New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and Another NNO; Pharmaceutical Society of South Africa and Others v Tshabalala-Msimang and Another NNO

• Jurisdiction: South Africa
• Judge: Hlophe JP, Traverso DJP and Yekiso J
• Judgment Date: 02 August 2004
• Citation: 2005 (2) SA 530 (C)
• Docket Number: 4128/04 and 4329/04
• Counsel: J J Gauntlett SC for the applicant in the New Clicks matter. M T K Moerane SC (with him P Coppin and B Vally) for the first and second respondents in the New Clicks matter. W Trengove SC (with him A Cockrell and M du Plessis) for the applicant in the Pharmaceutical Society matter. V Maleka SC (with him V Soni, M Sello and S Yacoob) in the Pharmaceutical Society matter.
• Court: Cape Provincial Division

Yekiso J:

Introduction

[1] On 25 May 2004 and 28 May 2004 two separate applications were launched in this Court by New Clicks South H Africa (Pty) Ltd as the applicant in one such application and the Pharmaceutical Society of South Africa and six others as applicants in the other application. The respondents in both such applications are the Minister of Health who has been cited as the first respondent and Professor Diane Elizabeth McIntyre as the second respondent. The second respondent is joined in the proceedings I in her capacity as chairperson of the Pricing Committee constituted in terms of s 22G of the Medicines and Related Substances Act 101 of 1965. I shall hereafter refer to the latter piece of legislation as 'the Act'.

[2] I shall, in the course of this judgment, refer to the application by New Clicks South Africa (Pty) Ltd as 'the New Clicks application' and the J

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application by the Pharmaceutical Society of South Africa and others as 'the PSSA A application' as and when a need arises to refer to each application separately. Because the relief sought in both applications is the same and the identity of the issues is substantially similar, both applications were heard together. Full and further particulars of the parties involved are on record and it is thus not necessary to B repeat these in this judgment except to say that all the applicants are retailers in medicine and related substances in the pharmaceutical industry. Both applications were heard on 17 and 18 June 2004 before the Full Court of this Division. After hearing argument by the parties involved, judgment was reserved. What follows is my judgment on the issues in dispute. C

The relief sought

[3] The relief sought in both applications is an order reviewing and setting aside the recommendation made by the Pricing Committee to the first respondent in terms of s 22G(2) of the Act and pursuant to which the regulations, which are the subject of a challenge in both D applications, were published (the recommendations). The second leg of the relief sought is the order declaring some of the provisions of the regulations to be invalid and of no force and effect on various grounds which I will identify in the course of this judgment.

[4] As regards the first leg of the relief sought, namely, the review and the setting aside of the recommendation of the Pricing E Committee, the applicants seek to have these reviewed and set aside on the following basis, namely that:

[4.1]

The Pricing Committee was not always properly constituted during its deliberations and decisions made. F

[4.2]

The Pricing Committee allowed persons outside the committee to participate in its deliberations.

[4.3]

The Pricing Committee allowed its deliberations to be materially influenced through active participation by such other persons. G

[4.4]

The Pricing Committee did not receive all material representations from the stakeholders.

[4.5]

The Pricing Committee took into account irrelevant considerations and failed to take relevant considerations into account.

[4.6]

The Pricing Committee acted arbitrarily in the determination of what it considered an appropriate dispensing fee. H

[4.7]

The Pricing Committee, in making recommendations to the first respondent as it did, performed an administrative act within the meaning of the definition of the administrative action. [1]

[5] Because of the aforegoing, so the applicants contend in their papers and submissions, the resultant recommendations made to the I first respondent are materially flawed and, for this reason, the recommendation

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is susceptible to review and should be set aside. The applicants further contend in their papers that the activities of the A Pricing Committee, in fulfilling its functions, culminating in recommendations to the first respondent, constitute an administrative action within the meaning of the Promotion of Administrative Justice Act 3 of 2000.

[6] As regards the second leg of the relief sought, namely, the B review and setting aside of the regulations, the applicants contend that any successful attack on the recommendations inevitably leads to the invalidity of the regulations as well. The validity of the regulations is further attacked on the basis that, some of the regulations, which the applicants identify in the PSSA application, are C so vague and uncertain as to render those aspects of the regulations identified unenforceable and incapable of application.

The Pricing Committee

[7] The Pricing Committee is a statutory committee appointed by the D first respondent in terms of s 22G(1) of the Act. [2] In terms of s 22G(2) of the Act, the first respondent may, on the recommendation of the Pricing Committee, make regulations on the introduction of a transparent pricing system for all medicines and scheduled substances sold in the Republic; an appropriate dispensing fee to be charged by a pharmacist E and an appropriate fee to be charged by wholesalers or distributors or any other person selling Schedule 0 medicines. [3] From the reading of s 22G(2) it is thus clear that the first respondent cannot make regulations other than on the recommendation of the Pricing Committee.

The regulations F

[8] I have already made a point in para [3] that in terms of s 22G(2) of the Act the first respondent may, on the recommendation of the Pricing Committee, make regulations on all those aspects specified in subparas (a), (b) and (c) thereof. The regulations contemplated in the aforementioned section were promulgated by the first respondent on G 30 April 2004 per Government Notice R553 published in Government Gazette 26304 dated 30 April 2004.

[9] The applicants challenge the validity of certain provisions of these regulations on the basis that: H

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[9.1]

The regulations do not include a single exit price. A

[9.2]

The regulations give the Director-General a discretion that is not permitted by the empowering provision.

[9.3]

That certain provisions of the regulations are vague and uncertain.

[9.4]

That the pricing system set up by the regulations is not transparent. B

[9.5]

That those aspects of the regulations that provide for an increase in the single exit price are vague, uncertain and ultra vires.

Before considering the merits of these various bases of attack, both on C the activities of the Pricing Committee and the validity of the regulations themselves, it is necessary to consider a brief history and the factual background which preceded the amendment to the Act and the regulations promulgated thereunder.

Brief overview of the various commissions, studies and reports on D the sales and transparency in the fixing of prices of medicine

The Steenkamp Commission

[10] The Steenkamp Commission [4] was established by the State President in 1975 to enquire into, report and make recommendations on aspects relating to the manufacture and E marketing of pharmaceutical materials and products, with special reference to, inter alia, the price structure of pharmaceutical products, the increase in prices and other factors, usages and practices affecting the prices of such products with a view to combating the trend of increasing the prices of pharmaceutical products. F

[11] The Commission, following its enquiry, recommended that measures to reduce or contain the rise in cost of health care, as opposed to the level of medicine prices, only should be taken.

The Browne Commission of Enquiry G

[12] Subsequent to the Steenkamp Report, the Browne Commission [5] was set up to inquire into the range and costs structure of health services in the public and private sector in the Republic of South Africa with specific reference to, inter alia, the costs of pharmacists in the conduct of their H practices and the profit margins on dispensing and on commodities. The Commission found that there had been a considerable increase in the cost of pharmaceutical products over the years. [6] There has also been a study into the effectiveness of Financing and Delivering Health Care in the Republic of South Africa undertaken by Dr W J de Villiers; the I

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so-called De Villiers Study. [7] This A background material culminated in the investigation and the report by the Competition Board [8] to which I shall turn in the paragraph which follows.

The Competition Reports No 34

[13] In its Report No 34, the Competition Board, B established in terms of the Maintenance and Promotion of Competitions Act 96 of 1979, had to undertake investigations around the restrictive practices involving pharmaceutical wholesalers and retailers. [9] The investigation was prompted, amongst others, by complaints based on certain practices by the pharmaceutical industry which had a negative impact on the pricing C of medicine substances by the retailers on sales of such medicine to the public. The Competition Board found that there were discriminatory practices applied by the manufacturers in the pharmaceutical industry which impacted negatively on the pricing of medicine and scheduled substances. D

[14] There were various other commissions and studies undertaken in the past such as the Reinach Committee, [10] the Snyman Commission [11] and the Melamet Commission, [12] to name but a few of such commissions and committees. The common denominator between all such commissions and committees revolved around the distribution and the E cost of medicine available to the public. Until 1994 the health system was splitting markedly into a public sector focused exclusively on the indigent, on those without medical scheme cover and the private sector focused on the young and employed population. The trends were well established by 1994 so that a need arose for a...