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[2011] ZASCA 240
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Road Accident Fund v Lechner (711/10) [2011] ZASCA 240 (1 December 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case
No: 711/10
In
the matter between:
THE
ROAD ACCIDENT FUND
….....................................................................
Appellant
and
MAGDALENA
LECHNER
…........................................................................
Respondent
Neutral
citation:
Road Accident Fund v Lechner
(711/2010)
[2011]
ZASCA 240
(1 December 2011).
Coram:
Cloete, Cachalia and Leach JJA
Heard:
21 November 2011
Delivered:
1 December 2011
Summary:
German citizen injured
in motor vehicle accident in South Africa – Reimbursed for
medical expenses by statutory insurer in
Germany – Benefits
received as
quid pro quo
for contributions – Benefits to
be treated as non-deductible collateral benefits by Road Accident
Fund.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
Western Cape
High Court, Cape Town (Klopper AJ sitting as court of first
instance):
The appeal is dismissed with costs.
________________________________________________________________
JUDGMENT
________________________________________________________________
CACHALIA JA (Cloete and Leach JJA
concurring):
[1] This appeal concerns the
deductibility of collateral benefits from an award of delictual
damages.
[2] Magadalena Lechner, the
respondent, a German citizen and resident claimed an amount of more
than R40 million from the Road Accident
Fund (the Fund), the
appellant, in the Western Cape High Court (Klopper AJ) arising from
injuries she sustained in a motor vehicle
accident in 1992, while
visiting South Africa. She was awarded a substantial amount as
damages of which approximately R4 million
was for medical and related
expenses that her statutory health insurance provider in Germany had
paid to her service providers
on her behalf. Her insurer is known in
Germany as the Kaufmännische Krankenkasse Hannover, which
Ms Lechner has been
a member of since 1963. Its associated
long-term nursing care insurance body is the Pflegekasse bei der KKH.
It would be convenient
to refer to them both as the KKH.
[3] The Fund contended in the high
court, as it does before us, that the amount for medical expenses was
a social security benefit
and should be excluded from Ms Lechner’s
total claim. This was essentially because the KKH, which settled Ms
Lechner’s
medical costs, is an integral part of the German
social security system that functions in terms of the Social Code
(Sozialgesetzbuch
or SGB). The high court, however, accepted the
submission made on behalf of Ms Lechner that the nature of the
benefits paid by
the KKH was a form of indemnity insurance, which was
not deductible from her claim. The Fund appeals against this finding
with
leave of the high court.
[4] Ms Lechner initiated these
proceedings after concluding an agreement with the KKH in 1997 in
terms of which she agreed repay
to it the cost of her medical
expenses in the event of her being successful in recouping this
amount from the Fund. The evidence
established that this obligation
was imposed by legislation, ie by s 116(7) of Book X of the SGB. In
the court below the Fund submitted
that the agreement was invalid
because it contravened both German and South African law. That
contention was not persisted with
in this court and nothing further
need be said about it.
[5] As the dispute turns primarily on
the characterisation of the benefit that the KKH paid on Ms Lechner’s
behalf, it is
here that I must begin. In this regard the high court
was entirely dependent on the expert evidence of two witnesses: Ms
Claudia
Petri-Kramer, for Ms Lechner, and Mr Michael Kleinekorte, for
the Fund. Ms Petri-Kramer testified in German through an
interpreter.
Mr Kleinekorte testified in English but struggled to do
so because English is not his first language. Their evidence is not
always
easy to follow. In addition the parties relied on various
documents.
[6] The evidence establishes that the
KKH, like other statutory medical insurers, is a self-governing body
recognised under German
law and predates the SGB. It functions
independently of government but is subject to its oversight. It has
its own constitution
and governing board. Importantly, it is
self-funded from the contributions of its members, and until the end
of 2008 determined
its members’ contributions. It is, however,
an integral part of the SGB, which covers four areas of insurance,
namely health,
labour related accident and sickness, unemployment and
pensions. There are between 180 and 190 medical insurers in the
country.
[7] In her evidence Ms Petri-Kramer
explained that medical insurance in Germany is either private or
statutory. Private health insurance
is available only to those whose
financial means gives them the freedom to contract. They are
described as ‘versicherungsfrei’,
and in 1992, at the
time of Ms Lechner’s accident, such persons had the choice of
statutory or private medical insurance
– or, until 1996, none
at all. Private insurance, with which we are familiar in this
country, is based on the relationship
between premiums and insured
risk. However, those who are ‘versicherungspflichtig’ are
obliged by law to have statutory
medical insurance. They are wage and
salary earners with incomes below a certain threshold level.
[8] This was Ms Lechner’s
position until 1988, when her salary reached this level. She then had
a choice whether or not to
remain a member of the KKH, which is one
of the recognised medical insurance bodies in the SGB, and thus
enjoyed the same benefits
as she had earlier. By law these benefits
may only be funded from the contributions of members (based on their
income) and their
employers. The extent of the benefit, however,
bears no relationship to the risk insured. Family members of the
insured also enjoy
these benefits, but no contributions are levied
from them. This is aptly described in the SGB as ‘solidarity
financing’
and covers 20 million non-contributing members.
Where the existing contributions are insufficient to meet the funding
needs, additional
contributions are levied, and in addition, the
state may provide a subsidy. It would appear that statutory medical
insurers compete
with each other for business and until 1998, had
different rates of contribution and even benefits. Since 1999 the
rates of contribution
are regulated, but competition between the
statutory insurers continues. The system covers 87 per cent of the
population.
[9] To return to Ms Lechner’s
position: As I have mentioned, in 1988, after her salary had reached
the threshold, she elected
to remain a voluntary member of the KKH,
and continued to pay her contributions. For the first six weeks after
the accident until
15 February 1993, she was on sick pay and no
contributions were payable to the KKH. For the next 72 weeks until
June 2004, whilst
she received unemployment pay, she became a
compulsory member and the state paid her contributions. (She was
entitled to have those
contributions paid because she had paid
unemployment insurance.) From June 1994 until 19 March 1995 when she
was declared permanently
disabled, she again became a voluntary
member of the KKH and paid contributions. After 19 March 1995 and
until the law was amended
on 1 April 2002, she remained a voluntary
member and had to pay contributions although these were to an extent
subsidised by an
extra payment from her pension provider. But the
important point is that as the law then stood she had an option not
to remain
a voluntary member of the KKH, yet she elected to do so.
[10] So, it is beyond dispute that the
benefits Ms Lechner received from the KKH were in return for
contributions made by her or
on her behalf to the KKH. At the time of
her accident in 1992, according to the evidence, had she not paid her
contributions her
benefits would have ceased. The position after
certain statutory changes were introduced in 1 April 1997 is
that benefits
were suspended if the contributions ceased. In either
case the benefits were received as a
quid
pro quo
for the
contributions to the KKH. None of the benefits she received fell into
the category of so-called ‘versicherungsfremde
leistungen’
(non-insurance benefits) funded by a state subsidy from general tax
revenue.
[11] Mr Duminy, who appeared for Ms
Lechner, submitted that entitlement to benefits is not a function of
state largesse, but is
dependent upon members’ contributions,
without which the benefit ceases. The benefits are therefore a
quid
pro quo
for Ms Lechner’s
contributions and are
res
inter alios acta
as far as
the Fund is concerned.
Mr
Potgieter for the Fund, on the other hand, placed his emphasis on the
absence of any correlation between contribution and risk,
which is
the central feature of private health care insurance. The
contributions do not buy benefits, but secure membership the
benefits
of which accrue to all members – whether paying or non-paying,
compulsory or voluntary – on the basis of need
and not the
extent of the contribution. The benefits are therefore more akin to
social security benefits, which are generally deductible.
As I have
mentioned, the high court upheld Mr Duminy’s and not Mr
Potgieter’s submission.
[12] The approach to the deductibility
of benefits has been restated on several occasions in this court and
can now be considered
settled. Benefits resulting from the damage
causing event are generally deducted. Collateral benefits such as
those deriving from
private insurance contracts or the benevolence of
third parties are not. There is no clear jurisprudential basis for
deciding what
benefits are collateral; the inquiry mainly involves
considerations of public policy and equity. In this regard a court
will weigh
two conflicting considerations: the plaintiff should not
receive double compensation and the wrongdoer or his insurer should
not
be able to avoid the full extent of his liability. What a court
considers just and equitable will inevitably depend on the
circumstances
of each case.
1
[13] In England benefits from social
security schemes are clearly an exception to the general rule that
collateral benefits are
to be deducted. Thus in
McGregor
on Damages
2
it is stated that in relation to
medical and allied expenses ‘collateral benefits throughout do
not operate so as to reduce
the damages, with one clear exception of
social security benefits both monetary and non-monetary’. The
policy consideration
underlying this approach is to avoid double
compensation, as was explained in the well-known English case
Hodgson
v Trapp
.
3
There, the court had to consider
whether a deduction had to be made for certain ‘attendance and
mobility allowances’
payable under the Social Security Act 35
of 1975, from the damages awarded to the plaintiff for personal
injuries sustained in
a motor vehicle accident. In deciding that the
allowances were to be deducted, Lord Bridge elucidated his decision
thus:
4
'In
the end the issue in these cases is not so much one of statutory
construction as of public policy. If we have regard to the
realities,
awards of damages for personal injuries are met from the insurance
premiums payable by motorists, employers, occupiers
of property,
professional men and others. Statutory benefits payable to those in
need by reason of impecuniosity or disability
are met by the taxpayer
. . . There could hardly be a clearer case than that of the
attendance allowance payable under s 35 of
the 1975 Act where the
statutory benefit and the special damages claimed for cost of care
are designed to meet the identical expenses.
To allow double recovery
in such a case at the expense of both taxpayers and insurers seems to
me to be incapable of justification
on any rational ground.'
[14] Although a similar case to
Hodgson
has
not arisen in South Africa, this court in
Bane
v D’Ambrosini
5
appears to have accepted, at least
implicitly, that benefits from social insurance or national health
schemes similar to those in
a ‘European context’ would be
deductible in this country. This follows from the fact that Hurt AJA
distinguished such
schemes from privately run medical schemes
regulated by the
Medical Schemes Act 131 of 1998
in this country.
6
In two cases, South African courts had
to consider the deductibility of ‘social-security benefits’
received in foreign
countries.
[15] The first was
Zysset
v Santam Ltd
7
where the Cape Provincial Division had
to consider whether Swiss citizens, who had been injured in a motor
vehicle accident in South
Africa, had to deduct financial benefits
received from two Swiss social insurance schemes for their injuries.
In terms of the schemes
premiums were paid and benefits received. The
benefits, like those in the present case, were unrelated to the
premiums. The schemes
in issue were compulsory: the first covered all
persons. Failure to pay premiums did not disentitle anyone to
benefits under the
scheme. The second scheme covered only persons in
employment. Premiums paid by them were calculated as a percentage of
the employee’s
salary. The two schemes had the object of
covering the entire population.
8
The plaintiffs had sued the defendant
as insurer for damages under the Compulsory Motor Vehicle Insurance
Act 56 of 1972 after agreeing
with the bodies administering the
schemes that in the event of them being paid in full, they would
reimburse the schemes for the
compensation paid to them – much
like the German legislative requirement which gave rise to the
agreement in the instant
case.
[16] The court said that just as the
source of the funds of compulsory motor insurance scheme is, through
a fuel levy, the motor-vehicle-using-public,
the Swiss schemes are
similarly dependent upon the greater section of the public for funds
from which claims have to be made. Then,
following the approach in
Hodgson
,
the learned judge said that in the
‘absence of any rational ground, moral or otherwise’ for
permitting the plaintiffs
to be doubly compensated the benefits from
the schemes would fall to be deducted from the total claim. More so
because the source
of the funds from which payments are made to
victims of motor vehicle accidents both in South Africa and in
Switzerland is the
general public.
9
However, because the plaintiffs were
required to repay the Swiss schemes, there would have been no double
compensation. The benefits
were accordingly held not to be
deductible.
10
[17] The second case,
Road
Accident Fund v Cloete NO
,
11
concerned the Belgian
state-administered social insurance scheme, which also had compulsory
components. Cleaver J found that
Zysset
had been wrongly decided on
whether a deductible benefit could be made non-deductible by reason
of an undertaking to repay the social
insurer. In the learned judge’s
view, ‘an undertaking to repay should not be elevated to an
exception to the general
rule that payments received from Belgian
schemes should be deducted from the damages award in this country’.
12
[18] In my view the benefits in issue
in this case differ from those in
Zysset
and
Cloete
NO
, fundamentally because
both those schemes were compulsory state-administered schemes. The
scheme in this case, though part of the
SGB, operates independently
from the state. Counsel for the Fund nevertheless pressed the point
that because contributions to the
KKH are levied on both employed and
self-employed members under the SGB, they are akin to special or
additional levies on the taxable
income of the working population and
on the payroll of employers affiliated to this system. As such, it
was contended, they cannot
be compared to premiums on a private
insurance policy as they bear no relationship to the risk insured.
Accordingly, so it was
contended, the benefits ought to be deducted
from Ms Lechner’s total claim.
[19] I accept that the premiums paid
by Ms Lechner bore no direct relationship to the risk insured. In
this sense the scheme to
which she belonged differed from the usual
private medical schemes. But it is beyond dispute that she enjoyed
benefits as a voluntary
member at the time of her accident. The fact
that she later at times became a compulsory member after her
accident, which was forced
upon her because of the injuries she
sustained in the accident, cannot in my view change the situation.
Crucially, as I have mentioned,
she received her benefits in return
for her contributions. Had she ceased paying contributions, her
benefits would also have ceased,
or later been suspended. In my view
this is sufficient to render the benefits received from the KKH
res
inter alios acta
as far as
the Fund is concerned.
[20] Moreover, as Mr Potgieter
accepted on behalf of the Fund, there is no question of Ms Lechner
receiving double compensation
by virtue of the German legislation
referred to earlier. Instead he submitted that the ultimate question
in this matter is whether
the Ms Lechner’s expenses are to be
paid for by the South African or German taxpayer. He further
submitted that it would
be contrary to public policy for this
country’s taxpayers to reimburse the KKH for expenses incurred
in the execution of
its statutory mandate.
[21] In my view, Mr Potgieter
misstated the position. By virtue of the provisons of the SGB
referred to in para 4 above, Ms Lechner
is obliged to repay the KKH.
So she will not receive more than she was entitled to receive. The
South African taxpayers will pay
no more than they would have had to
pay because Ms Lechner is obliged by the German legislation to
repay the KKH – it
is not as though the Fund has to pay the KKH
as well as Ms Lechner. The KKH (not the German fiscus), which is out
of pocket, will
be reimbursed; and the KKH needs the reimbursement in
order to continue to fund claims by its members.
13
This outcome is, in my view, neither
unfair nor troublesome from a public policy perspective. The appeal
must therefore fail.
[22] The following order is made:
The appeal is dismissed with costs.
_________________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
For Appellant: T D Potgieter SC (with
him E van der Horst)
Instructed
by:
DLA
Cliffe Dekker Hofmeyer, Cape Town
E
G Cooper Majiedt, Bloemfontein
For Respondent: W R E Duminy SC (with
him J A van der Merwe)
Instructed
by:
Scheibert
& Associates, Cape Town
Lovius
Block Attorneys, Bloemfontein
1
Erasmus
Ferreira & Ackermann v Francis
2010 (2) SA 228
(SCA) paras
16 and 17;
Road
Accident Fund v Timis
(29/09) ZASCA 30
paras 6-9.
2
8
ed (2009) at 1429.
3
Hodgson
v Trapp
[1988] 3 All ER 870
(HL) at 874
a
.
4
Ibid
at 876
f-h
.
5
Bane
v D’Ambrosini
2010 (2) SA 539
(SCA).
6
Ibid
para 19.
7
Zysset
v Santam Ltd
1996 (1) SA 273
(C).
8
Ibid
p 279C-G.
9
Ibid
280E-J.
10
Ibid
281J-282B.
11
Unreported
CPD Case no 6576/2006 (4 February 2008).
12
Ibid
para 23. This court overruled
Cloete NO
in
Road Accident
Fund v Cloete NO
[2010] 2 All SA 161
(SCA), but not on this
question. It held that the question did not arise.
13
Cf
Erasmus Ferreira and Ackermann v Francis
2010 (2) SA 228
(SCA) para 18.