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[2015] ZASCA 22
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Road Accident Fund v Sweatman (162/2014) [2015] ZASCA 22; [2015] 2 All SA 679 (SCA); 2015 (6) SA 186 (SCA) (20 March 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 162/2014
In
the matter between:
THE
ROAD ACCIDENT
FUND
.........................................................................................
Appellant
and
ELIZABETH
JEMMA
SWEATMAN
............................................................................
Respondent
Neutral
Citation:
RAF v Sweatman
(162/2014)
[2015] ZASCA 22
(20 March 2015)
Coram:
Lewis, Maya and Zondi JJA and Dambuza
and Mayat AJJA
Heard:
10 March 2015
Delivered:
20 March 2015
Summary:
The effect of the amendment to
the
Road Accident Fund Act 56 of 1996
in 2008 in so far as the
limitation on the liability of the Road Accident Fund for loss of
income or support, suffered as a result
of a motor vehicle collision,
is concerned: correct approach is to determine the present value of
the actual loss suffered, as
actuarially calculated, taking into
account all contingencies, including mortality, and then compare it
with the annual loss (the
limit or cap) as determined on the date of
the accident.
ORDER
On
appeal from: Western Cape Division of the High Court, Cape Town
(Griesel J sitting as court of first instance)
The
appeal is dismissed with costs including those of two counsel.
JUDGMENT
Lewis
JA (Maya and Zondi JJA and Dambuza and Mayat AJJA concurring)
[1]
The sole issue to be determined in this appeal is the effect of the
amendment to the
Road Accident Fund Act 56 of 1996
in 2008 in so far
as the limitation on the liability of the Road Accident Fund for loss
of income or support, suffered as a result
of a motor vehicle
collision, is concerned. The Act was amended in 2005 (by Act 19 of
2005) but the relevant amendments came into
operation only on 1
August 2008. Before the amendment a plaintiff (either as the person
injured claiming for loss of income as
a result of injuries
sustained, or claiming damages for loss of support by a breadwinner
fatally injured in a collision) could
claim the full amount of
damages proved from the Fund.
[2]
Section 17, as amended, introduces various limitations on the Fund’s
liability. The one in issue in this matter is found
in subsec 17(4).
The relevant provisions are:
‘
17
Liability of Fund and agents
(1)
The Fund or an agent shall-
.
. . be obliged to compensate any person (the third party) for any
loss or damage which the third party has suffered as a result
of any
bodily injury to himself or herself or the death of or any bodily
injury to any other person, caused by or arising from
the driving of
a motor vehicle by any person at any place within the Republic, if
the injury or death is due to the negligence
or other wrongful act of
the driver . . . .
.
. .
(4)
Where a claim for compensation under subsection (1)-
.
. .
(b)
includes a claim for future loss of
income or support, the amount payable by the Fund or the agent shall
be paid by way of a lump
sum or in instalments as agreed upon;
(c)
includes a claim for loss of income or
support, the
annual loss
,
irrespective of the
actual loss
,
shall be proportionately calculated to an amount not exceeding-
i
[Rx] per year in the case of a claim for loss of income; and
ii
[Rx] per year, in respect of each deceased breadwinner, in the case
of a claim for loss of support.’ (My emphasis.)
[3]
In terms of subsec 17(4A)
(a)
the amounts referred to in
subsections 17(4)(
c
)i and ii are determined by notice in the
Government Gazette, and adjusted quarterly in order to counter the
effect of inflation.
Subsection 17(4)
(b)
provides that:
‘
In
respect of any claim for loss of income or support the amounts
adjusted in terms of paragraph
(a)
shall be the amounts set out in the last notice issued prior to the
date on which the cause of action arose.’
[4]
The respondent in this matter, Ms Elizabeth Sweatman, was severely
injured when she was run over by a car in Tokai Road, Cape
Town in
July 2010. She was 15 years old at the time. Her mother instituted
action in the Western Cape Division of the High Court
on her behalf
for damages against the Fund the following year. The amount claimed
was some R7 million. When she attained majority
Ms Sweatman was
substituted as the plaintiff.
[5]
The Fund and Ms Sweatman had agreed all aspects of the claim before
the trial commenced, save for one which they asked the court
to
determine: that was the interpretation of s 17(4)
(c)
,
read with 17(4A)
(b)
of the Act as amended. The parties led only the evidence of actuaries
on the meaning of ‘annual loss’ in s 17(4)
(c)
,
having agreed that the Fund was liable for 50 per cent of that
amount. Griesel J in the Western Cape Division accepted the
interpretation
and the method of determining the ‘cap’ on
damages advanced by the actuary, Mr Ian Morris, who supported Ms
Sweatman’s
claim. He ordered the Fund to pay Ms Sweatman R3 358
529. The appeal by the Fund against the order is with the trial
court’s
leave.
[6]
This issue has been determined in different ways by various courts,
and I shall deal with these decisions in due course. Mr
Morris, who
gave evidence for Ms Sweatman, explained the conventional method of
determining future losses when establishing a claim
for loss of
income or support. The matter is not without difficulty, especially
where one is dealing with an injury to a young
person or the death of
a young breadwinner. Nicholas JA put the problem as follows in
Southern Insurance Association Ltd v Bailey NO
1984 (1) SA 98
(A) at 113F-114A:
‘
Any
enquiry into damages for loss of earning capacity is of its nature
speculative, because it involves a prediction as to the future,
without the benefit of crystal balls, soothsayers, augurs or oracles.
All that the court can do is to make an estimate, which is
often a
very rough estimate, of the present value of the loss.
It
has open to it two possible approaches.
One
is for the Judge to make a round estimate of an amount which seems to
him to be fair and reasonable. That is entirely a matter
of
guesswork, a blind plunge into the unknown.
The
other is to try to make an assessment, by way of mathematical
calculations, on the basis of assumptions resting on the evidence.
The validity of this approach depends of course upon the soundness of
the assumptions, and these may vary from the strongly probable
to the
speculative.
It
is manifest that either approach involves guesswork to a greater or
lesser extent. But the Court cannot for this reason adopt
a
non
possumus
attitude and make no award. .
. .’
[7]
This court thus approved the use of actuarial calculations based on
whatever evidence is available. In this matter, following
the
approach of actuaries over decades, Mr Morris used the assessments of
industrial psychologists as to the career path likely
to have been
followed by Ms Sweatman, her probable remuneration, prospects of
promotion, working lifespan, retirement and other
factors that might
have affected her income stream over the years. He then calculated
the present estimated value of the future
income that she would have
earned, taking into account the net capitalization rate, which in
turn has regard to the expected investment
return. From the amount
calculated he made deductions on the basis of future inflation rates,
for taxation and likely changes in
the rates of taxation, and,
importantly, took into account accepted life tables reflecting
mortality rates.
[8]
The second step taken was to ascertain what difference the injury and
disability arising from the collision made to Ms Sweatman:
to
determine the estimated present value of her future income stream in
her injured and disabled state. Once that calculation had
been done
the two amounts were adjusted having regard to the contingencies of
life: any factor that would influence her life and
earning capacity –
the hazards of life. The amount calculated in respect of the income
stream in the injured state was then
deducted from the amount she
would have earned but for the injury, and that represented the
estimated present value of Ms Sweatman’s
loss. The limitation
introduced by the amendment was then compared with the actual loss:
if the actual loss was less than the annual
loss – the limit or
cap – then the Fund would be liable for the actual loss. If it
exceeded the limit then only the
amount which was gazetted before the
date of the accident (the annual loss) would be payable.
[9]
The steps taken before the application of the cap were, as Griesel J
pointed out, part of the conventional method of determining
the
estimated present value of the loss which the Fund, prior to 2008,
would have been liable to pay in full. The actuary who gave
evidence
for the Fund, Mr A J Munro, said that that was the method he too had
adopted until the Act was amended and effect had
to be given to the
limitation introduced by the amended s 17.
[10]
However, the amendment had made Mr Munro rethink the approach to
determining the actual loss, and he adopted a new approach
to
determining it, and applied the limitation – the cap – at
a different point. The difference in approach of the respective
actuaries – as to how to apply the cap – results in
different sums being determined. Mr Munro’s approach leads
to
substantially lower awards than does that of Mr Morris. In this
matter, on the Fund’s approach, Ms Sweatman’s award
would
be R2 million less (before the apportionment) than she would obtain
using the conventional method subject to the new limitation.
[11]
Mr Morris’s evidence was supported by Mr J Schwalb, an actuary
who also testified for Ms Sweatman. He too follows the
approach to
the calculation of actual loss, and the application of the limit on
that loss, advocated by Mr Morris.
[12]
The Morris method, preferred by Griesel J, starts from the text of
s 17(4)
(c)
.
That provides that the annual loss must be compared with the actual
loss (the estimated value of the loss), and the lesser sum
awarded.
The annual loss is that determined by notice in the
Government
Gazette
. And the quantum of the annual
loss, provides s 17(4A)
(b)
,
is that ‘set out in the last notice issued prior to the date on
which the cause of action arose’ – that is,
the date of
the accident. Accordingly, following the Morris method, if in each
year after the accident the actual loss exceeds
the annual loss
determined at the date of the accident, the Fund is liable to pay
only the lesser amount – the annual loss.
[13]
Mr Munro, on the other hand, proceeded from a different premiss. He
considered that in order to determine the estimated value
of the
loss, when calculating the injury-free career path and future income,
and the income stream with the injury and disability,
he had to take
into account all contingencies other than mortality. After the annual
loss (the cap amount) for each ensuing year
was established (working
on estimated inflated amounts), mortality rates would be applied.
This would result in substantially lesser
amounts being awarded to
claimants. The approach advocated by him required working on an
inflated cap for the projected years of
the claimant’s life.
Furthermore, Mr Munro considered that mortality rates are different
from other contingencies, and ought
not to be taken into account
before establishing the actual loss. He also took the view that the
actual loss should be discounted
only after the annual loss had been
established, thus introducing a further allowance for general
contingencies.
[14]
The rationale for this approach was that it was fairer: it brought
about gender equality (mortality rates for women and men
are
different, women in general having longer life spans). And it also
did not prejudice the very old or the very young accident
victim.
Thus the child and the adult approaching retirement would not be
treated differently. But as pointed out by counsel for
Ms Sweatman,
the entire process of determining future loss is dependent on gender
differentiation: women have longer life expectancies,
and in general
have higher claims for future loss of earnings than men do. The
argument that the Morris method discriminates on
the basis of age is
equally artificial. There is inevitably a difference in the periods
where income is lost when dealing with
very young or older people.
The periods of the loss must be different.
[15]
Mr Munro introduces into the calculation of loss the notion of a ‘cap
year’: that there is a different limit on
the Fund’s
liability for each year in respect of which predictions are made. But
nowhere does the Act suggest that the amount
in the last notice
published before the date of the accident must be adjusted each year
to take into account the ravages of inflation.
The quarterly
adjustments will take care of problems with inflation for future
claimants, but the limit for a particular claimant’s
loss is
set at the date of the accident. A reading of s 17, even having
regard to its purpose, does not lend itself to the interpretation
that there is a different cap for each year after the accident.
[16]
And, as Sutherland J said in
Sil & others v Road Accident Fund
2013 (3) SA 402
(GSJ) paras 13 to 15, the purpose of the cap is to
limit the sum to be paid. It is not intended to interfere in the
calculation
of the loss. He said: ‘The artificially set maxima
exist to resolve the challenges to the [Fund] in funding demands made
on it, not to prescribe a new methodology of calculating loss . . .
.’ He too found that contingencies had to be taken into
account
in determining the actual loss. He said (para 13):
‘
In
projecting a future actual loss, the exercise contemplates the
chances of not achieving the projected rate of earnings by factoring
in predictable risks. Those risks are expressed as the given
contingencies. There is no other place in the calculation process
where, sensibly, the contingencies could be usefully intruded into a
calculation of loss, that is to say the net loss or, more
appropriately, the ‘actual loss’.
[17]
Sutherland J referred in this regard to
Law
Society of South Africa & others v Minister for Transport &
another
2011 (1) SA 400
(CC) para 86.
There the constitutionality of the limitations on liability
introduced by s 17 was raised. Moseneke DCJ, in
finding that
the reduction of compensation payable for loss of income or support
did not amount to an arbitrary deprivation of
property, said that the
amendment ‘properly advances the governmental purpose to make
the Fund financially viable and sustainable
and to render the
compensation regime more transparent, predictable and equitable’.
[18]
Mr Munro also did not explain satisfactorily why he treated mortality
differently from all other contigencies, taking it into
account only
after the annual loss had been determined. As counsel for Ms Sweatman
argued, there should be no distinction between
the general hazards of
life, and mortality. All have an impact on the income that a
plaintiff would earn in an uninjured and injured
state. The only real
difference between mortality and other contingencies is that there is
more evidence available in statistical
form to show mortality rates.
[19]
The court below in this matter considered that
Sil
was correct. In the same division, however, in
Jonosky
v Road Accident Fund
2013 (5) SA 356
(GSJ), the court accepted that the cap had to be inflated for each
year of the calculation. The court did not, however, explain
how this
interpretation was justified by the plain words in s 17. It also did
not deal with an earlier decision (
Nhambe
v Road Accident Fund
, unreported case
70721/2009, North Gauteng High Court) in the division, which adopted
much the same approach that
Sil
did: the cap was set at the date of the accident. The decision of the
court below in this matter has been followed in a subsequent
matter
in the Eastern Cape Division:
Bonesse v
Road Accident Fund
2014 JDR 0303
(ECP)).
[20]
In my view, there is no cogent reason to depart from the
conventional, tried and tested actuarial approach that this and other
courts have accepted over decades. The Fund argued that that method
was not set in stone. That is true. But since it proceeds from
a
logical basis and there is no apparent reason to change it, this
court will not suggest any departure from it. Thus the trial
court
was correct in finding that Mr Morris’s calculation of Ms
Sweatman’s loss, as capped, should be the basis of
the award.
To the extent that
Jonosky
takes a different stance, it is incorrect.
[21]
The appeal is dismissed with costs including those of two counsel.
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellant: M H van Heerden SC (with him D Pillay)
Instructed
by: Nongogo Nuku Inc, Cape Town
E G Cooper Majiedt
Inc, Bloemfontein
For
Respondent: K Engers SC (with him D Melunsky)
Instructed
by: Lowe and Petersen, Cape Town
Honey Attorneys,
Bloemfontein