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[2017] ZACC 16
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Genesis Medical Scheme v Registrar of Medical Schemes and Another (CCT139/16) [2017] ZACC 16; 2017 (9) BCLR 1164 (CC); 2017 (6) SA 1 (CC) (6 June 2017)
Links to summary
Heads of arguments
CONSTITUTIONAL COURT OF
SOUTH AFRICA
Case CCT 139/16
In the matter between:
GENESIS MEDICAL
SCHEME
Applicant
and
REGISTRAR OF
MEDICAL SCHEMES
First Respondent
COUNCIL FOR
MEDICAL SCHEMES
Second Respondent
Neutral citation:
Genesis Medical Scheme v Registrar of Medical Schemes and Another
[2017] ZACC 16
Coram:
Mogoeng
CJ, Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe
J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J
Judgments:
CAMERON J (first judgment) (majority): [1] to
[66]
JAFTA J (second judgment): [67] to [143]
MOJAPELO AJ (third judgment): [144] to [154]
ZONDO J (fourth
judgment) (majority): [155] to [179]
Heard on:
7 February 2017
Decided on:
6 June 2017
Summary:
Medical Schemes Act 131 of 1998
—
section 35(9)(c)
–
funds in members’ personal medical savings account to be
treated as liabilities of the scheme — nature of funds
in
members’ personal medical savings account — funds not
trust property — relationship between scheme and member
not
trustee and beneficiary
ORDER
On appeal from the Supreme Court of
Appeal (hearing an appeal from the High Court of South Africa,
Western Cape Division, Cape Town):
The following order is made:
1.
Leave to appeal is granted.
2.
The appeal is upheld.
3.
The order of the Supreme Court of Appeal is set aside and substituted
with the
following:
“The appeal
is dismissed with costs, including the costs of two counsel.”
4.
The respondents are to pay the applicant’s costs, including
where applicable
the costs of two counsel.
JUDGMENT
CAMERON J (Mogoeng CJ, Nkabinde ADCJ,
Froneman J, Khampepe J, Madlanga J, Mhlantla J, Pretorius AJ and
Zondo J concurring):
Introduction
[1]
Does a medical scheme hold any portion of its members’
contributions in trust for them as a trustee? That is the
issue.
Behind it lurks a practical question, which is not
directly at issue in this litigation. What happens to members’
contributions
if the scheme becomes insolvent?
[1]
This case does not involve insolvency, but the parties are at odds
about how to characterise members’ contributions
to medical
schemes, which, in turn, may shed light on the insolvency problem.
Two conflicting judgments in the High Court
and a divided Supreme
Court of Appeal bench necessitate a decision.
Background and litigation history
[2]
The applicant, Genesis Medical Scheme (Genesis), is registered
as a medical scheme under the Medical Schemes Act
[2]
(MSA). The first respondent is the Registrar of Medical
Schemes (Registrar), appointed under the MSA
[3]
as the executive officer of the Council for Medical Schemes
(Council), which is the second respondent.
[4]
[3]
Genesis seeks leave to appeal against a decision of the
Supreme Court of Appeal
[5]
that overturned a decision of the High Court of South Africa, Western
Cape Division, Cape Town (High Court).
[6]
The dispute between Genesis and the Registrar arose on 19 June 2013
when the Registrar rejected Genesis’s annual financial
statements. The MSA does not invest independent legal authority
in the Registrar’s circulars or prescripts. Instead,
it
requires that a scheme’s annual financial statements be
furnished to the Registrar “in the medium and form determined
by the Registrar”.
[7]
And it then adds bite – by empowering the Registrar to reject a
scheme’s annual financial statements if they
do not comply with
the statute’s provisions or do not “correctly reflect the
revenue and expenditure or financial position”
of the
scheme.
[8]
And here the Registrar rejected Genesis’s financial
statements. That rejection, and that alone, was the crucial
decision at issue here.
[4]
The reason for the Registrar’s rejection of Genesis’s
statements goes to the heart of the issue before us. Three
crucial provisions illuminate what happened. The first provides
the setting. It creates a power. The second and
the third
provisions create obligations when a scheme exercises that power.
[5]
The first provision is section 30(1)(e). It stipulates
that a medical scheme may in its rules make provision for the
allocation
to a member of a personal medical savings account
(PMSA).
[9]
A PMSA is a portion of the contributions the scheme receives from
those members who select benefit options that include savings
accounts. The purpose is to enable members to set aside funds
to meet healthcare costs that the particular benefit option
they
choose doesn’t cover.
[10]
So a PMSA allows – indeed, helps, and is designed to help –
a member to engage in structured saving for medical
eventualities.
[6]
The second key provision is section 35(1).
Section 35 is headed “Financial arrangements”. It
stipulates
how medical schemes must deal with their assets, and how
PMSAs are to be rendered in their accounting. Section 35(1)
requires
a scheme at all times to “maintain its business in a
financially sound condition”.
[11]
Section 35(3) adds precision to the general requirement of
section 35(1). It demands that a scheme sustain a healthy
solvency margin, and sets out how. It must do so by ensuring
that “on any day” its aggregate assets exceed its
aggregate liabilities and nett assets.
[12]
[7]
The terms “assets” and “liabilities”
in section 35(3) are pivotal to answering the question before us.
This is because the third key provision, section 35(9), spells out
how a medical scheme must reflect the amount standing to the
credit
of a PMSA on its balance sheet. The section specifies that
PMSAs must be reflected as liabilities of the medical scheme.
Because of its importance to the argument, it claims space here:
“For the
purposes of this Act, the liabilities of a medical scheme shall
include—
(a)
the amount which the medical scheme estimates will be payable in
respect of claims
which have been submitted and assessed but not yet
paid;
(b)
the amount which the medical scheme estimates will become payable in
respect of claims
which have been incurred but not yet submitted; and
(c)
the amount standing to the credit of a member’s personal
savings account.”
Completing the rigorous statutory
framework within which medical schemes operate, the MSA also requires
them to prepare and furnish
audited annual financial statements to
the Registrar.
[13]
[8]
In rejecting Genesis’s financial statements, the
Registrar stated that in two respects they did not correctly reflect
the
scheme’s financial position. First, Genesis’s
accounting was wrong. It mistakenly reflected PMSA funds as
assets in its balance sheet. This was erroneous. Second,
the Registrar said Genesis understated its liabilities.
This
was a reference to the duty section 35(9) imposes to include in its
liabilities the amount standing to the credit of members’
PMSAs. Genesis excluded from its list of liabilities the
interest the PMSA balances were yielding. This was because
it
was appropriating that interest to itself, on the premise that the
PMSA funds were themselves its assets. The Registrar
said this,
too, was wrong.
[9]
With this, battle was joined. At stake were just two
issues – those that now require decision. Is Genesis the
right-holder of PMSA funds or does it hold them in trust? And,
flowing from this, may Genesis claim the interest earned on
the
PMSAs?
[10]
Though the Registrar in rejecting Genesis’s statements
cited five grounds, they all derived from, and integrally invoked, a
decision the High Court gave in 2007 in
Omnihealth
.
[14]
The second judgment, by Jafta J, reads the Registrar’s
rejection of Genesis’s annual financial statements as
based on
more than just
Omnihealth
. I do not agree. The
Registrar’s rejection letter shows that the grounds for
rejecting Genesis’s statements
all stemmed from
Omnihealth
,
solely and only. Indeed, at the outset the letter states:
“Following
the decision in the
Omnihealth
case, schemes were advised in
Circulars 38 of 2011 and 5 of 2012 to comply with the rulings
handed down in that case regarding
the nature and treatment of
member’s personal medical savings accounts.”
[11]
The correctness of
Omnihealth
is thus key: and if it is
wrong, the Registrar’s formal statutory rejection of Genesis’s
statements must tumble, together
with the circulars that embody and
explain the Registrar’s approach. In
Omnihealth
,
the liquidators of an insolvent medical scheme, Omnihealth, contended
that its PMSA funds fell into its insolvent estate, to be
divided up
between its creditors.
[15]
The Registrar disputed this, arguing that PMSA funds constituted
“trust property” in terms of the Financial Institutions
(Protection of Funds) Act
[16]
(FIA). They therefore did not fall into Omnihealth’s pool of
assets for distribution amongst its creditors.
[12]
The Court in
Omnihealth
(Du Plessis J) agreed. It
held that the PMSA funds constituted “trust property”
under the FIA and therefore did
not fall into Omnihealth’s
insolvent estate.
[17]
Instead, the funds were to be administered separately in accordance
with the FIA.
[18]
This finding in the
Omnihealth
judgment was the foundation for
the Registrar’s decision to reject Genesis’s financial
statements. The incorrect
reflection of the PMSA funds as
Genesis’s assets in its books of account and the understating
of the corresponding interest
liability were wrong, the Registrar
said, because
Omnihealth
had found that those funds
constituted “trust property”. This the Council
interpreted to mean that the funds
had to be treated entirely
off-balance sheet.
[13]
Genesis launched an application to review the Registrar’s
decision under the Promotion of Administrative Justice Act
[19]
(PAJA). It said the decision had to be set aside because
following
Omnihealth
constituted “an error of law”,
which materially influenced the Registrar’s decision.
[20]
[14]
The High Court (Davis J) agreed. Upholding Genesis’s
contention, it said
Omnihealth
was wrongly decided.
[21]
It was important that the statute be interpreted to make financial
sense as doubtless it was intended to do. The Court
concluded
that a medical scheme is the right-holder of all the funds it holds,
including PMSA funds. The FIA did not assist
the Registrar
because the funds are not trust property. The Court reviewed
and set aside the Registrar’s decision.
[15]
On appeal, with the leave of the High Court, the Supreme Court
of Appeal split. The minority
[22]
affirmed the analysis of the Court below and its rejection of
Omnihealth
. It observed that neither Genesis’s
rules, nor the regulations,
[23]
had any bearing on whether the funds in PMSAs constituted “trust
property” for the purposes of the FIA. The nature
of the
funds could be determined only by examining the provisions of the
MSA. On this basis, the minority concluded that
the MSA did not
treat PMSA funds as “trust property”. The funds,
once paid into the medical scheme’s bank
account, became assets
of the scheme, regardless of whether a proportion was later allocated
by the scheme to a PMSA.
[16]
Central to the minority’s reasoning was the requirement
of section 35(3) that a medical scheme must maintain a daily solvency
margin of aggregate assets over aggregate liabilities.
[24]
Those liabilities by express statutory stipulation must include
PMSAs. And if the PMSAs are liabilities, but not assets,
how to
fulfil the solvency requirement? If the Registrar and
Omnihealth
were right, the minority reasoned, a medical scheme
would somehow, somewhere, every day have to find assets
additional
to its non-PMSA assets in order to off-set the compulsory PMSA
liability in achieving the solvency margin.
[17]
The majority disagreed.
[25]
It reversed the High Court’s decision and affirmed
Omnihealth
, though with qualification. It held that
“divination of justice” was an important aid in
interpreting legislation.
[26]
When applied to the provisions of the MSA, this yielded the
conclusion that the FIA definition of “trust property”
applies to PMSA funds, which therefore constitute “trust
property” for the purposes of that statute.
[27]
These funds must therefore be ring-fenced from creditors. And
they do not fall into the throng of creditors (
concursus
creditorum
) on insolvency.
[18]
The majority nevertheless criticised the Court’s
approach in
Omnihealth
,
[28]
and distanced itself from the Registrar’s position that PMSA
funds must be entirely off balance sheet. It held
that
section 35(9) “clearly” requires that a medical scheme’s
liability to its members in respect of their savings
accounts “must
be an ‘on balance sheet’ item”.
[29]
The majority considered it nevertheless “quite easily possible,
both legally and in the practice of accounting”
for medical
schemes to reflect PMSAs as assets, even though they were in fact
trust property the scheme holds on behalf of its
members.
[30]
Jurisdiction and leave to appeal
[19]
The parties’ dispute raises an arguable point of law of
general public importance that this Court ought to decide.
[31]
The Court has jurisdiction. The questions at issue have led to
conflicting High Court decisions and division in the
Supreme Court of
Appeal. Genesis’s arguments are strong and there are good
prospects. Leave must be granted.
Ground of review
[20]
Genesis’s review of the Registrar’s decision was
based on the assertion that, since
Omnihealth
was incorrectly
decided, the rejection of Genesis’s financial statements was
materially influenced by an error of law.
This review ground
traditionally finds application where an administrator wrongly
misconstrues or misinterprets a legislative provision.
[32]
The second judgment suggests:
“It follows
that the error of law relied on by Genesis must arise from the
misinterpretation or misapplication of the MSA
provisions by the
Registrar which relate to the submission of annual financial
statements.”
[33]
[21]
This seems an inappropriately rigid characterisation of both
the ground of review and of what happened between the parties here.
Constitutional precepts caution against adopting so rigid an
approach. By explicitly affording the right to just
administrative
action,
[34]
the Constitution bestows on courts the power to review every error of
law, provided of course it is “material”.
[35]
PAJA embodies this right, in explicit terms. There is
nothing in the statute that narrows or stifles it.
[22]
The Registrar’s decision to reject Genesis’s
financial statements was not merely influenced by
Omnihealth
.
That decision was what caused, created and drove the rejection.
Omnihealth
was effectively the be-all and end-all of the
Registrar’s decision. Without
Omnihealth
, the
Registrar would not have taken it. The parties would never have
been at odds. In lawyers’ language,
Omnihealth
was
“material” to the disputed decision.
[36]
And if
Omnihealth
was wrong, that means the Registrar’s
decision was wrong then – and that it is wrong now.
Assessment
[23]
A good starting point for establishing whether medical schemes
hold PMSA funds in trust is the MSA’s definition of the
“business
of a medical scheme”.
[37]
The statute stipulates that the “business of a medical scheme”
means “the business of undertaking, in return
for a premium or
contribution, the liability associated with one or more of the . . .
activities” listed in the section.
The liability the
scheme undertakes may include obtaining health services, defraying
expenditure in connection with health services
or rendering health
services.
[38]
[24]
This definition is striking in three respects. First, a
medical scheme is not supposed to be profit-directed
[39]
(and multiple memberships are proscribed).
[40]
And it is subject to rigorous statutory and institutional control.
But the statute nonetheless sees it as a “business”.
[41]
Why? Because, by elementary entrepreneurial principle, a
scheme must survive on what it gets in.
[42]
And the statute requires that it balances its books while doing so.
It demands that schemes keep afloat in a fraught,
competitive
insurance, reinsurance and healthcare market. To keep afloat
means keeping solvent – and this inevitably
demands a sensible,
practical, realistic, business-based approach to managing and
accounting for both assets and liabilities.
[25]
Second, the definition posits two contracting parties, and a
mutual exchange of value (quid pro quo). The parties,
obviously,
are the scheme and its member. The quid pro quo is
that the scheme undertakes liability – the kinds spelled out in
the definition – in exchange for money. The statute calls
this “a premium or contribution”. The word
“premium” comes from the commercial world of
insurance,
[43]
where it means the amount the insured pays to the insurer for
undertaking liability for the loss the specified eventuality, should
it supervene, would inflict.
[44]
To “premium”, the statute’s definition adds “or
contribution” since this is the synonym it
uses for the money
the member pays for the value the scheme offers in exchange.
[45]
[26]
The third, obvious, point, flows from these. It is that,
within the confines the statute stipulates, the definition is steeped
in the language of a business-based, contractual relationship.
It frames two parties dealing with each other in a commercial
setting
for a statutorily regulated bargain: that of undertaking liability in
return for payment of a premium or contribution.
[27]
Why this is important becomes evident when we turn to the
definitions of the FIA. The statute expressly defines
“financial
institution” to include any medical scheme
under the MSA.
[46]
So its strict framework applies in general to medical schemes.
The FIA specifically provides that a financial institution
must “keep
trust property separate from assets belonging to [it], and must in
its books of account clearly indicate the trust
property as being
property belonging to a specified principal”.
[47]
The FIA also provides that despite anything to the contrary
elsewhere, trust property held by a financial institution “under
no circumstances forms part of the assets or funds of the financial
institution”.
[48]
[28]
The crucial provision is the FIA’s definition of “trust
property”. The statute provides that this means any
“asset invested, held, kept in safe custody, controlled,
administered or alienated by any person, partnership, company or
trust for, or on behalf of, another person”. The “[other]
person” the definition refers to as the “principal”.
The core of this definition is that the right-holder in respect of
the asset is not the financial institution. It is held
“for,
or on behalf of, another person”. Title to dispose of the
asset lies not with the financial institution,
but with the
principal.
[29]
The fundamental tenet of the trust relationship in our law
[49]
is that a trustee, though generally the legal owner of the trust
assets, holds them not in the trustee’s own interest, but
for
or on behalf of another person, the trust beneficiary.
[50]
The FIA’s phrase “for, or on behalf of, another person”
gives statutory expression to this tenet.
A further tenet is
that the trust relationship must be deliberately constituted.
It cannot arise unintentionally. Constructive
and resulting
trusts are unknown to South African law.
[51]
A trust can therefore come into existence only by testamentary
disposition, by statute or by contract between living persons.
[30]
Once established, a trust creates a legal relation of
fiduciary obligation on the part of the trustee towards the
beneficiary.
That relation is distinct from a purely
contractual or commercial relationship. This is because a
trustee occupies a fiduciary
office that is subject to supervision
and regulation by the courts. Even in a consensual trust, the
trustee is not simply
a contracting party, but assumes an office
subject to court supervision and public control, as no contractant
does.
[52]
[31]
These principles prompt an immediate observation. Since
a trust can be created by agreement between parties, nothing stops
a
particular medical scheme, subject to approval from the
Registrar,
[53]
from agreeing with its members that it holds particular funds it
receives “for, or on behalf of” them in trust.
So
whether the FIA definition of “trust property” applies
may depend on any pertinent agreement between the scheme
and its
members as to a specified benefit option that the Registrar has
approved. The MSA itself contains no provision that
precludes a
medical scheme from agreeing with its members to hold their
contributions, or a portion of them, in trust. I
return to this
later.
[32]
That is not the problem this litigation presents. The
parties’ dispute, in the form the Registrar’s rejection
of Genesis’s financial statements precipitated, is whether,
where no specific agreement is at issue, the provisions of the
MSA
and FIA, without more, impose a trust relationship on the scheme and
its members regarding PMSA funds. That is the question
the
Supreme Court of Appeal, affirming
Omnihealth
and reversing
the High Court, answered Yes.
[33]
Is this right? That depends on the interrelation between
the MSA and FIA. For members’ contributions to be “trust
property” under the FIA, the scheme must hold a member’s
contributions under the MSA as assets “for, or on behalf
of”
that member as principal. For this to be so, members’
contributions must enter the scheme’s bank account
impressed
with, or thereafter be impressed by, a fiduciary obligation on the
part of Genesis toward its members.
[34]
As is evident from the earlier exposition,
[54]
the MSA’s definition of “business of a medical scheme”
contains no tinge of trust or of fiduciary obligation.
It
provides for the conduct of a business in return for payment of
money. So from the outset the relation between the scheme
and
its members is that of service provider and payer; debtor and
creditor. The scheme through its rules undertakes to provide
specified services on the basis of a quid pro quo, namely the premium
or contribution. The statute constitutes the scheme
and its
member contracting parties, not trustee and beneficiary. The
relation is commercial, not fiduciary.
[35]
Nor does any trust obligation arise from any provisions
regarding a medical scheme’s bank accounts and receipts, which
the
MSA strictly regulates. Section 26(1)(c) requires a
scheme to “establish a banking account under its direct control
into which shall be paid every amount” that it receives “as
subscription or contribution paid by or in respect of a
member”.
[36]
Established doctrine on payments, which this Court recently
confirmed in
Absa Bank
,
[55]
indicates that funds that enter a bank account are held by the bank
subject to a claim by the bank’s client, as its creditor,
to
pay the funds to the client’s order. The suggestion by
counsel for the Registrar that ordinary bank accounts constitute
trust property where the bank is the trustee for the client of the
amount in the account was far-goingly incorrect and cannot be
sustained.
[37]
The medical scheme here is the bank’s creditor. It
is empowered, as title holder to the money, to instruct the bank
how to dispose of it.
[56]
A medical scheme does not receive a member’s premium or
contribution as trustee or fiduciary. It receives the
funds as
a debtor in respect of the liability it undertakes to provide a
service in return for the contribution it receives.
In the
language the FIA employs to define “trust property”, a
medical scheme receives its members’ contributions
for or on
behalf of
its own business, and not as trustee on behalf of the
members. In short, the funds enter the scheme’s bank
account
without being impressed by a trust or fiduciary relationship.
[38]
Are funds allocated to a PMSA any different? The answer
is No. Section 30(1)(e) of the MSA provides that a scheme
“may in its rules make provision for the allocation to a member
of a personal medical savings account, within the limit and
in the
manner prescribed from time to time, to be used for the payment of
any relevant health service”. The provision
entails that
“the allocation” is done by the scheme itself, for it is
into the scheme’s bank account that the
funds allocated have
already been received and credited. The allocation is done by
the scheme as right holder in respect
of the funds it so
allocates.
[57]
From the point of view of the MSA, no question of fiduciary
relationship arises.
[39]
The accounting provisions of the MSA reinforce, though are not
themselves dispositive of, this conclusion. Chapter 7 of the
statute provides for “Financial Matters”, including a
scheme’s financial arrangements and its annual financial
statements. Section 35(1) requires the scheme at all times to
“maintain its business in a financially sound condition”.
Section 35(3) requires that it do this amongst other things by having
assets—
“the
aggregate value of which, on any day, is not less than the aggregate
of—
(a)
the aggregate value on that day of its liabilities; and
(b)
the nett assets as may be prescribed.”
[40]
During argument counsel described this requirement as the
scheme’s “solvency margin”. Its practical
calculation
lay at the heart of the difference between the minority
and the majority in the Supreme Court of Appeal.
[41]
Section 35(3) requires a medical scheme at all times to have
aggregate–value assets that exceed aggregate–value
liabilities
and nett assets. It would flout logic, accounting
practice, and principles of trust law for any funds held in trust to
be
included in the calculation of “assets” for the
purposes of this “solvency margin”. Because of
this,
section 35(9)(c) became pivotal in argument. This
provision requires medical schemes to include PMSAs in their
liabilities.
And section 35(3), in turn, requires a scheme’s
“liabilities” to be exceeded by, on any day, its total
assets.
[42]
Genesis contended that, if PMSAs were trust funds to be
excluded as assets for all purposes, these provisions would require a
scheme
– to meet the section 35(3) “solvency margin”
– to find
outside, non-PMSA
assets to the value of the
PMSA trust assets section 35(9)(c) obliges it to include in its
liabilities. The logic of this
contention is irrefutable.
And its implication – that the statute requires medical
schemes, running as businesses,
to sustain a solvency margin to
off set an accounting entry liability it may not mirror as
an asset – is at odds
with the plain commercial logic the
statute imposes from the outset on medical schemes. It follows
that I differ from the
conclusion in the third judgment, by Mojapelo
AJ, that there is “no confusion created and there is no need
for the medical
scheme to raise additional funds to cover the PMSA
fund liability”.
[58]
[43]
The difficulty the Registrar’s contention would create
for a medical scheme were it obliged to render PMSAs as its
liabilities
without holding them as its assets in any practical sense
is underscored by section 35(6)(c). This prohibits a medical
scheme
from borrowing any money, directly or indirectly, without the
prior approval of the Council. This prevents the scheme from
borrowing money in the ordinary course of business that could in turn
be invested to generate additional revenue for the purpose
of meeting
the solvency requirements.
[44]
The language, logic and practical sense of the statutory
scheme thus negate the notion that a medical scheme ordinarily holds
PMSA
funds as a trustee for its members. It follows from this
that section 35(9)(c) entails that Genesis, not its members, are
the
right-holders of the PMSA funds.
[45]
The second judgment places much emphasis on section 37 of the
MSA. This provides that a scheme’s annual financial
statements
must be furnished to the Registrar “in the medium
and form determined by the Registrar”.
[59]
But section 38 is the provision that gives this operational
effect. It is what gives punch to the “form
and medium”
the Registrar determines. It is the provision that invests the
Registrar’s prescripts with legal
power, because it empowers
the Registrar to reject financial statements.
[46]
This is what happened here. Genesis’s financial
statements were rejected because the Registrar considered they did
not,
in the words of section 38, “correctly reflect” its
“financial position”. That was because Genesis’s
statements did not conform with the Registrar’s “medium
and form” prescriptions, as conveyed in the circulars.
The rejection letter itself said:
“This letter
therefore constitutes the notice foreshadowed in section 38 of the
MSA in terms of which I reject the [annual
financial statements] and
returns of the scheme.”
Nothing could more clearly indicate that
what was at issue between the parties, and what Genesis was required
to attack, was the
Registrar’s decision to reject under section
38, not the “medium and form” specified in the circulars
that underlay
the rejection.
[47]
The other sub-provisions of section 35(9), sub-paragraphs (a)
and (b), strengthen this conclusion. For simple intelligibility
of statutory meaning, section 35(9)(c) must be read with them as
being of like kind (
eiusdem generis
). They require that
estimates of claims submitted and assessed, but not yet paid, plus
claims incurred but not yet submitted,
must be included as
liabilities. This squares with the requirement of section
35(9)(c) that the amounts standing to the credit
of PMSAs must also
be included as liabilities. The three kinds of liability: (a)
unpaid claims; (b) unsubmitted claims;
and (c) PMSAs, are
collectively intelligible. All three relate to merely ordinary
outgoings for which the scheme is ordinarily
liable in the course of
its business. None of them are trust assets that the statute,
artificially, ordains must be accounted
for as liabilities.
[48]
The attempt by counsel for the Registrar to extract
significance from the opening phrase of section 35(9), “[f]or
the purposes
of this Act”, cuts no ice. The phrase
doesn’t serve to create an MSA-specific meaning of “liability”
that insulates the accounting treatment of the liabilities it
mentions from ordinary practice and common sense. It creates
an
MSA-specific meaning that matches ordinary practice and common sense.
[49]
PMSA liabilities are thus not treated separately or
differently from any other run-of-the-mill liabilities the scheme
must account
for in its ledger. They are simply part of the
ordinary receipt-and-payment business of the scheme.
[50]
The MSA, in requiring that PMSAs be accounted for as
liabilities of the scheme, proceeds from the premise that Genesis is
the right-holder
of PMSA funds and these funds are indeed
unencumbered assets of the scheme; but the statute insists that,
together with unpaid
claims, amounts standing to the credit of PMSAs
must be considered liabilities. That makes both statutory
sense and
common sense. No conceptual or practical difficulties
arise if one accepts, in accordance with the definition of a medical
scheme’s “business”, that all members’
contributions, including those later allocated to PMSAs, are
received,
not as trust property, but as debts the scheme owes the
member in return for services it has yet to render.
[51]
It is not possible to reverse-engineer any conclusion as to
the “juridical nature” of PMSA funds from the regulations
promulgated under the MSA, as the dissenting minority in the Supreme
Court of Appeal rightly noted.
[60]
In any event, no aspect of the regulations is inconsonant with the
conclusion that PMSAs are assets of the scheme for all
intents and
purposes.
[61]
[52]
It must follow from the conclusion that PMSAs are not trust
assets that the scheme may, in accordance with section
26(1)(c)(ii),
[62]
keep the interest accruing from PMSAs in its bank account.
Counsel for Genesis explained lucidly in argument why this
entitlement
makes business sense. Members are entitled at the
start of any financial year to the benefit of a three-month projected
total
of their own PMSA.
[63]
This means that the scheme carries, for the rest of the year, a
member who invokes his or her total PMSA benefit at the start
of the
year. The quid pro quo is that the scheme earns interest on the
PMSA.
[53]
Some days before the hearing,
[64]
the Court directed Genesis to make its Rules available to the Court.
These were mentioned in the parties’ argument,
but were nowhere
in the record. Genesis did so. From them, it transpired
that PMSAs are stipulated to “remain
the property of the
member”.
[65]
It may be, as postulated earlier,
[66]
that this has the effect that the amounts in PMSAs are trust
property. If so, Genesis will, in accordance with the
FIA
[67]
and other comparable statutory provisions dealing with trust
property,
[68]
have to open a separate bank account for PMSAs. And it will
have to comply with the accounting provisions of the MSA, regardless
of any negative commercial consequences. And it may be that, if
Genesis does so, and becomes insolvent, rule 14.5 will have
the
effect of protecting the amounts in the PMSAs from Genesis’s
creditors.
[54]
But that was not what was at stake in this litigation, and
that is not what need be decided now. What was at stake is
whether
the Registrar’s decision under section 38 to
reject Genesis’s annual financial statements was materially
influenced
by the judgment in
Omnihealth
. Plainly it
was. In listing the PMSAs as its assets, Genesis’s
statements were properly drawn in accordance with
the requirements of
the statute.
[55]
A motivating factor in the reasoning of the majority in the
Supreme Court of Appeal was that justice required the interpretation
it favoured in order to protect the poorest members of Genesis,
since, unable to afford full cover, they had opted to put money
to
one side to cover eventualities.
[69]
This proved an unsafe basis of decision. Before us, there was
some contention as to whether it was just that a PMSA
might fall into
a scheme’s insolvent estate given that members have through
their choice of benefit option specially sought
to save. The
parties argued both ways, and their arguments proved inconclusive.
[56]
What seems clear is that it was wrong to approach PMSAs as
though the MSA creates them for the benefit of poorer medical scheme
members. This cannot be, simply as a matter of logic, since
those who choose to set aside savings must, to do so, have at
least
some disposable income additional to those who choose options
entirely without PMSAs. The fact that they have less
disposable
income than members who are able to afford the “Rolls Royce”
option of total cover puts them, at best, in
the “missing
middle” category – and not in a category that requires us
to twist the ordinary meaning of the statute’s
language.
Validity of the circulars and impact
on this litigation
[57]
A final observation must be made. The approach in this
judgment to section 37 and the circulars the Registrar issued
under that provision differs significantly from that in the second
judgment. This judgment seeks to approach the provisions
of the
statute, including sections 37 and 38, as an integrated whole.
This is necessary to attain a proper appreciation of
the Registrar’s
powers. To approach the statute as if sections 37 and 38 create
separate and distinct powers is to
cleave the Registrar’s
powers in two when the statute offers no warrant for this. This
does not seem to me to be correct.
[58]
To issue a circular that is binding under section 37, without
the power to enforce it under section 38 – by rejecting a
scheme’s
financial statements – would be lopsided,
limping and illogical. The statute does not do this. It
affords the
two powers together, and conjoins them. The power
to issue circulars informing schemes of the Registrar’s
determination
is linked up with the power to reject a scheme’s
financial statements when not conforming with that determination.
The two provisions when read together make holistic sense.
[59]
The converse, too, applies. To set aside the Registrar’s
rejection of a scheme’s financial statements without that
entailing the undoing of the circulars from which the rejection
sprang would be equally lopsided, limping and illogical.
[60]
Given this reading of the statute, and the understanding it
provides of the Registrar’s power to issue circulars, there is
no disregard of this Court’s important precedents, adherence to
which the second judgment rightly commends.
[61]
The second judgment considers the Registrar’s circulars
binding on Genesis as they have not been set aside. It follows
from the discussion above that this approach does not take into
account two aspects. First, the statutory bite of the
Registrar’s
determination under section 37 of what “medium
and form” a scheme’s statements must take springs from
section
38.
[70]
It is this provision that empowers the Registrar to reject a scheme’s
financial statements if they do not comply with
the statute or if
they do not “correctly reflect” its “financial
position”. And it is this power
that the Registrar
exercised here, and that Genesis was obliged to contest.
[62]
Second, the circulars themselves derive their sole force and
impact from
Omnihealth
. When
Omnihealth
tumbles,
as it must, they must tumble too. It would be a far-going
misconstruction not only of the statute, but of the parties’
dispute, to require Genesis to have sought, separately, to set the
circulars aside – when what it did do was to challenge
the
Registrar’s decision that sought to enforce the circulars.
When
Omnihealth
tumbles, the Registrar’s decision
tumbles, and with it the circulars, all in one.
[63]
Indeed, it was the Registrar who linked non-compliance with
the circulars directly to the
Omnihealth
judgment:
“Following on
the decision in the Omnihealth case, schemes were advised in
Circulars 38 of 2011 and 5 of 2012 to comply with
the rulings handed
down in that case regarding the nature and treatment of member’s
personal medical savings accounts.”
[64]
There is thus no sound basis for suggesting that Genesis or
the Registrar “ignored” the circulars.
[71]
For these reasons, Genesis was not required to seek separately to set
the circulars aside.
[65]
It follows that Genesis must succeed and the order of the
Supreme Court of Appeal be reversed.
Order
[66]
The following order is made:
1.
Leave to appeal is granted.
2.
The appeal is upheld.
3.
The order of the Supreme Court of Appeal is set aside and substituted
with the following:
“The appeal
is dismissed with costs, including the costs of two counsel.”
4.
The respondents are to pay the applicant’s costs, including
where applicable
the costs of two counsel.
JAFTA J (Mojapelo AJ concurring):
[67]
I have read the judgment prepared by my colleague Cameron J
(first judgment). While I agree that leave to appeal must be
granted,
I cannot support an order that upholds the appeal. In
my view the appeal must be dismissed but for reasons that differ from
those furnished by the majority in the Supreme Court of Appeal.
[68]
As I see it, the real issue here is whether the applicant has
established the ground of review relied on in the High Court.
The applicant impugned the decision of the Registrar which rejected
its financial statements on the sole ground that it was “materially
influenced by an error of law” in contravention of
section 6(2)(d) of the Promotion of Administrative Justice Act
(PAJA).
The determination of this issue requires us to pay
attention to the standard applicable to an error of law as a ground
for review
and apply that test to the current facts. This is
the right approach to adjudicating a review claim. However, a
good
point from which to begin is the relevant statutory framework.
Statutory background
[69]
Central to this case is the
Medical Schemes Act (MSA
).
It regulates medical schemes and prescribes how they should carry out
their business. To operate lawfully a medical
scheme must be
registered in terms of the MSA. A medical scheme that wishes to
enter the industry must submit an application
for registration to the
Registrar who is empowered to register a medical scheme if satisfied
that it complies with relevant provisions
of the MSA and also if the
Council for Medical Schemes concurs.
[72]
[70]
The Registrar is appointed by the Minister of Health after
consultation with the Council.
[73]
As the executive officer, he or she is mandated to manage the affairs
of the Council. The Registrar does this in accordance
with the
MSA and the policies and directions of the Council.
[74]
But apart from these duties, the Registrar is also empowered to
prescribe the form that must be followed by medical schemes
when they
submit annual financial statements to him or her. Within four
months from the end of a financial year, medical
schemes are obliged
to submit annual financial statements to the Registrar.
Section
37
defines the form and content of these statements.
[71]
Section 37(2)
provides:
“The annual
financial statements referred to in subsection (1) shall be furnished
to the Registrar
in the medium and form determined by the
Registrar
and shall inter alia consist of—
(a)
a balance sheet dealing with the state of affairs of the medical
scheme;
(b)
an income statement;
(c)
a cash-flow statement;
(d)
a report by the auditor of the medical scheme; and
(e)
such other returns as the Registrar may require.”
[72]
And
section 37(6)
reads:
“Notwithstanding
anything to the contrary in this section, and without derogating from
other powers conferred on the Registrar
in terms of this Act,
the
Registrar may
, on a quarterly basis,
require the board of
trustees to prepare and furnish to him or her financial statements,
in any specified medium or form.
”
[73]
A plain reading of these provisions shows that the Registrar
determines the medium and form
in which financial statements
are submitted.
Section 37(6)
puts it beyond doubt that the
Registrar has a free hand to determine any medium or form he or she
deems necessary. Once the
form of lodging financial statements
has been determined, medical schemes have no choice but to comply.
Otherwise they run
the risk of having their financial statements
rejected by the Registrar for want of compliance with the prescribed
medium or form.
[74]
Section 38
confers on the Registrar the power to reject any
document submitted in terms of
section 37
if it does not comply with
any provision of the Act or does not correctly reflect the revenue
and expenditure or financial position
of a medical scheme. This
extremely wide power is necessary for the effective enforcement of
the Act.
[75]
As
section 38
is also pivotal to the present issue, it is
necessary to quote it. It reads:
“The
Registrar, if he or she is of the opinion that any document furnished
in terms of
section 37
does not comply with any of the provisions of
this Act or does not correctly reflect the revenue and expenditure or
financial position,
as the case may be, of that medical scheme, may
reject the document in question, and in that event—
(a)
he or she shall notify the medical scheme concerned of the reasons
for such rejection;
and
(b)
the medical scheme shall be deemed not to have furnished the said
document to the
Registrar.”
[76]
Once the Registrar has rejected a document submitted to him or
her, he or she is obliged to furnish the medical scheme concerned
with reasons for the rejection. If its document is rejected the
medical scheme is deemed not to have submitted the document.
[77]
Three years after the MSA was enacted, Parliament passed the
Financial Institutions (Protection of Funds) Act (FIA). It
is apparent from the FIA that it was designed to apply to medical
schemes registered in terms of the MSA.
Section 1
of the FIA
defines “financial institution” as including any medical
scheme contemplated in the MSA. And “registrar”
is
also defined as including the registrar of medical schemes as defined
in the MSA. The FIA also defines “trust property”
as:
“[A]ny
corporeal or incorporeal, movable or immovable asset invested, held,
kept in safe custody, controlled, administered
or alienated by any
person, partnership, company or trust for, or on behalf of, another
person, partnership, company or trust,
and such other person,
partnership, company or trust is hereinafter referred to as the
principal.”
[78]
In terms of the definition of trust property any asset held in
safe custody or controlled or administered or alienated by one person
on behalf of another person is regarded as trust property. The
person on whose behalf the asset is held, controlled, administered
or
alienated is referred to as the principal. If the FIA were to
apply, this definition would cover funds administered by
a medical
scheme on behalf of its members.
Section 30(1)(a)
of the
MSA permits medical schemes to allocate PMSAs to its members and
funds deposited in those accounts are used to pay for certain
health
services. These funds are for the exclusive benefit of members.
[79]
On the assumption that the definition of trust property and
section 4
of the FIA apply to PMSA funds, the High Court in
Omnihealth
[75]
held that those funds constitute trust property of members of a
medical scheme and must not be treated as part of the assets of
the
insolvent medical scheme’s estate upon insolvency. No
appeal was lodged against this judgment.
[80]
Relevant sectors adjusted their affairs to accord with the
legal principle pronounced in
Omnihealth
. First, the
South African Institute of Chartered Accountants (SAICA) amended its
accounting rules to accord with the
Omnihealth
principle.
Second, the Registrar of medical schemes issued circulars, based on
Omnihealth,
which required financial statements to reflect
PMSA funds as trust monies and not as the scheme’s assets.
These circulars
were issued in terms of
section 37(2)
of the MSA
and constituted the form or medium in which financial statements were
to be submitted to the Registrar.
[76]
From then onwards medical schemes were required to lodge their annual
financial statements in the manner prescribed in the
circulars.
It is now convenient to set out the facts.
Facts
[81]
Genesis Medical Scheme (Genesis) submitted to the Registrar
financial statements for 2012. But these statements did not
comply
with the circulars issued by the Registrar. In June 2013
the Registrar rejected them on a number of grounds, including the
failure to adhere to the form for drawing up financial statements as
set out in the circulars. On 19 June 2013 the Registrar
addressed a letter to Genesis which contained his decision and the
reasons for it.
[82]
As this decision and reasons are at the heart of the dispute,
it is necessary to quote the entire letter. It reads:
“GENESIS
MEDICAL SCHEME: REJECTION OF 2012 ANNUAL FINANCIAL STATEMENTS AND
STATUTORY RETURNS
We refer to the annual financial statements and annual statutory
returns (AFS and returns) of Genesis Medical Scheme for the 2012
financial year.
We have reviewed all the documents submitted in terms of section 37
of the Medical Scheme Act 131 of 1998 (the MSA) and are
of the
opinion that the AFS and returns do not comply with the provisions of
the MSA and Regulations (the Regulations) promulgated
thereunder as
well as do not correctly reflect the financial position of the scheme
or its revenue.
This letter therefore constitutes the notice foreshadowed in section
38 of the MSA in terms of which I reject the AFS and returns
of the
scheme.
This action is
based on the following grounds:
1.
Following on the
decision in the Omnihealth case, schemes were
advised in Circulars 38 of 2011 and 5 of 2012 to comply with the
rulings handed down
in that case regarding the nature and treatment
of member’s personal medical savings accounts (PMSA).
2.
In addition, the
South African Institute of Chartered Accountants
(SAICA), after conferring with Accounting Practices Committee, ruled
on the correct
way to report on PMSA in the annual financial
statements of medical schemes. SAICA is the controlling body
who determines
the reporting and accounting standards of South
African entities subject to IFRS (International Financial Reporting
Standards).
3.
Schemes were advised
in Circular 41 of 2012 of these reporting
requirements.
4.
The Omnihealth case
decided that PMSA funds are trust property and
are subject to the requirements of the Financial Institutions
(Protection of Funds)
Act 28 of 2001 (FI Act).
5.
The FI Act requires
trust funds to be invested and kept separately
from the scheme’s own funds and that they do not form part of
the scheme’s
assets.
In our opinion by not complying with the above requirements the AFS
and returns do not comply with the provisions of the MSA and
the
Regulations as well as do not correctly reflect the financial
position of the scheme in the following manner:
1.
The statement of
financial position of the scheme is misleading in
that it does not indicate that the PMSA funds are trust monies and do
not form
part of the scheme’s assets. Refer to the
statement of financial position and notes 3, 4 and 6 to the AFS and
parts
4.5.1 and 4.5.2 of the annual returns.
2.
The interest earned
as stated in the statement of comprehensive
income is overstated as it includes interest earned on trust monies
which does not
belong to the scheme. See the statement of
comprehensive income and notes 15 and 6 and parts 4.5.1 and part 4.22
of the annual
returns.
3.
The net surplus
and reserves are overstated owing to interest due to
the members being credited to the income statement.
4.
The liability owing
to members who have PMSA balances is understated
as it excludes interest rightfully earned on the trust monies
compromising the
PMSA balances. See note 6 and part 4.5.1.
5.
The auditors’
assurance report in terms of section 36, 37 and
39 of the MSA is incorrect as it omitted the prescribed paragraph 13,
14 and 15
of the prescribed auditors’ assurance report.
The scheme is
therefore directed to resubmit the following signed documents within
14 days of receipt of this letter.
o
Revised annual statutory returns and Annual Financial
Statements reflecting
o
the correct disclosures for the above mentioned areas of
concern
o
the revised interest earned on investments and the revised net
surplus for the year.
o
Revised statement of financial position and solvency
calculation
o
the prescribed paragraph 13, 14 and 15 of the prescribed
auditors’ assurance report.
A
copy of this letter will also be forwarded to the scheme’s
auditors.
”
[83]
Aggrieved by the rejection of its financial statements,
Genesis instituted a review application in the High Court of South
Africa,
Western Cape Division, Cape Town (High Court). In
impugning the Registrar’s decision, Genesis raised only one
ground
of review. Having stated that the application was
instituted in terms of PAJA, Genesis averred:
“I am advised
that in terms of PAJA a court has the power to judicially review an
administrative action if the action was
materially influenced by an
error of law (section 6(2)(d)) . . . .
. . .
Inasmuch as the
rejection is premised on the
Omnihealth
judgment
and the
resultant circulars
, this is not a case in which the internal
appeal remedies . . . will ultimately be of any assistance to
Genesis. The outcome
of the appeals is a foregone conclusion. .
. .
The Registrar’s
refusal was materially influenced by an error of law.”
[84]
Genesis sought to be exempted from the obligation to exhaust
internal appeal remedies because in its view
Omnihealth
was
wrongly decided and the internal appeal tribunals were bound by that
judgment which could only be reversed by a competent court.
Genesis further asserted that the rejection of its financial
statements may well be justified if the
Omnihealth
judgment
was right.
[85]
In opposing the application, the Registrar contended:
“The
Registrar’s decision is correct and was based on the applicable
statutory framework as interpreted by the Court
in the
Omnihealth
judgment. . . .
. . .
It is submitted
that the Registrar’s decision was based on a correct
interpretation of the applicable statutory framework
which was, in
terms of the court in
Omnihealth
judgment.”
[86]
Against this background the High Court observed:
“There can be
no doubt, when the answering affidavit is so examined that the
reasoning employed by first respondent was based
upon the
Omnihealth
judgment. If the
Omnihealth
judgment is wrong in
law, then it surely must follow that the decision of first respondent
must be set aside on that ground as it
was made in error of law.”
[77]
[87]
Having considered the judgment in
Omnihealth
, other
authorities and the relevant statutory provisions, the High Court
held that the PMSA funds belong to a medical scheme and
not members.
Accordingly it concluded:
“For these
reasons, I find that the
Omnihealth
judgment is wrong in law
and accordingly the decision of the first respondent which were
predicated directly and exclusively on
that holding constitutes an
error of law. It therefore follows that the applicant is
entitled to the relief it seeks.”
[88]
It is apparent from this conclusion that the High Court
proceeded from the premise that if
Omnihealth
was wrong,
without more the Registrar’s decision must be set aside as it
was “directly and exclusively” predicated
on
Omnihealth.
This is at variance with the case pleaded by Genesis. It
will be recalled that Genesis had asserted that the decision was
based on
Omnihealth
and the circulars. Moreover, the
reasons furnished by the Registrar show that the decision was not
based solely on
Omnihealth
.
[89]
Furthermore, it appears that an incorrect approach was
followed by the High Court in evaluating the ground of review
advanced
by Genesis. The correct approach is set out below.
[90]
Both the Registrar and the Council appealed to the Supreme
Court of Appeal. By a split of 3 to 2, that Court reversed the
High Court’s decision. Although the majority held that
the PMSA funds constituted trust property in terms of the FIA,
they
agreed that these funds must be reflected on the financial statements
as the scheme’s liability to its members.
The majority
rejected the contention that this form of reporting would be
inconsistent with accounting principles.
In this Court
[91]
The core issue is whether the impugned decision was vitiated
by an error of law. Its determination gives rise to two
subsidiary
questions. The first is whether an error of law was
established. If it was, the second issue is whether that error
had materially influenced the decision. Put differently whether
the standard laid down for showing that a decision was materially
influenced by an error of law has been met. At the hearing it
emerged that this matter is not about whether upon insolvency,
the
PMSA funds form part of the assets of the insolvent medical scheme.
Therefore, the question whether in terms of the MSA
those funds
constitute trust property is relevant to the limited extent of
showing the existence of the error of law.
Error of law
[92]
Ordinarily an error of law would arise if an administrative
functionary misconstrues the enabling provision or misapplies
it.
[78]
The misinterpretation or misapplication giving rise to an error of
law must be that of the decision-maker. This is
apparent from
all the cases cited in footnote 78. In
Administrator, South
West Africa
the Court said:
“In my
opinion the Legislature intended that the regulations should be
interpreted in the first instance by the inspector
and on appeal by
the Administrator. It is for the Administrator to decide any
legal issues involved in a dispute as to the
pegging of a claim, and
the most important legal issue is the interpretation of the
regulations. It cannot be said that the
wrong interpretation of
a regulation would prevent the Administrator from fulfilling its
statutory function or from considering
the matter left to it for
decision. On the contrary, in interpreting the regulations the
Administrator is actually fulfilling
the function assigned to it by
the statute, and it follows that the wrong interpretation of a
regulation cannot afford any ground
for review by the Court.”
[79]
[93]
It follows that the error of law relied on by Genesis must
arise from the misinterpretation or misapplication of the MSA
provisions
by the Registrar which relate to the submission of annual
financial statements. This is so because the impugned decision
was reached in the exercise of power conferred on the Registrar alone
by those provisions. It will be recalled that section
38 of the
MSA empowers the Registrar to reject any document submitted in terms
of section 37 if it did not comply with any provision
of the MSA.
It will also be remembered that section 37 authorises the Registrar
to determine any form or medium in which
annual financial statements
must be submitted by medical schemes.
[94]
In the exercise of this power the Registrar issued circulars
that required financial statements to reflect PMSA funds as trust
monies.
Those circulars continue to apply as they were not
challenged in these proceedings. Of course, the circulars were
based on
Omnihealth
and SAICA’s guidelines which were
also influenced by
Omnihealth
. In addition, the reasons
underpinning the impugned decision included
Omnihealth
.
[95]
But more importantly, sight must not be lost of the fact that
Omnihealth
was a judgment of the High Court that interpreted
the MSA and the FIA. It was not challenged on appeal and at the
time the
impugned decision was taken, it was good law.
Therefore relying on the law as interpreted by the High Court, the
Registrar
committed no error
. On the contrary, he
followed a judgment that was binding on him. It follows in my
view that there was no error of
law here. But even if such
error existed, it could not have influenced the rejection of the
financial statements in a material
way.
Materiality of an error
[96]
As it appears from the statement in
Administrator, South
West Africa
, in determining whether a particular decision must be
set aside on account of a mistake of law, the common law applies a
standard
followed in judicial proceedings. In
Goldfields Investment Ltd
this standard was formulated in
these terms:
“A mistake of
law per se is not an irregularity but its consequences amount to
gross irregularity where a judicial officer,
although perfectly
well-intentioned and bona fide, does not direct his mind to the
issues before him and so prevents the aggrieved
party from having his
case fully and fairly determined.”
[80]
[97]
According to this test an error of law by itself is not a
ground for review. This test was followed in
Durban City
Council
and
Reynolds Brothers Ltd
.
[81]
In the latter case Miller JA stated:
“The ground
upon which the appellant contends that it is proper for the Court to
review the decision of the board is that
the board wrongly
interpreted s 18(3) read with s 1(2)(y) of the Act and by reason of
such wrong interpretation failed to apply
its mind to certain aspects
of the matter, more particularly to the distance separating the mill
from Piet Retief station, which,
on a proper interpretation of the
Act, it was incumbent on the board to consider when deciding whether
such station represented
a railway service that was ‘available’
to the appellant for purposes of conveyance of its sugar. The
decision
of the board would clearly be reviewable upon such a
ground.”
[82]
[98]
With reference to some of the cases on this issue in
Hira,
Corbett CJ pointed out that our courts drew a distinction between an
error of law on the merits and the mistake which causes the
decision-maker to fail to appreciate the nature of the discretion or
power conferred upon him and as a result the power is not
exercised.
[83]
It was the latter error which was taken as amounting to a ground of
review that justified interference. This accords
with the
distinction our law draws between a review and appeal. A court
does not interfere merely because the decision was
wrong in a review
application.
[99]
In
Hira
the test was reformulated in these words:
“Whether or
not an erroneous interpretation of a statutory criterion, such as is
referred to in the previous paragraph (i.e.
where the question of
interpretation is not left to the exclusive jurisdiction of the
tribunal concerned), renders the decision
invalid depends upon its
materiality. If, for instance, the facts found by the tribunal
are such as to justify its decision
even on a correct interpretation
of the statutory criterion, then normally (i.e. in the absence of
some other review ground) there
would be no ground for interference.
Aliter
, if applying the correct criterion, there are no facts
upon which the decision can reasonably be justified. In this
latter
type of case it may justifiably be said that, by reason of its
error of law, the tribunal ‘asked itself the wrong question’,
or ‘applied the wrong test’, or ‘based its decision
on some matter not prescribed for its decision’, or
‘failed
to apply its mind to the relevant issues in accordance with the
behests of the statute’; and that as a result
its decision
should be set aside on review.”
[84]
[100]
This statement reveals that at common law, for an error of law
to constitute a ground for review, it must have materially influenced
the challenged decision in the sense that it gave rise to one of the
recognised grounds of review.
The erroneous interpretation
of a statute would vitiate the decision taken only if on the
application of the correct construction,
the facts do not support the
decision.
In terms of this standard it is not enough to
merely show that the empowering statute has been incorrectly
interpreted.
One must go further and apply the correct meaning
to the relevant facts. If the decision is justified,
interference is not
permitted. But if on the application of the
right interpretation, the facts do not support the impugned decision,
the erroneous
interpretation is taken to have materially influenced
the decision.
[101]
This common law test has been codified in PAJA as one of the
grounds of review. In
Johannesburg Municipality
this
Court affirmed the standard in these terms:
“However, a
mere error of law is not sufficient for an administrative act to be
set aside. Section 6(2)(d) of the Promotion
of Administrative
Justice Act permits administrative action to be reviewed and set
aside only where it is ‘materially influenced
by an error of
law’. An error of law is not material if it does not
affect the outcome of the decision. This
occurs if, on the
facts, the decision maker would have reached the same decision
despite the error of law.”
[85]
Applying the standard
[102]
Genesis may succeed on the ground of erroneous interpretation
only if it has established that, when the correct construction is
applied to the facts, they do not support the Registrar’s
rejection of its financial statements. This enquiry directs
our
attention not only to the relevant facts but also to the terms of the
rejection itself which exhibits reasons for the decision.
[103]
In applying the test we must begin by pointing out that the
Registrar did not construe provisions of the MSA erroneously.
They were interpreted by the High Court in the fulfilment of its
constitutional role of interpreting legislation. Once
so
interpreted the Registrar was bound to apply the
Omnihealth
construction. He did not himself interpret that statute but
merely applied the meaning assigned to it by
Omnihealth
.
[104]
In
Re Racal Communications Ltd
, which was quoted with
approval by Corbett CJ in
Hira
,
[86]
Lord Diplock stated:
“It is a
legal landmark; it has made possible the rapid development in England
of a rational and comprehensive system of administrative
law on the
foundation of the concept of
ultra vires
. It proceeds on
the presumption that where Parliament confers on an administrative
tribunal or authority as distinct from
a court of law, power to
decide particular questions defined by the Act conferring the power,
Parliament intends to confine that
power to answering the question as
it has been so defined, and if there has been any doubt as to what
that question is this is
a matter for courts of law to resolve in
fulfilment of their constitutional role as interpreters of the
written law and expounders
of the common law and rules of
equity.”
[87]
[105]
Here, while the High Court in
Omnihealth
had
interpreted certain provisions of the MSA and FIA, it did not
construe section 37 which confers on the Registrar the power to
determine the form in which financial statements must be submitted.
That is the power to issue the circulars which required
medical
schemes to follow a specific form. As illustrated earlier, the
Registrar is free to determine
whatever form
he deems
necessary. And this is what he did in the relevant circulars
which are still binding on medical schemes because
they were not set
aside. This means even if the MSA is given an interpretation
that differs from
Omnihealth
on the question whether PMSA
funds are trust monies, the current facts would still lead to the
conclusion that Genesis failed to
comply with the form determined by
the Registrar.
[106]
The fact that the circulars in question remain binding in
requiring financial statements to reflect the PMSA funds as assets of
members cannot be gainsaid. The first judgment does not address
the status and legal effect of those circulars, following
the
overruling of
Omnihealth
which constitutes a separate act.
On the authority of this Court, even if those circulars were invalid,
they continue to bind
medical schemes until set aside on review.
[88]
[107]
In
Merafong
Cameron J reaffirmed the principle that an
invalid administrative action is binding in these terms:
“The import
of
Oudekraal
and
Kirland
was that government cannot
simply ignore an apparently binding ruling or decision on the basis
that it is invalid. The validity
of the decision has to be
tested in appropriate proceedings. And the sole power to
pronounce that the decision is defective,
and therefore invalid, lies
with the courts. Government itself has no authority to
invalidate or ignore the decision.
It remains legally effective
until properly set aside.”
[89]
And later he emphasised:
“But it is
important to note what
Kirland
did not do. It did not
fossilise possibly unlawful – and constitutionally invalid –
administrative action as
indefinitely effective. It expressly
recognised that the
Oudekraal
principle puts a provisional
brake on determining invalidity. The brake is imposed for rule
of law reasons and for good administration.
It does not bring
the process to an irreversible halt. What it requires is that
the allegedly unlawful action be challenged
by the right actor in the
right proceedings. Until that happens, for rule of law reasons,
the decision stands.”
[90]
[108]
In these proceedings Genesis has not challenged the validity
of the circulars. As a result, the respondents contended in
their
written submissions that even if
Omnihealth
was wrong,
the impugned decision cannot be set aside because:
“Genesis’
2012 [financial statements] did not comply with the form determined
by the Registrar as per circular 41 and
the Registrar accordingly
rejected Genesis’ 2012 [financial statements].”
[109]
This argument together with decisions like
Tasima, Merafong
and
Kirland
creates an insurmountable obstacle in the way
of setting aside the impugned decision. The principle of
judicial precedent
obliges us to take the circulars in question as
binding even if they were invalid. For as long as they are not
set aside
by a competent court on review they are binding on all
medical schemes.
[110]
This Court has affirmed judicial precedent in
Camps
Bay
.
[91]
There Brand AJ said:
“Observance
of the doctrine has insisted upon, both by this Court and by the
Supreme Court of Appeal. And I believe
rightly so. The
doctrine of precedent not only binds lower courts, but also binds
courts of final jurisdiction to their own
decisions. These
courts can depart from a previous decision of their own only when
satisfied that that decision is clearly
wrong.
Stare decisis
is therefore not simply a matter of respect for courts of higher
authority. It is a manifestation of the rule of law itself,
which in turn is a founding value of our Constitution. To
deviate from this rule is to invite legal chaos.”
[92]
[111]
Therefore when the Registrar considered whether the financial
statements submitted by Genesis complied with the form in which they
should have been submitted, he was bound by the circulars in
question. This was the only form determined by him.
Consequently
it was not open to the Registrar to accept the financial
statements that were not in compliance with the required form.
He
could not ignore the circulars.
[112]
A similar situation arose in
Kirland
where an invalid
approval to establish a private hospital was granted. This
Court rejected argument by the MEC for Health
to the effect that the
invalid approval had no legal effect. There Cameron J stated:
“By
corollary, the Department’s argument entails that
administrators can, without recourse to legal proceedings, disregard
administrative actions by their peers, subordinates or superiors if
they consider them mistaken. This is a licence to self help.
It invites officials to take the law into their own hands by ignoring
administrative conduct they consider incorrect. That
would
spawn confusion and conflict, to the detriment of the administration
and the public. And it would undermine the courts’
supervision of the administration.”
[93]
[113]
It follows that it cannot be said here that the Registrar was
entitled to disregard the circulars and accept the financial
statements
submitted by Genesis. If he did so, he would have
acted in breach of section 37 of the MSA which requires in peremptory
terms
that financial statements be submitted in the form determined
by the Registrar.
[114]
The fact that the circulars were based on
Omnihealth
has
little effect, if any, on this enquiry. For as long as it is
not shown that in issuing the circulars in question the Registrar
failed to comply with section 37 of the MSA, the circulars must be
followed. Moreover, SAICA too had amended its accounting
practices as a result of
Omnihealth
. It will be
remembered that section 37 requires that financial statements should
adhere to those accounting practices.
[115]
To suggest that the circulars automatically fell away upon
setting aside
Omnihealth
as the first judgment does, misses
the point that these circulars constitute administrative action
distinct and separate from
Omnihealth
which was a judicial
decision. If, as here, an appeal court overturns a judicial
decision, it does not automatically follow
that all administrative
decisions based on that judicial decision are also set aside.
The claim brought by Genesis was limited
to challenging the validity
of the rejection of its financial statements and nothing else.
[94]
Therefore, excluding the circulars from Genesis’ attack does
not amount to “a far-going misconstruction”
of the
parties’ dispute suggested by the first judgment.
[95]
[116]
It cannot be gainsaid that the circulars in question
constitute administrative action. Those circulars were issued
by the
Registrar, exercising a public power conferred on him by
section 37 of the MSA. They are an outcome of the exercise of
public
power.
[96]
[117]
According to authorities like
Tasima
,
Merafong
and
Kirland
, even if these circulars were invalid for the
reason that they were based on
Omnihealth,
they continued to
be binding until set aside on review. Their validity must be
challenged in a formal application. This
is what
Kirland
proclaimed. Therefore, there is no legal justification for
deviating from the authorities mentioned here. Unquestionably
this Court is bound by its own decisions from which it can depart
only if satisfied that they were clearly wrong. To do otherwise
would be a breach of the rule of law which forms part of the supreme
law, the Constitution which this Court is duty-bound to uphold.
The proposition that the circulars tumble together with
Omnihealth
which is the mainstay of the first judgment on the validity of
the circulars, is at odds with all of this. No authority was
cited for the proposition.
[118]
The flaw that lies at the heart of the proposition that if
Omnihealth
tumbles, the circulars must tumble too is that it
proceeds from the wrong assumption. This is if
Omnihealth
was wrongly decided and the circulars were based on it, they too must
be invalid. But this does not mean that those circulars,
invalid as they may be, evaporate into thin air. They continue
to exist at the level of fact until set aside on review.
And
decisions of this Court tell us that invalid as they may be, for as
long as they continue to exist as a matter of fact, the
circulars are
binding. Overruling
Omnihealth
does not set aside the
circulars but renders them invalid. Therefore, the tumbling
down mentioned in the first judgment does
not extend beyond the
question of invalidity. It does not wipe the circulars into
non existence. Hence they remain
binding until set aside
on review.
[119]
The conclusion reached in the first judgment does not only
depart from authorities but also suggests that section 37 of the MSA
plays an unimportant role in the enquiry on the validity of the
circulars.
[97]
The conclusion focuses on section 38 only despite the fact that in
its text section 38 expressly refers to section 37 and
affirms the
latter as the only vehicle through which financial statements may be
submitted and that if in the opinion of the Registrar,
the submitted
statements do not comply with section 37, he may reject them.
This is exactly what has occurred here. Genesis
submitted financial
statements which were not in compliance with section 37, pertaining
to the form set out in the circulars.
[120]
To hold that the Registrar should have accepted those
financial statements means that, despite the peremptory language of
section
37, the Registrar may not reject financial statements which,
in his opinion, do not comply with section 37. This section
stipulates that “annual financial statements . . . shall be
furnished to the Registrar in the medium and form determined by
the
Registrar”. It is apparent from the provision that for
its operation there must be a form determined by the Registrar
for
the lodgement of financial statements by medical schemes.
Absent the form, the section is unworkable because in order
to comply
with the section financial statements must adhere to a form
determined by the Registrar and by him or her alone.
[121]
Therefore, to conclude that financial statements may be
submitted to the Registrar even if they do not comply with the form
determined
by him would be in conflict with the express language of
section 37. All of this has nothing to do with
Omnihealth
which was not called upon to interpret section 37. But here
the section is pivotal to the decision to reject financial statements
submitted by Genesis.
[122]
In addition, the conclusion of both the High Court and the
first judgment on the validity of the rejection suggests that the
Registrar
in June 2013, when he took the impugned decision, should
not only have ignored the circulars but must have known then that the
decision in
Omnihealth
was wrong. As a result he could
disregard that judgment. This is remarkably dangerous.
Administrative officials
are not entitled to second-guess judicial
decisions and if in their opinion a decision by a court is wrong, to
ignore it.
Especially where the judicial decision was not
challenged on appeal. Such an approach is a recipe for chaos.
[123]
Furthermore, the reasons furnished by the Registrar for his
decision include the fact that “the auditors’ assurance
report in terms of sections 36, 37 and 39 of the MSA is incorrect as
it omitted the prescribed paragraphs 13, 14 and 15 of the prescribed
auditors’ assurance report”. The Registrar then
directed Genesis to resubmit within 14 days annual financial
statements in which the defects, including the prescribed paragraphs
13, 14 and 15 of the auditors’ assurance report, were
cured.
In this regard Genesis was called upon to include the omitted
paragraphs.
[124]
Significantly, Genesis does not dispute this omission in its
papers. Instead it confines itself to contending that
Omnihealth
was wrong. As mentioned, establishing that
Omnihealth
was wrong alone does not take Genesis beyond
showing that the circulars were based on an incorrect legal position
and that in rejecting
its financial statements, the Registrar applied
an incorrect interpretation that was announced in
Omnihealth
.
This falls short of proving that the error in question materially
influenced the rejection in the sense pointed out by authorities.
[125]
The first judgment overrules
Omnihealth
and holds that
properly construed the MSA does not mean that the PMSA funds
constitute trust property. It relies on this
conclusion to set
aside the impugned decision, just like the High Court did. This
deviates from the decision of this Court
in
Johannesburg
Municipality
and that of the Supreme Court of Appeal in
Hira
.
In
Johannesburg Municipality
this Court said an error of law
is not material, even if it had influenced the decision challenged,
if the outcome would have been
the same on the facts if the correct
principle was followed. Here this is exemplified by the
circulars and their legal effect.
Even if the Registrar had
applied the meaning ascribed to the MSA in the first judgment, he
would still have rejected the financial
statements submitted by
Genesis for not complying with the binding circulars.
[126]
Here this Court is obliged by judicial precedent to follow its
own previous decisions. On the one hand those decisions are
Tasima, Merafong
and
Kirland
as well as
Johannesburg
Municipality
, on the other. Conflicting messages that come
from our decisions with regard to precedent must be avoided.
They confuse
lower courts. Those courts end up not knowing
which of our decisions they must follow. Especially where a
later decision
does not overrule the earlier one but contradicts it.
[127]
A timely caution on the need to respect and uphold precedent
was sounded recently in
Tasima
. We were again reminded
that we may depart from our previous decisions only if convinced that
they were clearly wrong.
[98]
However, it was also pointed out in
Tasima
that we have been
guilty of not adhering to judicial precedent in specific cases in the
past.
[99]
Now is the time to do so. To do otherwise is at odds with our
primary duty which is to uphold the Constitution and
the rule of law
that forms part of the Constitution.
[128]
It is apparent from the letter quoted in [82] that the
rejection was based on five grounds. These included the failure
to
comply with
Omnihealth
; the prescribed paragraphs 13, 14
and 15 in the auditors’ assurance report; the relevant
circulars and the accounting standards
determined by SAICA. It
will be recalled that section 37(4) demands that financial statements
be prepared in accordance with
general accepted accounting
principles.
[100]
The financial statements submitted by Genesis did not comply with the
standard prescribed by SAICA which required that PMSA
funds be
reflected as trust monies in financial statements. Whether this
rule was also invalid because it was based on
Omnihealth
is
beside the point.
[129]
Another fact that would have led to the same outcome is the
reason that the auditors’ assurance report omitted prescribed
information. That omission too would have entitled the
Registrar to reject the financial statements lodged by Genesis.
[130]
I have read the judgments of Mojapelo AJ (third judgment) and
Zondo J (fourth judgment). I concur in the third judgment.
[131]
Regarding the strident and emotive critique in the fourth
judgment, my response will be limited to pointing out three
fundamental
errors I believe it makes. The first is that it
proceeds from the mistaken premise that it was incumbent upon the
respondents
to say in their affidavit that, even if
Omnihealth
was
wrong, the impugned decision was correct for some other reason.
[101]
This incorrect premise colours a host of other findings and the
conclusion reached in the fourth judgment.
[102]
[132]
This approach is mistaken because it overlooks the basic point
which is that it was Genesis, and not the respondents, which relied
on the error of law as a ground for review. It follows
therefore, that the onus was on Genesis to prove the ground on which
it relied, before the impugned decision could be set aside. In
establishing this ground Genesis may not be helped by what
was
omitted in the opposing papers. Even if there were no opposing
papers, Genesis would not succeed if it did not, on its
own papers,
prove the ground relied on.
[133]
Genesis was required to prove that ground with all its
indivisible components. Those are that an impugned decision was
materially
influenced by an error of law. It was not enough for
Genesis to merely show that the rejection was influenced by an error
of law. It needed to prove that that error had materially
influenced the decision. It was not for the respondents to
plead and prove that the error had not materially influenced the
decision. Section 6(2)(d) of PAJA, as construed by this
Court
in
Johannesburg Municipality
, means that an applicant like
Genesis must not only prove the existence of an error of law but must
also show the materiality of
the error. That is, on the facts,
the decision-maker would not have reached the same decision without
the error.
[134]
This approach was followed also by the Supreme Court of Appeal
in
Security Industry Alliance
. There Mpati P said:
“It follows
that, contrary to the view conveyed to the Minister by the Authority
that current legislation did not permit it
to classify businesses by
size or income in order to arrive at differentiated fees, it was so
permitted. The Authority thus
misconstrued the provisions of
the repealed legislation which empower it to make regulations.
It committed an error of law.
The question to be considered now
is whether the error of law was material. In
Johannesburg
Metropolitan Municipality v Gauteng Development Tribunal
2010 (6)
SA 182
(CC) Jafta J observed that an error of law is not material if
it does not affect the outcome of the decision. This occurs,
he
said, if, on the facts, the decision-maker would have reached the
same decision, despite the error of law.”
[103]
[135]
The second error in the critique is that my conclusion that
Genesis has failed to prove the materiality of the error relied on
was
impermissibly based on “an annexure to one of the
affidavits and not from the respondents’ answering
affidavit”.
[104]
Relying on
D & F Wevell Trust,
the fourth
judgment boldly proclaims:
“If a
litigant is not permitted to engage in a trial by ambush, it follows
that a court may also not do so.”
[136]
I must confess that I do not understand what this means
because reliance on an annexure to the founding affidavit of Genesis
can
hardly be described as amounting to a court engaging in a trial
by ambush. Courts do not engage in litigation but in
adjudication.
In fact
D & F Wevell Trust
is
not relevant to any of the present issues. It is apparent from
the judgment that there the Court was dealing with reliance
on an
annexure that was “undated, unsigned and unattested and no
indication as to its author(s) appear from it”.
[105]
This annexure was merely identified as volume 2 of a report by Ernst
& Young and the annexure itself comprised 25 pages.
In
rejecting reliance on it, Cloete JA said:
“
The
passage in the Ernst & Young report relied on in the argument
advanced in this court comprises less than half a page of
the 25
pages annexed. Specific attention was not drawn to this passage
in Andreas’ affidavit. The import of the
passage is that
valuers who were appointed by or on behalf of the respondents met
with Visagie during August 2003 to review the
valuations of the farms
made by the former; that the valuations were increased in a report
backdated to 23 June 2003; and that
the valuer principally
responsible for the valuations was unable to justify the increases to
Ernst & Young. The submission
in argument was that all of
this is evidence of a fraud perpetrated on the respondents. But
the valuation submitted by the
applicants was done by Roux, who is
not implicated in the passage relied on in the report; and Roux did
his valuation on 4 March
2003, some four months before the meeting to
which the report refers. There is simply nothing to suggest
that the applicants
(or Roux) were a party to any fraud. The
valuers present at the meeting were not appointed by the applicants;
according to
the applicants, they had nothing to do with Visagie (see
paragraphs [19] and [20] above); and no such connection was remotely
demonstrated
by any credible evidence produced by the
respondents.”
[106]
[137]
That is not what happened here.
The annexure we are concerned with here is a letter of two pages that
was annexed to the founding
affidavit by Genesis. And this
annexure was properly introduced into evidence by the deponent of the
affidavit to which it
was attached. It was introduced in these
terms:
“
On
19 June 2013 the Registrar addressed to Genesis the letter of which a
copy is annexed marked “DM5”. He rejected
the 2012
AFS of Genesis. He did so on the basis of the
Omnihealth
judgment and the aforesaid three circulars.”
[138]
And on the circulars the affidavit
by Genesis avers:
“
Circular
38 does not have a binding effect on medical schemes. It merely
contains guidelines, and has no regulatory effect.
Neither the
MSA nor the regulations make any reference to circulars . . . .
Nevertheless,
circulars 41 of 2012, of which a copy is annexed marked “DM4”
sought to prescribe the format for statement
of comprehensive income
and the disclosure required for PMSAs.”
[139]
But apart from the fact that the
annexure in question was introduced into evidence by Genesis, it
constitutes the expression of
the impugned decision. Put
differently, it is the embodiment of the Registrar’s decision
and the reasons underpinning
it. Therefore, it is difficult for
me to appreciate how it can be impermissible for a court to ground
its reasoning on the
decision that it is called upon to set aside.
As I see it, it would be impossible for any court to adjudicate a
review without
evaluating the decision it is asked to set aside on
review.
[140]
In the present circumstances reliance on
D & F Wevell Trust
was misconceived.
But not only that. The conclusion that one was engaged in a
trial by ambush does not accord with authority
of this Court in
KwaZulu-Natal Joint Liaison Committee
.
[107]
There the applicant had sought payment of certain amounts based on a
breach of contract. During the hearing in this
Court and
responding to questions, senior counsel for the applicant had
confirmed that his client “stood or fell” on
the claim
based on contract. This did not preclude the majority in this
Court from granting the applicant relief based on
departmental
circulars, having found that no contract existed.
[141]
The last error relates to circulars. The fourth judgment
repeats what is stated in the first judgment and equates
Omnihealth
to walls of a house and the circulars as its roof. The logic is
stated to be that if the walls fall, so does the roof.
Examples
of cases where regulations were not set aside when the empowering
legislation was declared invalid, are cited for the
proposition.
But all of this overlooks a fundamental point. This is whether
the declaration of invalidity in relation
to the empowering statute
meant that the regulations made under it, were set aside without any
reference to them.
[142]
A point missed in the analysis of the fourth judgment is that
on the assumption that
Omnihealth
was wrong, my judgment
accepts that upon
Omnihealth
being overruled, the circulars
become invalid but remain in existence at the level of fact until
they are set aside. This
is what
Kirland
held. An
administrative act that is invalid in law continues to exist as a
matter of fact until set aside. As a matter
of logic and common
sense, if
Omnihealth
is overruled that means that the legal
basis of the circulars is removed and therefore they become invalid
for lack of a legal
basis. But this does not mean that they do
not exist as a matter of fact. Both
NSPCA
[108]
and
Premier, Limpopo Province
[109]
are not authority for the proposition that if an Act of Parliament is
declared invalid, the regulations made under it are set aside.
At best the declaration of invalidity in those circumstances render
the regulations invalid but does not set them aside.
[143]
For these reasons, which differ in substance from those of the
majority in the Supreme Court of Appeal, I would grant leave to
appeal
but dismiss the appeal.
MOJAPELO AJ (Jafta J concurring):
Introduction
[144]
I have had the pleasure of reading the judgments written by my
Colleagues, Cameron J, Jafta J and Zondo J. Although I
appreciate
certain parts of the first judgment, I agree with the
reasoning and outcome of the second judgment that would grant leave
to appeal,
but dismiss the appeal. I would also take the
following further considerations into account when dismissing the
appeal.
[145]
In holding that PMSAs constitute trust property,
Omnihealth
was dealing with an insolvency situation where the rights of the
holders of those accounts were directly in issue. The effect
of
the
Omnihealth
decision is that protection was given to the
interests of those members holding PMSAs in the event of insolvency.
Prior to
the events that gave rise to this case, the decision in
Omnihealth
was good law on the status of PMSAs. Genesis
appears to have deliberately submitted non-compliant annual financial
statements
so as to engineer a pure legal question, namely, whether
PMSAs constitute trust property. The effect of the first
judgment
is that a reconsideration of rights of members of a medical
scheme is to be made. An insolvency situation or similar matter
where rights of members are directly before court would be a better
occasion. That, however, is only one of the concerns.
Creating a trust relationship
[146]
As mentioned in the first and second judgments, a medical
scheme is a financial institution for purposes of the FIA.
[110]
For purposes of this judgment, it is necessary to reiterate that the
FIA defines trust property as—
“any
corporeal or incorporeal, movable or immovable asset invested, held,
kept in safe custody, controlled, administered or
alienated by any
person, partnership, company or trust for, or on behalf of, another
person, partnership, company or trust, and
such other person,
partnership, company or trust is hereinafter referred to as the
principal.”
[111]
[147]
The question that arises in the matter before us is: when is
the trust relationship created? In general, a trust can be
created
through legislation, court orders, wills, or by contract
between living persons.
[112]
Section 30(1)(e) of the MSA empowers the medical scheme to allocate
funds to the PMSAs.
[113]
The trust relationship in this case is created when the medical
scheme creates and allocates funds to a PMSA of a particular
member.
Once created, the medical scheme becomes the holder of funds as
“trust property” as contemplated in the
FIA. While
the medical scheme (as trustee) administers the trust property, the
members (as trust beneficiaries) retain beneficial
interest in the
trust property.
[114]
The property which is held in trust does not lose the character of
trust property just because the trustee has intermingled
it with what
is not trust property. It is for the medical schemes to ensure
compliance with the provisions of section 4 of
the FIA.
[115]
Breach of the law in regard to dealings with trust property is an
unlawful act that invites legal sanction but does not change
the
nature of the relationship between the trustee (or medical scheme),
trust property and trust beneficiary (or member) as established
by
the FIA.
[116]
[148]
It is an established principle in our law of statutory
interpretation that “every part of a [s]tatute should be so
construed
as to be consistent, so far as possible, with every other
part of that statute, and with every other unrepealed statute enacted
by the same Legislature”.
[117]
This must mean that, unless there is a tension between the FIA and
the MSA, the Acts must be read together. Seeing
that the trust
relationship is triggered upon allocation as contemplated in section
30(1)(e), the relevant provisions of the FIA
come into play at that
stage. I see no difficulty in reading the relevant provisions
of the MSA and FIA together –
which would lead to the
conclusion that PMSAs established in terms of the MSA are trust
property as contemplated in the FIA.
[149]
Once a PMSA has been created it is administered in terms of
the regulations and the rules of the medical scheme. The
regulations
under the MSA as well as the rules of Genesis clearly
emphasise the juridical nature of PMSA funds as trust property.
[118]
This emphasis from the rules and regulations should not be construed
as a “bottom-up” approach as the trust nature
of PSMAs is
created at the time when the funds are allocated in terms of section
30(1)(e) of the MSA. The regulations and
the rules merely
provide a basis for the protection and administration of PMSAs as
trust property and, according to the existing
law, the protection
continues to operate upon the insolvency of the medical scheme.
The accounting problem
[150]
From a certain perspective, the problem is seen as an
accounting one. Hence in
Omnihealth
Du Plessis J,
expressly (and correctly) disavowed any expertise in the accounting
field and directed his mind to answering the legal
question.
[119]
What determines whether there is a trust created is the nature of the
relationship. Both the High Court in
Genesis
and the
minority in the SCA saw an accounting absurdity which results from
PMSA funds having to be reflected as a liability in
the financial
statements of the medical scheme while it is seen as a trust asset
and not a free asset of the medical scheme.
[120]
They see the basic double entry rule of accounting as being offended
by the interpretation that makes PMSA funds trust property.
[121]
However, it must now be accepted that what was perceived as an
accounting difficulty or absurdity is no difficulty at all.
The
experts in that field have resolved the problem and the circulars and
actions of the Registrar of Medical Schemes are based
on their
guidance.
[122]
The South African Institute of Chartered Accountants (SAICA) has
given guidance which complies with International Financial
Reporting
Standards (IFRS) and the Registrar issued circulars to the medical
schemes based thereon. With the accounting “problem”
resolved, what remains is for medical schemes to comply. This
is what the Registrar of Medical Schemes sought to enforce
by
rejecting the annual financial statements of Genesis, as he is
authorised by the MSA to do.
[123]
[151]
Although a reading of Circular 38, read together with
the clarification thereof issued by the Council for Medical Schemes,
indicates that the savings plan monies
should be “
treated
off balance sheet”, it clearly indicates that—
“additional
disclosure is required to enable users of the financial statements to
understand the impact of the transactions
on the financial position
and financial performance of the scheme; such disclosure being
provided in terms of paragraph 17 of IAS
1
Presentation of
financial statements
of IFRS. Annexure A to this
circular provides examples of additional disclosure required to give
effect to the requirements
of paragraph 17.”
[152]
There is, on this approach, no confusion created and there is
no need for the medical scheme to raise additional funds to cover the
PMSA fund liability. The medical scheme would, in any event
have to keep funds available to cover the interest of a member
who is
a holder of a PMSA in the event of that member opting to move to
another medical scheme.
Conclusion
[153]
Following the decision in
Omnihealth
, there is a layer
of protection enjoyed by members of medical schemes with PMSAs which
operates in the case of insolvency.
Medical schemes are
primarily for the protection of the interest of members. The
members enjoy a protection on insolvency
of a scheme. The
financial statements of each medical scheme should, however, reflect
that position. This Court is
invited to make a decision with
far reaching consequences, taking away rights without proper
facts and articulation.
I would opt not to. A
self created challenge against the decision of the Registrar,
which is authorised by law, is not
such an occasion.
[154]
I would, for these reasons, in addition to all the reasons set
out in the second judgment, grant leave to appeal and dismiss the
appeal with costs.
ZONDO J (Mogoeng CJ, Cameron J, Froneman
J, Khampepe J, Madlanga J, Mhlantla J and Pretorius AJ
concurring):
Introduction
[155]
I have had the benefit of reading the judgments prepared by my
Colleagues, Cameron J (first judgment), Jafta J (second judgment)
and
Mojapelo AJ (third judgment). I concur in the first judgment
but write separately to give additional reasons why the
first
judgment’s conclusion and order are correct and why I am unable
to agree with the second judgment.
Background
[156]
The Registrar of Medical Schemes (Registrar or first
respondent) rejected Genesis Medical Scheme’s (Genesis) annual
financial
statements and returns in 2012 on the bases that those
financial statements and returns did not comply with certain
provisions
of the Medical Schemes Act
[124]
(MSA) as interpreted by Du Plessis J in
Registrar of Medical
Schemes v Ledwaba NO
[125]
(
Omnihealth
) and did not correctly reflect Genesis’
revenue.
High Court
[157]
Genesis brought a review application in the High Court of
South Africa, Western Cape Division, Cape Town (High Court) to have
the
Registrar’s decision set aside. The sole ground upon
which Genesis relied for its review application was that the
Registrar’s
decision was materially influenced by an error of
law as envisaged in section 6(2)(d) of the Promotion of
Administrative Justice
Act
[126]
(PAJA). Genesis’ contention that the Registrar’s
decision was materially influenced by an error of law was based
on
the proposition that the
Omnihealth
judgment was wrongly
decided. The Registrar and the Council for Medical Schemes
(Medical Council or second respondent) opposed
the review application
on the sole ground that there was no error of law.
[158]
The High Court held that the Registrar’s decision was
materially influenced by an error of law in that
Omnihealth
had been wrongly decided and the Registrar had made his decision on
the basis of
Omnihealth
.
[127]
It granted Genesis’ review application and set aside the
Registrar’s decision.
[128]
Supreme Court of Appeal
[159]
Subsequently, the Supreme Court of Appeal upheld an appeal
against the decision of the High Court and set it aside.
[129]
That, in effect, restored the Registrar’s decision. This
matter now comes before us by way of an application
for leave to
appeal against the decision of the Supreme Court of Appeal.
In this Court
The appeal
[160]
I have indicated that the ground upon which Genesis sought to
have the Registrar’s decision reviewed and set aside was that
his decision was materially influenced by an error of law. This
is a ground of review for which provision is made in section
6(2)(d)
of PAJA. This section provides:
“(2)
A court or tribunal has the power to judicially review an
administrative action if—
. . .
(d)
the action was materially influenced by an error of law . . . .”
[161]
The second judgment concludes that Genesis has failed to show
the section 6(2)(d) ground in this matter and that, therefore,
the appeal falls to be dismissed. For this conclusion, the
second judgment gives three reasons. The first is that there
was no error of law here. The second is that, even if it could
be said that there was an error of law, that error of law
was not
material as required by section 6(2)(d). The third is in
effect that, even if there was a material error of
law, the appeal
should still fail because Genesis did not seek to have Circulars 38
and 41 that were issued by the Registrar stipulating
the form in
which medical schemes were to submit their annual financial
statements, set aside. The second judgment is to
the effect
that those Circulars are administrative actions and, as such, until
they are set aside, they remain valid and binding
upon medical
schemes which would be required to comply with them even if there was
an error of law. I deal with these topics
in turn.
Was there an error of law?
[162]
The second judgment expresses the view that the Registrar did
not commit an error of law in rejecting Genesis’ annual
financial
statements because, in doing so, he was giving effect to
the High Court decision in
Omnihealth
. In other words,
the second judgment says that it could not be an error of law for the
Registrar to base his decision on
a judgment of a court of law that
governed the situation with which he had to deal.
[163]
A reading of the affidavits filed by the parties in the High
Court reveals that the parties approached the matter on the basis
that
the Registrar gave the relevant provisions of the legislation
the same interpretation that Du Plessis J gave to the same provisions
in the
Omnihealth
judgment. The approach was, therefore,
that, if that interpretation is found to be wrong in law, the
Registrar’s decision
to reject Genesis’ annual financial
statements and returns was materially influenced by an error of law
as envisaged in section 6(2)(d).
That is why, in taking
the position in the answering affidavit that there was no error of
law, the respondents focused their attention
on whether the
Omnihealth
judgment was correct. They did so because
they accepted that, if the
Omnihealth
judgment’s
interpretation of the relevant provisions of the legislation was
wrong, that would mean that the Registrar’s
interpretation of
the legislation was also wrong and his decision had been materially
influenced by an error of law. That
is why, in their answering
affidavit, the respondents said:
“It is
instructive to note that Genesis states, in paragraph 27, that, if
the Omnihealth judgment is correct then the Registrar’s
decision is justified. As submitted herein, the Registrar’s
decision is correct and was based on the applicable statutory
framework as interpreted by the court in the Omnihealth judgment.”
[164]
If the respondents’ approach or case was that, even if
the
Omnihealth
judgment was wrong, the Registrar’s
decision was, for whatever reason, correct, they would have said so.
They did not
say so because that was not their approach to, or their
case in, opposing the review application. The respondents’
case was based on an acceptance that, if
Omnihealth
was
wrongly decided, then the Registrar’s decision was materially
influenced by an error of law and his decision would fall
to be
reviewed and set aside.
Immateriality of error of law
[165]
The second reason advanced in the second judgment is that,
even if it could be said that an error of law has been shown in this
case, the error of law was not material. For convenience, I
shall refer to this point as the “immateriality point”.
The relevance of this point is that the error of law contemplated in
section 6(2)(d) is an error of law that “materially
influenced”
the administrative action. On the basis of this Court’s
decision in
Johannesburg Municipality
,
[130]
the second judgment says that an error of law is material if, without
it
,
a different decision would have been reached. The
second judgment points out that there are two bases upon which it can
be
said that, without the alleged error of law connected with
Omnihealth
, and, even applying the correct interpretation of
the legislation, the Registrar would still have rejected Genesis’
financial
statements and returns. In other words, there are two
grounds upon which the second judgment relies to say that, even, if
there was an error of law, that error of law was not material.
The first relates to Circulars 38 and 41 issued by the Registrar.
The second relates to the auditor’s assurance report.
[166]
The first is that in terms of section 37 of the MSA the
Registrar has the power to determine the form in which medical
schemes’
annual financial statements were required to be
submitted to him and the Registrar had determined that form in
Circulars 38 and
41. The second judgment expresses the view
that, even if
Omnihealth
was found to have been wrongly
decided, the Registrar’s decision would still stand because
Genesis’ financial statements
would still be required to
conform to the form determined by the Registrar in the Circulars.
That Genesis’ financial
statements would still be required to
comply with the Circulars is based on the proposition that Genesis
did not seek the setting
aside of the Circulars and, as long as they
had not been set aside, they would still be valid and binding.
[167]
The second ground is that the Registrar’s decision was
not based solely upon the interpretation of the MSA as given in the
Omnihealth
judgment. It says the Registrar’s
decision was also based on the ground that the auditor’s
assurance report did
not include the “prescribed paragraphs 13,
14 and 15”. The second judgment gets this ground from the
letter that
the Registrar sent to Genesis advising the latter of his
decision and the reasons for that decision. The second judgment
points out that this reason had nothing to do with the correctness or
otherwise of the
Omnihealth
judgment. It goes on to say
that, even if
Omnihealth
was wrongly decided, the Registrar’s
decision could still be justified on the basis that Genesis’
financial statements
omitted “the prescribed paragraphs 13, 14
and 15” which meant that they were still deficient.
[168]
The second judgment’s “immateriality point”
was not one of the grounds upon which the Registrar opposed Genesis’
review application. The respondents relied upon one ground only
to oppose Genesis’ review application. That was
that
there was no error of law. The deponent to the respondents’
answering affidavit put it thus:
“The
respondents oppose this review application on the grounds that no
error of law occurred and that, therefore, the Registrar’s
decision is not reviewable as contemplated in section 6(2)(d) of
PAJA.”
[169]
A reading of the entire answering affidavit reveals that the
respondents did not rely upon any other ground to oppose Genesis’
review application. If the respondents had intended to also
rely on the ground now advanced in the second judgment, they
would
have said in the answering affidavit that, even if there was an error
of law, such error of law did not materially influence
the
Registrar’s decision. There is no statement to that
effect or along those lines in the respondents’ answering
affidavit. That, therefore, means that the ground upon which
the second judgment now relies to decide this matter was not
part of
the respondents’ case or defence in the papers.
Accordingly, it is not permissible for the second judgment
to use
this ground to decide the matter. Except in certain limited
situations none of which is present in this case, a court
is required
to decide matters on the basis of the issues between the
parties.
[131]
This issue was not an issue between the parties. As the
Appellate Division said in
Director of Hospital Services v Mistry
:
“When, as in
this case, the proceedings are launched by way of notice of motion,
it is to the founding affidavit which a Judge
will look to determine
what the complaint is.”
[132]
Obviously, when you want to establish in
motion proceedings what the respondent’s case or defence is or
was, you look at the
respondent’s answering affidavit.
[170]
Nowhere in the respondents’ answering affidavit can one
find the points made in paragraph [166] about Circulars 38 and 41 and
in paragraph [167] about the auditor’s assurance report.
This means that these points were not and are not part of
the
respondents’ case or defence on the papers. However, the
point concerning the deficiency in the auditor’s
assurance
report comes from the Registrar’s letter which was an annexure
to Genesis’ founding affidavit. That
was the letter in
which the Registrar informed Genesis of his decision and the reasons
for it.
[171]
The fact that the second judgment got the point about the
auditor’s assurance report from an annexure to one of the
affidavits
and not from the respondents’ answering affidavit
raises the question whether it is permissible in our law to decide a
matter
on the basis of a point contained in, or based on an annexure
to an affidavit but which is not covered in the relevant affidavit.
The answer is: No. In
Minister of Land Affairs and
Agriculture v D & F Wevell Trust
[133]
the Supreme Court of Appeal said:
“. . . the
case argued before this court was not properly made out in answering
affidavits deposed to by Andreas. The
case that was made out,
was conclusively refuted in the replying affidavits as I pointed out
in paras [18] to [20] above.
It is not proper for a party in
motion proceedings to base an argument on passages in documents which
have been annexed to the papers
when the conclusions sought to be
drawn from such passages have not been canvassed in the affidavits.
The reason is manifest
— the other party may well be prejudiced
because evidence may have been available to it to refute the new case
on the facts.
The position is worse where the arguments are
advanced for the first time on appeal. In motion proceedings,
the affidavits
constitute both the pleadings and the evidence:
Transnet Ltd v Rubenstein
[2006 (1) SA 591
(SCA) at para 28], and the
issues and averments in support of the parties’ cases should
appear clearly therefrom. A
party cannot be expected to trawl
through lengthy annexures to the opponent’s affidavit and to
speculate on the possible
relevance of facts therein contained.
Trial by ambush cannot be permitted
.”
[134]
If a litigant is not permitted to engage
in a trial by ambush, it follows that a court may also not do so.
[172]
In my view, the second judgment errs in relying on this point
to decide the appeal.
Is there a need to specifically set
aside Circulars 38 and 41?
[173]
The second judgment also expresses the view that, even if
Omnihealth
is found to have been wrongly decided and,
therefore, there was an error of law, Circulars 38 and 41 issued by
the Registrar would
still stand as long as they have not been set
aside. It points out that Genesis did not seek to have these
Circulars set
aside. The second judgment points out that, until
they are set aside, they would be binding and would need to be
complied
with. The first judgment’s answer to this is
that those Circulars are so dependent upon the
Omnihealth
judgment that they only stand as long as the
Omnihealth
judgment stands with the result that, if the
Omnihealth
judgment
falls, they, too, fall.
[174]
I agree with the first judgment’s view that, if
Omnihealth
falls, the two Circulars also fall.
Omnihealth
is to the Circulars what the walls are to the roof
of a house. If the walls fall, the roof falls. Put
differently,
Omnihealth
is to the Circulars what an Act of
Parliament is to regulations promulgated under it. If the Act
is declared invalid, the
regulations cannot stand on their own.
They fall with the Act, without having to be separately or
specifically set aside.
This occurs because their legal
foundation is gone.
[175]
Examples of cases where regulations promulgated under an Act
were not separately or specifically declared invalid when the Act
under
which they were made was declared invalid are
NSPCA
[135]
and
Premier, Limpopo Province.
[136]
In
NSPCA
one of the sections that this Court declared invalid
was section 2 of the Performing Animals Protection Act.
[137]
Under section 2 of that Act certain regulations had been
promulgated.
[138]
These regulations were not separately or specifically declared
invalid when section 2 was declared invalid. In
Premier,
Limpopo Province
this Court declared certain pieces of provincial
legislation inconsistent with the Constitution and invalid.
Although there
were regulations
[139]
promulgated under one of the Provincial Acts, those regulations were
not separately or specifically declared invalid. In
either case
no one could conceivably argue that, since those regulations were not
separately or specifically declared invalid,
they would remain valid
and binding after the Act under which they had been promulgated had
been declared invalid.
Circulars 38 and 41 were dependent
upon Omnihealth
[176]
How Circular 38 was dependent on
Omnihealth
is to be
gathered from certain passages at the beginning of the circular.
Those passages read:
“In
January 2007 the High Court of South Africa, in the case of
Registrar of Medical Schemes vs. The liquidators of Omnihealth
and
others (case no 18545/06) (the Omnihealth case), ruled that funds
standing to the credit of the personal medical savings accounts
of
the members constitute trust money as defined in
section 1
of the
Financial Institutions (Protection of Funds) Act 28 of 2001
. It
also ordered that interest accrued on these amounts must be paid to
the members and if any members cannot be located,
the balance
pertaining to such members must be paid into the Guardians Fund to be
administered there under.
Medical Schemes
were advised of the outcome of this case in May 2007, Press release
4/2007.
. . .
A survey of schemes
and administrators conducted by an independent party on behalf of
Council determined that many schemes are not
dealing correctly with
PMSA balances in terms of the Act, the Regulations and the Omnihealth
case. During the survey, suggestions
were obtained on how best
to implement the changes and what systems, procedures and operational
changes would be required to comply
with the requirements of the
Act.”
[177]
When, subsequently, the Registrar had to clarify Circular 38,
he did so with reference to the
Omnihealth
judgment. In
the clarification of Circular 38, it was,
inter alia
, said:
“
Legal status of Omnihealth judgment and Circular 38 of 2011
Schemes were
advised of the decision of the Omnihealth judgment via Press release
no 1 of 2007. Schemes have therefore
had five years
to comply with the requirements of the judgment and Regulation 10 of
the Medical Schemes Act 131 of 1998 (the MSA).
The background to
the judgment is that the intention of the Regulations was always to
ring-fence the savings balances and to protect
them from creditors of
the scheme. The Registrar applied for the declaratory order to
confirm this interpretation of the
MSA. The judgment confirmed
the Registrar’s interpretation of the Act and Regulations.
The legal position
is clear and therefore no useful purpose will be served in engaging
in further discussions on the implications
of the judgment. The
nature of the savings accounts as trust monies that do not belong to
the scheme is confirmed by the
Omnihealth judgment and the
requirements as set out in Circular 38 of 2011 are requirements of
the MSA and the FI Act.
It is important to
note that the Registrar is tasked with ensuring compliance with the
law regarding medical schemes. It is
to ensure such compliance
that Circular 38 and this clarification have been issued.”
[178]
That Circular 41 is also dependent upon the
Omnihealth
judgment and that it cannot survive that judgment’s “fall”
is to be gathered from not only the fact that four of
the seven
paragraphs that make up that circular are about the
Omnihealth
judgment but also from what is said in that circular about the
Omnihealth
judgment. The second to fifth paragraphs of
Circular 41 read:
“In
January 2007 the High Court of South Africa, in the case of
Registrar of Medical Schemes vs. The liquidators of Omnihealth
and
others (case no 18545/06) (the Omnihealth judgment), ruled that funds
standing to the credit of the Personal Medical Savings
Accounts
(PMSA) of the members constitute trust money as defined in
section 1
of the
Financial Institutions (Protection of Funds) Act 28 of 2001
.
Medical Schemes were advised of the outcome of this case in May 2007,
Press release 4/2007.
Circular 38 of 2011
and Circular 5 of 2012 provided clarity to medical schemes on how
these PMSA balances should be dealt with,
including prescribing
certain disclosure notes deemed necessary to provide members with
sufficient information on how these monies
are managed on their
behalf.
The Omnihealth
judgment emphasised the need to better describe the various
components of a medical scheme contract; to clearly indicate
which
income and expenditure represents scheme income and expenditure and
which represents cash flows that are managed on behalf
of the
members. This clear distinction is necessary in both the
statement of comprehensive income as well as in the disclosure
notes
to the annual financial statements.
Annexure A to this
Circular contains the updated prescribed format of the statement of
comprehensive income. Any other material
line items than those
in the prescribed format are to be disclosed separately on the face
of the statement of comprehensive income,
following the same ‘by
function’ classification. When a specific line item in
the prescribed format is not relevant
to a scheme, that specific line
item may be omitted.”
[179]
For these additional reasons, I agree with the conclusion of
the first judgment that the appeal should be upheld and with the
order
it proposes.
For the
Applicant:
S
Burger
SC and
G Cooper
instructed by
Clyde & Co
For the First and Second
Respondents:
J J Brett SC instructed by
Savage Jooste &
Adams
[1]
The following cases instance several medical scheme insolvencies:
Sechaba Medical Solutions v Sekete
[2015] ZASCA 8
;
Muller
NO v Community Medical Scheme
[2011] ZASCA 228
;
2012 (2) SA 286
(SCA); and
Registrar of Medical Schemes v Ledwaba NO
[2007]
ZAGPHC 24
(
Omnihealth
).
[2]
131 of 1998.
Sections 24(1)
and
26
(1) provide for the
registration and establishment of medical schemes.
Section 24(1)
provides:
“The
Registrar shall, if he or she is satisfied that a person who carries
on the business of a medical scheme which has
lodged an application
in terms of
section
22
, complies or will be able to comply with the provisions of
this Act, register the medical scheme, with the concurrence of the
Council, and impose such terms and conditions as he or she deems
necessary.”
Section 26(1) provides:
“Any medical
scheme registered under this Act shall—
(a)
become a body corporate capable of suing and being sued and of doing
or causing to be done all such things as may be necessary for or
incidental to the exercise of its powers or the performance
of its
functions in terms of its rules;
(b)
assume liability for and guarantee the benefits offered to its
members and their dependants in terms of its rules; and
(c)
establish a bank account under its direct control into which shall
be paid every amount—
(i)
received as subscription or contribution paid by or in respect
of a
member; and
(ii)
received as income, discount, interest, accrual or payment of
whatsoever kind.”
[3]
Section 18 provides:
“(1)
The Minister shall, after consultation with the Council, appoint a
Registrar and one or more Deputy Registrars of Medical Schemes.
(2)
The Registrar shall be the executive officer of the Council and
shall manage the affairs of the Council.
(3)
The Registrar shall act in accordance with the provisions of this
Act and the policy and directions of the Council.
(4)
The Registrar may assign to any staff member such of his or her
functions or duties as he or she may from time to time determine.
(5)
The Registrar shall supervise the staff appointed under section
8(a)
or (c) or placed at his or her disposal in terms of
section
19
(1).
(6)
A Deputy Registrar shall assist the Registrar in the performance
of
his or her functions and the carrying out of his or her duties and
may, subject to the approval of the Registrar, exercise
any power
conferred upon the Registrar by the Council or by this Act.”
[4]
Section 3 provides:
“(1)
There is hereby established a juristic person called the Council for
Medical Schemes.
(2)
The Council shall be entitled to sue and be sued, to acquire,
possess and alienate moveable and immovable property and to acquire
rights and incur liabilities.
(3)
The registered office of the Council shall be situated in Pretoria
or such other address as the Council may from time to time
determine.
(4)
The Council shall, at all times, function in a transparent,
responsive
and efficient manner.”
[5]
Registrar of Medical Schemes v Genesis Medical Scheme
[2016]
ZASCA 75
;
2016 (6) SA 472
(SCA) (SCA judgment).
[6]
Genesis Medical Scheme v Registrar of Medical Schemes
[2014]
ZAWCHC 206
;
2015 (4) SA 91
(WCC) (High Court judgment).
[7]
Section 37(2).
[8]
Section 38 provides:
“The
Registrar, if he or she is of the opinion that any document
furnished in terms of section 37
does not comply
with any of the provisions of this Act or does not
correctly reflect the revenue and expenditure or financial position,
as the
case may be, of that medical scheme, may reject the document
in question, and in that event—
(a)
he or she shall notify the medical scheme concerned of the reasons
for such rejection; and
(b)
the medical scheme shall be deemed not to have furnished the said
document to the Registrar.”
[9]
Section 30(1)(e) provides:
“A medical
scheme may in its rules make provision for—
. . .
(e)
the allocation to a member of a personal medical savings account,
within the limit and in the manner prescribed from time to time, to
be used for the payment of any relevant health service.”
Section 32 provides:
“The rules
of a medical scheme and any amendment thereof shall be binding on
the medical scheme concerned, its members,
officers and on any
person who claims any benefit under the rules or whose claim is
derived from a person so claiming.”
[10]
See
Omnihealth
above n 1 at 1.
[11]
Section 35(1) provides:
“A medical
scheme shall at all times maintain its business in a financially
sound condition by—
(a)
Having assets as contemplated in
subsection (3);
(b)
Providing for its liabilities;
and
(c)
Generally
conducting its business so as
to be in a position to meet its liabilities at all times.”
[12]
Section 35(3) provides:
“A medical
scheme shall have assets, the aggregate value of which, on any day,
is not less than the aggregate of—
(a)
the aggregate value on that day of its
liabilities; and
(b)
the nett assets as may be prescribed.”
[13]
Section 36 requires a medical scheme to appoint at least one
auditor, with attendant provisions. Section 37, titled “Annual
financial statements”, provides:
“(1)
The board of trustees shall in respect of every financial year cause
to be prepared annual financial statements and shall within four
months after the end of a financial year furnish copies of the
statements concerned together with the report of the board of
trustees to the Registrar.
(2)
The annual financial statements referred to in subsection (1) shall
be furnished to the Registrar in the medium and form determined by
the Registrar and shall
inter alia
consist of—
(a) a
balance sheet dealing with the state of affairs of the medical
scheme;
(b) an
income statement;
(c) a
cash-flow statement;
(d) a
report by the auditor of the medical scheme; and
(e) such
other returns as the Registrar may require.
(3)
The annual financial statements of a medical scheme shall, subject
to the provisions of the Public Accountants’ and Auditors’
Act, 1991, be audited by an accountant and auditor registered
in
terms of that Act except where such accounts are to be audited by
the Auditor-General in terms of any law.
(4)
The annual financial statements shall—
(a)
be prepared in accordance with general accepted accounting practice;
(b)
fairly present the state of affairs and the business of the medical
scheme and the results thereof at the end of the financial year
concerned and the surplus or deficiency of the medical scheme
for
that financial year;
(c)
by means of figures and a descriptive report, set out and explain
any matter or information material to the affairs of the medical
scheme; and
(d)
be accompanied by the management accounts in respect of every
benefit option offered by the medical scheme indicating the
financial performance thereof and the number of members enrolled per
option.
(5)
The board of trustees’ report referred to in subsection (1)
shall—
(a)
deal with every matter which is material for the appreciation by
members of the medical scheme of the state of affairs and the
business of the medical scheme and the results thereof; and
(b)
contain relevant information indicating whether or not the resources
of the medical scheme have been applied economically, efficiently
and effectively.
(6)
Notwithstanding anything to the contrary in this section, and
without derogating from other powers conferred on the Registrar in
terms of this Act, the Registrar may, on a quarterly basis,
require
the board of trustees to prepare and furnish to him or her financial
statements, in any specified medium or form.”
[14]
Omnihealth
above n 1.
[15]
Id at 3.
[16]
28 of 2001. Section 1 of the FIA defines trust property as—
“any corporeal or incorporeal, movable or immovable asset
invested, held, kept in safe custody, controlled, administered
or
alienated by any person, partnership, company or trust for, or on
behalf of, another person, partnership, company or trust,
and such
other person, partnership, company or trust is hereinafter referred
to as the principal.”
[17]
Omnihealth
above n 1 at 10.
[18]
Section 4(4) and (5) of the FIA provides:
“(4)
A financial institution must keep trust property separate from
assets
belonging to that institution, and must in its books of
account clearly indicate the trust property as being property
belonging
to a specified principal.
(5)
Despite anything to the contrary in any law or the common law, trust
property invested, held, kept in safe custody, controlled or
administered by a financial institution or a nominee company under
no circumstances forms part of the assets or funds of the financial
institution or such nominee company.”
[19]
3 of 2000.
[20]
Section 6(2)(d) of PAJA provides:
“A court or
tribunal has the power to judicially review an administrative action
if—
. . .
(d)
the action was materially influenced by an error of law.”
[21]
High Court judgment above n 6.
[22]
Cachalia JA with Dambuza JA concurring.
[23]
Regulations in terms of the
Medical Schemes Act 131 of 1998
, GN
R1262
GG
20556, 20 October 1999 (regulations).
[24]
Section 35(3)
above n 12.
[25]
Willis JA with Seriti JA and Tsoka AJA concurring.
[26]
SCA judgment above n 5 at para 54.
[27]
Id.
[28]
In
Omnihealth
above n 1 at 7, Du Plessis J stated:
“In law it
does not follow, because the amount standing to the credit of a
member’s personal savings account is regarded
as a liability,
that the PMSA-funds must be an asset of the scheme”.
The SCA majority
said this statement showed “considerable confusion”
about accounting methods and was “incorrect”
(SCA
judgment above n 5 at para 69). As a matter of logic, it would
follow from the majority’s rejection of the proposition
by Du
Plessis J that the majority thought, unlike Du Plessis J, that it
does
follow in law that PMSA credits must be the scheme’s
assets because they are regarded as a liability. This seems
flatly incompatible with the overall reasoning of the majority.
The confusion may arise from inconsistent use of the word
“assets”
in the majority judgment. The majority uses the term “asset”
to refer to the legal nature
of the funds but also uses it in the
accounting context – on its approach, PMSA funds can be both
“assets”
of the scheme for accounting purposes while
simultaneously “assets” of the member (not the scheme)
in the legal sense.
It may be that the majority erroneously
took Du Plessis J to be speaking about accounting methods, rather
than the legal
nature of funds, even though the context makes plain
that Du Plessis J was referring to the legal nature of the funds
since he
states “I shall return to the accounting
perspective”.
[29]
SCA judgment above n 5 at para 60.
[30]
Id at para 73.
[31]
Section 167(3)(b)(ii) of the Constitution provides that, apart from
constitutional matters, the Court may hear “any other
matter”
if it grants leave on the grounds “that the matter raises an
arguable point of law of general public importance”
that the
Court ought to consider. See
Paulsen v Slipknot Investments
777 (Pty) Ltd
[2015] ZACC 5; 2015 (3) SA 479 (CC); 2015 (5) BCLR
509 (CC).
[32]
Hoexter
Administrative Law in South Africa
2 ed (Juta &
Co Ltd, Cape Town 2012) at 282.
[33]
See [93].
[34]
Section 33(1) of the Constitution provides:
“Everyone
has the right to administrative action that is lawful, reasonable
and procedurally fair.”
[35]
Hoexter above n 32 at 288.
[36]
Johannesburg Metropolitan Municipality v Gauteng Development
Tribunal
[2010] ZACC 11
;
2010 (6) SA 182
(CC);
2010 (9) BCLR 859
(CC) at para 91.
[37]
Section 1 of the MSA provides that—
“‘business
of a medical scheme’ means the business of undertaking, in
return for a premium or contribution,
the liability associated with
one or more of the following activities—
(a)
providing for the obtaining of any
relevant health service;
(b)
granting assistance in defraying expenditure
incurred in connection with the rendering of any relevant health
service; or
(c)
rendering a relevant health service, either by
the medical scheme itself, or by any supplier or group of suppliers
of a relevant
health service or by any person, in association with
or in terms of an agreement with a medical scheme.”
[38]
This definition, though not cited in the judgments of the High Court
or SCA or in the parties’ argument, was at issue in
an
unrelated context in
Guardrisk Insurance Company Ltd v Registrar
of Medical Schemes
[2008] ZASCA 39
;
2008 (4) SA 620
(SCA).
In this case, the Court held that sub-paragraphs (a), (b) and (c) of
the then definition must be read conjunctively,
not disjunctively,
with the result that a short-term insurer transgresses the
prohibition on sale of policies constituting the
“business of
a medical scheme” only if all three sub-paragraphs apply
together (para 15). It must be pointed
out that the Court was
concerned with the definition of “business of a medical
scheme” before its amendment.
The amendment took effect
from 1 April 2017 when the Financial Services Laws General Amendment
Act 45 of 2013 came into force.
The amended definition
replaced the word “and” after sub-paragraph (b) with an
“or”. The amendment
has no effect on the reasoning
or outcome of this judgment.
[39]
Section 26(5) provides:
“No payment
in whatever form shall be made by a medical scheme directly or
indirectly to any person as a dividend, rebate
or bonus of any kind
whatsoever.”
[40]
Section 28 provides:
“No person
shall—
(a)
be a member of more than one
medical scheme;
(b)
be admitted as a dependant of—
(i)
more than one member
of a particular medical scheme; or
(ii)
members of different medical schemes;
or
(c)
claim or accept benefits in
respect of himself or herself or any
dependant from any medical scheme other than the medical scheme of
which he or she is a
member.”
[41]
See section 20, which is headed “Business of Medical Scheme”.
[42]
Section 26(11) provides:
“No medical
scheme shall carry on any business other than the business of a
medical scheme and no medical scheme shall enroll
or admit any
person as a member in respect of any business other than the
business of a medical scheme.”
[43]
Reinecke et al “Insurance: Part 2” in
LAWSA
2 ed
(2012) vol 12(2) at para 1.
[44]
In
Commissioner for Inland Revenue v Butcher Bros (Pty) Ltd
1945 AD 301
at 302, the Appellate Division, in the context of a
revenue statute imposing tax on certain accruals from leases,
defined “premium
or like consideration” as meaning
“consideration having an ascertainable money value passing
from a lessee to a lessor”.
[45]
“Contribution” is used in various places throughout the
MSA: see the definition of “rules” (section 1);
the
scheme’s obligation to pay members’ contributions into
its bank account (section 26(1)(c)(i)); only an employer
is
permitted to receive, hold or deal with the contribution payable by
a member (section 26(6)); all contributions shall be paid
directly
to a medical scheme within three days of becoming due (section
26(7)); a medical scheme’s rules must provide for
the giving
of advance written notice to members of any change in contributions
(section 29(1)(l)) and must provide for the terms
and conditions
applicable to the admission of a person as a member, which terms and
conditions shall provide for the determination
of contributions
(section 29(1)(n)); a medical scheme’s rules may provide for
the contribution to any association instituted
for the benefit of
medical schemes (section 30(1)(c)) or may provide for the
contribution to any fund which is conducted for
the benefit of its
officers (section 30(1)(d)); the duties of the board of trustees
include informing members on contributions
(section 57(4)(d)) and
taking all reasonable steps to ensure that contributions are paid
timeously (section 57(4)(e)).
[46]
Section 1 of the FIA defines a “financial institution”
as—
“(b)
any medical scheme contemplated in
section 1
of the
Medical Schemes
Act, 1998
.”
[47]
Section 4(4)
of the FIA. It follows that, if the funds in
PMSAs are trust assets, and not those of the scheme, this provision
requires
the scheme in its books to clearly indicate that the trust
property is trust property of a “specified principal”.
It would appear, from a book-keeping perspective, that each PMSA
would have to be separately entered with each member indicated
as a
“specified principal”.
[48]
Section 4(5)
of the FIA.
[49]
See generally
Land and Agricultural Bank of South Africa v Parker
[2004] ZASCA 56
;
2005 (2) SA 77
(SCA) (
Parker
).
[50]
The Trust Property Control Act 57 of 1988 provides that a trust is
an arrangement through which the ownership in property of
one person
is by virtue of a trust instrument made over or bequeathed to either
a trustee (ownership trust) or the beneficiaries,
with control
residing in the trustee (bewind-trust).
The statute provides that—
“‘Trust’
means the arrangement through which the ownership in property of one
person is by virtue of a trust
instrument made over or bequeathed—
(a)
to another person, the trustee,
in whole or in part, to be
administered or disposed of according to the provisions of the trust
instrument for the benefit of
the person or class of persons
designated in the trust instrument or for the achievement of the
object stated in the trust instrument;
or
(b)
to the beneficiaries designated in
the trust instrument, which
property is placed under the control of another person, the trustee,
to be administered or disposed
of according to the provisions of the
trust instrument for the benefit of the person or class of persons
designated in the trust
instrument or for the achievement of the
object stated in the trust instrument,
but does not
include the case where the property of another is to be administered
by any person as executor, tutor or curator
in terms of the
provisions of the
Administration of Estates Act, 1965
.”
[51]
See Cameron et al
Honoré’s South African Law of
Trusts
5 ed (Juta Law, Lansdowne 2002) at 128.
[52]
Parker
above n 49 at paras 23, 34 and 37.
[53]
Section 33(1)
and (2) of the MSA provides:
“(1)
A medical scheme shall apply to the Registrar for the approval of
any
benefit option if such a medical scheme provides members with
more than one benefit option.
(2)
The Registrar shall not approve any benefit option under this
section unless the Council is satisfied that such benefit option—
(a)
includes the prescribed benefits;
(b)
shall be self-supporting in terms of membership and financial
performance;
(c)
is financially sound; and
(d)
will not jeopardise the financial soundness of any existing benefit
option within the medical scheme.”
[54]
See [23] to [26].
[55]
Absa Bank Ltd v Moore
[2016] ZACC 34
;
2017
(1) SA 255
(CC);
2017 (2) BCLR 131
(CC) (
Absa
Bank
).
[56]
Fuhri v Geyser NO
1979 (1) SA 747
(N) at 749C-D:
“But,
despite the separation of trust moneys from an attorney’s
assets thus affected by
section 33(7)
, it is clear that trust
creditors have no control over the trust account: ownership in the
money in the account vests in the
bank or other institution in which
it has been deposited . . . and it is the attorney who is entitled
to operate on the account
and to make withdrawals from it.”
[57]
Id.
[58]
See [152].
[59]
See [105] which states that—
“while the
High Court in
Omnihealth
had interpreted certain provisions
of the MSA and FIA, it did not construe
section 37
which confers on
the Registrar the power to determine the form in which financial
statements must be submitted. That is
the power to issue the
circulars which required medical schemes to follow a specific form.
As illustrated earlier, the
Registrar is free to determine
whatever
form
he deems necessary. And this is what he did in the
relevant circulars which are still binding on medical schemes
because
they were not set aside. This means even if the MSA is
given an interpretation that differs from
Omnihealth
on the
question whether PMSA funds are trust monies, the current facts
would still lead to the conclusion that Genesis failed
to comply
with the form determined by the Registrar.”
[60]
SCA judgment above n 5 at para 22 held:
“The content
of the rules and the regulations cannot be used as an aid to the
construction of the MSA.”
[61]
See particularly
regulations 4(4)
,
10
(3) and
29
.
[62]
Section 26(1)(c)
provides:
“Any medical
scheme registered under this Act shall—
. . .
(c)
establish a bank account under its direct control into which shall
be paid every amount—
(i)
received as subscription or contribution paid by or in respect
of a
member; and
(ii)
received
as income, discount, interest,
accrual or payment of whatsoever kind.”
[63]
Rule 1.2 of Appendix 2 to Annexure B of Genesis’s rules
(effective 1 January 2017) provides:
“At the
beginning of each three month period in any financial year, the
Scheme will make available to the Savings Account
of a member a
financial facility not exceeding three times the monthly
contributions due in the financial year according to the
stipulated
column of Annexure A, plus any amount unused from a previous
three month period in the same financial year, plus
any amount
transferred from another medical scheme or unused benefits
accumulated from any previous financial year, less all
claims paid
and deducted from this Account in terms of these rules. Where a
member in any financial year withdraws from his Savings
Account an
amount in excess of the actual amount standing to the credit of such
Account, the additional amount withdrawn shall
constitute a loan by
the Scheme, to the limits set out in these rules, to the member.”
[64]
Directions dated 31 January 2017 were issued on 1 February 2017
directing Genesis to “make available to the Court, on or
before Thursday, 2 February 2017, an electronic copy of its rules as
referred to in the respondents’ written argument in
this
Court”.
[65]
Rule 14.5 of Genesis’s rules provides:
“The balance
standing to the credit of a member in terms of any benefit option
which provides for personal medical savings
accounts shall, at all
times, remain the property of the member, subject to the provisions
relating to savings accounts set out
in Annexure B of these Rules.”
[66]
See [31].
[67]
Section 4(4) of the FIA.
[68]
Section 79 of the Attorneys Act 53 of 1979;
section 88
of the
Legal
Practice Act 28 of 2014
; and sections 10 and 12 of the Trust
Property Control Act 57 of 1988.
[69]
The SCA majority considered that “divination of justice”
supported its conclusion: see SCA judgment above n 5 at
para 54.
[70]
See [45] to [46].
[71]
See [111].
[72]
This power is conferred by section 24(1) quoted above n 2.
[73]
Section 18(1) of the MSA.
[74]
Section 18(2) and (3) of the MSA.
[75]
See
Omnihealth
above n 1.
[76]
These were Circulars 38 of 2011, 5 of 2012 and 41 of 2012.
[77]
See High Court judgment above n 6 at para 38.
[78]
Administrator, South West Africa v Jooste Lithium Myne (Eiendoms)
Bpk
1955 (1) SA 557
(A);
Local Road Transportation Board v
Durban City Council
1965 (1) SA 586
(A) (
Durban City
Council
);
Reynolds Brothers Ltd v Chairman, Local Road
Transportation Board, Johannesburg
1985 (2) SA 790
(A); and
Hira
v Booysen
1992 (4) SA 69 (A).
[79]
Administrator, South West Africa
id at 569C-E.
[80]
Goldfields Investment Ltd v City Council of Johannesburg
1938
TPD 551.
[81]
Durban City Council
and
Reynolds Brothers Ltd
above n
78.
[82]
Reynolds Brothers Ltd
above n 78 at 801G-I.
[83]
Hira
above n 78 at 90.
[84]
Id at 93G-I.
[85]
Johannesburg Metropolitan Municipality v Gauteng Development
Tribunal
[2010] ZACC 11
;
2010 (6) SA 182
(CC);
2010 (9) BCLR 859
(CC) (
Johannesburg Municipality
) at para 91.
[86]
Hira
above n 78 at 92G-J.
[87]
Re Racal Communications Ltd
[1980] UKHL 5
;
[1980] 2 All ER 634
(HL) at
638G-H.
[88]
MEC for Health, Eastern Cape v Kirland Investments (Pty) Ltd
[2014] ZACC 6
;
2014 (3) SA 481
(CC);
2014 (5) BCLR 547
(CC)
(Kirland)
;
Merafong City Local Municipality v AngloGold
Ashanti Limited
[2016] ZACC 35
;
2017 (2) SA 211
(CC);
2017 (2)
BCLR 182
(CC) (
Merafong
); and
Department of Transport v
Tasima (Pty) Limited
[2016] ZACC 39
;
2017 (2) SA 622
(CC);
2017
(1) BCLR 1
(CC) (
Tasima
).
[89]
Merafong
id at para 41.
[90]
Id at para 43.
[91]
Camps Bay Ratepayers’ and Residents’ Association v
Harrison
[2010] ZACC 19
;
2011 (4) SA 42
(CC);
2011 (2) BCLR 121
(CC) (
Camps Bay
).
[92]
Id at para 28.
[93]
Kirland
above n 88 at para 89.
[94]
See [3].
[95]
See [62].
[96]
Minister of Health v New Clicks South Africa (Pty) Ltd
[2005]
ZACC 14
;
2006 (2) SA 311
(CC);
2006 (1) BCLR 1
(CC) at paras 128 and
135; and
City of Tshwane Metropolitan Municipality v Cable City
(Pty) Ltd
[2009] ZASCA 87
;
2010 (3) SA 589
(SCA) at para 10.
[97]
See [45] and [57].
[98]
Tasima
above n 88 at para 226.
[99]
Id at paras 221-3.
[100]
Section 37(4) of the MSA provides:
“The annual
financial statements shall—
(a)
be prepared in accordance with general accepted accounting practice;
(b)
fairly present the state of affairs and the business of the medical
scheme and the results thereof at the end of the financial year
concerned and the surplus or deficiency of the medical scheme
for
that financial year;
(c)
by means of figures and a descriptive report, set out and explain
any matter or information material to the affairs of the medical
scheme; and
(d)
be accompanied by the management accounts in respect of every
benefit option offered by the medical scheme indicating the
financial performance thereof and the number of members enrolled per
option.”
[101]
See [164].
[102]
See [165] to [171].
[103]
Security Industry Alliance v Private Security Industry Regulatory
Authority
[2014] ZASCA 99
;
2015 (1) SA 169
(SCA) at paras 25-6.
[104]
See [171].
[105]
Minister of Land Affairs and Agriculture v D & F Wevell Trust
[2007] ZASCA 153
;
2008 (2) SA 184
(SCA) at para 17.
[106]
Id at para 44.
[107]
KwaZulu-Natal Joint Liaison Committee v MEC Department of
Education, Kwazulu-Natal
[2013] ZACC 10; 2013 (4) SA 262 (CC);
2013 (6) BCLR 615 (CC).
[108]
NSPCA v Minister of Agriculture, Forestry and Fisheries
[2013]
ZACC 26; 2013 (5) SA 571 (CC); 2013 (10) BCLR 1159 (CC).
[109]
Premier, Limpopo Province v Speaker of the Limpopo Provincial
Legislature
[2012] ZACC 3
;
2012 (4) SA 58
(CC);
2012 (6) BCLR
583
(CC).
[110]
In terms of section 1 of the FIA, a “financial institution”
is defined to include—
“(b)
any medical scheme contemplated in
section 1
of the
Medical Schemes
Act, 1998
.”
[111]
See
section 1
of the FIA.
[112]
See [29]. See Olivier et al
Trust Law and Practice
(LexisNexis, Durban 2008) at 2-5. There is also a distinction
between a trust in the wide sense and a trust in the strict
sense.
Most relevant for this judgment is a trust in the wide sense which
exists “whenever someone is bound to hold
or administer
property on behalf of another or for some impersonal object and not
for his or her own benefit”. See
Cameron above n 51 at
3. See also MJ De Waal “The Law of Succession (including
the Administration of Estates) and
Trusts” (2007)
Annual
Survey of South African Law
1055 at 1075 where the author
indicates that—
“trusts [in
the wide sense] include attorneys’ trust accounts and ‘trust
property’ held by financial institutions
on behalf of
investors. As far as these examples are concerned (there are
also others), there are special statutory measures
aimed at the
protection of the money in such accounts in the form of section
78(7) of the Attorneys Act 53 of 1979 and
section 4(5)
of the
Financial Institutions (Protection of Funds) Act.”
[113
]
The subsection provides as follows:
“(1)
A medical scheme may in its rules make provision for—
. . .
(e)
the allocation to a member of a personal medical savings account,
within the limit and in the manner prescribed from time to time, to
be used for the payment of any relevant health service”.
[114]
Estate Kemp v McDonald’s Trustee
1915 AD 491
at 499,
504 and 508.
[115]
In particular see
section 4(4)
of the FIA which provides that—
“[a]
financial institution must keep trust property separate from assets
belonging to that institution, and must in its
books of account
clearly indicate the trust property as being property belonging to a
specified principal.”
It is worth noting that Circular 38
indicates that PMSA contributions should be kept in a separate trust
bank account.
[116]
Section 10
of the FIA, headed “Offences”, reads as
follows:
“(1)
A person who contravenes or fails to comply with any provision of
Chapter
1 is guilty of an offence and on conviction liable to a fine
not exceeding R10 million or to imprisonment for a period not
exceeding
10 years, or to both such fine and such imprisonment.
(2)
A court may, in addition to any penalty it may impose in terms of
subsection (1), order that such person—
(a)
pay the institution or principal concerned any profit he or she
made; and
(b)
compensate the institution or principal concerned for any damage
suffered, as a result of the contravention or failure.
(3)
A court may, in addition to any penalty imposed in terms of
subsection
(1) and an order made in terms of subsection (2), order
that such person may not serve as a director, member, partner or
manager
of any financial institution for such period as the court
may deem fit.”
[117]
Chotabhai v Union Government (Minster of Justice) and Registrar
of Asiatics
1911 AD 13
at 24. See also
Shaik v Minister
of Justice and Constitutional Development
[2003] ZACC 24
;
2004
(3) SA 599
(CC);
2004 (4) BCLR 333
(CC) at para 18 where the
principle enunciated in
Chotabhai
was applied when
interpreting
section 28(6)(a)
of the
National Prosecuting
Authority Act 32 of 1998
against
section 196(1)(a)
of the
Criminal
Procedure Act 51 of 1977
.
[118]
See
regulation 10
of the MSA, in particular
regulation 10(3)
and (4)
which caters for,
inter alia
, (i) the funds being used for
the benefit of a particular member; and (ii) the transfer of a
member’s funds when such member
changes medical schemes.
[119]
Omnihealth
above n 1 at 7.
[120]
High Court judgment above n 6 at para 37 and SCA judgment above n 5
at para 7.
[121]
Id.
[122]
See Circular 38 of 2011, Circular 5 of 2012 and Circular 41 of 2012.
[123]
Section 38
of the MSA.
[124]
131 of 1998.
[125]
Registrar of Medical Schemes v Ledwaba NO
[2007] ZAGPHC 24.
[126]
3 of 2000.
Section 6(2)(d)
is quoted in [160] below.
[127]
Genesis Medical Scheme v Registrar of Medical Schemes
[2014]
ZAWCHC 206
;
2015 (4) SA 91
(WCC) (High Court judgment) at para 42.
[128]
Id at para 43.
[129]
Registrar of Medical Schemes v Genesis Medical Scheme
[2016]
ZASCA 75; 2016 (6) SA 472 (SCA).
[130]
Johannesburg Metropolitan Municipality v Gauteng Development
Tribunal
[2010] ZACC 11
;
2010 (6) SA 182
(CC);
2010 (9) BCLR 859
(CC) (
Johannesburg Municipality
).
[131]
The most well-known exceptions relate to the jurisdiction of a court
or tribunal,
locus standi
(standing), competence of an order
of court or question of law that can be decided on the facts before
the court without any
party needing to lead new evidence.
[132]
Director of Hospital Services v Mistry
1979 (1) SA 626
(A) at
635H.
[133]
Minister of Land Affairs and Agriculture v D & F Wevell Trust
[2007] ZASCA 153; 2008 (2) SA 184 (SCA).
[134]
Id at para 43.
[135]
NSPCA v Minister of Agriculture, Forestry and Fisheries
[2013]
ZACC 26; 2013 (5) SA 571 (CC); 2013 (10) BCLR 1159 (CC).
[136]
Premier, Limpopo Province v Speaker of the Limpopo Provincial
Legislature
[2012] ZACC 3; 2012 (4) SA 58 (CC); 2012 (6) BCLR
583 (CC).
[137]
24 of 1935.
[138]
Regulations to the Performing Animals Protection Act 24 of 1935
,
published under GN R1672 in
GG
15102, 1 September
1993.
[139]
Regulations in terms of the Financial Management of the Free State
Provincial Legislature Act 6 of 2009
,
published
in
GG
58 of 2010, 2 July 2010.