Road Accident Fund recent challenges: RAF & DOT briefing; RAF Amendment Bill: briefing

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28 February 2017
Chairperson: Ms P Magadzi (ANC)
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Meeting Summary

The Committee met to be briefed by the Road Accident Fund (RAF) on the recent freezing and subsequent release of their central bank accounts.  The RAF said that although R8.6 billion was validly due to claimants, the fiscal reality as set out by the Finance Minister was that one could not just add 35-45c/litre to the existing fuel levy and think that would not have a knock-on effect on the economy. The RAF did not yet have a Request and No Yet Paid (RNYP) growing beyond R11 billion which was commendable and it strongly believed that its scheme of arrangements had to be brought to an end. Without speaking to the merits of whether one liked the RAF; what its benefits were and whether it had been a good design or not, the RAFs current dispensation was established in 1942 and the subject of 9 commissions of enquiry. The RAF was insolvent since 1981; cash strapped for decades and although most recently more money was given to the RAF than ever before, it remained with a shortfall. With regards to payment demands, the RAF was not convinced the sheriff that had attached its central bank account without notification did so within his jurisdiction.

The Committee commented that there was a decrease of claims and a serious increase in the fuel levy without a noticeable effect on both. Parliament was being approached with another amendment and Members wanted to know what did the earlier intervention produce? Why did the financial benefits to the RAF which was argued for, in the 2008-2014 period, not produce any change? The Committee also asked why the RAF could not make an offer within the prescribed time as per the RAF Act. Why did the RAF not adjust its payment system to pay out the small amounts of writs as liability on said writs as it was minor in the bigger scheme of things? Members questioned how was it that the RAF had an R8.6 billion shortfall when it was receiving R3 billion per month for expenditure? How many claims were due for prescription in number and their value?

Could the RAF speak to what happened when those who were liable to claim did not do so in time? Did the increase in the fuel levy solve the challenge of the shortfall? The Committee also asked what the RAF relationship with the sheriff was. What were the implications for non-compliance with statutory requirements going forward? Could that non-compliance also invoke another surprise action similar to a class action which could close down the RAF? What support was given to those victims that would have decided to claim directly from the RAF? What statutory Act was prescription based on? What was the highest pay-out awarded to direct claims victims?

Meeting report

Dr Eugene Watson, Chief Executive Officer (CEO), RAF, read the Committee through the presentation. He said that the RAF needed to have a dispensation where its income and expenditure matched each other. With regards to income, he said that although R8.6 billion was validly due to claimants, the fiscal reality as set out by the Finance Minister was that one could not just add 35-45c/litre to the existing fuel levy and think that would not have a knock-on effect on the economy. He said the RAF scheme of arrangements had to be brought to an end. Without speaking to the merits of whether one liked the RAF, what its benefits were and whether it had been a good design or not, the RAFs current dispensation was established in 1942. The RAF was insolvent since 1981; cash strapped for decades and even though recently more money was given to the RAF than ever before, it remained with a shortfall. He believed that if the RAF was like a normal Proprietary Limited (Pty Ltd) or unlimited company that would not be the case. Because the liability was so big on South Africa, even when the current RAF dispensation ended, the liability would have to be paid before Parliament considered replacing it with something else. The RNYP was proof of how one monetized the liability or deficit as productivity changed. He reiterated the unsustainability of the current scheme of arrangements; the RAF wanted to do something for accident victims and that meant reviewing and developing something else.

He said the RAF was not convinced the sheriff that attached its accounts and bank account without notification did so within his jurisdiction. The RAF scheme was expensive, benefited some, navigated serious resistance to change and operated in a business context where an ordinary business facing the same challenges the RAF had, and remained faced with, would not have traded beyond 1982.

Dr Ntuthuko Bhengu, Board Chairman, RAF, said that although insolvent, the RAF was operationally sound as evidenced by the 97% expenditure on claims which benefited the taxpayer. At R145 billion, it was no longer that the RAF could no longer afford the RAF Act; South Africa could not afford the RAF Act. If that R145 billion was for a National Department, that would put the RAF in the top five that was amongst the Departments of Basic Education and Health. The situation was untenable. Regarding whether it would be in anyone’s interest if the RAF would slow down on its performance for example, that would be like saying people had to work two days per week. The Board could not support any slowing down in productivity as it believed that to be unethical and went against principles of best practice in terms of corporate governance. The RAF could not pay people to underperform, granted that the Board would also not support a situation where the RAF hired more people. Dr Bhengu said when he joined the RAF, it had had about R6 to R7 billion in its account and in the Committee there was a discussion where the Public Rail Agency South Africa (PRASA) were motivating to be allocated the funds that were sitting at the RAF account. That money was as a result of underperformance where claims were not being processed and that was interpreted as cash in the bank and a much lower liability. It would not serve South Africa to present the RAF as fully funded when it was not and that would be what slowing down production would mean. It was no coincidence that since the RAF worked to decrease that positive balance, there was two increases in funding; the 50c/litre and the more recent increase in the fuel levy. The increases were a function of an organisation that performed, receiving clean audits which the Board was satisfied with. The RAF saw communication among attorneys where some acknowledged that the way the RAF was managing its delicate situation was in the best possible way.

Mr C Hunsinger (DA) said that the presentation revealed the struggle the RAF went through but there was interventions as he recalled a calculation that spanned a few annual, strategic and financial reports from 2008 to 2014. There was also an amendment Act where there was a serious intent to reduce general damages claims wherein presentations at the time indicated that 58% were general claims which totalled about R3.9 million. In the same period from 2008 to 2014, there was an increase in the fuel levy which if the current increase were added, the total would be about 20% increase from 2008 to 2017.Therefore, on one side there was a decrease of claims and a serious increase in the fuel levy without an noticeable effect on both. Parliament was being approached with another amendment; what did the earlier intervention produce? Why did the financial benefits to the RAF which was argued for, in the 2008-2014 period, not produce any change?

He said he would have appreciated a definition which spoke to the amount of claims submitted and yet would not have received offers. The RAF said in a recent press briefing that it spent more than R5 billion in legal costs, of which costs the RAF initiated. Looking at what the content of those cases that went to court were, most of them was to a large extent where no offers were made. In other words the RAF would have exceeded 120 days without making offers which was why the RAF was being taken to court. Why could the RAF not make an offer within the prescribed time as per the RAF Act?

Mr Hunsinger said he also would appreciate an expression of how many cases was not claimed. He was aware of agreements that the RAF had with claimants where payments were stop-and-start; why was there no positive communication from the RAF around those so that the victims and caretakers could understand. Why had the RAF not adjusted its payment system to pay out the small amounts of writs as liability on said writs was minor in the bigger scheme of things? For a cash strapped entity how could the RAF justify handing out sponsorships in the Comrades Marathon, expanding on employees and increasing expenditure when claimants were still awaiting pay-outs?

Mr T Mulaudzi (EFF) said that the RAF was perceived as poorly ran and it was not just a perception but it actually was poorly run. He said section 24 of the RAF Act said at subsection (6) No claim shall be enforceable by legal proceedings commenced by a summons served on the Fund or an agent- (a) Before the expiry of a period of 120 days. He said that all the challenges as outlined in the background section of the presentation arose because the RAF did not follow the law. There was no strategy in the presentation to save costs on litigation. Mr Mulaudzi said he could also not understand how the writs amount increased while the claims decreased by 35%. How was it that the RAF had an R8.6 billion shortfall when it was receiving R3 billion per month for expenditure? How many claims were due for prescription in number and their value? What was the average payment for direct claims monthly and annually? Members of Parliament (MPs) did not receive an increment in the previous financial year and would not do so in the financial year 2016/17 but Dr Watson was earning more than the President of the Republic and received bonuses but the RAF was saying it was without money. Moreover, the RAF was advertising in newspapers but it claimed to be without money.

Mr M Sibande (ANC) said that historically and as a legacy RAF claims were so biased that there was the Satchwell Commission appointed in June 1999 to inquire into and to make recommendations regarding a reasonable, equitable, affordable and sustainable system of road accident victim compensation. Before that commission, there were claimants claiming in foreign currency against the RAF. Could the RAF elaborate on the matter of lawyers that were challenging the entity that it had to pay claims through the law firms instead of the victims’ accounts? Did such attorneys still practise and were claimants from the fund? Could the RAF speak to what happened when those who were liable to claim did not do so in time? Did the increase in the fuel levy solve the challenge of the shortfall? What was the RAF relationship with the sheriff?

Were there still employees underperforming at the RAF; what was the expectation from employees if the RAF claimed to have no money? Could the board Chairperson elaborate on how section 21 would assist and what other possible impact that would have on the fund?

Ms T Xego (ANC) said that there was a perception that RAF was poorly run; her belief was that rather the leadership of RAF was running a poorly established entity. If the RAF had a legal unit, that had to be up-skilled. She was concerned about claimants that had no legal representation whose claims would be paid after two years and whether they would still be entitled to the original amount or would it change. The RAF was rather an organisational scheme not meant to generate income but there were those that were making money out of the scheme with little consideration for the victims and those people were the ones that were creating the challenge for the fund. There was a proposed amendment Bill but she was not sure where the process was but as MPs they would push for that Bill to be finalised as she believed it assisted RAF with its challenges.

Ms L Ramatlakane (ANC) said the unsustainability of the fund was a broader debate that did not end with the RAF alone as it affected the whole country. What were the implications for non-compliance with statutory requirements going forward although the RAF received a clean audit? Could that non-compliance also invoke another surprise action similar to a class action which could close down the RAF? Was the RAF staring down the barrel of a gun where anyone could pull the trigger at any time? Could the RAF say what the oldest claimant in the R8.6 billion shortfall was?

Mr Hunsinger said the Committee had to be careful of falling into a history trap as the presentation spoke to a R6 billion surplus in 2014. Was the calculation of the 35% saving on the direct claims due to the useful mechanism of prescription? What happened to cases that were prescribed and claimed as a direct claim? What support was given to those victims that decided to claim directly from the RAF? What statutory Act was prescription based on? 

Mr Mulaudzi raised again that section 24 (6) (a) the costs were high because of party-to-party costs. Those costs which were orders of the court could be avoided and in his possession he had a court roll of the North Gauteng High Court which showed up to 400 cases appearing per day which was similar to the Cape Town High Court.  Out of the 400 cases before the courts, RAF hired attorneys that settled the cases on the day of appearance; he asked why the RAF did not settle claims directly when they were lodged with it instead of waiting for the 120 days prescribed in section 24 (6) (a)? What was the highest pay-out awarded to direct claims victims? How much did the advertisements ‘RAF on the Road’ cost as the RAFs legislative mandate was to compensate road accident victims and not to run advertisements. 

Mr Mulaudzi proposed that the Committee go on an oversight visit to one of the courts where RAF matters were heard and it would see that attorneys for the claimants and RAF advocates settled matters between themselves in the absence of the claimants. Moreover, settling on the 120 day the party’s had to pay courts for everything.

Mr Sibande said there was a group of attorneys which were claiming against the RAF which he wanted to know since when they started, who signed their contract and how long was its duration thus far? He said that the outcome of the Satchwell Commission was that the RAF Act racially skewed the beneficiation from the claims. Secondly, as Committees when they did oversight, they always emphasized that entities had to market themselves and make themselves known to the citizens of South Africa. He would not chastise the entity for marketing itself as it had to do that. It was not the first time the RAF bemoaned being short of funds to make the pay-outs to claimants. Direct claims were part of the solutions the Committee agreed to in managing the mismanagement of claims pay-outs by attorneys representing claimants.

The Chairperson said Advocate Adam Masombuka, Chief Director: Legal Services, Department of Transport (DoT) would have to give input on what the strategic inputs were that the Executive Authority (EA) put in place to ensure the sustainability of the RAF going forward. She said the Departments of Social Development (DSD) and Health (DoH) were also working towards similar objectives and asked the RAF how could cooperation be fostered between those stakeholders and the RAF and what things could be off-loaded from the RAF and added to those stakeholders to ease the burden from the RAF.

Dr Bhengu replied that he possibly did not come across clearly in parts of his input. He said the R6 billion surpluses he referred to excluded the liability that was at that time already in the tens of billions.  Even at that time, one was looking at a massively negative situation financially. The R6 billion was in the context of a company that had such huge backlogs; 450 000 claims that were sitting in the system such that at particular points the RAF itself could not quantify the number of claims in its system. He said that he could replicate the R6 billion in six months if he were to stop paying which was his point; therefore it was disingenuous to pretend that the RAF was cash positive or financially positive at that time.

Mr Hunsinger raised a point of order that to say the Committee was disingenuous was not in the spirit of the engagement.

Dr Bhengu apologised and withdrew the remark. He said the salary package of the CEO was raised all the time and there were very clear statements which he wanted to make in that regard. The remuneration strategy that the Board of RAF employed was in line with best practise regarding executive remuneration anywhere. The remuneration was performance driven and the RAF Board believed that was the main reason why the fund was performing the way it had. The RAF moved from 53% targets met when the current leadership started where Dr Bhengu already assumed Chairmanship of the RAF Board and he recalled the fights they had with labour unions because RAF did not pay bonuses. Five years later, 90% of increasingly tighter key performance indicators (KPIs) were met, which was also why the RAF paid bonuses. When Dr Watson joined, the RAF he started on a package was equal to what he was paid by his previous employer. Dr Bhengu could refer the Committee to the Government Employees Medical Scheme (GEMS) annual financial statements of 2011 where it could read what Dr Watson received that year and he would submit to the Committee confirmation that the pay was the same; Dr Watson made a lateral move. Dr Watson’s appointment was delayed by 11 months because even Cabinet argued about whether he could be released from GEMS to go the RAF.

The bonus that the Committee saw was verified by the Auditor-General South Africa (AGSA) that it was performance driven; if Dr Watson did not achieve the set tasks the RAF would not pay him a bonus. What that meant was that Dr Watson could do nothing about the R145 billion as he did not fund the RAF and what was within his control was the operational performance of the RAF; the Board therefore repeated that the RAF was amongst the very best run organisation in the private and public sector and Dr Bhengu would know that as his background was in high transaction environments. The second verifiable matter was that in 2016 the guaranteed package, which included the bonus, was still less that the package Dr Watson’s predecessor received when he left the RAF in 2011. He would not have done anything differently as Dr Bhengu could find a CEO who would take R1 million packages but he was also certain that the taxpayer would be so much worse given the entity which was spoken about.  The fact that the CEOs package seemed to be high it had to be seen in how much in rands and cents was saved in any particular year-end and Dr Bhengu’s plea was for the Committee to purely look at how much was saved in legal costs. As Dr Bhengu appreciated MPs forgoing of bonuses, the Board of the RAF had Dr Watson make that same sacrifice when he moved from GEMS to RAF without a change to his salary scale.

Dr Bhengu said the point he was making earlier was that the Board of the RAF did not support the slowing down of operations as the fund already had 2500 people who had to work. Regarding section 21 and whether the RAF was facing down the barrel of a gun; that had actually started already at a micro level as the writs and the action of the sheriff spoke to that. The question of at what point; where enough people were going into the law because of non-payment of their claims, though the question was valid RAF creditors understood that if they went that route two things would occur. The RAF would probably be able to pay everyone it owed R1 only 5 cents. Alternatively the claimants would have to go and recover the money from the people that had caused accidents. Dr Bhengu had no doubt therefore that RAF creditors preferred the current situation as it stood but looking at section 21 had been in line with everything else that RAF did which was to constantly be a pain to the National Treasury (NT) through the DoT. Ultimately the best solution would be for SAs to drive properly and the RAF was about a national strategy that would avoid triple dipping whereby an employee involved in an accident using a work vehicle could claim from the RAF, the Compensation Fund and claiming from Social Security for the same accident.

On the matter of direct claimants being short changed, the Board of the RAF always tried to deal with that it accepted that the perception came from a good place. Moreover, the Board quarterly commissioned RAFs statutory actuary to present to the Board the numbers that showed the average pay-out for direct claims as opposed to represented claimants. The Board could give evidence that savings were really on legal costs as against savings from pay-outs to claimants.

Dr Watson said that the example that the Amendment Act of the RAF reduced volumes of general damages claims was narrow, as volumes were not the only consideration but cost also had to be factored in. The Amendment Act said non-serious general damages claims would be excluded; to only latch onto the part that there were assumed reduced volumes and ignore the fact that the average value was then increased because RAF was dealing with more expensive claims was narrow in perspective. He said in the RAF’s previous engagement with Parliament, he presented the RAFs Annual Report and in that presentation he referred the Committee to the 2015/16 Outcomes Indicators and individual claim payments/settlements per claims category. There he showed that the average value per claim went up from R54 208 at 31 March 2012 to R143 127 at 31 March 2016. Furthermore, he said that for general damages claims the total spend increased by over 100% from R3.9 billion five years ago to R8.7 billion and because of the Amendment Act the average value of those claims increased because there were fewer claims even though the volume was reduced.    

The comment that the RAF wasted money on legal costs by the Committee, he said that the RAF spent R33 billion on all claims on the 2015/16 financial year and R12.5 billion for the same item in 2011/12. When looking at claimants legal costs, the Committee would see that the costs grew from R38 534 in 2011/12 to R120 385 in 2015/16, excluding Consumer Price Index (CPI) increases. If the volumes were to be considered, the Committee would see that they reduced and although the RAF filled the court roll and was one of the largest defendants in the courts and there were many road accidents, it could not be argued that there were more and more legal claims costs and it was discernable that they were reducing over five years. Secondly, it could not be argued that it was just the RAF though it could be seen how the increase value went up. Thirdly Dr Watson said it could not be neglected that the RAF was the defendant; it could not wish away a case brought by a plaintiff. 

Although the RAF received money from the fuel levy increases, if one averaged those out it would be seen that the RAF portion was not in line with real inflation. Real inflation would be in access of CPI+2, the fuel levy of 154 cents one would be looking at a value of 12 to 13c per year but because that was not what the RAF was being allocated therefore it made no impact. The new amendment also introduced additional costs and the only way for some attorneys would be to go to court currently. Looking at the definitions, claim submitted no offers Dr Watson said RAF never claimed to be perfect. The RAF received 188 000 new claims per year meaning that there were over 715 new claims per day. The fund had a frozen headcount and therefore had to watch its administrative expenses and he said it would be absurd to assume the RAF would process 188 000 claims within 120 days. In terms of the new Act the Committee would recall there was maximum medical improvement in terms of general damages ideally assessed for 18 months after the claim registration; the 120 days therefore became logistically impossible even though the RAF wanted to meet the 120 days. The Committee would recall that one of RAFs targets was improving litigation management where it introduced a target to assess and verify a claim within 60 days according to its strategic plan (SP). In that SP the target was to also increase the percentage of claims that RAF assessed and made an offer to within 120 days.

The RAF actually made offers to 90% of claims made in a particular financial year. Outside of court, the acceptance rate was a lot better and a great deal of money was saved; in fact typically a claim outside of court would be settled for 60% of the original claim value. The outcome of the court was about a 10% saving.
On average, one and a half to two offers were made per court order matter and because orders would have a standard deviation where on some matters no offer would have been made and others where more than two offers would have been made with the plaintiff  rejecting the offers; possibly because the incentive to accept would be absent. The RAF was also trying to figure out how come offers were accepted out of court for 40% less than the claimed amount the plaintiff would have wanted but yet only 90% would have been reduced when the RAF went to court.

On agreements not honoured, the RAF just said in its presentation that there were over 2000 payments made each week day. Any disruption any week day by one of those 20 lawyers, setting back 2000 payees would disrupt the process and RAF would not be able to honour what it agreed to pay, which was why RAF held press briefings to communicate. The RAF could not offer claims recklessly section 4 (1) (b) of the principal Act said- the investigation and settling, subject to this Act, of claims arising from loss or damage caused by the driving of a motor vehicle whether or not the identity of the owner or the driver thereof, or the identity of both the owner and the driver 50 thereof, has been established. Dr Watson accepted criticism on not meeting the deadlines all the time for pay-outs but he would never endorse a situation where the RAF made offers for the sake of doing so.

On adjusting for payments dedicated to writs; he said that his presentation had reported that there had been over 40 000 writs in the last three years; 200 Bank attachments and if one prioritised the court orders/writs or bank attachments one created a perverse incentive as more and more people would do that. If 200 attachments by 20 attorneys set 6000 people back the Committee would imagine the fallout if RAF started incentivising that conduct. Regarding Comrade’s Marathon sponsorship, he said it was a three years sponsorship which was entered into four years ago. The RAF withdrew the sponsorship budget but there still remained a contract which obligated RAF to fulfil the third and final year of the sponsorship which was in 2016. Promotion of access meant RAF would continue doing sponsorships as it was a strategic objective in the SP, but it would not be sponsoring the Comrades. In 1991 the MeloMed commission of inquiry found a crisis in the R1 billion deficit; there were nine commissions of inquiry dating as far back as 1954/52 as the first, there came a point where one had to admit that the RAF Act was not working anymore.

Dr Watson said the RAF were allowed to register for direct claims but there were those that did not want RAF to have direct claims and he understood the conflict of interest. If one was a professional attorney whose business was to register and represent claims, seeing claimants going elsewhere would not be nice. If the attorney would get upset because direct claims were growing in number and becoming more popular and the attorney would start speaking badly about them that was a different discussion.

There was a process; a policy and a law on direct claims which were subjected to internal audits, compliance checks and reviews by the risk management team. The statutory actuary, as earlier pointed out, performed analysis average value of those direct claims quarterly. Furthermore, there were five actuaries that performed analysis on changes and there were some categories where the RAF paid a little more on direct claim; the most important which did not distinguish between income and age was general damages. Five actuaries on 3999 claims were found by the RAF to have been paid par-for-par with represented claims. The saving on a direct claim was only on the legal costs because the RAF did not do direct claims to squeeze out compensation to those claimants. On the perception that direct claims were underpaid and the represented ones paid more, the RAF paid R28 476 to its lawyers per claim in 2015/16 as that was cost of procurement. A claimant’s lawyer received R120 385 in the same year. Dr Watson said taken together those amounts approximated R148 000 and if they were contrasted to the average value of all claims of R143 127 it became worrisome when the facilitators and administrators of a system were getting more on average than the person the system existed for. That was absolute proof of the need to reduce the cost of accessing justice.

He said that two years ago the RAF was sensationally accused of the mechanism of prescription where he personally had two cases with the South African Police Services (SAPS) for two cases which prescribed before he started at the RAF. He said from 1 April 2016 to 31 April 2017 a total of 173 892 claims were lodged with the RAF. 38 000 were newly registered represented personal claims 38 636 were finalized personal claims because of the duty of care in that question and not because of the 128 direct claims which had prescribed in the last three quarters.  16 015 represented personal claims had been repudiated in three quarters represented by attorney; therefore if conversation was about prescription, it could not be narrowed down only to the 128 direct claims. If there was a belief that prescription was wrong then Parliament and the RAF had to aggressively and vociferously act with due care in dealing with both direct and represented claims where represented claims as mentioned in the presentation 33 000 had prescribed and those also had to be acted with care around and not only the 128 mentioned. Dr Watson said he knew publicly the RAF never received a fair share but in the Committee in the last few years it received commendation on how as the leadership they were turning the fund’s performance around.
He agreed with Ms Xego that the leadership of the RAF was running a business that was not supposed to have existed. The intermediary was receiving more money that the recipient and the business was insolvent since 1981 and therefore could not pay-as-you-go. Despite all of that performance outputs, audit outcomes, risk management, compliance, Financial Services Board (FSB) reporting to Parliament showed that RAF was transformed although it was not perfect. To suggest then that the RAF was poorly run was a sentiment Dr Watson disagreed with.

He said the RAF came to respond to the brief it was sent though it mentioned a litigation strategy. The RAF was not opposed to litigation as it was part of its strategy and when someone litigated it was a principle that the RAF would litigate as efficiently and effectively as possible. The RAF SP had litigation measure targeted at a cost level; its Annual Performance Plan (APP) then broke that down into quality of litigation before trial, at trial and after trial. RAF attended pre-trial and had managers that attended court as it put in place a panel management service level agreement (SLA), a panel management unit and penalized its own attorneys for poor performance and waste. RAF also reviewed the bill of cost that generated a saving of R1 billion as reflected in RAFs financial statements. Though not perfect, the RAF was realising value. Out 14 176 trial matters, the RAF picked up in 2015/16 that R16.94 billion was claimed where R15.086 billion was paid; therefore the value of going to litigation if one considered that both the plaintiff and defence views and the courts application of its mind saved almost R2 billion.

Non-claim expenditure reduced from 4 to 3%; a reduction of one in four which meant 25% and very few entities could come to Parliament to say they reduced their non-core and claim expenditure by 25% year-on-year and still operated against a tighter APP and SP. There were amendments to ensure that the RAF dealt with party-to-party costs. Dr Watson knew that the process to determine a pay-out direct or represented was similar with the other one excluding the plaintiff’s inputs. ‘RAF on the Road’ costs were part of a total budget that was reduced by 25%.

Dr Watson said something that pained him was that the last commission of inquiry presented a report in 2002 and the RAF allowed itself not to implement the recommendations thereof. The best measure of oversight was what was to be done next. He said that the RAF met with the sheriffs and engaged them and it accepted that at times they would attach, remove and sell assets; the RAF did not believe the sheriff responsible for the recent attachments acted in line with court rules and that duplicate attachments were correct either.

Dr Watson said the funds first priority was to indemnify the wrongdoer. Section 21 stated that “no claim for compensation in respect of loss or damage resulting from...shall lie against the owner, driver or employer if the fund is unable to pay any compensation”. Therefore, if the RAF could no longer protect the wrongdoer, then the wrongdoer would be liable. It would be a disaster for a wealthy wrongdoer who would then have to pay for their bad actions. A poor wrongdoer would unfortunately be condemned to further poverty. Looking at the biggest beneficiaries in terms of indemnification and compensation; a rich wrongdoer as he would not lose his triple story house and would be able to prove a bigger loss, a poor person was often excluded by the RAF dispensation as 40% of people injured on SA roads did not even qualify for assistance from the RAF even though they paid the same fuel levy. He said if Government was pro-poor, access to the pool by the poor had to be discussed before litigation strategies.      

He said the RAFs team could only take on so much and he reiterated his agreement that the RAF was a poorly designed scheme. The RAF had a corporate legal unit as well as advice on claims to improve RAFs litigation management. To ensure court efficiencies the RAFs claims teams had to submit all offers over R1 million to its legal team for a secondary view. Interest accrued on all outstanding payments and it was just under R150 million in 2015/16 which AGSA understood how it originated. The cost would continue being incurred for as long as there was RNYP.

On the profit takers creating problems, Dr Watson said it was important to sometimes remember the conflict of interests. There was a micro-economy that was paid R6.6 billion in 2015/16 but claims expenditure was at R28, 63 billion and R10.6 billion of RNYP. Together those two latter amounts totalled R39 billion and if one were to subtract R6 billion the remainder still exceeded money available for claims; therefore it was not convenient to say the money was wasted on legal fees nor was it correct to exclude the link; there was a professional that performed a service as provided for in the principal Act. The professional demanded payment for that service after they performed it and attached the account depriving other people of an equal payment and then simultaneously claimed the payments to be a waste. On implications of non-compliance, section 21 was relevant and an individual could argue using section 4 and 5 of the principal Act in terms of the RAF having to procure all the money it needed from NT.

The Chairperson said the Committee’s biggest concern was that when the RAF shut down, beneficiaries of road accident claims would be highly disadvantaged.

Mr Hunsinger said three of his questions were not answered. He had asked what support was given to direct claims claimants when the claims prescribed; what Act and which section of said Act did the RAF rely on in processing direct claims and lastly the RAF admitted that legal costs increased after the 2008 Amendment Act. What homework was done informing that amendment where actual benefits decreased and the income of the RAF increased? Mr Mulaudzi asked why writs increased after the amendment. If the RAF was comfortable with direct claims, how did its leadership feel when a paraplegic only received R25 000 in pay-outs?

Dr Watson said the same support was given to direct claims victims as provided for in the principal Act. Under heads of damages, the types of benefits qualified for were: loss or earnings, loss of support, general damages, and funeral benefits if a victim died as well as medical expenses. The RAF created a dedicated team for general claimants from origination, management to settlement and a rehabilitation team which improvised on-going support to direct claims victims. When a direct claim prescribed the RAF relied on various constitutional court rulings which shaped the RAFs action to deal with condonation of prescription and a policy on how the RAF would react if a claim had not yet prescribed though it would be apparent it was aging along that path. If it was a represented claim that prescribed, the RAF directed those victims to the Law Society though no one seemed to be taking up those victims’ cause to date.  

The principal Act in Section 19: The Fund or an agent shall not be obliged to compensate any person in terms of section 17 for any loss or damage-
(a) For which neither the driver nor the owner of the motor vehicle concerned would have been liable but for section 21 or
(c) If the claim concerned has not been instituted and prosecuted by the third
party, or on behalf of the third party by-
(i) any person entitled to practise as an attorney within the Republic; or 40
(ii) any person who is in the service, or who is a representative of the state or Government
He said the third party was the injured, which was where the RAF relied on processing direct claims. He said he was referring to general damages when speaking to the amendment and therefore one could not just look at one number in the presentation but the one had to look at the number, spend, the combination of the total spend, the average cost as well as the total value.   

Indeed the Amendment Act was also not the desired Act under which the RAF operated. No Act was perfect because if the assumption was Parliament applied its mind on the Amendment Act; the 2012 transitional provisions Act could not be forgotten because people were receiving R25 000.

Dr Watson said his view of the RAF was to not reduce it to a business of lawyers, although that was the legacy. The RAF was about people injured in vehicle road accidents, pain and suffering and how the fund assisted them. It could never be about the contestation of a pay-out when what was being dealt with was loss of earnings, loss of support, general damages, medical expenses, caregivers, undertakings and funeral costs. From 15 000 trials there was 188 000 claims, 167 000 undertakings, 20 000 home visits, 110 000 supplier pay-outs and 2000 caregivers salaries on a monthly basis.  Historically, before the transitional provision Act from 1942 to 2012 in South Africa, if one was a passenger in a taxi by law the RAF said to those people were good enough to pay the fuel levy but at best would be given R25 000 no matter what the impact of a vehicle road accident was. The RAF actuaries applied the negligence test and the results were that 40% of people were turned away from claiming against the RAF every year as they did not meet the requirements. Within those that qualified, if you were poor and lost little you would get little, but if you were rich and lost a lot the maximum would be paid out. There was no way then it could be assumed that the R25 000 pay-out Mr Mulaudzi referred to was from direct claims; that fixation on that limit was from the previous law.

The Chairperson said the Committee would expect the RAF to update it going forward on the attachment of its assets, banking accounts and other matters. She asked whether the DoT had no further input to add to what the RAF had said.

Adam Masombuka, Chief Director: Legal Services, Department of Transport (DoT), said that whatever remained unanswered, the DoT could be invited back alone or together with RAF to clarify those matters.

Mr Hunsinger said he was cautious and not convinced that what occurred at the RAF would not happen again in future. The Committee simply understood better what the bigger challenge was at RAF. He proposed that a further workshop be held with RAF on the attachment of its central bank account and guidance from DoT on what measures it would put in place, since a repetition would be disastrous. Furthermore, unless the Chairperson was saying the amendment of the RAF Act the Committee was to process was the solution; he argued that it certainly would not be so.

The Chairperson reiterated that the expectation of the Committee, as she alluded to regarding the RAF and the earlier proposal for oversight, would have spoken to Mr Hunsinger’s concerns. A workshop could be considered during the oversight if the Committee remained unconvinced. She asked the Committee’s input on the workshop.
Mr Hunsinger said he did not know how oversight could assist, as the attachment of the central bank account was an evolving matter and quite technical. The deficit remained large with ever looming further legal action; the DoT and NT had to guide the process in developing a contingency action plan.

Mr J Maswanganyi (ANC) said the Committee was responsible for oversight not implementation and that the separation of powers principle invoked that specific functions and duties were allocated to specific institutions. The Executive Authority’s responsibility was to see to it that the issues raised by the Committee were dealt with; the Committee had a limit of how to oversee RAF as the Minister was ultimately accountable to Parliament.    

Mr Mulaudzi supported the proposal that the Committee go on an oversight visit at RAF.

The Chairperson said from what was presented it would be useful for the Committee to engage the Standing Committees on Finance and Appropriations on the challenges facing RAF and what could be done to assist the entity.

Mr M De Freitas (DA) said he was concerned about the remaining time the Committee had to process the Bill and he proposed that it stood over.

The Committee agreed to the postponement.

Consideration and adoption of minutes
The Committee considered and adopted minutes for 21 February 2017 without any amendments.

The meeting was adjourned.

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