Bestmed Medical Scheme and Others v Council for Medical Schemes and Another (82516/14) [2015] ZAGPPHC 268 (13 February 2015)

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[2015] ZAGPPHC 268
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Bestmed Medical Scheme and Others v Council for Medical Schemes and Another (82516/14) [2015] ZAGPPHC 268 (13 February 2015)

IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
NUMBER: 82516/14
DATE:
13 February 2015
BESTMED
MEDICAL
SCHEME
....................................................................................
First
Applicant
GEORGE
WILKIE
ALBERTS
....................................................................................
Second
Applicant
BERTUS
ALBRECHT
.....................................................................................................
Third
Applicant
DEON
JEPHTA
FREDERICKS
...................................................................................
Fourth
Applicant
SUZETTE
HARMSE
........................................................................................................
Fifth
Applicant
ANTON
IGNATIUS
MINNAAR
.....................................................................................
Sixth
Applicant
BERNARD
ROUX
SLABBERT
..................................................................................
Seventh
Applicant
PHILLIP
DE VILLIERS
SWART
.................................................................................
Eighth
Applicant
MAYNARD
JACOBUS VAN DER
MERWE
................................................................
Ninth
Applicant
SIBUSISO
VIL-NKOMO
................................................................................................
Tenth
Applicant
V
THE
COUNCIL FOR MEDICAL
SCHEMES
............................................................
First
Respondent
THE
REGISTRAR, COUNCIL FOR MEDICAL
SCHEMES
..............................
Second
Respondent
JUDGMENT
The
Order
The
following order was made on 18 December 2014 at the request of the
parties who had indicated that they would not have a problem
if the
reasons for the order were furnished later:
(1) That the
applicants’ application is hereby dismissed with costs, which
costs shall include the costs of two counsel;
(2) That the
respondents’ counter application is hereby dismissed with
costs, including the costs consequent upon the employment
of two
counsel;
(3)
Reasons for the above orders will follow in due course.
MABUSE
J
:
[1]
This matter came to me as an urgent application.  It conflated
two applications, one, (“the main application”)
an
application by the applicants to suspend the operation of a certain
decision taken by the first respondent in terms of s 46
of the
Medical Schemes Act 131 of 1998 (“the MSA”), pending
certain review or appeal and the other a counter application
by the
first respondent to place the first applicant under curatorship.
Acting in terms of the provisions of s 46 of the
MSA, on 13 November
2014 the first respondent issued nine notices in terms of which the
second to tenth applicants were removed
as trustees of the first
applicant.  For purposes of convenience, the first applicant
will be referred to as Bestmed, the
second to tenth applicants
collectively as the affected trustees, the first respondent as the
Council, the second respondent as
the Registrar and the first and
second respondents collectively as the respondents.
[2]
Bestmed, the first applicant in the main application, is described as
a medical scheme as set out in s 24 of the MSA.
It operates its
business from the premises known as Block A, Glenfield Office Park,
361 Oberon Avenue, Faerie Glen, Pretoria, in
the province of
Gauteng.  In terms of Rule 2 of its registered Rules, Bestmed is
a body corporate capable of acquiring rights,
incurring obligations
and of suing and being sued in its own name. Its powers include,
among others, causing to be done, all such
things as are necessary
for the fulfilment of the purpose of the MSA.  It is represented
in this application by its chief
executive officer, one Mr. Andries
Mathys la Grange (“la Grange”), who has purportedly been
duly authorised to do so.
[3]
The affected trustees are the former trustees of Bestmed.
[4]
The Council is described as a statutory body having been established
as such in terms of s 3 of the MSA. Its registered office
is situated
at Block A, Eco Glades 2 Office Park, Ecopark, Centurion, in the
province of Gauteng.  The second respondent is
the registrar of
the medical schemes duly appointed as such in accordance with s 18(1)
of the MSA.  The Registrar carries
out his functions under the
MSA from the same premises as the Council.
[5]
The central facts relevant to the main application are as follows.
During the year 2011 Bestmed was randomly selected for routine

inspection by the Registrar.  The said inspection, for which Mr.
Sibonelo Cele and Mr Thamsanqa Diniso (“the inspectorate”)

were appointed, was in respect of the affairs of Bestmed and was
confined to the period commencing on 1 January 2011 and ending
on 30
September 2011.  S 44(4)(b) of the MSA empowers the Registrar to
order an inspection of a medical scheme for the purposes
of routine
monitoring and of establishing whether there is any compliance with
the MSA by a medical scheme or any other person.
The said
section provides as follows:
“
The
registrar may order an inspection in terms of the section
(a)
…; and
(b) for purposes
of routine monitoring of compliance with the Act by a medical scheme
or any other person.”
Although
the said inspection had been scheduled to commence on 1 January 2011
it only did so on 29 November 2011 and was completed
on 12 December
2011.
[6]
On 16 July 2013 the applicants were furnished with a final inspection
report which was dated 26 March 2013. Flowing from the
aforementioned
inspection certain irregularities and governance failures in the
management of Bestmed’s affairs were discovered
and reported to
the Registrar by the inspectorate with certain recommendations. One
of the recommendations made was that the allegations
in the
inspection report relevant to the fitness and propriety of the
scheme’s trustees be brought before the Council so
that it
could consider instituting proceedings in terms of s 46 of the MSA.
It is contended by the Council that the proposed
proceedings are
separate and distinct to the inspection carried out by the
aforementioned inspectors.  S. 46 of the MSA provides
as
follows:
“
1.
The Council may, by notice in writing, remove from the office a
member of the board of trustees of a medical scheme if it has

sufficient reason to believe that the person concerned is not a fit
and proper person to hold the office concerned.
2. The Council
shall, before issuing the notice referred to in (1) furnish such
person with full details of all the information
the council has in
its possession in regard to any allegations of the member of the
board of trustees not being a fit and proper
person and to request
that person to furnish the Council with his or her comments thereon
within 30 days or such other period as
the Council may allow.
3.
The Council may not issue the notice referred to in subsection (1)
until it has considered the comments, if any, referred to
in
subsection (2).”
[7]
The recommendation that the Council should consider instituting the s
46 proceedings against the applicants was made as a result
of the
following irregularities that were discovered during the inspection
of the affairs of Bestmed;
7.1 Bestmed planned
and organised a trip operated by Leisure Wheels 4x4 Safaris to
Botswana to take place between 8 June 2011 and
16 June 2011 and
allocated R365 201.23 of its funds for the trip.  It
regarded the said trip as a marketing event and
yet only 14
individuals, including 2 trustees, at an average cost of more than
R25 000.00 per person participated in the event
over eight days;
7.2 after incurring
the aforementioned expenses in respect of the Botswana trip and
pursuant to the concerns raised by Sanlam regarding
the propriety of
the invitation to persons associated with it, Bestmed entered into
“
Acknowledgements of Debts”
agreements in respect
of nine of the persons who had gone on this trip.  The said
Acknowledgement of Debt agreements were signed
on the basis of
Bestmed purportedly having loaned Bestmed’s money to these
persons in order to enable them to go on the trip.
These loans were
however unlawful.  They did not constitute an expense that a
medical scheme, such as Bestmed, may lawfully
incur in the conduct of
its business as a medical scheme in terms of s 26(4)(b) of the MSA.
To exacerbate the situation Bestmed
did not even recover interest in
respect of these agreements and suffered a loss in that respect as a
result.
7.2.1  S 26 of
the MSA determines the amounts that may be debited against the
business account of a medical scheme.  It
provides as follows:
“
(4)
No amount shall be debited to the account contemplated in subsection
(1)(c) other than –
(a) payments by a
medical scheme of any benefit, payable under the rules of a medical
scheme;
(b) costs
incurred by the medical scheme in the carrying on of the business as
a medical scheme or;
(c) amounts
invested by the board of trustees in accordance with section 35(7).”
Subsection 1 of the
MSA defines the business of a medical scheme as follows:
“
business
of a medical scheme means” the business of undertaking
liability in return for a premium or a contribution
–
(a) to make
provision for the obtaining of any relevant health service;
(b) to grant
assistance in defraying expenditure incurred in connection with the
rendering of any relevant health services, and;
(c)
where applicable, to render a relevant health service, either by the
medical scheme itself, or by any supplier or group of suppliers
of a
relevant health service or by any person, in association with or in
terms of an agreement with a medical scheme.”;
7.3 Bestmed loaned
the tour operator of the Botswana trip an amount of R15 000.00
as he could not draw funds that he needed
for the trip.
Although the said amount has been recovered, in recovering it from
the tour operator Bestmed failed to recover
interest despite the fact
that it was entitled to it;
7.4 the Botswana
tour participants were sponsored by an amount of R233,318.23, which
consisted of an amount of R194,736 effectively
paid by the Scheme and
another amount of R38,582 contributed by the employees;
7.5 Bestmed incurred
an amount of R176,070.98 in 2010 and a further amount of R205,237.39
in 2011 in respect of a suite at Loftus
Versfeld Stadium and
attendant costs, such as liquor and catering. It failed to show the
identity or identities of the people who
had been hosted and catered
for. It took no steps to explain the said entries.  All that
Bestmed did was to furnish a general
response stating that it
routinely invited corporate clients and potential clients and other
stakeholders to rugby and soccer games
that were played at the
stadium. These expenses, according to the Council, were excessive and
did not constitute bona fide marketing
expenses;
7.6 Bestmed spent
more than R6 000.00 during 2011 in respect of a hunting
weekend.  This hunting weekend was co-sponsored
by Bestmed and
its principal officer, La Grange, the deponent to the founding
affidavit.  This hunting weekend, according
to the Council, was
a private occasion and did not constitute
bona fide
marketing
by the Bestmed;
7.7 Bestmed expended
R14,793.39 on flight tickets, liquor, entertainment and tickets for a
Neil Diamond concert.  This expenditure
was passed in the
scheme’s financial statements under marketing.  However,
the beneficiaries of the scheme funds spent
in respect of this
concert were trustees and senior employees of Bestmed together with
their spouses and partners. The Council
found that the said expense
did not constitute a lawful expense incurred by the scheme;
7.8
Bestmed entered into a marketing and distribution services agreement
that became effective on 1 January 2009 with Sanlam Health

Distribution Services (Pty) Ltd (“SHDS”).  Bestmed
paid SHDS to effectively render “broker services”,

although SHDS was not accredited as a broker in terms of the MSA and
was not allowed to render (“broker services”).

Furthermore Bestmed paid SHDS although it had already paid other
entities for “broker services”.  Bestmed is unable

to recover this expense which constitutes a further loss to the
Scheme.
[8]
Acting in accordance with the terms of s 6(2) of the Financial
Institutions (Protection of Funds) Act 28 of 2001 (“the
FI
Act”), on 15 July 2013 the Registrar made certain findings and
issued certain directives.  On 16 July 2013 the Registrar

forwarded the final inspection report dated 26 March 2013, together
with his findings and directives, to Bestmed.  An email
was sent
by the Registrar to Bestmed and it read as follows:
“
DETAILS
OF THE MATTER IN CONNECTION WITH WHICH THE DIRECTIVES ARE ISSUED
1. On 01 November
2011 the Registrar ordered an inspection in terms of section 44(4)(b)
of the Medical Schemes Act 131 of 1998 (“MS
Act”) into
the affairs of Bestmed Medical scheme.
2. These
directives concern the findings made subsequent to the inspection
into the affairs of Bestmed.
3. The inspection
covered the period of up to 30 September 2011.  A report for
comments containing the findings of inspectors
was made available to
Bestmed for comments.  On 24 May 2013 Bestmed submitted its
comments which comments have been taken
into account.
4.
The Registrar, therefore, hereby directs you -in terms of section
6(2) of FI Act -as set out in section B below ‘
SECTION
B: DIRECTIVES
1. I have reason
to believe that the aforementioned Bestmed conduct contravenes and
fails to comply with various provisions of the
MS Act and the FI Act.
2. This section
sets out steps that Bestmed is directed to take and the stipulated
time within which to comply with my directives.
3. Bestmed and
all the members of the board of trustees together with the Principal
Officer are hereby directed in terms of section
31 of the MS Act to
amend the rules of Bestmed to provide for a trustee succession
mechanism, limit tenure of trustees and the
size of the board, and
abolish representation of constituency representation.
4. Bestmed and
all the members of the board of trustees together with the Principal
Officer are, therefore, further hereby directed
in terms of section
6(2) of the Financial Institutions (Protection of Funds) Act 28 of
2001 (“the FI Act”) to –
4.1 Ensure that
a proper register of members attending AGMs, and minutes of board
meetings are kept.
4.2 Apply the
rule providing for disputes resolutions in a manner that it is
consistent with the MS Act and that ensures that members
are able to
access the disputes committee and resolve disputes at scheme level.
4.3 Develop a
clear policy on marketing and on the delegated spending authority
that are specified budget items of marketing. Further
that Bestmed
should review and where needed implement proper control systems on
permitted use of medical scheme funds.
4.4 Amend Bestmed
audited financial statements for the period ending 31 December 2011
by adding a note thereto disclosing Bestmed’s
contribution
towards the Botswana trip and Neil Diamond concert in favour of the
trustees.
4.5 Where Bestmed
has resolved to sponsor golf days with participating employer
organisations, it must contribute and sponsor proportionately
to
Bestmed representatives participating at such events.
4.6 Disclose the
full amount of fees paid by Bestmed to SHDS while the marketing and
distribution agreement persisted.
4.7 Initiate and
execute all recovery steps of all fees paid to Sanlam Health
Distribution Services in terms of SHDS agreement.
4.8 Initiate and
execute all recovery steps of all funds paid by Bestmed in favour of
or on behalf of persons that attended the
Botswana trip, Neil Diamond
concert, or hunting trips from persons who took part in these
excursions.
4.9 Provide
veritable proof that there the payments for co-administration fees is
not a duplicated set of fees paid elsewhere to
SHDS as initial new
member fees, upfront fees, new member fees or initial new member
retention fees.
4.10 Disclose
whether Bestmed has a marketing and distribution agreement with any
party and, if Bestmed does, you are required to
provide the office of
the Registrar with a copy of such agreement to Registrar.
4.11 Registrar
with Fidelity Fund and Professional Indemnity insurance possible
claims for trustees’ infidelity to the provisions
of the
Medical schemes Act and rules of Bestmed in relation to:
4.11.1 All
payments made to SHDS under the marketing and distribution agreement;
4.11.2 All
payments made by Bestmed and for which Bestmed were caused to be out
of pocket for in relation to the Botswana trip,
Neil Diamond concert,
or the hunting trips.
4.12 Cause the
board of trustees to perform its duties to ensure that Bestmed
remains compliant with –
4.12.1
registration requirements of Bestmed as stipulated in section
24(1)(a) of the MS Act in so far as the fitness and propriety
of the
principal officer is concerned, or
4.12.2 whether
the provisions of Bestmed rules contemplated in section 29(1)(b) and
section 57(4)(a) of the MS Act in regard to
the fitness and propriety
of the principal officer to continue to hold such office.
4.13 Provide
proof and confirm whether or not the fees paid as co-administration
fees are for the same services that are paid for
initial new member
fees, upfront fees, new member fees, and initial new member retention
fees.
4.14 Disclose a
copy of the final inspection report incorporating Bestmed comments to
members of the Bestmed as well as all participating
employer groups
in Bestmed.
4.15 Appear
before the Registrar and report, within 30 days from receipt of this
directive, on all steps taken to comply with each
of the directives
listed stated above.
Signed
at Pretoria on 15 July 2013.
DR.
MONWABISI GANTSHO
CHIEF
EXECUTIVE AND REGISTRAR “
[9]
Despite being afforded an opportunity to comment on the directives
dated 15 July 2013 within a period of 30 days from 16 July
2013,
Bestmed failed to do so and also failed to ask for an extension of
time in order to do so.  Instead on 13 September
2013 Bestmed
noted an appeal against the directives of the Registrar in terms of s
49 of the MSA as follows:
“
TAKE
NOTICE that the abovementioned appellant, Bestmed Medical scheme
(Reg. No. 1252)(“the appellant”), hereby notes
an appeal
in terms of section 49 of the Medical schemes Act 131 of 1998 (“the
MS Act”) against:
1. The findings
and directives of the Registrar for the Medical scheme (“the
Registrar”) attached as “A”
(“the Registrar’s
decision”).  The Registrar’s decision:
(a) was made
pursuant to conclusions, findings and recommendations of an
inspection order by the Registrar in terms of section 44(4)(b)
of the
MS Act;
(b) constitutes a
decision made by the Registrar in the performance of his powers and
duties imposed by and under the MS Act, even
where exercising powers
under the Financial Institutions Provision Act 28 of 2001 (The FI
Act);
(c) In certain
respects was made in terms of section 31(4) of the MS Act.
2. The decision
of the Registrar to rely, in making the Registrar’s decision,
on an inspection report prepared as a result
of an inspection ordered
by the Registrar in terms of section 44(4)(b) of the MS Act (“the
decision to rely on the inspection
report”).
TAKE
FURTHER notice that the Appellant appeals against the Registrar’s
decision, and the decision to rely on the inspection
report on the
grounds set out below.”
[10]
In their letter dated 30 September 2013 Bestmed reported, through
their legal representatives, on the steps it had taken and
still had
to take to address the concerns raised by the Registrar.  In
this same letter Bestmed’s attorneys requested
the Council to
confirm that the operations of the findings and directives issued by
the Registrar, including all the steps contemplated
as a consequence
of the findings and directives, would be suspended.  In its
reply dated 15 October 2013 the Council wrote
as follows:
“
I
do not deem it necessary to furnish you with confirmation that the
operation of the findings and directives referred to are suspended.

The directives are suspended as a matter of law and the provisions of
section 49(2) of the MS Act are manifestly clear in this
regard.”
Quite
clearly the Council confirmed the automatic suspension of the
Registrar’s directives in accordance with s 49(2) of the
MSA
following Bestmed lodging its notice of appeal.
[11]
On 31 October 2013 the Registrar submitted a detailed memorandum to
the Council in which he recommended steps in terms of s
46 of the MSA
against Bestmed’s board of trustees. The Registrar’s
recommendation was founded on the thorny issues
pointed out in the
Inspection Report that called for the Council’s attention in
terms of s 46 of the MSA. After deliberating
over the Registrar’s
memorandum and in particular the Registrar’s recommendation, it
was decided by the Council that
individual members of the board of
trustees should be furnished with a copy of the Registrar’s
memorandum and furthermore
that each one of them should be invited to
comment on the allegations contained in the said memorandum. On 1
November 2013 the
Registrar sent to each trustee of the Bestmed board
of trustees a letter and invited each trustee to comment on the
contents of
the memorandum that he had sent to the Council.
Copies of the following documents were also forwarded with the said
letter
to each individual trustee for his comments:
1.
the Bestmed Final Inspection Report;
2. 31 October 2013:
Bestmed Medical scheme Recommendations for s 46 proceedings;
3. letters from the
Registrar dated 01 November 2013 addressed to current and former
trustees;
4. replying letter
from Adams & Adams on behalf of Bestmed dated 22 November 2013 in
response to the letter of the Registrar
dated 1 November 2013;
5.
28 November 2013: Bestmed Medical scheme recommendations for s 46
proceedings;
6. appeal by Bestmed
submitted on 13 September 2013; and,
7. report on the
Steps Taken and To Be Taken in future in Response to Directives.
[12]
The aforementioned documents constituted the full details of all the
information the Council had in its possession in regard
to the
allegations against each trustee as a member of the board of trustees
with regard to each one of them not being a fit and
proper person.
It was on the basis of the information contained in the
aforementioned documents that the Council resolved
to call for each
trustee’s comments in terms of s 46(2) of the MS Act.
Each trustee was required to furnish his comments
on the allegations
contained in the said documents within 90 days from the date of the
said letter and before the Council could
decide whether or not to
issue a notice in terms of s 46(1).  Copies of the said letters
were also sent to the Principal Officer
of Bestmed.
[13]
Bestmed’s attorneys challenged the Council’s authority to
institute proceedings in terms of s 46 of the MSA. In
paragraph 6 of
their letter dated 22 November 2013 they stated unequivocally that
there would be no response from the affected
trustees to the contents
of the letter sent by the Registrar unless the Registrar indicated
his legal foundation for his request.
The affected trustees
adopted this position notwithstanding the following paragraphs
contained in each of the letters sent to them:
“
1.2
One of the recommendations is that the allegations in the inspection
report that impugn the fitness and the propriety of the
Bestmed
trustees be brought to the Council for the latter to institute
section 46 proceedings should it so decide.
2.4
The Registrar requires, in order to determine what steps should he
take regarding the inspection recommendations referred to
in
paragraph 1.2 above, that you comment on
the
allegations as set out therein in paragraph 3 below.”
On
26 November 2013 the Registrar forwarded a memorandum to the Council
in which he reported that the trustees courageously refused
to
respond to his request and recommended that the Council invoke the
provisions of s 46 of the MSA and call the trustees to respond
to the
allegations contained in the Inspection Report.
[14]
On 28 November 2013 the Council resolved to issue the s 46(2) notices
to the second to tenth applicants.  On 13 December
2013 Bestmed
submitted to the Registrar a letter about the further steps it had
taken to address the concerns raised by the Registrar
through the
July 2013 Directive. The Registrar informed Bestmed’s legal
advisors in his letter dated 18 December 2013 that
he had made a
recommendation to the Council to consider taking steps in terms of s
46.  Following the said resolution of 28
November 2013 on 20
December 2013 the Council forwarded to each individual trustee a
notice in terms of s 46(2) of MSA. Attached
to the aforementioned
notice were documents which the Council was required to forward in
terms of the provisions of s 46(2) of
the MSA and which documents
constituted full details and all the information that the Council had
at its possession.  These
documents are as set out in paragraph
11 supra. In their letter dated 24 December 2013, the applicants’
attorneys requested
more time in order to enable them to obtain
further instructions on the s 46 (2) notices. In the same letter they
furnished reasons
for their request of the extension of time.
[15]
During February and March 2014 the applicants requested a further
extension of time in order to enable them to respond to
the s 46(2)
notices.  In their letter dated 17 March 2014 the applicants’
attorneys threatened the Council with an urgent
application if their
application for the extension of time in order to respond to the
directives was not granted.  On 26 March
2014 Bestmed was
afforded a further period of 30 days to furnish its response to the
Directives.  At the same time the affected
trustees were each
granted 30 days’ grace to furnish their response to the s 46(2)
notices.
[16]
Undercover of a letter dated 30 April 2014 from their attorneys
Bestmed furnished its response to the Directives.  The
said
attorneys stated in the covering letter that Bestmed’s response
to the Directives ought to dispose of all the Registrar’s

concerns and the associated Directives.  They further requested
the Registrar to indicate whether he was satisfied with the
scheme’s
compliance with the Directives.  Bestmed clearly sought to
comply with, and address, the directives. In its
response to the
Directives Bestmed indicated,
inter alia,
that:
16.1 when Sanlam
became aware of the Botswana trip it advised that those invited from
its ranks could not accept the invitation
as doing so breached the
FAIS code of conduct which imposed limits on the amount that could be
spent in this way in respect of
brokers and media risk, and which
would have been exceeded in this instance.  However, despite
Sanlam’s misgivings,
Bestmed’s trustees were satisfied
that the expenses had a marketing objective and were in the interest
of the members of
the scheme.  Furthermore, although contending
that the expenses constituted lawful expenses, Bestmed’s board
of trustees
nevertheless resolved only on 15 April 2014, almost three
years after incurring the expenses in respect of the Botswana trip,
that
recovery steps be taken;
16.2 Bestmed’s
board of trustees contended that the expenses concerning the Neil
Diamond Concert were “
probably lawful”
.  It
was contended on behalf of Bestmed that, in the light of the
criticism of expenses such as those pertaining to the Neil
Diamond
concert, the marketing policy had been formulated to provide for
proper budgeting of such expenses and for the sensitivity
to costs.
Bestmed accepted that there should be proportionality to the
envisaged benefit and the costs in question.
It contended that
it had re-evaluated the expenses in the light of legal advice
obtained.  In light of such re-evaluation
Bestmed was of the
view that the expenses were “
probably lawful”
but
that it was important that it erred on the side of caution both in
respect of past and future expenditure.  The board
of trustees
accordingly resolved on 15 April 2014 that recovery steps be taken.
The relevant parties had advised that they
were obtaining independent
legal advice. Bestmed did not anticipate that it would be necessary
to institute legal proceedings in
order to effect the recovery in
question from them;
16.3
About the hunting trips it was contended on behalf of Bestmed that
legitimate marketing expenses included hunting trips in
respect of
two individuals, it had taken note of the Registrar’s concerns
in this regard.  According to it Bestmed regarded
the hunting
trips as legitimate marketing tools.
[17]
Undercover of a letter dated 13 May 2014 from their legal
representatives, Bestmed’s trustees furnished a joint response

to the s 46(2) notices.  The individual affected trustees
indicated the following therein.  It was contended on behalf
of
the affected trustees:
17.1 that it was
both inappropriate and premature to treat such conclusions, findings
and recommendations as final when the facts
on which they were based
were very much in dispute or to seek input on such issues from the
trustees who invariably may be required
to testify during the cause
of the appeal;
17.2 that when the
Registrar made recommendations to the Council to initiate such
proceedings, it did so knowing that its reliance
on the final
inspection report was in dispute and formed the subject of the
appeal;
17.3 that the
jurisdictional condition that sufficient reason existed to believe
that each trustee concerned was not a fit and
proper person to hold
the office of trustee was predicated on the same facts on which the
findings, conclusions and recommendations
were based;
17.4 that the
directives issued had to be considered afresh during the appeal;
17.5 that regarding
the directives and the s. 46 proceedings as two non-related processes
would amount to separating the inseparable
and would procedurally be
unfair and therefore unconstitutional; and
17.6
that the jurisdictional precondition, whether the Council had
sufficient reason to believe that each of the persons concerned
was
not a fit and proper person to hold the office of trustee must be
constituted by facts giving rise to such belief and a blind
belief or
a belief based on such information or hearsay evidence as a
reasonable man ought or could not give
credence
or does not suffice
.
[18]
Individual members’ response to the Botswana trip was that the
scepticism by the Registrar that the Botswana trip could
constitute
marketing with reference to the number of persons invited to
participate and who ultimately participated therein was
unfounded.
They contended furthermore that “
it
was clear that the Scheme has an authorised marketing spend in its
annual budget and that there could be no difficulty in principle
with
the Medical scheme expending money on marketing”.
They continued and stated that “
the
expenditure complained of fell specifically within the marketing and
related budgets for the inspection period together with
provisions
for additional expenditure to be incurred by the Principal Officer
under a delegated authority that allowed him to spend
an additional
R1 million per case with feedback to the executive committee”
.
According to them the budget was the framework within which
management must operate with expenses approved within the delegated

authority.  Amounts in excess of R1 million were permitted to
subsequent approval of the board of trustees.  It was further

contended on behalf of the trustees that the statement that the
failure to levy interest appeared to be inexcusable and that it

amounted to failure to protect the scheme’s funds was
misplaced.  They were unwavering in their view that reasonable

explanations had been proffered for not having collected interest at
the time.  According to them the Botswana trip and its
expenses
were considered by the board of trustees who viewed same to have
served a legitimate purpose.
[19]
Having regards to the Registrar’s concerns it was contended on
their behalf that the board had sought legal opinion with
regards
thereto and the scheme was pursuing viable recovery avenues.
The board of trustees was satisfied that the expenses
had a marketing
objective and were in the interest of the members of the scheme.
In a further response they stated that it
was both misguided and
opportunistic to capitalise on an
obiter
statement expressed in
Arrow Altech
Distribution (Pty) Ltd v. Byrne and Another
[2008] 1 All SA 356D
370
D-H paragraphs 51- 57
, to suggest that
invitations to attend rugby and soccer games constituted a corrupt
activity in terms of the Corruption Act 1994
of 1992, if one had
regard to the peculiar facts of that case.  The trustees were
united in their approach that the suite
and related activities served
and continued to serve
bona fide
marketing and relationship building strategy.  They contended
furthermore that it was irresponsible for the inspectors, as

supported by the Registrar, to
seek for the
Council to arrogate to itself the right to decide whether such
assertions amounted to corrupt activities for the purposes
of
s 12
of
the
Prevention and Combating of Corrupt Activities Act 12 of 2004
on
reasons which they considered too flimsy.
[20]
The trustees were ad idem that the hunting trips similarly fell
squarely under the
bona fide
marketing and relationship building umbrella. It is clear that they
were all contended that the attendance of the Neil Diamond
concert
served a
bona fide
marketing purpose and a
bona fide
belief
that expenses were justified and were not incurred merely as
entertainment.  They stated furthermore that it did not
follow
logically that a trustee who served on the board of Bestmed and who
legitimately may also be an employee of an employer
group and
therefore indirectly representing that group could be conflicted for
having attended a marketing activity.  Finally
it was contended
that the
s 46
notices simply paid a lip service to the subjective
recommendations contained in the final inspection report and that the
Council
should avoid assuming to itself a circumscribed list of
principles.  In a letter dated 26 June 2014 the applicants’
attorneys contended that Bestmed had complied with the directives.
They bemoaned furthermore the fact that they had not received
a
response to the scheme’s response to the directives and
trustees’ response to the
s 46(1)
notices.
[21]
In a letter dated 11 July 2014 the respondents’ attorneys
indicated that their clients’ directives were dated 15
July
2013 and yet Bestmed had deemed it fit to respond thereto only on 30
April 2014, 9 and a half months later.  They indicated

furthermore that likewise the trustees’ response to the
s 46(2)
notices on 30 May 2014, more than 5 months after the said 46 notices
had been issued, reflected a substantial delay in responding.

It was furthermore indicated that on the trustees’ own version
their response to the
s 46(2)
notices could not be considered
sufficient to outstanding issues emanating from the scheme’s
response to the Directives.
[22]
On 6 August 2014 the applicants’ attorneys indicated that to
the extent the Scheme was still engaged in the steps it
committed
itself in its response to the Directives that it did not imply that
it had not yet fully and finally responded to the
directives.
It indicated that the applicants accordingly requested that:
22.1 the Registrar
should have regard to their response to the Directives together with
the letter dated 27 June 2014 from the scheme’s
legal
representatives and the contents thereof in finally considering their
client’s response to the Directives;
22.2
the Council should consider what appears in paragraph 22.1 supra
together with the trustees’ response to the notice in
terms of
s 46
in finally considering the trustees’ response to the
notices in terms of
s 46(2).
The applicants accordingly
requested the Council to decide whether or not to remove the
individual applicants from the office
of trustee in this
correspondence dated 6 August 2014. In their letter dated 10 October
2014 annexed to the founding affidavit
Bestmed’s legal
representatives contended on its behalf that Bestmed opined that it
had complied with the Directives issued
by the Registrar and
indicated that Bestmed believed that proceeding with its appeal and
review would be otiose. For these reasons
Bestmed undertook to
formally withdraw its appeal and review unless the respondents
expressed a different opinion.
[23]
On 26 October 2014 the Registrar submitted his memorandum together
with annexures wherein he furnished a summary of the trustees’

responses to the
s 46(2)
notices to the Council.  The Registrar
pointed out that the trustees adopted a united front of collective
responsibility and
that no one of the trustees sought to express his
or her personal comments to allegations contained in the Inspectorate
Report.
The Registrar fingered out furthermore the various instances
of the trustees failing to acknowledge their collective wrongdoings.

Accordingly the Registrar recommended that the Council should remove
trustees from office.
[24]
On 29 October 2014 the Council resolved that the information that
had been placed before it provided sufficient reason to
believe that
each of the affected trustees, including advocate JJ Labuschagne and
Mr. Francois Marais, the two who had already
vacated their offices as
trustees, were not fit and proper persons to hold the office as
trustees of the scheme for lack of fitness
and propriety.  It
was accordingly resolved to remove the affected trustees as trustees
of the Bestmed.  Attached to
the papers was a resolution dated
29 October 2014 to remove the affected trustees from the board of
trustees of Bestmed. The Council
caused to be forwarded to the
individual applicants’ letters informing them of their removal
as trustees together with their
resolution removing them as trustees
of Bestmed’s board of trustees on 13 November 2014.  These
letters are the same
in content. The reasons for the removal of the
trustees from the provisions were furnished in the same letters in
which they were
removed from their positions.
[25]
The following are the reasons furnished by the Council for its
decision of 29 October 2014 in terms of which the affected trustees

were removed from their positions as trustees:
25.1 it believed
that the individual trustees were not fit and proper persons to hold
the office of trustees of the Scheme;
25.2 that there was
no dispute that the following impugned transactions took place
Botswana trip, Neil Diamond concert, rugby sponsorships,
hunting
trips and SHDS marketing and distribution fees.  The individual
applicants did not dispute the aforesaid transactions
but instead
disputed the inferences which may be drawn from them;
25.3 the Council
noted that the individual applicants presented a united front and
aligned themselves in their comments at all reasonable
times;
25.4 to the extent
that the Council found the impugned transactions to have transgressed
the rules and provisions of the laws governing
medical schemes, the
Council considered whether the trustees’ comments showed
integrity and insight into the extent of their
transgressions,
honesty and whether members of the scheme would be adequately
protected from their egregious maladministration
of the scheme’s
affairs;
25.5 the Council
took into account the fact that the affected trustees were
indefatigable in their recalcitrant common motivation
that the
Botswana trip was legitimate;
25.6 according to
the Council the MSA envisaged marketing or advertising within the
strictures of conducting the business of a medical
scheme;
25.7 three of the
scheme’s employees and two of its trustees were probably
advantaged as a result of the Botswana trip;
25.8 the Council was
of the view that the provisions of the MSA did not provide for using
medical scheme’s funds for excursions
such as the Botswana
trip;
25.9
the Botswana trip was viewed objectively by the Council as an
unjustifiable   expense in “
the
carrying on of the business and medical scheme”
.
The Council therefore having considered the comments of the trustees
concluded that the Botswana trip fell outside the scheme’s

marketing activities and constituted utilisation of the scheme’s
funds in a way not contemplated by
Rules 19
,
20
,
17
, s 2 of the
Protection of Funds Act and s 26(4) of the MSA.  S 2 of the
Protection of Funds Act and s 26 of MSA prohibit officers
of a
medical scheme from using the funds or property of a medical scheme
in a manner calculated to gain directly or indirectly
improper
advantage for any person to the prejudice of the Financial
Institution.  In terms of s 1 of FI Act,
‘
Financial
Institution’ means
(b)
any medical scheme contemplated in section 1 of the Medical Schemes
Act, 1998 (Act 131 of 1998
)
[26]
Other reasons for its decision to remove the trustees from their
positions were set out by the Council as follows:
26.1 there were
nine acknowledgements of debt signed in favour of Bestmed by persons
who went on the Botswana trip.  These
documents were not signed
by any person on behalf of the scheme, had not been witnessed and the
liability amount of the debt was
not stated.  There was no
authority for granting loans in respect of the acknowledgements of
debt signed for the Botswana
trip, be it in the MSA, the Scheme’s
Rules or resolution of the board.  The Council found that
lending of Scheme’s
funds in a manner it was done in the
instant matter was not a business of medical scheme nor was it an
expense incurred in the
carrying on of a business of medical scheme;
26.2 The individual
applicants contended that giving of these loans was permissible in
terms of s 26(4)(b) of the MSA, despite the
fact that the board of
trustees had not taken any resolution to that effect to grant loans
to the Botswana travellers.  On
this basis the loans were, so
contended the Council, ultravires the Rules of Bestmed.  It was
accordingly inconceivable how
such loans that were granted without
the board of trustees’ authority may be permissible in terms of
s 26 of the MSA.  Furthermore
the lending of fund was not the
business of a Medical scheme nor was it an expense incurred in the
carrying on of a business of
a medical scheme.  According to the
Scheme’s Rule 20.13 the Scheme may only grant loans to members
in order to assist
such members to defray health expenses.
26.3 Other reasons
on the basis of which the Council decided that the affected trustees
were not fit and proper to continue holding
their offices are that:
26.3.1 it considered
the combined comments in particular of the trustees on the non-
collection of interest. On the strength of
this failure by the
trustees to collect interest, the Council concluded that such failure
was without just cause and put the funds
of the scheme at risk and
showed lack of honesty that had exposed the Scheme to the actual loss
in contravention of the provisions
of s 57(6)(a) of the MSA, Rule
19.8 and s 2 of the Protection of Funds Act;
26.3.2 that the
scheme’s records were, for inexplicable reasons, incomplete in
as much as they did not reflect who had been
hosted and catered for
on rugby and soccer events.  According to the Council the board
of trustees did not strove with might
and may to explain the entries
in their response.  Seemingly the Council was unhappy with the
fact that instead of furnishing
satisfactory explanations about the
relevant entries when it was afforded an opportunity to do so, the
board of trustees seemed
to justify the expenses incurred by
Bestmed.  All that the trustees did in the justification of the
expenses was to give a
general response in which they stated that
Bestmed routinely invited corporate clients, potential clients and
other stakeholders
to rugby and soccer games;
26.3.3 Officials of
the Scheme with persons from participating organisations and other
stakeholders have had hunting weekends paid
for by Bestmed.  The
Council formed the view that there was an attempt to mask the hunting
weekends as marketing exercises
as the hunting weekends had neither
been planned nor approved as such;
26.3.4 Bestmed
expended a sum of R130,793,39 on flight tickets, liquor,
entertainment and tickets for the Neil Diamond show. In
the Bestmed’s
financial statements these expenditure was passed as marketing. The
beneficiaries of this concert were undeniably
the trustees themselves
and senior managers of Bestmed together with their spouses and
partners. According to the Council this
constituted clearly a
disguised use of the medical scheme’s funds for the benefit of
those who attended the show.
26.3.5
The fact that Bestmed paid a sum of R111,507,095.00 to SHDS over the
duration of an agreement with it.  This payment
was made in the
following manner:  upfront free, initial new member fee, initial
new matters retention fee and new member
fee.  Where any of the
new members were registered through Sanlam Group Financial Network,
these fees were payable in addition
to the prescribed commission of
3%.  Bestmed paid through SHDS a relevant franchise a commission
of 3% of the members’
contribution for its role in
administering and managing franchise delegated exclusively to the
Scheme.
[27]
Having considered the comments by the trustees, the Council concluded
without much ado that the Botswana trip, the Rugby Sponsorship,
the
Neil Diamond concert and the hunting trips fell outside the marketing
activities of Bestmed and that at best they constituted
the
utilisation of the scheme’s funds in a manner not envisaged by
any Rules of the Scheme and was in contravention of s
2 of the
Protection of Funds Act and s 26(4) of the MSA.
[28]
The Council found that the contravention of the Rules and the
relevant laws constituted sufficient reason to believe that the

trustees were not fit and proper to continue to hold the office of
trustee, especially if they did not even know of the limitation
on
what they may use the Scheme’s funds for. Under such
circumstances it found them unfit to be trustees of the medical
scheme. It is for the above mentioned reasons that it took a
resolution on 29 October 2014 to remove them and for the said reasons

that it removed the affected trustees on 13 November 2014 by notice
in terms of s 46 of the MSA. The said notices constitute the
subject
of the applicants’ application.
[29]
In their application the applicants predicated their reliance on the
following assertions:
29.1 that the
decision to remove the second to tenth applicants was improperly
taken at the last meeting of the former council members
of the first
respondent and that the decision was wrong, irrational and reviewable
in the circumstances;
29.2 that there is
no substantive basis for the removal of the trustees.  The
inspection report and the Registrar’s directives
arising from
it have been subject of the pending appeals in the outset, in other
words for more than a year.  According to
the first applicant to
remove the trustees when unfortunate challenges were pending was
irrational.
29.3 that the
removal of 9 out of 12 trustees by the first respondent had created a
risk of disproportionate harm to the members
compared to the risk of
harm that actuated the removal of such trustees;
29.4 that the
removal of the trustees came at such a crucial time regarding core
strategic decisions for the scheme, that the loss
of the pool of
skills and institutional knowledge created significant risks to the
remaining trustees and would be unfair to newly
appointed or elected
trustees in taking such decisions;
29.5 that the
applicants had indicated that they had intend appealing the removal
of the trustees under s 46 of the MSA on the strength
that the
Council could not have reasonably believed that the removed trustees
were unfit for the offices they occupied;
29.6
that the scheme had been in safe hands under the board, including the
now removed trustees, who had shown their commitment
to good
governance and compliance with the MSA and who had fully cooperated
with the registrar.
[30]
On the other hand the respondents contended that there is no basis
for the relief sought by the applicants, and in fact that
there are
facts present which warranted an order placing the scheme under
curatorship.  They contended furthermore that there
was a
genuine basis for them to launch their counter application for the
relief they sought in placing the scheme under curatorship.
[31]
The respondents opposed the application on both procedural and merit
bases.  They contended that:
1. the applicants
sought an order granting them a temporary restraining order against
the exercise of a statutory powers;
2. that the
applicants had failed to establish  a
prima facie
right
for the interim relief that they seek;
3.
that MSA did not allow trustees who have been removed from the office
on the basis that they were not fit and proper in terms
of s 46 of
the MSA to be restored and that the deponent to the founding
affidavit of Mr. la Grange was not authorised by the scheme
to depose
to the affidavit on behalf of the scheme.
PRELIMINARY
ISSUES RAISED
[32] Initially the
respondents had taken three preliminary points to the effect that:
(a) the applicants
sought an interim interdict namely, a suspension of the exercise of
statutory powers that resulted in the removal
of the individual
applicants from the office of the trustees in terms of s 46 of the
MSA.  In this regard the respondents
relied in support of their
contention on
The National Treasury and Others v. Opposition to
Urban Tolling Alliance and Others 2012(6) SA 223 (cc) paragraph 43
;
(b) that the
deponent to the founding affidavit, Mr. la Grange, was not duly
authorised by Bestmed to depose to the founding affidavit
and to
lodge an application on behalf of the scheme.  In this regard
the respondents relied on the following authorities:
(a)
Land and
Agricultural Bank of South Africa vs Parker and Others 2005(2) SA 77
SCA paragraph 11
; and, (b)
Interboard SA (Pty) Ltd vs Van den
Berg and Others;
and,
(3)
that the right to appeal against the decisions of the Registrar or to
have them reviewed has become perempted.
[33]
At the commencement of the hearing the parties informed the court
through Mr. Maritz that urgency was no longer an issue in
respect of
both the application and the counter application; that the issue with
regards to
locus standi
of La Grange should be dealt with in the course of the application
and finally that there was no dispute as to the nature of the
matter.
THE
REMOVAL OF THE TRUSTEES WAS WRONG, IRRATIONAL AND SUBJECT TO AN
APPEAL IN TERMS OF SECTION 50(3) OF THE MSA
[34]
As indicated somewhere supra, the applicants had noted an appeal in
terms of s 50(3) of the MSA. This appeal, it must be pointed
out, was
noted against the registrar’s directives.  The applicants
contended that the council could not reasonably have
believed that
the affected trustees were unfit for the office they held.  The
applicants challenged the directives on the
basis that the
correctness of the facts and findings were in dispute and furthermore
on the basis that it was the council itself
that was required to hear
and determine the appeal against the registrar’s directives.
On the strength of the aforegoing,
they opined strongly that they had
established a
prima facie
right to the interim relief they sought.  It was so argued by
their counsel that they had prospects of overturning the removal

notices by means of the appeal in terms of s 50(3) and that such
prospects established their
prima facie
right to have the removal notices suspended pending the finalisation
of the appeal and review.
[35]
On the other hand it was contended on behalf of the respondents that
there was no appeal against the decision of the registrar
and that
any appeal that the applicants had noted against such decision had
been withdrawn in terms of a letter dated 10 October
2014. Part of
the said letter on which the respondents relied for their contention
stated as follows:
“
7.
Our client does not believe that any purpose will be served by
proceeding with its appeal and review and, unless we hear from
you to
the contrary, our client will accept that your clients share this
view.”
In
the same letter, Bestmed’s legal representatives explained the
facts and circumstances that led to Bestmed taking the decision
to
withdraw the appeal and review.  But Bestmed held a different
view.  According to it, the said letter recorded its
belief that
matters raised in the registrar’s directives had all been
addressed to the satisfaction of the respondents.
It stated
furthermore that it believed simultaneously that there was no need to
pursue the appeal and review and that if the registrar
believed that
not all the issues had been addressed, then under those circumstances
the appeal and review had not been withdrawn.
[36]
In the first place, Bestmed itself admitted that, under certain
circumstances, the appeal and review could simply be regarded
as
having been withdrawn.  According to it those circumstances
would occur only if the registrar were satisfied that all the
thorny
issues raised by the registrar had been addressed to the satisfaction
of the registrar.  This required the registrar
to respond to the
letter dated 10 October 2014.  I do not agree with this
interpretation.  Bestmed’s withdrawal
of the appeal and
review was predicated on the following statement:
“
Unless
we hear from you to the contrary, our client will accept that your
client shared this view.”
The
respondents did not respond to the said letter, in particular
paragraphs 6 and 7 thereof.  Accordingly Bestmed’s
view
that it would serve no purpose to proceed with the appeal and review
became definite irrespective of what was contended by
the applicants
in its replying affidavit.
[37]
Contrary to the applicants’ contention that they had prospects
of success if they proceeded with the appeal, it is clear
now from
the facts and circumstances underlying their decision to withdraw the
appeal and review that no such prospects of success
existed.
Secondly, the Court can infer from the applicant’s failure to
prosecute the appeal and proceed with a review
that they had actually
abandoned the processes.  Ever since the applicants lodged their
appeal on 13 September 2013 they did
nothing more to promote progress
in the matter.  After the expiration of so long a period from
the date of lodging of the
appeal the Council was entitled to infer
that there was no genuine intention on the part of the applicants to
proceed with the
appeal.  The idea of an appeal was employed as
a sword of Damocles over the respondents’ heads.  Thirdly,
although
they contend that they had noted an appeal and review
against the decisions of the Registrar, the appellants strove with
all their
might to take corrective measures in response to the
Registrar’s directives.  In this respect I was referred to
Qoboshiyane N.O. and Others v. Avusa
Publishing Eastern Cape (Pty) Ltd and Others S. A. 2013(3) 315 SCA at
paragraph 3
where Willis J had this to
say:
“
Where,
after judgment, a party unequivocally conveys an intention to be
bound by the judgment, any right of appeal is abandoned.
The
principle can be traced back to the judgment of this Court in Dabner
vs South African Railways and Others where Innes CJ said:
“
The
rule with regard to peremption is well settled, and has been
enunciated on several occasions by this Court.  If the conduct

of an unsuccessful party is such as to point indubitably and
necessarily to the conclusion that he does not attempt to attack the

judgment, then he is held to have acquiesced in it.  But the
conduct relied upon must be unequivocal and must be inconsistent
with
any intention to appeal.  And the onus of establishing that
position is upon the party alleging it.  In doubtful
cases
acquiescence, like waiver, must be held non-proven.”
[38]
Fourthly the applicants seem to be confusing the genesis of the
proceedings from which the registrar’s directives and
the s 46
notices emanated.  It must be patently clear that although the
directives and the s 46 notices emanated from the
same basis, they
are distinct and separate.  It is basically for that reason that
when the affected trustees were granted
an indulgence to respond to
the s 46(2) notices, it was patently made clear to them that:
“
The
extension is furnished on the basis that a section 46 process stands
independently from that of the remainder of the processes
including
the appeal lodge.”
[39]
Accordingly I come to the conclusion that it was incorrect for the
applicants to contend that there was an appeal and review
proceedings
pending.  There were no such.
[40]
On the other hand, the challenge against the order the applicant
sought was that the applicant sought an order granting a restraining

order against the exercise of statutory powers.  Reliance was
placed on paragraph 43 of the
National Treasury and Others v.
Opposition to Urban Tolling Alliance and Others (“the National
Treasury case”)
supra where the Court, per Moseneke DCJ,
had this to say:
“
43.
A little less than 40 years before the advent of our Constitution, in
Gool vs Minister of Justice and Another 1955(2) SA 682
(c) a full
bench of the Cape Provincial Division was called upon to grant an
interdict restraining the Minister pendente lite from
exercising
certain powers vested in him by a statute.  Ogilvia-Thompson J,
writing for the unanimous Court, considered the
requirements for an
interim restraining order announced in Setlogelo and said the
following:
“
The
present is however not an ordinary application for an interdict.
In the first place, we are in the present case concerned
with an
application for an interdict restraining the exercise of statutory
powers.  In the absence of any allegation of mala
fides, the
Court does not readily grant such interdict …”
And
later the learned judge observed:
“
The
various considerations which I have mentioned lead, in my opinion,
irresistibly to the conclusion that the Court should only
grant an
interdict such as that sought by the applicant in the present
instance upon a strong case being made out for that relief.
I
have already held that the Court has jurisdiction to entertain an
application such as the present, but in my judgment that jurisdiction

will, for the reasons I have indicated, only be exercised in the
exceptional circumstances and when a strong case is made out for

relief.”
The
common law annotation to the Setlogelo test is that courts grant
temporary restraining orders against the exercise of statutory
power
only in exceptional cases and when a strong case for that relief has
been made out.
”
[41]
On the face of it the argument by Mr Brett appears to be misleading
because it tends to create a perception that no party may
challenge
the exercise of statutory powers.  A deeper look into the
argument, however, will disclose otherwise that parties
do have a
right to apply for such orders and that Courts are entitled to
entertain such applications but that Courts will be prepared
to
exercise such jurisdiction in exceptional cases and even then if a
strong case for such relief is made.  In paragraph 44
the Court
set the following test as follows:
“
A
common law annotation to the Setlogelo test is that courts grant
temporary restraining orders against a statutory power only in
an
exceptional case and when a strong case for that relief has been made
out.  Beyond the common law separation of power is
an even more
vital tenet of our Constitutional Democracy.  This means that
the Constitution requires courts to ensure that
all branches of
government act within the law. However, Courts in turn must refrain
from entering the exclusive terrain of executive
and legislative
branches of government unless the intrusion is mandated by the
Constitution itself.”
A
Court continued as follows in paragraph 46 thereof of the said
judgment:
“
Two
ready examples come to mind.  If the right asserted in a claim
for interim interdict is sourced from the Constitution it
would be
redundant to enquire whether that right exists.  Similarly, when
a Court weighs up where the balance of convenience
rests, it may not
fail to consider the probable impact of the restraining order on the
constitutional and statutory powers and
duties of the state
functionary or organ of the state against which the interim order is
sought.
“
47.
The balance of convenience enquiry must now carefully probe whether
and to which extent the restraining order will probably
intrude into
the exclusive terrain of another branch of the government.  The
enquiry must, alongside other relevant harm,
have proper regard to
what may be called separation of powers harm.  A court must keep
in mind that a temporary restraint
against the exercise of statutory
power well ahead of the final adjudication of a claimants’ case
may be granted only in
the clearest of cases and after a careful
consideration of separation of powers harm.  It is neither
prudent nor necessary
to define “clearest of cases”.
However, one important consideration would be whether the harm
apprehended by the claimant
amounts to a breach of one or more of the
fundamental rights warranted by a Bill of Rights.  This is not
such a case.”
[42] According to s
7 of the MSA the functions of the Council include, among others:
“
(a)
to protect the interest of beneficiaries at all times;
(b) to control
and co-ordinate the functioning of medical schemes in a manner that
is complimentary with the National Health Policy;
(c)
…
(d) to
investigate complaints and settle disputes in relation to the affairs
of the medical schemes as provided for in this Act;
(e)
to perform any other functions conferred on the Council by the
Minister or by this Act.”
[43]
One of the powers conferred on the Council by the MSA is contained in
s 46.  In terms of the said section, the Council
has been
endowed with the powers to remove any member of the board of
trustees.  This is a statutory power which the council
exercised
on 13 November 2014.  In order to remove any member of the board
of trustees, the Council must be in possession
of sufficient
information on the basis of which it believes that the member of the
board it seeks to remove from his position is
not a fit and proper
person to continue to hold such an office.  One of the
requirements of the interim interdict is that
the balance of
convenience must favour the grant of such an interdict.  In
weighing this balance of impact, “
a
Court must establish the probable impact the granting of such impact
may have upon the constitutional and statutory powers and
duties of
the state functionary or organ of the state against which the interim
order is sought.”
Par.
46 of the National Treasury case
supra.
[44]
I turn back to the respondents’ contention. Firstly it was
argued by Mr Brett that the applicants have failed to establish
a
prima facie
right for the interim relief that they sought.  This was so
because they failed dismally to address the central issue.
At
the heart of this matter was an allegation with accompanying reasons
that the affected trustees were not fit and proper to continue

holding their offices of trustees, so contended the respondents and
so it was argued by Mr Brett. The affected trustees have not
dealt
with the merits of the removal from their offices and their fitness
and propriety to continue being trustees, so the argument
was
developed. Instead they devoted all their attention to the findings
contained in the investigation report. Secondly it was
argued that
the Act does not allow for trustees who have been removed from their
office as envisaged by s 46 to continue to occupy
such an office
whilst their appeal against the decision to remove them rages on
because that would emasculate the purpose of the
Act, render the
provisions of s 46 nugatory and put the best interests of the
beneficiaries at risk.
[45]
Have the applicants satisfied the requirements for an interim
interdict?  The old authority of
Setlogelo v. Setlogelo
supra
in which the test was set out immediately comes to the fore.  In
order to succeed with an application for an interim interdict,
the
applicants need to establish:
(a)
a
prima facie
right;  (b)  a reasonable apprehension of irreparable and
imminent harm to the right if the interdict is not granted
and as I
already have pointed out somewhere supra;  (c)  the balance
of convenience must favour the granting of an interdict,
and;
(d)  the applicant must have no other remedy.
PRIMA
FACIE
RIGHT
[46]
In order to succeed with the application for an interim relief, the
applicants must establish a
prima facie
right.
Interdicts are granted by the Courts for a variety of reasons.
An interim interdict is designed to protect the
rights of a
complaining party pending either an action or application to be
launched in order to establish the right of that complaining
party.
The effect of an interim relief is to retain the
status quo
until a Court decides where the right lies.  An interim
interdict is aimed at prohibiting the happening of a certain event.

Its purpose is to restrain the commission of an act.  It is for
this reason that the Court in the National Treasury case above
stated
the following:
“
An
interdict is meant to prevent further conduct and not decisions
already made.”
On
this basis alone the applicant’s application stands, in my
view, to fail.
THE
DEPONENT TO THE APPLICANTS’ FOUNDING AFFIDAVIT HAS NOT BEEN
DULY AUTHORISED
[47]
It was contended by the respondents and argued by their counsel that
La Grange had not been authorised by Bestmed to depose
to the
founding affidavit and to lodge the current application.  This
contention is founded on the fact that many of the relevant
incidents
that took place did so after 20 February 2014, the date on which the
board of trustees of Bestmed ratified the resolution
that had been
taken on 6 December 2013 by the Strategic Committee.  It was
contended furthermore that the board of trustees
did not have
authority on 20 February 2014, or for that matter on any other date,
to approve in advance steps by the scheme to
nullify the further
exercise of the statutory powers.
[48] Of paramount
importance in the resolution are the following paragraphs:
“
IT
WAS RESOLVED, INTER ALIA;
(i) That any
steps taken or proceedings instituted by the Council for Medical
Schemes or its Registrar, particularly, but not limited
to,
proceedings in terms of the
Medical Schemes Act or
the
Financial
Institutions (Protection of Funds) Act, against
the Scheme or any
current or former member of its Board of Trustees (“the steps
or proceedings”) should be opposed;
(ii) That Adams
and Adams be and is hereby instructed to oppose the steps or
proceedings;
(iii)
That George Alberts and Dries la Grange be authorised, individually
or jointly, to give instructions, made payments, settle
the terms of
and sign and/or dispatch any documentation and depose to affidavits
or generally do or cause to be done whatsoever
they, in their
discretion and subject to the legal advice, deem requisite or
desirable in the opposition of the steps or proceedings.”
[49]
To be brief on this point it is clear that the applicants’ “saw
it coming.”  They were aware at all
material times about
the steps taken by the Registrar in terms of
s 44(4)(b)
of the MSA.
They had been made aware from the Inspection Report that the
inspectorate had recommended to the Council that
steps be taken in
terms of
s 46
of the MSA.  During November 2013 they were made
aware further that the Council contemplated removing the trustees
from their
positions.  This was the purpose of
s 46
of the MSA.
It was for that reason that the Strategic Committee took the
resolution on 6 December 2013 which was later ratified
on 20 February
2014.  When it did so the Registrar had already recommended on
18 December 2013 that the Council take steps
in terms of
s 46
of the
MSA.  It will be recalled furthermore that on 20 December 2013
the Council had forwarded to each trustee a notice in
terms of
s
46(2).
In my view it is not surprising that the above
resolution was taken as it happened on 6 December 2013 and ratified
on 20
February 2014.  Nothing, in my view, prevented the
trustees who were members of the board from ratifying the
resolution.
Consequently I am satisfied that the resolution
correctly authorise la Grange to individually or jointly give
instructions and
accordingly to furnish the founding affidavit.
[50]
The MSA does not define “
fit and proper”
nor does
it give any list of acts that may render a person being unfit and
improper to continue to hold the office of a trustee.
According
to
s 46
the substantive requirements of the council to remove a
trustee from an office is that:
“
it
must have sufficient reason to believe that the person concerned is
not a fit and proper person to hold the office concerned.”
[51]
During the hearing of the matter, I asked Mr Maritz whether in
determining whether or not the affected trustees were fit and
proper
the Court could use the standard set out in the applications for the
removal of attorneys.  He was adamant that the
Court could not
do so.  In his turn Mr Brett handed in supplementary heads of
argument in which he referred the Court to
Democratic Alliance v.
President of the Republic of South Africa and Others 2012(1) SA 417
SCA
(“the Democratic Alliance case“) in which the
Court observed that:
“
Cases
dealing with the admission or disbarment of attorneys such as Jassat
in which the expression “fit and proper person”
is
applied are unhelpful.”
The
meaning of the phrase “
fit and
proper”
has since been settled by
our Courts which hold that in determining its meaning one must have
regard to the context of the statute
concerned or in which it is
used.  In the circumstances the phrase “
fit
and proper”
as employed in the
MSA will not have the same meaning as it does in matters that refer
to admission or disbarments of attorneys.
It also means that
one may not find authorities that deal with “
fit
and proper”
under the Attorneys
Act No. 53 of 1979 useful in resolving issues that deal with “the
fitness and propriety of a trustee.”
The Supreme
Court of Appeal had an occasion in the Democratic Alliance case to
examine the phrase “
fit and
proper”
.  It confirmed the
law that the requirement that one must be “
fit
and proper”
for a position was an
objective one which must be assessed in the context of the
requirements of that statute.  It put it
in the following
manner:
“
In
my view, having regard to the purposes of the Act, served also by
section 9(1)(b) of the Act, there can be no doubt that it is
not left
to the subjective judgments of transient Presidents but to be
objectively assessed to meet the constitutional objective
to preserve
and protect the NPA and the NDPP as servants of the Rule of Law.
Take a National President whose moral view is
that a recent
conviction of fraud of a national candidate can be discounted because
of an undertaking by the latter that to do
anything illegal in the
future.  The submission that it is the President’s
subjective view and assessment that are required
to be brought to
bear in terms of section 9(1)(b) which view against this example has,
in my view, shown to be fallacious.
Thus the requirement of
section 9(1)(b) of the Act are, in my view, jurisdictional facts the
objective accident of which are a
prelude to the appointment of the
NDPP.”
[52]
It is also crucial to have regard to the fact that integrity plays a
major role in the determination of whether or not a person
is, within
the context of a particular Act, fit and proper.  This is clear
from paragraph 121 at p.451.
“
On
the available evidence the President could in any event not have
reached a conclusion favourable to Mr Simelane, as there were
too
many unresolved questions concerning his integrity and experience.”
Then
such an assessment would generally concern whether such a person’s
conduct relates to his integrity, honesty and reliability.
In regards
I am galvanized by the remarks of the Court in
The
Registrar of Medical Schemes v. Sizwe Medical Fund 2013 JDR O33 GNP
.
Although the Court in that matter did not deal with the removal of
the board of trustees, it made a finding nevertheless
that the
trustees were dishonest.  See also the Democratic Alliance
Case.  Finally the Council has to decide whether
that person has
the ability to execute his obligations as enjoined by the statute
under which he operates.
[53]
In determining whether the affected trustees are fit and proper
persons to continue holding their offices of trustee, I would
adopt
the approach of the Court in the
Kekana v. Society of Advocates of
South Africa 1998(4) SA 649 SCA
.  In this matter the Court,
dealing with
s 7(1)
of the
Admission of Advocates Act 74 of 1964
which gave it powers to suspend any person from practice or order
that the name of any person be struck off the roll if it is satisfied

that he is not a fit and proper person to continue to practise as an
advocate, referred to
Nyembezi v. Law Society Natal 1981(2) SA
572(A) at 756 H – 758 C
and formulated the approach that:
“
The
Court has first to decide whether the alleged offending conduct has
been established on a preponderance of probability and if
so, whether
a person in question is a fit and proper person to practice as an
attorney.”
[54]
Using the above mentioned approach, in the instant matter the Council
has to establish first if, in terms of the MSA, the alleged
conduct
constitutes a misconduct; whether the council has, on the balance of
probabilities, established that the conduct of the
affected trustees
amounted, in terms of the MSA, to a misconduct and if so whether they
are fit and proper to remain in the provisions
as trustees.  If
all these requirements have been satisfied, the discretion whether or
not to remove the trustees from their
position lies with the
Council.  The power to remove a trustee is a discretionary one.
This is so because
s 46(1)
of the MSA uses the word “
may”.
If the Council’s finds that a
particular conduct of a trustee to be repugnant it may, in its sole
discretion, take or take
no decision to remove such a trustee.
[55]
It was argued by Mr Maritz that the Council in the instant matter did
not have sufficient reasons to believe that the affected
trustees,
whom it had removed, were not fit and proper.  The Council’s
view, so he developed his argument, could only
be valid if it could
be justified on objective grounds.  He referred the Court to the
removal of trustees in terms of common
law and submitted that there
existed, in this instance, no justification.  While I take this
point I do not think that it
is helpful because it is on the basis of
the context of the MSA that the Council must determine the matter.  I
find the matters
to which Mr Maritz referred me, the
Sackville
West v. Nourse and Another
1925 AD 516
and
Ex Parte Executive Officer of the
Financial Services Board
; in
RE
Joint Municipal Pension Fund
[2003] 4 All SA 603
[T]
unhelpful on this point because they both dealt with reasons on the
basis of which in terms of the common law a trustee may be
removed
from his position as such.
[56]
Even upon the grounds relied on by the respondents, it was argued by
Mr Maritz that the facts relating to the removed trustees
indicated
that they were fit and proper to continue holding the positions of
trustees. He cited the following instances in support
of their
contention that they should be restored to their positions.
56.1 The scheme was
financially sound and had grown by almost 12% from 2013.  I must
hasten to say that it was not the respondent’s
case that the
scheme’s funds were in dire position or that because of the
conduct of the affected trustees the finances of
the scheme did not
show growth.  The point is the ability to conduct the affairs of
the scheme in accordance with the laws
that govern the affairs of
medical schemes;
56.2 that from the
outset the trustees had cooperated with the registrar in respect of
his directives and had alongside their cooperation
made reports and
comprehensive submissions in which they explained the steps taken by
Bestmed to address the registrar’s
concerns;
56.3 that the board
of trustees had recovered the expenses involved in the Botswana
hunting trips, Neil Diamond concert and the
Loftus Versfeld Stadium
suite which they were adamant were all legitimate marketing
exercises;
53.4 that in respect
of the payments to SHDS, Bestmed had engaged SHDS and that in such
engagements SHDS contended that Bestmed
had received value for the
amount they received;
56.5 that the
registrar’s directive which called upon Bestmed to reclaim
payment from SHDS was ultravires and that SHDS had
become dormant and
had no assets;
56.6 that the
affected trustees had made significant improvements in the governing
structures of Bestmed and had adopted policies
related to marketing
and supervision of the marketing expenses to make sure that the
scheme’s funds were used only for lawful
purposes; and
56.7
that the events the registrar complaint of took place more than three
years before the removal notices.
THE
DUTIES OF THE BOARD OF TRUSTEES
[57]
S 56
and
57
of the MSA set out the duties and responsibilities of the
board of trustees.  The board of trustees is the governing body
of the medical scheme such as Bestmed.  It must accept the
ultimate responsibility for directing the affairs of the medical

scheme.  In
Trustees’ & Governance, the Charity
Commission
, the independent regulator of charities in England and
Wales, the trustees’ duties and responsibilities were set out
as follows:
“
(a)
duty of Compliance;
(b)
duty of Prudence; and,
(c)
duty of Care.”
Under
“compliance” it is stated that:
“
The
trustees must –
(1) Ensure that
the charity complies with charity Law, and with the requirements of
the Charity Commission as regulator; in particular
ensure that the
charity prepares reports on what it has achieved and Annual Returns
and accounts as required by law.
(2) Ensure that
the charity does not breach any of the requirements or rules set out
in its governing document and that it remains
true to the charitable
purpose and objects set out there.
(3) Comply with
the requirements of other legislation and other regulations (if any)
which govern the activities of the charity.
(4)
Act with integrity, and avoid any personal conflicts of interest or
misuse of charity funds and assets.”
In
principle there is no difference in the duties of the trustees as set
out above and the duties of the board of trustees as set
out in the
MSA. For instance, in the MSA the duty of Compliance is found in s
56(4).  S 56(4)(h) of the MSA Act provides that:
“
The
duties of the board of trustees shall be to –
(h)
ensure that the rules, operation and administration of the medical
scheme comply with the provisions of this Act and all applicable

laws.”
Duty
of Prudence
[58]
Under the duty of prudence it is stated in the abovementioned
publication that:
“
The
trustees must:
(1)
Ensure that the charity is and will remain solvent;
(2) Use
charitable funds and assets reasonably, and only in furtherance of
the charity’s objects;
(3) Avoid
undertaking activities that might place the charity’s
endowment, funds, assets or reputation at undue risk;
(4)
Take special care in investing the funds of the charity, or are
borrowing funds for the charity to use.”
Similarly
s 26(4) and s 2 of the FI Act both create a duty of prudence for the
board of trustees. They provide as follows:
“
26(4)
No amount shall be debited to the account contemplated in (1)(c)
other than –
(a) payment by a
medical scheme or any benefit payable under the rules of a medical
scheme;
(b) cost incurred
by the medical scheme on the caring of the business of the medical
scheme;
(c)
the amounts invested by the board of trustees in accordance with
section 35(7).”
On
the other hand s 2 of the FI Act provides as follows:
“
2.
Duties of persons dealing with funds of, and with trust property
controlled by financial institutions.
A financial
institution or nominee company, or director, member, partner,
official, employee or agent of the financial institution,
or nominee
company, who invests, holds, keeps in safe custody, controls,
administers or alienates any funds of the financial institution
or
any trust property –
(a) must, with
regard to such funds, observe the utmost good faith and exercise,
proper care and diligence;
(b) must, with
regard to the trust property and the terms of the instrument or
agreement by which the trust or agency in question
has been created,
observe the utmost good faith and exercise the care and diligence
required of a trustee in the exercise or discharge
of his or her
powers and duties; and
(c)
may not alienate, invest, pledge, hypothecate or otherwise encumber
or make use of the funds or trust property or furnish any
guarantee
in a manner calculated to gain directly or indirectly any improper
advantage for any person to the prejudice of the financial

institution or principal concerned.”
[59]
Accordingly it is the duty of the board of trustees to ensure that
funds and assets of the medical scheme are used appropriately,

prudently, lawfully and only to serve the primary objects of the
medical scheme.  The financial management of the funds and

assets of the medical scheme is for the board of trustees a very
important duty as the success of the medical scheme and its ability

to assist the beneficiaries of the scheme depend entirely on proper
financial management.
Duty of care
[60] S 57(6) of the
MSA creates a duty of care for the board of trustees.  S 57(6)
provides that:
“
The
board of trustees shall –
(a) take all
reasonable steps to ensure interests of members in terms of the rules
of the medical scheme and the provisions of the
Act are protected at
all material times;
(b)
act with due care, diligence, and skill and good faith;
(c)
take all reasonable steps to avoid conflicts of interest; and
(d)
act with impartiality in respect of all beneficiaries.”
In
the publication referred to above it is stated as follows:
“
The
trustees must –
(1) Use
reasonable care and skill in their work as trustees, using their
personal skills and experience as needed to ensure that
the charity
is well-run and efficient;
(2)
Consider getting external professional advice on all matters where
there may be material risk to the charity, or where the trustees
may
be in breach of their duties.”
THE
LITMUS TEST: THE GROUND ON WHICH A TRUSTEE MAY BE REMOVED OF HIS OR
HER POSITION AS TRUSTEE
[61]
In STEP, Society of Trust and Estate Practitioners, Barrister Ruth
Rughes, who practised at 5 Stone Buildings, Lincoln’s
Inn,
London, wrote, in May 2009, under The Removal of A Trustee, an
erudite article about the removal of trustees by the courts.
Her
opening line went as follows:
“
This
article studies the exercise of the Court’s discretion to
remove a trustee, a subject on which reported decisions are

relatively rare.”
I
find some of the law literature I have referred to herein more
useful.  I therefore intend using them as guidelines.
Most
authorities that I rely on deal with situations where a trustee is
removed from his position by a Court.  In essence
in so far as
it concerns the grounds on which a trustee may be removed from his or
her office it is immaterial whether or not such
removal is at the
instance of a regulator, or the Council as it is in this case, such
as provided in s 46(1) of the MSA or by a
Court.  The
fundamental reasons for such a step would always be the same.
[62]
The principle to be applied in removing a trustee from his position
was first set in
Letterstedt vs Broers
(1884) 9 App Cas 371
.
In this authority Blackburn J, as he then was, stated that it is
correct that the primary consideration in deciding whether
or not a
trustee should be removed from his position is the welfare of the
beneficiaries.  In dealing with whether an executor
should be
removed in Letterstedt, he had this to say at page 386:
“
It
seems to your Lordships that the jurisdiction which a Court of Equity
has no difficulty in exercising under the circumstances
indicated by
Story is merely ancillary to its principal duty,
to
see that the trusts are properly executed
.
This duty is constantly being performed by the
substitution
of new trustees
in the place of
original trustees for a variety of reasons in non-contentious cases.
And therefore, though it should appear
that the charges of misconduct
were either not made out, or were greatly exaggerated, so that the
trustee was justified in resisting
them, and the Court might consider
that in awarding costs, yet if satisfied that the continuance of a
trustee would prevent the
trust being properly executed, the trustee
might be removed.  It must always be borne in mind that trustees
exist for the
benefit of those to whom a creator of a trust has given
the trust estate.”
At
page 387 it is stated further that:
“
In
exercising so delicate and jurisdiction as that of
removing
trustees
, their Lordships do not
venture to lay down any general rule beyond the very broad principle
above annunciated, that
their
main guide must be the welfare of the beneficiaries
.
Probably it is not possible to lay down any more difinite rule
in a matter so essentially dependant on details of great
variety. But
they must proceed to look carefully into the circumstances of the
case.”
The
abovementioned test was followed by Dickson J of the High Court of
Australia in
Miller v. Cameron
(1936) 54
CLR 372
who stated as follows:
“
The
jurisdiction to remove a trustee is exercised with the view to the
interest of the beneficiaries
,
to the security of the trust property and to an efficient and
satisfactory execution of the trusts and faithful and sound exercise

of the powers conferred upon the trustee.  In deciding to remove
a trustee the Court forms a judgment based upon considerations,

possibly large in number and varied in character, which combined to
show that the welfare of the beneficiaries is opposed to his

continued occupation of the office.  Such a judgment must be
largely discretionary.”
In
Hunter v. Hunter
(1937) NZLR 794
Smit J of the New Zealand High Court who was dealing with s 21 of the
New Zealand Administration Act 1969 and s 51 of the New Zealand

Trustee Act 1956, both of which provided for “an expedient
test” said at page 796 that:
“
In
determining whether trustees should be removed, the Court has a
discretion. The leading case is
Letterstedt
vs Broers
(1884) 9 App Cas 371
.
The Privy Council there held that there is a jurisdiction in Courts
of Equity to remove old trustees and substitute new
ones in cases
requiring such a remedy, and
that
the main principle upon the jurisdiction should be exercised is the
welfare of the beneficiaries and of the trust estate
.”
THE POSITION
IN THIS COUNTRY
[63]
The position of trustees in our law was set out in
Sackville West
vs Nourse and Another
supra where at page 533 Kotze JA, as he
then was, stated the following:
“
Now,
in dealing with the administration of the property of others by
persons in a fiduciary position, our courts have adopted the
rule of
the Roman Law, as expounded by the commentators and by the Dutch
jurises.  They have followed and applied the precept
laid down
by the Paulus in the Digest (18.1.34.7) where we are told that:
“the same principles, which apply to a tutor
in dealing with
the property of his ward, should also be extended to other persons
acting under similar circumstances;  that
is to say, to
curators, procurators and all those who administer the affairs of
others.”  A trustee therefore is to
be included in this
category.”
He
continued at page 534 to state the following:
“
The
effect of this authority is that a tutor must invest the property of
his ward with diligence and safety.  It is also so
that a tutor
must observe greater care in dealing with his ward’s money than
he does with his own money, for, while the man
may act as he pleases
with his own property, he is not at liberty to do so with that of his
ward.  The standard of care to
be observed is accordingly not
that which an ordinary man generally observes in the management of
his own affairs, but that of
a prudent and careful man; or, to use
the technical expression of the Roman Law, that of the bonus et
diligens paterfamilias.
The investment of the ward’s
property must accordingly be made with safety and security, and is
not to be placed in anything
involving the element of uncertainty and
risk.”
He
concluded at page 535 as follows:
“
We
may accordingly conclude that the rule of our law is that a person in
a fiduciary position, like a trustee, is obliged, in dealing
with and
investing the money of the beneficiary, to observe due care and
diligence, and not to expose it in any way to any business
risks.
In principle our law agrees with that of England.”
[64]
S 20(1) of the Trust Property Control Act 57 of 1998 provides for the
removal of trustees.  It provides as follows:
“
(1)
A trustee may, on the application of a master or any person having an
interest in the trust property, at any time be removed
from his
office if the Court is satisfied that such removal will be in the
interest of the trust and its beneficiaries.”
It
is clear that the crucial factor in the determination of whether or
not a trustee should be removed from his office according
to s 20(1)
is the interests of the trust and beneficiaries.  In
Tijmstra
N.O. v Blunt-McKenzie N.O. and Others 2002(1) SA 459 (T)
in which Mr. Maritz appeared for the first, second, fourth and fifth
respondents the Court, as per Kirk-Cohen J, stated that:
“
A
trustee may, in terms of the Trust Property Control Act of 1988, see
page 204, be removed from office if the Court is satisfied
that the
removal is in the interest of the trust and beneficiaries.”
At
page 473 B-C the Court stated that:
“
A
trustee may be removed from office even if his conduct complaint of
was of a bona fide nature.”
At
473 E-F the Court quoted with approval the following passage from
Volkwyn NO v Clarke and Damant
1946 WLD
456
where Murray J held at p 471 that:
“
It
is of course true that proof of dishonesty or mala fide is not
essential for the case of removal of executors or administrators.”
Following
the principle laid down in Sackville West case the court stated at p.
473 that:
“
Mala
fides or even misconduct are not necessary requirements for the
removal of a trustee.  Whenever trust assets are endangered
a
trustee should be removed.”
[65]
Now if anything, the Court in
The
Registrar of Medical Schemes v Sizwe Medical Fund
supra
showed that dishonesty by a board of trustees cannot be tolerated and
more importantly that it was not without consequences.

Secondly, it castigated the board of trustees for its inactivity
after it had become aware of fraud allegations and other allegations

of irregularities in the election of a board member.  It
expressed its displeasure at the board of trustees’
unwillingness
to address the deficiency in its composition and
demonstrating an unwillingness to comply with the regulatory
requirements and
was prepared to machinations in effecting its
composition.  Accordingly if a trustee has been dishonest or
seriously incompetent
in his dealings with the trust he is likely to
be removed from his position.
[66]
Democratic alliance case shows that honesty or integrity is crucial
in the assessment of whether or not a person is fit and
proper to
continue to be a trustee.  This was demonstrated in the
definition of integrity as set out in that case.  Honesty,
as an
integral component of a fit and proper person, was also demonstrated
in
Prins v President of Cape Law Society 2000(3) SA 845 SCA
at
paragraph 17 where the Court had this to say:
“
The
submission that the council was bound to consider the appellants
fitness by reference exclusively to his honesty, integrity
and
reliability is also devoid of substance.  We were referred to
several cases in which the fitness of attorneys and advocates
(to be
admitted to or remain in the ranks of their professions) was
discussed and I accept the relevance of the judgments in these
cases.
Unlike section 15 of the Attorneys Act which requires an applicant
for an admission as an attorney to be a “fit and
proper person
to be so admitted and enrolled”, s 4A(b)(i) requires proof to
the satisfaction of the Law Society that the
candidate attorney is  a
“fit and proper person”. In context this can only be that
the council must be satisfied
that the candidate is a fit and proper
person to be permitted to perform that kind of service.  But the
purpose of the service
is to instruct the candidate in the skills
which an attorney requires and to prepare him generally for eventual
admission to an
honourable profession.  Bearing in mind that
section 8 allows candidate attorneys with the prescribed
qualification to appear
in certain courts and before any board,
tribunal or a similar institution immediately upon the registration
of their contracts,
the determination of their fitness must proceed
along lines broadly similar to those applicable to attorneys.
For this very
reason they ought to be not only honest and reliable
but to be “fit and proper” persons in every respect.
If
there is a question about a candidate’s honesty, integrity
or reliability, the council will obviously object to the registration

of his contract; but if there is not, it does not follow that he or
she qualifies automatically. Indeed, if the council were to
fail to
raise a valid objection of any kind of which it is aware, it would
undoubtedly shirk its duty.”
[67]
In terms of s 3 of the MSA, the council is the regulator in the
medical schemes industry.  In terms of s 7 of the MSA,
the
functions of the council, among others, shall be:
(a)
to protect the interest of the members at all times;
(b) control and
coordinate the functioning of medical schemes in a manner that is
complementary with the National Health Policy;
(c) to make
recommendations to the Minister on the criteria for the
sub-measurement of quality and the outcomes of the relevant
health
services provided for by medical schemes and such other services as
the council may from time to time determine;
(d) to investigate
the complaints and settle disputes in relation to the affairs of the
Medical schemes as provided for in this
Act;
(h)
to perform any other functions conferred on the council by the
Minister or by his Act.
It
is the duty of the registrar to cause the investigation of the
business affairs of a medical scheme.  It is equally the
duty of
the council to take steps where necessary in order to protect the
interests of the beneficiaries.  The Council will
be regarded as
neglecting its responsibility if it were to fail to act decisively
and robustly in order to protect the interests
of the beneficiaries
of the medical scheme where it is satisfied that the board of
trustees does not conduct the business affairs
of the medical scheme
in accordance with the prescripts of the MSA.
[68]
I fully agree with Mr Maritz that when considering the interests of
the medical scheme and its beneficiaries, the crucial question
should
be whether the acts or omissions complained of are of such a nature
that a trustee may be regarded as a dishonest, a grossly
inefficient
person whose conduct can be expected to expose the scheme to the risk
of actual loss or of administration in a way
not contemplated by the
MSA and the Rules of the scheme.  I disagree with him, however,
where he submits that trustees can
only be removed if their actions
are such that they create a real risk that funds entrusted to them
would be dissipated or that
investments would be lost.  Merely
showing breaches of trust would not necessarily be sufficient to
justify the removal of
trustees.  This would depend on the
gravity and the nature of breaches and particular circumstances of
the trust and the trustees,
including the level of culpability of the
trustees.  Depending on the magnitude of the act or omission
complained of, a trustee
may be removed from his position once that
act or omission has been established.  He does not deserve to be
given a second
chance before his act or omission can be regarded as
serious.  It is sufficient if the council has sufficient reason
to believe
that the person concerned is not a fit and proper person
to hold the office of a trustee.  If the Council is of the
opinion
that the trustee will commit a breach of trust that will
endanger the trust in future it is not necessary to wait until a
breach
occurs before the Council will sanction that trustee’s
removal.  In this regard please see
Miller v Cameron at p.
575
where Latham CJ, as he then was, commented that:
“
Even
though he [the trustee] has been guilty of no misconduct, if a
trustee is in a position so impecunious that he would be subject
to a
particularly strong temptation to misapply the trust funds, the Court
may properly remove him from office as trustee.”
Accordingly
the argument that a trustee is not removed as a result of committing
an offending act but rather as a result of a failure
to take
corrective measures in relation to the offending act is fallacious.
[69]
Trustees of a medical scheme are obliged to acquaint themselves with
the provisions of the Acts and Rules under which they
operate; to
observe and apply them at all material times; they are obliged at all
material times to act with absolute utmost good
faith; to exercise
proper care and diligence with regards to the funds of a medical
scheme to make sure that the funds of the medical
scheme were spent
sensibly on the purpose for which it was meant.  They may not
deal with the property or funds of a medical
scheme in a manner which
is designed or has the potential to gain directly or indirectly any
improper advantage for themselves
or any other person to the
detriment of the medical scheme.  It is their duty to ensure
that they have put in place proper
control systems by the medical
scheme.  They are obliged to keep proper records and not to
spend the scheme’s funds
without resolutions.  More
importantly the trustees’ primary obligation is to ensure that
at all material times they
protect, in terms of the provisions of the
Acts and Rules that govern the affairs of the medical scheme, the
interests of the beneficiaries.
[70]
I am satisfied that the council was correct in finding that the
second to tenth applicants were not fit and proper persons
to
continue to hold the office of trustees.  The decision to remove
them was therefore justified and accordingly confirmed.
COUNTER
APPLICATION FOR CURATORSHIP
[71]
Through the founding affidavit of one Daniel Malesela Lehutjo, the
acting registrar of the council for medical schemes, the
respondents
sought an order in terms of which the first applicant, Bestmed, was,
in terms of s 56(1) of the MSA and
s 5(1)
of the
Financial
Institutions (Protection of Funds Act No. 28 of 2001
“the
Protection of Funds Act”), placed under curatorship and in
terms of which furthermore a certain Brian Morris Kleinsmith
was
appointed as the curator, with concomitant powers.  The counter
application was founded on the basis that the nine trustees
who were
appointed or elected to the board of trustees after the removal of
the affected trustees had not been validly appointed
or elected.
Another reason for the counter application was that good cause
existed, in terms of s 5(1)(2) of the Protection
of Funds Act,
because it was in the interest of the beneficiaries of the scheme or
that it was desirable to appoint a curator in
terms of s 56(1) of the
MSA.
[72]
Rule 18.6 of Bestmed deals with the filling of posts.  It
provides that:
“
When
a member of the board resigns, or is disqualified from service or
dies the board must, by a majority vote of the remaining
members of
the board, fill such vacancies for the unexpired period of office of
the vacant seat of the board or in the event of
the vacancy arising
from an elected seat or the board, at the sole discretion of the
board hold an election.”
After
the council had removed 9 of the board members there were three
remaining of the board of trustees.  In terms of Rule
18.6 the
three remaining members constituted the majority.  The three
vacancies of elected members of the board were filled
in the
following manner.  After the affected trustees had been served
with the s 46(1) notices on 13 November 2014, the three
remaining
members held a meeting on 14 November 2014.  This meeting was
supposed to have been the last meeting of the board
as it was
constituted before the s 46 notices.  That meeting had always
been scheduled.  The meeting of 14 November 2014
was adjourned
to 18 November 2014.  The three remaining board members then
added another item to the agenda.  That item
dealt specifically
with the reconstitution of the board.
[73]
On 18 November 2014, the three remaining members deliberated and by
majority both decided to fill the vacancies of the elected
seats by
identifying the candidates in the April 2014 election process who had
obtained the second most votes after the affected
trustees in each
category in which vacancies existed.  In the Employer Group
category Mr Colin Mowatt and Dr Weitz Jacobus
Botes were identified
as the candidates who respectively had obtained the second and third
most votes in the April 2014 election.
In the Individual Member
category Mr Ruloff Frederick Camphor was identified as a candidate to
fill the vacancy of the trustee
for that portfolio.  By majority
votes the above mentioned elected members were voted as members of
the board.
[74]
It was contended by Guilliano Vannuci, the Legal and Co-operate
Governance Advisor of Bestmed, who was in charge of the management
of
the process aimed specifically at filling the vacant posts on the
board of trustees of Bestmed, that the process employed by
the three
trustees to fill in the portfolio of the Employer Group and
Individual member was cost effective and effective from a
timing
perspective in as much as elected members of the board were replaced
within a short space of time.  This in turn allowed
continuity
in the proper management of Bestmed’s affairs in the interest
of the members.
[75]
After the membership of the board had increased to six the full quota
of the board’s membership still fell short by six
more
members.  These six vacancies had to be filled by the members of
the board.  The remaining six vacancies were filled
by closed
ballot papers on 19 November 2014 at a special meeting of the board
that had been convened especially for that purpose.
Only five
of the six members of the board attended the special meeting of 19
November 2014, Mr Colin Mowatt having failed to make
it to the
meeting due to short notice.  As at 1 December 2014 the board of
trustees consisted of 11 members due to the withdrawal
of one of the
appointed members.  It is crucial to point out that the
appointment of the last eight trustees was made on condition
that
they would only step aside in the event of the applicants succeeding
with their main application and in terms of Rule 18.6
for the
unexpired period of office of the affected trustees.
[76]
The crisp issue that this Court was called upon to decide in respect
of this counter application was whether the trustees who
were elected
or appointed after the removal of the affected trustees were validly
elected or appointed.  The respondent referred
to the eight
trustees who were appointed after the removal of the nine affected
trustees as “
pseudo trustees”.
While on one hand the applicants contended that the election or
appointment of the trustees who were appointed after 13 November
2014
was valid the respondents contend on the other hand that that is not.
[77]
The motivation behind the counter application was stated as follows
by Mr Lehutjo in paragraph 4 of his founding affidavit:
“
If
the relief in the main application, suspension of the removal of the
individual applicants as trustees of the Scheme is not granted,
it
means that the scheme is without effective management structure
(“unless the Court concludes that the pseudo of trustees
were
validly appointed”).”
[78]
The respondents, the applicants in the counter application, contended
that Rule 18.6 did not apply where nine or 75% of the
trustees have
been removed.  They contended furthermore that it was unlawful
and contrary to the Rules of the scheme for three
remaining trustees
to (elect) three of the trustees in terms of Rule 18.6 and that for
the six trustees to appoint six further
trustees in terms of Rule
18.1.2.  They contended furthermore that Rule 18.6 did not find
application where 75% of the trustees
are removed.
[79]
The wording of Rule 18.6 is clear and unambiguous.  It gives
power to the remaining members of the board of trustees to
appoint
new trustees.  No limit is imposed on the remaining members.
Nowhere is it stated that the three remaining members
are not enough
or do not constitute the “
majority”
.
The question therefore is whether the appointment of further trustees
was made by the majority of the remaining trustees.
If there
were no remaining trustees it is understandable.  No such powers
could be exercised.  Rule 18.6 makes it clear
that the
appointment of trustees is only for a limited period.  This Rule
is designed to ensure continuity in the business
affairs of the
scheme.  Time being of essence, in order to enable the board of
trustees to take decisions, Rule 18.6 serves
the purpose to ensure
continuity.  The argument by respondents that Rule 18.6 does not
apply where 75% of trustees are removed
is, in my view, farfetched
and without merit.  The remaining three members of the board
have, in my view, acted within the
meaning of Rule 18.6.  It
will be recalled that Rule 18.6 imposed a duty on the remaining
trustees to fill in the vacancies.
The Rule used the word
“must”.  Accordingly trustees that were elected or
appointed to the board of trustees after
13 November 2014 were
validly appointed or elected.
_____________________
P.M.
MABUSE
JUDGE
OF THE HIGH COURT
Appearances
:
Counsel
for the Applicants: Adv. NGD Maritz (SC)
Adv.
EC Labuschagne (SC)
Adv.
MJ Engelbrecht
Instructed
by: Adams & Adams Attorneys
Counsel
for the respondents: Adv. JJ Brett (SC)
Adv.
MG Gioia
Instructed
by: Savage, Jooste & Adams Inc
Date
Heard: 4-5 December 2014
Date
of Judgment: 13 February 2015