Articles

Earning capacity versus actual loss

Business Law & Tax Review July 2010
By Anna-Stella Nicholaou

Loss of earning capacity is a person’s loss of the ability to earn income. However, does such loss translate to an actual loss of earnings?

In the recent unreported decision in Roe v Road Accident Fund, the plaintiff, who was a shareholder in a company, was involved in a motor vehicle collision in which he sustained a number of orthopaedic injuries.

The plaintiff was a 25% shareholder in a company in which his father held the majority shareholding. His father intended retiring and the plaintiff on purchasing his shareholding. Before the collision the plaintiff spent approximately 70% to 80% of his work time on the road, actively involved in the sales and marketing of the company's products. Post-accident, he indicated that as a result of the disabilities he sustained, this percentage had decreased by 40%.

The plaintiff was paid a monthly salary package by the company. Despite being off work for a period of six months, he received his full salary package during this period. As such, the court decided that his patrimony concerning post-collision earnings had not been diminished at all. The major issue in dispute was the plaintiff's loss of earning capacity.

The court referred to Rudman v Road Accident Fund where the Supreme Court of Appeal enunciated that it will only quantify a claim in respect of loss of earning capacity once the plaintiff has proved that "the reduction in earning capacity gives rise to pecuniary loss".

In Rudman’s case the appellant, who was a game farmer and a professional hunter, was involved in a motor vehicle collision, and sustained severe bodily injuries that rendered him incapable of hunting professionally and partially disabled him from resuming the running of his farming operation. Before the collision the plaintiff had purchased a number of farms, formed a trust and assumed control over a company, in respect of which the trust held the majority of shares.

The court found that the losses suffered by the plaintiff did not result in a diminution in his patrimony. The loss suffered resulted in a loss to the company, and not to his personal estate. The court stated that "when a person has suffered a disability that led to his earnings capacity being compromised, then such person would suffer a loss to his patrimony" and such plaintiff would be entitled to compensation.

In Roe’s case, Judge Van Oosten indicated that the test consists of two inquiries. Firstly, a plaintiff in such instances must prove that, due to the injuries sustained by him, he undoubtedly suffered a diminution of his ability to optimally perform in the workplace. Even if such answer is in the positive, a second enquiry must be made: will he suffer any pecuniary loss as a result of the disability?

Judge Van Oosten examined the plaintiff's employment situation and capabilities. He decided that even though the plaintiff would indeed suffer a degree of pain and suffering in the performance of his duties, none of the expert witnesses suggested that the performance of such duties was beyond his abilities. Therefore, although the plaintiff was no longer able to perform optimally, he was still able to perform his employment duties. The plaintiff had also not lost any prospective customers due to his physical condition.

The plaintiff failed to furnish the court with evidence in respect of the second question. The plaintiff's income was derived solely from the business operated by the company. In light of the fact that the business had experienced increased profitability due to the opening of a retail store from which the company is able to sell its products, the court found that there was no suggestion or evidence that the company would not be able to meet its financial obligations. The court decided that the plaintiff had not, at any stage, suffered an actual loss of income, and that it was not shown that such loss was likely to occur in the future.

The court also considered the consequences of the fact that the expert witnesses were in agreement that the plaintiff would require future medical treatment which would result in a further six-month absence from work. The court decided that this issue had no bearing whatsoever on the calculation of his future loss of earnings as the plaintiff would, in future, be paid his full salary package.

The court also found that the injuries sustained by the plaintiff did not diminish the earnings of the company. Although the plaintiff was no longer able to perform optimally, he was still able to perform his employment duties.

The plaintiff’s claim for loss of earning capacity was dismissed and no award was made in this regard.

It is clear, therefore, that a physical disability that has an effect on capacity to earn does not necessarily reduce the estate or patrimony of the person injured. There must be proof that the loss suffered in respect of earning capacity does give rise to pecuniary loss.

Each case must be assessed and decided on its own merits, and the court must pay particular attention to the plaintiff's job description, the nature of his or her work and employment circumstances, and how the injuries sustained by him or her affect his or her ability to perform such work.

Courts must exercise caution and consider and assess the specific and special facts and circumstances of a particular matter.

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