Price Waterhouse Coopers Inc v National Potato Co-operative Ltd

The National Potato Co-operative (respondent) instituted an action against Price Waterhouse Coopers (appellants), a firm of auditors, claiming damages exceeding R353 million for breach of contract. The claim alleged that Price Waterhouse failed to properly conduct audits between 1983-1998 and did not detect irregularities. Due to financial constraints, the Co-operative initially sold its claim to Farmers Indemnity Fund (FIF) (a company whose shares were held by Co-operative members and a financier) in exchange for 50% of proceeds and funding contribution of R1.5 million. After legal advice that this was champertous, the sale was cancelled and replaced with a 'financial assistance agreement' whereby FIF would fund the litigation in return for 45% of proceeds. Price Waterhouse defended the claim on grounds that the funding arrangements were champertous, contrary to public policy, and void, and that the Co-operative had no locus standi or entitlement to prosecute the claim.

• Whether an agreement whereby a third party provides litigation funding to a litigant in return for a share of the proceeds (champerty) is contrary to public policy and void
• Whether the alleged illegality of such a funding agreement constitutes a defence to the substantive claim
• Whether litigation funded by such an arrangement constitutes an abuse of process
• The relationship between public policy considerations and the constitutional right of access to courts under section 34 of the Constitution

The appeal was dismissed. The respondent was ordered to pay costs relating to 7 volumes of unnecessary additional record materials. The appellants were ordered to pay the remaining costs of the appeal including costs for two counsel. A special costs order was made that Mr Buitendag (the respondent's attorney) was not entitled to receive a fee for perusing the record from either party.

An agreement in terms of which a person provides a litigant with funds to prosecute litigation in return for a share of the proceeds of the action is not contrary to public policy or void. The civil justice system in South Africa, with its independent judiciary, procedural safeguards, ethical legal profession, and cost consequences, is sufficiently robust to withstand the potential abuses historically associated with champerty. Public policy, now rooted in constitutional values including the right of access to courts (section 34), favors enabling litigants to pursue legitimate claims even through third-party funding arrangements. The illegality of a funding agreement between a litigant and a third party (even if it were illegal) cannot constitute a defence to the substantive claim, as it is extraneous to the dispute between the plaintiff and defendant. However, courts retain inherent jurisdiction to prevent abuse of process in exceptional circumstances, notwithstanding the constitutional right of access to courts.

The court made extensive obiter observations on the historical development of champerty doctrine from Roman law through Roman-Dutch law to English law, and traced legislative developments including the UK Criminal Law Act 1967 and Courts and Legal Services Act 1990. The court commented on the work of law reform commissions in both the UK and South Africa that led to legitimization of contingency fee arrangements. The court emphasized the fundamental importance of the section 34 constitutional right of access to courts, citing with approval several Constitutional Court pronouncements on this right as being of cardinal importance, a foundation for stability in an orderly society, a bulwark against vigilantism, and fundamental to a democratic society that cherishes the rule of law. The court also discussed the constitutional values underlying freedom of contract (dignity, equality, and freedom) and the need for courts to exercise restraint in striking down contracts. The court provided guidance on what constitutes abuse of process, noting it has not been comprehensively defined but includes frivolous or vexatious litigation and using court machinery for ulterior purposes or to achieve improper ends.

This is a landmark judgment in South African law that fundamentally changed the legal position on champerty and litigation funding. The decision represents a major shift from the historical common law position that champertous agreements are contrary to public policy and void. The judgment harmonizes the law with constitutional values, particularly the right of access to justice under section 34 of the Constitution, and recognizes that modern litigation funding arrangements can facilitate access to courts for litigants who would otherwise be unable to vindicate their rights. The decision is significant for recognizing that public policy is now rooted in constitutional values rather than outdated common law concerns, and that the strength of the modern civil justice system (independent judiciary, procedural safeguards, professional ethics) provides adequate protection against historical abuses associated with champerty. The judgment has important implications for the development of litigation funding arrangements in South Africa and balances access to justice concerns with the court's inherent power to prevent abuse of process.