Standard General Insurance Co Ltd v Dugmore NO (498/95) [1996] ZASCA 89; 1997 (1) SA 33 (SCA); [1996] 4 All SA 415 (A); (11 September 1996)

The present appeal and cross-appeal, arising from a claim by an employee for damages including a loss of earnings caused by the negligence of another, pertinently raise the vexed question: should consequential benefits received or receivable by the plaintiff pro Canto reduce his claim ?

2

appellant, Standard General Insurance Co Ltd as the defendant and to the respondent, Mr Dugmore, as the plaintiff.

The plaintiff, acting as curator ad litem for Bernard William Reid Richter ('Richter'), sued the defendant in the East London Circuit Local Division of the Supreme Court for damages arising out of injuries sustained by Richter when the motor vehicle in which he was a passenger was involved in a collision with the insured vehicle on 28 March 1990. The defendant is answerable as the agent appointed in accordance with the schedule to the Multilateral Motor Vehicle Accidents Fund Act 93 of 1989.

At the time of his injury, Richter was 43 years old and employed by the Syfrets Organisation as its branch manager in East London . As a result of severe cerebral injuries, he became totally and permanently incapacitated and unemployable.

3 judgment a quo and the appeal and cross-appeal before us. The cross-appeal:

The first matter (the subject of the cross-appeal) arose as follows. Although totally incapacitated by the said injury, Richter received his full salary from Syfrets until 1 October 1990. On that date he was placed on disability retirement. Since then, he has not received any salary, nor will he be entitled to the normal retirement pension payable to Syfrets' employees. When the final actuarial calculations were made on 1 December 1994, Richter's accrued loss of earnings until that date was R331 070,00. An agreed contingency deduction of 5% is to be applied, leaving a figure of R314 516,50.

Had the injury not occurred, Richter would have received a salary until the retirement age of 63 years. After that he would have received a retirement pension. The capitalized value of such prospective salary and pension (calculated from 1 December 1994) was calculated as Rl 379 882,00. An agreed contingency deduction of 25% leaves a figure of Rl 034 911,50.

In the result, Richter's 'gross' total loss of wages and retirement pension would amount to Rl 349

4 428,00. But Richter was a member of the Syfrets Pension Fund. Membership of the Fund was compulsory and a condition of Richter's employment. This was expressly stated in his letter of appointment, and is not in dispute. Both Syfrets and Richter contributed monthly to the Fund. In terms of the provisions of the Fund, Richter would have received a monthly pension on retirement. Had he been injured or suffered ill-health prior to the normal retirement age as a result of which he had to be retrenched, he would, from the date of retrenchment, have received, in lieu of his salary and retirement pension, a monthly disability pension for the remainder of his life.

In terms of an actuarial calculation agreed upon by the parties, Richter became entitled to a capitalized benefit of R858 076,00 under the disability clause, calculated from 1 October 1990 to the projected date of his death.

The crisp issue was whether the amount of R858 076,00 received and receivable under,the Syfrets Pension Fund as disability pension should be deducted from Richter's 'gross' loss of Rl 349 428,00.

The plaintiff averred that the defendant is liable 5 for the 'gross' loss, the benefits under the pension scheme being res inter alios acta or non-deductible collateral benefits. The defendant disagreed.

The court a quo held that the benefits received and receivable from the Pension Fund are deductible from the plaintiff's 'gross' loss, with the result that the defendant is liable only for the balance of such loss. The court held that these benefits represent pension benefits which are due to the plaintiff as a direct consequence of his employment. He had no choice regarding his participation in the pension scheme, his contract of employment obliging him to become a member of the Syfrets Pension Fund. He was required to contribute to the pension fund, as was his employer. The court a quo held that on these facts the present matter was indistinguishable from Dippenaar v Shield Insurance Co Ltd 1979 (2) SA 904 (A).

Not content with this decision, the plaintiff sought, and was given leave by the court a quo to appeal to this Court on this issue. This appeal is before us as a cross-appeal, will be referred to as such and will be considered forthwith.

The terrain of the collateral benefits rule in respect of pension benefits need not be traversed

6 again. It is adequately dealt with in standard textbooks both in our country (e.g. Corbett, The Quantum of Damages, vol. 1, 4th ed. by J J Guantlett SC, 1995 at 11 et seg.; especially at 15 et seg.) and in England (e.g. Fleming, The Law of Torts, 8th ed. 1992 at 243 et seg.).

The object of awarding Aquilian damages is to place the plaintiff in the position in which he would have been had the delict not been committed, thereby redressing the diminution of his patrimony caused by the defendant's delict (see, amongst the many cases expressing this basic principle, Union Government v Warneke 1911 AD 657 at 665; Dippenaar v Shield Insurance Co Ltd supra at 917 A-D).

In calculating the patrimonial position in which the plaintiff would 'have been had the delict not been committed, and comparing it with his present position, one has to take into account not only the detrimental seguelae of the delict, but also the advantageous consequences thereof: after all, one needs to compare the total patrimonial position of the plaintiff at present (i.e. post delicto) with the corresponding position ante delicto (Union Government v Warneke, supra, at 665; De Vos v Suid-Afrikaanse Eagle Versekeringsmaatskappy Bpk. 1985 (3) SA 447 (A) at 451 I-J; Santam Versekeringsmaatskappy Bpk v 7 Byleveldt 1973 (2) SA 146 (A) at 150 A-C).

Developed to its logical conclusion, this principle would require the plaintiff to disclose and deduct from his claim each and every benefit received or receivable as a consequence of the delict. But it seems evident that the rule cannot be pursued to such logical conclusion: it is manifestly unjust that the plaintiff should deduct from his claim, and the defendant profit by, e.g. gratuitous benefits received by the plaintiff.

The question thus is one of demarcation only: which benefits are deductible from the plaintiff's claim?

Various approaches to the question of demarcation have been developed here and in England (see Corbett-Gauntlett, op.cit., at 11 et seg.; Fleming, op.cit. at 243 et seq.; Boberg, Law of Delict, vol. 1, 1984 at 479 et geg.) None of those approaches has escaped criticism, a fact readily acknowledged by our courts (Dippenaar's case at 915 A - 916 H) and academic writers (see i.a. Van der Walt Die voordeeltoekenningsreel: Knooppunt van uiteenlopende teorie oor die oogmerk met skadevergoeding 43 THRHR 1980: 1-26; Reinecke Nabetragtinge oor die skadeleer en voordeeltoerekening De Jure 1988: 221-238; J A le Roux Deliktuele eise: Die verrekening van kollaterale

8

voordele De Rebus 1980:483-484). Boberg ( The Law of Delict vol 1, 1984: at 479) succinctly states: 'The existence of the collateral source rule can therefore not be doubted; to what benefits it applies is determined casuistically: where the rule itself is without logical foundation, it cannot be expected of logic to circumscribe its ambit.'

It now seems to be generally accepted that there is no single test to determine which benefits are collateral and which are deductible. Both in our country ( Santam Versekeringsmaatskappy Bpk v Byleveldt , supra at 150 F) and in England ( Parry v Cleaver [1970] AC 1 at 14 and 31) it is acknowledged that policy considerations of fairness ultimately play a determinative role.

Perceptions of fairness may differ from country to country and from time to time; the task of courts is to articulate the contemporary perceptions of fairness in their respective areas of jurisdiction.

9 asset in his estate. To ascertain a plaintiff's damage due to an infringement of this asset, every benefit (i) under the contract of employment and (ii) bestowed as compensation for loss of earnings or earning capacity, must be deducted. On the other hand benefits paid as a form of solatium or out of generosity and in general insurance payments are not deductible (see Mutual and Federal Insurance Co Ltd v Swanepoel, supra, at 11 G - H and Corbett-Guantlett, op.cic., at 16-17). In this Court, counsel for the cross-appellant has drawn our attention to criticism of the Dippenaar decision and invited us to overrule it. It is true that the Dippenaar decision has been criticized (see i.a. Pauw 1979 TSAR 256; Claasen and Oelofse 1979 De Rebus 588; Boberg, op. cit.', 479 et seq.; 610 et seg.; Burchell Annual Survey of SA Law 1979 at 209). On the other hand, the decision in Dippenaar's case has been supported. (See Koch Aquilian Damages for personal injury and death, 1989 THRHR 203 at 210; Reinecke, supra, at 228 in medio and Le Roux, 1980 De Kebus 483).

Before this Court will overrule one of its own previous decisions, it must be convinced that such decision '...has been arrived at on some manifest

10 oversight or misunderstanding that is there has been something in the nature of a palpable mistake...' (see Stratford JA in Bloemfontein Town Council v Richter 1938 AD 195 at 232). Taking the criticism against Dippenaar's case fully into consideration, I am not convinced that the ratio decidendi in that case, as explained or qualified in Mutual and Federal Insurance Co Ltd v Swanepoel, supra, is palpably wrong. Applying the approach laid down in those two cases,

I am of the view that the amount payable under the disability clause in the Syfrets Pension Fund contract was a benefit provided for and accruing under Richter's contract of employment (Dippenaar ,supra, at 920 B - H); the plaintiff assessed Richter's 'gross' loss of earnings on the basis that, but for his injuries, he would have continued to earn income in terms of the existing contract of employment (Swanepoel, supra, at 10 C - D); the disability pension was clearly intended as compensation for loss of earnings or earning capacity (Swanepoel, supra, at

II B - C, 11 G - H, 12 D - E); and did not represent a solatium, gratuitous payment, benevolence or Insurance payment (Swanepoel, supra, at 11 A - B).

11

In the result, the cross-appeal must be dismissed with costs. In view of the importance of the matter to both parties, such costs will include the costs of two counsel.

The appeal arose in this way: Richter became entitled to benefits under a Nedcor Group Accident Insurance Policy with Lloyd's of London. In terms of the policy documents, Lloyd's is the underwriter; Nedcor and its affiliates, including Syfrets, are the 'insured' and Nedcor/Syfrets employees are the 'insured persons'. The policy makes provision for payment by Lloyd's to Nedcor/Syfrets in the event of one of their employees suffering accidental bodily injury. The injury need not be sustained during, or in the course of or as a consequence of the employee's employment; in fact the policy expressly states that the cover applies to occupational and non-occupational accidents and includes cosmetic and leisure activities. In terms of the policy, certain percentages of the amount payable are due for particular injuries, e.g. 25% for the loss of a thumb, etc. In the case of injuries sustained by an employee resulting in a total disablement from following his or her usual occupation, the full amount of the pre-determined insurance cover is payable. In

It needs to be emphasized that the premiums payable under the policy were paid by Nedcor and not by the employee. It must also be noted that payments by Lloyd's were to be made to the insured (Nedcor) '...in trust for and on behalf of the insured person or his legal representatives or estate or for distribution by the insured at the insured's absolute discretion.'

In terms of this policy, Lloyd's paid two amounts to Nedcor: R399 377,71 in respect of Richter's permanent disability and R25 000 in respect of medical expenses. These amounts were then paid to the plaintiff on behalf of Richter.

13

14 Secondly, Van Rensburg J held that according to an endorsement on the Lloyd's policy, it was in the sole discretion of Nedcor-Syfrets to pay to Richter the proceeds from the policy in respect of his injuries or to retain same. There was, therefore, no obligation on Nedcor-Syfrets to pay to Richter such proceeds. The payment of the amount must, so Van Rensburg J held, be regarded as a benefit arising from benevolence. On this basis also the amounts under discussion were not deductible. The defendant sought, and was given leave by the court a quo, to appeal to this Court on this issue. I shall now deal with the merits of the appeal.

To begin with, the appellant must show (according to Dippenaar's case) that the benefits were payable 'under the contract of employment'. Given that this formulation must be applied in a flexible manner, it means, in my view, at least that the employee should be able to rely on the contract of employment as the source of his entitlement to the benefits. Such entitlement must appear from or originate in his contract of employment.

In the present case the appellant has failed, on

15 the facts, to prove such nexus. Richter's letter of appointment, although carefully referring to his obligation to join the Syfrets Pension Fund and the Syfrets Medical Aid Scheme, makes no mention of the Lloyd's Personal Accident Policy. If the policy had been in existence prior to the date of the letter of appointment (8 May 1972), the failure to mention the policy as a benefit under the contract of employment is convincing evidence that it was not intended to be such. If the policy only came into existence at a later date - and there was no evidence as far as that is concerned - there is no indication that Richter was informed of the terms of the insurance policy or that he accepted the benefit. Reference was made in argument to an employees' handbook, distributed by Syfrets to some employees, which refers to the policy. But there is no evidence that Richter was ever apprised of the contents of the handbook or that it was Syfrets' or his intention that such reference would per se constitute an incorporation of the policy as a term in the contract of employment.

In the result, one cannot say that the Lloyd' s benefits were payable under the contract of employment.

Which brings us to a second and more substantial problem facing the appellant. It is that there is no

The appeal and cross-appeal are dismissed with costs, such costs in each case to include costs of two counsel.

CASE NO. 498/95

(Respondent in the cross-appeal)

(Appellant in the cross-appeal)

VAN HEERDEN JA:

and Olivier, and agree with the latter that both the appeal and

cross-appeal should be dismissed. I would, however, add the

following.

Little is known about the circumstances in which the Lloyd's policy was issued, but it seems that this was done at the behest of Nedcor. However, so as not to complicate matters I shall deal with the appeal as if Syfrets and Lloyds were the parties to the contract of insurance.

There is nothing to indicate that Syfrets ever intended to bind itself, vis-a-vis its employees, to pay over to them benefits received by Syfrets under the policy. The mere reference to the existence of the policy in the handbook affords scant reason for inferring that Syfrets entertained such intention. At best for the

4

te gaan, en sy werkgewer sou ondemeem het om hom sy maandelikse salaris as 'n donasie te betaal totdat sy saak afgehandel sou wees, terwyl Byleveldt tuis kon bly, en Byleveldt het die donasie aanvaar, sou daar 'n afdwingbare kontrak gewees het, wat nietemin as inhoud gehad het 'n betaling van geld uit vrygewigheid wat nie toegereken kon word nie. Die vraag kan dus nie wees of daar formeel 'n kontrak was nie, maar of die voordele wat uit die kontrak verkry word, wesenlik uit vrygewigheid ontstaan of nie."

Thus, if Syfrets had not taken out the Lloyd's policy but, prior to the accident, had bound itself to donate Rx to Richter should he become incapacitated, the amount would clearly not have been deductible from Richter's gross earnings. This would have been so although it might with some justification have been said that the contract gave rise to a "perk" of Richter's employment; or that Richter would not have become entitled to payment of the amount had he not been an employee of Syfrets and had he not been injured, and that the benefit flowing from the 5 contract of donation could not exist independently of Richter's status as a Syfrets employee. It follows, therefore, that the appeal cannot succeed unless it appears that the assumed agreement was not in essence one of donation. In this regard the following factors require consideration: (1)

There is no indication that at the time of entering into contracts of employment it was stipulated that the employees would be entitled to benefits under the Lloyd's policy. (2)

There is likewise no indication that before or when the policy was issued Syfrets agreed with its then employees that the policy would be, or was, taken out to provide them with additional employment benefits for services rendered or to be rendered. (1)

6

(3) What seems clear, is that subsequent to the issue of the

policy Syfrets did not stipulate a quid pro quo from its employees. In particular they were not required to perform additional services.

(4) The policy was renewable from year to year. Moreover, the policy provided that it could be cancelled at any time at the request of Syfrets. Hence, it lay within the power of Syfrets to take away from its employees the benefits to which they otherwise might have become entitled.

Having regard to the cumulative effect of the above considerations as well as those relied upon by Olivier, JA, I am of the view that in taking out the policy and keeping it alive Syfrets was actuated by sheer generosity, and that the assumed contract therefore was an agreement in terms of which benefits received

7 from Lloyds in respect of an accident would be donated to Richter. That being so, the appeal must fail. HJO VAN HEERDEN JA Concur Vivier JA

CASE NO. 498/95

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION) In the matter between:

STANDARD GENERAL INSURANCE

COMPANY LTD Appellant

(Respondent in the cross-appeal)

and ALEC GAVIN DUGMORE NO. Respondent

(Appellant in the cross-appeal)

CORAM: Van Heerden, Vivier, Eksteen, Marais et Olivier, JJA HEARD: 15 August 1996 DELIVERED: 11 September 1996

JUDGMENT

MARAIS JA/

2

MARAIS JA:

I agree that the cross-appeal should fail for the reasons given by my brother Olivier. I agree too that the appeal against the refusal by the Court a quo to deduct from the sum awarded in respect of loss of earning capacity R25 000 received in respect of medical expenses as a consequence of the existence of the Lloyd's policy, should fail. The R25 000 received in respect of medical expenses can obviously not be set off against the claim for loss of earning capacity. That payment had no connection with any loss of earning capacity; it was made to enable Mr Richter to meet medical expenses not exceeding R25 000 occasioned by the injuries he sustained in the accident. Whether or not it could have been set-off against the claim made for medical expenses is not the issue before us and I am not called upon to answer the question. The issue before us is whether it

3 should be set-off against the claim for loss of earning capacity and, in my view, the answer must be in the negative.

With respect and some diffidence, I am unable to concur in the view that the appeal against the refusal of the Court a quo to deduct from the sum awarded in respect of loss of earning capacity the sum of R399 377,71 which was also received by respondent as a consequence of the existence of the Lloyd's policy, should fail too. The principles of law to be applied in resolving such a question are notoriously contentious and the debate rages over many hundreds of pages in the reported judgments, text books, and professional journals. There is little point in traversing yet again the familiar arguments advanced in support of the differing views. The quest for a principle which will offend unfailingly neither logic, nor common sense, nor prevailing conceptions of fairness and social utility endures. I venture

4 to think that the quest is well nigh hopeless and that a principle which will satisfy all those requirements will remain just as elusive as it has proved to be to date. Rationales put forward for the deductibility of particular receipts are often no more convincing than competing rationales for non-deductibility, and vice versa. Attempts have been made to seek solutions in theories of causation, theories of remoteness, theories of presumed intent, theories of social utility, and, in desperation, in attempts to gauge what the community at large would regard as fair and appropriate. The dilemmas arise when one attempts to respect well-established principles (each of which has its own particular justification and reason for existence), but finds that in respecting one, one is spuming another, and that one's best efforts to reconcile them come to nought. Thus, the following propositions are trite. Aquilian liability does not extend to non-patrimonial loss and

5

covers only patrimonial loss. A defendant whose negligence has caused patrimonial loss must take his victim as he Ends him. If he injures a mentally defective person who is permanently incapable of earning an income, in such a way that even if such a person had been capable of earning an income prior to the injury, he would no longer have been capable of doing so after the injury, he will not be liable for any loss of earning capacity because none happened to exist prior to the injury. If on the other hand he injures a highly skilled and generously salaried person to the same extent, he will be liable for his loss of earnings no matter how large the sum may be. Whether loss has been suffered in the past or will be suffered in the future is a question of fact. Patrimonial loss, if any, is assessed by comparing the plaintiffs pre-injury patrimony (actual and prospective) with his post-injury patrimony and determining the extent to which the former has

6 been diminished by the injury. That exercise is sometimes highly theoretical as, for example, where the plaintiff is injured while very young and before he has had an opportunity of earning any income. Perforce, he is obliged to place reliance upon the experience of others with his attributes in order to prove what he would have been likely to earn. But the exercise can sometimes be unusually concrete as, for example, when the plaintiff is injured a mere year or so before his intended retirement from employment and there are far fewer uncertainties to complicate the assessment of his loss of future earnings. There are of course innumerable situations which will fall somewhere between those two poles. Whichever of these kinds of situation one is dealing with, there is always the possibility that the plaintiff might have come into some money which, but for the injury, he would not have received. He may be entitled to be paid a sum of 7

money in terms of an accident insurance policy which he had taken out and for which he had paid the premium. He may have received money from a relief fund established by the community in which he lives. He may receive a disability pension provided by the State. He may receive a disability pension in terms of his contract of employment. He may be sent donations by individual members of his family or his friends. In each of these instances there can be no gainsaying the fact that, but for the suffering of the injury, the money would not have been received. Nor can it be denied that if a plaintiff who had received money in any of these ways, does not abate his claim against the defendant pro tanto,and his claim is upheld, he will have received more than he actually lost by reason of sustaining the injury. Yet, if anything is plain, it is that in at least two classes of case, the law is unperturbed by what may appear to be such a

8

duplicated recovery. The first is where benevolence prompted the payment; the second is where the plaintiff had procured insurance to cover himself against such an eventuality. The undoubted existence and tolerance of these two classes of double recovery put paid to any notion that credit for the amount received must be given to the defendant simply because it would not have been received but for the infliction of the injury. The reasons given by the courts and the writers for the non-deductibility of these two classes of receipts are not always entirely consistent but there can be little doubt that the conclusion is one which is intuitively sensed by virtually all to be "fair".

There the consensus ends. When it is suggested that other classes of benefit which may have enured to the benefit of a plaintiff as a consequence of his injuries should also be ignored in assessing

9 the damages to be awarded to him, controversy erupts. I suspect that the reason is that the intuitively sensed "fairness" of ignoring benefits flowing from the benevolence of third parties or from insurance policies which a plaintiff himself had taken out and paid for, is either entirely absent in the other classes of case, or not so keenly sensed. The result is that in those cases one sees attempts to intellectualise the approach to the solution of the problem by the invocation of principles of logic. When that fails to produce a principle which will operate satisfactorily in all such cases, an attempt is made to temper logic with what are perceived to be sound and desirable societal strategy considerations. When those prove difficult to identify, or when confidence in their attainability is wanting, the only remaining option is an attempt to gauge whether the community at large would regard the benefit as one which it would be appropriate to deduct or not. I 10 say these things, not in any spirit of criticism, but in order to illustrate how very difficult it has been found to provide truly satisfactory answers to these problems. My own attempt at solution of the particular problem which arises in this case has yielded nothing better. However, the following passage from the speech of Lord Bridge in Hodgson v Trapp [1988] 3 ALL ER 870 (HL) at 873 h - 874 b seems an appropriate prelude to a consideration of the facts of this case:

"My Lords, it cannot be emphasised too often when considering the assessment of damages for negligence that they are intended to be purely compensatory. Where the damages claimed are essentially financial in character, being the measure on the one hand of the injured plaintiffs consequential loss of earnings, profits or other gains which he would have made if not injured, or on the other hand, of consequential expenses to which he has been and will be put which, if not injured, he would not have needed to incur, the basic rule is that it is the net consequential loss and expense which the court must measure. If, in consequence of the injuries sustained, the plaintiff has enjoyed receipts to which he would not otherwise have been entitled, prima facie, those receipts are to be set against the aggregate of

11

the plaintiffs losses and expenses in arriving at the measure of his damages. All this is elementary and has been said over and over again. To the basic rule there are, of course, certain well-established, though not always precisely defined and delineated, exceptions. But the courts are, I think, sometimes in danger, in seeking to explore the rationale of the exceptions, of forgetting that they are exceptions. It is the rule which is fundamental and axiomatic and the exceptions to it which are only to be admitted on grounds which clearly justify their treatment as such."

As I see the situation in the present case it amounts to

this. The relevant claim is not one for loss or diminution of earning capacity as an abstract conception; it is a claim for the patrimonial loss which ensued and will continue to ensue as a consequence of the loss of earning capacity. I find it unhelpful therefore to stress, as counsel for respondent did, that it is a claim for loss of earning capacity. The fact of the matter is that, as was done in Dippenaar's case, plaintiff chose to establish the monetary value of Mr Richter's loss by reliance upon his actual and anticipated earnings in the very

12

employment in which he was at the date of sustaining his injuries. It is not a case, such as Swanepoel's case, where the plaintiff disavows reliance upon his earnings and occupation at the time when he sustained his injuries and seeks to show that he would in all probability have altered his employment to make it more remunerative. The financial benefit Mr Richter received was received by virtue of his status as an employee of Syfrets and by reason of the injuries he received disabling him permanently from continuing that employment. He would not have received it if he had not been an employee and if he had not been injured in this accident to an extent disabling him permanently from continuing that employment. It was a benefit which Syfrets had contracted with Lloyds to provide for its employees and for which Syfrets, as employer, paid Lloyds. It was a benefit which did not, and could not, exist independently of his status as an

13

employee of Syfrets. It was a benefit which Syfrets plainly intended

its employees to have qua employees. Equally plainly, Syfrets

intended its employees to know of the existence of this benefit. Its

disclosure in the handbook which had been produced for employees

so that they would know what their employment entailed, is conclusive evidence of that. Mr Richter was the branch manager of Syfrets in East London, he had been in the employ of Syfrets since 1972, and it

would be quite unrealistic to suppose that he was unaware of the

handbook or the benefit which the Lloyd's policy conferred upon

employees. The absence of any reference many years before in his

letter of appointment to the existence of this benefit is of no moment.

There are many other matters dealt with in the handbook of which no

mention is made in the letter of appointment yet they are plainly

intended to constitute enforceable employment benefits. Syfrets had

14 contracted with Lloyds in 1973 at the latest, according to the witness Swart, to make this benefit available to its employees, and while it may not have been bound to continue to make it available in perpetuity, it would certainly have been bound while the policy was in force to allow employees covered by it to receive what was due to them under it should circumstances arise which would oblige Lloyds to pay. It was still in force in 1990 when Mr Richter was injured. It was thus a benefit to which he, as an employee, became entitled as an incident of his employment. Even if one postulates that he became aware of the benefit only after he was injured, the fact of the matter is that it was still available to him then, and, if he had not accepted it earlier, he accepted it then. It cannot, in my view, be equated with an ad hoc act of benevolence by a third party which is not an incident of the recipient's employment. It was simply a perquisite of employment 15 which would result in the employee becoming entitled to receive a monetary benefit if he was injured and disabled. What distinguished it, in my opinion, from the proceeds of an accident policy taken out and paid for by the employee himself, is that such a policy is not an incident of his employment or the fruit of his income earning capacity, and it does not confer a benefit upon him qua employee if the risk insured

against should eventuate. To my mind, the benefit which Mr Richter was entitled to receive, and did receive, was so integral to his employment that one can only conclude that it was one of the fruits of his labours. It accrued to him by virtue of his status as an employee, was contracted for and paid for by his employer, and it would not have been received had he not been injured to such an extent that he was permanently disabled from continuing that employment. It was not a benefit which was the result of his prudence 16 in insuring against injury. I think that it would be generally perceived by the community at large to be unjust to require the party liable in law to compensate him for damages occasioned by the diminution or loss of his earning capacity, without taking into account the patrimonial benefit which he received as a consequence of sustaining the very injuries which caused the loss, despite the fact that the benefit was an incident of his employment.

Some point was sought to be made of a subsequent

endorsement of the policy which conferred a discretion upon Syfrets in regard to the distribution of any sum which might become payable under the policy. The relevant part of the policy read for many years:

"then underwriters will in respect of such death or disablement to the injured person pay to the insured in trust for and on behalf of the insured person or his legal representative or estate such compensation and/or medical expense in connection therewith as provided in Table 2."

17

The later endorsement did not eliminate or alter any of the existing wording in the provision. All it did was to insert between the words "estate" and "such" the words "or for distribution by the insured at their absolute discretion". The contention was that it brought about a changed situation - the injured employee was no longer entitled to be paid. Instead, so it was submitted, it lay entirely within Syfrets' discretion as to whether he or anyone connected with him was paid anything at all. Indeed, so the argument went, Syfrets could use the money to pay an employee engaged to 611 the void left by the employee who was no longer able to work. I am unable to accept the argument. It is quite plain that when the policy was first taken out the benefits were to accrue to employees or their legal representatives or estates. The endorsement did not purport to change that. It merely gave Syfrets a power to distribute the money at its discretion. It

18

remained a payment "in trust" and the "distribution" for which provision was made would certainly not include retention by Syfrets of the money for its own use. Nor, in my view, would use of the money to pay the salary of a substitute employee be a "distribution" of "compensation" within the meaning of the endorsement. This was plainly a policy for the benefit of the employees of Syfrets and in no sense a policy designed to insure Syfrets against such loss as it might suffer by having to train afresh a substitute employee. That was certainly so when the policy was first arranged and the later endorsement of the policy cannot be regarded as having radically altered the fundamental nature of the policy. It is not necessary to explore exhaustively what the power of distribution encompassed but it would obviously include paying the injured employee in instalments instead of in a lump sum, or, where the employee had died and left no

19

heirs but had a permanent relationship with a particular person

dependent upon him, paying the sum due to that person. Whatever

some in Syfrets may have thought it meant, it cannot justifiably be

interpreted to mean that Syfrets was free to do with the money

whatever it liked and that it could even distribute the money to

someone, or some institution, with whom the employee had no connection whatsoever. It is inherent in the policy that it exists for the

benefit of Syfrets' employees and no one else. The power of

distribution may be exercised in an absolutely discretionary way but

that does not mean that the raison d'etre of the policy (to provide a

benefit for employees) can be ignored. The same discretion to

distribute is equally applicable to "medical expenses" but it would be

obviously quite absurd to suggest that Syfrets could retain "compensation" for medical expenses actually incurred by an injured

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employee for its own use, or for "distribution" to another employee engaged in the insured employee's place while he was temporarily incapacitated. It plainly has the power to decide whether to pay the insured employee or to pay the supplier of medical services directly, but not to allocate that compensation to something other than the payment of those expenses.

In any event, in the present case, Syfrets decided to pay the relevant sum to Mr Richter. Even if Syfrets was empowered by the policy to pay someone else, the fact of the matter is that it did not, and that Mr Richter received the benefit for which the policy provided. It remains therefore a benefit which was an incident of his employment. It was "compensation" payable only if "permanent total disablement" had lasted for 12 months and permanent total disablement was defined as meaning "permanent total disablement

21 from following the insuied person's usual occupation". It was calculated in accordance with the formula "7 times annual earnings" and annual earnings were defined as "wages salaries cost of living allowances overtime food allowances commissions other considerations of constant character paid or allowed to insured persons (i.e. employees) by the insured (i.e. Syfrets)." It was compensation paid because of inability to continue to perform the very income earning occupation which was used as the basis for calculating the claimed damages for loss of earning capacity. I am therefore unable to share the view that there was no nexus between the benefit received and Mr Richter's loss of earning capacity. It was a benefit which had been extended to Mr Richter and other employees for at least 16 years and one which was spelt out in the handbook produced for employees. That the taking out of the policy by his employer and the occurrence

22

of the risks insured against were also critically causally relevant to his receipt of the benefit, does not derogate from the fact that it was a benefit so symbiotically allied to his employment that, in my judgment, and as in Dippenaar's case, it cannot fairly be ignored when assessing the damages he has suffered as a consequence of his loss of earning capacity. I do not regard the decision in Swanepoel's case as being in pari materia. The linkage in that case between the payment which the court declined to deduct and the claim for loss of earning capacity was not as clear, and the claim had not been based upon the employment in which plaintiff was engaged at the time he was injured, but upon hypothetical future employment of quite a different kind. Indeed, Van Heerden JA cited a passage from Dippenaar's case (at 9 j - 10 c) in which the importance of the connection between the payment which it is sought to deduct and the basis upon which the

23 plaintiff has quantified his claim for loss of earning capacity was emphasised, and then said:

"In my view this passage relates to the case in which a plaintiff assesses his loss of earnings on the basis that, but for his injuries, he would have continued to earn income in terms of an existing contract of employment. In such a case benefits due under or arising from (my emphasis) that very contract fall to be deducted from the loss of earnings." (At 10 C - D).

In my view the benefit in issue here did arise from the very contract of employment upon which plaintiff relied for his quantification of Mr Richter's claim.

I do not think it matters that Mr Richter would have

received other and different monetary benefits under the policy even if he had been injured in a manner which did not disable him from continuing his employment with Syfrets. The fact remains that the actual benefit he received, was received because he had been disabled 24

permanently from continuing his employment with Syfrets. Nor, as I see it, does it matter that the benefit accrued to him irrespective of whether the injury was sustained during, or in the course of, or as a consequence of his employment. That is irrelevant to the question whether the benefit received was a benefit which accrued to him by virtue of his employment.

The fact that he also received a disability pension from his employer does not mean that that pension alone was to be regarded as compensation for his loss of earning capacity. The fact that Syfrets also contracted with Lloyds to provide an employee who had been disabled to an extent which disabled him permanently from continuing his employment, with the benefit in question, means no more than that he was to have that benefit in addition to the pension. That is not surprising because the disability pension alone would not adequately

25

compensate an employee for his loss of earning capacity. With respect, I see no justification for arbitrarily categorising the additional benefit as a solatium which was not intended to be compensatory. The arbitrary nature of its calculation is a neutral factor. It was not intended to compensate the employee fully for his loss of earning capacity and some way had to be found of putting an arbitrary ceiling on the amount he would be paid. Whether that was done by way of a formula, or by way of specifying a particular sum, the result would be the same, namely, an arbitrary limit.

I am unable to accept the argument that Syfrets was actuated by sheer generosity in contracting with Lloyds for its employees to have this benefit. To my mind, it is out of accord with commercial reality. As is said in Silkein South African Income Tax. Vol 3 at p 23.17 with reference to donations tax:

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"But, in order for an amount to be subject to donations tax, the donation must amount to a 'gratuitous disposal of property' (s 55(l)(ii) ), and an amount awarded as a fringe benefit must surely be given for services rendered or to be rendered and therefore cannot constitute a gratuitous disposal." Perquisites of employment conferred by an employer are not actuated by sheer generosity; they are conferred to make employment with that employer appear to the employee to be more attractive than, or at least as attractive as, employment with another employer might be, and thus induce the employee to value his employment, to aspire to retain it, and to give of his best to ensure that he retains it. The hypothetical situation posed in Byleveldt's case is very different in principle and I do not regard it as analogous to the situation which confronts us in this case.

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I would therefore allow the appeal in this respect. As this is a minority judgment there is little point in addressing the question of appropriate costs orders.

R M MARAIS Eksteen JA : Concurs