than one quarter of the judgment, was eventually
written off
in respect of these four. Mr Ferreira was already unable
to pay his debts and his creditors were trying to work out a rescue
plan,
while Mr Bekker was seeking a moratorium from his creditors. Mr
Coleman was given extended credit and time to pay his existing debts.

Mr van Zyl’s situation was left over for discussion at a later
stage.
[32]
The board approved the 1993 annual
financial statements at a meeting on 10 March 1994. In doing so it
noted that without the positive
impact of the government’s
assistance NPC would not have been able to survive. Bad debts
amounting to R2.8 million were
written off in terms of an agreed
schedule. Five of the debtors on the list making up the claim appear
on this schedule, but save
for one of them, only in respect of
trivial amounts. The one exception was Tonkin Uitval Boerdery, in
respect of which two amounts
totalling R1 297 822.97 were
written off. In addition there appear to have been amounts handed
over for collection. One
particular member whose situation was
considered was Mr T G van Zyl, who it will be recalled, had been
discussed at an earlier
meeting. It was decided to postpone recovery
of his debt of some R1.2 million and to extend additional
production credit of
R218 000 to him.
[33]
The annual financial statements for 1993
were once again unqualified. The one operating subsidiary made a
small profit and the other
a large loss. A further R5.8 million
was written off as bad debts. Whilst debts under the drought aid
scheme fell again this
was more than offset by a substantial increase
in ordinary debts from production credits, which increased from R 37
million
to R 52 million. Whilst a small profit was generated on
an increased turnover this was entirely dependent on the additional

debts proving to be collectable.
[34]
In 1994 the established pattern continued,
although the new chief executive, Mr Boonzaaier, in a memorandum
dated 14 March 1994
urged the board not to concentrate solely on
credit control and the recovery of debt, but also to explore other
ways of increasing
profits. However, the continuing problems of bad
debts and control of credit continued to be the focus of attention.
At the annual
general meetings they were described as a great source
of concern (‘ʼn groot bron tot kommer’) although the
chairman
said that with the help of a strong credit policy they were
well under control (‘goed onder beheer is’). In June a
new and strengthened credit policy was adopted and there were
particular concerns over the indebtedness of Mr P L Ferreira and Mr
H
J Saaiman. The latter’s indebtedness, included in the judgment
against the fourth respondent, was nearly R5 million.
The credit
manager addressed a notice to all agents and credit officials in the
strongest terms saying that the situation in regard
to orders for
seeds and pockets was so unacceptable that unless an official order
number was obtained these would be regarded as
unauthorised credit.
An internal audit function was established and its reports revealed
that the internal audit team was picking
up many of the
irregularities later identified by Mr Collett, when he conducted the
exhaustive investigation into NPC’s financial
affairs between
June 1997 and August 1998 that formed the basis for the present
action. Mr Collett was the principal witness for
NPC.
[35]
In August 1994 the Land Bank chimed in with
its own concerns over the indiscriminate grant of credit, the high
level of debtors
and the need to implement the credit policy
strictly. It also expressed concern over the continued viability of
the subsidiary
manufacturing potato pockets. The letter was sent to
both the chief executive and the chairman of the board and it asked
that it
be placed before the board urgently. The chairman sent a
reply a month later and thereafter the Land Bank sent officials on a
follow-up
visit, which resulted in a further letter on 26 January
1995. The Land Bank did not take a positive view of matters. It
complained
that credit was being given when it had been resolved not
to extend further credit, as well as to people to whom banks and
other
co-operatives were refusing to extend credit. Members were
either not remitting the entire proceeds of their crops to NPC, or
NPC
was paying some proceeds to members who still owed it money. The
bank insisted that every three months the board had to examine
a list
of credit sales to all members who were in arrear, with a full
explanation, and give instructions in respect of them. It
threatened
to refuse to finance transactions not concluded strictly in
accordance with the credit policy.
[36]
On 8 March 1995 the senior management of NPC sent a remarkable
document to the auditors as a management declaration. In it
they
claimed that the financial records of NPC were in order and that
provision had been made for any decline in value of existing
assets.
In regard to debtors they said that all the claims were bona fide,
not subject to discounts and collectable within agreed
credit
periods. They added that the reserve for unforeseen losses, such as
those for bad debts were sufficient. To my surprise
I have been
unable to find any reference to this in the evidence of any of the
witnesses, although the accuracy of its contents
is, to say the
least, debatable. On 17 March 1995 the auditors wrote to the chief
executive saying that they had found certain
weaknesses in the
internal management system of NPC. The first item was the credit
policy, including obtaining security, and the
second was the debtors,
and various irregularities were identified. A more general report was
furnished to the directors.
[37]
The annual financial statements for 1994
presented a relatively calm picture. Debtors had not increased
substantially and nor had
the indebtedness to the Land Bank. Bad
debts of R4.7 million were written off. That meant that in the
three years up to then
a total of R22 million had been written
off as bad debts. The amount owing on the drought aid scheme
continued to decline
and now represented only R8.5 million out
of a total debtors book of nearly R72.5 million. Neither the
auditor’s
report nor the directors’ report made any
special mention of the position in regard to debtors. However,
shortly after those
accounts had been approved an internal audit
report was produced that showed that there was an alarming lack of
proper control
over the grant of credit. It analysed the 605 members
and non-members with approved credit limits and revealed that there
was no
record of a credit application or approval in 53.5 per cent of
cases; 75 per cent were overdue; although only R43 million of

credit had been applied for, R109 million, including
supplementary credit, had been approved and R77 million had been

used.
[38]
The 1995 annual financial statements,
adopted in March 1996, were the last ones audited by PWC before the
falling out with NPC that
led to its resignation as auditors. The
auditor’s report certified that the annual financial statements
were a reasonable
reflection of NPC’s financial circumstances.
The directors’ report was upbeat, describing the year as
outstanding (‘uitstekend’).
There had been a 34 per cent
increase in turnover and profit had increased, although it remained
small in relation to turnover
– a little over one per cent.
Debtors increased from R72 million to R95 million, while
bad debts written off fell
to R2.9 million. The indebtedness to
the Land Bank increased by more than a third from R48 million to
R69 million.
In the result the increased turnover was virtually
entirely financed by loans from the Land Bank. The only slight cloud
on an otherwise
sunny horizon was the statement in the chief
executive’s report that the rapid growth in business had placed
the group’s
financial structure under pressure. The concern
raised by this was shared by the Land Bank.
1996
and 1997
[39]
The
position changed rapidly after the annual general meeting for 1995
held in March 1996. By June 1996 the chief executive reported
to the
directors that a substantial loss for the current year had already
been incurred as opposed to the budgeted profit. The
loss was
attributed to higher than budgeted write-offs in respect of bad
debts. The financial manager reported to the board that
member
debtors had increased by R37.6 million as against the previous year
and by R17.8 million since January 1996. He said that
recoveries were
below budget and it was unlikely that the position would improve.
Most troubling of all he said that NPC’s
own resources for
finance were exhausted and its external lines of credit had been
taken up to their maximum.
[65]
NPC was outside the Land Bank’s permissible criteria for the
provision of loan finance and the bank was expressing its concern

over the situation. It would have to be asked for an extension of
time in respect of the cash credit account and it was unlikely
to
approve NPC’s request for finance for the forthcoming year.
[40]
From
that date on the NPC’s financial position deteriorated rapidly.
Two of the long-standing troublesome accounts, those
of Mr Coleman
and Mr van Zyl, were in a desperate condition and in respect of each
a further provision for bad debts of R2 million
was made. At the
following directors’ meeting on 19 September 1996 a loss for
the year of R3.9 million as against a
budgeted profit of
R2.9 million was reported. This was caused by a higher provision
for bad debts of R5.2 million and
weaker than expected trading
profits. The Land Bank was unwilling to extend further credit as
reported to the directors in October
and the loss for the year had
increased to R5.3 million. There were on-going discussions with
the Land Bank and the situation
was said to have been complicated by
poor weather conditions, such as winds, excessive rain and snow, and
low prices, which was
going to lead to deferred debt in three regions
of R24 million. Financiers were sympathetic but the cold figures
were against
NPC.
[66]
This was
evidenced by the Land Bank’s response to a request for further
financial assistance, which was to say that it would
await the
outcome of the remedial measures taken by NPC. At the directors’
meeting on 27 February 1997 it was recorded that
NPC faced a serious
financing problem and a detailed business plan was prepared to
address its problems. Shortly thereafter the
chief executive, Mr
Boonzaaier, resigned, after the Land Bank indicated that, as a
condition of giving further financial assistance,
he should be
dismissed.
[41]
When PWC undertook its interim audit in
December 1996 and January 1997, it expressed a concern over the
future viability of NPC
as a going concern in the absence of future
financing, and said that a comment in that regard would probably have
to be included
in the auditor’s report in the annual financial
statements. NPC had changed its financial year end to the end of
February
so that the annual financial statements covered a fourteen
month period. The draft was considered by the management committee at

its meeting on 30 April 1997, where it was recorded that the only
qualification would be that the continuation of trading activities

was dependent on obtaining sufficient finance.
[42]
The reaction of the board was to postpone
the adoption and signature of the annual financial statements. There
was apparently some
hope that post-balance sheet events, such as the
disposal of loss-making subsidiaries, would improve the financial
picture. In
June 1997, Mr Collett, of Collett, Du Toit &
Associates (Pty) Ltd, was appointed to investigate alleged financial
irregularities,
principally on the part of Mr Boonzaaier. In August a
technical panel of PWC met to consider the annual financial
statements and
concluded that there was uncertainty regarding NPC’s
status as a going concern and that an audit opinion should be
disclaimed
on that basis.
[43]
After this meeting Mr Odendaal wrote to the
chairman of the board on 28 August 1997. The letter paints a dismal
picture of NPC’s
finances. The one subsidiary had made further
losses and others had been closed. NPC was dependent upon the Land
Bank for finance,
which had been granted until December 1998 on
conditions. At the date of the annual financial statements it had
exceeded its permissible
limit and had to make arrangements to reduce
the debt. A number of factors were identified as having led to
uncertainty at the
date of the accounts. These included the position
with subsidiaries; the need for finance in order to continue its
activities;
the need for the continued support of the Land Bank; and,
the availability of reserves.
[44]
The letter concluded as follows:
‘
In
consequence of these uncertainties the co-operative’s directors
decided to postpone consideration of the group’s
financial
statements with a view to seeing whether the uncertainties on 28
February 1997 could be resolved by taking into account
post-balance
sheet events. Post-balance sheet trading results had contributed
further to the uncertainty.
Taking
into account the post-balance sheet trading results of the group, as
well as the ability of the co-operative to comply with
the conditions
imposed by the Land and Agricultural Bank of South Africa for the
grant of future finance, we are unable to form
an opinion over the
going concern basis for the accounts.
This
uncertainty is regarded as fundamental because of the substantial
effect on the financial statements if the going concern basis
is
inapplicable. Generally accepted accounting practice requires that in
those circumstances an opinion should not be expressed.’(My

translation.)
[45]
This report was tabled at a management
meeting that resolved that the paragraph about no audit opinion being
expressed should be
better worded (‘beter bewoord moet word’).
In September 1997 the board of NPC resolved not to produce group
financial
statements and in a letter dated 20 September 1997 asked
the auditors to review their audit report. The view was expressed
that
the existing opinion in respect of the group would not apply to
NPC as an independent entity and that on its own NPC’s future

as a going concern was reasonably certain for the foreseeable future.
Concern was expressed that the withholding of an audit opinion
would
cause problems with creditors, members and other clients, and the
potato industry as a whole. It would of itself have implications
for
the continued existence of NPC.
[46]
After this meeting the directors received a
preliminary report from Mr Collett, which they then incorporated in
the directors’
report in the annual financial statements. This
resulted in further changes to the auditor’s report. They
pointed out that
they had not been afforded the opportunity to audit
Mr Collett’s report and that its contents, if correct, would
require
certain specific and potentially important changes to be made
to the annual financial statements. Their particular concern arose

from the suggestion that the provision for doubtful debts of R11.2
million was probably inadequate. The auditors pointed out that
the
financial statements had been prepared on a going concern basis that
was dependent on the ability to generate finance as well
as continued
support from the Land Bank. In the circumstances they said that they
were not in a position to express a view on the
annual financial
statements. In a formal response to the letter of 20 September 1997
PWC highlighted the fact that, if the existing
provision for bad
debts were inadequate, it would require the restatement of the
accounts and that as matters stood the directors’
report and
the financial statements were inconsistent. Any restatement of the
financial statements would reflect a worse financial
position and
together with other uncertainties placed a question mark over NPC’s
ability to continue as a going concern.
[47]
Pursuant to these concerns PWC disclaimed
an audit opinion on the annual financial statements of NPC for the
year ended 28 February
1997. It explained that it did so in the first
instance because of the inclusion in the directors’ report of
Mr Collett’s
interim report containing information that, if
true, would require important changes to the financial statements.
The investigation
was incomplete and PWC had not had an opportunity
to audit its contents. Secondly, PWC said that the financial
statements had been
prepared on a going concern basis and this was
dependent on the availability of finance for future business and the
realisation
of assets and the payment of liabilities occuring in the
ordinary course. The financial statements contained no indication of
the
value of assets and the classification of liabilities that would
be necessary if it was not possible for NPC to continue as a going

concern. Finally the ability of NPC to continue as a going concern
depended on various factors of which the most important was
the
maintenance of the existing level of financial support and NPC’s
ability to procure such support in the future by complying
with the
Land Bank’s requirements. Accordingly PWC withheld an opinion
on the financial statements.
[48]
The annual general meeting of NPC for the
year to February 1997 took place on 5 November 1997. At it the
members resolved to pursue
the investigation by Mr Collett over the
opposition of two previous chairmen, Mr Durr and Mr Holtzhausen, as
well as the opposition
of Mr Odendaal. PWC resigned as auditors and
confirmed their resignation formally in a letter on 11 November 1997.
Thereafter NPC
limped on with the assistance of the Land Bank, which
in June 1998 gave it a five year extension of time to repay existing
loans.
But by 2000, after the commencement of the present action, it
was clear that it was trading in insolvent circumstances. In February

2000, as a result of Mr Collett’s intervention, a relationship
was forged with the Northern Transvaal Co-operative Ltd, which
was
approved by members. In substance, although NPC continued to exist,
the operations of the two co-operatives were merged, with
operational
and administrative management and control resting with the Northern
Transvaal Co-operative Ltd. That initially included
the management of
the litigation against PWC but that is now in the hands of IMF in
terms of its agreement with NPC.
Appearances
For
appellant: F G Barrie SC (with him H C Bothma)
Instructed
by: Norton Rose Fulbright, Johannesburg;
Matsepes,
Bloemfontein
For respondent: M C
Maritz SC (with him G W Alberts SC and N C Maritz)
Instructed
by: Kirkcaldy Pereira Inc, Pretoria;
E
G Cooper Majiedt, Bloemfontein.
[1]
NPC’s
heads of argument said that the evaluation of the recoverability of
debts and making appropriate provision for bad
debts ‘het
altyd aan die hart van die saak gelê’.
[2]
PriceWaterhouseCoopers
Inc and Others v National Potato Co-Operative Ltd and Another
2013
ZASCA 123.
[3]
Price
Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd
2004
(6) SA 66
(SCA).
[4]
Aartappel
Koöperasie Bpk v Price Waterhouse Coopers
[2007]
ZASCA 166
;
Price
Waterhouse v Van Vollenhoven NO and Another
[2009]
ZASCA 166.
[5]
Our task and that of the trial judge was fortunately not as onerous
as that of the Canadian judge dealing with a similar claim
in
Widdrington
(Estate of) c. Wightman
,
2011 QCCS 1788
(CanLII) described by her as ‘the longest
running judicial saga in the legal history of Quebec and Canada’.
[6]
Manchester
Ship Canal Co Ltd and another v United Utilities Water plc
[2014]
UKSC 40
;
[2014] 4 All ER 40
(SC) para 25.
[7]
Price
Waterhouse Coopers Inc and Others v IMF (Australia) Ltd and Another
2013
(6) SA 216 (GNP).
[8]
Price
Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd
2004 (6) SA 66
(SCA) para 27;
Thusi
v Minister of Home Affairs & 71 Other Cases
2011 (2) SA 561
(KZP) paras 105-110. When this issue was dealt with
by this court the funding arrangements were domestic and limited,
involved
members of the co-operative and were unrelated to IMF and
its different interests.
[9]
Section
34 of the Constitution of the Republic of South Africa 1996.
[10]
Essakow
v Gundelfinger and Another
1928 TPD 308
at 312;
Goldberg
and Another v Di Meo
1960 (3) SA 136
(N) at 149H.
[11]
Spie
Batignolles Société Anonyme v Van Niekerk: In re Van
Niekerk v SA Yster en Staal Industriële Korporasie
Bpk en
Andere
1980
(2) SA 441 (NC).
[12]
M
Rauff (Pty) Ltd v Pietersburg Coal Agency
1974
(1) SA 811
(T) at 812E.
[13]
Thoroughbred
Breeders’ Association v Price Waterhouse
2001
(4) SA 551
(SCA) paras 18-21.
[14]
In the light of the evidence of the experts the focus shifted in the
course of the trial from the standard annual provision to
a
comparison between the amounts written off as bad debts, together
with that provision, and the amounts that NPC contended should
have
been provided for potential bad debts.
[15]
The
pleadings, as with most of the documents and the bulk of the
evidence, were in Afrikaans, so that the passage quoted is my

translation. In the original the paragraph read as follows:
‘
Al
NAK se skade voormeld vloei natuurlik uit PWC se kontrakbreuk en is
skade wat normaalweg te wagte sou wees en wat regtens geag
word om
binne die kontemplasie van die partye te gewees het as die
waarskynlike gevolge van die kontrakbreuk. Alternatiewelik,
was dit,
ten tye van die sluiting van elk van die jaarlikse kontrakte, binne
die kontemplasie van die partye, soos verteenwoordig,
of behoort dit
redelikerwys binne die kontemplasie van die partye soos voormeld te
gewees het, dat al die skade voormeld, alternatiewelik
al die tipe
skade voormeld, waarskynlik sou volg uit ‘n verbreking van die
kontrak. Alternatiewelik was dit ten tye van
die sluiting van elk
van die jaarlikse kontrakte, sodanig binne die werklike kontemplasie
van die partye soos voormeld, dat die
kontrak in elke geval as’t
ware op daardie basis gesluit is.’
[16]
At
any given time there were usually no more than 400 or 500 active
farming members of NPC so that the number of individual farmers
in a
given area would not be great and they would tend to be known to one
another.
[17]
Para
1.10 of the heads of argument said: ‘Eiser se saak is dat hy
wesenlike skade gely het as gevolg van roekelose kredietbestuur

en/of wanbestuur.’ (Plaintiff’s case is that it has
suffered material loss as a result of reckless credit management

and/or mismanagement.) In the pleadings, under the general heading
of material irregularities in the management, control and

administration of members and/or debtors’ accounts, it was
specifically alleged that this was due to the fact that: ‘The

credit department and/or the personnel of the credit department
and/or executive management, provided credit and/or proceeded
with
the provision of credit to members and/or debtors in a reckless
and/or irregular and/or dishonest manner in circumstances
where it
was clear, or should have been clear, from the information available
to them and/or the NPC’s records in relation
to such members,
that such transactions were of such high risk that it would
necessarily or probably lead to damage to NPC.’
(My
translation.)
[18]
Union
Spinning Mills (Pty) Ltd v Paltex Dye House (Pty) Ltd
2002 (4) SA 408
(SCA) para 24.
[19]
Stellenbosch
Farmers' Winery Group Ltd and Another v Martell et Cie and Others
2003 (1) SA 11
(SCA) para 5.
[20]
HS
Cilliers and ML Benade and others
Cilliers
and Benade Corporate Law
(3
ed) para 23.36, p 409;
Halsbury’s
Laws of England, (5 ed) Vol 15, paras 916 and 918; John L Powell QC
and Roger Stewart QC
Jackson
and Powell on Professional Liability
(7
ed) 1-014 and 17-020.
[21]
Op
cit
para
17-020.
[22]
RH
Christie and GB Bradfield
Christie’s
The
Law of Contract in South Africa
(6
ed) 262-263.
[23]
Van
Immerzeel & Pohl v Samancor Ltd
2001 (2) SA 90
(SCA) paras 76 and 77.
[24]
Caparo
Industries plc v Dickman & others
[1989]
1 All ER 798
(CA) at 804a-e. Cited with approval by Nugent J in
Powertech
Industries Limited v Mayberry & another
1996
(2) SA 742
(W) at 746A-E. See also
Lipschitz
& another NNO v Wolpert & Abrahams
1977
(2) SA 732
(A) at 740-C-E.
[25]
In
re London & General Bank (No 2)
[1895]
2 Ch D 673
at 682.
Halsbury’s
Laws of England, (5 ed) Vol 15, para 929.
[26]
Thoroughbred
Breeders
,
supra, fn 13.
Proof
of negligence is a pre-requisite to liability. See s 26(5)
(a)
of
Public Accountants’ and Auditors’ Act 51 of 1951;
s 20(9)
(a)
of
Public Accountants’ and Auditors’ Act 80 of 1991.
[27]
This
section was amended in 1993, but the amendment did not effect any
material change to the auditor’s obligations.
[28]
Kripps
v Touche Ross & Co.,
1998
CanLII 3905 (BC SC)
; 56 BCLR (3d) 160 paras 69 to 73.
[29]
The
auditor is not however required to be suspicious as opposed to being
reasonably careful in the conduct of the audit.
In
re Kingston Cotton Mill Company (No 2)
[1896]
2 Ch D 279
at 284. In the words of Lord Denning the auditor must
come to the task with ‘an inquiring mind … suspecting
that
someone may have made a mistake somewhere and that a check must
be made to ensure that there has been none.’
Fomento
(Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd and Others
[1958]
1 All ER 11
(HL) at 22b-d;
Tonkwane
Sawmill Co Ltd v Filmalter
1975 (2) SA 453
(W) at 455H-I.
[30]
The
alleged failure by auditors to make a proper report on bad debts
recurs regularly in claims against auditors based on their
allegedly
negligent conduct of an audit. See, for example,
In
re London & General Bank (No 2)
,
supra;
Scarborough
Harbour Commissioners v Robinson, Coulson. Kirkby & Co
1934,
Acct. L. R.;
Berg
Sons & Co Ltd v Mervyn Hampton Adams and others
[1993]
BCLC 1045
(QBD (Comm Crt));
Alexander
and others v Cambridge Credit Corporation Ltd and another
(1987) 9 NSWLR 310
(CA);
Kripps
v Touche Ross & Co.,
1998
CanLII 3905 (BC SC)
; 56 BCLR (3d) 160;
Widdrington
(Estate of) c. Wightman
,
2011 QCCS 1788 (CanLII).
[31]
‘
As
daar een indruk is wat die getuienis oorweldigend laat, is dit dat
daar wanbestuur by die NAK was…
Die
wanbestuur het hoofsaaklik twee vorme aangeneem: onoordeelkundige
en/of onreëlmatige krediet verlening en ondoeltreffende

invordering van skuld, meestal gepaard met ʼn versuim om die
pandreg af te dwing.’
[32]
British
Celanese Ltd v Courtaulds Ltd
(1935)
52 RPC 171
(HL) quoted with approval in
Gentiruco
AG v Firestone (SA) (Pty) Ltd
1972
(1) SA 589
(A) at 617F - 618C and
KPMG
Chartered Accountants (SA) v Securefin Ltd
2009 (4) SA 399
(SCA) para 40. See also
Van
Aardt v Galway
2012 (2) SA 312
(SCA) para 10.
[33]
‘…weens die aard van die ondersoek sal ons uit die aard
van die saak heelwat getuienis aanbied wat in die kategorie
sal val
van hoorsê getuienis. Dis onvermydelik.’
[34]
Tristram Hodgkinson
Expert
Evidence: Law and Practice
106-7.
[35]
Fischer
and another v Ramahlele and others
2014 (4) SA 614
(SCA) paras 13 and 14.
[36]
Giesecke
& Devrient Southern Africa (Pty) Ltd v Minister of Safety and
Security
2012
(2) SA 137
(SCA) para 24.
[37]
‘Elke faset van sy bedryf’.
[38]
Reliance was placed on
S
v Boesak
[2000] ZASCA 112
;
2000
(3) SA 381
(SCA) at 393I-398F. However, the circumstances of that
case were markedly different from this one. There the evidential
issue
was whether the signature on one letter was that of the
accused. Here the issue was whether the files prepared by Mr Collett

contained a complete history of the dealings between NPC and the
debtors.
[39]
In
the heads of argument it was said that some of his evidence in
regard to credit mismanagement was hearsay, but it rested on
the
correctness of the debtor accounts and other unspecified evidential
material.
[40]
Gentiruco
AG v Firestone SA (Pty) Ltd
1972 (1) SA 589
(AD) at 616H. This statement it derived from
Wigmore
on Principles of Evidence
(3
ed) Vol VII para 1923.
[41]
Coopers
(South Africa) (Pty) Ltd v Deutsche Gesellschaft für
Schädlingsbekämpfung MBH
1976 (3) SA 352
(A) at 370G-H.
[42]
At
371F-H.
[43]
National
Justice Compania Naviera SA v Prudential Assurance Co Ltd ('The
Ikarian Reefer')
[1993] 2 Lloyd's Rep 68 [QB (Com Ct)] at 81 – 82. Approved in
Pasquale
Della Gatta, MV; MV Filippo Lembo; Imperial Marine Co v Deiulemar
Compagnia Di Navigazione Spa
2012 (1) SA 58
(SCA) para 27, fn 12 and
Schneider
NO and Another v AA and Another
2010
(5) SA 203
(WCC) at 211E-I.
[44]
Stock
v Stock
1981
(3) SA 1280
(A) at 1296 E-G. See also
Jacobs
and Another v Transnet Ltd t/a Metrorail and Another
2015 (1) SA 139
(SCA) para 15.
[45]
Supra,
fn 5. The judgment is one for the clarity of which I can only
express admiration. It was upheld on appeal on all major
issues.
Wightman
v. Widdrington (Succession de)
2013
QCCA 1187
(CanLII). An application for leave to appeal to the
Supreme Court of Canada was dismissed.
Elliot
C. Wightman, et al. v. Estate of Peter N. Widdrington
,
2014 CanLII 341 (SCC).
[46]
The
summary contains expressions such as ‘it is difficult to
comprehend’ and ‘despite the concession that’
and
‘it is unclear’ (I translate). The professor’s
statement that the comparison was impossible (‘onmoontlik’)

is throughout contained in inverted commas to convey incredulity
that he should express such an opinion. He purports to place

Professor Blignaut’s views in the correct perspective and said
that he has no underlying basis for his opinions.
[47]
International
Shipping Co (Pty) Ltd v Bentley
1990 (1) SA 680
(A) at 700E-I. I do not think that anything said in
Lee
v Minister for Correctional Services
2013
(2) SA 144
(CC) paras 40 to 50 detracts from this approach in this
case.
[48]
‘Na my mening is dit nie nodig om getuienis aan te bied oor
iets wat by wyse van ʼn voor die hand liggende afleiding
aanvaar
kan word.’
[49]
Lee
,
supra, para 49.
[50]
Newcastle
International Airport Ltd v Eversheds LLP
[2013]
EWCA Civ 1514
;
[2014] 2 All ER 728
(CA). paras 86 to 100.
[51]
Galoo
Ltd (in liquidation) and others v Bright Graeme Murray (a firm) and
another
[1995]
1 All ER 16 (CA).
[52]
Galoo,
op cit,
29e-g. See also
Alexander
and others v Cambridge Credit Corporation Ltd and another
(1987)
9 NSWLR 310
at 359C-E.
[53]
‘… kon die hele skuld of ʼn groot deel of ʼn
gedeelte daarvan dalk verhaal gewees het.’
[54]
‘NAK is in ʼn knyptang (moet ons uitklim of moet ons
aangaan ?)’
[55]
Drennan
Maud & Partners v Pennington Town Board
1998
(3) 200 (SCA) at 209F-G. The line continues through
Van
Staden v Fourie
1989 (3) SA 200
(A) at 216B – F;
Nedcor
Bank Bpk v Regering van die Republiek van Suid-Afrika
[2000] ZASCA 154
;
2001 (1) SA 987
(SCA) ([2001]
1 All SA 107)
paras 11 – 13;
Yellow
Star Properties 1020 (Pty) Ltd v MEC, Department of Development
Planning and Local Government, Gauteng
2009 (3) SA 577
(SCA) ([2009]
3 All SA 475)
para 37; and
Claasen
v Bester
2012 (2) SA 404
(SCA) paras 10 – 16 to
Macleod
v Kweyiya
2013 (6) SA 1
(SCA) para 9.
[56]
Meridian
Global Funds Management Asia Ltd v Securities Commission
[1995] 2 AC 500
(PC) at 507F. Cited with approval in
Northview
Shopping Centre (Pty) Ltd v Revelas Properties Jhb CC and Another
2010 (3) SA 630
(SCA) para 20.
[57]
Caparo
Industries plc v Dickman and others
[1990] UKHL 2
;
[1990]
1 All ER 568
(HL) at 580 d-f.
[58]
Hodgkinson, supra, 109-110 citing Sheen J in
The
Capitaine Le Goff
[1981]
1 Lloyd’s Rep 322 (QB(Adm Ct)) at 325.
[59]
Respectively
the third and fourth appeals.
[60]
The
fifth appeal.
[61]
This
was the fifth appeal.
[62]
Singh
v Vorkel
1947 (3) SA 400
(C) at 406;
Odendaal
v De Jager
1961 (4) SA 307
(O) at 310F-G.
[63]
‘
Die
finansiële jaarstate is opgestel op ʼn lopendesaak begrip,
maar dit is as gevolg van die huidige ekonomiese omstandighede
in
die landboubedryf nie moontlik om ʼn mening te vorm oor die
verhaalbaarheid van die totale ledeskulde nie.’
[64]
‘
Die
Raad gee opdrag dat in oorleg met die ouditeure ʼn scenario
uitwerk word om vas te stel op watter wyse die R28.5 miljoen

aangewend kan word om die balansstaat verhoudinge die gunstigste te
kan beïnvloed.’
[65]
‘
Tans
is NAK se eie finansiering uitgeput en die bronne van buite
finansiering is tot die maksimum benut.’
[66]
‘
Die
feit dat dit ʼn moelike jaar was met een geweldige voorsiening
vir slegte skuld word met empatie na geluister, maar die
koue syfers
gaan die deurslag gee. Ons kredietwaardigheid gaan vir die volgende
twee jaar onder hierdie feite gebuk gaan.’