Genesis Medical Aid Scheme v Registrar, Medical Schemes and Another

• Jurisdiction: South Africa

Genesis Medical Aid Scheme v Registrar, Medical Schemes and Another
2017 (6) SA 1 (CC)

2017 (6) SA p1

Citation	2017 (6) SA 1 (CC)
Case No	139/2016; [2017] ZACC 16
Court	Constitutional Court
Judge	Mogoeng CJ, Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J
Heard	June 6, 2017
Judgment	June 6, 2017
Counsel	S Burger SC (with G Cooper)for the applicant.; JJ Brett SC for the respondents.

Flynote : Sleutelwoorde

Medicine — Medical aid — Medical aid scheme — Contributions — All contributions, including funds allocated to members' personal medical savings accounts (PMSAs), constituting assets of scheme — Scheme may retain C interest accruing to PMSAs — Medical Schemes Act 131 of 1998, s 35(9)(c).

Administrative law — Administrative action — Review — Grounds — Action materially influenced by error of law — Position if error only subsequently established — Materiality of error — Promotion of Administrative Justice Act 3 of 2000, s 6(2)(d).

Headnote : Kopnota

In 2012 the Registrar of Medical Schemes rejected Genesis Medical Scheme's annual financial statements because they (i) classified funds in its members' personal medical savings accounts (PMSAs) as assets; and (ii) excluded the interest accumulated on PMSAs from its liabilities. Genesis's approach was E contrary to the decision in Registrar of Medical Schemes v Ledwaba NO and Others [2007] ZAGPHC 24 (TPD 18454/06) (the Omnihealth case), which held that PMSA funds constituted trust property that was protected from an insolvent scheme's creditors. To clarify its position in the wake of Omnihealth, the Registrar issued two circulars stipulating the form which medical schemes' financial statements had to take. Genesis's statements did not F comply with the circulars.

Genesis brought a High Court application for the review of the Registrar's decision. It was based on the assertion that, since Omnihealth was wrongly decided, the Registrar's rejection of Genesis' financial statements was materially influenced by an error of law. The High Court agreed and set aside the Registrar's decision. The Supreme Court of Appeal upheld an G

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appeal A by the Registrar, thereby effectively restoring his decision. Genesis then launched the present application for leave to appeal to the Constitutional Court. The Constitutional Court granted leave and upheld the appeal. It delivered four judgments: a majority judgment by Cameron J (the first judgment); a concurring majority judgment by Zondo J (the fourth judgment); a dissenting judgment by Jafta J (the second judgment); and a dissenting judgment by Mojapelo AJ (the third judgment).

At B the heart of the matter were the following statutory provisions:

•

Section 6(2)(d) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA), which allows courts to review administrative actions that were materially influenced by errors of law.

•

The Medical Schemes Act 131 of 1998 (the MSA), which (in s 1) defines the C 'business of a medical scheme' as the undertaking of liabilities in return for premiums or contributions and then (in s 35(9)(c)) provides that PMSAs constitute such liabilities.

•

The Financial Institutions (Protection of Funds) Act 28 of 2001 (the FIA), which in s 1 defines 'trust property' as assets invested, controlled, administered or alienated by one person for or on behalf of another person.

Majority judgment per Cameron J

There were two issues at stake: (i) was Genesis the rights-holder of the PMSAs or did it hold them in trust; and (ii) could Genesis claim the interest earned on them? The Registrar rejected Genesis's financials solely on the basis of Omnihealth, which was therefore 'material' to his decision, so that if Omnihealth was wrong, the decision was also wrong (see [10], [22], [46]).

For E members' contributions to be 'trust property' under the FIA, a scheme had to hold a member's contributions 'for or on behalf of' that member as principal, ie the contributions had to enter the scheme's bank account impressed with a fiduciary obligation (see [33]). Yet the MSA's definition of the 'business of a medical scheme' did not contemplate a trust or fiduciary obligation, but the undertaking of liability in exchange for money (see [26]). F The relationship was commercial, and the members' premiums entered the scheme's bank account without being impressed by a trust or fiduciary obligation (see [34], [37]).

This view was reinforced by s 35(3) of the MSA, which required schemes to maintain solvency margins (see [6], [16], [39] – [40]). If PMSAs were trust funds to be excluded as assets for all purposes, this would require a scheme to obtain — contrary to logic and accounting practice — outside, non-PMSA G assets to offset them (see [41] – [42]).

Hence the language, logic and practical sense of the MSA negated the notion that a medical scheme ordinarily held PMSA funds as a trustee for its members (see [44]). It followed that s 35(9)(c) entailed that Genesis, not its members, was the rights-holder of the PMSA funds, and that Genesis could H keep the interest earned on PMSA funds (see [44], [52]).

As Ominhealth tumbled, so did the Registrar's decision, and with it also the circulars (see [62]). It followed that the order of the SCA had to be reversed (see [65]).

Dissenting judgment per Jafta J

The error of law relied on by Genesis had to arise from the misinterpretation or I misapplication of MSA provisions by the Registrar that related to the submission of annual financial statements (see [93]). Since Omnihealth was good law when the Registrar decided to reject Genesis's financial statements, he committed no error of law, and even if he did, it could not have influenced the rejection of the financial statements in a J material way as required by s 6(2)(d) of PAJA (see [95], [103]). And even if the error was material, the circulars were binding on medical schemes until set aside on

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review, which was never sought by Genesis (see [106], [109] – [113], A [117] – [118], [124], [142]). Hence the appeal had to be dismissed (see [143]).

Dissenting judgment per Mojapelo AJ

A trust relationship was created when a medical scheme created and allocated funds to a PMSA of a particular member, whereupon the scheme became the holder of the funds as 'trust property' as contemplated in the FIA (see [147]). The perceived accounting problem arising from this was resolved by experts in the field and the circulars and conduct of the Registrar were based on their guidance (see [150]). There was no confusion and no need for the medical scheme to raise additional funds to cover the PMSA liability (see [152]). After Omnihealth medical scheme members were afforded a layer of protection that the court should not remove without access to C proper facts (see [153]). For these additional reasons, the appeal should be dismissed (see [154]).

Majority judgment per Zondo J

Affidavits revealed that the parties approached the High Court on the basis that if Omnihealth was wrong, the Registrar's decision was materially influenced by an error of law and voidable (see [163] – [164]). Courts were required to D decide cases on the basis of the issues between the parties, and materiality grounds not relied on by the Registrar could not be used to decide the present matter; and if a litigant was permitted to engage in trial by ambush, neither could the court. (see [169] – [172]). And if Omnihealth was wrong, then the legal foundation for the circulars was gone (see [173] – [178]). For these additional reasons, the appeal should be upheld (see [179]). E

Cases cited

Southern Africa

Absa Bank Ltd v Moore and Another 2017 (1) SA 255 (CC) (2017 (2) BCLR 131; [2016] ZACC 34): applied F

Administrator, South West Africa v Jooste Lithium Myne (Eiendoms) Bpk 1955 (1) SA 557 (A): referred to

Camps Bay Ratepayers' and Residents' Association and Another v Harrison and Another 2011 (4) SA 42 (CC) (2011 (2) BCLR 121; [2010] ZACC 19): referred to

Chotabhai v Union Government (Minister of Justice) and Registrar of Asiatics 1911 AD 13: referred to G

City of Tshwane Metropolitan Municipality v Cable City (Pty) Ltd 2010 (3) SA 589 (SCA) ([2009] ZASCA 87): referred to

Commissioner for Inland Revenue v Butcher Bros (Pty) Ltd 1945 AD 301: referred to

Department of Transport and Others v Tasima (Pty) Ltd 2017 (2) SA 622 (CC) H (2017 (1) BCLR 1; [2016] ZACC 39): referred to

Director of Hospital Services v Mistry 1979 (1) SA 626 (A): dictum at 635H applied

Estate Kemp and Others v McDonald's Trustee 1915 AD 491: referred to

Fuhri v Geyser NO and Another 1979 (1) SA 747 (N): dictum at 749C – D applied I

Genesis Medical Scheme v Registrar of Medical Schemes and Another 2015 (4) SA 91 (WCC) ([2014] ZAWCHC 206): approved

Goldfields Investment Ltd and Another v City Council of Johannesburg and Another 1938 TPD 551: referred to

Guardrisk Insurance Co Ltd v Registrar of Medical Schemes and Another 2008 (4) SA 620 (SCA) ([2008] ZASCA 39): compared J

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Hira A and Another v Booysen and Another 1992 (4) SA 69 (A) ([1992] ZASCA 112): referred to

Johannesburg Metropolitan Municipality v Gauteng Development Tribunal and Others 2010 (6) SA 182 (CC) (2010 (9) BCLR 859; [2010] ZACC 11): referred to

KwaZulu-Natal Joint Liaison Committee v MEC for Education, KwaZulu-Natal B and Others 2013 (4) SA 262 (CC) (2013 (6) BCLR 615; [2013] ZACC 10): referred to

Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA) ([2004] 4 All SA 261; [2004] ZASCA 56): referred to

Local Road Transportation Board v Durban City Council and Another 1965 (1) SA 586 (A): referred to

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