The impact of the Road Accident Fund Amendment Act on the legal profession
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On 25 November 2010, the Constitutional Court delivered judgment in the Law Society of South Africa and 10 others’ constitutional challenge to certain provisions of the Road Accident Fund Amendment Act of 2005 (“Amendment Act”). To qualify for a reasonable claim under the Amendment Act, a claimant has to prove that he/she sustained at least a serious injury. The Amendment Act not only limits the number of road accident victims who will be able to claim from the RAF, but also limits the value of their claims, as a result of the limiting provisions relating to general damages and the caps imposed on loss of income or support. When considering the impact of the Amendment Act on the legal profession, a distinction must be drawn between three periods, as each period has a different impact on the legal profession. The past The past represents the period up to 31 July 2008, before the Amendment Act came into operation on 1 August 2008. According to the RAF’s statistics, in the past, administrative costs represented 44% of total compensation paid. This included legal costs of about R2.5 billion. Of the R2.5 billion, R1.6 billion was paid to Plaintiff attorneys as a party and party cost contribution (which included counsel’s fees, medico legal costs and other disbursements). R900 million was paid to the RAF’s own attorneys on defended claims. Plaintiff’s attorneys then also charged their client an attorney and own client fee, over and above the party and party fee which the RAF paid. Many attorneys charged their clients a contingency fee of 25% of the value of the settlement, and others charged according to an hourly tariff and not on a contingency fee basis. It is therefore evident, that for attorneys who worked on a contingency fee, the higher the settlement from the RAF, the more the attorney was able to charge as a contingency fee. For attorneys working on an hourly tariff, the value of the settlement made in most instances no difference to the attorney and client fee charged to the client. The RAF act in the past specifically provided for the payment of the party and party costs of the claimant, on settlement of the claim (even when no summons was issued). There was therefore no real risk of not recovering a cost contribution from the RAF. A great number of the R2.5 billion legal costs could have been saved if the RAF got their house in order. In the majority of cases the RAF did not respond to claims at all when the claims were lodged or within the statutory 4 month investigation period. The only way that a claimant could therefore enforce his/her right to compensation, was to issue summons. The RAF then defended all claims, and still did not try to settle claims before further legal costs were incurred. Offers to settle were often only made at the doors of court, after the incurrence of further unnecessary legal costs, especially counsel’s fees. In many simple matters attorneys requested offers of settlement from the RAF long before the trial date, and usually these matters also dragged on and settled on the trial date. The impression is gained that the RAF does not even from their side, try to limit legal costs, by attending to matters timeously and making objective offers of settlement. Many road accident victims who tried to lodge claims themselves, after a few fruitless years, had to turn to attorneys for assistance. The present Section 17(2) of the RAF Act has been deleted. In terms of the old Act, the claimant was entitled to claim the party and party costs if he accepted an offer from the RAF. Under the Amendment Act the RAF will not make any contribution towards a claimant’s legal costs if the claimant settles the matter with the RAF. It is obvious that by deleting Section 17(2), the RAF wants to avoid paying any legal costs to a claimant's attorney. The RAF is therefore forcing all claimants to issue summons against it, so as to ensure that the claimant will be able to recover a party and party cost contribution from the RAF. If summons is issued against the RAF, and the RAF is liable to compensate the claimant, the RAF as a Defendant will, by virtue of the Rules of Court, be obliged to pay the party and party costs of the Plaintiff. This will not be the case if a matter is settled before the issuing of summons. Summons will therefore have to be issued on all matters to ensure that party and party costs can be recovered from the RAF. This will increase the RAF’s legal bill of R2.5 billion even more, due to the Minister of Transport’s choice to delete Section 17(2) from the RAF Act. In the Memorandum of the Objectives of the Amendment Act, the legislature was of the view that by repealing Section 17(2), it will result in a saving for the RAF. The contrary will however happen! Due to the reduction in the value of compensation which the RAF will pay, the attorneys working on a contingency fee, will also experience a reduction in the contingency fee that they can charge their client. Coupled with this is the reality that because so little claimants qualify for worthwhile claims against the RAF at present, the number of claims on which attorneys can assist, has reduced significantly. There will accordingly be fewer claims on which fees can be charged. Many attorneys in the past built their entire practice on RAF cases. As a result of the reduction of worthwhile claims, attorneys can no longer afford to depend on RAF cases only to run a practice and business. Some attorneys no longer do RAF cases, whereas others who still depend on RAF cases for an income, has already started exploring other fields of law for the future. To prove a claim for general damages is also very problematic and complex in terms of the Amendment Act. When a client consults with the attorney for the first time, the attorney has to make a judgment call on whether the client will prove that he/she sustained a “serious injury”. To determine an entitlement to general damages, a client must be referred for a RAF4 (serious injury) assessment. The RAF will only pay for the costs of the RAF4 assessment if the injury is found to be “serious”, and if the RAF is liable to compensate the claimant in respect of merits. If the claimant fails to prove that he/she sustained a “serious injury”, the claimant will be liable for the costs of the assessment, which could be in the region of up to R8 000.00. The question is therefore, can a claimant take the gamble to go for an assessment, only to find out afterwards that he/she did not prove a “serious injury” and are then liable for the costs of the assessment? An attorney who takes on a claim and attends to the financing of the third party claim (which is done in most cases), can similarly not take the gamble that he/she may not be able to prove that his/her client sustained a “serious injury”. If the claimant does not place the attorney in funds prior to the assessment, the attorney may face a real risk of not recovering the costs expended on behalf of the client, from the client or the RAF. The future The draft policy on the restructuring of the RAF as compulsory social insurance in relation to the comprehensive social security system, was published in the Government Gazette of 12 February 2010. The new scheme will be known as the Road Accident Benefit Scheme (RABS) and will be administered by the Road Accident Benefit Scheme Administrator (RABSA). It is still unclear when the RABS will be put into place. The intention with the RABS is to replace the common law system of compensation with a set of limited no-fault benefits which would form part of a broader social security net as public financial support for people who are poor, have a disability or are vulnerable. The RABS will make limited periodic payments to claimants and there will be no claims for general damages. It will operate similar to the current Workman’s Compensation scheme. The RABSA will also not pay any legal costs. It seems that once the RABS is put in place, attorneys will no longer be part of the system and no attorney can therefore rely on road accident claims for income. It will simply not be worth it for attorneys to attend to RABS claims. This makes it even more imperative that attorneys must shift their focus to other fields of law and not be caught by surprise when the RABS commences. Nicolette Koch Partner nicolette-k@adamsadams.co.za |
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| 3/06/2012 | ||
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The firm practises directly in several Southern African countries and through long-established associates in others.
