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In Road Accident Fund v Auditor-General of SA and Others [2024] 3 All SA 914 (GP) a dispute between the Road Accident Fund (RAF) and the Auditor-General (A-G) concerning the correct basis of accounting was resolved in favour of the A-G. The dispute hinged on the adoption of an accounting standard known as IPSAS 42. This effectively changed its treatment of payables and liabilities in its annual financial statements: In previous years, the RAF used IFRS 4 accounting standard on insurance contracts. The outcome of this measure was that the RAF’s liabilities suddenly plunged from the R 327 billion reflected in the 2019/2020 financial year, to R 34 billion reflected in the 2020/2021 financial year. The adoption of the new accounting standard led to the A-G issuing a disclaimer of opinion. The RAF applied to have this decision reviewed. The application was unsuccessful. The RAF proceeded to appeal the judgment but subsequently abandoned its application for leave to appeal (see Auditor-General South Africa ‘Auditor-General welcomes withdrawal of court appeal by Road Accident Fund’ (www.agsa.co.za, accessed 29-10-2024)).
Underlying this step is the assertion by the RAF that as from 2020 it was no longer dispensing insurance related compensation but has somehow become a social benefit entity. The reason for this is apparent: It made a vast positive R 293 billion difference to its balance sheet. The crucial question is whether the RAF is indeed a social benefit agency. In the judgment Neukircher J states the following:
‘The RAF, for what appears to be unsound reasons, in our view, suddenly did not consider itself an entity engaged in insurance-like activities anymore.
The difficulty with this self-consideration is that the standard provides that, for its purposes, social benefits refer to goods, services and other benefits provided in pursuit of the social policy objectives of a government. Although nothing much turns on this finding, we take the view that the RAF does not exist in pursuit of a social policy objectives of the government of the Republic of South Africa. In the first instance, by simply considering the history of the RAF, it is not too difficult to observe that it provided and continues to provide insurance or insurance-like activities. Accordingly, it is legally incorrect, in our considered view, to consider the RAF to be providing social benefits’ (my italics).
This obiter is in the context of judging the appropriate accounting system but does not definitively classify the RAF as an entity. In this article the classification of the RAF as an entity is explored. This question is of importance as, apart from the accounting dimension, the utterances of the RAF’s Chief Executive Officer and Board have consistently maintained that it is a social benefit agency and most if not all measures taken by or proposals made by the RAF (such as denying compensation for foreigners and its refusal to compensate medical aid funded claimants for medical costs, as well as most if not all of proposed amendment in the recent Road Accident Fund Amendment Bill 2023) in an attempt to improve its position, ostensibly stem from the subjective assumed position that it dispenses social benefits.
The philosophy behind the introduction of the Motor Vehicle Insurance Act 29 of 1942 (the MVA Act) and its successors is the protection of society against the socio-economic consequences of road crashes by providing full compensation for injury or loss caused by or arising from the negligent driving of motor vehicles. The state exercised its regulatory function by retaining and using the common law right of a road accident victim but legislating for security of recovery of such damages by substituting the original wrongdoer by a deep-pocket defendant initially insurance companies and currently the RAF. The burden of providing social security is spread among the actors in society who create the socio-economic consequences of road crashes – namely, motor vehicle drivers.
Initially the societal objective was achieved by the MVA Act becoming law in 1942. The initial Act was introduced in reaction to the potential danger created by motor vehicles to, initially, protect mainly pedestrians against the consequences of motor vehicle accidents (see A Suzman, G Gordon and LH Hodes The Law of Compulsory Motor Vehicle Insurance in South Africa (Cape Town: Juta 1982) at 1 et seq; the report of the Commission of Inquiry into certain aspects of compulsory motor vehicle insurance (the Grosskopf Commission) (1981) at 3 et seq). It was succeeded by the Compulsory Motor Vehicle Insurance Act 56 of 1972, the Motor Vehicle Accidents Act 84 of 1986, the Multilateral Motor Vehicle Accidents Fund 93 of 1989 and finally, the Road Accident Fund Act 56 of 1996 (the RAF Act).
The objects of all the Acts which at various stages governed the road traffic collision victim (RTCV) compensation system impliedly indicate that the socio-economic interests of the RTCV were at stake. The system has been referred to as ‘social security’ (see Law Society of South Africa and Others v Minister for Transport and Another 2011 (2) BCLR 150 (CC) at para 50). Prior to 1986, insurance was employed as the method to deliver social security. The actual rights afforded a victim were not created by the insurance contract. The right of the road accident victim was their common law delictual right to compensation. Legislation only regulated access to the social security engineered by the insurance-based Acts initially using compulsory insurance as a funding mechanism. The RAF Act employs fuel levy funding but uses the same structure as before 1986. After 1986 all reference to insurance was removed from the title because the compensation system was no longer funded by insurance – premiums previously paid by the owner or driver of a motor vehicle was now funded by a fuel levy. Essentially the basic structure and mechanisms of these Acts have over time remained unchanged. The RAF fuel levy is a dedicated income fund exclusively for the compensation of RTCVs (see s 5 of the RAF Act which provides that the levy is paid into the National Revenue Fund in terms of s 47 of the Customs and Excise Act 91 of 1964, less any amount of such levy refunded under that Act and is a direct charge against the National Revenue Fund for the credit of the Fund).
It is trite that the purpose of RTCV compensation legislation ‘the greatest possible protection’ against the impecuniosity of the wrongdoing driver (see Aetna Insurance Co v Minister of Justice 1960 (3) SA 273 (A) at 285). Full indemnification of a crash victim does not have any beneficial ancillary socio-economic result or consequence other than avoiding and/or negating the detrimental societal consequences of road traffic crashes.
The South African RTCV compensation analysed above, display certain distinct characteristics. It is necessary to compare these characteristics with the characteristics displayed by social benefit and insurance schemes in order to correctly classify the RTCV compensation system.
Social benefits are dispensed in terms of social security schemes. The White Paper for Social Welfare adopted by the government in 1997 (www.gov.za, accessed at 30-10-2024) defines social security as covering a wide variety of public and private measures that provide cash or in-kind benefits or both especially when an individual’s earning power permanently lost, never developing or being exercised only at unacceptable social cost and such person being unable to avoid poverty and secondly, in order to maintain children. Social security concerns poverty prevention, poverty alleviation, social compensation and income distribution. Generally, social security is distinguishable from the wider concept of ‘social protection’. Social protection relates to a general system of basic social support no longer linked to the regular employment relationship. It is founded on a system of welfare support and protection (see A Dekker, L Jansen van Rensburg, R Liffman, M Thomson and A van der Walt ‘Social Security: A conceptual view’ (2000) 4(1) Law, Democracy and Development 1 (www.saflii.org, accessed 30-10-2024)). The Accounting Standards Board’s (ASB) view is that it mitigates social risk directly relating to the individual or household’s characteristics and addresses the needs of society as a whole. Social benefits are distinguished from insurance or other types of benefits (eg, employee benefits) if they address the needs of society, rather than an individual and impliedly, contributions and benefits are determined for society as a whole, not for each beneficiary. IPSAS 42 states that ‘society as a whole’ could still mean specific sectors of society (see ASB ‘What could be considered a social benefit in the local environment?’ (www.asb.co.za, accessed 30-10-2024)).
The following characteristics of social security are apparent from the above:
Social insurance is traditionally linked to employment and earnings and ensures continued income in cases of unemployment or incapacitated to work. Benefits are guaranteed at minimum and maximum levels and calculated regardless of the levels of contribution and individual risk (Dekker et al (op cit) paras 1 and 2). Social insurance is usually encountered in formal employment. Examples of social insurance are unemployment and worker’s compensation (eg, Unemployment Insurance Act 63 of 2001 and the Compensation for Occupational Injuries and Diseases Act 130 of 1993). Social insurance is financed from contributions by individuals, employers and government with benefits linked to contributions (Dekker et al (op cit) para 4.4).
The following features characterise social insurance:
The following characteristics can be identified from its origins and content:
Judicially SA’s RCTV compensation was classified as social security without clarifying the extent or operation of what is meant by this classification. The current view of the RAF management and Board that the RAF dispenses social benefits is contrary to the origin, history, basis and content of what is contained in the RAF Act. In addition, the characteristics of SA’s current RTCV compensation system does not support a conclusion that it is a social benefit system:
At best SA’s RTCV compensation system can possibly be classified as social insurance but then as such it does not fully comply with the usual accepted requirements of social insurance. It is also not employment linked, does not have minima and maxima benefits/compensation and is not linked to the level of contribution of participants. The system is a social security measure, which retains the common law rights of claimants and is fundamentally a public insurance scheme, which ensures the compensation of RTCVs who have suffered damage or loss caused by or arising from the unlawful and negligent driving of motor vehicles to address the insidious harm that RTCs cause to members of society and society itself.
Professor Hennie Klopper BA LLD (UFS) is an Emeritus Professor at the University of Pretoria and legal practitioner at HB Klopper in Pretoria.
This article was first published in De Rebus in 2024 (December) DR 22.
