Independent Community Pharmacy Association v Clicks Group Limited and others

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Zondo CJ, Maya DCJ, Baqwa AJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J
• Judgment Date: 28 March 2023
• Docket Number: CCT 11/22
• Hearing Date: 22 September 2022
• Court: Constitutional Court

Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring):

Introduction

[1]

The issue for determination in this matter is the interpretation of section 22A of the Pharmacy Act [1] (Act) and of regulation 6(d) of the Regulations relating to the Ownership and Licensing of Pharmacies [2] (Ownership Regulations). The Ownership Regulations were promulgated in terms of sections 22 and 22A of the Act to give effect to these sections. The central question before this Court is whether some or all of the relationships in the corporate structure of the Clicks group of companies violate section 22A of the Act, read with regulation 6(d).

Parties

[2]

The applicant is the Independent Community Pharmacy Association (ICPA), a registered non-profit company that represents more than 1 200 independently-owned community pharmacies, with approximately 3 500 pharmacists and 20 000 supporting healthcare personnel. The first respondent is Clicks Group Ltd (Clicks Group). The second respondent is New Clicks South Africa (Pty) Ltd (New Clicks). The third respondent is Unicorn Pharmaceuticals (Pty) Ltd (Unicorn). The fourth respondent is Clicks Investments (Pty) Ltd (Investments). The fifth respondent is Clicks Retailers (Pty) Ltd (Retailers). [3] Together, the first to fifth respondents comprise the Clicks group of companies, and for ease of reference they will collectively be referred to as the

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Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring)

Clicks Entities. The sixth respondent is the Minister of Health. The seventh respondent is the Chairperson of the Appeal Committee established in terms of section 22(11) of the Act. The eighth respondent is the Director-General of the Department of Health (DG). [4]

[3]

The corporate structure of the Clicks group of companies is constituted as follows. The Clicks Group is the holding company and it holds all the shares in New Clicks. New Clicks holds all the shares in Unicorn and Investments. Investments holds all the shares in Retailers. Schematically, it looks as follows:

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Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring)

[4]

In the structure, there are only two companies that operate pharmacy businesses, these are Unicorn and Retailers. Unicorn is the holder of a manufacturing licence in terms of section 22C of the Medicines and Related Substances Act [5] (Medicines Act). In 2017 it held the registrations of 39 generic medicines under the regulatory regime that applies to the manufacture, import and sale of medicine. Retailers holds a retail pharmacy licence in terms of section 22(1) of the Act and operates approximately 640 licensed community pharmacies throughout the country.

Factual matrix

[5]

On 6 May 2016, ICPA lodged a complaint against the Clicks Entities with the Department of Health. That complaint appears to have been delegated to the Deputy Director-General of the Department (DDG) for decision. [6] It is of some importance to provide details of the complaint. In essence, ICPA's complaint was that "Unicorn and Clicks [Retailers] clearly have direct or indirect beneficial interests in each other". The complaint was unquestionably directed at Unicorn and Retailers. Much emphasis was placed on the concept of a beneficial interest. The complaint was expanded as follows:

(a)

Retailers and Unicorn are amongst Clicks Group's subsidiaries and have at the very least indirect beneficial interest in each other;

(b)

Unicorn is clearly conducting business as a manufacturer of medicine; and

(c)

in terms of the Act and the Ownership Regulations, the Minister has prohibited manufacturers from having a direct or indirect beneficial interest in a retail pharmacy.

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Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring)

[6]

As redress, ICPA requested the DG to "revoke the manufacturing pharmacy licence of Unicorn as well as the retail pharmacy licences [held by Retailers,] obtained after 30 May 2012, as they were granted on the incorrect facts". [7] The basis for this was that the Clicks Entities contravene section 22A, read with regulation 6(d).

[7]

After considering the relevant provisions and the structure of the Clicks Entities, the DG rejected the complaint on 19 January 2017. He took the view that neither Retailers nor Investments could be said to have a beneficial interest in Unicorn and, thus, he could not grant ICPA the redress sought. ICPA appealed against the DG's decision in terms of section 22(11) of the Act. [8]

[8]

Although its original complaint made specific reference to the revocation of the licence held by Unicorn and those held by Retailers, before the Appeal Committee ICPA submitted that the crux of the complaint was directed at the corporate structure of the Clicks Entities. The essence of the complaint was that the corporate structure of the Clicks Entities violated section 22A read with regulation 6(d), because it created a situation where companies within the Clicks group corporate structure could have a beneficial interest in community pharmacies while simultaneously having or holding a beneficial interest in a manufacturing pharmacy.

[9]

The Appeal Committee, after considering the ratio in Princess Estate, [9] held:

"[I]t is clear that neither Clicks Group, the 100% shareholder of New Clicks, nor New Clicks, the 100% shareholder of Unicorn and Investments, can be said [to] own or have [a] beneficial interest in Retailers' community pharmacies, since a shareholder may never be said to have a beneficial interest in the assets of the company other than

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Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring)

his/her entitlements to the share of the profits or, in the event that the company is liquidated, to the share of the surplus of the liquidation account."

[10]

Thus, according to the Appeal Committee, neither of the referenced relationships within the Clicks Entities violated regulation 6 and it consequently dismissed ICPA's appeal against the DG's decision dismissing its complaint. Aggrieved, ICPA approached the High Court of South Africa, Western Cape Division, Cape Town (High Court) to have the decisions of the DG and the Appeal Committee reviewed and set aside.

Litigation history

High Court

[11]

The High Court had to determine the following issues:

(a)

Whether ICPA's initial complaint had metamorphosed from one which sought the revocation of the licences held by Retailers and Unicorn on the basis that the companies "clearly have direct or indirect beneficial interests in each other", to one which still sought the revocation of the aforesaid licences but now on the basis that New Clicks, and not Retailers and Unicorn, has a direct or indirect beneficial interest in a community pharmacy and a manufacturing pharmacy. If there was such a metamorphosis, the Court had to determine whether that was fatal to ICPA's review application.

(b)

The proper interpretation of regulation 6(d); in particular, whether beneficial interest was to bear the meaning contended for by ICPA or that contended for by the Clicks Entities. ICPA contended that "beneficial interest" included the interest that a shareholder has in the business of the company. The Clicks Entities, on the other hand, argued that a shareholder of a company does not have a beneficial interest in the company's assets.

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Majiedt J (Maya DCJ, Baqwa AJ and Tshiqi J concurring)

(c)

If it bore the meaning contended for by the Clicks Entities, whether section 22A, the empowering provision, was unconstitutional.

(d)

If it bore the meaning contended for by ICPA, whether the Clicks Entities violated the regulation.

Revocation of licences and mutation of complaint

[12]

As regards the metamorphosis of the complaint, the High Court rejected the argument advanced by the Clicks Entities that ICPA's complaint before the DG and that before the Appeal Committee were different complaints. [10] It held that, while the complaint before the DG incorrectly stated that Retailers and Unicorn had direct or indirect beneficial interests in each other, when the complaint is read with the relevant annexures it reflected that both entities were held by the Clicks Entities through New Clicks. [11] Therefore, the true "mischief" was reflected in and exposed by the contents of the complaint. As such, there was no obstacle to ICPA's review application.

Interpretation of regulation 6(d)

[13]

On the interpretation of regulation 6(d), the High Court held:

"It would be artificial to contend that a company which owns 100% of the shares in a company does not have a direct or indirect beneficial interest in the business owned and operated by that company. The shareholder appoints directors to the company's board. The board determines what dividend is declared, which is then paid to the shareholder from the funds generated by the business. The proceeds of the winding up of the company go to its shareholder. The shareholder thus clearly has a beneficial interest in the business owned by the company." [12]

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[14]

The High Court held that the interpretation contended for by the Clicks Entities would frustrate the purpose of the prohibition. [13] It held that an entity having interests in both types of pharmacies would gain financially if the manufacturing pharmacy's products were promoted by the pharmacists in the community pharmacies over products manufactured by rival manufacturers. [14]

Beneficial interests within the Clicks Entities corporate structure

[15]

In light of the above, the Court concluded that:

"[Investments] has a beneficial interest in community pharmacies through its 100% shareholding of [Retailers], which owns community pharmacies, and the shareholder of [Investments], being [New Clicks], has a direct or indirect...