In a unanimous judgement handed down on 20 March 2015 the Supreme Court of Appeal has conclusively answered the question as to how to apply the statutory “cap”, introduced by way of legislative amendment to the Road Accident Fund Act 56 of 1996 with effect from 1 August 2008, to claims for loss of income or support suffered as a consequence of injury or death in a motor vehicle collision.
The matter of Road Accident Fund v Sweatman Case no: 162/2014 (marked reportable but not yet reported) was concerned with the interpretation of s 17(4)(c), read with 17(4A)(b) of the Act as amended.
Section 17(4)(c) provides as follows:
‘…(4) Where a claim for compensation under subsection (1)- . . .
(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.’
Section 17(4A)(b) provides that 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.
A Court’s reliance on actuarial calculations to establish the present day value of prospective losses is now a well-established practice, as was held in the matter of Southern Insurance Association Ltd v Bailey NO 1984 (1) SA 98 (A). The issue which arose in Sweatman was the correct approach to be adopted to such calculations in light of the wording of the relevant sections of the Road Accident Fund Act (as amended) referred to above as the actuaries instructed by respectively the Plaintiff (the Respondent in the appeal) and the Defendant (the Appellant in the appeal) could not agree in this regard.
The Plaintiff’s actuary contended that the correct approach was to calculate the Plaintiff’s so-called pre-morbid earnings (i.e the income which the Plaintiff would have been expected to earn but for the collision) on the basis of applying established actuarial assumptions (in respect of which there was no dispute) and then to calculate the post-morbid earnings (i.e the income which the Plaintiff was expected to earn now that she had been injured) in the following manner:
- firstly 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 should be adjusted having regard to the contingencies of life (being any factor that would influence her life and earning capacity – the so-called general exigencies and hazards of life);
- the amount calculated in respect of the income stream in the injured state must then be deducted from the amount she would have earned but for the injury, and the amount so calculated represented the estimated present value of the Plaintiff’s loss;
- the limitation introduced by the amendment was then to be 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
By contrast, the Defendant’s actuary was of the view that the cap should be applied at a different point and “… 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…” which methodology “… would result in substantially lesser amounts being awarded to claimants“. As the Appeal Court pointed out, this approach “… required working on an inflated cap for the projected years of the claimant’s life …“. The Defendant’s actuary further considered mortality rates to be different to other contingencies, and contended that they consequently should not 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 which the Appeal Court opined introduced a further allowance for general contingencies.
After dealing with the Defendant’s actuary’s rationale for his approach the Court referred to the judgement in Sil & others v Road Accident Fund 2013 (3) SA 402 (GSJ) where Sutherland, J held that the purpose of the cap was to limit the amount to be paid and not to introduce a new methodology for the calculation of the loss and further that contingency deductions were to be taken into account in order to first calculate the actual loss. The Court went on to find that Defendant’s actuary had not satisfactorily explained the rationale for treating mortality per se differently to general contingencies and further held that the Fund had not persuaded it to deviate from the “tried and tested” actuarial method which had been adopted by our courts quite literally for decades.
It was finally held that the approach adopted by the Plaintiff’s actuary had been correct and that his calculation should be the basis for the award to be made to the Plaintiff. The Appeal was consequently dismissed with costs and the decision of the court a quo was confirmed.
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