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[2009] ZAGPPHC 106
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Resolution Health (Pty) Ltd and Another v Council for Medical Schemes and Others (37155/09) [2009] ZAGPPHC 106 (1 September 2009)
IN THE HIGH COURT OF SOUTH AFRICA
NORTH GAUTENG DIVISION, PRETORIA
Case number 37155/09
In
the matter between:
RESOLUTION
HEALTH (PTY) LTD First Applicant
RESOLUTION
ADMINISTRATORS (PTY) LTD Second Applicant
And
THE
COUNCIL FOR MEDICAL SCHEMES 1st Respondent THE REGISTRAR OF MEDICAL
SCHEMES 2nd Respondent
RESOLUTION
HEALTH MEDICAL SCHEME 3rd Respondent
THE
MINISTER OF HEALTH N.O. 4th Respondent
JUDGMENT
INTRODUCTION
1.
The applicants applied to the first respondent for accreditation as a
managed healthcare organization and as an administrator
of the third
respondent. In fact, the two applications were made in the name of
the first applicant, even though the first respondent
may not have
appreciated this at the time.
2.
The third respondent is a medical scheme that must be registered in
terms of section 24 of the Medical Schemes Act 131 of 1998
("the
Act").
3.
Section 58 of the Act provides that a person providing administration
services to a medical scheme must be duly accredited by
the first
respondent, while a person rendering managed healthcare services must
similarly be registered as such under Regulation
15 of the
regulations promulgated under the Act.
4.
Prior to 2006, the first applicant had been accredited as a managed
healthcare association and the second applicant as the third
respondent's administrator.
5.
After a dispute arose between the applicants and the third
respondent, the latter contended that these accreditations had
lapsed.
6.
The applicants were granted temporary accreditation during October
2008, subject to the resolutive conditions that substantive
applications for accreditation were lodged within thirty days from
the 31st October 2008 and that such applications were granted.
7.
The substantive applications were refused on the 29th May 2009.
8.
The applicants have lodged an internal appeal against the refusal of
the applications in terms of section 50 of the Medical Schemes
Act
131 of 1998 ("the Act"). The appeal is pending. Should it
be unsuccessful, the applicants have already indicated
that they
intend to launch a review application to this Court.
9.
The resolutive conditions not having been fulfilled, the applicants'
temporary accreditation has lapsed.
10.
The applicants approach the Court on a basis of urgency for an
interim order, pending the finalization of the appeal and potential
review proceedings, declaring that the temporary accreditation has
not lapsed; alternatively relief in terms of which the first
respondent is ordered to grant the desired accreditation to the
applicants until all the envisaged processes have been finalized.
11.
These orders were sought subject to the internal appeal being
launched and prosecuted timeously in terms of section 50(3) of
the
Act.
12.
In the alternative, an order is sought that the provisions of
Regulations 15A, 15B and 15C of the General Regulations promulgated
in terms of section 67 of the Act are invalid, but it was conceded
during argument that this relief is not urgent. Nothing further
need
be said about this cause of action in this judgment.
13.
The application is opposed by the first and second respondents.
THE
PARTIES
14.
The first applicant is Resolution Health (Pty) Ltd, formerly known as
Resolution Managed Healthcare (Pty) Ltd, a company duly
registered
and incorporated as envisaged by the Company Act 61 of 1973, with
principal place of business and registered office
at Resolution
Office Park, Boskruin Office Park, President Fouche Avenue, Boskruin.
15.
The second applicant is Resolution Administrators (Pty) Ltd, formerly
known as Medical Aid Administration Experts (Pty) Ltd,
a company duly
incorporated and registered in accordance with the Company Act 61 of
1973, with principal place of business and
registered office at the
same address as the first applicant.
16.
The first respondent is The Council for Medical Schemes, a juristic
person duly established in terms of the Act, with principal
place of
business at Hadefields Office Park, Block E, 1267 Pretorius Street,
Hadefield, Pretoria.
17.
The second respondent is the Registrar of Medical Schemes, the
executive officer of the first respondent, appointed in terms
of
section 18 of the Act, of the same address as the first respondent.
18.
The third respondent is Resolution Health Medical Scheme, a medical
scheme duly registered in terms of section 26 the Act, a
corporate
body with legal personality and principal place of business at the
same address as the applicants. The third respondent
is joined in
this application because of its interest in the outcome thereof, but
no relief is claimed against it.
19.
The fourth respondent is the Minister of Health cited in his official
capacity as such as the political head of the Department
of Health,
of c/o the State Attorney, 8th Floor, Bothongo Heights, 167 Andries
Street, Pretoria, joined in this application as
an interested party
without any relief being claimed against him.
THE
FACTUAL BACKGROUND
20.
The second applicant, then known by its previous name, concluded an
administration agreement with the third respondent on the
3rd January
2005.
21.
It changed its name to its present appellation during November 2005.
22.
The business activities of the second applicant were either merged or
consolidated with those of the first applicant with effect
from the
1st January 2007.
23.
Although there appears to be some dispute about the precise sequence
of the so-called consolidation or merger, it is clear that
according
to the financial statements of the first, second and third applicants
that all their business activities were conducted
through and
provided by the first applicant from a date before the end of the
financial year 2007.
24.
In spite of the merger, the second applicant and the third respondent
concluded another administration agreement on the 7th
November 2007,
recording that a merger of the first and second applicants was
envisaged and that the administration agreement would
be
"transferred" to the new entity thus created.
25.
The administration agreement is alleged to have been "ceded"
to the first applicant with effect from the 1st January
2008.
26.
It is common cause that no notice of the alleged cession was given to
the 1st respondent.
27.
From the applicants' and the third respondent's financial statements
it appears, however, that the transfer of the second applicant's
business to the first applicant was effected as from the 1st January
2007.
28.
It is common cause that the "transfer" or "merger"
was effected without having given the first respondent
prior notice
thereof and without having obtained the first respondent's consent
thereto.
29.
The first respondent engaged upon an inspection of the applicants and
the third respondent and their related enterprises during
or about
March 2006 already.
30.
After a report and a lengthy reply the first respondent raised
various charges against the applicants and indicated its intention
to
cancel the applicants' accreditation as a managed health care
organization and an administrator respectively.
31.
During the course of the investigation and subsequent interactions
between the applicants and the first respondent, the applicants'
existing accreditations expired, as accreditations have to be renewed
every 24 months in terms of Regulation 17 (4) (a) of the
Regulations
promulgated in terms of the Act. No application for a renewal had
been made while the investigation and its consequent
interactions
between the parties had taken place.
32.
The granting of the temporary accreditations has been adverted to
above, as has the refusal of the substantive applications
for a
renewal of the existing accreditation or, more accurately, the
granting of both applications to the first applicant.
33.
Following upon the "merger" or "transfer" of the
business of the second applicant to the first applicant,
the
applications for a renewal of the accreditation as manager and as
managed health care provider were made in the name of the
first
applicant, according to the applicants' founding affidavit, and the
interim relief the applicants seek aims to obtain such
interim
accreditation in the first applicant's name.
THE
ENTITLEMENT TO INTERIM RELIEF
34.
It is common cause that the fact that an appeal against the refusal
of the accreditation of renewal thereof is pending in terms
of
section 50 of the Act to a statutory appeal board does not suspend
the refusal of the accreditation (if such were possible in
law), nor
does it provide for an interim authorization to render the services
accreditation for the delivery of which has been
refused by the first
respondent.
35.
The applicants contend that they find themselves in the same position
as an applicant for a liquor licence or a road transport
certificate
whose application has been refused by the regulatory authority and
rely on decisions such as Patterson v Umvoti Liquor
Licensing Board
1932 NPD 766
; Pietermaritzburg City Council v Local Road
Transportation Board
1959 (1) SA 586
(A) and Airoadexpress v Local
Road Transportation Board, Durban and Others
[1986] ZASCA 6
;
1986 (2) SA 663
(A).
They argue that the status quo ante should be maintained pending the
administrative appeal and potential review to prevent
injustice,
hardship or irreparable harm being caused to them.
36.
The first and second respondents ("the respondents")
dispute the applicability of this rule and point to the fact
that the
first applicant conducted the business of an administrator without
permission or accreditation and thus operated unlawfully.
To grant
interim relief under such circumstances would countenance the
continuation of an unlawful practice that is visited by
a criminal
sanction in section 66 of the Act.
37.
As the question whether the applicants have a right to the relief
sought appeared to the court to be possibly decisive of the
matter,
an order was made on the first day of argument that this question
should be determined separately and in initio in terms
of Rule 33(4).
38.
During argument on this issue reference was made to the fact that the
first respondent had been under a misapprehension when
deciding the
application for accreditation as administrator that the first
applicant was in fact the second applicant under a new
name.
39.
The court the enquired whether this misapprehension could not be said
to have led to the administrative process not having been
fairly
conducted when the applications for accreditation were considered.
40.
The court is indebted to counsel for the further research that was
conducted to clarify this issue.
41.
The end result will not be affected by the fact that the first
respondent laboured under a misapprehension when the applications
for
accreditation were placed before it. The critical question to be
decided is whether the applicants could be described as bona
fide
service providers whose accreditation ought to have been granted and
the refusal of which will in all probability be overturned
on review
or by the internal appeal tribunal. The applicants suggest that the
following citation from the judgment of Kotze, JA
in the
Airoadexpress matter applies to them:"
"
In the instance case the order of the local board has not yet been
set aside and it may be argued that confirmation of the
rule will run
counter to the local board's order. Setting aside the order could, at
the earliest, take place when the NTC decides
the appeal. That may
involve a long delay. I cannot accept that, if it can be shown in a
case of this kind that the appellant must
inevitably succeed in the
appeal, interim relief pending the determination thereof can lawfully
be withheld solely by reason of
an order which cannot conceivably be
sustained. I am of the view further that in principle the same
approach should prevail where
a strong prima facie case is
established that the permits applied for were wrongly refused. In my
view the principle applied in
the De Fraetas type of case should be
extended to a case like the present. The decision in that case is
based on the existence
of a "general power" or, put
differently, an inherent jurisdiction to grant pendente lite relief
to avoid injustice and
hardship. An inherent power of this kind is a
salutary power which should be jealously preserved and even extended
where exceptional
circumstances are present and where, but for the
exercise of such power, a litigant would be remediless, as is
the
case here." (per Kotze JA at 676 A-D)
42.
The principles enunciated in this judgment are not applicable to the
present dispute. It is clear that the Kotze JA proceeded
from the
premise that the applicant in Airoadexpress was lawfully entitled to
hold the permit applied for and that it had made
out a strong case
for the granting thereof, resulting in injustice and hardship if no
interim relief were granted. In addition,
the applicant had rendered
the service applied for in virtually identical form prior to the
application for the permits in issue
being launched.
43.
The present matter stands on a significantly different footing. The
first applicant was at no stage entitled in law to render
the
services of an administrator, but proceeded to do so in spite of the
fact that its directors knew that it was unlawful to render
the
service without accreditation. They knowingly allowed the first
applicant to commit a criminal offence for financial gain.
In
addition, the role of administrator was assumed by the first
applicant at a time when its fitness to render another service,
that
of managed health care, was under earnest debate with the first
respondent after the latter's expression of the view that
the
existing accreditation should not be renewed - and neither should
second respondent continue as administrator.
44.
Against this background the failure to pertinently advise the first
respondent of the true state of affairs, and the failure
to seek its
prior approval of the proposed transfer of the administrator's
functions assume a sinister hue. If the failure to pertinently
advise
the first respondent was deliberate, the first applicant's directing
minds might well be regarded as lacking in probity
and frankness; if
it arose from negligence, the fitness of the directors to conduct its
business with the necessary acumen might
well be questioned.
45.
Of particular concern in this regard is the fact that the first
applicant received contributions from the third respondent's
members
in an account kept under the former's name. The moneys were
transferred daily to an account opened in the third respondent's
name. This practice was - or still is - in flagrant contravention of
the imperative contained in Regulation 23 that these funds
- which
clearly are in the nature of trust funds - should be held in an
account in the medical scheme's name. The moneys paid by
the third
respondent's members were received - albeit only for a day at a time
- in an account that would reflect these funds as
the applicant's
turnover to the bank. The size of such turnover may have influenced
the first applicant's bankers in its favour.
46.
The transgression of this provision cannot but be viewed in a very
serious light. The unlawfulness of the entire operation admits
of no
doubt: Watson NO and Another v Shaw NO and Others
2008 (1) SA 350
(C)
and on appeal: Afrisure CO and Another v Watson NO and Another
[2008] ZASCA 89
;
2009
(2) SA 127
(SCA).
47.
In the light of the aforegoing the respondents' submission that the
first applicant never had the right to act as administrator
is
correct. Its actions in providing such service against the background
of an already existing dispute with the respondents about
its ability
to provide managed healthcare services and the second applicant's
fitness to be the third respondent's administrator
(as the
respondents believed the entity administering the medical scheme to
be), cast a shadow over the management's fitness to
be entrusted with
services the nature of which differ little from those of trustees or
curators.
48.
Far from finding themselves in the position of applicants whose
appeal is virtually certain to succeed, the applicants are requesting
the court to allow them to continue to act as administrator under
circumstances that render the first respondent's performance
of this
function a criminal offence not only from the date of the dismissal
of the accreditation application, but from the moment
the first
applicant commenced its role as such.
49.
A court cannot be party to such practice.
50.
The applicants have therefore not made out a case for an interim
order that would entitle the first applicant to continue to
act as
administrator pending the appeal and a potential review, quite apart
from which it is not at all certain that the proposed
appeal will
succeed - on the contrary.
51.
It was argued strenuously on the applicants' behalf that the
rendering of the managed healthcare services stood on a different
footing as the first applicant had rendered these for about nine
years to the third respondent without any serious complaints or
difficulties.
52.
The respondents allege that the applicants have been proven to be
unreliable, at the very least, and that the first applicant
has not
made out a case that its review or appeal will succeed in respect of
the managed healthcare services, let alone that there
is a strong
prospect thereof.
53.
Bearing in mind that there is, if not an identity of management
providing both the services, then at least a strong affinity
of
management while the directors and shareholders controlling the first
applicant are obviously the same in respect of both services,
this
argument is compelling. If there is serious doubt about the
administrator there can be little sanguinity about the same entity
providing another service to a medical scheme.
54.
The application must therefore be dismissed in its entirety.
55.
This finding renders it unnecessary to analyze the detailed
complaints raised by the respondents against the applicants'
management,
bookkeeping, banking practices and administrative lapses.
Suffice to say that there has been an ongoing debate between the
parties
about complaints raised by the respondents for several years,
leading to the accommodation of the granting of the temporary
accreditation
referred to above, until the substantive applications
were eventually refused. The mere existence of these complaints is
enough
to create a sense of unease regarding the applicants' business
practices - but no final finding need be in respect of these points
individually.
56.
The applicants also argued that the respondents had created the
impression by granting the temporary accreditation that full
accreditation would follow as a matter of course and that the
respondents were therefore estopped from relying on the existing
complaints and unlawful actions once the temporary accreditation was
conferred upon the applicants.
57.
The respondents cannot waive compliance with the demands of the
statute and the regulations promulgated thereunder and can therefore
not be estopped from applying the full measure of the law to the
applicants' failure to comply with the required standard and
practices.
58.
The parties were agreed that, should the application fail, the
applicants and the third respondent should be granted a period
of
three months to transfer the functions of administrator and managed
health care provider to another entity or to the third respondent
itself.
59.
The following order is made:
1.
The application is dismissed with costs, including the costs of two
counsel;
2.
The applicants and the third respondent are granted a period of three
months from date of judgment to transfer the functions
of an
administrator and a managed health care provider to another provider
or providers of these services, or to the third respondent
itself.
Signed
at Pretoria on this 1st day of September 2009.
Е
Bertelsmann.
Judge of the High Court