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[2021] ZASCA 167
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Clicks Group Ltd and Others v Independent Community Pharmacy Association and Others (644/2020) [2021] ZASCA 167; [2022] 1 All SA 297 (SCA) (3 December 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 644/2020
In
the matter between:
THE
CLICKS GROUP
LTD FIRST
APPELLANT
NEW
CLICKS SOUTH AFRICA (PTY) LTD SECOND
APPELLANT
UNICORN
PHARMACEUTICALS (PTY) LTD THIRD
APPELLANT
CLICKS
INVESTMENTS (PTY) LTD FOUTH
APPELLANT
CLICKS
RETAILERS (PTY)
LTD FIFTH
APPELLANT
and
THE
INDEPENDENT COMMUNITY
PHARMACY
ASSOCIATION FIRST
RESPONDENT
THE
MINISTER OF
HEALTH SECOND
RESPONDENT
THE
CHAIRPERSON OF THE
SECTION
22(11) APPEAL COMMITTEE THIRD
RESPONDENT
THE
DIRECTOR-GENERAL OF
THE
DEPARTMENT OF HEALTH FOURTH
RESPONDENT
Neutral
Citation:
The Clicks
Group Ltd and Others
v
The Independent Community Pharmacy Association and Others
(644/2020)
[2021] ZASCA 167
(3 December 2021)
Coram:
PETSE
AP, MATHOPO, MAKGOKA and PLASKET JJA and KGOELE AJA
Heard:
31
August 2021
Delivered:
This
judgment was handed down electronically by circulation to the
parties' representatives by email, publication on the Supreme
Court
of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 11h00 on 3 December 2021.
Summary:
Pharmacy
Act 53 of 1974 (the Act) – regulation 6(d) of the Regulations
relating to Ownership and Licencing of Pharmacies –
beneficial
interest in community pharmacies and manufacturing companies –
revocation of retail and manufacturing licences
– definition of
‘beneficial interest’ – constitutional challenge of
s 22A of the Act – whether Clicks
Group had contravened the Act
and licensing regulations because entities within the Clicks Group
owned community (retail) pharmacies
while at the same time having a
beneficial interest in a manufacturing company – Clicks Group
has no beneficial interest
in the pharmaceutical manufacturing
companies – constitutional challenge has no merit.
ORDER
On
appeal from
: Western Cape Division of
the High Court, Cape Town (Sievers AJ sitting as court of first
instance):
1 The
appeal is upheld with costs, including the costs of two counsel.
2 The
order of the high court is set aside and replaced with the following:
‘
The
application is dismissed with costs including the costs of the two
counsel where so employed.’
JUDGMENT
Mathopo
JA (Petse AP, Plasket JA and Kgoele AJA concurring):
[1] The
first respondent, the Independent Community Pharmacy Association
(ICPA), is a registered non-profit company,
which represents more
than 1 000 independently owned community pharmacies, with 2 500
pharmacists and 20 000 supportive healthcare
personnel. The ICPA
lodged a complaint with the Department of Health against the first to
fifth appellants (to whom I shall collectively
refer to as the Clicks
Group of Companies or Clicks Group). It sought the revocation of
retail and manufacturing licences held
within the Clicks Group on the
basis that the Clicks Group contravened regulation 6
(d)
of
the Regulations relating to the Ownership and Licencing of Pharmacies
(the Regulations),
[1]
promulgated
under s22A of the Pharmacy Act 53 of 1974 (the Act).
[2] Regulation
6
(d)
which is headed: ‘Ownership of community
pharmacies’ reads as follows:
‘
Any
person may, subject to the provisions of regulation 7, own or have a
beneficial interest in a community pharmacy in the Republic,
on
condition that such a person or in the case of a body corporate, the
shareholder, director, trustee, beneficiary or member,
as the case
may be, of such body corporate –
(a)
. . .
. .
.
(d)
is
not the owner or the holder of any direct or indirect beneficial
interest in a manufacturing pharmacy.’
[3] Section
22A of the Act reads as follows:
‘
Ownership
of pharmacies
– The Minister may prescribe who may own a
pharmacy, the conditions under which such person may own such
pharmacy, and the
conditions upon which such authority may be
withdrawn.’
[4] The
Clicks Group operates over 500 community (retail) pharmacies, with
over 2 000 pharmacy staff (pharmacists
and pharmacists assistants)
and 200 nursing practitioners. The third appellant, Unicorn
Pharmaceuticals (Pty) Ltd (Unicorn), is
a manufacturing pharmacy and
a holder of 39 generic medicines under the regulatory regimes that
apply to the sale of medicine.
[5]
Clicks
Retailers Pty Ltd (Retailers) is a leading provider of pharmaceutical
services in South Africa and a leading retailer of
health and beauty
products. It operates approximately 470 licensed community pharmacies
throughout the country. Retailers employs
approximately 1830
pharmacists, 1430 pharmacist assistants and 315 nursing practitioners
at those pharmacies. These pharmacies
are part and parcel of Clicks
stores that employ thousands more, both in-store and in the supply
chain and corporate office infrastructure
that supports the stores.
[6] The
Clicks Group corporate structure
is constituted as
follows:
(a) Clicks
Group is the holding company;
(b) It
holds all the shares in New Clicks;
(c) New
Clicks holds all the shares in Unicorn and in Clicks Investments
(Pty) Ltd (Investments);
(d) Unicorn
owns a licenced manufacturing pharmacy;
(e) Investments
holds all the shares in Retailers;
(f) Retailers
owns licenced community pharmacies countrywide.
[7] The
ICPA summarised the complaint to the Department of Health as being
‘that entities within the Clicks
Group have a beneficial
interest in community pharmacies while they also own a beneficial
interest in a manufacturing pharmacy’.
In its redress it
requested the Director-General to: ‘revoke the manufacturing
pharmacy licence of Unicorn as well as all
the retail pharmacy
licences obtained after 30 May 2012, as they were granted on
incorrect facts’. The ICPA also requested
the Director-General
to investigate Retailer’s alleged contravention of the
applicable statutory framework.
[8] The
complaint was expanded as follows: (a) ‘Clicks Retailers and
Unicorn Pharmaceuticals (Pty) Ltd are
amongst Clicks Group Ltd’s
subsidiaries and have “at the very least indirect beneficial
interest in each other”’;
(b) ‘Unicorn is “clearly
conducting business as a manufacturer of medicine”’; (c)
‘in terms of the
Pharmacy Act and the Licensing Regulations,
“the Minister has prohibited manufacturers to have a direct or
indirect beneficial
interest in a retail pharmacy.”’; and
(d) that the conduct of the Clicks Group results in a conflict of
interest between
a patient’s best interest and financial
interests.
[9] The
Director-General rejected the ICPA’s complaint and held that
neither Retailers nor its shareholders
could be said to have a
beneficial interest in Unicorn. In the underlying reasons for his
decision, the Director-General stated
the following:
‘
In
view of the above, the Department may only exercise its power as
conferred on it by law. It would thus not be permitted to disqualify
Clicks Retailers from owning a community pharmacy outside of the
preclusion provided for in regulation 6 of the [Licensing
Regulations].’
[10] Dissatisfied
with the outcome, the ICPA appealed to the Appeal Committee.
Curiously, it no longer contended
for the revocation of the licences.
The ICPA submitted that although reference was specifically made to
the revocation of the licences
of Unicorn and Retailers in the
original complaint, the crux of the complaint was directed at
investigating the perversities that
were created by the vertical
integration of the subsidiaries of the Clicks Group of Companies. In
essence, the complaint was directed
at the corporate structure of the
Clicks Group of Companies on the basis that they had contravened the
Act and licensing regulations
because entities within the Clicks
Group owned community pharmacists while at the same time having an
interest in a manufacturing
pharmacy.
[11] In
arriving at its decision the Appeal Committee found that the Clicks
Group of Companies did not contravene
licencing regulations 6. The
relevant part of the decision of the Appeal Committee is set out
hereafter:
‘
The
Appeal Committee has considered the arguments of the parties
concerning the merits of this matter and finds that since the
prohibition in Licensing regulation 6(d) is directed inter-alia at
the body corporate (legal person in terms of
Section 1
of the
Pharmacy Act), the
shareholder or the director of such body corporate
from having “any direct or indirect beneficial interest”
in manufacturing
pharmacy, it stands to reason therefore that since
assets of a company do not belong to the shareholder of the company
but to the
company itself, it may never be safely argued that because
one company has 100% shareholding in another company, it can now be
said that the company has beneficial interest in the other company.’
[12] The
Appeal Committee concluded with the following statement:
‘
In
this appeal it is common cause that Retailers own community
pharmacies and looking at the corporate structure of the Clicks Group
of companies, it is clear that neither Clicks Group, the 100%
shareholder of New Clicks nor New Clicks, the 100% shareholder of
Unicorn and Investments can be said [to] own or have beneficial
interest in Retailers’ community pharmacies since a shareholder
may never be said to have a beneficial interest in the assets of the
company other than his/her entitlements to the share of the
profits
or in the event that the company is liquidated, to the share of the
surplus of the liquidation account.’
[13] After
considering the ratio in
The
Princess Estate and Gold Mining Co, Ltd v The Registrar of Mining
Titles,
[2]
the Appeal Committee held that since the assets of a company do not
belong to the shareholder of the company but to the company
itself,
it may never be safely argued that because one company has 100%
shareholding in another company, it can now be said that
the company
has a beneficial interest in the other company.
[14] It
is against those findings that the ICPA approached the high court to
review and set aside the decision
of the Appeal Committee. The high
court agreed with the ICPA and rejected the findings of the Appeal
Committee. In dismissing the
Clicks Groups’ contentions, it
made a number of orders and, in sum, found that the Clicks Group
structure was unlawful, it
then remitted the matter to the Appeal
Committee and alternatively to the Director-General in respect of
various other orders not
particularly relevant to this appeal.
[15] Of
particular significance to this appeal is the finding of the high
court that the Clicks Group had a beneficial
interest in Unicorn as a
result of its shareholding in various entities within the Group. It
reasoned that New Clicks and Investments
hold a beneficial interest
in the manufacturing pharmacy owned by Unicorn and the community
pharmacies owned by Retailers and this
was especially so because as
shareholders, New Clicks and Investments have financial interests in
Unicorn and Retailers. It further
held that the regulations
recognised that where a community pharmacy is owned by an entity
other than pharmacists themselves, it
is undesirable for there to be
a direct or indirect beneficial interest in both such a community
pharmacy and a manufacturing pharmacy.
It concluded that an entity
having interests in both types of pharmacies would gain financially
if the manufacturing pharmacy’s
products are promoted by the
pharmacist in the community pharmacy over the other. In sum the high
court expressed itself as follows:
‘
It
would be artificial to contend that a company which owns 100% of the
shares in a company does not have a direct or indirect beneficial
interest in the business owned and operated by that company. The
shareholder appoints directors to the company’s board. The
board determines what dividend is declared, which is then paid to the
shareholder from the funds generated by the business. The
proceeds of
the winding up of the company go to its shareholder. The shareholder
thus clearly has a beneficial interest in the
business owned by the
company.’
It
seems to me that the high court equated a beneficial interest in a
pharmacy owned by a company with the financial interest its
shareholder has in the company. More is to follow on this point later
in the judgment. This appeal is with the leave of the high
court.
[16] The
appeal turns essentially on three main considerations namely: (a) the
revocation of the licences; (b)
beneficial interests; (c) a
constitutional challenge to s 22A of the Act, an issue which the high
court declined to deal with.
I deal with these issues in turn.
Revocation
of the licences
[17] In
this Court the principal argument advanced by the Clicks Group is
that the Director-General and the Appeal
Committee were correct in
dismissing the complaint and subsequent appeal brought by the first
respondent as fatally flawed from
the outset. The Clicks Group put up
a spirited criticism of the high court’s judgment by contending
that the original complaint
by the ICPA was explicitly for the
revocation of licences held by Unicorn and Retailers. The complaint
was misconceived because
on appeal the ICPA changed tack by no longer
alleging that Unicorn and Retailers contravened regulation 6
(d)
but rather that it was their holding company, Investments, New Clicks
and the Clicks Group who contravened the regulation. This,
according
to the Clicks Group was a new matter as it resulted in the ICPA
relying on a different cause of action but, paradoxically
seeking the
same relief, which was now in the form of the withdrawal of the
licences without any justifiable basis.
[18] In
short it was contended that the Director-General and the Appeal
Committee did not have the power to revoke
the licences even if they
were found to have contravened regulation 6
(d)
simply because
the jurisdictional factors for the revocation, suspension,
cancellation, or withdrawal of the licences were not
met by the ICPA.
[19] To
counter these arguments, the ICPA at a later stage shifted the ground
and repeated the same arguments that
were raised before the Appeal
Committee, which were endorsed by the high court. It emphasised that
whilst particular reference
was made to Unicorn and Retailers, the
essence of the complaint was not directed at them but at the Clicks
Group of companies.
It submitted that there was no
mischaracterisation of the complaint and neither was a new cause of
action advanced.
[20] The
submission that there was no change in the original complaint is
unsustainable. Although the ICPA sought
different relief, its
complaint remained unchanged; it was for the revocation of the
licences held by Unicorn and Retailers. The
ICPA persisted with the
argument that the complaint was strictly directed at the structure of
the Clicks entities, which contravened
regulation 6
(d)
and the
conditions under which retailers may own community pharmacies. The
Appeal Committee concluded that the complaint was not
directed at the
original grant of the licences but rather the revocation or
withdrawal of the licences on the basis that they were
used in
contravention of the
Pharmacy Act and
the Regulations. This change of
tack is a new matter and overlooks the fact that documents
accompanying the original complaint,
namely the founding affidavit
and letter of complaint, stated that the complaint was directed at
the revocation of the licences
of Unicorn and Retailers. In my view
there was never any basis for the revocation of the licences.
[21] Another
factor which militates against the ICPA is that it failed to adduce
evidence that Unicorn and Retailers
did not comply with licencing
conditions as required by ss 22(7) and 22(10) of the Act and
regulation 9
(d)
. In terms of the Act and the Regulations, a
licence may only be cancelled, suspended or withdrawn after the
pharmacy has been given
a full and proper opportunity to explain why
the licence in question should be cancelled or suspended. In my view
the entire process
offended the legality principle because there was
no underlying power in the Director-General’s purview to review
complaints
relating to the revocation of the licences.
[22] There
is yet another reason why the argument of the ICPA is incorrect. In
this case, Unicorn and Retailers
were not asked for reasons or an
explanation by the Department of Health following the complaint
lodged by the ICPA. Retailers
was only asked to make representations
regarding the corporate structure which it complied with. Having not
asked Unicorn and Retailers
to make representations, the
jurisdictional facts for the cancellation, suspension and withdrawal
of the licence were not met.
I sum up the position as I see it as
follows. It was stressed in argument by counsel for the Clicks Group
that the ICPA first sought
the revocation of licences on the basis of
a contravention of regulation 6
(d)
and s22A. When it realised
the shortcomings in its argument, it shifted ground and sought to
attack the corporate structure of
the Clicks Group. Against this
view, we were urged to accept that the way the complaint was framed
was without merit. First, Unicorn
and Retailers did not contravene
regulation 6
(d)
: Retailers is not a shareholder of Unicorn and
neither does it hold a beneficial interest in Unicorn. Secondly, the
Director-General
did not have the power to revoke the licences.
Lastly, the high court erred in not distinguishing the complaints
against Unicorn
and Retailers on the one hand and the complaint
against the Clicks Group on the other. In doing so, the high court
failed to recognise
that the dismissal by the Appeal Committee was
lawful. Ideally this should be the end of the matter. However, in the
view that
I take of this matter, it is necessary to consider other
grounds of appeal. It is to the issue of beneficial interest that I
now
turn
Beneficial
interest
[23] The
nature of this argument will be better understood against the
background of what follows. The concept
of beneficial interest is
derived from English law. It connotes someone who is not the legal
owner of a thing but has a legal right
to the benefits of ownership.
The most helpful decision which I deal with first is the
Princess
Estate and Gold Mining Co Ltd v The Registrar of Mining Titles.
[3]
This case was the cornerstone of the Clicks Group argument. In that
case, Wessels J said the following:
‘
But
although our law does not recognise an equitable estate, it does
admit of a person having an interest in property which is not
registered in his name, and this interest does in some respects
resemble the “beneficial interest” of the English law.
To
this extent our law does recognise a severance of interests. Thus, a
trustee under an ante-nuptial contract or a trustee for
church,
building society or lodge, a curator of a lunatic or prodigal may
have trust property registered in their names whilst
the parties
virtually interested are the spouses, the congregation, the members
of the building society or lodge and the lunatic
or prodigal.
. .
.
The
trustee under an ante-nuptial contract may be registered as the owner
of land for the benefit of one of the spouses or of the
children of
the marriage. Here the trustee is vested with the
nuda proprietas
,
whilst the person entitled to the benefits flowing from the property
may be said to be beneficially interested.
. .
. .
So
if land is registered in the name of the curator of a lunatic there
are in fact two interests – a legal interest in the
curator and
another interest in the lunatic, which may be described as a
“beneficial interest”. . ..
Now
let us see whether the same principle applies to the case of a
company in liquidation.
. .
.
A
shareholder has no
jus in re
in any of the assets of the
company; he can only lay claim to such a share of the profits as are
awarded to him, or in case of
liquidation to such a share in the
surplus as he is entitled to according to the liquidation account.
There is no severance of
interests between the company and the
shareholder, and, therefore, I fail to see how the latter can be said
to have any “beneficial
interest”. Nor does it appear to
me to make any difference that one person has bought up all the
share. This can make no
difference to the relationship between the
sole shareholder and the company.
Unless
we go to the length of giving to “beneficial interest” so
wide a meaning as to include all persons who may in
some way or other
eventually derive a benefit from immovable property, I cannot see how
a shareholder of a company or the successor
to all the shareholders
can be said to have a beneficial interest in the land of the
company.’
[4]
[24] This
point was forcefully made by Corbett CJ in
Shipping
Corporation of India
[5]
as
follows
:
‘
It
seems to me that, generally it is of cardinal importance to keep
distinct the property rights of a company and those of its
shareholders, even where the latter is a single entity, and that the
only permissible deviation from this rule known to our law
occurs in
those (in practice) rare cases where the circumstances justify
“piercing” or “lifting” the corporate
veil.’
[25] A
terse but useful explanation of the distinction between a shareholder
and a company is to be found in the
judgement of
Macaura
v Nothern Assurance Company
[6]
where the House of Lords held that a shareholder of a company does
not have a beneficial interest in its underlying assets. In
the same
judgement, Lord Buckmaster said that ‘no shareholder has right
to any item of property owned by the company, for
he has no legal or
equitable interest therein’.
[26] More
recently, this Court in
City
Capital SA Property Holdings Limited v Chavonnes Badenhorst St Clair
Cooper NO and Others
[7]
endorsed the principle that a company is a legal entity distinct from
its shareholders. Its property is its own and not that of
its
shareholders.
[27] The
ICPA’s argument as to why we should deviate from the above
authorities is threefold. First, Investments
has a beneficial
interest in Retailers’ pharmacies in that Investments is the
sole shareholder of Retailers and the shareholder
of Investments is
New Clicks. In terms of regulation 6, New Clicks may not have a
direct or indirect beneficial interest in a manufacturing
pharmacy.
New Clicks has such an interest because it is the sole shareholder of
Unicorn, which owns the manufacturing pharmacy.
[28] Secondly,
New Clicks has a beneficial interest in a community pharmacy through
its 100% shareholding in Investments
which, in turn, has 100%
shareholding in Retailers, which owns the community pharmacy. This
means that New Clicks cannot have a
direct or indirect beneficial
interest in a manufacturing pharmacy but, it does because it wholly
owns Unicorn, which owns a manufacturing
pharmacy.
[29] Thirdly,
the thrust of the ICPA’s complaints was that persons and
entities within the Clicks Group have
beneficial interests in
community pharmacies, while at the same time having a beneficial
interest in a manufacturing company. According
to the ICPA the answer
to whether regulation 6
(d)
has been contravened or not centres
on two propositions: (a) is there an entity that owns or has a
beneficial interest in a community
pharmacy; and (b) does this entity
own or have any direct or indirect beneficial interest in a
manufacturing pharmacy. The ICPA
states that regulation 6 does not
only deal with the owners of community pharmacies but also with those
having a beneficial interest
in such pharmacies. It contended that a
shareholder (New Clicks) of any entity with a beneficial interest in
a community pharmacy
(Investments) may not also have a direct or
indirect beneficial interest in a manufacturing pharmacy (Unicorn).
[30] In
essence, the ICPA took issue with the fact that under English law
ownership can be separated into two parts,
namely a legal estate and
an equitable or beneficial estate. Relying on the case of
Lucas’
Trustee v Ismail & Amod,
[8]
it contended that that distinction does not exist in our law. It
asserted that it would have been inconceivable for the legislature
to
have intended the use of the term ‘beneficial interest’
in the regulation to carry a similar meaning to the English
concept.
To shore up its argument it called in aid the judgment of the high
court which held that ‘[i]t would be artificial
to contend that
a company which owns 100% of the shares in a company does not have a
direct or indirect beneficial interest in
the business owned and
operated by that company’.
[31] Spurred
on, no doubt by the high court’s finding, the ICPA argued that
in
the context of regulation 6
(d)
, the term beneficial
interest is a phrase of wide import intended to cover a wide range of
relationships, including the relationship
between a company and its
shareholders and directors. It submitted that on a proper
interpretation of regulation 6
(d)
, the Clicks Group of
companies have an interest in both Unicorn and Retailers and this
conduct falls foul of regulation 6
(d)
, which aims to prevent
the same entity from holding beneficial interests in both a community
and manufacturing pharmacies.
[32] To
counter these arguments, the Clicks Group briefly indicated that
neither Unicorn nor Retailers contravened
the impugned regulation. As
regards Retailers, it argued that neither it nor its shareholders
hold a direct or indirect beneficial
interest in a manufacturing
pharmacy. It further contended that because none of the holding
companies own community or retail pharmacies,
it cannot be said that
by virtue of their shareholding in Retailers and Unicorn, they or
their shareholders have a beneficial interest
in community pharmacies
and that they are holders of any direct or indirect beneficial
interest in a manufacturing pharmacy. Put
simply, it cannot be said
that because the holding companies hold shares in Unicorn and
Retailers, they have beneficial interests
in the underlying
pharmacies held by the two entities.
[33] It
is now appropriate to consider whether the high court correctly
reviewed and set aside the decision of
the Appeal Committee. A good
starting point is to first analyse the meaning of the words
‘beneficial interest’. The
answer to this question
depends on what is meant by beneficial interest in a pharmacy and
whether it can be said that because the
holding company (New Clicks)
holds shares in Unicorn and Retailers, they have beneficial interests
in the underlying pharmacies
owned by the two entities. The Clicks
Group contended that the answer is in the negative. On the other
hand, the ICPA contended
that the question should be answered in the
affirmative; it proffers two questions that must be answered in
determining whether
New Clicks has a beneficial interest in the in
the pharmacies owned by Unicorn and Retailers. First, is there an
entity that owns
or has beneficial interest in a community pharmacy?
Secondly, does this entity have a direct or indirect beneficial
interest in
a manufacturing company?
[34] In
my view, the structure of the Clicks Group represents separate and
different juristic persons. New Clicks
has no beneficial interest or
control of the assets of Retailers, which assets are mainly Clicks
Pharmacies. Consequently, New
Clicks cannot exercise the rights that
derive from Retailers’ community pharmacy licence. There is no
evidence and neither
has any been adduced by the ICPA that because
New Clicks is a 100% shareholder of Unicorn, it gives instructions to
the staff employed
by Retailers on the benchmarks to be achieved in
terms of minimum percentage of Unicorn products sold.
[35] It
is equally not correct to contend that because New Clicks holds
shares in Unicorn or Retailers, they have
a beneficial interest in
the underlying pharmacies owned by them. It is clear that New Clicks
and the Clicks Group do not own a
community pharmacy or retail
pharmacy and thus do not contravene regulation 6
(d)
. Any
suggestion that, by virtue of their shareholding in Retailers and
Unicorn, they or their shareholders have a beneficial interest
in a
community pharmacy, or that they have a direct or indirect beneficial
interest in a manufacturing pharmacy, is misplaced.
[36] It
seems clear to me that the high court misconceived the correct legal
position. The arguments raised by
the ICPA as to why the English law
cannot be imported into our law is unsustainable. It should be borne
in mind that a shareholder
of a company does not have a beneficial
interest in its underlying assets. This principle is deeply rooted in
both our law and
English law, from which the concept of beneficial
interest is derived. The distinction between a shareholder and
company’s
assets was explained in
Dadoo Ltd and Others v
Krugersdorp Municipal Council
where Innes CJ said the following:
‘
A
registered company is a legal
persona
distinct from its members who compose it. In the words of Lord
MacNaghten (
Salomon
v Salomon & Co
1897 AC at 51), “the company is at law a different person
altogether from the subscribers to its memorandum; and though it
may
be that, after incorporation, the business is precisely the same as
it was before, and the same persons are managers, and the
same hands
receive the profits, the company is not in law the agent of the
subscribers or a trustee for them.” That result
follows from
the separate legal existence with which such corporations are by
statute endowed, and the principle has been accepted
in our practice.
Nor is the position affected by the circumstance that a controlling
interest in the concern may be held by a single
member. This
conception of the existence of a company as a separate entity
distinct from its shareholders is no merely artificial
and technical
thing. It is a matter of substance; property vested in the company is
not, and cannot be, regarded as vested in all
or any of its
members.’
[9]
[37] It
must be spelt out that property vested in a company cannot be
regarded as vesting in any of its members
(shareholders). A
shareholder has no legal or equitable interest in the property of the
company. Regulation 6
(d)
does not refer to beneficial owners
of shares but to a direct or indirect beneficial interest in a
pharmacy. On a purposive and
textual interpretation, regulation 6
(d)
must be interpreted to be limited to a proscription of who may own a
pharmacy, whether legally or beneficially. It would be invalid
or
ultra vires
if it is interpreted to extend beyond ownership
prescribed in s 22A.
[38] I
do not think we can, with all the facts or evidence at our disposal,
give the term ‘beneficial interest’
so wide a meaning so
as to include the Clicks Group of companies. Similarly, I cannot see
how it can be said that New Clicks has
a beneficial interest in
Unicorn and Retailers. It cannot be denied, as was said in the United
Kingdom Supreme Court in
Sevilleja
v Marex Financial
that ‘[a] share is not a proportionate part of a company’s
asset . . . Nor does it confer on the shareholder any legal
or
equitable interest in the company’s assets’.
[10]
[39] The
suggestion that the Clicks Group interposed Investments to circumvent
the mischief which the regulation
sought to protect is misguided.
This argument runs contrary to the concession by the ICPA that
shareholders do not own assets of
the company in a juridical sense
but do have a beneficial interest in how the company and its assets
perform. Equally misconceived
is the contention that the mischief
sought to be prevented was the minimisation of the risks of one
entity promoting the medicines
of the other, which would not be in
the best interest of patients. The ICPA has not adduced any evidence
to trigger regulation
6
(d)
that a conflict of interest exists
in the Clicks Group, which may jeopardise the right of patients. I
accept as correct the submission
by Clicks Group of Companies that
there is no scope for Retailers, the pharmacists employed by
Retailers, Investments or any pharmacy
in the Clicks Group to gain
financially at the expense of patients or to prescribe and sell
medicines to patients who do not need
them.
[40] The
ICPA has not shown a single instance of a patient being sold a
Unicorn product by a pharmacist employed
by Retailers to the
prejudice of the patient or in circumstances where the patient did
not need the medicine. The ICPA has not
adduced any evidence to
support its claims that the Clicks Group structure negatively
affected the nature, quality, or extent of
public access to medicines
at Clicks pharmacies. It should have been easy for the ICPA to
collect and collate such information
if it existed. What further
militates against the ICPA’s case is that there is no evidence
to suggest that Clicks, through
its arrangement, has been able to
reduce the costs of medicines to the extent that Unicorn products are
generally amongst the lowest
priced generic products available on the
market.
[41] My
conclusion on this aspect is that the cases which I have quoted above
apply with equal force to the present
case. I fully endorse those
decisions as correctly reflecting our law. It follows that the
submission that beneficial interest
is based on English law and has
no place in our law is misplaced. There is indeed a huge conceptual
difference between a shareholder
and a company. This principle was
reaffirmed in
Standard
Bank of SA v Ocean Commodities Inc
[11]
and
in
Shipping
Corporation of India
.
[12]
I now proceed to consider the constitutional challenge which the high
court declined to deal with.
Constitutional
challenge
[42] In
short, the argument advanced on behalf of the ICPA is that
interpreting s 22A narrowly imperils the patient’s
rights to
have access to quality and affordable medicines as entrenched in s
27(1)
(a)
of the Constitution (right to health) and s 1
(c)
of the Constitution (rule of law). Another attack on the
constitutionality of s 22A is that a narrow interpretation would lead
to arbitrariness and offend the rule of law because it would only
apply if specific owners of community pharmacies apply to obtain
licences of manufacturing pharmacies but not if that owner interposes
a legal person between it and the community or the manufacturing
pharmacies, as was done by the Clicks Group with the interposition of
Investments.
[43] As
to the remedy, the ICPA submitted that a just and equitable order
under s 172 of the Constitution would
be to declare s 22A as contrary
to ss 1
(c)
and 27 of the Constitution and therefore invalid,
but that the order of invalidity be suspended for a period of two
years to allow
the Minister to rectify the situation. As an interim
measure the ICPA proposed some reading-in to save the regulation from
invalidity
during the interim period whilst Parliament addresses the
shortcoming in the Act.
[44] The
validity of this argument depends on the construction to be placed on
regulation 6
(d)
and s 22A. In
Chisuse and Others v
Director-General, Department of Home Affairs and Another
, the
Constitutional Court stated the position on statutory interpretation
as follows:
‘
In
interpreting statutory provisions, recourse is first had to the
plain, ordinary, grammatical meaning of the words in question.
Poetry
and philosophical discourses may point to the malleability of words
and the nebulousness of meaning, but, in legal interpretation,
the
ordinary understanding of the words should serve as a vital
constraint on the interpretative exercise, unless this interpretation
would result in an absurdity. As this Court has previously noted in
Cool Ideas
, this principle has three broad riders, namely:
“
(a) that
statutory provisions should always be interpreted purposively;
(b) the
relevant statutory provision must be properly contextualised; and
(c) all
statutes must be construed consistently with the Constitution, that
is, where reasonably possible, legislative
provisions ought to be
interpreted to preserve their constitutional validity. This proviso
to the general principle is closely
related to the purposive approach
referred to in (a).”
Judges
must hesitate “to substitute what they regard as reasonable,
sensible or business-like for the words actually used.
To do so in
regard to a statute or statutory instrument is to cross the divide
between interpretation and legislation”.’
[13]
[45] The
purposive or contextual interpretation of legislation must, however,
still remain faithful to the literal
wording of the statute. This
means that if no reasonable interpretation may be given to the
statute at hand, then courts are required
to declare the statute
unconstitutional and invalid. It is now settled that this approach to
interpretation is a unitary exercise.
[46] On
the issue of s 22A, it was submitted that it must be read and
interpreted in the manner that the Minister
did not make a wide
prohibition as contended by the ICPA. We were urged to accept that he
could have done so if he wanted but chose
to confine the prohibition
to the company and its shareholders. With reference to regulation
6
(d),
it was contended that the regulation must not be
interpreted in the light of empowering provision. To do so, it was
argued, would
render the regulation unlawful and
ultra vires
.
As stated earlier, it was pointed out that the Minister may only
prescribe who may own a pharmacy however, the Minister does not
have
the power to concern himself with the financial interest of the
company.
[47] It
seems clear to me that when the Minister promulgated the ownership
regulations under s 22A, the purpose
was to determine who may own a
pharmacy and the conditions under which such a person may own a
pharmacy. It was not intended to
prescribe who may hold a financial
interest in a pharmacy. In terms of s 22A the power of the Minister
is only limited to ‘who
may own a pharmacy’. The high
court erred in equating a beneficial interest in a pharmacy owned by
a company with the financial
interest its shareholder has in the
company. The reasoning of the high court is out of step with the
legal principle that a shareholder
has a real interest in a company
in which he or she holds shares and some array of rights, but those
rights are in relation to
the company and not its assets.
[48] Regulation
6 can only be interpreted on the basis of its purpose under the
enabling provision (s 22A), which
is limited to a prescription of who
may own a pharmacy whether legally or beneficially because it would
be invalid if it were to
extend beyond ownership which is prescribed
in s 22A. In my view, departing from that rationale would do violence
to the language
of s 22A read with regulation 6
(d).
In the
light of the foregoing, it can safely be concluded that when enacting
s 22A the legislature must have been aware of the
concept of a
beneficial interest. Consequently, on a purposive and textual
interpretation, the regulation must be interpreted to
mean, someone
who is the legal owner of the pharmacy or is legally entitled to the
benefits of ownership of the pharmacy. Accordingly,
the submission
that the whole scheme of regulation 6
(d)
is to cast the net as
widely as possible with the dominant purpose of preventing an alleged
mischief in the Clicks’ Group
structure has no substance. The
regulations cannot be used to interpret primary legislation and
neither can they be used to extend
the meaning of the words in the
primary legislation. In my view, the constitutional challenge has no
merit
[49] Before
I conclude, there is one more important observation to make. This
relates to a number of declaratory
orders made by the high court. It
set aside the decisions of the Director-General and the Appeal
Committee despite its finding
that Retailers and Unicorn were
innocent of any wrongdoing. As a result of this error, it granted
declaratory orders in relation
to the decisions of the
Director-General and the Appeal Committee. There was no basis for
this as they were not sought before the
Director-General and the
Appeal Committee. Another fallacy relates to its declaratory order
that the Clicks Group, New Clicks,
Investment, Unicorn and Retailers
contravened s 22A and regulation 6
(d).
The supreme irony and
fatal flaw is that its findings did not implicate Unicorn and
Retailers. Another misdirection relates to
the issue of sanction to
the Director-General and the Appeal Committee, the sanction was never
part of the complaint.
[50] For
these reasons the appeal must succeed. The following order is made:
1 The
appeal is upheld with costs, including the costs of two counsel.
2 The
order of the high court is set aside and replaced with the following:
‘
The
application is dismissed with costs including the costs of the two
counsel where so employed.’
R
S Mathopo
Judge
of Appeal
Makgoka
JA (dissenting):
[51]
I
have had the benefit of reading the majority judgment prepared by my
Colleague, Mathopo JA. Regrettably, I am unable to agree
with the
conclusion of the majority judgment upholding the appeal, and the
reasons underpinning it. I would dismiss the appeal
for the brief
reasons set out below. The relevant facts giving rise to the dispute
are common cause, and have been admirably set
out in the majority
judgment. They will therefore not be repeated in this judgment.
However, for contextual purposes, I quote in
full the two legislative
enactments in issue, namely s 22A of the Pharmacy Act 53 of 1974
(the Act) and regulation 6 of the
Regulations on Ownership and
Licensing of Pharmacies.
[14]
[52] Section
22A reads as follows:
‘
Ownership
of pharmacies
The
Minister may prescribe who may own a pharmacy, the conditions under
which such person may own such pharmacy, and the conditions
upon
which such authority may be withdrawn.’
[53] Regulation
6 provides as follows:
‘
Ownership
of community pharmacies
‘
Any
person may, subject to the provisions of regulation 7, own or have a
beneficial interest in a community pharmacy in the Republic,
on
condition that such a person or in the case of a body corporate, the
shareholder, director, trustee, beneficiary or member,
as the case
may be, of such body corporate –
(a)
. . .
(b)
. . .
(c)
. . .
(d)
is not the owner or the holder of any direct or indirect beneficial
interest in a manufacturing pharmacy.’
[54] The
primary issue is the proper interpretation of the above legislative
scheme. The outcome of this interpretive
exercise will inform a
conclusion whether the corporate structure of the appellants, the
Clicks Entities, contravenes the legislative
scheme. Section 22A of
the Act empowers the Minister to prescribe who may own a pharmacy,
the conditions under which such a person
may own such a pharmacy, and
regulation 6 is a measure which the Minister considered necessary to
achieve the purpose of s 22A.
Regulation 6
(d)
prohibits an
owner of a community pharmacy, or a person who owns or has a
‘beneficial interest’ in a community pharmacy,
from
owning, or having a ‘beneficial interest’ in, a
manufacturing pharmacy. In the case of a corporate entity, such
a
prohibition extends to the shareholder, director, trustee,
beneficiary or member of such entity.
[55] With
regard to s 22A, the parties differed as to its ambit and reach. The
Clicks Entities favoured a restrictive,
narrow construction of the
section. The first respondent, the Independent Community Pharmacy
Association (ICPA) contended for a
wider interpretation. According to
the Clicks Entities, the Minister’s power conferred by the
section is merely to determine
who may own a pharmacy. Therefore, so
went the submission, regulation 6
(d)
should be interpreted
restrictively as if dealing only with ownership of pharmacies. This
contention found favour with the Appeal
Committee, which held that
the regulations must be interpreted so as to avoid rendering them
ultra vires the Act. This could only
be done if the regulations are
read as if dealing only with the ownership of pharmacies.
[56]
The
difficulty with this reasoning is that it places undue focus on
‘ownership’, and ignores the fact that s 22A also
allows
the Minister to prescribe the conditions under which a person may own
a community pharmacy, and the conditions upon which
such authority
may be withdrawn. It also ignores the express and plain wording of
regulation 6
(d)
,
which, apart from ownership, also refers to ‘direct or indirect
beneficial interest’. Lastly, absent an attack on
the
regulations being
ultra
vires
,
they stand and must be applied, even were they (notionally) ultra
vires the Act.
[15]
[57] The
high court concluded that to the extent that regulation 6
(d)
deals with the kind of entities which may have a direct or indirect
beneficial interest in a pharmacy, it deals with conditions
of
ownership, and sets out when the authority for owning a pharmacy may
be withdrawn. I cannot fault this reasoning. Differently
put, the
regulations allow one to own a community pharmacy. But that ownership
is not unfettered. The regulations impose a condition
to it, namely
that a person should not have a beneficial interest in such a
community pharmacy whilst such a person also has a
direct or indirect
beneficial interest in a manufacturing pharmacy. To that extent, this
is a condition of ownership envisaged
in both regulation 6
(d)
and s 22A, bearing in mind that the latter empowers the Minister to
‘prescribe . . . the conditions under which such person
may
own’ a pharmacy. Those conditions find expression in regulation
6
(d)
. Viewed in this light, s 22A and regulation 6
(d)
neatly complement each other.
[58] I
turn to the meaning of ‘beneficial interest’ as employed
in regulation 6
(d)
. To recap, regulation 6
(d)
postulates two legs of the enquiry. The first leg is whether there is
a person or an entity that owns or has a beneficial interest
in a
community pharmacy. The second leg is whether such person or entity,
or the entity’s shareholder, director, trustee,
beneficiary or
member, also owns or has a beneficial interest in a manufacturing
pharmacy. But what does the concept of ‘beneficial
interest’
mean in the context of regulation 6
(d)
?
[59]
Counsel
for the Clicks Entities placed much reliance upon the English law
concept of ‘beneficial interest’, which connotes
someone
who, not being the legal owner of a thing, nevertheless has a right
to the benefits of ownership. Counsel also relied upon
certain dicta
from
The
Prin
cess
Estate
,
[16]
to make the point that a shareholder of a company does not have a
beneficial interest in its underlying assets. Reliance was also
placed on the settled principle of our law that a shareholder has no
claim to the assets of a company. Reference was also made
to various
English authorities, including
Sevilleja
v Marex
,
[17]
in which it was reiterated that a shareholder of a company has no
legal or equitable interest in the property of the company. Lastly,
counsel referred to
Standard
Bank v Ocean Commodities
,
[18]
which is to the effect that in certain instances, the registered
shareholder may
hold the shares as the nominee of another, generally described as the
‘beneficial owner’ of the shares, despite this
fact not
appearing on the company’s register.
[60]
On
these bases, the contention was advanced on behalf of the Clicks
Entities that when regulation 6
(d)
refers to someone who owns or has a beneficial interest in a
pharmacy, it means someone who is the legal owner of the pharmacy
or
is legally entitled to the benefits of ownership of the pharmacy. I
have no qualms with the principles set out in the various
authorities
relied upon by counsel on behalf of the Clicks Entities. As stated
already in the preceding paragraph, the principle
that a shareholder
has no claim to the assets of a company is well-settled in our
law.
[19]
[61] However,
this principle does not assist with the central question in the
present case, namely whether a person
(natural or juristic) who has a
beneficial interest in a community pharmacy, maintains a similar
interest in a manufacturing pharmacy,
in the context of regulation
6
(d)
. The concept of beneficial ownership as discussed in
Ocean Commodities
is also of no assistance. There, this Court
confirmed the principle that although normally the person in whom the
share vests is
the registered shareholder in the books of the
company, there are some instances where the registered shareholder
may hold the
shares as the nominee, ie agent, of another, generally
described as the ‘owner’ or ‘beneficial owner’
of
the shares, although this fact does not appear on the company’s
register.
[62]
It
remains to consider the English law concept of ‘beneficial
interest’ as contended for on behalf of the Clicks Entities.
At
the outset I must state a conceptual difficulty with the notion of
‘beneficial interest’ as applied in English law
bearing a
similar meaning to that in regulation 6
(d)
.
While in terms of s 39(1)
(c)
of the Constitution foreign law may be considered when interpreting
the Bill of Rights,
[20]
t
he
proper interpretation of regulation 6
(d)
is a matter of South African law in accordance with our established
principles of interpretation of statutes. There is no need
to have
regard to foreign law
case.
[21]
[63]
Regulation
6
(d)
should be construed using the conventional process of statutory
interpretation, which is that the words in a statute must be given
their ordinary grammatical meaning, unless to do so would result in
an absurdity. This is subject to three interrelated riders,
namely
that: (a) statutory provisions should always be interpreted
purposively; (b) the relevant statutory provision must be properly
contextualised; and (c) all statutes must be construed consistently
with the Constitution.
[22]
In
line with
Endumeni
[23]
,
we m
ust
therefore consider, among others,
the
context in which the concept of beneficial interest appears in
regulation 6
(d)
,
the
apparent
purpose to which regulation 6
(d)
was directed and the material known to those responsible for
enactment of the provision.
[64]
As
a matter of fact, the concept of ‘beneficial interest’ as
understood and applied in the English law of property is
not part of
our law. As explained in
Lucas’
Trustee
,
[24]
English law ownership of property can be separated into two parts,
namely a legal estate and an equitable or beneficial estate,
which
can vest in two different persons at the same time. Our law does not
recognise such division. Solomon J explained at 247-248:
‘
The
English law holds that there can be two estates in land, the legal
estate and the equitable or beneficial estate, and that these
two
estates can be vested in different persons at the same time; and
under the old practice before the Judicature Acts those estates
would
be dealt with and cognisable in two separate courts of law –
the common law courts and the courts of equity. Our law,
as I
understand it, does not recognise that there can be any such division
of the dominium, or that there can be two estates in
landed property,
but that the person who is registered in the Deeds Office as the
owner of the landed property is the one dominus
of such property.’
[65]
In
The
Princess
Estate
,
[25]
the issue was whether transfer of property from a company in
liquidation to its sole shareholder was exempted from payment of
stamp duty in terms of the Stamp Duties and Fees Act 30 of 1911.
[26]
The Act provided the exemption when the transfer caused ‘no
change of beneficial interest in the property transferred’.
[27]
It was held that even though shareholders have no legal right to the
property (land) of the company, they may i
n
certain instances be considered to have a ‘beneficial interest’
in the company’s property. After noting that
the words
‘beneficial interest’ had been borrowed from the English
law, where it has acquired a technical meaning,
Wessel J sounded this
warning:
‘
The
use of these technical words in a South African Stamp Duty Act is
very unfortunate. By using technical terms which have in English
law
acquired a specific meaning it is difficult to avoid grafting English
legal ideas on to our law which may be foreign to it.
Now
the words, “beneficially interested,” are used in
connection with English real property, and as our law of fixed
property differs
toto
caelo
from that of England, it becomes at once manifest to what confusion
the use of such words may lead us.’
[28]
[66] After
a survey of English law where the concept of ‘beneficial
interest’ was used in various statutes,
the learned judge
continued:
‘
From
the above references it seems clear to me that the Legislature of the
Union never intended to import from England into this
country all the
technical meanings which have been given to the words “beneficially
interested” in English statutes
or in English decisions dealing
with the complicated machinery of the English law of real property. I
think that we should restrict
the words "beneficially
interested” to that meaning which it usually has when the term
is used to call attention to
a severance of
interests
. . .’
[29]
[67]
This
Court had occasion in
EBN
Trading (Pty) Ltd v Commissioner for Customs and Excise and
Another
[30]
to consider the concept of ‘beneficial interest’. There
the
issue was whether the appellant, EBN,
was
an ‘importer’ in terms of the definition contained in s 1
of the Customs and Excise Act 91 of 1964 in respect of
imported
goods, for which EBN had provided finance for their procurement.
The
goods were EBN’s security for the amounts owed to it by the
importers. Upon arrival in the country, the Commissioner for
Customs
and Excise, and the Controller of Customs and Excise, Durban,
detained the goods on the basis that customs duty had
not been
paid for them. EBN
was
not an importer in the ordinary sense of the word. However,
one
of the extended meanings contained in the definition of importer in
the Act included any person who ‘is beneficially interested
in
any way whatever in any goods imported’. After analysing the
relationship between the actual importers and EBN, the Court
concluded that EBN had a beneficial interest (‘advantageous
and profitable to it’) in the context of the
extended
definition, and was, therefore, the ‘importer’ of the
goods.
[68]
EBN
Trading
emphasises the point that a
contextual approach should be adopted, in accordance with the
well-established principles. And,
as cautioned in both
Lucas’
Trustee
and
The Princess Estate
, it is not helpful to link
the meaning of the term ‘beneficial interest’ when used
in our statutory enactments to the
English concept. In addition, I am
of the view that it is undesirable to use concepts developed in the
law of ownership to interpret
a socio-constitutional provision such
as regulation 6
(d)
.
[69] This
brings me to the structure of the Clicks Entities, which is as
follows: the first appellant, the Clicks
Group, is the holding
company of the Clicks Entities, which comprise the second appellant,
New Clicks, the third appellant, Unicorn
Pharmaceuticals, the fourth
appellant, Clicks Investments, and the fifth appellant, Clicks
Retailers. New Clicks is a wholly-owned
(100 percent) subsidiary of
the Clicks Group. In turn, New Clicks holds all shares in Unicorn
Pharmaceuticals, a manufacturing
pharmacy. New Clicks also holds all
the shares in Clicks Investments, which in turn holds all the shares
in Retailers, which owns
and operates the community pharmacies.
[70]
As
mentioned already, to determine whether a corporate structure such as
that of the Clicks Entities contravenes regulation 6
(d)
,
it must be established first, that there is an entity that owns or
has a beneficial interest in a community pharmacy. Next, it
must be
established whether such owner or the entity’s shareholder,
director, trustee, beneficiary or member, owns or has
any direct or
indirect beneficial interest in a manufacturing pharmacy.
[71] On
behalf of the Clicks Entities, it was submitted that since the assets
of a company do not belong to the
shareholders of the company but to
the company itself, even 100 percent shareholding in a company does
not translate into a ‘beneficial
interest’ in the
company. Proceeding from that premise, it was submitted that,
although Retailers owns all the community
pharmacies, Clicks
Investments does not own the pharmacies and does not have any rights
to the benefits of ownership of the pharmacies,
and that Clicks
Investments does not have any beneficial interest in the pharmacies.
[72] This
contention places undue focus on beneficial ownership, and fails to
take into account that not only ownership
is targeted, but also
beneficial interest, whether directly or indirectly. The inclusion of
the words ‘direct or indirect
beneficial interest’ in
regulation 6
(d)
is an indication that the legislature intended
a wider scope of prohibition beyond beneficial ownership. It follows
that the concept
of ‘direct or indirect beneficial interest’
must be given a wider import than strict ownership.
[73] In
any event, the fact that the assets of a company do not belong to the
shareholders, does not necessarily
mean that the shareholders do not
have an interest in them. Of course they do. The high court summed it
up neatly as follows (at
para 18):
‘
It
would be artificial to contend that a company which owns 100% of the
shares in a company does not have a direct or indirect beneficial
interest in the business owned and operated by that company. The
shareholder appoints directors to the company's board. The board
determines what dividend is declared, which is then paid to the
shareholder from the funds generated by the business. The proceeds
of
the winding up of the company go to its shareholder. The shareholder
thus clearly has a beneficial interest in the business
owned by the
company.’
[74] The
high court further pointed out, an entity having interests in both
types of pharmacies would gain financially
if the manufacturing
pharmacy’s products are promoted by the pharmacists in the
community pharmacies over other products.
This could result in
consumers not getting the best quality product at the best price.
Products which are not strictly needed might
be recommended and sold.
The conflict of interest could also result in the manufacturing
pharmacy favouring community pharmacies
belonging to the same group
above outside or independent pharmacies. This might affect the
availability of products to customers.
I agree with this reasoning.
[75] As
explained in the explanatory affidavit of the Minister, the main
mischief sought to be prevented by regulation
6
(d)
is the
dispensing or recommendation of a medicine, supplied by a
sufficiently commercially connected manufacturing pharmacy, where
a
generic substitute was available. The obvious purpose of the
regulation was to ensure that pharmacists did not have a vested
interest in the drugs which they dispensed or recommended. Another
danger is that if pharmacies are permitted to create their own
affiliated manufacturers whom they control, directly or indirectly,
they would directly be involved in setting prices and have
strong
incentives to keep those prices high. There is an inherent conflict
of interest when a pharmacist is employed and remunerated
by an
entity which forms part of a group which also owns or has an interest
in a manufacturing entity.
[76] The
mischief aimed at by regulation 6
(d)
is very clear:
simultaneous ownership or beneficial interest in both a community
pharmacy and a manufacturing pharmacy. In my view,
this is one case
where the mischief intended to be addressed must receive some
prominence when interpreting the provision. As such,
a purposive and
generous interpretation must be given to the regulation to achieve
its apparent purpose, namely to prevent a conflict
of interest and
the entrenchment of monopolies in dispensing medicines. Anything less
would render the regulation nugatory, as
all what it would take to
circumvent the purpose of the legislative scheme is a sophisticated
corporate arrangement, such as interposing
a juristic entity between
an owner of a community pharmacy and that of a manufacturing
pharmacy.
[77]
Indeed,
this is what happened here. To circumvent the prohibition of
regulation 6
(d)
,
the Clicks Entities’ structure interposed Clicks Investments
between New Clicks and Retailers. It is clear that the only
reason
for this is to attempt to circumvent the prohibition in the
regulation. But the mischief sought to be addressed by the regulation
does not fall away merely because of this. To achieve the purpose of
regulation 6
(d)
,
a court should incline to an interpretation that sees through this
clever and sophisticated corporate structuring in order to
give
effect to the purpose of regulation 6
(d)
.
The regulation
must
be given such construction as will advance the remedy rather t
han
limit it.
[31]
[78]
It
must also be borne in mind that the regulation squarely implicates a
right enshrined in the Bill of Rights, namely the right
to have
access to health care services.
[32]
As the Constitutional Court recognised in
Minister
of Health v New Clicks
,
[33]
that right embraces
the
right to access quality and affordable medicines.
Two
interpretive injunctions are relevant in this regard. The first is
that where the court is faced with two interpretations, one
constitutionally valid and the other not, the court must adopt the
constitutionally valid interpretation, provided that to do so
would
not unduly strain the language of the statute.
[34]
The second is that where a provision is reasonably capable of two
interpretations, the one that better promotes the spirit, purport
and
objects of the Bill of Rights should be adopted.
[35]
[79] As
stated already, according to the Clicks Entities, to be a beneficiary
or to have a direct or indirect beneficial
interest relates only to
the benefits of ownership of the pharmacies. In my view, t
his
construction of regulation 6
(d)
permits the clear circumvention of the apparent purpose of the
regulation. It is not one that best promotes the spirit, purport
and
objects of the Bill of Rights, and in particular the right of access
to health care services as stated above. By all accounts,
both
textually and contextually, the interpretation of regulation 6
(d)
advanced by ICPA is to be preferred. It gives effect to the purpose
of the regulation and fulfills the injunction in s 39(2) of
the
Constitution to prefer an interpretation that best gives effect to
the spirit, purport and objects of the Bill of Rights.
[80]
In
the light of the interpretation I prefer, I conclude that the Clicks
corporate structure contravenes regulation 6
(d)
through the beneficial interests of Clicks Investments and New Clicks
in both community pharmacies and the manufacturing pharmacy.
This is
how those beneficial interests occur.
As to Clicks
Investments, it
has,
on the one hand,
a
beneficial interest in community pharmacies owned by Retailers as it
is the sole shareholder of Retailers. On the other, Clicks
Investments’ sole shareholder, New Clicks, is the sole
shareholder of Unicorn Pharmaceuticals, which owns a manufacturing
pharmacy. As to New Clicks, it has a beneficial interest in community
pharmacies as the sole shareholder of Clicks Investments,
which in
turn is the sole shareholder of Retailers, which owns the community
pharmacies. The board of Retailers is controlled though
Clicks
Investments. As far as interest in a manufacturing pharmacy is
concerned, New Clicks is the sole shareholder of Unicorn
Pharmaceuticals, which owns the manufacturing pharmacy. It thus has a
beneficial interest in that pharmacy.
[81]
I
have already concluded that s 22A is capable of a wider
interpretation to enable the Minister to make regulations in terms
thereof,
to deal with issues beyond mere ownership of pharmacies. In
view of that conclusion, like the high court, I deem it unnecessary
to consider the constitutional challenge to the section.
[82]
It
remains to comment briefly on Clicks Entities’ dilatory
technical point – the only one it still pursues after many
others were advanced, but dismissed by the Appeal Committee. Clicks
Entities argue that
ICPA’s complaint was ‘stillborn’,
because originally it was aimed at revoking the pharmacy licences of
Unicorn
Pharmaceuticals and Retailers, but ‘replaced’
that with a complaint that Clicks Investments and New Clicks are in
contravention
of regulation 6
(d)
. As correctly pointed out by
ICPA’s counsel, whilst particular reference was made to those
entities in the original complaint,
it is clear that the ICPA
complained about the structure of the Clicks Group. But, the nature
of the original complaint has become
irrelevant for the following
reasons. The corporate structure of the Clicks Entities was the
complaint as formulated before the
Appeal Committee. The Appeal
Committee fully considered ICPA’s complaint about Clicks
Investments and New Clicks, and dismissed
it in a comprehensive
decision.
[83] That
complaint was carried through in the founding affidavit in the high
court, and became the main focus
of the submissions in that court. In
this Court, we have similarly had the benefit of full and
comprehensive argument on the real
dispute between the parties. What
is more, the Clicks Entities have not alleged any prejudice resulting
from the ‘mutation’
of the complaint. I am unable to
fathom any. The dispute between the parties is of public importance
and as mentioned already,
it implicates a constitutional right. In
the light of these considerations, I take a view that it is
inappropriate to non-suit
ICPA on an overly technical and dilatory
point, and which occasions no prejudice at all to any of the parties.
Whereas technical
points have their place, this is not the occasion
for such. It amounts to placing form over substance, for which no
real purpose
would be served by it other than to delay the
adjudication of the dispute between the parties.
[84]
For
all of these reasons, I would dismiss the appeal with costs,
including the costs occasioned by the employment of two counsel.
T
M Makgoka
Judge
of Appeal
APPEARANCES:
For
appellants: W
Trengove SC (with him L Sisilana)
Instructed
by: Cliff
Dekker Hofmeyr Inc., Sandton
Webbers
Attorneys, Bloemfontein
For
respondent: J
Muller SC (with him J de Waal SC)
Instructed
by: Van
Der Spuy, Cape Town
Hill,
McHardy & Herbst Inc., Bloemfontein
[1]
Regulations relating to the Ownership and Licencing of Pharmacies
GNR 553 of 25 April 2003.
[2]
The
Princess Estate and Gold Mining Co, Ltd v The Registrar of Mining
Titles
1911
TPD 1066
at 1078.
[3]
The
Princess
Estate and Gold Mining Co Ltd v The Registrar of Mining Titles
1911
TPD 1066.
[4]
Fn
4 above at 1078-1080.
[5]
Shipping
Corporation of India Ltd v Evdomon Corporation and Another
[1993]
ZASCA 167
;
1994 (1) SA 550
(A);
[1994] 2 All SA 11
(A) para 43.
[6]
Macaura
v Nothern Assurance Company
[1952]
AC 619.
[7]
City
Capital SA Property Holdings Limited Chavonnes Badenhorst St Clair
Cooper
NO
and Others
[2017]
ZASCA 177
;
2018 (4) SA 71
(SCA) para 27.
[8]
Lucas’
Trustee v Ismail & Amod
1905 TS 239.
[9]
Dadoo
Ltd and Others v Krugersdorp Municipal Council
1920
AD 530
at 550-551.
[10]
Sevilleja
v Marex Financial
[2020] UKSC 31
at para 31
[11]
Standard
Bank of SA v Ocean Commodities Inc
[1983] 1 All SA 145
(A);
1983 (1) SA 276
(A) 288 to 289
[12]
Shipping
Corporation of India Ltd v Evdomon Corporation and Another
1994
(1) SA 550 (A); [1994] 2 All SA 11 (A).
[13]
Chisuse
and Others v Director-General, Department of Home Affairs and
Another
[2020]
ZACC 20
paras 47 & 48.
[14]
‘
Regulations
relating to the Ownership and Licensing of Pharmacies, GN R553, 25
April 2003.’
[15]
Merafong
City Local Municipality v AngloGold Ashanti Limited
[2016] ZACC 35
;
2017 (2) SA 211
(CC) para 41.
[16]
The
Princess Estate and Gold Mining Co Ltd v The Registrar of Mining
Titles
1911 TPD 1066.
[17]
Sevilleja
v Marex Financial Ltd
[2020]
UKSC 31.
[18]
Standard
Bank of South Africa Limited and Another v Ocean Commodities Inc and
Others
1983 (1) SA 276; [1983] 1 All SA 145 (A).
[19]
Dadoo
Ltd and Others v Krugersdorp Municipal Council
1920 AD 530
(AD);
Shipping
Corporation of India Ltd v Evdomon Corporation and Another
[1993] ZASCA 167
;
1994 (1) SA 550
;
[1994] 2 All SA 11
(A);
City
Capital SA Property Holdings Limited v Chavonnes Badenhorst St Clair
Cooper N O and Others
[2017] ZASCA 177; 2018 (4) SA 71 (SCA).
[20]
As
noted by Klug, s
39(1)
(c)
has seeped into South Africa's constitutional jurisprudence beyond
the interpretation of the Bill of Rights. See H Klug
The
Constitution of South Africa: A Contextual Analysis
(2010) at
79-80.
[21]
In
Sanderson
v Attorney-General, Eastern Cape
1998
(2) SA 38
(CC) para 26, the Constitutional Court
warned
that
‘the use of foreign precedent requires circumspection and
acknowledgment that transplants require careful management’.
See also the remarks of Chaskalson P in
S
v Makwanyane
[1995] ZACC 3
;
1995
(3) SA 391
;
1995 (6) BCLR 665
(CC) para 39.
[22]
Cool
Ideas 1186 CC v Hubbard and Another
[2014] ZACC 16
;
2014 (8) BCLR 869
;
2014 (4) SA 474
(CC) para 28.
[23]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2012]
ZASCA 13
;
[2012] 2 All SA 262
;
2012 (4) SA 593
(SCA) para 18;
Airports
Company South Africa v Big Five Duty Free (Pty) Ltd
[2018] ZACC 33
;
2019 (2) BCLR 165
;
2019 (5) SA 1
(CC) para 29.
[24]
Lucas’
Trustee v Ismail and Amod
1905 TS 239 (TS).
[25]
The
Princess Estate and Gold Mining Co Ltd v The Registrar of Mining
Titles
1911 TPD 1066.
[26]
Act
30 of 1911 was repealed by s 35 of Act 59 of 1962, which in turn was
repealed by s 34 of Act 77 of 1968, which Act has been
repealed by
s
103
of the
Revenue Laws Amendment Act 60 of 2008
.
[27]
The
Princess Estate
at
1075.
[28]
The
Princess Estate
at 1076.
[29]
The
Princess Estate
at 1077.
[30]
EBN
Trading (Pty) Ltd v Commissioner for Customs and Excise and Another
[2001]
ZASCA 6; [2001] 3 All SA 117; 2001 (2) SA 1210 (SCA).
[31]
Smyth
and Others v Investec Bank Limited and Another
[2017] ZASCA 147
;
[2018] 1 All SA 1
;
2018 (1) SA 494
(SCA) para 20.
[32]
Section
27 of the Constitution of South Africa, 1996 provides:
‘
(1)
Everyone has the right to have access to –
(a)
Health care services, including
reproductive health care;
(b)
. . .
(c)
. . .
(2) The
state must take reasonable legislative and other measures, within
its available resources, to achieve the progressive
realisation of
each of these rights.
(3)
No one may be refused emergency medical treatment.’
[33]
Minister
of Health and Another v New Clicks South Africa (Pty) Ltd and Others
[2005] ZACC 14
;
2006 (2) SA 311
;
2006 (1) BCLR 1
(CC) para 704.
[34]
Investigating
Directorate: Serious Economic Offences v Hyundai Motor Distributors
(Pty) Ltd: in re Hyundai Motor Distributors
(Pty) v Smit N O
[2000]
ZACC 12
;
2001 (1) SA 545
(CC) paras 23-25.
[35]
Wary
Holdings (Pty) Ltd v Stalwo (Pty) and Another
[2008]
ZACC 12
;
2009
(1) SA 337
(CC) paras 46, 84, 107.