Price Waterhouse Meyernel v The Thoroughbred Breeders' Association of South Africa

The applicant (Price Waterhouse Meyernel) was defendant in an action where it was sued by respondent (Thoroughbred Breeders' Association) for damages arising from breach of contract in conducting a negligent audit that failed to detect employee thefts. The trial court found the audit negligent but applied the Apportionment of Damages Act to reduce damages due to plaintiff's contributory negligence. Both parties appealed. The Supreme Court of Appeal upheld fault findings but by 4-1 majority held the Apportionment Act inapplicable to contractual claims, awarding plaintiff full damages of R1,389,801.90 plus costs including two counsel. At taxation of the appeal costs, defendant objected to: (1) inclusion of VAT on all fees and disbursements; and (2) quantum of counsel's fees (senior counsel R495,396 and junior R166,654.80, both excluding VAT). The Taxing Master reduced senior counsel's fee by 20% but otherwise rejected objections. This led to a review under Rule 17.

• Whether VAT is properly includable in a taxed bill of costs where the successful party is a registered VAT vendor entitled to claim input tax credits
• Whether the Taxing Master erred in using the unsuccessful party's counsel fees as a yardstick for determining the successful party's counsel fees
• The proper approach to determining reasonable counsel fees in extraordinary appeals
• Whether time-based fee charging by counsel should be approved for taxation purposes

The review succeeded on both points. The Taxing Master's allocatur was set aside and the matter remitted for taxation afresh in light of the judgment. The respondent (plaintiff/successful party in the appeal) was ordered to pay the costs of the review application.

VAT may only be included in taxed costs where it constitutes an actual out-of-pocket expense to the successful party. Where a party is a registered VAT vendor entitled to offset VAT paid (input tax) against VAT collected (output tax) under the Value-Added Tax Act, the VAT does not constitute an out-of-pocket expense unless the party proves it cannot be recovered. The Taxing Master has a duty to determine this issue on taxation; it is not a matter solely between the taxpayer and revenue authorities. In assessing counsel's fees on taxation, the appropriate measure is the work actually done by that counsel, not fees charged by opposing counsel where their circumstances and involvement in the litigation differ materially. The fundamental purpose of party-and-party costs is indemnification for actual expenses incurred, limited by the party-and-party scale.

The Court noted that in England, VAT may be included in costs claims but a Practice Direction specifically provides it must not be included if the party can recover VAT as input tax, citing Halsbury's Laws of England 4th ed Reissue vol 10 para 24. The Court referenced President of RSA v Gauteng Lions Rugby Union 2002 (2) SA 64 (CC) as containing helpful guidelines for costs taxation particularly in appeals to the SCA, noting that case involved a 5-day Constitutional Court hearing on profound constitutional issues. The Court declined to depart from or re-appraise the practice disapproving time-based fee assessment established in JD van Niekerk v Administrateur, Transvaal 1994 (1) SA 595 (A), stating such departure would require evidence and argument beyond what was presented. The Court noted the prevailing tendency in the legal profession to charge fees on a time-related basis but did not endorse this for taxation purposes.

This case establishes important principles for taxation of costs in South African law: (1) VAT is only recoverable as a cost if it represents a true out-of-pocket expense to the successful party - registered VAT vendors who can claim input tax credits cannot recover VAT in taxed costs without proof they cannot recover it from SARS; (2) counsel fees must be assessed on the actual work done by that counsel, not by comparison with opponent's counsel fees where circumstances differ materially; (3) it reinforces that the purpose of party-and-party costs is indemnification only for actual expenses incurred; (4) it clarifies the Taxing Master's duty to investigate whether claimed items are true costs rather than treating certain issues as matters for other authorities. The judgment provides guidance on the proper approach to taxation in complex Supreme Court of Appeal matters.