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[2013] ZAKZPHC 41
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Miles v Road Accident Fund (7410/2009) [2013] ZAKZPHC 41 (14 June 2013)
IN
THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG
(REPUBLIC
OF SOUTH AFRICA)
Case
No: 7410/2009
In
the matter between:
GUY
BRIAN MILES
.............................................................................................
PLAINTIFF
and
ROAD
ACCIDENT FUND
...............................................................................
.DEFENDANT
JUDGMENT
The Plaintiff is an insurance broker
and financial adviser who is presently aged 52. He was injured in a
motor vehicle accident
on 21 October 2006. He sustained the
following injuries:
A fracture of the neck of the right
proximal humerus
A fracture of the right acromium
A comminute fracture of the left
patella
A compound fracture dislocation of
the right elbow
A head injury with hemiplegia
Left pneumothorax
A fracture of the cervical spine
It is common cause that the Defendant
is liable to compensate the Plaintiff for any loss and damage
suffered by him resulting
from the said injuries in terms of the
provisions of the
Road Accident Fund Act, 1996
1
(the Act). It is also common cause
that the Defendant has already paid to the Plaintiff an amount of R
247 477,36 on account of
past hospital and medical expenses, as well
as an amount of R 600 000 in respect of general damages. The
Defendant has in addition
provided the Plaintiff with an undertaking
in terms of
s 17(4)
of the Act, indemnifying him against future
hospital, medical and related expenses. I was told by counsel at the
commencement
of the trial that the only remaining issue was that
relating to the Plaintiff’s claim on account of past and
future loss
of earnings, as well as earning capacity.
The central issue, as it turned out,
relates to whether the earnings of a close corporation, Guy Miles
Brokerage CC (the CC) and
in which the Plaintiff holds 99 per cent
of the member’s interest, should be used as the yardstick for
assessing the Plaintiff’s
claim for loss of earnings and
earning capacity or whether only the salary from the CC, set out in
the Plaintiff’s personal
IT12 income tax returns, and
accounted for in the CC’s annual financial statements should
be used for these purposes.
By way of background to the dispute,
I proceed to set out certain facts which are common cause.
The Plaintiff matriculated in 1978.
In 1983 he obtained a Bachelor of Agriculture degree. In 1984 he
obtained a Bachelor of Commerce
(Hons) degree. The Plaintiff was
first employed in the life insurance industry as representative,
where he received certain training
in the particular field. He
started his own brokerage in 1999. In 2000, the CC was incorporated.
Initially there were four members
of the CC, three of whom each held
1 per cent of the member’s interest, with the Plaintiff
holding the remaining 97 per
cent. One of the other three members of
the CC is a Mr G.I. Perrett. Since 2003, the Plaintiff held 99 per
cent of the member’s
interest in the CC, with Mr Perrett
holding the remaining 1 per cent. That is still the position. The
Plaintiff in effect, as
shall be explained, conducted his brokerage
business under the auspices of the CC. The CC also holds all the
necessary registrations
and accreditations, for the purposes of
conducting the particular business. These registrations, include
registration with the
Financial Service Board (FSB). Mr Perrett’s
holding of 1 per cent of the member’s interest in the CC is
motivated
by a practical requirement of FSB in terms of which it is
required that the CC has at least two members. This is in order to
ensure that there would be continuity of the services rendered to
clients, should anything happen to the Plaintiff.
The Plaintiff and Mr Perrett have
since 2003 been the only trustees of a trust, The Quadrant Finance
Trust (IT2095/00) (the Trust).
The Plaintiff is, I am told, a
discretionary income beneficiary of the Trust.
The annual financial statements of
the CC, from the 2002 tax year to the 2012 tax year, and those for
the Trust from the 2003
tax year to the 2012 tax year, have been put
up in evidence. From these the following appears: Mr Perrett
throughout the period
from 2002 to 2012, held 1 per cent of the
member’s interest in the CC and during such period he had no
loan account in
the CC. His nominal interest in the CC was recorded
in a “member’s investment” account. Neither did
he, during
such period, receive any salary or fringe benefits from
the CC. On the other hand, the Plaintiff, in terms of the CC’s
annual financial statements had throughout the aforesaid period, a
substantial loan account, which was credited with interest,
intermittently, in addition to which he was also credited with a
salary and travelling costs or expenses. No dividends were declared
by the CC. Profits or surpluses generated by the CC were accounted
for in the members’ net investment account in the annual
financial statements of the CC. The single largest operating expense
of the CC was an expense styled “administration fees”.
The evidence shows that these expenses were expenses credited to the
Trust. Such expenses were in turn the largest single source
of
income of the Trust. The Trust, from time to time generated profits
or surpluses which were from the 2005 tax year distributed
or
allocated equally to two other trusts, styled The G&T Family
Trust, and The Miles Family Trust, being trusts respectively
controlled by Mr Perrett and the Plaintiff.
The evidence, which is undisputed,
also shows that Mr Perrett, who like the Plaintiff is an insurance
broker and financial adviser,
conducts a similar business to that
conducted by the CC. He, however, does so independently from the
Plaintiff and the CC. The
evidence further shows that for the period
2003 to 2007 (that is before the Plaintiff was injured), the CC
achieved an annual
growth in turnover of 22,23 per cent, compared to
an average annual growth in turnover of Mr Perrett’s business
of 18,44
per cent. For the tax and financial years from 2008 to 2012
(after the Plaintiff was injured) the average annual growth in
turnover
of the CC was 0,27 per cent, whereas that of Mr Perrett’s
business was 14,18 per cent. This appears from the report of the
accounting officer of the CC, Mr B.D. Berriman, dated 2 November
2012.
The evidence further shows that prior
to the Plaintiff being injured the CC offered what was referred to
as a suite of financial
services or products, which included
insurance, investments, medical aid and short term insurance. The
Plaintiff himself focused
primarily on life insurance investments
and medical aid. At the time of the accident the Plaintiff himself
fully utilised the
services of one full time secretary and half the
time of a second secretary in order to service his clients. The
short-term insurance
side of the CC’s business was managed by
another broker, one Saloshne Naidoo who focused specifically on the
sales and
servicing of short-term insurance. She, however, also
assisted Mr Perrett with his short-term insurance business. Her
services
were therefore shared between the Plaintiff and Mr Perrett,
as it were. The cost of the services of Ms Naidoo and the two
secretaries
who assist her are shared pro-rata the revenue they
generate from the short term insurance business managed by them,
between
the CC and the close corporation used by Mr Perrett, to
conduct his business.
It is further evident that the
Plaintiff’s ability to perform the kind of work for which he
is qualified and which he had
been doing, independently since 1999,
had been compromised. This is evident
inter alia
from a
number of opinions by experts. In this regard I mention the views of
the following experts:
Dr
J. Golek (neurosurgeon)
According to him the most severe
injury sustained by the Plaintiff was to the head and cervical spine.
He sustained diffuse brain
injury and multiple brain contusions, the
worst being in the right parietal region. The cervical spine injury
was in the form of
a fracture of the C4 and C5 lateral masses and
facet joints with rotational injury to the neck affecting the spinal
cord. The Plaintiff
recovered well from the head and neck injuries,
but was left with minimal but definite left sided hemiparesis, which
is spastic
as well as facial residual nerve paresis, some signs of
incoordination, a speech problem and numbness of the left side of the
body.
He also suffers from decreased concentration and poor memory.
Although, by the time when Dr Golek examined the Plaintiff on 20 May
2012, had shown some improvement in his condition, he was at that
time still left with definite neurological deficit in the form
of
residual left side weakness, incoordination, slurred speech and some
decrease in mental function. His residual physical and
mental
disabilities were considered to be of a permanent nature.
Dr R.P. Plunkett
(neuropsychologist)
According to Dr Plunkett the Plaintiff
had become emotionally labile, easily frustrated and impatient. There
was evidence that he
was becoming mildly to moderately depressed.
Behaviourally the Plaintiff demonstrated mild features of
disinhibition. He had difficulty
in controlling his emotions.
Cognitively,
the Plaintiff
suffered from concentration difficulties and forgetfulness. He was
less inclined to self-monitor and thus did not
pick up his own
errors. He had difficulty keeping track of ongoing activities
including, what he was saying. His verbal learning
and memory were
found to be in the low average range. According to him, the
Plaintiff, two years after the accident, continued
to suffer from
neuropsychological impairments. His core neuropsychological
impairments at that time could be regarded as life-long
afflictions.
Ms René Stewart
(occupational therapist)
Her view is that the Plaintiff
demonstrated moderately compromised occupational performance as a
result of a complex combination
of physical-, cognitive-,
behavioural- and functional deficits which collectively undermined
his work potential. Specific aspects
which reduced the Plaintiff’s
efficacy, included reduced efficiency, impaired memory and adaptive
functioning, manifesting
in a propensity for making errors,
difficulty in multi-tasking and working to deadlines. More
specifically, impaired deductive
reasoning and cognitive flexibility
as well as deficits in associated learning, and below average memory
retrieval processes and
difficulty in modifying/adapting actions to
meet changing task demands all contributed to under performance by
the Plaintiff. A
further problem was that the Plaintiff was expected
to suffer from fatigue resulting in the recommendation that the
Plaintiff should
work flexi-hours. The Plaintiff was liable to suffer
from reduced insight into the
sequelae
of his injuries and the impact which
they have in the workplace. This in turn would give rise to mood
swings, lowered frustration
tolerance, irritability, aggression and a
tendency to misinterpret social ques. He was also at risk of
suffering from depression
and anxiety. In addition, he suffered from
communication deficits, such as dysarthritic speech, word-finding
problems and loss
of verbal fluency.
It was common cause that had the
Plaintiff not been injured, his normal retirement age would have
been 65.
The only two witnesses who gave
evidence are Mr Mark Edwards, a financial analyst who gave evidence
on behalf of the Plaintiff
and a Mr Mario Redelinghuys, a
professional accountant, who gave evidence on behalf of the
Defendant.
I turn to the evidence of these
witnesses.
Mr Edwards has a B.Bus.Sci. (Hons,
Finance) degree, which he obtained from the University of Cape Town.
His basic approach was
that the income generated in the hands of the
CC should be used as the appropriate yardstick for assessing the
Plaintiff’s
loss of past and future income and earning
capacity. According to him, certain adjustments had to be made to
the figures reflected
in the annual financial statements of the CC
in order to arrive at a more realistic picture of the true earnings
and particularly
profitability of the enterprise, controlled by the
Plaintiff. Some of these adjustments were that the revenue earned
within the
Trust in effect was income earned by the Plaintiff and Mr
Perrett, and that the Plaintiff’s share thereof had to be
added
to his earnings. He also explained that the “administration
fees” which constituted the bulk of the Trust’s earnings
reflected in its income statement in the annual financial statements
were comprised of amounts arbitrarily “over invoiced”
to
the Trust, so as to enable the Plaintiff and Mr Perrett, to withdraw
monies from the Trust, by way of distributions to pay
their
respective children’s school fees. He also analysed the
Plaintiff’s personal diary for the period 9 April 2012
to 31
January 2013, a period of some 43 weeks, (with records available for
35 of those weeks), which indicated that the Plaintiff
conducted, on
average, some 4,6 interviews with clients during each week during
such period. According to him, this showed a
significant decrease in
the number of appointments over any given time period which the
Plaintiff previously conducted, prior
to him being injured. He also
explained that the income stream of the CC, comprised approximately
66 per cent of income derived
from life insurance and investment
type business, and 33 per cent of income derived from short-term
insurance business.
Mr Edwards also engaged with a Mr
Ismail Simjee, a forensic accountant, employed by the Defendant, and
in respect of whom appropriate
notices in terms of
Rule 36(9)
were
delivered, and who also prepared a report on the Plaintiff’s
loss of earnings. According to Mr Edwards, he and Mr
Simjee prepared
a joint minute of their discussions, which took place on 31 May
2013. The joint minute was received in evidence
as exhibit “E”.
Although I accept that the Defendant is not necessarily bound by
what Mr Simjee may have agreed with
Mr Edwards, the minute does
provide some evidential material, which in my view, may be taken
into account, more so, since Mr
Edwards gave evidence with regard
thereto and endorsed various aspects referred to in the minute, and
on which these experts
were agreed. In this regard I point out that
these experts
inter alia
agreed on the basic approach that
the income of the CC was to be used as yardstick to determine the
Plaintiff’s loss, there
was agreement on the actual gross
income generated by the Plaintiff on this basis, for the period
after the Plaintiff was injured,
that is, for the financial years
from 2008 to 2013, as well as the net profit (income) after tax (as
adjusted), for the same
period. They also agreed on the precise
amounts by which the Plaintiff’s earnings would have
increased, had he not been
injured during the period 2008 to 2013.
They also agreed on the method to be used for calculating the
Plaintiff’s past
loss of income for the period 2008 to 2013.
The computation of Mr Edwards in respect of past loss of income
produced a net amount,
after tax of R 2 741 746, while Mr Simjee’s
corresponding figure was R 2 301 430. Messrs Edwards and Simjee also
agreed
that part of the Plaintiff’s loss was the capital loss
of the future sale of the enterprise, which was computed as at 28
February 2013. The value of such loss according to Mr Edwards’
calculations, was R 2 532 286, whereas Mr Simjee’s
calculation
produced a figure of R 2 154 044. For these purposes, Messrs Edwards
and Simjee agreed that an after tax multiple
of 3,5 should be used
for computing the value of the business. In the event, Mr Simjee was
not called by the Defendant and no
reasons were advanced as to why
he was not called.
Mr Edwards, as a result of his
interaction with Mr Simjee, prepared a supplementary report, dated 4
June 2013, in which he accommodated
the agreements reached between
and him and Mr Simjee, and made certain adjustments to the
assumptions underlying his previous
report.
The joint minute prepared by Messrs
Edwards and Simjee was submitted to an actuary, Mr G.A. Whittaker,
who, on 4 June 2013, prepared
a report in which he computed the
Plaintiff’s losses both on Mr Edwards’ and Mr Simjee’s
views, as tabulated
in the joint minute. According to Mr Whittaker’s
report, the Plaintiff’s losses, based on the respective views
of
Messrs Edwards and Simjee, were as follows:
Mr
Edwards’ views
Past
loss
Past
loss of income after tax R 2 741 746
Capital
loss after tax
R 2 532 286
Gross
past loss R 5 274 032
Future
loss
Value
of income uninjured R 15 361 174
Value
of income injured
R 5 293 176
Gross
future loss
R10 067 998
TOTAL
gross loss
R15 342 030
Mr
Simjee’s views
Past
loss
Past
loss of income after tax R 2 301 430
Capital
loss after tax
R 2 154 044
Gross
past loss R 4 455 474
Future
loss
Value
of income uninjured R 14 170 351
Value
of income injured
R 5 293 176
Gross
future loss
R 8 877 174
TOTAL
gross loss
R13 332 648
The main thrust of Mr Edwards’
cross-examination by counsel for the Defendant was aimed at
establishing a basis for contending
that it was inappropriate for
the earnings of the CC to be used as yardstick for determining the
Plaintiff’s loss of earnings
and earning capacity. Mr Edwards
readily conceded that, in terms of the annual financial statements
of the CC, the Plaintiff’s
salary (and other benefits)
credited to him throughout the period 2003 to 2012, on average
amounted to 27 per cent of the turnover
of the CC. He contended,
however, that to merely base any assessment of the Plaintiff’s
loss of earnings and earning capacity
on the salary which was
reflected in the annual financial statements of the CC would be an
oversimplification. He pointed out
that the apportioning of income
between the Plaintiff personally and the CC, as reflected in both
the Plaintiff’s personal
income tax returns and accounted for
in the CC’s annual financial statements was premised largely
on what he referred to
as considerations of “tax efficiency”.
He emphasised that it was the Plaintiff and the Plaintiff alone who
made all
the important decisions affecting the CC and the business.
He emphasised the discretionary nature of the apportionment of the
income generated by the business not only between the Plaintiff and
the CC, but also the distribution of the income of the Trust,
in the
way described above. He further pointed to the discretionary
allocation of interest on the Plaintiff’s loan account
in the
CC, so as to take full advantage of what he referred to as the
“interest free allowance” provided for by the
Income Tax
Act, 1962
2
in respect of individuals. He
emphasised that any profit or surplus of income over expenditure in
the CC would be accrued for
the Plaintiff’s benefit by way of
what is referred to in accounting terms as “retained income”.
Mr Edwards
was also challenged in cross-examination with regard to
the implications of the fact that about 33 per cent of the CC’s
turnover was derived from short-term insurance business which, as
indicated was dealt with by Ms Naidoo and her support staff.
In this
regard he pointed out that Ms Naidoo’s status was that of an
employee, thus subject to the overall supervision
and control of the
Plaintiff. He further pointed out that the short-term insurance
business, and especially new business, as
I understand it, was
largely dependent upon leads provided by the Plaintiff personally to
Ms Naidoo, which he, that is the Plaintiff,
generated through the
contact he had with the other clients of the business whom he
served. Mr Edwards readily conceded that
the formatting of the
Plaintiff’s business model amounted to tax avoidance. It was
never put to him that there was anything
improper or illegal with
regard to the arrangements concerning the close corporation as well
as the Trust or, that such arrangements
amounted to tax evasion.
Mr Edwards drew attention to certain
mistakes which Mr Redlinghuys made in his calculations to which
reference will be made below.
Mr Edwards impressed me as a
knowledgeable, diligent, thorough and careful expert. He was fair
and made concessions where they
were due. He also made adjustments
to his calculations where it appeared reasonable to do so.
Mr Redelinghuys holds a B.Com (Hons
Acc) degree which he obtained from the University of KwaZulu-Natal.
He served his articles
with PriceWaterhouse-Coopers. Thereafter he
was employed by that firm and
inter alia
gained experience in
forensic work. He left PriceWaterhouseCoopers during 2011 when he
went into commerce. As from 2012, he established
his own forensic
consulting practice. The central theme of Mr Redelinghuys’
evidence was that only the salary which was
reflected in the CC’s
annual financial statements and disclosed by the Plaintiff in his
personal income tax returns should
be used in assessing the
Plaintiff’s loss of earnings and earning capacity. He prepared
two reports, both dated 26 February
2013. His first report took into
account certain insurance benefits which the Plaintiff received,
which it was common cause should
not be taken into account for these
purposes. His later report made due allowance for the exclusion of
such insurance benefits
and also had attached to it certain
schedules setting out calculations upon which he relied, for the
views which he expressed.
Mr Redelinghuys divided his calculation of
the Plaintiff’s loss into three periods, namely (1) the period
from 21 October
2006 to 28 February 2008, being the period during
which the Plaintiff was occupationally unfit to perform his duties
and functions
at all; (2) the period from 1 March 2008 to 29
February 2012, during which period, according to Mr Redelinghuys,
the Plaintiff
operated in his business on an average productivity
level of 62 per cent as determined by actual salary as a proportion
of estimated
salary for such period, and (3) the period from 1 March
2012 to the date of retirement (2021). He calculated that the
average
percentage turnover increase of the business prior to the
accident was 23 per cent, from year to year. He used that average
percentage
increase to project the turnover of the business
subsequent to the accident to 29 February 2012, and used 20 per cent
per annum
to project the turnover from the period 1 March 2012 to 29
February 2016, basing the latter percentage on an actuarial report
by Human & Morris, dated 9 November 2012. From 1 March 2016 to
date of retirement (2021), he used a 5,5 per cent per annum
growth
rate in turnover as reported by Human & Morris. In determining
the Plaintiff’s loss of income from salary, he
used the actual
proportion of salaries to turnover for the period from the accident
to 29 February 2012, and according to him,
ascertained that the
difference between actual salaries and the estimated salaries would
result in a loss of income for such
period. For the period 1 March
2012 to date of retirement, he computed the estimated loss of
salaries on the average actual productivity
rate of the Plaintiff,
from the period subsequent to the accident till 29 February 2012,
which according to him, amounted to
62 per cent. That rate was used
to determine the loss of income on 1 March 2012 to date of
retirement.
In terms of Mr Redelinghuys’
calculations in his corrected report, confirmed by him in his
evidence in chief, the Plaintiff’s
loss of income for the
period 21 October 2006 to 28 February 2021, amounts to R 5 137 000,
which is calculated as follows:
Loss of income during the period 21
October 2006 to 28 February 2008 R 184 000
Loss of income during the period 1
March 2008 to 29 February 2012 R 856 000
Loss of income during the period from
1 March 2012 to 28 February 2021 R4 097 000
At the conclusion of his evidence in
chief, he pointed out that the increase in turnover of the business
in the schedule to his
revised report, exhibit “F”.
contained an error in that in determining the increase in turnover
from the years 2010,
2011 and 2012, the turnover in those years, had
been kept constant at the same figure as in 2009 (R 2 140 959). He
stated that
the reason for this was his calculation was “formula
driven” and he did not ensure that the formula was “pulled
across” to the years mentioned.
Under cross-examination the following
emerged from Mr Redelinghuys’ evidence: He acknowledged that
Mr Edwards’ investigation
and evaluation of the business and
affairs of the CC was more thorough than his own, which was largely
confined to an analysis
of the Plaintiff’s personal income tax
returns and the annual financial statements of the CC. He also
acknowledged that
the mistake he made with regard to the projected
turnover of the business for the years 2010, 2011 and 2012, quite
clearly had
a material impact on his other calculations and views.
He further conceded that his projection of the Plaintiff’s
income
was flawed since he did not take into account the shrinking
trend in the Plaintiff’s productivity (assumed by him to be 62
per cent, being the ratio between salary and turnover). In this
regard he made the following concession:
“
And the next year his
productivity has shrunk, and the next year his productivity has
shrunk still further, the next year his productivity
has shrunk still
further, so to fix it is flawed, that is what Mr Edwards said and
that is what I am suggesting to you, and you
do not deal with the
downward trajectory that you did not take into account. And I am
suggesting to you that really with hindsight
now, looking at it, you
should have, do you accept that?..... Yes I accept it M’Lord.”
He also conceded that his projections
extended to 2021 when the Plaintiff would be 60, and not 65, the
latter being the Plaintiff’s
normal retirement age, which was
common cause.
He finally maintained that making
allowance for the errors he made, and adopting some of the
assumptions made by Mr Edwards, the
Plaintiff’s loss of income,
would amount to some R 8,6 million.
Regrettably, the conclusion to which
I am driven, is that very little reliance can be placed upon the
evidence of Mr Redelinghuys.
During argument, I was presented with
a revised calculation prepared by Mr Edwards, based upon the
adjustments which Mr Redelinghuys,
in his evidence, conceded should
be made to his reports and assumptions. Such calculation was
received as exhibit “H”.
The adjustments related to the
error Mr Redelinghuys made with regard to revenue growth rates, the
ratio of the Plaintiff’s
salary to the turnover of the
business, which was adjusted from 62 per cent to 46 per cent, and
with the latter percentage further
declining to 11 per cent at
retirement age 65, in order to take account of the shrinking trend
in the Plaintiff’s productivity,
as defined by Mr
Redelinghuys. Mr Edwards, in preparing the calculations, for
illustrative purposes, discounted the figures produced
by the
calculations themselves, at the rate of 2,5 per cent per annum. In
summary, these calculations, based upon the basic approach
propagated by Mr Redelinghuys, showed the following:
SUMMARY
OF LOSS OF INCOME
Pre-discounting
Post-discounting
Past
loss to 28/2/2013
R 1
767 023
R 1 767 023
Future
loss
R
18 330 579
R 15 124 774
TOTAL
R
20 097 602
R
16 891 797
I was told during argument that the
actual calculations contained in exhibit “H” were not
disputed and were common cause
between the parties.
I return to the central dispute
between the parties. As point of departure I accept that full
recognition and due weight must
be given to the following
fundamental principles:
A close corporation, and for that
matter a company, has a separate and distinct estate from the
estates of its members or shareholders
which, for good reason, must
be acknowledged and given effect to. The same applies to a trust
which has an estate separate
from the estates of its trustees or
beneficiaries.
3
Under the
lex
Aquilia
a defendant is
obliged to compensate a plaintiff for the difference between the
value of the plaintiff’s estate after
the commission of the
delict and the value it would have had if the delict had not been
committed. The capacity to earn money
is considered to be part of a
person’s estate and the loss or impairment of that capacity
constitutes a loss if such
loss diminishes the estate.
4
“
A physical disability
which impacts upon capacity to earn does not necessarily reduce the
estate or patrimony of the person
injured. It may in some cases
follow quite readily that it does, but not on the facts of this
case. There must be proof that
the reduction in earning capacity
indeed gives rise to pecuniary loss.”
5
In an appropriate case, a plaintiff
“
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 he does not fall
into the trap of regarding the loss to the company as automatically
and necessarily equivalent to his
personal loss.”
6
In my view, this is indeed a case in
which the turnover, profit and performance of the CC, as well as its
future prospects, should
be used as yardstick for the assessment of
the Plaintiff’s loss of income and earning capacity. My
reasons are as follows:
The Plaintiff owns 99 per cent of the
member’s interest in the CC. The remaining 1 per cent which is
owned by Mr Perrett,
has been allocated to him for purely pragmatic
reasons. The Plaintiff, on the evidence, is the person who makes all
the important
decisions affecting the business of the CC. He, in
effect, conducts his personal practice or business under the auspices
of the
CC. The mechanism of crediting the Plaintiff in the books of
account of the CC with a salary, is something which the Plaintiff
does upon the advice of his accountants, in order to promote the
legitimate objective of minimising the overall amount of income
tax
which is payable by both the Plaintiff and the CC. The fortunes of
the CC, quite clearly, are inextricably bound up with the
well being
as well as the time and effort expended by the Plaintiff on the
business. Importantly, the performance of the CC depends
vitally on
the efficiency with which the Plaintiff conducts and manages the
business. The fact that persons are employed in the
business, in my
view, does not militate against the approach which I propose to
follow. This is so, since all these persons are
employees. They have
no equity interest either in the business, its assets or the CC. They
also perform their work under the supervision
and control of the
Plaintiff. There is therefore almost complete convergence of the
interests of the Plaintiff and the CC. The
fact that Ms Naidoo is
responsible for dealing with the short-term insurance portfolio of
the business, also does not detract from
the aforesaid approach. Ms
Naidoo remains an employee. Her services are shared between the
Plaintiff and Mr Perrett and importantly,
on the uncontested
evidence, the short-term business is derived from leads generated by
the Plaintiff himself. It would be wholly
artificial to use the
Plaintiff’s salary from the CC, as reflected in his personal
income tax returns, as the sole basis
for determining his loss of
income and impairment of his earning capacity.
In my view, the facts of this matter
are distinguishable from the facts in cases such as
RUDMAN v ROAD
ACCIDENT FUND
and
RAATH v NEL
. In
RUDMAN
there was
no proof of the plaintiff, Rudman, actually having suffered a loss as
a consequence of his personal injuries. The operations
of the
company, of which Rudman was a director alongside with his wife and
children, continued in the same way as before he was
injured.
Moreover, Rudman only owned 100 of the 4000 issued shares in the
operating company, which conducted the farming operations.
The
remaining 3900 shares were owned by a trust of which Rudman was a
trustee, together with his wife and his attorney. He was
neither a
capital nor income beneficiary of the trust. It is understandable
therefore that both the trial court and the SCA, found
that the
losses suffered as a result of the temporary decline in the income
generated by the professional hunting and professional
outfitter
operations due to the incapacity of Rudman, were the losses of the
operating company, and not of Rudman personally. In
RAATH v NEL
,
the plaintiff, Nel, had transferred the business which he ran to a
trust for estate planning and tax purposes. Nel was not a capital
beneficiary of the trust. He qualified as a potential income
beneficiary of the trust by virtue of his relationship to the
children
of his late son. It is also understandable on these facts
that the SCA held that the separateness of the trust and its assets,
including the business which the plaintiff managed, had to be given
effect to, and that losses suffered by such business were not
to be
equated to Nel’s personal losses. Unlike the relationship
between the plaintiffs in these cases and the businesses
which they
operated, there is substantial convergence of the Plaintiff’s
personal interests and those of the CC. This is
so because of the
Plaintiff’s ownership of 99 per cent of the member’s
interest in the CC, his control of the affairs
of the CC, and its
dependence on the Plaintiff’s personal exertion and
performance.
The facts in this case are more
comparable to those in
OTTO
v ROAD ACCIDENT FUND
7
,
ROAD ACCIDENT FUND v RONAASEN NO
8
and
ROAD
ACCIDENT FUND v OBERHOLZER
9
.
In these cases the Courts held in
favour of the plaintiffs in circumstances not dissimilar to those of
the present Plaintiff.
Each case, however, must be decided on its
own facts. It should be borne in mind that on the Defendant’s
submissions, based
as they are, on the evidence of Mr Redelinghuys,
the Plaintiff personally had suffered substantial losses.
Ultimately, the question
is essentially one of adopting the
appropriate yardstick or benchmark, for assessing the Plaintiff’s
losses. For the reasons
already given, in my view, it would be
artificial and indeed inappropriate in these particular
circumstances, to rely merely
on the Plaintiff’s salary as
reflected in his personal income tax returns, and accounted for in
the annual financial statements
of the CC, in assessing the
Plaintiff’s loss of earnings and earning capacity. I find
therefore, on this aspect of the
case, that it is appropriate to use
the performance, including turnover, and profitability of the CC, as
did Mr Edwards, as yardstick
to determine the Plaintiff’s
personal loss of income and earning capacity.
[27] Counsel for the Plaintiff
contended that on the evidence, I should make an award to the
Plaintiff, based on the common cause
facts, the supplementary report
of Mr Edwards, the joint minute of discussions between Mr Edward and
Mr Simjee, as well as the
actuarial report by Mr Whittaker, dated 4
June 2013. Counsel also made submissions with regard to contingency
deductions. On the
other hand, counsel for the Defendant submitted
that I should merely make findings on those issues which the actuary
would require
for an appropriate computation of the Plaintiff’s
losses. He also made certain submissions with regard to contingency
deductions.
My view is that it is possible, on the
evidential material presented, to make a final computation of the
Plaintiff’s losses,
and for judgment to be granted in an amount
of money. It would cause further delays and additional expense,
should I merely make
a number of findings which would then have to be
submitted to the actuary for the purposes of preparing a final
calculation.
With regard to general contingencies,
I make the following observations: The evidence of Mr Edwards was
that the income generated
by the business is subject to volatility,
by which I understood that it is liable to fluctuate over time. The
report by the industrial
psychologist, Dr Sonia Hill, which was
placed before me as evidence of its contents, indicates that the
financial success of “companies”,
such as the business in
question is “notoriously unpredictable”. By that I
understood that such businesses are exposed
to significant risks,
including the risks of fluctuating income and turnover. The
contingency deductions as set out below, will
therefore be made with
due regard to these aspects and all the evidence.
The computations set out below are
based upon the evidence of Mr Edwards, his supplementary report, as
well as the joint minute,
and actuarial report by Mr Whittaker dated
4 June 2013.
[28] In my view, the Plaintiff is
entitled to compensation in the amount of R 13 835 895,
which amount is calculated
as follows:
Past loss of income
Past loss of income after tax R 2
741 746
Capital loss after tax
R 2 532
286
R 5 274 032
Less 1 per cent – share of
member’s
interest held by Mr Perrett in the CC
R 52 740
Gross past loss R 5 221 292
Contingency deduction on past loss at
3 per cent
R 156 638
Net past loss R 5 064 654
Future loss of income
Value of income uninjured R 15 361
174
Value of income injured
R 5
293 176
R 10 067 998
Less 1 per cent – share of
member’s interest
held by Mr Perrett
R 100 679
Gross future loss R 9 967 319
Contingency deduction on future loss
at
12 per cent
R 1 196 078
Net future loss
R 8 771 241
Net total loss R13 835 895
[29] I therefore grant judgment to the
Plaintiff as follows:
29.1. Payment of the amount of R 13
835 895.
29.2. Costs of suit, which costs shall
include:
29.2.1. The costs consequent upon the
employment by the Plaintiff of two counsel.
29.2.2. The qualifying fees and
expenses, including where applicable, travelling expenses and the
costs with regard to consultations
with such experts and the
preparation of their reports, in respect of the following expert
witnesses:
Dr
I. Haynes
Dr
B.J. Kauffman
Dr
R. Fraser
Dr
R.P. Plunkett
Dr
J. Golek
Ms
René Stewart
Dr
Sonia Hill
Mr
Ian Morris, actuary
Mr
B. Berriman, chartered accountant
Mr
M. Edwards, forensic and financial analyst
Mr
G.A. Whittaker, actuary
29.2.3. The costs of preparing a
transcript of the proceedings which took place during the period 5 to
7 June 2013.
29.2.4. All costs previously reserved.
29.3. Payment of the amount referred
to in para 29.1,
supra
, is to be made by the Defendant to the
trust account of the Plaintiff’s attorneys, Thorrington-Smith &
Silver whose banking
details are as follows:
Bank: Standard Bank
Branch Code: 04002600 (Durban Main
Branch)
Acc No:
_____________________
C.J. HARTZENBERG AJ
PLAINTIFF’S ATTORNEYS:
Thorrington-Smith & Silver, Durban
Locally represented by:
Dawsons Inc
271 Prince Alfred Street
Pietermaritzburg
DEFENDANT’S ATTORNEYS: Tomlinson
Mnguni James
165 Pietermaritz Street
Pietermaritzburg
COUNSEL FOR THE PLAINTIFF: Adv M.
Pillemer SC
Adv B. Bedderson
COUNSEL FOR THE DEFENDANT: Adv C.J.
Snyman
DATE OF TRIAL: 5 – 7 June 2013
DATE OF JUDGMENT: 14 June 2013
Miles.judgment
(10 6)
1
Act
56 of
1996
2
Act
58
of 1962
3
RAATH
v NEL, 2012(5) SA 273 (SCA)
4
DIPPENAAR
v SHIELD INSURANCE CO LTD, 1979(2) SA 904 (A) at 917 B - D
5
Per
Jones AJA in RUDMAN v ROAD ACCIDENT FUND, 2003(2) SA 234 (SCA), para
[11] at 241 H – 242 A
6
Per
Jones AJA in RUDMAN, para [13] at 243 A - B
7
[2004]2
All SA 328 (W)
8
(86/2006)
[2007] ZAECHC 153
(22 June 2007)
9
2006(3)
All SA 593 (ECD)