Johannesburg, South Aftrica -- (SBWire) -- 07/11/2013 --The Supreme Court of Appeal recently delivered judgment in a case providing clarity on whether agreements settling damages claims brought against the South African Road Accident Fund on behalf of minors should be set aside.
The case of Road Accident Fund v Advocate Ele Myhill, NO (Swalibe Minors) involved an appeal against a judgment of the South Gauteng High Court, which had initially found in favour of advocate Ele Myhill (Myhill).
Myhill was acting on behalf of two minors, Philippine and Lufuno Swalibe (referred to as P and L respectively, and "the minors" together).
The pertinent issue to be determined on appeal was whether agreements settling the claims for damages brought against the appellant, the Road Accident Fund (RAF), on behalf of the minors should be set aside. The High Court held that they should be set aside, but granted the RAF leave to appeal.
Background
In 1997, the mother of the minors (the plaintiff), and P and L were run down by a motor vehicle. P (then aged two years) and L (then aged four months) sustained substantial head injuries. Following their release from hospital and prior to the settlement of their claims, the plaintiff alleged that both P and L had suffered seizures.
The records available at the time showed that L suffered an injury to the brain that, it was accepted, would put her at a higher risk of developing post-traumatic epilepsy. An expert neurophysiologist who testified in the High Court, noted that P had displayed classic signs of epileptic seizure during October 1998.
The plaintiff instructed an attorney, Cynthia Chabana (Chabana), who claimed ZAR 57,260 for P and ZAR 60,260 for L from the RAF. The claims mainly consisted of general damages.
Representatives of the RAF who handled the claims only assessed general damages as they did not receive supporting documentation in respect of the negligible amounts claimed for medical expenses. The merits of the claim were resolved on the basis that the plaintiff was partly to blame for the collision (30%), and the RAF offered to settle the minors' claims by paying ZAR 5,600 in respect of P, and ZAR 4,900 in respect of L.
In 1999 the plaintiff, in her capacity as P and L’s mother and natural guardian, signed discharge forms accepting the offers. The Court inferred that this was done with Chabana's advice.
Ten years later Myhill was appointed as curator ad litem to represent P and L in civil proceedings against the RAF. Summons was issued seeking an order setting aside the settlements and claiming substantial damages for the minors arising out of their injuries, and claiming that at the time the offers of settlement were made, a sum of ZAR 850,000 would have been fair and reasonable compensation for each of the minors.
The law
While Myhill relied on three alternative causes of action, the High Court found in her favour on the basis that the settlement agreements were prejudicial to the interests of the minors.
A contract concluded on behalf of a minor may be set aside if it is shown that it was prejudicial to the minor at the time it was concluded and the prejudice suffered was serious or substantial. While this is established law, there has been some debate recently as to whether or not the interests of legal certainty may outweigh the principles in cases where the minors' parent or guardian has taken legal advice at the time of concluding the settlement.
The Court noted that it should not take into account factors unknown at the time the claims were settled.
Based on the information available at the time, the Court found that the RAF representatives did not appreciate the severity of L’s injury, or take into account L's possible epilepsy. At the time, epilepsy had not been positively diagnosed, but the Court noted that the information available indicated a real possibility that L and P had developed post-traumatic epilepsy and reasonable assessment of their damages should have taken this into account.
The RAF failed to take epilepsy into account, which caused it to not offer any amount for future medical expenses, and to offer general damages that were wholly inadequate. As a result, the Court held that the settlements were obviously to the minors' prejudice.
Set-off
The amounts offered by the RAF were reduced by 30% to cater for an apportionment against the plaintiff as a result of her contributory negligence. The question arose whether the RAF was entitled to apply an apportionment against the minors' damages.
The general rule is that a person's indebtedness in a personal capacity cannot be set off against that same person's indebtedness in a representative capacity (eg as a custodial guardian). By reducing the amount offered by 30%, the RAF set-off the amount it could recover from the plaintiff in her personal capacity from what it owed her in her representative capacity as mother and natural guardian of the minors.
The Court held that the prejudice to a minor in such a case is obvious as the amount of the innocent minor’s claim against a defendant would be diminished by the fault of another. The Court accordingly ruled, once and for all, that a debtor liable to a minor child, when sued by the child’s custodian parent, may not set off against its liability to the child any amount that it may personally be owed by the custodian parent.
In the circumstances, the Court held that the minors were clearly prejudiced by the RAF having set off the plaintiff's liability against what it owed to the minors.
Settlements
A settlement agreement will not be rescinded merely because a claim was settled for an amount less than what it could be worth. The Court recognised that litigation is uncertain and it can be beneficial to settle a claim, even if the amount offered is less than what is hoped would be finally awarded, as predicting the outcome of a claim for damages for bodily injuries is not possible. Despite the potential advantages of early settlement, in this particular case the settlements were nevertheless found to be prejudicial.
Implications
The Court has come out in favour of the minor who is prejudiced by a settlement agreement entered into on that minor's behalf, regardless of the advice taken by the guardian who entered into such agreement on that minor's behalf.
The settlement may be set aside if it can be shown that the agreement was substantially prejudicial to the minor at the time it was concluded, based on the information available at that time. This highlights the importance of properly assessing injured minors' injuries and considering all of the information that may be available in assessing reasonable settlement offers.
While it is tempting to settle a matter at a low amount before summons is served, doing so comes with the inherent risk that the matter may resurface with a vengeance. The added cost of properly investigating before settling may well be significantly more economical in the long run.
Caution must also be taken when settling claims in which parents or guardians are partly liable. Settlement agreements will need to be worded carefully to avoid the conclusion that any amount offered to a minor is not set-off against the parent or guardian's liability.
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A Cautionary Tale: Settlements on Behalf of Minors