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[2002] ZASCA 137
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Price Waterhouse Meyernel v Thoroughbred Breeders' Association of South Africa (28/2002) [2002] ZASCA 137; [2002] 4 All SA 723 (SCA); 2003 (3) SA 54 (SCA); 65 SATC 354 (15 November 2002)
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO 28/2002
In the matter between
PRICE WATERHOUSE MEYERNEL
Applicant
and
THE THOROUGHBRED BREEDERS' ASSOCIATION
OF SOUTH AFRICA
Respondent
________________________________________________________________________
CORAM: HEFER AP, VIVIER ADP, HOWIE, HARMS et
CONRADIE JJA
________________________________________________________________________
Date Heard:
5 November 2002
Delivered:
15 November 2002
Review
of taxation in SCA - inclusion of VAT on fees - quantum of counsel's
fees
________________________________________________________________________
J U D G M E N T
________________________________________________________________________
HOWIE JA
HOWIE JA
[1]
This is a review of
taxation in terms of Rule 17 of the Rules of the Supreme Court of
Appeal. The applicant was the respondent
in an appeal before this
Court arising out of an action in which it was the defendant. The
present respondent - the plaintiff in
the action - sued for damages
on the ground that the applicant had breached its contractual
obligation to conduct an annual audit
of the respondent's books of
account with reasonable care and so failed to expose extensive thefts
by one of the respondent's employees.
I shall refer to the parties
as "plaintiff" and "defendant" respectively.
[2]
The trial Judge held that
the audit had been negligently carried out and that this breach of
the parties' auditing agreement entitled
plaintiff to damages.
Although plaintiff sued in contract and not in delict the trial Court
upheld reliance by defendant on the
Apportionment of Damages Act 34
of 1956. Having found that plaintiff had itself been negligent in
relation to its loss, and considerably
more at fault than defendant,
the learned Judge awarded substantially reduced damages. Both
parties appealed. Apart from other
issues, each challenged the
finding of fault against it and plaintiff contested the applicability
of the Apportionment of Damages
Act.
[3]
On appeal three judgments
were handed down. The finding of fault on both sides was
unanimously upheld and by a majority of four
to one it was decided
that the Apportionment of Damages Act did not apply in the case of a
contractual action. It followed that
plaintiff's own negligence did
not serve to affect its claim. The order made by this Court was
accordingly one awarding plaintiff
its damages in full in the sum of
R1 389 801.90 together with costs, including the costs of two
counsel. The judgments in both
Courts are reported: see
Thoroughbred Breeders' Association of South
Africa v Price Waterhouse
1999
(4) SA 968
(W) and
Thoroughbred Breeders' Association v Price
Waterhouse
2001 (4) SA 551
(SCA).
[4]
Plaintiff's Johannesburg
and Bloemfontein attorneys proceeded to draw their respective bills
of costs pertaining to the appeal and
in due course these were
presented for taxation.
[5]
Included in the items
claimed were
disbursements for
fees of senior counsel in the total sum of R495 396.00,
for
fees of junior counsel in the overall sum of R166 654.80
(both sums exclusive of VAT)
and
value-added tax ("VAT") on all fees, disbursements and
costs.
[6]
At taxation defendant
objected to the quantum of fees charged by both plaintiff's counsel
and to the inclusion of VAT on the fees
charged by plaintiff's
counsel and attorneys.
[7]
The Taxing Master reduced
senior counsel's fee by 20 per cent but rejected defendant's
objections in all other respects. Hence
this review.
[8]
In his case stated in
terms of Rule 17(3) the Taxing Master records that at the taxation
proceedings defendant's attorney handed in
a letter explaining its
objection to the inclusion of VAT in the costs claimed. The thrust
of this letter, which forms part of
the record on review, was that
VAT was only properly open to inclusion where payment of VAT amounted
to a "cost" incurred
and that it would accordingly be
required of plaintiff to provide satisfactory proof to the Taxing
Master that VAT paid by it amounted
to a true disbursement and had
not been asserted by plaintiff to the revenue authorities to be input
VAT. According to the Taxing
Master this letter captured the
essence of the objection raised by defendant on the VAT aspect, in
response to which plaintiff's
attorney had no submissions to make.
Without giving any reasons the Taxing Master proceeds to state that
he held that whether plaintiff
was a registered VAT vendor, and
whether it was entitled to an input VAT credit, were issues for
resolution between plaintiff and
the Receiver of Revenue, thereby
conveying that they were not for decision by him.
[9]
As
to counsel's fees, the Taxing Master goes on in his stated case to
say that because he considered the matter to be of an extraordinary
and exceptional nature, in relation to which fees normally allowed to
counsel in this Court would be inappropriate, he postponed
the
taxation proceedings in order for defendant to produce a statement of
the fees charged by its own counsel. Having been provided
with
these details, he allowed plaintiff's counsel what he did. This
decision, so he explains, was made after due regard to the
complexity
of the matter, the amount of work involved and the extraordinary
nature of the appeal, and then by using the fees charged
by
defendant's counsel "as a yardstick"
to
determine the fees to be allowed for
plaintiff's counsel. He
adds:
"I allowed senior counsel for the [plaintiff] a
comparable and all inclusive fee of R451 801.15 (after 20% of
fees charged
had been taxed off) and junior counsel a comparable and
all inclusive fee of R183 379.20 (as charged)."
(It is to
be noted that the fee amounts he refers to included VAT.)
[10]
After the parties filed
their contentions in terms of Rule 17(4) the Taxing Master framed a
report as required by Rule 17(5). On
the VAT point he says this:
"The taxing master has never enquired or been
concerned with the implications of Vat claimed in a bill of costs
...and has always
regarded it as a matter between the successful
litigant and the Receiver of Revenue."
[11]
Concerning counsel's
fees, the Taxing Master sets out in the report the considerations
which persuaded him that the case was outside
the ordinary and then
says he called for details of the fees of defendant's counsel because
"there is no precedent in this Court
for fees allowed for
counsel in extraordinary appeals". In arriving at his decision
on the quantum of the plaintiff's counsel's
fees, he says he compared
them with those charged by defendant's counsel and "found them
to be comparable". His reduction
of the fee charged by
plaintiff's senior counsel he explains as follows. He assumed that
the fees reflected in the relevant bill
were attorney and client
charges and because it is "generally the practice in this Court
to determine an attorney and client
fee by increasing a party and
party fee by 20 per cent", he simply reversed the process in
this instance in order to arrive
at a reasonable party and party
figure for senior counsel's fee. As for junior counsel's fees, it
is, he says, the practice in
this Court to allow two-thirds of senior
counsel's fees. In the present matter, because junior counsel had
charged less than two-thirds
his fees were allowed in full.
[12]
Relevant statistics
reflecting something of the extent of the case as it was on appeal
are these:
1. The record comprised 68 volumes
containing 6471 pages in all.
2. The trial judgment comprised 115
pages.
3. Defendant's heads of argument comprised 69 pages and those of
plaintiff 120 pages.
4. Argument lasted two full days.
5. The three judgments delivered in this Court total 217 pages.
[13]
It remains, in completing
the background survey, to indicate what the fees were that were
charged by defendant's counsel and their
involvement in the
litigation.
[14]
At the trial defendant
was represented by senior and junior counsel. They were again
briefed on appeal. In addition, a second
senior counsel was brought
in for the appeal, to whom, for convenience, I shall refer as
"leading senior counsel". We
were informed and accept,
that leading senior counsel was briefed especially to deal with
aspects of the case that were expected
to be of crucial importance to
the auditing profession. Essentially, these concerned controversies
such as whether and to what
extent an auditor must search for and
prevent fraud and theft.
[15]
We
were also informed that it is the almost invariable practice
throughout the country nowadays for legal practitioners to make their
charges time-related and, in so far as appeals are concerned, for
counsel to charge separately for preparation, heads of argument
and
time in Court. In addition - again according to the information
placed before us by counsel in argument - in marking a brief
counsel
will state the relevant fee and then add VAT separately. In line
with that approach, and also because VAT is dealt with
separately
from fees in Rule 17, it is appropriate to continue to refer to fees
exclusive of VAT, as indeed I have done
already
in paragraph [5] above.
[16]
The
total fee charged by defendant's leading senior counsel was
R432 000.00.
It was
based on a daily fee of R12 000.00 for every full day's work.
Apart from charging that fee for each of the days the
appeal involved
in court, counsel charged it for each of 33 days for preparation.
In addition, there were two instances of a part-day
fee, also in
respect of preparation. The second senior counsel who, as I have
indicated, appeared at the trial, charged a total
of
R219
600.00
. That sum comprised separate fees (also apparently
based on a time charge of
R12
000.00
per day) for studying the trial judgment and
consulting, for studying the record and preparing heads of argument,
for preparation
for the appeal and for the appeal itself.
Defendant's junior counsel charged
R146
400.00
, the details of which it is unnecessary, for present
purposes, to mention, save that he, too, charged separately for
heads, preparation
and the hearing.
It
is manifest from what the Taxing Master says and did that the real
"yardstick" he used was the fee charged
by
defendant's leading senior counsel
.
[17]
As at taxation, the
issues on review are the inclusion of VAT and the quantum of the fees
charged by plaintiff's counsel. Essentially
the focus is on
plaintiff's senior counsel's fee because if it is liable to reduction
then a reduction of the junior's fee (to the
extent appropriate in
the Taxing Master's judgment) is bound to follow.
[18]
As far as the VAT issue
is concerned Rule 17(2) provides:
"Value-added tax may be added to all costs, fees,
disbursements and tariffs in respect of which value-added tax is
chargeable".
Counsel for defendant in the review
ventured the submission that the word "may" in the sub-rule
conferred a discretion on
the Taxing Master. I do not think that
that can be so. Whether VAT is indeed chargeable depends on
application of the relevant
statutory provisions, properly construed,
to the facts. When the answer to that enquiry has been established
it is then that the
question arises whether such VAT may be included
in the bill. Certainly that offers a choice but only a choice for
the party whose
bill it is. Once that party decides to include the
VAT the Taxing Master has to decide whether such inclusion is proper.
That
is not a matter of discretion. A costs order - it is trite
to say - is intended to indemnify the winner (subject to the
limitations
of the party and party costs scale) to the extent that it
is out of pocket as a result of pursuing the litigation to a
successful
conclusion. It follows that what the winner has to show
- and the Taxing Master has to be satisfied about - is that the items
in
the bill are costs in the true sense, that is to say, expenses
which actually leave the winner out of pocket. The sub-rule
is consequently an empowering provision. It enables the party
concerned to claim reimbursement of the items referred to but obliges
the Taxing Master to allow or disallow them depending on whether they
are expenses of the nature I have described.
[19]
The question then is
whether the VAT included in plaintiff's bills would indeed be
expenditure of that nature.
[20]
VAT is payable by reason
of the provisions of the Value-Added Tax Act 89 of 1991, s 7(1)(a) of
which demands the levying and payment
of VAT at 14 per cent on the
value of the supply by any vendor of goods or services which it
supplies in the course or furtherance
of an enterprise it carries on.
It is not in dispute that plaintiff and all the legal practitioners
involved are registered vendors
in terms of the Act or that VAT is
payable on the fees in question. In terms of the definition section
of the Act, the VAT payable
under s 7(1)(a) on those fees is, in so
far as it is charged and received by the practitioners concerned,
their output tax. They
are obliged under s 7(2) to collect it and
pay it to the Receiver of Revenue.
[21]
The same VAT, in so far
as it is paid by plaintiff to its legal advisers, is, by definition
in the Act, plaintiff's input tax.
The significance of the
output-input classification is this. For each tax period (usually
one month) a vendor must calculate its
fiscal indebtedness and render
a return to the revenue authorities (s 16(1)). In terms of s 16(3)
it is obliged to pay the Receiver
of Revenue only the excess by
which, in each tax period, its output tax is greater than its
deductible input tax. It follows that
if the vendor's output tax in
that period is less than the input tax, or there is no output tax,
the vendor is entitled, if not to
a refund of input tax, then at
least to a credit in respect of the input excess. In short, any
payment of input tax will inevitably
be matched by a credit or
refund. Consequently, if plaintiff is entitled to claim from the
Revenue, as an input tax, the VAT which
it is required to pay to its
attorney, it does not, in respect of such input tax incur an out of
pocket expense.
[22]
For present purposes it
is unnecessary to concern oneself with the statutory requirements for
input tax deductibility. Neither
in response to the letter produced
at taxation, to which I have already referred, nor in argument in the
review was it ever suggested
on plaintiff's behalf that any of those
requirements could not be met in relation to the fees under
consideration. Accordingly,
as matters stand at present, the VAT
inclusions in plaintiff's bills cannot be characterised as items in
respect of which plaintiff
is out of pocket. They may eventually
prove to be. That is not for us to decide. It is sufficient to
say that it was clearly
wrong for the Taxing Master to hold that the
VAT issue was not for him to determine. It plainly was. It must
go back to him for
reconsideration subject to such proof and
arguments as the parties may wish to present. Nothing suggests that
his enquiry into
this issue will have to involve complications of
evidence or analysis. And should he be left in doubt such
uncertainty will be
to the disadvantage not of defendant but of
plaintiff. It is not without interest and significance that in
England VAT may be included
in a claim for costs but a specific
Practice Direction decrees that it must not be included if the party
entitled to costs is able
to recover VAT as input tax: see
Halsbury's Laws of England,
4th edition Reissue, vol 10, para
24.
[23]
There is then the matter
of the fees of plaintiff's counsel. In this regard counsel for
defendant invited us to undertake a comparison
of the salient
features of the present case with those of the appeal which came
before the Constitutional Court in
President of the Republic of
South Africa and Others v South African Ruby Football Union and
Others
[1999] ZACC 9
;
1999 (4) SA 147
(CC). Taxation of the successful party's
costs bill in that case was the subject of a review, in respect of
which the judgment
is reported as
President of the Republic of
South Africa and Others v Gauteng Lions Rugby Union and Another
2002
(2) SA 64
(CC).
[24]
In the view I take it is
unnecessary, and perhaps undesirable, to effect the solicited
comparison to the extent suggested. That
is because the matter
must, on this issue as well, be remitted for reconsideration. That
being so, it would be out of place to
express conclusions on features
that will need to be evaluated by the Taxing Master in assessing
afresh the
issues in contention and
the complexity and gravity of the case
. It is enough to say
that he will, no doubt, be assisted by much that is said by Kriegler
J in the last-cited judgment of the Constitutional
Court,
inter
alia
in laying down guidelines pertinent to costs taxations and
particularly where they bear upon appeals to this Court. He will
also
not overlook the basic consideration that the hearing of the
appeal in the Constitutional Court took five days and involved issues
of profound constitutional magnitude,
some
of
them novel.
[25]
I consider it reason
enough for interference with the Taxing Master's decision on this
issue that he erred fundamentally in using
the fee charged by
defendant's leading senior counsel as the appropriate measure by
which to determine the fee to allow plaintiff's
senior counsel.
Apart from the fact that the former was specially sought out in order
to deal with a subject of major concern to
auditors, he was not
involved in the trial and therefore had necessarily to spend a
considerable amount of time and effort in studying
the record and
preparing himself to deal with issues of fact and law with which his
opponent would, by then, already have been familiar.
It follows
that the respective situations of the parties' leading counsel were
manifestly not comparable and that the fee for plaintiff's
senior
counsel should be assessed according to the work which
he
did.
In this regard we were urged by counsel for plaintiff (who did not
appear in either the trial or the appeal) to substitute
our own
assessment of a reasonable fee for his client's erstwhile senior
counsel. There are two reasons for our not doing so.
The first is
that it would not avoid remittal. The case must be referred back on
the VAT issue in any event. Secondly, determination
of a reasonable
fee will, in the light of the arguments raised on behalf of the
defendant before us, involve having regard to fees
charged in major
cases in this Court over the last few years. Unquestionably the
Taxing Master is in a better position than we
are,
on
the material before us
, to undertake the necessary survey and
evaluation.
[26]
Counsel for plaintiff
also pressed upon us the submission that the Court should lend its
approval to the determination of fees on
taxation on a time-related
basis, given the prevailing tendency in the profession to charge on
that footing. In
JD van Niekerk en Genote Ing v Administrateur,
Transvaal
1994 (1) SA 595
(A) this Court disapproved of that
approach to fee assessment for taxation purposes and held that the
established practice was to
fix a globular
first
day
fee for heads, preparation and appearance. A departure
from what was said there - and even a re-appraisal of that practice -
would require evidence and argument far beyond that with which we
have been presented in this matter.
[27]
In the result the review
succeeds on the two points in issue. It was not in dispute that
such outcome should carry costs.
[28]
The order of this Court
is as follows:
1. The Taxing Master's
allocatur
is set aside and the matter
is remitted to him for taxation afresh in the light of this judgment
and in the light of such information
and arguments as the parties may
present on that occasion.
2. The respondent (plaintiff in the action and appellant on appeal)
is to pay the cost of the review application.
_________________
CT HOWIE
JUDGE OF APPEAL
CONCURRED
:
Hefer AP
Vivier ADP
Harms JA
Conradie JA