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[2020] ZAWCHC 47
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Independent Community Pharmacy Association v Minister of Health and Others (11647/18) [2020] ZAWCHC 47 (3 June 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
Case
No: 11647/18
In
the matter between:
INDEPENDENT
COMMUNITY PHARMACY ASSOCIATION
Applicant
And
MINISTER
OF
HEALTH
First Respondent
CHAIRPERSON
OF THE SECTION 22(11)
APPEAL
COMMITTEE
Second Respondent
DIRECTOR-GENERAL
OF THE DEPARTMENT OF HEALTH
Third Respondent
THE
CLICKS GROUP
LTD
Fourth Respondent
NEW
CLICKS SOUTH AFRICA (PTY)
LTD
Fifth Respondent
UNICORN
PHARMACEUTICALS (PTY)
LTD
Sixth Respondent
CLICKS
INVESTMENTS (PTY)
LTD
Seventh Respondent
CLICKS
RETAILERS (PTY)
LTD
Eighth Respondent
JUDGMENT
DELIVERED ON 3 JUNE 2020
SIEVERS
AJ
INTRODUCTION
[l]
The applicant is the Independent Community Pharmacy Association
("ICPA"), a registered non-profit company who represents
members comprising more than 1 000 independently owned community
pharmacies. They employ approximately 2 500 pharmacists and 20
000
supportive health care personnel.
[2]
On 6 May 2016 the applicant lodged a
complaint with the Department of Health alleging that the sixth and
eighth respondents were
contravening the provisions of section 22A of
the Pharmacy Act, 53 of 1974 ("the Act") read with
regulation 6. This relates
to the ownership and licencing of
pharmacies. In terms of Regulation 6 the first respondent ("the
Minister") has prescribed
as a condition of ownership that a
person who owns, or has a beneficial interest in, a community
pharmacy is prohibited from being
the owner or the holder of any
direct or indirect beneficial interest in a manufacturing pharmacy.
[3]
The complaint was rejected by the
Deputy-Director General, acting on delegated authority from the third
respondent ("the DG")
on 19 January 2017. The applicant
lodged an appeal against the decision in terms of section 22(1l) of
the Act on 17 February 2017.
The appeal was set down by the Second
Respondent ("the Chairperson") for 29 November 2017. It was
heard on that date
and dismissed on 15 January 2018.
[4]
The applicant asks for an order
reviewing and setting aside both the decision of the DG on 19 January
2017 as well as the decision
of the Chairperson' s appeal committee
on 15 January 2018.
[5]
The applicant further asks for a
declaration that the fourth to eighth respondents ("the Clicks
Entities") have contravened
the Act and regulations and that the
issue of the sanction to be imposed be remitted to the Chairperson,
alternatively to the DG,
for consideration.
[6]
I
n the alternative, the applicant asks
that section 22A of the Act be declared to be contrary to sections
l(c) and 27, of the Constitution
and accordingly invalid.
THE
CLICKS ENTITIES
[7]
The Clicks Group Limited ("Clicks
Group"), the fourth respondent, is the holding company at the
top of the corporate structure.
[8]
Clicks Group is a 100% shareholder of
New Clicks South Africa (Pty) Ltd ("New Clicks"), the fifth
respondent.
[9]
New Clicks owns all the shares of both
Unicorn Pharmaceuticals (Pty) Ltd (Unicorn), the sixth respondent,
and Clicks Investments
(Pty) Ltd ("Investments"), the
seventh respondent.
[10]
Investments holds all the shares of
Clicks Retailers (Pty) Ltd (" Retailers "), the eighth
respondent.
[11]
Unicom owns a manufacturing pharmacy
while Retailers owns and operates approximately 470 community
pharmacies, with 1830 pharmacists,
1430 pharmacist assistants and 315
nursing practitioners.
THE
STATUTORY PROVISIONS
[12]
Section 22A of the Act provides as
follows:
"22A Ownership of pharmacies. -
The Minister may prescribe who may
own a pharmacy, the conditions under which such person may own such
pharmacy, and the conditions
upon which such authority may be
withdrawn."
[13]
This section of the Act is to be read
with Regulation 6 which provides as follows:
"6
Ownership of community
pharmacies
Any person may, subject to the
provisions of regulation 7, own or have a beneficial interest in a
community pharmacy in the Republic,
on condition that such a person
or in the case of a body corporate, the shareholder, director,
trustee, beneficiary or member,
as the case may be, of such body
corporate-
(d) is not the owner or the holder
of any direct or indirect beneficial interest in a manufacturing
pharmacy."
[14]
In order to interpret Regulation 6(d),
one must assess the text, context and purpose of the provision. See
Cloete and Another v S; Sekgala v
Nedbank
2019 (4) SA 268
(CC), at par
28, referencing
Natal Joint Municipal
Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA).
[15]
As the SCA stated in
Smyth
v Investec Bank
2018 (1) SA 494
(SCA) at [29]:
"... the logical point of
departure is the language of the provision itself read in the context
of the overall scheme of the
Act, having regard to the purpose of the
provision and against the background to the production of the
relevant statute".
[16]
It is common cause that the decisions of
the DD-G and the Appeal Committee in respect of the applicant's
complaint constitute administrative
action within the meaning of that
term in the
Promotion of Administrative Justice Act, 3 of 2000
,
which renders them susceptible of review in terms of that Act.
DOES
THE STRUCTURE OF THE CLICKS ENTITIES OFFEND AGAINST THE PROVISIONS OF
THE ACT READ WITH
THE REGULATION?
[17]
New Clicks holds 100% of the
shareholding of Unicom which owns the manufacturing pharmacy.
[18]
It would be artificial to contend that a
company which owns 100% of the shares in a company does not have a
direct or indirect beneficial
interest in the business owned and
operated by that company. The shareholder appoints directors to the
company's board. The board
determines what dividend is declared,
which is then paid to the shareholder from the funds generated by the
business. The proceeds
of the winding up of the company go to its
shareholder. The shareholder thus clearly has a beneficial interest
in the business
owned by the company.
[19]
New Clicks is thus the holder of a
beneficial interest in a manufacturing pharmacy.
[20]
The next question is whether New Clicks
is a beneficiary of the juristic person which owns the community
pharmacies (i.e. Retailers).
New Clicks is the sole shareholder of
the company
(i.e.
Investments)
which holds all of the shares of the juristic person which owns the
community pharmacies (i.e. Retailers).
[21]
On the above reasoning Investments is a
beneficiary of Retailers and so is its shareholder in tum. New Clicks
will profit from Retailers
through Investments.
[22]
The Clicks Entities submit that a
shareholder in a company does not have a beneficial interest in the
company' s assets . Accordingly,
they submit that when Regulation 6
(d) speaks of someone who owns or has a beneficial interest in a
pharmacy, it means someone
who is the legal owner of the pharmacy
business or is legally entitled to the benefits of ownership of the
pharmacy.
[23]
Retailers owns all the community
pharmacies. It is submitted that as its shareholder, Investments,
does not own the pharmacies and
does not have any rights to the
benefits of ownership of the pharmacies, Investments does not have
any beneficial interest in the
pharmacies.
[24]
The Clicks Entities further submit that
this interpretation accords with the empowering provision in section
22A of the Act which
only permits the Minister to prescribe who may
own a pharmacy or hold the legal rights to the benefits of its
ownership.
[25]
Lastly, the Clicks Entities submit that
the applicant's complaints do not avail the applicant because they do
not affect the validity
of the licences issued to Unicom and
Retailers. It being argued that the complaint that their holding
companies contravene the
Regulations would not invalidate the
licences held by Unicorn and Retailers.
[26]
This argument cannot be upheld. Unicom
and Retailers hold their licences subject to the conditions set out
in the Regulations. Where
there is a condition breached there is a
prohibition on ownership.
[27]
To interpret these conditions in the
manner contended for by the Clicks Entities, namely that to be a
beneficiary or to have a direct
or indirect beneficial interest
relates only to the benefits of ownership of the pharmacies would
emasculate and frustrate the
purpose of the prohibition.
[28]
The regulations recognise that where a
community pharmacy is owned by an entity other than pharmacists
themselves, it is w1desirable
for there to be a direct or indirect
beneficial interest in both such a community pharmacy and a
manufacturing pharmacy.
[29]
An entity having interests in both types
of pharmacies would gain financially if the manufacturing pharmacy's
products are promoted
by the pharmacists in the community pharmacies
over others. This could result in consumers not getting the best
quality product
at the best price. Products which are not strictly
needed might be recommended and sold.
[30]
The conflict of interest could also
result in the manufacturing pharmacy favouring community pharmacies
belonging to the same group
above outside or independent pharmacies.
This might affect the availability of products to customers.
[31]
These dangers are present in the
corporate structure of the Clicks Entities.
[32]
The corporate structure thus contravenes
the prohibition contained in Regulation 6.
[33]
There is no attack on the validity of
the Regulations. The Regulations prohibit not only the ownership of
both manufacturing and
community pharmacies but also prohibit an
entity from being a beneficiary of the one and holding a direct or
indirect beneficial
interest in the other, which are wider concepts
than the benefits of ownership.
[34]
The DD-G's view that Investments and
Unicom are "fellow subsidiaries " and "associated
companies" and that the
Regulation does not preclude associated
companies from owning a community and manufacturing pharmacy does not
recognise that it
is the corporate structure which constitutes the
contravention.
[35]
The appeal committee's acceptance of the
argument that section 22A of the Act merely confers a power to the
Minister to determine
who may own a pharmacy and that the Regulations
must accordingly be interpreted to avoid rendering them
intra
vires
the Act by reading them as
dealing only with the ownership of pharmacies , is incorrect. The
plain wording of the concepts of "
a beneficiary of' and "a
direct or indirect beneficial interest " cannot be ignored, nor
can the context or purpose of
the provision.
[36]
To do so would undermine completely the
aim of the legislative scheme which is ultimately to protect the best
interests of patients.
It would otherwise be possible to circumvent
and frustrate the purpose of the prohibition merely by interposing a
juristic entity.
[37]
Section 22A expressly empowers the
Minister to prescribe the conditions under which a person may own a
pharmacy and the conditions
upon which such authority may be
withdrawn.
[38]
The concept of a beneficial interest is
of wide import. The Appeal Board' s acceptance that, since the assets
of a company do not
belong to the shareholders but to the company
itself , even a 100% shareholding in a company does not translate
into a beneficial
interest in the company, is incorrect. This is a
material error in law and falls to be reviewed and set aside.
[39]
A shareholder, without owning the assets
of the company, has a beneficial interest in the operations and
profits of the company's
business, i.e. in this case the pharmacy.
[40]
Accordingly, both the decisions of the
DD-G and the Appeal Committee fall to be set aside.
[41]
The first to third respondents have
elected to abide the outcome of this application.
[42]
A number of procedural and
in
limine
points were taken by the
Clicks Entities at the appeal hearing. These were dealt with and
dismissed by the Appeal Committee and
the dismissal of these points
was not formally challenged. It is accordingly not necessary for this
court to revisit them.
[43]
The Clicks Entities further submit that
the assessment of the question as to whether the DG and Appeal
Committee lawfully dismissed
the applicant's complaint must involve
an analysis of the complaint itself. It is argued that it is only if
the complaint itself
was incorrectly decided that the decisions can
be set aside.
[44]
The complaint, read with annexure A
thereto (being an extract from Clicks Group's annual financial
statements) reflects under '
Trading' that the said holding company
directly holds New Click s and indirectly holds Unicom and Retailers.
[45]
Thus, whilst the complaint before the DG
incorrectly stated that Retailers and Unicorn "clearly have
direct or indirect beneficial
interests in each other", the
complaint read with the annexure reflected that these entities were
both held by The Clicks
Group through New Clicks. The true mischief
was accordingly reflected in and exposed by the contents of the
complaint. New Clicks
has the interests prohibited in respect of both
the community pharmacies and the manufacturing pharmacy.
[46]
The regulations are intended to prevent
a conflict of interest not only at the ownership level. This is a
purpose consonant with
s22A. The section imposes conditions in
respect of the ownership of community pharmacies. The Regulations do
not merely prohibit
beneficial ownership but specify that a
beneficial interest is prohibited.
[47]
This was argued before the Appeal
Committee.
[48]
The gravamen of this complaint was
specifically considered in the appeal with the Decision of the Appeal
Committee recording that:
" 20.2 Appellant in the
circumstances submitted to the Appeal Committee that the corporate
structure of the Clicks Group of
companies as explained above
contravenes Licencing regulation 6 and in a way manages to circumvent
the very same mischief that
the licencing regulation seeks to address
and consequently prevents."
and
"45. As pointed out above the
main issue in this appeal stems from the Appellant' s complaint that
Clicks Group and New Clicks
have a beneficial interest in both
Retailers and Unicorn because Retailers owns and operates community
pharmacies and Unicorn on
the other hand is a manufacturing pharmacy.
Appellant's contention is that the corporate structure of Clicks
Group of companies
contravenes Licencing Regulation 6(d)."
[49]
It to be noted that the appeal to the
Appeal Committee was an appeal in the wide sense. (See
Meyer
v Iscor Pension Fund
2003 (2) SA 715
(SCA) para 8). The appeal committee accordingly considered afresh if
there was a contravention of the Regulations. The crux of
the
complaint was substantially the same, the essence being the corporate
structure through which the group held both retail and
manufacturing
pharmacies.
[50]
The finding by the Appeal Committee that
the corporate structure of the Clicks Entities does not offend
against the regulation is
incorrect.
[51]
As a result this conclusion the
constitutional challenge falls away.
[52]
The Clicks entities further submitted
that section 22 did not grant a power to revoke licences as had been
requested in the complaint.
Section 22(10) empowers the closure of a
pharmacy which is being conducted in contravention of the Act or the
licencing conditions.
[53]
It is accordingly ordered that:
1.
The
decision of the Director-General of the Department of Health on 19
January 2017 rejecting the Applicant's complaint dated 6
May 2016
pertaining to contraventions of the provisions of the Pharmacy Act 53
of 1974 ("the Act") read with the Regulations
relating to
ownership and the licencing of pharmacies of 25 April 2003 ("the
Regulations") is reviewed and set aside.
2.
The
decision of the First Respondents’ appeal committee constituted
in terms of section 22(1 l) of the Act, on 15 January
2018 dismissing
the Applicant's appeal against Third Respondent's decision is
reviewed and set aside.
3.
In
substitution for the decisions referred to in paragraphs 1 and 2
above, it is declared that Fourth to Eighth Respondents contravened
section 22A of the Act read with Regulation 6, in that:
3.1
Seventh Respondent has a beneficial
interest in community pharmacies through its 100% shareholding of
Eighth Respondent, which owns
community pharmacies, and the
shareholder of Seventh Respondent, being the Fifth Respondent, has a
direct or indirect beneficial
interest in the form of shareholding in
Sixth Respondent, which owns a manufacturing pharmacy.
3.2
Fifth Respondent has a beneficial
interest in community pharmacies through its 100% shareholding in
Seventh Respondent which, in
tum, has a 100% shareholding in Eighth
Respondent, which owns community pharmacies, and its direct or
indirect beneficial interest
in the form of shareholding in Sixth
Respondent, a manufacturing pharmacy.
4.
The
issue of the sanction to be imposed in respect of the above
contraventions is remitted to Second, alternatively Third, Respondent
for consideration.
5.
The
Fourth to Eighth Respondents shall pay the Applicant's costs, jointly
and severally, with such costs to include the costs of
two counsel.
______________________
SIEVERS
AJ
JUDGE
OF THE IDGH COURT