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[2012] ZASCA 86
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Raath v Nel (473/2011) [2012] ZASCA 86; 2012 (5) SA 273 (SCA); [2012] 4 All SA 26 (SCA) (31 May 2012)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 473/2011
Reportable
In the matter between:
DR R RAATH
…......................................................................................
APPELLANT
and
J J G NEL
…........................................................................................
RESPONDENT
Neutral citation:
Raath v Nel
(473/2011)
[2012] ZASCA 86
(31 May 2012)
Coram: FARLAM, PONNAN, MALAN, MAJIEDT JJA and KROON
AJA
Heard: 11 MAY 2012
Delivered: 31 MAY 2012
Summary: Damages – loss of income and earning
capacity – proof of actual patrimonial loss in personal
capacity –
trust sole shareholder in company suffering loss –
trust separate legal entity and not axiomatic that its loss is
necessarily
that of the plaintiff .
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
North Gauteng High Court,
Pretoria (Rabie J, sitting as court of first instance):
The appeal is upheld to the limited extent set out
below.
The respondent is ordered to pay the appellant’s
costs of appeal.
Paragraph 1 of the order of the court below is set
aside and substituted with the following:
‘
The defendant is ordered to
pay the amount of R1 187 934.44 to the plaintiff as well as interest
thereon at 15.5% per annum from
date of judgment to date of payment’.
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (FARLAM, PONNAN, MALAN JJA and KROON AJA
concurring):
[1] This is an appeal against an award of damages by
Rabie J, sitting as court of first instance in the North Gauteng High
Court,
Pretoria. The appeal is with his leave and is limited to the
following awards of damages: an amount of R42 366 for future medical
and hospital expenses; the sum of R1 642 774 for loss of income and
of earning capacity and an amount of R200 000 for general damages.
[2] The respondent, a businessman and game farmer of
Mokopane (formerly known as Potgietersrus), sued the appellant, an
anaesthetist,
for damages in respect of the sequelae of a failed
intubation prior to a back operation which the respondent was
scheduled to undergo.
As a result of the failed intubation the
respondent spent more than a month in the intensive care unit of the
Pretoria East hospital.
His recovery, both physically and mentally,
after his discharge from hospital, was slow and problematic. The
claim for damages
is for: (a) the loss allegedly suffered as a
consequence of the respondent’s inability, due to the failed
intubation and
its sequelae, to attend to the same extent as before
to the affairs of one of his companies, Koos Nel Auto (Pty) Ltd,
resulting
in the company making reduced profits for the period 1 May
2000 (when the failed intubation occurred) and March 2003 (when the
respondent had recovered sufficiently to attend fully to the business
again), (b) future medical and hospital expenses and (c) general
damages. The appellant accepted liability for such damages which the
respondent proved or as agreed ‘arising out of the
complications experienced by the [respondent] in the course of the
intubation of 1 May 2000’. Rabie J upheld the claim and
made
the awards set out above as well as an award of R300 000 for past
hospital and medical expenses, which is not appealed against.
[3] The respondent is by all accounts the quintessential
‘self made man’. He rose from humble beginnings to become
a
highly successful entrepreneur and businessman. He is a director of
several companies, one of them Koos Nel Auto (in which he was
the
sole shareholder), primarily engaged in the motor vehicle retail
sector. The business philosophy underlying his success is
to maintain
a hands-on approach in respect of all his businesses. It became
common cause at the trial that the respondent is a
dynamic,
hardworking businessman and the driving force behind his successful
business ventures. The springboard to the respondent’s
success
was his ability to acquire ailing businesses at very low prices,
turning them around into successful enterprises and then
selling them
off at prices which provided handsome profits to himself.
[4] There can hardly be any doubt that the failed
intubation and subsequent hospitalisation had a dramatic impact on
the respondent’s
life. He was bedridden at home for a
considerable period of time after his discharge from hospital and
suffered severely from bedsores
for over a year. He virtually had to
learn again how to walk unaided and he struggled to fend for himself.
He was heavily dependent
on others during the initial stage of
recuperation to assist him with elementary tasks such as eating,
ablutions and brushing his
teeth. The respondent’s travails
were not only physical, but psychological as well. He suffered from
depression which deepened
after his marriage failed, resulting in him
divorcing his first wife in mid 2002. During this time the respondent
fled to his remote
Bushveld farm where he lived as a recluse with
alcohol as his primary (and often, sole) solace. If anything, the
rampant alcohol
abuse aggravated the respondent’s depression so
that by the end of 2002 he had completely given up on life and not
only contemplated
but also attempted suicide. One such failed attempt
caused him to be admitted to a psychiatric clinic during December
2002. The
treatment there and the use of prescribed medication for
his depression stabilised the respondent’s mental condition and
put him on the road to recovery. It is plain from the evidence,
however, that the respondent’s gradual physical recovery was
not matched by a concomitant psychological recovery; on the contrary,
his psychological condition worsened.
[5] The respondent’s physical and psychological
impairment had the result of his severely neglecting his businesses,
particularly
that of Koos Nel Auto. Initially he was completely
absent but even when, later, he made occasional attendances there his
hands-on
approach was completely lacking and his short temper, raised
irritability, poor levels of concentration and poor interaction with
others, particularly customers, did more harm than good. In summary,
the respondent became a shell of the vibrant, dynamic, forceful
individual he had been before the failed intubation.
[6] The respondent’s business interests were
primarily centred around a property company, Noordex (Pty) Ltd, motor
vehicle
dealerships, Koos Nel Auto, and a game farm, Bivack Game
Lodge. For present purposes only the business of Koos Nel Auto
requires
mention. Two dealerships, EI Auto and Bonus Motors, were
conducted under this entity. The respondent was the sole shareholder
in
Koos Nel Auto until 1 April 2001 when he sold his shares and loan
account in that company and all his other business assets to the
Koos
Nel Trust. The respondent’s claim for loss of income is, as
stated, confined to losses allegedly suffered by Koos Nel
Auto, due
to the respondent’s absence. Extensive evidence was led on this
aspect and reliance was placed in particular on
the evidence of a
forensic auditor, Mr Regenass, who, with reference to Koos Nel Auto’s
financial statements for March 2001
to March 2003 (the relevant
period), sought to demonstrate the loss of profits of the business.
Causation
[7] Before turning to the substantive issue in this
appeal, it is necessary to dispose briefly of an argument raised by
counsel
for the appellant. He submitted that as a matter of legal
causation the appellant should not be held liable for the future
medical
expenses claimed. I fail, however, to understand the basis on
which these consequences should not be imputed to the appellant. They
are certainly not too remote. In my view the trial judge cannot be
faulted in his finding that the evidence overwhelmingly established
that although the respondent experienced emotional setbacks later
because of his failed marriage and due to his son’s death,
he
did not develop depression as a result thereof, but as a consequence
of the failed intubation. I am satisfied that the failed
intubation
is factually a cause of the respondent’s depression. In my view
sufficient evidence was led to establish that
the depression caused
the respondent to neglect the business of Koos Nel Auto, resulting in
losses to that entity.
Loss of income and earning capacity
[8] The thrust of the appellant’s case is that any
loss that may have been suffered was not suffered by the respondent
personally.
For estate planning and estate duty considerations, the
respondent sold all his assets, including his shares and loan account
in
Koos Nel Auto, on 1 April 2001 to the Koos Nel Trust. It was
contended with some force on behalf of the appellant in this court,
as at the trial, that any loss suffered by the respondent’s
businesses was not the respondent’s personal loss. The
argument
was that any loss that may have been suffered by Koos Nel Auto or by
the trust after its establishment on 1 April 2001
pertained, not to
the respondent, but to those entities. In this regard, the appellant
placed strong reliance on this court’s
decision in
Rudman
v Road Accident Fund
.
1
The court below distinguished
Rudman
on the facts.
[9] Rudman, a mohair and game farmer and professional
hunter, operated his business through a ‘family’ company.
It was
common cause that Rudman was the driving force behind the
company. Rudman restructured his affairs for estate planning and
income
tax reasons by establishing a family trust with himself, his
wife, attorney and accountant as trustees and his two sons as
beneficiaries.
Rudman was neither a capital nor an income beneficiary
of the trust. The trust held 3900 shares in the family company and
Rudman
the remaining 100 shares. Rudman sued for damages resulting
from injuries sustained in a motor vehicle collision. Two of the
heads
of damages were in respect of past loss of earnings and loss of
earning capacity on the basis that, due to Rudman’s incapacity,
the family company suffered loss and would continue to do so in
future. According to the claim such losses pertained to a reduction
in the income generated. This court upheld the trial court’s
central finding that any loss suffered was a loss of the company,
and
not of Rudman personally.
[10] In delivering judgment in
Rudman
Jones AJA stated:
2
‘
For
present purposes I am prepared to accept the proposition (without
pronouncing finally upon it) that in appropriate circumstances
a
farmer in Rudman’s position, who operates through a ‘family’
company, may be able to prove and quantify his
personal loss in a
delictual claim with reference to the loss of income suffered by the
company,
provided
that he does not fall into the trap of regarding the loss to the
company as automatically and necessarily equivalent to
his personal
loss…
[T]here
is no proof that this produces loss to Rudman.
There
is no evidence, for example, that the value of his shares in the
company is less, or even that he received less from the company
by
way of dividends or fees or drawings because of the company’s
reduced income, or that he will do so in the future
.’
(My emphasis.)
In this instance, the question is whether the loss
suffered by Koos Nel Auto prior to 1 April 2001 and by the trust
thereafter over
the relevant period can be characterised as the
respondent’s loss.
[11] As I have said, the respondent as sole shareholder
and director in Koos Nel Auto, sold all his shares and his loan
account
in it to the trust on 1 April 2001. The trust was established
on 19 January 2001 with the first trustees being the respondent, his
late (first) wife and his auditor. After the death of his first wife,
the respondent’s daughter was appointed as trustee
in her
stead. The trust was established on his auditor’s advice for
estate planning and estate duty tax purposes. As the
respondent
himself put it in evidence:
‘
Die
grootste rede was vir boedelbeplanning, want ek het begin ‘n
boedelbelasting probleem in die gesig staar. Die rede vir
die
oprigting van die trust sou dan wees dat die kapitaalgroei van my
bates in die trust vestig om sodoende eendag boedelbelasting
te
bekamp.’
The respondent is not a capital beneficiary of the trust
but he is, in the discretion of the trustees, a potential income
beneficiary
thereof.
[12] Clause 5 of the trust deed provides that there must
at all times be at least three trustees in office. The respondent has
the
right to remove a trustee and to appoint someone else in his or
her place. Decisions of the trustees are, in terms of clause 8.2,
taken by ordinary majority vote, save that a unanimous decision is
required for, inter alia, the distribution of income or capital.
The
trustees are clothed with the requisite powers to deal with the trust
assets according to what they, in their sole discretion,
deem
necessary to control the trust’s funds to the best advantage of
the beneficiaries.
3
A trustee may not dispose of any trust assets for his
benefit or that of his estate and a fiduciary duty is imposed on him
or her
in dealing with trust assets.
4
Lastly, clause 28 provides that decisions concerning the
trust must be taken at meetings, provided that a written resolution
signed
by all the trustees has the same force and effect as one taken
at a meeting.
[13] It is plain from the above that the trust is of the
type which has become very popular for estate planning and tax
purposes
(as was the case in
Rudman
).
It is undoubtedly a convenient and useful tax and estate planning
vehicle, but the caution sounded by this court in the past
is
apposite here. In
Nieuwoudt & another NNO
v Vrystaat Mielies (Edms) Bpk
,
5
Harms JA raised a concern about business trusts where a
trust is formed for estate planning purposes, or to escape the
constraints
of corporate law, and yet everything else remained as
before. A similar concern was raised in
Land
and Agricultural Bank of South Africa v Parker & others.
6
There, as is the case here, the dispute revolved around
a family trust. This court reaffirmed that a trust estate, comprising
of
an accumulation of assets and liabilities, is a separate entity,
albeit bereft of legal personality. It emphasized that the core
concept of a trust is the separation of ownership or control from
enjoyment, ie that even though ‘a trustee can also be a
beneficiary, the central notion is that the person entrusted with
control exercises it on behalf of and in the interests of another’.
7
And Cameron JA pointed out that:
‘
The
courts will themselves in appropriate cases ensure that the trust
form is not abused. The courts have the power and the duty
to evolve
the law of trusts by adapting the trust idea to the principles of our
law… This power may have to be invoked to
ensure that trusts
function in accordance with principles of business efficacy, sound
commercial accountability and the reasonable
expectations of
outsiders who deal with them.’
8
[14] Applied to the present matter, the separateness of
the trust estate must be recognised and emphasised, however
inconvenient
and adverse to the respondent it may be. What the
respondent seeks, in effect, is the advantage of both a reduction in
estate duty
(which is perfectly legitimate) but also the continued
retention of control and advantages of ownership of the trust assets.
The
respondent is by virtue of the common law and statute
9
compelled to keep the trust assets separate from that of
his own personal estate. He has an obligation in law to preserve the
trust
assets. He is not a capital beneficiary. He qualifies as a
potential income beneficiary by virtue of his relationship to the
children
of his late son, Jacques. But even then a unanimous
resolution of the trustees is required in terms of clause 13 to
allocate to
the respondent income from the trust.
[15] Counsel for the respondent contended that the loss
to the respondent’s personal estate consists of his loss of the
power
to dispose of an asset in his estate, namely the right to
dispose of money to either himself (as a potential income
beneficiary)
or to his grandchildren (as income beneficiaries). But
the rudimentary flaw in this argument is that such a power does not
form
part of the respondent’s patrimony. I know of no authority
to this effect, nor could counsel point us to any. The respondent’s
patrimony consists of the universitas of his rights and duties.
10
The power to dispose of a right or other asset is not
part of a person’s universitas. Much was made of the iniquity
and unreasonableness
of the conclusion that the trust, and not the
respondent personally, had suffered a loss. The answer is twofold,
first, nothing
prevented the trustees from suing in their
representative capacities for the damages suffered. And, secondly,
the respondent could
quite simply have accessed his loan account in
the trust if, as he lamented in evidence, the trust was meant to
provide for his
‘oudag’. He could have done so without
violating the legal principles pertaining to a trust outlined in the
preceding
paragraph, particularly in respect of the separateness of
the trust estate.
[16] The trial judge regarded as artificial the approach
that the loss to the trust is not in reality that of the respondent.
He
found that the business and the trust were in reality built up by
the respondent for his old age and for posterity and that he had
lawful control over the trust. The fact that no dividends had been
declared and paid out, held Rabie J, had no relevance when the
bigger
picture was considered. These findings are, for the reasons
enunciated above, legally untenable. They are symptomatic of
the very
misconception which Jones AJA warned against in
Rudman.
[17] No evidence was led concerning the respondent’s
personal loss in the nature of, for example, a reduction in drawings
or dividends or a reduced salary after 1 April 2001. The court below
therefore erred in distinguishing
Rudman
and in upholding the
claim for this particular period. I must add that we were forcefully
reminded by the respondent’s counsel
that
Rudman
has
been distinguished on several occasions by our courts. But that is
hardly surprising, nor does it prove any point. As Jones
AJA
correctly pointed out in
Rudman
, it is not axiomatic in these
circumstances that the company’s loss is the individual’s
personal loss, even if he is
the sole shareholder and/or the driving
force behind the company. Proof of the individual’s personal
loss is still required.
It is therefore not necessary to embark on an
excursus on the cases in which
Rudman
has been distinguished.
The appeal in respect of the claim for loss of earning capacity after
1 April 2001 (until March 2003) must
consequently be upheld.
[18] The claim for loss of income and earning capacity
prior to 1 April 2001 (ie from 1 May 2000 until 31 March 2001),
however,
stands on a different footing. Regenass’s brief was to
calculate only the losses sustained by Koos Nel Auto. At the trial
his results were shown in table form for each of the financial years,
starting with the year ending in March 2001 and concluding
with the
one ending in March 2003. He also produced a graph depicting the
loss. He used 2000 as base year for his calculation,
when the
company’s profit was R1 013 519. Taking into account the profit
in 2004, he established the average growth rate
to have been 20.848%
over the relevant period, a figure regarded as realistic when
compared with the figures for motor vehicle
sales as supplied by
Statistics South Africa. His calculations show the expected or
anticipated income as opposed to the actual
income, the difference
being the loss suffered for each year during the relevant period. For
the financial year ending at the end
of March 2001, the difference
between expected and actual income, ie the loss, was R645 568.44. I
am satisfied that this figure
can be accepted as realistic, since it
was computed in applying reliable figures and a growth rate consonant
with the prevailing
growth rate for the motor vehicle retail sector.
It also accords with the overall figures over the relevant period.
[19] It was contended on behalf of the appellant that
the respondent had to establish what the value of his shares and loan
account
was before the failed intubation and what they were worth
thereafter and that he would have sold them to the Koos Nel Trust on
1 April 2001 for the reduced value. The agreement in terms of which
the respondent sold his shares and loan account in Koos Nel
Auto was
concluded on 18 March 2002 but with its effective date being 1 April
2001. The price for both the shares and loan account
was R4 831 590
of which R300 represented the purchase price for the shares and the
balance of R4 831 290 the price for the loan
account. It follows
that, had no loss been suffered by Koos Nel Auto in 2001, the
respondent’s shares would have been worth
more. The trust did
not make actual payment of the purchase price as agreed, but instead
a loan account was created in the trust
in the respondent’s
favour. But for the failed intubation and his concomitant absence
from and neglect of Koos Nel Auto’s
business, the respondent’s
loan account in the trust would have been worth R645 568.44 more.
This is a loss suffered by the
respondent in his personal estate, ie
a reduction in his patrimony. In this respect therefore, unlike the
post 1 April 2001 period,
the respondent had succeeded in proving his
personal loss in the court below and the claim was correctly upheld
to this extent.
Future hospital and medical expenses
[20] The award in this respect is for the cost of the
respondent’s treatment in future for depression. Dr David
Shevel, a
psychiatrist, concluded that the respondent suffered from
post-operative depression and from ongoing cognitive deficits.
According
to him, the respondent will require anti-depressant
medication on a lifelong basis. He quantified the cost of future
hospital and
medical expenses at R42 366 which includes the cost of
medication, follow-up psychiatric consultations and which made
provision
for two relapses. I can find no fault with the award and
with the trial judge’s finding that Dr Shevel’s forecasts
and approach were rather conservative and that his evidence can be
accepted. A joint minute between Dr Shevel and the appellant’s
expert psychiatrist, Prof Vorster, largely confirmed Dr Shevel’s
own observations and conclusions. Prof Vorster did not testify,
but I
am in any event satisfied that Dr Shevel’s viewpoint is to be
preferred in those instances where they disagree. The
award for
future hospital and medical expenses must therefore be upheld.
General damages
[21] Rabie J awarded an amount of R200 000 for general
damages. If anything, this amount is somewhat on the conservative
side, bearing
in mind the catastrophic effect which the failed
intubation had on the respondent’s life. He had been a
successful, dynamic
businessman and an avid hunter and game farmer.
The devastating loss to his self-esteem and of his dignity and of the
amenities
of life as well as the pain and suffering he endured are
unquestionable. No cogent reasons were advanced justifying the lesser
amount of R150 000 proposed by the appellant and no interference on
appeal is warranted.
Costs
[22] The appellant has been substantially successful on
appeal in respect of the claim for loss of income and loss of earning
capacity
and he is consequently entitled to his costs on appeal. But
the respondent was compelled to litigate and he succeeded in proving
his damages. The costs order in the court below should therefore
remain unchanged.
Conclusion
[23] There is lastly an aspect which regrettably
requires mention. The trial was adjourned on 18 August 2009. Judgment
was reserved
but delivered only some 21 months later, on 17 May 2011.
No reasons for this lengthy delay appear from the judgment. Where
good
reasons exist for a delay of this duration, they should be set
out in the judgment. As matters stand, in the absence of any reasons
one can only deprecate the delay. Litigants are entitled to
expeditious adjudication, even more so in a case of this nature where
a man has been left devastated by an act of a professional person who
had admitted liability for damages proved or agreed.
11
[24] The following order is issued:
1 The appeal is upheld to the limited extent set out
below.
2 The respondent is ordered to pay the appellant’s
costs of appeal.
3 Paragraph 1 the order of the court below is set aside
and substituted with the following:
‘
The defendant is ordered to
pay the amount of R1 187 934.44 to the plaintiff as well as interest
thereon at 15.5% per annum from
date of judgment to date of payment’.
___________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for appellant : Adv. P P Delport SC
Instructed by : MacRobert Ingelyf, Pretoria
: Claude Reid Ingelyf, Bloemfontein
Counsel for respondent : J F Mullins SC & R van
Reyneveld
Instructed by : Herman Potgieter & Vennote, Pretoria
: Naudes Ingelyf, Bloemfontein
1
Rudman
v Road Accident Fund
2003 (2) SA 234
(SCA).
2
Para
13.
3
Clause
11.2.
4
Clause
16.7.
5
Nieuwoudt
& another NNO v Vrystaat Mielies (Edms) Bpk
2004
(3) SA 486
(SCA) paras 16 and 17.
6
Land
and Agricultural Bank of South Africa v Parker & others
2005 (2) SA 77 (SCA).
7
Para
19.
8
Para
37.
9
Section
12 of the Trust Property Control Act 57 of 1988.
10
Union
Government (Minister of Railways and Harbours) v Warneke
1911
AD 657
at 665.
11
See:
Exdev (Pty) Ltd & another v Pekudei
Investments (Pty) Ltd
2011 (2) SA 282
(SCA) para 25.