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[2011] ZASCA 173
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Registrar of Medical Schemes and Another v Suremed Medical Scheme (201/11) [2011] ZASCA 173; 2012 (2) SA 512 (SCA) (29 September 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 201/11
In
the matter between:
REGISTRAR
OF MEDICAL SCHEMES
….............................................
First
Appellant
THEBEMED
MEDICAL SCHEME
….................................................
Second
Appellant
and
SUREMED
MEDICAL SCHEME
…............................................................
Respondent
Neutral
citation:
Registrar of Medical Schemes v Suremed Medical
Scheme
(201/11)
[2011] ZASCA 173
(29 September 2011)
Coram:
HARMS DP,
LEWIS, MALAN, BOSIELO and THERON JJA
Heard:
23 August 2011
Delivered:
29 September 2011
Summary:
Medical Schemes
-
Amalgamation of medical schemes -
Medical Schemes
Act 131 of 1998
,
s 63
- Purpose of
s 63
is to regulate transactions
relating to amalgamations or transfer of business of medical schemes
- No amalgamation or transfer
without agreement between parties
concerned - Registrar of Medical Schemes has no power to confirm an
exposition not underpinned
by agreement to merge.
_________________________________________________________________
ORDER
On appeal from:
North
Gauteng High Court, Pretoria (Prinsloo J sitting as court of
first instance):
The appeal is dismissed
with costs, including those of two counsel.
JUDGMENT
THERON JA (HARMS DP,
LEWIS, MALAN and BOSIELO JJA concurring)
[1] The first appellant
is the Registrar of Medical Schemes (the Registrar). The second
appellant, Thebemed Medical Scheme (Thebemed)
and the respondent,
Suremed Health Medical Scheme (Suremed), are medical schemes
registered in terms of the
Medical Schemes Act 131 of 1998
. Thebemed
and Suremed entered into a Memorandum of Understanding (MOU) on 19
April 2010 in terms of which they agreed in principle
to merge,
subject to the approval of their members. They lodged an exposition
of their proposed merger with the Registrar in terms
of
s 63
of the
Act. This appeal revolves around the interpretation of
s 63
and in
particular, whether the Registrar has the power to confirm an
exposition that is not submitted pursuant to an agreement
to merge.
[2] The background to
this matter is the following: Suremed is a small medical scheme with
only 1576 members. This number falls
short of the minimum of 6000
members required by
sections 24(2)(
d
)
and 27(1)(
d
) of the
Act read with Regulation 2(3) of the Medical Schemes Regulations, GN
R1262, Regulation Gazette 6652, 20 October 1999. The
Registrar has,
since 2007, requested that Suremed address this problem. He
eventually threatened that if Suremed did not comply
with the
requirement of a minimum of 6000 members by the end of April 2010, he
would ‘direct the scheme into an amalgamation’.
Suremed
identified Thebemed as a suitable merger partner and as has already
been mentioned, they entered into a MOU in terms of
which they agreed
to merge. Clause 1 of the MOU records the following:
‘
Thebe and Suremed are
registered medical schemes whose Boards of Trustees have agreed to a
merger of the two schemes
subject
to approval by
:
The respective members of each scheme
The Council for Medical Schemes
This document seeks to capture the key
principles and procedures already agreed to which will form the basis
of a formal agreement
to be entered into by the parties.’
(Emphasis added.)
[3] Suremed and Thebemed
jointly prepared an ‘exposition’ setting out the proposed
amalgamation for submission to the
Registrar in terms of s 63(2) of
the Act. Thebemed and Suremed’s boards approved the exposition
on 26 and 28 June 2010, respectively.
The exposition was lodged with
the Registrar on 1 July 2010. The Registrar gave notice on 3 August
2010 that the exposition would
be open for public inspection at the
office of the Registrar and the registered offices of both schemes
from 4 August 2010. The
Registrar gave interested parties until 14
September 2010 to comment on the exposition. Suremed and Thebemed
caused similar notices
to be published in the media on 8 August 2010
and in the Government Gazette on 27 August 2010.
[4] In accordance with
the terms of the MOU, the two funds conducted a poll of their
respective members regarding the merger. Thebemed’s
members
voted in favour of the merger while the majority of Suremed’s
members voted against it. On 22 September 2010, Suremed
advised the
Registrar that its members had not approved the merger and asked the
Registrar to withdraw the exposition. The Registrar
nevertheless
confirmed the exposition on 29 September 2010. Suremed appealed
against the Registrar’s decision to the Medical
Schemes Appeal
Board, which dismissed the appeal. Suremed took the decisions of the
Registrar and the Appeal Board on review to
the North Gauteng High
Court, Pretoria (Prinsloo J) which upheld the review and set aside
the decisions of the Registrar and the
Appeal Board. This is an
appeal against the judgment of the high court, with the leave of that
court.
[5] The high court held
that it was not competent for the Registrar to confirm the exposition
because the parties’ merger
agreement was rendered void when
Suremed’s members voted against the merger. The high court
further held that the Registrar
did not have the power to confirm an
exposition which was not underpinned by a valid and binding
agreement. On appeal, the appellants
contended that the purpose of s
63 was to create a mechanism to give statutory force to an exposition
– a mechanism not dependent
upon an agreement to merge or
transfer of a business to or from a medical scheme. It was argued
that the lodging of an exposition
triggers a process conducted under
the control of the Registrar and in terms of the Act. The procedure
initiated by the submission
of an exposition, so the argument went,
takes the process out of the realm of contract between the parties
and locates it in the
statutory and regulatory arena, and the
Registrar must consider whether the proposed amalgamation or transfer
of business meets
the requirements of the section. On the
interpretation of s 63 contended for by the appellants, the Registrar
does have the power
to confirm an exposition even if it is not
underpinned by a binding agreement to merge. According to this
interpretation, the exposition
becomes binding on the parties
independently of any underlying agreement and immediately after
confirmation by the Registrar.
[6] The determination of
the issue in this matter lies in the interpretation of s 63. This
section provides the statutory framework
for amalgamations and
transfer of businesses to or from medical schemes and gives the
Registrar regulatory powers in respect of
such transactions. In terms
of s 63(1) such transactions shall not be of any force and effect
unless carried out in accordance
with the provisions of s 63. Section
63(1) provides that:
‘
No transaction
involving
the amalgamation of the business of a medical scheme with any
business of any other person (irrespective of whether that
other
person is or is not a medical scheme) or the transfer of any business
from a medical scheme to any other medical scheme or
the transfer of
any business from any other person to a medical scheme, shall be of
any force, unless such amalgamation or transfer
is carried out in
accordance with the provisions of this section
.
(Emphasis added.)
[7] In terms of s 63(2)
the medical schemes concerned are required to submit ‘a copy of
the exposition of the proposed transaction’
to the Registrar.
The meaning of the words ‘exposition’ and ‘transaction’
have not been defined in the
Act. The dictionary meaning of
‘exposition’, according to the
Collins
Dictionary
(10 ed) is,
‘
a systematic, usually written
statement about, commentary on, or explanation of a specific subject.
The act of expounding or setting
forth information or a view point.’
In the
Oxford English
Dictionary
(2 ed)
‘exposition’
is
explained, as, inter alia,
‘
The action
or process of setting forth, declaring, or describing, either in
speech or writing. A statement in which any matter is
set forth in
detail. The action of expounding or explaining; interpretation,
explanation.’
According to
Black’s
Law Dictionary
(9 ed), the meaning of
‘transaction’ is recorded as:
‘
The act or an instance of
conducting business or other dealings; esp. the formation,
performance, or discharge of a contract. Something
performed or
carried out; a business agreement or exchange. Any activity involving
two or more persons. An agreement that is intended
by the parties to
prevent or end a dispute and in which they make reciprocal
concessions.’
[8] The inclusion of the
word
transaction
in the section clearly
indicates that there must be agreement between the parties concerned,
before the process created by s 63
can be set in motion. Section
63(3) contains references to the ‘proposed transaction’.
The further subsections, namely,
63(5), (6), (7), (13) and (14) also
refer to the ‘proposed transaction’. The proposed
transaction is, in my view, the
underlying agreement between the
parties and governs the terms of the amalgamation or transfer
contemplated in the section. The
submission that there can be an
amalgamation or transfer without an underlying transaction is without
merit. Further support for
this view is to be found in s 63(16) which
provides that:
‘
A
transaction
in terms of this section shall not
deprive any creditor of a party thereto, other than in his or her
capacity as a member or a shareholder
of such party of any right or
remedy which he or she had immediately prior to the date of the
transaction
against any party to the transaction
or against any member or shareholder or officer of such party.’
(Emphasis added.)
The scheme created by s
63 clearly envisages a ‘transaction’ between the parties
concerned relating to their amalgamation.
[9] Having regard to its
ordinary dictionary meaning, an exposition, as used in the section,
is intended to explain and comment
on the underlying transaction.
Without an underlying transaction there would be nothing to explain
or deliver comment on. The parties
must, in the exposition, explain
the terms upon which they have agreed. The exposition may contain
more detail than the transaction
itself. This becomes clear when
regard is had to the further requirement in s 63(2) that the
exposition must be accompanied by
every actuarial or other statement
taken into account for the purpose of the transaction and particulars
of ‘the voting at
any meeting of its members at which the
proposed transaction was considered’.
1
If the voting of members
of the medical scheme(s) is a precondition for the validity of the
proposed transaction, then details of
such voting should ideally be
submitted with the exposition. At the very latest, details of the
voting should be provided to the
Registrar before the latter
considers the exposition and makes a decision in respect thereof.
[10] By letter dated 22
September 2010, the Registrar was advised that the members of Suremed
had voted overwhelmingly against the
merger. Suremed requested the
withdrawal of the exposition, alternatively that ‘the Registrar
declines to confirm the exposition
on the basis that there is no
agreement between Thebemed and Suremed to merge as the Suremed
members failed to approve such proposed
merger’. The Registrar
declined to withdraw the exposition and in a letter to Suremed dated
28 September 2010 wrote that,
‘
1. Rule 31.3 requires that 50%
of [Suremed’s] members return their ballots voting in favour of
the amalgamation before it
can be concluded in terms of Section 63 of
the Act. Furthermore, [Suremed’s] rules do not provide for the
Registrar to ratify
a lesser percentage of votes received where the
scheme could not attain the required percentage. As the number that
voted on the
proposed merger is less than 50% of the number of
members of the scheme hence the requirements of rule 31.3 have not
been met.
…
.
Notwithstanding the above issues, the
position of this office is that an amalgamation is a legal process
which is guided by section
63 of the Act. The Suremed board has
signed the exposition document and resolved to merge with Thebemed
Medical Scheme and is therefore
not in the position to withdraw from
the process.’
[11] The Registrar
confirmed the exposition on 29 September 2010. The Registrar was thus
aware, prior to confirming the exposition
that the proposed
transaction was in conflict with Suremed’s rules and that the
members had voted against it. It was also
clear that the trustees of
Suremed had no authority to conclude the merger agreement. It was
argued, on behalf of the appellants,
that the Registrar could, in
terms of s 63(11), confirm an exposition even if the proposed
transaction was in conflict with the
rules of the scheme concerned.
There is no merit in this submission and this will be dealt with
later in this judgment.
[12] The Registrar may
also request that a medical scheme provide him with a report on the
proposed transaction by an expert nominated
by the Registrar.
2
The exposition and the
expert’s report, if any, must lie open for inspection at the
registered offices of the parties involved
in the transaction and at
the Registrar’s office for at least 21 days.
3
It was contended, on
behalf of the appellants, that once a party has knowledge of the
exposition and willingly participates in the
process provided for in
s 63, and in particular allows the exposition to lie open for
inspection, it was not possible for such
party to contend that it has
not consented to the proposed transaction, as the process was then
under the control of the Registrar.
There is also no merit in this
submission. It is absurd to suggest that a transaction can be foisted
upon a party in circumstances
where such party has not agreed to a
merger or transfer of business, but merely because such party has, in
some way, participated
in the process created by s 63. As has already
been pointed out, a transaction is an agreement based on consensus
between the parties.
It must also be borne in mind that medical
schemes are voluntary associations and s 63 must be interpreted in
the context of freedom
of association and the right of members to
control the destiny of their association.
[13] The Registrar may
also require a medical scheme to forward the exposition and the
expert’s report, if any, to its members
and creditors
4
and to give notice of the
proposed transaction by publication in the Government Gazette and in
any such newspaper(s) as the Registrar
may direct.
5
After the exposition and
the expert’s report has lain open for inspection, interested
parties have 21 days to make representations
to the Registrar on the
proposed transaction.
6
[14] Subsections 63(6) to
(10) sets out the powers of the Registrar in relation to confirmation
of the exposition. The Registrar
may confirm the exposition.
7
He may suggest that the
parties modify the exposition before he confirms it.
8
He may decline to confirm
the exposition.
9
The Registrar may only
confirm the exposition if he is satisfied that the transaction would
not be detrimental to the interests
of the majority of the
beneficiaries of the medical scheme(s) concerned and that the medical
scheme(s) remaining after the transaction,
will remain in or attain a
sound financial condition.
10
[15] The consequences
that flow from confirmation of the exposition are dealt with in
subsections 63(11) and (13) to (17). Section
63(11) reads as follows:
‘
Any exposition confirmed by the
Registrar or the Council in accordance with this section shall be
binding on all parties concerned,
and shall have effect
notwithstanding any conflicting provision contained in the rules of
any medical scheme concerned, in the
memorandum or other document
under which any other party to the transaction is constituted or in
the articles of association or
other rules of such party.’
Confirmation gives
immediate legal effect to the exposition and makes it binding on the
parties to the transaction, despite any
provision to the contrary in
the rules of the medical scheme(s) or other instruments of any of the
parties. Confirmation of the
exposition immediately brings about the
transfer of the assets and liabilities envisaged in the exposition in
terms of subsections
63(14), (15) and (17).
[16] Relying on the
provisions of s 63(11), it was argued, on behalf of the appellants,
that once the exposition has been confirmed
by the Registrar, it was
not open to a party to contend that the transaction underpinning the
exposition was not valid. It was
further argued that the exposition
becomes the primary instrument in accordance with which the
transaction takes effect and is
implemented. To find otherwise, so
the argument went, would defeat the object of the section because
then the Registrar would be
called upon to regulate a transaction
that may not have been disclosed to him.
[17] This argument is
misplaced. Section 63(11) does not authorise a medical scheme to
enter into a transaction that is in conflict
with its rules. This
subsection does not deal with the requirements of an exposition but
rather with the situation between the
parties post amalgamation or
transfer and after the exposition has been confirmed by the
Registrar. The process itself, however,
begins with and is dependant
on a binding transaction. There cannot be an amalgamation or transfer
without a valid transaction.
The transaction is not valid if, for
example, it is in conflict with the rules of the scheme concerned or
with legislation. The
transaction between the parties is explained in
the exposition. Section 63(11) says no more than that the
confirmed
exposition shall be
binding despite any conflict there may be between the exposition and
the rules of the scheme or its memorandum.
Section 63(11) does not,
as I have said, authorise the medical scheme or its board, to enter
into a transaction that is in conflict
with or not sanctioned by its
rules.
[18] The purpose of s 63
is to regulate transactions between parties relating to amalgamations
or transfer of businesses to or from
medical schemes. This section
gives the Registrar a supervisory role and as has already been
mentioned above, he has to be satisfied
that such transactions will
not be detrimental to the interests of the majority of the
beneficiaries of the medical scheme(s) concerned
and that the medical
scheme(s) remaining after the transaction, will remain in or attain a
sound financial condition. The first
step in the process is a valid
transaction between the parties of the kind envisaged in s 63. In
order for such a transaction to
be performed or be of any force or
effect, the provisions of s 63 have to be complied with. Compliance
with the section, entails,
inter alia, the filing of a document,
referred to as an exposition, explaining in detail the terms of the
transaction. The contention
by the appellants that there can be an
exposition without a valid underlying agreement between the parties,
cannot be sustained.
The section does not obviate the necessity of an
agreement between the parties.
[19] The appeal is
dismissed with costs, including those of two counsel.
_______________
L V THERON
JUDGE OF APPEAL
Appearances:
1
ST
Appellant: W Trengove SC (with F Ismail)
Instructed by: Eversheds, Sandton
Symington & De Kok, Bloemfontein
2
ND
Appellant: L J Morison SC (with P Strathern)
Instructed
by: Brian Khan Inc, Johannesburg
Claude Reid Inc Bloemfontein
Respondent: M S M Brassey SC (with K
Hopkins and
D Van Zyl)
Instructed by: Webber Wentzel
Attorneys,
Johannesburg
McIntyre & Van Der Post,
Bloemfontein
1
Section
63(2) reads:
‘
The
medical scheme contemplated in subsection (1) shall deposit with the
Registrar a copy of the exposition of the proposed transaction,
including a copy of every actuarial or other statement taken into
account for the purpose of the proposed transaction, and shall
furnish the Registrar with particulars of the voting at any meeting
of its members at which the proposed transaction was considered
and
with such additional information as the Registrar may require.’
2
Section
63(3)(a).
3
Section
63(4).
4
Section
63(3)(b).
5
Section
63(3)(c).
6
Section
63(5).
7
Section
63(6)(a).
8
Section
63(6)(b).
9
Section
63(6)(c).
10
Section
63(7).