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[2005] ZACC 25
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Minister of Health and Another v New Clicks South Africa (Pty) Ltd and Others (CCT59/04A) [2005] ZACC 25; 2006 (8) BCLR 872 (CC) (30 September 2005)
CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case CCT
59/04
MINISTER OF
HEALTH First
Applicant
PROFESSOR D McINTYRE
NO Second
Applicant
versus
NEW CLICKS SOUTH
AFRICA (PTY)
LTD First
Respondent
PHARMACEUTICAL
SOCIETY OF SOUTH AFRICA Second
Respondent
UNITED SOUTH AFRICAN
PHARMACIES Third
Respondent
LA TANDT AND
ASSOCIATES (PTY)
LTD Fourth
Respondent
IRVINE AND MILLER
(PTY)
LTD Fifth
Respondent
MEDICROSS HEALTH
CARE HOLDINGS
LTD Sixth
Respondent
NETWORK HEALTH CARE
HOLDINGS LTD Seventh
Respondent
I M DAVIS NO 2
CC Eighth
Respondent
together with
TREATMENT ACTION
CAMPAIGN First
Amicus Curiae
INNOVATIVE MEDICINES
SOUTH AFRICA Second
Amicus Curiae
Heard on : 15-16
March 2005
Decided on : 30
September 2005
JUDGMENT
INDEX
Paragraph Number
JUDGMENT OF THE
COURT
1
In the High
Court
5
In the
SCA
7
In this
Court
9
The issues raised
and the conclusions
reached
13
Remedy
14
Costs
21
Order
22
JUDGMENT OF
CHASKALSON CJ
Introduction
23
The hearing of the
application
30
What the case is
about
32
Procedural
issues
38
Jurisdiction of the
SCA
41
Separation of the
issues
52
Section 20(4) of the
Supreme Court
Act
59
Constructive refusal
of an application for leave to
appeal
68
Leave to appeal to
the
SCA
74
Leave to appeal to
the Constitutional
Court
83
The approach of the
High Court to the application for
review
85
The approach of the
SCA
91
The Constitution and
PAJA
92
Can the application
be decided without reference to
PAJA?
98
Is PAJA
applicable?
100
The meaning of
administrative action in section 33 of the
Constitution
101
The impact of the
Constitution
107
Open and transparent
government
110
The meaning of
administrative action in section 33(1) of the
Constitution
114
Is regulation-making
subject to
PAJA?
120
The
exclusions
122
Does the making of
regulations constitute a
“decision”?
127
The Minister and the
Pricing
Committee
136
Review under
PAJA
143
Procedural
fairness
147
Reasonableness
186
Lawfulness
189
The pricing
system
190
Price
control
193
Legislative
history
199
Controlling the
price of
medicines
208
Single exit price:
section 22G of the Medicines
Act
211
Wholesalers and
distributors
215
The regulation of
participants in the making and distribution of
medicines and
Scheduled substances
218
Remuneration of
wholesalers and
distributors
223
The regulations
dealing with the pricing
system
233
The supply
chain
237
Vagueness
246
The
SEP
247
Manufacturers,
wholesalers, distributors, and
importers
249
Foreign
manufacturers
252
The inclusion of the
logistics fee in the
SEP
258
The calculation of
the
SEP
262
The maximum price
for the first
SEP
264
Medicines sold for
the first time after January
2004
274
International
benchmarking
278
Increases in the
SEP
282
Exceptional
circumstances
293
Publication of the
SEP
295
The logistics
fee
297
Transparency and
publication of the logistics
fee
301
Is there certainty
as to the
SEP?
305
Appropriate
dispensing fee for pharmacists: regulations 10 and
11
311
The introduction of
a professional dispensing
fee
319
Different types of
pharmacies
322
Community
pharmacies
323
The back shop and
the front
shop
326
Revenue from
compounding
328
Calculating the
profitability of the
dispensary
342
Mr Jordaan’s
evidence
344
Dr Stillman’s
report
359
Courier
pharmacies
365
Medical
centres
367
Hospitals
368
Changing
conditions
386
Evaluation of the
evidence
389
Appropriate
dispensing fee for doctors and other health
professionals:
regulation
12
405
Schedule 0
medicines
406
Regulation
14(5)
407
Regulations 21(a)
and
(c)
411
The
Director-General’s power to declare that the SEP is
unreasonable:
regulations 22 and
23
416
Conclusion
420
JUDGMENT OF NGCOBO J
Introduction
421
Is it necessary to
decide the question of the applicability of
PAJA?
426
The nature of the
process involved in making regulations under
section
22G(2)
439
Does PAJA apply to
section
22G(2)
443
Administrative
action in the
Constitution
446
Does PAJA exclude
from its ambit the powers conferred by
section
22G(2)
452
Procedural
fairness
482
The
Regulations
487
Regulation
5(2)(c)
487
Regulation
8(3)
492
The remaining
regulations
499
The appropriate
dispensing
fee
501
The
challenge
505
The findings of the
SCA
509
Issues
presented
510
The purpose of
section
22G(2)(b)
514
The meaning of
“appropriate dispensing
fee”
518
Was the Pricing
Committee bound to consider the viability of
pharmacies?
525
The nature and scope
of the obligation to consider relevant
factors
530
The viability of the
dispensing fees for
pharmacies
544
Rural
pharmacies
555
Courier
pharmacies
561
Compounding of
medicines
564
Ignoring oral
representations
567
Conclusion
575
JUDGMENT OF SACHS
J
579
The applicability of
PAJA
580
Applicability of the
principle of legality in an open and
democratic
society
611
Constitutional
control of subordinate law-making: the procedural
dimension
617
Constitutional
control of subordinate law-making: the substantive
dimension
631
Application to the
facts of this
case
641
The fixing of the
dispensing
fee
646
JUDGMENT OF MOSENEKE
J
667
Introduction
667
Appropriate
dispensing
fee
679
Grounds of attack
against the validity of the dispensing
fee
686
Main submissions of
PSSA
693
Submissions of the
Minister and the Pricing
Committee
697
SCA on dispensing
fee
699
Constitutional and
legislative
background
704
What is an
appropriate dispensing
fee?
712
Is the determination
of an appropriate fee reviewable by the
courts?
715
Will the dispensing
fee cause the demise of
pharmacies?
726
Expert evidence of
Dr
Theron
739
The evidence of Mr
Jordaan
753
The expert testimony
of Dr
Stillman
765
Courier
pharmacies
767
Retail or community
pharmacies
773
Pharmacies in rural
areas
779
Hospital
pharmacies
782
Conclusions
783
Remedy
790
JUDGMENT OF YACOOB
J
792
Perspectives on
section
22G
795
Regulation
5(2)(c)
801
The provisos to
regulation 5(2)(c): medicines sold for the first time after 1 January
2004 814
Regulation 8 is not
vague
822
Regulations 22 and
23 comply with the
Constitution
836
JUDGMENT OF LANGA
DCJ
842
JUDGMENT OF O’REGAN
J
846
JUDGMENT OF VAN DER
WESTHUIZEN
J
850
THE COURT:
[1] The Medicines
Act was first enacted in 1965.
[1]
It has been amended on no less than fifteen different occasions since
then. From 1965 until 1997 the main focus of
the Act was
quality control.
[2]
In 1997 measures were introduced into the legislation directed
towards making medicines more affordable.
[3]
This, to give effect to the state’s constitutional obligation
to provide everyone with access to health care services.
[4]
[2] The newly
introduced measures, especially those contained in sections15 A –
C, sections 18A – C and sections 22B
– H, do not fit
comfortably into an Act designed to serve other purposes. They
pose new problems for those who have
to implement them, for those who
are directly affected by them as well as for those who have to
adjudicate them. The grafted
sections make provision for
controls to be introduced in respect of the production, importation,
distribution and sales of medicines,
[5]
the relaxation of certain patent restrictions, the promotion where
possible of generic substitution of medicines, and the establishment
of a Pricing Committee to make recommendations for the introduction
of a pricing system for all medicines sold in the Republic.
[3] The new measures
provoked strong opposition from within the pharmaceutical industry,
including litigation challenging the validity
of certain of the
provisions of the amending legislation. The 1997 Act was meant
to be brought into force by proclamation.
However, from 1997
until 2002 the amending legislation remained dormant.
[6]
In 2002 the dormant provisions were amended by the
Medicines and
Related Substances Amendment Act, 59 of 2002
, and the sections as
amended were brought into force on 2 May 2003.
[7]
[4] The present
litigation arises out of regulations made to give effect to the
pricing system for the sale of medicines by the
Minister of Health
(the Minister) on the recommendation of the Pricing Committee.
The validity of these regulations has been
challenged, and the
challenges have been the subject of contrary decisions in the Cape
High Court (the High Court) and the Supreme
Court of Appeal (SCA).
The proceedings aroused extensive public interest and a great deal of
emotion.
In the High Court
[5] In May 2004 two
applications challenging the regulations on various grounds were
instituted in the High Court by, in the one
case, New Clicks and, in
the other, the Pharmaceutical Society of South Africa (PSSA) and
others (for ease, the applicants in both
cases are referred to as
“the Pharmacies”). The challenges included an
attack on the functioning of the Pricing
Committee, the procedures
used by the Pricing Committee and the substance of the regulations
promulgated by the Minister on the
Pricing Committee’s
recommendation. The Pricing Committee chose to abide the
decision of the High Court.
[6] The matters were
consolidated and heard by a full bench of three judges. Judgment was
handed down on 27 August 2004. A
majority dismissed the
challenges to the regulations while a minority judgment held that the
regulations should be set aside on
various grounds.
[8]
The applicants sought leave to appeal against the order of the
High Court, and the application for leave to appeal was by
agreement
heard in the High Court on 20 September 2004. Judgment was
reserved.
In the SCA
[7] There was a
delay in delivering judgment on the application for leave to appeal,
and the Pharmacies decided to approach the
SCA directly for leave to
appeal. On 10 and 11 November 2004 they lodged applications in
the SCA for leave to appeal.
The SCA set the matter down for
argument on 30 November and 1 December. Counsel for the
Minister contended that the SCA did
not have jurisdiction to hear the
appeal, as no decision had yet been given on the Pharmacies’
application for leave to appeal,
and asked for argument on the issue
of jurisdiction to be separated from argument on the other issues
raised in the application.
The SCA, however, directed that both
the question of jurisdiction and that of the merits be dealt with at
a single hearing.
At the hearing counsel for the Minister
persisted in the position that only the question of jurisdiction be
entertained at that
stage. When the hearing went ahead on both
aspects, counsel for the Minister declined to present any argument on
the merits.
[8] On 3 December,
after the hearing but before the SCA had given its judgment, the High
Court delivered a judgment in which it
ordered by a majority that
leave to appeal be refused.
[9]
On 20 December the SCA handed down a unanimous judgment holding that
it had jurisdiction to hear the matter, granting leave
to appeal and
holding the regulations to be invalid.
[10]
The Minister and the Pricing Committee then applied for leave to
appeal to this Court against the decision of the SCA.
They
later made a separate application to this Court for a declaration to
the effect that the lodging of the application for leave
to appeal
automatically suspended the order of the SCA. A separate
judgment refusing that application is to be handed down
at the same
time as this judgment. The applications were heard together in this
Court on 15 and 16 March.
[11]
In this Court
[9] The application
for leave to appeal to this Court was brought on behalf of the
Minister and the Pricing Committee. The
Pharmacies contended
that the Pricing Committee, having elected to abide the judgment of
the High Court, was not entitled to appeal
against the decision of
the SCA. This Court will not ordinarily grant leave to a party
who has abided the decision of the
lower court to appeal to this
Court against the decision given by that court. There may be
special circumstances where that
would be permissible. This is
not an issue, however, that needs be decided in this judgment.
The application for leave
to appeal to this Court is against the
order made by the SCA. It appears from the record of the
proceedings in the SCA that
the Pricing Committee lodged an affidavit
opposing the application for leave to appeal to that court. The
SCA judgment refers
to the argument being addressed to them, and the
appeal being opposed by, “the respondents”. There
is nothing,
however, to indicate whether objection was taken to the
standing of the Pricing Committee to oppose the application or
whether
this issue was considered by the SCA.
[10] In this Court
the Minister and the Pricing Committee were both represented by the
same attorneys and counsel and relied on
the same record, the same
application and the same arguments. Nothing turns on whether
the arguments must be dealt with as
having been addressed to us on
behalf of them both, or on behalf of the Minister alone. In
particular, there is no prejudice
to the Pharmacies in so doing.
In the circumstances, and since it appears that the Pricing Committee
opposed the application
for leave to appeal to the SCA and was party
to those proceedings, we have decided that it should be allowed
standing to participate
in the appeal to this Court as well.
[11] The Minister
and the Pricing Committee argued that the SCA had not had
jurisdiction to hear the appeal on the merits and that
the appeal
should succeed on that ground alone. They contended further
that the Minister had complied with the terms of the
Medicines Act
when making the regulations.
[12]
The Pharmacies argued that the SCA had been entitled to hear the
appeal and that both in terms of the process followed and
in regard
to their substance, the regulations had failed to comply with the
requirements of the Medicines Act. More particularly,
they
claimed that the fee the pharmacists were allowed to charge was not
“appropriate” as required by the Medicines
Act.
[12]
Although the Court was aware of the need to bring to an end
the uncertainty that reigned in the pharmacy sector, it was obliged
to give full and appropriate consideration to the many questions
raised. On most matters the Court is unanimous. On
certain issues, including the question whether the dispensing fee to
be charged by the pharmacists is appropriate, members of the
Court
adopt different positions. There are five separate judgments
dealing with the merits, and three short judgments indicating
concurrences. Taken together the judgments deal with a
wide-ranging number of complex legal and factual issues. The
summary that follows reflects the key issues raised, the positions
taken by each member of the Court on those issues and the order
made
by the Court.
The issues raised
and the conclusions reached
[13] A list of the
principal issues and conclusions follows:
1.
Did the SCA have jurisdiction to hear the appeal by the
pharmacies?
The Court holds unanimously that it did.
[13]
2.
Was the SCA entitled to hear argument on the merits of the
appeal and to deliver a judgment on the merits in the absence of any
argument on the merits by the Minister?
The Court holds
unanimously that it was.
[14]
3.
Despite the decision not to argue the merits of the case before
the SCA, are the Minister and the Pricing Committee entitled to
appeal to this Court?
The Court holds unanimously that,
given the circumstances of this case, they are.
[15]
4.
Does the Promotion of Administrative Justice Act, 3 of 2000
(PAJA) apply to the recommendations of the Pricing Committee and the
subsequent making of regulations by the Minister?
Five
members of the Court hold that PAJA is applicable.
[16]
One member of the Court holds that PAJA is applicable to the fixing
of the dispensing fee only;
[17]
and five other members of the Court hold that it is not necessary to
decide whether PAJA is applicable, since on the assumption
in favour
of the Pharmacies that it is, they find the procedure followed to
have been fair.
[18]
5.
Did the fact that not all members of the Pricing Committee were
present at all its meetings, including the oral representations by
interested parties in April 2004, render the proceedings of the
Pricing Committee unfair or unlawful?
The Court unanimously
holds that it did not.
6.
Does the Medicines Act permit the regulations to provide for
price control in the manner in which they have?
The Court
unanimously holds that it does.
[19]
7.
Do regulations 10 and 11 fix an “appropriate”
dispensing fee as contemplated by the Medicines Act?
Six
members of the Court hold that they do not.
[20]
The five remaining members of the Court hold that the dispensing fees
set are in the main “appropriate”.
However they
also hold that the dispensing fees are not appropriate in so far as
rural and courier pharmacies are concerned.
[21]
8. The Court holds unanimously that the challenge to the regulations
overall must fail and that the SCA was accordingly wrong in
setting
aside the regulations as a whole. However, it considered a wide
range of challenges to individual regulations.
The most
important conclusions on these challenges are the following:
(a)
The Court unanimously holds that regulation 5(1) is invalid in that
it omits the words “and VAT” and that the invalidity
can
be cured by reading the words “and VAT” into the
regulation after “logistics fee”.
[22]
(b)
By a majority,
[23]
the Court holds that regulation 5(2)(c) is not void for vagueness but
that the words “single exit” must be severed
from
Appendix A of the regulations wherever they appear.
[24]
(c)
The Court unanimously holds regulation 5(2)(e) to be invalid on the
ground that it constitutes an improper delegation to the
Director-General of the powers of the Pricing Committee and the
Minister. The Court holds unanimously that this can be cured
by
severing the words “Director-General” from the relevant
regulation, and reading into the regulation in their place,
the words
“Minister on the recommendation of the Pricing Committee”.
[25]
(d)
The Court unanimously holds that regulation 5(2)(g) dealing with the
determination of a maximum logistics fee is invalid because
it
permits the Minister to make such determination without reference to
the Pricing Committee. This is an improper delegation.
The Court unanimously holds that it can be cured by reading in after
the word “Minister” the words “on the
recommendation
of the Pricing Committee”.
[26]
(e)
The Court unanimously holds that regulation 8(1) is invalid because
it provides that the Minister may make annual determinations
of price
increases “after consultation” with the Pricing
Committee. This is an improper delegation. The
Court
unanimously holds that the invalidity can be cured by severing the
words “after consultation with” and replacing
them with
the words “on the recommendation of”.
[27]
(f)
By a majority,
[28]
the court holds that regulation 8(3), which deals with increases of
the single exit price during the year, is not void for vagueness.
[29]
(g)
The Court holds unanimously that the failure of the regulations to
make any provision for the publication of the logistics fee
is
inconsistent with the requirement of transparency in the Medicines
Act. The Court holds that this omission can be cured
by reading
in the words “and in the case of the information referred to in
regulation 21(2)(d) must” before the words
“publish or
otherwise communicate, or require” in regulation 21.
[30]
(h)
The Court unanimously holds that regulation 13 dealing with the
appropriate fee for the sale of Schedule 0 medicines is invalid.
[31]
(i)
By a majority,
[32]
the court dismisses the objection to regulations 22 and 23, which
confer a power on the Director-General to determine whether a
specific single exit price is reasonable.
[33]
Remedy
[14] It will be seen
from the above summary that the Court has unanimously accepted the
validity of a single exit price being established
for medicines sold
in South Africa, and the validity of the regulatory structure put in
place for its realisation by the Minister
on the recommendation of
the Pricing Committee. Although the regulatory scheme as a
whole passes muster, there are a number
of detailed provisions that
fall short of the requirements of the Medicines Act. In most
cases the Court has decided that
the defects in the regulations can
be cured by severance of certain words and/or reading in other
words. In other cases the
defects relate to relatively
unimportant aspects of the scheme, which could continue to function
while the defects are being corrected.
Special attention,
however, needs to be given to the invalidation of regulations 10 and
11 on the ground that the dispensing fee
arrived at is not
appropriate.
[15] It is necessary
to consider whether because of the defects in regulations 10 and 11
the entire scheme fails, or whether the
remainder of the regulations
can stand without a dispensing fee for pharmacists. Whilst
recognising that severability in
constitutional cases may often
require special treatment, this Court has applied
[34]
the conventional test for severance laid down in
Johannesburg City
Council v Chesterfield House (Pty) Ltd
[35]
“where it is possible to separate the good from the bad in a
Statute and the good is not dependent on the bad, then that
part of
the Statute which is good must be given effect to, provided that what
remains carries out the main object of the Statute.”
[16] Bearing in mind
the important constitutional purpose served by the pricing system, we
are satisfied that the correct remedy
in the present case is to
preserve as much of the scheme as is possible, as long as this can be
done in a manner that serves the
main object of section 22G of the
Medicines Act. The main object of section 22G is to make medicines
more accessible and more affordable
by means of a transparent pricing
system. Regulations 10 and 11 deal with the dispensing fee
which is an important part of
the pricing system, but what remains if
these regulations are declared to be invalid, will not be
inconsistent with the main object
of the legislation. What remains
will be a system which makes provision for a single exit price for
each medicine and Scheduled
substance, which must be the only price
at which manufacturers may sell that medicine. Wholesalers,
distributors and retailers
may not sell medicine at a price higher
than the single exit price. Wholesalers and distributors may charge
only an agreed logistics
fee subject to the controls imposed by the
regulations. That is a coherent system, consistent with the
Medicines Act, that
gives effect to the main object of section 22G.
[17] There is great
public interest in achieving finality in this important matter.
This Court overturns the SCA’s conclusion
that the regulatory
scheme as a whole is invalid. However, it holds that certain
individual regulations are invalid.
Considerable work has
already been done by the Pricing Committee, and it would not be in
the public interest for the Pricing Committee
to have to start its
determination of the dispensing fee or the other invalid regulations
from the beginning again. In terms
of section 8(1) of PAJA, a
court or tribunal in judicial review proceedings may grant any order
that is just and equitable, including
orders setting aside the
administrative action and remitting the matter for reconsideration by
the administrator with or without
directions.
[36]
In the circumstances of this case, the proper course is to remit the
matter to the Pricing Committee and the Minister for
reconsideration
in the light of this judgment.
[18] The Pricing
Committee as a whole must take appropriate account of the oral
representations already made to it. It will
be able to
determine its own procedure for hearing further representations by
any interested parties, who should be given a reasonable
opportunity
to update or add to information already given to the Pricing
Committee. In this regard, it should be emphasised
that the
regulations seek to introduce a new scheme with the purpose of
enhancing access to affordable medicines, a goal to which
all the
parties to this dispute subscribe and which is in the interest of all
consumers of medicines. For this goal to be
achieved, the
co-operation of all interested parties in both its establishment and
implementation is required. Interested
parties should therefore
provide any information required by the Pricing Committee or the
Minister as fully and timeously as possible.
[19] In its
reconsideration of the issue of the appropriate dispensing fee, the
Pricing Committee should look at new information
that has become
available in the intervening year since it made its
recommendation.
[37]
Because single exit prices have been set for most if not all
medicines during the last year, the process of establishing
the
viability of pharmacies on the basis of a particular dispensing fee
can now be undertaken on a more certain basis than during
the Pricing
Committee’s previous deliberations. Moreover, the conduct
of this litigation has made it plain that particular
attention needs
to be paid to the circumstances at least of rural and courier
pharmacies to ensure that the right of access to
health care is not
prejudiced by driving such pharmacies out of the market.
Section 172(1)(b) of the Constitution entitles
a court deciding a
constitutional matter to make any order that is just and equitable.
It would not be just and equitable
for pharmacists not to be entitled
to charge a dispensing fee in the interim before the appropriate fee
is determined by regulation.
Section 22G(3)(b) and (c) of the
Medicines Act must not be construed as precluding this, and we will
make an order to that effect.
There is no reason to believe
that pharmacists, who are members of an ethical profession, will seek
to exploit the situation by
charging excessive dispensing fees.
Should any pharmacist attempt to do so, that would constitute
misconduct in terms of
section 42
of the
Pharmacy Act, 53 of 1974
.
[20] One further
point needs to be made. The effect of this Court’s ruling
is that portions of the published regulations
no longer accurately
reflect the legally valid content of the regulations as the Court
orders that certain words be severed, and
in some cases, that other
words be read into the regulations. In our view, in order to
promote the transparency required
by the Act and the foundational
value of the rule of law, it is necessary to make an order requiring
the Minister to republish
the regulations as a whole so that they
reflect the correct legal position as set out in this Court’s
order. That publication
should take place soon and this should
be done within 60 days of the date of this judgment. If the
process of determining
the appropriate dispensing fee is not complete
by that date, the regulations will have to be published without
containing an appropriate
dispensing fee which will then have to be
published as soon as that process is complete. It need hardly
be said, however,
that given the great public interest in resolving
this matter, it would be desirable for that process to be complete
within 60
days and for the regulations to be republished then in
their entirety. It is for this reason that the period we have
set
is longer than we would otherwise have determined.
Costs
[21]
The appeal by the Minister and the Pricing Committee is upheld
in part and dismissed in part. The result is that the
Pharmacies
have succeeded in their challenge to the appropriateness
of the dispensing fee, a central feature of the dispute. On the
other hand the Minister and the Pricing Committee have succeeded in
overturning the declaration of invalidity in relation to the
regulations as a whole. They have therefore both been partially
successful in this Court. A further relevant fact in
considering the costs in this Court is that the Minister failed to
present either written or oral argument to the SCA which may
have
changed the course of the proceedings. In our view, it is
appropriate in the light of these considerations for the Minister
to
pay half the costs of the Pharmacies in this Court. As to the
proceedings before the SCA, it is our view that it is just
to reflect
disapproval of the Minister’s failure to present argument on
the merits in that court, to require the Minister
to bear the costs
of the Pharmacies in full in that court. The costs in the High
Court proceedings should follow the costs
in this Court and the
Minister should pay half the costs of the Pharmacies in the High
Court.
Order
[22] In the light of
all the separate judgments delivered in this matter, the following
order is made:
1. The applicants are granted leave to appeal.
2. The appeal is upheld in part.
3. The orders of the Supreme Court of Appeal and the Cape High Court
are set aside and replaced with the following order:
(a)
(i) The omission from regulation 5(1) of the Regulations
Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004 of
the words “and VAT” after the words “logistics
fee”
is declared to be inconsistent with the requirements of the
Medicines
and Related Substances Act, 101 of 1965
, as amended, and accordingly
with the Constitution.
(ii)
Regulation 5(1) of the Regulations Relating to a Transparent Pricing
System for Medicines and Scheduled Substances contained
in Government
Notice No R553 of 30 April 2004 is to be read as though the words
“and VAT” appear therein after the
words “logistics
fee”.
(b)
The words “single exit” contained in Appendix A to the
Regulations Relating to a Transparent Pricing System
for Medicines
and Scheduled Substances contained in Government Notice No R553 of 30
April 2004 are declared to be inconsistent
with the requirements of
the
Medicines and Related Substances Act, 101 of 1965
, as amended,
and accordingly with the Constitution and are to be severed wherever
they appear before the word “price”
in Appendix A.
(c)
(i) Regulation 5(2)(e) in the Regulations Relating to a
Transparent Pricing System for Medicines and Scheduled Substances
contained in Government Notice No R553 of 30 April 2004 is declared
to be inconsistent with the
Medicines and Related Substances Act, 101
of 1965
, as amended, and accordingly with the Constitution to the
extent that it refers to the “Director-General” and not
to
the “Minister on the recommendation of the Pricing
Committee”.
(ii)
It is declared that the words “Director-General” in
regulation 5(2)(e) of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances contained in
Government Notice No R553 of 30 April 2004 are to be severed
from the
regulations and the regulations are to be read as if the words
“Minister on the recommendation of the Pricing Committee”
appear wherever the words “Director-General” appeared.
(d)
(i) The omission from regulation 5(2)(g) in the Regulations
Relating to a Transparent Pricing System for Medicines
and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004 of
the words “on the recommendation of the
Pricing Committee”
is declared to be inconsistent with the
Medicines and Related
Substances Act, 101 of 19
65, as amended, and accordingly with the
Constitution.
(ii)
Regulation 5(2)(g) of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances contained
in
Government Notice No R553 of 30 April 2004 is to be read as if the
words “on the recommendation of the Pricing Committee”
appear after the words “the Minister”.
(e)
(i) Regulation 8(1) of the Regulations Relating to a
Transparent Pricing System for Medicines and Scheduled Substances
contained in Government Notice No R553 of 30 April 2004 is declared
to be inconsistent with the
Medicines and Related Substances Act, 101
of 1965
, as amended, and accordingly with the Constitution to the
extent that it contains the phrase “after consultation with”
and not the phrase “on the recommendation of”.
(ii)
It is declared that the words “after consultation with”
in regulation 8(1) of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances contained in
Government Notice No R553 of 30 April 2004 are to be severed
from the
regulations and the regulations are to be read as if the words “on
the recommendation of” appear where the
words “after
consultation with” appeared.
(f)
(i) Regulations 10 and 11 of the Regulations Relating to a
Transparent Pricing System for Medicines and Scheduled Substances
contained in Government Notice No R553 of 30 April 2004 are declared
to be inconsistent with the
Medicines and Related Substances Act, 101
of 1965
, as amended, and accordingly with the Constitution and
invalid.
(ii)
Regulations 10 and 11 of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances contained
in
Government Notice No R553 of 30 April 2004 are remitted to the
Pricing Committee and the Minister for reconsideration in the
light
of this judgment.
(iii)Until
the Minister makes regulations in terms of
section 22G(2)(b)
of the
Medicines and Related Substances Act, 101 of 1965
, as amended,
pharmacies may charge a dispensing fee.
(g)
(i)
Regulation 13
of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances contained in
Government Notice
No R553 of 30 April 2004 is declared to be
inconsistent with the
Medicines and Related Substances Act, 101 of
1965
, as amended, and accordingly with the Constitution and invalid.
(ii)
Regulation 13 of the Regulations Relating to a Transparent Pricing
System for Medicines and Scheduled Substances contained
in Government
Notice No R553 of 30 April 2004 are remitted to the Pricing Committee
and the Minister for reconsideration in the
light of this judgment.
(h)
(i) The omission from regulation 21 of the Regulations Relating
to a Transparent Pricing System for Medicines and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004 of
the words “and in the case of the information referred
to in
regulation 21(2)(d) must” before the words “publish or
otherwise communicate, or require” is declared to
be
inconsistent with the
Medicines and Related Substances Act, 101 of
1965
, as amended, and accordingly with the Constitution.
(ii)
Regulation 21 of the Regulations Relating to a Transparent Pricing
System for Medicines and Scheduled Substances contained
in Government
Notice No R553 of 30 April 2004 is to be read as though the words
“and in the case of the information referred
to in regulation
21(2)(d) must” appear before the words “publish or
otherwise communicate, or require”.
(i)
The Minister of Health is ordered to republish the Regulations
Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004
duly amended in compliance with this order within sixty days
of the
date of this judgment.
(j)
The Minister of Health is ordered to pay half the respondents’
costs incurred in the proceedings in this Court and the
High Court
including the costs of two counsel, as well as all the respondents’
costs in the Supreme Court of Appeal including
the costs of two
counsel.
Chaskalson CJ, Langa
DCJ, Madala, Mokgoro, Moseneke, Ngcobo, O’Regan, Sachs,
Skweyiya, Van der Westhuizen and Yacoob JJ.
CHASKALSON CJ
Introduction
[23] This is an
application for leave to appeal against a decision of the Supreme
Court of Appeal (SCA) holding that the regulations
introducing a
transparent pricing system for medicines and Scheduled substances
published by the Minister of Health
[38]
are invalid and of no force and effect.
[24] The regulations
were promulgated on 30 April 2004 by the Minister of Health,
purportedly in terms of section 22G of the Medicines
and Related
Substances Act, 101 of 1965 (the Medicines Act).
[39]
The operative provisions of the regulations were to come into force
at the beginning of June 2004. Towards the end
of May 2004 two
urgent applications were brought in the Cape High Court by parties
adversely affected by the regulations.
In the one, the
applicants were the Pharmaceutical Society of South Africa (PSSA),
which is a society representing a number of
companies owning and
operating different types of pharmacies, the United South African
Pharmacies, an association representing
approximately 60% of all
retail pharmacies, and five others, all companies conducting business
as operators of pharmacies.
I refer to this application as the
PSSA application and to the applicants as PSSA. In the other,
the applicant, New Clicks
South Africa (New Clicks), is the owner of
a chain of retail pharmacies. I refer to this as the New Clicks
application.
I refer to the applicants in both applications
jointly as “the Pharmacies”. In both applications
the Minister
of Health and the chairperson of the Pricing Committee
on whose recommendation the regulations were made were cited as
respondents.
The chairperson of the Pricing Committee did not
participate in the hearing. She filed an affidavit indicating
that the Pricing
Committee abided the decision of the court.
[40]
[25] Initially the
Pharmacies sought interim relief in the form of a suspension of the
regulations or some of them pending the determination
of an
application to be brought by them for an order declaring such
regulations to be unlawful and of no force and effect.
[26] Agreement was
reached between the parties that the operation of the regulations
would be suspended pending the determination
of the application to be
brought in the High Court. This was made an order of court in
the following terms:
“IT IS ORDERED:
1. That the applications for final relief are postponed for hearing
on 17 and 18 JUNE 2004.
2. That the Respondents shall file the record of the proceedings
before the Pricing Committee by close of business on 8 JUNE 2004,
and
such further answering affidavits as they require by close of
business on 9 JUNE 2004.
3. That the Applicants shall file their replying affidavits by close
of business on 14 JUNE 2004.
4. That the parties shall exchange their heads of argument by 15 JUNE
2004.
5. That pending determination of the applications by this court,
wholesalers, distributors and retailers shall not be obliged to
sell
medicines and scheduled substances or charge dispensing fees in
accordance with the regulations published in Government Notice
R553
of the Government Gazette of 30 April 2004.
6. That all issues of costs are reserved.”
[27] The sequence of
events after that was as follows. The application was heard in
the High Court on 17 and 18 June 2004
by a bench of three judges,
Hlophe JP, Traverso DJP and Yekiso J. Judgment was given on 27
August 2004. Yekiso J, with
whom Hlophe JP concurred, dismissed
the application. Traverso DJP dissented and would have made an
order setting aside the
regulations as being unlawful.
[28] I will deal
with these events and what followed in more detail later in the
judgment. It is sufficient now to say that
the Pharmacies
applied immediately to the High Court for leave to appeal to the
SCA. Judgment of the High Court on the application
for leave to
appeal was delayed. The Pharmacies then applied urgently to the
SCA for leave to appeal against the order of
the High Court.
The application was lodged with the SCA before the High Court had
given its judgment on the application for
leave to appeal. The
SCA set down the application for leave to appeal, and directed that
the merits be dealt with at the
same time. After argument, but
before the SCA had given judgment, the High Court delivered its
judgment and by a majority
refused leave to appeal. On 20
December 2004 the SCA delivered its judgment. A unanimous court
of five judges granted
the Pharmacies leave to appeal to it and
upheld the appeal. The regulations were declared to be invalid
and of no force and
effect.
[29] The Minister
and the chairperson of the Pricing Committee then applied to this
Court for leave to appeal against the judgment
and order of the SCA.
The application was set down for hearing during March 2005 and the
parties were directed to address
the merits of the appeal during
their arguments so that the matter could be disposed of without
hearing further arguments, should
leave to appeal be granted.
The hearing of
the application
[30] I pause to
comment on the circumstances in which argument was heard by this
Court. The disputed regulations form the
core of government
policy designed to reduce the costs of medicines. The Minister
contends that the regulations are sanctioned
by the Constitution and
the Medicines Act. The Pharmacies allege that the regulations
would destroy the pharmaceutical industry
and retard access to health
care.
[31] This seems to
have created the impression in some minds that the issues were
“political” and not “legal”,
and led to
comments in the media that the decision of the Court will be a test
of its independence, implying that if it finds against
the government
it will be independent, but not if it finds for it.
What the case is
about
[32] It is necessary
to put this case in its proper context and to say first what the case
is not about. This case is not
about the wisdom of government
policy. Government is entitled to adopt, as part of its policy
to provide access to health
care, measures designed to make medicines
more affordable than they presently are. That has not been
disputed by any of the
litigants nor by any of the courts that have
previously dealt with the matter.
[33] What courts are
concerned with, and what this case is about, is whether the
regulations have been made in accordance with the
requirements of the
Constitution and the law. The challenges to the validity of the
regulations, and the responses to the
various challenges, are based
on detailed legal submissions dealing with the Constitution and the
requirements of laws which make
provision for just administrative
action. There is nothing unusual about this. Our courts
have frequently been called
on to deal with similar questions in the
past and will no doubt be called upon to do so in the future.
This is the role of
courts in a democracy.
[34] The question
then is: were the regulations made in accordance with the
Constitution and the law? This was what the High
Court had to
decide when the proceedings commenced before it. Broadly
speaking there were four matters that had to be addressed
in order to
answer this question.
(a) Are the regulations subject to review under the provisions of the
Promotion of Administrative Justice Act, 3 of 2000 (PAJA)?
If
not, are they subject to review under the Constitution or the common
law? If they are subject to review:
(b) Did the Pricing Committee, on whose recommendation the
regulations were made, conduct its affairs properly?
(c) Are the regulations consistent with the Medicines Act?
(d) Are the regulations too vague to be enforced?
[35] The majority in
the High Court held that the regulations were not subject to review
under PAJA but were subject to review under
the Constitution and the
common law. They conducted the review under the Constitution
and dismissed the application.
[36] When the matter
reached the SCA there was an additional question. Did the SCA
have jurisdiction to entertain the application
before the High Court
had given judgment on the application for leave to appeal? The
SCA directed that this issue be addressed
in argument to it, and that
the merits of the dispute concerning the validity of the regulations
be addressed as well. The
SCA heard argument on these issues
before the High Court had delivered its judgment. Shortly
afterwards, the High Court delivered
its judgment in which, by a
majority, it refused the application for leave to appeal.
Subsequently the SCA gave its judgment.
A unanimous court of
five judges held that leave to appeal should be granted and that the
appeal should be upheld.
[37] In its judgment
on the merits the SCA held that the regulations went beyond what was
permitted by section 22G of the Medicines
Act and were accordingly
invalid. It found it unnecessary in the circumstances to decide
whether PAJA was applicable.
Procedural issues
[38] In the
application for leave to appeal to this Court, the Minister and the
Pricing Committee dispute that the SCA had jurisdiction
to entertain
the application when it did, and to make the order declaring the
regulations to be invalid. They contend that
the SCA’s
judgment is accordingly void. The Pharmacies have raised
certain procedural points relating to the application
for leave to
appeal. Before the SCA, counsel for the Minister and the
Pricing Committee refused to address the court on the
merits, arguing
that the question of the SCA’s jurisdiction ought to be argued
separately. The Pharmacies argue that
the Minister should not
be permitted to reopen the debate on the merits in this Court having
refused to address the SCA on the
merits. An additional
procedural point taken by the Pharmacies relates to supplementary
written submissions filed by the
Minister shortly before the
hearing. The Pharmacies argued at the hearing that those
submissions were not lodged timeously
and were therefore
inadmissible. At the hearing we ruled that reference could be
made to the arguments raised in the additional
heads.
[39] The question
whether the regulations are invalid is a constitutional matter.
The other issues raised are all issues connected
with the decision on
a constitutional matter and are within the jurisdiction of this
Court.
[41]
[40] It is
convenient to begin by addressing the challenge to the SCA’s
jurisdiction and the other procedural points that
have been raised.
The jurisdiction
of the Supreme Court of Appeal
[41] The judgment of
the High Court was delivered on 27 August 2004. The Pharmacies
applied immediately to the High Court
for leave to appeal to the SCA
against the order that had been made. As was the case with the
applications on the merits,
the applications for leave to appeal were
brought on an urgent basis. The applications were heard on 20
September 2004 before
the same full bench of the Cape High Court and
judgment was reserved.
[42] Earlier, on 2
September 2004, the attorney for New Clicks had written to the
registrar of the SCA asking her to approach the
Deputy President of
that Court with a view to having the matter enrolled during the
November term, in the event of leave to appeal
being granted.
The registrar responded on behalf of the Deputy President as follows:
“Subject to cases and other commitments that have already to be
accommodated during the November term and others that may
yet arise,
and subject to the present matter becoming timeously justiciable by
this Court, and subject also to the length of the
record, bearing in
mind that November is a short term, consideration is being given to
making court time in November available
for it.”
[43] The State
Attorney objected to the approach taken by the attorneys for New
Clicks. She wrote to the registrar voicing
that objection,
saying that there could be little doubt that the matter involved only
constitutional issues, and would be likely
to finish in the
Constitutional Court. She contended that if the matter was
indeed urgent, an appeal to the SCA would delay
the outcome.
The respondents had been asked to agree that if any appeal be brought
the appeal should be directly to the Constitutional
Court, but had
refused to do so. In the circumstances they could not contend
that the matter was urgent.
[44] On 16 September
2004 the State Attorney wrote to the Registrar of the Constitutional
Court enquiring whether this Court would
be able to hear an appeal in
November or during the first term of 2005, if leave to appeal
directly to it were granted. The
response was to the effect
that if proper arrangements were made in September, the matter could
be heard during the November term.
[45] On 22 September
2004 the registrar of the SCA responded to the letter from the State
Attorney as follows:
“Your objection to the request is noted, but it is thought that
where a party has been granted leave to appeal to this Court
and
thereafter approaches this Court for an accelerated hearing on good
grounds (urgency being the obvious) nothing prevents this
Court from
considering such a request. Agreement between the parties is
obviously preferable, but each case will depend on
the circumstances
prevailing at that particular time. A party can certainly not
expect a definite ‘yes’ when
leave has as yet not been
granted and informing the applicants in this case that their request
will be considered did not necessarily
mean that the appeal will be
heard during the November term. It will depend on the
circumstances as just mentioned.
If the matter does appear to
be urgent, however, it is the duty of this Court to give
consideration to a request to accelerate
the hearing of it. The
fact that there may be constitutional issues involved in an appeal
does not affect that position.”
[46] By 22 October
2004 judgment on the application to the High Court for leave to
appeal had not yet been delivered. On that
day attorneys for
PSSA wrote to the registrar of the High Court referring to the
application that had been made, and the urgency
of the matter, and
said that in the circumstances
“it would be appreciated if you could establish whether His
Lordship the Judge President – who indicated on reserving
the
ruling five weeks ago that he would be writing it for the Court –
would indicate when the ruling (even if reasons are
to follow) may be
expected.”
There was no
response to this letter.
[47] On 10 November
2004, a decision on the application for leave to appeal had still not
been given. The Pharmacies then
applied to the SCA as a matter
of urgency for leave to appeal to be granted against the whole of the
judgment and order made by
the majority of the High Court. In
their application they alleged that the matter was urgent and that
there was a need for
clarity to be obtained as to the lawfulness of
the regulations, contending that the applicants and other industry
participants
and the public were being adversely affected on a
continuing basis by the lack of finality regarding the validity of
the regulations.
[48] They submitted
that a failure to grant leave to appeal for so long a time in the
“urgent circumstances” that existed
had the effect of a
refusal to grant the leave sought. They mentioned that a record
of the proceedings in the High Court
had been prepared and could be
lodged immediately if required. They attached to the
application for leave to appeal heads
of argument, a practice note
and a list of authorities, saying that the heads of argument and list
of authorities had been tendered
two weeks previously to the State
Attorney who had refused to accept them.
[49] On 12 November
2004, the attorneys for the parties met the Judge President of the
High Court to enable the attorneys for the
Pharmacies, as a matter of
courtesy, to inform him of the steps that had been taken. An
attempt to arrange an earlier meeting
before the application to the
SCA was launched had not been successful. The Judge President
informed the attorneys that he
was working on the second draft of the
judgment dealing with the application for leave to appeal, and after
enquiring whether it
was still necessary to do so, went on to say
that he would in fact complete and deliver the judgment.
[50] It is not
necessary to deal in any detail with what took place after that.
Harms JA, who had been assigned by the Deputy
President of the SCA to
preside in the application for leave to appeal, asked to see counsel
to discuss the matter with them and
a meeting was arranged for that
purpose. At that meeting, which was held on 17 November,
counsel for the Minister and the
Pricing Committee made it clear that
they objected to the procedure that had been followed, and would
contend that the SCA had
no jurisdiction to deal with the matter as
an order had not yet been made on the application for leave to
appeal.
[51] On 18 November
the SCA issued a direction in the following terms:
“1. The hearing of the applications is consolidated.
2. The applications for leave to appeal are referred for oral
argument in terms of s 21(3)(c)(ii) of the Supreme Court Act on 30
November and 1 December 2004.
3. The parties must be prepared, if called upon to do so, to address
the court on the merits in terms of s 21(3)(c)(ii) of the
Act.
4. The respondents may file any affidavits required and heads of
argument if and when convenient.”
Separation
of the issues
[52] On 22 November the State Attorney wrote to the registrar of the
SCA acknowledging the directions. She mentioned that
at the
meeting with Harms JA counsel representing the Minister had placed on
record that they were not briefed to deal with the
appeal itself, but
only with the question of jurisdiction. She asked that the
directions be amended to limit the hearing
on 30 November to the
issue of jurisdiction. She said that the applicants would be
able to file written submissions on that
issue before 30 November.
The registrar of the SCA responded on behalf of the Deputy President
of the Court as follows:
“It must be remembered that what is before this court is an
application for leave to appeal which the court is bound to
consider. It is not unusual for this court, when dealing with
an application for leave to appeal (petition) in which it considers
that argument should be presented to it, to direct that parties be
prepared to argue the merits should they be required to do so.
Obviously the question of jurisdiction will be considered as it is an
integral part of the application for leave to appeal.
It is, I
should think, open to a party or parties to apply to the court at the
hearing that the hearing of a particular issue be
postponed until
another issue has been decided.
The entire record has been lodged with the Registrar of this court
precisely because no agreement could be reached, between the
parties,
on what parts of the record should be omitted.
The Acting President is accordingly unable to amend or have amended
the direction as requested in the last paragraph of your letter.”
[53] It was against
this background that the application for leave to appeal was heard by
the SCA on 30 November and 1 December.
The Minister and the
Pricing Committee were represented at that hearing by counsel, who
indicated to the court that they had been
briefed on the issue of
jurisdiction only. They contended that the SCA did not have
jurisdiction to hear the appeal, as no
decision had yet been given on
the Pharmacies’ application for leave to appeal, and asked for
argument on the issue of jurisdiction
to be separated from argument
on the other issues raised in the application. They contended
that they had a right to a ruling
on the preliminary issue and a
right to appeal against an unfavourable ruling. The SCA
declined to order that the issue of
jurisdiction be separated from
the other issues and required the parties to address it on all the
issues including the merits of
the appeal. The Minister and the
Pricing Committee contend that this ruling was wrong and raise this
as one of the grounds
of appeal.
[54] In its judgment the SCA explained its ruling. It referred
to its decision in
S v Malinde and Others
[42]
where a separation of issues had been granted at the request of an
appellant. Quoting from the judgment in that case it reaffirmed
its approach to the separation of issues, holding that it applied
both to appeals and applications:
“This Court is in principle strongly opposed to the hearing of
appeals in piecemeal fashion. . . . An exception may be made,
however, where unusual circumstances call for such procedure . . . .
. . . .
Substantial grounds should exist for the exercise of the power.
The basis of the jurisdiction is convenience – the
convenience
not only of the parties but also of the Court. The advantages
and disadvantages likely to follow upon the granting
of an order must
be weighed. If overall, and with due regard to the divergent
interests and considerations of convenience
affecting the parties, it
appears that the advantages would outweigh the disadvantages, the
Court would normally grant the application.”
[43]
[55] The SCA held
that the present matter was urgent, that it raised issues of national
importance and that it was imperative that
the litigation be brought
to an early conclusion. The request for the issue of
jurisdiction to be separated from the merits
would have added to the
delay, and the reasons given for the request did not meet the
requirements laid down in
S v Malinde
.
[56] The SCA had
taken the view that it was necessary to have regard to the merits in
order to decide the application for leave
to appeal and, that being
so, it was appropriate to require the parties to address argument on
the merits so that judgment could
be given without hearing further
argument should leave to appeal be granted. This is a common
practice in the SCA and in
this Court as well. Its purpose is
to avoid unnecessary delays and costs as well as to conserve court
time. Indeed,
a direction to that effect was given by this
Court in the present matter and without any objection having been
made to this procedure,
argument was addressed to us by the parties
on the merits of the case, to enable us to dispose of the matter
should leave to appeal
be granted.
[57] The application
to the SCA had been set down on short notice. The merits were
complex and raised difficult legal issues.
They had, however,
been the subject of argument in the High Court by the same counsel
some four months previously. It appears
from the SCA judgment
that counsel for the Minister declined the court’s request to
address it on the merits. The SCA
was conscious of the
potential prejudice to the Minister by requiring argument from
counsel who might not have been properly prepared
to do so.
However, counsel for the Minister who had been briefed on the issue
of jurisdiction only, declined an invitation
from the court to
request a postponement to a date convenient to them to prepare for
argument on the merits. They also declined
a request from the court
to furnish it with a copy of their heads of argument in the High
Court.
[58] The SCA is entitled to regulate its own procedure and I cannot
say that the directions given by it as to how the matter should
be
dealt with were wrong.
[44]
The contention that the SCA erred in refusing to separate the issue
of jurisdiction from the application for leave to appeal,
and in
requiring the matter to be dealt with in accordance with the
directions given on 18 November 2004, must therefore be rejected.
Section 20(4) of
the Supreme Court Act
[59] I deal now with the contention that the decision of the SCA was
a nullity, and for that reason alone should be set aside by
this
Court. This contention is based on the provisions of section
20(4) of the Supreme Court Act, 59 of 1959, which the applicants
contend are mandatory and were not complied with.
[60] Section 20(4)
provides:
“(4) No appeal shall lie against a judgment or order of the
court of a provincial or local division in any civil proceedings
or
against any judgment or order of that court given on appeal to it
except—
(a)
in the case of a judgment or order given in any civil proceedings by
the full court of such a division on appeal to it in terms
of
subsection (3), with the special leave of the appellate division;
(b)
in any other case, with the leave of the court against whose judgment
or order the appeal is to be made or, where such leave
has been
refused, with the leave of the appellate division.”
This section of the
Supreme Court Act must now be read as referring to a High Court in
place of a Provincial or Local Division,
and to the Supreme Court of
Appeal, in place of the Appellate Division.
[61] There is a line
of cases in the Appellate Division going back to
Blaauwbosch
Diamonds Ltd v Union Government (Minister of Finance)
,
[45]
where matters had come before the court in circumstances where the
necessary leave to appeal had not been obtained from the Provincial
Division before approaching the Appellate Division.
[46]
In those cases the Appellate Division heard argument and deferred
giving judgment on the merits until the statutory requirements
had
been complied with. The facts in those cases were different to
the facts in the present case, but what the judgments
show is that
the launching of an appeal without first having complied with the
statutory requirements relating to leave to appeal
is not a nullity.
[62] Whilst it is
necessary for the statutory requirements for leave to appeal to be
complied with before a decision is given on
the appeal, in a proper
case the court has a discretion to defer giving judgment until those
requirements have been satisfied.
In
Gentiruco A.G. v
Firestone SA (Pty) Ltd
[47]
the Appellate Division, referring to these decisions, said:
“Where the necessary leave to appeal is lacking this Court may,
in appropriate circumstances, defer the hearing or determination
of
the appeal to enable the appellant to obtain such leave – see
Sita’s
case,
supra
,
1967 (2) SA 442
(AD) at p.
450F-H, and authorities there cited.”
[48]
It held, however,
that on the facts of that case it was not appropriate to adopt the
“extraordinary course of deferment”.
[63] Counsel for the
Minister and the Pricing Committee in their argument to the SCA,
which they repeated in their argument to this
Court, relied strongly
on the judgment of the Appellate Division in
National Union of
Metalworkers of South Africa v Jumbo Products CC
[49]
where Corbett CJ held that it was clear from section 20(4)(b) that:
“[T]his Court’s jurisdiction to grant leave itself is
dependent on the Court a quo having refused such leave.
The
proper procedure, as imperatively laid down by s 20(4)(b), is for the
would-be appellant to apply for leave first to the Court
against
whose judgment the appeal is to be made. If that Court grants
leave, then this Court may entertain the appeal.
If that Court
refuses leave, then (but only then) may this Court consider an
application for leave to appeal. Thus s 20(4)(b)
not only
prescribes the proper procedure, but it also defines the jurisdiction
of this Court to entertain an application for leave
to appeal.
(Compare
S v Cassidy
1978 (1) SA 687
(A) at 690H;
Windhoek
Munisipaliteit v Ministersraad van SWA/Namibia en ’n Ander
1985 (1) SA 287
(A) at 293H-294B.)”
[50]
[64] The facts in
that case were quite different to the facts of the present case.
The applicant had been the unsuccessful
party in a case in which
judgment had been given by the Witwatersrand Local Division (WLD) on
21 December 1993. On 17 and
18 March 1994, approximately two
months after the time prescribed for lodging an application for leave
to appeal had expired, the
applicant applied to the WLD for
condonation of its failure to lodge its application timeously, and
for leave to appeal to the
Appellate Division against the judgment
and order that had been made. The application for condonation
was refused.
The applicant then applied to the Appellate
Division for leave to appeal against the judgment and order made by
the WLD on the
merits. It did so without having applied to the
High Court for leave to appeal against the order refusing
condonation.
Moreover, it appears from the judgment that the
applicant sought leave to appeal to the SCA on the merits without an
application
for leave to appeal on the merits having been considered
by the WLD. The complex procedures that would be necessary to
resolve
these problems are referred to in the judgment, and the order
made by the Appellate Division was that the application be struck
off
the roll. There is nothing in the judgment which suggests that
the court intended to depart from what had been said in
Gentiruco
.
[65] In his judgment Corbett CJ refers to two cases,
S v
Cassidy
[51]
and
Windhoek Munisipaliteit v Ministersraad van SWA/Namibia en ’n
Ander
,
[52]
to support his decision. The facts in those cases are also
materially different to the facts in the present case.
[66] In the
Windhoek
Munisipaliteit
case the appellant had not applied to the court a
quo for leave to appeal. The court heard argument only on the
issue of
jurisdiction. It held that leave to appeal was
necessary and struck the appeal off the roll.
[53]
In
S v Cassidy
the accused had applied for leave to appeal
against sentence only. In error the order of the Appellate
Division had granted
leave to appeal against conviction as well as
sentence. Attention was drawn to this error during argument and
it was pointed
out that the court had no power to make such an order
because leave to appeal against the conviction had not been sought.
It appears from the judgment that counsel for the accused chose not
to ask for a postponement to enable him to approach the court
a quo
for leave to appeal on that issue.
[54]
In the result the appeal was confined to the issue of sentence only.
Once again there is nothing to suggest that the
court intended to
depart from what had been said in
Gentiruco
.
[67] The SCA deals
in its judgment with the cases to which I have referred in paragraphs
61 and 62 of this judgment and comes to
the conclusion that it could
and should grant leave to appeal.
[55]
There were unusual circumstances which justified the making of such
an order. First, there was before it a substantive
application
for leave to appeal based on a contention that the delay by the High
Court amounted in the circumstances of the case
to a refusal to grant
leave to appeal. It was necessary to have regard to the merits
of the appeal in dealing with that issue.
Secondly, the issues
before the court were clearly of considerable importance affecting
not only the respondents, but all participants
in the pharmaceutical
trade, as well as the general public which has an interest in the
pricing of medicines.
[56]
Thirdly, it was known when the application was heard that the
decision on the application for leave to appeal would be given
within
two days of the hearing. In those circumstances, little purpose
would have been served by dismissing the application
and requiring
the respondents to start all over again. That would have
resulted in further delays and considerable unnecessary
expense.
Constructive
refusal of an application for leave to appeal
[68] An application
to the SCA to grant leave to appeal on the ground that there has been
a constructive refusal of leave to appeal
by the High Court is a
legitimate cause of action. An unreasonable delay in dealing
with an application for leave to appeal
interferes with a litigant’s
constitutional right to have access to court.
[57]
This is of particular concern where the issues are urgent and the
delay may cause substantial prejudice. A case in
point is where
an accused person has been convicted and sentenced to imprisonment.
A long delay in dealing with an application
for leave to appeal
against the conviction and sentence may result in a miscarriage of
justice if the appeal is ultimately successful.
The SCA gives
an example of such a case in its judgment.
[58]
[69] I have no doubt
that a court of appeal is entitled in appropriate circumstances to
treat an unreasonable delay on the part
of a lower court in deciding
whether or not to grant leave to appeal as a constructive refusal of
the application. The delay
need not be deliberate. The
fact that there has been an unreasonable delay is sufficient in
itself to entitle an appeal court
to make such a finding.
[70] The granting of
leave to appeal by an appeal court in such circumstances does not
cause any prejudice. If the application
for leave had been
dismissed by the lower court the litigant would have been entitled as
of right to apply to the appeal court
for leave. The only
prejudice caused is to the appeal court which will have been burdened
with an unnecessary application
in cases where the lower court would
have given leave in any event.
[71] An application
to an appeal court for leave to appeal based on an alleged
constructive refusal of leave to appeal by a lower
court should be a
last resort. It must be accepted, however, that there may come
a time when a delay in resolving an application
for leave to appeal
amounts to a constructive refusal of the application, entitling the
aggrieved litigant to apply to the appeal
court to grant leave
itself. What constitutes an unreasonable delay will depend on
the circumstances of the case.
[72] Superior courts
have an inherent right to regulate and protect their own
process.
[59]
In the exercise of this power they can decide whether or not to grant
an application based on a constructive refusal of leave
to appeal,
and to penalise a litigant by a costs order where such an application
is wrongly brought.
[73] The application
to the SCA in the present case was clearly not frivolous. The
case was of great public importance and
raised issues that were
complex and difficult to resolve. The SCA had heard argument
and formed its own impression on the
merits and whether the case was
one in which leave to appeal should be granted. It was fully
entitled to require argument
to be addressed to it on all aspects
relevant to the application to it for leave to appeal.
Leave to appeal
to the SCA
[74] The High Court,
which had been divided on the outcome of the main application, was
also divided on the question whether leave
to appeal should be
granted. In their judgment dealing with the application for
leave to appeal
[60]
the majority accepted that the case raised issues of great
constitutional importance “which needed to be finalised sooner
rather than later” and would be likely to end up in the
Constitutional Court.
[61]
It is difficult to understand why, in such circumstances, they should
have refused leave to appeal, and have taken so long
to do so.
[75] The majority
concluded that there was no reasonable prospect of another court
coming to a conclusion different to that arrived
at by them. In
that, as subsequent events have shown, they were clearly wrong.
Having regard to the importance of the
case, the difficult issues it
raised, and the different views on outcome within the High Court
itself, this was a case in which
leave to appeal should clearly have
been granted. I do not consider it necessary, however, to
decide whether the delay in
dealing with the application for leave to
appeal in such circumstances amounted to a constructive refusal of
leave to appeal.
[76] The SCA has the inherent right to regulate its own process.
In the present case it had before it a valid application
based on an
alleged constructive refusal of leave to appeal. It knew that a
decision by the High Court on the application
for leave to appeal
would be given within two days of the conclusion of the argument.
Whatever the decision of the High Court
might have been, it would
have had jurisdiction to deal with the matter when it came to deliver
its own judgment. After considering
the relevant authorities it
said:
“In this case the applicants . . . took all the prescribed
steps; they did apply to the Court below; they did apply to this
Court. All that was missing was the ruling of the Court below.
That came less than 48 hours after conclusion of argument,
but, as is
apparent from the body of authority cited, that is not fatal.
The procedural condition for the determination of
the applications
for leave has now been fulfilled.”
[62]
[77] The alleged constructive refusal had proved to be an actual
refusal of leave before the SCA gave its judgment. It had
jurisdiction at that time to deal with the application to it for
leave to appeal and to decide the appeal. The contention
of the
Minister and the Pricing Committee that the SCA had no jurisdiction
to deal with the matter, and that its judgment is a
nullity, must
therefore be dismissed.
[78] The SCA had
given directions that the parties must be prepared, if called upon to
do so, to address the court on the merits
of the case. When
called upon to deal with the merits, counsel for the Minister
declined to do so. They had been briefed
to deal only with the
issue of the court’s jurisdiction and had no brief to argue the
merits.
[79] What happened
is recorded in the judgment of Harms JA as follows:
[63]
“Already at the meeting on 17 November with me, the
respondents’ counsel insisted emphatically on a separation of
issues and stated that their clients would not instruct counsel to
deal with the merits. During oral argument before us, the
respondents’ lead counsel was specifically and repeatedly asked
whether they required a postponement in order to prepare
argument on
the merits. The questions did not elicit a response. When
asked whether the respondents could provide a
date convenient to them
for argument on the merits, the question failed to extract a
reaction. When asked whether they needed
an adjournment to
consider a request for a postponement, yet again, counsel did not
reply and simply proceeded to argue another
point.
This is consistent with the attitude from the outset that the
jurisdictional issue should be dealt with separately. They
had
a right, they said, to a separate hearing. And they wished to
exercise that right in order that, if we dismiss their
argument, they
could appeal. That is why they decided in advance not to
instruct counsel, why they refused – in spite
of a request on
17 November – to provide copies of the heads of argument used
in the Court below to assist us in preparing
for the hearing, and why
they were generally obstructive in relation to each suggestion
relating to an expedited hearing.”
(footnote omitted)
[80] In these
circumstances, and having ruled against the Minister on the
separation of issues, the SCA proceeded to deal with the
application
for leave to appeal. The consequence of this, as the SCA points
out in its judgment,
[64]
is that it was deprived of the benefit of argument on behalf of the
Minister on the merits of the case.
[81] Commenting on
this and its decision to deal with the matter without having the
benefit of such argument, the SCA said:
[65]
“Cowed by the respondents’ refusal to be of any
assistance we cannot be. Organs of State, which have a
constitutional
duty to, inter alia, assist courts to ensure their
effectiveness, have always treated courts with respect and we assume
that the
refusal to argue is not indicative of a change of heart but
rather of inappropriate legal advice based on overconfidence.”
(footnote omitted)
[82] I would add to this only two comments. First, a further
consequence of what happened has been that this Court has been
deprived of the SCA’s evaluation of the arguments addressed to
us on behalf of the Minister and the Pricing Committee. Secondly,
courts are entitled to expect assistance and not obstruction from
litigants in the discharge of their difficult duties. What
happened in the present case not only failed to meet this
requirement, but also evinced a deplorable lack of respect for the
SCA,
which is the highest court in this country in respect of all
matters other than constitutional matters.
Leave to appeal
to the Constitutional Court
[83] It was contended by the Pharmacies that since the Minister had
deliberately refused to address argument to the SCA on the
merits of
the appeal, despite having been called upon to do so, she should not
be granted leave to appeal to this Court on the
merits.
Ultimately the question whether leave to appeal should be granted
depends on whether or not it is in the interests
of justice to do
so. In the present case though deploring what happened in the
SCA, I have come to the conclusion that it
is not in the interest of
justice to refuse leave to appeal on that ground.
[84] If the Minister is refused leave to appeal the decision of the
SCA will become final and the regulations will be set aside.
If
there is substance to the appeal it would mean that government’s
constitutional duty to take reasonable measures to provide
access to
health care
[66]
would be defeated by an incorrect view taken concerning the
jurisdiction of the SCA. It is not in the interest of justice
to permit so important an issue affecting the rights of the general
public and the constitutional obligations of government to
be
determined in this way. It is in the public interest that this
Court deals with the matter, and determines the questions
that have
been raised as to the validity of the regulations.
The approach of
the High Court to the application for review
[85] In the High
Court the Pharmacies claimed:
“[A]n order reviewing and setting aside the recommendation
purportedly made by the Pricing Committee to the First Respondent
in
terms of
section 22G(2)
of the
Medicines and Related Substances Act
101 of 1965
and pursuant to which the Regulations were published . .
. and/or an order declaring the Regulations . . . to be invalid and
of
no force or effect”.
[67]
[86] The form in
which the relief was claimed led to arguments being addressed to the
High Court, and again to this Court, which
treated the
recommendations of the Pricing Committee, and the decision of the
Minister to accept them and to promulgate the regulations,
as being
separate decisions, each subject to review either under PAJA, or
under the Constitution.
[87] In the High Court the majority dealt separately with the
challenges to the recommendations of the Pricing Committee to the
Minister and the subsequent making of the regulations by the
Minister. They held that the recommendations could not be
construed
as having had a direct, external legal effect, which is a
requirement for administrative action under PAJA.
[68]
They would only have had external legal effect if and when they were
accepted by the Minister and promulgated. The
recommendations
as such were accordingly not subject to review under PAJA.
[88] However, they
went on to hold that, notwithstanding this, the “activities and
functions of the Pricing Committee”
were subject to review
under the constitutional principle of legality, the provisions of
section 33(1) of the Constitution, and
the provisions of the common
law.
[69]
They concluded that the functions of the Pricing Committee
constituted administrative action in terms of section 33(1) of
the
Constitution.
[70]
They accordingly conducted a review for compliance with that section,
holding that:
“[T]he term ‘lawfulness’ in s 33(1) is an all
embracing and an umbrella concept that encapsulates all the
requirements
for administrative legality including all those
requirements and grounds for invalidity set out in
s 6
of the
Promotion of Administrative Justice Act.”
[71]
[89] In dealing with
the regulations they concluded that they too were not subject to
review under PAJA because the definition of
administrative action in
PAJA does not include “rule-making”.
[72]
But consistent with their approach to the recommendations of the
Pricing Committee they held that
“the fact that rule-making does not constitute administrative
action, does not render the regulations themselves to be beyond
judicial scrutiny. The regulations are subject to review on the
basis of the principle of legality, the principles of common
law to
the extent such common-law principles are not inconsistent with the
Constitution, the provisions of s 33(1) of the Constitution
and other
relevant provisions of the Constitution.”
[73]
In the result they
reviewed both the Pricing Committee’s recommendations and the
regulations for compliance with section 33
of the Constitution.
[90] The minority
judgment held that the recommendations of the Pricing Committee had
an external legal effect because it was a
jurisdictional fact on
which the making of valid regulations depended.
[74]
The judgment accordingly dealt with the issues in terms of the
provisions of PAJA, but held that if PAJA was not applicable,
the
same result would follow from the application of the principle of
legality.
[75]
The approach of
the SCA
[91] The SCA found
it unnecessary to deal with PAJA. It approached the matter on
the basis that the Minister’s power
to make regulations is
dependent on the recommendations of the Pricing Committee. The
Pricing Committee’s recommendation
“has to be in accordance with the provisions of s 22G –
ie it must be a lawful administrative action as provided for
by s
33(1) of the Constitution – since the committee has no power
beyond that given to it by this section. And it follows
from
the principle of legality that the Minister cannot accept a
recommendation or promulgate a regulation that does not fall squarely
within the section.”
[76]
The
Constitution and PAJA
[92] It is correct –
and this was accepted by the majority and the dissent in the High
Court as well as by the SCA –
that the regulations have to
comply with the provisions of section 22G of the Medicines Act.
[77]
This is required by section 33 of the Constitution and is given
effect to in PAJA.
[93] However, I do
not agree with the approach adopted both by the majority of the High
Court, and later by the SCA, that notwithstanding
the provisions of
PAJA, the regulations were subject to an independent review for
lawfulness under section 33 of the Constitution.
[94] Section 33
entrenches the right to administrative action that is “lawful,
reasonable and procedurally fair”.
[78]
It goes on to provide, however, that
“National legislation must be enacted to give effect to these
rights, and must—
(a)
provide for the review of administrative action by a court or, where
appropriate, an independent and impartial tribunal;
(b)
impose a duty on the state to give effect to the rights in
subsections (1) and (2); and
(c)
promote an efficient administration.”
[79]
[95] PAJA is the national legislation that was passed to give effect
to the rights contained in section 33. It was clearly
intended
to be, and in substance is, a codification of these rights.
[80]
It was required to cover the field and purports to do so.
[96] A litigant
cannot avoid the provisions of PAJA by going behind it, and seeking
to rely on section 33(1) of the Constitution
or the common law.
That would defeat the purpose of the Constitution in requiring the
rights contained in section 33 to be
given effect by means of
national legislation.
[97] Professor
Hoexter sums up the relationship between PAJA, the Constitution and
the common law, as follows:
“The principle of legality clearly provides a much-needed
safety net when the PAJA does not apply. However, the Act
cannot simply be circumvented by resorting directly to the
constitutional rights in s 33. This follows logically from the
fact that the PAJA gives effect to the constitutional rights.
(The PAJA itself can of course be measured against the constitutional
rights, but that is not the same thing.) Nor is it possible to
sidestep the Act by resorting to the common law. This, too,
is
logical, since statutes inevitably displace the common law. The
common law may be used to inform the meaning of the constitutional
rights and of the Act, but it cannot be regarded as an alternative to
the Act.”
[81]
(footnotes and emphasis omitted)
I agree.
Can the
application be decided without reference to PAJA?
[98] In
Minister
of Home Affairs v Eisenberg & Associates: In re Eisenberg &
Associates v Minister of Home Affairs and Others
,
[82]
this Court left open the question whether the making of regulations
by a Minister in terms of an empowering statute constitutes
administrative action for the purposes of PAJA.
[83]
In that case it was alleged that the Minister had failed to comply
with the provisions of section 4(1) of PAJA prior to making
regulations. Section 4(1) addresses the question of procedural
fairness required where administrative action materially and
adversely affects the rights of the public.
[84]
Section 4(4) provides, however, that the provisions of section 4(1)
may be departed from “[i]f it is reasonable and
justifiable in
the circumstances” to do so. It was assumed for the
purposes of the judgment that PAJA was applicable.
It was held,
however, that in the circumstances of that case it was reasonable and
justifiable for the Minister to depart from
the provisions of section
4(1).
[99] It is necessary
in the present case to consider whether the making of the regulations
on the recommendations of the Pricing
Committee, whether seen as one
transaction, or as two, constituted administrative action within the
meaning of PAJA. If it does,
then the decision of this Court in
Bato
Star
[85]
must be followed, and the validity of the regulations will depend
upon the provisions of PAJA, construed in the light of the provisions
of the Constitution pursuant to which it was enacted.
Is PAJA
applicable?
[100] Counsel for the applicants contended that the majority were
correct in holding that PAJA was not applicable to the making
of the
disputed regulations. They sought to develop their argument by
analysing the definitions of “administrative
action” and
“decision” in section 1 of PAJA. These definitions
must, however, be construed consistently
with section 33 of the
Constitution.
[86]
The starting point of the enquiry, therefore, is what constitutes
administrative action for the purposes of section 33.
The meaning of
administrative action in section 33 of the Constitution
[101]
Prior to the adoption of the interim Constitution in 1994
administrative action was subject to review by the superior courts.
There were two overarching principles which formed the basis of
judicial review. First, that the functionaries or bodies
exercising delegated powers are confined to the powers vested in them
by the empowering legislation. Should they exceed such
powers,
their actions are illegal, and invalid. Secondly, the exercise
of delegated powers by such persons or bodies must
ordinarily be
carried out in accordance with fair procedures.
[102] An extensive
body of law, initially influenced strongly by English law, was built
up around these two principles, which developed
into the well known
doctrines of ultra vires and procedural fairness. In developing
this body of administrative law, courts
were careful to distinguish
between their powers on appeal, which ordinarily included a power to
consider the merits of the decision
appealed against, and their power
on review, which was ordinarily directed to consideration of issues
of legality and procedural
fairness. The merits of the decision
were not relevant save in certain limited circumstances. In
that regard, our courts
followed the approach of Lord Russell CJ in
Kruse v Johnson
[87]
where he stated:
“I do not mean to say that there may not be cases in which it
would be the duty of the Court to condemn by-laws . . . as
invalid
because unreasonable. But unreasonable in what sense? If,
for instance, they were found to be partial and unequal
in their
operation as between different classes; if they were manifestly
unjust; if they disclosed bad faith; if they involved
such oppressive
or gratuitous interference with the rights of those subject to them
as could find no justification in the minds
of reasonable men, the
Court might well say, ‘Parliament never intended to give
authority to make such rules; they are unreasonable
and ultra
vires.’”
[88]
[103]
Unreasonableness in this sense was treated as part of the ultra vires
doctrine “because Parliament did not intend to
give authority
to make such a regulation.”
[89]
Under the doctrine of parliamentary supremacy Parliament was entitled
to make inroads into this principle, and frequently
did so prior to
1994. But subject to this, unreasonableness in this
“specialised sense of that word”
[90]
was a ground on which delegated legislation could be reviewed.
[104] There was
accordingly only limited scope for reviewing the exercise of
delegated powers on the grounds of “unreasonableness”.
Our courts were reluctant even to exercise this limited power.
[91]
They tended to follow the approach of the English Court of Appeal in
Associated Provincial Picture Houses Limited v Wednesbury
Corporation
,
[92]
which was that
“It is true to say that, if a decision on a competent matter is
so unreasonable that no reasonable authority could ever have
come to
it, then the courts can interfere . . . but to prove a case of that
kind would require something overwhelming”.
[93]
[105] Thus, for
instance, in
National Transport Commission and Another v Chetty’s
Motor Transport (Pty) Ltd
[94]
the Appellate Division held that a claimant relying on this ground of
review had to show that
“the . . . decision was grossly unreasonable to so striking a
degree as to warrant the inference of a failure to apply its
mind (to
the issues) – a formidable onus.”
[95]
[106] Although the applicability of the
Wednesbury
test
strictly to all types of review has been the subject of academic
criticism,
[96]
review of delegated legislation on the ground of “unreasonableness”
was previously of limited scope.
The impact of the
Constitution
[107] The adoption
of the interim Constitution in 1994 had a material impact upon the
existing body of administrative law.
The Bill of Rights
contained a provision entitling every person to—
“(a) lawful administrative action where any of his or her
rights or interests is affected or threatened;
(b) procedurally fair administrative action where any of his or her
rights or legitimate expectations is affected or threatened;
(c) be furnished with reasons in writing for administrative action
which affects any of his or her rights or interests unless the
reasons for such action have been made public; and
(d) administrative action which is justifiable in relation to the
reasons given for it where any of his or her rights is affected
or
threatened.”
[97]
In effect these
provisions entrenched in the interim Constitution as part of the
right to administrative justice, the doctrines
of legality and
procedural fairness and to a limited extent made provision for review
on the ground of “reasonableness”:
the decision had to be
“justifiable in relation to the reasons given for it”.
This right was, however, subject
to limitation under section 33 of
the interim Constitution.
[98]
This meant that the government could limit the general powers of a
court to review administrative action, but no longer had
the
unlimited power which previously existed to insulate such decisions
against judicial review. Moreover, the scope
for judicial
review was broadened by other provisions of the interim Constitution,
in particular the anti-discrimination provisions
of the equality
right,
[99]
the right to access to information,
[100]
property rights,
[101]
and the right to have justiciable disputes settled by a court of
law.
[102]
[108] The provisions
of section 33 of the Constitution are similar to those contained in
section 24 of the interim Constitution.
There is, however, a
material difference. Under the interim Constitution a
requirement for just administrative action was
that a decision must
be justifiable in relation to the reasons given. That in
substance set rationality as the review standard.
[103]
Under section 33 administrative decisions can now be reviewed for
reasonableness. That is a variable but higher standard,
which
in many cases will call for a more intensive scrutiny of
administrative decisions than would have been competent under the
interim Constitution.
[109] When the
interim Constitution was adopted the making of delegated legislation
was regarded as administrative action subject
to judicial review.
There is nothing to suggest that the interim Constitution, or the
Constitution which took its place,
intended to exclude delegated
legislation from what had previously been understood as being
administrative action. On the
contrary, the Constitutions point
in the opposite direction.
Open and
transparent government
[110] The interim
Constitution established a constitutional state in which the
Constitution was supreme and binding upon the legislature,
the
executive and all organs of state. The 1996 Constitution
continued and strengthened this commitment making clear that
the
constitutional state would be one in which there would be open and
transparent government.
[111] The preamble
of the Constitution sets as a goal the establishment of “a
society based on democratic values, social justice
and fundamental
human rights” and declares that the Constitution lays “the
foundation for a democratic and open society”.
Section 1
of the Constitution which establishes the founding values of the
state, includes as part of those values “a multi-party
system
of democratic government, to ensure accountability, responsiveness
and openness.”
[104]
It is apparent from section 57(1)(b) that the democratic government
that is contemplated is a participatory democracy, which
is
accountable, transparent and makes provision for public
involvement.
[105]
Consistently with this, section 59(1) of the Constitution provides:
“The National Assembly must—
(a) facilitate public involvement in the legislative and other
processes of the Assembly and its committees; and
(b) conduct its business in an open manner, and hold its sittings,
and those of its committees, in public”.
Similar provisions
are also made in respect of the National Council of Provinces,
[106]
provincial legislatures
[107]
and local government.
[108]
[112] Chapter 10 of
the Constitution, which deals with public administration, provides in
section 195:
“(1) Public administration must be governed by the democratic
values and principles enshrined in the Constitution, including
the
following principles:
. . . .
(e)
People’s needs must be responded to, and the public must be
encouraged to participate in policy-making.
(f)
Public administration must be accountable.
(g)
Transparency must be fostered by providing the public with timely,
accessible and accurate information.
. . . .
(2) The above principles apply to—
(a)
administration in every sphere of government;
(b)
organs of state; and
(c)
public enterprises.
(3) National legislation must ensure the promotion of the values and
principles listed in subsection (1).”
Functionaries
who make regulations in terms of empowering legislation are “organs
of state”.
[109]
[113] The making of
delegated legislation by members of the executive is an essential
part of public administration. It gives
effect to the policies
set by the legislature and provides the detailed infrastructure
according to which this is to be done.
The Constitution calls
for open and transparent government, and requires public
participation in the making of laws by Parliament
and deliberative
legislative assemblies. To hold that the making of delegated
legislation is not part of the right to just
administrative action
would be contrary to the Constitution’s commitment to open and
transparent government.
The meaning of
administrative action in section 33(1) of the Constitution
[114] In
Fedsure Life Assurance Ltd and Others v Greater
Johannesburg Transitional Metropolitan Council and Others
[110]
this Court had to consider the meaning of administrative action under
section 24 of the interim Constitution. It said that:
“
In addressing this
question it is important to distinguish between the different
processes by which laws are made. Laws are
frequently made by
functionaries in whom the power to do so has been vested by a
competent legislature. Although the result
of the action taken
in such circumstances may be ‘legislation’, the process
by which the legislation is made is in
substance ‘administrative’.
The process by which such legislation is made is different in
character to the process
by which laws are made by deliberative
legislative bodies such as elected municipal councils. Laws
made by functionaries
may well be classified as administrative; laws
made by deliberative legislative bodies can seldom be so
described.”
[111]
[115] I am not
unmindful of the fact that an unqualified right to demand that
delegated legislation must be “reasonable and
procedurally
fair” may subject such legislation to a more intense review by
the courts than was the case in the pre-constitutional
era. An
obligation to provide written reasons for the delegated legislation,
to persons whose rights have been adversely
affected by it, would add
to the burden.
[116] Significantly,
however, the transitional provisions of Schedule 6 to the
Constitution suspended the operation of sections
33(1) and (2)
pending the enactment of the legislation contemplated in section
33(3). That legislation had to be enacted
within 3 years and
pending that being done, the provisions of section 24 of the interim
Constitution would remain in place.
[112]
[117] This addressed
a concern that might otherwise have existed that a general and
unqualified right to “lawful, reasonable
and procedurally fair”
administrative action might place too heavy a burden on government.
The legislation to be enacted
had to take into account the need to
“promote an efficient administration”. Until the
mandated legislation had
been enacted, the provisions of section 24
of the interim Constitution, and not those of sections 33(1) and (2)
of the 1996 Constitution,
would be applicable. The enactment of
the mandated legislation, and the limitations permissible under
section 36,
[113]
would enable Parliament to address these concerns.
[118] It would no
doubt be possible to give a narrow construction to “administrative
action” in section 33 and to have
two systems of review, one
under the common law for delegated legislation, and the other under
the Constitution for administrative
action construed narrowly.
But that would not be consistent with the purpose of section 33 which
is to establish a coherent
and overarching system for the review of
all administrative action; nor would it be consistent with the values
of the Constitution
itself.
[114]
Properly construed, therefore, “administrative action” in
section 33(1) of the Constitution, includes legislative
administrative action.
[119] If, then,
administrative action in section 33 of the Constitution must be
construed as including legislative administrative
action, how should
PAJA be construed?
Is
regulation-making subject to PAJA?
[120] “Administrative action” is defined in section 1 of
PAJA as meaning
“any decision taken, or any failure to take a decision, by—
(a)
an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in
terms of any legislation; or
(b)
a natural or juristic person, other than an organ of state, when
exercising a public power or performing a public function in
terms of
an empowering provision,
which adversely affects the rights of any person and which has a
direct, external legal effect, but does not include [actions listed
in subparagraphs (aa) to (ii) of this definition]”.
I deal later with
the exclusions listed in subparagraphs (aa) and (ii).
[121] The Minister and the Pricing Committee are both organs of
state.
[115]
The regulation of prices in the disputed regulations adversely affect
the rights of pharmacists and other persons in the
pharmaceutical
industry. The regulations will therefore be “administrative
action” within the meaning of PAJA,
if the making of the
regulations constituted a “decision”, and if they are not
excluded by subparagraph (aa) to (ii)
of the definition of
administrative action.
The exclusions
[122] The exclusions
from the definition of “administrative action” are:
“(aa) the executive powers or functions of the National
Executive, including the powers or functions referred to in sections
79(1) and (4), 84(2)(a), (b), (c), (d), (f), (g), (h), (i) and (k),
85(2)(b), (c), (d) and (e), 91(2), (3), (4) and (5), 92(3),
93, 97,
98, 99 and 100 of the Constitution;
(bb) the executive powers or functions of the Provincial Executive,
including the powers or functions referred to in sections 121(1)
and
(2), 125(2)(d), (e) and (f), 126, 127(2), 132(2),
133(3)(b), 137, 138, 139 and 145(1) of the Constitution;
(cc) the executive powers or functions of a municipal council;
(dd) the legislative functions of Parliament, a provincial
legislature or a municipal council;
(ee) the judicial functions of a judicial officer of a court referred
to in section 166 of the Constitution or of a Special Tribunal
established under section 2 of the Special Investigating Units and
Special Tribunals Act, 1996 (Act No. 74 of 1996), and the judicial
functions of a traditional leader under customary law or any other
law;
(ff) a decision to institute or continue a prosecution;
(gg) a decision relating to any aspect regarding the appointment of a
judicial officer, by the Judicial Service Commission;
(hh) any decision taken, or failure to take a decision, in terms of
any provision of the
Promotion of Access to Information Act, 2000
; or
(ii) any decision taken, or failure to take a decision, in terms of
section 4(1)
”.
[123] Subparagraph
(aa) deals with the executive powers and functions of the National
Executive. It refers to sections 79,
84, 85, 91, 92, 93, 97,
98, 99 and 100 of the Constitution. Sections 79 and 84 of the
Constitution deal with powers vested
in the President alone.
They are not relevant to the present case. Nor are sections 92,
93, 97, 98, and 99. Section
85 is, however, relevant and of
importance.
[124] Section 85
deals with the President and Cabinet. If it had stood alone
there would have been greater force in the finding
that the making of
regulations by a minister is excluded from the definition of
“administrative action”. But
it does not stand
alone. Subparagraph (aa) of the definition goes on to refer to
specific subparagraphs of section 85(2),
including sections 85(2)(b),
(c), (d), and (e), but excludes from the list section 85(2)(a).
The provisions of section 85(2)(a)
to (e) are as follows:
“(2) The President exercises the executive authority, together
with the other members of the Cabinet, by—
(a)
implementing national legislation except where the Constitution or an
Act of Parliament provides otherwise;
(b)
developing and implementing national policy;
(c)
co-ordinating the functions of state departments and administrations;
(d)
preparing and initiating legislation; and
(e)
performing any other executive function provided for in the
Constitution or in national legislation.”
[125] The omission
of subparagraph (2)(a) from the specified list of exclusions is
significant. Subparagraph (bb) of the definition
of
administrative action deals with the powers of the provincial
executive. Various provisions of section 125 of the
Constitution
are listed, but again significantly, sections 125(2)(a),
(b) and (c), which refer to the implementation of legislation, are
omitted
from the list.
[126] In
President of the Republic of South Africa and Others v
South African Rugby Football Union and Others (SARFU)
[116]
this Court said that
“one of the constitutional responsibilities of the President
and Cabinet Members in the national sphere (and premiers and
members
of executive councils in the provincial sphere) is to ensure the
implementation of legislation. This responsibility
is an
administrative one, which is justiciable, and will ordinarily
constitute ‘administrative action’ within the meaning
of
s 33.”
If sections 85(2)(a)
and 125(2)(a), (b) and (c) had not been omitted from the list of
exclusions, the core of administrative action
would have been
excluded from PAJA, and the Act mandated by the Constitution to give
effect to sections 33(1) and (2) would not
have served its intended
purpose. The omission of sections 85(2)(a) and 125(2)(a), (b)
and (c) from the list of exclusions
was clearly deliberate. To
have excluded the implementation of legislation from PAJA would have
been inconsistent with the
Constitution. The implementation of
legislation, which includes the making of regulations in terms of an
empowering provision,
is therefore not excluded from the definition
of administrative action.
Does the making
of regulations constitute a “decision”?
[127] PAJA defines “decision” as follows:
“‘decision’ means any decision of an administrative
nature made, proposed to be made, or required to be made,
as the case
may be, under an empowering provision, including a decision relating
to—
(a)
making, suspending, revoking or refusing to make an order, award or
determination;
(b)
giving, suspending, revoking or refusing to give a certificate,
direction, approval, consent or permission;
(c)
issuing, suspending, revoking or refusing to issue a licence,
authority or other instrument;
(d)
imposing a condition or restriction;
(e)
making a declaration, demand or requirement;
(f)
retaining, or refusing to deliver up, an article; or
(g)
doing or refusing to do any other act or thing of an administrative
nature, and a reference to a failure to take a decision
must be
construed accordingly”.
[128] It is true
that the making of regulations is not referred to in subparagraphs
(a) to (f). But the reference in the main
part of the
definition to “
any
decision of an administrative nature”
and in the general provision of subparagraph (g) to “doing or
refusing to do
any
other act or thing of an administrative
nature” brings the making of regulations within the scope of
the definition.
[117]
This seems to me to be the clear meaning of the definition. But
if there is any doubt on this score, the definition
of administrative
action must be construed consistently with section 33 of the
Constitution.
[118]
All the judges in the High Court considered that the making of
regulations falls within the scope of “administrative
action”
in section 33 of the Constitution. I have already indicated why
I agree with this conclusion.
[129] The majority
in the High Court considered that the failure to refer specifically
to legislative administrative action in the
definition of “decision”
in section 1 of PAJA was deliberate, and indicated an intention to
exclude such action from
being reviewed under PAJA. I have
already dealt with why I take a different view. It is
necessary, however, to deal
briefly with reasons given by the
majority of the High Court for their decision on this issue.
[130] They attached weight to the specific exclusion from the
definition of administrative action in PAJA, of “any decision
taken, or failure to take a decision, in terms of section
4(1).”
[119]
Section 4 of PAJA provides:
“Administrative action affecting public.—(1) In cases
where an administrative action materially and adversely affects
the
rights of the public, an administrator, in order to give effect to
the right to procedurally fair administrative action, must
decide
whether—
(a)
to hold a public inquiry in terms of subsection (2);
(b)
to follow a notice and comment procedure in terms of subsection (3);
(c)
to follow the procedures in both subsections (2) and (3);
(d)
where the administrator is empowered by any empowering provision to
follow a procedure which is fair but different, to follow
that
procedure; or
(e)
to follow another appropriate procedure which gives effect to section
3.
(2)
If an administrator decides to hold a public inquiry—
(a)
the administrator must conduct the public inquiry or appoint a
suitably qualified person or panel of persons to do so; and
(b)
the administrator or the person or panel referred to in paragraph (a)
must—
(i) determine the procedure for the public inquiry, which must—
(aa)
include a public hearing; and
(bb)
comply with the procedures to be followed in connection with public
inquiries, as prescribed;
(ii) conduct the inquiry in accordance with that procedure;
(iii) compile a written report on the inquiry and give reasons for
any administrative action taken or recommended; and
(iv) as soon as possible thereafter—
(aa)
publish in English and in at least one of the other official
languages in the Gazette or relevant provincial Gazette a notice
containing a concise summary of any report and the particulars of the
places and times at which the report may be inspected and
copied; and
(bb)
convey by such other means of communication which the administrator
considers effective, the information referred to in item
(aa) to the
public concerned.
(3) If an administrator decides to follow a notice and comment
procedure, the administrator must—
(a)
take appropriate steps to communicate the administrative action to
those likely to be materially and adversely affected by it
and call
for comments from them;
(b)
consider any comments received;
(c)
decide whether or not to take the administrative action, with or
without changes; and
(d)
comply with the procedures to be followed in connection with notice
and comment procedures, as prescribed.
(4)(a) If it is reasonable and justifiable in the circumstances, an
administrator may depart from the requirements referred to
in
subsections (1)(a) to (e), (2) and (3).
(b)
In determining whether a departure as contemplated in paragraph (a)
is reasonable and justifiable, an administrator must take
into
account all relevant factors, including—
(i) the objects of the empowering provision;
(ii) the nature and purpose of, and the need to take, the
administrative action;
(iii) the likely effect of the administrative action;
(iv) the urgency of taking the administrative action or the urgency
of the matter; and
(v) the need to promote an efficient administration and good
governance.”
I refer more fully
to its provisions later when I deal with arguments directed to the
issue of procedural fairness.
[131] Section 4(1)
imposes an obligation on an administrator concerned with decisions
that affect the public to comply with the
requirement of procedural
fairness, but authorises him or her to decide how to give effect to
this requirement. As long as
the procedure followed meets the
requirements of one of subparagraphs (a) to (d), the provisions of
section 4(1) will have been
complied with.
[132] What is or is
not administrative action for the purposes of PAJA is determined by
the definition in section 1. It is
only if the action taken
falls within the definition that section 4 comes into play. The
fact that the choice of a particular
procedure to be followed in
terms of section 4(1) is not itself subject to review, does not
provide any help in deciding what is
or is not “administrative
action”. All that it means is that an administrator’s
choice of procedure is
final. Consistently with this the
implementation of the choice in a manner consistent with sections
4(2), (3) or (4) remains
subject to review.
[133] I cannot
agree, therefore, that section 4(1) points to a decision to exclude
legislative administrative action from the definition
of
administrative action. To the contrary, the provisions of
section 4, which contemplate that administrative action that
materially affects the rights of “the public” will be
subject to review, suggest that regulations, the most common
form of
administrative action affecting the rights of the public, are indeed
subject to review under PAJA. If they were to
be excluded one
would have expected this to have been done directly in specific terms
in the exclusions listed in the definition
of “administrative
action”, rather than indirectly through the provisions of
subparagraph (ii). But if that had
been done it could well have
given rise to a constitutional challenge that PAJA does not comply
with section 33(1) of the Constitution.
Instead, the
legislature has chosen the route of allowing for procedural fairness
in respect of action affecting the public, and
providing a safety
valve in section 4(4) for cases where compliance with such a
requirement would impede efficient administration.
[134] The majority
in the High Court appreciated that the omission of section 85(2)(a)
of the Constitution from the list of exclusions
in subparagraphs (aa)
to (ii) had to be addressed.
[120]
Section 85(2)(a) provides that:
“The President exercises the executive authority, together with
the other members of the Cabinet, by implementing national
legislation except where the Constitution or an Act of Parliament
provides otherwise”.
They held that the
omission of section 85(2)(a) from the exclusions could be explained
on the grounds that PAJA is an Act of Parliament
which provides
otherwise. I do not agree. PAJA does not deal with who
exercises executive authority in respect of rule-making.
It
deals with the circumstances in which the exercise of the executive
authority is subject to review.
[135] It follows that the making of the regulations in the present
case by the Minister on the recommendation of the Pricing Committee
was “a decision of an administrative nature”. The
regulations were made “under an empowering provision”.
[121]
They had a “direct, external legal effect” and they
“adversely” affected the rights of pharmacists
and
persons in the pharmaceutical industry. They accordingly
constitute administrative action within the meaning of PAJA.
The Minister and
the Pricing Committee
[136] The making of regulations in terms of section 22G of the
Medicines Act involves a two-stage process. First, a
recommendation
by the Pricing Committee, and second a decision by the
Minister as to whether or not to accept the recommendation.
Counsel
for the Minister contended that this called for two separate
decisions, one by the Pricing Committee, and one by the Minister.
They submitted that the Pricing Committee’s decision was not
administrative action because it had no direct, external legal
effect. The Minister’s decision had direct, external
legal effect but it was not administrative action within the meaning
of PAJA. Thus, the regulations were not open to being reviewed
in terms of PAJA. They accepted, however, that the regulations
could be reviewed for “legality” under the Constitution
in terms of this Court’s decision in
Fedsure
.
[122]
[137] In the
circumstances of the present case, to view the two stages of the
process as unrelated, separate and independent decisions,
each on its
own having to be subject to PAJA, would be to put form above
substance.
[138] The Minister
was not obliged to act on the Pricing Committee’s
recommendations. She had a discretion whether to
do so.
[123]
But ultimately there had to be one decision to which both the Pricing
Committee and the Minister agreed. Neither had
the power to
take a binding decision without the concurrence of the other.
It was only if and when agreement was reached,
that regulations could
be made.
[139] In such circumstances debate between the Pricing Committee and
the Minister concerning the regulations to be made would not
be
inappropriate. Such debate would further the purpose of the
legislation and facilitate the reaching of agreement.
This is
recognised in the General Regulations made in terms of section 35 of
the Medicines Act (the General Regulations) which
deal with the
composition of the Pricing Committee.
[124]
Regulation 38 provides:
“(1) The pricing committee contemplated in section 22G of the
Act shall consist of no more than eighteen members, but shall
include—
(a)
one person nominated by the Minister of Finance;
(b)
one person nominated by the Minister of Trade and Industry;
(c)
one or more persons representing the Department of Health;
(d)
at least one person with background in pharmacology;
(e)
at least one person with background in the law;
(f)
at least one person with background in academic medical research;
(g)
at least two persons with economics background, one of whom must be a
health economist; and
(h)
at least one person representing independent patient or consumer
groups.”
The regulation
contemplates that the Pricing Committee will have members
“
representing
the Department of Health” (my
emphasis). This would facilitate an exchange of ideas between
the National Department
of Health (the Department) and the Pricing
Committee during the process of information gathering and
deliberations which would
be necessary before a recommendation could
be made to the Minister. It would also avoid the need for two
separate investigations
to be undertaken each being conducted
independently of the other at different times.
[140] In the
arguments addressed to us it was suggested that there had been an
inappropriate relationship between the Department
and the Pricing
Committee and that members of the Department should not have been
present at meetings of the Pricing Committee
at which deliberations
were conducted and decisions taken. The Departmental officials
were not, however, “strangers”.
Some were members
of the Pricing Committee. Others also had to attend meetings
because in terms of the General Regulations
[125]
the Secretariat of the Pricing Committee consisted of employees
designated by the Director-General. The presence of
Departmental
representatives at meetings of the Pricing Committee was
therefore necessary. There is no evidence to suggest that the
presence
at meetings of the Pricing Committee of officials who were
not members of the Pricing Committee was not for a proper purpose, or
that their presence could have inhibited the discussions or the
expression of views. Their presence at meetings of the Pricing
Committee is not in my view a ground for setting aside the
recommendations of the Pricing Committee.
[141] The Pricing Committee’s work on the regulations was
continuing and ongoing until the Minister agreed. In substance
the decision to make the regulations was, and had to be, a joint
decision of the Minister and the Pricing Committee. In such
circumstances it cannot be said that the Pricing Committee’s
role in the joint decision-making process, had no “direct
external legal effect”. If the Pricing Committee’s
role in the joint decision-making process was flawed, the
entire
process would have been tainted. This is relevant to the
question of procedural fairness and the challenge to the
way in which
the Pricing Committee carried out its work, which is dealt with
later. However, as far as lawfulness and vagueness
of the
regulations are concerned, it makes no difference to the analysis.
[142] Before leaving
this part of the judgment one further comment is necessary. In
the academic writings on PAJA reference
is made to the fact that
certain of its provisions have been borrowed from German and
Australian law.
[126]
PAJA must, however, be interpreted by our courts in the context of
our law, and not in the context of the legal systems from
which
provisions may have been borrowed. In neither of the countries
is there a defined constitutional right to just administrative
action. Transplanting provisions from such countries into our
legal and constitutional framework may produce results different
from
those obtained in the countries from which they have been taken.
Review under PAJA
[143] PAJA addresses
the four requirements of the Constitution relating to just
administrative action: lawfulness, reasonableness,
procedural
fairness and the provision of reasons.
[144] Lawfulness is relevant to the exercise of all public power,
whether or not the exercise of the power constitutes administrative
action.
[127]
Where the making of regulations is challenged on this ground,
lawfulness depends on the terms of the empowering statute.
If
the regulations are not sanctioned by the empowering statute they
will be unlawful and invalid. This is an issue raised
in the
present case and I will deal with it later.
[145] Reasonableness
and procedural fairness are context specific. What is
reasonable and procedurally fair in one context,
is not necessarily
reasonable or procedurally fair in a different context.
[128]
In
R v Secretary of State for the Home Department,
ex parte
Daly
[129]
Steyn LJ referred to an observation by Laws LJ
[130]
emphasising that “the intensity of review in a public law case
will depend on the subject matter in hand”. Steyn
LJ went
on to say “[t]hat is so even in cases involving convention
rights. In law context is everything”.
In
First
National Bank of SA Ltd t/a Wesbank v Commissioner, South African
Revenue Service and Another;
First National Bank of SA Ltd t/a
Wesbank v Minister of Finance
[131]
Ackermann J referred with approval to this passage.
[146] Legislative
administrative action is a special category of administrative
action. It involves the making of laws and
the taking of policy
decisions for that purpose. Under our Constitution these are
decisions which are within the domain of
the executive to whom
Parliament has delegated its law-making power. Whilst the
exercise of this power is subject to constitutional
control, it is
important that the special role of the executive in exercising this
power be acknowledged, and that courts “take
care not to
usurp”
[132]
it.
Procedural
fairness
[147] In
Bato
Star
[133]
this Court made clear that context is relevant both to procedural
fairness and reasonableness. In the case of regulations
the
subject matter will be of particular importance. I would add
that sensitivity to the special role of the executive in
making
regulations is also called for in regard to the other grounds for
review prescribed by PAJA.
[148] Bearing this
in mind, I turn now to deal with challenges to the validity of the
regulations made by the Pharmacies.
These challenges are
brought on the grounds that the regulations failed to comply with
provisions of PAJA relating to procedural
fairness, reasonableness
and lawfulness. I will deal first with procedural fairness, and
then with reasonableness and lawfulness.
[149] The procedural
fairness challenge is complicated by the fact that the regulations
were made, as they had to be, by the Minister
on the recommendation
of the Pricing Committee. It was contended, as I have
previously mentioned, that this involved the
taking of two decisions,
one by the Pricing Committee, and one by the Minister, and that
procedural fairness had to be observed
in relation to each decision.
[150] I have
explained why I consider that the making of the regulations should be
seen as one process involving at different times
both the Minister
and the Pricing Committee.
[134]
Section 22G does not require the Minister and the Pricing Committee
to follow any particular procedure in making the regulations.
The relevant requirements are therefore those prescribed by section
4(1) of PAJA.
[135]
They call in the first instance for a decision to be taken as to
whether to hold a public enquiry, to follow a notice and
comment
procedure, to do both, or to follow another appropriate procedure
which gives effect to section 3 of PAJA.
[136]
[151] What section 3
of PAJA requires is that administrative action must be procedurally
fair. It refers specifically to the
giving of adequate notice
and providing a reasonable opportunity to make representations, and
makes it clear that what is necessary
for this purpose will depend on
the circumstances of each case.
[152] In
Du Preez
and Another v Truth and Reconciliation Commission
[137]
Corbett CJ sought guidance from the remarks of Lord Mustill in
Doody
v Secretary of State for the Home Department and other appeals
[138]
as to what is required of a public official or body who has to meet
the requirements of procedural fairness.
[139]
Lord Mustill’s remarks were as follows:
“What does fairness require in the present case? My
Lords, I think it unnecessary to refer by name or to quote from,
any
of the often-cited authorities in which the courts have explained
what is essentially an intuitive judgment. They are
far too
well known. From them, I derive the following. (1)
Where an Act of Parliament confers an administrative
power there is a
presumption that it will be exercised in a manner which is fair in
all the circumstances. (2) The
standards of fairness are
not immutable. They may change with the passage of time, both
in the general and in their application
to decisions of a particular
type. (3) The principles of fairness are not to be
applied by rote identically in every
situation. What fairness
demands is dependent on the context of the decision, and this is to
be taken into account in all
its aspects. (4) An
essential feature of the context is the statute which creates the
discretion, as regards both its
language and the shape of the legal
and administrative system within which the decision is taken.
(5) Fairness will
very often require that a person who may be
adversely affected by the decision will have an opportunity to make
representations
on his own behalf either before the decision is taken
with a view to producing a favourable result, or after it is taken,
with
a view to procuring its modification, or both. (6)
Since the person affected usually cannot make worthwhile
representations
without knowing what factors may weigh against his
interests fairness will very often require that he is informed of the
gist of
the case which he has to answer.”
[153] Standards of
fairness called for in respect of law-making by legislative
administrative action are different to standards
of fairness called
for in cases involving adjudication or administrative decisions such
as licensing enquiries and the like where
individual interests are at
stake and decisions affecting particular individuals have to be
taken. An individual needs to
know the concerns of the
administrator and to be given an opportunity of answering those
concerns. The decisions may depend
on particular facts and may
sometimes involve disputes of fact that have to be resolved.
[154] When it comes
to the making of regulations the context is different.
Regulations affect the general public and that
means that diverse and
often conflicting interests have to be taken into account in deciding
what the laws will be. The decision
of the law-maker on how to
resolve these conflicting interests is ultimately a question of
policy.
[155] As Lord
Mustill points out “[t]he principles of fairness are not to be
applied by rote identically in every situation.”
It
cannot be expected of the law-maker that a personal hearing will be
given to every individual who claims to be affected by regulations
that are being made. What is necessary is that the nature of
the concerns of different sectors of the public should be
communicated
to the law-maker and taken into account in formulating
the regulations.
[156] In Parliament
this is done through the publication of a Bill containing the
provisions of the proposed legislation, hearings
before Parliamentary
committees, and debates in Parliament where matters of principle
raised by sectors of the public affected
by the law can be contested.
[157] Where laws are
made through legislative administrative action, the procedure of
publishing draft regulations for comment serves
this purpose.
It enables people who will be affected by the proposals to make
representations to the law-maker, so that those
concerns can be taken
into account in deciding whether or not changes need to be made to
the draft.
[158] This does not
mean that the Minister who makes the regulations has to study
thousands of pages received from the general public
and respond to
them. The analysis of these responses can be left to officials
whose responsibility it is to consider the
comments received and to
report to the Minister on them.
[159] In deciding
whether the requirements of procedural fairness have been met in the
present case, which is concerned with legislative
administrative
action, decided cases dealing with different situations are not of
particular assistance. What has to be decided
is whether the
procedures followed by the Minister and the Pricing Committee in the
process of making the regulations were in all
the circumstances fair.
[160] Professor
McIntyre, the chairperson of the Pricing Committee, deals with the
procedures followed by the Pricing Committee
in carrying out its
work. Preliminary investigations were made into the pricing
structure of the pharmaceutical industry
in South Africa and
comparative research in that regard was undertaken, looking at how
other countries have dealt with similar
problems.
[161] The research
included studying information gathered previously by a Pricing
Committee working group that had been established
by the Department
to consider pricing policies. During this period there had been
“on-going engagement with major stakeholders”
in the
pharmaceutical industry, and written submissions had been received
from them over a period of years.
[162] While the work
of the Pricing Committee was progressing, some members were tasked to
secure more information from stakeholders
on certain issues.
They would then report to the Pricing Committee what had been
obtained. As a result, the views of
the Pricing Committee were
updated on a continuous basis.
[163] The Pricing
Committee decided at an early stage of the process that it would
recommend to the Minister that draft regulations
be prepared and
published for general comment so that comment received should be
considered before the regulations were finalised.
Draft
regulations were accordingly submitted to the Minister and published
by her for general comment on 16 January 2004.
The notice in
the Government Gazette in which the draft regulations were published
stated:
“The Minister of Health intends to make the regulations in the
Schedule. Interested persons are invited to submit written
comments or representations on the proposed Regulations to the
Director-General: Health, Private Bag X828, Pretoria, 0001 (for
attention of the Cluster Manager: Pharmaceutical Policy and
Planning), within three months of the date of publication of this
Notice.”
During the period of
three months allowed for comment, written representations were in
fact received, and considered both by the
Department and the Pricing
Committee.
[164] A decision was taken at a meeting of the Pricing Committee that
an opportunity be given to interested parties who had made
written
representations, to make oral representations as well. This
invitation was communicated to interested parties in
letters from the
Department of Health written on behalf of the Director-General.
[165] The invitation
was to make oral presentations on the written comments they had made
on the draft regulations. It said
that:
“The Department has decided that it would be beneficial to
invite stakeholders to make oral presentations on their written
comments on these proposed regulations.”
[166] Conditions were attached to the invitation. They
prescribed that a supporting written document on the comments to be
given should be supplied to the Department in advance of the oral
presentation. Each presenter would be limited to one hour.
The invitation contained the following comments which are relevant to
the arguments advanced on behalf of the Pharmacies:
“The Pricing Committee is a technical committee whose task is
to make recommendations to the Minister of Health. You
are
therefore advised to prepare your written and oral inputs in as much
detail as possible and with a view to supplying accurate
and
substantiated information to the Department and the Pricing Committee
on how the proposed regulations may affect your interests.
Where the regulations raise more than one possibility, you are
advised to include all possible impacts in your presentations.
The object of these sessions is not to provide further clarification
by departmental officials or members of the Pricing Committee
on the
proposed regulations. Consequently no questions for
clarification will be answered. The Department and the Pricing
Committee would like to hear your comments on, and interpretation of,
the regulations as opposed to their own views. This
said, you
may by all means indicate areas that are not clear to you and in what
way they lack such clarity.
Due to the fact that trade secrets or other sensitive information may
be contained in your presentations, no other stakeholders
or members
of the public will be present at any session. Only members of
the Pricing Committee and officials from the Department
of Health
will be attending. Not all members of the Pricing Committee may
be able to attend every session due to other commitments.”
(emphasis omitted)
[167] This
invitation, and what followed at the oral presentations, was the
basis of the contentions by the Pharmacies that procedural
fairness
had not been observed. In particular, it was contended that the
procedure was flawed from the beginning because
the hearing was to be
attended by some, and not all, of the members of the Pricing
Committee. It was also contended that
when the oral
presentations were made, those members of the Pricing Committee who
attended did not remain throughout the hearings,
but walked in and
out of the hearings while they were taking place. This,
however, is disputed, and no finding in that regard
can be made on
the papers.
[168] One of the
issues was whether the hearings were called by the Department or the
Pricing Committee. It is clear from
the evidence that the
decision to arrange for oral presentations to be made was taken at a
meeting of the Pricing Committee at
which representatives of the
Department were present, that it was contemplated that the invitation
would be issued by the Department,
and that members of the Pricing
Committee as well as representatives of the Department would be
present during the oral presentations.
[169] Although the
invitation was issued by the Department of Health, it was done with
the concurrence of the Pricing Committee,
which arranged for some of
its members to be present during the presentations. The letter
of invitation mentioned that the
oral presentations would provide
clarification for the Department and the Pricing Committee of the
concerns of the objectors.
[170] Counsel for
New Clicks, relying on
Schierhout v The Union Government
[140]
and cases that have followed it,
[141]
contended that this procedure did not meet the procedural fairness
requirements of PAJA because all members of the Pricing Committee
did
not attend the oral presentations.
[171]
The
Schierhout
line of cases was concerned with
adjudication. Whilst it is ordinarily necessary for bodies
appointed to deal with such matters
to be properly constituted at all
times throughout the adjudication process,
[142]
the same does not necessarily apply to a committee such as the
Pricing Committee whose work would involve research, the gathering
of
information and the making of enquiries before making its
recommendations. In this regard I agree with the following
comment of Corbett JA in
S v Naudé
:
[143]
“[I]t must be conceded that a commission is, in general, the
master of its own procedures. Within the bare framework
provided by the Act and such modifications and regulations as may
have been made by the State President in terms of sec 1(1) of
the
Act, it is free to determine how it shall function. There is no
doubt that a commission, particularly where it consists
of a
substantial number of persons, may operate without every member
participating personally in every activity. Were it
otherwise,
a commission would be hamstrung from the start.”
[144]
In each case what
will be required will depend on the interpretation of the empowering
legislation and relevant regulations, prescribing
how a commission
should function.
[172] Section 22G of
the Medicines Act does not deal with how the Pricing Committee is to
be composed or how it is to function,
save to say that members of the
Pricing Committee were to be appointed for a period of not more than
five years. The composition
and functioning of the Pricing
Committee is dealt with in regulations made by the Minister under her
power to make the General
Regulations.
[145]
The regulations provide that the Pricing Committee shall consist of
not more than eighteen members. They do not make
provision for
a quorum and authorise the Pricing Committee to determine the
procedure for the conduct of its business. They
had to address
a difficult and contentious issue which would call for ongoing work
over an extended period. It could not
have been contemplated
that all its members would have to attend all meetings or to
participate personally in all decisions of
the Pricing Committee.
Neither the Medicines Act nor the regulations can be construed as
imposing such a requirement.
The Pricing Committee was
therefore entitled to determine its own methods of work, including
the manner in which material relevant
to its mandate should be
gathered.
[146]
[173] The General
Regulations make provision for only four matters affecting the
Pricing Committee. The composition of the
Pricing Committee,
the provision to which I have referred concerning the conduct of the
Pricing Committee’s business, the
authority to the
Director-General to designate employees of the Department to serve as
the secretariat of the Pricing Committee,
and a provision that:
“The Committee may appoint, subject to the approval of the
Minister, subcommittees as it may deem necessary, to investigate
and
report to it any matter within the purview of the Committee in terms
of the Act.”
It was contended
that if the Pricing Committee wished some but not all of its members
to be present when the oral presentations
were being made, it should
have secured the Minister’s consent to that, and appointed a
sub-committee for that purpose.
[174] I do not
agree. This was not an investigation of a discrete issue in
which other members of the Pricing Committee would
not participate.
It was part of the process of evaluating the draft regulations which
included, but was not limited to, a
consideration of responses to the
publication of the draft regulations.
[175] The draft
regulations were published for comment on 16 January 2004. The
responses called for had to be in writing and
sent to the
Department. When the written responses were received they were
sent by the Department to the members of the Pricing
Committee to
allow them to consider the representations over an extended period.
All the members of the Pricing Committee
were involved in this
process.
[176] The
invitations from the Department brought to the attention of those who
were to make representations that all members of
the Pricing
Committee would not necessarily be present. Knowing that, they
accepted the invitation.
[177] The Minister
and the Pricing Committee were not engaged in a process of
adjudication in which disputes of fact had to be resolved.
They
were engaged in a law-making process in which those who would be
affected by their decisions were given details of their proposals
and
an opportunity of stating their objections. The process was
highly public, there were public forums, meetings with stakeholders,
lobbying, media reports and an opportunity to make written
representations.
[178] PSSA’s
written objections lodged with the Pricing Committee focussed on the
issues raised in this litigation, as did
the representations by New
Clicks, and others. It was made clear by them, and others who
supported them, that they contended
that the dispensing fee in the
draft regulations, set at 24% for medicine under R100 and R24 for
medicine costing R100 or above,
would cause pharmacists to trade at a
loss. The written objections set out details in support of this
contention.
[179] For instance,
the written objection by PSSA sought to establish by actuarial
evidence that the proposed fee structure would
cause pharmacists to
trade at a loss. It made various proposals directed to the
draft pricing scheme, including a proposal
that pharmacists would be
able to trade at a reasonable profit at a fixed dispensing fee of R25
per prescription item, plus 25%
of cost for medicine costing R50 or
less and 12,5% of cost for medicine costing more than R50. An
additional proposal was
that there should be a rural supplementation
for community pharmacies in rural areas. New Clicks also
submitted detailed
representations contending that pharmacists would
trade at a loss if the dispensing fee proposed in the regulations
were adopted,
as did others in the pharmaceutical industry.
They all had a fair opportunity of making their views known.
[180] The
regulations that were ultimately adopted and made after considering
the objections increased the proposed dispensing fee
from R24 to R26
for medicine costing R100 or more, and from 24% to 26% for medicine
costing less than R100. The proposal
as to the manner in which
the single exit price should be calculated was materially changed.
Other material changes were
also made to the regulations.
[181] The
arrangement made for some members of the Pricing Committee to attend
the oral presentations must be seen against this
background.
The objectors had been given an opportunity to formulate detailed
written objections to the draft regulations.
Only those who did
so were invited to make oral presentations. The purpose of this
procedure was to enable the presenters
to clarify the existing
representations in so far as that might be necessary. The
proceedings were electronically recorded
on tape and video and that
would make it possible to refer to them in detail if that should
prove to be necessary later in the
process.
[182] The decision
to invite oral representations to be made after written
representations had been lodged was an addition to the
notice and
comment procedure which in itself would have been sufficient to meet
the requirements of PAJA. I am not persuaded
that by providing
this additional opportunity to the objectors in which some but not
all of the members of the Pricing Committee
participated, a fair
procedure was converted into an unfair procedure.
[183] Whether the
dispensing fee will result in pharmacists trading at a loss is a
dispute relevant to the question whether it is
an appropriate fee
within the meaning of section 22G of the Medicines Act. The
Pharmacies dispute that it is. But that
is a separate issue and
is one of the issues raised in the contention that material
provisions of the regulations contravene the
lawfulness requirement
of PAJA. A question relevant to that issue is whether the
Pricing Committee had regard to the submissions
made to it by the
Pharmacies at the oral hearings. I deal with this when I
consider the challenge that the dispensing fee
is not
“appropriate”.
[147]
[184] Before dealing
with that issue, it is necessary to address an argument that the
Minister should have conducted a further enquiry
after the Pricing
Committee had made its final recommendation.
[185] In my view
there is no substance in this submission. I have previously
explained why the process of making regulations
should be seen as a
single process involving both the Minister and the Pricing
Committee. The Minister had representatives
on the Pricing
Committee, and the Department was kept informed of developments as
they occurred. The invitation to make written
representations
on the draft regulations came from the Minister. The invitation
to supplement the representations by oral
presentations came from the
Department. The written representations were submitted to the
Department, and Department officials
conducted the proceedings at
which the oral presentations were made. The process involved
both the Minister and the Pricing
Committee. This was
compatible with their responsibilities in terms of section 22G of the
Medicines Act. The contention
that the Minister was obliged to
engage in a further process after the Pricing Committee had made its
recommendations must therefore
be dismissed.
Reasonableness
[186] Section
6(2)(h) of PAJA provides that:
“A court or tribunal has the power to judicially review an
administrative action if the exercise of the power or the performance
of the function authorised by the empowering provision, in pursuance
of which the administrative action was purportedly taken,
is so
unreasonable that no reasonable person could have so exercised the
power or performed the function”.
[187] In
Bato
Star
[148]
this Court held that section 6(2)(h) of PAJA should be construed
consistently with the Constitution to mean that
“[A]n administrative decision will be reviewable if . . . it is
one that a reasonable decision-maker could not reach.
What will constitute a reasonable decision will depend on the
circumstances of each case, much as what will constitute a fair
procedure will depend on the circumstances of each case.
Factors relevant to determining whether a decision is reasonable
or
not will include the nature of the decision, the identity and
expertise of the decision-maker, the range of factors relevant
to the
decision, the reasons given for the decision, the nature of the
competing interests involved and the impact of the decision
on the
lives and well-being of those affected.” (footnote omitted)
[188] It is not
necessary in the present case to consider how this should be applied
to the making of the regulations. The
dispensing fee is
required by section 22G(2)(b) to be “appropriate”.
If it is, then it will not be unreasonable
within the meaning of
section 6(2)(h) of PAJA. If it is not appropriate, it will not
comply with the empowering statute,
and will be inconsistent with
section 6(2)(a) of PAJA.
[149]
Lawfulness
[189] Section 6(2)(f)(i) of PAJA provides:
“A court or tribunal has the power to judicially review an
administrative action if the action itself contravenes a law or
is
not authorised by the empowering provision”.
The Pharmacies have
challenged the pricing system prescribed by the regulations on the
grounds that it contains material provisions
that are not authorised
by the empowering legislation, or which fail to comply with what the
empowering legislation requires.
In this regard it is contended
that the following provisions of the pricing system are not
authorised by section 22G of the Medicines
Act, which is the
provision under which the Minister and the Pricing Committee acted:
(a) The imposition of price control measures.
(b) The definition of the single exit price.
(c) The delegation of certain powers to the Director-General.
(d) The power of the Minister to determine annual increases in the
single exit price and to place a cap on the logistics fee.
(e) A pricing system that is not transparent.
(f) A dispensing fee that is not appropriate.
I will deal with
these contentions in turn.
The pricing
system
[190] The pricing
system contemplated by the regulations is as follows. A “single
exit price” (SEP) will be set
for the sale of each medicine
that is sold by a manufacturer or importer.
[150]
This must not be higher than a maximum price, which has to be
calculated on the basis of sales during 2003.
[151]
Provision is made for how the SEP is to be calculated in respect of
products sold for the first time after January 2004.
[152]
[191] The SEP thus
established becomes a fixed price at which the manufacturer or
importer must sell the product.
[153]
Wholesalers who buy the medicine for onward sale must sell at a price
not higher than the SEP;
[154]
and the same applies to pharmacists whether they buy the medicine
from the manufacturer, importer, wholesaler or distributor.
The
wholesalers and distributors are entitled to a logistics fee for
their services
[155]
and the pharmacists are entitled to an “appropriate”
dispensing fee for their services.
[156]
Provision is made for price increases and for bringing manufacturers’
prices into line with international standards
by a system of
international benchmarking.
[157]
I deal later with the details of these provisions which are relevant
to other challenges to the regulations.
[192] In effect the
system contemplates that the medicine and Scheduled substances will
move along the distribution chain at a price
not higher than the SEP,
which is the price at which the medicine or Scheduled substance must
enter the distribution chain.
Wholesalers, distributors and
pharmacists cannot put up the price of the medicine, and are limited
to the fees they are entitled
to charge in terms of the regulations.
The result is that medicines will become available to all consumers,
other than the
state, wherever they are, and whoever they may be, and
from whatever source they are supplied, at the SEP or a lower price.
It is contemplated that the price of medicines will be transparent,
and over time will be brought into line with prices in other
countries where the price of medicines is regulated.
Price control
[193] The Pharmacies contend that the regulations introduce a system
of price control which is not authorised by section 22G or
any other
provision of the Medicines Act and is therefore unlawful. It is
convenient to refer here to the relevant provisions
of section 22G.
“(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or
by a person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule 0 medicines.
(3)(a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or
a wholesaler or distributor shall sell a medicine at a price
higher
than the price contemplated in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist
or person licensed in terms of this Act to charge a dispensing
fee as
contemplated in subsection (2)(b).”
[194] The section
not only permits, but in fact requires price control measures to be
made, that affect all parties in the distribution
chain.
Section 22G(3)(a) prescribes that the price at which the manufacturer
or importer must sell to persons other than
the state, is the SEP.
That is a mandatory price control measure that must be reflected in
the regulations. So too
is the requirement of section
22G(3)(b), that a pharmacist, or other person licensed to sell
medicines, may not sell them at a
price higher than the SEP.
There is accordingly no substance in the submission that section 22G
does not contemplate price
control measures.
[195] There is,
however, a narrower issue that has to be considered for it is one of
the reasons given by the SCA for holding the
regulations to be
invalid. It concerns the setting of the SEP. Section 22G
does not specify how or by whom the SEP
should be determined.
It is argued that the provisions in the regulations which place
procedural or substantive limits on
the setting of the SEP are ultra
vires the Medicines Act. The phrase “single exit price”
is not a term of art.
It must be construed in the context of
the Medicines Act and in particular of section 22G(3). In that
context it seems to
me that the Pharmacies are correct in contending
that it is the price at which a medicine enters the distribution
chain.
But does that mean that the regulations cannot prescribe
how that price is to be determined or controlled?
[196] The SCA held
that this was indeed so. They considered the purpose of the
pricing system for which section 22G makes
provision to be the
elimination of the discounts and subsequent mark-ups which had
previously distorted the market.
[158]
But this is achieved by sections 18A and B which specifically
prohibit such schemes.
[197] Section 22G
adds to this the element of transparency. The SCA referred to
the importance of transparency in these terms:
“[S]ince dispensers are entitled only to add a prescribed fee,
a member of the public would be able to assess whether the
price paid
is the correct one. Because manufacturers would know what the
prices charged by their competitors are, they will
have to reduce
their prices and publish the reduced prices in order to
compete.”
[159]
But transparency is
only one of the mandatory requirements of the pricing system.
Other mandatory requirements are referred
to in section 22G(3).
There must be a SEP and an obligation that medicines may not be sold
at a higher price than the SEP.
These mandatory requirements do
not, however, limit the general power to establish a pricing system
for all medicines.
[198] Counsel for
the Pharmacies submitted that “the mischief” at which
section 22G is directed is the elimination of
the system of
discounting and subsequent marking up of the prices of pharmaceutical
products that characterised the sale of such
products in the past.
But that is prohibited by sections 18A and B of the Medicines Act,
and is not directly addressed in
the regulations.
Legislative
history
[199] The Pharmacies
refer to the explanatory memorandum which accompanied the Medicines
and Related Substances Control Amendment
Bill, 72 of 1997, when it
was introduced into Parliament, which says that the primary purpose
of the Bill was to bring the Medicines
Act into line with the
National Drug Policy of the Department of Health.
[200] In
S v Makwanyane and Another
[160]
I had occasion to consider whether background material is admissible
for the purpose of interpreting the Constitution. I
concluded
that
“where the background material is clear, is not in dispute, and
is relevant to showing why particular provisions were or
were not
included in the Constitution, it can be taken into account by a Court
in interpreting the Constitution.”
[161]
[201] Although it is
not entirely clear whether the majority of the Court concurred in
this finding, none dissented from it.
I have no reason to
depart from that finding and in my view it is applicable to
ascertaining “the mischief” that a
statute is aimed at
where that would be relevant to its interpretation. This would
be consistent with the decisions of the
Appellate Division in
Attorney-General, Eastern Cape v Blom and Others
,
[162]
and
Westinghouse Brake & Equipment (Pty) Ltd v Bilger
Engineering (Pty) Ltd
[163]
and the cases from other jurisdictions referred to in
Makwanyane’s
case.
[164]
[202] The National
Drug Policy is set out in a comprehensive document which addresses
health objectives, economic objectives and
national development
objectives. The economic objectives are as follows:
“(a) to lower the cost of drugs in both the private and public
sectors
(b) to promote the cost-effective and rational use of drugs
(c) to establish a complementary partnership between Government
bodies and private providers in the pharmaceutical sector
(d) to optimize the use of scarce resources through cooperation with
international and regional agencies.”
[165]
[203] The drug
pricing policy is dealt with in a separate chapter. Its aim is
said to be: “To promote the availability
of safe and effective
drugs at the lowest possible cost”.
[166]
The mischief, therefore, to which section 22G is directed is the
lowering of the high cost of drugs. The price control
provisions of the regulations are a means, though not the only means,
of addressing this mischief.
[204] The document
goes on to describe how the stated aim of this policy is to be
achieved. It is not necessary to decide
whether it is
permissible to have regard to this for the purpose of interpreting
section 22G. Even if I were to assume in
favour of the
Pharmacies that it is a relevant consideration,
[167]
the methods described include establishing a “Pricing Committee
with clearly defined functions to monitor and
regulate
drug
prices”, the development of a “data base . . . to monitor
the cost of drugs in the country in comparison with prices
in
developing and developed countries” and that “[p]rice
increases will be regulated.”
[168]
The policy for implementation also refers to “total
transparency in the pricing structure of pharmaceutical
manufacturers,
wholesalers, providers of services, such as dispensers
of drugs, as well as private clinics and hospitals”, the
introduction
of a “non-discriminatory pricing system”
which will if necessary be enforced, and the replacement of the
“wholesale
and retail percentage mark-up system” with “a
pricing system based on a fixed professional fee.”
[169]
The regulations seem to me to be broadly in line with these
policies. The question, however, is not whether the regulations
are consistent with policy statements, but whether they are
sanctioned by the empowering legislation.
[205] PSSA rely on
evidence given by the former Director-General of Health as to the
meaning of section 22G and on his opinion that
the SEP was to be set
by manufacturers. The opinion of the former Director-General as
to the meaning of section 22G is not
admissible for this purpose.
It is the Court’s duty, and not that of the former or present
Director-General, to interpret
the statute.
[206] No doubt the prohibition of discounts and bonuses and the
mandated element of transparency to which the SCA refers are likely
to create market conditions more conducive to competition than those
that previously existed. But these are not the only
measures by
which the price of medicines can be lowered. Sections 15C,
[170]
18A,
[171]
22F,
[172]
22G, and 22H,
[173]
read together, contain a regulatory framework, partly in the
Medicines Act and partly in regulations to be made under section 22G,
designed to contribute to the lowering of the cost of medicines.
It is within this context that section 22G must be read
and
construed.
[207] It is apparent from various provisions of the Medicines Act
that the pharmaceutical industry is tightly regulated.
Controls
are imposed over the manufacture, sale and distribution of
medicines.
[174]
Section 22H requires a wholesaler to purchase medicines only from the
original manufacturer or from the primary importer
of the finished
product, and to sell only into the retail sector. In terms of
section 22F pharmacists may not sell medicines
that have been
prescribed, if there is a generic substitution available at a lower
price, unless a person prescribing the medicine
“has written in
his or her own hand on the prescription the words ‘no
substitution’ next to the item prescribed”.
[175]
Section 15C of the Medicines Act makes provision for the Minister to
prescribe conditions for the supply of more affordable
medicines in
certain circumstances so as to protect the health of the public, and
in particular to make provision for the relaxation
of certain
provisions of the
Patents Act, 57 of 1978
to facilitate parallel
importation of medicines still under patent protection.
Section
18A
provides that “[n]o person shall supply any medicine
according to a bonus system, rebate system or any other incentive
scheme.”
Section 18B
prohibits the provision of free
samples to persons in the distribution chain.
Controlling the
price of medicines
[208] Does the fact that the Medicines Act imposes these various
controls in specific terms and provides that the fees of pharmacists,
wholesalers and distributors are to be prescribed in the regulations,
but says no more about the SEP than that it is the only price
at
which the manufacturer may sell medicine, mean that the regulations
may not deal with how the SEP is to be set or controlled
in the
future?
[209] A statutorily mandated pricing system, which is to be fleshed
out by regulations, inevitably contemplates a system with inbuilt
controls. Reverting to section 22G, which is the section under
which the regulations were made, a thread that runs through
it is
that the pricing system must contain measures that will enable
control to be exercised over the price of medicines.
Section
22G prescribes certain essential measures to be included in the
system but does not say that they are the only measures
that are
competent. There seems to be no reason why the “pricing
system” referred to in section 22G, which contemplates
price
controls throughout the distribution chain, should be construed as
excluding controls over how the SEP should be set and
increased.
[210] I am accordingly unable to agree with the SCA, or with the
submissions made to us in this regard by counsel for the Pharmacies.
In my view the regulations are not invalid simply because they
include price control measures affecting the SEP.
Single exit
price: section 22G of the Medicines Act
[211] The SCA held
that the provisions of the regulations dealing with the SEP are
inconsistent with the Medicines Act. Regulations
must where
possible be construed consistently with the empowering Act under
which they are made.
[176]
It is necessary, therefore, in dealing with the appeal against this
decision to begin by considering the provisions of the
Medicines Act
that are relevant to the appeal.
[212] The sale and
distribution of medicines and Scheduled substances is strictly
controlled by the Medicines Act, which regulates
the manufacture,
quality, importing, distribution and sale of such products.
[213] The Medicines
Act and regulations contemplate that the marketing of medicines will
be along a distribution chain leading from
the manufacturer to the
public in ways which may involve a number of different actors.
[214] In the public
sector in South Africa the chain begins with the manufacturer or
importer and ends with a state institution
which provides medicine to
patients treated by the state in public hospitals and clinics, or by
district surgeons. The state
buys its supplies through tender
processes at costs that are usually less than that for which the same
medicines can be bought
in the private sector. In the private
sector the chain begins with the manufacturer or importer and ends
with a retailer,
or medical practitioner, dentist, veterinarian, or
health professional, who deals directly with the public. A
distinction
is made between Schedule 0 medicines on the one hand and
all other scheduled medicines on the other. The former may be
sold
by any retailer,
[177]
while the latter may be sold only by medical practitioners, dentists,
veterinarians, licensed health professionals, manufacturers
of and
wholesale dealers in pharmaceutical products, and retailers who are
pharmacists.
[178]
The Medicines Act also makes a distinction between prescription and
non-prescription medicines. The latter are those
medicines
contained in Schedules 0, 1 and 2 which can be sold without a
doctor’s prescription, and the former are those contained
in
Schedules 3 to 6, which require a doctor’s prescription.
[179]
Wholesalers and
distributors
[215] The Medicines
Act recognises that in addition to manufacturers there are
intermediaries who have a role to play in the distribution
of
medicines earmarked for sale to the public. They are
distributors and wholesalers. They must be licensed in terms
of
the Medicines Act to carry out these functions.
[180]
The Medicines Act does not define “distributor” or
“wholesaler” but if the words are given their
ordinary
meaning, a distributor would be an agent or representative of the
manufacturer or wholesaler, and a wholesaler would be
a person who
trades in bulk for his or her own account. This seems to have been
accepted by the parties, and as appears from the
affidavits lodged in
this matter, to be consistent with the way the trade operates in
practice. According to the PSSA founding
affidavit made by Ms
Davis, manufacturers generally supply their products through a
wholesaler, who buys in bulk, and sells to
retailers in smaller
quantities, or through a distributor, who acts as the manufacturer’s
agent, and as such deals either
with retailers or wholesalers.
Manufacturers also sell products directly to retailers.
[216] Section 22A of
the Medicines Act controls the possession and sale of medicines and
Scheduled substances and identifies the
persons who are entitled to
do so. Sections 22A(4) and (5) of the Medicines Act do not
include distributors amongst those
entitled to sell medicines listed
in Schedules 1 to 6. Yet section 22G(3), which is a provision
of the framework provided
by the Medicines Act for the pricing
system, refers in subparagraph (a) to selling by manufacturers, and
in subparagraph (b) to
selling by pharmacists, wholesalers and
distributors.
[181]
This seems prima facie to contemplate that distributors may sell
medicines for their own account – which would be prohibited
by
sections 22A(4) and (5). A breach of these sections is a
criminal offence.
[182]
[217] But if
sections 22G(3)(b) is construed in the light of section 22A(4) and
(5), and the meaning to be given to “wholesaler”
and
“distributor” in the context of the Medicines Act, it
must be understood as referring to sales by distributors
on behalf of
manufacturers and not on their own behalf. If they were to sell
on their own behalf they would, in respect of
such sales, cease to be
a distributor, would become a wholesaler, and would require a
wholesaler’s licence to do so.
Construed thus, section
22G(3)(b) can be reconciled with sections 22A(4) and (5).
[183]
The regulation of
participants in the making and distribution of medicines and
Scheduled substances
[218] The Medicines
Act requires persons engaged in the making and distribution of
medicines and Scheduled substances to be licensed
to do so.
This is dealt with in section 22C of the Medicines Act
[184]
and in the General Regulations. In terms of sections 22C(1)(b) and
22C(6) manufacturers, distributors or wholesalers licensed to
do so
may import medicines.
[185]
With the exception of section 15C, which deals with parallel
importing of patented medicines, no other section of the Medicines
Act authorises anyone other than a manufacturer, wholesaler or
distributor to import medicines or Scheduled substances. It
is
not clear from section 15C whether persons engaged in parallel
importing in terms of that section also require to be licensed
under
section 22C, but that need not be decided in this case.
[219] The General
Regulations require importers to have a licence
[186]
and make provision for licences to be issued only to manufacturers,
wholesalers and distributors.
[187]
A contravention of these regulations is a criminal offence.
[220] Section 22H of
the Medicines Act provides that a wholesaler may only purchase
medicine from the “original manufacturer”
or the “primary
importer” and may only sell to the retail sector.
[188]
In terms of section 22H(3) the Director-General may exempt a
wholesaler from these restrictions.
[221] There is no
definition of “primary importer” and these words are not
used in any other section of the Medicines
Act. It is not clear
from this or other provisions of the Medicines Act who a primary
importer is. It is, however,
not necessary for the purposes of
the decision in this case to answer that question.
[222]
In terms of the Medicines Act, the importing, distribution and
sale of medicines must therefore take place within the following
framework. Only manufacturers, wholesalers and distributors,
licensed to do so, may import medicines. Only manufacturers,
wholesalers and distributors, licensed to do so, may sell medicines.
Manufacturers and wholesalers sell medicines for their
own account,
distributors sell medicines as agent or representative of the
manufacturer, or possibly on behalf of a wholesaler.
If
medicines are imported by a person other than the manufacturer, an
importer who becomes the owner of the medicines bought, and
sells
them for its own account, acts as a wholesaler for the purposes of
the Medicines Act, and must have a wholesaler’s
licence
authorising it to import and carry on business as a wholesaler.
In that event the wholesaler, unless exempted under
section 22H, must
sell the imported medicine to the retail trade. If medicines
are imported by an importer as representative
of the manufacturer on
whose behalf the importer sells the medicine, that importer is a
distributor for the purposes of the Medicines
Act. In that
event, the distributor may sell the medicine on behalf of the
manufacturer, either to a wholesaler or directly
to retailers.
Remuneration of
wholesalers and distributors
[223] Sections
22G(2) and (3) of the Medicines Act provide:
“(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or
by a person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule 0 medicines.
(3)(a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or
wholesaler or distributor shall sell a medicine at a price
higher
than the price contemplated in paragraph (a).”
[224] The pricing
system contemplated by section 22G of the Medicines Act requires that
there be a SEP, and stipulates that the
SEP is the only price at
which the manufacturer may sell medicines to persons other than the
state.
[189]
Distributors, wholesalers, and pharmacists may not sell the medicine
at a price higher than the SEP.
[190]
[225] The Medicines
Act contemplates that wholesalers and distributors will be engaged in
the marketing of medicines. They
are prohibited by section 22G
from being recompensed for doing so through a mark-up on the price,
and indirect rewards through
bonuses, rebates and the provision of
samples are prohibited by sections 18A and B.
[191]
The only way they can be rewarded is by payment through means other
than the mark-up on the price.
[226] The Medicines
Act makes provision for them to be rewarded through “fees”
payable to them for their services.
Hence sections 22G(2)(b)
and (c) make provision for the regulations to include “an
appropriate dispensing fee” to be
charged by a pharmacist and
“an appropriate fee to be charged by wholesalers or
distributors or any other person selling
Schedule 0 medicines.”
[227] It was
contended by New Clicks, but not by PSSA, that the reference in
section 22G(2)(c) to “any other person selling
Schedule 0
medicines” demonstrates that section 22G(2)(c) applies
only to the sale of Schedule 0 medicines, and that
no provision is
made for wholesalers or distributors to receive remuneration for
their role in the sale of prescription medicines.
In this
regard it drew attention to section 22G(3)(c) which makes clear that
a pharmacist may charge a dispensing fee in addition
to the SEP, but
says nothing about a wholesaler.
[228] As initially
formulated in Act 90 of 1997 sections 22G(2) and (3) provided:
“(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or
by a person licensed in terms of section 22C(1)(a).
(3)(a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a)
shall sell a medicine at a price greater than the price contemplated
in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist
or person licensed in terms of this Act to charge a dispensing
fee as
contemplated in subsection (2)(b).”
[229] As initially
formulated, therefore, section 22G made no provision for sales by
wholesalers. It dealt only with manufacturers,
pharmacists, and
licensed health professionals. It was in this context that
section 22G(3)(c) made it clear that the requirement
that pharmacists
and licensed health professionals shall not sell at a price higher
than the SEP, did not preclude them from charging
a dispensing fee.
[230] Act 90 of 1997
introduced the present sections 22A and 22H. Section 22A
authorises a “wholesale dealer”
to sell Scheduled
substances (which would have included medicines). Section 22H
provides that no wholesaler shall purchase
medicines from any source
other than from the original manufacturer or from the primary
importer of the finished product, and required
the wholesaler to sell
medicine to the retail sector. There was an obvious problem.
If the manufacturer had to sell
at the SEP and the wholesaler (who
sells for its own account) may only buy from the manufacturer and
sell to the retail trade,
which had to sell at no more than the SEP,
how was the wholesaler to make a living? It was presumably for
this reason that
section 22G was amended by Act 59 of 2002 which
introduced section 22G(2)(c), making provision for an appropriate fee
to be charged
by wholesalers.
[192]
[231] When it did
so, however, it failed to make a consequential amendment to section
22G(3)(c), which states that the prohibition
against selling at a
price higher than the SEP does not preclude the charging of a
dispensing fee by the pharmacist. The
absence of a similar
provision in respect of a wholesaler or distributor cannot preclude
them from making such a charge, otherwise
section 22G(2)(c) would not
serve the purpose it was clearly intended to serve. It would
also, if so construed, effectively
prevent the wholesaler from
carrying on the business contemplated by section 22H.
[232] Unless
the Medicines Act is construed as making provision for a fee to be
charged by wholesalers or distributors for
their services in
marketing prescription medicines, it would be impossible for them to
conduct their businesses. It seems
to me that if regard is had
to this, section 22G(2)(c), construed purposively in the context of
its history and the Medicines Act
as a whole, means that the
regulations may make provision for appropriate fees to be charged by
distributors and wholesalers (who
may sell all categories of
medicines), and also for persons who may only sell Schedule 0
medicines. If this were not the
proper construction of the
language construed in the context of the Medicines Act, I would in
any event adopt it, in accordance
with the principle in
Venter v
R
[193]
which allows a court to depart from the clear language of a statute
where that would otherwise lead
“to absurdity so glaring that it could never have been
contemplated by the legislature, or where it would lead to a result
contrary to the intention of the legislature, as shown by the context
or by such other considerations as the Court is justified
in taking
into account”.
[194]
The regulations
dealing with the pricing system
[233] Since its
first enactment in 1965 the Medicines Act has been amended on no less
than fifteen different occasions. Some
of the amendments are
complex and do not fit easily with earlier provisions of the
Medicines Act. The process of drafting
the regulations was also
rushed. Draft regulations were published for comment on 16
January 2004. Comments had to be
made within three months.
Many representations were made during this period as a result of
which decisions were taken to
amend the regulations in material
respects. Some of these decisions were only taken during March
2004. Draft regulations
were submitted to the Minister for her
approval on 19 April 2004. After discussions with the Minister,
amended regulations
were submitted to her for approval on 21 April
and were published in the Gazette on 30 April 2004. Against
this background
it is not surprising that there are a number of
problems in interpreting the regulations and attempting to reconcile
them with
one another and with the provisions of the Medicines Act.
[234] From a reading
of the regulations against the background of the Medicines Act it
seems that the pricing system contemplated
by the Minister and the
Pricing Committee is as follows. A SEP must be set for every
medicine to be sold in South Africa.
The SEP must be sufficient
to allow for payment of a logistics fee by manufacturers to
wholesalers/distributors and VAT.
At the commencement of the
regulations the SEP must be calculated according to a formula
prescribed in the regulations, subject
to adjustment by a process of
comparative international benchmarking, and annual reviews.
Provision is made for a dispensing
fee for the remuneration of
pharmacists and for an annual review of such fee. Consistently
with section 22G of the Medicines
Act, the manufacturer has to sell
at the SEP and wholesalers/distributors and pharmacists are not
entitled to remuneration other
than the logistics fee and the
dispensing fee.
[235] Section 29(k)
of the Medicines Act provides that it is an offence to contravene any
provision of sections 22A, 22C(5) and
(6), 22F, 22G, or 22H, or to
contravene or fail to comply with “any condition imposed
thereunder”. The pricing
system in the regulations made
under section 22G imposes conditions of sale which have to be
complied with by various participants
in the distribution
chain.
[195]
A breach of those regulations is therefore a criminal offence in
terms of section 29(k) of the Medicines Act.
[236] This, in broad
outline, is the scheme. The scheme is criticised by the Pharmacies on
the ground that regulation of prices
is less effective than market
forces. The choice of price regulation, if not inconsistent with the
Medicines Act,
[196]
was a policy decision within the domain of the legislature and the
executive with which this Court will not interfere. This
Court
is concerned with whether the scheme meets the requirements of the
Medicines Act and was adopted in accordance with the provisions
of
the Constitution and PAJA, and not with whether there may be better
ways of achieving the same purpose. I am satisfied
that, in
broad outline, the scheme is consistent with the Medicines Act.
The devil, however, lies in the detail.
The supply chain
[237] To begin with,
the regulations are structured with a particular “supply chain”
in mind. The “supply
chain” is defined in
regulation 2 to include:
“any two or more of the following—
(a)
a manufacturer;
(b)
an importer;
(c)
an exporter;
(d)
a wholesaler;
(e)
a distributor;
(f)
a retailer;
(g)
a person licensed in terms of section 22C(1)(a) of the Act;
(h)
the user of a medicine”.
[197]
[238] The
regulations define an importer as
“a person importing medicines for the purpose of sale in the
Republic from a manufacturer or other person outside of the
Republic
and includes a parallel importer as defined in the Act”.
There is no
definition of “parallel importer” in the Medicines Act.
Presumably the reference was intended to be
to a person importing
medicine in terms of section 15C of the Medicines Act,
[198]
and this is how the words are defined in the General
Regulations.
[199]
[239] When they refer to an importer in the “supply chain”
the regulations may be understood as referring to a person
other than
a manufacturer, distributor or wholesaler. This is also what
may be inferred from the way the definitions of logistics
fee,
[200]
logistical services,
[201]
single exit price,
[202]
retailer,
[203]
and user
[204]
are formulated in the regulations, and also from regulations 6, 14,
21, 22(1), and 24.
[240] The definition
of importer in the pricing regulations also contemplates that
importers will be engaged in selling medicines.
Regulation
24(4) says as much. It provides that:
“Manufacturers and importers must, with effect from the date
one month after the date of commencement of these regulations,
sell
medicines and Scheduled substances only in accordance with the
provisions of these regulations.”
[241] In this
context the regulations must be construed as referring to lawful
importers.
[205]
To act lawfully, importers must be licensed in terms of the Medicines
Act. And the Medicines Act only makes provision
for such
licences to be issued to manufacturers, distributors and
wholesalers.
[206]
[242]
The regulations define
“distributor” as meaning:
“a person, other than a manufacturer, wholesaler or retailer,
who supplies a medicine or Scheduled Substance to a retailer
or
wholesaler”.
The definition
refers to “supply” and not to “sell”.
This is consistent with the Medicines Act which
does not permit
distributors to sell medicines or Scheduled substances for their own
account. They may, however, import the
medicine on behalf of
the manufacturer, and if licensed to do so, they become importers as
well.
[243]
“Wholesaler” is defined as meaning:
“a dealer who purchases medicines or Scheduled substances from
a manufacturer and sells them to a retailer and includes a
wholesale
pharmacy”.
This is also
consistent with the Medicines Act which requires wholesalers to buy
from manufacturers. If they do so they may
in the process
become “importers”.
[244]
With this explanation of the participants in the supply
chain and the roles assigned to them under the Medicines Act and the
regulations,
I turn to consider the arguments addressed to us on
behalf of the Pharmacies in support of the finding by the SCA that
the regulations
are inconsistent with the Medicines Act and are
accordingly invalid.
[245] The Pharmacies
contend that the regulations dealing with the setting of and
increases in the SEP are incoherent, in parts
contradictory, and are
inconsistent with section 22G of the Medicines Act. They also
contend that the regulations are vague
and uncertain in other
respects and that the dispensing fee prescribed by the regulations
for pharmacists is not an “appropriate
fee”.
Vagueness
[246] It seems to
have been assumed by the parties, and in my view correctly so, that
vagueness is a ground for review under PAJA.
Although vagueness
is not specifically mentioned in PAJA as a ground for review, it is
within the purview of section 6(2)(i) which
includes as a ground for
review, administrative action that is otherwise “unconstitutional
or unlawful”. This
Court has held that the doctrine of
vagueness is based on the rule of law which is a foundational value
of our Constitution.
[207]
In
Affordable Medicines
[208]
this Court explained the doctrine in the following terms:
“[L]aws must be written in a clear and accessible manner.
What is required is reasonable certainty and not perfect
lucidity.
The doctrine of vagueness does not require absolute certainty of
laws. The law must indicate with reasonable
certainty to those
who are bound by it what is required of them so that they may
regulate their conduct accordingly. The
doctrine of vagueness
must recognise the role of government to further legitimate social
and economic objectives. And should
not be used unduly to
impede or prevent the furtherance of such objectives.”
[209]
(footnotes omitted)
Related to this is a
requirement implicit in all empowering legislation that regulations
must be consistent with, and not contradict,
one another.
Regulations which fail to comply with these requirements would
therefore contravene section 6(2)(i) of PAJA.
The SEP
[247] “Single exit price” is defined in regulation 2 as
meaning
“the price set by the manufacturer or importer of a medicine or
Scheduled substance in terms of these regulations combined
with the
logistics fee and VAT and is the price of the lowest unit of the
medicine or Scheduled substance within a pack multiplied
by the
number of units in the pack”.
[248] Regulation
5(1) provides that:
“Upon commencement of these regulations the price of a medicine
or Scheduled substance must be set by the manufacturer, or
where the
medicine or Scheduled substance is imported by a person other than
the manufacturer, the importer of the relevant medicine
or Scheduled
substance, and combined with the logistics fee in order to arrive at
a single exit price for the relevant medicine
or Scheduled
substance.”
Manufacturers,
wholesalers, distributors, and importers
[249]
The definition of SEP in regulation 2 and the provisions of
regulation 5 which deal with how the SEP is to be calculated, require
it to be set by the manufacturer or importer.
[210]
Referring to this the SCA held that “[t]he Act itself draws a
clear distinction between a ‘manufacturer’,
an
‘importer’, a ‘wholesaler’ and a
‘distributor’.”
[211]
The judgment goes on to say that
“The Act, in this form, must have raised immediate problems for
the committee. The first would have been that it does
not take
account of the fact that manufacturers of medicines may be foreign
concerns and that their products may be imported by
third parties.
(As mentioned, the Act requires importers to be licensed.) The
committee, one assumes, recognised the problem
of prescribing to
foreign manufacturers that they have to publish a single exit price
and that they may not sell for more than
that price. The
committee was also faced with the problem that it could hardly be
fair to deny importers the right to charge
more than the
manufacturer’s price. No doubt in order to overcome these
defects in the Act, the committee’s proposal
was to recognise
that an ‘importer’ purchases medicines from a
manufacturer abroad and to define the single exit price
as the price
set not only by the manufacturer, but, alternatively, by the
importer. This could not be done. The Act
is clear.
It requires manufacturers (and only manufacturers) to set their
single exit prices, and importers are a genus different
from
manufacturers and cannot by any stretch of the imagination be equated
with them. It follows that, to this extent, the
regulations are
ultra vires the Act: the committee was not entitled to make the
proposal and the Minister was not entitled to accept
it.”
[212]
[250]
I do not agree that the Medicines Act “requires
manufacturers (and only manufacturers) to set their single exit
prices”.
The Medicines Act requires the pricing system to
make provision for a SEP. Section 22G does not, however, deal
with how or
by whom the SEP must be set. It merely says that
the SEP must “be published as prescribed” and that the
manufacturer
must sell at the SEP. How the SEP is to be set is
a matter that can legitimately be determined by the pricing system
itself.
I can see no reason why the pricing system should not
impose an obligation on importers, who introduce medicines into the
country,
to ensure that the regulations are complied with in respect
of those medicines, and that the SEP is set in accordance with such
requirements.
[251]
I also do not agree that the Medicines Act draws a clear
distinction between manufacturers, wholesalers and distributors on
the
one hand and importers on the other. It does draw a
distinction between manufacturers, wholesalers and distributors, but
it recognises that each may import medicine and Scheduled substances
and, with the possible exception of importing in terms of section
15C, does not permit anyone else to import such products. It is
possible that a particular manufacturer, wholesaler or distributor
may not be licensed to import medicine, and to that extent there may
be a distinction between those who are licensed to import
and those
who are not. But importers are not “a genus different
from manufacturers”; manufacturers licensed to
do so may
import.
Foreign
manufacturers
[252] The Medicines
Act requires manufacturers to sell medicine and Scheduled substances
at the SEP. Section 22G(3)(a) of
the Medicines Act
[213]
provides that the SEP is the only price at which the manufacturer may
sell medicines and Scheduled substances, and section 22G(3)(b)
provides that the price “contemplated in paragraph (a)”
is the maximum price at which wholesalers, distributors and
pharmacists may sell the medicine.
[253] If a foreign
manufacturer sells medicine in South Africa directly or through a
distributor there is no reason why section
22G(3)(a) should not be
applicable to that transaction. The position may, however, be
different if the foreign manufacturer
sells to a South African
wholesaler abroad, as could be the case if the medicine were sold
free on board in a foreign port.
For the purposes of this
judgment I am prepared to assume that this would be so, and that
section 22G(3)(a) would not apply to
such a transaction.
[254] This does not
mean, however, that the pricing system established under section 22G
cannot regulate the price at which such
medicines are sold in South
Africa. Section 22G(2)(a) contemplates a transparent pricing
system for all medicines and Scheduled
substances. The language
is general and applies to “
all
medicines and Scheduled
substances sold in the Republic”. That includes
foreign-made medicines as well as South African-made
medicines.
[255] According to
the evidence in this case over 50% of the medicines sold in the
Republic are imported. Wholesalers who
buy medicine from
foreign manufacturers are not the manufacturers of such medicines,
and thus do not fall within the ambit of the
provisions of section
22G(3)(a) that apply to manufacturers. If the price at which
they buy the medicine is not the price
contemplated in section
22G(3)(a), section 22G(3)(b) will not apply to them, and absent any
provision in the pricing system regulating
the price at which such
medicine may be sold in South Africa, they would be free to sell the
medicine to retailers without any
restriction. This would
fundamentally undermine what the Medicines Act sets out to achieve.
[256] If, as I have
assumed, section 22G(3)(a) is construed as having no application to
medicines purchased abroad by wholesalers
from foreign manufacturers,
there is no reason why the regulations made in terms of section
22G(2)(a) should not fill that gap
and make provision for the
regulation of the price at which such medicines may be sold in South
Africa. A failure to do so
would leave a gaping hole in the
pricing system.
[257] Construed
purposively, therefore, section 22G(2)(a) must be understood as
authorising a pricing system that applies to all
medicine, whether
manufactured locally or in a foreign country, and whether sold in
South Africa by the manufacturer, or on its
behalf by a distributor,
or by a wholesaler who has purchased the medicine abroad.
The inclusion of
the logistics fee in the SEP
[258] The SCA also
finds fault with the inclusion of a logistics fee in the calculation
of the SEP. The judgment says:
“The regulations define the single exit price as ‘the
price set by the manufacturer or importer . . . combined with
the
logistics fee’, which is something greater than the
manufacturer’s price, since it includes both the manufacturer’s
price and the logistics fee.”
[214]
And concludes that
“[a]ll this, with the best of motives, circumvents s 22G which
states expressly that the ‘single exit price’
is the
manufacturer’s selling price. Wholesalers, as the Act and
the regulations recognise, purchase from manufacturers
or importers.
To deem their mark-up as part of the manufacturer’s price is an
impermissible simulation.”
[215]
(footnotes omitted)
[259] The Medicines
Act requires wholesalers to sell medicine to retailers and precludes
them from selling medicine at a higher
price than the SEP. They
cannot, therefore, mark-up the price at which they bought the
medicine. The only remuneration to
which they are entitled for
selling the medicine to retailers (which the Medicines Act requires
them to do) is the “appropriate
fee” contemplated by
section 22G(2)(c).
[260] The
regulations make provision for this. They do so by prescribing
a logistics fee. This is defined as meaning
“the fee that
is payable in respect of logistical services”.
[216]
And those are defined, also in regulation 2, as “services
provided by distributors and wholesalers in relation to a
medicine or
Scheduled substance including but not limited to” certain
services identified in the definition.
[217]
[261] The problem
arises not in relation to the wholesaler or distributor being
remunerated by a “logistics fee” but
in the way the
regulations deal with this and with the fixing of the SEP. As
appears from what follows some of the regulations
are difficult to
interpret and in parts are vague and contradictory.
The calculation
of the SEP
[262] According to
the definition in regulation 2 the SEP is “the price set by the
manufacturer or importer . . . combined
with the logistics fee and
VAT”.
[218]
Construed literally this is a contradiction in terms. The
ordinary meaning of price in a contract of sale is the money
or other
consideration for which goods or property are sold. In terms of
the Medicines Act, however, the manufacturer or
importer has to sell
at the SEP. So the reference in the definition of the SEP to
the “price set by the manufacturer
or importer” cannot be
to the manufacturer’s selling price. It can only be to a
price set for the purpose of
calculating the SEP. I refer to
this price as “the core price”. However, the
definition goes on to provide
that the “price” after this
calculation has been made “is the price of the lowest unit of
the medicine or Scheduled
substance within a pack multiplied by the
number of units in the pack”. Here, “price”
can only mean the
SEP of a unit of the medicine.
[263] The definition contemplates, therefore, that the starting SEP
will be the result of a calculation which may depend upon agreement
between the manufacturer or importer on the one part and the
wholesaler or distributor on the other. The former sets a “core
price” for the purpose of the calculation to which a logistics
fee agreed with the latter will be added, with the total being
the
SEP. This is affirmed in regulation 5(1) which provides:
“Upon commencement of these regulations the price of a medicine
or Scheduled substance must be set by the manufacturer, or
where the
medicine or Scheduled substance is imported by a person other than
the manufacturer, the importer of the relevant medicine
or Scheduled
substance, and combined with the logistics fee in order to arrive at
a single exit price for the relevant medicine
or Scheduled
substance.”
The “price
set” is again the “core price” and not the SEP.
There is, however, no reference in regulation
5(1) to VAT. To
be consistent with the definition and with the pricing scheme
contemplated by the regulations, the words
“and VAT”
would have to be read into regulation 5(1) after “logistics
fee”. Construed thus, the regulations
are internally
consistent; which is required by the Medicines Act. It is
necessary, however, to go further and to apply this
conclusion to the
regulations dealing with the calculation of a maximum SEP.
The maximum price
for the first SEP
[264] Regulation
5(2)(c) provides that “the price of each medicine or Scheduled
substance to be set upon the date of commencement
of these
regulations by the manufacturer or importer must not be higher . . .
than the weighted average net selling price”
of the medicine or
Schedule substance during the calendar year 2003. It is not
clear whether the reference here to “the
price” and the
“weighted average net selling price” is to the
manufacturer’s 2003 price or the price at
which the medicine
was sold to the retail trade in 2003.
[265] A formula for
determining the “weighted average net selling price” of a
particular medicine is prescribed in regulation
5(2)(c)(ii). It
is:
“‘S divided by the total number of lowest units (eg a
tablet) for all of the packs of the same dosage strength of the
medicine sold in the year 2003’
Where S = the total rand value of net sales (being sales less
discounts) for all packs of the same dosage strength of the medicine
sold in the year”.
At the foot of
regulation 5(2)(c) there is a note in brackets which reads as
follows: “(Note: Examples of the manner
in which the
weighted average net selling price must be calculated are cited in
Appendix A of these regulations.)”
Presumably this is
meant to clarify how the calculation of the maximum SEP for a
particular medicine is to be made.
[266] Appendix A
contains the following heading: “Examples of the manner in
which the weighted average net selling price must
be calculated”.
Immediately below this heading is an example dealing with solid
dosages. The sub-heading reads
as follows: “Calculation
of single exit price for solid dosage form where this is available in
different pack sizes”.
The first example is then given.
Before the second example, which deals with liquid dosages, there is
a similar sub-heading
which says “Calculation of single exit
price for liquid dosage form where this is available in different
pack sizes”.
Each example concludes with the statement as
to what “the single exit price” of the tablet pack and
bottle of medicine
is. Appendix A therefore treats the
“weighted average net selling price” as the maximum SEP
per unit, and not
as a maximum “price” to be set by the
manufacturer/importer, to which must be added a logistics fee and
VAT, in order
to calculate the maximum SEP.
[267] If the
calculation in Appendix A is based on sales to the retail sector it
would produce an accurate average “exit”
price inclusive
of VAT for the medicine in 2003. It would include all sales to
the retail sector whether by manufacturers,
distributors or
wholesalers at a time when wholesalers charged a mark-up and not a
logistics fee. This would provide an accurate
model for
determining the 2003 exit prices which, in terms of the regulations
were to become a marker for a price freeze.
[268] If the maximum
SEP is the “weighted average net selling price” as
calculated in Appendix A, the reference in regulation
5(2)(c) to the
price “to be set”, is to the SEP and not, as in the
definition and regulation 5(1), to the core price.
If this is
not so, there will be a contradiction between regulation 5(2)(c) and
Appendix A.
[269] However,
“discounts” is defined in regulation 2 in great detail as
including, but not being limited to, a variety
of benefits that might
be given by “manufacturers” or “importers” to
persons “selling medicines”.
[219]
That points to the manufacturer’s or importer’s price in
2003 being the relevant price. So too does regulation
24(1)
which calls for information to be submitted to the Director-General
by manufacturers and importers concerning sales, discounts
and
volumes of medicines sold during 2003. No such obligation is
imposed on wholesalers who are not importers. Such
information
would not be necessary for the calculation if the relevant price is
the price to retailers and not the manufacturer’s
price.
Practical considerations may also favour a construction based on the
manufacturer’s net price, for this would
avoid difficulties
that might arise if there had been a change in the “importer”
between 2003 and the coming into force
of the regulations.
[270] It is now more
than a year since the regulations were gazetted. The
determination of the first SEP and the calculation
of the maximum
permissible price at which it may be set, called for cooperation
between the manufacturers, and the wholesalers
and distributors.
A manufacturer had to set “the price” at which it was
willing to deal. Both had to agree
on the logistics fee.
And this was so whether or not the wholesalers and distributors were
the importers of the medicine.
[271] The setting of
the maximum SEP depended on information to be obtained from
manufacturers and wholesalers. In a tightly
controlled trade
like the pharmaceutical trade this ought not to have presented
insuperable difficulties. Any problems that
might have existed
at the time seem to have been resolved. Indeed, according to
the evidence SEPs have by now been set in
respect of most if not all
medicines, and dealings between manufacturers and wholesalers are
taking place on that basis.
[272] If regard is
had to Appendix A as drafted, and if the reference in regulation
5(2)(c) to “the price” is construed
as being to the SEP,
there will be no contradiction between Appendix A and regulation
5(2)(c). Ordinarily I would favour
this construction as being
consistent with the validity of the regulations. There are, however,
other issues raised in relation
to regulation 5(2)(c) which need to
be considered before deciding whether or not the regulation is too
vague and uncertain to be
enforced.
[273] According to
regulation 5(2)(c) the calculation of the maximum SEP is to be made
on the basis of the “total rand value
of net sales”
without indicating whether such sales include or exclude sales to the
state. It is contended that this
omission gives rise to an
uncertainty that materially affects the calculations. It
appears from the evidence that the price
of medicines sold to the
state is ordinarily determined by tender, and not through prices
fixed for sales to the private sector.
Section 22G(3)(a)
provides that the SEP does not apply to medicines sold to the state.
Since the regulations are concerned
only with sales to the private
sector I would construe regulation 5(2)(c) as referring to sales,
other than sales to the state.
Medicines sold
for the first time after January 2004
[274] The formula in
regulation 5(2)(c) and Appendix A for setting the maximum SEP cannot
be applied to medicines that were not
sold in South Africa during
2003. If the sale of a medicine or Scheduled substance
commenced only on or after 1 January 2004,
regulation 5(2)(c)(ii)
requires the “price” of the medicine (in this context the
“price” in my view is
the maximum SEP), to be calculated
“using the average of the total rand value of sales less the
total rand value of the discounts for the period for which the
medicine was sold and with reference to the price of that medicine in
other countries in which prices of medicines and Scheduled
substances
are regulated and published.”
Regulation
5(2)(c)(i) deals in the same way with Scheduled substances. It
is not possible from these provisions to determine
how the maximum
SEP should be calculated. Assuming that it can be established
what countries are referred to and what the
prices are (presumably
the manufacturer knows this) there is no indication of how this
formula is to be applied if the prices differ.
The words “with
reference to” are insufficient to provide a basis for the
calculation to be made.
[275] The only
purpose served by regulation 5(2)(c) is to fix a maximum SEP for
medicines at the commencement of the regulations.
Since the
formula used for determining this maximum was based on 2003 sales, it
could have no application to medicines that were
not sold during
2003. Hence the provisos, which are directed to determining the
maximum SEPs for medicines that came onto
the market between 1
January 2004 and the date of commencement of the regulations.
The formula for doing so must be sufficiently
precise to enable that
to be done.
[276] Since
preparing this judgment I have had the benefit of reading the
judgment of Yacoob J who suggests that the provisos were
adopted to
allow for a more flexible method of calculating SEPs for medicines
which had only recently come onto the market.
I regret that I
cannot agree with this proposition. That would have applied
equally to medicines that came onto the market
during the last month
or two of 2003. The provisos were necessary, not for this
reason, but because the prescribed formula
has no application to
products that were not sold during 2003. It was therefore
necessary to have a different formula for
such products. For
the reasons that I have given I consider that the method for
determining the maximum SEP for these products
prescribed by the
provisos is too vague and uncertain to enable persons affected by the
regulation to calculate the maximum that
was permissible.
[277] In these circumstances, and considering all the problems and
uncertainties that there are in construing regulation 5(2)(c)
as a
whole I would hold that the regulation is too uncertain to be
enforced.
International
benchmarking
[278] The SEP set
initially is later required to be brought into line with
international benchmarks. This is dealt with in
regulation
5(2)(e) which provides:
“The Director-General must determine and publish in the Gazette
a methodology for conforming with international benchmarks,
taking
into account the price, and factors that influence price, at which
the medicine or Scheduled substance, or a medicine or
Scheduled
substance that is deemed equivalent by the Director-General, is sold
in other countries in which prices of medicines
and Scheduled
substances are regulated and published and the single exit price of
each medicine or Scheduled substance must, within
3 months of
publication of such methodology in the Gazette conform with
international benchmarks in accordance with such methodology.”
Objection is taken
to this provision on the ground that the regulation delegates to the
Director-General a discretion not permitted
by section 22G(2)(a) of
the Medicines Act.
[279] The
methodology is an essential part of the pricing system, and is the
basis for the determination of the maximum SEP.
No objective
criteria are set for establishing the methodology. In effect,
the regulations vest a broad subjective discretion
in the
Director-General to determine a crucial part of the pricing system.
[280] It may well be
legitimate for the Minister and the Pricing Committee to make
provision for a system which will require the
prices of medicines in
South Africa to be brought into line with international benchmarks,
and to delegate to the Director-General
the responsibility for making
the calculations necessary to give effect to that methodology.
But the regulations go much
further than that. They delegate to
the Director-General the power to determine the methodology itself.
The Director-General
has to decide what factors that influence price
are relevant and have to be taken into account, what medicines are
deemed to be
equivalent for the purpose of the benchmarking, what
countries are to be used for the purpose of the benchmarking, and
what methodology
is to be applied in determining whether or not the
SEP is in conformity with “international benchmarks”.
[281] The methodology will ultimately determine the SEP of every
medicine or Scheduled substance. That was pre-eminently
a task
for the Minister and the Pricing Committee. The Pricing
Committee was appointed because of its special expertise.
Policy considerations require the Minister’s involvement as
well. They must determine the pricing system themselves,
and
not delegate this function to the Director-General. I would
therefore hold that regulation 5(2)(e) constitutes an unauthorised
delegation of power and for that reason is invalid. This defect
in the regulation can be remedied by reading words into the
regulation. I would do so by reading into the regulation the
words: “the Minister on the recommendation of the Pricing
Committee” in place of “the Director-General”.
Increases in the
SEP
[282] We live in
times when inflation and volatile exchange rates have an impact on
prices. Prices are continually changing
in relation to these
factors and other market considerations. It could never have
been contemplated that the regulations
would require the SEP to be
firm, and not subject to increase from time to time.
[283] Having made
provision for a maximum SEP it was necessary for that determination
to be subject to review from time to time.
The regulations
address this issue by making provision for an annual review,
[220]
and for reviews at other times to be made in exceptional
circumstances.
[221]
Here too objection has been taken to the delegation of powers to the
Minister, and to the vagueness of the relevant regulations.
[284] Regulation 8
deals with annual increases. Regulation 8(1) provides:
“The extent to which the single exit price of a medicine or
Scheduled substance may be increased will be determined annually
by
the Minister, after consultation with the Pricing Committee, by
notice in the Gazette with regard to—
(a)
the average CPI for the preceding year;
(b)
the average PPI for the preceding year;
(c)
changes in the rates of foreign exchange and purchasing power parity;
(d)
international pricing information relating to medicines and Scheduled
substances;
(e)
comments received from interested persons in terms of regulation
8(2); and
(f)
the need to ensure the availability, affordability and quality of
medicines and Scheduled substances in the Republic.”
Interested parties
are given an opportunity to make representations to the Minister
before such determination is made and the procedure
to be followed in
that regard is set out in regulation 8(2).
[285] Because of the
different factors which may affect the determination of a maximum
price for a particular SEP, it would have
been difficult for the
regulations to prescribe a formula for this to be done. Had the
regulations made provision for the
Pricing Committee and the Minister
to exercise control over the process that would have been consistent
with section 22G(2).
The regulations do not, however, do this.
They provide that the determination shall be made by the Minister
“after
consultation with the Pricing Committee”.
This would require the Minister to give serious consideration to the
views
of the Pricing Committee, but would leave her free to disagree
with them.
[222]
This is in contrast with the Medicines Act, which requires agreement
between the Minister and the Pricing Committee on the
pricing system.
[286] The annual review is an important component of the pricing
system. It involves a consideration of factors in which
expertise in the pricing of medicines is required. Since the
Pricing Committee has to be involved in the process there is
no
practical necessity for delegating this function to the Minister
alone. What the regulation does is to leave to the Minister
alone, a task which is the joint responsibility of the Minister and
the Pricing Committee, without there being any practical necessity
for this to be done, or any obvious reason why the Pricing
Committee’s power should be subordinated to that of the
Minister.
In my view the delegation of the decision-making
power to the Minister alone is an improper delegation of a power
vested jointly
in the Minister and the Pricing Committee by the
Medicines Act. I would hold regulation 8(1) to be invalid for
this reason.
I would, however, correct this defect by reading
into the regulations the words: “the Minister on the
recommendation of the
Pricing Committee” in place of the words:
“the Minister after consultation with the Pricing Committee”.
[287] There is,
however, another problem concerning price increases. Regulation
7 provides:
“Subject to the provisions of regulations 5, 8 and 9, the
single exit price of a medicine or Scheduled substance may only
be
increased once a year.”
Regulation 5 deals
with the setting of the first SEP and provides in sub-regulations
(2)(a) and (b):
“The single exit price must be set in accordance with the
following provisions—
(a)
for a period of one year after commencement of these regulations the
single exit price shall not be increased;
(b)
subject to sub-regulation 5(2)(a) the single exit price may be
increased in terms of regulation 8 of these regulations”.
This means that SEPs
established at the date of the commencement of the regulations must
not be increased during the first year
following that date.
After the first year they may be increased in accordance with
regulation 8.
[288] Regulation
8(3) provides:
“Subject to the provisions of regulation 8(1), a manufacturer
or importer may no more than once a quarter increase the single
exit
price of a medicine or Scheduled substance within a year provided
that—
(i)
such increase does not exceed the single exit price of the medicine
or scheduled substance as first published in respect of
that year;
(ii)
the increase in the single exit price is applied to all sales of the
medicine or Scheduled substance and not the selected categories
of
purchasers;
(iii)
the manufacturer or importer notifies the Director-General of the
increase in the single exit price at least 48 hours prior
to the
implementation of such increase;
(iv)
the single exit price may not be increased as contemplated in terms
of this regulation 8(3) within the period of six months
beginning
from the date of commencement of these regulations.”
[289]
Apparent contradictions between regulations 5, 7 and 8 are:
(a)
Regulation 7 provides that the SEP may be increased once a
year.
(b)
Regulation 8(3) provides that the SEP may be increased no more
than once a quarter.
(c)
Regulation 5(2)(a) provides that for a period of one year
after the commencement of the regulations the SEP shall not be
increased.
(d) Regulation 8(3)(iv) provides that increases in terms of
regulation 8(3) may not be made within the period of six months
from
the date of commencement of the regulations.
[290] Yacoob J
has suggested a means of reconciling these provisions. In his
view regulation 7 allows a manufacturer
or importer to increase the
SEP if the Minister fails to publish a notice and make a
determination timeously in accordance with
regulation 8(1). I
am unable to agree with this. It seems to me to be contrary to
the policy of the Medicines Act and
the regulations to hold that a
failure by the Minister to act timeously would result in there being
no constraints upon manufacturers
and importers in relation to price
increases. I am also not persuaded that the language of the
regulations is reasonably
capable of the construction he has placed
on it.
[291] It seems to me
to be more likely that the purpose of regulation 8 is to establish a
system in which a maximum permissible
increase of the SEP would be
determined on an annual basis, but space would be left for
manufacturers and importers to fix the
SEP at a price below the
maximum. Manufacturers and importers who do so would then be
allowed to increase prices on a quarterly
basis as long as they do
not exceed the maximum allowed. This would also be consistent
with the Pricing Committee’s
final report to the Minister on 21
April 2004 under cover of which the final regulations were submitted
to the Minister.
It indicated that
“manufacturers may reduce and increase their prices in response
to competitive imperatives, as long as the price at no time
exceeds
the SEP that has been established for that year and that these price
increases do not occur more than once a quarter.”
[292] Regulation 8(3) is confusing, badly worded, and if regard is
had to regulations 5, 7 and 8(1), too vague to be understood
by those
bound by it. I would hold it to be invalid on those grounds.
It needs to be harmonised with regulations 5
and 7, and redrafted to
indicate with sufficient clarity what is meant, and what is
permissible concerning price reductions and
price increases.
When the regulations are reformulated attention also needs to be
given as to how reductions in the SEP,
and increases in the SEP made
in terms of regulations 8 and 9, are to be published.
[223]
Exceptional
circumstances
[293] Regulation
9(1) provides:
“The Minister may, in exceptional circumstances, authorise a
manufacturer or importer, on written application by such manufacturer
or importer, to increase the price of a medicine or Scheduled
substance by a specified amount greater than that permitted in terms
of regulation 8.”
This is also
objected to as an invalid delegation.
[294]
The criteria to be taken into account by the Minister are set
out in regulation 9(2).
[224]
These provide sufficient guidance for determining whether or not
“exceptional circumstances” exist. This
is a
decision that may have to be taken urgently, and will be relevant for
a limited period until the next annual review.
Any increase
allowed under regulation 9(1) will be taken into account at the time
of such review. In the circumstances it
seems to me to be
legitimate for the regulations to leave these “exceptional”
measures to the Minister to decide.
Publication of
the SEP
[295]
Section 22G(3)(a) of the Medicines Act requires the SEP to be
“published as prescribed”. It is contended by New
Clicks that this requirement has not been complied with because
regulation 3 provides for publication of the SEP in a manner to
be
determined by the Director-General from time to time “by notice
in the Gazette”. This leaves it to the Director-General
to determine when and how the publication should take place.
[296]
This contention overlooks the requirements of regulations 24
and 4. Regulation 24(1) requires manufacturers and importers
within one month of the date of commencement of the regulations to
submit to the Director-General “a schedule reflecting the
single exit price of a pack of each medicine or Scheduled substance
sold by them, including the pack size, dosage form and strength
of
the medicine or Scheduled substance”. Regulation 4
requires the single exit price to “be clearly and legibly
reflected on the package or the immediate container within which a
medicine or Scheduled substance is sold to a user.”
These
provisions ensure that the SEP will be published to the
Director-General, to participants in the distribution chain and to
persons who buy from the pharmacists. The Medicines Act
requires only that the SEP should be published as prescribed.
Regulations 4 and 24 meet that requirement in so far as the first
SEPs are concerned. Regulation 19 contemplates that applicants
for the registration of new medicines will determine the first SEP
for that medicine and inform the Director-General of that.
The
SEP will also have to be marked on the packaging in accordance with
regulation 4. In the circumstances the objection
must be
rejected.
The logistics fee
[297] Section
22G(2)(c) of the Medicines Act authorises the Minister on the
recommendation of the Pricing Committee to make regulations
“on
an appropriate fee to be charged by wholesalers or distributors”.
Regulations 5(2)(f) and 5(2)(g) do this
by making provision for
a logistics fee. They provide:
“5(2) The single exit price must be set in accordance with the
following provisions—
. . . .
(f) Subject to regulation 5(2)(g), the logistics fee must be
determined by agreement between the provider of the logistical
services
and the manufacturer or importer.
(g) The Minister must determine a maximum logistics fee where, in the
opinion of the Minister, such a determination is necessary
to promote
or protect the interests of the public in—
(i)
ensuring reasonable access to affordable medicines;
(ii)
the realisation of the constitutional right of access to health care
services contemplated in section 27 of the Constitution;
(iii)
the efficient and effective distribution of medicines and Scheduled
substances throughout the Republic.”
It is contended by
the Pharmacies that an agreed fee is not appropriate and that it is
not transparent.
[298] A logistics
fee determined by agreement between the parties to the transaction is
a fee determined by market conditions between
parties free to bargain
with one another, and whose interests do not coincide in all material
respects. That is an appropriate
fee, bearing in mind the
provision for the fee to be capped if that should be necessary in the
public interest.
[299] The power to
determine a maximum fee is, however, vested in the Minister if in her
“opinion” such a determination
is necessary.
Although the “capped” fee must be “appropriate”,
and to that extent is subject to objective
criteria, regulation
5(2)(g) in effect leaves it to the Minister to determine the
“appropriateness” of the fee, instead
of setting a
maximum itself. The regulations could possibly have done so by
fixing a maximum fee in the form of a charge
based on a percentage of
the cost of the medicine (a reasonable wholesaler’s mark-up),
as was done in the case of the dispensing
fee, or in some other way
that would have enabled the determination of the maximum fee to be
calculated from the terms of the regulations
themselves. If
this had been done the parties would have been free to bargain for
appropriate fees less than the maximum,
depending on the services to
be rendered. However, because of the different services that
may be provided by different wholesalers
and distributors there may
have been good reasons for not adopting this approach.
[300] The regulations do not, however, address what the cap for an
appropriate fee will be, or how it is to be determined.
They
leave that to the Minister to determine if “in her opinion”
it is necessary to do so. The maximum logistics
fee, like the
maximum SEP, is an important part of the pricing system. If it was
considered necessary to have greater flexibility
than is possible by
prescribing a maximum fee in the regulations, or a formula for
determining it, the fixing of the fee should
have been delegated to
the Pricing Committee and the Minister, and not to the Minister
alone. I would therefore hold that
the provision vesting in the
Minister the power to determine a cap for the logistics fee
constitutes an impermissible delegation.
I would, however,
remedy that defect by reading into regulation 5(2)(g) after the word
“the Minister”, the words “on
the recommendation of
the Pricing Committee”.
Transparency and
publication of the logistics fee
[301] The SCA held
that the logistics fee was not “transparent” because it
was a fee to be “determined by agreement
between the provider
of logistical services and the manufacturer or importer”.
[225]
This seems to contemplate that the regulations should have fixed a
basis for the determination of the fee, and not have left
it to the
parties to determine themselves.
[302] However, the
services provided by a wholesaler or distributor will vary depending
upon the agreement they have with the manufacturer,
and the choice to
leave the determination of the logistics fee in the first instance to
agreement between the parties to the contract
is not inappropriate.
For instance, a fee payable to a wholesaler who imports the medicines
or Scheduled substances is likely
to be more than a fee payable to a
wholesaler who purchases the products in South Africa from the
manufacturer or the distributor.
And the same applies to
differences in volumes, geographical areas, and other services that
may have a bearing on the particular
fee to be paid to a particular
wholesaler or retailer.
[303] The logistics
fee is an expense that manufacturers may now have to incur if they
wish to deal in the South African market.
In this respect it is
no different to other expenses which the manufacturer has to carry in
order to produce and distribute its
products. All those
expenses are the result of agreements between the manufacturer and
its suppliers or service providers.
All have to be taken into
account by the manufacturer in setting a price to be the basis of the
calculation of the first SEP.
What is important is that the
amount of the “logistics fee” should be made known in a
way that meets the requirement
of transparency.
[304] There is no provision of the regulations (other possibly than
their inclusion in the SEP) that requires the logistics fee
to be
made public. Regulation 21(2)(d) makes provision for a method
of informing the public of the fees charged by wholesalers,
distributors, retailers and other persons selling medicines and
Scheduled substances, but it is left to the discretion of the
Director-General to decide whether or not to require this to be
done. This does not meet the transparency called for by the
Medicines Act. The omission is not sufficiently material to
justify the regulations being set aside for this reason alone.
The defect must, however, be remedied and I would do so by reading
into regulation 21 the words “and in the case of the
information referred to in regulation 21(2)(d) must” before the
words “publish or otherwise communicate, or require”.
This will not preclude the Minister on the recommendation of the
Pricing Committee from amending the regulations to make provision
for
a different method of publication consistent with the Medicines Act.
Is there
certainty as to the SEP?
[305] It was also
contended that the inclusion of the logistics fee in the calculation
of the SEP gives rise to uncertainty and
contradictions. There
are three related arguments that were raised. First, that the
inclusion of the logistics fee
as a component of the SEP, is
inconsistent with regulation 5(2)(f) which requires the fee to be
determined by agreement between
the manufacturer and the wholesaler
or distributor. This, it was argued, could not be complied with
where a manufacturer
uses more than one wholesaler or distributor to
market its medicines. In that event, if there are different
agreements between
the manufacturer and the different intermediaries,
there may be more than one SEP for the same product which would be
inconsistent
with section 22G(3)(a) of the Medicines Act.
[306] Regulation 5
deals with the setting of the SEP at the commencement of the
regulations. What the regulation requires
is that there should
be agreement between the manufacturer on the one hand and the
relevant wholesaler or distributor on the other,
as to the SEP at
which the medicine would be sold at the commencement of the
regulations. The logistics fee had therefore
to be determined
in advance and built into the SEP. If there was more than one
wholesaler or distributor all would have had
to be party to the
agreement. Construing regulation 5 in this way avoids any
contradiction between regulation 5(2)(f) and
section 22G(3)(a).
There would be only one logistics fee and that fee would have been
taken into account in determining the
SEP.
[307] It is not
permissible for a manufacturer to fix different SEPs for different
wholesalers and distributors. It follows
that once the SEP has
been set, it controls all sales by the manufacturer unless and until
the SEP is changed in accordance with
the provisions of the
regulations. If wholesalers and distributors who were not party
to the original agreement are subsequently
used to market the
medicine, they must agree to do so on the basis of the existing
logistics fee.
[308] It was also
contended that if the logistics fee is included in the SEP then,
instead of selling at the SEP which is what section
22G(3)(a)
requires, the manufacturer will in truth be selling at the core
price. This is not so. Sales must be at the
SEP.
The fact that the “logistics fee” is taken into account
in calculating the SEP is not inconsistent with
this. The sale
must be at the SEP subject to a provision that the manufacturer will
pay the wholesaler or distributor the
agreed logistics fee. The
manner and time of payment of that fee will depend on the terms of
their agreement.
[309] Finally, it
was contended that payment of a logistics fee cannot be reconciled
with regulation 6 which provides:
“A manufacturer, importer, distributor or wholesaler may not
charge any fee or amount other than the single exit price in
respect
of the sale of a medicine or Scheduled substance to a person other
than the State.”
[310] In the context
of the Medicines Act and the regulations as a whole, regulation 6
must be read as referring to a fee other
than the logistics fee.
Otherwise it would be contrary to the Medicines Act which makes
provision for wholesalers and distributors
to charge an “appropriate”
fee for selling medicines. Construed thus there is no
contradiction between regulations
5 and 6.
Appropriate
dispensing fee for pharmacists: regulations 10 and 11
[311] Section 22G(2)(b) authorises the Minister on the recommendation
of the Pricing Committee to make regulations “on an
appropriate
dispensing fee to be charged by a pharmacist or by a person licensed
in terms of section 22C(1)(a)” of the Medicines
Act.
Regulations 10, 11 and 12 deal with the dispensing fee for medicines
and Scheduled substances in Schedules 1 to 8 of
the Medicines Act.
Regulation 13 deals with Schedule 0 medicines. It is contended
by the Pharmacies that the dispensing
fees thus prescribed are not
“appropriate” and that these regulations are accordingly
invalid.
[226]
[312] The SCA held
that there is no absolute standard for determining what is
“appropriate”, and that reasonable persons
may well
disagree about this.
[227]
It held, however, that “appropriate” is a justiciable
standard, requiring a balance to be struck between the
needs of the
public to have access to affordable medicine and the interests of
pharmacists who are an essential link in the supply
chain. It
said that a fee that is unjust or unfair could not be regarded as an
“appropriate” fee.
[228]
[313] Counsel for
the applicants submitted that the SCA erred in adopting this
approach. They contended that courts are ill
equipped to deal
with economic matters and ought not to sit in judgment on what are
essentially political decisions taken by the
executive in making
regulations. I do not agree that a court should refrain from
examining the lawfulness of the dispensing
fee simply because the
decision as to what it should be involves economic and political
considerations. The exercise of all
public power is subject to
constitutional control
[229]
and it is the duty of courts if called upon to do so to determine
whether or not power has been exercised consistently with the
requirements of the Constitution and the law. In the present
case it is contended that the dispensing fee prescribed in the
regulations is not an “appropriate” fee within the
meaning of section 22G(2) of the Medicines Act. It was the
duty
of the courts which have dealt with this matter, including this
Court, to decide whether this contention is correct.
[314] The purpose of
section 22G of the Medicines Act read in the context of the Medicines
Act as a whole is to enhance the accessibility
and affordability of
medicines. This is an obligation of the state which in terms of
section 27 of the Constitution is obliged
to take reasonable measures
to enhance access to health care.
[315] Section 22G
requires the measures taken to achieve this end to be “appropriate”.
The cost of medicine is
relevant to accessibility, but it is not the
only factor. The medicine must be available to those who
require it. Pharmacies
are an essential component of the
distribution chain. If pharmacies go out of business the
accessibility of medicines will
be impaired. An appropriate fee
is thus one which at least strikes a balance between these
requirements of cost and availability.
[316] This does not
mean, as the SCA pointed out, that there is only one appropriate fee,
or that courts are entitled to substitute
their decision for that of
the Pricing Committee and the Minister, because they consider it to
be better than theirs. Unless
a court is satisfied that the
dispensing fee is in fact inappropriate it is not entitled to
interfere with the decision of the
Minister and the Pricing
Committee, even if it disagrees with it.
[317] According to
Professor McIntyre the dispensing fee should be a professional fee
for services rendered by pharmacists in connection
with the sale of
medicines. It should be sufficient to enable a well-run
pharmacy to make a reasonable profit. This
is not disputed.
What is disputed is whether the prescribed dispensing fee is
sufficient for this purpose.
[318] The SCA held
that the dispensing fee was not “appropriate” because
“the unassailed factual material on record”
showed that
the fee will not provide pharmacists with sufficient revenue to cover
their operating costs.
[230]
The “factual material” referred to consisted in the main
of reports made by experts concerning the impact that
the prescribed
dispensing fee will have on the viability of pharmacies, and the
material on which such reports are based.
The introduction
of a professional dispensing fee
[319] Before the
regulations came into force pharmacists sold medicines to clients at
a mark-up over the purchase price. In
addition there was a
small dispensing fee of R1,30 per item and other small charges for
containers and broken bulk when part but
not all of a package of
medicine was sold. The Medicines Act shifts revenue from a
mark-up on the sale of medicine, to a
prescribed dispensing fee.
[320] Professor
McIntyre says that the approach adopted by the Pricing Committee was
that the dispensing fee should provide an appropriate
remuneration
for the pharmacist’s professional services, taking into account
not only the time and expertise involved in
dispensing, but also the
costs associated with that service. In making these
calculations regard should be had to income
that can be derived from
professional services other than dispensing, for which charges can be
made. A fee that gives effect
to these considerations should
also be as simple as possible and clear and understandable to the
consumer. A flat fee for
medicine in the more expensive range
serves this purpose. A percentage fee for medicine in the lower
cost range is necessary
to ensure that such costs are not
“overburdened”.
[321] Her response
to the allegation that the fee is not appropriate is that the Pricing
Committee conducted a thorough investigation,
considered all the
information put before it, and applying these principles concluded
that the prescribed dispensing fee would
enable well-run pharmacies
to make a reasonable profit.
Different types
of pharmacies
[322] PSSA contend
that there are four different types of pharmacies whose operations
will be affected in different ways by the
dispensing fee. They
are community pharmacies, courier pharmacies, pharmacies in medical
centres and hospital pharmacies.
There are also different
considerations relevant to community pharmacies in urban areas and
those in rural areas. The Pharmacies
argue that the dispensing
fee is not sufficient to enable any of these types of pharmacies to
trade profitably. In support
of this contention they rely on
the evidence of three experts, Mr Jordaan, Dr Stillman and Mr
Kellerman. I deal later with
this evidence.
[231]
Community
pharmacies
[323] Community
pharmacies are retail pharmacists that operate shops. They have
a dispensary (the back shop) from which medicine
is sold, and a front
shop which deals in consumer goods. According to Professor
McIntyre the Pricing Committee asked PSSA
and other associations
representing pharmacists to provide them with information to show the
actual costs of dispensing medicines,
but none of the associations
did so. Instead, they provided information showing the revenue
and expenditure of pharmacies
as one business, without the breakdown
necessary to separate dispensing from other activities including the
running of the front
shop. Similar averments are made by Dr
Pillay and Dr Zokufa.
[324] This is
disputed in the replying affidavit by Mr Honeysett, who is the
principal deponent to affidavits on behalf of New Clicks.
He
says in response to this allegation:
“[I]t is now suggested that the applicant has only in this
application made available information which it was previously
invited to produce. This is simply untrue and it is striking
that the information given now is not properly addressed.
The
applicant in fact made a full presentation at the oral hearing to
which it was invited. What Dr Zokufa does not disclose
is that
at the end of that hearing it was complimented by representatives of
the Department and Pricing Committee for the completeness
of its
representations and its helpfulness. It was only after the
regulations were already published and after I complained
about its
content to Dr Pillay, that he invited further information.”
[325] This is not a
dispute that can be resolved on the papers. What is relevant
and of importance, however, is that whether
it asked for this
information or not, the Pricing Committee appear to have dealt with
the dispensing fee without having such information.
In doing so
it made assumptions that, on the papers before us, cannot be
sustained.
The back shop and
the front shop
[326] First, it is
assumed that the dispensaries of community pharmacies subsidise the
front shops. In this regard Dr Zokufa
says that “[e]ffectively,
mark-ups on medicines have heavily cross-subsidised expenses related
to front shop activities”
to date. He goes on to say that
it is not appropriate, as implied by New Clicks and PSSA, that the
dispensing fee “should
be increased in order to address the
threat to financial viability imposed by inefficient front shop
operations.” Professor
McIntyre’s evidence is to
the same effect, and she says that consumers ought not to bear such
costs.
[327]
Neither Dr Zokufa nor Professor McIntyre provide any evidence in
support of the assertion that the dispensaries subsidise the front
shops, nor do they indicate the source of this allegation. The
Pharmacies dispute this assertion and the averment that this
can be
implied from their opposition to the dispensing fee. They
contend that it is not a logical proposition for, if this
were so,
pharmacists would confine their operations to dispensing and rid
themselves of loss-making activities.
Revenue from
compounding
[328] The Pricing
Committee and the Minister say that in addition to revenue from the
dispensing fee, regard must be had to additional
revenue streams that
pharmacists can earn from compounding medicines, primary care drug
therapy, and from other services such as
tests and taking blood
pressure for which the pharmacist can charge separately. They
do not say how they calculated the revenue
stream from these
“additional sources of revenue” or what weight was given
to it in their calculations. It seems,
however, to have been
treated as a significant factor, on which much emphasis is placed in
their affidavits. It also seems
clear from their evidence that
in formulating the final regulations the Pricing Committee did not
take “compounding”
and “admixing” into
account in determining the dispensing fee.
[329] The Pharmacies
dispute the contention that there are material revenue streams apart
from dispensing that are available to
pharmacists. They say
that on a proper construction of the Medicines Act and the
regulations, compounding is part of dispensing
and that revenue from
other sources is negligible. Dr Stillman says that in his
calculations all revenue was taken into account
including revenue
that may have been earned from compounding and other sources.
[330] There is a dispute on the papers as to whether dispensing
includes compounding. In the definition of compounding
contained
in the regulations made in terms of the
Pharmacy Act, 53 of
1974
[232]
“‘dispensing’ means the interpretation and
evaluation of a prescription, the selection, manipulation or
compounding
of the medicine, the labelling and supply of the medicine
in an appropriate container according to the Medicines Act and the
provision
of information and instructions by a pharmacist to ensure
the safe and effective use of medicine by the patient and ‘dispense’
has a corresponding meaning”.
[331] In the Pricing
Committee’s report to the Minister on the draft regulations
submitted by it on 18 December 2003, it is
said that the dispensing
fee
“would cover all of the following services: the interpretation
and evaluation of a prescription, the selection, manipulation
or
compounding of the medicine, the labelling and supply of the medicine
in an appropriate container and the provision of information
and
instructions by a pharmacist to ensure the safe and effective use of
medicine by the patient. It should also be noted
that this fee
will also cover both the professional remuneration and the pharmacy’s
operating costs.”
This fee would cover
all services outlined in the definition of dispensing above.
This in substance is the definition of dispensing
in the
Pharmacy Act
regulations
.
[332] Although this
is not repeated in the report on the final regulations – there
is no reference there to what dispensing
includes – neither
Professor McIntyre nor Dr Zokufa offers any explanation for the
comment in the first report as to what
dispensing includes. Nor
do they say why the Pricing Committee subsequently changed its mind.
The first mention of
the view that compounding is not included in the
dispensing fee was in the High Court proceedings where the Minister
and the Pricing
Committee contended that compounding is not part of
dispensing.
[333] The authority
of pharmacists to supply medicines comes from the
Pharmacy Act and
its regulations,
[233]
which define dispensing as including compounding. Dr Thiede
refers in his affidavit to “dispensing in the sense
contemplated
by the regulations”. He does not explain why
the regulations contemplate a distinction being made between the
meaning
of “dispensing” in the
Pharmacy Act regulations
,
and its meaning in the Medicines Act, nor does he say why the Pricing
Committee took a different view when it made its report
to the
Minister on the draft regulations where the basic fee structure was
set.
[334] It hardly
seems to be practical for a medicine compounded or admixed pursuant
to a doctor’s prescription for a particular
patient to be
subjected to the requirements for setting and publishing the SEP for
medicines. Nor would I construe section
22G(3)(a) as requiring
that. In my view “manufacturer” in section
22G(3)(a) must be construed as being a person
other than a pharmacist
or a licensed health professional. If that is so, the section
does not apply to medicine “made”
by them for particular
patients through compounding or admixing.
[335] This does not
mean, however, that the regulations do not have to deal with
compounding and admixing. Sections 22C(1)(a)
and 22C(5) of the
Medicines Act require persons other than pharmacists to be licensed
to “compound and dispense”.
Section 22G(2)(a)
requires the pricing system to be for “
all
medicines and
Scheduled substances” sold in the Republic. That would
include compounded and admixed medicines sold by
pharmacists and
licensed health professionals.
[336] Section
22G(2)(b) contemplates that the regulations will make provision for
an appropriate dispensing fee to be charged by
a pharmacist or
licensed health professional. The General Regulations made in
terms of the Medicines Act in 2003 define “compound”
as
meaning to prepare, mix, combine, package and label a medicine for
dispensing, and define “dispense” in the case
of a
pharmacist, as meaning “dispense” as defined in the
regulations under the
Pharmacy Act. Those
regulations define
dispensing as including compounding.
[337] The Medicines
Act defines “sell” as meaning “sell by wholesale or
retail . . . or prepare or possess for
purposes of sale”.
A pharmacist who compounds or admixes medicines for a customer
pursuant to a doctor’s prescription
and “sells” the
compounded or admixed product, dispenses it.
[338] “Compounding”
and “admixing” involve the preparation by a pharmacist of
medicine for sale to the public,
and are components of dispensing.
Section 22G(2)(b) requires provision to be made for an appropriate
dispensing fee to be
charged by pharmacists and licensed health
professionals. That fee should therefore deal with compounding
and admixing.
[339] Professor
McIntyre concedes that pharmacists may spend a considerable amount of
time compounding and admixing medication.
It is, however, clear
from the regulations and the Pricing Committee’s own evidence
that the dispensing fee has been set
in a way which makes no
provision for this. It is not clear what the implications of
this will be for the average pharmacist
or licensed doctor, though
the Minister and the Pricing Committee contend that compounding
constitutes a significant revenue stream
additional to dispensing,
which will supplement the revenue stream of the pharmacy. What
is clear, however, from the evidence
is that compounding of oncology
medicine is a highly specialised time consuming task, requiring a
significant capital investment,
and special skills. If no
allowance is made for this activity in the regulations, the “one
size fits all” dispensing
fee will impact more severely on
those specialists, than the “average” pharmacist.
[340] The Minister
and the Pricing Committee do not indicate how compounded and admixed
medicines are to be dealt with in terms
of the Medicines Act and
regulations if they are not included within the concept of
dispensing. Counsel for the Minister
and the Pricing Committee
could offer no answer to this conundrum other than to suggest that
there is no limit on the prices pharmacists
can charge for the
preparation and sale of such medicines. But that does not fit
the structure and purpose of the Medicines
Act and regulations.
[341] In my view the
only way that compounding and admixing can be dealt with, if regard
is had to the provisions and purpose of
the Medicines Act, is to
treat these functions as being an aspect of the dispensing function
for which special provision has to
be made in addition to the basic
“dispensing fee”. And this, the regulations fail to
do. This omission
is a factor relevant to the issue of the
appropriateness of the dispensing fee.
Calculating the
profitability of the dispensary
[342] Professor
McIntyre deals with the approach adopted by the Pricing Committee to
the calculation of the dispensing fee.
She says that the
Pricing Committee requested PSSA and other associations representing
pharmacists to provide information that
demonstrated the actual costs
of dispensing, but none of these associations did so. The
information provided apparently dealt
with the shop as a whole
without a breakdown of the separate activities of the front shop and
the back shop. According to
Dr Thiede, who is a member of the
Pricing Committee, the dispensing fee was calculated “on the
basis of the dispensing activity
and the operational costs relating
to dispensing.” Yet nowhere in the minutes or the
affidavits is any reference made
to the source of such information,
or how the calculation was made in the absence of the information
from pharmacists that was
considered by the Pricing Committee to be
essential for this purpose.
[343] The Pharmacies
offer expert evidence to demonstrate that pharmacies will not be
viable if the pricing system in the regulations
is applied. The
evidence of Mr Jordaan, Dr Stillman and Mr Kellerman is relied on to
support this contention. In response,
the Minister and the
Pricing Committee rely on the evidence of Dr Pillay, Dr Thiede,
Professor Henry, Professor Mossialos and Professor
Mooney. Of
these, only Dr Thiede and Dr Pillay deal directly with the
calculations made by the Pharmacies’ experts.
Mr Jordaan's
evidence
[344] Mr Jordaan was employed as head of professional services at
Purchase, Milton and Associates from whom New Clicks had acquired
their chain of pharmacies. He addresses the question whether
the dispensaries in this chain of pharmacies, treated as separate
entities, will be profitable if operated in terms of the prescribed
dispensing fee. He submits a report in which he concludes
that
the overall impact of the dispensing fee will be to place the
continued viability of the New Clicks pharmacies seriously at
risk.
[345] The community
pharmacies whose records were used by Mr Jordaan were acquired by New
Clicks during 2003. There were 80
pharmacies in the chain.
This was before the regulations came into force. Mr Jordaan’s
calculations are made
on the basis of unaudited records of sales of
medicines during 39 days between August 2003 and January 2004, said
to have been
selected randomly.
[346] He analyses
the information in these records and calculates the contribution that
different aspects of the business of the
chain make to the chain’s
gross profit. His calculations, which are not always easy to
follow, lead him to conclude
that the gross profit of the back shop
expressed in rand terms would have been reduced by 57,35% if the
dispensing fee prescribed
in the regulations had been applicable at
that time.
[347] His evidence
is disputed on three grounds – that he is not an expert, that
his sample is too small to be reliable and
that he has not had regard
to revenue streams for professional services other than dispensing,
for which pharmacists are entitled
to charge. In addition the
calculations are also criticised.
[348] Mr Jordaan is
a pharmacist with an auditing diploma and experience in the operation
of pharmacies. His evidence on the
impact of the dispensing fee
on profits involved the extraction and analysis of data from the New
Clicks records. There is
no reason to doubt his qualifications
to undertake such a task.
[349] He prepared
four tables dealing with the turnover in New Clicks stores and the
gross profit rates on sales in the various
sectors of these stores.
The first three tables deal with large, medium and small stores.
The fourth is a model of
a “typical” pharmacy prepared
from the information in the first three tables. He uses this
model for the calculations
in his report.
[350] The
information is derived from computer records of sales in the various
stores which are exported on a daily basis to a central
data base
that New Clicks maintains and which is under Mr Jordaan’s
control.
[351]
The tables show the contribution to total sales made by each
of six departments in the stores and the rates of gross profits on
the sales from such departments. The departments are described
as Beauty, Clinic, Fast Moving Consumer Goods, Prescription,
OTC,
Vitamins and Health. OTC are over the counter sales.
Prescriptions and OTC are from the “back shop”
and the
others from the “front shop”.
[352]
The fourth table, which is the model on which he works,
is as follows:
Category
Contribution to Total Sales
Gross Profit%
Beauty
0.85%
32.20%
Clinic
0.42%
Fast Moving
Consumer Goods
2.35%
24.12%
Prescription
61.18%
27.36%
OTC
22.11%
30.87%
Vitamins &
Health
13.08%
27.95%
There is no gross
profit percentage shown for the Clinic which contributes only 0,42%
to turnover and has apparently been ignored
in the calculations.
[353]
The back shop contributes approximately 83,29% to the
shop’s turnover and the front shop 16,7%. The tables
dealing with
large, medium and small stores reveal a similar
pattern. As Dr Stillman points out in his report the gross
profit rates in
the different departments do not differ materially.
The back shop is clearly responsible for most of the store’s
“gross
profit”. There is, however, what seems to be
a patent error in Mr Jordaan’s report where he says that the
back
shop contributes 27,9% of the gross profit. This is
inconsistent with the comment he makes in the same paragraph of the
report
that the front shop makes a minimal contribution to gross
profit and sales. The figures speak for themselves that the
back
shop’s contribution to gross profit is close to 84% of the
total gross profit.
[354]
This patent error does not seem to me to be of
particular relevance to the conclusions reached by Mr Jordaan.
It is not commented
on by any of the experts. If correct, it
may possibly have been relevant to the allocation of expenses between
the back shop
and the front shop, though that has not been done on
the basis of contributions to gross profit. A more nuanced
approach
has been adopted allocating particular expenses according to
their relevance to the activities of the front shop and the back
shop.
That allocation is not seriously disputed by Dr Thiede
who describes it as a “defensible approach”.
[355] Dr Thiede
does, however, question the reliability of Mr Jordaan’s
conclusions. He says that calculations were
made on the basis
of records taken at random over 39 days in a period of six or seven
months (some calculations were done on six
months, others on seven)
from 80 pharmacies in one chain, and that this is not a
representative sample from which inferences can
be drawn concerning
the industry as a whole.
[356] The
calculations involved an analysis of 651 966 transactions for the
sale of medicines. It is no doubt a small sample
of the total
industry, but the conclusion that the dispensing fee will convert
profit-making pharmacies in the New Clicks group
into loss-making
businesses is consistent with the analysis of the impact of the
dispensing fee on courier pharmacies, pharmacies
in medical centres
and hospital pharmacies dealt with by Dr Stillman.
[357] Dr Thiede also
criticises Mr Jordaan’s report in so far as it deals with an
income statement of a typical pharmacy.
He says that in some
respects the calculations made are unclear, and incorrectly modelled,
but he does not point specifically to
items other than those to which
Mr Jordaan responded and has given satisfactory explanations, nor
does he offer an alternative
model of a typical pharmacy.
[358] There is a further criticism that the report was prepared on
the basis of estimates of what the SEPs would be. But
that must
also have been the case as far as the dispensing fee is concerned
because the SEPs were not known at that time.
Mr Jordaan says
that he assumed that the SEPs would on average be 20% less than the
manufacturer’s pre-regulation price list
which was the
“industry perception” at that time. This is not
disputed in the evidence nor is it suggested that
the SEPs would
prove to be higher than that. As Mr Jordaan points out, if the
SEPs prove to be lower than he assumed for
the purpose of his report,
this would aggravate the adverse impact of the dispensing fee on a
pharmacy’s business.
Dr Stillman's
report
[359] Dr Stillman is an economist specialising in the economics of
competition policy and regulatory issues. He considers
the
position of the four categories of pharmacies to which I have
referred and concludes that the dispensing fee will not provide
any
of them with sufficient revenue to make them viable. He
prepared two reports to deal with this issue: the first to support
the contention made by the Pharmacies that the regulations will
destroy the viability of pharmacies; and the second to reply to
criticisms of his report made in the answering affidavits.
[360] His
qualifications to give this evidence were also challenged.
Whilst Dr Stillman’s expertise is not directly
concerned with
the pharmaceutical industry, he is a highly qualified economist well
able to undertake an analysis of the accounting
records.
[361] Dr Stillman
was provided with information of the net sales, gross profit and
operating profit of each of 75 New Clicks pharmacies
during a period
of six months from July to December 2003. Information
concerning the other five stores was considered by
New Clicks not to
be reliable. Six of the remaining 75 pharmacies were excluded
by Dr Stillman from his analysis because
they were start-up stores or
were going through a process of refurbishment that disrupted their
operations.
[362] Mr Jordaan’s
analysis in respect of the New Clicks pharmacies is relied on by Dr
Stillman to calculate whether the 69
pharmacies in the chain would be
profitable if revenue had come from the dispensing fee. He
analyses the data, using Mr Jordaan’s
estimate that the
dispensing fee will result in a 57,35% reduction in gross profit
expressed in rand terms. Applying this
factor to the 69 shops
in the chain, 14 of which were already operating at a loss, he
concludes that all but two of the shops would
have operated at a
loss. The other two would have made a small net profit, but not
enough to warrant an investment being
made in them.
[363] Dr Stillman’s
conclusions concerning the New Clicks pharmacies depend on the
reliability of Mr Jordaan’s report.
That report was based
on an analysis of 80 pharmacies, 11 of which were rejected by Dr
Stillman as not being sufficiently reliable
for his purposes.
None of the applicants’ witnesses comment on this and it is not
possible from the evidence to say
whether this affects the
reliability of either or both reports.
[364] Whilst some of
Dr Thiede’s criticisms of Mr Jordaan’s report are not
without substance, he does not analyse the
model produced by Mr
Jordaan in any detail. He offers no positive evidence of the
model on which the Pricing Committee worked
to satisfy itself that
the dispensing fee is appropriate and that pharmacies will be viable
if it is applied. In the result
the only evidence we have on
the operating profit of a dispensary of a community pharmacy taken in
isolation, apart from assertions
unsupported by evidence, is that
provided by Mr Jordaan.
Courier
pharmacies
[365] Courier
pharmacies, as their name suggests, deliver medicine to their
clients. They operate dispensaries but do not
have front
shops. Their services are of particular importance to people
who because of illness or other reasons cannot easily
access
community pharmacies. They serve chronically ill patients
providing them with medication (often expensive) at their
homes and
process claims for refunds from medical aid schemes.
[366] In considering
the profitability of courier pharmacies Dr Stillman relies on data
from Chronic Medical Dispensary (CMD), which
is owned by the fourth
respondent in this appeal. CMD is one of the three largest
courier pharmacies in South Africa.
These pharmacies deal in
high volumes of sales and have a low profit margin. In April
2004 CMD had an operating profit margin
of 1,1%. The
calculations provided to Dr Stillman show that if revenue had been
based on the dispensing fee, CMD would have
had a negative operating
profit margin of 5,1%.
Medical centres
[367] Medical
centres offer a range of health services provided by doctors,
dentists, and other health professionals including pharmacists.
These pharmacies are similar in most respects to community
pharmacies, but are said to have front shops that are much smaller
than those of community pharmacies. Dr Stillman relies on
information provided by Medicross, the operator of 44 pharmacies
in
these centres, and Mr Kellerman, a consultant to Medicross.
According to this information, if the revenue of these pharmacies
had
been based on the dispensing fee the gross profit of the pharmacies
would have been reduced by 68% and the pharmacies would
have had
operating losses equal to 33% of revenue. In his second report
Dr Stillman corrects these figures. In the
interim SEPs had
been published and Mr Kellerman could now rely on that information
instead of estimates on which his first assessment
had been based.
As a result he reduced the figures to a gross profit loss of 59% and
an operating loss of 20%.
Hospitals
[368] Hospitals are
required to have pharmacies to serve their patients. Some of
these pharmacies have small “front
shops” as well.
Dr Stillman was provided with data on actual revenue and expenses of
pharmacies in the Netcare group
in 2003, and with estimates by Mr
Kellerman of the impact on the revenue if that had been based on
dispensing fees under the regulations.
This indicated that the
gross profit of the pharmacies would have been reduced by 63% and
that this would have resulted in an operating
loss equal to 8,7% of
revenue.
[369] The estimates
of the impact that the dispensing fee will have both on the
operations of pharmacies in medical centres and
on hospitals were
thus made by Mr Kellerman and not by Dr Stillman. Mr Kellerman
says that the data was provided to him by
the operator of the medical
centre pharmacies and included details of 4,5 million transactions.
He analysed the 4,5 million
transactions to determine the weighted
average net cost of sales which he estimated to be close to the
future SEP for such sales.
He does not say, however, how he
used this information to calculate the total of the dispensing fees
which would have been received
for the 4,5 million transactions.
[370] His analysis
of data from hospital pharmacies was on 12 million transactions in
2003 and was done to enable Dr Stillman to
compare the financial
results that were actually obtained in 2003 with the results that
would have been obtained if the new regulations
had been in effect.
He confirms that estimates were made and provided to Dr Stillman.
The estimates appear from Dr
Stillman’s report, but not the
details of how they were made.
[371] Dr Stillman’s evidence as far as medical centres and
hospital pharmacies are concerned is based on Mr Kellerman’s
analysis of relevant data, which is not set out in any detail in Mr
Kellerman’s affidavit, nor commented on by any of the
applicants’ experts. The accuracy of the data is,
however, not challenged. Although the basic information is
stated baldly, it has been verified by Mr Kellerman on oath, and
there is no reason to reject it.
[372] The response
of the Minister and the Pricing Committee to the charge that the
dispensing fee will destroy the viability of
pharmacies is
two-pronged. First, they rely on experts to support their
determination of the dispensing fee, and to criticise
the correctness
of the conclusions reached by Mr Jordaan, Dr Theron and Dr Stillman.
Secondly, they contend that the evidence
relied on by the Pharmacies
is based on a static model which assumes that there will be no change
in market conditions. That
assumption, they contend, cannot be
made. There are presently too many pharmacies for the
population served by them, and
the pricing scheme is premised on the
assumption that when it comes into force the market will become more
rational and pharmacies
that are not viable will close down.
The volume of business of those pharmacies that remain will increase,
and will be sufficient
to enable them to trade profitably.
[373] The experts on
whom the Minister and the Pricing Committee rely are Dr Pillay,
Professor Henry, Professor Mossialos, Professor
Mooney and Dr
Thiede. Of these five, only Dr Pillay and Dr Thiede comment on
the Jordaan and Stillman reports.
[374] Dr Pillay’s
comments are directed to Mr Jordaan’s conclusions concerning
the impact of the dispensing fee on gross
profit margins. He
joins issue with Mr Jordaan on the relevance of gross profit, saying
that the negative gross profit margin
on which he relies is not an
indicator of viability. He asserts that to determine viability
regard should be had to the revenue
and operational expenses of the
dispensary only, saying:
“One should bear in mind that the regulations only affect the
dispensary within a retail pharmacy. None of the data
that has
been supplied to date addresses the income and expenditure of the
dispensary which is directly relevant to the regulations.
Providing information on the income and expenditure of the entire
pharmacy or store is irrelevant since the regulations only relate
to
the dispensary.”
[375] He also says
that the dispensing fees prescribed by the regulations do not differ
materially from fees offered in other countries
where prices are
regulated. He gives no details, however, of the countries he
has in mind or of the way dispensing fees are
controlled there.
[376] Whilst gross
profit may not in itself be an indicator of the viability of a
particular store – a well-run store with
high volumes will fare
better than a badly run store with low volumes – gross profit
is a factor relevant to viability.
There must be a margin at
which a pharmacy will not be viable, and that is the focus of Dr
Stillman’s evidence.
[377] I have already
referred to Dr Thiede’s evidence concerning Mr Jordaan’s
report. He also criticises Dr Stillman,
challenging his
qualifications and his approach to the problem. He says that
the methodology utilised is not explained in
detail and that it does
not conform to standards applicable to rigorous scientific studies,
but does not identify where it is said
to fall short of what may be
required to address the issues in the present case. He
criticises Dr Stillman for looking at
the store as a whole instead of
the dispensary in isolation, and for a failure to have regard to
other revenue streams apart from
dispensing and the front shop.
These arguments are echoed in the affidavits of Professor McIntyre
and Dr Zokufa and have
already been addressed.
[378] Dr Thiede’s
criticisms are negative. He offers no positive evidence of the
model on which the Pricing Committee
worked to satisfy itself that
the dispensing fee is appropriate and that pharmacies will be viable
if it is applied.
[379] Professor
Henry, a member of the Pricing Committee, deals with the Australian
model. He does not, however, address directly
any of the expert
or other evidence relied on by the Pharmacies concerning viability,
or say how the fees prescribed in the regulations
were calculated.
[380] According to
Professor Henry the Australian scheme is based on the subsidisation
of medicines sold. It allows for a
two-tier system, in which
there is a dispensing fee of AU$4,66 and a retail margin of 10% on
prescription items up to AU$180.
Using an exchange rate of AU$1
= R5 (the rate he adopts) this works out at approximately R23 per
prescription plus 10% of the retail
price. Nothing is said
about whether discounts or other incentives are permissible, how
compounding and admixing is dealt
with in Australia, nor how rural
pharmacies or specialist pharmacies such as hospital pharmacies are
dealt with under the scheme.
[381] Professor
Henry does not say how medicines costing more than AU$180 are dealt
with. Dr Theron in a report attached to
her affidavit deals
with this, saying that the retail margin is AU$18 for medicines
costing AU$180 or more up to AU$360, and 5%
for medicines costing
AU$360 or more. This allegation is not denied.
[382] The Australian
dispensing fee is higher than the dispensing fee prescribed by the
regulations, but in Professor Henry’s
view this is accounted
for by the difference between the purchasing power of the Rand and
the Australian Dollar. He also
says that the dispensing fee
prescribed by the regulations compares favourably with dispensing
fees allowed in developing countries.
He does not give any
information, however, of what the provisions of those schemes are or
how they compare with the Pricing Committee’s
proposals.
[383] The Australian
system described by Professor Henry has features similar to the
system adopted by the Pricing Committee, but
differs from the latter
in material respects. It does not have a SEP (which is
apparently unique to South Africa) and makes
provision for other
charges to be made by pharmacists, though these are not explained or
dealt with in his evidence. The
most important distinction,
however, is that the Australian dispensing fee has no cap.
There is a 10% surcharge on the retail
price of all medicines,
reducing to 5% as the retail price gets higher. The South
African model is quite different.
[384] Professor
Mossialos deals with pricing systems in other countries but does not
give sufficient detail to enable reliable comparisons
to be made.
He deals only cursorily with the dispensing fee, saying that it is
“very reasonable” within the context
of the current
framework of South Africa’s pharmaceutical system. He
does not, however, engage in the debate concerning
the impact of the
regulations on the viability of pharmacies in the South African
context, or deal in any way with the expert reports
relied upon by
the Pharmacies.
[385] Professor
Mooney deals only with the question whether regulation or free market
principles should have been followed as a
matter of policy in the
formulation of the pricing system. This is in response to
Professor Kantor’s affidavit criticising
regulated prices.
Professor Mooney’s evidence is not relevant to the question
whether the dispensing fee is or is not
an “appropriate”
fee.
Changing
conditions
[386] The assumption
that market conditions will change is a reasonable assumption.
It appears from Dr Stillman’s report
that 14 of the community
pharmacies acquired by New Clicks were trading at a loss in 2003.
According to PSSA’s written
submissions made in response to the
draft regulations, an actuarial analysis based on a survey of 176
community pharmacies conducted
by PSSA showed that 24% of these
pharmacies operated at a loss during the 2003 financial year.
Of this group of loss-making
pharmacies, 39% had an annual turnover
of less than R2,47 million, 27% a turnover of between R2,47 million
and R3,82 million, 23%
a turnover of between R3,82 million and R6,28
million, and 9% a turnover in excess of R6,28 million.
[387] Dr Zokufa says
that a critical factor in setting the dispensing fee was the present
dispensing workload which was considered
to be too low. He goes
on to say that pharmacists must find a way of addressing this issue
and also ways of supplementing
their income by finding sources of
revenue other than dispensing fees. He seems to accept that on
current volumes the dispensing
fee may not be adequate.
[388] It is
reasonable to assume that once the impact of the more stringent
market conditions demanded by the regulations is felt,
the number of
pharmacies will be reduced and the volume of business available to
those who survive will increase. There is,
however, no evidence
to show what the impact of this is likely to be on the profitability
of pharmacies, or on the accessibility
of medicines, particularly in
rural areas, where it is acknowledged by Professor McIntyre that
trading conditions are difficult.
Evaluation of the
evidence
[389] The Pharmacies
rely on section 6(2)(e)(iii) of PAJA, which provides that a ground
for reviewing administrative action is that
“irrelevant
considerations were taken into account or relevant considerations
were not considered”. They also
contend that the
prescribed dispensing fee is not authorised by the Medicines Act
because it is not an “appropriate”
fee.
[390]
I have previously mentioned that courts must be sensitive to
the special role of the executive in making regulations. This,
and the special expertise of the Pricing Committee, are factors to
which due regard must be paid in the present case. What
is or
is not relevant, and what is appropriate, were in the first instance
matters for the Pricing Committee and the Minister to
decide.
But, as pointed out in
Bato Star,
[234]
a court should not “rubber-stamp” a decision simply
because of the identity of the decision maker.
[235]
[391] The Pricing
Committee seems to have calculated the dispensing fee without any
evidence of the breakdown of the income and
expenditure of the
dispensaries, information they considered to be important for the
proper determination of the dispensing fee.
They assumed that
dispensing subsidises the operations of the front shops of community
pharmacies. They have not, however,
provided any evidence to
support this assertion, which is denied by the Pharmacies. As
Dr Stillman points out, it is unlikely
that front shops would be
operated if they were indeed loss-making ventures. The Pricing
Committee does not say what weight
was attached to this assumption in
the calculation of the dispensing fee.
[392] The Minister
and the Pricing Committee allege that pharmacists can add to their
income by charging for professional services
that are presently
rendered without charges being made. They do not say, however,
what weight was attached to this consideration
in fixing the
dispensing fee. If that had been done the assumption could have
been interrogated. The evidence of the
Pharmacies is that this
would be negligible, and there is no evidence to contradict this.
[393] The Minister
and the Pricing Committee do not deal with the impact of the
dispensing fee on rural pharmacies. Professor
McIntyre says
that the Pricing Committee considered the predicament of rural
pharmacies which are “economically disadvantaged,
primarily
because of a comparatively low turnover and also unfavourable payment
conditions from wholesalers.” They
concluded, however,
that this is the result of “distortions in the health sector”
and that “an appropriate dispensing
fee should be as neutral as
possible in respect of such distortions.” No mention is
made of what those distortions
(if any) are other than low turnover
and adverse payment conditions. Moreover, they do not suggest
how these distortions
could be overcome, what the impact of the
dispensing fee will be on the economically disadvantaged rural
pharmacies, and how that
will affect access to medicines in rural
areas.
[394] Against this
background the attitude of Professor McIntyre and Dr Zokufa to the
hearings at which oral representations were
made by the Pharmacies
and others affected by the draft regulations is relevant. They
are both at pains to distance the Pricing
Committee from these
hearings, saying that they were hearings called by the Department and
were not meetings of the Pricing Committee.
[395] It is correct
that the “hearings” were not meetings of the Pricing
Committee. The decision to convene the
hearings was, however,
taken at a meeting of the Pricing Committee on 27 January 2004 and is
recorded in the amended minutes of
that meeting. According to
these minutes the oral representations would be organised and led by
the “Directorate”
and Pricing Committee members would
also be invited. The minutes record that:
“The Directorate should finalise dates for the stakeholder
representations and inform the Committee members by 6 February
2004.
The draft programme should be circulated to the Committee members.”
It is also recorded
that:
“A standard invitation for the representations to be drawn up
by the Department’s Legal Unit. In this invitation,
it
should be clarified that the presentations sessions will only be for
presentation and not clarification. Also indicated
should be
the fact that only stakeholders who have submitted written comments
can sit in for oral representations.”
[396] The
invitations to make oral representations were sent out near the
beginning of February. The minutes of the Pricing
Committee’s
meeting on 20 February record the following under the heading:
“Update on plans for stakeholder representations
discussion”:
“The Directorate presented the draft stakeholder presentation
schedule and informed the committee on the way forward.
After a
lengthy discussion the following decisions were taken”.
The decisions are
then listed and include the following:
“
·
As associations present
the general views it would be helpful to the committee to hear the
views of the individuals belonging to
such an association. It
would give the committee an opportunity to weigh the different data.
It was suggested that
individual groupings should however be told to
give different information than what would be provided by the
association.
. . . .
·
All
committee members should indicate the dates on which they would be
able to attend stakeholder presentations between 8 and 26
March 2004.
. . . .
·
All
members of the Pricing Committee should commit to attend the
stakeholder presentations.
·
The
key purpose of the presentations is to listen and not engage in
discussions. The Pricing Committee and the Department
will have
an opportunity to ask questions but no questions of clarification
will be allowed from the stakeholders.
·
A list
of key questions should be developed and the data being presented
should be interrogated very carefully.”
[397] Pointedly
Professor McIntyre and Dr Zokufa both say that the Pricing Committee
took into account what was contained in the
written representations
made concerning the draft regulations but do not say the same about
the oral representations. All
that is said is that the hearings
were recorded both on videotape and audiotape and the tapes were
available for those members
of the Pricing Committee “who so
wished, to access what was said”. Professor McIntyre says
she watched some of
the videotapes of some of the hearings –
she does not say which – but no suggestion is made that any
other members
of the Pricing Committee did so, or that any report on
the oral hearings was compiled and considered by the Pricing
Committee.
[398] I have
previously referred to the invitation that was addressed to
“stakeholders”.
[236]
That invitation stresses the importance of the hearings and the need
to supply “accurate and substantiated information
to the
Department and the Pricing Committee on how the proposed regulations
may affect your interests.” Professor McIntyre
attached a
copy of the invitation to her affidavit. She does not suggest
that any statement in the invitation concerning
the participation of
the Pricing Committee was incorrect or made without the authority of
the Pricing Committee.
[399] Although it
was not necessary to invite oral representations in addition to the
written representations that had been made,
and although it was not
necessary for all the members of the Pricing Committee to attend the
stakeholder meetings, once the invitation
had been issued the
information furnished at the meetings could not be ignored.
Information as to how the regulations would
affect the interests of
pharmacists was material to the work of the Pricing Committee.
Arrangements should have been made
for those who attended the oral
hearings to report to the Pricing Committee on the representations
that were made. This,
however, was not done and it seems that
in deciding upon the recommendation to be made to the Minister on an
appropriate dispensing
fee, regard was had only to the written
representations. There is nothing to show that the concerns
expressed by the Pharmacies
at the oral hearings or the information
provided by them at the hearings was taken into account by the
Pricing Committee.
[400] The Pricing
Committee was the only body able to explain how they arrived at the
dispensing fee and how they satisfied themselves
that it would be
sufficient to meet the concerns raised in the many representations
made to them by pharmacists and pharmacists’
organisations that
the dispensing fee will cause pharmacies to operate at a loss and
destroy the viability of the profession.
If this had been done
the information may have been sufficient to rebut these averments.
[401] Their response
was, however, negative. It comes down to this. There are
too many pharmacies and their workload
is too low. Ways must be
found to address this, and to develop additional sources of revenue
other than dispensing.
The evidence tendered by the Pharmacies
that, on the basis of the prescribed dispensing fees, pharmacies will
cease to be viable
is flawed. All relevant factors were taken
into account by the Pricing Committee and given careful
consideration. The
dispensing fee is appropriate and compares
favourably with fees in foreign countries where prices of medicines
are regulated.
[402] The only
direct evidence of the impact of the dispensing fee on the viability
of pharmacies is that contained in the written
representations made
to the Pricing Committee which form part of the record, and in the
expert evidence relied on by the Pharmacies.
Although there are
criticisms of it, there is a substantial body of evidence which
called for an answer by the Pricing Committee
and the Minister.
This, however, was not forthcoming.
[403] The Pricing
Committee has provided no models or other evidence to demonstrate how
the dispensing fee was calculated or how
the members of the Pricing
Committee satisfied themselves that it was appropriate. It has
not told us what assumptions it
made about the probable SEPs in
calculating the dispensing fee, or how it assessed the dispensing fee
when it seems to have had
no data dealing with dispensary revenue and
expenses which it considered to be essential for that purpose.
It has not addressed
in any meaningful way the contention that the
dispensing fee will lead to pharmacy closures that will impair
accessibility to health
care particularly in rural areas. The
assertions made by Professor McIntyre and Dr Zokufa about additional
revenue sources and
the subsidisation of the front shop by the back
shop, are at best flimsy. The failure to make provision for
compounding in
the dispensing fee is a material misdirection.
[404]
“Accountability, responsiveness and openness” on the part
of government are foundational values of our Constitution.
An
allegation has been made by professional organisations representing
pharmacists that the dispensing fee will destroy the viability
of
pharmacies, and impair access to health care. That allegation
is supported by a sufficient body of evidence to show that
this is a
real possibility. In the circumstances the applicants were
under an obligation to explain how they satisfied themselves
that
this would not be the result of the dispensing fee prescribed in the
regulations. They were the only persons who could
provide this
information. They did not, however, do so. Absent such
explanation, there is sufficient evidence on record
to show that the
dispensing fee is not appropriate.
Appropriate
dispensing fee for doctors and other health professionals: regulation
12
[405] Both New
Clicks and PSSA challenge the validity of the regulations as a
whole. In their Notice of Motion PSSA claim
in the alternative
that certain regulations should be set aside as being invalid.
In this alternative prayer, the validity
of regulation 12 is not
challenged. New Clicks did not raise any challenges in the
alternative to their main prayer claiming
that the regulations as a
whole are invalid. In argument, however, they contended that if
their argument on the other regulations
challenged by them succeeds,
regulation 12 should also be declared invalid, because it cannot be
severed from the other regulations.
No argument was addressed
to us as to whether or not the fees prescribed in regulation 12 are
appropriate and I express no opinion
on that. As far as
severance is concerned, that is dealt with in the judgment of the
Court and need not be addressed here.
Schedule 0
medicines
[406] Regulation 13 provides that the “appropriate fee”
to be charged by any person, other than a wholesaler or distributor,
in respect of Schedule 0 medicines “shall not exceed the
percentage mark-up in respect of that medicine or Scheduled substance
that was applied at the date of commencement of these regulations.”
No attempt was made in either the written or oral
arguments to
justify this regulation. The “fee” is clearly not
appropriate. It differentiates between those
whose mark-ups
were not the same at the prescribed date. Those selling at a
substantial profit are entitled to continue to
do so. Those
selling at a small profit or even at a loss to attract customers are
obliged to continue doing so. It
was contended that the
challenge to the regulation is moot because Schedule 0 medicines have
been excluded from the operation of
the Medicines Act in terms of
section 36.
[237]
This, however, was only done on 19 November 2004, some five months
after the regulations were promulgated, and four months
after the
applications were launched in the High Court. During that
period, retailers who failed to comply with regulation
13 will have
been liable to be prosecuted if the regulation stands.
Moreover, the exclusion in terms of section 36 may be
withdrawn or
amended, and as long as that is the case, it cannot be said that the
regulation will be “moot” in the
future. Regulation
13 must therefore be declared to be invalid.
Regulation 14(5)
[407] This
regulation requires a manufacturer, importer, exporter, wholesaler,
distributor, pharmacist, person licensed in terms
of section
22C(1)(a), or any other person selling a medicine or Scheduled
substance in the Republic, if requested to do so by the
Director-General, to provide information relating to particular
medicines and Scheduled substances. PSSA contends that the
information called for by the regulation is not sanctioned by section
22G of the Medicines Act which makes provision only for regulations
to be made for the “introduction of a transparent pricing
system”.
[408] Regulation
14(5) entitles the Director-General to request information concerning
“the comparative efficacy, safety and cost effectiveness of the
medicine or Scheduled substance relative to that of other
medicines
or Scheduled Substances in the same therapeutic class compiled in a
manner consistent with guidelines published by the
Director-General
in the Gazette from time to time.”
PSSA contends that
this has no intelligible meaning and is void for vagueness.
Also, that it does not deal with the introduction
of a transparent
pricing system for medicines and is therefore ultra vires.
[409] Information as
to costs, quality and risks of medicine being sold is relevant to a
transparent pricing system. So too
is comparative information
about such matters which may help consumers to know whether the price
of a particular medicine is in
line with that of other medicines
which might be taken for the same complaint. Although the
regulation is in broad and general
terms, the power is not unlimited
and is constrained by the requirement that it must be exercised
reasonably to give effect to
the purpose of the legislation.
[238]
[410] The regulation
empowers the Director-General to seek information relevant to
pricing. How he does so, should he elect
to call for
information, will determine whether the information sought is
relevant to a pricing system and whether it meets the
requirements of
certainty that are called for. The power itself, however,
construed in the context of the Medicines Act and
the regulations, is
sufficiently clear to determine its boundaries. The objection
to regulation 14(5) must therefore be dismissed.
Regulations 21(a)
and (c)
[411] Regulation 21
empowers the Director-General to
“publish or otherwise communicate, or require manufacturers,
importers, wholesalers, distributors, pharmacists or persons
licensed
in terms of section 22C(1)(a) of the Act to publish or otherwise
communicate in such manner and format as he or she may
by notice in
the Gazette determine, information in relation to a particular
medicine or Scheduled substance or class or category
of medicines or
Scheduled substances or the sale of a medicine or Scheduled substance
for the purpose of—
(1) informing the public of—
(a)
the therapeutic value of a medicine or Scheduled substance relative
to the single exit price set by the manufacturer;
(b)
the single exit price, strength, dosage form and pack size of a
medicine or Scheduled substance;
(c)
the risks associated with a particular medicine or Scheduled
substance relative to the single exit price of that medicine or
Scheduled substance”.
[412] PSSA objects
to this regulation for the same reasons that it objects to regulation
14(5), contending that it is not related
to a transparent pricing
system and that it is void for vagueness. The price,
therapeutic value and risks associated with
a medicine are relevant
to price and transparency. However, the therapeutic value of
and risks associated with a particular
medicine are objective
standards which remain the same whatever the SEP might be. How
such factors can be described in relation
to the SEP, other than by
stating the SEP which is dealt with in subsection (b), is not clear
to me.
[413] The regulation
must be construed as being limited to empowering the Director-General
to publish or require others to publish
or communicate information
concerning the therapeutic value, risks and single exit price of
medicines that is reasonably related
to a transparent pricing system.
[414] The regulation
does not require any person or persons to do anything unless and
until the Director-General publishes a notice
requiring them to do
so. If a notice is published that simply requires publication
of details of the therapeutic value, risks
and single exit price of
the medicine it would be relevant and could not be objected to as
being vague. If a notice should
require that information, and
in addition require the therapeutic value and risks to be dealt with
“relative to the single
exit price” it would in my view
be too vague to be complied with. More than that would be
required from the direction.
What that might possibly be is
beyond me now. Greater certainty would have to be given to it
in the Director-General’s
notice should the occasion arise for
such a notice to be issued.
[415] If, for that
purpose, the Director-General requires information to be published
“relative to the single exit price”
the notice must
indicate what, in addition to the SEP, is required. The notice
will be valid only if the “additional”
information is
relevant to a transparent pricing system and is called for in terms
that are sufficiently clear to enable the persons
affected to know
what is required. Construed in this way, the regulation is
neither ultra vires nor too vague to be enforced.
I would
therefore dismiss the objection to the regulation.
The
Director-General's power to declare that the SEP is unreasonable:
regulations 22 and 23
[416] Regulation 22
vests in the Director-General a power to determine that the SEP of a
medicine or Scheduled substance is unreasonable.
The factors to
which the Director-General must have regard in making such a
determination are listed in regulation 23.
[417] Regulation 22
makes provision for a hearing to be given to the person who will be
affected by such a determination,
[239]
and goes on to provide
[240]
that if the Director-General “is not convinced” after
such enquiry that the SEP is reasonable,
“he or she may publish a notice in the Gazette to the effect
that in the opinion of the Director-General, the single exit
price is
unreasonable and must state the reasons for such opinion.”
If this is done,
reasons have to be given by the Director-General for such a
determination. The publication appears to be
the only sanction
attaching to the determination. There is no requirement in the
Medicines Act or in the regulations dealing
with the setting of the
SEP, that the SEP must “be reasonable”; the only
requirement is that the SEP must not exceed
the 2003 benchmark set in
regulation 5(2)(c) or the international benchmarks contemplated by
regulation 5(2)(e). As long
as the SEP meets those requirements
it is valid.
[418] It may be that regulations 22 and 23 were intended to provide a
mechanism for addressing differences that might arise in
relation to
the determination of the maximum SEP or to the application of the
contemplated international benchmarking standards.
If that had
been done it would have provided a mechanism for addressing such
issues. The regulations are, however, not directed
to that
end. They empower the Director-General to act if he or she is
not
convinced
that a SEP is reasonable, whether or not that
SEP has been fixed in accordance with the regulations.
[419] A public declaration by the Director-General that he is not
convinced that a SEP that meets the requirements of the regulations
is reasonable, is unrelated to a pricing system which does not
require prices to be set at amounts that the Director-General is
convinced are reasonable. Indeed, such a requirement would be
of doubtful validity, and other criteria are set for the
determination
of the SEP. As long as the SEP complies with the
requirements of the pricing system, the views of the Director-General
as
to the reasonableness of the price are irrelevant. In the
circumstances regulations 22 and 23 are not authorised by section
22G
of the Medicines Act and are accordingly invalid.
Conclusion
[420] The
conclusions to which I have come on the challenges on the
regulations, and those reached by the other members of the Court,
are
summarised in the judgment of the Court. I agree that the
appropriate order to be made in this case is the order made
in that
judgment.
NGCOBO J:
Introduction
[421] Although the High Court (both the majority and the minority
judgments) considered the question whether the
Promotion of
Administrative Justice Act
[241]
(PAJA) applied to the regulations which are the subject matter of
these proceedings and reached different conclusions, the Supreme
Court of Appeal (SCA) found it unnecessary to consider that
question. In this Court, as in the courts below, both PSSA and
New Clicks (together referred to as “the pharmacies”)
contended that PAJA was applicable in these proceedings.
The
Minister and the Pricing Committee (together referred to as “the
applicants”) contended otherwise. The threshold
question
that must be decided in this case is therefore whether PAJA is
applicable as contended by the pharmacies.
[422] The Chief
Justice has concluded that PAJA applies. Moseneke J, for
reasons advanced in his judgment, has found it unnecessary
to
consider the question of the applicability of PAJA. He prefers
instead to assume without deciding that the administrative
justice
standards of lawfulness, reasonableness and procedural fairness as
given effect in PAJA apply in this case. I am
unable to agree
with this approach. In concluding that PAJA governs this case,
the Chief Justice holds that PAJA, in general,
applies to
regulation-making. I prefer to answer the narrow question,
namely, whether PAJA applies to the specific power
to make
regulations conferred by section 22G(2)(a)-(c) of the Medicines and
Related Substances Act
[242]
(Medicines Act). For reasons advanced by the Chief Justice, I
agree that PAJA is applicable to this narrow question.
But
there are additional reasons why PAJA is applicable.
[423] The approach adopted by the SCA to the question whether PAJA
governs these proceedings raises the question whether the SCA
was
obliged to consider the applicability of PAJA. In particular,
this raises the question whether where, as here, the parties
have
expressly relied upon PAJA, a statute that was enacted to give effect
to section 33(1) of the Constitution and to codify the
principles of
administrative justice, it is permissible for a court to decide the
matter on the basis of section 33(1) of the Constitution
without a
prior finding that the provisions of PAJA are deficient in the remedy
that they provide. This issue has been raised
in this Court
before albeit in different contexts.
[243]
On each occasion, this Court has found that a decision on this issue
was not required for the resolution of those cases.
This
occasion is different. And as I shall show, a decision on this
issue is necessary in this case.
[424] In addition,
there is a difference of opinion between the Chief Justice and
Moseneke J on the question whether the dispensing
fees adopted in the
regulations are appropriate. The Chief Justice has concluded
that they are not. Moseneke J concludes
that they are, save in
relation to courier and rural pharmacies. He finds that the
dispensing fees do not take into account
the unique circumstances of
these pharmacies. For reasons set out below, I agree with this
finding. However, I am unable
to agree with the conclusion that
Moseneke J reaches on the issue of the appropriateness of the
dispensing fees. Nor do I
agree with the remedy that he
proposes in relation to courier and rural pharmacies. While I
agree with the Chief Justice
that the dispensing fees are not
appropriate, my reasons for reaching that conclusion differ somewhat
from those relied upon by
him.
[425] I write
separately therefore to: (a) consider the question whether the SCA
was obliged to determine whether PAJA is applicable
in these
proceedings; (b) provide additional reasons why I hold that PAJA
governs these proceedings; and (c) provide my reasons
for concluding
that the dispensing fees adopted by the regulations are not
appropriate as required by section 22G(2)(b) of the
Medicines Act.
Is it necessary
to decide the question of the applicability of PAJA?
[426] In their respective notices of motion, both PSSA and New Clicks
sought orders reviewing and setting aside the recommendation
of the
Pricing Committee. In addition, they sought orders declaring
invalid the Regulations made pursuant to section 22G(2)
of the
Medicines Act. In seeking these orders, the pharmacies relied
upon the provisions of section 6 of PAJA. In particular,
New
Clicks submitted that the Regulations are unlawful because “they
have been adopted in a manner which is in conflict with
the
requirements of section 6 of PAJA . . .”. Section 6 of
PAJA substantially codifies the grounds of review.
[244]
[427] In argument,
both in this Court and in the courts below, the pharmacies submitted
that the review of the recommendation of
the Pricing Committee is
governed by PAJA. In this Court, PSSA devoted a chapter in its
written argument contending that
PAJA governed these proceedings.
For their submissions, the pharmacies relied on the grounds of review
set out in PAJA.
They submitted that the making of regulations
by the Minister constitutes administrative action and is therefore
subject to review
under PAJA.
[428] In their
supplementary argument in this Court, the applicants contended that
neither the recommendation nor the Regulations
made pursuant to such
recommendation are subject to review under PAJA. They submitted
that neither amounts to administrative
action as defined in PAJA.
In the alternative they submitted that given the decision by the
majority of the High Court that
the conduct of the Pricing Committee
and the Regulations were reviewable in terms of the common law and
the Constitution, it is
not necessary to determine in this case
whether or not PAJA applied.
[429] Both judgments
in the High Court considered the question of the applicability of
PAJA and reached different conclusions.
The majority held that
both the recommendation of the Pricing Committee and the ministerial
regulation-making authority were not
subject to PAJA. It held
that they were subject to review under the constitutional doctrine of
legality, section 33(1) of
the Constitution and the common law.
For its part, the minority held that PAJA was applicable.
[430] On appeal, the
SCA approached the matter on the basis of the doctrine of legality.
Relying on this doctrine, the SCA
held that the Minister cannot
accept recommendations or promulgate regulations that do not fall
squarely within section 22G of
the Medicines Act.
[245]
The SCA accordingly refrained from considering the question of the
applicability of PAJA after concluding that it had no
bearing on its
judgment.
[431] Now there can be no question that the pharmacies sought
judicial review of the recommendation of the Pricing Committee and
the Regulations based on that recommendation. For their causes
of action, they expressly relied upon the provisions of section
6 of
PAJA. They were right. In
Bato Star
this Court
held that “the cause of action for the judicial review of
administrative action now ordinarily arises from PAJA,
not from the
common law as in the past.”
[246]
And it went on to hold that “the authority of PAJA to ground
such causes of action rests squarely on the Constitution.”
[247]
[432] The rationale
for the holding in
Bato Star
appears from the following
passage:
“In
Pharmaceutical Manufacturers Association of SA and
Another: In re Ex parte President of the Republic of South Africa and
Others
, the question of the relationship between the common-law
grounds of review and the Constitution was considered by this Court.
A unanimous Court held that under our new constitutional order the
control of public power is always a constitutional matter.
There are not two systems of law regulating administrative action —
the common law and the Constitution — but only
one system of
law grounded in the Constitution. The Courts' power to review
administrative action no longer flows directly
from the common law
but from PAJA and the Constitution itself. The grundnorm of
administrative law is now to be found in
the first place not in the
doctrine of ultra vires, nor in the doctrine of parliamentary
sovereignty, nor in the common law itself,
but in the principles of
our Constitution. The common law informs the provisions of PAJA
and the Constitution, and derives
its force from the latter.
The extent to which the common law remains relevant to administrative
review will have to be developed
on a case-by-case basis as the
Courts interpret and apply the provisions of PAJA and the
Constitution.”
[248]
(Footnotes omitted.)
[433] PAJA is
national legislation contemplated in section 33(3) of the
Constitution, which the legislature was required to enact
to give
effect to the rights guaranteed in section 33. As its long
title proclaims, the purpose of PAJA is:
“To give effect to the right to administrative action that is
lawful, reasonable and procedurally fair and to the right to
written
reasons for administrative action as contemplated in section 33 of
the Constitution”.
[434] In
NAPTOSA
,
[249]
the Cape of Good Hope High Court had occasion to consider whether in
the context of the Labour Relations Act,
[250]
(LRA) it is appropriate to grant relief directly under section 23(1)
of the Constitution without a complaint that the LRA was
constitutionally deficient in the remedies that it provides.
The court held that it could not conceive that it is permissible
for
an applicant, save by attacking the constitutionality of the LRA, to
go beyond the regulatory framework which it establishes.
[251]
In reaching this conclusion, the High Court was concerned that were
the practice to be permitted, it would encourage the
development of
two parallel streams of labour law jurisprudence, one under the LRA
and the other under section 23(1). It
considered this to “be
singularly inappropriate”.
[252]
[435] In
NEHAWU
,
[253]
this Court considered
NAPTOSA
but refrained from expressing
any opinion on it as it found that it had no application in that
case. In
Ingledew
,
[254]
again this Court referred to
NAPTOSA
and observed, that
together with other cases referred to in
Ingledew
, it “cast
doubt on the correctness of the proposition that a litigant can rely
upon the Constitution, where there is a statutory
provision dealing
with the matter without challenging the constitutionality of the
provision concerned.”
[255]
[436] In my view, there is considerable force in the view expressed
in
NAPTOSA
. Our Constitution contemplates a single
system of law which is shaped by the Constitution. To rely
directly on section
33(1) of the Constitution and on common law when
PAJA, which was enacted to give effect to section 33 is applicable,
is in my view
inappropriate. It will encourage the development
of two parallel systems of law, one under PAJA and another under
section
33 and the common law. Yet this Court has held that
there are not two systems of law regulating administrative action –
the common law and the Constitution – “but only one
system of law grounded in the Constitution.”
[256]
And in
Bato Star
we underscored this, holding that “[t]he
Courts’ power to review administrative action no longer flows
directly from
the common law but from PAJA and the Constitution
itself.”
[257]
[437] Where, as
here, the Constitution requires Parliament to enact legislation to
give effect to the constitutional rights guaranteed
in the
Constitution, and Parliament enacts such legislation, it will
ordinarily be impermissible for a litigant to found a cause
of action
directly on the Constitution without alleging that the statute in
question is deficient in the remedies that it provides.
[258]
Legislation enacted by Parliament to give effect to a constitutional
right ought not to be ignored. And where a litigant
founds a
cause of action on such legislation, it is equally impermissible for
a court to bypass the legislation and to decide the
matter on the
basis of the constitutional provision that is being given effect to
by the legislation in question. Thus in
Bato Star
this
Court held that “[t]o the extent, therefore, that neither the
High Court nor the SCA considered the claims made by the
applicant in
the context of PAJA, they erred.”
[259]
A fortiori
here where the cause of action is expressly founded
on PAJA.
[438] It follows
that the SCA, as we held in
Bato Star
, erred in failing to
consider whether PAJA was applicable. The question whether PAJA
governs these proceedings cannot be
avoided in these proceedings.
That question formed a large part of the judgments in the High
Court. Both the majority
and the minority considered the
question and gave reasoned judgments for their respective views, but
were divided on the issue.
In deciding this question, this
Court is therefore not sitting both as a court of first and last
instance. We have the benefit
of the reasoned judgments of the
High Court. In my view our decision in
Bato Star
compels
us to confront the question of the applicability of PAJA in these
proceedings. It is to that question that I now
turn. But
before considering the applicability of PAJA it is necessary to
consider first, the nature of the powers and functions
conferred by
section 22G(2) of the Medicines Act upon the Pricing Committee and
the Minister.
The nature of the
process involved in making regulations under section 22G(2)
[439] Section 22G(2)
provides:
“(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a)
on the introduction of a transparent pricing system for all medicines
and Scheduled substances sold in the Republic;
(b)
on an appropriate dispensing fee to be charged by a pharmacist or by
a person licensed in terms of section 22C(1)(a);
(c)
on an appropriate fee to be charged by wholesalers or distributors or
any other person selling Schedule 0 medicines.”
[440] In this case
we are not concerned with the general regulation-making power given
to the Minister by section 35 of the Medicines
Act. That
section requires the Minister to make General Regulations “in
consultation with the council.”
[260]
We are concerned here with the specific powers and functions
conferred on the Pricing Committee and the Minister to introduce
a
transparent pricing system for all medicines and Scheduled
substances, to determine an appropriate dispensing fee to be charged
by pharmacists and other health care professionals, and an
appropriate fee to be charged by wholesalers and distributors.
In order to carry out the objectives of the section, both the
Minister and the Pricing Committee must act together.
[441] Section 22G(2)
provides for a unique process. It is unique in the sense that
it requires the Minister to make regulations
“on the
recommendation of the Pricing Committee.” The
recommendation of the Pricing Committee is therefore a
jurisdictional
fact for the exercise by the Minister of her power to make
regulations. Section 22G(2) contemplates that the
Minister will
only make regulations if the Pricing Committee recommends them.
Neither the Minister nor the Pricing Committee
can act alone.
They must act together. Section 22G(2) therefore contemplates a
single process commencing with an investigation
of the matters set
out in paragraphs (a) to (c) of section 22G(2) by the Pricing
Committee, followed by a recommendation on appropriate
regulations,
then a consideration of the draft regulations by the Minister,
culminating in a decision to make the regulations.
[442] The process
conducted by the Pricing Committee and the making of the regulations
based on the recommendation of the Pricing
Committee are
interlinked. The one is incomplete without the other.
Once the process is complete, in the sense that
the regulations are
made, they become inseparable. Thus the recommendation of the
Pricing Committee represents part of the
process of
regulation-making. The process of making regulations on the
specific matters set out in section 22G(2)(a) to (c)
must therefore
be seen as a single process involving both the recommendation of the
Pricing Committee and the making of regulations
by the Minister based
on that recommendation. If the process followed by the Pricing
Committee is flawed, the ensuing recommendation
is similarly flawed,
so are the regulations based on such recommendation. It is this
process that we are concerned with in
these proceedings. And
the question is whether PAJA applies to this process.
Does PAJA apply
to section 22G(2)?
[443] The majority in the High Court found that both the activities
of the Pricing Committee and regulation-making by the Minister
do not
amount to administrative action. However, they held that both
“are subject to review on the principles of common
law, the
principle of legality as contemplated in section 1 of the
Constitution and section 33(1) of the Constitution.”
But
section 33(1) of the Constitution applies to “administrative
action” within the meaning of section 33(1) of the
Constitution. It is not clear from the judgment of the majority
whether the finding that the conduct of the Pricing Committee
and the
Minister in exercising the powers conferred by section 22G(2) are
subject to review under section 33(1) of the Constitution,
was
intended to be a finding that the exercise of such power amounts to
administrative action under section 33(1). What is
clear is
that the majority held that the conduct of the Pricing Committee in
making a recommendation to the Minister and the regulation-making
do
not constitute administrative action contemplated in section 1 of
PAJA.
[261]
[444] The minority
found that: (a) the recommendation of the Pricing Committee is a
jurisdictional prerequisite for the making of
regulations by the
Minister and could adversely affect “the rights of the
pharmaceutical industry and the public in general”
[262]
;
and (b) has a “direct external legal effect” because the
regulations can only be made upon the recommendation of the
Pricing
Committee. As the minority put it, “the recommendations
are upon promulgation transformed into the regulations.”
It therefore held that the conduct of the Pricing Committee in making
a recommendation amounts to administrative action within
PAJA.
[263]
It also concluded that regulation-making also amounted to
administrative action within the meaning of PAJA.
[264]
[445] For its part the SCA found that the recommendation of the
Pricing Committee is a jurisdictional fact for the exercise of
the
power to make regulations by the Minister. It held that the
recommendation of the Pricing Committee “has to be
in
accordance with the provisions of section 22G i.e. it must be a
lawful administrative action as provided for by section 33(1)
of the
Constitution.”
[265]
It went on to hold that this “flows from the principle of
legality that the Minister cannot accept a recommendation
or
promulgate a regulation that does not fall squarely within the
section [22G].”
[266]
It took the view that “the regulations had to withstand the
test of legality.”
[267]
Given this approach, the SCA concluded that the question whether
ministerial regulations and the conduct of the Pricing Committee
were
reviewable under PAJA, has no bearing on its judgment.
[268]
Administrative
action in the Constitution
[446] The starting
point in determining whether PAJA is applicable to the exercise of
the power conferred by section 22G is section
33(1) of the
Constitution. The meaning of administrative action must be
determined by reference to section 33 of the Constitution
and not
PAJA. Once it is determined that the exercise of the executive
power authorised by section 22G(2)(a) to (c) is administrative
action
within the meaning of section 33, the next question to consider is
whether PAJA nevertheless excludes it. The answer
to this
question must be sought, in the first place, in the exclusionary
provisions of PAJA. Reference to these provisions
of PAJA is
not for the purposes of determining whether the process involved here
is administrative action, but whether PAJA excludes
the exercise of
this specific power from its ambit. It follows therefore that
the provisions of PAJA cannot be used as an
aid to determining the
meaning of administrative action in the Constitution. At best
they can be used to fortify the inference
that PAJA excludes the
exercise of this specific power from its ambit. The first
question that must be answered therefore
is whether the exercise of
the power conferred by section 22G(2) constitutes administrative
action under section 33 of the Constitution.
[447] The meaning of
administrative action within the meaning of the Constitution was
first considered by this Court, in
Fedsure Life Assurance v
Greater Johannesburg TMC
. There the Court held:
“
In addressing this
question it is important to distinguish between the different
processes by which laws are made. Laws are
frequently made by
functionaries in whom the power to do so has been vested by a
competent legislature. Although the result
of the action taken
in such circumstances may be ‘legislation’, the process
by which the legislation is made is in
substance ‘administrative’.
The process by which such legislation is made is different in
character to the process
by which laws are made by deliberative
legislative bodies such as elected municipal councils. Laws
made by functionaries
may well be classified as administrative; laws
made by deliberative legislative bodies can seldom be so
described.”
[269]
[448] And in
President of the Republic of South Africa v South African Rugby
Football Union (SARFU 3)
, this Court articulated the test for
determining whether conduct constitutes administrative action as
follows:
“In s 33 the adjective ‘administrative’ not
‘executive’ is used to qualify ‘action’.
This suggests that the test for determining whether conduct
constitutes ‘administrative action’ is not the question
whether the action concerned is performed by a member of the
executive arm of government. What matters is not so much the
functionary as the function. The question is whether the task
itself is administrative or not. It may well be, as
contemplated in
Fedsure
, that some acts of a legislature may
constitute ‘administrative action’. Similarly,
judicial officers may, from
time to time, carry out administrative
tasks. The focus of the enquiry as to whether conduct is
‘administrative action’
is not on the arm of government
to which the relevant actor belongs, but on the nature of the power
he or she is exercising.”
[270]
(Footnotes omitted.)
The Court went on
and said:
“As we have seen, one of the constitutional responsibilities of
the President and Cabinet Members in the national sphere
(and
premiers and members of executive councils in the provincial sphere)
is to ensure the implementation of legislation.
This
responsibility is an administrative one, which is justiciable, and
will ordinarily constitute ‘administrative action’
within
the meaning of s 33. Cabinet Members have other constitutional
responsibilities as well. In particular, they
have
constitutional responsibilities to develop policy and to initiate
legislation. Action taken in carrying out these
responsibilities
cannot be construed as being administrative action
for the purposes of s 33. It follows that some acts of members
of the
executive, in both the national and provincial spheres of
government will constitute ‘administrative action’ as
contemplated
by s 33, but not all acts by such members will do
so.”
[271]
(Footnotes omitted.)
[449] It is clear
from the last mentioned passage that the implementation of
legislation is “an administrative [responsibility],
which is
justiciable, and will ordinarily constitute ‘administrative
action’ within the meaning of s[ection] 33.”
In
SARFU 3
the Court noted that it is not always easy to
determine whether the exercise of executive power amounts to
formulation of policy
or implementation of legislation.
However, it held that the question whether the exercise of executive
power amounts to implementation
of legislation depends primarily upon
the nature of the power. The source of the power and its
subject matter, are also relevant
in deciding whether the action
concerned amounts to administrative action. In this regard it
held:
“Determining whether an action should be characterised as the
implementation of legislation or the formulation of policy
may be
difficult. It will, as we have said above, depend primarily
upon the nature of the power. A series of considerations
may be
relevant to deciding on which side of the line a particular action
falls. The source of the power, though not necessarily
decisive, is a relevant factor. So, too, is the nature of the
power, its subject-matter, whether it involves the exercise
of a
public duty and how closely it is related on the one hand to policy
matters, which are not administrative, and on the other
to the
implementation of legislation, which is. While the
subject-matter of a power is not relevant to determine whether
constitutional review is appropriate, it is relevant to determine
whether the exercise of the power constitutes administrative
action
for the purposes of s 33. Difficult boundaries may have to be
drawn in deciding what should and what should not be
characterised as
administrative action for the purposes of s 33. These will need
to be drawn carefully in the light of the
provisions of the
Constitution and the overall constitutional purpose of an efficient,
equitable and ethical public administration.
This can best be
done on a case by case basis.”
[272]
(Footnotes omitted.)
[450] The conduct of
the Pricing Committee and the Minister in exercising the power
conferred on them by section 22G(2) involves
the performance of
functions that the legislation prescribes. It requires the
introduction of a transparent pricing system,
the fixing of an
appropriate dispensing fee to be charged by those who dispense
medicines and fixing an appropriate fee to be charged
by wholesalers
and distributors, by the Minister acting on the recommendation of the
Pricing Committee. The nature of the
power as well as its
subject matter is concerned with the implementation of legislation.
The exercise of this power can readily
be subjected to section 33.
The exercise of the power conferred by section 22G(2) therefore
constitutes administrative action
within the meaning of section 33.
To suggest that the performance of these functions does not amount to
implementation of
legislation and therefore administrative action,
because the Minister performs these functions through regulations,
seems to me,
to put form above substance. As pointed out
earlier, in
Fedsure
this Court held that although laws made by
functionaries in whom the powers to do so have been vested amount to
legislation, the
process by which such legislation is made is in
substance administrative action.
[273]
[451] Once it is determined that the exercise of powers given to the
Minister and the Pricing Committee under section 22G(2) amounts
to
administrative action within the meaning of section 33, the exercise
of those powers is governed by PAJA unless PAJA excludes
the exercise
of such powers from its scope.
[274]
The question that falls to be considered next therefore is whether
the powers and functions performed by the Minister and
the Pricing
Committee under section 22G(2) fall within the definition of
administrative action within the meaning of PAJA.
Put
differently, the question is whether PAJA excludes from its ambit the
exercise of such powers and functions. Like any
statute, PAJA
must, where possible, be construed in a manner that is consistent
with the Constitution.
[275]
Does PAJA exclude
from its ambit the powers conferred by section 22G(2)?
[452] Section 1 of
PAJA defines administrative action to mean:
“any decision taken, or any failure to take a decision, by—
(a)
an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in
terms of any legislation; or
(b)
a natural or juristic person, other than an organ of state, when
exercising a public power or performing a public function in
terms of
an empowering provision,
which
adversely affects the rights of any person and which has a direct,
external legal effect, but does not include—
(aa) the executive powers or functions of the National Executive,
including the powers or functions referred to in sections 79(1)
and
(4), 84(2)(a), (b), (c), (d), (f), (g), (h), (i) and (k), 85(2)(b),
(c), (d) and (e), 91(2), (3), (4) and (5), 92(3), 93, 97,
98, 99 and
100 of the Constitution;
(bb) the executive powers or functions of the Provincial Executive,
including the powers or functions referred to in sections 121(1)
and
(2), 125(2)(d), (e) and (f), 126, 127(2), 132(2), 133(3)(b), 137,
138, 139 and 145(1) of the Constitution;
(cc) the executive powers or functions of a municipal council;
(dd) the legislative functions
of Parliament, a provincial legislature or a municipal council;
(ee) the judicial functions of a
judicial officer of a court referred to in section 166 of the
Constitution or of a Special Tribunal
established under section 2 of
the Special Investigating Units and Special Tribunals Act, 1996 (Act
No. 74 of 1996), and the
judicial functions of a traditional leader
under customary law or any other law;
(ff) a decision to institute or
continue a prosecution;
(gg) a decision relating to any
aspect regarding the appointment of a judicial officer, by the
Judicial Service Commission;
(hh) any decision taken, or
failure to take a decision, in terms of any provision of the
Promotion of Access to Information Act, 2000
; or
(ii)
any decision taken, or failure to take a decision, in terms of
section 4(1)
”.
[453] Subparagraphs
(aa), (bb) and (cc) exclude from the scope of PAJA executive powers
and functions of the National Executive,
Provincial Executives and
Municipal Councils. However, subparagraphs (aa) and (bb)
proceed to list specific executive powers
and functions that are
excluded. These subparagraphs introduce this list by using the
phrase “including the powers
or functions referred to”
and proceed to refer to specific provisions of the Constitution which
are then listed in the subparagraphs.
The provisions of the
Constitution that deal with the implementation of legislation at both
national and provincial levels are
omitted from the list.
[454] The question
is whether the omission of the power to implement legislation was
intended to bring the exercise of those functions
within the ambit of
PAJA. Put differently, the question is whether the list of
executive functions or powers listed in subparagraphs
(aa) and (bb)
were intended to be the only powers excluded from PAJA or whether the
functions and the powers listed in the subparagraphs
were listed
merely to provide examples of powers or functions that are excluded
from the scope of PAJA without seeking to limit
the list to those
powers specifically referred to in the subparagraphs. This is
essentially a matter of construction, in
particular, the meaning to
be given to the word “including” in the context in which
it occurs.
[455] As a general
rule, the terms “including” or “includes” are
not terms of exhaustive definition but
terms of extension.
[276]
However, they may, depending on the context, be used as terms of
exhaustive definition.
[277]
As the court put it in
Dilworth
v Commissioner of Stamps
:
“The word ‘include’ is very generally used in
interpretation clauses in order to enlarge the meaning of words
or
phrases occurring in the body of the statute; and when it is so used
these words or phrases must be construed as comprehending,
not only
such things as they signify according to their natural import, but
also those things which the interpretation clause declares
that they
shall include. But the word ‘include’ is
susceptible of another construction, which may become imperative,
if
the context of the Act is sufficient to shew that it was not merely
employed for the purpose of adding to the natural significance
of the
words or expressions defined. It may be equivalent to ‘mean
and include’, and in that case it may afford
an exhaustive
explanation of the meaning which, for the purposes of the Act, must
invariably be attached to these words or expressions.”
[278]
[456] The sense in
which the term “including” is used must be ascertained
from the context in which it is used.
[279]
In
De Reuck v Director of Public Prosecutions, WLD
, this Court
referred to “useful guidelines for this determination”
and said:
“The correct sense of ‘includes’ in a statute must
be ascertained from the context in which it is used.
Debele
provides useful guidelines for this determination. If the
primary meaning of the term is well known and not in need of
definition
and the items in the list introduced by ‘includes’
go beyond that primary meaning, the purpose of that list is then
usually taken to be to add to the primary meaning so that ‘includes’
is non-exhaustive. If, as in this case,
the primary meaning
already encompasses all the items in the list, then the purpose of
the list is to make the definition more
precise. In such a case
‘includes’ is used exhaustively. Between these two
situations there is a third,
where the drafters have for convenience
grouped together several things in the definition of one term, whose
primary meaning -
if it is a word in ordinary, non-legal usage - fits
some of them better than others. Such a list may also be
intended as
exhaustive, if only to avoid what was referred to in
Debele
as ‘ʼn moeras van onsekerheid’ (a
quagmire of uncertainty) in the application of the term.”
[280]
(Footnotes omitted.)
[457]
As pointed out earlier, section 1 of PAJA excludes from the
definition of administrative action, amongst other powers, “the
executive powers or functions of the National Executive”.
However subparagraph (aa) of section 1 proceeds to list specific
provisions of the Constitution which are excluded from the definition
of administrative action. Among these provisions listed
are the
provisions of subsections 85(2)(b) to (e) of the Constitution.
Subsection 85(2)(a) which provides for the power to
implement
legislation is conspicuous by its omission from this list. The
question is whether failure to mention subsection
85(2)(a) which
refers to the implementation of national legislation, was intended to
bring the implementation of legislation within
the definition of
administrative action in PAJA.
[458] All the powers
or functions that are listed in subparagraph (aa) are clearly
executive powers or functions. In particular,
the powers and
functions set out in subparagraphs (b) to (e) of subsection 85(2) and
subparagraphs (d) to (g) of subsection 125(2)
of the Constitution are
manifestly executive powers. Subsection 85(2) provides:
“(2) The President exercises the executive authority, together
with the other members of the Cabinet, by—
(a)
implementing national legislation except where the Constitution or an
Act of Parliament provides otherwise;
(b)
developing and implementing national policy;
(c)
co-ordinating the functions of state departments and administrations;
(d)
preparing and initiating legislation; and
(e)
performing any other executive function provided for in the
Constitution or in national legislation.”
While section 125(2)
provides:
“(2) The Premier exercises the executive authority, together
with the other members of the Executive Council, by—
(a)
implementing provincial legislation in the province;
(b)
implementing all national legislation within the functional areas
listed in Schedule 4 or 5 except where the Constitution or
an Act of
Parliament provides otherwise;
(c)
administering in the province, national legislation outside the
functional areas listed in Schedules 4 and 5, the administration
of
which has been assigned to the provincial executive in terms of an
Act of Parliament;
(d)
developing and implementing provincial policy;
(e)
co-ordinating the functions of the provincial administration and its
departments;
(f)
preparing and initiating provincial legislation; and
(g)
performing any other function assigned to the provincial executive in
terms of the Constitution or an Act of Parliament.”
[459] None of the
powers or functions listed in subparagraphs (aa) or (bb) go beyond
what is generally understood to be the executive
powers or
functions. In other words the powers or functions introduced by
the term “including” do not go beyond
the meaning of
executive power or function. The purpose of the list is not
therefore to extend the meaning of executive powers
or
functions.
[281]
On the contrary the ordinary meaning of executive power or function
“already encompasses all the items in the list”.
[282]
In these circumstances the purpose of listing the powers or functions
in subparagraphs (aa) and (bb) is to make the definition
of executive
function or power more precise. It seems to me that in the
context in which it occurs, the term “including”
is used
to limit the executive powers or functions to those listed in
subparagraphs (aa) or (bb).
[460] Nor can it be said that the implementation of legislation was
omitted from the list of what amounts to executive power or
function
because implementing legislation is so obviously an executive
function that it required no mention.
[283]
But the same can be said of all the other powers or functions listed
in subparagraph (aa), in particular, those set out in
subparagraphs
(b) to (e). They are so manifestly executive functions that
they would not need any mention. Yet the
legislature in PAJA
decided to mention them specifically but omit implementation of
legislation. It is also true that the
phrase “any other
executive function” found in subparagraph 85(2)(e) of the
Constitution is very wide indeed.
But it cannot be said to
include implementation of legislation which is deliberately excluded
from the list. That phrase
must be construed to refer to
functions that are not set out in subparagraphs (a) to (d) of
subsection 85(2).
[461] The conclusion that the deliberate exclusion of implementing
legislation from the list of executive powers or functions that
do
not fall within the ambit of PAJA was intended to bring the exercise
of those powers or functions within the ambit of PAJA,
is
irresistible. Indeed it would have been an easy matter for the
legislature to have excluded expressly implementation of
legislation
from the scope of PAJA. I agree with the observation by the
Chief Justice that in doing so the legislature would
have excluded
from the scope of PAJA the very core of administrative action which
is implementation of legislation. I also
agree with the
observation of the SCA that it is unlikely that PAJA, which was
enacted to give effect to section 33 of the Constitution
and to
codify the principles of administrative justice would have “reduced
the level of administrative justice”.
[284]
There are further considerations which fortify this conclusion.
[462] There can be
little doubt that the implementation of national legislation is the
exercise of an executive power or function.
Section 85(1) of
the Constitution expressly provides that “the executive
authority of the Republic is vested in the President”.
Section 85(2)(a) expressly provides that “the President
exercises the executive authority together with other members of
the
cabinet by . . . ” among other things, “implementing
national legislation . . . ”. What is significant
is that
in relation to the executive powers or functions of the Provincial
Executives, PAJA omits from the list of excluded powers
those dealing
with the implementation of legislation whether national or provincial
or the administration of national legislation
assigned to a
Provincial Executive.
[285]
[463] It is not
without significance that the omission of implementation of
legislation from the list of executive powers or functions
excluded
from the scope of PAJA comes after this Court in
Fedsure
and
in
SARFU 3
had authoritatively laid down the definition of
administrative action within the meaning of section 33(1) of the
Constitution.
In
Fedsure
this Court held that although
laws made by functionaries in whom the powers to do so has been
vested by a competent legislature,
amount to legislation, the process
by which such legislation is made is in substance administrative.
And such laws are to
be classified as administrative action.
[286]
And in
SARFU 3
this Court held that the implementation of
legislation whether it is at provincial or national level by the
relevant executive
authority will ordinarily amount to administrative
action.
[287]
[464] Nor is it a
coincidence that in its definition of administrative action, PAJA
omits from its list of excluded executive powers
those dealing with
implementation of legislation, which this Court held amounts to
administrative action within the meaning of
section 33 of the
Constitution. And significantly PAJA excludes from its ambit
those powers which this Court held do not
amount to administrative
action such as developing policy and initiating legislation.
[288]
PAJA defines administrative action in line with the decisions of this
Court in
Fedsure
and
SARFU 3
.
[465] It seems to me
that where, as here, this Court has given a construction to a concept
used in the Constitution, and Parliament
in subsequent legislation
giving effect to a provision of the Constitution which embodies such
a concept, it is safe to assume
that the legislature when using the
concept in question intended it to be given the meaning which has
been given to it by this
Court.
[289]
Here this Court has construed administrative action within the
meaning of section 33 of the Constitution to include the exercise
of
the power to implement legislation but to exclude the exercise of the
power to develop policy or initiate legislation.
[290]
[466] Given this
construction of the concept of administrative action as used in the
Constitution, it is safe to assume that in
PAJA, which was
promulgated subsequently, the legislature intended administrative
action to bear the same meaning that it bears
under section 33(1) of
the Constitution as authoritatively defined by this Court. The
omission of the power to implement
legislation in the list of
executive powers excluded from the ambit of PAJA, and the inclusion
of the power to develop policy or
initiate legislation in the list of
powers excluded from the ambit of PAJA, is consistent with the
construction of the concept
of administrative action by this Court.
As pointed out earlier, PAJA must, when possible be construed
consistently with the
Constitution.
[291]
[467] I agree with
the Chief Justice that the definition of “decision” in
PAJA does not exclude regulation-making.
[292]
The reference in the main part of the definition to “any
decision of an administrative nature” and the general
provision
of subparagraph (g) to “doing or refusing to do any other act
or thing of an administrative nature”, brings
the making of
regulations contemplated in section 22G(2)(a) to (c) within the ambit
of the definition of a “decision”.
[468] Nor does the
exclusion of a decision in terms of section 4(1) of PAJA indicate an
intention to exclude regulation-making from
the definition of
administrative action in PAJA.
[293]
Section 4(1) contemplates “administrative action [which]
materially and adversely affects the rights of the public
. . . ”
and that the administrator will give effect to the right to
procedurally fair administrative action. However,
it leaves it
to the administrator to decide on how to give effect to the right to
procedurally fair administrative action.
It is the decision of
the administrator in this regard which is excluded from the
definition of administrative action.
[469] Sachs J holds
that “PAJA is not generally applicable to this case, but only
[applies] in respect of the regulations
fixing the dispensing fee.”
He draws attention to certain provisions of PAJA, which he holds
indicate that PAJA is
not generally applicable to regulation-making
in these proceedings. As pointed out earlier, the provisions of
PAJA cannot
be used to determine whether action constitutes
administrative action within the meaning of section 33 of the
Constitution.
They may only be used to support the inference
that PAJA excludes from its ambit the exercise of the power in
question. Sachs
J accepts this.
[470] The point that
needs to be stressed here is that we are not concerned here with a
general regulation-making power. We
are concerned with a unique
process which involves the recommendation by the Pricing Committee
and a decision by the Minister to
make regulations based on the
recommendation of the Pricing Committee. It is a process which
requires both the Pricing Committee
and the Minister to act together
in implementing the provisions of section 22G(2). The question
is whether PAJA applies to
this specific process, in particular,
whether the nature and the effect of the power granted by section
22G(2)(a) to (c) amounts
to administrative action within the meaning
of section 33 of the Constitution.
[471] Viewed in
isolation regulation-making authority may be said to be a legislative
act. However, as pointed out previously,
it is incorrect to
view individually the component parts of what is essentially a single
process. The regulation-making is
as much part of the entire
process as the recommendation of the Pricing Committee itself.
One cannot excise this step from
the rest of the process for the
purposes of the operation of PAJA. The making of the
recommendation by the Pricing Committee
and the making of the
regulations by the Minister are part of a process which, when viewed
in its entirety, is, in my view, administrative.
One is dealing
here with a dual stage administrative action – first, the
recommendation of the Pricing Committee and second,
the decision of
the Minister to make regulations based on such recommendation.
The regulation-making is an integral part
of a process which when
viewed as a whole is administrative. The character of the parts
is governed by the nature of the
whole.
[472] Sachs J finds
that “the notion of procedural fairness and the right to be
given reasons fit in closely with adjudicative
justice for
individuals.” But section 4 of PAJA suggests otherwise.
It contemplates that administrative action
may affect the rights of
the public in general and that the administrator will give effect to
the right to procedurally fair administrative
action even in such a
case. This could be done either by holding a public enquiry or
following a “notice and comment
procedure” or following
some other procedure that gives effect to the right to procedurally
fair administrative action.
[294]
[473] Subsection
4(2) describes the procedure to be followed where the administrator
decides to hold an enquiry. Such procedure
includes the
appointment of a suitably qualified panel to hold public enquiries.
At the conclusion of the enquiry the panel
must “compile a
written report on the enquiry and give reasons for any administrative
decision . . . recommended.”
In addition, it must publish
a summary of the report in a government gazette. If the
administrator decides to follow a notice
and comment procedure, the
administrator must call for comments and consider comments received
before making a decision.
PAJA therefore contemplates
administrative action that affects not only an individual but also
affects the public in general and
prescribes how the right to
procedurally fair administrative action is to be given effect in such
a case.
[474] Section 4
contemplates a dual stage process, one commencing with a panel
holding public hearings and making a recommendation
to an
administrator and the second stage involving the decision by the
administrator based on such a recommendation. The
process
contemplated in section 22G(2)(a) to (c) fits in with the dual stage
process envisaged in section 4 of PAJA. The
Medicines Act makes
provision for the appointment of the Pricing Committee by the
Minister. The function of the Pricing Committee
is to
investigate a transparent pricing system and fees to be charged by
health care professionals, wholesalers and distributors.
It may
do this by calling for submissions from interested persons and
considering these representations. Thereafter the Pricing
Committee prepares a report that is accompanied by draft regulations
on the issues that it is required to investigate.
[475] And, as
happened in this case, the Minister accepted the draft regulations
and published them in the government gazette for
public comment.
The Pricing Committee subsequently considered the submissions and
public hearings were held on the draft
regulations. The Pricing
Committee thereafter made its final recommendation to the Minister on
the determination of the single
exit price, dispensing fees and fees
to be charged by wholesalers and distributors. The Minister
accepted this recommendation
which was in the form of draft
regulations and promulgated the regulations. The procedure that
was followed by the Pricing
Committee and the Minister fits in, and
is consistent with that envisaged in section 4. In my view the
difficulty referred
to by Sachs J does not therefore arise in
relation to the specific process envisaged by section 22G(2)(a) to
(c).
[476] Nor am I
persuaded that categorisation of the exercise of public power as
adjudicative or legislative provides the criterion
as to whether the
exercise of the power in question amounts to administrative action.
The trend in modern administrative
law has been to move away from
formal classification as a criterion.
[295]
It is clear from the decisions of this Court in
Fedsure
and
SARFU 3
that the use of labels in order to determine whether
the action in question is administrative or legislative is not
helpful.
Thus in
Fedsure
this Court held that the
process may in form be legislative but yet administrative in
substance.
[296]
Similarly in
SARFU
3
the Court held that what matters
is not the functionary who is performing the function in question but
the function that is being
performed.
[297]
It seems to me that the fruitful enquiry is to look at the nature and
effect of the power that is being exercised.
This would provide
a more rational foundation for determining what is administrative
action.
[477] There is
commonwealth jurisprudence that is consistent with this approach.
In
Homex Realty & Development Co Ltd v Village of
Wyoming
,
[298]
the Supreme Court of Canada said the following:
“It seems to me that a similar analysis should be employed in
the present case. That is, it is not particularly important
whether the function of the municipality be classified as
‘legislative’ or as ‘quasi-judicial’.
Such an approach would only return us to the conundrums of an earlier
era. One must look to the nature of the function and
to the
facts of each case. I would adopt what was said by Judson J. in
the
Wiswell
case. Although Judson J. dissented in
Wiswell
, being of opinion that adequate notice had been given,
he did say :
‘I
do not think that it helps one towards a solution of this case to put
a label on the form of activity in which the Metropolitan
Council was
engaged when it passed this amending by-law. Counsel for the
municipality wants to call it legislative and from
that he argues
that they could act without notice. The majority of the Judges
prefer the term quasi-judicial. However
one may characterize
the function, it was one which involved private rights in addition to
those of the applicant and I prefer
to say that the municipality
could not act without notice to those affected.’”
[299]
(References omitted.)
[478] In
CREEDNZ
Inc v Governor-General
[300]
the New Zealand Court of Appeal said the following:
“The next matter for consideration is the nature of the power
exercised by the Governor-General in Council. The mere
fact
that the decision is embodied in an instrument, an Order in Council,
that is legislative in form does not necessarily preclude
the
imposition by implication of an opportunity to be heard. Again,
it is well settled in this country that a body which
is exercising
functions that are legislative in form and substance may be subject
to an implied duty to observe the requirements
of natural justice.
Furthermore, the dividing line between ‘adjudication’ (or
‘administration’) on
the one hand and ‘legislation’
on the other, is not always easy to draw and the attempt may be an
arid exercise for
in the twilight area the conceptual foundations for
a distinction are not self-evident. It is more profitable to
focus on
the nature and effect of the decision under the statutory
scheme than to search for labels to characterise the Executive
Council’s
functions under s 3(3)”. (References
omitted.)
[479] It follows
therefore in my judgment, that the categorisation of action as being
adjudicative is not determinative of whether
the action in question
is administrative or not. What matters is the nature and the
effect of the power conferred.
[480] For all these
reasons, I conclude that, upon a proper construction of PAJA, the
implementation of the provisions of section
22G(2) by the Pricing
Committee and the Minister fall within the ambit of PAJA. The
exercise of that power or function by
the Pricing Committee and the
Minister amounts to administrative action within the meaning of
section 1 of PAJA.
[481] In the event I
agree with the Chief Justice that PAJA generally addresses the four
requirements of section 33(1) of the Constitution
relating to just
administrative action, namely, lawfulness (section 6(2)(f)(i) and
6(2)(i)),
[301]
reasonableness (section 6(2)(h)), procedural fairness (section
6(2)(c)), and the provision of reasons (section 5). I also
agree that in relation to the procedural challenge the question to be
decided is whether the procedures followed by the Minister
and the
Pricing Committee in the process of making regulations were in all
the circumstances of the case fair.
Procedural
fairness
[482] In
Zondi
this Court had occasion to consider the content of procedural
fairness, albeit in a different context. On that occasion we
said:
“Procedural fairness, by its very nature, imports the element
of fairness. And fairness is a relative concept which
is
informed by the circumstances of each particular case. In each
case the question is whether fairness demands that steps
be taken to
trace the identity of the person against whom a decision is to be
made. It is therefore neither possible nor
desirable to attempt
to define the circumstances where the dictates of fairness will
require the decision-maker to take steps to
ascertain the identity of
the livestock owner.”
.
. . .
“The overriding consideration will always be what does fairness
demand in the circumstances of a particular case.”
[302]
[483] The ultimate
objective is to afford persons who may be adversely affected by the
decision an opportunity to make representations
before the decision
is made.
[484] I agree with
the Chief Justice that the process that was followed by the Pricing
Committee and the Minister was substantially
consistent with the
requirements of procedural fairness in PAJA. The pharmacies and
other interested persons were afforded
the opportunity to make
written and oral representations on the draft regulations. The
fact that some members of the Pricing
Committee were not present at
some of the hearings, does not, in itself, affect the fairness of the
process. Oral representations
were made in addition to written
representations. And, as Professor McIntyre points out, “to
give members of the Committee
a full picture of everything that
happened [at the oral hearings], the presentations were audio and
video-taped and made available
to members of the Committee.”
The record of the oral representations was therefore accessible to
members of the Pricing
Committee. All that was required was for
the members of the Pricing Committee who were not present at the oral
hearings to
avail themselves of the opportunity to watch the video
tapes of the oral representations.
[485] New Clicks
submitted that on the applicants’ own version, the Pricing
Committee did not consider the oral representations.
It is
clear from the evidence of Dr Zokufa and Professor McIntyre that the
Pricing Committee considered the written representations
at its
meetings. What is less clear is whether the oral
representations were considered by the Pricing Committee.
Professor McIntyre says that she “watched
some
of the
video tapes of
some
of the presentations.” Whether
other members of the Pricing Committee did so is not apparent from
the record.
If the other members of the Pricing Committee had
watched the video tapes, they would have said so. Nor is there
any indication
on the evidence of Professor McIntyre and Dr Zokufa
whether oral representations were considered by the Pricing
Committee.
On the contrary there are indications that the
members of the Pricing Committee did not consider the oral
representations because
the oral hearings were not meetings of the
Pricing Committee. In their evidence both Dr Zokufa and
Professor McIntyre emphasised
the oral hearings were not the meetings
of the Pricing Committee but that of the Department. In
addition, they emphasised
that the Pricing Committee considered
written representations but said nothing about oral representations.
[486] In the view I
take of the matter I do not consider it necessary to decide whether
failure by the Pricing Committee to consider
oral representations
affected the fairness of the process. It seems to me that if
the Pricing Committee was bound to consider
oral representations, and
they failed to do so, such failure amounts to a failure to take into
account a relevant consideration.
This aspect is dealt with
more fully later in this judgment.
The Regulations
Regulation
5(2)(c)
[487] Regulation
5(2)(c) was challenged on the grounds that it is contradictory and
vague. There is merit in this challenge.
This regulation
purports to provide a formula for the calculation of the
manufacturer’s component of the price of a medicine
or
Scheduled substance before determining the SEP. Its provisions
and the formula set out therein cannot therefore be construed
as
referring to the SEP. They make reference to the sales before
the SEP was in existence. Regulation 5(2)(c) does
not purport
to provide for the manner of the calculating the single exit price.
Yet Appendix A which purports to give examples
of how to calculate
the manufacturer’s price, purports to provide a manner for the
“calculation of single exit price
. . . ”. Appendix
A plainly contradicts regulation 5(2)(c). It is inconsistent
with regulation 5(2)(c).
I agree with Yacoob J in this regard.
[488] However, it is
quite clear that the reference to “single exit price” in
Appendix A should be the reference to
“weighted average net
selling price”. Ordinarily one would replace “single
exit price” with “weighted
average net selling price”
in the appendix. However, there is another problem with
regulation 5(2)(c).
[489] The
manufacturers are told to calculate their prices of medicines or
Scheduled substances “with reference to the price
of that
Scheduled substance in other countries in which the prices of
medicines and Scheduled substances are regulated and published”.
Identifying those countries may not be a problem. The problem
is what are the manufacturers supposed to do with the prices
of those
countries? What impact must these prices have on the
determination of the price to be set by the manufacturers in
this
country? And what if there are different prices.
[490] Recently, this
Court had occasion to consider the doctrine of vagueness. The
occasion was in
Affordable Medicines
where we said:
“The doctrine of vagueness is founded on the rule of law,
which, as pointed out earlier, is the foundational value of our
constitutional democracy. It requires that laws must be written
in a clear and accessible manner. What is required
is
reasonable certainty not perfect lucidity. The doctrine of
vagueness does not require absolute certainty of laws.
The law
must indicate with reasonable certainty to those who are bound by it
what is required of them so that they may regulate
their conduct
accordingly. The doctrine of vagueness must recognise the role
of Government to further legitimate social and
economic objectives.
And should not be used unduly to impede or prevent the furtherance of
such objectives.”
[303]
[491] It is clear
from the regulation that the manufacturers are required to have
regard to the prices of medicines in other countries
where medicines
are regulated and published. The question is whether regulation
5(2)(c), so construed, indicates with reasonable
certainty to the
manufacturers what they are required to do with the foreign prices,
in particular, what impact these prices should
have on determining
prices in South Africa. The regulation gives no guidance at
all. In its report to the Minister
dated 19 April 2004 the
Pricing Committee acknowledged that there are “wide variations
between manufacturers in South Africa
and in countries with effective
price regulation across products.” The regulation offers
no guidance to the manufacturers
as to how they are required to deal
with different prices for the same product in different countries.
The matter is left
entirely in the hands of the manufacturers.
The failure of regulation 5(2)(c) to give such guidance must be
viewed against
the obligation to introduce a transparent pricing
system. The failure to provide guidance leaves the
manufacturers at large
to select any price they choose. This
can hardly be said to be consistent with the policy objectives of
section 22G(2).
I conclude therefore that regulation 5(2)(c) is
invalid for vagueness.
Regulation 8(3)
[492] The increase in the SEP is governed by regulations 5(2)(a),
5(2)(b), 7, 8 and 9. Regulation 5(2)(a) tells us when any
increase in the SEP may commence. It may not be increased “for
a period of one year after the commencement of [the]
regulations . .
. ”. Regulation 5(2)(b) directs us to the provision in
terms of which an increase may be made.
An increase may
be made in terms of the provisions of regulation 8. Regulation
7 tells us how often the SEP may be increased.
It may only be
increased once a year. And regulation 8(1) in turn permits the
Minister to increase the SEP, while regulation
8(3) permits the
manufacturers to do so. However, the provisions of regulation 8
are subject to the provisions of regulation
5(2)(a). Regulation
5(2)(b) says so:“[s]ubject to sub-regulation 5(2)(a) the single
exit price may be increased in
terms of regulation 8 of these
regulations”.
[493] The effective date of any increase in the SEP is therefore
governed by regulation 5(2)(a). And it follows therefore
that
the SEP may not be increased within a year after the commencement of
the regulations. The problem is how to reconcile
regulation
8(3)(iv) which purports to permit an increase in the SEP within a
year of the date of the commencement of the regulations.
It
does so because it prevents the increase of the SEP “within the
period of six months beginning from the date of commencement
of [the]
regulations”, thereby implying that an increase may be effected
after six months but within a year of the date of
the commencement of
the regulations. Regulation 8(3)(iv) is clearly inconsistent
with regulation 5(2)(a) to which it is subject.
[494] Regulation 8
contemplates two instances in which there may be an increase in the
SEP. One is by the Minister in terms
of regulation 8(1).
This regulation contemplates that there will be an annual increase in
the SEP and that such an increase
will be determined by the
Minister. It is also clear that what the Minister determines
under regulation 8(1), is the extent
to which the SEP may be
increased. However, manufacturers are not obliged to increase
their SEP by the extent determined
by the Minister. They may
charge less to enable them to compete with their competitors.
But if they decide not to increase
their SEP by the percentage
determined by the Minister, they may nevertheless still increase it
during that particular year.
They may only do this four times a
year. However, such an increase may not exceed the amount of
increase determined by the
Minister in terms of regulation 8(1).
[495] The scheme
that emerges from regulation 8 is this: the increase contemplated in
regulation 8(3) is an increase by the manufacturer
that is subsequent
to the annual increase determined by the Minister in terms of
regulation 8(1). This is so because the
increase contemplated
in regulation 8(3) is subject to regulation 8(1). The
manufacturers need not increase their SEP by
the amount determined by
the Minister. However, should they decide to increase the SEP,
such increase may not exceed the
increase determined by the
Minister. And if they require to effect an increase that goes
beyond that determined by the Minister
in terms of regulation 8(1),
then the provisions of regulation 9(1) apply. That regulation
provides that the “Minister
may, in exceptional circumstances,
authorise a manufacturer . . . to increase the price of a medicine or
Scheduled substance by
a specified amount greater than that permitted
in terms of regulation 8”.
[496] Thus construed there is no room for regulation 8(3)(iv) which
contemplates an increase in the SEP not only within six months
of the
commencement of the regulations, but even before the Minister has
determined any increase to the original SEP. This
regulation
cannot be reconciled with regulation 5(2)(a) to which it is subject.
It follows that it must be invalid.
[497] The problem
relates to the reference to “single exit price” and
“first published in respect of that year”
in regulation
8(3)(i). The Minister does not determine what the single exit
price for the year is. What the Minister
does is to determine
“the extent to which the single exit price” may be
increased. In the second place the Minister
does not publish
the single exit price. That is the function of the
manufacturers. The reference to the “single
exit price”
and “first published in respect of that year” is
therefore vague. What the scheme of regulation
8 has in mind is
that whatever increase that is made by manufacturers, such increase
should not go beyond the increase determined
by the Minister in terms
of regulation 8(1), unless such increase is authorised by the
Minister in terms of regulation 9(1).
[498]
I conclude therefore that regulation 8(3)(i) is void for
vagueness. However, this can be cured by deleting the words “as
first published” and inserting the words “amount of
increase determined by the Minister in terms of regulation 8(1)
as
being the extent to which”, in front of the words “single
exit price of the medicine or Scheduled substance”,
and
inserting the words “may be increased” in front of the
words “in that year”. Regulation 8(3)(i)
will
therefore read: “such increase does not exceed
the amount of
increase determined by the Minister as being the extent to which
the single exit price of the medicine or Scheduled substance
may
be increased
in respect of that year.”
The remaining
regulations
[499] Save for the
above, and in relation to regulation 22 and 23, I concur in the
judgment of the Chief Justice. In relation
to regulations 22
and 23, I concur in the judgment of Yacoob J.
[500] It now remains
to consider the challenge to the appropriate dispensing fee.
The appropriate
dispensing fee
[501] Section
22G(2)(b) deals with the determination of an appropriate dispensing
fee to be charged by pharmacists or other health
care professionals
who may dispense medicines under the Medicines Act.
[304]
Its relevant part provides:
“The Minister may, on the recommendation of the pricing
committee, make regulations—
. . . .
(b) on an appropriate dispensing fee to be charged by a pharmacist or
by a person licensed in terms of section 22C(1)(a).”
[502] In terms of
section 22G(3)(b) pharmacists and other dispensers of medicines may
not sell medicines at a price higher than
the SEP.
[305]
However section 22G(3)(c) provides that the provisions of section
22G(3)(b) “shall not be construed as preventing a
pharmacist or
person licensed [to dispense medicine under the Medicines Act] to
charge a dispensing fee as contemplated in subsection
(2)(b)”.
[306]
Section 22G(3)(c) therefore constitutes an exception to the
prohibition against the sale of medicines at a price higher than
the
SEP. Section 22G contemplates that a dispensing fee is a fee
that may be charged in addition to the SEP.
[503] All the
parties as well as the courts below approached the matter on the
footing that the subsection authorises the Minister,
on the
recommendation of the Pricing Committee, to fix an appropriate
dispensing fee. Following the recommendation of the
Pricing
Committee, the Minister promulgated regulations 10, 11, 12 and 13,
which fix dispensing fees. Broadly speaking, the
regulations
distinguish between medicines that are dispensed without a
prescription and those dispensed on the basis of a prescription.
In addition, they fix a different fee for other dispensers of
medicines such as medical practitioners, dentists and professional
nurses. And since a dispensing fee is a fee that may be charged
in addition to the SEP, the regulations fix a dispensing
fee by
reference to the SEP.
[504] The dispensing
fee in respect of medicines dispensed without a prescription is 16%
of the price where the SEP is less than
R100, and R16 where the SEP
is R100 or more.
[307]
In the case of medicines that are dispensed on the basis of a
prescription, the dispensing fee is 26% of the SEP where the
SEP is
less than R100, and R26 where the SEP is R100 or more.
[308]
Other dispensers such as medical practitioners, dentists and
professional nurses may charge a dispensing fee of 16% of the
SEP
where the SEP is less than R100, and R16 where the SEP is more than
R100.
[309]
In addition, the regulations deal with the manner of calculating
dispensing fees to be charged in respect of a person admitted
as an
inpatient
[310]
and in respect of Schedule 0 medicines.
[311]
The dispensing fee is subject to review annually in order to keep up
with the CPI
[312]
,
PPI
[313]
and “the need to ensure the availability, affordability and
quality of medicines . . .”.
[314]
The challenge
[505] The main
ground of attack on the dispensing fees is that they are not
appropriate as required by section 22G(2)(b).
The pharmacies
contended that the dispensing fees are not economically viable for
pharmacies and would result ultimately in the
demise of retail
pharmacies. New Clicks submitted that in fixing the dispensing
fees, the Minister ignored certain relevant
considerations such as
the profit margin required for pharmacies to survive, the different
circumstances and thus different cost
structures which pharmacists
may operate in different areas, the working capital cost borne by
pharmacists in conducting their
businesses, the cost of storing
medicines and the time spent by pharmacists in providing dispensing
services.
[506] In effect, the
main contention by New Clicks is that in fixing the dispensing fees,
the Pricing Committee failed to have proper
regard to the viability
of pharmacies, which is a relevant consideration in determining an
appropriate dispensing fee. This
much appears from the
submission by New Clicks that the issue of the viability of
pharmacies is an issue which “seems to
have singularly passed
by the Pricing Committee, which ultimately made a recommendation
without any regard to the viability thereof
for pharmacists.”
It seems to me therefore that the ground of review urged by New
Clicks is that relevant matters were
not given proper consideration
by the Pricing Committee, a ground comprehended in section
6(2)(e)(iii) of PAJA.
[507] For its part,
PSSA challenged the dispensing fees on three broad grounds.
First, it submitted that the fees are not
appropriate because they:
(a) will drive pharmacies out of business; (b) fail to take account
of the different types of pharmacies;
and (c) will reduce access to
medicines. Second, and for substantially the same reasons as in
the first ground, PSSA contended
that the fees are unreasonable and
arbitrary. Third, it submitted that the dispensing fees violate
section 22 of the Constitution
in that they impermissibly regulate
the choice of profession and they will drive pharmacists out of the
profession.
[508] The first ground of attack by PSSA raises substantially the
same issue as New Clicks, namely, whether the Pricing Committee
ignored relevant considerations in determining the dispensing fees.
The second ground of attack, namely, that the dispensing
fees are
unreasonable, is closely related to the first ground. If the
Pricing Committee ignored relevant considerations referred
to by PSSA
so that the ultimate fees determined will result in the demise of
pharmacists, such fees can hardly be said to be fees
that a
reasonable Pricing Committee could have fixed. The third ground
of attack, namely, the alleged violation of section
22 of the
Constitution, stands on a different footing. It raises the
question of the permissible scope of regulation of a
trade.
[315]
The findings of
the SCA
[509]
The SCA held that the evidence on the record “establishes
that the fees are not appropriate and that the respondents, within
whose peculiar knowledge the calculation [of the dispensing fee]
fell, were unable to give any rational explanation for the quantum
of
the fees.”
[316]
It found that “on the unassailed factual material on record”
access to medicines will be seriously threatened
because the quantum
of fees fixed by the regulations is insufficient to cover the costs
of dispensing medicine.
[317]
In effect the SCA upheld the contention by the pharmacies that the
quantum of fees was fixed without regard to the viability
of
pharmacies. It is apparent from the judgment of the SCA that
its conclusion was influenced by the lack of explanation
from the
Pricing Committee and the Minister as to how the fees were
calculated.
Issues presented
[510] What lies at
the heart of the challenge to the dispensing fees is the contention
that the dispensing fees as determined in
the regulations are not
viable for pharmacies and will drive them out of business. In
effect the pharmacies contend that,
in determining the dispensing
fees, the Pricing Committee did not have due regard to the viability
of the dispensing fees for pharmacies,
as they were bound to do.
This contention was upheld by the SCA, which in effect concluded that
the fees were not viable
for pharmacies. Failure by a decision
maker to take into account a relevant consideration in the making of
an administrative
decision is an instance of an abuse of
discretion.
[318]
As pointed out earlier, this is a ground of review which is expressed
in section 6(2)(e)(iii) of PAJA.
[319]
[511] There is
obviously an overlap between the ground of review based on failure to
take into consideration a relevant factor and
one based on the
unreasonableness of the decision. A consideration of the
factors that a decision maker is bound to take
into account is
essential to a reasonable decision. If a decision maker fails
to take into account a factor that he or she
is bound to take into
consideration, the resulting decision can hardly be said to be that
of a reasonable decision maker.
It seems to me to follow that
if, in determining the dispensing fees, the Pricing Committee was
bound to take into consideration
the viability of the fees for
pharmacies, but failed to do so properly, the resulting fees can
hardly be said to be one that a
reasonable Pricing Committee could
fix.
[512] As I see it
therefore the central question in this case reduces to whether the
Pricing Committee gave proper consideration
to the viability of
pharmacies in fixing the dispensing fees. This question raises
two separate, but related, questions.
The first is whether the
Pricing Committee was bound, in fixing an appropriate dispensing fee
pursuant to section 22G(2)(b), to
have regard to the viability of
pharmacies so that failure to do so amounted to failure to take into
account a consideration relevant
to the determination of an
appropriate fee. The second question, which only arises if the
first question is answered in the
affirmative, is whether the Pricing
Committee gave due regard to the viability of pharmacies.
[513] Factors that a
decision maker is bound to consider in making a decision must be
determined by construing the statute conferring
the discretion.
Where, as here, the statute in question does not expressly state what
factors are to be considered, these
factors must be determined by
implication from the subject matter, scope and purpose of the
empowering statute including the policy
objectives of the empowering
statute.
[320]
Considerations that are relevant to the determination of an
appropriate dispensing fee must therefore be sought in the purpose
of
section 22G(2)(b) read in the context of the Medicines Act and its
underlying policy objectives. What then is the purpose
of
section 22G(2)(b)?
The purpose of
section 22G(2)(b)
[514] The purpose of
the subsection is clearly to give effect to the right of access to
health care services comprehended in section
27(1)(a) and (2) of the
Constitution.
[321]
This section guarantees the right of access to health care services
and enjoins the state to “take reasonable legislative
and other
measures, within its available resources, to achieve the progressive
realisation of [this right].” The right
to health care
services includes the right of access to medicines that are
affordable. The state has an obligation to promote
access to
medicines that are affordable.
[515] Consistent
with its obligation, the state has developed the National Drug Policy
(NDP). This is a comprehensive policy
document which sets out
health, economic and national development objectives of the state.
What is immediately relevant for
present purposes is chapter four of
the NDP which deals with drug pricing. The aim of the drug
pricing policy is “[t]o
promote the availability of safe and
effective drugs at the lowest possible cost”. This is to
be achieved by, amongst
other things, “negotiating drug prices
and by rationalising the drug pricing system in the public and
private sectors”.
To this extent the policy proposes the
establishment of a Pricing Committee to monitor and regulate drug
prices; the regulation
of price increases; introduction of
transparency in the pricing structure of pharmaceutical
manufacturers, wholesalers and those
who dispense drugs; the
introduction and enforcement of non-discriminatory pricing systems;
and the replacement of the wholesale
and retail percentage mark up
system with a pricing system based on a fixed professional fee.
[516] With these policy objectives in mind, the legislature
introduced an amendment to the Medicines Act in the form of section
22G.
[322]
As the preamble to the
Medicines and Related Substances Control
Amendment Act of 1997
declares, the purpose of the amendment was
among others, “to provide for measures for the supply of more
affordable medicines
in certain circumstances”, “to
provide for the establishment of a pricing committee” and “to
regulate the
purchase and sale of medicines by wholesalers”.
And in its amended form, the preamble to the Medicines Act now
declares
as one of its purposes, “to provide for measures for
the supply of more affordable medicines in certain circumstances”
and “to provide for the establishment of a pricing committee;
to regulate the purchase and sale of medicines by manufacturers,
distributors, wholesalers, pharmacists and persons licensed to
dispense medicines”.
[517] The manifest
purpose of section 22G(2)(b) is to enhance accessibility and
affordability of medicines.
[323]
It is in the light of this purpose that the factors relevant to the
determination of an appropriate fee must be determined.
An
appropriate fee illuminates factors relevant to its determination.
It is therefore necessary to consider first the meaning
of an
appropriate dispensing fee. The Medicines Act does not define
appropriate dispensing fee. However the term appropriate
dispensing fee must be construed in the light of the purpose of
section 22G(2)(b), namely, to promote the availability of medicines
at the lowest possible cost.
The meaning of
“appropriate dispensing fee”
[518] As the SCA
held, an appropriate dispensing fee must be fair and just.
Indeed it can hardly be argued that a dispensing
fee that is unjust
or unfair is appropriate.
[324]
The dispensing fee must be fair not only to the public, but also to
pharmacies. The fee must not be such that it will
render
medicines inaccessible to the general public. Nor must it be
such that it drives pharmacies out of business.
Its
determination requires a consideration of conflicting interests of
the public who are entitled to access to affordable medicines,
on the
one hand, and the interests of dispensers who, in terms of the Act,
are essential to the public for the supply of medicines
and whose
economic viability is implicitly recognised by the Act and is of
“national importance”, on the other hand.
[325]
[519] That said, one
should not lose sight of the primary objective of section 22G(2)(b).
Its primary objective is to promote
access to medicines at the lowest
cost possible. This objective is consistent with the
constitutional right of access to
health care services and the
constitutional obligation of the state to take measures in order to
ensure the progressive realisation
of this right.
[326]
No doubt the interests of the pharmacists is a factor to be taken
into consideration. However, they must yield to the
interests
of the general public. This of course does not mean that the
interests of the pharmacists are to be overlooked.
[520] In fixing an
appropriate dispensing fee, the Pricing Committee and the Minister
have a duty to strike a balance between the
need to make medicines
available and accessible to the public at the lowest possible cost
and the need to keep pharmacies in business.
If in serving the
interests of the public the price of medicines is to be reduced, this
would not be sufficient to render inappropriate
the fee determined by
the Pricing Committee. But the reduction should not be such
that it will result in the closure of the
pharmaceutical industry.
For the need for the continued existence of pharmacies, is implicit,
if not explicit, from the objective
to enhance the accessibility and
affordability of medicines. Pharmacies are crucial to the
public for the supply of medicines.
The applicants acknowledge
this, for, Professor McIntyre in her affidavit admits that “the
survival of the retail pharmacy
sector is essential for medicine
delivery”. Without that supply, access to medicines would
be compromised. And
this would undermine the objective of the
Medicines Act to make medicines accessible to the general public.
This is common
cause on the record.
[521] But
appropriateness is not a precise criterion. There may well be a
range of dispensing fees which may be said to be
appropriate.
What must be prescribed must be within that range. It follows
that the Pricing Committee and the Minister
exercise some discretion
in the determination of the appropriate dispensing fee. But
they must remain within the range of
what is appropriate and observe
the limits for the exercise of discretion. What must constantly
be borne in mind is that
courts have a limited role in reviewing the
exercise of an administrative discretion. They should guard
against substituting
their views on what is appropriate for that of
the Pricing Committee and the Minister. Their role is to ensure
that administrative
action is lawful, reasonable and procedurally
fair.
[522] There is a
further consideration that is equally important in the context of
this case. The determination of an appropriate
dispensing fee
is informed by both economic and other policy considerations.
And as the Chief Justice observes, the task
of the Pricing Committee
calls for expertise and understanding of a complex market in which
medicines are traded. The Pricing
Committee possesses such
expertise and it consists of individuals with diverse backgrounds and
experience in these matters.
Courts have no expertise in these
matters. As a general matter, they should only interfere with a
fee fixed by the Pricing
Committee if the fee is one that is beyond
the range of what is appropriate. Such a fee would have to be
challenged on the
ground that it is one that a reasonable decision
maker could not fix.
[327]
[523] It follows
that the submission by the government that courts have no business to
review the appropriateness of the dispensing
fee must be rejected.
[524] It is against
this background that the question whether the Pricing Committee was
bound to consider the viability of the dispensing
fees for pharmacies
in fixing dispensing fees must be determined.
Was the Pricing
Committee bound to consider the viability of pharmacies?
[525] It is
implicit, if not explicit from the objective to promote access to
medicines by all at the lowest possible cost that
there must be a
supply of medicines. Access to medicines presupposes the
availability of medicines. And the availability
of medicines
presupposes the existence of a supply of medicines. Without the
supply of medicines there can be no access to
medicines. The
pharmaceutical industry is the source of that supply and thus the
availability of medicines. Without
pharmacies, access to
medicines would be compromised. The pharmaceutical industry is
therefore essential to the public for
the supply of medicines.
The importance of pharmacies is recognised by the NDP whose national
development objectives include
“support[ing] the development of
the local pharmaceutical industry and the local production of
essential drugs.”
[526] Once it is
accepted, as it must be, that pharmacists are crucial to the
objectives of the Medicines Act, it must also be accepted
that there
is a need for them to survive. But those who are involved in
the pharmaceutical industry do so for profit.
An appropriate
dispensing fee must be rationally related to the cost of doing
business. It must be such that it makes it
worthwhile for
pharmacies to remain in business. And the economic viability of
pharmacies is implicitly recognised by the
Medicines Act. As
the Australian Federal Court observed in the context of price fixing
for pharmaceuticals in that country:
“Pharmacies, like nursing homes, members of the medical
profession and some hospitals are the creatures of the private
sector.
Those who operate them, no matter how much professional
dedication they bring to their task, do so for profit. If it
were
not feasible to operate them profitably, pharmacy businesses
would not exist any more than would nursing homes or medical
practices.
The legislature must be taken to understand this and
to have intended prices to be fixed which would enable pharmacies to
continue
to operate profitably. In saying what I have, I do not
mean that it follows that the prices must be such as to enable all
pharmacies to operate profitably or that the prices might not be such
as would make some pharmacies uneconomical perhaps because
of an over
concentration of them in one area, the existence of them in sparsely
populated areas, inefficient operation or for other
reasons.
But fundamentally, so it seems to me, the legislature must have
intended that the price to be fixed would be one
which would enable
properly run pharmacies in appropriate geographical areas to operate
with a reasonable margin of profit.
I emphasise the word
‘reasonable’.”
[328]
[527] A dispensing
fee that has the effect of driving pharmacies out of business, has
the potential to cut the supply of pharmaceutical
products, and thus
undermines access to drugs and, ultimately, runs counter to the
objectives of the Medicines Act. An appropriate
dispensing fee
must consider the need for pharmacies to receive, in addition to the
cost to them of the drugs, some recompense
for the trouble and
expense of supplying the product. In addition, there is a need
for such income to amount to a sufficient
consideration to induce a
sufficient number of pharmacists to continue to operate as approved
pharmacies under the provisions of
the Medicines Act.
[528] The viability
of the dispensing fee for pharmacies is therefore a relevant factor
which the Pricing Committee is bound to
take into account when
determining an appropriate dispensing fee. Also relevant in
this regard are the different types of
pharmacies that exist in
practice such as community pharmacies, hospital pharmacies and
courier pharmacies; different circumstances
and thus different cost
structures which pharmacies may operate in different areas such as
all the inherent differences between
provinces, between small and
large pharmacies, between pharmacies situated in major cities and
those in small rural towns; and
those located in areas where doctors
are also dispensing medicines; and so on. All these are matters
that the Pricing Committee
and the Minister were bound to take into
consideration in determining the appropriate dispensing fee.
[529] The Pricing
Committee and the Minister did not suggest otherwise. On the
contrary they maintained that these matters
were taken into
consideration. While New Clicks in its written argument
accepted that the deliberations of the Pricing Committee
show that it
was conscious of the fact that it had to fix a dispensing fee that
was viable for pharmacies, New Clicks nevertheless
contended that the
dispensing fee was fixed without proper regard being paid to the
viability of pharmacies. Before determining
the question
whether relevant considerations were properly taken into account by
the Pricing Committee, it will be convenient to
investigate first the
nature and scope of the obligation of a decision maker to consider
relevant factors.
The nature and
scope of the obligation to consider relevant factors
[530] The Pricing Committee and the Minister must apply their minds
to all relevant and material information placed before them.
They must properly evaluate such information and attach such weight
to it as the degree of its importance requires. They
should not
pay lip service to this obligation.
[329]
In
Bangtoo Bros. v National Transport Commission,
the court
considered the meaning of the expression “apply its mind to the
matter” and said:
“It is clear from the cases that a body constituted by statute
is obliged ‘honestly to apply its mind to the matter’
for
decision. I am for the moment concerned with what is meant by
the expression ‘apply its mind to the matter’,
certain
aspects of which have already been covered by this judgment. It
seems to me essential that the tribunal is essentially
obliged to
consider all relevant and material information placed before it.
To pay mere lip-service to this obligation is
not sufficient, just as
it would be a dereliction of duty to hear representations which are
pertinent, and then to ignore them.
The problem arises whether
the Court is concerned with the degree of importance which the
tribunal attaches, in the exercise of
an honest judgment, to the
relevant considerations. Take a case, for example, where a
factor which is obviously of paramount
importance is relegated to one
of insignificance, and another factor, though relevant, is given
weight far in excess of its true
value. Accepting that the
tribunal is the sole judge of the facts, can it be said that it has
in the circumstances postulated
properly applied its mind to the
matter in the sense required by law? After much anxious
consideration I have come to the
conclusion that the answer must be
in the negative.”
[330]
(Footnotes omitted.)
[531] The Pricing
Committee and the Minister must therefore do more than pay lip
service to the viability of pharmacies. They
must address the
need for pharmacies to exist in a meaningful way when fixing the
appropriate fee, and be able to demonstrate that
they have done so.
This could be done by explaining the manner in which the viability of
pharmacies was given effect.
They must give an explanation of
how the appropriate fee was calculated. This explanation is
crucial to the process of determining
an appropriate fee. It
explains to the public and the pharmaceutical industry the manner in
which the fee was arrived at.
It discloses the reasoning
process of the Pricing Committee. And it enables those who have
an interest in the fee to assess
whether the Pricing Committee has
properly discharged its statutory duty. This explanation should
generally be contained
in the report of the Pricing Committee making
a recommendation to the Minister.
[532] In
Bato
Star
we had occasion to consider the meaning of the phrases “have
regard to” and “have particular regard to” in
the
context of the need to take transformation into consideration in
awarding fishing quotas. On that occasion we said:
[533]
“All these considerations point inexorably to the conclusion
that the words ‘have regard to’ and ‘have
particular regard to’ in the constitutional and statutory
context, require a decision-maker to do more than give lip service
to
s 2(j). The decision must address the need for transformation
in a meaningful way when decisions are made, and be able
to
demonstrate that this has been done. A failure to do so is
unlawful, and the ensuing decision is open to attack.”
[331]
And we continued and
said:
“It follows that, if the Minister were to fail to heed this
injunction, he would be acting unlawfully and his decision would
be
open to attack. It is incumbent upon the Minister to put
forward facts from which it will appear that he has indeed paid
due
regard to the need to promote transformation. A Court reviewing
the decision of the Minister has an obligation to ensure
that the
section has been complied with. Where there is a dispute as to
whether the Minister has complied with s 2(j), the
Court considering
the matter must examine the facts relied upon by the Minister as
establishing compliance with s 2(j), and satisfy
itself that there
has been compliance with this provision.”
[332]
[534] It now remains
to consider whether the Pricing Committee and the Minister in fixing
the dispensing fees properly applied their
minds to matters that they
were bound to consider such as the viability of pharmacies.
[535] The record
shows that the Pricing Committee and the Minister were conscious of
the need to consider the viability of pharmacies
in fixing an
appropriate fee. Indeed in the minutes of the meeting of the
Pricing Committee held on 20 and 21 November 2003
the Pricing
Committee is recorded as having concluded that the “pharmacy
outlets play an important role and it is therefore
imperative that
this market is not jeopardised by the committee’s
recommendation”. They were also conscious of
the varying
circumstances in which different types of pharmacies operate.
They were mindful of the fact that an appropriate
fee should cover
both the professional remuneration and the operating costs. In
short, the Pricing Committee was alive to
the factors that were
relevant to the determination of an appropriate fee.
[536] What is
singularly lacking in the record is an explanation of how the
dispensing fees were arrived at. There is no explanation
as to
why the Pricing Committee chose the figures that it chose.
While the Pricing Committee indicated that the fee covers
both the
professional remuneration and operating costs, it does not explain
what was allocated to each of these component parts
of the fee.
As the SCA observed, “except for a general statement that all
factors were taken into account, there is
no evidence or document
that shows what those factors were, what weight they bore, whether
any calculations were made and, more
particularly, whether any regard
was given to the viability of the dispensing profession.”
It was this lack of explanation
for quantum of the dispensing fees
that led the SCA to conclude that there was no rational explanation
for the quantum of fees
and that therefore the fees were not
appropriate.
[333]
[537] As pointed out
previously, the Pricing Committee and the Minister were obliged to
address the viability of the fees for pharmacies
in a meaningful way,
and demonstrate that they have done this. It was incumbent upon
them to put forward facts from which
it would appear that they had
paid due regard to the viability of pharmacies so that a court
considering a dispute relating to
the viability of the fees could
examine those facts and satisfy itself that they have properly
discharged their statutory duty.
In particular, they had to
explain how they arrived at the figures that they adopted. In
the absence of such explanation
it is difficult to assess whether
they had due regard to the viability of pharmacies. The mere
statement by the applicants
that they have done so is insufficient.
[538] Dr Zokufa
states that “the regulations were modelled on the principles
underpinning the Australian system although they
have been adapted to
the circumstances prevailing in the Republic”. The
Australian jurisprudence on the need to furnish
an explanation for
the quantum of dispensing fees is instructive. It is true, the
Australian cases were decided under the
Australian statute which
requires a decision maker to furnish reasons for its decision.
In the second place under the Australian
legislation, the fees are
determined by a tribunal which hears submissions from the interested
parties. In principle, the
obligation of the Pricing Committee
to furnish an explanation for the fees adopted is no different from
that of the Australian
tribunal. Therefore I consider the
rationale for the furnishing of reasons articulated by the Australian
cases applicable
in our context.
[539] In
In re:
the Commonwealth of Australia and the Pharmacy Guild of Australia and
Another
, Sheppard J said:
“The provision of reasons is an important aspect of the
tribunal's overall task. Reasons are required to inform the
public and parties with an immediate interest in the outcome of the
proceedings of the manner in which the tribunal's conclusions
were
arrived at. A purpose of requiring reasons is to enable the
question whether legal error has been made by the tribunal
to be more
readily perceived than otherwise might be the case. But that is
not the only important purpose which the furnishing
of reasons has.
A prime purpose is the disclosure of the tribunal's reasoning process
to the public and the parties.
The provision of reasons
engenders confidence in the community that the tribunal has gone
about its task appropriately and fairly.
The statement of bare
conclusions without the statement of reasons will always expose the
tribunal to the suggestion that it has
not given the matter close
enough attention or that it has allowed extraneous matters to cloud
its consideration. There is
yet a further purpose to be served
in the giving of reasons. An obligation to give reasons imposes
upon the decision-maker
an intellectual discipline. The
tribunal is required to state publicly what its reasoning process
is. This is a sound
administrative safeguard tending to ensure
that a tribunal such as this properly discharges the important
statutory function which
it has.”
[334]
[540] In
Dornan
and Others v Riordan and Others
[335]
the appeal court expressed similar concerns in the context of failure
by the tribunal to explain why it had adopted a base figure
of Aus
$3.50 for each ready prepared item as an amount to be charged by the
pharmacists. In that case even though the tribunal
had
disclosed the material that it had taken into consideration, the
court held that this was not sufficient. The tribunal
had to
disclose the reasoning process that led to its determination.
In this regard the court said:
“It is, however, impossible to understand from the reasons
given by the tribunal why it was that the tribunal adopted the
precise base that it did. Although the interim report of the
tribunal was 239 pages in length and had many lengthy appendices,
including Deloittes’ report, and although the report of 28
August 1989 was itself 178 pages in length, the reasons do not
make
it clear why the base figure of $3.50 for each ready prepared item
was adopted. It seems from the interim and the final
reports
that the tribunal was substantially influenced by what was contained
in the Deloittes’ study. But even so,
while the reasons
disclose the material which the tribunal took into account, it is
impossible to glean from the tribunal’s
reasons what was the
reasoning process that let it to its determination.”
[336]
And later the court
remarked:
“These two statements are too general to make it clear what it
was the $3.50 was considered to represent. Was the $3.50
thought to be fair return to pharmacists having regard to their
labour and their capital invested, was it thought to be a break-even
fee for an average pharmacy, was it thought to be the most that the
Commonwealth could reasonably be expected to pay or was it
something
else? The reasons do not disclose”.
[337]
[541] The
Dornan
case also illustrates the difficulties that may result from a
failure to furnish reasons for the fees adopted. Failure to
explain how the fees have been calculated makes it impossible for the
court to properly evaluate the challenge to the fees adopted.
As we pointed out in
Bato Star
, the decision maker must put
forward facts from which it will appear that they have considered the
matter. This is essential
because the court must evaluate those
facts in order to satisfy itself that the empowering statutory
provision has been complied
with. In the
Dornan
case the
determination of the tribunal was also challenged on the grounds that
(a) it failed to have regard to relevant considerations;
and (b) its
determination was unreasonable. In dealing with these further
grounds of challenge, the court remarked as follows:
“We do not think it useful to discuss these further grounds of
challenge which were shortly argued in the appeal. Counsel
for
both sides submitted that, by reference to the tribunal’s final
report, to its interim report, to Deloittes’ study
and to other
material, it could be ascertained that the tribunal took such and
such into account or relied on this and that.
The grounds were
argued accordingly, reference being made to relevant legal
authorities and to factors to which the tribunal may
or may not have
given weight. In our opinion, as the tribunal did not explain
its course of reasoning, the basis for the
grounds tended to fail,
for the argument could find no foothold on any firm ground. For
example, not having been informed
why the $3.50 was adopted, it is
difficult to hold that there was not a basis upon which a reasonable
decision-maker could have
come to that result. But this is
simply to say that the reasons for the decision are so elusive that
it was impossible for
the pharmacists to establish those grounds of
challenge — unreasonableness, material and immaterial
considerations etc —
upon which they relied. The major
flaw in the tribunal’s decision was that the tribunal did not
state reasons adequate
to enable the court to determine whether or
not any other error had occurred in the reasoning process.”
[338]
[542] The failure by
the Pricing Committee to explain how it arrived at the figures it
adopted made it difficult to evaluate the
appropriateness of the
dispensing fees adopted, and thus to determine whether the Pricing
Committee has properly applied its mind
to the viability of
pharmacies. Not having been told why the figures were adopted,
it is difficult to determine whether the
Pricing Committee properly
applied its mind to the viability of pharmacies, and ultimately
whether there was a basis upon which
a reasonable decision maker
could have fixed the fees in dispute. It is true and the record
indicates that the Pricing Committee
was always conscious of the need
to fix a fee that would be viable for pharmacies. This is not
enough. The reasons
are elusive. The Pricing Committee
had to demonstrate that they had done so.
[543] The need to
furnish an explanation for the quantum of fees adopted is especially
important in the context of section 22G(2).
The Minister is
required to make regulations based on the recommendation of the
Pricing Committee. The Minister does not
merely rubber stamp
the recommendation of the Pricing Committee. She is required to
apply her mind to the recommendation
and make a decision whether to
accept such recommendation. She cannot therefore accept the
fees proposed by the Pricing Committee
simply because they have been
proposed by the Pricing Committee. She must satisfy herself
that the fees proposed by the Pricing
Committee are appropriate
within the meaning of section 22G(2). She can only do this if
she is furnished with an explanation
as to how the fees were arrived
at. Without such information, the Minister cannot properly
evaluate the appropriateness or
otherwise of the fees proposed by the
Pricing Committee.
[544] There is much
to be said for the conclusion reached by the SCA that the record
“establishes that the fees are not appropriate
and that the
[applicants], within whose peculiar knowledge the calculation [of the
fees are], were unable to give any rational
explanation for the
quantum of the fees.”
[339]
Ordinarily failure to provide an explanation would lead to the
inference that there is no rational explanation for the fees
determined and that the fees are therefore arbitrary.
[340]
This is more so here, where the fees have been challenged on the
ground that they are not appropriate. However, it
is not
necessary to reach that conclusion here because there are
considerations which suggest that the Pricing Committee did not
properly apply its mind to factors which it was bound to consider.
It is sufficient for the purposes of this judgment to
refer only to a
few of these to illustrate the point. These matters concern
facts that are either common cause or not in
dispute or appear from
the evidence on behalf of the applicants. They relate to the
viability of the dispensing fees for
pharmacies; the special
situation of rural pharmacies and courier pharmacies; the problem of
compounding; and the failure to consider
oral representations.
The viability of
the dispensing fees for pharmacies
[545] In a briefing
by the Department to the Parliamentary Portfolio Committee on Health
on 17 February 2004, Dr Zokufa is reported
to have said the following
in response to a question from a member of the Portfolio Committee to
the effect that pharmacists were
concerned that they would not be
able to sustain their business if they charged the 24% dispensing
fee:
“With regard to the concern around dispensing fees, the
presenter said that South Africa has 2500 retail pharmacists and
they
are not enough to cover the whole country. There is a need to
increase this number. The 24% and R24.00 dispensing
fee is a
minimal figure. The Department was interested in seeing what
pharmacists would say about it. Their survival
would be
influenced by volumes of prescriptions that they get. The more
prescriptions they get and the more items they dispense,
the more
they would get the 24% or R24.00 dispensing fee. The Department
felt that the dispensing of medicines should be
left to the
pharmacists and not medical practitioners. This would ensure an
increase in the volume and number of items that
the pharmacies
dispense. If the Department were not strict about how it gave
licences to people who are not pharmacists,
the 24% or R24.00
dispensing fee would not make the sector viable. This is
because the pharmacists would not be seeing big
volumes, as these
would have been dispensed by persons who were not pharmacists.”
Later in the same
briefing session, Dr Zokufa is reported as having further said:
“The assumption is that the current volume of medicines
distributed from pharmacies is far less than what it should be
because
there are doctors who are also dispensing medicines. If
this is changed around and doctors no longer dispense medicines, that
pharmacist would see an increase in the volume of medicines
dispensed. With a 24% profit margin, this small pharmacist’s
business should be able to succeed . . . Dr Zokufa said that these
Regulations were putting a huge challenge to every sector in
the
health industry. For the first time, the retail pharmacists
were challenged to show how they would come out with 24%
or R24 from
the medicines they sell . . . Pharmacies do not only make their
living out of prescription medicine, they make profits
from their
front shops too. The big discount pharmacies were not worried
about the regulations because they received high
volumes of
prescriptions, and they make most of their money from the front shops
which were not affected by these Regulations.”
[546] Dr Zokufa
admitted these allegations “[i]nsofar as [they] correctly
reflect the statements made to [the] parliamentary
portfolio
committee on Health”. Apart from saying that “[t]he
statements . . . must be read as a whole and must
be seen in their
proper context”, he did not dispute the accuracy of the
allegations. Nor did he suggest what that
proper context is.
These allegations must therefore be accepted as an accurate
reflection of what he said in the Portfolio
Committee on Health.
This statement must be taken as further amplification of the reasons
for the dispensing fees adopted.
[547] What emerges
from the statement by Dr Zokufa is this: “the current volume of
medicines that is distributed by pharmacies
is far less than what it
should be” because of competition from other dispensers of
medicines such as medical practitioners.
Unless there is an
increase in the volume of medicines dispensed by pharmacies, the
dispensing fees adopted would not be viable
for pharmacies.
This is so “because the pharmacists would not be seeing big
volumes, as these would have been dispensed
by persons who were not
pharmacists.” The solution to this low volume lies in
leaving the dispensing of medicines to
pharmacists and not medical
practitioners. And therefore, unless the Department is strict
about how it issued licences to
other people who wish to dispense
medicines, “the 24% or R24.00 dispensing fee would not make the
sector viable.”
Implicit in the statement is the
acceptance that without an increase in the current volume of
medicines that are dispensed by pharmacies,
the dispensing fees
adopted would not be viable for pharmacies.
[548] Of course this
statement by Dr Zokufa must be read in the light of his evidence in
the High Court. He accepts that workload
is an important
variable in determining an appropriate dispensing fee. He
accepts too that the current workload of community
pharmacies is too
low. He makes much of the admission by representatives of PSSA
that if there is an increase in the workload
of pharmacies, they
would be prepared to accept a lower dispensing fee and the R24 would
be tolerable if there is an increase in
the workload.
Significantly, he does not challenge the suggestion implicit in the
statement by PSSA that unless there is
an increase in the volume of
medicines dispensed by pharmacies, 24% or R24 is not viable for
pharmacies. Instead he says
that “the key issue is that
retail pharmacies with a very low workload will face financial
viability constraints”,
and adds that the solution does not lie
in increasing the dispensing fee but in “seek[ing] ways of
increasing the dispensing
workload”.
[549] Now the
dispensing fees were adopted with full knowledge that they would not
be viable unless there was an increase in the
volume of medicines
dispensed by pharmacies. On the applicants’ own version,
it is therefore clear that without an
increase in such volume, the
dispensing fees adopted are not appropriate. There is no
evidence that such increase has occurred.
Nor is there any
explanation from the applicants as to why dispensing fees whose
viability is admittedly dependent upon an increase
in the volume of
medicines that are dispensed by pharmacies, has suddenly become
viable without such an increase. It is true,
the figures of 24%
or R24 were increased to 26% or R26 respectively. There is no
suggestion that this increase was to compensate
pharmacies for the
fact that the volume of medicines that they dispense was unlikely to
increase.
[341]
[550] The Pricing
Committee was bound to consider, among other factors, the viability
of dispensing fees for rural pharmacies given
the low volume of
medicines dispensed by them, and the slight likelihood of their
increasing that volume as well, and those pharmacies
with a very low
workload which were admittedly bound to “face financial
viability constraints.” Notwithstanding
the suggestion
that the solution to the low volume “is to seek ways of
increasing the dispensing workload”, there is
nothing in the
deliberations of the Committee to suggest that it ever applied its
mind to the question of how the workload was
to be increased to meet
the concern.
[551] In the
Portfolio Committee Dr Zokufa suggested that the increase of the
workload could be achieved by leaving the dispensing
of medicines to
pharmacies and not medical practitioners. But to do so would
have run counter to section 22G(2)(b) read with
section 22C(1)(a) of
the Medicines Act which expressly recognises that medical
practitioners would dispense medicines. Indeed
regulation 12
permits medical practitioners to charge a dispensing fee that is less
than that fixed for pharmacies. Therefore
the course suggested
was manifestly not open to them. The regulations were made on
the footing that medical practitioners
will continue to dispense
medicines and therefore that the volume of medicines dispensed by
pharmacies will continue to be low
because medical practitioners are
also dispensing medicines.
[552] There was also
a suggestion that the Department would have to be strict about how it
issues licences to persons who are not
pharmacists. Perhaps Dr
Zokufa had in mind the licensing policy as contained in the NDP which
says:
“Medical practitioners and nurses will not be permitted to
dispense drugs, except where separate pharmaceutical services
are not
available. In such instances/situations where dispensing by
doctors and nurses has to take place, such persons will
be in
possession of a dispensing licence issued by the Medical Control
Council. Criteria for the granting of such licence
will include
inter alia
, the application of geographical limits.”
[553] But that
course too was not open to them. In
Affordable Medicines
we had occasion to consider a constitutional challenge to
sub-regulation 18(5)(a), (c), (d) and (e) dealing with the issuing of
licences to dispense medicines under the Medicines Act.
[342]
The medical practitioners feared that the government would use the
regulations to deny them licences to dispense medicines
where there
were pharmacists in the area, consistent with this policy. In
that case, the government denied that it had a
policy of denying
licences to dispense medicines to medical practitioners where there
were pharmacists in the vicinity. Nevertheless
we found that
the purpose of sub-regulation 18(5) (a), (c), (d) and (e) was
“manifestly to protect pharmacies against competition
from
medical practitioners and nurses” and that the sub-regulation
was not authorised by the Medicines Act.
[343]
In addition, in that case, the Department of Health not only denied
that it had a policy of denying licensing to medical
practitioners
where there were pharmacists in the vicinity but also expressly
disavowed any intention of using the impugned regulations
to deny
licences to medical practitioners.
[344]
[554] The Pricing
Committee seems to have been mindful of the fact that an increase in
the volume of medicines dispensed by pharmacies
was crucial to their
viability. However, it is clear that what was perceived to be a
solution to the low volume problem could
not be implemented as this
would have been inconsistent with the Medicines Act. The
problem of low volume is a matter to
which the Pricing Committee was
bound to apply its mind. What if there was no increase?
What was to become of those
pharmacies whose financial viability was
admittedly threatened, were they to close shop, and if they do, what
impact would this
have on the promotion of access to affordable
medicines? The Pricing Committee does not seem to have properly
applied its
mind to these matters.
[555] In any event,
on the applicants’ own admission, the present dispensing fees
are not viable for pharmacists unless there
is an increase in the
volume of medicines that they dispense. Both logic and common
sense suggest that in the absence of
evidence of the increase in such
volume, the dispensing fees adopted cannot be said to be viable for
pharmacies. Nor can
the dispensing fees adopted be said to be
the fees that a reasonable Pricing Committee could adopt. It
follows that while
the Pricing Committee was conscious of the need to
take into consideration the viability of pharmacists, it did not give
proper
attention to this requirement.
Rural pharmacies
[556] The other
consideration relates to the treatment of rural pharmacies.
Professor McIntyre accepts that “these pharmacies
are generally
in a difficult economic position.” They are, according to
her, economically disadvantaged by “a
comparatively low
turn-over and also unfavourable payment conditions from
wholesalers.” But this factor did not influence
the
Pricing Committee to treat rural pharmacies differently. The
Pricing Committee took the view that because the disadvantage
results
from “distortions in the health sectors . . . an appropriate
dispensing fee should be as neutral as possible in respect
of such
distortions.” In effect therefore the Pricing Committee,
while mindful of the plight of rural pharmacies, did
not give proper
regard to it in determining the appropriate dispensing fees.
[557] Most people
who live in the rural areas are comparatively disadvantaged.
Many do not have the basic facilities that
are taken for granted in
the urban areas. Some have to walk long distances to get health
care services. For some, indeed
by far the majority, access to
health care services is still a distant dream. What is more
they are comparatively poor.
One needs no evidence to establish
this. Those who live in this country know this. They
witness these conditions daily.
Both the print and the
electronic media tell the story of rural communities.
Pharmacies who operate in rural areas have to
contend with these
problems. But they have problems of their own. They are,
as Professor McIntyre tells us, economically
disadvantaged by amongst
other factors, “a comparatively low turn-over and also
unfavourable payment conditions from wholesalers.”
The
legislature must be taken to understand all of this and to have
intended that fees to be fixed would enable pharmacies in the
rural
areas to operate profitably and not to close shop.
[558] Rural
communities are entitled to have access to affordable medicine, just
like those who live in urban areas. As pointed
out earlier,
pharmacies who operate in these areas provide an essential service –
they are crucial for the supply of medicine
and thus access to
affordable medicine. There are about 350 pharmacies in the
rural areas. According to the evidence,
a rural pharmacist
plays a dual role, namely, that of a health care advisor and that of
a dispenser of medicine. But these
pharmacies are also entitled
to make a reasonable profit. Otherwise they will close their
businesses. And this will
result in the rural communities being
deprived of access to affordable medicine. This could hardly be
the purpose of section
22G(2)(b). A dispensing fee that does
not take into account the fact that rural pharmacies are economically
disadvantaged
cannot be said to be fair and just.
[559] The Pricing
Committee has not given adequate reasons for ignoring their plight.
The bold statement that distortions
in the health sector should not
affect dispensing fees fixed, is simply not adequate. It simply
begs the question.
Why should their plight be ignored?
What consequences will the dispensing fees have to the viability of
these pharmacies,
and ultimately, to the promotion of access to
affordable medicines? These questions do not appear to have
been addressed
by the Pricing Committee. The question which the
Pricing Committee had to consider is not whether distortions in the
health
sector should affect the dispensing fees, but whether given
the admitted economic disadvantages suffered by rural pharmacies,
were
the dispensing fees viable for them. In any event the
disadvantages suffered by rural pharmacies do not stem only from
distortions
in the health sector, but they also stem from the very
circumstances under which they operate such as poverty of the
communities
they service.
[560] While the
Pricing Committee adopted the “principle of neutrality”
in relation to rural pharmacies, it did not
apply this principle to
the differences between wholesalers and distributors. In
relation to wholesalers, it took the view
that the differences
between wholesalers and distributors should be recognised, because
“it is not the role of the Committee
to remove wholesalers from
the market.” Why should the same consideration not apply
to rural pharmacies, who are admittedly
economically disadvantaged?
This is not to suggest that rural pharmacies must necessarily be
allowed to charge higher dispensing
fees. Whether that should
be so is not for courts to decide. The point here is that the
Pricing Committee was bound
to apply its mind properly to the
situation of rural pharmacies and thereafter give cogent reasons for
its decision. Instead
it focused on wrong questions, namely,
whether distortions of the health sector should be allowed to affect
the dispensing fee.
In doing so, it erred.
[561] All of this
must be viewed against the admission by Professor McIntyre that rural
pharmacies have a low turnover and the statement
by Dr Zokufa that
community pharmacies with a very low workload will face financial
viability constraints as a result of the dispensing
fees. Yet
the Pricing Committee did not consider whether the dispensing fees
would remove rural pharmacies from the market.
In my view the
Pricing Committee erred in focusing on whether the distortions in the
health sector should affect the dispensing
fee. What the
Committee was bound to consider was whether given the economic
disadvantage suffered by rural pharmacies, was
the dispensing fee
viable for them.
Courier
pharmacies
[562] Then there are
courier pharmacies. Two factors are said to set courier
pharmacies apart from community pharmacies and
which cumulatively
render them more vulnerable to a capped fee. In the first place
these pharmacies supply mainly high cost
medicines such as drugs for
HIV patients, medicines used for renal dialysis and oncology drugs
for cancer patients. According
to the evidence, this means that
the R26 ceiling is likely to have a larger effect on their gross
profit than on the profits of
a typical community pharmacy. The
other factor is that these pharmacies do not have front shop
operations to absorb any pharmacy
losses. Any regulation that
has the effect of reducing their gross profits is likely to have an
adverse impact on them.
The courier pharmacy business model
focuses on dispensing drugs and essentially only drugs.
[563] The Pricing
Committee considered the position of courier pharmacies in the
context of wholesalers and, in particular, where
they fit in the
supply chain. It took the view that its recommendation could
not be based on efficiency or on protecting
business models based
purely on the level of risk that they involve. The attitude of
the Pricing Committee towards courier
pharmacies is summed up in the
affidavit of Dr Zokufa who says that these pharmacies represent “a
business model selected
by the owner of the pharmacy” and that
business models “are flexible and can be adjusted to the
changing needs and
circumstances of a business”. In
short, the message to courier pharmacies is adapt or die.
[564] I agree with
Moseneke J that the question which the Pricing Committee was bound to
consider is whether the dispensing fees
would be viable for courier
pharmacies. It was not called upon to consider whether the
various business models should be
protected. These pharmacies
provide an essential service to the chronically ill – the most
vulnerable. The record
indicates that they dispense at least
12% of the prescription medicines by channel measured by value.
It is therefore clear
from the record that these pharmacies are
differently situated than the other pharmacies. And it is not
without significance,
as pointed out earlier, that the Pricing
Committee considered it necessary to recognise the differences
between distributors and
wholesalers because it did not want to
remove wholesalers from the market. It is difficult to
understand why the same considerations
were not applied in relation
to courier pharmacies. It seems to me that by focusing on the
question whether the various business
models should be protected, the
Pricing Committee failed to apply its mind properly to the question
of the viability of the dispensing
fees for courier pharmacies, a
question which it was bound to consider. In doing so, the
Pricing Committee erred.
Compounding of
medicines
[565] In its report
of 18 December 2003 to the Minister, the Pricing Committee made it
quite clear that dispensing fees for pharmacists
covered the
professional services provided by pharmacists, including the
compounding of medicines. The report also stated
that the
dispensing fees covered both the professional remuneration and the
pharmacy’s operating costs. Again in the
same report, the
Pricing Committee, which considered what the dispensing fees covered
in the light of the definition of “dispensing
fee” as
contained in the Regulations Relating to the Practice of
Pharmacy,
[345]
confirmed that the dispensing fee included compounding.
However, in the High Court both Professor McIntyre and Dr Zokufa
averred that the dispensing fees did not include compounding.
Their assertion is neither borne out by the regulations nor
the
record. There is no explanation for this apparent
inconsistency.
[566] These
statements were apparently made to refute the contention by
pharmacies that the dispensing fee is the primary source
of
professional income for pharmacies. The pharmacies were basing
their contention on the reports of the Pricing Committee
which stated
more than once that the dispensing fees included compounding.
The applicants now allege that in addition to
dispensing fees,
pharmacies are free to charge for other services such as
compounding. But if this is so, this would mean
that pharmacies
may charge whatever they want for the other services including
compounding. This can hardly be said to be
consistent with the
primary object of the Medicines Act to promote access to medicines at
the lowest cost possible.
[567] If the
contention now made by Dr Zokufa and Professor McIntyre is to be
accepted, then it means the Pricing Committee did
not apply its mind
to compounding, a matter that they were bound to consider. This
flows from their admission that “a
pharmacist may spend a
considerable amount of time in regard to compounding and admixing of
medication”. And compounding
is one of the professional
services rendered by pharmacists. Pharmacists sell compounded
medicines, which consist of a mixture
of medicines that they may have
purchased either from wholesalers or manufacturers. Now section
22G(3)(b) expressly prohibits
the pharmacists from selling medicines
at a price higher than the single exit price. The only
exception allowed is for pharmacists
to charge a dispensing fee
contemplated in section 22G(2)(b). The obvious question that
arises is at what price are the pharmacists
to sell compounded
medicines. This is a matter which the Pricing Committee and the
Minister had to consider. On their
own admission therefore, the
Pricing Committee did not consider this matter. Here too, they
erred.
Ignoring oral
representations
[568] The final
instance of failure to have regard to a relevant matter to which
reference should be made is that relating to oral
representations.
New Clicks submitted that it is plain on the evidence of Professor
McIntyre and Dr Zokufa that the Pricing
Committee ignored oral
representations. Both Professor McIntyre and Dr Zokufa
distanced the Pricing Committee from the oral
hearings. They
maintained that oral hearings were held at the instance of the
Department of Health and that the meetings
at which oral
representations were made were not meetings of the Pricing Committee
but meetings of the Department. Both were
at pains to emphasise
that the Pricing Committee considered written representations at its
meetings. They said nothing about
oral representations.
[569] Other than
Professor McIntyre there is no suggestion that any member of the
Pricing Committee reviewed the recordings of the
oral
representations. Nor is there any indication that the Pricing
Committee ever considered the oral representations.
It is
therefore plain from the evidence of Professor McIntyre and Dr Zokufa
that the Pricing Committee did not consider oral representations
that
were made on the draft regulations. In the light of this
evidence it must be accepted that the Pricing Committee made
its
recommendation to the Minister without regard to the information that
was presented at the oral hearings on the very issues
that the
Pricing Committee had to consider. The question is whether the
Pricing Committee was bound to consider oral representations.
[570] It is clear
from the minutes of the Pricing Committee meeting held on 27 January
2004 that the Pricing Committee took a decision
to hold oral
hearings. It was also decided at that meeting that the
Directorate of the Department of Health would initiate
this process
by, among other things, arranging dates of hearings, issuing letters
of invitation and leading the discussion at the
hearings. It
was also decided that each stakeholder would be allocated one hour to
make a presentation. The draft programme
had to be circulated
to members of the Pricing Committee. I should point out here
that the process of convening and managing
oral hearings had to be
led by the Directorate which serves as the secretariat for the
Pricing Committee.
[346]
Indeed in its report to the Minister dated 19 April 2004, the
Chairperson of the Pricing Committee expressed “gratitude
to Dr
Humphrey Zokufa and the Department of Health secretariat who have
provided such effective support and inputs to their work
. . . ”.
[571] It is equally
clear that the Pricing Committee considered oral representations to
be vital to its task. The importance
attached to oral
representations by the Pricing Committee appears from the decisions
it took at its meeting of 20 February 2004
where it considered, among
other issues, “Update on plans for stakeholder representations
discussions”. While
accepting that not all members of the
Pricing Committee would be able to attend the hearings, it was
decided that “all members
of the Pricing Committee should
commit to attend the stakeholder presentations” and that to
this extent “all committee
members should indicate the dates on
which they would be able to attend stakeholder presentations between
8 and 26 March 2004”.
The minutes of that meeting also
reflect the following decisions taken which demonstrate the
importance that the Pricing Committee
attached to oral
representations:
§
“
It is not
possible for members of the committee to participate in all
representations;
§
as associations
present the general views it would be helpful to the committee to
hear the views of the individuals belonging to
such an association.
It would give the committee an opportunity to weigh the different
data;
§
the Directorate
should forward copies of the written comments to the committee
members as the comments are received;
§
the Pricing
Committee and the Department will have an opportunity to ask
questions but no questions of clarification will be allowed
from the
stakeholders; and
§
a list of key
questions should be developed and data being presented should be
interrogated very carefully.”
[572] In addition,
the letter of 12 February 2004 by the Director-General of Health
inviting the stakeholders “to make oral
representations on
[their] written comments on the proposed regulations on the pricing
of medicines” underscores the importance
of the oral hearings
not only to the Department but also to the Pricing Committee.
That letter outlined the purpose of oral
hearings as follows:
“The purpose of these sessions is to hear oral presentations
from stakeholders and to give them an opportunity to fully canvass
their concerns and comments regarding the proposed regulations.
There will be no negotiation or debates between the Department
or the
Committee on the one hand and yourselves on the other concerning the
proposed regulations.
The Pricing Committee is a technical committee whose task is to make
recommendations to the Minister of Health. You are therefore
advised to prepare your written and oral inputs in as much detail as
possible and with a view to supplying accurate and substantiated
information to the Department and the Pricing Committee on how the
proposed regulations may affect your interests. Where
the
regulations raise more than one possibility, you are advised to
include all possible impacts in your presentations.
The object of these sessions is not to provide further clarification
by departmental officials or members of the Pricing Committee
on the
proposed regulations. Consequently
no questions for
clarification will be answered
. The Department and the
Pricing Committee would like to hear your comments on, and
interpretation of, the regulations as
opposed to their own views.
This said, you may by all means indicate areas that are not clear to
you and in what way they
lack such clarity.”
[573] In the light
of the above, it is difficult to accept that the oral hearings were
meetings of the Department only. It
is difficult to reconcile
that assertion with the decisions taken by the Pricing Committee as
reflected in its minutes and the
letter inviting oral
representations. The fact that the meetings were called by the
Department does not in itself make those
meetings to be meetings of
the Department. When the draft regulations were published on 16
January 2004, for example, interested
persons were invited to submit
representations to the Director-General and this invitation was
issued at the instance of the Minister.
The applicants do not
suggest that the Pricing Committee did not consider such
representations because they had been requested
by the Minister and
had to be forwarded to the Director-General. On the contrary
they repeatedly emphasised that they considered
written
representations. This must be so because the Directorate
provides secretariat support to the Pricing Committee.
It was
for that reason that the Directorate was responsible for organising
oral hearings. It is not clear why the applicants
should now
seek to distance the Pricing Committee from the oral representations
which were invited to benefit both the Pricing
Committee and the
Department.
[574] Be that as it
may, it is clear from the record that the Pricing Committee
considered it not only necessary, but also important
to hold oral
hearings. Indeed the importance of the oral hearings to the
task of the Pricing Committee cannot be gainsaid.
The purpose
of oral representations was “to give [the stakeholders] an
opportunity to fully canvass their concerns and comments
regarding
the proposed regulations.” To this extent the
stakeholders were “advised to prepare [their] written
and oral
input in as much detail as possible with the view to supplying
accurate and substantiated information to the Department
and the
Pricing Committee on how the proposed regulations may affect [the
stakeholders] interests.” And in the letter
inviting oral
representations, the stakeholders were told that “[t]he
Department and the Pricing Committee would like to
hear [their]
comments on, and interpretation of, the regulations as opposed to
their own views.” Oral representations
therefore had to
address matters that were relevant to the recommendation of the
Pricing Committee. They were to address
a matter that lies at
the very heart of this litigation, namely, the viability of the
dispensing fees for pharmacies. In
these circumstances the
Pricing Committee was bound to consider matters addressed during the
oral hearings.
[575] In
Bangtoo
Bros.
the Court held that it would be “a dereliction of
duty to hear representations which are pertinent and then to ignore
them.”
[347]
It seems to me that having decided that oral representations are
pertinent to its recommendation, the Pricing Committee was
bound to
properly apply its mind to such representations.
Representations were available on audio and video tapes.
They
were therefore easily accessible to all members of the Pricing
Committee. I consider it to be equally a dereliction
of duty to
call for oral representations which are pertinent and then to ignore
them. By ignoring oral representations, the
Pricing Committee
deprived itself of information that it had committed itself to
achieve during the oral hearings. That information
was not only
vital, but was manifestly relevant to its recommendation as
demonstrated by the decisions taken by the Pricing Committee
in
relation to oral hearings. In ignoring the oral
representations, the Pricing Committee ignored relevant matters which
it was bound to take into account. The duty of the Pricing
Committee was to apply its mind properly to all materials before
it
including matters raised at the oral hearings. It failed to do
so when it ignored oral representations. In doing
so it erred.
Conclusion
[576] It is
necessary to stress two points by way of conclusion. The first
is that the determination of dispensing fees is
a matter that belongs
to the discretion of the Pricing Committee and the Minister.
The point here is that the manner in which
the discretion was
exercised violated PAJA. Discretion must be exercised in
accordance with the principles of administrative
justice as codified
in PAJA. The role of the courts is to police the exercise of
that discretion. Where it is exercised
in a manner that is
inconsistent with PAJA, the courts will, and must intervene.
Failure by a decision maker to take into
account matters that the
decision maker is bound to take into consideration, is an instance of
an abuse of that discretion.
The enquiry in this case is
therefore whether the Pricing Committee and the Minister properly
applied their minds to the matters
that they were bound to take into
consideration. If they did not, the resulting fees can hardly
be said to be ones determined
in accordance with the behest of
section 22G(2)(b) and thus appropriate.
[577] The other is
that the fact that the fees fixed will result in the demise of some
pharmacies is not necessarily indicative
of the inappropriateness of
the fees. This may result from many factors including
inefficiency. To reach that conclusion,
the pharmacies would
have to put up facts which show that but for the dispensing fees
pharmacies would be viable. Nor does
the reduction in the
profits necessarily suggest that the fees are inappropriate. On
this record I am unable to reach that
conclusion. In my view
the record is simply inadequate for that conclusion to be reached.
But the conclusion I reach
is that the dispensing fees adopted are
inappropriate because in the exercise of their discretion, the
Pricing Committee and the
Minister ignored certain relevant factors
which they were bound to take into consideration.
[578] The
considerations referred to above, individually and cumulatively, lead
to the conclusion that the Minister and the Pricing
Committee failed
to properly apply their minds to the matters which they were bound to
consider. The resulting dispensing
fees cannot be said to be
appropriate. In the result, regulations 10 and 11 are invalid
in that they adopt dispensing fees
that are not appropriate.
And for reasons given by the Chief Justice, I agree that regulation
13 is also invalid. For
these reasons, I agree with the
conclusion reached by the Chief Justice that the fees adopted are not
appropriate. In view
of this conclusion, it becomes entirely
unnecessary to consider the challenge based on section 22 of the
Constitution.
[579] In view of the
judgment of the Court dealing with the remedy, it is not necessary to
deal with the remedy in this judgment.
SACHS J:
[580] I have had the
pleasure of reading the careful and comprehensive judgment of
Chaskalson CJ. Its reach is prodigious
and its line of
reasoning clear and persuasive. I am happy to concur in it,
subject to a qualification which I make below.
I have also had
the benefit of reading the judgment of Ngcobo J and wish to express
my agreement in broad terms with the forceful
additional arguments he
advances, subject to a similar qualification. In reaching the
same conclusions as they do, I follow
a different route in one
significant respect. Chaskalson CJ holds that subordinate
legislation in general should be controlled
by the Promotion of
Administrative Justice Act
[348]
(PAJA), and Ngcobo J holds that PAJA is applicable to the facts of
this case. I believe, on the other hand, that control
of
subordinate legislation in general should be accomplished by
employing a constitutionally embedded principle of legality, and
that
PAJA is not generally applicable to the regulatory scheme at issue in
this case, but only to the particular regulations fixing
an
appropriate dispensing fee. As will be seen, the differences in
our respective approaches do not relate either to philosophy
about
constitutional control of public power, or to the outcome on the
facts of the case. They concern the appropriate constitutional
pathway to be followed.
The applicability
of PAJA
[581] While the
Constitution, like nature, abhors a vacuum, it does have what may
appear to be lacunas. One of the tasks of
the judiciary is,
when called upon, to fill in these apparent gaps. It does so
not by a process of invention but by one of
completion. The
courts use what is there as the foundation for discerning what is not
manifest; they render explicit what
is implicit. They plumb the
overall structure and design of the Constitution, and let themselves
be guided by the values
that the Constitution articulates.
Memory of past abuses, sensitivity to social context and appreciation
of the goals which
the Constitution sets for our society, also serve
as pointers.
[582] With these
considerations in mind, I will deal with what appears to me to be a
notable lacuna in the Constitution, one which
is replicated, I
believe, in PAJA. It concerns the status and reviewability of
subordinate or delegated legislation, which
appears to have fallen
between the constitutional cracks. The answer is not to leave
it in obscurity, but to rescue it from
the awkward void in which it
finds itself. The issue then is simultaneously to imagine
[349]
and give substance to constitutional concepts into which subordinate
legislation can be assimilated without losing its specific
texture.
In legal terms many questions arise: How should subordinate
legislation be classified? Where in the constitutional
scheme
of things does it belong? Is it essentially an extension of the
legislative process, or should it be seen basically
as an aspect of
administration?
[583] In my view it
is clearly both. Thus to say that the making of subordinate
legislation involves the implementation of
primary legislation and is
therefore part of administrative
law
, is to state the
question, not to resolve it. The question that remains is: is
it a form of implementation which falls under
the concept of
administrative
action
as envisaged in section 33 of the Bill
of Rights, or is it in essence an extension of the legislative
process that happens to be
undertaken by the administration, thereby
falling to be considered under a different constitutional rubric?
And if the latter,
what constitutional and legal principles govern
it?
[584] The judgment
of Chaskalson CJ contends that subordinate legislation does indeed
fall within the notion of administrative action
as governed by
section 33. As such, the constitutional control which would
apply to subordinate legislation is to be found
in section 33 of the
Constitution, as embodied in PAJA. In my view, however, the
source of constitutional control of subordinate
legislation is
located rather in an expanded notion of legality in a constitutional
democracy, as applied to law-making that affects
the public in a
general way. I believe that section 33 and PAJA are together
designed to control the exercise of public power
in a special and
focused manner, with the object of protecting individuals or small
groups in their dealings with the public administration
from unfair
processes or unreasonable decisions. This function should not
be diffused. It involves the micro-management
of public power,
and is all the more effective because of its intense and coherent
focus. The principles of legality in a
constitutional
democracy, on the other hand, operate more at the macro level.
Their function is not so much to avoid individual
injustice as to
ensure that the processes of rule-making are consistent with the way
public power should be articulated in the
open and democratic society
envisaged by the Constitution. These principles, for their
turn, should have a larger and more
context-driven sweep.
[585] Judicial
review is an aspect of administrative law that covers both the micro
and the macro dimensions of the exercise of
public power. The
duality of judicial review has long been acknowledged. As this
Court said in
Fedsure:
[350]
“Prior to the enactment of the interim Constitution, our
superior Courts asserted a power
to review subordinate legislation
as well as administrative and executive action.
The
jurisdiction to do so was said to lie in the inherent jurisdiction of
the Courts. The legal principles and the body
of law developed
by the Courts in the application of this power were often referred to
as ‘administrative law’.”
[351]
(Footnote omitted) (My emphasis.)
[586]
Taken together the micro and the macro dimensions of
administrative law are complementary. Each attends to a
different aspect
of the same public power, and each is governed by
the same foundational principles of accountability, responsiveness
and openness.
[352]
Furthermore, whether the administration is involved in the narrow
task of dealing with the rights of individuals or in fulfilling
the
wider function of creating subordinate legislation, it must act
according to the same broad democratic values and principles
enshrined in the Constitution, including those expressly set out in
Chapter 10 of the Constitution.
[353]
Against this background whether judicial review of delegated
legislation is conducted through the lens of legality, as I
believe
it should be, or through the prism of section 33 and PAJA, as the
Chief Justice holds, the consequences should be at least
roughly the
same. In both cases judicial review should be animated by the
same constitutional philosophy. The question
to be asked in
both instances should be: what expectations are individuals and the
public entitled to have of governmental conduct
in the open and
democratic society envisaged by the Constitution? If I choose
the path of legality, I do so because I believe
that it corresponds
more directly with the reality of the national polity, fits in better
with the overall constitutional scheme,
and provides a sounder
foundation for future development.
[354]
Conversely, I believe that the “shoe” of section 33 is
simply too tight to serve the function of providing appropriate
constitutional control of subordinate legislation, and that PAJA
recognises this.
[587] I accordingly
agree with the two judgments to the extent that they hold that if
PAJA is applicable, there is no scope for
bypassing it. Yet I
do not accept that PAJA is in fact applicable (except in the specific
respect of fixing the precise amount
chargeable as a dispensing
fee.) The point of departure for the enquiry cannot be PAJA
itself. The statute may refine
the constitutional provision; it
cannot define it.
[355]
It follows that the list of items which PAJA expressly excludes from
its ambit at most indicates what the legislators thought
that section
33 contemplated and then, only in a negative way by means of
exclusion. It cannot serve as a guide to what section
33 in
fact envisages. The starting point of the enquiry must rather
be an analysis of section 33 itself. This in turn
must be
located within the overall manner in which the Constitution deals
with the functioning of the public administration.
[588] The first
point to note in this respect is that section 33 does not stand alone
as a solitary bulwark against arbitrary or
unfair exercise of public
power. Administrative justice in itself has less work to do
than it had in the pre-democratic era.
The courts are no longer
constrained by the doctrine of parliamentary supremacy, when the
courts had to “claim space and
push boundaries to find means of
controlling public power.”
[356]
[589] As this Court
said in
SARFU (3)
in the era of constitutional democracy,
public administration, which is part of the executive arm of
government, is subject to a
variety of constitutional controls.
[357]
The Constitution is committed to establishing and maintaining an
efficient, equitable and ethical public administration which
respects
fundamental rights and is accountable to the broader public.
The importance of ensuring that the administration
observes
fundamental rights and acts both ethically and accountably should not
be understated. In the past, the lives of
the majority of South
Africans were almost entirely governed by labyrinthine administrative
regulations which, amongst other things,
prohibited freedom of
movement, controlled access to housing, education and jobs and which
were implemented by a bureaucracy hostile
to fundamental rights and
accountability. The new Constitution envisages the role and
obligations of government quite differently.
[358]
[590] The
constitutional goal is supported by a range of provisions in the
Constitution.
[359]
First, in the Bill of Rights there is the right of access to
information
[360]
and the right to just administrative action.
[361]
Secondly, all the provisions of the Bill of Rights are binding upon
the Executive and all organs of state.
[362]
The Bill of Rights, therefore, imposes considerable substantive
obligations upon the administration. Thirdly, Chapter
10 of the
Constitution, titled Public Administration, sets the values and
principles that must govern public administration and
states that
these principles apply to administration in every sphere of
government, organs of state and public enterprises.
[363]
This Chapter also establishes a Public Service Commission to promote
the values of public administration.
[364]
Fourthly, Chapter 9 of the Constitution establishes the office of the
Public Protector whose primary task is to investigate
and report on
conduct in the public administration which is alleged to be
improper.
[365]
Fifthly, the Constitution establishes the office of the
Auditor-General whose responsibility is to audit and report on the
financial affairs of national and provincial state departments and
administrations as well as municipalities.
[366]
[591]
Section 33 fits neatly into this new and expansive
constitutional framework. As this Court said further in
SARFU
(3)
:
“The principal function of s 33 is to regulate conduct of the
public administration and, in particular,
to ensure that where
action taken by the administration affects or threatens individuals
,
the procedures followed comply with the constitutional standards of
administrative justice.”
[367]
(My emphasis.)
[592] This brings me
to the second point to be noted, namely, that the right to just
administrative action is contained in the Bill
of Rights, which
focuses on the fundamental rights of all individuals in our country.
Thus, almost every section of the Bill
of Rights starts with the
words “everyone has the right . . .”. Section 33
follows that format and states:
“Just administrative action.—
(1) Everyone has the right to administrative action that is lawful,
reasonable and
procedurally fair.
(2) Everyone whose rights have been adversely affected by
administrative action has the right to be given written reasons.
(3) National legislation must be enacted to give effect to these
rights, and must—
(a)
provide for the review of administrative action by a court or, where
appropriate,
an independent and impartial tribunal;
(b)
impose a duty on the state to give effect to the rights in
subsections
(1) and (2); and
(c) promote an efficient administration.”
[593] On the face of
it, these provisions envisage the rights of individuals,
(“everyone”), to be treated in a just
manner by the
public administration. They fit well with what Hoexter calls
“administrative acts”.
[368]
She writes that an administrative act is probably best defined as an
act that implements or gives effect to a policy, a piece
of
legislation or an adjudicative decision. This is the
operational side of the state: since policies, laws and judgments
are
not self-executing, they have to be put into operation by public
authorities responsible for administering them. She
points out
that administrative acts include every conceivable aspect of
government activity – granting a licence, promoting
a clerk,
stamping a passport, arresting a suspect, paying out a pension.
[594] By way of
contrast subordinate legislation refers to law-making of a
generalised character. As Chaskalson P said in
Executive
Council, Western Cape
:
[369]
“In a modern State detailed provisions are often required for
the purpose of implementing and regulating laws, and Parliament
cannot be expected to deal with all such matters itself. There
is nothing in the Constitution which prohibits Parliament
from
delegating subordinate regulatory authority to other bodies.
The power to do so is necessary for effective law-making.
It is
implicit in the power to make laws for the country and I have no
doubt that under our Constitution Parliament can pass legislation
delegating such legislative functions to other bodies.”
[370]
[595] In South
Africa, as in most countries, the bulk of legislation is in fact
produced not by original law-making authorities
but by administrative
authorities. An array of terms is used for different types of
delegated legislation: regulations, proclamations,
rules, orders,
declarations, directives, decrees and schemes are some of the most
common.
[371]
[596] As Hoexter
points out, delegated legislation is probably the easiest of the acts
by the administration to identify, partly
because of the form in
which it typically appears published in the Gazette, with a title,
numbered clauses and so on.
[372]
Formal appearance, however, is not always conclusive, and other
characteristics of legislation are also important: Legislation
usually contains rules of general application which apply
impersonally to the whole society, or to a specific community within
it, rather than to individuals.
·
Unlike
adjudication, legislation is usually concerned not with resolving
individual disputes but with implementing social policies
that are
intended to advance the public interest.
·
Legislation
usually operates prospectively. This means that it has
consequences only for events that occur after the legislation
has
come into operation.
·
Legislation
is usually intended to remain in force for an indefinite period.
·
Legislation
requires publicity in an official publication in order to become
valid.
[373]
[597] Section 33 is
directed towards administrative acts of an adjudicative kind, and not
to legislative functions carried out by
the administration. The
notions of procedural fairness and the right to be given written
reasons fit in closely with adjudicative
justice for individuals.
They are not, without undue interpretative strain consonant with
subordinate legislation.
The concept of procedural fairness has
come to occupy a central place in controlling adjudicative
(decision-making) administrative
acts. In administrative law
procedural fairness based on natural justice is a well defined
concept which comprises two fundamental
rules of fair procedure: that
a person may not be a judge in his or her own cause; and that a
person must always be fairly heard.
[374]
It is easy to understand how this principle operates in relation to
applications for planning permission or liquor licences.
[598] It is
difficult to see how it applies in relation to regulations of general
application affecting thousands of suppliers of
medicines and tens of
millions of purchasers. As Baxter points out:
“
Audi alteram partem
, as a doctrine, does not
contemplate the kind of ‘mass access’ that is required
for such decisions, nor does it provide
an assurance that the public
authority will or can hear the range and diversity of views all those
affected by the decisions involved.
More tailored procedures
have to be employed.”
[375]
Similarly, the right
of everyone who has been adversely affected by subordinate
legislation to be given written reasons, while completely
appropriate
for individuals negatively affected by an administrative act
(decision), seems highly inapposite for the millions of
people
affected, or potentially affected, by a new law.
[599] Thus I believe
a distinction may, and should be drawn between legislative and
administrative functions, or between rule-making
and
adjudication.
[376]
An integrated system of rules and institutions should be developed to
enhance the effectiveness, fairness and accountability
of
administrative rule-making. Preferably the legislature should
provide expressly for these rules and institutions.
In the
absence of such legislation, however, the void has to be filled by
constitutionally-based principles of judicial review.
While
section 33 undoubtedly reflects a broad constitutional philosophy of
fair dealing between citizens and the state it does
not in itself
provide an adequate format for judicial review of law-making as
opposed to law-implementation. It is geared
towards protecting
the individual in his or her dealings with the public administration,
and is not focused on the way laws of
general application are made.
[600] This brings me
to the third basis for contending that PAJA does not apply to
subordinate legislation, namely, the text of
PAJA itself.
Section 1 states:
“‘administrative action’ means any
decision
taken, or any failure to take a decision, by—
(a)
an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in
terms of any legislation; or
(b)
a natural or juristic person, other than an organ of state, when
exercising a public power or performing a public function in
terms of
an empowering provision, which adversely affects the rights of any
person and which has a direct, external legal effect”.
(My emphasis.)
It appears that the
use of the word “decision” had its origins in an
equivalent Australian statute, which does not apply
to delegated
legislation.
[377]
In England, too, the courts have developed different principles of
judicial review in relation to subordinate legislation
and
administrative acts, respectively.
[378]
Thus Wade and Forsyth point out:
“
In the case of rules and
orders which are clearly legislative as opposed to administrative,
there is normally no room for the principle
of natural justice which
entitles persons affected to a fair hearing in advance. But
where regulations, though general in
form, bear particularly hardly
on one person or group, an exception may be made. Orders for
such things as housing and planning
schemes, although they may affect
numerous people, are for this purpose treated by Parliament, and also
by the courts, as matters
of administration and not of
legislation.”
[379]
It seems that in
Germany, as well, a distinction is made between delegated legislation
and administrative acts.
[380]
Even though the borderline between the two is not always easy to
determine, and there will be examples of administrative
functioning
that takes the form of legislation but in reality amounts to an
administrative act,
[381]
the distinction is, in my view, both philosophically sound,
practically useful and jurisprudentially valuable.
[601] “Decision”
in turn is defined in section 1 as meaning:
“any decision of an administrative nature made, proposed to be
made, or required to be made, as the case may be, under an
empowering
provision, including a decision relating to—
(a)
making, suspending, revoking or refusing to make an order, award or
determination;
(b)
giving, suspending, revoking or refusing to give a certificate,
direction, approval, consent or permission;
(c)
issuing, suspending, revoking or refusing to issue a licence,
authority or other instrument;
(d)
imposing a condition or restriction;
(e)
making a declaration, demand or requirement;
(f)
retaining, or refusing to deliver up, an article; or
doing or refusing to do any other act or thing of an administrative
nature, and a reference to a failure to take a decision must
be
construed accordingly”.
The emphasis here is
clearly on administrative (adjudicative) acts concerning such matters
as orders, permissions and licences.
There is nothing to
suggest that law-making is to be covered. Indeed, the very word
“decision” points away from
the idea of a generalised
norm applicable in an open-ended way to the public at large. A
decision to adopt a law merely initiates
the process of law-making,
it does not constitute it.
[602] The provision
dealing with PAJA that goes on to deal with the right to fair
administrative action has a similar focus.
Section 3 provides:
“Procedurally fair administrative action affecting any
person.—(1) Administrative action which materially and
adversely
affects the rights or legitimate expectations of
any
person
must be procedurally fair.
(2)(a) A fair administrative procedure depends on the circumstances
of each case.
(b) In order to give effect to the right to procedurally fair
administrative action, an administrator, subject to subsection (4),
must give
a person
referred to in subsection (1)—
(i)
adequate notice of the nature and purpose of the proposed
administrative action;
(ii)
a reasonable opportunity to make representations;
(iii)
a clear statement of the administrative action;
(iv)
adequate notice of any right of review or internal appeal, where
applicable; and adequate notice of the right to request reasons
in
terms of section 5.” (My emphasis.)
Once more the
emphasis is on the rights of “any person”.
[603] The only
section in PAJA which shifts the focus from ‘any person’
to the public, is section 4, which reads:
“Administrative action affecting public.—(1) In cases
where an administrative action materially and adversely affects
the
rights of the public, an administrator, in order to give effect to
the right to procedurally fair administrative action, must
decide
whether—
(a)
to hold a public inquiry in terms of subsection (2);
[382]
(b)
to follow a notice and comment procedure in terms of subsection
(3);
[383]
(c)
to follow the procedures in both subsections (2) and (3);
(d)
where the administrator is empowered by any empowering provision to
follow a procedure which is fair but different, to follow
that
procedure; or
(e)
to follow another appropriate procedure which gives effect to section
3.”
This section is
clearly capable of encompassing subordinate legislation. Yet
there is nothing in the language to suggest that
it compels the
inclusion of subordinate legislation. On the contrary, the text
is consistent with a requirement that special
processes be followed
when a planned administrative act is likely to have a significant
impact on the rights of the public.
Thus a decision to build a
road or a railway line or to proclaim a housing or planning scheme
could have a major public impact
bearing heavily on those affected.
Similarly, the declaration of large tracts of land as national parks
or fire-controlled
zones could affect a large number of landowners.
As will be seen, it is my view that unlike the general regulatory
scheme
at issue in this matter, the determination of the fee by the
Pricing Committee and the Minister of Health constitutes
administrative
action materially and adversely affecting the rights
of the public. In these circumstances, giving a specific
hearing to
each and every one of the individuals affected might be
quite impractical. What is envisaged is a collective process
both
of granting a hearing and of communicating an outcome.
While the requirement of such a special process is indicative of a
philosophy of government favouring openness, it does not, in my view,
achieve indirectly what the rest of PAJA does not do directly,
namely
extend its scope to subordinate legislation generally.
[604] Section 5, on
the other hand, returns the focus firmly to complaints by
individuals. Dealing with the furnishing of
reasons for adverse
administrative action, it provides:
“Reasons for administrative action.—(1)
Any person
whose rights
have been materially and adversely affected
by
administrative action and who has not been given reasons for the
action may, within 90 days after the date on which that person
became
aware of the action or might reasonably have been expected to have
become aware of the action, request that the administrator
concerned
furnish written reasons for the action.” (My emphasis.)
Here again the focus
is on the rights of “any person” to receive written
reasons. Furthermore, it applies to administrative
action that
has already been completed, and not to the making of laws that will
operate into the future. Reasonable and justifiable
departures
from the giving of reasons are permitted, but the administrator must
forthwith inform the person making the request
of such
departure.
[384]
This is just not the stuff of delegated legislation. The
requesting and giving of written reasons accords well with
the rights
of someone aggrieved by the refusal of planning permission or
rejection of an application for a liquor licence.
It seems
quite inappropriate as a mechanism to protect the rights of people
who have not as yet been affected by any decision (administrative
act), but who fear their rights in the future may be jeopardised when
subordinate legislation comes to be implemented. Explanation
of
the purposes intended to be served by subordinate legislation might
be an important means of ensuring public accountability.
It is
quite different in character from furnishing an aggrieved individual
with reasons for action undertaken by the administration.
[605] Section 6,
which deals with judicial review of administrative action, and which
is accordingly specially relevant to the present
enquiry, manifests
the same orientation towards administrative acts. It uses
language such as “
an
administrative action”,
speaks about the administrator who
took it,
repeatedly refers
to
the
action. Thus the crucial paragraph dealing with
reasonableness, reads as follows:
“6(2) A court or tribunal has the power to judicially review an
administrative action if—
. . . .
(h)
the exercise of the power or the performance of the function
authorised by the empowering provision . . . is so unreasonable that
no reasonable person could have so exercised the power or
performed
the function . . . ” (My emphasis.)
I do not suggest
that the language used is so precise and restrictive as absolutely to
exclude subordinate legislation. Yet
its whole tenor is to
subject to judicial review specific acts taken in the past by an
administrator, and not to contemplate review
of regulation-making of
a general kind intended to apply in the future. Certainly there
is no express power granted to review
subordinate legislation, a
glaring omission in a statute that has been criticised for suffering
more from over rather than under–elaboration.
[385]
[606] Finally it is
necessary to refer to the remedies which PAJA provides. Section
8 reads:
“Remedies in proceedings for judicial review.—(1) The
court or tribunal, in proceedings for judicial review in terms
of
section 6(1), may grant any order that is just and equitable,
including orders—
(a)
directing the administrator—
(i) to give reasons; or
(ii) to act in the manner the court or tribunal requires;
(b)
prohibiting the administrator from acting in a particular manner;
(c)
setting aside the administrative action and—
(i) remitting the matter for reconsideration by the administrator,
with or without directions; or
(ii) in exceptional cases—
(aa)
substituting or varying the administrative action or correcting a
defect resulting from the administrative action; or
(bb)
directing the administrator or any other party to the proceedings to
pay compensation;
(d)
declaring the rights of the parties in respect of any matter to which
the administrative action relates;
(e)
granting a temporary interdict or other temporary relief; or
(f)
as to costs.”
[607]
Once more, strikingly absent from this list is an express
power which in terms permits setting aside of subordinate
legislation,
either wholly or in part. The omission of such an
express power was not fortuitous but followed on the deliberate
omission,
lamented by Hoexter, of the power to review subordinate
legislation.
[386]
The fact is that the power to declare delegated legislation to be
ultra vires, historically such a significant part of judicial
review
in administrative law, is not mentioned at all. It seems to me
to be both inappropriate to ‘read in’ that
power when it
was manifestly not contemplated, and unnecessary when the
constitutional objective can be achieved with more constitutional
comfort and greater practical efficiency by other means.
[608] The absence of
any direct reference in PAJA to subordinate legislation is not in
itself conclusive, but rather section 33
of the Constitution that
establishes the limits of PAJA not the other way round. The
question that has to be resolved is
whether the absence of express
reference in PAJA to subordinate legislation contradicts the required
reach of the principles of
section 33, or accurately reflects their
limits.
[609] In responding
to this question I start with the assumption that in our
constitutional democracy subordinate legislation cannot
exist in a
review-free limbo, but must be subject to judicial review directed
towards ensuring accountability, responsiveness and
openness.
There appear to be three possible responses to the apparent lacuna in
PAJA. The first would be to give section
33 the more expansive
meaning attributed to it by Chaskalson CJ, and then stretch the
language in PAJA to include subordinate legislation.
The second
would be to treat PAJA as unconstitutional to the extent that,
without apparent justification, it excludes review of
subordinate
legislation. The third is to see no incongruency at all between
section 33 and PAJA, but rather to view them
both as being directed
towards the well-focused objective of protecting the rights of
individuals or relatively discrete groups
in their dealings with the
public authorities. The function of section 33 and PAJA would
accordingly not extend to controlling
subordinate legislation, which
would be subject to other forms of constitutional control.
Given this interpretation, section
33 and PAJA would accord with one
another rather than be in conflict. I believe that the third
approach is the one most consistent
with the structure and values of
the Constitution. Support for this approach comes not from
eagerness to promote symmetry
for its own sake – over-tidiness
of the law in an untidy world may not be a virtue – but from an
acknowledgment of
a significant difference in character between the
making of regulations of general impact, on the one hand, and their
specific
implementation in particular cases, on the other.
[610]
As indicated above, section 33 and PAJA do not stand alone as
bulwarks against arbitrary or inappropriate use of public power.
The work they do will benefit from being focused on the rights of the
individual man and woman in the street, or of relatively
small
groups, who find themselves adversely affected by administrative
decisions touching directly on their lives. Conversely,
judicial review of subordinate legislation can be more effectively
and robustly done if not forced to tip-toe on the narrow pedestal
appropriate for reviewing administrative acts.
[387]
For these reasons, therefore, I would hold that section 33 of the
Constitution, as embodied in the provisions of PAJA, is
not the
mechanism for providing judicial review of a general regulatory
scheme such as the one under consideration in the present
case.
[611]
Before dealing with what I consider the appropriate
constitutional matrix within which to review subordinate legislation,
I must
stress that the non-applicability of PAJA in this area does
not leave the law-making bodies free to operate in secrecy without
paying heed to those affected by the laws. The era of the
top-down diktat (decree from above), based on the notion that “we
in government know best what is good for you” are gone.
There can be no return to the days when regulation-makers regarded
themselves as being at large to make new regulations in any way they
chose, and with whatever content they liked, provided that
they had
appropriate authority to make the rules and that the regulations were
not wholly irrational and bore some resemblance
to or had some
connection with the enabling statute. The absence of control
through PAJA does not signify the existence of
a void. Rather,
it acknowledges space for other more effectively grounded processes
of controlling subordinate law-making.
Applicability of
the principle of legality in an open and democratic society
[612] Administrative
bodies are not only concerned with making decisions in individual
situations; they are also and more principally
engaged in discharging
a broad network of statutory responsibilities.
[388]
Baxter points out that because they have a host of statutory
mandates, public authorities are much more likely to be preoccupied
with attaining certain overall goals than with ensuring that fairness
and justice is attained in specific situations. To
attain these
overall goals (and sometimes merely for the purpose of maintaining
internal co-ordination), public authorities develop
sets of
generalised standards which provide a framework within which their
officers exercise the statutory powers entrusted to
them.
Baxter explains further that these standards take various forms,
ranging in formality from published regulations having
the force of
law to “policies”, “guidelines”, and
“manuals”.
[389]
The analysis that follows will focus only on published regulations
having the force of law. Different considerations
might apply
to other administrative rules and standards.
[613] If the result
of excluding such law-making from the purview of section 33 and PAJA
would effectively be to immunise subordinate
legislation from
judicial review, save for limited grounds such as bad faith or
outright irrationality, the outcome would be constitutionally
unacceptable. A strained reading of PAJA would in these
circumstances have much to commend itself. I feel, however,
that there is an alternative and better way of securing
constitutional supervision of subordinate legislation. The
approach
I propose shares the philosophy underlying section 33, but
is not founded on that section, nor is it constrained by the format
of PAJA. In my view the basis for judicial review of
subordinate legislation lies in an expansive notion of legality
derived
from both express provisions and implied principles of the
Constitution. It flows from the notion of constitutional
legality,
the foundational and organising principle which binds
together the text of the Constitution in a unified and coherent
whole.
Legality in this sense draws its life-blood from
multiple texts of the Constitution and lies at the structural heart
of our constitutional
democracy.
[390]
[614]
At the very least, as Hoexter points out, it has to be
acknowledged that legality is a controlling principle for all
exercises of
public power. The constitutional principle of
legality is of application even when the action in question is an
exercise
of public power that does not qualify as “administrative
action”:
“Legality is thus capable of coming to the rescue when the
action in question does
not
qualify for review in terms of the
Promotion of Administration Justice Act or in terms of s 33, but is
nevertheless action taken
in pursuance of public power . . . [T]he
content of the constitutional principle of legality is surprisingly
far-reaching and .
. . overlaps to a considerable extent with the
requirements of legality imposed by s 33 and by the Act.”
[391]
[615] Legality is an
evolving concept in our jurisprudence, whose full creative potential
will be developed in a context-driven
and incremental manner.
[392]
In the leading case of
Pharmaceutical
Chaskalson P stated:
“In
Fedsure
this Court held that the doctrine of
legality, an incident of the rule of law, was an implied provision of
the interim Constitution.
It stated:
‘It
seems central to the conception of our constitutional order that the
Legislature and Executive in every sphere are constrained
by the
principle that they may exercise no power and perform no function
beyond that conferred upon them by law. At least
in this sense,
then, the principle of legality is implied within the terms of the
interim Constitution.’
This was reaffirmed in
President of the Republic of South Africa
and Others v South African Rugby Football Union and Others (Sarfu 3),
where this Court outlined different ways in which the exercise of
public power is regulated by the Constitution. One of the
constitutional controls referred to is that flowing from the doctrine
of legality. Although
Fedsure
was decided under the
interim Constitution, the decision is applicable to the exercise of
public power under the 1996 Constitution,
which in specific terms now
declares that the rule of law is one of the foundational values of
the Constitution.
. . . .
Section 2 of the Constitution lays the foundation for the control of
public power. It provides:
‘This
Constitution is the supreme law of the Republic; law or conduct
inconsistent with it is invalid, and the obligations
imposed by it
must be fulfilled.’
. . . .
The exercise of all public power must comply with the Constitution,
which is the supreme law, and the doctrine of legality, which
is part
of that law.
[A]dministrative law, which forms the core of public law, occupies a
special place in our jurisprudence. It is an incident
of the
separation of powers under which courts regulate and control the
exercise of public power by the other branches of government.
It is built on constitutional principles which define the authority
of each branch of government, their interrelationship and the
boundaries between them.
. . . .
The written Constitution articulates and gives effect to the
governing principles of constitutional law. Even if the
common-law
constitutional principles continue to have application in
matters not expressly dealt with by the Constitution, (and that need
not be decided in this case) the Constitution is the supreme law and
the common law, in so far as it has any application, must be
developed consistently with it, and subject to constitutional
control.”
[393]
(Footnotes omitted.)
[616] This approach
was further developed in
Metrorail
,
[394]
where O’Regan J emphasised that our Constitution both
constructs and restrains the exercise of public power in our
democracy.
She pointed out that determining the scope of public
power, therefore, and any duties attached to it requires an analysis
not only
of the statutory provisions conferring the power, but also
of the social, political and economic context within which the power
is to be exercised and a consideration of the relevant provisions of
the Constitution. If this approach is followed, she
stated, the
ambit of public duties of organs of state will be drawn in an
incremental and context-driven manner.
[395]
[617] I believe that
the present case requires us to consider the ambit of the public
duties of those responsible for drafting and
adopting subordinate
legislation. These duties can be summed up in the notion of
legality as it operates in relation to delegated
legislation. I
believe that in this context legality must have both a procedural and
a substantive dimension. I will
deal with each in turn.
Constitutional
control of subordinate law-making: the procedural dimension
[618] In the
pre-democratic South African administrative law tradition, little
attention was given to the process by which administrative
rules or
standards were formulated by public authorities. Writing
shortly before the interim Constitution was adopted, Baxter
suggested
that an administrative process analogous (though by no means
identical) to what American administrative lawyers term
‘rule-making’
would greatly improve the existing situation and would lay a
foundation for a modern system of administrative
law under the new
Constitution.
[396]
[619] Wade and
Forsyth point out that in the United States the Federal
Administrative Procedure Act of 1946 gives a right to ‘interested
persons’ to ‘participate in the rule-making through
submission of written data, views or arguments’ and in some
cases Congress has prescribed a formal hearing.
[397]
Hearings preliminary to rule-making have thus become an important
part of the administrative process in the United States.
But
there is often no right to an oral hearing and there is a wide
exception where the authority finds “for good cause”
“that notice and public procedure thereon are impracticable,
unnecessary or contrary to the public interest.”
[398]
[620] English law,
they observe, appears to have moved in the opposite direction.
Yet in reality the practice counts for more
than the law.
[399]
Consultation with the interests and organisations likely to be
affected by rules and regulations is a firmly established
convention,
so much so that it is unusual to hear complaints. They conclude
that “[i]t may be that consultation which
is not subject to
statutory procedure is more effective than formal hearing, which may
produce legalism and artificiality.”
[400]
[621] Historically
administrative law in South Africa has paid little attention to the
American approach and has in fact been strongly
influenced by
principles of judicial review first developed in England.
Central to these principles was the acceptance of
the notion of the
supremacy of Parliament. Judicial review of subordinate
legislation accordingly based itself on presumptions
as to the intent
of Parliament when it enacted the primary legislation. These
related to substantive matters concerning the
content of the
delegated legislation, a question which will be dealt with later.
They did not touch the procedures to be
followed in the making of
subordinate legislation. Thus there was no principle that
persons who stood to be affected by subordinate
legislation had a
right to be heard.
[401]
Provided the person or body that produced the subordinate legislation
was duly authorised by the primary legislation to do
so, and provided
that any procedural formalities required by the enabling statute had
been complied with, no requirement of public
involvement in the
process would be presumed or required.
[622] By way of
contrast, in our present era the principle that government, and
organs of state, are accountable for their conduct
is an important
principle that bears on the construction of constitutional and
statutory obligations.
[402]
Secret law-making, whether at the level of original or subordinate
legislation is anathema to the notion of constitutional
democracy.
The degree of public involvement may vary. Thus, deliberative
bodies will normally deliberate in public,
while non-deliberative
bodies will find other means of facilitating public involvement.
The new philosophy is illustrated
by numerous provisions in the
Constitution devoted to encouraging public involvement in the
processes of adopting national and
provincial legislation, as well as
municipal laws.
[623] Thus section
57 empowers the National Assembly to:
“make rules and orders concerning its business, with due regard
to representative and participatory democracy, accountability,
transparency and public involvement.”
[403]
Section 59 of the
Constitution goes on to require that:
“(1) The National Assembly must—
(a)
facilitate public involvement in the legislative and other processes
of the Assembly and its committees; and
(b)
conduct its business in an open manner, and hold its sittings, and
those of its committees, in public . . .
(2) The National Assembly may not exclude the public, including the
media, from a sitting of a committee unless it is reasonable
and
justifiable to do so in an open and democratic society.”
The provisions
governing public participation in the National Assembly are mirrored
in the provisions governing the National Council
of Provinces.
[404]
There are similar provisions relating to provincial legislatures and
municipalities.
[405]
[624] Another
provision of the Constitution that embodies the foundational
principle of accountability, responsiveness and openness
is section
32. It states:
“Access to information.—(1) Everyone has the right of
access to—
(a)
any information held by the state; and
(b)
any information that is held by another person and that is required
for the exercise or protection of any rights.
(2) National legislation must be enacted to give effect to this
right, and may provide for reasonable measures to alleviate the
administrative and financial burden on the state.”
[625] The Preamble
to the Promotion of Access to Information Act
[406]
(PAIA) establishes the new approach to the exercise of public power
which has followed the achievement of constitutional democracy:
“Preamble.—RECOGNISING THAT—
* the system of government in South Africa before 27 April 1994,
amongst others, resulted in a secretive and unresponsive culture
in
public and private bodies which often led to an abuse of power and
human rights violations
. . . .
AND IN ORDER TO—
* foster a culture of transparency and accountability in public and
private bodies by giving effect to the right of access to
information;
* actively promote a society in which the people of South Africa have
effective access to information to enable them to more fully
exercise
and protect all of their rights”.
It is also
instructive to refer to the objects of PAIA, which include:
“generally, to promote transparency, accountability and
effective governance of all public and private bodies by, including,
but not limited to, empowering and educating everyone—
(i)
to understand their rights in terms of this Act in order to exercise
their rights in relation to public and private bodies;
(ii)
to understand the functions and operation of public bodies; and
(iii)
to effectively scrutinise, and participate in, decision-making by
public bodies that affects their rights.”
[407]
[626] What all these
provisions, both constitutional and statutory, have in common is a
commitment to accountability, responsiveness
and openness in
government. They presuppose a democracy that is not only
representative but participatory. Indeed the
Constitution
itself was a product of national dialogue, first outside of then
inside Parliament. We have developed a culture
of imbizo,
lekgotla, bosberaad and indaba.
[408]
Hardly a day goes by without the holding of consultations and public
participation involving all stake-holders, role-players
and
interested parties, whether in the public or the private sector.
The principle of consultation and involvement has become
a
distinctive part of our national ethos.
[627] It would be
strange indeed if the principles of participatory democracy and
consultation operated when the chain of public
power began with the
enactment of the original legislation, then vanished at the crucial
stage when the general principles of the
original statute were being
converted into operational standards and procedures, only to
re-surface at the stage of the implementation
of provisions impacting
on specific individuals. The principle at stake at the
intermediate regulation-making process would
relate not so much to
securing fair procedures, as to ensuring openness, responsiveness and
accountability. The need to secure
fairness would, however,
increase in intensity to the degree that the interests of individuals
came directly to be affected.
[628] Because
transparency and responsiveness relate more to the broad character of
the workings of our democracy than to doing
justice to an individual,
all interested parties, not only those whose rights stand to be
adversely affected, are entitled to know
what government is doing,
and as concerned citizens, to have an appropriate say. Indeed,
those whose rights stand to be beneficially
affected by an
ameliorative measure have no less an interest than those who stand to
lose something. The right to speak and
be listened to is part
of the right to be a citizen in the full sense of the word. In
a constitutional democracy dialogue
and the right to have a voice on
public affairs is constitutive of dignity. Indeed, in a society
like ours where the majority
were for centuries denied the right to
influence those who ruled over them, the right “to be present”
when laws are
being made has deep significance.
[629] The problem,
then, is not
whether
the values of accountability,
responsiveness and openness should apply to the adoption of
subordinate legislation, but
how
. In particular, what
does the Constitution looked at as an organic and principled whole,
and not as a patchwork of discrete
injunctive texts, require in terms
of procedures that will meet constitutional standards? How can
one ensure that the processes
are manageable and efficient?
This is an area that cries out for express legislative guidance.
Experience in this country
and abroad, both positive and negative,
needs to be weighed. A decade of constitutional democracy
provides invaluable insight
into the problems involved. Yet the
fact is that such legislation is not there. The proposal by the
South African Law
Reform Commission that it be included in PAJA was
not accepted.
[409]
In the absence of such legislation it will therefore be incumbent on
the courts, oriented by the foundational constitutional
principles of
accountability, responsiveness and openness, and cognisant of the
fact that we are living in a constitutional democracy,
to ensure that
proper procedures are followed when subordinate legislation is being
made.
[630] At this stage
it is neither necessary nor advisable to attempt to lay down specific
rules as to what processes would meet
those standards. As in
the case of procedurally fair administrative action concerning
individuals, much will depend on the
setting in which the subordinate
legislation is being adopted, the nature of the power being
exercised, the purpose of the rules
being made, the people who stand
most directly to be affected and the social and economic context in
which the measure will function.
An appropriate balance will
need to be struck between facilitating meaningful public access to
the process and achieving economic
use of time and resources.
Indeed, it should be borne in mind that endless consultation can be
as paralysing to democratic
decision-making as insufficient
consultation.
[410]
[631] In this
respect section 4 of PAJA offers interesting examples of procedures
which Parliament has already adopted in relation
to decisions
affecting the public. They include the holding of public
enquiries and the use of notice and comment procedures.
[411]
In particular, the enabling statute itself might indicate directly
which procedures should be followed. The forms of
facilitating
an appropriate degree of participation in the law-making process are
indeed capable of infinite variation. What
matters is that at
the end of the day a reasonable opportunity is offered to members of
the public and all interested parties to
know about the issues and to
have an adequate say. What amounts to a reasonable opportunity
will depend on the circumstances
of each case. Prudence allied
to principle indicates that this is an area where the law should
develop in a fact-sensitive
and incremental way.
Constitutional
control of subordinate law-making: the substantive dimension
[632] In the
pre-democratic era, the doctrine of ultra vires
[412]
was used to strike down subordinate legislation that did not meet
certain judicially-established criteria. In the well-known
case
of
Kruse v Johnson
[413]
Lord Russell laid down limited grounds for unreasonableness, as
determined by the courts exercising common law powers of judicial
review, in the context of subordinate legislation adopted by public
representative bodies. After stating that in general
the courts
should not interfere with subordinate legislation as adopted by duly
authorised bodies, he went on to observe:
“. . . I do not mean to say that there may not be cases in
which it would be the duty of the court to condemn byelaws made
under
such authority as these were made as invalid because unreasonable.
But unreasonable in what sense? If, for instance,
they were
found to be partial and unequal in their operation as between
different classes, if they were manifestly unjust, if they
disclosed
bad faith, if they involved such oppressive or gratuitous
interference with the rights of those subject to them as could
find
no justification in the minds of reasonable men, the court might well
say Parliament never intended to give authority to make
such rules,
and they are unreasonable and ultra vires.”
[414]
[633] The principles
of reasonableness were accordingly rooted in presumptions about the
intention of Parliament. Today the
power and the constraint
come not only from the empowering statute, but from the Constitution,
which governs the manner in which
the statute must be applied.
This is not to say that the intentions of the Legislature, as
expressed or implied, fall out
of the picture. On the contrary,
they will provide the point of departure for the enquiry. The
framework for the investigation
will continue to be the objectives
sought to be achieved by the enabling law. What is new, I
believe, is the constitutional
requirement of legality, in this
connection in relation to the substantive character of the measure
concerned. In this context
legality requires compliance not
only with the empowering statute, but with general constraints on the
exercise of public power
flowing from the nature of our
constitutional democracy, in particular the requirement that
government be open, responsive and
accountable.
[634] In my view, if
rationality is required as the minimum for the legality of primary
legislation,
[415]
something more than mere rationality will be needed to ensure the
legality of subordinate legislation. The functionaries
who are
responsible for drafting subordinate legislation are exercising a
public power of great significance, but with no overt
checks and
balances. It is they who are responsible for translating the
general precepts of the statute into operational
standards and
processes. Even if they choose to consult widely and actively,
their ultimate deliberations will ordinarily
take place behind closed
doors. The principles of accountability and responsiveness
require that the procedures for public
involvement they establish in
each case be reasonably related to the material they have to
consider. If challenged, they
should be able to account for the
regulations they have adopted, and to do so in a manner that shows a
reasonable fit between the
requirements of the empowering statute,
the material at their command and the final text.
[635] In more
general terms, they have weighty statutory and constitutional
obligations to fulfil. Writing in the context
of the
constitutional obligations of the providers of rail services to
protect the safety of commuters, O’Regan J in
Metrorail
,
[416]
observed:
“[T]he Court requires the bearer of constitutional obligations
to perform them in a manner which is reasonable. This
standard
strikes an appropriate balance between the need to ensure that
constitutional obligations are met, on the one hand, and
recognition
for the fact that the bearers of those obligations should be given
appropriate leeway to determine the best way to
meet the obligations
in all the circumstances. As this Court reasoned in
Minister
of Health and Others v Treatment Action Campaign and Others (No 2)
[2002] ZACC 15
;
[2002 (5) SA 721
(CC);
2002 (10) BCLR 1033
(CC) at para 38]:
‘Courts are ill-suited to adjudicate upon issues where Court
orders could have multiple social and economic consequences
for the
community. The Constitution contemplates rather a restrained
and focused role for the Courts, namely, to require
the State to take
measures to meet its constitutional obligations and to subject the
reasonableness of these measures to evaluation.’”
[636] I think the
same principles of reasonableness must govern the exercise of powers
to translate the original law into operational
regulations. The
situation is quite different from one where courts arrogate to
themselves the right to declare that Parliament
has not acted
reasonably in adopting a certain piece of legislation. For the
courts to do so would be to make a political
judgment that would be
both institutionally and constitutionally inappropriate. A
court can require that Parliament act rationally,
[417]
follow due manner and form,
[418]
stay within its sphere of law-making competence,
[419]
and does not violate the Bill of Rights
[420]
or any other provisions of the Constitution. The case of
subordinate law-making is different, however. What is in issue
here is not the reasonableness of the original legislation, but the
reasonableness of the manner in which it is being given effect
to.
To say that the drafters must fulfil their functions and craft
regulations in a reasonable way is in this respect a legal
not a
political judgment. To hold the opposite would be to assume
that Parliament and the Constitution would be satisfied
if the
functionaries concerned carried out their mandate in an unreasonable
manner. Indeed, it would be odd if public officials
could be
held to the standard of reasonableness required by section 33 in
their dealings with individual persons, but not be so
held when
drafting rules which stand to affect scores and perhaps millions of
individuals.
[637]
What is required, then, is a reasonable fit between the
enabling law and the subordinate law. For the purposes of the
present
matter it is not necessary to provide precise and exhaustive
details of how the reasonableness of the fit would be tested.
Clearly, the drafters of the regulations must have great leeway in
deciding how best to achieve the objectives of the enabling
law;
policy-making belongs to them, not the courts. Furthermore,
when exercising judicial review the courts will give appropriate
weight to the fact that the Parliamentary system promotes political
accountability and that we live in an open society in which
all are
free to criticise acts of government. Nevertheless, a
constitutional democracy requires more than the right to criticise
the public authorities after the event. All public power must
be exercised in a way that meets constitutional standards.
Accountability is not just a hallmark of good government in a
political sense. It is a requirement of constitutional
government
in a legal sense. Accountability implies that
justification be given where necessary for exercises of public power,
establishing
that they meet constitutional and statutory standards.
[638]
The standard of reasonableness is used as a measure throughout
the Constitution, notably in regard to the fulfilment of positive
obligations to realise social and economic rights,
[421]
and with respect to permissible limitations of protected
rights.
[422]
I see no reason why the standard should not be used as the overall
principle for measuring whether or not subordinate legislation
fits
appropriately with the scheme of its empowering law.
Reasonableness is capable of being determined objectively.
It
is sometimes easier to illustrate in the negative than in the
positive: viewed in the context of its objectives and the situation
in which it is due to be implemented, the terms of subordinate
legislation must not be so wide in their reach or so disproportionate
in their impact as to place them beyond the limits of what a
reasonable law-maker would have considered appropriate.
Proportionality
will always be a significant element of
reasonableness. What the concept of proportionality loses in
terms of predictability,
it more than makes up for by being congruent
with context and responsive to the intensity with which the relevant
constitutional
values are triggered. In my view, the logic of
our new constitutional dispensation requires that the common law’s
one-time
ultra-technical preoccupation with categories and
classifications as the basis for judicial review, now be replaced by
the adoption
of the generalised, principled and flexible standard of
review embodied in the notion of reasonableness.
[639] It needs to be
observed that in the pre-democratic era the distinction drawn between
legislative and adjudicative (quasi-judicial)
acts was all-important
for administrative law. This was because the need to grant an
opportunity for a hearing would only
be accepted by the courts in the
case of adjudicative acts. If the act was classified as
legislative, no right to a hearing
would have been recognised.
The artificiality of the distinction being drawn by the courts was
convincingly criticised by
Milne JA in
South African Roads Board.
He pointed out that he was
“. . . not persuaded that the categorisation of statutory
powers of action or decision into executive (or administrative)
and
legislative should in all cases provide the criterion as to whether
the repository of the power is obliged in exercising it
to observe
the dictates of natural justice. It seems to me rather that a
distinction should be drawn between (a) statutory
powers which, when
exercised, affect equally members of the community at large and (b)
those which, while possibly also having
a general impact, are
calculated to cause particular prejudice to an individual or
particular group of individuals.”
[423]
[640] Today the
situation is quite different. The right to notice and public
involvement arises under the principle of legality
in a
constitutional democracy. It is not restricted to the natural
justice principle embodied in the audi alteram partem
rule. In
this respect labelling an act as either legislative (rule-making) or
adjudicative (rule-application) ceases to be
of vital significance.
The remedy in relation to both is roughly the same.
[641] One may thus
envisage a continuum ranging from pure law-making acts at one end, to
pure administrative (adjudicative) acts
at the other. All will
be subject to constitutional control that is of both a procedural and
a substantive kind. There
will be a difference of emphasis
rather than of kind, to take account of the different constitutional
and public law values implicated
at each end of the spectrum.
Hybrid regulatory systems involving both generality (regulatory
scheme) and specificity (adjudicative
act) could then be comfortably
accommodated at appropriate places along the spectrum. The
precise form of the hearing required
in each case and the manner in
which substantive reasonableness will be determined, will accordingly
depend more on the nature
of the interests at stake in each
particular instance than on the label or labels to be attached.
In this way administrative
law emerges from its constitutional
chrysalis as an integrated body of law. Shed of the remnants of
its one-time fragmented
and particularistic form, it has been
metamorphosed into a comprehensive, principled, operational and
elegant new legal figure.
Application to
the facts of this case
[642] I turn to the
facts of the present case. The fundamental feature governing
the making of regulations by the Pricing
Committee and the Minister
was that the task be accomplished in a manner that was open,
responsive and accountable. These
constitutional considerations
applied whether the steps taken were characterised as legislative or
as representing administrative
action. The more general the
regulations were in effect and the more indefinite in outcome, the
more they fall now to be
reviewed according to the broad principles
of legality in a constitutional democracy. Conversely, the more
specific in their
adverse impact and the more immediate the moment of
their application, the more readily do they come within the
provisions of section
33 and PAJA. It should be stressed,
however, that the fact that the borderline between making subordinate
legislation, on
the one hand, and taking a decision in respect of
administrative action on the other, could have been porous, would not
have been
of special constitutional moment. In the open and
democratic society envisaged by the Constitution, the same broad
expectations
of how government should function must straddle the
conceptual frontier. What matters is not the classification,
but the
character of the power being exercised.
[643] I will deal
first with the general regulatory scheme. The overall scheme
produced by the Pricing Committee and the Minister
affects the public
at large and applies indefinitely into the future. It is
law-making in its fullest sense. Its broad
objective in terms
of the Medicines Act is to introduce transparency into the whole
process of manufacturing, distributing and
selling medicines.
It is also designed to bring prices down to more affordable levels.
The public in general was entitled
to know how the Pricing Committee
planned to conduct its operations, what the essential subject-matter
of its work would be and
how the public could be involved in making
representations to it. These requirements flow not from section
33 and PAJA, but
from the broad principle of legality as expressly
envisaged in various texts of the Constitution and implicit in its
very structure
and design.
[644] Interested
members of the public were also entitled to expect that the
regulations as eventually published would fit reasonably
within the
framework established by the Medicines Act, interpreted in the light
of the Constitution. Not only were they entitled
to have their
say, they could expect that attention would be given to their
representations. At the same time, they would
have had to
accept that however strongly they felt on a particular topic,
ultimately it lay with the Pricing Committee and the
Minister to make
policy choices, provided the options selected fell within the bounds
of what was reasonable. Furthermore,
they would have had to
accept that within the constraints of what was reasonable, the
Pricing Committee and the Minister had a
wide discretion as how best
to realise the objectives of the Act.
[645] These
principles of legality in a constitutional democracy, then, are
applicable to judicial review of the regulatory scheme
as a whole,
including those laying down the need for a single exit price.
They would also include the regulations establishing
the principles
of price control, price increases, benchmarking and publication.
Taken together these and other regulations
establish the overall
normative structure controlling the cost of medicines. At the
stage, however, when the scheme is in
place and detailed
implementation of its rules as they directly affect individuals and
groups happens, the decisions on implementation
could well come to be
subject to the provisions of section 33 and PAJA. This is a
matter that need not be decided now.
[646] Whereas
Chaskalson CJ and Ngcobo J apply section 33 and PAJA to their
analyses of the regulatory scheme as a whole, I follow
the pathway of
legality as understood in a constitutional democracy. Accepting
in broad terms as I do their respective evaluations
of the evidence
before us, but basing myself on the principles of legality rather
than of section 33 and PAJA, I agree that the
overall regulatory
scheme passes constitutional muster, both in terms of the procedures
followed and in respect of the reasonableness
of its outcome.
The fixing of the
dispensing fee
[647] Both their
judgments, as well as that by Moseneke J, dealt separately and in
some detail with the question of the fixing of
an appropriate
dispensing fee. The remaining part of this judgment will be
concerned with that question. In my view
the determination of
the maximum dispensing fee which pharmacists may charge represents a
discrete aspect of the work of the Pricing
Committee and the
Minister. The objective here is not so much to establish a
general normative structure, but to determine
a precise figure for a
particular activity of a directly identified group of persons.
The price tag put on the activity of
the pharmacists affects their
interests materially, adversely and in an immediately operative way.
It follows that the fixing
of the dispensing fee is sufficiently
specific to constitute action of an adjudicative rather than a
law-making kind. As
such, it falls to be reviewed under the
provisions of section 33 and PAJA. This does not, however,
require any dramatic change
to the character of the review. The
effect of invoking section 33 and PAJA is simply to highlight a
twofold and very specific
responsibility on those who have the task
of determining the fee. Firstly, they are required to show
particular concern to
hear the views of those who stand to lose out,
namely, the pharmacists, and secondly they must ensure, that in
relation to the
very specific competing interests at stake, the fee
ultimately arrived at is a reasonable one. The difference is
one of intensity
and degree, not one of kind.
[648] The result of
this analysis is that no less than four constitutional and statutory
considerations require that the fixing
of the dispensing fee be
reasonable: first, to meet the test of legality for subordinate
legislation in general; second, to meet
the specific requirements of
section 33 and PAJA in relation to this particular determination as a
form of administrative action;
third, to comply with the statutory
duty of fixing a fee that is “appropriate”; and, finally
to be part of a “reasonable”
measure to realise the
constitutional right of everyone to access to health care, to which I
will refer later.
[649] It is
unnecessary for me to repeat the facts of this case, which have been
thoroughly analysed by my colleagues. I accept
in broad terms
the evaluations made by Chaskalson CJ and Ngcobo J, focusing as each
does on different features of the way the Pricing
Committee dealt
with the evidence. Section 33 and PAJA necessitated that
special attention be given to eliciting and listening
to the several
voices of the pharmacists. The evidence suggests that although
there were aspects of the process that could
and should have been
better managed, they did not affect the process as a whole in
sufficiently material a manner as to vitiate
it. I accordingly
agree that the procedures followed in determining the dispensing fee
were not constitutionally flawed.
[650] Finally I turn
to the substantive reasonableness of the dispensing fee, which
counsel for New Clicks acknowledged lay at the
heart of the dispute
(“ultimately it was about numbers”). In broad terms
I adopt the evaluations in this respect
made by Chaskalson CJ and
Ngcobo J. I would, however, give more centrality than their
judgments do to certain constitutional
principles. I believe
these principles should be given special weight in determining
whether the Pricing Committee and Minister’s
approach to the
appropriateness of the fee was reasonable.
[651] Thus a major
element informing the reasonableness of the work of the Pricing
Committee was section 27 of the Constitution,
which reads:
“Health care, food, water and social security.—(1)
Everyone has the right to have access to—
(a)
health care services, including reproductive health care;
.
. . .
(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.”
The determination of
the appropriate dispensing fee had accordingly to be evaluated as a
measure undertaken to achieve the realisation
of access to health
care services.
[652] The importance
of this objective cannot be overestimated. Though illness
strikes the rich and the poor alike, its impact
on the poor is
aggravated by harsh living conditions and what is frequently the
extreme difficulty of getting access to health
care and medication.
Hence the duty on the state to take special measures to assist those
who are the most vulnerable to
disease and, simultaneously the most
lacking in resources. The question, however, is not simply
whether the objective of
the regulation is worthy, which it clearly
is, but whether it is reasonable. Put another way, the mere
fact that it serves
a rational purpose in pursuing a legitimate
government aim, would not in itself be enough. It would have to
pass the test
of being reasonable.
[653] What is
reasonable depends very much on the social, economic and historical
context. Considerable discretion must be
accorded to those
entrusted with responsibility for drafting regulations. As
Yacoob J said in
Grootboom
,
[424]
“A court considering reasonableness will not enquire whether
other more desirable or favourable measures could have been
adopted,
or whether public money could have been better spent. The
question would be whether the measures that have been
adopted are
reasonable. It is necessary to recognise that a wide range of
possible measures could be adopted by the State
to meet its
obligations. Many of these would meet the requirement of
reasonableness. Once it is shown that the measures
do so, this
requirement is met.”
[425]
[654] When
reasonableness is considered it becomes particularly important to
ensure that vulnerable sections of the population are
protected.
The discretion of the rule-makers becomes attenuated to the degree
that the fundamental rights of the people who
are most disadvantaged
are affected. In this regard our Court has frequently pointed
to the extremely uneven development
of our country.
[426]
It is a matter of common knowledge that people living in deeply
impoverished rural areas have access to far fewer pharmacies
than
those living in the more affluent areas of the towns. It was
accepted by the Pricing Committee that rural pharmacies
do not have
the turnover of scripts that enable many urban pharmacies to stay
afloat. Similarly, we are informed that courier
pharmacies
which provide a service of special value to those who are vulnerable
through infirmity and have difficulty getting to
the chemist, work on
particularly tight margins.
[655] Thus, though
the principle of ‘one-size-fits-all’ has the great
administrative virtue of being easy to understand
and simple to
apply, it becomes highly problematic where rural and courier
pharmacies are concerned. In a setting where health
needs are
vastly different, the very uniformity that establishes operational
strength becomes the source of constitutional infirmity.
As
Yacoob J pointed out in
Grootboom
:
“Reasonableness must also be understood in the context of the
Bill of Rights as a whole. . . . To be reasonable, measures
cannot
leave out of account the degree and extent of the denial of the right
they endeavour to realise. Those whose needs
are the most
urgent and whose ability to enjoy all rights therefore is most in
peril, must not be ignored by the measures aimed
at achieving
realisation of the right. It may not be sufficient to meet the
test of reasonableness to show that the measures
are capable of
achieving a statistical advance in the realisation of the right.
Furthermore, the Constitution requires that
everyone must be treated
with care and concern. If the measures, though statistically
successful, fail to respond to the needs
of those most desperate,
they may not pass the test.”
[427]
[656] For these
reasons I agree that adoption of the ‘one-size-fits-all’
approach to the dispensing fee in relation
to rural pharmacies and
courier chemists, fails to meet the constitutionally enjoined
standard of reasonableness. Accordingly
I agree that the
regulation is invalid to this extent.
[657] I have more
difficulty in relation to the impact of the measures on the other
pharmacists, more particularly as concerns the
economic viability of
their activities. Here another constitutional right comes into
play. In
Affordable Medicines
[428]
this Court was called upon to consider the impact on the viability of
medical practice of a measure which required doctors to apply
for a
licence to dispense medicines from their approved premises.
This necessitated an evaluation by the Court of section
22 of the
Constitution, which reads:
“22. Freedom of trade, occupation and profession.—Every
citizen has the right to choose their trade, occupation or
profession
freely. The practice of a trade, occupation or profession may
be regulated by law.”
[658] Ngcobo J said
that the inclusion of the above section in the Constitution is not
only because of past discriminatory patterns
which excluded persons
from applying certain trades or taking up certain professions because
of their race or gender. He
pointed out that:
“What is at stake is more than one’s right to earn a
living, important though that is. Freedom to choose a vocation
is intrinsic to the nature of a society based on human dignity as
contemplated by the Constitution. One’s work is part
of
one’s identity and is constitutive of one’s dignity.
Every individual has a right to take up any activity
which he or she
believes himself or herself prepared to undertake as a profession and
to make that activity the very basis of his
or her life. And
there is a relationship between work and the human personality as a
whole. ‘It is a relationship
that shapes and completes
the individual over a lifetime of devoted activity; it is the
foundation of a person’s existence’.
Though economic necessity or cultural barriers may unfortunately
limit the capacity of individuals to exercise such choice, legal
impediments are not to be countenanced unless clearly justified in
terms of the broad public interest. Limitations on the
right to
freely choose a profession are not to be lightly tolerated.”
[429]
[659] It is not
difficult to recognise that standing behind these generalised words
are the familiar figures of the township or
Main Road chemist or the
hospital pharmacist or the white-coated person behind the medicines
counter at the far end of the chain
store. These men and women
are by vocation dedicated people who express themselves through their
work and are publicly identified
by the concern they show in their
relationships with their customers. With their professional
skill and human concern, they
calm anxieties and turn their places of
work into important ports of call for wide sectors of the community.
A responsive
government accordingly takes account of the need not
only to have prices of medicines accessible, but to have outlets for
medicines
that are accessible, staffed by people who are accessible,
in location and in manner.
[660] At the same
time as there is a need to acknowledge the position of the
pharmacists it is necessary, as Ngcobo J pointed out
in
Affordable
Medicines,
to recognise that
“. . . we live in a modern and industrial world of human
interdependence and mutual responsibility. Indeed we are caught
in an inescapable network of mutuality. Provided it is in the
public interest and not arbitrary or capricious, regulation
of
vocational activity for the protection both of the persons involved
in it and of the community at large affected by it, is to
be both
expected and welcomed.”
[430]
Regulation of prices
of medicines is a wholly legitimate form of regulating the
profession. Indeed, preventing excessive profit-taking
from the
manufacturing distribution and sale of medicines is more than an
option for government. It is a constitutional obligation
flowing from its duties under section 27(2).
[661] In this
respect I would tend to agree with Moseneke J that the mere fact that
a government measure could result in service-providers
losing their
competitive edge so as to face being driven out of business, would
not in itself be enough to make a measure legally
inappropriate
(unreasonable). The maintenance of “business as usual”
is not a constitutional principle, and the
concept of reasonableness
should not be used as an apparently neutral instrument which,
regarding the status quo as the settled
norm, serves to block
transformation and freeze challengeable aspects of our public
life.
[431]
[662] Counsel for
the state in fact argued that the pharmacy industry would have to
change its mindset so as to ensure that medicines
would be available
at more affordable prices. These may be policy considerations
of which government has to take account,
and to which a court would
defer. The constitutional dimension will only arise when the
impact of implementing such a policy
is disproportionately severe in
relation to the viability of pharmacies. The extent of the
potential impact in the present
matter becomes highly relevant
because, as this Court has recognised, it is not always possible to
draw a clear line of distinction
between regulation that affects the
practice of a profession on the one hand, and one that affects choice
on the other.
[432]
Where, objectively viewed, the regulation of the practice of a
profession impacts negatively on choice, such regulation must
be
tested under section 36(1), the limitations clause in the Bill of
Rights. As such it must meet, amongst other requirements,
the
standard of reasonableness, of which proportionality analysis is an
important component. This means it will always be
a matter of
context, impact and degree and ultimately, a question of balance and
proportionality to be worked out on the facts
of the case.
[663] The problem in
the present matter is that the evidence concerning potential impact
on the economic sustainability of the pharmacies,
appears to be
inconclusive. The regulations as a whole make for a drastic
(though constitutionally propitious) intervention
by the Ministry of
Health in respect of lowering the price of medicines. The issue
that remains unresolved on the evidence
is whether the dispensing fee
is fixed at a price calculated to drive a disproportionate number of
pharmacists out of business.
[664] This is a new
measure that has caused trauma to members of a legitimate and
respected profession, who play an important social
role in providing
access to health care. It may be unclear whether the distress
of the pharmacists arises from self-induced
and self-serving panic,
or is based on objective fact. Yet the problem is that there is
no base-line or norm from which to
judge the potential impact of the
measure. This is not a case where a system is in place and
government decides on an incremental
shift one way or the other.
The state is in fact embarking upon an important new regulatory
enterprise. I believe that
the principle of accountability
imposes on it a special responsibility in the particular
circumstances to show that it has taken
all reasonable steps to
assess, take account of and justify the potential knock-on effects on
the pharmacy profession of its new
intervention. The more the
risk, the greater the precaution.
[665] In this
respect, when the reasonableness of the measure is put in issue by
evidence that is more than lightweight, an element
of persuasiveness
or justification is required from the Ministry. It needs to go
beyond reliance on placing itself inside
the ordinary parameters
within which a court would habitually give the nod to official
discretion. There are circumstances,
such as in the present
case, where the nature of the matter, including its novelty and the
uncertainty of its potential impact,
requires persuasive evidence to
indicate that the measure falls within the bounds of what is
reasonable. There will be other
more stable and predictable
circumstances where the weighing of different elements should be left
to the administrative body itself,
with the court being obliged on
the facts to adopt a far more deferential posture. In the long
run the Ministry, the profession
and the public will be better served
by calculations that are manifestly reasonable, than by assertions
that might or might not
be true but lack convincing substantiation.
[666] Many years
have been spent by the Ministry on the project. The Pricing
Committee, with well qualified persons in its
ranks, has worked
diligently and expended a great degree of effort in fulfilling its
statutory responsibilities. That in
itself, however, does not
suffice. It is important that the evidence be such as to show
to all those affected and to the
public in general, that the Pricing
Committee has, after diligent enquiry into the basic issues involved
and with a reasonably
high degree of likelihood in relation to the
material before it, “got it right”, or, at the very
least, not got it
wrong.
[667] In the present
case, I am not satisfied that the evidence proves that the impact of
the limit on the dispensing fee will be
such as to drive a
disproportionate number of chemists out of business. Nor,
however, am I convinced that it will not have
that effect.
Because this is a new measure, and because there is a real and not
purely speculative possibility of pharmacists
in large numbers being
rendered insolvent, (and, I should add, because on all the evidence
it is not clear that responsibility
for the high price of medicines
is not being unduly attributed to the retailers rather than to those
higher up in the chain), I
find myself unpersuaded that the Pricing
Committee and the Minister basically did not get it wrong. It
follows that I do
not find the evidence firm enough to support a
finding that the newly introduced dispensing fee meets the test of
being reasonable
(“appropriate”).
MOSENEKE J
Introduction
[668] I have had the benefit of reading the separate judgments of
Chaskalson CJ and Ngcobo J. In part my views diverge from
theirs. In order to identify properly the differences it is
necessary to draw attention to the five broad issues to be decided.
The first collection of issues relates to procedural contentions.
The second issue probes whether the impugned regulations
by the
Minister of Health (the Minister) and the recommendations of the
Pricing Committee constitute administrative action within
the meaning
of the
Promotion of Administrative Justice Act (PAJA
).
[433]
The third set of issues raises the question whether the process of
making the regulations satisfied the procedural fairness
required by
PAJA. The fourth and fifth issues relate to the validity of
regulations, which govern the single exit price and
the appropriate
dispensing fee respectively.
[669] I start with
procedural matters. I am in respectful agreement with the
findings of the Chief Justice in this regard.
In particular, I
agree that the Supreme Court of Appeal (SCA) is entitled to regulate
its procedure and that it was well within
its power in directing that
the objection to its jurisdiction should be heard together with the
merits of the application for leave
to appeal. Nothing
justified the piecemeal hearing the Minister contended for or the
decision not to advance any argument
on the merits before that
court. I have no hesitation in holding that, in the
circumstances of the case, the SCA adopted
the correct procedural
course.
[670] I also cannot
uphold the contention by the Minister and the Pricing Committee that
the decision of the SCA is a nullity and
ought to be set aside by
reason only of the provisions of
section 20(4)
[434]
of the Supreme Court Act 59 of 1959. It will be remembered that
the provisions require that no appeal shall lie to the SCA
except
with leave of the court below, or if refused, of the SCA itself.
For the reasons advanced by the Chief Justice, I
agree that in a
proper case, a court of appeal may hear and decide a case premised on
a constructive refusal of leave to appeal.
However, in the case
before the SCA it was unnecessary to decide the claim of constructive
refusal because the decision of the
High Court refusing leave to
appeal came to hand ahead of the decision of the SCA.
[671] New Clicks,
the Pharmaceutical Society of South Africa (PSSA) and other
respondents (the Pharmacies) took the procedural point,
that because
the Minister had refused to argue the merits before the SCA, she
should be refused leave to do so in this Court.
The Chief
Justice rejects this contention. I agree. The Minister’s
stance before the SCA is open to criticism
but it would not be in the
interest of justice for an issue of such great public moment to be
decided by default and without hearing
the Minister responsible for
making the impugned regulations.
[672] The Chief Justice and Ngcobo J take the view that it is
necessary to decide whether the conduct of the Minister and of the
Pricing Committee is reviewable as administrative action under
section 33 of the Constitution and PAJA. They conclude that
the
recommendations of the Pricing Committee and ministerial
regulation-making are so reviewable. For reasons that I advance
later in the judgment, I find it unnecessary to decide whether the
tenets of administrative justice under the Constitution and
PAJA
apply to ministerial regulation-making. However, for the
purposes of this case I do assume, in favour of the Pharmacies,
that
PAJA does apply to the making of the recommendations and the
regulations under
section 22G
of the
Medicines and Related Substances
Act (the
Medicines Act).
[435]
[673] As did the
Chief Justice and Ngcobo J, I consider the making of regulations
under section 22G(2)(b) one continuous process
involving at different
times the Pricing Committee and the Minister up to the point of
promulgation. The Pharmacies are unhappy
with the deliberations
of the Pricing Committee that led to the making of the regulations.
Having carefully weighed their
contentions, I also find that on the
facts, it cannot be said that the process of making recommendations
and regulations was procedurally
unfair. I think that the
procedure followed in making the regulations does pass muster under
the procedural fairness requirements
of section 4(1) read with
section 3 of PAJA.
[674] I turn to the
regulations governing a single exit price which are under attack on
several grounds. Let me at the outset
observe that it is beyond
debate that the overall legislative scheme which introduces a single
exit price is constitutionally authorised
under section 27(1)(a) and
(2) of the Constitution. I further take the view that except as
qualified in the judgment of Yacoob
J, the regulations on a single
exit price made under the legislative scheme advance access to
quality and affordable medicine for
“everyone” in a
lawful and reasonable manner and without undue oppression to any of
the interested parties. Regrettably,
I have to part ways with
several of the findings of the Chief Justice on the validity or
otherwise of the regulations on the single
exit price. I need
say no more because the differences are admirably canvassed in the
reasoning and outcome proposed in the
judgment of Yacoob J, in which
I concur.
[675] With regard to
the validity of the regulations, which introduced an appropriate
dispensing fee, I have concluded that on the
evidence it has not been
shown that the dispensing fee set by the Minister will render
pharmacies economically unviable.
Nor does the evidence
tendered by the Pharmacies establish the quantum or level of the
dispensing fee at which any class of pharmacy
would be commercially
viable or at which the regulations ought to have fixed the dispensing
fee. At best the evidence on
the commercial impact of the set
dispensing fee on pharmacies, taken as a whole, is inconclusive,
speculative and open to a multitude
of business variables beyond the
proper reach of judicial censure. I hold that the dispensing
fee set by regulations 10,
11 and 12 is appropriate and does pass
muster save as specifically qualified below.
[676] It is so that,
for reasons they advance, the Minister and the Pricing Committee
opted for a uniform dispensing fee for all
pharmacies throughout our
country. However, the facts tend to suggest that marginalised
patients in far-flung rural areas
or consumers of vital and chronic
medicines ordinarily rely on the services of rural pharmacies and
courier pharmacies respectively.
Though obliged to do so, there
is no evidence that the Minister or the Pricing Committee, in
formulating the dispensing fee, have
applied their minds properly or
at all to issues of access and affordability of medicines in relation
to rural and courier pharmacies.
[677] In my view, to
this extent only is the dispensing fee set by regulations 10 and 11
“inappropriate” and invalid.
The remedy indicated
by this finding is that the Pricing Committee and the Minister are
required to apply their minds to the condition
of rural pharmacies
and courier pharmacies and those they ordinarily serve and thereafter
to determine an appropriate dispensing
fee in the light of the
socio-economic constitutional obligations which underpin and inform
the empowering legislation and regulations
made under it.
[678] Lastly, the Minister and the Pricing Committee have conceded
that regulation 13 does not fix an appropriate dispensing fee
for the
selling of Schedule 0 medicines as required by section 22G(2)(c).
The concession is well made. The Minister,
however, sought to
persuade us that the validity of regulation 13 need not be decided as
it has since become moot. I do not
agree. Regulation 13
is conspicuously inconsistent with its empowering provision and falls
to be set aside as invalid in
these proceedings.
[679] I turn now to
furnishing fuller reasons for the conclusions I have reached.
Appropriate
dispensing fee
[680] Shorn of verbiage, the claim of the Pharmacies is that the
prescribed dispensing fee for pharmacies is unlawful and falls
to be
set aside because it will lead to the demise of most pharmacies.
The Cape High Court
[436]
(High Court) dismissed this claim and found the dispensing fee
appropriate within the meaning of the impugned regulations.
However, on appeal the SCA
[437]
upheld the Pharmacies contention and declared the regulations invalid
and of no force or effect. Before this Court, the Minister
urged upon us to reverse the decision of the SCA and to find that the
dispensing fee does pass muster.
[681] The impugned regulations are required to introduce a
transparent pricing system for medicines and Scheduled substances
sold
in this country. The regulations were published by the
Minister in Government Notice R553 of 30 April 2004 acting in terms
of powers conferred on her by section 22G(2)(b)
[438]
of the Medicines Act. In particular, regulations 10, 11, 12 and
13 set the maximum dispensing fees pharmacists and other
health care
professionals may charge a user who is a natural person.
[439]
These operative regulations came into force at the beginning of
August 2004.
[440]
[682] Under
regulation 10 the starting point for the calculation of a dispensing
fee is the single exit price. The first class
of dispensing
fees relates to medicines and Scheduled substances falling into
Schedules 1 and 2 of the Medicines Act and which
are supplied to the
user without a prescription. The dispensing fee must not exceed
16% of the single exit price where the
single exit price is less than
R100 and R16 where the price is equal to or greater than R100.
The second class covers medicines
and Scheduled substances falling
into Schedules 3, 4, 5, 6, 7 and 8 of the Medicines Act and also
falling into Schedules 1 and
2 of the Medicines Act in respect of
which a prescription has been written. The dispensing fee must
not exceed 26% of the
single exit price of the medicine or substance
where the single exit price is less than R100 and R26 where the
single exit price
is equal to or greater than R100.
[683] Regulation 11
makes it clear that where a medicine or Scheduled substance is
dispensed on prescription for a person who has
been admitted as an
inpatient, the fee to be charged shall be calculated as required by
regulation 10 and on the entire quantity
of the medicine or Scheduled
substance on the prescription, even if the medicine or Scheduled
substance is drawn from the stock
of a pharmacy, ward or theatre.
[684] Expectedly,
regulation 12 recognises that medical practitioners, dentists, nurses
or other licensed persons do compound and
dispense medicines.
However, in terms of the regulation, they may not charge a dispensing
fee of more than 16% of the single
exit price where the price of the
medicine is less than R100 and R16 where the price is equal to or
greater than R100.
[685] The final
category of fees may be levied by any person, other than a wholesaler
and distributor, in respect of Schedule 0
medicines.
[441]
In that regard regulation 13 stipulates that the fee shall not exceed
the percentage mark-up in respect of that medicine
or Scheduled
substance that was applied at the date when the regulations took
effect.
[686] It is not
without importance that the dispensing fee scheme brought to life by
regulations 10, 11 and 12 prescribes a compulsory
annual review.
Every year the Minister is obliged to reconsider the appropriate fee
provisions keeping in mind the consumer
price index, the producer
price index and more importantly “the need to ensure the
availability, affordability and quality
of medicines and Scheduled
substances in the Republic.”
[442]
Grounds of attack
against the validity of the dispensing fee
[687]
In submissions before this Court, the Pharmacies
contend that the process of making recommendations by the Pricing
Committee and
regulations by the Minister is administrative action
governed by the review standard of PAJA. In the alternative
they argue
that the regulations are nevertheless vitiated on the
basis that they are unreasonable under the common law read with
section 33
of the Constitution. To demonstrate this broad
submission both sets of respondents have put up separate but related
legal
argument and expert evidence.
[688] There are
three common themes running through the complaints of the
Pharmacies. The first is that the prescribed dispensing
fee
threatens the economic viability of most pharmacies. This
contention in effect raises the substantive issue of the
reasonableness
or otherwise of the fee. It posits the question
whether, on the facts, the maximum dispensing fee set is likely to
lead to
the demise of most pharmacies and in that way undermine the
availability of medicines to the public. The second theme is
that the fee was set without due regard to all the relevant
considerations. Facially this contention questions the manner
in which the quantum of the dispensing fee was reached. Yet in
effect it raises the issue whether in its deliberations the
Minister,
acting on the advice of the Pricing Committee, acted arbitrarily and
capriciously. The third theme is whether on
the papers before
this Court the Minister and the Pricing Committee disclose or account
adequately for how they have arrived at
the quantum of the dispensing
fee.
[689] I start with a
brief account of the contentions specific to New Clicks. Its
primary attack is that the dispensing fee
is not appropriate because
it is not economically viable. The set fee for dispensing would
result ultimately in the demise
of smaller retail pharmacies whilst
larger organisations, such as New Clicks, would not be able to
operate their pharmacies in
a sustainable manner. The viability
argument is advanced in two interrelated and sometimes inseparable
senses. First,
it is contended that the dispensing fee cannot
yield a sustainable return on capital invested in the pharmacies
owned by New Clicks
but instead will yield a return on capital
between 5% and negative 28%, and second, it would lead to an overall
reduction in the
gross profit of New Clicks pharmacies from 28,96% to
14,93%. The compromised gross profit, they say, does not
translate to
a viable or economic return on capital. For this
contention New Clicks relies on the expert evidence of Professor
Kantor,
Mr Jordaan and Dr Theron. I examine the expert evidence
later in this judgment.
[443]
[690] In a further
submission, New Clicks argues that the Pricing Committee failed to
give due consideration to its contentions
on the appropriate profit
margin for the viability of pharmacies. This it says because,
in its submissions to the Pricing
Committee, it made the point that a
gross profit margin of 25% to 26% is a reasonable minimum threshold
for the economic viability
of pharmacies. In its minutes the
Pricing Committee seems to acknowledge the threshold yet it has set a
dispensing fee which,
in the view of New Clicks, falls well short of
the minimum profit margin required for pharmacies to be viable.
[691] New Clicks
argues that the dispensing fee is bad also because there is no
indication that regard has been had to economic
factors that
emphasise different commercial circumstances of pharmacies such as
working capital, finance costs, operating and other
variable costs
and time spent by pharmacies in providing dispensing services.
[692] In the last
instance, New Clicks urges that we find, as the SCA did, that
regulation 13 is invalid because it does not determine
an appropriate
fee for the selling of Schedule 0 medicines as required by section
22G(2)(c)
[444]
of the Medicines Act but rather prescribes a percentage mark-up.
It points to other difficulties including the fact that
the
regulation does not allege that the mark-up is appropriate and
assumes that there is a single and uniform mark-up to be applied
at
the date of commencement of the regulations.
[693] In order to
meet the attack, in this Court, the Minister says the SCA was wrong
in deciding the dispute on the validity of
regulation 13 because it
has become moot. She draws attention to two notices published
in the Government Gazette, which in
effect exclude Schedule 0
medicines from the provisions of sections 18A and 22G of the
Medicines Act and from the regulations for
a period of 3 years.
On the other hand, New Clicks persists that even though regulation 13
has been presently excluded from
operation, it remains part of the
dispensing fee scheme and thus its validity falls for determination
in these proceedings.
It seems to me that we are now seized
with the dispute on whether the validity of the regulation is moot
and if not whether it
has fixed a fee for the sale of Schedule 0
medicines, which is appropriate within the meaning of section 22G.
To this matter
too, I return later in this judgment.
[445]
Main submissions
of PSSA
[694] PSSA
respondents say the prescribed dispensing fee condemns pharmacies to
provide their services at a loss and will force
most pharmacies
ultimately to go out of business. They claim that even if
non-professional front shop sales were taken into
account, most
pharmacies will operate at a loss. They observe that not all
pharmacies have front shops. For instance,
a courier pharmacy
would not have a front shop. In any event, they say, an
appropriate fee is one that allows pharmacists
to remain
professionally viable through the provision of professional services,
quite aside from any front shop activities, in
which they chose to
engage.
[695] Second, the
PSSA submit that the uniform dispensing fee is bad because it does
not differentiate between different categories
of pharmacies.
The Minister and the Pricing Committee omitted to take account of the
different types of pharmacies.
The effect of regulations 10 and
11 is to prescribe a single dispensing fee that applies to all sales
of pharmaceutical products
by retail pharmacies. On this
argument, there are different types of pharmacies stocking a
divergent range of products and
with differing overhead costs, yet
the dispensing fee does not make adequate provision for the
differences amongst, for example,
hospital pharmacies, courier
pharmacies, community pharmacies and other types of pharmacies.
[696] Third, the PSSA say that the dispensing fee will undermine or
reduce access to pharmaceutical products for all citizens,
an outcome
which is at odds with the objectives of the national health policy
and the right to health care envisaged in section
27(1)(a)
[446]
of the Constitution. This contention rests on the viability
concern and is good only if the regulations objectively speaking
are
likely to lead to the demise of most pharmacies.
[697] Fourth, in an
argument which is also predicated on the cogency of the issue of the
viability of pharmacies, the PSSA contend
that regulation 10 which
sets the dispensing fee, unjustifiably limits the right of
pharmacists as a class to “choose a trade,
occupation or
profession” as permitted by section 22
[447]
of the Constitution because pharmacies that are not economically
viable will have the effect of discouraging people from choosing
to
pursue or remain in the profession. They submit further that
regulation 10 “regulates the profession” within
the
meaning of section 22 of the Constitution and constitutes an
arbitrary form of regulation because its unintended consequence
is to
destroy the pharmacy profession.
Submissions of
the Minister and the Pricing Committee
[698] The Minister
and the Pricing Committee urge us to hold that the dispensing fee is
“appropriate” within the meaning
of section 22G and
therefore is lawful. The Minister draws attention to the
purpose of the enabling legislation and the regulations.
She
argues that they promote a legitimate and pressing object of
progressively achieving access to health care services, which
embraces the right of everyone to have access to quality, but
affordable medicines. The Minister asserts that the dispensing
fee she has determined on the recommendation of the Pricing Committee
is an outcome of due and proper consideration of all relevant
factors
by a committee of experts in the field including a proper evaluation
of the operational costs of dispensaries, the viability
of pharmacies
and the circumstances of different classes of pharmacies.
[699] The Minister
contests most vigorously the suggestion that the fee is unreasonable
in the sense that it will lead to the demise
of pharmacies. She
says there is ample evidence of the factors the Pricing Committee
took into account when setting the fees
that should be charged for
dispensing. Attention is drawn to the minutes of the
deliberations of the Pricing Committee and
of its Working Group,
affidavits deposed to by Pricing Committee members, other depositions
filed on behalf of the Minister, proposals
and representations to the
Pricing Committee by stakeholders and the testimony of several
experts put up by the Minister and the
Pricing Committee.
[448]
In her written argument, the Minister analyses the evidence and
thereafter asserts that there is
“ample evidence on record . . . that shows what factors were
taken into account, what weight they were given, that calculations
were made and that the viability of the pharmacy profession was taken
into account by the Committee in the formulation of its
recommendations.”
In effect the
Minister and the Pricing Committee deny that they acted arbitrarily
and contend that the dispensing fee is reasonable
and well-suited to
the objects of the empowering legislation.
SCA on dispensing
fee
[700] Before I turn
to the findings of the SCA on the dispensing fee it is apposite to
record that the SCA had the benefit of argument
on behalf of the
Pharmacies only. Counsel for the Minister declined the repeated
invitations of the SCA to make submissions
on the merits of the
application before that court on the ground that their brief was
limited to contesting the jurisdiction of
the SCA and did not extend
to the case on the merits. The Chief Justice deals with this
matter in greater detail and I respectfully
agree with his
observations. To say the very least the election of the
Minister not to address the merits before the SCA
is open to severe
criticism and borders on outright disrespect for the court.
Moreover, in a proper case such an election
may constitute a bar to a
litigant to raise the same issues on appeal. For reasons of
public interest advanced earlier it
would be inappropriate to exclude
the Minister’s submissions in this Court.
[701] The SCA held that what is an appropriate fee under section 22G
has not been left to the discretion of the Minister but is
an
objective prerequisite that can be tested judicially. Absent
that jurisdictional requirement of “appropriateness”,
the
fee fails at a threshold level and the regulations that prescribe it
would be void for lack of a legal basis. Relying
on the
reasoning of Ngcobo J in
Hoffmann v South African Airways
[449]
on the meaning of the words “appropriate relief” found in
section 38 of the Constitution, the Court construed “appropriate”
to refer to a fee that is not unfair or unjust.
[702]
On the facts the SCA found that the dispensing fee was not
appropriate because
“[e]xcept for a general statement that all factors were taken
into account, there is no evidence or document that shows what
those
factors were, what weight they bore, whether any calculations were
made and, more particularly, whether any regard was given
to the
viability of the dispensing profession”.
[450]
The SCA found that
the evidence tendered by the Minister and the Pricing Committee is
“[b]ereft of an explanation”
[451]
and that the Pricing Committee opted for an inexplicable “deafening
silence”
[452]
and therefore that on a “brief analysis of the evidence”
there was no bona fide dispute of fact.
[453]
The SCA clearly preferred the expert evidence of Dr Stillman and Mr
Jordaan tendered on behalf of the Pharmacies and rejected
the
evidence of the experts of the applicants, Professor McIntyre,
Professor, Mossialos, Dr Thiede, Professor Henry, Professor
Mooney
and Dr Pillay.
[454]
The SCA concluded that on the evidence access to medicine is
seriously threatened because the quantum of fees for dispensing
is
insufficient to cover the cost of dispensing.
[455]
[703] Suffice it to
observe that, before this Court, the Minister and the Pricing
Committee contested most strenuously the correctness
of the
evidentiary finding and conclusion of the SCA. As will appear
more fully later, the Minister also urges that the dispensing
fee set
is not open to judicial review except on the ground of rationality.
The Minister does not concede that the making
of recommendations by
the Pricing Committee followed by ministerial regulation-making is
administrative action reviewable under
PAJA. In supplementary
written argument, she contends that ministerial regulation-making is
not susceptible to the review
standard prescribed by PAJA.
[704] Ineluctably we
are called upon to consider (a) whether the determination of an
“appropriate fee” envisaged by
the legislature in section
22G of the Medicines Act is susceptible to judicial review and if so
whether the regulation-making process
is governed by PAJA; (b)
whether on the facts it has been shown that the dispensing fee is
inappropriate because it will lead to
the demise of most pharmacies;
(c) whether the Minister had proper regard to all considerations
relevant to the determination of
the dispensing fee and (d) whether
there is an adequate account of how the decision on the dispensing
fee was arrived at.
Ahead of these considerations, I sketch the
constitutional and legislative backdrop to the impugned regulations.
Although
not contested, it furnishes an invaluable context.
Constitutional
and legislative background
[705] There is no
dispute amongst the parties, nor can there be, that our Constitution
imposes an obligation on the state to take
reasonable legislative and
other measures, within available resources in order to achieve the
progressive realisation of everyone’s
right to have access to
health care services.
[456]
Properly so, the right of access to health care services embraces the
right to access quality and affordable medicines.
Of course,
the right of access to health care services forms part of a cluster
of justiciable socio-economic rights under our Constitution.
In
Soobramoney v Minister of Health
,
KwaZulu-Natal,
[457]
Chaskalson P restated the context in which socio-economic rights have
to be comprehended:
“Millions of people are living in deplorable conditions and in
great poverty. There is a high level of unemployment,
inadequate social security, and many do not have access to clean
water or to adequate health services. These conditions already
existed when the Constitution was adopted”.
[458]
[706] I venture to add that a little more than a decade has elapsed
since the inception of the obligation of the state to respect,
protect, promote and fulfil socio-economic rights. Much has
been done to reduce deplorable living circumstances spawned on
many
of our people by our blighted past. But I fear that even more
has to be done. The state remains obliged to root
out poverty
and want. It must accelerate reasonable and progressive schemes
to ameliorate vast areas of deprivation afflicting
millions of our
people and in particular inadequate health care.
[459]
The well-earned and lofty thrust of our Constitution is at strenuous
odds with demeaning deprivation. Abject poverty
wrenches
dignity out of any life. Access to affordable medicines is an
important component of any scheme directed at poverty
reduction and
the physical well-being of all our people.
[707] It seems self-evident that there can be no adequate access to
medicines if they are not within one’s means. Prohibitive
pricing of medicine, the SCA correctly found, would in effect equate
to a denial of the right of access to health care. Equally
true
is that the state bears the obligation to everyone to facilitate
equity in the access to essential drugs which in turn affect
the
quality of care. Ordinarily, in the private sector availability
of essential drugs would occur through licensed dispensers.
Pharmacies form an important but not exclusive part of the group of
dispensers of pharmaceutical products. The legislature
correctly recognises the importance of dispensers in making medicines
accessible and to that end provides for their licensing by
virtue of
their respective professions.
[460]
[708] With a view to
meeting its obligation of providing access to health care to
everyone, the state has developed and is implementing
a national drug
policy as part of the National Health Policy. The drug policy
document decries the lack of equity in access
to essential drugs in
the pharmaceutical sector, the rising drug prices, already high in
international terms, evidence of irrational
use of drugs and
ineffective procurement and logistics practices. The goal of
the drug policy is said to be
“to ensure an adequate and reliable supply of safe,
cost-effective drugs of acceptable quality to all citizens of South
Africa and the rational use of drugs by prescribers, dispensers and
consumers”.
[461]
[709] Chapter 4 of
the policy document calls for a new and transparent pricing structure
of medicines in which the retail mark-up
system would give way to a
fixed professional fee and price increases would be regulated.
Rightly so, none of the parties
or experts in the field was heard to
contest the legitimacy of these state policy objectives. In
fact experts on both sides
of the divide attest to the intractable
tension in this country and elsewhere between the quest for
affordable medicines and spiralling
retail prices of essential drugs.
[710] The
Medicines
and Related Substances Control Amendment Act of 1997
[462]
and the
Medicines and Related Substances Amendment Act of 2002
[463]
are in part the sequel to the drug policy. The legislation
introduced a variety of measures, which may be seen as pointed
at the
reduction of prices of essential drugs. Seen collectively the
new measures are intended to exert downward pressure
on the cost of
medicines to the public. The measures include the introduction
of generic substitution;
[464]
a prohibition of bonuses, rebates and other unacceptable incentive
schemes;
[465]
allowing parallel importation of medicines;
[466]
a
ban on sampling of medicines;
[467]
requiring licensing of manufacturers, wholesalers, distributors and
dispensers of medicines.
[468]
In turn,
section 22G
introduces the requirement of a transparent
pricing system stipulating a single exit price for all medicines and
Scheduled substances
sold in the country. It permits the
Minister to make regulations on an appropriate dispensing fee to be
charged by a pharmacist
or by any other licensed dispenser such as a
doctor, dentist or nurse.
[711] In
Mistry v
Interim Medical and Dental Council of South Africa and Others
,
[469]
Sachs J, writing for the Court, also concluded that the purpose of
the Medicines Act
“was not merely to regulate the manner in which Scheduled
substances were made available to the members of the public, but
to
control the quality and supply of medicines generally”.
[470]
Keeping in mind the
constitutional imperative on access to health care for everyone,
section 22G of the Medicines Act is directed
at enhancing in a
transparent manner the accessibility and affordability of quality
medicines to the public at large.
[712]
The Pharmacies say the Pricing Committee thought that their
primary function was to reduce the price of medicines. They
submit
that “the purpose of section 22G is not to reduce the
prices of medicines by statutory price control”. They
concede
that the purpose of the empowering provision is the reduction
of prices but, in their view, it should occur through only
transparency
and “consistency in the determination of medicine
prices”. In that way, they argue, the Minister and the
Pricing
Committee had an ulterior purpose;
[471]
acted for a reason not authorised by the empowering provision;
[472]
took account of irrelevant considerations
[473]
and
acted in a manner that was not rationally connected to the purpose of
the empowering provision.
[474]
What is an
appropriate dispensing fee?
[713] It is so that “appropriate” is not a word of
precise connotation. Yet one must agree that the qualification
“appropriate” must mean, as found by the SCA, a fee
“specially suitable” or “proper” to the
purpose of the statute. Naturally, to be appropriate the fee
must be just and fair to all affected by its determination.
[475]
What is or is not an appropriate fee can be objectively determined by
reference to the purpose of the enabling legislation
and the lawful
boundaries for the exercise of the public power conferred. In
other words the exercise of the power must be
lawful, and properly
related to the governmental purpose pursued.
[476]
[714] It does not
however mean that the term “appropriate” in itself lays
down an absolute or immutable standard.
It is correct that
people well informed of the subject matter, might very well take
different views on what is appropriate.
The ultimate question
must be whether the determination of appropriateness falls within a
range of what may be reasonably regarded
as proper, well-suited and
fair. That determination falls to be made by balancing out the
relevant but often competing factors
and thereafter striking
equilibrium amongst all factors. The competing factors would
include the factual context, the purpose
of the power, the nature of
the measures impugned and its impact on affected parties and on the
public interest.
[715] In the present
matter an appropriate dispensing fee, at the very least, must reflect
a suitable balance between the availability
and affordability of
quality medicines. Availability points to continued supply of
medicines to ensure ready access.
For that purpose dispensers
of medicines are vital. As we have seen earlier, affordability
is an incident of access to essential
drugs. Implicit in the
requirement of affordable medicines is a pricing regime that does not
render medicines out of the
reach of most users and thereby frustrate
access to quality health care.
Is the
determination of an appropriate fee reviewable by the courts?
[716] In this Court,
the Minister contended that the determination of an appropriate
dispensing fee is a matter that the legislature
has left to the
discretion of the Minister acting on recommendation of the Pricing
Committee. She contends that what constitutes
the equilibrium
amongst all relevant factors is left to the Minister to strike.
On this argument the appropriateness of the
fee is not a
jurisdictional fact because it is not capable of a single objective
standard. At most, the Minister argues,
courts are permitted to
determine whether there is a rational basis upon which the dispensing
fee was set in the regulations.
[717] It is now well settled that in our constitutional democracy the
exercise of all public power must occur lawfully and is susceptible
to judicial scrutiny.
[477]
It is so that the enabling statute empowers the Minister to set the
fee on the advice of the Pricing Committee. But
that does not
mean the legislature has left the determination of what is an
appropriate dispensing fee within the subjective discretion
of the
Minister. Clearly, section 22G does not immunise the
regulation-making power of the Minister from judicial scrutiny.
It is trite that a wielder of public power must exercise the power
lawfully. That means the authority must be exercised within
the
bounds set by the empowering legislation, in a rational manner and
within the constraints of the Constitution.
[478]
It must follow that competent courts may enquire into the lawfulness
or otherwise of the determination of an appropriate
dispensing fee by
the Minister under section 22G(2)(b) by virtue of the principle of
legality.
[479]
[718] What then is
the proper standard for judicial review in relation, first to the
recommendations of the Pricing Committee and
second to the
ministerial regulations prescribing the dispensing fee? The
answer clearly lies in whether the deliberations
of the Pricing
Committee, or the ministerial regulation-making or both, constitute
administrative action within the meaning of
section 33 of the
Constitution.
[480]
After much deliberation, the majority judgment in the High Court
concluded that the deliberations of the Pricing Committee
and the
ministerial regulations do not constitute administrative action under
PAJA. The SCA found it unnecessary to decide
whether PAJA is
implicated. It invalidated the regulations on the ground that
they had failed the legality test. In
this Court the Pharmacies
resuscitated their reliance on the administrative justice dictates of
PAJA. In supplementary written
argument, the Minister advanced
the opposite view that neither the recommendation nor the regulations
constitute administrative
action.
[719] In
Bato
Star
[481]
this Court made it clear that:
“There are not two systems of law regulating administrative
action - the common law and the Constitution - but only one system
of
law grounded in the Constitution. The Courts’ power to
review administrative action no longer flows directly from
the common
law but from PAJA and the Constitution itself. The grundnorm of
administrative law is now to be found in the first
place not in the
doctrine of
ultra vires
, nor in the doctrine of parliamentary
sovereignty, nor in the common law itself, but in the principles of
our Constitution.”
(Footnotes omitted.)
In regard to the
applicability of PAJA to a cause of action based on administrative
review, O’Regan J observed that:
“The provisions of s 6 divulge a clear purpose to codify the
grounds of judicial review of administrative action as defined
in
PAJA. The cause of action for the judicial review of
administrative action now ordinarily arises from PAJA, not from the
common law as in the past. And the authority of PAJA to ground
such causes of action rests squarely on the Constitution.
It is
not necessary to consider here causes of action for judicial review
of administrative action that do not fall within the
scope of PAJA.
As PAJA gives effect to s 33 of the Constitution, matters relating to
the interpretation and application of
PAJA will of course be
constitutional matters.”
[482]
(Footnotes omitted.)
[720] In
Bato
Star
this Court applied PAJA. It was, however, common cause
that the decision under review amounted to administrative action.
For that reason the proper scope of the definition of administrative
action in section 1 read with section 6 of PAJA did not concern
us.
[483]
It does concern us now. The parties have locked horns on
whether ministerial regulation-making and recommendation of
the
Pricing Committee are governed by the standard of administrative
justice envisaged in section 33 of the Constitution and PAJA.
[721] Whether or not the exercise of public power constitutes
administrative action under the Constitution is a matter of
considerable
complexity. In
SARFU (3)
this Court
observed that what matters in the enquiry is the nature of power
exercised and not the arm of government wielding the
power.
[484]
It remarked that the mere fact that an executive arm of government
exercises the power does not make the action “administrative”.
It made a distinction between implementation of legislation that
would constitute administrative action and policy making that
would
not. About this distinction the Court elaborated:
“Determining whether an action should be characterised as the
implementation of legislation or the formulation of policy
may be
difficult. It will, as we have said above, depend primarily
upon the nature of the power. A series of considerations
may be
relevant to deciding on which side of the line a particular action
falls. The source of the power, though not necessarily
decisive, is a relevant factor. So, too, is the nature of the
power, its subject-matter, whether it involves the exercise
of a
public duty, and how closely it is related on the one hand to policy
matters, which are not administrative, and on the other
to the
implementation of legislation, which is. While the
subject-matter of a power is not relevant to determine whether
constitutional review is appropriate, it is relevant to determine
whether the exercise of the power constitutes administrative
action
for the purposes of s 33. Difficult boundaries may have to be
drawn in deciding what should and what should not be
characterised as
administrative action for the purposes of s 33. These will need
to be drawn carefully in the light of the
provisions of the
Constitution and the overall constitutional purpose of an efficient,
equitable and ethical public administration.
This can best be
done on a case by case basis.”
[485]
(Footnotes omitted.)
[722] In
Minister of Home Affairs v Eisenberg and Associates: In
re Eisenberg and Associates v Minister of Home Affairs and
Others
[486]
ministerial regulations were impugned also on the ground that they
constituted administrative action within the meaning of section
33 of
the Constitution and the provisions of PAJA. Writing for a
unanimous Court, Chaskalson CJ considered the definition
of
“administrative action” in section 1 of PAJA which refers
to “any decision taken, or a failure to take a decision
in
terms of section 4(1)” and said:
“The definition of ‘decision’ does not refer to the
making of regulations and it is not clear whether this constitutes
administrative action for the purposes of PAJA. Moreover, the
definition of ‘administrative action’ specifically
excludes ‘any decision taken, or a failure to take a decision,
in terms of section 4(1)’. It may be open to doubt,
therefore, whether reliance could be placed on PAJA in the
circumstances of this case.”
[487]
(Footnote omitted.)
In that case the
Court considered it unnecessary to decide whether ministerial
regulation-making is administrative action stating
that it
“raises complex issues including the question whether a
construction of PAJA that excludes the making of regulations from
the
ambit of administrative action would be consistent with the
Constitution.”
[488]
Several legal
writings draw attention to the interpretive minefield surrounding the
definition of administrative action in PAJA
and whether it implicates
ministerial regulations.
[489]
[723] I consider it
neither prudent nor necessary to decide, in this case, the complex
and contested issue of the proper standard
of review of ministerial
law-making. Having disposed of the case on the ground of
legality, the SCA declined to decide the
issue. As was to be
expected, review under PAJA is not one of the grounds on which the
Minister felt aggrieved and approached
this Court. That fact is
borne out by the Minister’s main heads of argument that do not
deal with the level of review
set by PAJA at all. Only in
belated supplementary heads of argument does the Minister seek to
reply to the respondents’
contentions based on PAJA. In
any event, at the hearing, her application for the admission of late
and an additional set
of heads of argument was contested by the
Pharmacies. Moreover, although the Pharmacies do rely on the
standard of administrative
justice envisaged in PAJA they also rely
on alternative grounds of review.
[724] I am well
aware that there may be compelling reasons for holding ministerial
regulation-making reviewable under PAJA.
The difficulty is that
there are at the very least equally persuasive considerations that
ministerial legislation is not administrative
action and does not
fall within PAJA but is controlled and limited by the Constitution
and legislation that confers the power to
the minister concerned.
Perhaps the immaculately reasoned judgment of Sachs J is a telling
example of the depth and intricacy
of the debate on administrative
justice and subordinate law-making. Shortly put, I do not
consider myself to have had the
benefit of full argument on a matter
of much, much importance for the proper development of our
administrative law which hopefully
will pay due regard to prudent
considerations which inform the separation of powers required by our
Constitution.
[725] Given the
conclusion I have arrived at on the facts I need not decide the
issue. I shall, however, assume without deciding
that the
administrative justice standard of lawfulness, reasonableness and
procedural fairness espoused by the Constitution is
given legislative
effect in PAJA
[490]
and that it applies to the recommendation of the Pricing Committee
and to ministerial regulation-making. On this approach,
I am
now called upon to evaluate the conduct of the Minister and the
Pricing Committee, where appropriate, against the review standard
of
reasonableness. The litmus test would be whether the decision
impugned is “so unreasonable that no reasonable person”
[491]
could have arrived at it.
[726] In
Bato
Star
O’Regan J says the following about the review standard
of reasonableness:
[492]
“What will constitute a reasonable decision will depend on the
circumstances of each case, much as what will constitute a
fair
procedure will depend on the circumstances of each case.
Factors relevant to determining whether a decision is reasonable
or
not will include the nature of the decision, the identity and
expertise of the decision-maker, the range of factors relevant
to the
decision, the reasons given for the decision, the nature of the
competing interests involved and the impact of the decision
on the
lives and well-being of those affected. Although the review
functions of the Court now have a substantive as well
as a procedural
ingredient, the distinction between appeals and reviews continues to
be significant. The Court should take
care not to usurp the
functions of administrative agencies. Its task is to ensure
that the decisions taken by administrative
agencies fall within the
bounds of reasonableness as required by the Constitution.”
(Footnotes omitted).
Will the dispensing fee cause the demise of pharmacies?
[727] New Clicks respondents say the dispensing fee will in time lead
to the closing down of most pharmacies. They owe this
conclusion to the expert evidence of Professor Kantor, a university
professor of economics, Mr Jordaan, a pharmacist and economist
and Dr
Theron, a university lecturer in economics.
[728] Professor
Kantor starts his affidavit by recognising that the stated purpose of
the regulations is to ensure availability,
affordability and quality
of medicines. He accepts that South Africa is a mixed economy
in which the market functions subject
to regulatory control by law
consistent with the Constitution; that in principle the regulation of
the sale of pharmaceutical products
is to be expected and that the
regulation should strike a fair balance between access to health care
and viability of services
providing health care. He recognises
that the increase of medical expenses is a global phenomenon as
societies spend increased
proportions of their available income on
medical expenses. However, as a matter of economic principle,
he is opposed to “price
control systems” because in
practice they become “cost plus systems”. He says
that in effect price control
means higher prices because the industry
affected normally negotiates with its regulator for costs levels that
are fed back into
the pricing system at the expense of the consumer.
In his opinion, the government would have done best by securing best
prices
from manufacturers of drugs while leaving distribution to be
regulated efficiently by normal market forces.
[729] Much should
not be made of Professor Kantor’s aversion for “price
control systems” because New Clicks in
whose favour his opinion
was proffered does not agree with Professor Kantor’s
sentiment. Mr Honeysett, on behalf of
New Clicks, says he
“accepts the desirability of and need to regulate medicines
(and particularly the price thereof) in order
to make medicines
affordable to the public”. This view is echoed in the
expert opinion of both sides. Dr Theron,
for New Clicks, and
also the Minister’s expert witnesses, Professor McIntyre and
Professor Mooney hold that for many good
reasons the price of
medicines must be regulated in order to realise access to affordable
medicines.
[730] Professor
McIntyre who is an associate professor of health economics and an
expert in that field refutes the evidence of Professor
Kantor.
She draws attention to the fact that Professor Kantor is an expert in
monetary economics and not in economics of
pharmaceuticals or of the
health sector. She refutes the notion that the market for
health care is highly competitive and
“free” because it
exhibits a wide range of material imperfections. She says
therefore that it would have been
inappropriate to design medicine
pricing regulations without taking into reckoning these market
distortions.
[731] Her affidavit
sets out a catalogue of what she calls “pervasive . . .
imperfections” of the health care market.
I recite only a
few. She testifies that the theory of perfect competition
assumes that consumers have perfect knowledge about
the goods and
services that they consume. However, in the health sector there
is an asymmetry or an imbalance of information
between the health
professional and the patient, or if you will, between the consumer
and the supplier. The patient does
not demand the medicine but
the health professional operates in effect as the agent of the
patient and makes decisions in regard
to the use of medicines.
The phenomenon is known as “supplier induced demand”.
This prescription or pharmacist-initiated
consumption, often relates
to ill health, long-term disability or death. This imperfect
agency relationship translates into
sellers charging high prices
without negatively influencing demand for health care products.
In other words, the market allows
retailers to operate inefficiently
and still survive, something which an open “free” market
would not tolerate.
[732] Another
distortion of the market is the existence of significant barriers to
entry and exit in the market for health care
at the level of entering
pharmacy and other health related professions and at the level of
patenting of pharmaceutical products,
which effectively create a
monopoly and result in high prices of new medicines. Professor
McIntyre also mentions that the
existence of economies of scale in
health care services, particularly in production, tends to create an
oligopoly that translates
into higher prices. She also cites
the existence of risk and uncertainty as the need and demand for
health care is irregular
and unpredictable and tends to lead to high
costs.
[733] Professor
Mooney, a professor of health economics from Perth, Australia and an
expert in the field of health economics, also
rejects Professor
Kantor’s clamour for “free market forces” in the
pharmaceutical sector and makes out a case
for the need for
regulation of the pharmaceutical sector. He makes the point
that in nearly all countries, including South
Africa, the
pharmaceutical market distorts normal supply and demand and does not
allow value for money or efficiency in the sector.
He says a
patient presenting at a pharmacy is not well placed to assess the
reasonableness of the price proposed; she is not in
a good position
to bargain, in part because she needs the medicine and because she
has an unequal power relation with the health
professional.
Both are aware of the imbalance. In an imperfect market,
regulation is indispensable because suppliers
of pharmaceutical goods
might charge higher prices than they would in a competitive market.
In his words either the patient’s
wallet or the patient’s
health suffers.
[734] The SCA also
found the regulations bad because section 22G does not authorise
“statutory price control” of medicines.
Whatever
the precise import of statutory price control it has not been shown
to be ousted by the empowering statute or impermissible
under our
Constitution. Moreover, as we have seen, expert evidence other
than Professor Kantor’s supports an urgent
need for regulation
of essential medicines. I do not agree that by devising a
scheme to make medicines affordable through
regulation 10, which sets
the dispensing fee for pharmacies, the Minister’s conduct is
ulterior, irrelevant or irrational
to the purpose of section 22G(2)
and (3).
[735] The overt and,
might I add, legitimate purpose of the legislation is to increase
access to medicines and Scheduled substances
by, amongst other
measures, exerting downward pressure on their prices. The
legislation seeks to achieve that purpose through
a “pricing
system”. That must mean an organised scheme or method,
which implicates prices of medicines.
The scheme must be
transparent. It must include a single exit price, which shall
be the only price at which manufacturers
shall sell medicines and an
appropriate fee to be charged by retailers, distributors and
wholesalers of medicines. In my
view, the Minister and the
Pricing Committee were not only right but were obliged to consider
and pursue the object of price reduction
of essential medicines in
order to advance greater access to affordable medicines.
[736] Returning to
Professor Kantor’s evidence, he concludes that the prescribed
dispensing fee is inappropriate because pharmacies
require an
adequate return on capital invested “with due regard for the
structures and risk inherent in the market in question”.
The dispensing fee does not allow an adequate return on capital
without which in time pharmacies will decline and close down.
He readily admits that this conclusion is derived from the evidence
of both Dr Theron and Mr Jordaan pertaining to the economics
and
finances of retail pharmacies in South Africa.
[737] The evidence
of Professor Kantor does not quantify what is an adequate return on
capital for pharmacies; it does not say what
the structures of the
industry are; nor what the risk inherent in the pharmacy market is.
He does not give an account of
what gross sales margins would ensure
the survival of the industry nor does he tell us whether he has
critically examined the evidence
of Dr Theron and Mr Jordaan and
which facts or opinion in their evidence fortify his extravagant
conclusion.
[738] Professor
McIntyre agrees that the survival of the retail pharmacy sector is
essential for medicine delivery but denies that
the regulations
threaten the survival of the sector and that the dispensing fee is
inappropriate. She says the regulations
have been designed with
due caution and consideration of financial viability issues. She
notes that Professor Kantor’s
opinion is dependent on that of
Dr Theron and Mr Jordaan but disputes the appropriateness of their
assessment of adequate return
on capital. She says that their
assessment fails to recognise that the dispensing fee is only one
source of income for retail
pharmacies. The Pharmacy Council
recognises other professional services that pharmacists may
legitimately provide as additional
sources of revenue. She says
that their calculation of what is an adequate return on capital is
flawed because it is not
limited to costs related to dispensing
activity.
[739] Professor
McIntyre disputes that there is a causal link between the regulations
and the survival of the pharmacy sector.
She says Mr Jordaan
and Dr Theron ought to have recognised that recent studies in the
sector show that 24% of the community pharmacies
are currently
operating at a loss for reasons unrelated to the regulations.
She says the move from a mark-up on the manufacturer’s
price of
medicine to a professional fee based on pharmacy practice creates an
opportunity for that profession and the rest of the
health care
sector to adjust their business practices and to achieve efficiency
gains that will accrue to the benefit of all South
Africans.
She rejects the assertion that the regulations will not achieve their
objectives of accessibility to affordable
medicines and says if
applied they certainly will.
Expert evidence
of Dr Theron
[740] At the outset,
Dr Theron observes that in the last decade both in South Africa and
elsewhere health care and pharmaceutical
costs have risen sharply and
have driven governments to implement cost containment measures in
various forms. Where health
care is primarily a public
function, as in Australia and the European Union (EU), the state uses
its power to implement cost reduction
in a variety of ways. She
cites examples of EU countries, which have experimented extensively
with price controls including
profit controls.
[493]
She observes that international experience has shown that market
responses alone will be insufficient to bring down costs
of
pharmaceutical products and that some regulation is necessary, even
if it is for a limited period of time. She concludes
that in
determining an appropriate pricing structure regime, regard should be
paid to the specific structure of the health care
market in the
country in question.
[741] Dr Theron
turns to the structure of the pharmaceutical sector in South Africa
and observes that the supply side is characterised
by more than 100
manufacturers in an oligopolistic market. Annual turnover of
pharmaceutical companies is estimated at R10,7
billion.
Manufacturers are said to wield “market power”. In
the private sector medicines are dispensed
through retailers who are
supplied by manufacturers through wholesalers and distributors.
Some products go directly to dispensaries
in hospitals, clinics and
commercial pharmacies. Dr Theron says rationalisation in the
industry may eliminate the traditional
role of full line wholesalers
and that may be detrimental to retail pharmacies in rural and under
serviced areas which the pricing
regulations are designed to protect.
[742]
She points to a significant change on the retailing side of
the market, which is still dominated by a large number of small
retailers.
Corporates are now permitted to enter the market and
this has led to the formation of large pharmacy chains with
significant buying
and distribution power, all of which should augur
well for retail prices.
[743] Dr Theron
concludes that the pharmaceutical sector in South Africa is an
industry in transition from a small-scale expensive
market to a
modern retailing market. She is of the view that although in
the past it was characterised by high costs and
high margins,
increasing competitive pressure has reduced the margins and profit
levels. She says it is accepted that price
regulation is
probably necessary to “achieve a more rapid reduction in
pharmaceutical prices”. She urges that
these developments
should be taken into consideration in designing and implementing a
price regulation framework.
[744]
Dr Theron suggests that in any price regulation environment,
“international convention and practice”
[494]
requires observance of three principles: that the enterprise should
be permitted to make an adequate return on capital; that the
price
regimes should be subject to periodic review; and that price
regulations should reflect the cost structures of the industry.
Dr Theron then tests two of the requirements against what she sees as
the impact of the pricing regulations. She correctly
records
that the regulations in their final form do provide for periodic
review.
[745]
First, she sets a benchmark of an average gross profit of 26%
as representing an economic rate of return for retail pharmacies in
South Africa “based on cost structures”. The source
of or justification for the benchmark is not stated.
Relying on
the calculations by Mr Jordaan, she concludes that “operating
costs” (excluding advertising costs) amount
to 26,19%. She
says the effect of the “[r]egulations will be an overall
reduction in the gross profit percentage to
a level of 14,93%”.
In her view, this clearly does not represent a fair rate of return.
She emphasises that the
potential gross profit margin of 49% earned
by pharmacies in practice is reduced to 25,98% after taking into
account “patient
costs, medical aid costs, discounts,
administration fees and write-offs”.
[746]
Next, Dr Theron discusses her requirement that pricing
regulations must reflect the cost structure of the industry.
She again
stresses that for this exercise the “true retail
margin” of 25,98% should be used as opposed to the perceived
retail
margin of 49%. She explains again that the higher gross
profit of the two is whittled down to 25,98% by “discounts to
medical aids and the like”. Dr Theron again relies on
calculations by Mr Jordaan that “pharmacies achieve a gross
profit margin of 25,98% but bear total direct expenses of 26,19%”.
She continues, “[a]ccordingly, a significant
reduction in the
current gross profit levels will materially affect profit margins.”
Dr Theron concludes, in an unintelligible
statement that, “the
greatest reduction which the industry could bear is a reduction of
the gross profit level from
25,98% to 26% particularly having
regard to the present total direct expenses of 26,19%
”.
(My emphasis.)
[747]
Dr Pillay disputes the opinion evidence of Dr Theron.
The SCA dismissed the evidence of Dr Pillay as having nothing to do
with the issue to be decided.
[495]
I have found no reason to discard his evidence summarily and as
irrelevant. Dr Pillay points out that Dr Theron argues
that a
gross profit of 26% is required to maintain viability. He
denies this assertion. He testifies that he examined
the
financial statements of 176 pharmacies supplied to the National
Department of Health by PSSA through its consultant, Mr Boyce.
He found that there are pharmacies that showed a gross profit of 26%
that are not viable and there are pharmacies achieving a gross
profit
margin of 26% that are viable. Dr Pillay concludes that these
facts tell that there is no relationship between viability
and gross
profit. Gross profit percentage, he argues, is not a predictor
of the viability of retail pharmacy. Dr Pillay
says that in
order to predict whether a retail pharmacy is viable or not one needs
to assess the income and the expenditure of
the dispensary. He
says the pricing regulations affect only the dispensary within the
retail pharmacy. He makes the
point that none of the data put
up by the Pharmacies “addresses the income and expenditure of
the dispensary which is relevant
to the regulations”. He
says putting up information on the income and expenditure of the
entire pharmacy or store is
irrelevant since the pricing regulations
relate only to the dispensary.
[748]
Dr Pillay says he does not agree with Dr Theron’s
reliance on the calculations of Mr Jordaan because there are a number
of
uncertainties with his analysis. He does not however specify
the uncertainties he relies upon. He says it is unclear
how she
arrived at the proposed model of a dispensing fee and that her
conclusion that retail pharmacies will be unviable is speculative.
[749]
Lastly, Dr Pillay makes the interesting point that the
reckoning of 14,93% gross profit may be open to inaccuracies also
because
the calculation would have to predict the single exit price
of manufacturers. At the time of the calculation of the gross
profit of 14,93% single exit prices had not been set. Dr Pillay
says the internal estimates by the National Department of
Health of
gross profit of retail pharmacy would be in the order of 20% and not
as low as Dr Theron suggests.
[750] The opinion
evidence of Dr Theron is useful in many respects. Her treatment
of aspects of comparative international
approaches to rising health
care costs, the structure of the South African pharmaceutical market
and principles of price regulation
is instructive. The same
cannot be said of her discussion of the impact of the pricing
regulations on the adequacy of return
on capital invested in
pharmacies and on the cost structure of the industry. I have
chosen to render her vital conclusions
on adequacy of capital and
costs in her own words and sadly as recorded they make little or no
sense at all. Moreover, the
cogency of her conclusions on
return on capital and operating costs depends on the calculations of
Mr Jordaan.
[751]
First, she sets herself the task of telling why under the
pricing regulations the return on capital is inadequate and therefore
threatening to the viability of retail pharmacy. But she does
not tell us, even once, what is the prudent rate of return on
capital
for retail pharmacies. What she tells us is that a pharmacy
should achieve a gross profit on sales of 26%.
But why?
She does not tell us why that gross margin will achieve an adequate
return on capital and which cost structure must
be maintained to
yield a prudent or fair rate of return. The cardinal error she
makes is that she equates gross profit with
pharmacy viability.
The equation is obviously wrong because it is not a reliable
predictor of viability of retail pharmacy.
[752] Second, Dr
Theron observes, and I agree as a matter of common sense, that the
adequacy of return on capital is a function
of the costs structure of
the industry. It seems plain that the higher the costs of an
enterprise or industry the lower its
return on capital and the lower
the costs the higher is the return. What she tells us, without
pointing to any evidence,
is that pharmacies do achieve a “perceived”
49% gross profit on sales but the gross margin is reduced to a “real”
25,98% by a long list of costs, which she does
not
attribute
to the pricing regulations. Dr Theron is in effect making the
startling statement that for pharmacists to reach
the viable margin
of 26% they must at the outset make a gross profit of 49%.
[753]
Third, Dr Theron says the impact of the pricing regulation is
to reduce the gross profit further to a level of 14,93%. This
figure is derived from Mr Jordaan’s calculations. The
sufficiency of a gross return of 14,93% or of any positive gross
return depends on the ideal rate of return on capital. Dr
Theron does not suggest one. Simply put a gross profit margin
of 14,93% of a dispensary is not a reliable predictor that it will
not be viable. Therefore a reliable and accurate apportionment
of
operating costs to the dispensary within a pharmacy business is
cardinal. Mr Jordaan’s calculations are directed
mainly
at that task.
The evidence of
Mr Jordaan
[754]
Mr Jordaan is an important witness for the case of New
Clicks. It will be remembered that all the other expert
testimony of
New Clicks is predicated on his calculations. The
SCA accepted what it called “a detailed exercise” of
separating
the operating costs of the dispensing business from the
costs of the front shop and that the pricing regulations will cause
an
operating net loss of R5,33 per line item.
[496]
The SCA dismissed the opinion of five experts put up to meet these
calculations on the basis that it was irrelevant or did
not deal with
viability of pharmacies or amounted only to criticism of Mr Jordaan’s
report.
[497]
[755]
Mr Jordaan is a qualified pharmacist and has completed an
auditing diploma in cost accounting and internal auditing. He
is
currently studying for a Masters degree in pharmaceutical
economics. He works for a business group that owns 80
pharmacies
and is about to merge with New Clicks, which has been
licensed to operate and own 57 of the 80 pharmacies. It is
expected
that all 80 pharmacies will be taken over by New Clicks
shortly. Mr Jordaan is head of professional services and his
responsibilities
include managing the health care business,
implementing good pharmacy practices and refining the financial
discipline of the business.
He has access to the central
database of the group.
[756]
He explains that he has undertaken a financial analysis of the
business activities of all 80 pharmacies in order to determine the
impact of the pricing regulations on the business. He says that
an average retail pharmacy business ordinarily has two components.
The back shop dispenses prescriptions and sells medicines and
Scheduled substances over the counter (OTC). The front shop
conducts normal trade including the sales of vitamins and health
products, beauty products and fast moving goods such as toiletries.
The pharmacies may be classified as large, medium and small outlets
and are located over a broad geographical spread. From
raw data
accessible to him Mr Jordaan prepared three tables depicting the
contributions to total sales and to gross profit by the
front shops
and the dispensaries in each of the categories of small, medium and
large. In a fourth table he depicts totals
or averages of the
three earlier tables. He claims that the pattern of averages
found in the fourth table represents a typical
pharmacy in the
sector. From the tables, Mr Jordaan makes the first but
important conclusion that “the OTC and dispensary
portion . . .
contributes 27,9% of the gross profit and sales of 83,29%.”
The difficulty is that the vital figure of
27,9% that represents the
average gross profit contribution by the dispensary does not feature
on any of the four tables.
In any event, what is noteworthy is
that the dispensary businesses seem to make very high sales
contributions but yield very low
gross profits to the businesses as a
whole.
[757]
On a schedule Mr Jordaan sets out monthly operating expenses
of both the front shop and back shop over seven months ending March
2004. The costs are made up of direct costs attributable only
to the back shop business such as pharmacists’ salaries
and
indirect costs, which cover the entire pharmacy business. First
he allocates 100% of direct salary costs of pharmacists
and
assistants to the back shop and 20% of the salary costs of the front
shop staff to the back shop. The rest of the costs,
known as
the indirect costs, are apportioned between the front shop and back
shop on a ratio of 16,71/ 83,29. The ratio is
informed by the
respective contribution to turnover of the two sub-businesses.
An extension of this reasoning is that the
back shop must bear 83,29%
of the monthly operating costs and the front shop must carry 16,71%
of the monthly operating expenses.
This apportionment is used
to determine an average cost per line item. This Mr Jordaan
does by dividing the number (651 966
OTC and dispensary transactions)
of line items sold by the dispensaries in the New Clicks dispensary
businesses during August 2003
to January 2004 into monthly
operational expenses attributable to the back shop in accordance with
the 17/83 apportionment formula.
The result of this
calculation, Mr Jordaan calls an average cost per line.
[758]
The next step in the calculation is an attempt to determine
the impact of the pricing regulations on the gross profit per rand
value
of each of the 651 966 items dispensed by New Clicks pharmacies
over six months. The dispensed items were sorted into three
groups in accordance with the dispensing fee envisaged in pricing
regulations 10(1), 10(2) and 13. However, in order to determine
the impact of the pricing regulations on gross profit per rand value
of each item dispensed, it was necessary to make an assumption
on the
level of the single exit price. Expectedly, Mr Jordaan does so
and in that regard he relies on the industry perception.
He
says:
“By applying the position prior to the introduction of the
pricing regulations, the average cost per line item amounted to
blue
book
[498]
cost less 19.54%. Given that it is the industry perception that
the single exit price to be introduced in accordance with
the
Regulations will amount to a cost of blue book less 20%, it appears
from a financial perspective that the single exit price
will have
little bearing on the cost of the product in our calculation.
Of course, if the single exit price is less than
blue book less 20%,
the adverse effects on the operation of a pharmaceutical enterprise
will be compounded.”
Mr Jordaan says that
he then “notionally” applied the prescribed dispensing
fee on the 651 966 items in their respective
categories and found
that there would be an overall reduction in gross profit percentage
from 28,96% to 14,93%.
[759] Mr Jordaan
makes two further conclusions from his workings. First, using
the apportionment formula of 17/83 he arrives
at a total cost per
line item of R19,20, which after implementing the new pricing regime
under the regulations is reduced to R13,87
per line item. The
result is a net loss per line item of R5,33. Second, he says
the overall effect of the regulations
is to place at risk the
continued viability of the New Clicks pharmacy business. In his
words, the “back-shop transactions
account for the overwhelming
majority of transactions and contribute the greatest portion of the
profit in a pharmaceutical enterprise”.
[760]
The Minister and the Pricing Committee have put up the
affidavits of several experts
[499]
who criticise and contest the reliability and usefulness of the
methodology used by Mr Jordaan and have denied and challenged the
validity of the conclusions on viability of pharmacies. I shall
incorporate their critique where it coincides with mine.
There
are three fundamental difficulties with Mr Jordaan’s reckonings
and conclusions.
[761]
The first relates to the fairness and accuracy of the
apportionment of operating costs between the front shop and the
pharmacy.
He attributes 83% of the costs to the pharmacy and
only 17% to the front shop. But he tells us that the pharmacy
business
generates 83% of turnover but only 27,9% of gross profit of
the combined business. In his final conclusion Mr Jordaan
appears
to contradict this statement when he says that the back shop
contributes “the greatest portion of the profit”.
It appears to me inequitable that the front shop, which generates
nearly 72,1% of the gross profit of the whole enterprise, should
shoulder only 17% of the operating costs while the back shop is
lumbered with a grossly disproportionate burden of costs.
Of
course this disproportionate allocation taints the calculation of the
total cost per line item and the resultant net loss per
line item of
R5,33. It will be remembered that the SCA relied on this net
loss per line item for its conclusion that pharmacies
will not be
viable under the new pricing regime.
[762]
The Chief Justice suggests that the criticism of Mr Jordaan’s
cost apportionment method is unjustified because Mr Jordaan made
a
“patent error” in stating that the pharmacy business
generates 83% of the turnover but only 27,9% of the gross profit
of
the front shop and back shop combined. This may be so.
Yet the apportionment is open to more fundamental criticism,
which is
that it assumes that but for the new dispensing fee the operating
costs of New Clicks are efficient, optimal and representative
of the
industry. Moreover further criticism of his calculations is set
out in the paragraphs to follow.
[763]
The second difficulty arises from the assessment of the impact
of the dispensing fee imposed by the pricing regulations. The
complex but necessary process of determining the single exit price of
each line of medicine or Scheduled substance was yet to be
accomplished. Mr Jordaan chose to hazard an informed guess of
the likely single exit price. He readily admits that
this
indispensable portion of the calculations is based on speculation
fuelled by “industry perception” and his own
“financial
perspective”.
[764]
The next collection of issues relates to the integrity of the
process. Professor Thiede draws attention to the fact that the
raw internal management data used covers only approximately six
months of trading; is unaudited and has not been attached for
external verification. Dr Pillay has deposed to the fact that
before the litigation New Clicks was requested several times
to
disclose data but to no avail. Raising another issue, Professor
Thiede says that a sample of 80 pharmacies is small and
is not
randomly drawn from a totality of pharmacies in South Africa.
It constitutes only 3% of all pharmacies in the country
and cannot be
said to depict the average pharmaceutical enterprise in the country.
[765]
I am satisfied
that the evidence advanced by New Clicks does not establish its
primary line of attack against the regulations, namely
that the
impact of the dispensing fee imposed by the regulations is to
endanger the viability of the retail dispensing business
conducted by
New Clicks.
The expert
testimony of Dr Stillman
[766]
It is convenient to examine the expert evidence advanced on
behalf of PSSA respondents on the viability of retail pharmacies.
Dr Stillman, PhD and applied macroeconomist, explains that the goal
of the financial analysis contained in his report (Lexecon
1) is to
assess the impact that the new regulations are likely to have on the
future economic viability of different segments of
the pharmacy
industry in South Africa. The segments covered by the financial
analysis are courier pharmacies, community or
retail pharmacies,
hospital pharmacies and pharmacies in medical centres. The
basic methodology entails comparing, in each
segment, the operating
profits that a pharmacy has realised in a specified recent past with
the operating profits that the pharmacy
would have realised if the
same medicines had been sold during the same period but under the
dispensing fee imposed by the pricing
regulations. By operating
profit he means gross profit less operating expenses and, in turn,
gross profit equals revenues
less costs of the goods. He
correctly observes that a positive operating profit is not
necessarily enough to keep business
open because it does not always
allow for interest expense and return on capital. In my view,
equally true is that a positive
operating profit alone is
inconclusive, it may be a sign of a viable business or of an
unhealthy business. Dr Stillman is
also right that negative
operating profits are a strong indication that the pharmacy is not
likely to be viable.
[767]
Dr Stillman correctly observes that compensating pharmacists
through a capped dispensing fee signals a drastic change for them.
One must however remember that in its submissions to the Pricing
Committee, the PSSA supported the migration from a mark-up on
the
costs of medicines to a system of professional dispensing fees.
In the past pharmacists bought medicines from wholesalers
and
distributors at a cost specified by manufacturers (blue book) less a
discount and then dispensed the product to the customer
at a mark-up
over cost. The historical mark-up on sales to consumers is
50%. Dr Stillman says in recent years medical
aid schemes have
reduced the pharmacists’ net mark-up to the region of 20%.
Dr Theron and Mr Jordaan set the same net
mark-up at 26%. Be
that as it may, I agree that the predictable impact of the capped
dispensing fee will take two forms.
First, the capped
dispensing fee will reduce the current gross profit margins that
pharmacies realise from selling medicines on
the historical mark-up
basis. Second, the more expensive the medicine sold by a retail
pharmacy the more adverse the impact
of the capped fee on the gross
profit of the pharmacy.
Courier
pharmacies
[768]
Courier pharmacies specialise in the provision of chronic and
repeat prescription medicines. As their name suggests, they
deliver medicines to a customer’s address of choice. They
utilise extensively information technology to manage remote
delivery
from centralised storage and distribution centres. They do not
need retail front shops. Their service includes
managing
prescription cycles for patients to encourage compliance with their
prescriptions; assisting in lodging of medical aid
claims and
advising patients on special requirements like HIV management
programmes and delivery of high costs drugs such as antiretrovirals,
medicines used for renal dialysis and oncology treatment. On
the evidence, mainly three firms namely Medicines Pharmacy,
Medipost
and CMD use this business model. It is suggested that due to
competition amongst the three firms to obtain medical
aid business
and to better community pharmacies, profit margins have become thin.
[769]
Dr Stillman analyses the financial data of the operations of
CMD for April 2004. CMD processed 30 000 prescriptions for
stated
revenues of R10,6 million, realising a gross margin of 17% and
an operating profit margin of 1,1%. The same financial data
for
April 2004 was subjected to the 26%/R26 dispensing fee regime.
By mid May 2004 certain manufacturers had implemented
single exit
prices, which cover about 46% of the prescriptions filled during
April 2004. The dispensing fee’s for the
balance of the
prescriptions was based on actual purchase costs for April 2004 in
lieu of missing single exit prices. This
exercise, Dr Stillman
reports, led to a gross profit margin of 10,8% and an operating
profit margin of negative 5,1%. He
concedes that the analysis
is based on one month’s data and that the majority of single
exit prices were not available and
actual purchase costs were used as
proxies. He concludes that this result reinforces the view that
given the structural challenges
of the courier pharmacy, which
include low margins, high cost products and no front shop, it is
highly unlikely that the courier
pharmacy can remain an economically
viable business.
[770]
It is unclear why the workings of Dr Stillman were limited to
data for one month and why the financial data for the same or other
months of the two older and larger operators in the business of
courier pharmacies was not processed for greater statistical reach
and reliability. It must be remembered that CMD did show a
gross profit margin of 10,8% for the month. Single exit
prices
will eliminate discounts to pharmacies but will also apply downward
pressure on the manufacturers’ prices. The
actual impact
of single exit prices on highly priced medicines remains unknown.
I am not persuaded that the evidence adequately
establishes that the
entire courier segment, on the probabilities, will not be viable
under the regulations.
[771]
That, however, is not the end of the matter. The report
of Dr Stillman raises squarely the structural challenges facing
courier
pharmacies. As a segment of retail pharmacy, courier
pharmacies do not have front shops to absorb pharmacy losses, if
any.
We are told, and it has not been shown otherwise, that
they focus mainly on delivery of high cost medicines to patients who
have
succumbed to chronic ailments. This class of medicines
renders their business disproportionately vulnerable to a pricing
regime that imposes an inflexible cap on the dispensing fee and
reduces their gross profit. The evidence suggests that apart
from the impact of the pricing regulations, their operating margins
are thin. In the rigid cap of R26 on high cost drugs
lurks the
seed of destruction, albeit later, of the courier pharmacy. The
vast expanse of our country and its dotted and
sparse rural and
semi-urban settlements must bring home the value of the service
courier pharmacies render. The real question
is not whether now
courier pharmacies are likely to be viable, but rather whether the
Pricing Committee and ultimately the Minister
brought their minds
properly to bear on these distinguishing features and therefore on
the appropriateness of the uniform dispensing
fee in relation to
courier pharmacies.
[772]
I could find only one reference to courier pharmacies in the
deliberations of the Pricing Committee. A minute of one of its
meetings records a presentation to the Pricing Committee on the
logistics function in the industry followed by a discussion on
courier pharmacies. The Pricing Committee noted that courier
pharmacies fit into the supply chain and are registered as
wholesalers. They concluded that the Pricing Committee’s
recommendations should be based on efficiency and they should
“be
careful of making legislation in order to protect business models
purely on the basis of the levels of risk they involve.”
The Pricing Committee considered but refused to adapt the dispensing
fee cap to the circumstances of courier pharmacies and by
regarding
them as wholesalers, in effect required them to negotiate for a
logistics fee alongside wholesalers under the single
exit price
regime.
[773]
Courier pharmacies occupy an important space in ensuring
access to medicines for a class of principally marginalised
consumers.
They dispense 12% of prescription medicines by
channel and measured by value.
[500]
The Pricing Committee and the Minister took the view that courier
pharmacies do not deserve separate consideration and treatment.
In my view, they misdirected themselves. Their “one size
fits all” solution to dispensing fees courier pharmacies
may
charge, in time, will frustrate access to essential drugs by those
who may be bedridden or cannot readily reach community pharmacies
and
have to endure chronic and often life threatening afflictions.
Arguably they need the medicines most and tend to survive
on
expensive drugs. In my view, the Pricing Committee and the
Minister made irrelevant considerations or failed to pay regard
to
what matters in relation to the legislative objects of access to
quality medicines. The issue is not whether the business
model
of courier pharmacies should be protected but whether the capped
dispensing fee will devastate the access to essential medicines
for
the class of consumers they serve. The dispensing fee cannot be
said to be appropriate for courier pharmacies.
Retail or
community pharmacies
[774] Lexecon Report
1 characterises retail pharmacies as the backbone of the pharmacy
industry in South Africa. Together
they dispense approximately
56% of all prescription medicines to the public. To complete
the picture, hospital pharmacies,
courier pharmacies and dispensing
doctors dispense 19%, 12% and 13% of medicines measured by value,
respectively. The report
makes the point that from a structural
point of view community pharmacies are not quite as vulnerable to the
new regulations on
dispensing fees as courier pharmacies. Dr
Stillman advances two reasons to support the conclusion. The
first is that
the interdependence between the back and front shop
operations dictates a composite evaluation of the impact of the
pricing regulation
on “a total store basis”. The
second reason is that retail pharmacies tend to carry fewer high cost
drugs than
courier pharmacies. The impact of the R26 cap on
gross profit is directly related to the cost of medicines that a
pharmacy
supplies.
[775] Simply put the
owner of a pharmacy will assess the profitability of the front shop
before closing down the dispensary and
in turn she will look at the
viability of the dispensary before closing down the front shop.
Dr Stillman argues that
“the front shop operations of community pharmacies to some
extent act as a buffer that, all else equal, reduce the likelihood
that the new regulations on dispensing fees will force the closure of
community pharmacies.”
Dr Stillman however
warns that the buffer is smaller than casual observers of the
industry may imagine because of competition from
other retailers of
front shop products and the average net profit for community
pharmacies is already low, ranging between 3% and
4% depending on the
size of the pharmacy.
[776] However not
all appreciated the importance of evaluating the impact of the
pricing regulations on a “total store basis”.
On
behalf of the PSSA it was argued that the financial viability of the
dispensary should be evaluated alone and to the exclusion
of the
front shop. For New Clicks Mr Jordaan also tried to evaluate
the profitability of the dispensary separately from the
front shop.
To that end he tried to strip the operating costs of the pharmacy
from the costs of the front shop only ultimately
to lumber the
dispensary with 83% of all costs. On behalf of the Minister and
the Pricing Committee it was also asserted
that the viability of the
financial operations of the dispensary should be assessed alone and
that dispensaries should not subsidise
front shops.
[777] This approach
is correctly criticised by Lexecon Report 2. The better
approach to the viability of the pharmacy enterprise
is to assess the
profitability of the dispensary and front shop pharmacy as one
store. A front shop is optional. Therefore,
one must
accept that a pharmacy owner would not operate a front shop unless it
makes a positive contribution to the total profit
of the store.
A complaint of cross-subsidisation between the two ends of the
enterprise or an exercise to disentangle their
respective financial
performances runs contrary to the reality of the business structure
of a retail pharmacy.
[778] The report
then undertakes an analysis of the impact of the pricing regulations
on the operating profits of New Clicks pharmacies.
It concludes
that under the new dispensing fee “it is likely that most
community pharmacies will be put under severe financial
pressure and
that many will be forced to close.” The conclusion is
derived from the calculations presented by Mr Jordaan.
I have
already set out
[501]
the severe difficulties which are evident in the workings of Mr
Jordaan on the relationship between revenues and gross profit
contributions of the front shop and the back shop, on the inequitable
allocation of operating costs between the two ends of the
business
and on the speculative use of estimates of single exit prices for the
calculations. In my view these bases of calculations
supplied
by Mr Jordaan’s evidence undermine considerably the usefulness
of the impact analysis advanced in Lexecon Report
1. Moreover,
the conclusion that many pharmacies will be forced to close stands in
sharp contrast to Dr Stillman’s
preference for a “total
store basis” evaluation of viability. On the latter
basis, he says, it is unlikely that
pharmacy enterprises will close.
[779] In my view,
the expert testimony advanced in the report on retail or community
pharmacies does not properly show that the
pricing regulations are
inappropriate because they will render “most” or “many”
or “some” community
pharmacies unviable.
Pharmacies in
rural areas
[780] South Africa currently has 2569 registered retail pharmacies.
Of these 350 or 14% are located in rural areas.
There, often
the pharmacist is the important and the only source of health care
advice and a sole dispenser of medicine.
There is, however, a
striking dearth of information on rural retail pharmacies on the
papers. The minutes of the Pricing
Committee identify as “key
points” the principle of not distinguishing between rural and
urban pharmacies and between
branded and generic medicines. One
senses a determination not to permit exceptions that will undermine
the pricing regime.
[781] Dr Zokufa
suggests that the workload of prescriptions in private pharmacies is
too low for viability in the long run.
He provides details of
prescription workload in private sector pharmacies of 40 scripts per
day in 2002, which now reportedly stand
at 70 according to the PSSA.
He compares this with a workload norm of 100 prescriptions per day
per pharmacy in the public
sector. Statistically each community
pharmacy serves, on average, around 3000 people virtually all of whom
are members of
medical aid schemes. He makes the point that
retail pharmacies with a very low workload will face financial
viability constraints.
He provides a table which shows the
number of pharmacies in relation to the population per 100 000 and a
relative oversupply of
private pharmacies in Gauteng, Kwa-Zulu Natal
and Western Cape. The difficulty is that the table does not
tell us much about
private pharmacies in rural areas.
[782] The question is whether the regulations are bad for this
reason. There is no evidence to help evaluate the financial
fate of rural pharmacies. None of the parties before us have
nailed their colours to the mast of pharmacies in rural areas.
There is, however, an eerie stillness on the papers about the
structure, operations and financial well-being of this class of
pharmacies. Put otherwise, one cannot from the papers develop a
sense of the nature of accessibility of medicines through
private
sector pharmacies in rural outskirts. Given the accessibility
purpose of the empowering legislation, the lot of rural
pharmacies
ought to be one of the centrepieces of the regulated dispensing fee.
The very silence on the plight of rural pharmacies
and their
customers in the deliberations of the Pricing Committee and the
Minister speaks loudly of a failure to have regard to
a relevant and
important consideration of access to affordable medicine by often
marginalised rural dwellers. The dispensing
fee cannot be said
to be appropriate in relation to pharmacies serving in rural areas.
Hospital
pharmacies
[783] The Pricing Committee and the Minister are adamant that they
have considered carefully the operating costs and revenues of
private
hospital pharmacies and are satisfied that the regulated dispensing
fee would not lead to their closure. Dr Stillman
disagrees but
concedes that a private hospital is legally compelled to have a
pharmacy on site and that the regulated dispensing
fee would cause a
hospital pharmacy to close “only if the pharmacy losses were so
large that it made economic sense to close
the entire hospital”.
Dr Zokufa makes the point that private hospitals generate significant
profits, particularly from
high cost medicines, through the
contractual relationship with pharmacists on site. They will
now have to ensure adequate
recovery from main line services such as
admission and theatre fees.
Conclusions
[784] I have come to
the conclusion that the pivotal attack on the pricing regulations on
the ground that they are likely to lead
to the closure of most or
many or some pharmacies cannot be upheld. The evidence seen as
a whole does not establish the contention
advanced by the
Pharmacies. At best for the Pharmacies the evidence raises the
ever-present possibility that the new dispensing
fee will exert
downward pressure on the profitability of pharmacies and that some
whose profit margins are already low may be forced
to close.
[785] It is not
surprising that the expert evidence falls short of resolving several
intractable issues associated with the assessment
of the viability of
a business. It is trite that an enterprise must realise an
adequate return on capital. The challenge
is fixing an
appropriate level of return. The evidence does not venture to
fix one. The evidence rightly notes that
an adequate return is
always relative to the market structure and its inherent risks.
The Pharmacies submitted to the Pricing
Committee and in evidence
that a 26% gross profit margin on sales will lead to an adequate
return on capital. But the evidence
does not show that there is
a fixed equation between financial viability and gross profit.
Even if there is such an equation
in one financial period or sector
of the industry, it may not be so in another. Again the
evidence tells us that the reliability
of this prediction depends on
the structure of the market. The variable elements of the
structure are too many to list.
They are canvassed in the
evidence of both sides. These include the chosen business
model, the size and location of the enterprise;
the operating costs
and related efficiency gains of the pharmacy; the prescription
workload, which in turn is conditioned by external
factors such as
the ratio of pharmacies to population and the level of national
expenditure on health care.
[786] The Lexecon
Reports do much to capture, albeit cryptically, the structure and
risks in each category of pharmacy enterprise.
Rightly so the
reports do not pretend to be definitive because it can only flesh out
what may happen on the basis of a static model.
In the dynamic
hustle of adapting to a new pricing regime within the pharmaceutical
sector possibilities, as always, are endless.
That explains why
the Minister is obliged to review the impact of the regulations every
year that the regulations are in force.
The extravagant
conclusion that the regulated dispensing fee will force pharmacies to
go to the wall is in my view premature and
is not adequately
predicted by the evidence. What is more, I do not think the
economic viability of an entire sector in the
economy is as readily
and uniformly predictable as the Pharmacies would have us believe.
[787] Subject to the qualification that will follow in relation to
courier pharmacies and pharmacies located in rural areas, I
take the
view that the dispensing regulations are “appropriate”
within the meaning of section 22G of the Medicines
Act. They
are lawful inasmuch as they are rationally connected to the
admittedly legitimate purpose of rendering medicines
and Scheduled
substances affordable and accessible to the public. Finally,
keeping in mind the reasonableness test articulated
in
Bato Star,
I am unable to find that the decision of the Pricing Committee and of
the Minister is one that no reasonable person could have
arrived at.
[788] The PSSA
sought to persuade us that regulation 10 which sets the dispensing
fee, unjustifiably limits the right of pharmacists
as a class to
“choose their trade, occupation or profession” as
permitted by section 22 of the Constitution because
pharmacies that
are not economically viable will have the effect of discouraging
people from choosing to pursue or remain in the
profession.
They submit further that regulation 10 “regulates the . . .
profession” within the meaning of section
22 of the
Constitution and in an arbitrary manner because its unintended
consequence is to destroy the profession of pharmacy.
This line
of argument may hold water if the evidence shows that the new pricing
regulations threaten the continued existence of
pharmacies. I
have found that it has not been shown that regulation 10 renders
pharmacies unviable. In my view, save
to the extent described
earlier, the pricing regulations are reasonable, lawful and properly
advance the socio-economic goal of
access to affordable medicines set
by the empowering statute and our Constitution. This line of
argument must also fail.
[789] The SCA is quite correct that regulation 13 is ultra vires the
power conferred by section 22G(2)(c) and falls to be set aside
as
invalid. The Minister says the SCA was wrong in deciding the
dispute on the validity of regulation 13 because it has become
moot.
As we saw earlier, two Government Notices exclude Schedule 0
medicines from the provisions of section 18A and 22G of
the Medicines
Act and from the regulations for a period of 3 years. I agree
with the Pharmacies and hold that regulation
13 remains part of the
dispensing fee scheme and its validity is open to determination in
these proceedings.
[790] Finally, I
have found that the dispensing fee is not appropriate for purposes of
courier pharmacies and pharmacies in rural
areas. The Minister,
acting on the recommendation of the Pricing Committee is obliged to
consider afresh the appropriateness
of the dispensing fee set in
relation to both categories.
Remedy
[791] The appeal
must succeed save as stated below. Regulation 13 is unlawful
and must be set aside. No case has been
made out for the
suspension of the declaration of invalidity of regulation 13.
As we have seen, for some time now the application
of regulation 13
has been suspended. The declaration of invalidity must take
immediate effect.
[792] Second, in my
view appropriate relief in relation to regulation 10 should take the
form of an exemption for courier pharmacies
from the operation of the
regulated dispensing fee until the defect is corrected within a
specified period rather declaring invalid
the whole of regulation 10
with the resultant prejudice to the public at large. In its
written argument the Treatment Action
Campaign amicus delineates the
adverse impact of striking down the dispensing regulations without
ordering suspension of invalidity
as an interim holding position.
They advocate an order directing the parties to negotiate an
appropriate fee. The latter
course is not open to us if the
appeal substantially succeeds, as I have found.
Madala, Mokgoro,
Skweyiya and Yacoob JJ concur in the judgment of Moseneke J.
YACOOB J:
[793] I have had the privilege of reading the careful, detailed and
clear judgment by the Chief Justice (the main judgment).
I read
the judgment with considerable admiration and agree gratefully with
most of it.
[502]
There are however three areas concerning the interpretation and
constitutional validity of the regulations in relation to
which I
find myself in disagreement with the main judgment. Hence the
need for this short judgment.
[794] I have also
read the judgment of Moseneke J and agree with all of the reasoning
and its conclusion. I agree with Moseneke
J that it is
unnecessary to decide whether the Promotion of Administrative Justice
Act
[503]
is applicable to the regulations at issue here, and with his
conclusions concerning the appropriateness of the dispensing fee.
It follows that I cannot endorse the reasoning and conclusions in
these respects in the main judgment or in the judgments of Ngcobo
J
and Sachs J which I have read with considerable interest. I
also cannot agree with the judgment of Ngcobo J concerning
the
regulations where its terms are inconsistent with this judgment.
[795] The three
conclusions in the main judgment in relation to which my reasoning
and conclusions differ are:
(a) Regulation 5(2)(c) is void for vagueness.
[504]
(b) Regulation 8(3) is void for vagueness.
[505]
(c) The powers vested in the Director-General by regulations 22 and
23 are invalid.
[506]
Perspectives on
section 22G
[796] It is
appropriate to set out some perspectives on section 22G of the
Act
[507]
before considering each of the issues listed in the previous
paragraph. Section 22G to the extent relevant provides:
“Pricing committee.—(1) The Minister shall appoint, for a
period not exceeding five years, such persons as he or she
may deem
fit to be members of a committee to be known as the pricing
committee.
[Sub-s. (1) substituted by s. 8(a) of Act No. 59 of 2002.]
(2) The Minister may, on the recommendation of the pricing committee,
make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or
by a person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule 0 medicines.
[Para. (c) added by s. 8(b) of Act No. 59 of 2002.]
(3)(a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or
a wholesaler or distributor shall sell a medicine at a price
higher
than the price contemplated in paragraph (a).
[Para. (b) substituted by s. 8(c) of Act No. 59 of 2002.]
(c) Paragraph (b) shall not be construed as preventing a pharmacist
or person licensed in terms of this Act to charge a dispensing
fee as
contemplated in subsection (2)(b).”
[797] The object of
section 22G is to introduce a transparent pricing system. This
is to be done by the Minister of Health
(the Minister) on the
recommendation of the Pricing Committee. The regulations may
provide for an appropriate dispensing
fee,
[508]
and an appropriate fee to be charged by wholesalers and
distributors.
[509]
The Act prescribes several imperatives for the pricing system.
The pricing system that is introduced pursuant to the
section must
include a single exit price that must be published as prescribed.
The only express prohibitions contained in
the section are that a
manufacturer may not sell at a price other than the single exit price
to anyone except the state
[510]
and that no other person in the supply chain may sell at a price
higher than the single exit price.
[511]
A pharmacist licensed to charge a dispensing fee is, by implication,
prohibited from selling medicine at a price higher than
the single
exit price and the dispensing fee combined.
[798] I agree with
the analysis in the main judgment to the effect that the aim of the
section is to provide affordable medicine
and that the section
authorises a measure of price control. However, it must be
emphasised that the section does not oblige
the Minister and the
Pricing Committee to come up with a regime in which the maximum
prices of all medicines and Scheduled substances
are fixed in terms
of a formula which is mathematically calculable. There is
nothing in the section which expressly or by
necessary implication
says that the single exit price must be contained within certain
defined limits.
[799] There would
accordingly have been no problem with the regulations in relation to
the single exit price if they had simply:
(a) allowed the manufacturer to set the price and agree the logistics
fee at all times and in relation to all medicines;
(b) provided that the manufacturer may increase prices only once a
year; and
(c) given the Director-General the power to declare prices to be
unreasonable and publish that declaration in the Government Gazette.
[800] It must have
been understood by all involved in the process that the introduction
of a transparent pricing system that exerted
a downward pressure on
the prices of medicines and Scheduled substances would be a complex
endeavour. All would have realised
that a system of this kind
could be perfected only after a painstaking, careful and sensitive
process and that the reduction of
these prices to acceptable levels
would take time. The ideal of a transparent pricing system that
renders medicines and Scheduled
substances available to all at
affordable prices is as difficult to achieve as it is vital to our
democracy. I regard these
regulations to be the first step in
the development of the pricing system and this is the context in
which I consider the validity
of those regulations about which there
is a regrettable difference.
[801] It was
suggested that there was some incongruity because section 22G does
not refer to an “importer” while the
regulations do.
That omission is, in my view, of no moment. Section 22C makes
it abundantly clear that manufacturers,
wholesalers or distributors
can also “import” medicine provided they have a licence
to do so.
[512]
Importers as a category, although not expressly defined as such, are
those manufacturers, wholesalers or distributors who
are licensed to
import medicine in terms of the Act. It would have been better
if the definition in the regulations said
so but the fact that they
define importer in a different way cannot detract from the
inescapable conclusion as to what the term
means in the Act.
That is the only meaning that can be ascribed to the term.
Regulation
5(2)(c)
[802] I have already
pointed out that section 22G(3)(a) requires the pricing system to
include a single exit price. Most of
the regulations are
concerned with the single exit price and regulation 5(2)(c) is part
of the mechanism by which the single exit
price is set by the
manufacturer or importer for all medicines and Scheduled substances
that were being sold in South Africa as
at the date of the
commencement of the regulations.
[513]
The meaning and effect of regulation 5(2)(c) must be determined in
its context.
[803] The single
exit price is defined in regulation 2 as meaning:
“the price set by the manufacturer or importer of a medicine or
Scheduled substance in terms of these regulations combined
with the
logistics fee and VAT and is the price of the lowest unit of the
medicine or Scheduled substance within a pack multiplied
by the
number of units in the pack”.
[804] Some point was
made about the fact that the word “price” is used twice
in the definition and that the definition
can make sense only if the
word “price” means something different in each of its
uses. I do not see how it matters
if the word “price”
does have a different meaning in each of its uses in the definition
provided that the different
meaning is clear and provided further
that the fact that the word has a different meaning in each of its
uses does not confuse.
The essence of the definition of the
single exit price is that it is “the price set by a
manufacturer or importer of a medicine
or Scheduled substance in
terms of these regulations combined with the logistics fee and VAT”.
The definition adds
that the single exit price “is the price of
the lowest unit . . . within a pack multiplied by the number of units
in the
pack”. This clarifies that it is necessary to
establish a single exit price in respect of the lowest unit and work
from there. In other words the single exit is the price set by
the manufacturer or importer together with the logistics fee
and VAT
in relation to the lowest unit in the pack.
[805] There is nothing vague about this definition. It makes a
distinction between what may be referred to as the core price
which
is “the price set by a manufacturer or importer . . . in terms
of these regulations” on the one hand, and the
single exit
price on the other. The single exit price is the core price
“combined with the logistics fee and VAT”.
The
distinction between the price set in terms of these regulations in
the process of determining the single exit price on the
one hand, and
the single exit price itself which is a combination of the price
initially set, the logistics fee and VAT must not
be lost.
[806]
Regulation 5(1) is consistent with this definition. It
provides for the setting of a price by the manufacturer or importer
and its combination with the logistics fee to arrive at the single
exit price.
[514]
It provides:
“5(1) Upon commencement of these regulations the price of a
medicine or Scheduled substance must be set by the manufacturer,
or
where the medicine or Scheduled substance is imported by a person
other than the manufacturer, the importer of the relevant
medicine or
Scheduled substance, and combined with the logistics fee in order to
arrive at a single exit price for the relevant
medicine or Scheduled
substance.”
[807] Regulation
5(2)(c) must be construed with this distinction in mind. It is
appropriate at this stage to set out the regulation
without the
proviso:
“5(2) The single exit price must be set in accordance with the
following provisions—
. . . .
(c) the price of each medicine or Scheduled substance to be set upon
the date of commencement of these regulations by the manufacturer
or
importer must not be higher—
(i)
in respect of a Scheduled substance that is not a medicine, than the
weighted average net selling price per unit of each Scheduled
substance for the calendar year 2003. . . ;
(ii)
in respect of a medicine, than the weighted average net selling price
of the medicine which must be calculated using the formula:
‘S
divided by the total number of lowest units (eg a tablet) for all of
the packs of the same dosage strength of the medicine
sold in the
year 2003’
Where
S = the total rand value of net sales (being sales less discounts)
for all packs of the same dosage strength of the medicine
sold in the
year. . . .
(Note: Examples of the manner in which the weighted average net
selling price must be calculated are cited in Appendix A of these
regulations.)”
[808] The first
issue to be decided is the meaning of the word “price” in
the introductory words of regulation 5(2)(c).
Does “price”
refer to single exit price or to the core price that is the price set
by the manufacturer or importer
before the logistics fee and VAT are
added? Textually, there is little reason to suppose that the
price to be set in regulation
5(2)(c) is a reference to the single
exit price. Regulation 5(1) requires the manufacturer or
importer to set a price upon
the commencement of the regulations in a
context which makes it quite clear that it is a price set without
reference to a logistics
fee or to VAT. Regulation 5(2)(c),
when speaking about the “price” that is “to be set
upon the date of
commencement of these regulations by the
manufacturer or importer” can be nothing else but a reference
to the “price”
that “must be set by the
manufacturer, or . . . the importer” in terms of regulation
5(1).
[809] It has been
suggested that the fact that Appendix A to the regulations refers to
the calculation of the single exit price
in the process of providing
examples of the way in which certain calculations are to be made, is
sufficient to justify the conclusion
that the price to be set by the
manufacturer or importer in terms of regulation 5(2)(c) is the single
exit price despite the fact
that regulation 5(2)(c) does not use this
phrase. It is therefore necessary to examine the relevant
aspects of regulation
5(2)(c) in order to determine the purpose and
meaning of Appendix A to the regulations.
[810] It is apparent
that regulation 5(2)(c) requires that the price to be set by the
manufacturer or importer not be higher than
the “weighted
average net selling price” of both a Scheduled substance and a
medicine. We also see that, unlike
the position in relation to
Scheduled substances, the “weighted average net selling price”
of medicine in the year
2003 is to be calculated using the formula
provided, which in effect refers to sales less discounts. The
note at the end
of regulation 5(2)(c) expressly states that Appendix
A cites “[e]xamples of the manner in which the weighted average
net
selling price must be calculated”. Consistently with
this Appendix A is headed:
“EXAMPLES OF
THE MANNER IN WHICH THE WEIGHTED AVERAGE NET SELLING PRICE MUST BE
CALCULATED”.
There is a
fundamental difference between the weighted average net selling price
on the one hand and the single exit price on the
other. The
single exit price is the core price plus the logistics fee and VAT.
The weighted average net selling price
during the year 2003 is an
amount that must not be exceeded by the price set at the commencement
of the regulations.
[811] Appendix A
gives two examples. Unfortunately, each example has a
sub-heading beginning with the words “[c]alculation
of single
exit price for . . .” and ends with a conclusion that “the
single exit price” of the medicine has been
determined.
Yet, as has been pointed out, the appendix was concerned with the
determination of the weighted average net selling
price during the
year 2003. There was no single exit price in the year 2003.
The calculation understandably does not
refer to any logistics fee.
I conclude therefore that Appendix A is concerned with providing
examples of the calculation
of the weighted average net selling price
in the year 2003 and not the single exit price of the medicine
concerned. Appendix
A therefore does not provide enough
justification for the conclusion that the word “price” in
the introductory words
of regulation 5(2)(c) is a reference to the
single exit price.
[812] It follows that there is a difference between regulation
5(2)(c) which refers to the core price and not the single exit price,
and those parts of Appendix A which refers to “the”
single exit price. The analysis of regulation 5(2)(c) in
relation to Appendix A shows that the words “single exit”
are wholly inconsistent with the scheme of the regulations
in
relation to the single exit price. I would therefore hold that
the words “single exit” wherever they appear
in Appendix
A must be severed from the appendix so that the appendix reads
“price”.
[813] A related
problem is concerned with the way in which the weighted average net
selling price for sales during 2003 is to be
calculated. Is the
calculation to be based on sales by manufacturers to wholesalers and
retailers, or sales by wholesalers
to pharmacists, or sales by
retailers and practitioners to the general public? I take the
view that the relevant price to
be taken into account in the
determination of the weighted average net selling price is the price
at which the medicine or Scheduled
substance was sold by the
manufacturer or importer. After all, it is the manufacturer or
importer who is required to set
the price in terms of regulations
5(1) and 5(2)(c). The price to be set is exclusive of the
logistics fee and VAT.
The weighted average net selling price
of the wholesaler to the retailer would, in the ordinary course, have
included the wholesaler’s
profit. To provide that the
price set by the manufacturer or importer excluding the logistics fee
or VAT must not exceed
the weighted average net selling price in
sales by wholesalers to retailers would be incongruous. It
would furthermore have
been unreasonable to expect the manufacturer
or importer in setting the price in terms of regulation 5(2)(c), to
make extensive
investigations concerned with the prices at which the
wholesaler had sold to retailers and the discounts that had been
given.
[814] The point was
also taken that there was uncertainty whether the weighted average
net selling price had to be calculated taking
into account sales to
the state or whether all sales to the state had to be ignored for the
purpose of this calculation.
In my view the provision is
sufficiently certain. The single exit price is the price at
which medicine is to be sold to parties
other than the state.
The calculation of the weighted average net selling price must
therefore exclude sales to the state.
It was not necessary for
the regulations to say so in so many words.
The provisos to
regulation 5(2)(c); medicines sold for the first time after 1 January
2004
[815] The main
judgment holds that the proviso to regulation 5(2)(c) which sets out
the way in which the price of medicine that
came to be sold in South
Africa after 1 January 2004 must be calculated is vague. I
suggest that the methodology is clear
enough. The proviso is
set out in identical terms as a qualification of regulations
5(2)(c)(i) and 5(2)(c)(ii) except that
the former refers to a
Scheduled substance and the latter to medicines. It reads as
follows:
“provided that where sales of the Scheduled substance or
medicine
[515]
commenced at the beginning of January 2004 or thereafter, the price
of such substance or . . . medicine
[516]
must be calculated using the average of the total rand value of sales
less the total rand value of the discounts for the period
for which
the Scheduled substance or medicine
[517]
was sold and with reference to the price of that Scheduled substance
or medicine
[518]
in other countries in which the prices of medicines and Scheduled
substances are regulated and published.” (footnotes inserted)
[816] I have already
found that according to the main body of regulations 5(2)(c)(i) and
5(2)(c)(ii) the price of each medicine
or Scheduled substance
(excluding the logistics fee and VAT) to be set upon the date of
commencement of the regulations by the
manufacturer or importer must
not be higher than the weighted average net selling price of that
medicine or Scheduled substance
during the year 2003. The
proviso tells the manufacturer or importer how to calculate the price
(excluding the logistics
fee and VAT) of a medicine or Scheduled
substance not sold in this country during the year 2003. In
other words a medicine
or Scheduled substance that was sold in South
Africa for the first time on or after January 2004. The price
in relation to
these medicines or Scheduled substances could not be
pegged at a level higher than the 2003 weighted average net selling
price.
The regulation therefore provides that the price of a
medicine or Scheduled substance which began to be sold in South
Africa on
1 January 2004 or thereafter
“must be calculated using the average of the total rand value
of sales less the total rand value of discounts for the period
for
which the Scheduled substance or medicine
[519]
was sold and with reference to the price of that Scheduled substance
or medicine
[520]
in other countries in which the prices of medicines and Scheduled
substances are regulated and published.” (footnotes inserted)
[817] The body of
regulations 5(2)(c)(i) and 5(2)(c)(ii) provide a mechanical
calculation for determining the maximum price at which
a medicine
already selling in this country before January 2004 may be sold.
The aim of providing for this level of calculability
is to avoid the
wholesale rise in the prices of medicines or Scheduled substances.
This would have been an obviously unfortunate
negative consequence of
the introduction of a pricing system aimed at lowering the prices of
medicines and Scheduled substances.
[818] The problem in
relation to medicines and Scheduled substances that began to be sold
in this country less than five months
before the regulations came
into effect would have been the unfairness of pegging maximum prices
at the level of introductory prices.
It is generally understood
in the commercial sector that introductory prices in relation to
medicines could be lower even than
their cost as a legitimate
marketing exercise.
[819] The regulators
therefore decided that, in the setting of the price for this limited
category of medicines and Scheduled substances:
(a) the formula set out in regulation 5(2)(c)(ii) would be used as a
starting point in the calculation of the price; and
(b) the setting of the price would further be informed by the price
at which the medicine or Scheduled substances concerned is
sold in
other countries in which the prices of medicines and Scheduled
substances are regulated and published.
[820] I cannot agree
with the main judgment that the proviso, like the body of regulation
5(2)(c), sets an upper limit. I
do not read it in this way.
The body of regulation 5(2)(c) says that the price set by the
manufacturer or importer must not
be higher than the weighted average
net selling price. The proviso, in each case, provides a method
by which the price is
to be calculated.
[821] This method of
setting the price in each of the provisos undoubtedly gives to the
manufacturer or importer wider leeway than
the method by which the
prices are to be set in terms of the body of regulations 5(2)(c)(i)
and 5(2)(c)(ii). The Chief Justice
finds this pricing mechanism
to be vague. I do not agree. My understanding of the way
in which the Minister and the
Pricing Committee approached the single
exit price is that it provided a calculable method for determining
the maximum price at
which medicine that had been selling in the
country for a relatively long time would be sold, to ensure a more
flexible method
of calculation for medicine which began to be sold
here only recently, and to leave it to the manufacturer or importer
to determine
the single exit price in relation to medicine that comes
to be sold here in the future as is implied by regulation 19.
[822] In the nature
of things, prices of commodities are not precisely calculable.
It is true that, in relation to medicine
that came to be sold in this
country after January 2004, the manufacturer or importer have more
scope to determine the single exit
price than they had in relation to
medicines and Scheduled substances sold in South Africa before
January 2004. It may also
be that in relation to this latter
category the manufacturer or importer is not permitted to go beyond
the highest price at which
the medicine is sold in any other
country. I need not however decide this point. The
manufacturer or importer of a
medicine to be registered for sale
after the coming into operation of the regulations could
theoretically set a price even higher
than the highest price at which
that medicine is sold in any other country. But all pricing by
the manufacturer or importer
is subject to international
benchmarking.
Regulation 8 is
not vague
[823] The main judgment holds that regulations 5(2)(a), 5(2)(b), 7
and 8 are contradictory and regulation 8 is void for being vague.
I do not agree. It is undoubtedly the duty of drafters of
regulations to ensure that they are not difficult to interpret
and
that they are clearly set out. Some difficulty and lack of
clarity however does not excuse us from the obligation to
try to make
sense of them.
[824] The major
concerns in the main judgment arise out of the provisions of
regulations 5(2)(a), 5(2)(b), 7 and 8. I set
these out below.
Regulations 5(2)(a)
and 5(2)(b) provide:
“(2) The single exit price must be set in accordance with the
following provisions—
(a)
for a period of one year after commencement of these regulations the
single exit price shall not be increased;
(b)
subject to sub-regulation 5(2)(a) the single exit price may be
increased in terms of regulation 8 of these regulations. . .
.”
Regulation 7 reads:
“7. Subject to the provisions of regulations 5, 8 and 9, the
single exit price of a medicine or Scheduled substance may only
be
increased once a year.”
Regulation 8
provides:
“8(1) The extent to which the single exit price of a medicine
or Scheduled substance may be increased will be determined
annually
by the Minister, after consultation with the Pricing Committee, by
notice in the Gazette with regard to—
(a)
the average CPI for the preceding year;
(b)
the average PPI for the preceding year;
(c)
changes in the rates of foreign exchange and purchasing power parity;
(d)
international pricing information relating to medicines and Scheduled
substances;
(e)
comments received from interested persons in terms of regulation
8(2); and
(f)
the need to ensure the availability, affordability and quality of
medicines and Scheduled substances in the Republic.
(2) Not less than three months before making a determination in terms
of regulation 8(1), the Minister must publish a notice in
the Gazette
declaring his or her intention to make that determination and
inviting interested persons to furnish him or her in
writing with any
comments thereon or any representations they may wish to make in
regard thereto.
(3) Subject to the provisions of regulation 8(1), a manufacturer or
importer may no more than once a quarter increase the single
exit
price of a medicine or Scheduled substance within a year provided
that—
(i)
such increase does not exceed the single exit price of the medicine
or Scheduled substance as first published in respect of
that year;
(ii)
the increase in the single exit price is applied to all sales of the
medicine or Scheduled substance and not to selected categories
of
purchasers;
(iii)
the manufacturer or importer notifies the Director-General of the
increase in the single exit price at least 48 hours prior
to the
implementation of such increase;
(iv)
the single exit price may not be increased as contemplated in terms
of this regulation 8(3) within the period of six months
beginning
from the date of commencement of these regulations.”
[825] Regulation 7
is central to the regulations which define the regime for the
increase of the single exit price. It permits
the increase of
the single exit price of a medicine or Scheduled substance once a
year and provides further that the increases
in terms of regulation 7
may not take place more than once a year. It seems clear that
any increase in the single exit price
must be published. This
follows from the definition of the single exit price. The word
“year” is defined
as “the period of 12 months
beginning on 02 May”. Every single exit price can
therefore be increased in terms
of regulation 7 only once during the
period 2 May of one year until 1 May of the next year.
[826] Regulation 7
is however subject to regulations 5, 8 and 9. The qualification
in regulation 5(2)(a) is to the effect
that the single exit price set
at the commencement of the regulations cannot be increased for a
period of one year after it has
been set. The price would have
been set as at 2 May 2004 which is the date of commencement of the
regulations. In the
absence of the qualification rendering
regulation 7 subject to regulation 5(2)(a), the manufacturer or
importer would have had
the right to increase the single exit price
during the first year of the operation of the regulations. The
object of the
qualification is to prevent this. Regulation
5(2)(a) therefore qualifies regulation 7 to the extent that there can
be no
regulation 7 increase in the first year.
[827] Regulation
5(2)(b) is to the effect that subject to the provisions of regulation
5(2)(a), the single exit price may be increased
in terms of
regulation 8. Both regulations 5(2)(a) and 5(2)(b) read
together make it plain that there may be no regulation
7 annual
increase in the first year of the single exit price but that a
regulation 8 increase is nevertheless permissible.
[828] But regulation
7 is also subject to regulation 8. In broad terms, regulation 8
allows a manufacturer or importer to
increase the single exit price
once a quarter provided, amongst other things, that the increased
price does not exceed the maximum
price determined by the Minister in
terms of regulation 8(1). There is, on the face of it, a
contradiction between regulations
7 and 8. Regulation 7 allows
an unqualified right to increase the single exit price, but only once
a year. Regulation
8(3) allows an increase once a quarter
provided that the increase does not result in a price higher than
that determined by the
Minister.
[829] I am driven to
the conclusion that the regulations provide for two increase
mechanisms: an increase by the manufacturer or
importer in terms of
regulation 7 once during every year after the expiry of the first
year of their coming into operation, whether
or not there has been a
ministerial determination of the maximum increase to be permitted in
terms of regulation 8(1); and single
exit price increases that
manufacturers or importers may make once a quarter of each year in
terms of regulation 8(3) provided
amongst other things that these
increases do not take the single exit price beyond the upper limit
determined by the Minister.
[830] The affidavit
of Professor McIntyre confirms on behalf of the Pricing Committee
that regulation 7 allows a manufacturer or
importer to increase the
single exit price once every year. In relation to regulation
8(3), however, Professor McIntyre’s
evidence is to the effect
that increases once a quarter were contemplated by the regulations to
cater for price fluctuations and
that manufacturers or importers who
had decreased prices to below the single exit price established for
that year could thereafter
increase the single exit price once a
quarter up to the maximum established for that year. This is
consistent with what I
have found. The affidavit by Professor
McIntyre omits to mention that the quarterly increases are
permissible only if there
is a regulation 8(1) ministerial notice and
only if they do not take the increase beyond that permissible in
terms of that notice.
A manufacturer or importer who has
decreased or kept a single exit price below that permissible by
reason of the increase allowed
in terms of regulation 8(1) may
increase the single exit price every quarter provided that the
increase allowed in terms of regulation
8(1) is not exceeded. A
manufacturer or importer who had increased the single exit price to a
level beyond that permissible
in terms of the subsequently published
regulation 8(1) notice cannot make any regulation 8(3) quarterly
increase.
[831] The other
conditions set in regulation 8 for the increase are also
instructive. The minority in the High Court found
regulation
8(3)(i) to be incomprehensible. It provides that the increase
of the single exit price allowed by regulation 8(3)
must not exceed
“the single exit price of the medicine or Scheduled substance
as first published in respect of that year”.
The
reference to the single exit price first published in respect of any
year must be a reference to an increase that was published
by a
manufacturer or importer before the Minister made any determination
in terms of regulation 8(1). It will have been noted
that the
Minister is not obliged to make any determination of the maximum
allowable increase before 2 May of a particular year.
Nor is
there a provision that prohibits manufacturers or importers from
making an increase before any determination by the Minister
or
otherwise than in terms of that determination.
[832] I accordingly
interpret regulations 7 and 8 as follows:
(a) The manufacturer or importer have the right to increase the
single exit price once a year during each year (as defined) after
2
May 2005.
(b) This right exists whether or not the Minister has made a
determination before 2 May 2005.
(c) The Minister may make a determination as to the maximum allowable
increase annually. There is no provision as to precisely
when
the determination must be made.
(d) A manufacturer or importer who makes an increase before the
determination by the Minister is not bound by any limit.
(e) A manufacturer or importer who has not made any increase before
the determination of the maximum by the Minister can, after
the
determination, make and publish an increase provided that the
conditions in regulations 8(3)(ii) and 8(3)(iii) are fulfilled.
[833] The position
of the manufacturer or importer who has made and published an
increase in terms of regulation 7 before any determination
by the
Minister in terms of regulation 8(1) is in effect determined by
regulation 8(3)(i) to which reference has just been made.
The
increase permitted to a person in this category must not exceed “the
single exit price . . . as first published in respect
of that year”.
I have already said that a manufacturer or importer who increases the
price in terms of regulation 7
will be obliged to publish the
increase in the price. In the circumstances, the only plausible
meaning to be ascribed to
regulation 8(3)(i) is that the increase
must not exceed the increase in the single exit price of a medicine
or Scheduled substance
as first published by the manufacturer or
importer in respect of that year in terms of regulation 7.
[834] I am of the
view that the regime is subtle and creative. A manufacturer or
importer may increase the single exit price
once a year. If,
however, it transpires that the Minister’s determined maximum
is higher than the increased price published
before the
determination, the manufacturer or importer takes the risk.
They cannot increase the single exit price beyond
the increase they
first published without waiting for the Minister’s publication.
[835] One more point
must be made in relation to the price increase regime. There
was a suggestion that regulation 8(3)(iv)
adds to the confusion and
contradiction created by the section. The regulation prohibits
a regulation 8(3) increase within
a period of six months from the
date of commencement of the regulations. Regulation 5(2)(a), on
the other hand, prohibits
an increase for a period of one year after
the commencement of the regulations. It must be remembered that
the regulation
8(3) increase is permissible only if there is a
regulation 8(1) determination. Regulation 8(3)(iv) simply means
that even
if there is a ministerial determination in terms of
regulation 8(1) no manufacturer or importer may make a regulation
8(3) increase
in the first six months of the operation of the
provisions. Regulation 5(2)(a) prohibits an increase for a year
after the
commencement of these regulations absent a regulation 8(1)
determination. Once there is a regulation 8(1) determination,
however, a regulation 8(3) increase is permissible upon the expiry of
six months of the date of commencement of the regulations.
[836] The regulations concerning the single exit price are complex
but understandable. They do mean that the manufacturer
or
importer of a medicine might sell at a price higher than that allowed
by the ministerial determination and that the manufacturer
or
importer of another medicine might be obliged to limit increases to
the maximum determined by the Minister. This consequence
is in
my view of no moment. It does not detract from the Act which
requires a single exit price in relation to each substance.
Manufacturers or importers can choose whether they wish to pre-empt
the ministerial determination and face the consequence that
their
price turns out to be lower than that determined by the Minister, or
wait for the Minister’s determination only to
find that they
would have increased the price to an amount beyond the maximum
allowed by the ministerial determination.
Regulations 22
and 23 comply with the Constitution
[837] Finally, the main judgment holds that the provisions of
regulations 22 and 23 are not sanctioned by section 22G of the Act
and are therefore invalid. Again, regrettably, I cannot agree.
Regulations 22 and 23 provide:
“22.(1) The Director-General may determine that the single exit
price of a medicine or Scheduled substance is unreasonable
and
communicate to the relevant manufacturer, importer, wholesaler or
distributor, in a manner which he or she deems appropriate,
such
determination together with the basis upon which the determination
has been made.
(2) With regard to the determination contemplated in regulation
22(1), the Director-General must consult with the relevant
member of
the supply chain and consider any representations made by that member
concerning the reasonableness of the single exit
price.
(3) Where the Director-General is not convinced, after the
consultation and representations contemplated in regulation 22(2),
that the single exit price is reasonable, he or she may publish a
notice in the Gazette to the effect that in the opinion of the
Director-General, the single exit price is unreasonable and must
state the reasons for such opinion.
23. In determining whether the price of a medicine or Scheduled
substance is unreasonable as contemplated in regulation 22, the
Director-General must have regard to—
(1) the single exit price at which the medicine or Scheduled
substance is being sold in the relevant market;
(2) the single exit prices at which other medicines or Scheduled
substances in the same therapeutic class are being sold in the
relevant market;
(3) the prices at which the medicine or Scheduled substance and other
medicines or Scheduled substances in the same therapeutic
class are
being sold in countries other than the Republic;
(4) changes in the CPI, the PPI and the relevant rates of foreign
exchange;
(5) purchasing power parity with reference to the Republic and any
other country in which the medicine or Scheduled substance is
sold;
(6) the relative availability within the Republic of medicines or
Scheduled substances in the same therapeutic class as the medicine
or
Scheduled substance and the safety and efficacy of the medicine or
Scheduled substance relative to other medicines or Scheduled
substances in the same therapeutic class;
(7) the nature of any indication in respect of which the medicine or
Scheduled substance has been registered in the Republic;
(8) the size of the market for the medicine or Scheduled substance in
the Republic relative to that in other countries;
(9) any relevant information provided by the Council for Medical
Schemes established in terms of the
Medical Schemes Act, 1998
(Act No
131 of 1998);
(10) the size of the obstacle, represented by the single exit price,
to access to the medicine or Scheduled substance relative
to the
public interest in having widespread and general access to the
medicine or Scheduled substance;
(11) such other factors which in the view of the Director-General are
relevant to the pricing, or the costs of manufacture or sale,
of the
medicine or Scheduled substance.”
[838] The
regulations have nothing to do with the subjective views of the
Director-General. A prerequisite for the coming
into operation
of
regulations 22
and
23
is a determination by the Director-General
that the single exit price of a medicine or Scheduled substance is
unreasonable.
This is an objective determination subject to
judicial control and must be made with due regard to the factors
listed in
regulation 23.
[839] The next stage
in the process is that the Director-General communicate that
determination to the manufacturer, importer, wholesaler
or
distributor.
[521]
The Director-General is thereafter obliged to consult with “the
relevant member of the supply chain” and consider
any
representations made concerning the reasonableness of the single exit
price. If the Director-General is not convinced
by the
representations made that the single exit price is reasonable, there
may be a publication in the Government Gazette to the
effect that the
single exit price is unreasonable. The Director-General is
obliged to give the reasons for this opinion.
[840]
Regulations 22
and
23
read together represent, in my view, a creative and
imaginative approach to the way in which downward pressure may be
exerted on
the price of medicines and Scheduled substances. I
have already said that an important object of
section 22G
is to
render medicine affordable. The process of doing so is complex
to say the least. The publication of a notice
in the Government
Gazette to the effect that the single exit price is unreasonably high
constitutes a limited sanction. It
could result in the
reduction of the sale of the medicine and it is this real possibility
that the manufacturer, importer or wholesaler
would take into account
in determining the single exit price, in making increases and in
considering whether or not to make an
increase before the ministerial
maximum is published in terms of
regulation 8(1).
[841] Reference has
been made to the fact that the single exit price cannot be
unreasonable if it complies with
regulations 5
and
19
, and in
particular, conforms with international benchmarks. This is
undoubtedly so. The single exit price can be said
to be
unreasonably high only if it is palpably higher than the price
allowed by the other regulations.
[842] Section 22G of the Act contemplates a pricing system with the
object of ensuring a downward pressure on the price of any
medicine
or Scheduled substance. Regulations 22 and 23 are consistent
with this objective and sanctioned by the Act.
Madala, Mokgoro,
Moseneke and Skweyiya JJ concur in the judgment of Yacoob J.
LANGA DCJ:
[843] I have had the
privilege of reading the separate judgments in this matter prepared
by Chaskalson CJ, Moseneke J, Ngcobo J,
Sachs J and Yacoob J, as well
as the judgment of the Court. I agree with the order made in
the judgment of the Court. Save
in the respects indicated below, I
concur in the judgments of Chaskalson CJ and Ngcobo J.
[844] One of the
issues to be resolved in this case concerns the applicability of the
Promotion of Administrative Justice Act, 3
of 2000 (PAJA). Both
the Chief Justice and Ngcobo J hold that PAJA applies to the power to
make the relevant regulations
in terms of the Medicines and Related
Substances Act, 101 of 1965 (the Medicines Act). Although the
Chief Justice holds that
in general PAJA applies to
regulation-making, I prefer to confine my agreement to the narrow
question as framed by Ngcobo J in
paragraph 422 of the judgment.
Subject to this qualification, I am in respectful agreement with
paragraphs 23 to 263 and
278 to 410 in the judgment of Chaskalson CJ
and am also in substantial agreement with the judgment of Ngcobo J.
[845] I agree with
the reasoning and findings of both the Chief Justice and Ngcobo J
that the dispensing fees set by the regulations
are not “appropriate”
as envisaged by section 22G of the Medicines Act.
[846] For the
reasons given by Yacoob J, with whom I agree on this aspect, I am
unable to agree with both the Chief Justice and
Ngcobo J that
regulation 5(2)(c) is void for vagueness. I also agree with
Yacoob J’s conclusion that the objection
to regulations 22 and
23 should be dismissed.
O’REGAN J:
[847] I have had the
opportunity of reading the judgments prepared in this matter by
Chaskalson CJ, Moseneke J, Ngcobo J, Sachs
J and Yacoob J. I
concur, in large part, with Chaskalson CJ’s judgment, in
particular with paragraphs 23-181; paragraphs
183-264; paragraphs
278-416 and paragraph 420.
[848] I have only
three differences which I wish to record: first, in my view, no sharp
line can be drawn between the requirements
of procedural fairness and
reasonableness when it comes to assessing the failure by a
decision-making body to consider representations
made to it.
[522]
In my view, such a failure raises issues of both process and
substance. To the extent, therefore, that members of the
pricing committee failed to consider properly, or at all, the oral
representations made at the hearings during April 2004, it
constituted a procedural flaw as well as a flaw going to substance.
I concur with Chaskalson CJ that the dispensing fees set
by the
regulations are not appropriate and should therefore be set aside.
To the extent that the proceedings of the pricing
committee were not
fair in that they failed to take into account the representations
made by the Pharmacies in respect of the dispensing
fee, no other or
further relief would have been granted to the applicants in this case
in this respect and nothing further therefore
turns on it. I
also endorse the reasoning of Ngcobo J in this respect at paragraphs
567 – 574 of his judgment.
[849] Secondly, I
agree that regulation 5(2)(c) is void for vagueness, but my reasons
for doing so coincide with those given by
Ngcobo J at paragraphs
487-491 of his judgment, rather than those given by Chaskalson CJ.
Thirdly, I agree for the reasons
given by Yacoob J that the challenge
to regulations 22 and 23 should fail.
[523]
[850] I wish to add
that although Ngcobo J decides the question of the applicability of
the
Promotion of Administrative Justice Act, 3 of 2000
, on a narrower
basis than Chaskalson CJ, much of the reasoning he employs in doing
so seems equally applicable to me to the wider
question and I support
it. I also support much of the reasoning he provides in
concluding that the dispensing fees set in
the regulations are not
“appropriate” within the contemplation of section 22G of
the Medicines Act.
VAN DER WESTHUIZEN
J:
[851] I have read
the detailed and thoroughly reasoned judgments prepared in this
matter by my colleagues. For the sake of
clarity, I very
briefly state my position on some of the issues dealt with in their
judgments.
[852] I agree with
the conclusion of Ngcobo J that the Promotion of Administrative
Justice Act, 3 of 2000 (PAJA) applies to the
power to make
regulations conferred by section 22G(2)(a)-(c) of the Medicines and
Related Substances Act 101 of 1965 (the Medicines
Act). Much of
the reasoning of Ngcobo J may be equally valid as to the wider
question regarding the applicability of PAJA
to regulation-making in
general. In this regard I also find the reasoning of Chaskalson
CJ persuasive. However, like
Ngcobo J, I wish to refrain from
answering the wider question. I do not regard it as necessary
to do so in this case.
[853] On the
validity of the regulations I agree with Yacoob J, for the reasons
advanced in his judgment. I am therefore specifically
of the
view that regulations 5(2)(c) and 8(3) are not void for vagueness and
that regulations 22 and 23 are valid. I reach
this conclusion
even though I do not find the regulations easy to understand and
interpret.
[854] I agree with
the conclusion reached by Chaskalson CJ and Ngcobo J that the
dispensing fees set in the regulations are not
“appropriate”
within the contemplation of section 22G of the Medicines Act, and
with much of the reasoning advanced
in their judgments. Amongst
the factors leading me to this conclusion are the unsatisfactory
explanations offered on behalf
of the Pricing Committee on the
relationship between the dispensary and the front shop of community
pharmacies and on the question
whether compounding and admixing are
included in the dispensing fee, as well as the apparent failure to
consider the oral representations
of April 2004, pointed out in the
judgments of Chaskalson CJ and Ngcobo J. I am not necessarily
persuaded by the Pharmacies
that the regulations would result in the
demise of a significant number of pharmacies. However, as
pointed out by Ngcobo
J, the failure by the Pricing Committee to
explain how it arrived at the figures it adopted made it impossible
to determine whether
the Pricing Committee has properly applied its
mind to the viability of pharmacies. I agree with Moseneke J
that the Minister
and the Pricing Committee misdirected themselves in
taking the view that courier pharmacies do not deserve separate
consideration
and treatment. I also agree that the dispensing
fee cannot be said to be appropriate in relation to pharmacies in
rural areas.
I am unable to hold that the regulations regarding
the dispensing fee are otherwise valid. The incorrect “one
size
fits all” approach, viewed together with the other
troublesome aspects of the Minister and the Pricing Committee’s
case on the dispensing fee, has to result in the conclusion that the
fee cannot be regarded as “appropriate”.
For the
applicants:
MTK Moerane SC, P Coppin and B Vally, instructed by the State
Attorney
For the First
Respondent:
JJ Gauntlett SC and AE Bham, instructed by Sonnenberg Hoffman
Galombik
For the Second to
Eighth Respondents: W Trengove SC, A Cockrell and M
Du Plessis, instructed by Webber Wentzel
Bowens
For the First Amicus
Curiae:
DI Berger SC, F Ismail and A Hassim, instructed by AIDS Law Project
[1]
The Medicines and Related Substances Control Act, 101 of 1965.
The short title of the Act is now the
Medicines and Related
Substances Act, 1965
. We shall refer to it as “the
Medicines Act” throughout.
[2]
See in this regard the remarks of Kriegler AJA in
Administrator,
Cape v Raats Röntgen and Vermeulen (Pty) Ltd
[1991] ZASCA 126
;
1992 (1) SA
245
(A) at 254B-E, and Sachs J in
Mistry v Interim Medical and
Dental Council of South Africa and Others
1998 (4) SA 1127
(CC)
at paras 17-20
[1998] ZACC 10
; ;
1998 (7) BCLR 880
(CC) at paras 10-13.
[3]
Medicines and Related Substances Control Amendment Act, 90 of 1997
.
[4]
Sections 27(1)(a) and 27(2) of the Constitution.
[5]
The Medicines Act regulates both medicines and other Scheduled
substances. In this judgment, when we refer to medicines,
we
are also referring to other Scheduled substances.
[6]
Subsequent to the passing of the amending legislation of 1997, but
before it was brought into force, the legislature passed a
new piece
of legislation, the South African Medicines and Medical Devices
Regulatory Authority Act, 132 of 1998, which repealed
all but a few
provisions of the Medicines Act. This new legislation was
promulgated on 11 December 1998 and was to come
into force on a date
to be determined by the President. Proclamation R49 of 1999
purported to bring the legislation into
force on 30 April 1999, but
that proclamation was set aside. See
Pharmaceutical
Manufacturers Association of South Africa and Another: In re Ex
parte President of the Republic of South Africa
and Others
[2000] ZACC 1
;
2000
(2) SA 674
(CC);
2000 (3) BCLR 241
(CC) at paras 1-4. The
legislation was thus never brought into force and was repealed by
the
Medicines and Related Substances Amendment Act, 59 of 2002
.
[7]
By Proclamation R23 of 28 March 2003 published in Government Gazette
No 24627.
[8]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Minister
of Health and Others
2005 (2) SA 530
(C).
[9]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Minister
of Health and Another
2005 (3) SA 231 (C).
[10]
Pharmaceutical Society of South Africa v Tshabalala-Msimang and
Another NNO; New Clicks South Africa (Pty) Ltd v Minister of Health
and Another
2005 (3) SA 238 (SCA); 2005 (6) BCLR 576 (SCA).
[11]
The Court granted applications by the Treatment Action Campaign and
Innovative Medicines South Africa to present argument as
amici
curiae. The Treatment Action Campaign provided both written
and oral submissions, while Innovative Medicines South
Africa
provided only written submissions, and did not seek leave to address
the Court orally.
[12]
Full details of the arguments appear in the judgment of Chaskalson
CJ below at paras 59-82.
[13]
See paras 76-77 of the judgment of Chaskalson CJ.
[14]
See paras 52-58 of the judgment of Chaskalson CJ.
[15]
See paras 83-84 of the judgment of Chaskalson CJ.
[16]
Chaskalson CJ, Langa DCJ, Ngcobo, O’Regan and Van der
Westhuizen JJ. The reasoning of Chaskalson CJ and Ngcobo J
differs in that Chaskalson CJ holds that PAJA applies to the making
of all regulations, whereas Ngcobo J decides the matter narrowly
in
respect of the powers in issue in this case, and leaves the question
whether PAJA applies to all regulation-making open.
[17]
Sachs J who holds that the general regulatory scheme is governed by
the principles of legality.
[18]
Moseneke, Madala, Mokgoro, Skweyiya and Yacoob JJ. See the
reasoning in the judgment of Moseneke J at para 671.
[19]
See the judgments of Chaskalson CJ (at paras 208-210); Moseneke J
(at para 727-734).
[20]
Chaskalson CJ, Langa DCJ, Ngcobo, O’Regan, Sachs and Van der
Westhuizen JJ. The reasoning of Chaskalson CJ and Ngcobo
J is
slightly different, but they both reach the same conclusion.
[21]
Moseneke, Madala, Mokgoro, Skweyiya and Yacoob JJ. See the
reasoning in the judgment of Moseneke J at paras 779-781, and
at
paras 767-772.
[22]
See para 263 of the main judgment by Chaskalson CJ.
[23]
Langa DCJ, Moseneke, Yacoob, Madala, Mokgoro, Sachs, Skweyiya and
Van der Westhuizen JJ. The reasons appear from the judgment
of
Yacoob J at paras 804-811.
[24]
Chaskalson CJ holds
regulation 5(2)(c)
which refers to Appendix A to
be void for vagueness. See para 277 of the judgment of
Chaskalson CJ. Ngcobo J (with
whom O’Regan J concurs)
also holds the regulation to be void for vagueness, though for
somewhat different reasons.
[25]
See para 281 of the main judgment by Chaskalson CJ.
[26]
See para 300 of the judgment of Chaskalson CJ.
[27]
See para 286 of the judgment of Chaskalson CJ.
[28]
Moseneke, Yacoob, Madala, Mokgoro, Skweyiya and Van der Westhuizen
JJ. The reasons appear from the judgment of Yacoob J at paras
822-835.
[29]
Chaskalson CJ, with whom Langa DCJ, O’Regan and Sachs JJ
concur, concludes that
regulation 8(3)
is void for vagueness. See
para 292 of Chaskalson CJ’s judgment. Ngcobo J concludes
that
regulation 8(3)(iv)
is invalid; and that
regulation 8(3)(i)
is
invalid, but can be saved by an appropriate severance and reading
in. See paras 492-496, and 498 of his judgment.
[30]
See the judgment of Chaskalson CJ at para 304.
[31]
See the judgment of Chaskalson CJ at para 406; see also the judgment
of Moseneke J at para 677.
[32]
Langa DCJ, Moseneke, Madala, Mokgoro, Ngcobo, O’Regan, Sachs,
Skweyiya, Van der Westhuizen and Yacoob JJ. See the
reasoning
in paras 836-841 of the judgment of Yacoob J.
[33]
Chaskalson CJ disagrees. He holds that the regulations do not
require the single exit price to be set at an amount that
the
Director-General considers to be reasonable, and that his views as
to the reasonableness of the single exit price are accordingly
irrelevant. In the circumstances the regulations are not
authorised by section 22G of the Medicines Act and are invalid.
See paras 418-419 of his judgment.
[34]
Coetzee v Government of the Republic of South Africa; Matiso and
Others v Commanding Officer, Port Elizabeth Prison, and Others
[1995] ZACC 7
;
1995 (4) SA 631
(CC);
1995 (10) BCLR 1382
(CC) at para 16;
Chief
Lesapo v North West Agricultural Bank and Another
[1999] ZACC 16
;
2000 (1) SA
409
(CC);
1999 (12) BCLR 1420
(CC) at para 31.
[35]
1952 (3) SA 809
(A) at 822C-E
[36]
Section 8(1)(c) of PAJA.
[37]
As Lord Macnaghten reasoned in a somewhat different context but in a
memorable formulation that is applicable here:
“In order to enable him to come to a just and true conclusion
it is his duty, I think, to avail himself of all information
at hand
at the time of making his award which may be laid before him.
Why should he listen to conjecture on a matter which
has become an
accomplished fact? Why should he guess when he can calculate?
With the light before him, why should
he shut his eyes and grope in
the dark?”
The
Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v The
Pontypridd Waterworks Company
1903 AC 426
(HL) at 431.
This case involved the estimation of loss of profits. Similar
reasoning has been applied in South African
courts, see
Devland
Investment Co v Administrator, Transvaal
1979 (1) SA 321
(T) at
327-8.
[38]
Government Gazette 26304 GN R553, 30 April 2004.
[39]
See para 193 below for the provisions of section 22G.
[40]
The issue concerning the standing of the Pricing Committee is dealt
with in the judgment of the Court where it is held that in
the
circumstances of this case the Pricing Committee has standing to
join in the application for leave to appeal.
[41]
S v Basson
[2004] ZACC 13
;
2005 (1) SA 171
(CC);
2004 (6) BCLR 620
(CC) at
para 22.
[42]
1990 (1) SA 57 (A).
[43]
Id at 67F-G, 68C-D;
Pharmaceutical Society of South Africa and
Others v Tshabalala-Msimang and Another NNO; New Clicks South Africa
(Pty) Ltd v Minister
of Health and Another
2005 (3) SA 238
(SCA);
2005 (6) BCLR 576
(SCA) at para 15.
[44]
See
Mabaso v Law Society, Northern Provinces, and Another
[2004] ZACC 8
;
2005 (2) SA 117
(CC);
2005 (2) BCLR 129
(CC) at para 23 where this
Court confirmed, in a different context, that the SCA is entitled to
regulate its own process.
See also
Universal City Studios
Inc and Others v Network Video (Pty) Ltd
[1986] ZASCA 3
;
1986 (2) SA 734
(A) at
754G and the authorities there cited.
[45]
1915 AD 599.
[46]
See
Gentiruco A.G. v Firestone SA (Pty) Ltd
1972 (1) SA 589
(A);
Sita and Another v Olivier NO and Another
1967 (2) SA
442
(A);
Oliff v Minnie
1952 (4) SA 369 (A).
[47]
Id.
[48]
Id at 608E-F.
[49]
1996 (4) SA 735 (A).
[50]
Id at 740B-D.
[51]
1978 (1) SA 687 (A).
[52]
1985 (1) SA 287 (A).
[53]
Id at 294B.
[54]
Above n 51 at 691C.
[55]
Above n 43 at paras 25, 26, 28 and 96.
[56]
Id at para 14.
[57]
Section 34 of the Constitution provides:
“Everyone has the right to have any dispute that can be
resolved by the application of law decided in a fair public hearing
before a court or, where appropriate, another independent and
impartial tribunal or forum.”
[58]
S v Venter
1999 (2) SACR 231
(SCA). Above n 43 at para
31 n 30.
[59]
Section 173 of the Constitution provides:
“The Constitutional Court, Supreme Court of Appeal and High
Courts have the inherent power to protect and regulate their
own
process, and to develop the common law, taking into account the
interests of justice.”
[60]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Minister
of Health and Another
2005 (3) SA 231 (C).
[61]
Id at 236F-G.
[62]
Above n 43 at para 28.
[63]
Id at paras 13 and 14.
[64]
Id at para 40.
[65]
Id.
[66]
Section 27 of the Constitution reads:
“(1) Everyone has the right to have access to—
(a) health care services, including reproductive health care;
. . . .
(2) The state must take reasonable legislative and other measures,
within its available resources, to achieve the progressive
realisation of each of these rights.”
[67]
This is the order sought in the Notice of Motion lodged on behalf of
the PSSA. For all practical purposes the Notice of
Motion in
the New Clicks application was the same.
[68]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Tshabalala-Msimang
and Another NNO
2005 (2) SA 530
(C) at paras
41-43. See below, paras 127-135 where the definition of
“decision” in PAJA is addressed.
[69]
Id at para 45.
[70]
Id.
[71]
Id at para 61.
[72]
Id at para 49. See below at paras 120-126 where the definition
of “administrative action” in PAJA is addressed.
[73]
Id at para 50.
[74]
Id at paras 32 and 36 (Traverso DJP).
[75]
Id at para 40.
[76]
Above n 43 at para 49.
[77]
The relevant provisions of section 22G are provided in para 193
below.
[78]
Section 33(1).
[79]
Section 33(3).
[80]
Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs
and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC);
2004 (7) BCLR 687
(CC) at para
25.
[81]
This is an extract from “‘Administrative Action’
in the courts” a paper delivered by Professor C Hoexter
for a
comparative administrative justice workshop held at Cape Town from
20-22 March 2005. The paper has not yet been published.
[82]
[2003] ZACC 10
;
2003 (5) SA 281
(CC);
2003 (8) BCLR 838
(CC) at paras 52-53.
[83]
It said, at para 53 n 30, that this “raises complex issues
including the question whether a construction of PAJA that excludes
the making of regulations from the ambit of administrative action
would be consistent with the Constitution.”
[84]
See para 130 below for the full text of section 4.
[85]
Above n 80. In
Bato Star
, the Court held that since
PAJA was applicable, that case could not be decided without
reference to its provisions.
[86]
Bato Star
, id at para 25;
Investigating Directorate:
Serious Economic Offences and Others v Hyundai Motor Distributors
(Pty) Ltd and Others: In re Hyundai
Motor Distributors (Pty) Ltd and
Others v Smit NO and Others
[2000] ZACC 12
;
2001 (1) SA 545
(CC);
2000 (10) BCLR
1079
(CC) at para 21.
[87]
[1898] 2 QB 91.
[88]
Id at 99-100.
[89]
R v Abdurahman
1950 (3) SA 136
(A) at 150D.
[90]
Id at 143F.
[91]
See the discussion of this topic by Jansen JA in
Theron en Andere
v Ring van Wellington van die NG Sendingkerk in Suid-Afrika en
Andere
1976 (2) SA 1
(A). Jansen JA suggested that a
distinction should be drawn between what he termed the “formal
test” and the
“material/extended formal standard test”.
In the case of the former, the courts will not interfere with the
merits of the decision and are concerned only with the manner in
which the decision was exercised (at 13F-G). In the case
of
the latter, which Jansen JA held to apply in the case of judicial
bodies created by statute or contract, a decision could
be set aside
on the basis that it was not reasonably supported by the evidence
(at 20D-21C).
[92]
[1948] 1 KB 223 (CA).
[93]
Id at 230.
[94]
1972 (3) SA 726 (A).
[95]
Id at 735G.
[96]
See
Bato Star
above n 80 at paras 44 and 45; Jowell and
Lester, “Beyond
Wednesbury
: Substantive Principles of
Administrative Law”, [1987]
Public Law
368, at 372;
Cane
An Introduction to Administrative Law
3ed (Clarendon
Press, Oxford 1996) ch 9; Hoexter
The New Constitutional and
Administrative Law: Volume II – Administrative Law
(Juta,
Lansdowne 2002) at 186-7.
[97]
Section 24 of the interim Constitution.
[98]
Section 33(1) of the interim Constitution read as follows:
“The rights entrenched in this Chapter may be limited by law
of general application, provided that such limitation—
(a) shall be permissible only to the extent that it is—
(i) reasonable; and
(ii) justifiable in an open and democratic society based on freedom
and equality; and
(b) shall not negate the essential content of the right in question,
and provided further that any limitation to—
(aa) a right entrenched in section 10, 11, 12, 14(1), 21, 25 or
30(1)(d) or (e) or (2); or
(bb) a right entrenched in section 15, 16, 17, 18, 23 or 24, in so
far as such right relates to free and fair political activity,
shall, in addition to being reasonable as required in paragraph
(a)(i), also be necessary.”
[99]
Section 8.
[100]
Section 23.
[101]
Section 28.
[102]
Section 22.
[103]
Bel Porto School Governing Body and Others v Premier, Western
Cape, and Another
[2002] ZACC 2
;
2002 (3) SA 265
(CC);
2002 (9) BCLR 891
(CC)
at paras 86-90.
[104]
Section 1(d).
[105]
Section 57(1)(b) provides that:
“The National Assembly may make rules and orders concerning
its business, with due regard to representative and participatory
democracy, accountability, transparency and public involvement.”
[106]
Section 72 of the Constitution.
[107]
Sections 116(1)(b) and 118(1)(a) of the Constitution.
[108]
Sections 152(1)(a) and (e), section 154(2) and 160(4)(b) of the
Constitution.
[109]
See n 115 where the definition of “organ of state”
appears.
[110]
1999 (1) SA 374 (CC); 1998 (12) BCLR 1458 (CC).
[111]
Id at para 27 in the judgment of Chaskalson P, Goldstone and O’Regan
JJ. Although this was not a unanimous judgment,
Kriegler J and
other members of the Court who expressed contrary views on certain
of the issues in the case, did not dissent
from this proposition.
See para 117 in the judgment of Kriegler J.
[112]
Item 23(1) and (3) of Schedule 6 to the Constitution.
[113]
Section 36 of the Constitution reads as follows:
“Limitation of rights.—(1) The rights in the Bill of
Rights may be limited only in terms of law of general application
to
the extent that the limitation is reasonable and justifiable in an
open and democratic society based on human dignity, equality
and
freedom, taking into account all relevant factors, including—
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision
of the Constitution, no law may limit any right entrenched
in the
Bill of Rights.”
[114]
Bato Star
above n 80 at para 22.
[115]
Section 1 of PAJA defines “organ of state” as having
“the meaning assigned to it in section 239 of the
Constitution”.
According to section 239 of the
Constitution an “organ of state” means
“(a) any department of state or administration in the
national, provincial or local sphere of government; or
(b) any other functionary or institution—
(i) exercising a power or performing a function in terms of the
Constitution or a provincial constitution; or
(ii) exercising a public power or performing a public function in
terms of any legislation,
but does not include a court or a judicial officer”.
[116]
2000 (1) SA 1
(CC);
1999 (10) BCLR 1059
(CC) at para 142.
[117]
“Any” is a word of wide import. See
Commissioner
for Inland Revenue v NST Ferrochrome (Pty) Ltd
1999 (2) SA 228
(T) at 232D-E and the authorities there cited.
[118]
Bato Star
above n 80 at para 44;
Daniels v Campbell NO and
Others
[2004] ZACC 14
;
2004 (5) SA 331
(CC);
2004 (7) BCLR 735
(CC) at paras
43-44;
National Director of Public Prosecutions and Another v
Mohamed NO and Others
[2002] ZACC 9
;
2002 (4) SA 843
(CC);
2002 (9) BCLR 970
(CC) at para 33;
Hyundai
above n 86 at paras 21-22.
[119]
Subparagraph (ii) of subparagraph (b) of the definition of
administrative action.
[120]
Above n 68 at para 49.
[121]
Section 22G of the Medicines Act. See para 193 below where the
relevant provisions of section 22G are provided.
[122]
Above n 110.
[123]
It was not suggested by either party that “may” in
section 22G should be construed as “must”.
[124]
General Regulations made in terms of the
Medicines and Related
Substances Act, 101 of 1965
as amended in Government Gazette 24727
R510, 10 April 2003.
[125]
Regulation 38(4).
[126]
Hoexter
The New Constitutional and Administrative Law
above n
96 at 107-10 and references there cited.
[127]
Affordable Medicines Trust and Others v Minister of Health of RSA
and Another
[2005] ZACC 3
;
2005 (6) BCLR 529
(CC) at para 49;
Pharmaceutical
Manufacturers Association of SA and Another: In re Ex parte
President of the Republic of South Africa and Others
[2000] ZACC 1
;
2000 (2) SA
674
(CC);
2000 (3) BCLR 241
(CC) at para 20;
Fedsure
above n
110 at para 58.
[128]
Bato Star
above n 80 at para 45.
[129]
[2001] UKHL 26
;
[2001] 3 All ER 433
(HL) at 447A.
[130]
In
R (Mahmood) v Secretary of State for the Home Department
[2000] EWCA Civ 315
;
[2001] 1 WLR 840
at para 18.
[131]
[2002] ZACC 5
;
2002 (4) SA 768
(CC);
2002 (7) BCLR 702
(CC) at para 63.
[132]
Bato Star
above n 80 at para 45.
[133]
Id.
[134]
See paras 136-141 above.
[135]
See para 130 above for the text of
section 4.
[136]
Id.
[137]
[1997] ZASCA 2
;
1997 (3) SA 204
(A) at 231I-232D
[1997] ZASCA 2
; ;
1997 (4) BCLR 531
(A) at
542F-543A.
[138]
[1993] 3 All ER 92
(HL) at 106D-H.
[139]
See also
Premier, Mpumalanga, and Another v Executive Committee,
Association of State-Aided Schools, Eastern Transvaal
[1998] ZACC 20
;
1999 (2)
SA 91
(CC);
1999 (2) BCLR 151
(CC) at para 39.
[140]
1919 AD 30
at 44.
[141]
See for instance,
Yates v University of Bophuthatswana and Others
1994 (3) SA 815
(B) at 847I-849B;
Schoultz v Voorsitter,
Personeel-Advieskomitee van die Munisipale Raad van George, en ’n
Ander
1983 (4) 689 (C) at 707F-H.
[142]
R v Price
1955 (1) SA 219
(A) at 223E-G.
Section 147
of
the
Criminal Procedure Act, 51 of 1977
now makes provision for cases
to continue if a quorum is broken due to death or incapacity.
See
S v Malinde
, above n 42, for a discussion of these
provisions.
[143]
1975 (1) SA 681 (A).
[144]
Id at 704G-H.
[145]
See regulation 38 of the General Regulations above at para 139.
[146]
S v Naudé
above n 143 at 699B-C.
[147]
See below from para 311.
[148]
Above n 80 at paras 44-45
[149]
Section 6(2)(a) of PAJA reads:
“A court or tribunal has the power to judicially review an
administrative action if—
(a) the administrator who took it—
(i) was not authorised to do so by the empowering provision;
(ii) acted under a delegation of power which was not authorised by
the empowering provision; or
(iii) was biased or reasonably suspected of bias”.
[150]
Regulation 2 of the regulations.
[151]
Regulation 5(2)(c)(ii).
[152]
Id.
[153]
See regulation 2 and regulation 5(1).
[154]
Regulation 6.
[155]
See the definition of “logistics fee” in regulation 2
and regulation 5(2)(f) and (g).
[156]
Regulation 10.
[157]
Regulation 5(2)(e).
[158]
Above n 43 at para 57.
[159]
Id at para 58.
[160]
1995 (3) SA 391 (CC); 1995 (6) BCLR 665 (CC).
[161]
Id at para 19.
[162]
1988 (4) SA 645
(A) at 668H-669D.
[163]
1986 (2) SA 555
(A) at 562H-563A.
[164]
Above n 160 at paras 14-16.
[165]
Paragraph 2.2 of the National Drug Policy for South Africa.
[166]
Chapter 4 of the National Drug Policy.
[167]
I have considerable doubt whether it is.
[168]
Paragraph 4.1 of the National Drug Policy (my emphasis).
[169]
Id.
[170]
Section 15C provides:
“Measures to ensure supply of more affordable medicines.—The
Minister may prescribe conditions for the supply of
more affordable
medicines in certain circumstances so as to protect the health of
the public, and in particular may—
(a) notwithstanding anything to the contrary contained in the
Patents Act, 1978 (Act No. 57 of 1978), determine that the rights
with regard to any medicine under a patent granted in the Republic
shall not extend to acts in respect of such medicine which
has been
put onto the market by the owner of the medicine, or with his or her
consent;
(b) prescribe the conditions on which any medicine which is
identical in composition, meets the same quality standard and is
intended to have the same proprietary name as that of another
medicine already registered in the Republic, but which is imported
by a person other than the person who is the holder of the
registration certificate of the medicine already registered and
which originates from any site of manufacture of the original
manufacturer as approved by the council in the prescribed manner,
may be imported;
(c) prescribe the registration procedure for, as well as the use of,
the medicine referred to in paragraph (b).”
[171]
Section 18A reads as follows:
“Bonusing.—No person shall supply any medicine according
to a bonus system, rebate system or any other incentive
scheme.”
[172]
Section 22F provides:
“Generic substitution.—(1) Subject to subsections (2),
(3) and (4), a pharmacist or a person licensed in terms of
section
22C(1)(a) shall—
(a) inform all members of the public who visit the pharmacy or any
other place where dispensing takes place, as the case may
be, with a
prescription for dispensing, of the benefits of the substitution for
a branded medicine by an interchangeable multi-source
medicine, and
shall, in the case of a substitution, take reasonable steps to
inform the person who prescribed the medicine of
such substitution;
and
(b) dispense an interchangeable multi-source medicine instead of the
medicine prescribed by a medical practitioner, dentist,
practitioner, nurse or other person registered under the Health
Professions Act, 1974, unless expressly forbidden by the patient
to
do so.
(2) If a pharmacist is forbidden as contemplated in subsection
(1)(b), that fact shall be noted by the pharmacist on the
prescription.
(3) When an interchangeable multi-source medicine is dispensed by a
pharmacist he or she shall note the brand name or where no
such
brand name exists, the name of the manufacturer of that
interchangeable multi-source medicine in the prescription book.
(4) A pharmacist shall not sell an interchangeable multi-source
medicine—
(a) if the person prescribing the medicine has written in his or her
own hand on the prescription the words ‘no substitution’
next to the item prescribed;
(b) if the retail price of the interchangeable multi-source medicine
is higher than that of the prescribed medicine; or
(c) where the product has been declared not substitutable by the
council.”
[173]
Section 22H reads as follows:
“Purchase and sale of medicines by wholesalers.—(1)(a)
No wholesaler shall purchase medicines from any source other
than
from the original manufacturer or from the primary importer of the
finished product.
(b) A wholesaler shall sell medicines only into the retail sector.
(2) Subsection (1) shall not be construed as preventing the return
of medicines for credit purposes only, to the manufacturer
or
wholesaler from which that medicine was initially obtained.
(3) Any wholesaler may in the prescribed manner and on the
prescribed conditions be exempted by the Director-General from the
provisions of subsection (1).”
[174]
Sections 15C, 18A, 18B, 18C, 22A, 22C, 22F and 22H.
[175]
See above n 172 for the full text of section 22F(4).
[176]
See Du Plessis “Statute Law and Interpretation” in
Joubert et al (eds)
The Law of South Africa
, First Reissue
vol 25 (Butterworths, Durban 2001) at para 285.
[177]
Section 22A(3).
[178]
See section 22A(4) and (5) of the Act. In terms of section
22A(9)(a)(i) of the Act, no one may supply Schedule 7 and 8
medicines without a permit issued by the Director-General.
[179]
Section 22A(4) and (5)(a).
[180]
Section 22C(1)(b) of the Medicines Act.
[181]
See para 193 above where the text of section 22G is provided.
[182]
Section 29(k).
[183]
This is consistent with the definition of “distributor”
in the pricing regulations: see para 242 below.
[184]
It is not necessary here to deal with the special power vested in
the Minister to sanction the importing of medicine protected
by the
patent in terms of section 15C.
[185]
Section 22C(1)(b) reads as follows:
“Licensing.—(1) Subject to the provisions of this
section—
. . . .
(b) the council may, on application in the prescribed manner and on
payment of the prescribed fee, issue to a manufacturer, wholesaler
or distributor of a medicine or medical device a licence to
manufacture, import or export, act as a wholesaler of or distribute,
as the case may be, such medicine or medical device, upon such
conditions as to the application of such acceptable quality
assurance principles and good manufacturing and distribution
practices as the council may determine.”
Section 22C(6)
reads as follows:
“No manufacturer, wholesaler or distributor referred to in
subsection (1)(b) shall manufacture, import, export, act as
a
wholesaler of or distribute, as the case may be, any medicine unless
he or she is the holder of a licence contemplated in the
said
subsection.”
[186]
Regulation 12(2)(a) provides: “A person can only import a
medicine or scheduled substance if such person is licensed in
terms
of the Act to import medicines”.
[187]
Regulation 19 deals with the procedures to be followed in applying
for such licences. Only persons referred to in section
22C(1)(b) are competent in terms of the regulations to make such
applications.
[188]
See above n 173 for the text of section 22H.
[189]
Section 22G(3)(a).
[190]
Section 22G(3)(b).
[191]
See above n 171 where the text of section 18A is produced.
Section 18B reads as follows:
“Sampling of medicines.—(1) No person shall sample any
medicine.
(2) For the purposes of this section ‘sample’ means the
free supply of medicines by a manufacturer or wholesaler
or its
agent to a pharmacist, medical practitioner, dentist, veterinarian,
practitioner, nurse or other person registered under
the Health
Professions Act, 1974, but does not include the free supply of
medicines for the purposes of clinical trials, donations
of
medicines to the State, tendering to the State and quality control
by inspectors.
(3) The use of medicines or Scheduled substances for exhibition
purposes shall be as prescribed.”
[192]
Act 90 of 1997 and Act 59 of 2002 were both brought into force on 2
May 2003.
[193]
1907 TS 910.
[194]
Id at 915.
[195]
Regulation 1 provides: “The sale of medicines and Scheduled
substances in the Republic of South Africa is subject to the
conditions stipulated in these regulations.”
[196]
This is dealt with above in paras 208-210.
[197]
See the definitions in regulation 2.
[198]
Section 15C is discussed above in paras 206-207.
[199]
The General Regulations define “parallel importer” as “a
person who parallel imports a medicine into the Republic
on the
authority of a permit issued in terms of regulation 7(3)”.
[200]
According to regulation 2, “‘logistics fee’ means
the fee that is payable in respect of logistical services”.
[201]
“‘[L]ogistical services’ means those services
provided by distributors and wholesalers in relation to a medicine
or Scheduled substance including but not limited to warehousing,
inventory or stock control management, order and batch order
processing, delivery, batching, tracking and tracing, cold chain
storage and distribution”.
[202]
“‘[S]ingle exit price’ means the price set by the
manufacturer or importer of a medicine or Scheduled substance
in
terms of these regulations combined with the logistics fee and VAT
and is the price of the lowest unit of the medicine or
Scheduled
substance within a pack multiplied by the number of units in the
pack”.
[203]
“‘[R]etailer’ means a person who is not a
wholesaler, importer, exporter, manufacturer or distributor who
sells a medicine or Scheduled substance to a user and includes a
person licensed in terms of section 22C(1)(a) of the Act”.
[204]
“‘[U]ser’ means a natural person to whom a
medicine or Scheduled substance is sold for use and excludes a
manufacturer, importer, exporter, wholesaler, distributor, retailer
and any other person selling medicines or Scheduled substances
in
the Republic”.
[205]
S v Le Grange
1962 (3) SA 498
(A) at 502-3.
[206]
Section 22C(1)(b) and 22C(6).
[207]
Dawood and Another v Minister of Home Affairs and Others; Shalabi
and Another v Minister of Home Affairs and Others; Thomas and
Another v Minister of Home Affairs and Others
[2000] ZACC 8
;
2000 (3) SA 936
(CC);
2000 (8) BCLR 837
(CC) at para 47;
Affordable Medicines
above n 127 at para 108.
[208]
Id.
[209]
Id.
[210]
The definition of SEP in regulation 2 and regulation 5(1).
[211]
Above n 43 at para 51(c).
[212]
Id at para 52. Footnotes to this paragraph of the judgment
have been omitted from the quotation. They refer to the
definition of importer and the definition of the SEP with the words
“or importer” in that definition emphasised.
[213]
The text of the section and its relevance to this case has been
referred to in para 193.
[214]
Above n 43 at para 54.
[215]
Id at para 55.
[216]
Regulation 2. The definition of “logistics fee”
appears above at n 200.
[217]
Regulation 2. The definition of “logistical services”
appears above at n 201.
[218]
The full text of the definition is set out at para 247.
[219]
Persons selling medicines include wholesalers and pharmacists.
But wholesalers can also be importers who sell to pharmacists.
[220]
Regulation 7 subject to regulations 5, 8 and 9.
[221]
Regulation 9.
[222]
Ex parte Chairperson of the Constitutional Assembly: In re
Certification of the Constitution of the Republic of South Africa,
[1996] ZACC 26
;
1996
1996 (4) SA 744
(CC);
1996 (10) BCLR 1253
(CC) at para 131.
[223]
The issue of publication is dealt with in paras 295-296 below.
[224]
Regulation 9(2):
“In considering an application as contemplated in regulation
9(1) the Minister must take into account—
(a) the nature and extent of any adverse financial, operational and
other circumstances for the manufacturer or importer if the
application made in terms of regulation 9(1) is not approved;
(b) the effect, if any, on the availability of the medicine or
Scheduled substance within the Republic if the application made
in
terms of regulation 9(1) is not approved;
(c) the nature of the health condition for which the medicine or
Scheduled substance is a registered indication within the Republic
and the extent to which public health would be adversely affected
should the medicine or Scheduled substance become unavailable
or
unaffordable within the Republic;
(d) the extent to which the rights contemplated in section 27(1)(a)
and 27(3) of the Constitution may be adversely affected or
limited—
(i) should the single exit price not be increased by the amount
requested in the application; and
(ii) should the medicine or Scheduled substance become unavailable
or unaffordable within the Republic.”
[225]
Regulation 5(2)(f). Above n 43 at para 56.
[226]
This is a challenge to the lawfulness of the regulation concerned.
See section 6(2)(f)(i) of PAJA and para 189 above where
lawfulness
is discussed.
[227]
Above n 43 at para 79.
[228]
Id at para 77.
[229]
Affordable Medicines
above n 127 at para 48;
Pharmaceutical
Manufacturers Association
above n 127 at para 20.
[230]
Above n 43 at para 89.
[231]
Below at paras 344-358 and 359-371.
[232]
Regulations Relating to the Practice of Pharmacy, Government Gazette
21754 GN R1158, 20 November 2000.
[233]
Id.
[234]
Above n 80.
[235]
Id at para 48.
[236]
At paras 164-166 above.
[237]
Section 36 provides:
“The Minister may, on the unanimous recommendation of the
members present at any meeting of the council, by notice in the
Gazette exclude, subject to such conditions as he may determine, any
medicine from the operation of any or all of the provisions
of this
Act, and may in like manner amend or withdraw any such notice.”
[238]
Affordable Medicines
above n 127 at para 126.
[239]
Regulation 22(2).
[240]
Regulation 22(3).
[241]
Act 3 of 2000.
[242]
Act 101 of 1965. I should emphasise that I refrain from
deciding whether PAJA is applicable to regulation-making in general.
[243]
National Education Health and Allied Workers Union (NEHAWU) v
University of Cape Town and Others
2003 (3) SA 1
(CC);
2003 (2)
BCLR 154
(CC) and
Ingledew v Financial Services Board: In re
Financial Services Board v Van der Merwe and Another
2003 (4) SA
584 (CC); 2003 (8) BCLR 825 (CC).
[244]
Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs
and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC);
2004 (7) BCLR 687
(CC) at para
25.
[245]
Section 22G of the Medicines Act provides:
“(1) The Minister shall appoint, for a period not exceeding
five years, such persons as he or she may deem fit to be members
of
a committee to be known as the pricing committee.
(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist
or by a person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule 0 medicines.
(3) (a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to
any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a)
or a wholesaler or distributor shall sell a medicine at a
price
higher than the price contemplated in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist
or person licensed in terms of this Act to charge a dispensing
fee
as contemplated in subsection (2)(b).
(4) To the members of the pricing committee who are not in the
full-time employment of the State may be paid such remuneration
and
allowances as the Minister, with the concurrence of the Minister of
Finance, may determine.”
[246]
Bato Star
above n 244 at para 25;
Zondi v Member of the
Executive Council for Traditional and Local Government Affairs and
Others
[2004] ZACC 19
;
2005 (3) SA 589
(CC);
2005 (4) BCLR 347
(CC) at para 99.
[247]
Bato Star
id.
[248]
Bato Star
above n 244 at para 22.
[249]
NAPTOSA and Others v Minister of Education, Western Cape, and
Others
2001 (2) SA 112
(C). Section 23(1) of the
Constitution provides that: “Everyone has the right to fair
labour practices”.
The
Labour Relations Act, 1995
, was
enacted to give effect to the right to labour relations guaranteed
by section 23 of the Constitution.
[250]
Act 66 of 1995.
[251]
NAPTOSA
above n 249 at 123I.
[252]
Id at 123B.
[253]
NEHAWU
above n 243 at para 17.
[254]
Ingledew
above n 243.
[255]
These cases are discussed in
Ingledew
. The cases that
were referred to in
Ingledew
were largely concerned the
question whether in an action against the state, a litigant may, in
addition to the right to require
discovery in terms of Rule 35 of
the Uniform Rules of Court, seek relief in terms of section 32 of
the Constitution (the right
of access to information). One
line of cases suggests that a litigant may in addition to the rules
rely on section 32.
These cases include
Swissborough
Diamond Mines (Pty) Ltd and Others v Government of the Republic of
South Africa and Others
1999 (2) SA 279
(T) at 320C-D;
Phato
v Attorney-General, Eastern Cape, and Another; Commissioner of the
South African Police Services v Attorney-General, Eastern
Cape, and
Others
1995 (1) SA 799
(E) at 815G;
Khala v Minister of
Safety and Security
1994 (4) SA 218
(W) at 225 F and 226 G;
Van
Niekerk v Pretoria City Council
1997 (3) SA 839
(T) at 850B.
The other line of cases cast doubt on the correctness of the
proposition that a litigant can in an action
against the state, in
addition to the right to require discovery in terms of Rule 35, seek
relief in terms of section 32.
These cases are
Inkatha
Freedom Party and Another v Truth and Reconciliation Commission and
Others
2000 (3) SA 119
(C) at 135J-137C; and
Alliance Cash
and Carry (Pty) Ltd v Commissioner, South African Revenue Service
2002 (1) SA 789
(T). These cases must be understood in the
context of the rules relating to discovery. However, to the
extent that
the
Swissborough
line of cases suggest that a
litigant can rely upon the Constitution where there is a statutory
provision dealing with the matter
without challenging the
constitutionality of the provision concerned, I am unable to agree
with their reasoning.
[256]
Bato Star
above n 244 at para 22;
Pharmaceutical
Manufacturers Association of SA and Another: In re Ex parte
President of the Republic of South Africa and Others
[2000] ZACC 1
;
2000 (2) SA
674
(CC);
2000 (3) BCLR 241
(CC) at paras 33 – 45.
[257]
Bato Star
id.
[258]
NAPTOSA
above n 249 and
Ingledew
above n 243.
[259]
Bato Star
above n 244 at para 26.
[260]
The Medicines Control Council established under section 2 of the
Medicines Act.
[261]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Tshabalala-Msimang
and Another NNO
2005 (2) SA 530
(C) at paras
40-5 and 49- 50.
[262]
Id at para 31.
[263]
Id at paras 30-2 and 41.
[264]
Id at para 58.
[265]
Pharmaceutical Society of South Africa and Others v
Tshabalala-Msimang and Another NNO; New Clicks South Africa (Pty)
Ltd v Minister
of Health and Another
2005 (3) SA 238
(SCA);
2005
(6) BCLR 576
(SCA) at para 49.
[266]
Id.
[267]
Id at para 93.
[268]
Id at para 94.
[269]
Fedsure Life Assurance Ltd and Others v Greater Johannesburg
Transitional Metropolitan Council and Others
[1998] ZACC 17
;
1999 (1) SA 374
(CC);
1998 (12) BCLR 1458
(CC) at para 27.
[270]
President of the Republic of South Africa and Others v South
African Rugby Football Union and Others
2000 (1) SA 1
(CC);
1999
(10) BCLR 1059
(CC) at para 141.
[271]
Id at para 142.
[272]
SARFU 3
above n 270 at para 143.
[273]
Fedsure
above n 269 at para 9.
[274]
Were it to be found that on its face PAJA excludes such powers, then
the question of the constitutionality of PAJA would arise.
In
the view I take of the matter this question does not arise.
[275]
Bernstein and Others v Bester and Others NNO
[1996] ZACC 2
;
1996 (2) SA 751
(CC);
1996 (4) BCLR 449
(CC) at para 59;
De Lange v Smuts NO and
Others
[1998] ZACC 6
;
1998 (3) SA 785
(CC);
1998 (7) BCLR 779
(CC) at para 85;
S v Dzukuda and Others; S v Tshilo
2000 (4) SA 1078
(CC);
2000 (11) BCLR 1252
(CC) at para 37(a);
Investigating
Directorate: Serious Economic Offences and Others v Hyundai Motor
Distributors (Pty) Ltd and Others: In re Hyundai
Motor Distributors
(Pty) Ltd and Others v Smit NO and Others
[2000] ZACC 12
;
2001 (1) SA 545
(CC);
2000 (10) BCLR 1079
(CC) at paras 21-26;
National Director of
Public Prosecutions and Another v Mohamed NO and Others
[2003] ZACC 4
;
2003 (4)
SA 1
(CC);
2003 (5) BCLR 476
(CC) at para 35;
Zondi
above n
246 at para 102; and
Affordable Medicines Trust and Others v
Minister of Health of RSA and Another
[2005] ZACC 3
;
2005 (6) BCLR 529
(CC) at
para 36.
[276]
Ndlovu v Ngcobo; Bekker and Another v Jika
2003 (1) SA 113
(SCA) at para 20;
R v Louw and Another
1934 CPD 365
at 367-8;
Jones & Co v Commissioner for Inland Revenue
1926 CPD 1
at 5.
[277]
R v Debele
1956 (4) SA 570
(A) at 575A-576E.
[278]
Dilworth and Others v Commissioner of Stamps
[1899] A.C. 99
at 105-6.
[279]
De
Reuck v Director of Public Prosecutions, Witwatersrand
Local Division and Others
[2003] ZACC 19
;
2004 (1) SA 406
(CC);
2003 (12) BCLR
1333
(CC) at para 18.
[280]
Id.
[281]
Id.
[282]
Id.
[283]
SARFU
3
above n 270 at para 142
; Fedsure
above
n 269 at para 27;
Permanent Secretary, Department of Education
and Welfare, Eastern Cape, and Another v Ed-U-College (PE) (Section
21) Inc
[2000] ZACC 23
;
2001 (2) SA 1
(CC);
2001 (2) BCLR 118
(CC) at para 18.
Compare
Union Government v Rosenburg (Pty) Ltd
1945 AD 120
at
126-7.
[284]
Above n 265 at para 94.
[285]
Subparagraph (bb) of section 1 of PAJA.
[286]
Fedsure
above n 269 at para 27.
[287]
SARFU 3
above n 270. See also
Ed-U-College
above
n 283 at para 18.
[288]
SARFU 3
id at para 142.
[289]
Compare the rule of construction that where the legislature uses
words which have received judicial construction, in the absence
of
anything to the contrary, Parliament must be presumed to have
intended the words to bear the same meaning that courts have
attributed to them.
Ex parte Minister of Justice; In re R v
Bolon
1941 AD 345
at 359;
S v Zemura
1974 (1) 584 (RAD)
at 589D-E;
Webb v Outrim
1907 A.C. 81
at 89;
Barlow and
Another v Teal
1885 Q.B.D. 403
at 405.
[290]
SARFU 3
above n 270 at para 142;
Ed-U-College
above n
283 at para 18;
Pharmaceutical Manufacturers Association
above n 256 at para 45.
[291]
Above n 275.
[292]
Section 1 of PAJA defines decision as follows:
“any decision of an administrative nature made, proposed to be
made, or required to be made, as the case may be, under
an
empowering provision, including a decision relating to—
(a) making, suspending, revoking or refusing to make an order, award
or determination;
(b) giving, suspending, revoking or refusing to give a certificate,
direction, approval, consent or permission;
(c) issuing, suspending, revoking or refusing to issue a licence,
authority or other instrument;
(d) imposing a condition or restriction;
(e) making a declaration, demand or requirement;
(f) retaining, or refusing to deliver up, an article; or
(g) doing or refusing to do any other act or thing of an
administrative nature, and a reference to a failure to take a
decision
must be construed accordingly”.
[293]
Section 4 of PAJA provides:
“(1) In cases where an administrative action materially and
adversely affects the rights of the public, an administrator,
in
order to give effect to the right to procedurally fair
administrative action, must decide whether—
(a) to hold a public inquiry in terms of subsection (2);
(b) to follow a notice and comment procedure in terms of subsection
(3);
(c) to follow the procedures in both subsections (2) and (3);
(d) where the administrator is empowered by any empowering provision
to follow a procedure which is fair but different, to follow
that
procedure; or
(e) to follow another appropriate procedure which gives effect to
section 3.
(2) If an administrator decides to hold a public inquiry—
(a) the administrator must conduct the public inquiry or appoint a
suitably qualified person or panel of persons to do so; and
(b) the administrator or the person or panel referred to in
paragraph (a) must—
(i) determine the procedure for the public inquiry, which must—
(aa)
include a public hearing; and
(bb)
comply with the procedures to be followed in connection with public
inquiries, as prescribed;
(ii) conduct the inquiry in accordance with that procedure;
(iii) compile a written report on the inquiry and give reasons for
any administrative action taken or recommended; and
(iv) as soon as possible thereafter—
(aa)
publish in English and in at least one of the other official
languages in the Gazette or relevant provincial Gazette a notice
containing a concise summary of any report and the particulars of
the places and times at which the report may be inspected and
copied; and
(bb)
convey by such other means of communication which the administrator
considers effective, the information referred to in item
(aa) to the
public concerned.
(3) If an administrator decides to follow a notice and comment
procedure, the administrator must—
(a) take appropriate steps to communicate the administrative action
to those likely to be materially and adversely affected by
it and
call for comments from them;
(b) consider any comments received;
(c) decide whether or not to take the administrative action, with or
without changes; and
(d) comply with the procedures to be followed in connection with
notice and comment procedures, as prescribed.
(4) (a) If it is reasonable and justifiable in the circumstances, an
administrator may depart from the requirements referred
to in
subsections (1)(a) to (e), (2) and (3).
(b) In determining whether a departure as contemplated in paragraph
(a) is reasonable and justifiable, an administrator must
take into
account all relevant factors, including—
(i) the objects of the empowering provision;
(ii) the nature and purpose of, and the need to take, the
administrative action;
(iii) the likely effect of the administrative action;
(iv) the urgency of taking the administrative action or the urgency
of the matter; and
(v) the need to promote an efficient administration and good
governance.”
[294]
Section 4 of PAJA.
[295]
Administrator, Transvaal, and Others v Traub and
Others
[1989] ZASCA 90
;
1989
(4) SA 731
(A) at 759A-C;
South African Roads Board v
Johannesburg City Council
1991 (4) SA 1
(A) at 12E-15I. In
the
Traub
case at 762F-763I, the SCA rejected the distinction
between quasi-judicial and purely administrative as a basis for
determining
whether the
audi
principle applies.
[296]
Fedsure
above n 269 at para 27.
[297]
SARFU 3
above n 270 at para 141.
[298]
116 DLR (3d) 1.
[299]
Id at 10-11.
[300]
[1981] 1 NZLR 172
at 188-9.
[301]
Section 6(2)(f)(i) and (i) of PAJA provides:
“(2) A court or tribunal has the power to judicially review an
administrative action if —
. . . .
(f) the action itself —
(i) contravenes a law or is not authorised by the empowering
provision;
(i) the action is otherwise unconstitutional or unlawful.”
[302]
Zondi
above n 246 at paras 113-4;
Minister of Public Works
and Others v Kyalami Ridge Environmental Association and Another
(Mukhwevho Intervening)
[2001] ZACC 19
;
2001 (3) SA 1151
(CC);
2001 (7) BCLR 652
(CC) at para 109;
Premier, Mpumulanga, and Another v Executive
Committee, Association of State-Aided Schools, Eastern Transvaal
[1998] ZACC 20
;
1999 (2) SA 91
(CC);
1999 (2) BCLR 151
(CC) at para 39.
[303]
Affordable Medicines
above n 275 at para 108.
[304]
Dispensing fees apply to both medicines and Scheduled substances
falling into schedule 1 to 8. The reference to medicines
in
this judgment will include a reference to scheduled substances.
[305]
Section 22G(3)(b).
[306]
Section 22G(3)(c).
[307]
Regulation 10(1) provides:
“The appropriate dispensing fee as contemplated in section
22G(2)(b) of the Act to be charged by pharmacists must be calculated
as follows:
(1) With regard to medicines and scheduled substances falling into
Schedules 1 and 2 of the Act, in the absence of a prescription
the
dispensing fee, exclusive of VAT, must not exceed -
(a) 16% of the single exit price of a medicine or Scheduled
substance where the single exit price of that medicine or Scheduled
substance is less than one hundred rands;
(b) sixteen rands in respect of a medicine or Scheduled substance
where the single exit price of that medicine or Scheduled substance
is greater than or equal to one hundred rands.”
[308]
Regulation 10(2) provides:
“(2) With regard to medicines and scheduled substances falling
into Schedules 3, 4, 5, 6, 7, and 8 of the Act, and medicines
and
Schedules substances falling into Schedules 1 and 2 of the Act in
respect of which a prescription has been written, the dispensing
fee, exclusive of VAT, must not exceed -
(a) 26% of the single exit price in respect of a medicine or
Scheduled substance where the single exit price of that medicine
or
Scheduled substance is less than one hundred rands;
(b) twenty six rands in respect of a medicine or Scheduled substance
where the single exit price of that medicine or Scheduled
substance
is greater than or equal to one hundred rands.”
[309]
Regulation 12 provides:
“The appropriate dispensing fee as contemplated in section
22G(2)(b) of the Act to be charged by persons licensed in terms
of
section 22C(1)(a) of the Act must be calculated, exclusive of VAT,
as follows:
(1) Where the single exit price of a medicine or Scheduled substance
is less than one hundred rands, the dispensing fee must
not exceed
16 % percent of the single exit price in respect of that medicine or
Scheduled substance.
(2) Where the single exit price of a medicine or Scheduled substance
is one hundred rands or more, the dispensing fee must not
exceed
sixteen rands in respect of that medicines or Scheduled substance.
(3) The provisions of this regulation 12 must be reviewed annually
by the Minister with regard to the CPI, the PPI, and the need
to
ensure the availability, affordability and quality of medicines and
Scheduled substances in the Republic.”
[310]
Regulation 11 provides:
“Where a medicine or Scheduled substance is dispensed in terms
of a prescription written for a person who has been admitted
as an
inpatient the dispensing fee shall be calculated in terms of
regulation 10 in respect of the entire quantity of the medicine
or
Scheduled substance reflected on such prescription, irrespective of
whether the medicine or Scheduled substance is issued
from the stock
of the pharmacy or from ward or theatre stock.”
[311]
Regulation 13 provides:
“The appropriate fee to be charged by any person, other than a
wholesaler or distributor, in respect of Schedule 0 medicines
shall
not exceed the percentage mark-up in respect of that medicine or
Scheduled substance that was applied at the date of commencement
of
these regulations.”
[312]
CPI is defined in regulation 2 as:
“the Consumer Price Index as determined and published by
Statistics South Africa from time to time”.
[313]
PPI is defined in regulation 2 as:
“the Production Price Index for pharmaceutical products as
determined and published by Statistics South Africa from time
to
time”.
[314]
Regulation 10(3) provides:
“The provisions of this regulation 10 must be reviewed
annually by the Minister with regard to the CPI, the PPI, and the
need to ensure the availability, affordability and quality of
medicines and Scheduled substances in the Republic.”
[315]
Affordable Medicines
above n 275 at paras 57 to 67 and paras
73 to 95.
[316]
Above n 265 at para 89.
[317]
Id.
[318]
Affordable Medicines
above n 275 at para 35.
[319]
Section 6(2)(e)(iii) of PAJA provides:
“(2) A court or tribunal has the power to judicially review an
administrative action if—
(e) the action was taken—
(iii) because irrelevant considerations were taken into account or
relevant considerations were not considered”.
[320]
Compare
Affordable Medicines
above n 275 at paras 34, 38 and
39.
[321]
Section 27(1)(a) and (2) of the Constitution provides:
“(1) Everyone has the right to have access to—
(a) health care services, including reproductive health care;
. . . .
(2) The state must take reasonable legislative and other measures,
within its available resources, to achieve the progressive
realisation of each of these rights.”
[322]
This amendment was part of a package of amendments that were largely
aimed at giving effect to the National Drug Policy.
It was
brought about by two separate amendments: the first amendment by
section 14 of the Medicines and Related Substances Control
Amendment
Act, 90 of 1997, and the second by sections 6, 7 and 8 of the
Medicines and Related Substances Control Amendment Act,
59 of 2002.
[323]
See para 516 above.
[324]
Above n 265 at paras 76-77.
[325]
Above n 265 at para 77.
[326]
Section 27 of the Constitution.
[327]
Bato Star
above n 244 at para 44.
[328]
Commonwealth of Australia v Pharmacy Guild of Australia and
Another
91 ALR 65
at 86.
[329]
Bangtoo Bros. and Others v National Transport Commission and
Others
1973 (4) SA 667
(N) at 685A-D;
Bato Star
above n
244 at para 99.
[330]
Bangtoo Bros
. id at 685A-D.
[331]
Bato Star
above n 244 at para 99.
[332]
Id at para 103.
[333]
Above n 265 at para 89.
[334]
Above n 328 at 88.
[335]
95 ALR 451.
[336]
Id at 455.
[337]
Id at 456.
[338]
Id at 462.
[339]
Above n 265 at para 89.
[340]
Pretoria North Town Council v A.1.Electric Ice-Cream Factory
(Pty) Ltd
1953 (3) SA 1
(A) at 16F-G;
Livestock & Meat
Industry Control Board v Robert S. Williams (Pty) Ltd
1963 (4)
SA 592
(T) at 598C;
Minister of National Revenue v Wright’s
Canadian Ropes Ltd
1947 A.C. 109.
[341]
It should be recalled that when the draft regulations were published
for comment in December 2003, the fees were fixed at R24/24%
for
retail pharmacies and R14/14% for others. Subsequent to the
oral hearings, the Pricing Committee again discussed this
issue
which resulted in the draft regulations being published on 19 April
2004. Those regulations fixed the fees at R24/24%
plus a 1.5%
mark-up on the cost of the medicine dispensed. On 20 April
2004 the Pricing Committee held a meeting with the
Minister and this
resulted in the review of the dispensing fee which was then R26/26%,
the mark-up was dropped. It seems
clear that the 1.5% mark-up
would have resulted in greater remuneration to pharmacies where the
drugs were expensive. It
is also clear that the Pricing
Committee suggested the 1.5% to cover stock costs and not to deal
with issues relating to a number
of scripts dispensed by pharmacies.
[342]
Affordable Medicines
above n 275.
[343]
Id at para 119.
[344]
Id at para 113.
[345]
Regulations Relating to the Practice of Pharmacy published in
Government Gazette No 21754, Government Notice R1158 on 20 November
2000. Regulation 1 of these regulations defines “dispensing”
to mean:
“the interpretation and evaluation of a prescription, the
selection, manipulation or compounding of the medicine, the
labelling and supply of the medicine in an appropriate container
according to the Medicines Act and the provision of information
and
instructions by a pharmacist to ensure the safe and effective use of
medicine by the patient and ‘dispense’ has
a
corresponding meaning”.
[346]
Regulation 38(4) of the General Regulations Made in Terms of the
Medicines and Related Substances Act published
in Government Gazette
24727, Government Notice R510 on 10 April 2003, provides:
“The Director-General may designate employees of the
Department to serve as the secretariat of the Committee.”
[347]
Bangtoo Bros
. above n 329 at 685.
[348]
Act 3 of 2000.
[349]
The legal imagination does not invent materials that do not exist.
Rather, it reconfigures already acknowledged legal materials
according to a new underlying or organising principle. Such a
principle derives its force from the fact that it is recognisable,
incontrovertible and possessed of great and immediate explanatory
power. It produces a fresh way of looking at and appreciating
the significance of the materials as a whole. The whole is
made up of the parts, but is greater than the parts, and solidifies
their interrelationship. Central to my analysis is the
concept, drawn expressly and implicitly from the text of the
Constitution,
that South Africa is a constitutional democracy.
This basic understanding is more than an aid to the interpretation
of
a particular text. It serves as an independent structural
element in the analysis. In the celebrated words of the
American constitutional scholar Charles Black what is involved is a
move from:
“. . . the method of purported explication or exegesis of the
particular textual passage considered as a directive action
. . . to
the method of inference from the structures and relationships
created by the constitution in all its parts or in some
principal
part”. (In
Structure and Relationship in
Constitutional Law
(Ox Bow Press, Woodbridge 1985) at 7)
He points out that
this involves shifting constitutional reasoning from interpretation
of isolated texts to analysis based on
structure and relation as
created by the Constitution. (At 31-35).
[350]
Fedsure Life Assurance Ltd and Others v Greater Johannesburg
Transitional Metropolitan Council
and Others
1999 (1) SA
374 (CC); 1998 (12) BCLR 1458 (CC).
[351]
Id at para 23.
[352]
Section 1 of the Constitution provides:
“The Republic of South Africa is one, sovereign, democratic
state founded on the
following values:
(a) Human dignity, the achievement of equality and the advancement
of
human rights and freedoms.
(b) Non-racialism and non-sexism.
(c) Supremacy of the constitution and the rule of law.
(d) Universal adult suffrage, a national common voters roll, regular
elections and a multi-party system of democratic government,
to
ensure accountability, responsiveness and openness.”
[353]
Section 195 of the Constitution provides for the basic values and
principles governing public administration as follows:
“(1) Public administration must be governed by the democratic
values and
principles enshrined in the Constitution, including the following
principles:
(a) A high standard of professional ethics must be promoted and
maintained.
(b) Efficient, economic and effective use of resources must be
promoted.
(c) Public administration must be development-oriented.
(d) Services must be provided impartially, fairly, equitably and
without
bias.
(e) People's needs must be responded to, and the public must be
encouraged to participate in policy-making.
(f) Public administration must be accountable.
(g) Transparency must be fostered by providing the public with
timely,
accessible and accurate information.
(h) Good human-resource management and career-development practices,
to maximise human potential, must be cultivated.
(i) Public administration must be broadly representative of the
South
African people, with employment and personnel management
practices based on ability, objectivity, fairness, and the need to
redress the imbalances of the past to achieve broad representation.
(2) The above principles apply to—
(a) administration in every sphere of government;
(b) organs of state; and
(c) public enterprises.
(3) National legislation must ensure the promotion of the values and
principles
listed in
subsection (1).” (My emphasis.)
[354]
See Black above n 2 at 46-47 Discussing the famous
New York Times
v Sullivan
case 376 U.S.254 (1964) he argues that it is idle to
pretend that the First Amendment and Equal Protection clauses in the
Bill
of Rights dictated the decision, which was really based on the
concept that no judge or jury could penalise free expression in
a
matter of such high national importance as the right to criticise a
racist public official. He concludes ( at 49) “[n]othing
but possible gain in predictability could come from selection of a
ground which forces one to talk about, realistic factors of
national
political involvement.”
[355]
Thus any obscurity in the rather convoluted test for reasonableness
contained in section 6(2)(h) of PAJA must be resolved in
favour of
and not against the broad, unqualified sweep of section 33(1).
See the discussion in
Bato Star Fishing (Pty) Ltd v Minister of
Environmental Affairs and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC);
2004 (7)
BCLR 687
(CC) at paras 44-45. Echoes of the
Wednesbury
test which confines judicial review concerning the substance of
administrative decisions to irrationality rather than reasonableness
(see Chaskalson CJ at para 108) should have no place in the open and
democratic society envisaged by the Constitution.
[356]
Chaskalson P in
Pharmaceutical Manufacturers Association of SA
and Another: In re Ex parte President of the Republic of South
Africa and Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC);
2000 (3) BCLR 241
(CC)
at para 45.
(Pharmaceuticals)
[357]
South African Rugby and Football Union v President of the
Republic of South Africa
2000 (1) SA 1
(CC);
1999 (10) BCLR 1059
(CC) at para 133. (
SARFU
(3)
)
[358]
Id.
[359]
Id at para 134.
[360]
Section 32(1).
[361]
Section 33.
[362]
Section 7(2) and section 8(1).
[363]
Section 195(2).
[364]
Section 196.
[365]
Section 182(1)(a) and (b).
[366]
Section 188(1)(a) and (c).
[367]
SARFU (3)
above n 10 at para 136.
[368]
Hoexter
The New Constitutional and Administrative Law Vol II
Administrative Law
(Juta, Cape Town 2002) 28-31, with assistance
from Rosemary Lyster, general editor Iain Currie (Hoexter).
She distinguishes
between administrative acts and administrative
action. In her view administrative action is wide enough to
include subordinate
legislation. In this respect her approach
is in line with that of Chaskalson CJ in the present matter.
While I agree
with the underlying objective and much of the end
result, I differ over the modalities.
[369]
Executive Council, Western Cape Legislature, and Others v
President of the Republic of South Africa and Others
[1995] ZACC 8
;
1995 (4) SA
877
(CC);
1995 (10) BCLR 1289
(CC). (
Executive Council
Western Cape
)
[370]
Id at para 51.
[371]
See Hoexter above n 21 at 29.
[372]
Id.
[373]
Id at 29-30.
[374]
Wade and Forsyth
Administrative Law
8 ed (Oxford University
Press, New York 2000) at 436. (Wade and Forsyth)
[375]
See Baxter “Rule-making and the Policy Formulation in South
African Administrative–Law Reform” in
Corder and
others Administrative Law Reform
(Juta and Co Ltd., Cape Town
1993) at 186. This article was later republished in (1993)
Acta Juridica
. (Baxter in Corder)
[376]
See O’Regan J “Rules for Rule-making: Administrative Law
and Subordinate legislation” in Corder id at 160-162.
(O’Regan in Corder)
[377]
Hoexter above n 21 at 102. She goes on to say that a narrow
interpretation of the word “decision” must be resisted
stoutly, since it perpetuates a discredited separation of
administrative function between “legislative” and
“purely
administrative”. She observes that it is
true that a number of provisions and one ground of review relating
particularly
to delegated legislation were left out of the Act and
deliberately so, but contends that other provisions, notably those
allowing
for notice and comment procedures, would apply to delegated
legislation. She adds that the South African Law Commission
(SALC) draft Bill included a duty on the State Law Adviser to
publish protocols for rule-making, a duty on administrators to
communicate their rules and standards in an appropriate way to those
likely to be affected by them, and provisions relating to
the
keeping of registers and indexes of rules and standards, but that
they were intentionally omitted from PAJA. The ground
of
review for vagueness also appeared in the draft Bill. All of
these were left out of the final version. (Hoexter
at 102 fn
203).
[378]
Wade and Forsyth above n 27 at 875.
[379]
Id.
[380]
Hoexter above n 21 at 112.
[381]
See for example
South African Roads Board v Johannesburg City
Council
1991 (4) SA 1
(A). (
South African Roads Board
)
[382]
Subsection 2 goes on to state:
“If an administrator decides to hold a public inquiry—
(a) the administrator must conduct the public inquiry or appoint a
suitably qualified person or panel of persons to do so; and
(b) the administrator or the person or panel referred to in
paragraph (a) must —
(i) determine the procedure for the public inquiry, which must—
(aa) include a public hearing; and
(bb) comply with the procedures to be followed in connection with
inquires, as prescribed;
(ii) conduct the inquiry in accordance with that procedure;
(iii) compile a written report on the inquiry and give reasons for
any administrative action taken or recommended; and
(iv) as soon as possible thereafter—
(aa) publish in English and in at least one of the other official
languages in the Gazette or relevant provincial Gazette a notice
containing a concise summary of any report and the particulars of
the places and times at which the report may be inspected and
copied; and
(bb) convey by such other means of communication which the
administrator considers effective, the information referred to in
item (aa) to the public concerned.”
[383]
Subsection 3 provides:
“If an administrator decides to follow a notice and comment
procedure, the administrator must—
(a) take appropriate steps to communicate the administrative action
to those likely to be materially and adversely affected by
it and
call for comments from them;
(b) consider any comments received;
(c) decide whether or not to take the administrative action, with or
without changes; and
(d) comply with the procedures to be followed in connection with
notice and comment procedures, as prescribed.”
[384]
Section 5(4).
[385]
See Hoexter above n 21 at 112, where she points out:
“[T]he Act perpetuates the heavy-handed all-or-nothing style
of ‘old’ administrative law by placing the focus
on
concepts
such as ‘decision’, ‘rights’
and ‘direct, external legal effect’. . . . A reliance on
concepts,
to supply answers to fundamental questions of application
‘encourages judges and lawyers to spend their time working out
the content of these concepts, instead of working out the
factors
relevant to judicial intervention and non-intervention.’”
[386]
See above n 30.
[387]
Black asks why should one not explicitly base constitutional
holdings
“not on
Humpty-Dumpty textual manipulation, but on the sort of political
inference which not only underlies the textual
manipulation but is,
in a well constructed opinion, usually invoked to support the
interpretation of cryptic text?”
The manipulation he
decried related to a case concerning a state law under which a man
was prosecuted for bringing his indigent
brother into the state.
Five judges held the state law to be unconstitutional under the
commerce-clause theory, four, under
the privileges and immunities
clause. The real principle, he pointed out, had nothing to do
with texts concerning inter-state
commerce or privileges and
immunities, but was that the USA was a unitary state in which,
because of its nationhood, internal
barriers to travel were
unthinkable.
There is, of
course, no question of Humpty-Dumpty manipulation in the present
matter. I believe, however, that the real
principle governing
review of subordinate legislation stems from the way law-making
should be controlled in a constitutional
democracy, and not from
loading on to a provision in the Bill of Rights to carry more than
it was designed to bear. (Above
n 2 at 29)
[388]
Baxter in Corder above n 28 at 177.
[389]
Id.
[390]
As Black at above n 2 at 31 states, there is
“ . . . a close and perpetual interworking between the textual
and the relational and structural modes of reasoning, for
the
structure and relations concerned are themselves created by the
text, and inference drawn from them must surely be controlled
by the
text.”
[391]
Hoexter above n 21 at 84.
[392]
See the discussion on constitutional control of public power by O’
Regan J in
Rail Commuters Action Group and Others v Transnet Ltd
t/a Metrorail and Others
2005(2) SA 359
[2004] ZACC 20
; ;
2005 (4) BCLR 301
(CC)
at paras 85-86. (
Metrorail
)
[393]
Pharmaceutical
above n 9 at paras 17, 19, 20 and 45.
[394]
Above n 45 at para 85.
[395]
Id.
[396]
Baxter in Corder above n 28 at 178.
[397]
Wade and Forsyth above n 27 at 876.
[398]
Id.
[399]
Id.
[400]
Id.
[401]
Id.
[402]
Metrorail
above n 45 at para 76.
[403]
Section 57(1)(b).
[404]
Sections 70(1)(b) and 72.
[405]
Sections 116(1)(b), 118, 152(1)(e) and 160(7).
[406]
Act 2 of 2000.
[407]
Section 9(e).
[408]
To mention a few of the popular names given to the widespread
practice of organising consultations.
[409]
Hoexter points out that the draft Administrative Justice Bill that
was appended to the South African Law Commission’s
Report
on Administrative Justice
(1999) included a duty on the State
Law Advisor to publish protocols for rule-making, a duty on
administrators to communicate
their rules and standards in an
appropriate way to those likely to be affected by them and,
provisions relating to the keeping
of registers and indexes of rules
and standards, but that these were left out of the final version.
(Above n 21 at 102
at fn 203)
[410]
O’Regan in Corder quotes the classic work of Schwartz on
Administrative Law (1984) as stating that a statute in the United
States which required a public inquiry resulted in a hearing with a
nearly 8000 page record to determine whether peanut butter
should
consist of 87.5 or 90 per cent peanuts. (Above n 29 at 174 at
fn 87)
[411]
See section 4 (3) of PAJA.
[412]
According to Hoexter the courts still use the term ‘ultra
vires’ as before to indicate that an action is outside
of its
lawful parameters, illegal and of no force or effect. However,
the meaning of the term has changed. Hoexter
states that the
‘
vires’
in question are now those of the
Constitution, and not simply those of Parliament. Above n 21
at 81.
[413]
[1898] 2 QB 91
(Div Court).
[414]
Id at 99-100.
[415]
See
Pharmaceutical
above n 9 at paras 84-85.
[416]
Above n 45 at para 87-88.
[417]
Pharmaceuticals
above n 9 at para 84.
[418]
Executive Council Western Cape
above n 22 at para 47.
[419]
As provided for in sections 43 and 44 of the Constitution.
[420]
Section 8(1) of the Constitution.
[421]
Sections 25, 26 and 27.
[422]
Section 36.
[423]
Above n 34 at 12E-G.
[424]
Government of the Republic of South Africa and Others v Grootboom
and Others
2001 (1) SA 46
(CC);
2000 (11) BCLR 1169
(CC).
(
Grootboom
)
[425]
Id at para 41.
[426]
Soobramoney v Minister of Health, KwaZulu-Natal
[1997] ZACC 17
;
1998 (1) SA
765
(CC);
1997 (12) BCLR 1696
(CC), City
Council of Pretoria v
Walker
[1998] ZACC 1
;
1998 (2) SA 363
(CC);
1998 (3) BCLR 257
(CC),
Grootboom
above n 77,
Western Cape Provincial Government and Others: In re
DVB Behuising (Pty) Ltd v North West Provincial Government and
Another
[2000] ZACC 2
;
2001 (1) SA 500
(CC);
2000 (4) BCLR 347
(CC),
Port
Elizabeth Municipality v Various Occupiers
[2004] ZACC 7
;
2005 (1) SA 217
(CC);
2004 (12) BCLR 1268
(CC),
President of RSA and Another v
Modderklip Boerdery (Pty) Ltd
and Others
2005 (8) BCLR
786 (CC).
[427]
Above n 76 at paras 43-44.
[428]
Affordable Medicines Trust and Others v Minister of Health of the
RSA and Others
[2005] ZACC 3
;
2005 (6) BCLR 529.
(
Affordable
Medicines
)
[429]
Id at paras 59-60.
[430]
Id at para 60.
[431]
See Sunstein,
The Partial Constitution
, (Harvard University
Press, Cambridge 1993) at 3-4. Discussing the dangers of what
he refers to as status quo neutrality,
he writes that neutrality
takes
“as a given and as a baseline for decision, the status quo, or
what various people and groups now have: existing distributions
of
property, income, legal entitlements, wealth, so-called natural
assets and preferences. A departure from the status quo signals
partisanship; respect for the status quo signals neutrality.
When government does not interfere with existing distributions,
it
is adhering to the neutrality requirement, and it rarely needs to
justify its decision at all. When it disrupts existing
arrangements, it is behaving partially, and is thus subject to
constitutional doubt.
. . . .
In constitutional law, then, we should understand the prevailing
conception of neutrality to be one that treats as legally
uncontroversial any decision to respect existing distributions, and
as legally suspect any decision to disrupt them.”
In South Africa the
apparent objectivity of the notion of status quo neutrality could
frequently result in unconscious partiality
in favour of protecting
systemic mal-distribution. In a society where distributions
are manifestly unequal and unjust,
it is a defence of the status quo
and the failure to make corrective intervention, rather than a
re-distributive initiative,
that could be open to a charge of
unreasonableness.
[432]
Affordable Medicines
above n 81 at para 93.
[433]
Act 3 of 2000.
[434]
The full text is cited in paragraph 60 of the
judgment of the Chief Justice.
[435]
Act 101 of 1965.
[436]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and
Another NNO; Pharmaceutical Society of South Africa and Others v
Tshabalala-Msimang
and Another NNO
2005 (2) SA 530 (C).
[437]
Pharmaceutical Society of South Africa and Others v
Tshabalala-Msimang and Another NNO; New Clicks South Africa (Pty)
Ltd v Minister
of Health and Another
2005 (3) SA 238
(SCA);
2005
(6) BCLR 576
(SCA).
[438]
Section 22G of the Medicines and Related Substances Act
states:
“(1) The Minister shall appoint, for a period not exceeding
five years, such persons as he or she may deem fit to be members
of
a committee to be known as the pricing committee.
(2) The Minister may, on the recommendation of the pricing
committee, make regulations—
(a) on the introduction of a transparent pricing system for all
medicines and Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist
or by a person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule O medicines.
(3)(a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be published
as
prescribed, and such price shall be the only price at which
manufacturers shall sell medicines and Scheduled substances to
any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a)
or a wholesaler or distributor shall sell a medicine at a
price
higher than the price contemplated in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist
or person licensed in terms of this Act to charge a dispensing
fee
as contemplated in subsection (2)(b).
(4) To the members of the pricing committee who are not in the
full-time employment of the State may be paid such remuneration
and
allowances as the Minister, with the concurrence of the Minister of
Finance, may determine.”
[439]
The definition of user appears in regulation 2.
[440]
Regulation 24(5) read with regulation 2 sets the effective date at
three months after the commencement date of 2 May 2004.
[441]
Schedule 0 medicines include all substances that are subject to
registration in terms of the Medicines Act and which are not
listed
in any of the other schedules.
[442]
See regulations 10(3) and 12(3).
[443]
Below paras 726-782.
[444]
Above n 435.
[445]
Below para 788.
[446]
Sections 27(1) and (2) of the Constitution states:
“(1) Everyone has the right to have access to–
(a) health care services, including reproductive health care;
(b) sufficient food and water; and
(c) social security, including, if they are unable to support
themselves and their dependants, appropriate social assistance.
(2) The state must take reasonable legislative and other measures,
within its available resources, to achieve progressive realisation
of each of these rights.”
[447]
Section 22 of the Constitution states:
“
Every
citizen has the right to choose their trade, occupation or
profession freely. The practice of a trade, occupation or profession
may be regulated by law.”
[448]
Professor McIntyre, Dr Pillay, Professor Mossialos, Professor Henry
and Dr Thiede.
[449]
2001 (1) SA 1
(CC);
2000 (11) BCLR 1211
(CC) at paras 42-45.
[450]
Above n 437
at para 82.
[451]
Id at para 83.
[452]
Id at para 82.
[453]
Id at para 89.
[454]
Id at para 86-88.
[455]
Id at para 89.
[456]
Section 27(1) and (2) of the Constitution
above n 446.
[457]
[1997] ZACC 17
;
1998 (1) SA 765
(CC);
1997 (12) BCLR 1696
(CC) at
para 8.
[458]
See also the unanimous judgment of the Court in
Government
of the Republic of South Africa and Others v Grootboom and Others
2001 (1) SA 46
(CC);
2000 (11) BCLR 1169
(CC) at
para 25.
[459]
Minister of Health and Others v Treatment Action Campaign and
Others (No 2)
[2002] ZACC 15
;
2002 (5) SA 721
(CC);
2002 (10) BCLR 1033
(CC) at
para 36.
[460]
Section 22C(1)(a) states:
“
(1) Subject to the
provisions of this section–
a) the Director-General may on
application in the prescribed manner and on payment of the
prescribed fee issue to a medical practitioner,
dentist,
practitioner, nurse or other person registered under the Health
Professions Act, 1974, a licence to compound and dispense
medicines,
on the prescribed conditions”.
On section 22C(1)(a), Ngcobo J
in
Affordable Medicines
Trust and
Others v Minister of Health of RSA and Another
[2005] ZACC 3
;
2005 (6)
BCLR 529
(CC) stated at paras 33 and 38:
“
Nor is there anything
that prevents Parliament from conferring upon the Director-General
the discretion to determine those conditions.
Discretion has
an important role to play in decision-making. And its scope
may vary.
. . . .
The power of the
Director-General to prescribe conditions under subsection is limited
by the context in which these powers are
to be exercised. Thus
the power to prescribe conditions must be exercised in the light of,
amongst other considerations,
the government purpose to increase
access to medicines that are safe for consumption, the purpose for
which the discretionary
powers are given, and the obligations of
medical practitioners who have been issued with dispensing
licenses. All this
provides sufficient constraint on the
exercise of the discretionary powers conferred by the subsection.”
[461]
Preamble to the national drug policy document.
[462]
Act 90 of 1997.
[463]
Act 59 of 2002.
[464]
Section 22F of the Medicines Act, above n 435.
[465]
Id at
section 18A.
[466]
Id at s
ection 15C.
[467]
Id at s
ection 18B.
[468]
Id at section
22C.
[469]
1998 (4) SA 1127
(CC) at para 17
[1998] ZACC 10
; ;
1998 (7) BCLR 880
(CC) para 10.
[470]
Id. It is clear that the judgment cites with approval the dicta of
Kriegler AJA in Administrator,
Cape v Raats Röntgen and
Vermeulen (Pty) Ltd
[1991] ZASCA 126
;
1992 (1) SA 245
(A) at 254B-E. See
also
Pharmaceutical Manufacturers Association of SA and Another:
In re Ex parte President of the Republic of South Africa and Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC);
2000 (3) BCLR 241
(CC) at para 61.
[471]
Section 6(2)(e)(ii) of PAJA.
[472]
Within the meaning of section 6(2)(e)(i) of PAJA.
[473]
Within the meaning of section 6(2)(e)(iii) of
PAJA.
[474]
Within the meaning of section 6(2)(f)(ii)(bb) of
PAJA.
[475]
See remarks of Ngcobo J in
Hoffmann
above n 449 at paras
42-43.
[476]
S v Lawrence; S v Negal; S v Solberg
1997 (4) SA 1176
(CC);
1997 (10) BCLR 1348
(CC);
Pharmaceuticals
above n 470;
Fedsure Life Assurance Ltd and Others v
Greater Johannesburg Transitional Metropolitan Council and Others
[1998] ZACC 17
;
1999 (1) SA 374
(CC);
1998 (12) BCLR 1458
(CC)
;
President of the Republic of South Africa and Others v
South African Rugby Football Union and Others (SARFU 3)
2000 (1)
SA 1
(CC);
1999 (10) BCLR 1059
(CC);
Bel Porto
School Governing Body and Others v Premier, Western Cape, and
Another
[2002] ZACC 2
;
2002 (3) SA 265
(CC);
2002 (9)
BCLR 891
(CC)
;
Affordable Medicines
above n 460.
[477]
S v Makwanyane and Another
[1995] ZACC 3
;
1995 (3) SA 391
(CC);
1995 (6)
BCLR 665
(CC) at para 156;
Prinsloo v Van der Linde and Another
[1997] ZACC 5
;
1997 (3) SA 1012
(CC);
1997 (6) BCLR 759
(CC) at para 25;
President of the Republic of South Africa v Hugo
[1997] ZACC 4
;
1997 (4) SA
1
(CC);
1997 (6) BCLR 708
(CC) at para 13;
Fedsure
above id
at para 58;
New National Party of South Africa v Government of
the Republic of South Africa and Others
[1999] ZACC 5
;
1999 (3) SA 191
(CC);
1999 (5) BCLR 489
(CC) at para 19;
Pharmaceuticals
above n
470 at paras 17 and 20;
Bel Porto
id at para 87;
Minister
of Health and Others v Treatment Action Campaign and Others (No 2)
above n 459;
Bato Star Fishing (Pty) Ltd v Minister of
Environmental Affairs and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC);
2004 (7)
BCLR 687
(CC) at para 22;
Affordable Medicines
n 460 at para
49.
[478]
Bel Porto
above n 44 at para 87,
Bato Star
above
n 45 at para 22.
[479]
Bato Star
id.
[480]
Section 33 reads as follows:
“Just administrative action.
(1) Everyone has the right to administrative action that is lawful,
reasonable and procedurally fair.
(2) Everyone whose rights have been adversely affected by
administrative action has the right to be given written reasons.
(3) National legislation must be enacted to give effect to these
rights, and must:
(a) provide for the review of administrative action by a court or,
where appropriate, an independent and impartial tribunal;
(b) impose a duty on the state to give effect to the rights in
subsections (1) and (2); and
(c) promote an efficient administration.”
[481]
Above n 477 a
t para 22.
[482]
Id
at para 25.
[483]
Id
at para 24.
[484]
Above n 476 at p
ara 141; also see
Permanent
Secretary, Department of Education and Welfare, Eastern Cape, and
Another v Ed-U-College (PE) (Section 21) Inc
[2000] ZACC 23
;
2001 (2) SA 1
(CC);
2001 (2) BCLR 118
(CC) at para 18;
Zondi
v MEC for Transitional and Local Government Affairs and Others
[2004] ZACC 19
;
2005 (3) SA 589
(CC);
2005 (4) BCLR 347
(CC) at para 104.
[485]
SARFU 3
above n
44 at para 143.
[486]
2003 (5) SA 281 (CC);
2003 (8) BCLR 838 (CC).
[487]
Id at para 52.
[488]
Id
at para 53 n 30.
[489]
Joubert
The Law of South Africa (LAWSA)
2 ed vol 1
(LexisNexis Butterworths, Durban 2003) at paras 79-81; Joubert,
LAWSA
First Reissue vol 10 Part 1 (Butterworths, Durban,
1998) at para 6; Boulle, Harris and Hoexter
Constitutional and
Administrative Law
(Juta, Cape Town 1989) at 88-90; De Waal,
Currie and Erasmus
The Bill of Rights Handbook
4 ed (Juta,
Lansdowne 2001) 504-505; Klaaren “Administrative Justice”
in Chaskalson et al
Constitutional Law of South Africa
(Juta,
Cape Town, 1996) at 25.1-25.2; De Ville
Judicial Review of
Administrative Action in South Africa
(LexisNexis Butterworths,
Durban 2003) at 39-40; Henderson “The Meaning of
Administrative Action” (1998) 115
SA Law Journal
634 at
634-635; Hoexter
The New Constitutional and Administrative Law
1
ed vol 2 (Juta, Lansdowne 2001) at 102; Burns
Administrative Law
under the 1996 Constitution
2 ed (LexisNexis Butterworths,
Durban 2003) at 21-22; Currie and Klaaren
The Promotion of
Administrative Justice Act Benchbook
(Siberlink, Cape Town 2001)
at 83-84 para 2.38.
[490]
Above n433;
Bato Star
n 477 at paras 23 and 25;
Zondi
above n 484 at para 99;
Affordable Medicines
above n 460 at
para 49.
[491]
See section 6(2)(h) of PAJA which reads:
“
(2) A court or tribunal has the power to
judicially review an administrative action if–
(h) the exercise of the power or the performance of the function
authorised by the empowering provision, in pursuance of which
the
administrative action was purportedly taken, is so unreasonable that
no reasonable person could have so exercised the power
or performed
the function”.
[492]
Above n 477 at para 45.
[493]
Dr Theron says that for example the UK once targeted a return on
capital of between 17% and 21%.
[494]
Dr Theron does not explain the source of the international
convention and practice she relies upon and whether it is subject
to
any contextual variation.
[495]
Above n 437 at para 86.
[496]
Above n 437 at para 85.
[497]
Above n 437 at paras 85-87.
[498]
Mr Jordaan explains that
“[t]he blue book, is the reference price list compiled and
published by the Pharmaceutical Publishers from data obtained
from
pharmaceutical manufacturers, which is used as a basis to calculate
the suggested dispensing price of medicine.”
[499]
Dr Thiede, Dr Pillay, Professor Henry and Professor Mossialos.
[500]
Of the four channels of distribution described in Dr Stillman’s
report, being retail pharmacies, hospital pharmacies, courier
pharmacies and dispensing doctors, the courier pharmacies have a 12%
share in the dispensing of prescription medicines measured
by value.
[501]
Above paras 753-759.
[502]
Main judgment paras 23-84, 190-263, 278-286 and 293-415.
[503]
Act 3 of 2000.
[504]
Main judgment paras 264 – 277.
[505]
Main judgment paras 287 – 292.
[506]
Main judgment paras 416 – 420.
[507]
Medicines and Related Substances Act 101 of 1965
.
[508]
Section 22G(2)(b).
[509]
Section 22G(2)(c).
[510]
Section 22G(3)(a).
[511]
Section 22G(3)(b).
[512]
Section 22C(2).
[513]
2 May 2004.
[514]
The fact that
regulation 5(1)
does not refer to VAT is, in my view,
neither here nor there.
[515]
The proviso to
regulation 5(2)(c)(i)
refers to a
Scheduled substance while the proviso to
regulation 5(2)(c)(ii)
refers to medicine.
[516]
Id.
[517]
Id.
[518]
Id.
[519]
Id.
[520]
Id.
[521]
Regulation 22(1).
[522]
See paragraphs 181-183 of his judgment.
[523]
See paragraphs 836-841 of his judgment.