By Dylan Olivier / Candidate Attorney
The 2001 decision in Thoroughbred Breeders Association of South Africa v Price Waterhouse remains a cornerstone judgment for understanding the strict divide between contract and delict in South African law. The case raised the important question of whether a defendant who negligently performs a professional duty in terms of a contract can reduce their liability on the basis that the claimant also acted negligently. The Supreme Court of Appeal’s answer was a clear and definitive no, offering guidance that is still highly relevant for lawyers, professional services firms, and businesses today.
Background and Legal Issue
The Thoroughbred Breeders Association (TBA) employed a financial manager, Mitchell, who had a prior criminal record for theft. Despite this, TBA retained him, failed to maintain strict supervision, and allowed him to manage financial matters with minimal oversight. Over time, Mitchell embezzled significant funds through fraudulent practices such as teeming and lading.
Price Waterhouse, TBA’s external auditor, failed to identify the fraud in its annual audits. In particular, the audit team failed to investigate a stale promissory note and disregarded clear discrepancies in bank reconciliation records. When the fraud was finally discovered, TBA sued Price Waterhouse for breach of contract, arguing that the negligent audit allowed Mitchell’s conduct to go undetected. Price Waterhouse responded by invoking the Apportionment of Damages Act 34 of 1956, asserting that TBA’s own negligence in retaining and failing to supervise Mitchell should reduce the damages for which they were liable.
The Court’s Analysis
The Supreme Court of Appeal found that Price Waterhouse had indeed breached its contractual obligation to perform the audit with reasonable care and skill. The omissions amounted to professional negligence and directly caused TBA’s losses. Expert evidence confirmed that any auditor acting in accordance with accepted standards would have identified the fraud at a much earlier stage.
However, the Court rejected Price Waterhouse’s attempt to rely on the Apportionment of Damages Act. The Court emphasised that the Act was passed at a time when contributory negligence was only recognised in delict and not in contract. There was no indication in the Act’s wording or purpose that it was ever meant to apply to contractual claims. As such, even though TBA had been careless in managing Mitchell, that did not entitle Price Waterhouse to reduce its contractual liability.
The Court reiterated that in contract law, contributory negligence is not a defence unless the plaintiff’s conduct was the sole cause of the harm. Where both parties are at fault, but the defendant has breached a contractual obligation, the plaintiff’s damages may not be reduced under the Apportionment Act. As the judgment stated, the “comfort of the Act” was simply not available in such a case.
Outcome
The Court ordered Price Waterhouse to pay over R1.38 million in damages to TBA, plus interest and legal costs. The appeal succeeded, confirming TBA’s entitlement to full recovery under its contractual claim. Price Waterhouse was also awarded reimbursement for a specific fee in relation to their reports provided to TBA, but remained liable for the vast majority of the claim.
Implications for Legal and Commercial Practice
This case underscores the importance of correctly framing both the cause of action and defence thereto in pleadings. Where the claim is based in contract, even if the breach arose from negligence, the principles of delictual apportionment do not apply. Attempting by a defendant to rely on the Apportionment of Damages Act in a contractual dispute is misguided and will fail.
For businesses and professional service providers, the case is a clear reminder that failing to perform contractual duties with care exposes one to full liability, even where the client or counterparty has also made mistakes. Professionals such as auditors, lawyers, and consultants cannot escape liability by pointing to the negligence of the client if they themselves have failed in their core duties.
The judgment also makes a broader point about the limitations of legislation. The Court recognised the need for a legislative mechanism to address situations where both parties are partly at fault in a contractual context. However, it concluded that the 1956 Act was not designed to fulfil this role and cannot be stretched beyond its clear terms.
Conclusion
Thoroughbred Breeders Association v Price Waterhouse remains an important authority on the boundaries between contract and delict, particularly in cases involving professional negligence. It affirms that the law draws a clear line between these two areas and that statutory defences must be applied within their intended scope. For practitioners and clients alike, it is a strong reminder that contractual obligations must be taken seriously and that courts will not dilute liability through doctrines that have no place in contract law.
Photo by Gabrielle Henderson on Unsplash
