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[2014] ZAWCHC 206
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Genesis Medical Scheme v Registrar of Medical Schemes and Another (18755/2013) [2014] ZAWCHC 206; 2015 (4) SA 91 (WCC) (24 December 2014)
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
CASE NO: 18755/2013
REPORTABLE
In the matter between:
GENESIS
MEDICAL SCHEME
Applicant
And
THE
REGISTRAR OF MEDICAL SCHEMES
First
Respondent
THE
COUNCIL FOR MEDICAL SCHEMES
Second
Respondent
JUDGMENT: 24 December
2014
DAVIS J
Introduction
[1]
This
is an application to review and set aside a decision of first
respondent communicated to the applicant on 19 June 2013 to reject
the annual financial statements and returns of appellant for the 2012
financial year (the 2012 AFS) in terms of s 38 of the Medical
Schemes
Act 131 of 1998 (‘MSA’). This application is brought in
terms of the Promotion of Administrative Justice Act
3 of 2000
(‘PAJA’) on the basis that first respondent’s
decision to reject the 2012 AFS was materially influenced
by an error
of law. See s 6 (2) (d) of the PAJA.
[2]
It
does not appear to be disputed that, as first respondent is a public
official who took a decision pursuant to powers granted
in terms of s
38 of the MSA, the decision constitutes administrative action as
defined in PAJA.
[3]
Applicant
lodged an appeal against the decision of first respondent to the
Appeal Committee of the second respondent (‘CMS’).
However, applicant contends that, neither the Registrar nor the CMS
is in a position to rule that the decision of the then Transvaal
Provincial Division by Du Plessis J upon which first respondent based
its own decision to reject the financial statements and returns
of
the applicant is wrong in law.
Registrar
of Medical Schemes v Ledwaba NO and others
[2007]
JOL 19202
(T) (referred to as the Omnihealth case). In other words,
applicant contends that when the matter arrives before the CMS, the
appeal
would have to be dealt with in terms of the Omnihealth
decision. Accordingly, the outcome of the appeal would be a foregone
conclusion
in that it will have to be based on this decision. Thus,
the applicant submits that obliging it to proceed by way of an
internal
appeal will waste time and cost money in circumstances where
the judgment cannot be challenged in this appeal. The applicant thus
submits that this is an exceptional case into which applicant should
be exempted from the obligations to exhaust its internal remedies
provided by s 49 and 50 of the MSA and that it would be in the
interests of justice to exempt it in terms of s 7 (2) (c) of PAJA.
[4]
Mr
Brett, who appeared on behalf of the respondents, contended that the
Omnihealth
judgment was substantially different from the issue in the current
dispute and that the rejection of the accounting treatment of
the
2012 AFS was based on the opinion of first respondent; that is on his
interpretation of the MSA and the regulations promulgated
thereunder.
Accordingly, Mr Brett submitted that the applicant had been unable to
demonstrate exceptional circumstances warranting
exemption from the
obligation to exhaust its internal remedy. In particular, he cited De
Ville
Judicial Review of Administrative
Action in South Africa
at 153 -154 to
the effect that there was little reason to contend that a court’s
interpretation of a statutory provision would
always be preferable to
that of an administrative body, especially where the body has
developed an expertise within a specific
field. See also Hoexter
Administrative Law in South Africa
(2
nd
edition) at 556.
[5]
If
however, the decision by first respondent is based on the legal
interpretation as set out in Omnihealth, then the question does
not
arise as to whether the court is as well qualified as the original
authority to make a decision but rather on an interpretation
of the
law. This would be binding on administrative agencies when set out in
a judgment of a court which had not been held to be
incorrect. The
critical question arises as to whether the impugned decisions were
based on the
Omnihealth
judgment, in which case, in my view, it would be in the interests of
justice to exempt the applicant in terms of s 7 (2) (c) of
the PAJA.
For this reason, it is necessary to turn to the basis of the
decision.
First respondent’s
decision
[6]
Section 37 (2) of the MSA provides as
follows:
‘
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 affairs of the medical scheme;
(b)
an income statements;
(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.’
[7]
First respondent’s decision to reject
the applicants annual financial statements
and returns for the 2012
financial year was taken in terms of s 38 of the MSA which provides
as follows:
‘
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.’
[8]
On the basis of these provisions, first
respondent decided as follows:
‘
We
have received all the documents submitted in terms of s 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 the 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 members’
personal medical savings accounts (PMSA).
2.
In
addition the South African Institute of Chartered Accounts (SAICA),
after conferring with the Accounting Practice 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 for 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 Institution
(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 owning to members who have
PMSA balances is understated as it excludes interest rightfully
earned on the trust monies
comprising the PMSA balances. See note 6
and part 4.5.1.
5.
The auditors’ assurance report in terms of s 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.’
[9]
It is clear from the reproduction of this
decision that the
Omnihealth
case played a significant role in the decision taken by the first
applicant. It is therefore necessary to turn to this decision.
The Omnihealth case
[10]
In
Omnihealth
,
Du Plessis J was confronted with the wording of s 30 (1) (e) of the
MSA which provides that the rules of the Medical Scheme may
provide
that members of the scheme may be allocated personal medical savings
accounts (PMSA). The purpose of a personal medical
savings account is
to provide a facility for members to set aside funds with which to
meet health care costs not covered in terms
of the scheme’s
benefits. Members may pay an agreed monthly amount into the personal
respective personal medical savings
accounts.
[11]
The applicant in this case, (the Registrar)
contended that the amounts standing to the credit of members in their
personal medical
savings account constituted trust money and that the
money did not form part of Omnihealth insolvent estate. The applicant
contended
that the amounts standing to the credit of those members in
their PMSA must be transferred to the KwaZulu-Natal Medical Scheme,
to which it appeared, most of the erstwhile members of Omnihealth had
become members. In respect of those members of
Omnihealth
that had not joined another medical scheme the applicant contended
that the amounts standing to their credit must be paid out to
them.
The crisp question for determination In the
Omnihealth
case concerned the credit balances on the members personal medical
savings account and whether these moneys constituted trust property.
Du Plessis J held as follows:
‘
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. When a
trust-creditor hands trust money to the trustee, the former
immediately becomes a creditor of the trustee for the amount held in
trust. That is so regardless of whether the trustee keeps
the trust
money in a separate account and does not become the owner thereof
(
Fuhri v Geyser NO and another
1979 (1) SA 747
(N) particularly at 749 A – 750 A).’
[12]
To a considerable extent, the liquidators,
who opposed this application relied on s 35 (9) of the MSA which
reads:
‘
(9)
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.’
[13]
It was argued that, as in terms of s 35 (9)
(c), an amount outstanding to the credit to the PMSA was a liability
of the scheme,
it followed that the actual funds in the members
personal savings accounts must be regarded as an asset of the scheme.
Du Plessis
J rejected this argument, not only because of the legal
position as set out above, but because it was to be accepted that as
paragraphs
(a) and (b) of s 35 (9) required it these items were to be
regarded as a liability for the purposes of the MSA, although they
might
not ordinarily be so reflected by way of an accounting
treatment. Thus ,even if the argument that trust debts are not
ordinarily
regarded as liabilities were to be proved to be correct,
such debts as with other items referred to in s 35 (9) in terms of s
35
(9) (c) must be regarded as liabilities for the purposes of the
MSA. Accordingly, ‘
that does not mean
that for all purposes the nature of the trust debt is altered. It is
concluded that the credit balances in the
PMSA constitute trust
property’.
[14]
The court then turned to examine whether
the funds form part of
Omnihealth’s
assets.
[15]
The liquidators submitted that the MSA fund
fell within Omnihealth’s insolvent estate. In particular,
reference was made to
s 4 (4) of the Financial Institutions (The
Protection of Funds) Act 28 of 2001 (FI Act) which requires that a
financial institution
to keep trust property separate from its own
assets. Omnihealth did not so comply with these provisions but
deposited all funds,
including PMSA funds into six bank accounts,
without distinguishing between trust and other funds. For this
reason, it was argued
that PMSA funds became the property of the
relevant banks and had thus lost their identity.
[16]
Du Plessis J held that it was correct that
the relevant banks had become owners of the PMSA funds when the funds
were deposited
with the banks. That would have been the position, he
noted, even if the funds had properly been invested in a separate
banking
account. However ‘
the fact
the relevant banks are the owners of PMSA funds does not mean …
that if the funds are withdrawn, Omnihealth somehow
becomes the owner
thereof.’
He went on to hold that:
‘
[a]t
best for the liquidators the only right that derived from Omnihealth
vis a vis
the PMSA funds was to withdraw it from the bank. Upon doing so, the
insolvent estate does not become the owner of the funds but
may only
deal with it in accordance with the agreement in terms whereof
Omnihealth received the money, that is Omnihealth’s
rules…
In short the liquidators do not have proprietary rights that
Omnihealth never had and could not attain.
’
[17]
In addition, Du Plessis J referred to s 4
(5) of the FI Act which provides as follows:
‘‘
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.’
[18]
For these reasons the court directed that
the PMSA funds constituted trust property as defined in the FI Act
and directed the liquidators
to pay such of the PMSA funds as
pertained to those members of Omnihealth who had become members of
KwaZulu-Natal Medical Scheme.
[19]
Pursuant to this judgment, but about four
years later on 28 September 2011, second respondent issued a circular
headed ‘Personal
Medical Savings Accounts’. This circular
referred to the Omnihealth judgment and advised members to correct
their records
so as to treat funds from the PMSA as a form of trust
fund. In a further circular issued by second respondent on 31 October
2012
(‘Prescribed format for the statement of Comprehensive
Income and Disclosure required in respect of Personal Medical Savings
Accounts’) the following was said:
‘
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 B to this
Circular contains the required disclosure necessary to provide
members with sufficient information on how the
PMSA monies are
managed on their behalf. These disclosures are also included in the
SAICA Medical Schemes Accounting Guide for
the year ending 31
December 2012. When a specific line item in the prescribed disclosure
is not relevant to a scheme, that specific
line item may be omitted.
Where additional information is necessary, either due to materiality
or in terms of IFRS, such additional
disclosure should be provided.’
[20]
Turning to the rejection of the 2012 AFS in
this case, it was clear from the letter of first respondent of 19
June 2013 which is
reproduced earlier in this judgment that first
respondent rejected the 2012 AFS on the basis of the
Omnihealth
judgment and the circulars to which I have made reference.
[21]
It is important to emphasise that the
applicant accepts that, if the
Omnihealth
judgement is correct, first respondent may be entitled to reject the
2012 AFS on the basis that it does not correctly reflect the
financial position of the scheme because it did not indicate that the
PMSA funds are trust property and do not form part of the
assets of
the applicant. Accordingly, applicant has challenged the decision of
first respondent
only
on the grounds that it was vitiated by the error of law which it
avers flows from the Omnihealth judgment and which holding was
applied by the first applicant.
Applicant’s case
[22]
Mr Fagan, who appeared together with Ms van
Huyssteen on behalf of the applicant, referred to the decision
Louw
NO and others v Coetzee and others
2003
(3) SA 329
(SCA) at para 12 where the court set out the relevant
common law position thus:
‘
It
is trite that when a customer of a bank deposits money in an account
the money becomes the property of the bank, which in turn,
is the
debtor of the customer, has an obligation to pay the customer as
creditor the amount deposited. The bank does not hold the
money for
the customer as agent or trustee: it becomes the owner and has only a
personal obligation to pay the amount together
with interest as
agreed. Accordingly, where a bank is liquidated the customer has only
a concurrent claim against the estate.’
[23]
In
De Villiers
NO v Kaplan
1960 (4) SA476 (C)at 477E
van Winsen J had reflected the position thus:
‘
Money
paid to an attorney by a client to be held and dealt for the client
clearly becomes the attorney’s property even although
it might
be paid into a trust account, and when it is so paid in the right to
claim the money from the bank similarly remains its
property.’
However,
the common law position was altered by the Attorney’s Act 23 of
1934. Section 33 (3) of the Act provided that no
amounts standing to
the credit of an attorney’s trust account shall form part of
the assets of the attorney. Van Winsen J
noted that this section
‘
left unimpaired the right of the
attorney to direct the bank at which the trust account is kept to
dispose of the amount outstanding
to the creditor of that trust
account in a manner as directed by him.’
(at
479 A) The attorney retained the right to direct the bank to pay the
money in his trust account to his trust creditors or to
persons to
whom such creditors had instructed him to make payment. He also
retained the right, if there was a sum in such account
in excess of
that required to meet the trust obligations, to then direct the bank
to pay the excess to his personal creditors or
to himself personally.
[24]
Van Winsen J held therefore that even
although the amount in the trust account , while it was still in such
account, was not an
asset belonging to the attorney, he had a right
of disposal over such an amount, which right empowered him to deal
with it in such
a way as to make it to, or an equivalent thereto as
part of the assets. (479 C)
[25]
Accordingly the court held that the
provisions of s 33 (3) of the Attorney’s Act did not prevent
the conclusion that the amounts
standing to the credit of an
attorney’s trust account in the bank formed part of the
attorney’s asset and thus was
his property in terms of the
meaning of
s 2
of the
Insolvency Act 24 of 1936
.
[26]
This statute was also the subject of
analysis in
Fuhri v Geyser NO and
another
1979 (1) SA 747
(N). In this
case the court was required to determine whether the trust creditor
of an attorney, whose estate had been sequestrated
and in his trust
account there was a deficiency, was entitled to prove a claim against
the insolvent estate for the full amount
owing to him.
[27]
Mr Fagan sought reliance upon aspects of
the judgment of Hefer J (as he then was) even though this judgment
was relied upon by Du
Plessis J in
Omnihealth
,
supra.
In
this case Hefer J referred to
s 33
(7) of the Attorney’s Act
which provides that no amounts standing to the credit of such trust
account … shall be regarded
as forming part of the assets of
the attorney concerned. Hefer J found, notwithstanding the separation
of trust monies from the
attorney’s assets as envisaged by this
provision,
‘
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. The only right the trust
creditors have, is the right to payment by the attorney
of whatever
is due to them, and it is to that extent that they are the attorney’s
creditors. This right to payment only arises
from the relationship
between the parties and has nothing whatsoever to do with the way in
which the attorney handles the money
in his trust account…
When an attorney receives an amount of money for the account of a
client, a debt immediately arises
(subject to any agreement that may
exist between the parties) for payment of this amount to the client,
or viewed from the clients
side, the latter becomes entitled to
payment of the amount in demand.’
(749
D –G)
[28]
In summary, Mr Fagan’s submitted that
the common law position had not altered primarily because of the
principle of
commixtio
.
He also referred in this connection to two further cases. In
Wypkena
v Lubbe
2007 (5) SA 138
(SCA) of para 7
the court said:
‘
When
an attorney draws a cheque on his trust account, he exercises his
right to dispose of the amount standing to the credit of
that account
and does so as a principal and not in a representative capacity.’
This
point was reinforced in a later decision of Mthiyane AP (as he then
was) in
Capricorn Beach Home Owners
Association v Potgieter t/a Nil and another
2014 (1) SA 46
(SCA) at para 16 where the principle laid down in
Wypkena
,
supra
was
confirmed.
[29]
On this legal basis, Mr Fagan submitted
that, by a parity of reasoning, if money in an attorney’s trust
account constitutes
the property of the attorney and is not a debt
which arises but a liability, that is an obligation to account, the
same must hold
true insofar as the PMSA moneys were concerned. Thus,
the relation between the member and the medical scheme is that of a
debtor
and a creditor, precisely because the member loses ownership
of the PMSA funds. These funds become part of the assets of the
medical
scheme; hence the claims from members to payment of the PMSA
funds constitute a liability of the medical scheme towards these
members
as provided for in
s 35
(9) of the MSA.
[30]
In Mr Fagan’s view, this
interpretation was also supported by an examination of
s 35
(1) (a),
read with
s 35
(3) of the MSA.
Section 35
(1) (a) 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). Subsection (3) provides that 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. By
contrast, if the approach adopted in
Omnihealth
is correct and the MSA funds are defined as trust property for the
purposes of FI Act, that is funds that do not constitute assets
of
the medical scheme concerned, then for the purposes of the
calculation required by s 35 (3) of the MSA, the amount standing
to
the credit of a member’s PMSA must be regarded as a liability
in terms of s 35 (9) but the funds themselves may not be
treated as
assets of the fund.
Respondent’s
arguments
[31]
Mr Brett referred to s 30 (1) (e) of the
MSA which provides that a medical scheme may, in its rules, make
provision for the allocation
to a member of a PMSA, within the limit
and in the manner prescribed from time to time, to be used for the
payment of any relevant
health service. This section should be read
together with Rule 14.5 of applicant’s rules. It provides that
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 in Annexure B of the
rules.
[32]
Mr Brett contended thus that the decision
in Omnihealth was not the binding factor in this case; Rule14.5 was
the determinative
issue. Notwithstanding the judgment in Omnihealth,
Rule 14.5 governed the agreement between the parties.
[33]
Mr Brett further submitted that recourse to
s 35 (9) of the MSA deemed the amounts standing to the credit of the
PMSA to be treated
as a liability of the medical scheme. If the
amount in the account must be treated as an asset as well, then one
would have expected
a similar deeming provision to have been
introduced by the legislature to cater for such a situation. For this
reason, Mr Brett
submitted that s 4 of the FI Act clearly provided,
in terms of s 4 (4), that a financial institution must keep trust
property separate
from assets belonging to that institution and must
in its books of account clearly indicate trust property as being
property belonging
to a specified principal. This was, in his view,
the governing principle which had been followed by first respondent
and for this
reason assailing the
Omnihealth
decision was of no assistance to the applicant.
Evaluation
[34]
In my view, s 4 of the FI Act does not
assist the respondent’s case. After all, the key question which
arises is whether the
funds in this case constitute trust property as
defined. Section 4 (4) of the FI Act provides that the financial
institution must
keep ‘trust property’ separate from the
assets belonging to the institution. Trust property is defined to
mean any
corporeal, incorporeal, movable or immovable assets
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 here in after
referred to as the principal. The text does not give an answer to the
key
question: is this trust property? Only once this determination is
complete, can it be said that the section applies.
[35]
It is significant, in the light of
respondent’s arguments concerning Rule 14.5, that Regulation 10
(3) (GNR1262 in GG20556:
20 October 1999 as amended) provides that
funds deposited in a PMSA shall be available for the exclusive
benefit of a member and
his or her dependants. It is therefore
striking that the provision does not refer to ownership but uses the
phrase
‘
available for the exclusive
benefit to the member’
. Furthermore,
if s 35 (9) (c) of the MSA implies that not only the amounts standing
to the credit of the members personal savings
account must be treated
as a liability but that these monies which form the basis of the PMSA
constitutes an asset of the applicant,
then Rule 14.5 should surely
not be able to trump this legislative provision.
[36]
Returning to the MSA, s 35 (3) provides
that a medical scheme shall have assets, the aggregate value of which
on any day may not
be less than the aggregate value of its
liabilities and the net assets as prescribed. This would appear to
mean
gross assets less liabilities
,
which would then be deemed to include those included in terms of s 35
(9). Logically, this would then mean that the monies in
the PMSA
would have to be treated both as an asset and as a corresponding
liability.
[37]
In the broader analysis of this dispute, it
is important to provide an interpretation that allows the statutory
scheme to make financial
sense as doubtless it was intended to do.
Section 35 (1) (b) and (c), read together with s 35 (3), provides
that a medical scheme
must hold assets equivalent to the total value
of its liabilities. That is the aggregate value of the assets cannot
be less than
the aggregate value of its liabilities. Assume that the
medical scheme, such as applicant, has R 20 million of PMSA funds
under
its control, it would have to have assets which correspond to
this R 20 million. On respondent’s argument, the assets could
not include PMSA funds. Accordingly, for every rand of PMSA funds
under its control, the medical scheme would have to find an
additional, in this example R 20 million in order match its assets
with liabilities. That is both an unworkable and unjustifiable
interpretation which should give way to one that promotes a practical
and business like outcome.
[38]
To return to Omnihealth, it is clear from
the answering affidavit deposed to by Mr Lehutjo, the Acting
Registrar, that the decision
which was taken against applicant was
based on the Omnihealth judgment. For example paragraph 57.2 of Mr
Lehutjo states: ‘
The Registrar’s
decision is correct and was based on the applicable statutory
framework as interpreted by the court in the
Omnihealth judgement’
.
See also para 58.2 of the answering affidavit. At para 58.3 he
states:
‘
Genesis
rules are similarly consistent with the applicable statutory
provision as was found to be the case in the Omnihealth judgment.
Accordingly, in the present matter, there is no reason to deviate
from the interpretation and the application of the applicable
statutory framework as set out in the Omnihealth judgment’.
In para 63.2 he says
‘
It
is submitted that the Registrar’s decision was based on a
correct interpretation of the applicable statutory framework
which
was, in turn correctly interpreted by the Court in the
Omnihealth
judgment.’
Further at 63.3 he says
in particular,
‘
The
Registrar’s decision correctly states the applicable rule has
applied to Genesis 2012 AFS and returns…’
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.
[39]
To return again to the judgment in
Omnihealth
: critical to this decision is a passage which has already been cited
in this judgment and for its importance to this section of
the
analysis must be recapitulated:
‘
When
a trust creditor hands trust money to the trustee, the former
immediately becomes the creditor of the trustee for the amount
held
in trust. That is so regardless of whether the trustee keeps the
trust money in a separate account and does not become the
owner
thereof…
’
The authority for this
proposition is given as
Fuhri
at 749 A - 750 A.
[40]
As indicated above, I am uncertain whether
Fuhri
,
supra
supports the position that trust property creates a liability without
a corresponding asset. All that Hefer J appears to have said
is that
when an attorney receives an amount of money ‘
for
the account of a client a debt immediately arises… for payment
of that amount of the client.
’
(at
749 F) Whether this debt is a liability in the sense in which this
word was used in s 35 (9) of the MSA must be open to doubt.
In any
event, as indicated earlier, the Supreme Court of Appeal In
Wypkena
,
supra
and
Capricorn Beach Homeowners Association
,
supra
confirmed that money in an attorney’s trust account constitutes
the property of an attorney and is therefore not a debt which
arises
but a liability that is an obligation to an account. In addition,
Fuhri
can
surely be of no assistance in answering the key question as to
whether the funds in the PMSA constitutes an asset of the member
or
of the medical scheme. That, as was indicated earlier in the
judgment, is critical to the determination as to whether the PMSA
funds form trust property in terms of the definition of trust
property as set out in s 1 of the FI Act and therefore stands to
be
dealt with in terms of s 4 (4) of that Act.
[41]
In my view, a medical scheme under the MSA
is the owner of all funds held by it, including funds in the PMSA.
This is confirmed
by Regulation 10 which makes it clear that the
funds placed in the PMSA are a portion of the contributions paid by a
member (allocated
to a PMSA by the medical scheme), provides further
that the funds in the PMSA may be used to offset debt owed by the
member to
the medical scheme following that member’s
termination of his or her membership and further provides for the
transfer of
credit balance in the members PMSA to another medical
scheme or benefit option.
[42]
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 in law. It therefore follows
that the applicant is
entitled to the relief it seeks.
[43]
The following order is made:
1.
The
applicant is exempted from the obligation to exhaust the internal
remedies of an appeal to the second respondent’s Appeal
Committee and the Appeal Board in terms of
sections 49
and
50
of the
Medical Schemes Act 131 of 1998
.
2.
The
rejection by first respondent of the applicant’s annual
financial statement and returns from the 2012 financial year is
reviewed and set aside.
3.
First and second respondents are jointly and severally ordered to pay
the costs of this application,
including the costs of two counsel.
DAVIS J