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[2016] ZAGPPHC 538
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Medshield Medical Scheme v Yarona Healthcare Network (Pty) Ltd (29117/2011) [2016] ZAGPPHC 538 (5 July 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case
Number: 29117/201
Reportable:
No
Of
interest to other judges: No
Revised
5/7/2016
In
the matter between:
MEDSHIELD
MEDICAL SCHEME PLAINTIFF
AND
YARONA
HEALTHCARE NETWORK (PTY) LTD DEFENDANT
Coram :Molefe
J
Heard :19,20,21,22
April and 4 May 2016
Handed
down :5 July 2016
Summary :Condictio
indebiti - mistake - excusability - payments made by Medshleld
Medical Scheme to Yarona Health Care Network
- reasonableness of
mistake
JUDGMENT
MOLEFE
J
[1]
The plaintiff, Medshield Medical Scheme ("Medshield")
claims payment of the sum of R6 110 236,67 from the defendant,
Yarona
Healthcare Network (Pty) Ltd ("Yarona") on the basis of
unjust enrichment. The claim relates to and is based on
20 separate
payments effected to the defendant over a two year period, from 6
August 2007 to 17 July 2009.
[2]
Medshield is a medical scheme duly registered as such in terms of
Section 24 of the Medical Schemes Act 131 of 1998 ("the
MSA").
[3]
Yarona is a registered company involved in the business of network
management of health care providers. Having set up its networks,
Yarona then offers its services to medical schemes and medical scheme
administrators with the promise that in collaboration, they
will be
able to reduce the financial burden on the scheme concerned.
[4]
It is common cause that from August 2007 to July 2009, Medshield made
20 electronic payments totaling R6 110 236, 67 to Yarona.
Each of the
payments was made in the bona fide and reasonable, but mistaken
belief that each such amount was owed to the defendant.
It is further
common cause that there was no legal basis for the payments
(excluding the one payment of R15 091, 67). Yarona admits
that it was
not entitled in law to any of the payments.
Background
[5]
Medshield issued summons on 24 May 2011. Yarona initially in their
plea disputed that the payments were made sine causa, contending
that
the payments were made in terms of a service agreement concluded
between it and Medshield during or about June 2007 and that
it had
performed all the services stipulated in terms of the agreement.
[6]
After a number of interlocutory applications, the matter was set down
for trial on 2 March 2015 to determine whether a service
agreement
had in fact been concluded between the parties during or about June
2007. On 26 February 2015, Yarona conceded that no
valid and binding
contract was concluded between it and Medshield, either as pleaded or
at all. ‘
[7]
During the opening address of Medshield's counsel at the first day
of the trial on 19 April 2016, the following three issues
were raised
as remaining to be adjudicated:
7.1. whether Medshield's mistake in
making payments to Yarona is excusable;
7.2. whether Yarona was unjustifiably
enriched in the amount of each payment at the expense of Medshield,
ie. whether Yarona had
performed services entitling it to payments in
the amounts paid; and
7.3. whether Medshield's claims in
respect of the payments made before 8 June 2008 had prescribed.
[8]
Yarona's counsel during the opening address, announced that the only
issues for trial are whether Medshield's mistake is excusable
and
whether part of Medshield's claim had prescribed. Counsel made the
concession recorded as follows:
"Following upon the conclusion
that no valid and binding agreement had been concluded between the
plaintiff and the defendant,
the defendant:
(i) accepts that all the payments save
for the payment recorded in paragraph 3.7 of the particulars of
claim, were made in debite;
(ii) does not contend that it was
entitled in law to any of the payments (save for the payment
reflected in paragraph 3.7)".
Due
to the concession, Medshield's counsel argued that Yarona has
conceded that it did not perform any work for which it would be
entitled to payment and that it was accordingly unjustifiably
enriched.
Despite
this concession, Yarona refused to admit that it had not performed
any work for Medshield. It's defences are now based on
that
Medshield's error in making the payments is not excusable and on
prescription.
The
legal position
[9]
Although a general enrichment action has not yet been accepted into
our law, there are nevertheless certain general requirements
for any
action based on enrichment :
9.1. the defendant must be enriched;
9.2. the plaintiff must be
impoverished;
9.3. the defendant's enrichment must
be at the plaintiff's expense; and
9.4. the defendant's enrichment must
be unjustified.
In
other words, the enrichment must be without legal cause or sine
causa.
[10]
The object of the condictio indebiti is to recover money or other
property transferred in intended payment or performance of
a
non-existent debt . In addition to the general requirements for an
enrichment action, the condictio indebiti requires that:
10.1. it is only available where
ownership of money or other property had been transferred by the act
of the parties;
10.2. the payment or transfer must
have been effected in the mistaken belief that the debt was due;
10.3. the mistake must be excusable.
The onus of proving this rests on the plaintiff .
[11]
Medshield led evidence of Lebo Matlala, Melane Coetsee and Angela
Blackbum to establish that Yarona did not perform any services,
either as pleaded or at all. This is due to the fact that despite
Yarona's concession that the payments were made in debite it
refused
to admit that it did not perform any work. The two witnesses, Ms
Matlala and Ms Coetsee were the trustees in Medshield
office at the
time. Medshield's counsel submitted that a finding in this regard is
important as is central to the issue of unjust
enrichment and whether
Medshield's mistake is excusable.
11.1. Ms Lebo Matlala testified that
she is an optometrist by profession and a former trustee of Medshield
having served in that
capacity on the Board of Trustees from 2005
until 2010. She was a member of the Board's Clinical Risk Committee
("CRC")
and its Operations Committee. She was the
Chairperson of the CRC from 2005 and in 2009 she was appointed
Chairperson of the Operations
Committee. The CRC dealt with all
clinical aspects of the scheme, including benefit designs, claims,
proposals for managed care
and network services.
11.2. Potential service providers were
required to present their proposals to the CRC, which would assess
the proposal. The CRC
would, if the proposal fitted in with the
scheme's strategic direction, recommend the potential service
provider to the Board's
Executive Committee ("EXCO"). Only
the Board could decide whether or not to conclude a contract with a
potential service
provider and would then mandate a member of the
relevant committee and the scheme's Principal Officer ("PO")
to sign
the contract on behalf of the scheme.
11.3. Yarona did not make a
presentation to the CRC in respect of managed healthcare services for
Medshield's three classic options
(the Mediplus, Medibonus and
MediValue options) and no contract was signed with Yarona in this
regard. There was therefore no contractual
relationship with Calabash
Health Solutions (Pty) Ltd ("Calabash"). In 2006, Medshield
concluded a capitation agreement
with Calabash in respect of
Medshield's Access option, with effect from 1 January 2006, for a
period of three years and the access
option terminated at the end of
October 2008.
11.4. Calabash had subcontracted the
provisions of a GP network to Yarona and Yarona was to provide
network management services
to Calabash. The contract between
Calabash and Yarona was independent of Calabash's contractual
arrangement with Medshield.
11.5. Ms Matlala explained that
service providers were required to submit monthly written reports to
the CRC on the work they had
done for the scheme and also required to
attend the monthly meetings of the CRC to report on their work. She
confirmed that Yarona
had never submitted any reports to the CRC
during her tenure. She was also referred to various minutes of the
CRC in Bundle B of
the record, none of which contain references to
Yarona. She confirmed that the Yarona strut cards were never
presented to or approved
by the CRC .
[12]
Ms Matlala's evidence was not challenged in cross-examination. It was
not even suggested to her that the documents relied upon
by Yarona as
proof of it having performed servies for Medshield, were presented to
any other committee or person at Medshield.
She accepted under
cross-examination that the BOT had the responsibility to oversee the
proper governance of the medical scheme
and to ensure compliance with
the MSA and the Scheme Rules and that the BOT had the duty to ensure
that proper internal system
of control was in place.
[13]
Ms Angela Blackbum, currently Medshield's Chief Operations Officer,
testified that she started working at Medshield on 1 October
2008.
Before then, she was claims manager at Old Mutual Health Care
("OMHC") based in Randburg. Medshield had an administration
agreement with OMHC from 1 April 2007 until the end of February 2009.
Ms Blackburn attended a workshop on 22 and 23 May 2007, which
was
attended by representatives of Yarona for OMHC. The workshop
considered the establishment of a GP network by Yarona for OMHC
and
no Medshield representatives attended the workshop. The purpose of
the workshop was to plan a network by Yarona of medical
practitioners
(GPs) to negotiate discounted rates that would be loaded onto the
scheme called "baskets". Pursuant thereto,
such discounted
rates were loaded onto the OMHC platform as part of baskets for
Yarona.
[14]
OMHC was then 10 months later, instructed by Medshield's PO, Mr
Clinton Alley to load the Yarona baskets onto OMHC's administration
platforms, with effect from 1 April 2008. At that time OMHC was still
Medshield's administrator. The baskets were loaded as instructed.
This resulted in OMHC paying doctors on Yarona network according to
the basket tariffs when they treated Medshield beneficiaries
between
1 April 2008 and 31 December 2008. It was only during March 2008 that
Yarona informed the doctors on its network that the
baskets
circulated during 2007, would also apply to members of Medshield's
Mediplus, MediBonus and MediValue options with effect
from 1April
2008.
[15]
During January 2009, Ms Blackburn asked Ms Melani Coetsee, the then
newly appointed Chief Operations Officer ("COO")
of
Medshield, whether she should reload the Yarona baskets for the 2009
benefit year. Ms Coetsee said she did not know what the
baskets were
about and instructed her not to load them.
[16]
Under cross-examination, Ms Blackburn stated that as a claims manager
she would have processed a large number of claims that
fell under the
Yarona "basket" and effected payments to the doctors under
the Yarona discounted "basker rates over
a period of time.
[17]
Ms Melane Coetsee testified that Medshield self-administration
commenced on 1 March 2009 and in preparation for self-administration,
Medshield employed her from 1 January 2009. She had served as
Medshield trustee from July 2007 to November 2008. In January 2009,
Mr Alley was still Medshield PO and remained PO until his suspension
at the end of September 2009.
During
her time as a trustee, she and the other trustees were non-executive
and were not involved in the day-to-day operations of
the scheme. Mr
Alley was the one who managed the day-to-day affairs of the scheme.
[18]
Ms Coetsee testified that she signed invoice number 0238 dated 31
October 2008, on 16 April 2009 and explained that she was
requested
by Mr Alley to sign the invoice as it was an outstanding invoice for
Calabash. Ms Coetsee explained in her testimony
that she knew that
Calabash had done work for Medshield in terms of the capitation
agreement. She also knew that Calabash had not
been trading since the
termination of the capitation agreement and that Yarona and Calabash
were closely related, being part of
the Bathabile Group. She signed
the invoice in good faith believing what Mr Alley told her. She also
signed the EFT requisition
related to the payment and Mr Alley also
signed the invoice and the EFT requisition.
[19]
Ms Coetsee also signed an EFT requisition on 26 June 2009 in respect
of a payment of R229 845,00 with the suppliers name being
"Calabash
Health Solutions The description of the services was "August
2008 fees". She explained that Mr Alley
had again approached her
to sign the requisition as Medshield had reneged on its obligations
to Calabash in terms of the winding-down
agreement between them. She
knew that Medshield and Calabash had concluded a winding-down
agreement after the termination of the
capitation agreement. Calabash
was required to perform certain services, for which they would be
paid. She also knew that Calabash
had done some work but not
properly. Mr Alley agreed with Ms Coetsee that Calabash should be
paid 50% of what had been agreed.
Ms Coetsee testified that she
accepted Mr Alley's explanation and signed the requisition in good
faith. A note in Mr Alley's handwriting,
signed by Mr Alley on 26
June 2009 appears on the related invoice number 0264 . The note reads
: "only pay 50% ie. R229 845,
as per agreement with Martin
Rimmer. Balance payable on receipt of member and provider statements"
Mr Rimmer was at the time
the Managing Director of Calabash.
[20]
Ms Coetsee was criticized during cross-examination because she signed
the invoice and the EFT requisition and the criticism
was that she
had authorized the payments without establishing that the payments
were valid, and conceded that any invoice presented
would have had to
be checked against a signed contract.
[21]
Ms Coetsee further testified that during September 2009, Ms Rekha
Lalla, the General Manager. Finance came to see her and informed
Ms
Coetsee that she had picked up suspicious payments on behalf of Mr
Alley whilst preparing reconcialition statements of Medshield
income
and expenditure. There were inter alia payments made from Medshield
banking account to Discovery Health and life insurance
policies for
Mr Alley. This led to Mr Alley's suspension in September 2009 and Mr
Clive Stuart was appointed by the board of trustees
as acting PO.
[22]
During October 2009 Mr Stuart asked Ms Coetsee if she was aware of
any payments that were due to Yarona as he had been contacted
by Mr
Soll who insisted that Yarona had a valid binding contract with
Medshield and that Medshield owed money to Yarona. As Ms
Coetsee was
not aware of any existing relationship between Yarona and Medshield
she informed Mr Stuart that Medshield had a contract
with Calabash
which terminated at the end of October 2008. Ms Coetsee then began
investigating Yarona's claim and requested Ms
Laka to produce a
schedule of all payments made to Yarona.
[23]
Ms Nawaal Ballim, Medshield's bookkeeper testified that she was
formerly employed at OMHC as a bookkeeper and later as an accountant.
She started working at OMHC in September 2007 and moved to Medshield
in April 2009 just after the scheme had commenced
self-administration.
Ms Ballim gave evidence on the process in terms
of which Medshield expenses were authorized and paid. At that time,
Medshield only
had two employees, Mr Alley and his PA, Ms Jocelyn
Baatjies. She testified that the process was as follows:
23.1. Service providers would submit
their invoices to Medshield for payment. Payment instructions came
from Mr Alley after he had
approved a payment. Ms Baatjies would
enter the invoice details into a payment instruction book. Mr Alley
would then sign the payment
instruction.
23.2. The invoices, together with the
payment instructions were sent, on a daily basis, to Ms Ballim at the
OMHC Randburg office.
This procedure applied to all payments approved
by Mr Alley, including payments to Yarona.
23.3. On receipt of the invoices and
signed payment instructions, Ms Ballim would confirm that the details
on the invoice corresponded
with the details on the relevant payment
instructions. She would then complete an EFT requisition. She or
another administrative
employee of OMHC in the finance department
would capture the necessary information onto the requisition. Once Ms
Ballim was satisfied
that the information captured on the requisition
was accurate, she would sign it off and capture the invoice details
on the Nedbank
system, ready for payment.
23.4. Invoices were captured on the
Nedbank banking system and paid in batches of various payment and not
limited to Yarona payments.
Once a payment batch was ready, she would
inform the authorized signatories and if satisfied, the signatories
would sign the requisition
forms and release the payments on the
system.
[24]
Ms Ballim testified that she recorded Yarona payments as marketing
expenses in Medshield's books of account as every invoice
issued by
Yarona had the same narration: "Healthcare Provider Research &
Geo Mapping", which was similar to another
service provider of
Medshield providing marketing services.
[25]
During cross-examination, Ms Ballim was referred to various EFT
requisitions that were either unsigned, not fully signed or
otherwise
incomplete and she conceded that this was irregular.
[26]
Plaintiff's counsel submitted that the failure of EFT signatories to
sign each and every requisition does not constitute a
material
irregularity in Medshield's payment processes nor is it evidence of
inadequate oversight by the trustees over the financial
administration of Medshield.
[27]
It is evident from Ms Ballim's testimony that she relied entirely on
Mr Alley's payment instruction and authorization of the
payments to
Yarona and she had no reason to question his instructions and the
validity of the payment.
[28]
The common cause and crisp issues in casu are the following:
28.1. Medshield has paid to Yarona a
total sum of R6 110 236, 67;
28.2. No legal basis existed for
Medshields' payments to Yarona; the payments were accordingly made in
debiti;
28.3. Yarona was unjustifiably
enriched by the payments and Medshield accordingly impoverished in
the sum of R6 110 236, 67;
28.4. Yarona refuses to pay back the
money to Medshield as it contends that Medshield's error in making
the payments is not excusable
and that some of the claims have
prescribed.
[29]
There is no exhaustive definition of when a mistake is excusable in
our law. Harms JA in Bowman, De Wet and Du Plessis NNO
v Fidelity
Bank Ltd
1997 (2) SA 35
(A) at 44 C - E, described the position as
follows:
"It is a general requirement for
the condictio indebiti that the error that gave rise to the payment
must not have been an
inexcusable error, that is inexcusable in the
circumstances of the case. (Willis Faber at 223 H - 224H). There have
been many attempts
to lay down the rules or formulations in this
regard in order to circumscribe what is excusable and what is not
(see for example
Mc Ewan J in Barclays Bank International Ltd v
Africa Diamond Exporters (Pty) Ltd
1977 (1) SA 298
(W) at 305). Since
one is concerned with the exercise of a value judgment, it seems
inappropriate to refine the test of whether
judicial exculpation is
justified ".
[30]
Earlier, in Willis Faber Euthoven (Pty) Ltd v Receiver of Revenue
[1991] ZASCA 163
;
1992 (4) SA 202
(A) at 224 E - H, Hefer JA cautioned against defining
the circumstaces in which an error of law or fact could be said to be
excusable,
or supplying a "compendium of instances where its
nof'.
“
. . . All that need to be said
is that, if the payer's conduct is so slack that he does not in the
court's view deserve the protection
of the law, he should, as a
matter of policy, not receive it. There can obviously be no rules of
thumb; conduct regarded as inexcusably
slack in one case need not
necessarily be regarded in others, and vice versa. Much will depend
on the relationship between the
parties; on the conduct of the
defendant who may or may not have been aware that there was no
debitum and whose conduct may or
may not have been contributed to the
plaintiffs decision to pay; and on the plaintiffs state of mind and
the culpability of his
ignorance in making the payment. . ."
Did
Yarona perform any services?
[31]
It is difficult for me to understand Yarona's refusal to make the
admission that it did not perform any services to Medshield
despite
having conceded that Medshield's payments to Yarona were made in
debiti and that Yarona does not contend that it was entitled
in law
to any of the payments (except the payment of R15 091, 67). Yarona
did not adduce any evidence to prove that it performed
services for
which it was entitled to be paid by Medshield. Medshield's evidence
by contrast, established that Yarona did not perform
any services.
[32]
The only evidence of any interaction between Yarona and Medshield,
beyond the Calabash capitation agreement, is the fact that
Yarona's
GP baskets were loaded onto the administration platforms of Old
Mutual Health Care as from 1 April 2008.
[33]
The evidence of Ms Matlala and Ms Blackburn proves that Yarona did
not provide any services to Medshield for which it was entitled
to be
paid. Although Yarona bore the onus of proving the opposite it
failed to adduce any evidence to the contrary but it still
refused to
admit that it had performed no work.
I
am satisfied that Yarona did not perform any work in terms of the
alleged agreement that it eventually, on 2 March 2015 conceded
did
not exist.
Is
Medshield's mistake inexcusable?
[34]
As already mentioned, Yarona did not lead any witness of its own.
Yarona's counsel, in cross-examination of Medshield's witnesses,
intimated that the mistake in making payments to Yarona arose due to
inadequate corporate governance controls and insufficient
oversight
on the part of OMHC and Medshield's trutees. Mr Maritz under
cross-examination of Ms Coetsee and Ms Ballim, suggested
that they
ought to have verified that there was a valid contract between
Medshield and Yarona before they authorized and/or processed
the
payments.
[35]
I agree with both counsels' submissions that a proper consideration
of the role and conduct of the trustees, in the context
of the
payments to Medshield, must take account of the Medical Scheme Act,
which prescribes the general governance and financial
regulatory
framework in terms of which the affairs of a medical scheme must be
regulated.
Section
57 of the MSA provides:
(1) Every medical scheme shall have a
board of trustees consisting of persons who are fit and proper to
manage the business contemplated
by the medical scheme in accordance
with the applicable laws and the rules of such medical scheme.
Section
57 (4) provides:
(4) The duties of the board of
trustees shall be to –
(a) appoint a principal officer who is
a fit and proper person to hold such office. . .
(h) ensure that the rules, operation
and administration of the medical scheme comply with the provisions
of this Act and shall all
other applicable laws.
Section
57 (6) further provides:
(6) The board of trustees shall –
(a) take all reasonable steps to
ensure that the interests of the beneficiaries in terms of the rules
of the medical scheme and
the provisions of this Act are protected at
all times;
(b) act with due care, diligence,
skill and good faith;
(iv)
Section 29 (1) provides:
(1) The registrar shall not register a
medical scheme under section 24, and no medical scheme shall carry on
any business, unless
provision is made in its rules for the following
matters:
(a) The appointment or election of a
board of trustees consisting of persons who are fit and proper to
manage the business contemplated
by the medical scheme.
(b) The appointment of a principal
officer by the board of trustees who is a fit and proper person to
hold such office.
[36]
Clause 19 of the MSA lists the duties of the Board of Trustees and
the following are relevant:
19.1. The Board is responsible for the
proper and sound management of the scheme, in terms of these Rules.
19.2. The Board shall act with due
care, diligence, skill and in good faith. . .
19.4. The Board shall apply sound
business principles and ensure the financial soundness of the scheme.
. .
19.7. The Board shall cause to be kept
such minutes, accounts, registers and records as are essential for
the proper functioning
of the scheme.
19.8. The Board shall ensure proper
control systems are employed by and on behalf of the scheme . . .
19.12. The Board shall obtain expert
advice on legal, accounting and business matters as required, or on
any other matter of which
the member of the Board may lack sufficient
expertise. . .
19.15. The Board shall approve all
valid disbursements but may delegate its authority to any member of
the Board or any other persons
nominated by the Board to effect
disbursements on behalf of the scheme.
[37]
In addition, a board of trustees is responsible for:
37.1. appointing an audit committee
and at least one auditor, approved by the Registrar
37.2. ensuring that annual financial
statements are prepared. Within four months after end of the
financial year the board must
furnish copies of the annual financial
statements, together with the report of the board to the Registrar .
[38]
The provisions in the MSA dealing with governance and financial
management put in place different levels of accountability,
with each
level exercising oversight over the other. The scheme appoints the
board of trustees. The board appoints a Principal
Officer and an
audit committee, both of whom report to the board. The board also
appoints an external auditor who prepares annual
financial
statements, with or without qualifications for the board. It is the
duty of the auditor to bring any financial irregularities
to the
attention of the board and to the Registrar.
[39]
Medshield's counsel submitted that Medshield's trustees did
everything reasonably required of them under the MSA to ensure
proper
financial controls:
39.1. The board appointed Mr Alley,
apparently a fit and proper person as PO of the scheme with effect
from July 2007. Mr Alley
had previously been a trustee of Medshield
and the chairperson of the marketing committee;
39.2. The board established several
committees in terms of the MSA including the audit committee;
39.3. The board appointed Price
Waterhouse Coopers (PWC) as its external auditors;
39.4. The board ensured that annual
financial statements prepared by PWC were produced ;
39.5. OMHC prepared monthly management
accounts for the board .
[40]
Counsel for Medshield submits that Medshield's mistake of payments to
Yarona over a two-year period totaling R6 110 236, 67
was not due to
inadequate financial controls, either on the part of the board or the
administrator.
[41]
Yarona's counsel criticized Ms Coetsee's testimony that she conceded
under cross-examination that she was unable to say whether
there was
any system specifically in place in regard to the payment of
invoices. The criticism is, in my view unfair as Ms Coetsee
had no
direct evidence of the payments of invoices. She was also criticized
that she made it clear that the board of trustees placed
their
reliance and trust on the PO, which in my view is reasonable as the
duty was in terms of the MSA delegated to the PO on a
day to day
basis. Mr Alley was delegated and nominated by the board of trustees
to effect disbursements on behalf of the Scheme.
[42]
Yarona's counsel contends that neither Ms Matlala nor Ms Coetzee
presented any evidence of:
42.1. any formal BOT approved policy
procedure that was in place in regard to the payment of invoices
during the relevant period;
42.2. what was required of the BOT in
terms of the scheme Rules during the relevant period;
42.3. what measures the BOT had put in
place to ensure that no irregular payments would be made; and
42.4. what systems of internal control
and/or checks and balances had been put in place by the BOT to ensure
that payments were
correctly made.
It
is on this basis that Yarona's counsel concluded that the MSA and the
Scheme Rules were breached in material respects and that
the BOT and
the Finance Committee simply abdicated their responsibilities and
left everything in the hands of the PO in the absence
of proper
procedure policy or system in place. Counsel submitted that the
conduct of the BOT in this regard must be labelled as
completely
cavalier and reckless.
[43]
It is appropriate that I should at this point, deal with the
relationship between Mr Alley and Mr Soll who at that time was
Yarona's managing director. Email correspondence between Mr Alley and
Mr Soll, obtained from Mr Alley's computer after his suspension
in
September 2009, revealed the extent to which Mr Alley and Mr Soll
handled and processed payments to Yarona;
43.1. A letter dated 31 May 2007 on a
Medshield letterhead and which appears to have been signed by Mr
Welcome Mboniso, Medshield's
PO before Mr Alley was sent to Dr
Martin de Villiers of OMHC. It advised Dr de Villiers that Medshield
had requested Yarona "to
perform and undertake an exercise on
their Risk Sharing Models and Reimbursed Strategies". Medshield
disputed the authenticity
of the letter. Mr Mboniso testified that he
was not the author of the letter and that he did not sign it. As
evidenced by a series
of emails between Mr Soll, Mr Alley (then a
trustee), Ms Baartjies and Ms Ncube Mr Soll determined the contents
of the letter
using his wording .
43.2. On 1 June 2009, Mr Alley sent an
email to Mr Soll and another person at Yarona, promising that payment
would be made despite
the fact that no contract existed between
Medshield and Yarona: "Bradley at this stage please do not
advise anyone of this,
either at Medshield or elsewhere, as I am
doing these payments outside of a contract and can create problems
for me".
43.3. Correspondence between Mr Alley
and Mr Soll between 10 and 29 September 2009 repeated that on 10
September 2009, Mr Soll was
still trying to conclude a contract with
Medshield . On 17 September 2009, Mr Soll provided Mr Alley with a
new bank account for
Yarona. On 22 September 2009 Mr Alley confirmed
that R350 000 had been paid into an account and assured Mr Soll that
he could confirm
that "Medshield stands good for that amount”.
On 24 September 2009, Mr Alley informed Mr Soll that he had paid the
first
payment from his own account and would pay a further R150 000
the following day as it was the best he could do "coming out
of
my bond". By 29 September 2009, Mr Soll was complaining that
none of the money had cleared in his account The next day
Mr Alley
was suspended. The promised payment of R350 000 and R150 000 are not
recorded in any of the discovered documents.
[44]
I agree with the submissions made by Medshield's counsel that the
following conclusions can be drawn from the above-mentioned
email
correspondence between Mr Soll and Mr Alley:
44.1. Both Mr Alley and Mr Soll knew
at all material times that no contract had been concluded between
Medshield and Yarona. Despite
this, Mr Soll sent regular invoices,
usually in the amount of R279 300,00 to Medshield for payment;
44.2. The narration on every invoice
was for "healthcare provider research and geo-mapping" and
this resulted in the payments
being categorized as marketing and
advertising expenses and not managed healthcare expenses, avoiding
the scrutiny that the latter
would provoke.
44.3. Mr Alley and Mr Soll knew that
Yarona had not provided any services to Medshield and certainly not
"healthcare provider
research and geo-mapping". The
narration on the invoices was deliberately misleading and designed to
escape any scrutiny of
the administrators and the external auditors.
Despite this, Mr Alley authorized the payments from Medshield to
Yarona and perpetrated
the deception by agreeing with Ms Ballim's
categorization of the expenses.
[45]
Regulation 15A of the Regulations promulgated in terms of the MSA
reads as follows:
“
15A Prerequisites for
managed health care arrangements
23
(1) If a medical scheme provides
benefits to its beneficiaries by means of a managed health care
arrangement with another person
–
(a) the
terms of that arrangement must be clearly set out in a written
contract between the parties:
(b)
- - - -
(c)
- - - -”
[46]
It is evident that, had the payments to Yarona been captured against
managed health care services as they would have been if
the narration
on the invoices had been for "network management services"
and "network maintenance services",
Medshield's board of
trustees and the audit committee would have raised an audit query due
to the absence of a contract as prescribed
by Regulation 15A above.
By contrast, there is no statutory requirement that the contracts
between a medical scheme and a service
provider for marketing and
advertising must be in writing. As a result, payments to Yarona went
undetected and the Yarona payments
recorded in Medshield's monthly
management accounts raised no suspicions and the Principal Officer
approved them all as valid.
[47]
In my opinion, the conduct of Mr Alley and Mr Soll is central to an
assessment as to whether or not Medshield's mistaken payments
are
excusable. The trustees could not reasonably have known that the
Principal Officer, the accounting officer of the scheme and
its only
executive, would conspire with a managing director of a potential
service provider to impoverish the scheme. Medshield's
internal
financial management could not have anticipated and countered the
fact that Mr Alley and Mr Soll actively deceived Medshield's
administrators and board of trustees. Furthermore, the internal
payment process would have been scrutinized by Medshield's external
auditors, PWC annually. PWC would also have had access to the monthly
management accounts prepared by OMHC. If any process was
deemed to be
irregular PWC would have highlighted this to Medshield.
In
the circumstances, I find that Medshield has discharged the onus of
proving that its mistake in making payments to Yarona was
an
excusable error in the circumstances. It was simply not possible for
Medshield to have known that payments were made sine causa.
The error
in casu was induced by the PO acting in collaboration with the payee.
[48]
It was argued on behalf of Yarona that on the available evidence, the
plaintiff received substantial value for the payments
made by it to
Yarona over the relevant period. This value, it was contended by
Yarona's counsel, consisted of being provided with
Yarona network of
medical practitioners with whom Yarona had negotiated discounted
rates. In my view, this argument had not merit
at all as there was no
evidence led during the trial of such value or any savings received
by the plaintiff from Yarona network.
The onus is on the defendant to
proof any reduction of enrichment and the defendant failed to
discharge that onus.
[49]
Yarona's counsel further argued that as a result of the plaintiff's
failure to quantify the extent of the value benefit it
received, no
evidence was adduced by the plaintiff to demonstrate that it had not
reclaimed the VAT component paid in regard to
every payment made in
respect of particular invoices. On this basis, counsel contends that
plaintiff failed to properly quantify
its claim and that the claim is
to be dismissed on this ground.
In
my view, there is no basis in law for this argument. The plaintiff is
a Medical Scheme. Medical Schemes registered under the
Medical
Schemes Act are
exempt from VAT as they fall within the definition of
a "benefit fund" as defined in
Section 1
of the Income Tax
Act 58 of 1962, which in tum is listed in Section 10 (1) (d) (ii) of
the Act .
[50]
I now tum to consider the submission made by Medshield Counsel that
should the Court find that Medshield has not proved circumstances
in
which its mistake can be said to be excusable, that this requirement
of the common law should not be applied against Medshield
as this
requirement does not apply to payments made on behalf of others.
Counsel in this regard relied on Bowman, De Wet and Du
Plessis NNO
and Others v Fidelity Bank Ltd
1997 (2) SA 35
(A) at 44 G - 45A,
wherein Harms JA stated:
“
Does the general rule relating
to excusability of the error relate to claims such as the present?
Wessels (op cit para 999) submitted
not:
'It seems, however more reasonable to
hold that a person who, like an executor, is acting for the benefit
of others, and who in
that capacity overpays an heir or legatee under
a bona fide mistake as to their legal rights, should not suffer for
his mistake'”.
[51]
It was counsel's submission that there is no reason why the exception
should not apply to representatives such as trustees
of a medical
scheme who have a duty under the MSA to ensure that the interests of
the beneficiaries of the scheme are protected
at all times.
In
view of my conclusion that the mistake of Medshield in making payment
to Yarona was excusable, it is not necessary to deal with
these
submissions.
[52]
It was further submitted on Medshield's behalf that the common law
requirement of excusability constitutes an unreasonable
and
unjustifiable limitation of Medshield's right not to be arbitrarily
deprived of its property in terms of section 25 (1) of
the
Constitution. This section protects against arbitrary deprivation of
property. It was argued that the excusability requirement
of the
condictio indebiti permits a defendant who has been enriched sine
causa to retain its enrichment if the plaintiff is unable
to
establish that its mistake in making payment is excusable. It is on
this basis that Medshield submits that this Court ought
to develop
the common law in terms of section 39 (2) of the Constitution, by
removing the requirement of the condictio indebiti
that the mistake
must be excusable.
[53]
I agree with Yarona's counsel that this argument relating to the
development of common law under section 39 (2) of the Constitution
is
not competent as it was not pleaded at all.
In
Everfresh Market & Virginia v Shoprite Checkers
2012 (1) SA 256
(CC), Moseneke DCJ, speaking for the majority of the Court, held the
following:
"[51] This court set out the test
for proper pleading in Prince v President, Cape Law Society, and
Others. Ngcobo J wrote:
'Parties who challenge the
constitutionality of a provision in a statute must raise the
constitutionality of the provisions sought
to be challenged at the
time they institute legal proceedings. In addition a party must place
before the court information relevant
to the determination of the
constitutionality of the impugned provisions. Similarly, a party
seeking to justify a limitation of
a constitutional right must place
before the court information relevant to the issue of justification.
I would emphasise that all
this information must be placed before the
court of first instance. The placing of the relevant information is
necessary to warn
the other party of the case it w/11 have to meat,
so as to allow it the opportunity to present factual material and
legal argument
to meet that case. It is not sufficient for a party to
raise the constitutionality of a statute only in the heads of
argument,
without laying a proper foundation for such a challenge in
the papers or the pleadings. The other party must be left in no doubt
as to the nature of the case it has to meat and tha relief that is
sought. . . . .'”.
[54]
I agree that litigants who seek to invoke provisions of section 39(2)
must plead their case in order to warn the other party
of the case it
will have to meet, which in casu was not done by the plaintiff. It is
therefore not open to plaintiff to raise this
argument relating to
the development and/or amendment to the common law.
Prescription
[55]
Yarona contends that the payments made by Medshield to it between 6
August and 6 April 2008 have prescribed as Medshield knew
or ought
reasonably have known that payments to it were made sine causa.
[56]
Section 12 of the Prescription Act provides as follows:
"(1) subject to the provisions of
subsection (2) and (3), prescription shall commence to run as soon as
the debt is due. .
.
(2) .. ..
(3) A debt shall not be deemed to be
due until the creditor has knowledge of the identity of the debtor
and of the facts from which
the debt arises; provided that a creditor
shall be deemed to have such knowledge if he could have acquired it
by exercising reasonable
care".
[57]
Yarona's counsel submitted that an undue payment is, provided all the
requirements for the condictio indebiti are met, immediately
due and
thus quantifies as a debt under section 12 (1) of the Prescription
Act. It is argued that on the supposition that all the
requirements
for the cause of action are met, each payment fell due as a debt on
the same day that it was erroneously paid, based
on the provisions of
section 12 (3) of the Prescription Act. Counsel submitted that all
the payments falling outside the three-year
period prior to the
institution of this action, therefore became prescribed.
[58]
Evidence of Meshield witnesses established that Ms Coetsee, the
acting PO and the trustees first became aware that the payments
to
Yarona were made sine causa during the period September to November
2000 . Medshield's last payment to Yarona was on 17 July
2009 and at
that time Mr Alley was still the only person at Medshield who knew
that the payments were made sine causa. He was suspended
during
September 2009. Medshield therefore, did not have knowledge of the
facts from which the debt arose until in September 2009.
[59]
The first question that arises is whether Mr Alley's knowledge of the
payments made sine causa could be deemed to be constructive
knowledge
by the trustees and the scheme that payments were made without cause.
I do not agree. It is settled law that where an
agent acts to deceive
its principal, the fiction of constructive knowledge on the part of
the principal does not apply .
[60]
The second question is whether Medshield and the trustees exercised
reasonable care to uncover the fact that the payments were
being made
sine causa. To determine this, Medshield's conduct must be tested by
reference to the steps that a reasonable person
in the position of
the trustees would have taken to acquire knowledge of Mr Alley's
deception .
[61]
I am satisfied that based on the testimony of Medshield witnesses, a
reasonable person on the trustees position would not have
acquired
the knowledge earlier than it did that the payments to Yarona were
without cause and therefore the prescription defence
must fail.
Interest
[62]
Counsel for Yarona submitted that it is impermissible in law for the
plaintiff to claim interest on the amount of the full
payment from
the actual date of the payment and in this regard relied on Kudu
Granite Operations (pty) Ltd v Caterna Limited
2003 (5) SA 193
(SCA)
at par 28 where the SCA reaffirmed the principle that interest is not
recoverable under the condictio indebiti prior to a
proper demand or
summons, whichever date being the earlier. I agree with this
submission.
[63]
In the premises, the following order is made against the defendant;
1) Payment in the sum of R6 110
236.67 a collective payment made up as follows:
1.1.
payment of the sum of R279 300.00;
1.2.
payment of the sum of R279 300.00;
1.3.
payment of the sum of R279 300.00;
1.4.
payment of the sum of R279 300.00;
1.5.
payment of the sum of R558 600.00;
1.6.
payment of the sum of R279 300.00;
1.7.
payment of the sum of R15 091.67;
1.8.
payment of the sum of R279 300.00;
1.9.
payment of the sum of R279 300.00;
1.10.
payment of the sum of R279 300.00;
1.11.
payment of the sum of R279 300.00;
1.12.
payment of the sum of R279 300.00;
1.13.
payment of the sum of R558 600.00;
1.14.
payment of the sum of R279 300.00;
1.15.
payment of the sum of R279 300.00;
1.16.
payment of the sum of R558 600.00;
1.17.
payment of the sum of R279 300.00;
1.18.
payment of the sum of R279 300.00;
1.19.
payment of the sum of R229 845.00;
1.20.
payment of the sum of R279 300.00;
2) Interest at the rate of 15,5%
per annum calculated from date of summons to date of payment;
3) Costs of the action, including
costs of two counsels.
_____________________
D
S MOLEFE
JUDGE
OF THE HIGH COURT
APPEARANCES
Counsel
on behalf of Plaintiff : Adv. D Berger SC et Adv. K Millard
Instructed
by : Hogan Lovells
Counsel
on behalf of Defendant : Adv. M Maritz SC et Adv. D van Zyl
Instructed
by : Gildenhuys Malatji INC