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[2011] ZASCA 228
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Muller NO and Another v Community Medical Aid Scheme (901/2010) [2011] ZASCA 228; 2012 (2) SA 286 (SCA); [2012] 2 All SA 252 (SCA) (30 November 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 901/2010
In the
matter between:
JOHANNES ZACHARIAS HUMAN MULLER N.O.
…..................................
First
Appellant
RALPH FARREL LUTCHMAN N.O.
…....................................................
Second
Appellant
and
COMMUNITY MEDICAL AID SCHEME
…........................................................
Respondent
Neutral citation:
Muller NO & another v Community
Medical Aid Scheme
(901/2010)
[2011] ZASCA 228
(30
November 2011)
Coram:
Heher, Malan and Wallis JJA
Heard:
22 November 2011
Delivered: 30 November 2011
Summary:
Medical Schemes Act 131 of 1998
–
s 63
–
liquidation of medical scheme – transfer of members to other
medical scheme – confirmation of by Council for
Medical Schemes
– whether contributions falling into liquidated scheme’s
estate and if so whether
s 63(14)
applicable.
______________________________________________________________________
ORDER
On appeal from:
South Gauteng High Court, Johannesburg
(Blieden J sitting as court of first instance):
The
appeal is dismissed with costs.
______________________________________________________________________
JUDGMENT
MALAN JA (Heher and Wallis JJA concurring):
[1] This is an appeal against the judgment and order of Blieden J
dismissing with costs the application of the appellants for the
repayment of monies paid to the respondent from the current account
of Humanity Medical Scheme (Humanity). The appeal is with his
leave.
[2] The appellants are the joint liquidators of Humanity which was
finally wound-up on 26 September 2008, with effect from 23 September
2008, the date of the application for its winding-up. They were
appointed on 26 September 2008. On 26 September 2008 two payments
of
R1 850 000 and R5 272 566,80 were made on the
instructions of the administrators of Humanity, Allcare
Administrators
(Pty) Ltd (Allcare), to the respondent, the Community
Medical Aid Scheme (Commed). On 29 September 2008 Allcare caused a
further
payment of R1 150 000 to be made to Commed. All the
payments were made from the account of Humanity after its winding-up.
The amount claimed consisted of the amount of contributions made by
members of Humanity in respect of their medical aid benefits
for
September 2008. The question in this case is whether the entitlement
to the September contributions paid into its account formed
part of
Humanity’s insolvent estate and, if so, whether it thereafter
vested in Commed by operation of law on confirmation,
on 3 September
2008, by the Council for Medical Schemes (the Council) of the
transfer of the members of Humanity to Commed in terms
of s 63 of the
Medical Schemes Act 131 of 1998 (the Act).
[3] During August 2008, when it was apparent that Humanity was in
dire financial circumstances and insolvent, a meeting was arranged
between representatives of Humanity and Commed to discuss the
‘migration’ of the former’s members to the latter.
At a subsequent meeting on 25 August it was agreed that the effective
date of the cover to be extended by Commed to the former
members of
Humanity would be 1 September 2008. Since Humanity’s members
paid their contributions in advance Humanity agreed
to pay all
contributions it received from its members for cover in the month of
September 2008 to Commed. The word ‘migration’
is not
defined in the Act but was referred to by the parties to describe the
transfer by members of Humanity of their membership
to Commed.
[4] On 22 August 2008 the Council approved Humanity’s proposal
for the transfer of its members but required that an application
for
exemption from the provisions of s 63 of the Act be made. Section 63,
briefly, deals with the amalgamation of the business
of a medical
scheme with the business of another person and with the transfer of
the business of a medical scheme to another person.
Its provisions
must be complied with for the amalgamation or transfer to be of any
force (s 63(1)).
[5] On 25 August 2008 Humanity sought exemption from the provisions
of s 63 from the Council. On 3 September 2008 the Council approved
the application and authorised Humanity to proceed with the transfer
of its members. The approval was backdated to 1 September
2008.
The members were transferred onto the books of Commed on 5 September
2008 and full coverage was extended to them by
Commed with effect
from 1 September 2008. Members of Humanity were informed by circular
on 3 September 2008 of the transfer but
they were requested to notify
it if they wished not to have their membership transferred.
[6] Allcare had administered Humanity prior to its winding-up, and
was again appointed on 7 November 2011 to assist the liquidators.
Commed was concerned that it would not receive the transferred
members’ contributions for the month of September timously
but
was assured on 8 September 2008 ‘that the contributions to
Commed will be paid’. Commed was again told on 23 September
2008 ‘that the matter is being taken care of.’ Commed’s
concern, as expressed in an email message on the previous
day, was
‘whether once the liquidator is confirmed, will we be able to
receive those contributions and not wait for the winding
down
process?’ Allcare, as counsel for the appellant remarked, did
not take care and the winding-up application was presented
on 23
September 2008 without any payment having been made.
[7] Chapter XIV of the Companies Act 61 of 1973
and, in particular, ss 337 to 426, apply to the winding-up of a
medical scheme (s
53(1) of the Act). Humanity is a ‘medical
scheme’ as defined by s 1 of the Act. The effect of a
winding-up order is
to establish a
concursus
creditorum
. In
Walker
v Syfret NO
1911 AD 141
at 166 Innes JA
explained what is meant by this expression:
1
‘
The
object of the Insolvent Ordinance is to ensure a due distribution of
assets among creditors in the order of their preference.
And with
this object all the debtor's rights are vested in the Master or the
trustee from the moment insolvency commences. The
sequestration order
crystallises the insolvent's position; the hand of the law is laid
upon the estate, and at once the rights
of the general body of
creditors have to be taken into consideration. No transaction can
thereafter be entered into with regard
to estate matters by a single
creditor to the prejudice of the general body. The claim of each
creditor must be dealt with as it
existed at the issue of the order.’
Section 361(1) of the Companies Act provides
accordingly that in the event of a winding-up by the court ‘all
the property
of the company concerned shall be deemed to be in the
custody and under the control of the Master until a provisional
liquidator
has been appointed and has assumed office.’ On
winding-up the directors of the company cease to function and are
deprived
of their control of its property.
2
Any authority Allcare had also terminated on the
liquidation of Humanity.
3
Section 391 requires a liquidator to ‘proceed
forthwith to recover and reduce into possession all the assets and
property
of the company …, [and to] apply same so far as they
extend in satisfaction of the costs of the winding-up and the claims
of creditors, and shall distribute the balance among those who are
entitled thereto.’
[8] The court below accepted that the September
contributions were received by Humanity as ‘custodian’
for Commed and
held that they never formed part of Humanity’s
estate. It did so on two grounds. The first is that the contributions
were
earmarked funds and that Humanity was merely acting as a conduit
for their transmission to Commed. The second basis arises from
the
judgment of this court in
Nissan South
Africa (Pty) Ltd v Marnitz NO & others (Stand 186 Aeroport (Pty)
Ltd intervening)
4
that an account holder is not entitled to claim
from his bank money that had mistakenly been transferred into his
account.
[9] Humanity, the court below said, had never made
any claim to the contributions. The members who paid their September
contributions
to Humanity did so in the belief that they were obliged
to do so and to retain their rights to medical aid. The contributions
were
paid to Humanity when, unknown to the members, it was unable to
render any services to them and that Commed had undertaken to do
so.
The contributions paid into Humanity’s current account could
accordingly not be classified as its property and could
not have
become so by way of
commixtio
,
which would have been an ‘oversimplification’ of the
matter.
[10] As to the second ground, the court below took the view that,
although it was not concerned with the theft of money, ‘one
is
dealing with credits reflected in [Humanity’s] bank account
which the recipient was aware were not its property and which
it had
every intention to pay to the party to whom such money was due. Had
[Humanity] utilised the funds received from its members
for September
2008 for its own purposes, there is little question that this would
have constituted theft on its part, if one applies
the reasoning in
the Nissan case …’. The principles relating to
insolvency and impeachable transactions thus, the
court held, found
no application because the funds at no stage belonged to Humanity
which had accepted the contributions ‘with
full knowledge that
it was not its money’.
[11] In this court it was argued on behalf of
Commed that the rules of a medical scheme constituted a reciprocal
agreement between
the scheme and its members: the scheme undertakes
liability for the member’s medical expenses in return for the
member’s
obligation to pay a contribution. Payment, so the
argument went, is a form of performance of contractual obligations
discharging
the obligations of the payor. It is a bilateral act
requiring a meeting of minds in respect of the debt to be
discharged,
5
as well as the obtaining of control over the funds
paid by the payee. To be effective the payee must have the
‘unfettered
or unrestricted right to the immediate use of the
funds in question’.
6
It was submitted that the September contributions
were paid by its members to Humanity without agreement as to the debt
to be discharged
and without Humanity’s obtaining control over
the funds. The contributions therefore never became part of its
property. Humanity,
it was contended, never intended to provide cover
to its members for September 2008 nor did it receive those
contributions for
the purposes of extending such cover. As it was
obliged to pay over their amount to Commed, Humanity never acquired
an unfettered
or unrestricted right to the September contributions.
[12] I do not fault the submissions made by
counsel for Commed on the legal nature of payment. However, the
conclusions sought to
be drawn from them are not supported by the
facts. The Council granted Humanity exemption from the provisions of
s 63 of the Act
on 3 September 2008 and the members were transferred
to Commed on 5 September 2008. The September contributions were due
and payable
to Humanity in terms of its rules on or before 3
September. Rule 13.2 provides that ‘[c]ontributions shall be
due monthly
in advance and be payable by not later than the 3
rd
day of each month.’
7
The September contributions were paid and received
as such on or before that date: the notice circulated by Humanity on
3 September
2008 referred specifically to the fact that the
‘September contributions, levied as per the Humanity Medical
Scheme contributions’
would be reconciled at the same time as
their debit orders would be adjusted – the debt discharged was
clearly identified.
The fact that Humanity intended to pay the amount
of the September contributions over to Commed does not detract from
this finding.
Nor does it matter that Humanity was unable to provide
any services to its members: it had arranged for Commed to do so and
had
agreed to pay over the amount of the September contributions to
the latter. The minutes of the meeting of 25 August 2008 between
the
two medical schemes record that it was agreed that ‘[a]ll
contribution[s] received will be paid into Commed’s account
…’.
The two medical schemes involved thus contemplated that the September
contributions would be paid to Humanity
and thereafter by Humanity to
Commed. This is also apparent from the answering affidavit where it
was stated that the transfer
of the members to Commed also embraced
the transfer of the September contributions and that Humanity had
undertaken to transfer
them to Commed. No doubt this was agreed to
because it was not possible, as also appears from the answering
papers, to make the
necessary adjustment to the debit orders of
members in time. It follows that the September contributions were
received by Humanity
as contributions due and payable to it and that
Humanity undertook to pay them over to Commed. This is confirmed by
the undertakings
referred to above. It follows that the September
contributions were not paid in error, nor were they undue. There was,
moreover,
agreement as to the debt to be discharged by their payment.
[13] No question of ‘ownership’ of the
contributions arises or can arise (this matter is concerned, not with
res corporales
,
but with personal rights). In so far as monies
in
specie
may have been involved they
belonged to Humanity’s bank. The relationship between bank and
customer is one of debtor and creditor.
In
S
v Kearney
8
it was stated that –
‘
it has
long been judicially recognised in this country that the relationship
between bank and customer is one of debtor and creditor.
When a
customer deposits money it becomes that of the bank, subject to the
bank’s obligation to honour cheques validly drawn
by the
customer …’
Humanity never became owner of the September
contributions but acquired a personal right or claim against its
bank, an entitlement,
arising from the bank and customer relationship
between them. Its bank became owner of the funds credited to the
account subject
to an obligation to honour payment instructions by
Humanity. The September contributions were not kept separately in an
earmarked
account, with the agreement of the bank, for payment to
Commed or repayment to Humanity’s members. They were ‘mixed’
with other funds in the account resulting in an amount standing to
the credit of Humanity. To call Humanity a ‘custodian’
of
the September contributions deposited into its bank account, as the
court below did, adds nothing to the issue. The contributions
paid
were not trust funds.
9
Nor was Humanity’s bank party to any
agreement between Humanity and Commed. There is no evidence to
suggest that Humanity’s
bank had agreed to hold the September
contributions as agent or custodian for Commed, whether disclosed or
undisclosed, or that
it had knowledge of such arrangement.
10
Nor is there any evidence to suggest that Commed
had acquired any personal rights against Humanity’s bank in
respect of the
contributions. Moreover, there is no evidence to the
effect that Humanity’s rights to operate upon its bank account
had in
any way been limited by reason of the payment of the September
contributions into it.
11
The fact that Humanity undertook to pay the amount
of the September contributions to Commed had no effect on its powers
as account
holder and did not fetter or restrict them.
[14] The court below relied on the decision of
this court in
Nissan
.
12
In view of my finding that the September
contributions were due to Humanity, were not paid in error and that
Humanity undertook
to pay them over to Commed it is not necessary to
deal with the
Nissan
case.
It is clearly distinguishable.
13
[15] It follows that when the September
contributions were paid into Humanity’s account it had a
personal right
vis à vis
its bank to the corresponding credit in its
account. Neither Commed nor anyone else had a better or stronger
claim or, for that
matter, any claim to it.
14
This entitlement was an asset in Humanity’s
estate and would on liquidation have been available for the
satisfaction of the
claims of the general body of creditors. But this
would have been the position only if s 63 of the Act had not been
applicable.
[16] Section 63 of the Act regulates the
amalgamation and the transfer of the business of a medical scheme.
The section provides
the statutory framework for amalgamations and
transfers and gives the Registrar regulatory powers in respect of
these transactions.
In terms of s 63(1) these transactions shall not
have any force and effect unless carried out in accordance with the
provisions
of the section.
15
Section 63(1) provides:
‘
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.’
[17] The only manner in which an amalgamation or
transfer envisaged by the section may be achieved is in terms of this
section.
Its requirements are peremptory but the Council is entitled
under s 8(
h
)
of the Act to –
‘
exempt,
in exceptional cases and subject to such terms and conditions and for
such period as the Council may determine, a medical
scheme or other
person upon written application from complying with any provision of
this Act’.
It is not necessary to determine the precise ambit
of s 8(
h
).
The Council was informed of the proposed transfer of Humanity’s
members and confirmed its approval of Humanity’s
proposal but
requested it on 22 August 2008 to make an urgent application in terms
of s 8(
h
)
for exemption from the provisions of s 63 setting out inter alia –
‘
1.The
circumstances resulting in the transfer i.e. the financial status of
the scheme;
2. The urgency in needing to
speedily effect the transfer of the members and the consequences for
the members if this is not done;
3. The reasons why the time
periods as well as the requirements prescribed in section 63 of the
Act would result in prejudice to
the scheme and its members; and
finally
4. Why the circumstances
described are exceptional.’
[18] Humanity made application for exemption on 25
August 2008 and referred to its insolvent state and the need for
continued medical
cover of its members. It also addressed the urgency
of the matter and the need to have the members covered by Commed from
1 September.
It emphasised that following the ordinary procedure
involving the compilation of an exposition of the transaction and the
actuarial
statements required by s 63(2) and observing of the time
periods provided for by s 63 would lead to an inevitable delay and an
extension of the date of transfer to November or December. On this
basis the Council approved of the transfer of Humanity’s
members. I do not understand the Council’s approval to involve
an exemption from all the provisions of s 63 (it does not,
in any
event, appear to have such power under s 8(
h
)).
Both the Council and Humanity purported to and acted in terms of s
63. The Council in exempting Humanity under the provisions
of s 8(
h
)
exempted it from ‘complying with any provision of this Act’.
The exemption therefore related to provisions of the
Act,
particularly s 63, that Humanity had to comply with, such as the
filing of a formal exposition and observation of the time
limits set
by the section. The exemption did not and does not affect the need
for the Council’s approval or the consequences
flowing from it.
One of the consequences is set out in s 63(11) providing for the
binding force of the exposition (an explanation
of the facts and
circumstances of the proposed transaction)
16
on all the concerned parties. No exposition was
filed in this case. The Council had exempted Humanity from doing so.
But the facts
and circumstances of the proposed transfer were known
to the Council. When it confirmed the transfer the consequences
resulting
from the confirmation of an exposition provided for in s 63
followed.
[19] One consequence is of particular importance and decisive of this
matter. Section 63(14) provides:
‘
Upon
the confirmation of the exposition of a proposed transaction in
accordance with the provisions of this section, the relevant
assets
and liabilities of the parties to the amalgamation shall vest in and
become binding upon the amalgamated body or, as the
case may be, the
relevant assets and liabilities of the party effecting the transfer
shall vest in and become binding upon the
party to which transfer is
effected.’
I have found that the entitlement to the amount of
the September contributions when paid into its bank account vested in
Humanity.
It follows that, on confirmation by the Council of the
transfer of the members to Commed, this entitlement, being one of the
‘relevant
assets’ of Humanity, became vested in Commed by
operation of law and no longer formed part of Humanity’s
estate.
17
The appellants, the liquidators of Humanity, could
therefore lay no claim to it. It follows that their claim was
correctly dismissed
by the court below, albeit for the wrong reasons.
In the result the appeal should be dismissed.
[20] The following order is made:
The appeal is dismissed with costs.
________________
F R MALAN
JUDGE OF APPEAL
APPEARANCES:
For Appellants: E W Fagan SC
Instructed by:
Eversheds
Sandton
Matsepes Inc
Bloemfontein
For Respondent: J J Brett SC
Instructed by:
Savage Jooste & Adams
Pretoria
Naudes Attorneys
Bloemfontein
1
Walker
v Syfret NO
1911 AD 141
at 166.
2
Secretary
for Customs and Excise v Millman NO
1975 (3) SA 544
(A) at 552H.
3
Goodricke
& Son v Auto Protection Insurance Co Ltd (in liquidation)
1968
(1) SA 717
(A) at 722H-723C.
4
Nissan
South Africa (Pty) Ltd v Marnitz NO & others (Stand 186 Aeroport
(Pty) Ltd intervening)
2005 (1) SA 441
(SCA).
5
Relying
on
Saambou-Nasionale Bouvereniging v Friedman
1979 (3) SA 978
(A) at 993A-C. See also
B & H Engineering v First National
Bank of South Africa Ltd
[1994] ZASCA 152
;
1995 (2) SA 279
(A) at 293C-G.
6
Relying
on
Vereins- und Westbank AG v Veren Investments & others
2002 (4) SA 421
(SCA) para 11.
7
See
also
s 26(7)
of the
Medical Schemes Act.
8
S
v Kearney
1964 (2) SA 495
(A) at 502H-503A cited with approval
in
ABSA Bank Limited v Intensive Air
[2010] ZASCA 171
(1
December 2010) para 20.
9
Ex
Parte Estate Kelly
1942 OPD 265
at 271-2.
10
Cf
Dantex Investment Holdings (Pty) Ltd v National Explosives (Pty)
Ltd (in liquidation)
1990 (1) SA 736
(A) at 749D-I;
ABSA Bank
Limited v Intensive Air
[2010] ZASCA 171
(1 December 2010) paras
21-2, 24 and 26.
11
Cf
Joint Stock Company Varvarinskoye v Absa Bank Ltd & others
[2008] ZASCA 35
;
2008 (4) SA 287
(SCA) and see
ABSA Bank v Intensive Air
[2010]
ZASCA 171
(1 December 2010) para 22.
12
Nissan
South Africa (Pty) Ltd v Marnitz NO & others (Stand 186 Aeroport
(Pty) Ltd intervening)
2005 (1) SA 441
(SCA).
13
See
the discussion in
ABSA Bank v Intensive Air
[2010] ZASCA 171
(1 December 2010) para 22.
14
Dantex
Investment Holdings (Pty) Ltd v National Explosives (Pty) Ltd (in
liquidation)
1990 (1) SA 736
(A) at 749E-J.
15
Registrar
of Medical Schemes v Suremed Medical Scheme
(201/11)
[2011] ZASCA 173
(29 September 2011) para 6.
16
See
Registrar of Medical Schemes v Suremed
Medical Scheme
(201/11)
[2011] ZASCA
173
(29 September 2011) para 7.
17
Cf
s 54(3) of the Banks Act 94 of 1990 (and
ABSA
Bank Ltd v Van Biljon & another
2000
(1) SA 1163
(W) para 33;
Nedcor
Investment Bank Ltd v Visser NO & others
2002
(4) SA 588
(T) at 594F-595A) and also
s 14(2)
of the
Pension Funds
Act 34 of 1956
.