It appeared that despite having examined the appellants bank reconciliations

It appeared that despite having examined the

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action. It appeared that, despite having examined the appellant's bank reconciliations for I outstanding deposits, the audit clerk had failed to notice certain long-outstanding cash deposits or, if he had noticed them, failed to recognise their significance. (The sums involved ranged between R1 140 and R52 700 and had remained outstanding between two and six months.) The payee had discounted the promissory note (maturity date 8 February 1993) with a bank, J 2001 (4) SA p554 which had in turn discounted it with the appellant, which had paid R108 500 for it. It was entered as an asset A in the appellant's books (in particular, it was invested in appellant's so-called 'Futurity Programme', which had its own bank account and books), but the proceeds, although paid into the appellant's sales account, had been misapplied by being credited to the appellant's debtors' accounts. The result was that on 31 October 1993 (the end of the appellant's financial year) the note was no longer in the possession of the appellant and had thus ceased to be B an asset of the Futurity Programme, despite still being reflected as such in the Programme's books. It was common cause that the audit clerk had not verified the note even though it had still been listed as an asset after maturity. The appellant alleged that, had the clerk verified the note, she would have discovered that it no longer existed, which would have led to the detection of M's activities and the C prevention of his subsequent thefts. The respondent countered that the clerk's failure to verify the note and to demand an explanation from M if it was not produced did not amount to negligence on its part because the note was not a 'material item' (viz an audit risk demanding separate attention) and therefore did not call for separate verification, and because M would in any event have been able to satisfy the respondent that nothing was amiss. D The Court a quo held that the respondent had been negligent in not being sufficiently alert in conducting the 1993 audit, but that the real and dominant cause of the appellant's loss was its own negligence in having continued to employ M in a vulnerable area of its business despite its knowledge of his criminal record. The Court found, however, that, even though common-law principles dictated that the appellant's claim should fail in such circumstances, it was not E non-suited because its claim was partially rescued by the Apportionment of Damages Act. It was furthermore accepted that the appellant's damages flowed 'naturally and generally' from the respondent's breach and could thus be classified as 'general damages'. The Court held that the appellant was 80% to blame for its own loss and that its damages had to be reduced by that percentage. F On appeal to the Supreme Court of Appeal the first issue was whether the respondent had breached its auditing agreement with the respondent. The actual terms of the respondent's appointment were never formalised and the relationship between the
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