CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT 59/04
MINISTER OF HEALTH First Applicant
PROFESSOR D McINTYRE NO Second
Applicant
versus
NEW CLICKS SOUTH AFRICA (PTY) LTD First
Respondent
PHARMACEUTICAL SOCIETY OF SOUTH AFRICA Second
Respondent
UNITED SOUTH AFRICAN PHARMACIES Third Respondent
LA
TANDT AND ASSOCIATES (PTY) LTD Fourth Respondent
IRVINE AND MILLER (PTY)
LTD Fifth Respondent
MEDICROSS HEALTH CARE HOLDINGS LTD Sixth
Respondent
NETWORK HEALTH CARE HOLDINGS LTD Seventh Respondent
I M
DAVIS NO 2 CC Eighth Respondent
together with
TREATMENT ACTION
CAMPAIGN First Amicus Curiae
INNOVATIVE MEDICINES SOUTH AFRICA Second
Amicus Curiae
Heard on : 15-16 March 2005
Decided on : 30
September 2005
JUDGMENT
INDEX
Paragraph Number
JUDGMENT OF THE COURT 1
In the High
Court 5
In the SCA 7
In this Court 9
The
issues raised and the conclusions
reached 13
Remedy 14
Costs 21
Order 22
JUDGMENT
OF CHASKALSON CJ
Introduction 23
The hearing of the
application 30
What the case is about 32
Procedural
issues 38
Jurisdiction of the SCA 41
Separation of the
issues 52
Section 20(4) of the Supreme Court
Act 59
Constructive refusal of an application for leave to
appeal 68
Leave to appeal to the SCA 74
Leave to appeal to the
Constitutional Court 83
The approach of the High Court to the application
for review 85
The approach of the SCA 91
The Constitution and
PAJA 92
Can the application be decided without reference to
PAJA? 98
Is PAJA applicable? 100
The meaning of administrative
action in section 33 of the Constitution 101
The impact of the
Constitution 107
Open and transparent government 110
The
meaning of administrative action in section 33(1) of the Constitution 114
Is
regulation-making subject to PAJA? 120
The
exclusions 122
Does the making of regulations constitute a
“decision”? 127
The Minister and the Pricing
Committee 136
Review under PAJA 143
Procedural
fairness 147
Reasonableness 186
Lawfulness 189
The
pricing system 190
Price control 193
Legislative
history 199
Controlling the price of medicines 208
Single
exit price: section 22G of the Medicines Act 211
Wholesalers and
distributors 215
The regulation of participants in the making and
distribution of
medicines and Scheduled substances 218
Remuneration
of wholesalers and distributors 223
The regulations dealing with the
pricing system 233
The supply
chain 237
Vagueness 246
The
SEP 247
Manufacturers, wholesalers, distributors, and
importers 249
Foreign manufacturers 252
The inclusion of the
logistics fee in the SEP 258
The calculation of the SEP 262
The
maximum price for the first SEP 264
Medicines sold for the first time
after January 2004 274
International benchmarking 278
Increases
in the SEP 282
Exceptional circumstances 293
Publication of
the SEP 295
The logistics fee 297
Transparency and
publication of the logistics fee 301
Is there certainty as to the
SEP? 305
Appropriate dispensing fee for pharmacists: regulations 10 and
11 311
The introduction of a professional dispensing fee 319
Different
types of pharmacies 322
Community pharmacies 323
The back
shop and the front shop 326
Revenue from
compounding 328
Calculating the profitability of the
dispensary 342
Mr Jordaan’s evidence 344
Dr
Stillman’s report 359
Courier pharmacies 365
Medical
centres 367
Hospitals 368
Changing
conditions 386
Evaluation of the evidence 389
Appropriate
dispensing fee for doctors and other health
professionals: regulation
12 405
Schedule 0 medicines 406
Regulation
14(5) 407
Regulations 21(a) and (c) 411
The
Director-General’s power to declare that the SEP is
unreasonable:
regulations 22 and 23 416
Conclusion 420
JUDGMENT OF
NGCOBO J
Introduction 421
Is it necessary to decide the question
of the applicability of PAJA? 426
The nature of the process involved in
making regulations under
section 22G(2) 439
Does PAJA apply to
section 22G(2) 443
Administrative action in the
Constitution 446
Does PAJA exclude from its ambit the powers conferred
by
section 22G(2) 452
Procedural fairness 482
The
Regulations 487
Regulation 5(2)(c) 487
Regulation
8(3) 492
The remaining regulations 499
The appropriate
dispensing fee 501
The challenge 505
The findings of the
SCA 509
Issues presented 510
The purpose of section
22G(2)(b) 514
The meaning of “appropriate dispensing
fee” 518
Was the Pricing Committee bound to consider the viability
of
pharmacies? 525
The nature and scope of the obligation to
consider relevant factors 530
The viability of the dispensing fees for
pharmacies 544
Rural pharmacies 555
Courier
pharmacies 561
Compounding of medicines 564
Ignoring oral
representations 567
Conclusion 575
JUDGMENT OF SACHS
J 579
The applicability of PAJA 580
Applicability of the
principle of legality in an open and
democratic
society 611
Constitutional control of subordinate law-making: the
procedural
dimension 617
Constitutional control of subordinate
law-making: the substantive
dimension 631
Application to the
facts of this case 641
The fixing of the dispensing
fee 646
JUDGMENT OF MOSENEKE
J 667
Introduction 667
Appropriate dispensing
fee 679
Grounds of attack against the validity of the dispensing
fee 686
Main submissions of PSSA 693
Submissions of the Minister
and the Pricing Committee 697
SCA on dispensing
fee 699
Constitutional and legislative background 704
What is
an appropriate dispensing fee? 712
Is the determination of an
appropriate fee reviewable by the courts? 715
Will the dispensing fee cause
the demise of pharmacies? 726
Expert evidence of Dr Theron 739
The
evidence of Mr Jordaan 753
The expert testimony of Dr
Stillman 765
Courier pharmacies 767
Retail or community
pharmacies 773
Pharmacies in rural areas 779
Hospital
pharmacies 782
Conclusions 783
Remedy 790
JUDGMENT
OF YACOOB J 792
Perspectives on section 22G 795
Regulation
5(2)(c) 801
The provisos to regulation 5(2)(c): medicines sold for
the first
time after 1 January 2004 ` 814
Regulation 8 is not
vague 822
Regulations 22 and 23 comply with the
Constitution 836
JUDGMENT OF LANGA DCJ 842
JUDGMENT OF
O’REGAN J 846
JUDGMENT OF VAN DER WESTHUIZEN
J 850
***************
THE COURT:
| [1] | The Medicines Act was first
enacted in 1965.[1] It has been
amended on no less than fifteen different occasions since then. From 1965 until
1997 the main focus of the Act was
quality
control.[2] In 1997 measures were
introduced into the legislation directed towards making medicines more
affordable.[3] This, to give effect
to the state’s constitutional obligation to provide everyone with access
to health care
services.[4] |
| [2] | The newly introduced
measures, especially those contained in sections15 A – C, sections 18A
– C and sections 22B –
H, do not fit comfortably into an Act
designed to serve other purposes. They pose new problems for those who have to
implement them,
for those who are directly affected by them as well as for those
who have to adjudicate them. The grafted sections make provision
for controls
to be introduced in respect of the production, importation, distribution and
sales of medicines,[5] the relaxation
of certain patent restrictions, the promotion where possible of generic
substitution of medicines, and the establishment
of a Pricing Committee to make
recommendations for the introduction of a pricing system for all medicines sold
in the Republic. |
| [3] | The new measures provoked
strong opposition from within the pharmaceutical industry, including litigation
challenging the validity
of certain of the provisions of the amending
legislation. The 1997 Act was meant to be brought into force by proclamation.
However,
from 1997 until 2002 the amending legislation remained
dormant.[6] In 2002 the dormant
provisions were amended by the Medicines and Related Substances Amendment Act,
59 of 2002, and the sections as amended were brought into force on 2 May
2003.[7] |
| [4] | The present litigation
arises out of regulations made to give effect to the pricing system for the sale
of medicines by the Minister
of Health (the Minister) on the recommendation of
the Pricing Committee. The validity of these regulations has been challenged,
and the challenges have been the subject of contrary decisions in the Cape High
Court (the High Court) and the Supreme Court of Appeal
(SCA). The proceedings
aroused extensive public interest and a great deal of
emotion. |
In the High Court
| [5] | In May 2004 two applications
challenging the regulations on various grounds were instituted in the High Court
by, in the one case,
New Clicks and, in the other, the Pharmaceutical Society of
South Africa (PSSA) and others (for ease, the applicants in both cases
are
referred to as “the Pharmacies”). The challenges included an attack
on the functioning of the Pricing Committee,
the procedures used by the Pricing
Committee and the substance of the regulations promulgated by the Minister on
the Pricing Committee’s
recommendation. The Pricing Committee chose to
abide the decision of the High Court. |
| [6] | The matters were
consolidated and heard by a full bench of three judges. Judgment was handed down
on 27 August 2004. A majority dismissed
the challenges to the regulations while
a minority judgment held that the regulations should be set aside on various
grounds.[8] The applicants sought
leave to appeal against the order of the High Court, and the application for
leave to appeal was by agreement
heard in the High Court on 20 September 2004.
Judgment was reserved. |
In the SCA
| [7] | There was a delay in
delivering judgment on the application for leave to appeal, and the Pharmacies
decided to approach the SCA directly
for leave to appeal. On 10 and 11 November
2004 they lodged applications in the SCA for leave to appeal. The SCA set the
matter
down for argument on 30 November and 1 December. Counsel for the
Minister contended that the SCA did not have jurisdiction to hear
the appeal, as
no decision had yet been given on the Pharmacies’ application for leave to
appeal, and asked for argument on
the issue of jurisdiction to be separated from
argument on the other issues raised in the application. The SCA, however,
directed
that both the question of jurisdiction and that of the merits be dealt
with at a single hearing. At the hearing counsel for the
Minister persisted in
the position that only the question of jurisdiction be entertained at that
stage. When the hearing went ahead
on both aspects, counsel for the Minister
declined to present any argument on the merits. |
| [8] | On 3 December, after the
hearing but before the SCA had given its judgment, the High Court delivered a
judgment in which it ordered
by a majority that leave to appeal be
refused.[9] On 20 December the SCA
handed down a unanimous judgment holding that it had jurisdiction to hear the
matter, granting leave to appeal
and holding the regulations to be
invalid.[10] The Minister and the
Pricing Committee then applied for leave to appeal to this Court against the
decision of the SCA. They later
made a separate application to this Court for a
declaration to the effect that the lodging of the application for leave to
appeal
automatically suspended the order of the SCA. A separate judgment
refusing that application is to be handed down at the same time
as this
judgment. The applications were heard together in this Court on 15 and 16
March.[11] |
In
this Court
| [9] | The application for leave to
appeal to this Court was brought on behalf of the Minister and the Pricing
Committee. The Pharmacies
contended that the Pricing Committee, having elected
to abide the judgment of the High Court, was not entitled to appeal against
the
decision of the SCA. This Court will not ordinarily grant leave to a party who
has abided the decision of the lower court to
appeal to this Court against the
decision given by that court. There may be special circumstances where that
would be permissible.
This is not an issue, however, that needs be decided in
this judgment. The application for leave to appeal to this Court is against
the
order made by the SCA. It appears from the record of the proceedings in the SCA
that the Pricing Committee lodged an affidavit
opposing the application for
leave to appeal to that court. The SCA judgment refers to the argument being
addressed to them, and
the appeal being opposed by, “the
respondents”. There is nothing, however, to indicate whether objection
was taken to
the standing of the Pricing Committee to oppose the application or
whether this issue was considered by the SCA. |
| [10] | In this Court the Minister
and the Pricing Committee were both represented by the same attorneys and
counsel and relied on the same
record, the same application and the same
arguments. Nothing turns on whether the arguments must be dealt with as having
been addressed
to us on behalf of them both, or on behalf of the Minister alone.
In particular, there is no prejudice to the Pharmacies in so doing.
In the
circumstances, and since it appears that the Pricing Committee opposed the
application for leave to appeal to the SCA and
was party to those proceedings,
we have decided that it should be allowed standing to participate in the appeal
to this Court as
well. |
| [11] | The Minister and the
Pricing Committee argued that the SCA had not had jurisdiction to hear the
appeal on the merits and that the
appeal should succeed on that ground alone.
They contended further that the Minister had complied with the terms of the
Medicines
Act when making the
regulations.[12] The Pharmacies
argued that the SCA had been entitled to hear the appeal and that both in terms
of the process followed and in regard
to their substance, the regulations had
failed to comply with the requirements of the Medicines Act. More particularly,
they claimed
that the fee the pharmacists were allowed to charge was not
“appropriate” as required by the Medicines
Act. |
| [12] | Although the Court was
aware of the need to bring to an end the uncertainty that reigned in the
pharmacy sector, it was obliged to
give full and appropriate consideration to
the many questions raised. On most matters the Court is unanimous. On certain
issues,
including the question whether the dispensing fee to be charged by the
pharmacists is appropriate, members of the Court adopt different
positions.
There are five separate judgments dealing with the merits, and three short
judgments indicating concurrences. Taken
together the judgments deal with a
wide-ranging number of complex legal and factual issues. The summary that
follows reflects the
key issues raised, the positions taken by each member of
the Court on those issues and the order made by the
Court. |
The issues raised and the conclusions
reached
| [13] | A list of the principal
issues and conclusions follows: |
1. Did the SCA have jurisdiction to hear the appeal by the pharmacies?
The Court holds unanimously that it
did.[13]
2. Was the SCA entitled to hear argument on the merits of the appeal and to
deliver a judgment on the merits in the absence of any
argument on the merits by
the Minister? The Court holds unanimously that it
was.[14]
3. Despite the decision not to argue the merits of the case before the SCA,
are the Minister and the Pricing Committee entitled to
appeal to this Court?
The Court holds unanimously that, given the circumstances of this case, they
are.[15]
4. Does the Promotion of Administrative Justice Act, 3 of 2000 (PAJA) apply
to the recommendations of the Pricing Committee and the
subsequent making of
regulations by the Minister? Five members of the Court hold that PAJA is
applicable.[16] One member of the
Court holds that PAJA is applicable to the fixing of the dispensing fee
only;[17] and five other members of
the Court hold that it is not necessary to decide whether PAJA is applicable,
since on the assumption in
favour of the Pharmacies that it is, they find the
procedure followed to have been
fair.[18]
5. Did the fact that not all members of the Pricing Committee were present at
all its meetings, including the oral representations
by interested parties in
April 2004, render the proceedings of the Pricing Committee unfair or
unlawful? The Court unanimously holds that it did not.
6. Does the Medicines Act permit the regulations to provide for price control
in the manner in which they have? The Court unanimously holds that it
does.[19]
7. Do regulations 10 and 11 fix an “appropriate” dispensing fee
as contemplated by the Medicines Act? Six members of the Court hold that
they do not.[20] The five remaining
members of the Court hold that the dispensing fees set are in the main
“appropriate”. However they
also hold that the dispensing fees are
not appropriate in so far as rural and courier pharmacies are
concerned.[21]
8. The Court holds unanimously that the challenge to the regulations overall
must fail and that the SCA was accordingly wrong in
setting aside the
regulations as a whole. However, it considered a wide range of challenges to
individual regulations. The most
important conclusions on these challenges are
the following:
(a) The Court unanimously holds that regulation 5(1) is invalid in that it omits
the words “and VAT” and that the invalidity
can be cured by reading
the words “and VAT” into the regulation after “logistics
fee”.[22]
(b) By a majority,[23] the Court
holds that regulation 5(2)(c) is not void for vagueness but that the words
“single exit” must be severed from
Appendix A of the regulations
wherever they appear.[24]
(c) The Court unanimously holds regulation 5(2)(e) to be invalid on the ground
that it constitutes an improper delegation to the
Director-General of the powers
of the Pricing Committee and the Minister. The Court holds unanimously that
this can be cured by
severing the words “Director-General” from the
relevant regulation, and reading into the regulation in their place, the
words
“Minister on the recommendation of the Pricing
Committee”.[25]
(d) The Court unanimously holds that regulation 5(2)(g) dealing with the
determination of a maximum logistics fee is invalid because
it permits the
Minister to make such determination without reference to the Pricing Committee.
This is an improper delegation.
The Court unanimously holds that it can be
cured by reading in after the word “Minister” the words “on
the recommendation
of the Pricing
Committee”.[26]
(e) The Court unanimously holds that regulation 8(1) is invalid because it
provides that the Minister may make annual determinations
of price increases
“after consultation” with the Pricing Committee. This is an
improper delegation. The Court unanimously
holds that the invalidity can be
cured by severing the words “after consultation with” and replacing
them with the words
“on the recommendation
of”.[27]
(f) By a majority,[28] the court
holds that regulation 8(3), which deals with increases of the single exit price
during the year, is not void for
vagueness.[29]
(g) The Court holds unanimously that the failure of the regulations to make any
provision for the publication of the logistics fee
is inconsistent with the
requirement of transparency in the Medicines Act. The Court holds that this
omission can be cured by reading
in the words “and in the case of the
information referred to in regulation 21(2)(d) must” before the words
“publish
or otherwise communicate, or require” in regulation
21.[30]
(h) The Court unanimously holds that regulation 13 dealing with the appropriate
fee for the sale of Schedule 0 medicines is
invalid.[31]
(i) By a majority,[32] the court
dismisses the objection to regulations 22 and 23, which confer a power on the
Director-General to determine whether a specific
single exit price is
reasonable.[33]
Remedy
| [14] | It will be seen from the
above summary that the Court has unanimously accepted the validity of a single
exit price being established
for medicines sold in South Africa, and the
validity of the regulatory structure put in place for its realisation by the
Minister
on the recommendation of the Pricing Committee. Although the
regulatory scheme as a whole passes muster, there are a number of detailed
provisions that fall short of the requirements of the Medicines Act. In most
cases the Court has decided that the defects in the
regulations can be cured by
severance of certain words and/or reading in other words. In other cases the
defects relate to relatively
unimportant aspects of the scheme, which could
continue to function while the defects are being corrected. Special attention,
however,
needs to be given to the invalidation of regulations 10 and 11 on the
ground that the dispensing fee arrived at is not
appropriate. |
| [15] | It is necessary to consider
whether because of the defects in regulations 10 and 11 the entire scheme fails,
or whether the remainder
of the regulations can stand without a dispensing fee
for pharmacists. Whilst recognising that severability in constitutional cases
may often require special treatment, this Court has
applied[34] the conventional test
for severance laid down in Johannesburg City Council v Chesterfield House
(Pty)
Ltd[35] |
“where it is possible to separate the good from the bad in a Statute and
the good is not dependent on the bad, then that part
of the Statute which is
good must be given effect to, provided that what remains carries out the main
object of the Statute.”
| [16] | Bearing in mind the
important constitutional purpose served by the pricing system, we are satisfied
that the correct remedy in the
present case is to preserve as much of the scheme
as is possible, as long as this can be done in a manner that serves the main
object
of section 22G of the Medicines Act. The main object of section 22G is to
make medicines more accessible and more affordable by means
of a transparent
pricing system. Regulations 10 and 11 deal with the dispensing fee which is an
important part of the pricing system,
but what remains if these regulations are
declared to be invalid, will not be inconsistent with the main object of the
legislation.
What remains will be a system which makes provision for a single
exit price for each medicine and Scheduled substance, which must
be the only
price at which manufacturers may sell that medicine. Wholesalers, distributors
and retailers may not sell medicine at
a price higher than the single exit
price. Wholesalers and distributors may charge only an agreed logistics fee
subject to the controls
imposed by the regulations. That is a coherent system,
consistent with the Medicines Act, that gives effect to the main object of
section 22G. |
| [17] | There is great public
interest in achieving finality in this important matter. This Court overturns
the SCA’s conclusion that
the regulatory scheme as a whole is invalid.
However, it holds that certain individual regulations are invalid. Considerable
work
has already been done by the Pricing Committee, and it would not be in the
public interest for the Pricing Committee to have to start
its determination of
the dispensing fee or the other invalid regulations from the beginning again.
In terms of section 8(1) of PAJA,
a court or tribunal in judicial review
proceedings may grant any order that is just and equitable, including orders
setting aside
the administrative action and remitting the matter for
reconsideration by the administrator with or without
directions.[36] In the
circumstances of this case, the proper course is to remit the matter to the
Pricing Committee and the Minister for reconsideration
in the light of this
judgment. |
| [18] | The Pricing Committee as a
whole must take appropriate account of the oral representations already made to
it. It will be able to
determine its own procedure for hearing further
representations by any interested parties, who should be given a reasonable
opportunity
to update or add to information already given to the Pricing
Committee. In this regard, it should be emphasised that the regulations
seek to
introduce a new scheme with the purpose of enhancing access to affordable
medicines, a goal to which all the parties to this
dispute subscribe and which
is in the interest of all consumers of medicines. For this goal to be achieved,
the co-operation of
all interested parties in both its establishment and
implementation is required. Interested parties should therefore provide any
information required by the Pricing Committee or the Minister as fully and
timeously as possible. |
| [19] | In its reconsideration of
the issue of the appropriate dispensing fee, the Pricing Committee should look
at new information that has
become available in the intervening year since it
made its recommendation.[37]
Because single exit prices have been set for most if not all medicines during
the last year, the process of establishing the viability
of pharmacies on the
basis of a particular dispensing fee can now be undertaken on a more certain
basis than during the Pricing Committee’s
previous deliberations.
Moreover, the conduct of this litigation has made it plain that particular
attention needs to be paid to
the circumstances at least of rural and courier
pharmacies to ensure that the right of access to health care is not prejudiced
by
driving such pharmacies out of the market. Section 172(1)(b) of the
Constitution entitles a court deciding a constitutional matter
to make any order
that is just and equitable. It would not be just and equitable for pharmacists
not to be entitled to charge a
dispensing fee in the interim before the
appropriate fee is determined by regulation. Section 22G(3)(b) and (c) of the
Medicines
Act must not be construed as precluding this, and we will make an
order to that effect. There is no reason to believe that pharmacists,
who are
members of an ethical profession, will seek to exploit the situation by charging
excessive dispensing fees. Should any pharmacist
attempt to do so, that would
constitute misconduct in terms of section 42 of the Pharmacy Act, 53 of
1974. |
| [20] | One further point needs to
be made. The effect of this Court’s ruling is that portions of the
published regulations no longer
accurately reflect the legally valid content of
the regulations as the Court orders that certain words be severed, and in some
cases,
that other words be read into the regulations. In our view, in order to
promote the transparency required by the Act and the foundational
value of the
rule of law, it is necessary to make an order requiring the Minister to
republish the regulations as a whole so that
they reflect the correct legal
position as set out in this Court’s order. That publication should take
place soon and this
should be done within 60 days of the date of this judgment.
If the process of determining the appropriate dispensing fee is not
complete by
that date, the regulations will have to be published without containing an
appropriate dispensing fee which will then
have to be published as soon as that
process is complete. It need hardly be said, however, that given the great
public interest
in resolving this matter, it would be desirable for that process
to be complete within 60 days and for the regulations to be republished
then in
their entirety. It is for this reason that the period we have set is longer
than we would otherwise have
determined. |
Costs
| [21] | The appeal by the Minister
and the Pricing Committee is upheld in part and dismissed in part. The result
is that the Pharmacies have
succeeded in their challenge to the appropriateness
of the dispensing fee, a central feature of the dispute. On the other hand the
Minister and the Pricing Committee have succeeded in overturning the declaration
of invalidity in relation to the regulations as
a whole. They have therefore
both been partially successful in this Court. A further relevant fact in
considering the costs in
this Court is that the Minister failed to present
either written or oral argument to the SCA which may have changed the course of
the proceedings. In our view, it is appropriate in the light of these
considerations for the Minister to pay half the costs of the
Pharmacies in this
Court. As to the proceedings before the SCA, it is our view that it is just to
reflect disapproval of the Minister’s
failure to present argument on the
merits in that court, to require the Minister to bear the costs of the
Pharmacies in full in that
court. The costs in the High Court proceedings
should follow the costs in this Court and the Minister should pay half the costs
of the Pharmacies in the High
Court. |
Order
| [22] | In the light of all the
separate judgments delivered in this matter, the following order is
made: |
1. The applicants are granted leave to appeal.
2. The appeal is upheld in part.
3. The orders of the Supreme Court of Appeal and the Cape High Court are set
aside and replaced with the following
order:
| (a) | (i) The
omission from regulation 5(1) of the Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled Substances
contained in Government
Notice No R553 of 30 April 2004 of the words “and VAT” after the
words “logistics fee”
is declared to be inconsistent with the
requirements of the Medicines and Related Substances Act, 101 of 1965, as
amended, and accordingly with the
Constitution. |
(ii) Regulation 5(1) of the
Regulations Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained
in Government Notice No R553 of 30 April 2004 is to be read
as though the words “and VAT” appear therein after the words
“logistics fee”.
(b) The words “single exit” contained in Appendix A to the
Regulations Relating to a Transparent Pricing System for Medicines
and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004 are declared
to be inconsistent with the requirements
of the Medicines and Related Substances
Act, 101 of 1965, as amended, and accordingly with the Constitution and are to
be severed wherever they appear before the word “price”
in Appendix
A.
| (c) | (i) Regulation
5(2)(e) in the Regulations Relating to a Transparent Pricing System for
Medicines and Scheduled Substances contained
in Government Notice No R553 of 30
April 2004 is declared to be inconsistent with the Medicines and Related
Substances Act, 101 of 1965, as amended, and accordingly with the Constitution
to the extent that it refers to the “Director-General” and not to
the “Minister on the recommendation of the Pricing
Committee”. |
(ii) It is declared that the words
“Director-General” in regulation 5(2)(e) of the Regulations Relating
to a Transparent
Pricing System for Medicines and Scheduled Substances contained
in Government Notice No R553 of 30 April 2004 are to be severed from
the
regulations and the regulations are to be read as if the words “Minister
on the recommendation of the Pricing Committee”
appear wherever the words
“Director-General” appeared.
| (d) | (i) The omission from
regulation 5(2)(g) in the Regulations Relating to a Transparent Pricing System
for Medicines and Scheduled Substances
contained in Government Notice No R553 of
30 April 2004 of the words “on the recommendation of the Pricing
Committee”
is declared to be inconsistent with the Medicines and Related
Substances Act, 101 of 1965, as amended, and accordingly with the
Constitution. |
(ii) Regulation 5(2)(g) of the
Regulations Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained
in Government Notice No R553 of 30 April 2004 is to be read
as if the words “on the recommendation of the Pricing Committee”
appear after the words “the Minister”.
| (e) | (i) Regulation 8(1) of the
Regulations Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained in
Government Notice No R553 of 30 April 2004 is declared
to be inconsistent with the Medicines and Related Substances Act, 101 of 1965,
as amended, and accordingly with the Constitution to the extent that it contains
the phrase “after consultation with”
and not the phrase “on
the recommendation of”. |
(ii) It is declared
that the words “after consultation with” in regulation 8(1) of the
Regulations Relating to a Transparent
Pricing System for Medicines and Scheduled
Substances contained in Government Notice No R553 of 30 April 2004 are to be
severed from
the regulations and the regulations are to be read as if the words
“on the recommendation of” appear where the words
“after
consultation with” appeared.
| (f) | (i) Regulations 10 and 11 of
the Regulations Relating to a Transparent Pricing System for Medicines and
Scheduled Substances contained
in Government Notice No R553 of 30 April 2004 are
declared to be inconsistent with the Medicines and Related Substances Act, 101
of 1965, as amended, and accordingly with the Constitution and
invalid. |
(ii) Regulations 10 and 11 of the
Regulations Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained
in Government Notice No R553 of 30 April 2004 are remitted
to the Pricing Committee and the Minister for reconsideration in the light
of
this judgment.
(iii)Until the Minister makes regulations in terms of section 22G(2)(b) of
the Medicines and Related Substances Act, 101 of 1965, as amended, pharmacies
may charge a dispensing fee.
| (g) | (i) Regulation 13 of the
Regulations Relating to a Transparent Pricing System for Medicines and Scheduled
Substances contained in Government Notice
No R553 of 30 April 2004 is declared
to be inconsistent with the Medicines and Related Substances Act, 101 of 1965,
as amended, and accordingly with the Constitution and
invalid. |
(ii) Regulation 13 of the Regulations
Relating to a Transparent Pricing System for Medicines and Scheduled Substances
contained in
Government Notice No R553 of 30 April 2004 are remitted to the
Pricing Committee and the Minister for reconsideration in the light
of this
judgment.
| (h) | (i) The omission from
regulation 21 of the Regulations Relating to a Transparent Pricing System for
Medicines and Scheduled Substances
contained in Government Notice No R553 of 30
April 2004 of the words “and in the case of the information referred to in
regulation
21(2)(d) must” before the words “publish or otherwise
communicate, or require” is declared to be inconsistent with
the Medicines
and Related Substances Act, 101 of 1965, as amended, and accordingly with the
Constitution. |
(ii) Regulation 21 of the Regulations
Relating to a Transparent Pricing System for Medicines and Scheduled Substances
contained in
Government Notice No R553 of 30 April 2004 is to be read as though
the words “and in the case of the information referred to
in regulation
21(2)(d) must” appear before the words “publish or otherwise
communicate, or require”.
(i) The Minister of Health is ordered to republish the Regulations Relating to a
Transparent Pricing System for Medicines and Scheduled
Substances contained in
Government Notice No R553 of 30 April 2004 duly amended in compliance with this
order within sixty days of
the date of this judgment.
(j) The Minister of Health is ordered to pay half the respondents’ costs
incurred in the proceedings in this Court and the
High Court including the costs
of two counsel, as well as all the respondents’ costs in the Supreme Court
of Appeal including
the costs of two
counsel.
Chaskalson CJ, Langa DCJ, Madala, Mokgoro,
Moseneke, Ngcobo, O’Regan, Sachs, Skweyiya, Van der Westhuizen and Yacoob
JJ.
CHASKALSON CJ
Introduction
| [23] | This is an application for
leave to appeal against a decision of the Supreme Court of Appeal (SCA) holding
that the regulations introducing
a transparent pricing system for medicines and
Scheduled substances published by the Minister of
Health[38] are invalid and of no
force and effect. |
| [24] | The regulations were
promulgated on 30 April 2004 by the Minister of Health, purportedly in terms of
section 22G of the Medicines
and Related Substances Act, 101 of 1965 (the
Medicines Act).[39] The operative
provisions of the regulations were to come into force at the beginning of June
2004. Towards the end of May 2004
two urgent applications were brought in the
Cape High Court by parties adversely affected by the regulations. In the one,
the applicants
were the Pharmaceutical Society of South Africa (PSSA), which is
a society representing a number of companies owning and operating
different
types of pharmacies, the United South African Pharmacies, an association
representing approximately 60% of all retail pharmacies,
and five others, all
companies conducting business as operators of pharmacies. I refer to this
application as the PSSA application
and to the applicants as PSSA. In the
other, the applicant, New Clicks South Africa (New Clicks), is the owner of a
chain of retail
pharmacies. I refer to this as the New Clicks application. I
refer to the applicants in both applications jointly as “the
Pharmacies”. In both applications the Minister of Health and the
chairperson of the Pricing Committee on whose recommendation
the regulations
were made were cited as respondents. The chairperson of the Pricing Committee
did not participate in the hearing.
She filed an affidavit indicating that the
Pricing Committee abided the decision of the
court.[40] |
| [25] | Initially the Pharmacies
sought interim relief in the form of a suspension of the regulations or some of
them pending the determination
of an application to be brought by them for an
order declaring such regulations to be unlawful and of no force and
effect. |
| [26] | Agreement was reached
between the parties that the operation of the regulations would be suspended
pending the determination of the
application to be brought in the High Court.
This was made an order of court in the following
terms: |
“IT IS ORDERED:
1. That the applications for final relief are postponed for hearing on 17 and 18
JUNE 2004.
2. That the Respondents shall file the record of the proceedings before the
Pricing Committee by close of business on 8 JUNE 2004,
and such further
answering affidavits as they require by close of business on 9 JUNE 2004.
3. That the Applicants shall file their replying affidavits by close of business
on 14 JUNE 2004.
4. That the parties shall exchange their heads of argument by 15 JUNE 2004.
5. That pending determination of the applications by this court, wholesalers,
distributors and retailers shall not be obliged to
sell medicines and scheduled
substances or charge dispensing fees in accordance with the regulations
published in Government Notice
R553 of the Government Gazette of 30 APRIL
2004.
6. That all issues of costs are reserved.”
| [27] | The sequence of events
after that was as follows. The application was heard in the High Court on 17
and 18 June 2004 by a bench of
three judges, Hlophe JP, Traverso DJP and Yekiso
J. Judgment was given on 27 August 2004. Yekiso J, with whom Hlophe JP
concurred,
dismissed the application. Traverso DJP dissented and would have
made an order setting aside the regulations as being
unlawful. |
| [28] | I will deal with these
events and what followed in more detail later in the judgment. It is sufficient
now to say that the Pharmacies
applied immediately to the High Court for leave
to appeal to the SCA. Judgment of the High Court on the application for leave
to
appeal was delayed. The Pharmacies then applied urgently to the SCA for
leave to appeal against the order of the High Court. The
application was lodged
with the SCA before the High Court had given its judgment on the application for
leave to appeal. The SCA
set down the application for leave to appeal, and
directed that the merits be dealt with at the same time. After argument, but
before
the SCA had given judgment, the High Court delivered its judgment and by
a majority refused leave to appeal. On 20 December 2004
the SCA delivered its
judgment. A unanimous court of five judges granted the Pharmacies leave to
appeal to it and upheld the appeal.
The regulations were declared to be invalid
and of no force and effect. |
| [29] | The Minister and the
chairperson of the Pricing Committee then applied to this Court for leave to
appeal against the judgment and
order of the SCA. The application was set down
for hearing during March 2005 and the parties were directed to address the
merits
of the appeal during their arguments so that the matter could be disposed
of without hearing further arguments, should leave to appeal
be
granted. |
The hearing of the
application
| [30] | I pause to comment on the
circumstances in which argument was heard by this Court. The disputed
regulations form the core of government
policy designed to reduce the costs of
medicines. The Minister contends that the regulations are sanctioned by the
Constitution
and the Medicines Act. The Pharmacies allege that the regulations
would destroy the pharmaceutical industry and retard access to
health
care. |
| [31] | This seems to have created
the impression in some minds that the issues were “political” and
not “legal”,
and led to comments in the media that the decision of
the Court will be a test of its independence, implying that if it finds against
the government it will be independent, but not if it finds for
it. |
What the case is about
| [32] | It is necessary to put this
case in its proper context and to say first what the case is not about. This
case is not about the wisdom
of government policy. Government is entitled to
adopt, as part of its policy to provide access to health care, measures designed
to make medicines more affordable than they presently are. That has not been
disputed by any of the litigants nor by any of the
courts that have previously
dealt with the matter. |
| [33] | What courts are concerned
with, and what this case is about, is whether the regulations have been made in
accordance with the requirements
of the Constitution and the law. The
challenges to the validity of the regulations, and the responses to the various
challenges,
are based on detailed legal submissions dealing with the
Constitution and the requirements of laws which make provision for just
administrative action. There is nothing unusual about this. Our courts have
frequently been called on to deal with similar questions
in the past and will no
doubt be called upon to do so in the future. This is the role of courts in a
democracy. |
| [34] | The question then is: were
the regulations made in accordance with the Constitution and the law? This was
what the High Court had
to decide when the proceedings commenced before it.
Broadly speaking there were four matters that had to be addressed in order to
answer this question. |
| (a) | Are the regulations subject
to review under the provisions of the Promotion of Administrative Justice Act, 3
of 2000 (PAJA)? If not,
are they subject to review under the Constitution or
the common law? If they are subject to
review: |
| (b) | Did the Pricing Committee, on whose
recommendation the regulations were made, conduct its affairs
properly? |
| (c) | Are the regulations consistent
with the Medicines Act? |
| (d) | Are the regulations
too vague to be enforced? |
| [35] | The majority in the High
Court held that the regulations were not subject to review under PAJA but were
subject to review under the
Constitution and the common law. They conducted the
review under the Constitution and dismissed the
application. |
| [36] | When the matter reached the
SCA there was an additional question. Did the SCA have jurisdiction to
entertain the application before
the High Court had given judgment on the
application for leave to appeal? The SCA directed that this issue be addressed
in argument
to it, and that the merits of the dispute concerning the validity of
the regulations be addressed as well. The SCA heard argument
on these issues
before the High Court had delivered its judgment. Shortly afterwards, the High
Court delivered its judgment in which,
by a majority, it refused the application
for leave to appeal. Subsequently the SCA gave its judgment. A unanimous court
of five
judges held that leave to appeal should be granted and that the appeal
should be upheld. |
| [37] | In its judgment on the
merits the SCA held that the regulations went beyond what was permitted by
section 22G of the Medicines Act
and were accordingly invalid. It found it
unnecessary in the circumstances to decide whether PAJA was
applicable. |
Procedural issues
| [38] | In the application for
leave to appeal to this Court, the Minister and the Pricing Committee dispute
that the SCA had jurisdiction
to entertain the application when it did, and to
make the order declaring the regulations to be invalid. They contend that the
SCA’s
judgment is accordingly void. The Pharmacies have raised certain
procedural points relating to the application for leave to appeal.
Before the
SCA, counsel for the Minister and the Pricing Committee refused to address the
court on the merits, arguing that the
question of the SCA’s jurisdiction
ought to be argued separately. The Pharmacies argue that the Minister should
not be permitted
to reopen the debate on the merits in this Court having refused
to address the SCA on the merits. An additional procedural point
taken by the
Pharmacies relates to supplementary written submissions filed by the Minister
shortly before the hearing. The Pharmacies
argued at the hearing that those
submissions were not lodged timeously and were therefore inadmissible. At the
hearing we ruled
that reference could be made to the arguments raised in the
additional heads. |
| [39] | The question whether the
regulations are invalid is a constitutional matter. The other issues raised are
all issues connected with
the decision on a constitutional matter and are within
the jurisdiction of this
Court.[41] |
| [40] | It is convenient to begin
by addressing the challenge to the SCA’s jurisdiction and the other
procedural points that have been
raised. |
The
jurisdiction of the Supreme Court of Appeal
| [41] | The judgment of the High
Court was delivered on 27 August 2004. The Pharmacies applied immediately to
the High Court for leave to
appeal to the SCA against the order that had been
made. As was the case with the applications on the merits, the applications for
leave to appeal were brought on an urgent basis. The applications were heard on
20 September 2004 before the same full bench of
the Cape High Court and judgment
was reserved. |
| [42] | Earlier, on 2
September 2004, the attorney for New Clicks had written to the registrar of the
SCA asking her to approach the Deputy
President of that Court with a view to
having the matter enrolled during the November term, in the event of leave to
appeal being
granted. The registrar responded on behalf of the Deputy President
as follows: |
“Subject to cases and other commitments that have already to be
accommodated during the November term and others that may yet
arise, and subject
to the present matter becoming timeously justiciable by this Court, and subject
also to the length of the record,
bearing in mind that November is a short term,
consideration is being given to making court time in November available for
it.”
| [43] | The State Attorney objected
to the approach taken by the attorneys for New Clicks. She wrote to the
registrar voicing that objection,
saying that there could be little doubt that
the matter involved only constitutional issues, and would be likely to finish in
the
Constitutional Court. She contended that if the matter was indeed urgent,
an appeal to the SCA would delay the outcome. The respondents
had been asked to
agree that if any appeal be brought the appeal should be directly to the
Constitutional Court, but had refused
to do so. In the circumstances they could
not contend that the matter was urgent. |
| [44] | On 16 September 2004 the
State Attorney wrote to the Registrar of the Constitutional Court enquiring
whether this Court would be able
to hear an appeal in November or during the
first term of 2005, if leave to appeal directly to it were granted. The
response was
to the effect that if proper arrangements were made in September,
the matter could be heard during the November
term. |
| [45] | On 22 September 2004 the
registrar of the SCA responded to the letter from the State Attorney as
follows: |
“Your objection to the request is noted, but it is thought that where a
party has been granted leave to appeal to this Court
and thereafter approaches
this Court for an accelerated hearing on good grounds (urgency being the
obvious) nothing prevents this
Court from considering such a request. Agreement
between the parties is obviously preferable, but each case will depend on the
circumstances
prevailing at that particular time. A party can certainly not
expect a definite ‘yes’ when leave has as yet not been
granted and
informing the applicants in this case that their request will be considered did
not necessarily mean that the appeal
will be heard during the November term. It
will depend on the circumstances as just mentioned. If the matter does appear
to be
urgent, however, it is the duty of this Court to give consideration to a
request to accelerate the hearing of it. The fact that
there may be
constitutional issues involved in an appeal does not affect that
position.”
| [46] | By 22 October 2004 judgment
on the application to the High Court for leave to appeal had not yet been
delivered. On that day attorneys
for PSSA wrote to the registrar of the High
Court referring to the application that had been made, and the urgency of the
matter,
and said that in the circumstances |
“it would be appreciated if you could establish whether His Lordship the
Judge President – who indicated on reserving
the ruling five weeks ago
that he would be writing it for the Court – would indicate when the ruling
(even if reasons are to
follow) may be expected.”
There
was no response to this letter.
| [47] | On 10 November 2004, a
decision on the application for leave to appeal had still not been given. The
Pharmacies then applied to the
SCA as a matter of urgency for leave to appeal to
be granted against the whole of the judgment and order made by the majority of
the High Court. In their application they alleged that the matter was urgent
and that there was a need for clarity to be obtained
as to the lawfulness of the
regulations, contending that the applicants and other industry participants and
the public were being
adversely affected on a continuing basis by the lack of
finality regarding the validity of the
regulations. |
| [48] | They submitted that a
failure to grant leave to appeal for so long a time in the “urgent
circumstances” that existed had
the effect of a refusal to grant the leave
sought. They mentioned that a record of the proceedings in the High Court had
been prepared
and could be lodged immediately if required. They attached to the
application for leave to appeal heads of argument, a practice
note and a list of
authorities, saying that the heads of argument and list of authorities had been
tendered two weeks previously
to the State Attorney who had refused to accept
them. |
| [49] | On 12 November 2004, the
attorneys for the parties met the Judge President of the High Court to enable
the attorneys for the Pharmacies,
as a matter of courtesy, to inform him of the
steps that had been taken. An attempt to arrange an earlier meeting before the
application
to the SCA was launched had not been successful. The Judge
President informed the attorneys that he was working on the second draft
of the
judgment dealing with the application for leave to appeal, and after enquiring
whether it was still necessary to do so, went
on to say that he would in fact
complete and deliver the judgment. |
| [50] | It is not necessary to deal
in any detail with what took place after that. Harms JA, who had been assigned
by the Deputy President
of the SCA to preside in the application for leave to
appeal, asked to see counsel to discuss the matter with them and a meeting
was
arranged for that purpose. At that meeting, which was held on 17 November,
counsel for the Minister and the Pricing Committee
made it clear that they
objected to the procedure that had been followed, and would contend that the SCA
had no jurisdiction to deal
with the matter as an order had not yet been made on
the application for leave to appeal. |
| [51] | On 18 November the SCA
issued a direction in the following terms: |
“1. The hearing of the applications is consolidated.
2. The applications for leave to appeal are referred for oral argument in terms
of s 21(3)(c)(ii) of the Supreme Court Act on 30
November and 1 December
2004.
3. The parties must be prepared, if called upon to do so, to address the court
on the merits in terms of s 21(3)(c)(ii) of the Act.
4. The respondents may file any affidavits required and heads of argument if and
when convenient.”
Separation of the issues
| [52] | On
22 November the State Attorney wrote to the registrar of the SCA acknowledging
the directions. She mentioned that at the meeting
with Harms JA counsel
representing the Minister had placed on record that they were not briefed to
deal with the appeal itself, but
only with the question of jurisdiction. She
asked that the directions be amended to limit the hearing on 30 November to the
issue
of jurisdiction. She said that the applicants would be able to file
written submissions on that issue before 30 November. The registrar
of the SCA
responded on behalf of the Deputy President of the Court as
follows: |
“It must be remembered that what is before this court is an application
for leave to appeal which the court is bound to consider.
It is not unusual for
this court, when dealing with an application for leave to appeal (petition) in
which it considers that argument
should be presented to it, to direct that
parties be prepared to argue the merits should they be required to do so.
Obviously the question of jurisdiction will be considered as it is an integral
part of the application for leave to appeal. It is,
I should think, open to a
party or parties to apply to the court at the hearing that the hearing of a
particular issue be postponed
until another issue has been decided.
The entire record has been lodged with the Registrar of this court precisely
because no agreement could be reached, between the parties,
on what parts of the
record should be omitted.
The Acting President is accordingly unable to amend or have amended the
direction as requested in the last paragraph of your
letter.”
| [53] | It was against this
background that the application for leave to appeal was heard by the SCA on 30
November and 1 December. The Minister
and the Pricing Committee were
represented at that hearing by counsel, who indicated to the court that they had
been briefed on the
issue of jurisdiction only. They contended that the SCA did
not have jurisdiction to hear the appeal, as no decision had yet been
given on
the Pharmacies’ application for leave to appeal, and asked for argument on
the issue of jurisdiction to be separated
from argument on the other issues
raised in the application. They contended that they had a right to a ruling on
the preliminary
issue and a right to appeal against an unfavourable ruling. The
SCA declined to order that the issue of jurisdiction be separated
from the other
issues and required the parties to address it on all the issues including the
merits of the appeal. The Minister
and the Pricing Committee contend that this
ruling was wrong and raise this as one of the grounds of
appeal. |
| [54] | In its judgment the SCA
explained its ruling. It referred to its decision in S v Malinde and
Others[42]
where a separation of issues had been granted at the request of an appellant.
Quoting from the judgment in that case it reaffirmed
its approach to the
separation of issues, holding that it applied both to appeals and
applications: |
“This Court is in principle strongly opposed to the hearing of appeals in
piecemeal fashion. . . . An exception may be made,
however, where unusual
circumstances call for such procedure . . . .
. . . .
Substantial grounds should exist for the exercise of the power. The basis of
the jurisdiction is convenience – the convenience
not only of the parties
but also of the Court. The advantages and disadvantages likely to follow upon
the granting of an order must
be weighed. If overall, and with due regard to
the divergent interests and considerations of convenience affecting the parties,
it appears that the advantages would outweigh the disadvantages, the Court would
normally grant the
application.”[43]
| [55] | The SCA held that the
present matter was urgent, that it raised issues of national importance and that
it was imperative that the
litigation be brought to an early conclusion. The
request for the issue of jurisdiction to be separated from the merits would have
added to the delay, and the reasons given for the request did not meet the
requirements laid down in S v Malinde. |
| [56] | The SCA had taken the view
that it was necessary to have regard to the merits in order to decide the
application for leave to appeal
and, that being so, it was appropriate to
require the parties to address argument on the merits so that judgment could be
given without
hearing further argument should leave to appeal be granted. This
is a common practice in the SCA and in this Court as well. Its
purpose is to
avoid unnecessary delays and costs as well as to conserve court time. Indeed, a
direction to that effect was given
by this Court in the present matter and
without any objection having been made to this procedure, argument was addressed
to us by
the parties on the merits of the case, to enable us to dispose of the
matter should leave to appeal be granted. |
| [57] | The application to the SCA
had been set down on short notice. The merits were complex and raised difficult
legal issues. They had,
however, been the subject of argument in the High Court
by the same counsel some four months previously. It appears from the SCA
judgment that counsel for the Minister declined the court’s request to
address it on the merits. The SCA was conscious of
the potential prejudice to
the Minister by requiring argument from counsel who might not have been properly
prepared to do so. However,
counsel for the Minister who had been briefed on
the issue of jurisdiction only, declined an invitation from the court to request
a postponement to a date convenient to them to prepare for argument on the
merits. They also declined a request from the court to
furnish it with a copy of
their heads of argument in the High Court. |
| [58] | The
SCA is entitled to regulate its own procedure and I cannot say that the
directions given by it as to how the matter should be
dealt with were
wrong.[44] The contention that the
SCA erred in refusing to separate the issue of jurisdiction from the application
for leave to appeal, and
in requiring the matter to be dealt with in accordance
with the directions given on 18 November 2004, must therefore be
rejected. |
Section 20(4) of the Supreme Court
Act
| [59] | I
deal now with the contention that the decision of the SCA was a nullity, and for
that reason alone should be set aside by this Court.
This contention is based
on the provisions of section 20(4) of the Supreme Court Act, 59 of 1959, which
the applicants contend are
mandatory and were not complied
with. |
| [60] | Section 20(4)
provides: |
“(4) No appeal shall lie against a judgment or order of the court of a
provincial or local division in any civil proceedings
or against any judgment or
order of that court given on appeal to it
except—
(a) in the case of a judgment or order given in any civil proceedings by the
full court of such a division on appeal to it in terms
of subsection (3), with
the special leave of the appellate division;
(b) in any other case, with the leave of the court against whose judgment or
order the appeal is to be made or, where such leave
has been refused, with the
leave of the appellate
division.”
This section of
the Supreme Court Act must now be read as referring to a High Court in place of
a Provincial or Local Division, and
to the Supreme Court of Appeal, in place of
the Appellate Division.
| [61] | There is a line of cases in
the Appellate Division going back to Blaauwbosch Diamonds Ltd v Union
Government (Minister of
Finance),[45] where matters had
come before the court in circumstances where the necessary leave to appeal had
not been obtained from the Provincial
Division before approaching the Appellate
Division.[46] In those cases the
Appellate Division heard argument and deferred giving judgment on the merits
until the statutory requirements
had been complied with. The facts in those
cases were different to the facts in the present case, but what the judgments
show is
that the launching of an appeal without first having complied with the
statutory requirements relating to leave to appeal is not
a
nullity. |
| [62] | Whilst it is necessary for
the statutory requirements for leave to appeal to be complied with before a
decision is given on the appeal,
in a proper case the court has a discretion to
defer giving judgment until those requirements have been satisfied. In
Gentiruco A.G. v Firestone SA (Pty)
Ltd[47] the Appellate Division,
referring to these decisions, said: |
“Where the necessary leave to appeal is lacking this Court may, in
appropriate circumstances, defer the hearing or determination
of the appeal to
enable the appellant to obtain such leave – see Sita’s case,
supra, 1967 (2) SA 442 (AD) at p. 450F-H, and authorities there
cited.”[48]
It
held, however, that on the facts of that case it was not appropriate to adopt
the “extraordinary course of deferment”.
| [63] | Counsel for the Minister
and the Pricing Committee in their argument to the SCA, which they repeated in
their argument to this Court,
relied strongly on the judgment of the Appellate
Division in National Union of Metalworkers of South Africa v Jumbo Products
CC[49] where Corbett CJ held
that it was clear from section 20(4)(b) that: |
“[T]his Court’s jurisdiction to grant leave itself is dependent on
the Court a quo having refused such leave. The proper
procedure, as
imperatively laid down by s 20(4)(b), is for the would-be appellant to apply for
leave first to the Court against whose
judgment the appeal is to be made. If
that Court grants leave, then this Court may entertain the appeal. If that
Court refuses
leave, then (but only then) may this Court consider an application
for leave to appeal. Thus s 20(4)(b) not only prescribes the
proper procedure,
but it also defines the jurisdiction of this Court to entertain an application
for leave to appeal. (Compare S v Cassidy 1978 (1) SA 687 (A) at 690H;
Windhoek Munisipaliteit v Ministersraad van SWA/Namibia en ’n Ander
1985 (1) SA 287 (A) at
293H-294B.)”[50]
| [64] | The facts in that case were
quite different to the facts of the present case. The applicant had been the
unsuccessful party in a
case in which judgment had been given by the
Witwatersrand Local Division (WLD) on 21 December 1993. On 17 and 18 March
1994, approximately
two months after the time prescribed for lodging an
application for leave to appeal had expired, the applicant applied to the WLD
for condonation of its failure to lodge its application timeously, and for leave
to appeal to the Appellate Division against the
judgment and order that had been
made. The application for condonation was refused. The applicant then applied
to the Appellate
Division for leave to appeal against the judgment and order
made by the WLD on the merits. It did so without having applied to the
High
Court for leave to appeal against the order refusing condonation. Moreover, it
appears from the judgment that the applicant
sought leave to appeal to the SCA
on the merits without an application for leave to appeal on the merits having
been considered by
the WLD. The complex procedures that would be necessary to
resolve these problems are referred to in the judgment, and the order
made by
the Appellate Division was that the application be struck off the roll. There
is nothing in the judgment which suggests
that the court intended to depart from
what had been said in Gentiruco. |
| [65] | In his judgment Corbett CJ
refers to two cases, S v
Cassidy[51]
and Windhoek Munisipaliteit v Ministersraad van SWA/Namibia en ’n
Ander,[52] to support his
decision. The facts in those cases are also materially different to the facts
in the present case. |
| [66] | In the Windhoek
Munisipaliteit case the appellant had not applied to the court a quo for
leave to appeal. The court heard argument only on the issue of jurisdiction.
It held that leave to appeal was necessary and struck the appeal off the
roll.[53] In S v Cassidy the
accused had applied for leave to appeal against sentence only. In error the
order of the Appellate Division had granted leave
to appeal against conviction
as well as sentence. Attention was drawn to this error during argument and it
was pointed out that
the court had no power to make such an order because leave
to appeal against the conviction had not been sought. It appears from
the
judgment that counsel for the accused chose not to ask for a postponement to
enable him to approach the court a quo for leave
to appeal on that
issue.[54] In the result the appeal
was confined to the issue of sentence only. Once again there is nothing to
suggest that the court intended
to depart from what had been said in
Gentiruco. |
| [67] | The SCA deals in its
judgment with the cases to which I have referred in paragraphs 61 and 62 of this
judgment and comes to the conclusion
that it could and should grant leave to
appeal.[55] There were unusual
circumstances which justified the making of such an order. First, there was
before it a substantive application
for leave to appeal based on a contention
that the delay by the High Court amounted in the circumstances of the case to a
refusal
to grant leave to appeal. It was necessary to have regard to the merits
of the appeal in dealing with that issue. Secondly, the
issues before the court
were clearly of considerable importance affecting not only the respondents, but
all participants in the pharmaceutical
trade, as well as the general public
which has an interest in the pricing of
medicines.[56] Thirdly, it was
known when the application was heard that the decision on the application for
leave to appeal would be given within
two days of the hearing. In those
circumstances, little purpose would have been served by dismissing the
application and requiring
the respondents to start all over again. That would
have resulted in further delays and considerable unnecessary expense.
|
Constructive refusal of an application for
leave to appeal
| [68] | An application to the SCA
to grant leave to appeal on the ground that there has been a constructive
refusal of leave to appeal by
the High Court is a legitimate cause of action.
An unreasonable delay in dealing with an application for leave to appeal
interferes
with a litigant’s constitutional right to have access to
court.[57] This is of particular
concern where the issues are urgent and the delay may cause substantial
prejudice. A case in point is where
an accused person has been convicted and
sentenced to imprisonment. A long delay in dealing with an application for
leave to appeal
against the conviction and sentence may result in a miscarriage
of justice if the appeal is ultimately successful. The SCA gives
an example of
such a case in its
judgment.[58] |
| [69] | I have no doubt that a
court of appeal is entitled in appropriate circumstances to treat an
unreasonable delay on the part of a lower
court in deciding whether or not to
grant leave to appeal as a constructive refusal of the application. The delay
need not be deliberate.
The fact that there has been an unreasonable delay is
sufficient in itself to entitle an appeal court to make such a
finding. |
| [70] | The granting of leave to
appeal by an appeal court in such circumstances does not cause any prejudice.
If the application for leave
had been dismissed by the lower court the litigant
would have been entitled as of right to apply to the appeal court for leave.
The only prejudice caused is to the appeal court which will have been burdened
with an unnecessary application in cases where the
lower court would have given
leave in any event. |
| [71] | An application to an appeal
court for leave to appeal based on an alleged constructive refusal of leave to
appeal by a lower court
should be a last resort. It must be accepted, however,
that there may come a time when a delay in resolving an application for leave
to
appeal amounts to a constructive refusal of the application, entitling the
aggrieved litigant to apply to the appeal court to
grant leave itself. What
constitutes an unreasonable delay will depend on the circumstances of the
case. |
| [72] | Superior courts have an
inherent right to regulate and protect their own
process.[59] In the exercise of
this power they can decide whether or not to grant an application based on a
constructive refusal of leave to
appeal, and to penalise a litigant by a costs
order where such an application is wrongly
brought. |
| [73] | The application to the SCA
in the present case was clearly not frivolous. The case was of great public
importance and raised issues
that were complex and difficult to resolve. The
SCA had heard argument and formed its own impression on the merits and whether
the
case was one in which leave to appeal should be granted. It was fully
entitled to require argument to be addressed to it on all
aspects relevant to
the application to it for leave to
appeal. |
Leave to appeal to the SCA
| [74] | The High Court, which had
been divided on the outcome of the main application, was also divided on the
question whether leave to appeal
should be granted. In their judgment dealing
with the application for leave to
appeal[60] the majority accepted
that the case raised issues of great constitutional importance “which
needed to be finalised sooner rather
than later” and would be likely to
end up in the Constitutional
Court.[61] It is difficult to
understand why, in such circumstances, they should have refused leave to appeal,
and have taken so long to do
so. |
| [75] | The majority concluded that
there was no reasonable prospect of another court coming to a conclusion
different to that arrived at
by them. In that, as subsequent events have shown,
they were clearly wrong. Having regard to the importance of the case, the
difficult
issues it raised, and the different views on outcome within the High
Court itself, this was a case in which leave to appeal should
clearly have been
granted. I do not consider it necessary, however, to decide whether the delay
in dealing with the application
for leave to appeal in such circumstances
amounted to a constructive refusal of leave to
appeal. |
| [76] | The
SCA has the inherent right to regulate its own process. In the present case it
had before it a valid application based on an
alleged constructive refusal of
leave to appeal. It knew that a decision by the High Court on the application
for leave to appeal
would be given within two days of the conclusion of the
argument. Whatever the decision of the High Court might have been, it would
have had jurisdiction to deal with the matter when it came to deliver its own
judgment. After considering the relevant authorities
it
said: |
“In this case the applicants . . . took all the prescribed steps; they did
apply to the Court below; they did apply to this
Court. All that was missing
was the ruling of the Court below. That came less than 48 hours after
conclusion of argument, but,
as is apparent from the body of authority cited,
that is not fatal. The procedural condition for the determination of the
applications
for leave has now been
fulfilled.”[62]
| [77] | The
alleged constructive refusal had proved to be an actual refusal of leave before
the SCA gave its judgment. It had jurisdiction
at that time to deal with the
application to it for leave to appeal and to decide the appeal. The contention
of the Minister and
the Pricing Committee that the SCA had no jurisdiction to
deal with the matter, and that its judgment is a nullity, must therefore
be
dismissed. |
| [78] | The SCA had given
directions that the parties must be prepared, if called upon to do so, to
address the court on the merits of the
case. When called upon to deal with the
merits, counsel for the Minister declined to do so. They had been briefed to
deal only
with the issue of the court’s jurisdiction and had no brief to
argue the merits. |
| [79] | What happened is recorded
in the judgment of Harms JA as
follows:[63] |
“Already at the meeting on 17 November with me, the respondents’
counsel insisted emphatically on a separation of issues
and stated that their
clients would not instruct counsel to deal with the merits. During oral
argument before us, the respondents’
lead counsel was specifically and
repeatedly asked whether they required a postponement in order to prepare
argument on the merits.
The questions did not elicit a response. When asked
whether the respondents could provide a date convenient to them for argument
on
the merits, the question failed to extract a reaction. When asked whether they
needed an adjournment to consider a request for
a postponement, yet again,
counsel did not reply and simply proceeded to argue another point.
This is consistent with the attitude from the outset that the jurisdictional
issue should be dealt with separately. They had a right,
they said, to a
separate hearing. And they wished to exercise that right in order that, if we
dismiss their argument, they could
appeal. That is why they decided in advance
not to instruct counsel, why they refused – in spite of a request on 17
November
– to provide copies of the heads of argument used in the Court
below to assist us in preparing for the hearing, and why they
were generally
obstructive in relation to each suggestion relating to an expedited
hearing.” (footnote omitted)
| [80] | In these circumstances, and
having ruled against the Minister on the separation of issues, the SCA proceeded
to deal with the application
for leave to appeal. The consequence of this, as
the SCA points out in its
judgment,[64] is that it was
deprived of the benefit of argument on behalf of the Minister on the merits of
the case. |
| [81] | Commenting on this and its
decision to deal with the matter without having the benefit of such argument,
the SCA
said:[65] |
“Cowed by the respondents’ refusal to be of any assistance we cannot
be. Organs of State, which have a constitutional
duty to, inter alia, assist
courts to ensure their effectiveness, have always treated courts with respect
and we assume that the
refusal to argue is not indicative of a change of heart
but rather of inappropriate legal advice based on overconfidence.”
(footnote omitted)
| [82] | I
would add to this only two comments. First, a further consequence of what
happened has been that this Court has been deprived of
the SCA’s
evaluation of the arguments addressed to us on behalf of the Minister and the
Pricing Committee. Secondly, courts
are entitled to expect assistance and not
obstruction from litigants in the discharge of their difficult duties. What
happened in
the present case not only failed to meet this requirement, but also
evinced a deplorable lack of respect for the SCA, which is the
highest court in
this country in respect of all matters other than constitutional
matters. |
Leave to appeal to the
Constitutional Court
| [83] | It
was contended by the Pharmacies that since the Minister had deliberately refused
to address argument to the SCA on the merits of
the appeal, despite having been
called upon to do so, she should not be granted leave to appeal to this Court on
the merits. Ultimately
the question whether leave to appeal should be granted
depends on whether or not it is in the interests of justice to do so. In
the
present case though deploring what happened in the SCA, I have come to the
conclusion that it is not in the interest of justice
to refuse leave to appeal
on that ground. |
| [84] | If
the Minister is refused leave to appeal the decision of the SCA will become
final and the regulations will be set aside. If there
is substance to the
appeal it would mean that government’s constitutional duty to take
reasonable measures to provide access
to health
care[66] would be defeated by an
incorrect view taken concerning the jurisdiction of the SCA. It is not in the
interest of justice to permit
so important an issue affecting the rights of the
general public and the constitutional obligations of government to be determined
in this way. It is in the public interest that this Court deals with the
matter, and determines the questions that have been raised
as to the validity of
the regulations. |
The approach of the High
Court to the application for review
| [85] | In the High Court the
Pharmacies claimed: |
“[A]n order reviewing and setting aside the recommendation purportedly
made by the Pricing Committee to the First Respondent
in terms of section 22G(2)
of the Medicines and Related Substances Act 101 of 1965 and pursuant to which
the Regulations were published . . . and/or an order declaring the Regulations .
. . to be invalid and of no
force or
effect”.[67]
| [86] | The form in which the
relief was claimed led to arguments being addressed to the High Court, and again
to this Court, which treated
the recommendations of the Pricing Committee, and
the decision of the Minister to accept them and to promulgate the regulations,
as being separate decisions, each subject to review either under PAJA, or under
the Constitution. |
| [87] | In the High Court the
majority dealt separately with the challenges to the recommendations of the
Pricing Committee to the Minister
and the subsequent making of the regulations
by the Minister. They held that the recommendations could not be construed as
having
had a direct, external legal effect, which is a requirement for
administrative action under
PAJA.[68]
They would only have had external legal effect if and when they were accepted by
the Minister and promulgated. The recommendations
as such were accordingly not
subject to review under PAJA. |
| [88] | However, they went on to
hold that, notwithstanding this, the “activities and functions of the
Pricing Committee” were
subject to review under the constitutional
principle of legality, the provisions of section 33(1) of the Constitution, and
the provisions
of the common
law.[69] They concluded that the
functions of the Pricing Committee constituted administrative action in terms of
section 33(1) of the
Constitution.[70] They accordingly
conducted a review for compliance with that section, holding
that: |
“[T]he term ‘lawfulness’ in s 33(1) is an all embracing and an
umbrella concept that encapsulates all the requirements
for administrative
legality including all those requirements and grounds for invalidity set out in
s 6 of the Promotion of Administrative Justice
Act.”[71]
| [89] | In dealing with the
regulations they concluded that they too were not subject to review under PAJA
because the definition of administrative
action in PAJA does not include
“rule-making”.[72] But
consistent with their approach to the recommendations of the Pricing Committee
they held that |
“the fact that rule-making does not constitute administrative action, does
not render the regulations themselves to be beyond
judicial scrutiny. The
regulations are subject to review on the basis of the principle of legality, the
principles of common law
to the extent such common-law principles are not
inconsistent with the Constitution, the provisions of s 33(1) of the
Constitution
and other relevant provisions of the
Constitution.”[73]
In
the result they reviewed both the Pricing Committee’s recommendations and
the regulations for compliance with section 33
of the Constitution.
| [90] | The minority judgment held
that the recommendations of the Pricing Committee had an external legal effect
because it was a jurisdictional
fact on which the making of valid regulations
depended.[74] The judgment
accordingly dealt with the issues in terms of the provisions of PAJA, but held
that if PAJA was not applicable, the
same result would follow from the
application of the principle of
legality.[75] |
The
approach of the SCA
| [91] | The SCA found it
unnecessary to deal with PAJA. It approached the matter on the basis that the
Minister’s power to make regulations
is dependent on the recommendations
of the Pricing Committee. The Pricing Committee’s
recommendation |
“has to be in accordance with the provisions of s 22G – ie it must
be a lawful administrative action as provided for
by s 33(1) of the Constitution
– since the committee has no power beyond that given to it by this
section. And it follows
from the principle of legality that the Minister cannot
accept a recommendation or promulgate a regulation that does not fall squarely
within the
section.”[76]
The
Constitution and PAJA
| [92] | It is correct – and
this was accepted by the majority and the dissent in the High Court as well as
by the SCA – that the
regulations have to comply with the provisions of
section 22G of the Medicines
Act.[77] This is required by
section 33 of the Constitution and is given effect to in
PAJA. |
| [93] | However, I do not agree
with the approach adopted both by the majority of the High Court, and later by
the SCA, that notwithstanding
the provisions of PAJA, the regulations were
subject to an independent review for lawfulness under section 33 of the
Constitution. |
| [94] | Section 33 entrenches the
right to administrative action that is “lawful, reasonable and
procedurally fair”.[78] It
goes on to provide, however, that |
“National legislation must be enacted to give effect to these rights, and
must—
(a) provide for the review of administrative action by a court or, where
appropriate, an independent and impartial tribunal;
(b) impose a duty on the state to give effect to the rights in subsections (1)
and (2); and
(c) promote an efficient
administration.”[79]
| [95] | PAJA is the national
legislation that was passed to give effect to the rights contained in section
33. It was clearly intended to
be, and in substance is, a codification of these
rights.[80]
It was required to cover the field and purports to do
so. |
| [96] | A litigant cannot avoid the
provisions of PAJA by going behind it, and seeking to rely on section 33(1) of
the Constitution or the
common law. That would defeat the purpose of the
Constitution in requiring the rights contained in section 33 to be given effect
by means of national legislation. |
| [97] | Professor Hoexter sums up
the relationship between PAJA, the Constitution and the common law, as
follows: |
“The principle of legality clearly provides a much-needed safety net when
the PAJA does not apply. However, the Act cannot
simply be circumvented by
resorting directly to the constitutional rights in s 33. This follows logically
from the fact that the
PAJA gives effect to the constitutional rights. (The
PAJA itself can of course be measured against the constitutional rights, but
that is not the same thing.) Nor is it possible to sidestep the Act by resorting
to the common law. This, too, is logical, since
statutes inevitably displace
the common law. The common law may be used to inform the meaning of the
constitutional rights and of
the Act, but it cannot be regarded as an
alternative to the Act.”[81]
(footnotes and emphasis omitted)
I agree.
Can the
application be decided without reference to PAJA?
| [98] | In Minister of Home
Affairs v Eisenberg & Associates: In re Eisenberg & Associates v
Minister of Home Affairs and
Others,[82] this Court left open
the question whether the making of regulations by a Minister in terms of an
empowering statute constitutes administrative
action for the purposes of
PAJA.[83] In that case it was
alleged that the Minister had failed to comply with the provisions of section
4(1) of PAJA prior to making regulations.
Section 4(1) addresses the question
of procedural fairness required where administrative action materially and
adversely affects
the rights of the
public.[84] Section 4(4) provides,
however, that the provisions of section 4(1) may be departed from “[i]f it
is reasonable and justifiable
in the circumstances” to do so. It was
assumed for the purposes of the judgment that PAJA was applicable. It was held,
however,
that in the circumstances of that case it was reasonable and
justifiable for the Minister to depart from the provisions of section
4(1). |
| [99] | It is necessary in the
present case to consider whether the making of the regulations on the
recommendations of the Pricing Committee,
whether seen as one transaction, or as
two, constituted administrative action within the meaning of PAJA. If it does,
then the decision
of this Court in Bato
Star[85] must be followed, and
the validity of the regulations will depend upon the provisions of PAJA,
construed in the light of the provisions
of the Constitution pursuant to which
it was enacted. |
Is PAJA applicable?
| [100] | Counsel for the applicants
contended that the majority were correct in holding that PAJA was not applicable
to the making of the disputed
regulations. They sought to develop their
argument by analysing the definitions of “administrative action” and
“decision”
in section 1 of PAJA. These definitions must, however,
be construed consistently with section 33 of the
Constitution.[86]
The starting point of the enquiry, therefore, is what constitutes administrative
action for the purposes of section 33. |
The
meaning of administrative action in section 33 of the Constitution
| [101] | Prior to the adoption of
the interim Constitution in 1994 administrative action was subject to review by
the superior courts. There
were two overarching principles which formed the
basis of judicial review. First, that the functionaries or bodies exercising
delegated
powers are confined to the powers vested in them by the empowering
legislation. Should they exceed such powers, their actions are
illegal, and
invalid. Secondly, the exercise of delegated powers by such persons or bodies
must ordinarily be carried out in accordance
with fair
procedures. |
| [102] | An extensive body of law,
initially influenced strongly by English law, was built up around these two
principles, which developed
into the well known doctrines of ultra vires and
procedural fairness. In developing this body of administrative law, courts were
careful to distinguish between their powers on appeal, which ordinarily included
a power to consider the merits of the decision appealed
against, and their power
on review, which was ordinarily directed to consideration of issues of legality
and procedural fairness.
The merits of the decision were not relevant save in
certain limited circumstances. In that regard, our courts followed the approach
of Lord Russell CJ in Kruse v
Johnson[87] where he
stated: |
“I do not mean to say that there may not be cases in which it would be the
duty of the Court to condemn by-laws . . . as invalid
because unreasonable. But
unreasonable in what sense? If, for instance, they were found to be partial and
unequal in their operation
as between different classes; if they were manifestly
unjust; if they disclosed bad faith; if they involved such oppressive or
gratuitous
interference with the rights of those subject to them as could find
no justification in the minds of reasonable men, the Court might
well say,
‘Parliament never intended to give authority to make such rules; they are
unreasonable and ultra
vires.’”[88]
| [103] | Unreasonableness in this
sense was treated as part of the ultra vires doctrine “because Parliament
did not intend to give authority
to make such a
regulation.”[89] Under the
doctrine of parliamentary supremacy Parliament was entitled to make inroads into
this principle, and frequently did so
prior to 1994. But subject to this,
unreasonableness in this “specialised sense of that
word”[90] was a ground on
which delegated legislation could be reviewed. |
| [104] | There was accordingly only
limited scope for reviewing the exercise of delegated powers on the grounds of
“unreasonableness”.
Our courts were reluctant even to exercise this
limited power.[91] They tended to
follow the approach of the English Court of Appeal in Associated Provincial
Picture Houses Limited v Wednesbury
Corporation,[92] which was
that |
“It is true to say that, if a decision on a competent matter is so
unreasonable that no reasonable authority could ever have
come to it, then the
courts can interfere . . . but to prove a case of that kind would require
something
overwhelming”.[93]
| [105] | Thus, for instance, in
National Transport Commission and Another v Chetty’s Motor Transport
(Pty) Ltd[94] the Appellate
Division held that a claimant relying on this ground of review had to show
that |
“the . . . decision was grossly unreasonable to so striking a degree as to
warrant the inference of a failure to apply its
mind (to the issues) – a
formidable
onus.”[95]
| [106] | Although the applicability
of the Wednesbury test strictly to all types of review has been the
subject of academic
criticism,[96]
review of delegated legislation on the ground of “unreasonableness”
was previously of limited scope. |
The impact
of the Constitution
| [107] | The adoption of the
interim Constitution in 1994 had a material impact upon the existing body of
administrative law. The Bill of
Rights contained a provision entitling every
person to— |
“(a) lawful administrative action where any of his or her rights or
interests is affected or threatened;
(b) procedurally fair administrative action where any of his or her rights or
legitimate expectations is affected or threatened;
(c) be furnished with reasons in writing for administrative action which affects
any of his or her rights or interests unless the
reasons for such action have
been made public; and
(d) administrative action which is justifiable in relation to the reasons given
for it where any of his or her rights is affected
or
threatened.”[97]
In
effect these provisions entrenched in the interim Constitution as part of the
right to administrative justice, the doctrines of
legality and procedural
fairness and to a limited extent made provision for review on the ground of
“reasonableness”:
the decision had to be “justifiable in
relation to the reasons given for it”. This right was, however, subject
to limitation
under section 33 of the interim
Constitution.[98] This meant that
the government could limit the general powers of a court to review
administrative action, but no longer had the
unlimited power which previously
existed to insulate such decisions against judicial review. Moreover, the
scope for judicial review
was broadened by other provisions of the interim
Constitution, in particular the anti-discrimination provisions of the equality
right,[99] the right to access to
information,[100] property
rights,[101] and the right to have
justiciable disputes settled by a court of
law.[102]
| [108] | The provisions of section
33 of the Constitution are similar to those contained in section 24 of the
interim Constitution. There
is, however, a material difference. Under the
interim Constitution a requirement for just administrative action was that a
decision
must be justifiable in relation to the reasons given. That in
substance set rationality as the review
standard.[103] Under section 33
administrative decisions can now be reviewed for reasonableness. That is a
variable but higher standard, which
in many cases will call for a more intensive
scrutiny of administrative decisions than would have been competent under the
interim
Constitution. |
| [109] | When the interim
Constitution was adopted the making of delegated legislation was regarded as
administrative action subject to judicial
review. There is nothing to suggest
that the interim Constitution, or the Constitution which took its place,
intended to exclude
delegated legislation from what had previously been
understood as being administrative action. On the contrary, the Constitutions
point in the opposite direction. |
Open and
transparent government
| [110] | The interim Constitution
established a constitutional state in which the Constitution was supreme and
binding upon the legislature,
the executive and all organs of state. The 1996
Constitution continued and strengthened this commitment making clear that the
constitutional
state would be one in which there would be open and transparent
government. |
| [111] | The preamble of the
Constitution sets as a goal the establishment of “a society based on
democratic values, social justice and
fundamental human rights” and
declares that the Constitution lays “the foundation for a democratic and
open society”.
Section 1 of the Constitution which establishes the
founding values of the state, includes as part of those values “a
multi-party
system of democratic government, to ensure accountability,
responsiveness and
openness.”[104] It is
apparent from section 57(1)(b) that the democratic government that is
contemplated is a participatory democracy, which is
accountable, transparent and
makes provision for public
involvement.[105] Consistently
with this, section 59(1) of the Constitution
provides: |
“The National Assembly
must—
(a) facilitate public involvement in the legislative and other processes of the
Assembly and its committees; and
(b) conduct its business in an open manner, and hold its sittings, and those of
its committees, in
public”.
Similar provisions
are also made in respect of the National Council of
Provinces,[106] provincial
legislatures[107] and local
government.[108]
| [112] | Chapter 10 of the
Constitution, which deals with public administration, provides in section
195: |
“(1) Public administration must be governed by the democratic values and
principles enshrined in the Constitution, including
the following
principles:
. . . .
(e) People’s needs must be responded to, and the public must be encouraged
to participate in
policy-making.
(f) Public administration must be
accountable.
(g) Transparency must be fostered by providing the public with timely,
accessible and accurate
information.
. . . .
(2) The above principles apply to—
(a) administration in every sphere of government;
(b) organs of state; and
(c) public enterprises.
(3) National legislation must ensure the promotion of the values and principles
listed in subsection (1).”
Functionaries who make
regulations in terms of empowering legislation are “organs of
state”.[109]
| [113] | The making of delegated
legislation by members of the executive is an essential part of public
administration. It gives effect to
the policies set by the legislature and
provides the detailed infrastructure according to which this is to be done. The
Constitution
calls for open and transparent government, and requires public
participation in the making of laws by Parliament and deliberative
legislative
assemblies. To hold that the making of delegated legislation is not part of the
right to just administrative action
would be contrary to the
Constitution’s commitment to open and transparent
government. |
The meaning of administrative
action in section 33(1) of the Constitution
| [114] | In Fedsure Life
Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan
Council and
Others[110]
this Court had to consider the meaning of administrative action under section 24
of the interim Constitution. It said
that: |
“In addressing this question it is important to distinguish between the
different processes by which laws are made. Laws are
frequently made by
functionaries in whom the power to do so has been vested by a competent
legislature. Although the result of the
action taken in such circumstances may
be ‘legislation’, the process by which the legislation is made is in
substance
‘administrative’. The process by which such legislation
is made is different in character to the process by which laws
are made by
deliberative legislative bodies such as elected municipal councils. Laws made
by functionaries may well be classified
as administrative; laws made by
deliberative legislative bodies can seldom be so
described.”[111]
| [115] | I am not unmindful of the
fact that an unqualified right to demand that delegated legislation must be
“reasonable and procedurally
fair” may subject such legislation to a
more intense review by the courts than was the case in the pre-constitutional
era.
An obligation to provide written reasons for the delegated legislation, to
persons whose rights have been adversely affected by
it, would add to the
burden. |
| [116] | Significantly, however,
the transitional provisions of Schedule 6 to the Constitution suspended the
operation of sections 33(1) and
(2) pending the enactment of the legislation
contemplated in section 33(3). That legislation had to be enacted within 3
years and
pending that being done, the provisions of section 24 of the interim
Constitution would remain in
place.[112] |
| [117] | This addressed a concern
that might otherwise have existed that a general and unqualified right to
“lawful, reasonable and procedurally
fair” administrative action
might place too heavy a burden on government. The legislation to be enacted had
to take into account
the need to “promote an efficient
administration”. Until the mandated legislation had been enacted, the
provisions of
section 24 of the interim Constitution, and not those of sections
33(1) and (2) of the 1996 Constitution, would be applicable. The
enactment of
the mandated legislation, and the limitations permissible under section
36,[113] would enable Parliament
to address these concerns. |
| [118] | It would no doubt be
possible to give a narrow construction to “administrative action” in
section 33 and to have two systems
of review, one under the common law for
delegated legislation, and the other under the Constitution for administrative
action construed
narrowly. But that would not be consistent with the purpose of
section 33 which is to establish a coherent and overarching system
for the
review of all administrative action; nor would it be consistent with the values
of the Constitution itself.[114]
Properly construed, therefore, “administrative action” in section
33(1) of the Constitution, includes legislative administrative
action. |
| [119] | If, then, administrative
action in section 33 of the Constitution must be construed as including
legislative administrative action,
how should PAJA be
construed? |
Is regulation-making subject to
PAJA?
| [120] | “Administrative
action” is defined in section 1 of PAJA as
meaning |
“any decision taken, or any failure to take a decision, by—
(a) an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in terms of any
legislation; or
(b) a natural or juristic person, other than an organ of state, when exercising
a public power or performing a public function in
terms of an empowering
provision,
which adversely affects the rights of any person and which has a direct,
external legal effect, but does not include [actions listed
in subparagraphs
(aa) to (ii) of this definition]”.
I deal later with
the exclusions listed in subparagraphs (aa) and (ii).
| [121] | The Minister and the
Pricing Committee are both organs of
state.[115]
The regulation of prices in the disputed regulations adversely affect the rights
of pharmacists and other persons in the pharmaceutical
industry. The
regulations will therefore be “administrative action” within the
meaning of PAJA, if the making of the
regulations constituted a
“decision”, and if they are not excluded by subparagraph (aa) to
(ii) of the definition of
administrative
action. |
The exclusions
| [122] | The exclusions from the
definition of “administrative action”
are: |
“(aa) the executive powers or functions of the National Executive,
including the powers or functions referred to in sections
79(1) and (4),
84(2)(a), (b), (c), (d), (f), (g), (h), (i) and (k), 85(2)(b), (c), (d) and (e),
91(2), (3), (4) and (5), 92(3), 93,
97, 98, 99 and 100 of the Constitution;
(bb) the executive powers or functions of the Provincial Executive, including
the powers or functions referred to in sections 121(1)
and (2), 125(2)(d), (e)
and (f), 126, 127(2), 132(2), 133(3)(b), 137, 138, 139 and 145(1) of the
Constitution;
(cc) the executive powers or functions of a municipal
council;
(dd) the legislative functions of Parliament, a provincial legislature or a
municipal council;
(ee) the judicial functions of a judicial officer of a court referred to in
section 166 of the Constitution or of a Special Tribunal
established under
section 2 of the Special Investigating Units and Special Tribunals Act, 1996
(Act No. 74 of 1996), and the judicial
functions of a traditional leader under
customary law or any other law;
(ff) a decision to institute or continue a
prosecution;
(gg) a decision relating to any aspect regarding the appointment of a judicial
officer, by the Judicial Service Commission;
(hh) any decision taken, or failure to take a decision, in terms of any
provision of the Promotion of Access to Information Act, 2000;
or
(ii) any decision taken, or failure to take a decision, in terms of section
4(1)”.
| [123] | Subparagraph (aa) deals
with the executive powers and functions of the National Executive. It refers to
sections 79, 84, 85, 91,
92, 93, 97, 98, 99 and 100 of the Constitution.
Sections 79 and 84 of the Constitution deal with powers vested in the President
alone. They are not relevant to the present case. Nor are sections 92, 93, 97,
98, and 99. Section 85 is, however, relevant and
of
importance. |
| [124] | Section 85 deals with the
President and Cabinet. If it had stood alone there would have been greater
force in the finding that the
making of regulations by a minister is excluded
from the definition of “administrative action”. But it does not
stand
alone. Subparagraph (aa) of the definition goes on to refer to specific
subparagraphs of section 85(2), including sections 85(2)(b),
(c), (d), and (e),
but excludes from the list section 85(2)(a). The provisions of section 85(2)(a)
to (e) are as follows: |
“(2) The President exercises the executive authority, together with the
other members of the Cabinet,
by—
(a) implementing national legislation except where the Constitution or an Act of
Parliament provides
otherwise;
(b) developing and implementing national policy;
(c) co-ordinating the functions of state departments and administrations;
(d) preparing and initiating legislation;
and
(e) performing any other executive function provided for in the Constitution or
in national legislation.”
| [125] | The omission of
subparagraph (2)(a) from the specified list of exclusions is significant.
Subparagraph (bb) of the definition of
administrative action deals with the
powers of the provincial executive. Various provisions of section 125 of the
Constitution are
listed, but again significantly, sections 125(2)(a), (b) and
(c), which refer to the implementation of legislation, are omitted from
the
list. |
| [126] | In
President of the Republic of South Africa and Others v South African Rugby
Football Union and Others
(SARFU)[116] this Court said
that |
“one of the constitutional responsibilities of the President and Cabinet
Members in the national sphere (and premiers and members
of executive councils
in the provincial sphere) is to ensure the implementation of legislation. This
responsibility is an administrative
one, which is justiciable, and will
ordinarily constitute ‘administrative action’ within the meaning of
s 33.”
If sections 85(2)(a) and 125(2)(a), (b) and (c)
had not been omitted from the list of exclusions, the core of administrative
action
would have been excluded from PAJA, and the Act mandated by the
Constitution to give effect to sections 33(1) and (2) would not have
served its
intended purpose. The omission of sections 85(2)(a) and 125(2)(a), (b) and (c)
from the list of exclusions was clearly
deliberate. To have excluded the
implementation of legislation from PAJA would have been inconsistent with the
Constitution. The
implementation of legislation, which includes the making of
regulations in terms of an empowering provision, is therefore not excluded
from
the definition of administrative action.
Does the making of
regulations constitute a “decision”?
| [127] | PAJA
defines “decision” as follows: |
“‘decision’ means any decision of an administrative nature
made, proposed to be made, or required to be made, as
the case may be, under an
empowering provision, including a decision relating
to—
(a) making, suspending, revoking or refusing to make an order, award or
determination;
(b) giving, suspending, revoking or refusing to give a certificate, direction,
approval, consent or permission;
(c) issuing, suspending, revoking or refusing to issue a licence, authority or
other instrument;
(d) imposing a condition or restriction;
(e) making a declaration, demand or requirement;
(f) retaining, or refusing to deliver up, an article;
or
(g) doing or refusing to do any other act or thing of an administrative nature,
and a reference to a failure to take a decision must
be construed
accordingly”.
| [128] | It is true that the making
of regulations is not referred to in subparagraphs (a) to (f). But the
reference in the main part of the
definition to “any decision of an
administrative nature” and in the general provision of subparagraph (g) to
“doing or refusing to do any other act or thing of an
administrative nature” brings the making of regulations within the scope
of the definition.[117] This
seems to me to be the clear meaning of the definition. But if there is any
doubt on this score, the definition of administrative
action must be construed
consistently with section 33 of the
Constitution.[118] All the judges
in the High Court considered that the making of regulations falls within the
scope of “administrative action”
in section 33 of the Constitution.
I have already indicated why I agree with this
conclusion. |
| [129] | The majority in the High
Court considered that the failure to refer specifically to legislative
administrative action in the definition
of “decision” in section 1
of PAJA was deliberate, and indicated an intention to exclude such action from
being reviewed
under PAJA. I have already dealt with why I take a different
view. It is necessary, however, to deal briefly with reasons given
by the
majority of the High Court for their decision on this
issue. |
| [130] | They
attached weight to the specific exclusion from the definition of administrative
action in PAJA, of “any decision taken,
or failure to take a decision, in
terms of section 4(1).”[119]
Section 4 of PAJA provides: |
“Administrative action affecting public.—(1) In cases where an
administrative action materially and adversely affects
the rights of the public,
an administrator, in order to give effect to the right to procedurally fair
administrative action, must
decide whether—
(a) to hold a public inquiry in terms of subsection (2);
(b) to follow a notice and comment procedure in terms of subsection (3);
(c) to follow the procedures in both subsections (2) and
(3);
(d) where the administrator is empowered by any empowering provision to follow a
procedure which is fair but different, to follow
that procedure; or
(e) to follow another appropriate procedure which gives effect to section
3.
(2) If an administrator decides to hold a public
inquiry—
(a) the administrator must conduct the public inquiry or appoint a suitably
qualified person or panel of persons to do so; and
(b) the administrator or the person or panel referred to in paragraph (a)
must—
(i) determine the procedure for the public inquiry, which
must—
(aa) include a public hearing;
and
(bb) comply with the procedures to be followed in connection with public
inquiries, as prescribed;
(ii) conduct the inquiry in accordance with that
procedure;
(iii) compile a written report on the inquiry and give reasons for any
administrative action taken or recommended;
and
(iv) as soon as possible thereafter—
(aa) publish in English and in at least one of the other official languages in
the Gazette or relevant provincial Gazette a notice
containing a concise summary
of any report and the particulars of the places and times at which the report
may be inspected and copied;
and
(bb) convey by such other means of communication which the administrator
considers effective, the information referred to in item
(aa) to the public
concerned.
(3) If an administrator decides to follow a notice and comment procedure, the
administrator must—
(a) take appropriate steps to communicate the administrative action to those
likely to be materially and adversely affected by it
and call for comments from
them;
(b) consider any comments
received;
(c) decide whether or not to take the administrative action, with or without
changes; and
(d) comply with the procedures to be followed in connection with notice and
comment procedures, as
prescribed.
(4)(a) If it is reasonable and justifiable in the circumstances, an
administrator may depart from the requirements referred to in
subsections (1)(a)
to (e), (2) and (3).
(b) In determining whether a departure as contemplated in paragraph (a) is
reasonable and justifiable, an administrator must take
into account all relevant
factors, including—
(i) the objects of the empowering
provision;
(ii) the nature and purpose of, and the need to take, the administrative
action;
(iii) the likely effect of the administrative
action;
(iv) the urgency of taking the administrative action or the urgency of the
matter; and
(v) the need to promote an efficient administration and good
governance.”
I refer more fully to its provisions later
when I deal with arguments directed to the issue of procedural fairness.
| [131] | Section 4(1) imposes an
obligation on an administrator concerned with decisions that affect the public
to comply with the requirement
of procedural fairness, but authorises him or her
to decide how to give effect to this requirement. As long as the procedure
followed
meets the requirements of one of subparagraphs (a) to (d), the
provisions of section 4(1) will have been complied
with. |
| [132] | What is or is not
administrative action for the purposes of PAJA is determined by the definition
in section 1. It is only if the
action taken falls within the definition that
section 4 comes into play. The fact that the choice of a particular procedure
to be
followed in terms of section 4(1) is not itself subject to review, does
not provide any help in deciding what is or is not “administrative
action”. All that it means is that an administrator’s choice of
procedure is final. Consistently with this the implementation
of the choice in
a manner consistent with sections 4(2), (3) or (4) remains subject to
review. |
| [133] | I cannot agree, therefore,
that section 4(1) points to a decision to exclude legislative administrative
action from the definition
of administrative action. To the contrary, the
provisions of section 4, which contemplate that administrative action that
materially
affects the rights of “the public” will be subject to
review, suggest that regulations, the most common form of administrative
action
affecting the rights of the public, are indeed subject to review under PAJA. If
they were to be excluded one would have expected
this to have been done directly
in specific terms in the exclusions listed in the definition of
“administrative action”,
rather than indirectly through the
provisions of subparagraph (ii). But if that had been done it could well have
given rise to a
constitutional challenge that PAJA does not comply with section
33(1) of the Constitution. Instead, the legislature has chosen the
route of
allowing for procedural fairness in respect of action affecting the public, and
providing a safety valve in section 4(4)
for cases where compliance with such a
requirement would impede efficient
administration. |
| [134] | The majority in the High
Court appreciated that the omission of section 85(2)(a) of the Constitution from
the list of exclusions in
subparagraphs (aa) to (ii) had to be
addressed.[120] Section 85(2)(a)
provides that: |
“The President exercises the executive authority, together with the other
members of the Cabinet, by implementing national
legislation except where the
Constitution or an Act of Parliament provides
otherwise”.
They held that the omission of section
85(2)(a) from the exclusions could be explained on the grounds that PAJA is an
Act of Parliament
which provides otherwise. I do not agree. PAJA does not deal
with who exercises executive authority in respect of rule-making.
It deals with
the circumstances in which the exercise of the executive authority is subject to
review.
| [135] | It
follows that the making of the regulations in the present case by the Minister
on the recommendation of the Pricing Committee was
“a decision of an
administrative nature”. The regulations were made “under an
empowering provision”.[121]
They had a “direct, external legal effect” and they
“adversely” affected the rights of pharmacists and persons
in the
pharmaceutical industry. They accordingly constitute administrative action
within the meaning of PAJA. |
The Minister and
the Pricing Committee
| [136] | The
making of regulations in terms of section 22G of the Medicines Act involves a
two-stage process. First, a recommendation by the
Pricing Committee, and second
a decision by the Minister as to whether or not to accept the recommendation.
Counsel for the Minister
contended that this called for two separate decisions,
one by the Pricing Committee, and one by the Minister. They submitted that
the
Pricing Committee’s decision was not administrative action because it had
no direct, external legal effect. The Minister’s
decision had direct,
external legal effect but it was not administrative action within the meaning of
PAJA. Thus, the regulations
were not open to being reviewed in terms of PAJA.
They accepted, however, that the regulations could be reviewed for
“legality”
under the Constitution in terms of this Court’s
decision in
Fedsure.[122] |
| [137] | In the circumstances of
the present case, to view the two stages of the process as unrelated, separate
and independent decisions,
each on its own having to be subject to PAJA, would
be to put form above substance. |
| [138] | The Minister was not
obliged to act on the Pricing Committee’s recommendations. She had a
discretion whether to do so.[123]
But ultimately there had to be one decision to which both the Pricing Committee
and the Minister agreed. Neither had the power
to take a binding decision
without the concurrence of the other. It was only if and when agreement was
reached, that regulations
could be made. |
| [139] | In
such circumstances debate between the Pricing Committee and the Minister
concerning the regulations to be made would not be inappropriate.
Such debate
would further the purpose of the legislation and facilitate the reaching of
agreement. This is recognised in the General
Regulations made in terms of
section 35 of the Medicines Act (the General Regulations) which deal with the
composition of the Pricing
Committee.[124] Regulation 38
provides: |
“(1) The pricing committee contemplated in section 22G of the Act shall
consist of no more than eighteen members, but shall
include—
(a) one person nominated by the Minister of Finance;
(b) one person nominated by the Minister of Trade and Industry;
(c) one or more persons representing the Department of Health;
(d) at least one person with background in pharmacology;
(e) at least one person with background in the law;
(f) at least one person with background in academic medical
research;
(g) at least two persons with economics background, one of whom must be a health
economist; and
(h) at least one person representing independent patient or consumer
groups.”
The regulation
contemplates that the Pricing Committee will have members
“representing the Department of Health” (my emphasis). This
would facilitate an exchange of ideas between the National Department of Health
(the Department) and the Pricing Committee during the process of information
gathering and deliberations which would be necessary
before a recommendation
could be made to the Minister. It would also avoid the need for two separate
investigations to be undertaken
each being conducted independently of the other
at different times.
| [140] | In the arguments addressed
to us it was suggested that there had been an inappropriate relationship between
the Department and the
Pricing Committee and that members of the Department
should not have been present at meetings of the Pricing Committee at which
deliberations
were conducted and decisions taken. The Departmental officials
were not, however, “strangers”. Some were members of
the Pricing
Committee. Others also had to attend meetings because in terms of the General
Regulations[125] the Secretariat
of the Pricing Committee consisted of employees designated by the
Director-General. The presence of Departmental
representatives at meetings of
the Pricing Committee was therefore necessary. There is no evidence to suggest
that the presence
at meetings of the Pricing Committee of officials who were not
members of the Pricing Committee was not for a proper purpose, or
that their
presence could have inhibited the discussions or the expression of views. Their
presence at meetings of the Pricing Committee
is not in my view a ground for
setting aside the recommendations of the Pricing
Committee. |
| [141] | The
Pricing Committee’s work on the regulations was continuing and ongoing
until the Minister agreed. In substance the decision
to make the regulations
was, and had to be, a joint decision of the Minister and the Pricing Committee.
In such circumstances it
cannot be said that the Pricing Committee’s role
in the joint decision-making process, had no “direct external legal
effect”. If the Pricing Committee’s role in the joint
decision-making process was flawed, the entire process would have
been tainted.
This is relevant to the question of procedural fairness and the challenge to the
way in which the Pricing Committee
carried out its work, which is dealt with
later. However, as far as lawfulness and vagueness of the regulations are
concerned, it
makes no difference to the
analysis. |
| [142] | Before leaving this part
of the judgment one further comment is necessary. In the academic writings on
PAJA reference is made to
the fact that certain of its provisions have been
borrowed from German and Australian
law.[126] PAJA must, however, be
interpreted by our courts in the context of our law, and not in the context of
the legal systems from which
provisions may have been borrowed. In neither of
the countries is there a defined constitutional right to just administrative
action.
Transplanting provisions from such countries into our legal and
constitutional framework may produce results different from those
obtained in
the countries from which they have been
taken. |
Review under PAJA
| [143] | PAJA addresses the four
requirements of the Constitution relating to just administrative action:
lawfulness, reasonableness, procedural
fairness and the provision of
reasons. |
| [144] | Lawfulness is relevant to
the exercise of all public power, whether or not the exercise of the power
constitutes administrative
action.[127]
Where the making of regulations is challenged on this ground, lawfulness depends
on the terms of the empowering statute. If the
regulations are not sanctioned
by the empowering statute they will be unlawful and invalid. This is an issue
raised in the present
case and I will deal with it
later. |
| [145] | Reasonableness and
procedural fairness are context specific. What is reasonable and procedurally
fair in one context, is not necessarily
reasonable or procedurally fair in a
different context.[128] In R v
Secretary of State for the Home Department, ex parte
Daly[129] Steyn LJ referred to
an observation by Laws LJ[130]
emphasising that “the intensity of review in a public law case will depend
on the subject matter in hand”. Steyn LJ
went on to say “[t]hat is
so even in cases involving convention rights. In law context is
everything”. In First National Bank of SA Ltd t/a Wesbank v
Commissioner, South African Revenue Service and Another; First National
Bank of SA Ltd t/a Wesbank v Minister of
Finance[131] Ackermann J
referred with approval to this passage. |
| [146] | Legislative administrative
action is a special category of administrative action. It involves the making
of laws and the taking of
policy decisions for that purpose. Under our
Constitution these are decisions which are within the domain of the executive to
whom
Parliament has delegated its law-making power. Whilst the exercise of this
power is subject to constitutional control, it is important
that the special
role of the executive in exercising this power be acknowledged, and that courts
“take care not to
usurp”[132]
it. |
Procedural fairness
| [147] | In Bato
Star[133] this Court made
clear that context is relevant both to procedural fairness and reasonableness.
In the case of regulations the subject
matter will be of particular importance.
I would add that sensitivity to the special role of the executive in making
regulations
is also called for in regard to the other grounds for review
prescribed by PAJA. |
| [148] | Bearing this in mind, I
turn now to deal with challenges to the validity of the regulations made by the
Pharmacies. These challenges
are brought on the grounds that the regulations
failed to comply with provisions of PAJA relating to procedural fairness,
reasonableness
and lawfulness. I will deal first with procedural fairness, and
then with reasonableness and lawfulness. |
| [149] | The procedural fairness
challenge is complicated by the fact that the regulations were made, as they had
to be, by the Minister on
the recommendation of the Pricing Committee. It was
contended, as I have previously mentioned, that this involved the taking of
two
decisions, one by the Pricing Committee, and one by the Minister, and that
procedural fairness had to be observed in relation
to each
decision. |
| [150] | I have explained why I
consider that the making of the regulations should be seen as one process
involving at different times both
the Minister and the Pricing
Committee.[134] Section 22G does
not require the Minister and the Pricing Committee to follow any particular
procedure in making the regulations.
The relevant requirements are therefore
those prescribed by section 4(1) of
PAJA.[135] They call in the first
instance for a decision to be taken as to whether to hold a public enquiry, to
follow a notice and comment
procedure, to do both, or to follow another
appropriate procedure which gives effect to section 3 of
PAJA.[136] |
| [151] | What section 3 of PAJA
requires is that administrative action must be procedurally fair. It refers
specifically to the giving of
adequate notice and providing a reasonable
opportunity to make representations, and makes it clear that what is necessary
for this
purpose will depend on the circumstances of each
case. |
| [152] | In Du Preez and Another
v Truth and Reconciliation
Commission[137] Corbett CJ
sought guidance from the remarks of Lord Mustill in Doody v Secretary of
State for the Home Department and other
appeals[138] as to what is
required of a public official or body who has to meet the requirements of
procedural fairness.[139] Lord
Mustill’s remarks were as follows: |
“What does fairness require in the present case? My Lords, I think it
unnecessary to refer by name or to quote from, any of
the often-cited
authorities in which the courts have explained what is essentially an intuitive
judgment. They are far too well
known. From them, I derive the following. (1)
Where an Act of Parliament confers an administrative power there is a
presumption
that it will be exercised in a manner which is fair in all the
circumstances. (2) The standards of fairness are not immutable.
They may
change with the passage of time, both in the general and in their application to
decisions of a particular type. (3)
The principles of fairness are not to be
applied by rote identically in every situation. What fairness demands is
dependent on the
context of the decision, and this is to be taken into account
in all its aspects. (4) An essential feature of the context is the
statute
which creates the discretion, as regards both its language and the shape of the
legal and administrative system within which
the decision is taken. (5)
Fairness will very often require that a person who may be adversely affected by
the decision will have
an opportunity to make representations on his own behalf
either before the decision is taken with a view to producing a favourable
result, or after it is taken, with a view to procuring its modification, or
both. (6) Since the person affected usually cannot
make worthwhile
representations without knowing what factors may weigh against his interests
fairness will very often require that
he is informed of the gist of the case
which he has to answer.”
| [153] | Standards of fairness
called for in respect of law-making by legislative administrative action are
different to standards of fairness
called for in cases involving adjudication or
administrative decisions such as licensing enquiries and the like where
individual
interests are at stake and decisions affecting particular individuals
have to be taken. An individual needs to know the concerns
of the administrator
and to be given an opportunity of answering those concerns. The decisions may
depend on particular facts and
may sometimes involve disputes of fact that have
to be resolved. |
| [154] | When it comes to the
making of regulations the context is different. Regulations affect the general
public and that means that diverse
and often conflicting interests have to be
taken into account in deciding what the laws will be. The decision of the
law-maker on
how to resolve these conflicting interests is ultimately a question
of policy. |
| [155] | As Lord Mustill points out
“[t]he principles of fairness are not to be applied by rote identically in
every situation.”
It cannot be expected of the law-maker that a personal
hearing will be given to every individual who claims to be affected by
regulations
that are being made. What is necessary is that the nature of the
concerns of different sectors of the public should be communicated
to the
law-maker and taken into account in formulating the
regulations. |
| [156] | In Parliament this is done
through the publication of a Bill containing the provisions of the proposed
legislation, hearings before
Parliamentary committees, and debates in Parliament
where matters of principle raised by sectors of the public affected by the law
can be contested. |
| [157] | Where laws are made
through legislative administrative action, the procedure of publishing draft
regulations for comment serves this
purpose. It enables people who will be
affected by the proposals to make representations to the law-maker, so that
those concerns
can be taken into account in deciding whether or not changes need
to be made to the draft. |
| [158] | This does not mean that
the Minister who makes the regulations has to study thousands of pages received
from the general public and
respond to them. The analysis of these responses
can be left to officials whose responsibility it is to consider the comments
received
and to report to the Minister on them. |
| [159] | In deciding whether the
requirements of procedural fairness have been met in the present case, which is
concerned with legislative
administrative action, decided cases dealing with
different situations are not of particular assistance. What has to be decided
is whether the procedures followed by the Minister and the Pricing Committee in
the process of making the regulations were in all
the circumstances
fair. |
| [160] | Professor McIntyre, the
chairperson of the Pricing Committee, deals with the procedures followed by the
Pricing Committee in carrying
out its work. Preliminary investigations were
made into the pricing structure of the pharmaceutical industry in South Africa
and
comparative research in that regard was undertaken, looking at how other
countries have dealt with similar problems. |
| [161] | The research included
studying information gathered previously by a Pricing Committee working group
that had been established by the
Department to consider pricing policies.
During this period there had been “on-going engagement with major
stakeholders”
in the pharmaceutical industry, and written submissions had
been received from them over a period of years. |
| [162] | While the work of the
Pricing Committee was progressing, some members were tasked to secure more
information from stakeholders on
certain issues. They would then report to the
Pricing Committee what had been obtained. As a result, the views of the Pricing
Committee
were updated on a continuous basis. |
| [163] | The Pricing Committee
decided at an early stage of the process that it would recommend to the Minister
that draft regulations be prepared
and published for general comment so that
comment received should be considered before the regulations were finalised.
Draft regulations
were accordingly submitted to the Minister and published by
her for general comment on 16 January 2004. The notice in the Government
Gazette in which the draft regulations were published
stated: |
“The Minister of Health intends to make the regulations in the Schedule.
Interested persons are invited to submit written
comments or representations on
the proposed Regulations to the Director-General: Health, Private Bag X828,
Pretoria, 0001 (for attention
of the Cluster Manager: Pharmaceutical Policy and
Planning), within three months of the date of publication of this
Notice.”
During the period of three months allowed for
comment, written representations were in fact received, and considered both by
the Department
and the Pricing Committee.
| [164] | A
decision was taken at a meeting of the Pricing Committee that an opportunity be
given to interested parties who had made written
representations, to make oral
representations as well. This invitation was communicated to interested parties
in letters from the
Department of Health written on behalf of the
Director-General. |
| [165] | The invitation was to make
oral presentations on the written comments they had made on the draft
regulations. It said that: |
“The Department has decided that it would be beneficial to invite
stakeholders to make oral presentations on their written
comments on these
proposed regulations.”
| [166] | Conditions
were attached to the invitation. They prescribed that a supporting written
document on the comments to be given should
be supplied to the Department in
advance of the oral presentation. Each presenter would be limited to one hour.
The invitation
contained the following comments which are relevant to the
arguments advanced on behalf of the Pharmacies: |
“The Pricing Committee is a technical committee whose task is to make
recommendations to the Minister of Health. You are therefore
advised to prepare
your written and oral inputs in as much detail as possible and with a view to
supplying accurate and substantiated
information to the Department and the
Pricing Committee on how the proposed regulations may affect your interests.
Where the regulations
raise more than one possibility, you are advised to
include all possible impacts in your presentations.
The object of these sessions is not to provide further clarification by
departmental officials or members of the Pricing Committee
on the proposed
regulations. Consequently no questions for clarification will be answered. The
Department and the Pricing Committee
would like to hear your comments on, and
interpretation of, the regulations as opposed to their own views. This said,
you may by
all means indicate areas that are not clear to you and in what way
they lack such clarity.
Due to the fact that trade secrets or other sensitive information may be
contained in your presentations, no other stakeholders or
members of the public
will be present at any session. Only members of the Pricing Committee and
officials from the Department of
Health will be attending. Not all members of
the Pricing Committee may be able to attend every session due to other
commitments.”
(emphasis omitted)
| [167] | This invitation, and what
followed at the oral presentations, was the basis of the contentions by the
Pharmacies that procedural fairness
had not been observed. In particular, it
was contended that the procedure was flawed from the beginning because the
hearing was
to be attended by some, and not all, of the members of the Pricing
Committee. It was also contended that when the oral presentations
were made,
those members of the Pricing Committee who attended did not remain throughout
the hearings, but walked in and out of the
hearings while they were taking
place. This, however, is disputed, and no finding in that regard can be made on
the papers. |
| [168] | One of the issues was
whether the hearings were called by the Department or the Pricing Committee. It
is clear from the evidence
that the decision to arrange for oral presentations
to be made was taken at a meeting of the Pricing Committee at which
representatives
of the Department were present, that it was contemplated that
the invitation would be issued by the Department, and that members
of the
Pricing Committee as well as representatives of the Department would be present
during the oral presentations. |
| [169] | Although the invitation
was issued by the Department of Health, it was done with the concurrence of the
Pricing Committee, which arranged
for some of its members to be present during
the presentations. The letter of invitation mentioned that the oral
presentations would
provide clarification for the Department and the Pricing
Committee of the concerns of the objectors. |
| [170] | Counsel for New Clicks,
relying on Schierhout v The Union
Government[140] and cases that
have followed it,[141] contended
that this procedure did not meet the procedural fairness requirements of PAJA
because all members of the Pricing Committee
did not attend the oral
presentations. |
| [171] | The Schierhout line
of cases was concerned with adjudication. Whilst it is ordinarily necessary for
bodies appointed to deal with such matters
to be properly constituted at all
times throughout the adjudication
process,[142] the same does not
necessarily apply to a committee such as the Pricing Committee whose work would
involve research, the gathering
of information and the making of enquiries
before making its recommendations. In this regard I agree with the following
comment
of Corbett JA in S v
Naudé:[143] |
“[I]t must be conceded that a commission is, in general, the master of its
own procedures. Within the bare framework provided
by the Act and such
modifications and regulations as may have been made by the State President in
terms of sec 1(1) of the Act, it
is free to determine how it shall function.
There is no doubt that a commission, particularly where it consists of a
substantial
number of persons, may operate without every member participating
personally in every activity. Were it otherwise, a commission
would be
hamstrung from the start.”
[144]
In each case
what will be required will depend on the interpretation of the empowering
legislation and relevant regulations, prescribing
how a commission should
function.
| [172] | Section 22G of the
Medicines Act does not deal with how the Pricing Committee is to be composed or
how it is to function, save to
say that members of the Pricing Committee were to
be appointed for a period of not more than five years. The composition and
functioning
of the Pricing Committee is dealt with in regulations made by the
Minister under her power to make the General
Regulations.[145] The regulations
provide that the Pricing Committee shall consist of not more than eighteen
members. They do not make provision
for a quorum and authorise the Pricing
Committee to determine the procedure for the conduct of its business. They had
to address
a difficult and contentious issue which would call for ongoing work
over an extended period. It could not have been contemplated
that all its
members would have to attend all meetings or to participate personally in all
decisions of the Pricing Committee. Neither
the Medicines Act nor the
regulations can be construed as imposing such a requirement. The Pricing
Committee was therefore entitled
to determine its own methods of work, including
the manner in which material relevant to its mandate should be
gathered.[146] |
| [173] | The General Regulations
make provision for only four matters affecting the Pricing Committee. The
composition of the Pricing Committee,
the provision to which I have referred
concerning the conduct of the Pricing Committee’s business, the authority
to the Director-General
to designate employees of the Department to serve as the
secretariat of the Pricing Committee, and a provision
that: |
“The Committee may appoint, subject to the approval of the Minister,
subcommittees as it may deem necessary, to investigate
and report to it any
matter within the purview of the Committee in terms of the
Act.”
It was contended that if the Pricing Committee
wished some but not all of its members to be present when the oral presentations
were
being made, it should have secured the Minister’s consent to that,
and appointed a sub-committee for that purpose.
| [174] | I do not agree. This was
not an investigation of a discrete issue in which other members of the Pricing
Committee would not participate.
It was part of the process of evaluating the
draft regulations which included, but was not limited to, a consideration of
responses
to the publication of the draft
regulations. |
| [175] | The draft regulations were
published for comment on 16 January 2004. The responses called for had to be in
writing and sent to the
Department. When the written responses were received
they were sent by the Department to the members of the Pricing Committee to
allow them to consider the representations over an extended period. All the
members of the Pricing Committee were involved in this
process. |
| [176] | The invitations from the
Department brought to the attention of those who were to make representations
that all members of the Pricing
Committee would not necessarily be present.
Knowing that, they accepted the invitation. |
| [177] | The Minister and the
Pricing Committee were not engaged in a process of adjudication in which
disputes of fact had to be resolved.
They were engaged in a law-making process
in which those who would be affected by their decisions were given details of
their proposals
and an opportunity of stating their objections. The process was
highly public, there were public forums, meetings with stakeholders,
lobbying,
media reports and an opportunity to make written
representations. |
| [178] | PSSA’s written
objections lodged with the Pricing Committee focussed on the issues raised in
this litigation, as did the representations
by New Clicks, and others. It was
made clear by them, and others who supported them, that they contended that the
dispensing fee
in the draft regulations, set at 24% for medicine under R100 and
R24 for medicine costing R100 or above, would cause pharmacists
to trade at a
loss. The written objections set out details in support of this
contention. |
| [179] | For instance, the written
objection by PSSA sought to establish by actuarial evidence that the proposed
fee structure would cause
pharmacists to trade at a loss. It made various
proposals directed to the draft pricing scheme, including a proposal that
pharmacists
would be able to trade at a reasonable profit at a fixed dispensing
fee of R25 per prescription item, plus 25% of cost for medicine
costing R50 or
less and 12,5% of cost for medicine costing more than R50. An additional
proposal was that there should be a rural
supplementation for community
pharmacies in rural areas. New Clicks also submitted detailed representations
contending that pharmacists
would trade at a loss if the dispensing fee proposed
in the regulations were adopted, as did others in the pharmaceutical industry.
They all had a fair opportunity of making their views
known. |
| [180] | The regulations that were
ultimately adopted and made after considering the objections increased the
proposed dispensing fee from
R24 to R26 for medicine costing R100 or more, and
from 24% to 26% for medicine costing less than R100. The proposal as to the
manner
in which the single exit price should be calculated was materially
changed. Other material changes were also made to the
regulations. |
| [181] | The arrangement made for
some members of the Pricing Committee to attend the oral presentations must be
seen against this background.
The objectors had been given an opportunity to
formulate detailed written objections to the draft regulations. Only those who
did
so were invited to make oral presentations. The purpose of this procedure
was to enable the presenters to clarify the existing representations
in so far
as that might be necessary. The proceedings were electronically recorded on
tape and video and that would make it possible
to refer to them in detail if
that should prove to be necessary later in the
process. |
| [182] | The decision to invite
oral representations to be made after written representations had been lodged
was an addition to the notice
and comment procedure which in itself would have
been sufficient to meet the requirements of PAJA. I am not persuaded that by
providing
this additional opportunity to the objectors in which some but not all
of the members of the Pricing Committee participated, a fair
procedure was
converted into an unfair procedure. |
| [183] | Whether the dispensing fee
will result in pharmacists trading at a loss is a dispute relevant to the
question whether it is an appropriate
fee within the meaning of section 22G of
the Medicines Act. The Pharmacies dispute that it is. But that is a separate
issue and
is one of the issues raised in the contention that material provisions
of the regulations contravene the lawfulness requirement of
PAJA. A question
relevant to that issue is whether the Pricing Committee had regard to the
submissions made to it by the Pharmacies
at the oral hearings. I deal with this
when I consider the challenge that the dispensing fee is not
“appropriate”.[147] |
| [184] | Before dealing with that
issue, it is necessary to address an argument that the Minister should have
conducted a further enquiry after
the Pricing Committee had made its final
recommendation. |
| [185] | In my view there is no
substance in this submission. I have previously explained why the process of
making regulations should be
seen as a single process involving both the
Minister and the Pricing Committee. The Minister had representatives on the
Pricing
Committee, and the Department was kept informed of developments as they
occurred. The invitation to make written representations
on the draft
regulations came from the Minister. The invitation to supplement the
representations by oral presentations came from
the Department. The written
representations were submitted to the Department, and Department officials
conducted the proceedings
at which the oral presentations were made. The
process involved both the Minister and the Pricing Committee. This was
compatible
with their responsibilities in terms of section 22G of the Medicines
Act. The contention that the Minister was obliged to engage
in a further
process after the Pricing Committee had made its recommendations must therefore
be dismissed. |
Reasonableness
| [186] | Section 6(2)(h) of PAJA
provides that: |
“A court or tribunal has the power to judicially review an administrative
action if the exercise of the power or the performance
of the function
authorised by the empowering provision, in pursuance of which the administrative
action was purportedly taken, is
so unreasonable that no reasonable person could
have so exercised the power or performed the
function”.
| [187] | In Bato
Star[148] this Court
held that section 6(2)(h) of PAJA should be construed consistently with the
Constitution to mean that |
“[A]n administrative decision will be reviewable if . . . it is one that a
reasonable decision-maker could not reach.
What will constitute a reasonable decision will depend on the circumstances of
each case, much as what will constitute a fair procedure
will depend on the
circumstances of each case. Factors relevant to determining whether a decision
is reasonable or not will include
the nature of the decision, the identity and
expertise of the decision-maker, the range of factors relevant to the decision,
the
reasons given for the decision, the nature of the competing interests
involved and the impact of the decision on the lives and well-being
of those
affected.” (footnote omitted)
| [188] | It is not necessary in the
present case to consider how this should be applied to the making of the
regulations. The dispensing fee
is required by section 22G(2)(b) to be
“appropriate”. If it is, then it will not be unreasonable within
the meaning
of section 6(2)(h) of PAJA. If it is not appropriate, it will not
comply with the empowering statute, and will be inconsistent with
section
6(2)(a) of
PAJA.[149] |
Lawfulness
| [189] | Section
6(2)(f)(i) of PAJA provides: |
“A court or tribunal has the power to judicially review an administrative
action if the action itself contravenes a law or
is not authorised by the
empowering provision”.
The Pharmacies have challenged
the pricing system prescribed by the regulations on the grounds that it contains
material provisions
that are not authorised by the empowering legislation, or
which fail to comply with what the empowering legislation requires. In
this
regard it is contended that the following provisions of the pricing system are
not authorised by section 22G of the Medicines
Act, which is the provision under
which the Minister and the Pricing Committee acted:
| (a) | The imposition of price
control measures. |
| (b) | The definition of the
single exit price. |
| (c) | The delegation of
certain powers to the Director-General. |
| (d) | The
power of the Minister to determine annual increases in the single exit price and
to place a cap on the logistics fee. |
| (e) | A
pricing system that is not transparent. |
| (f) | A
dispensing fee that is not appropriate. |
I will
deal with these contentions in turn.
The pricing system
| [190] | The pricing system
contemplated by the regulations is as follows. A “single exit
price” (SEP) will be set for the sale
of each medicine that is sold by a
manufacturer or importer.[150]
This must not be higher than a maximum price, which has to be calculated on the
basis of sales during 2003.[151]
Provision is made for how the SEP is to be calculated in respect of products
sold for the first time after January
2004.[152] |
| [191] | The SEP thus established
becomes a fixed price at which the manufacturer or importer must sell the
product.[153] Wholesalers who buy
the medicine for onward sale must sell at a price not higher than the
SEP;[154] and the same applies to
pharmacists whether they buy the medicine from the manufacturer, importer,
wholesaler or distributor. The
wholesalers and distributors are entitled to a
logistics fee for their
services[155] and the pharmacists
are entitled to an “appropriate” dispensing fee for their
services.[156] Provision is made
for price increases and for bringing manufacturers’ prices into line with
international standards by a system
of international
benchmarking.[157] I deal later
with the details of these provisions which are relevant to other challenges to
the regulations. |
| [192] | In effect the system
contemplates that the medicine and Scheduled substances will move along the
distribution chain at a price not
higher than the SEP, which is the price at
which the medicine or Scheduled substance must enter the distribution chain.
Wholesalers,
distributors and pharmacists cannot put up the price of the
medicine, and are limited to the fees they are entitled to charge in
terms of
the regulations. The result is that medicines will become available to all
consumers, other than the state, wherever they
are, and whoever they may be, and
from whatever source they are supplied, at the SEP or a lower price. It is
contemplated that the
price of medicines will be transparent, and over time will
be brought into line with prices in other countries where the price of
medicines
is regulated. |
Price control
| [193] | The
Pharmacies contend that the regulations introduce a system of price control
which is not authorised by section 22G or any other
provision of the Medicines
Act and is therefore unlawful. It is convenient to refer here to the relevant
provisions of section 22G. |
“(2) The Minister may, on the recommendation of the pricing committee,
make regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule 0
medicines.
(3)(a) The transparent pricing system contemplated in subsection (2)(a) shall
include a single exit price which shall be published
as prescribed, and such
price shall be the only price at which manufacturers shall sell medicines and
Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or a
wholesaler or distributor shall sell a medicine at a price
higher than the price
contemplated in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist or person
licensed in terms of this Act to charge a dispensing
fee as contemplated in
subsection (2)(b).”
| [194] | The section not only
permits, but in fact requires price control measures to be made, that affect all
parties in the distribution
chain. Section 22G(3)(a) prescribes that the price
at which the manufacturer or importer must sell to persons other than the state,
is the SEP. That is a mandatory price control measure that must be reflected in
the regulations. So too is the requirement of section
22G(3)(b), that a
pharmacist, or other person licensed to sell medicines, may not sell them at a
price higher than the SEP. There
is accordingly no substance in the submission
that section 22G does not contemplate price control
measures. |
| [195] | There is, however, a
narrower issue that has to be considered for it is one of the reasons given by
the SCA for holding the regulations
to be invalid. It concerns the setting of
the SEP. Section 22G does not specify how or by whom the SEP should be
determined. It
is argued that the provisions in the regulations which place
procedural or substantive limits on the setting of the SEP are ultra
vires the
Medicines Act. The phrase “single exit price” is not a term of art.
It must be construed in the context of
the Medicines Act and in particular of
section 22G(3). In that context it seems to me that the Pharmacies are correct
in contending
that it is the price at which a medicine enters the distribution
chain. But does that mean that the regulations cannot prescribe
how that price
is to be determined or controlled? |
| [196] | The SCA held that this was
indeed so. They considered the purpose of the pricing system for which section
22G makes provision to
be the elimination of the discounts and subsequent
mark-ups which had previously distorted the
market.[158] But this is achieved
by sections 18A and B which specifically prohibit such
schemes. |
| [197] | Section 22G adds to this
the element of transparency. The SCA referred to the importance of transparency
in these terms: |
“[S]ince dispensers are entitled only to add a prescribed fee, a member of
the public would be able to assess whether the price
paid is the correct one.
Because manufacturers would know what the prices charged by their competitors
are, they will have to reduce
their prices and publish the reduced prices in
order to
compete.”[159]
But
transparency is only one of the mandatory requirements of the pricing system.
Other mandatory requirements are referred to in
section 22G(3). There must be a
SEP and an obligation that medicines may not be sold at a higher price than the
SEP. These mandatory
requirements do not, however, limit the general power to
establish a pricing system for all medicines.
| [198] | Counsel for the Pharmacies
submitted that “the mischief” at which section 22G is directed is
the elimination of the system
of discounting and subsequent marking up of the
prices of pharmaceutical products that characterised the sale of such products
in
the past. But that is prohibited by sections 18A and B of the Medicines Act,
and is not directly addressed in the
regulations. |
Legislative history
| [199] | The Pharmacies refer to
the explanatory memorandum which accompanied the Medicines and Related
Substances Control Amendment Bill,
72 of 1997, when it was introduced into
Parliament, which says that the primary purpose of the Bill was to bring the
Medicines Act
into line with the National Drug Policy of the Department of
Health. |
| [200] | In S v
Makwanyane and
Another[160] I had occasion to
consider whether background material is admissible for the purpose of
interpreting the Constitution. I concluded
that |
“where the background material is clear, is not in dispute, and is
relevant to showing why particular provisions were or were
not included in the
Constitution, it can be taken into account by a Court in interpreting the
Constitution.”[161]
| [201] | Although it is not
entirely clear whether the majority of the Court concurred in this finding, none
dissented from it. I have no
reason to depart from that finding and in my view
it is applicable to ascertaining “the mischief” that a statute is
aimed
at where that would be relevant to its interpretation. This would be
consistent with the decisions of the Appellate Division in
Attorney-General,
Eastern Cape v Blom and
Others,[162] and
Westinghouse Brake & Equipment (Pty) Ltd v Bilger Engineering (Pty)
Ltd[163] and the cases from
other jurisdictions referred to in Makwanyane’s
case.[164] |
| [202] | The National Drug Policy
is set out in a comprehensive document which addresses health objectives,
economic objectives and national
development objectives. The economic
objectives are as follows: |
“(a) to lower the cost of drugs in both the private and public sectors
(b) to promote the cost-effective and rational use of
drugs
(c) to establish a complementary partnership between Government bodies and
private providers in the pharmaceutical sector
(d) to optimize the use of scarce resources through cooperation with
international and regional agencies.”
[165]
| [203] | The drug pricing policy is
dealt with in a separate chapter. Its aim is said to be: “To promote the
availability of safe and
effective drugs at the lowest possible
cost”.[166] The mischief,
therefore, to which section 22G is directed is the lowering of the high cost of
drugs. The price control provisions
of the regulations are a means, though not
the only means, of addressing this mischief. |
| [204] | The document goes on to
describe how the stated aim of this policy is to be achieved. It is not
necessary to decide whether it is
permissible to have regard to this for the
purpose of interpreting section 22G. Even if I were to assume in favour of the
Pharmacies
that it is a relevant
consideration,[167] the methods
described include establishing a “Pricing Committee with clearly defined
functions to monitor and regulate drug prices”, the development of
a “data base . . . to monitor the cost of drugs in the country in
comparison with prices
in developing and developed countries” and that
“[p]rice increases will be
regulated.”[168] The policy
for implementation also refers to “total transparency in the pricing
structure of pharmaceutical manufacturers,
wholesalers, providers of services,
such as dispensers of drugs, as well as private clinics and hospitals”,
the introduction
of a “non-discriminatory pricing system” which will
if necessary be enforced, and the replacement of the “wholesale
and retail
percentage mark-up system” with “a pricing system based on a fixed
professional fee.”[169] The
regulations seem to me to be broadly in line with these policies. The question,
however, is not whether the regulations are
consistent with policy statements,
but whether they are sanctioned by the empowering
legislation. |
| [205] | PSSA rely on evidence
given by the former Director-General of Health as to the meaning of section 22G
and on his opinion that the
SEP was to be set by manufacturers. The opinion of
the former Director-General as to the meaning of section 22G is not admissible
for this purpose. It is the Court’s duty, and not that of the former or
present Director-General, to interpret the
statute. |
| [206] | No
doubt the prohibition of discounts and bonuses and the mandated element of
transparency to which the SCA refers are likely to create
market conditions more
conducive to competition than those that previously existed. But these are not
the only measures by which
the price of medicines can be lowered. Sections
15C,[170]
18A,[171]
22F,[172]
22G, and
22H,[173]
read together, contain a regulatory framework, partly in the Medicines Act and
partly in regulations to be made under section 22G,
designed to contribute to
the lowering of the cost of medicines. It is within this context that section
22G must be read and construed. |
| [207] | It
is apparent from various provisions of the Medicines Act that the pharmaceutical
industry is tightly regulated. Controls are imposed
over the manufacture, sale
and distribution of
medicines.[174] Section 22H
requires a wholesaler to purchase medicines only from the original manufacturer
or from the primary importer of the
finished product, and to sell only into the
retail sector. In terms of section 22F pharmacists may not sell medicines that
have
been prescribed, if there is a generic substitution available at a lower
price, unless a person prescribing the medicine “has
written in his or her
own hand on the prescription the words ‘no substitution’ next to the
item prescribed”.[175]
Section 15C of the Medicines Act makes provision for the Minister to prescribe
conditions for the supply of more affordable medicines
in certain circumstances
so as to protect the health of the public, and in particular to make provision
for the relaxation of certain
provisions of the Patents Act, 57 of 1978 to
facilitate parallel importation of medicines still under patent protection.
Section 18A provides that “[n]o person shall supply any medicine according
to a bonus system, rebate system or any other incentive scheme.”
Section
18B prohibits the provision of free samples to persons in the distribution
chain. |
Controlling the price of
medicines
| [208] | Does
the fact that the Medicines Act imposes these various controls in specific terms
and provides that the fees of pharmacists, wholesalers
and distributors are to
be prescribed in the regulations, but says no more about the SEP than that it is
the only price at which
the manufacturer may sell medicine, mean that the
regulations may not deal with how the SEP is to be set or controlled in the
future? |
| [209] | A
statutorily mandated pricing system, which is to be fleshed out by regulations,
inevitably contemplates a system with inbuilt controls.
Reverting to section
22G, which is the section under which the regulations were made, a thread that
runs through it is that the
pricing system must contain measures that will
enable control to be exercised over the price of medicines. Section 22G
prescribes
certain essential measures to be included in the system but does not
say that they are the only measures that are competent. There
seems to be no
reason why the “pricing system” referred to in section 22G, which
contemplates price controls throughout
the distribution chain, should be
construed as excluding controls over how the SEP should be set and
increased. |
| [210] | I
am accordingly unable to agree with the SCA, or with the submissions made to us
in this regard by counsel for the Pharmacies. In
my view the regulations are
not invalid simply because they include price control measures affecting the
SEP. |
Single exit price: section 22G of the
Medicines Act
| [211] | The SCA held that the
provisions of the regulations dealing with the SEP are inconsistent with the
Medicines Act. Regulations must
where possible be construed consistently with
the empowering Act under which they are
made.[176] It is necessary,
therefore, in dealing with the appeal against this decision to begin by
considering the provisions of the Medicines
Act that are relevant to the
appeal. |
| [212] | The sale and distribution
of medicines and Scheduled substances is strictly controlled by the Medicines
Act, which regulates the manufacture,
quality, importing, distribution and sale
of such products. |
| [213] | The Medicines Act and
regulations contemplate that the marketing of medicines will be along a
distribution chain leading from the
manufacturer to the public in ways which may
involve a number of different actors. |
| [214] | In the public sector in
South Africa the chain begins with the manufacturer or importer and ends with a
state institution which provides
medicine to patients treated by the state in
public hospitals and clinics, or by district surgeons. The state buys its
supplies
through tender processes at costs that are usually less than that for
which the same medicines can be bought in the private sector.
In the private
sector the chain begins with the manufacturer or importer and ends with a
retailer, or medical practitioner, dentist,
veterinarian, or health
professional, who deals directly with the public. A distinction is made between
Schedule 0 medicines on
the one hand and all other scheduled medicines on the
other. The former may be sold by any
retailer,[177] while the latter
may be sold only by medical practitioners, dentists, veterinarians, licensed
health professionals, manufacturers
of and wholesale dealers in pharmaceutical
products, and retailers who are
pharmacists.[178] The Medicines
Act also makes a distinction between prescription and non-prescription
medicines. The latter are those medicines
contained in Schedules 0, 1 and 2
which can be sold without a doctor’s prescription, and the former are
those contained in
Schedules 3 to 6, which require a doctor’s
prescription.[179] |
Wholesalers
and distributors
| [215] | The Medicines Act
recognises that in addition to manufacturers there are intermediaries who have a
role to play in the distribution
of medicines earmarked for sale to the public.
They are distributors and wholesalers. They must be licensed in terms of the
Medicines
Act to carry out these
functions.[180] The Medicines Act
does not define “distributor” or “wholesaler” but if the
words are given their ordinary
meaning, a distributor would be an agent or
representative of the manufacturer or wholesaler, and a wholesaler would be a
person
who trades in bulk for his or her own account. This seems to have been
accepted by the parties, and as appears from the affidavits
lodged in this
matter, to be consistent with the way the trade operates in practice. According
to the PSSA founding affidavit made
by Ms Davis, manufacturers generally supply
their products through a wholesaler, who buys in bulk, and sells to retailers in
smaller
quantities, or through a distributor, who acts as the
manufacturer’s agent, and as such deals either with retailers or
wholesalers.
Manufacturers also sell products directly to retailers.
|
| [216] | Section 22A of the
Medicines Act controls the possession and sale of medicines and Scheduled
substances and identifies the persons
who are entitled to do so. Sections
22A(4) and (5) of the Medicines Act do not include distributors amongst those
entitled to sell
medicines listed in Schedules 1 to 6. Yet section 22G(3),
which is a provision of the framework provided by the Medicines Act for
the
pricing system, refers in subparagraph (a) to selling by manufacturers, and in
subparagraph (b) to selling by pharmacists, wholesalers
and
distributors.[181] This seems
prima facie to contemplate that distributors may sell medicines for their own
account – which would be prohibited
by sections 22A(4) and (5). A breach
of these sections is a criminal
offence.[182] |
| [217] | But if sections 22G(3)(b)
is construed in the light of section 22A(4) and (5), and the meaning to be given
to “wholesaler”
and “distributor” in the context of the
Medicines Act, it must be understood as referring to sales by distributors on
behalf of manufacturers and not on their own behalf. If they were to sell on
their own behalf they would, in respect of such sales,
cease to be a
distributor, would become a wholesaler, and would require a wholesaler’s
licence to do so. Construed thus, section
22G(3)(b) can be reconciled with
sections 22A(4) and
(5).[183] |
The
regulation of participants in the making and distribution of medicines and
Scheduled substances
| [218] | The Medicines Act requires
persons engaged in the making and distribution of medicines and Scheduled
substances to be licensed to
do so. This is dealt with in section 22C of the
Medicines Act[184] and in the
General Regulations. In terms of sections 22C(1)(b) and 22C(6) manufacturers,
distributors or wholesalers licensed to
do so may import
medicines.[185] With the
exception of section 15C, which deals with parallel importing of patented
medicines, no other section of the Medicines
Act authorises anyone other than a
manufacturer, wholesaler or distributor to import medicines or Scheduled
substances. It is not
clear from section 15C whether persons engaged in
parallel importing in terms of that section also require to be licensed under
section
22C, but that need not be decided in this
case. |
| [219] | The General Regulations
require importers to have a
licence[186] and make provision
for licences to be issued only to manufacturers, wholesalers and
distributors.[187] A contravention
of these regulations is a criminal offence. |
| [220] | Section 22H of the
Medicines Act provides that a wholesaler may only purchase medicine from the
“original manufacturer”
or the “primary importer” and
may only sell to the retail
sector.[188] In terms of section
22H(3) the Director-General may exempt a wholesaler from these restrictions.
|
| [221] | There is no definition of
“primary importer” and these words are not used in any other section
of the Medicines Act.
It is not clear from this or other provisions of the
Medicines Act who a primary importer is. It is, however, not necessary for
the
purposes of the decision in this case to answer that
question. |
| [222] | In terms of the Medicines
Act, the importing, distribution and sale of medicines must therefore take place
within the following framework.
Only manufacturers, wholesalers and
distributors, licensed to do so, may import medicines. Only manufacturers,
wholesalers and
distributors, licensed to do so, may sell medicines.
Manufacturers and wholesalers sell medicines for their own account, distributors
sell medicines as agent or representative of the manufacturer, or possibly on
behalf of a wholesaler. If medicines are imported
by a person other than the
manufacturer, an importer who becomes the owner of the medicines bought, and
sells them for its own account,
acts as a wholesaler for the purposes of the
Medicines Act, and must have a wholesaler’s licence authorising it to
import and
carry on business as a wholesaler. In that event the wholesaler,
unless exempted under section 22H, must sell the imported medicine
to the retail
trade. If medicines are imported by an importer as representative of the
manufacturer on whose behalf the importer
sells the medicine, that importer is a
distributor for the purposes of the Medicines Act. In that event, the
distributor may sell
the medicine on behalf of the manufacturer, either to a
wholesaler or directly to
retailers. |
Remuneration of wholesalers and
distributors
| [223] | Sections 22G(2) and (3) of
the Medicines Act provide: |
“(2) The Minister may, on the recommendation of the pricing committee,
make regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule 0
medicines.
(3)(a) The transparent pricing system contemplated in subsection (2)(a) shall
include a single exit price which shall be published
as prescribed, and such
price shall be the only price at which manufacturers shall sell medicines and
Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or wholesaler
or distributor shall sell a medicine at a price
higher than the price
contemplated in paragraph (a).”
| [224] | The pricing system
contemplated by section 22G of the Medicines Act requires that there be a SEP,
and stipulates that the SEP is the
only price at which the manufacturer may sell
medicines to persons other than the
state.[189] Distributors,
wholesalers, and pharmacists may not sell the medicine at a price higher than
the
SEP.[190] |
| [225] | The Medicines Act
contemplates that wholesalers and distributors will be engaged in the marketing
of medicines. They are prohibited
by section 22G from being recompensed for
doing so through a mark-up on the price, and indirect rewards through bonuses,
rebates
and the provision of samples are prohibited by sections 18A and
B.[191] The only way they can be
rewarded is by payment through means other than the mark-up on the
price. |
| [226] | The Medicines Act makes
provision for them to be rewarded through “fees” payable to them for
their services. Hence sections
22G(2)(b) and (c) make provision for the
regulations to include “an appropriate dispensing fee” to be charged
by a pharmacist
and “an appropriate fee to be charged by wholesalers or
distributors or any other person selling Schedule 0
medicines.” |
| [227] | It was contended by New
Clicks, but not by PSSA, that the reference in section 22G(2)(c) to “any
other person selling Schedule
0 medicines” demonstrates that section
22G(2)(c) applies only to the sale of Schedule 0 medicines, and that no
provision is
made for wholesalers or distributors to receive remuneration for
their role in the sale of prescription medicines. In this regard
it drew
attention to section 22G(3)(c) which makes clear that a pharmacist may charge a
dispensing fee in addition to the SEP, but
says nothing about a
wholesaler. |
| [228] | As initially formulated in
Act 90 of 1997 sections 22G(2) and (3)
provided: |
“(2) The Minister may, on the recommendation of the pricing committee,
make regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section
22C(1)(a).
(3)(a) The transparent pricing system contemplated in subsection (2)(a) shall
include a single exit price which shall be published
as prescribed, and such
price shall be the only price at which manufacturers shall sell medicines and
Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) shall sell a
medicine at a price greater than the price contemplated
in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist or person
licensed in terms of this Act to charge a dispensing
fee as contemplated in
subsection (2)(b).”
| [229] | As initially formulated,
therefore, section 22G made no provision for sales by wholesalers. It dealt
only with manufacturers, pharmacists,
and licensed health professionals. It was
in this context that section 22G(3)(c) made it clear that the requirement that
pharmacists
and licensed health professionals shall not sell at a price higher
than the SEP, did not preclude them from charging a dispensing
fee.
|
| [230] | Act 90 of 1997 introduced
the present sections 22A and 22H. Section 22A authorises a “wholesale
dealer” to sell Scheduled
substances (which would have included
medicines). Section 22H provides that no wholesaler shall purchase medicines
from any source
other than from the original manufacturer or from the primary
importer of the finished product, and required the wholesaler to sell
medicine
to the retail sector. There was an obvious problem. If the manufacturer had to
sell at the SEP and the wholesaler (who
sells for its own account) may only buy
from the manufacturer and sell to the retail trade, which had to sell at no more
than the
SEP, how was the wholesaler to make a living? It was presumably for
this reason that section 22G was amended by Act 59 of 2002 which
introduced
section 22G(2)(c), making provision for an appropriate fee to be charged by
wholesalers.[192] |
| [231] | When it did so, however,
it failed to make a consequential amendment to section 22G(3)(c), which states
that the prohibition against
selling at a price higher than the SEP does not
preclude the charging of a dispensing fee by the pharmacist. The absence of a
similar
provision in respect of a wholesaler or distributor cannot preclude them
from making such a charge, otherwise section 22G(2)(c) would
not serve the
purpose it was clearly intended to serve. It would also, if so construed,
effectively prevent the wholesaler from
carrying on the business contemplated by
section 22H. |
| [232] | Unless the Medicines Act
is construed as making provision for a fee to be charged by wholesalers or
distributors for their services
in marketing prescription medicines, it would be
impossible for them to conduct their businesses. It seems to me that if regard
is had to this, section 22G(2)(c), construed purposively in the context of its
history and the Medicines Act as a whole, means that
the regulations may make
provision for appropriate fees to be charged by distributors and wholesalers
(who may sell all categories
of medicines), and also for persons who may only
sell Schedule 0 medicines. If this were not the proper construction of the
language
construed in the context of the Medicines Act, I would in any event
adopt it, in accordance with the principle in Venter v
R[193] which allows a court to
depart from the clear language of a statute where that would otherwise
lead |
“to absurdity so glaring that it could never have been contemplated by the
legislature, or where it would lead to a result
contrary to the intention of the
legislature, as shown by the context or by such other considerations as the
Court is justified in
taking into
account”.[194]
The
regulations dealing with the pricing system
| [233] | Since its first enactment
in 1965 the Medicines Act has been amended on no less than fifteen different
occasions. Some of the amendments
are complex and do not fit easily with
earlier provisions of the Medicines Act. The process of drafting the
regulations was also
rushed. Draft regulations were published for comment on 16
January 2004. Comments had to be made within three months. Many
representations
were made during this period as a result of which decisions were
taken to amend the regulations in material respects. Some of these
decisions
were only taken during March 2004. Draft regulations were submitted to the
Minister for her approval on 19 April 2004.
After discussions with the
Minister, amended regulations were submitted to her for approval on 21 April and
were published in the
Gazette on 30 April 2004. Against this background it is
not surprising that there are a number of problems in interpreting the
regulations
and attempting to reconcile them with one another and with the
provisions of the Medicines Act. |
| [234] | From a reading of the
regulations against the background of the Medicines Act it seems that the
pricing system contemplated by the
Minister and the Pricing Committee is as
follows. A SEP must be set for every medicine to be sold in South Africa. The
SEP must
be sufficient to allow for payment of a logistics fee by manufacturers
to wholesalers/distributors and VAT. At the commencement
of the regulations the
SEP must be calculated according to a formula prescribed in the regulations,
subject to adjustment by a process
of comparative international benchmarking,
and annual reviews. Provision is made for a dispensing fee for the remuneration
of pharmacists
and for an annual review of such fee. Consistently with section
22G of the Medicines Act, the manufacturer has to sell at the SEP
and
wholesalers/distributors and pharmacists are not entitled to remuneration other
than the logistics fee and the dispensing fee. |
| [235] | Section 29(k) of the
Medicines Act provides that it is an offence to contravene any provision of
sections 22A, 22C(5) and (6), 22F,
22G, or 22H, or to contravene or fail to
comply with “any condition imposed thereunder”. The pricing system
in the regulations
made under section 22G imposes conditions of sale which have
to be complied with by various participants in the distribution
chain.[195] A breach of those
regulations is therefore a criminal offence in terms of section 29(k) of the
Medicines Act. |
| [236] | This, in broad outline, is
the scheme. The scheme is criticised by the Pharmacies on the ground that
regulation of prices is less
effective than market forces. The choice of price
regulation, if not inconsistent with the Medicines
Act,[196] was a policy decision
within the domain of the legislature and the executive with which this Court
will not interfere. This Court
is concerned with whether the scheme meets the
requirements of the Medicines Act and was adopted in accordance with the
provisions
of the Constitution and PAJA, and not with whether there may be
better ways of achieving the same purpose. I am satisfied that,
in broad
outline, the scheme is consistent with the Medicines Act. The devil, however,
lies in the detail. |
The supply chain
| [237] | To begin with, the
regulations are structured with a particular “supply chain” in mind.
The “supply chain”
is defined in regulation 2 to
include: |
“any two or more of the
following—
(a) a manufacturer;
(b) an importer;
(c) an exporter;
(d) a wholesaler;
(e) a distributor;
(f) a retailer;
(g) a person licensed in terms of section 22C(1)(a) of the Act;
(h) the user of a
medicine”.[197]
| [238] | The regulations define an
importer as |
“a person importing medicines for the purpose of sale in the Republic from
a manufacturer or other person outside of the Republic
and includes a parallel
importer as defined in the Act”.
There is no definition
of “parallel importer” in the Medicines Act. Presumably the
reference was intended to be to a
person importing medicine in terms of section
15C of the Medicines Act,[198] and
this is how the words are defined in the General
Regulations.[199]
| [239] | When they refer to an
importer in the “supply chain” the regulations may be understood as
referring to a person other
than a manufacturer, distributor or wholesaler.
This is also what may be inferred from the way the definitions of logistics
fee,[200]
logistical
services,[201]
single exit price,[202]
retailer,[203] and
user[204] are formulated in the
regulations, and also from regulations 6, 14, 21, 22(1), and
24. |
| [240] | The definition of importer
in the pricing regulations also contemplates that importers will be engaged in
selling medicines. Regulation
24(4) says as much. It provides
that: |
“Manufacturers and importers must, with effect from the date one month
after the date of commencement of these regulations,
sell medicines and
Scheduled substances only in accordance with the provisions of these
regulations.”
| [241] | In this context the
regulations must be construed as referring to lawful
importers.[205] To act lawfully,
importers must be licensed in terms of the Medicines Act. And the Medicines Act
only makes provision for such
licences to be issued to manufacturers,
distributors and
wholesalers.[206] |
| [242] | The
regulations define “distributor” as
meaning: |
“a person, other than a manufacturer, wholesaler or retailer, who supplies
a medicine or Scheduled Substance to a retailer
or
wholesaler”.
The definition refers to
“supply” and not to “sell”. This is consistent with the
Medicines Act which does
not permit distributors to sell medicines or Scheduled
substances for their own account. They may, however, import the medicine
on
behalf of the manufacturer, and if licensed to do so, they become importers as
well.
| [243] | “Wholesaler”
is defined as meaning: |
“a dealer who purchases medicines or Scheduled substances from a
manufacturer and sells them to a retailer and includes a wholesale
pharmacy”.
This is also consistent with the Medicines
Act which requires wholesalers to buy from manufacturers. If they do so they
may in the
process become “importers”.
| [244] | With this explanation of
the participants in the supply chain and the roles assigned to them under the
Medicines Act and the regulations,
I turn to consider the arguments addressed to
us on behalf of the Pharmacies in support of the finding by the SCA that the
regulations
are inconsistent with the Medicines Act and are accordingly
invalid. |
| [245] | The Pharmacies contend
that the regulations dealing with the setting of and increases in the SEP are
incoherent, in parts contradictory,
and are inconsistent with section 22G of the
Medicines Act. They also contend that the regulations are vague and uncertain
in other
respects and that the dispensing fee prescribed by the regulations for
pharmacists is not an “appropriate
fee”. |
Vagueness
| [246] | It seems to have been
assumed by the parties, and in my view correctly so, that vagueness is a ground
for review under PAJA. Although
vagueness is not specifically mentioned in PAJA
as a ground for review, it is within the purview of section 6(2)(i) which
includes
as a ground for review, administrative action that is otherwise
“unconstitutional or unlawful”. This Court has held
that the
doctrine of vagueness is based on the rule of law which is a foundational value
of our Constitution.[207] In
Affordable
Medicines[208] this
Court explained the doctrine in the following
terms: |
“[L]aws must be written in a clear and accessible manner. What is
required is reasonable certainty and not perfect lucidity.
The doctrine of
vagueness does not require absolute certainty of laws. The law must indicate
with reasonable certainty to those
who are bound by it what is required of them
so that they may regulate their conduct accordingly. The doctrine of vagueness
must
recognise the role of government to further legitimate social and economic
objectives. And should not be used unduly to impede or
prevent the furtherance
of such objectives.”[209]
(footnotes omitted)
Related to this is a requirement implicit
in all empowering legislation that regulations must be consistent with, and not
contradict,
one another. Regulations which fail to comply with these
requirements would therefore contravene section 6(2)(i) of PAJA.
The
SEP
| [247] | “Single
exit price” is defined in regulation 2 as
meaning |
“the price set by the manufacturer or importer of a medicine or Scheduled
substance in terms of these regulations combined
with the logistics fee and VAT
and is the price of the lowest unit of the medicine or Scheduled substance
within a pack multiplied
by the number of units in the
pack”.
| [248] | Regulation 5(1) provides
that: |
“Upon commencement of these regulations the price of a medicine or
Scheduled substance must be set by the manufacturer, or
where the medicine or
Scheduled substance is imported by a person other than the manufacturer, the
importer of the relevant medicine
or Scheduled substance, and combined with the
logistics fee in order to arrive at a single exit price for the relevant
medicine or
Scheduled substance.”
Manufacturers,
wholesalers, distributors, and importers
| [249] | The definition of SEP in
regulation 2 and the provisions of regulation 5 which deal with how the SEP is
to be calculated, require
it to be set by the manufacturer or
importer.[210] Referring to this
the SCA held that “[t]he Act itself draws a clear distinction between a
‘manufacturer’, an ‘importer’,
a
‘wholesaler’ and a
‘distributor’.”[211]
The judgment goes on to say that |
“The Act, in this form, must have raised immediate problems for the
committee. The first would have been that it does not
take account of the fact
that manufacturers of medicines may be foreign concerns and that their products
may be imported by third
parties. (As mentioned, the Act requires importers to
be licensed.) The committee, one assumes, recognised the problem of prescribing
to foreign manufacturers that they have to publish a single exit price and that
they may not sell for more than that price. The
committee was also faced with
the problem that it could hardly be fair to deny importers the right to charge
more than the manufacturer’s
price. No doubt in order to overcome these
defects in the Act, the committee’s proposal was to recognise that an
‘importer’
purchases medicines from a manufacturer abroad and to
define the single exit price as the price set not only by the manufacturer,
but,
alternatively, by the importer. This could not be done. The Act is clear. It
requires manufacturers (and only manufacturers)
to set their single exit prices,
and importers are a genus different from manufacturers and cannot by any stretch
of the imagination
be equated with them. It follows that, to this extent, the
regulations are ultra vires the Act: the committee was not entitled to
make the
proposal and the Minister was not entitled to accept
it.”[212]
| [250] | I do not agree that the
Medicines Act “requires manufacturers (and only manufacturers) to set
their single exit prices”.
The Medicines Act requires the pricing system
to make provision for a SEP. Section 22G does not, however, deal with how or by
whom
the SEP must be set. It merely says that the SEP must “be published
as prescribed” and that the manufacturer must sell
at the SEP. How the
SEP is to be set is a matter that can legitimately be determined by the pricing
system itself. I can see no
reason why the pricing system should not impose an
obligation on importers, who introduce medicines into the country, to ensure
that
the regulations are complied with in respect of those medicines, and that
the SEP is set in accordance with such
requirements. |
| [251] | I also do not agree that
the Medicines Act draws a clear distinction between manufacturers, wholesalers
and distributors on the one
hand and importers on the other. It does draw a
distinction between manufacturers, wholesalers and distributors, but it
recognises
that each may import medicine and Scheduled substances and, with the
possible exception of importing in terms of section 15C, does
not permit anyone
else to import such products. It is possible that a particular manufacturer,
wholesaler or distributor may not
be licensed to import medicine, and to that
extent there may be a distinction between those who are licensed to import and
those
who are not. But importers are not “a genus different from
manufacturers”; manufacturers licensed to do so may
import. |
Foreign manufacturers
| [252] | The Medicines Act requires
manufacturers to sell medicine and Scheduled substances at the SEP. Section
22G(3)(a) of the Medicines
Act[213] provides that the SEP is
the only price at which the manufacturer may sell medicines and Scheduled
substances, and section 22G(3)(b)
provides that the price “contemplated in
paragraph (a)” is the maximum price at which wholesalers, distributors and
pharmacists
may sell the medicine. |
| [253] | If a foreign manufacturer
sells medicine in South Africa directly or through a distributor there is no
reason why section 22G(3)(a)
should not be applicable to that transaction. The
position may, however, be different if the foreign manufacturer sells to a South
African wholesaler abroad, as could be the case if the medicine were sold free
on board in a foreign port. For the purposes of this
judgment I am prepared to
assume that this would be so, and that section 22G(3)(a) would not apply to such
a transaction. |
| [254] | This does not mean,
however, that the pricing system established under section 22G cannot regulate
the price at which such medicines
are sold in South Africa. Section 22G(2)(a)
contemplates a transparent pricing system for all medicines and Scheduled
substances.
The language is general and applies to “all medicines
and Scheduled substances sold in the Republic”. That includes
foreign-made medicines as well as South African-made
medicines. |
| [255] | According to the evidence
in this case over 50% of the medicines sold in the Republic are imported.
Wholesalers who buy medicine
from foreign manufacturers are not the
manufacturers of such medicines, and thus do not fall within the ambit of the
provisions of
section 22G(3)(a) that apply to manufacturers. If the price at
which they buy the medicine is not the price contemplated in section
22G(3)(a),
section 22G(3)(b) will not apply to them, and absent any provision in the
pricing system regulating the price at which
such medicine may be sold in South
Africa, they would be free to sell the medicine to retailers without any
restriction. This would
fundamentally undermine what the Medicines Act sets out
to achieve. |
| [256] | If, as I have assumed,
section 22G(3)(a) is construed as having no application to medicines purchased
abroad by wholesalers from foreign
manufacturers, there is no reason why the
regulations made in terms of section 22G(2)(a) should not fill that gap and make
provision
for the regulation of the price at which such medicines may be sold in
South Africa. A failure to do so would leave a gaping hole
in the pricing
system. |
| [257] | Construed purposively,
therefore, section 22G(2)(a) must be understood as authorising a pricing system
that applies to all medicine,
whether manufactured locally or in a foreign
country, and whether sold in South Africa by the manufacturer, or on its behalf
by a
distributor, or by a wholesaler who has purchased the medicine
abroad. |
The inclusion of the logistics fee in
the SEP
| [258] | The SCA also finds fault
with the inclusion of a logistics fee in the calculation of the SEP. The
judgment says: |
“The regulations define the single exit price as ‘the price set by
the manufacturer or importer . . . combined with the
logistics fee’, which
is something greater than the manufacturer’s price, since it includes both
the manufacturer’s
price and the logistics
fee.”[214]
And
concludes that
“[a]ll this, with the best of motives, circumvents s 22G which states
expressly that the ‘single exit price’ is
the manufacturer’s
selling price. Wholesalers, as the Act and the regulations recognise, purchase
from manufacturers or importers.
To deem their mark-up as part of the
manufacturer’s price is an impermissible
simulation.”[215] (footnotes
omitted)
| [259] | The Medicines Act requires
wholesalers to sell medicine to retailers and precludes them from selling
medicine at a higher price than
the SEP. They cannot, therefore, mark-up the
price at which they bought the medicine. The only remuneration to which they are
entitled
for selling the medicine to retailers (which the Medicines Act requires
them to do) is the “appropriate fee” contemplated
by section
22G(2)(c). |
| [260] | The regulations make
provision for this. They do so by prescribing a logistics fee. This is defined
as meaning “the fee that
is payable in respect of logistical
services”.[216] And those
are defined, also in regulation 2, as “services provided by distributors
and wholesalers in relation to a medicine
or Scheduled substance including but
not limited to” certain services identified in the
definition.[217] |
| [261] | The problem arises not in
relation to the wholesaler or distributor being remunerated by a
“logistics fee” but in the
way the regulations deal with this and
with the fixing of the SEP. As appears from what follows some of the
regulations are difficult
to interpret and in parts are vague and
contradictory. |
The calculation of the
SEP
| [262] | According to the
definition in regulation 2 the SEP is “the price set by the manufacturer
or importer . . . combined with the
logistics fee and
VAT”.[218] Construed
literally this is a contradiction in terms. The ordinary meaning of price in a
contract of sale is the money or other
consideration for which goods or property
are sold. In terms of the Medicines Act, however, the manufacturer or importer
has to
sell at the SEP. So the reference in the definition of the SEP to the
“price set by the manufacturer or importer” cannot
be to the
manufacturer’s selling price. It can only be to a price set for the
purpose of calculating the SEP. I refer to
this price as “the core
price”. However, the definition goes on to provide that the
“price” after this calculation
has been made “is the price of
the lowest unit of the medicine or Scheduled substance within a pack multiplied
by the number
of units in the pack”. Here, “price” can only
mean the SEP of a unit of the medicine. |
| [263] | The
definition contemplates, therefore, that the starting SEP will be the result of
a calculation which may depend upon agreement
between the manufacturer or
importer on the one part and the wholesaler or distributor on the other. The
former sets a “core
price” for the purpose of the calculation to
which a logistics fee agreed with the latter will be added, with the total being
the SEP. This is affirmed in regulation 5(1) which
provides: |
“Upon commencement of these regulations the price of a medicine or
Scheduled substance must be set by the manufacturer, or
where the medicine or
Scheduled substance is imported by a person other than the manufacturer, the
importer of the relevant medicine
or Scheduled substance, and combined with the
logistics fee in order to arrive at a single exit price for the relevant
medicine or
Scheduled substance.”
The “price
set” is again the “core price” and not the SEP. There is,
however, no reference in regulation
5(1) to VAT. To be consistent with the
definition and with the pricing scheme contemplated by the regulations, the
words “and
VAT” would have to be read into regulation 5(1) after
“logistics fee”. Construed thus, the regulations are internally
consistent; which is required by the Medicines Act. It is necessary, however,
to go further and to apply this conclusion to the
regulations dealing with the
calculation of a maximum SEP.
The maximum price for the first
SEP
| [264] | Regulation 5(2)(c)
provides that “the price of each medicine or Scheduled substance to be set
upon the date of commencement
of these regulations by the manufacturer or
importer must not be higher . . . than the weighted average net selling
price”
of the medicine or Schedule substance during the calendar year
2003. It is not clear whether the reference here to “the price”
and
the “weighted average net selling price” is to the
manufacturer’s 2003 price or the price at which the medicine
was sold to
the retail trade in 2003. |
| [265] | A formula for determining
the “weighted average net selling price” of a particular medicine is
prescribed in regulation
5(2)(c)(ii). It is: |
“‘S divided by the total number of lowest units (eg a tablet) for
all of the packs of the same dosage strength of the
medicine sold in the year
2003’
Where S = the total rand value of net sales (being sales less discounts) for all
packs of the same dosage strength of the medicine
sold in the
year”.
At the foot of regulation 5(2)(c) there is a
note in brackets which reads as follows: “(Note: Examples of the manner
in which
the weighted average net selling price must be calculated are cited in
Appendix A of these regulations.)” Presumably this
is meant to clarify
how the calculation of the maximum SEP for a particular medicine is to be
made.
| [266] | Appendix A contains the
following heading: “Examples of the manner in which the weighted average
net selling price must be calculated”.
Immediately below this heading is
an example dealing with solid dosages. The sub-heading reads as follows:
“Calculation of
single exit price for solid dosage form where this is
available in different pack sizes”. The first example is then given.
Before the second example, which deals with liquid dosages, there is a similar
sub-heading which says “Calculation of single
exit price for liquid dosage
form where this is available in different pack sizes”. Each example
concludes with the statement
as to what “the single exit price” of
the tablet pack and bottle of medicine is. Appendix A therefore treats the
“weighted
average net selling price” as the maximum SEP per unit,
and not as a maximum “price” to be set by the manufacturer/importer,
to which must be added a logistics fee and VAT, in order to calculate the
maximum SEP. |
| [267] | If the calculation in
Appendix A is based on sales to the retail sector it would produce an accurate
average “exit” price
inclusive of VAT for the medicine in 2003. It
would include all sales to the retail sector whether by manufacturers,
distributors
or wholesalers at a time when wholesalers charged a mark-up and not
a logistics fee. This would provide an accurate model for determining
the 2003
exit prices which, in terms of the regulations were to become a marker for a
price freeze. |
| [268] | If the maximum SEP is the
“weighted average net selling price” as calculated in Appendix A,
the reference in regulation
5(2)(c) to the price “to be set”, is to
the SEP and not, as in the definition and regulation 5(1), to the core price.
If this is not so, there will be a contradiction between regulation 5(2)(c) and
Appendix A. |
| [269] | However,
“discounts” is defined in regulation 2 in great detail as including,
but not being limited to, a variety of benefits
that might be given by
“manufacturers” or “importers” to persons “selling
medicines”.[219] That
points to the manufacturer’s or importer’s price in 2003 being the
relevant price. So too does regulation 24(1)
which calls for information to be
submitted to the Director-General by manufacturers and importers concerning
sales, discounts and
volumes of medicines sold during 2003. No such obligation
is imposed on wholesalers who are not importers. Such information would
not be
necessary for the calculation if the relevant price is the price to retailers
and not the manufacturer’s price. Practical
considerations may also
favour a construction based on the manufacturer’s net price, for this
would avoid difficulties that
might arise if there had been a change in the
“importer” between 2003 and the coming into force of the
regulations. |
| [270] | It is now more than a year
since the regulations were gazetted. The determination of the first SEP and the
calculation of the maximum
permissible price at which it may be set, called for
cooperation between the manufacturers, and the wholesalers and distributors.
A
manufacturer had to set “the price” at which it was willing to deal.
Both had to agree on the logistics fee. And
this was so whether or not the
wholesalers and distributors were the importers of the
medicine. |
| [271] | The setting of the maximum
SEP depended on information to be obtained from manufacturers and wholesalers.
In a tightly controlled
trade like the pharmaceutical trade this ought not to
have presented insuperable difficulties. Any problems that might have existed
at the time seem to have been resolved. Indeed, according to the evidence SEPs
have by now been set in respect of most if not all
medicines, and dealings
between manufacturers and wholesalers are taking place on that
basis. |
| [272] | If regard is had to
Appendix A as drafted, and if the reference in regulation 5(2)(c) to “the
price” is construed as being
to the SEP, there will be no contradiction
between Appendix A and regulation 5(2)(c). Ordinarily I would favour this
construction
as being consistent with the validity of the regulations. There
are, however, other issues raised in relation to regulation 5(2)(c)
which need
to be considered before deciding whether or not the regulation is too vague and
uncertain to be enforced. |
| [273] | According to regulation
5(2)(c) the calculation of the maximum SEP is to be made on the basis of the
“total rand value of net
sales” without indicating whether such
sales include or exclude sales to the state. It is contended that this omission
gives
rise to an uncertainty that materially affects the calculations. It
appears from the evidence that the price of medicines sold to
the state is
ordinarily determined by tender, and not through prices fixed for sales to the
private sector. Section 22G(3)(a) provides
that the SEP does not apply to
medicines sold to the state. Since the regulations are concerned only with
sales to the private sector
I would construe regulation 5(2)(c) as referring to
sales, other than sales to the
state. |
Medicines sold for the first time
after January 2004
| [274] | The formula in regulation
5(2)(c) and Appendix A for setting the maximum SEP cannot be applied to
medicines that were not sold in
South Africa during 2003. If the sale of a
medicine or Scheduled substance commenced only on or after 1 January 2004,
regulation
5(2)(c)(ii) requires the “price” of the medicine (in this
context the “price” in my view is the maximum SEP),
to be
calculated |
“using the average of the total rand value of sales less the total rand
value of the discounts for the period for which the
medicine was sold and with
reference to the price of that medicine in other countries in which prices of
medicines and Scheduled
substances are regulated and
published.”
Regulation 5(2)(c)(i) deals in the same way
with Scheduled substances. It is not possible from these provisions to
determine how
the maximum SEP should be calculated. Assuming that it can be
established what countries are referred to and what the prices are
(presumably
the manufacturer knows this) there is no indication of how this formula is to be
applied if the prices differ. The words
“with reference to” are
insufficient to provide a basis for the calculation to be made.
| [275] | The only purpose served by
regulation 5(2)(c) is to fix a maximum SEP for medicines at the commencement of
the regulations. Since
the formula used for determining this maximum was based
on 2003 sales, it could have no application to medicines that were not sold
during 2003. Hence the provisos, which are directed to determining the maximum
SEPs for medicines that came onto the market between
1 January 2004 and the date
of commencement of the regulations. The formula for doing so must be
sufficiently precise to enable
that to be done. |
| [276] | Since preparing this
judgment I have had the benefit of reading the judgment of Yacoob J who suggests
that the provisos were adopted
to allow for a more flexible method of
calculating SEPs for medicines which had only recently come onto the market. I
regret that
I cannot agree with this proposition. That would have applied
equally to medicines that came onto the market during the last month
or two of
2003. The provisos were necessary, not for this reason, but because the
prescribed formula has no application to products
that were not sold during
2003. It was therefore necessary to have a different formula for such products.
For the reasons that I
have given I consider that the method for determining the
maximum SEP for these products prescribed by the provisos is too vague
and
uncertain to enable persons affected by the regulation to calculate the maximum
that was permissible. |
| [277] | In
these circumstances, and considering all the problems and uncertainties that
there are in construing regulation 5(2)(c) as a whole
I would hold that the
regulation is too uncertain to be
enforced. |
International benchmarking
| [278] | The SEP set initially is
later required to be brought into line with international benchmarks. This is
dealt with in regulation 5(2)(e)
which
provides: |
“The Director-General must determine and publish in the Gazette a
methodology for conforming with international benchmarks,
taking into account
the price, and factors that influence price, at which the medicine or Scheduled
substance, or a medicine or Scheduled
substance that is deemed equivalent by the
Director-General, is sold in other countries in which prices of medicines and
Scheduled
substances are regulated and published and the single exit price of
each medicine or Scheduled substance must, within 3 months of
publication of
such methodology in the Gazette conform with international benchmarks in
accordance with such methodology.”
Objection is taken
to this provision on the ground that the regulation delegates to the
Director-General a discretion not permitted
by section 22G(2)(a) of the
Medicines Act.
| [279] | The methodology is an
essential part of the pricing system, and is the basis for the determination of
the maximum SEP. No objective
criteria are set for establishing the
methodology. In effect, the regulations vest a broad subjective discretion in
the Director-General
to determine a crucial part of the pricing
system. |
| [280] | It may well be legitimate
for the Minister and the Pricing Committee to make provision for a system which
will require the prices
of medicines in South Africa to be brought into line
with international benchmarks, and to delegate to the Director-General the
responsibility
for making the calculations necessary to give effect to that
methodology. But the regulations go much further than that. They delegate
to
the Director-General the power to determine the methodology itself. The
Director-General has to decide what factors that influence
price are relevant
and have to be taken into account, what medicines are deemed to be equivalent
for the purpose of the benchmarking,
what countries are to be used for the
purpose of the benchmarking, and what methodology is to be applied in
determining whether or
not the SEP is in conformity with “international
benchmarks”. |
| [281] | The
methodology will ultimately determine the SEP of every medicine or Scheduled
substance. That was pre-eminently a task for the
Minister and the Pricing
Committee. The Pricing Committee was appointed because of its special
expertise. Policy considerations
require the Minister’s involvement as
well. They must determine the pricing system themselves, and not delegate this
function
to the Director-General. I would therefore hold that regulation
5(2)(e) constitutes an unauthorised delegation of power and for
that reason is
invalid. This defect in the regulation can be remedied by reading words into
the regulation. I would do so by reading
into the regulation the words:
“the Minister on the recommendation of the Pricing Committee” in
place of “the
Director-General”. |
Increases in the
SEP
| [282] | We live in times when
inflation and volatile exchange rates have an impact on prices. Prices are
continually changing in relation
to these factors and other market
considerations. It could never have been contemplated that the regulations
would require the SEP
to be firm, and not subject to increase from time to
time. |
| [283] | Having made provision for
a maximum SEP it was necessary for that determination to be subject to review
from time to time. The regulations
address this issue by making provision for
an annual review,[220] and for
reviews at other times to be made in exceptional
circumstances.[221] Here too
objection has been taken to the delegation of powers to the Minister, and to the
vagueness of the relevant regulations. |
| [284] | Regulation 8 deals with
annual increases. Regulation 8(1) provides: |
“The extent to which the single exit price of a medicine or Scheduled
substance may be increased will be determined annually
by the Minister, after
consultation with the Pricing Committee, by notice in the Gazette with regard
to—
(a) the average CPI for the preceding year;
(b) the average PPI for the preceding
year;
(c) changes in the rates of foreign exchange and purchasing power parity;
(d) international pricing information relating to medicines and Scheduled
substances;
(e) comments received from interested persons in terms of regulation 8(2);
and
(f) the need to ensure the availability, affordability and quality of medicines
and Scheduled substances in the
Republic.”
Interested parties
are given an opportunity to make representations to the Minister before such
determination is made and the procedure
to be followed in that regard is set out
in regulation 8(2).
| [285] | Because of the different
factors which may affect the determination of a maximum price for a particular
SEP, it would have been difficult
for the regulations to prescribe a formula for
this to be done. Had the regulations made provision for the Pricing Committee
and
the Minister to exercise control over the process that would have been
consistent with section 22G(2). The regulations do not, however,
do this. They
provide that the determination shall be made by the Minister “after
consultation with the Pricing Committee”.
This would require the Minister
to give serious consideration to the views of the Pricing Committee, but would
leave her free to
disagree with
them.[222] This is in contrast
with the Medicines Act, which requires agreement between the Minister and the
Pricing Committee on the pricing
system. |
| [286] | The
annual review is an important component of the pricing system. It involves a
consideration of factors in which expertise in the
pricing of medicines is
required. Since the Pricing Committee has to be involved in the process there
is no practical necessity
for delegating this function to the Minister alone.
What the regulation does is to leave to the Minister alone, a task which is
the
joint responsibility of the Minister and the Pricing Committee, without there
being any practical necessity for this to be done,
or any obvious reason why the
Pricing Committee’s power should be subordinated to that of the Minister.
In my view the delegation
of the decision-making power to the Minister alone is
an improper delegation of a power vested jointly in the Minister and the Pricing
Committee by the Medicines Act. I would hold regulation 8(1) to be invalid for
this reason. I would, however, correct this defect
by reading into the
regulations the words: “the Minister on the recommendation of the Pricing
Committee” in place of
the words: “the Minister after consultation
with the Pricing Committee”. |
| [287] | There is, however, another
problem concerning price increases. Regulation 7
provides: |
“Subject to the provisions of regulations 5, 8 and 9, the single exit
price of a medicine or Scheduled substance may only be
increased once a
year.”
Regulation 5 deals with the setting of the first
SEP and provides in sub-regulations (2)(a) and (b):
“The single exit price must be set in accordance with the following
provisions—
(a) for a period of one year after commencement of these regulations the single
exit price shall not be increased;
(b) subject to sub-regulation 5(2)(a) the single exit price may be increased in
terms of regulation 8 of these
regulations”.
This means that
SEPs established at the date of the commencement of the regulations must not be
increased during the first year following
that date. After the first year they
may be increased in accordance with regulation 8.
| [288] | Regulation 8(3)
provides: |
“Subject to the provisions of regulation 8(1), a manufacturer or importer
may no more than once a quarter increase the single
exit price of a medicine or
Scheduled substance within a year provided
that—
(i) such increase does not exceed the single exit price of the medicine or
scheduled substance as first published in respect of that
year;
(ii) the increase in the single exit price is applied to all sales of the
medicine or Scheduled substance and not the selected categories
of
purchasers;
(iii) the manufacturer or importer notifies the Director-General of the increase
in the single exit price at least 48 hours prior
to the implementation of such
increase;
(iv) the single exit price may not be increased as contemplated in terms of this
regulation 8(3) within the period of six months
beginning from the date of
commencement of these
regulations.”
| [289] | Apparent contradictions
between regulations 5, 7 and 8 are: |
| (a) | Regulation 7 provides that
the SEP may be increased once a
year. |
| (b) | Regulation 8(3) provides that the SEP
may be increased no more than once a
quarter. |
| (c) | Regulation 5(2)(a) provides that
for a period of one year after the commencement of the regulations the SEP shall
not be increased. |
| (d) | Regulation 8(3)(iv)
provides that increases in terms of regulation 8(3) may not be made within the
period of six months from the date
of commencement of the
regulations. |
| [290] | Yacoob J has suggested a
means of reconciling these provisions. In his view regulation 7 allows a
manufacturer or importer to increase
the SEP if the Minister fails to publish a
notice and make a determination timeously in accordance with regulation 8(1). I
am unable
to agree with this. It seems to me to be contrary to the policy of
the Medicines Act and the regulations to hold that a failure
by the Minister to
act timeously would result in there being no constraints upon manufacturers and
importers in relation to price
increases. I am also not persuaded that the
language of the regulations is reasonably capable of the construction he has
placed
on it. |
| [291] | It seems to me to be more
likely that the purpose of regulation 8 is to establish a system in which a
maximum permissible increase
of the SEP would be determined on an annual basis,
but space would be left for manufacturers and importers to fix the SEP at a
price
below the maximum. Manufacturers and importers who do so would then be
allowed to increase prices on a quarterly basis as long as
they do not exceed
the maximum allowed. This would also be consistent with the Pricing
Committee’s final report to the Minister
on 21 April 2004 under cover of
which the final regulations were submitted to the Minister. It indicated
that |
“manufacturers may reduce and increase their prices in response to
competitive imperatives, as long as the price at no time
exceeds the SEP that
has been established for that year and that these price increases do not occur
more than once a quarter.”
| [292] | Regulation
8(3) is confusing, badly worded, and if regard is had to regulations 5, 7 and
8(1), too vague to be understood by those
bound by it. I would hold it to be
invalid on those grounds. It needs to be harmonised with regulations 5 and 7,
and redrafted
to indicate with sufficient clarity what is meant, and what is
permissible concerning price reductions and price increases. When
the
regulations are reformulated attention also needs to be given as to how
reductions in the SEP, and increases in the SEP made
in terms of regulations 8
and 9, are to be
published.[223] |
Exceptional
circumstances
| [293] | Regulation 9(1)
provides: |
“The Minister may, in exceptional circumstances, authorise a manufacturer
or importer, on written application by such manufacturer
or importer, to
increase the price of a medicine or Scheduled substance by a specified amount
greater than that permitted in terms
of regulation
8.”
This is also objected to as an invalid
delegation.
| [294] | The criteria to be taken
into account by the Minister are set out in regulation
9(2).[224] These provide
sufficient guidance for determining whether or not “exceptional
circumstances” exist. This is a decision
that may have to be taken
urgently, and will be relevant for a limited period until the next annual
review. Any increase allowed
under regulation 9(1) will be taken into account
at the time of such review. In the circumstances it seems to me to be
legitimate
for the regulations to leave these “exceptional” measures
to the Minister to decide. |
Publication of the
SEP
| [295] | Section
22G(3)(a) of the Medicines Act requires the SEP to be “published as
prescribed”. It is contended by New Clicks
that this requirement has not
been complied with because regulation 3 provides for publication of the SEP in a
manner to be determined
by the Director-General from time to time “by
notice in the Gazette”. This leaves it to the Director-General to
determine
when and how the publication should take
place. |
| [296] | This
contention overlooks the requirements of regulations 24 and 4. Regulation 24(1)
requires manufacturers and importers within
one month of the date of
commencement of the regulations to submit to the Director-General “a
schedule reflecting the single
exit price of a pack of each medicine or
Scheduled substance sold by them, including the pack size, dosage form and
strength of the
medicine or Scheduled substance”. Regulation 4 requires
the single exit price to “be clearly and legibly reflected on
the package
or the immediate container within which a medicine or Scheduled substance is
sold to a user.” These provisions
ensure that the SEP will be published
to the Director-General, to participants in the distribution chain and to
persons who buy from
the pharmacists. The Medicines Act requires only that the
SEP should be published as prescribed. Regulations 4 and 24 meet that
requirement in so far as the first SEPs are concerned. Regulation 19
contemplates that applicants for the registration of new medicines
will
determine the first SEP for that medicine and inform the Director-General of
that. The SEP will also have to be marked on the
packaging in accordance with
regulation 4. In the circumstances the objection must be
rejected. |
The logistics fee
| [297] | Section 22G(2)(c) of the
Medicines Act authorises the Minister on the recommendation of the Pricing
Committee to make regulations
“on an appropriate fee to be charged by
wholesalers or distributors”. Regulations 5(2)(f) and 5(2)(g) do this by
making
provision for a logistics fee. They
provide: |
“5(2) The single exit price must be set in accordance with the following
provisions—
. . . .
(f) Subject to regulation 5(2)(g), the logistics fee must be determined by
agreement between the provider of the logistical services
and the manufacturer
or importer.
(g) The Minister must determine a maximum logistics fee where, in the opinion of
the Minister, such a determination is necessary
to promote or protect the
interests of the public
in—
(i) ensuring reasonable access to affordable
medicines;
(ii) the realisation of the constitutional right of access to health care
services contemplated in section 27 of the Constitution;
(iii) the efficient and effective distribution of medicines and Scheduled
substances throughout the Republic.”
It is contended by
the Pharmacies that an agreed fee is not appropriate and that it is not
transparent.
| [298] | A logistics fee determined
by agreement between the parties to the transaction is a fee determined by
market conditions between parties
free to bargain with one another, and whose
interests do not coincide in all material respects. That is an appropriate fee,
bearing
in mind the provision for the fee to be capped if that should be
necessary in the public interest. |
| [299] | The power to determine a
maximum fee is, however, vested in the Minister if in her “opinion”
such a determination is
necessary. Although the “capped” fee must
be “appropriate”, and to that extent is subject to objective
criteria,
regulation 5(2)(g) in effect leaves it to the Minister to determine
the “appropriateness” of the fee, instead of setting
a maximum
itself. The regulations could possibly have done so by fixing a maximum fee in
the form of a charge based on a percentage
of the cost of the medicine (a
reasonable wholesaler’s mark-up), as was done in the case of the
dispensing fee, or in some
other way that would have enabled the determination
of the maximum fee to be calculated from the terms of the regulations
themselves.
If this had been done the parties would have been free to bargain
for appropriate fees less than the maximum, depending on the services
to be
rendered. However, because of the different services that may be provided by
different wholesalers and distributors there
may have been good reasons for not
adopting this approach. |
| [300] | The
regulations do not, however, address what the cap for an appropriate fee will
be, or how it is to be determined. They leave that
to the Minister to determine
if “in her opinion” it is necessary to do so. The maximum logistics
fee, like the maximum
SEP, is an important part of the pricing system. If it was
considered necessary to have greater flexibility than is possible by prescribing
a maximum fee in the regulations, or a formula for determining it, the fixing of
the fee should have been delegated to the Pricing
Committee and the Minister,
and not to the Minister alone. I would therefore hold that the provision
vesting in the Minister the
power to determine a cap for the logistics fee
constitutes an impermissible delegation. I would, however, remedy that defect
by
reading into regulation 5(2)(g) after the word “the Minister”,
the words “on the recommendation of the Pricing
Committee”. |
Transparency and
publication of the logistics fee
| [301] | The SCA held that the
logistics fee was not “transparent” because it was a fee to be
“determined by agreement between
the provider of logistical services and
the manufacturer or
importer”.[225] This seems
to contemplate that the regulations should have fixed a basis for the
determination of the fee, and not have left it
to the parties to determine
themselves. |
| [302] | However, the services
provided by a wholesaler or distributor will vary depending upon the agreement
they have with the manufacturer,
and the choice to leave the determination of
the logistics fee in the first instance to agreement between the parties to the
contract
is not inappropriate. For instance, a fee payable to a wholesaler who
imports the medicines or Scheduled substances is likely to
be more than a fee
payable to a wholesaler who purchases the products in South Africa from the
manufacturer or the distributor.
And the same applies to differences in
volumes, geographical areas, and other services that may have a bearing on the
particular
fee to be paid to a particular wholesaler or
retailer. |
| [303] | The logistics fee is an
expense that manufacturers may now have to incur if they wish to deal in the
South African market. In this
respect it is no different to other expenses
which the manufacturer has to carry in order to produce and distribute its
products.
All those expenses are the result of agreements between the
manufacturer and its suppliers or service providers. All have to be
taken into
account by the manufacturer in setting a price to be the basis of the
calculation of the first SEP. What is important
is that the amount of the
“logistics fee” should be made known in a way that meets the
requirement of transparency. |
| [304] | There
is no provision of the regulations (other possibly than their inclusion in the
SEP) that requires the logistics fee to be made
public. Regulation 21(2)(d)
makes provision for a method of informing the public of the fees charged by
wholesalers, distributors,
retailers and other persons selling medicines and
Scheduled substances, but it is left to the discretion of the Director-General
to decide whether or not to require this to be done. This does not meet the
transparency called for by the Medicines Act. The omission
is not sufficiently
material to justify the regulations being set aside for this reason alone. The
defect must, however, be remedied
and I would do so by reading into regulation
21 the words “and in the case of the information referred to in regulation
21(2)(d)
must” before the words “publish or otherwise communicate,
or require”. This will not preclude the Minister on
the recommendation of
the Pricing Committee from amending the regulations to make provision for a
different method of publication
consistent with the Medicines
Act. |
Is there certainty as to the
SEP?
| [305] | It was also contended that
the inclusion of the logistics fee in the calculation of the SEP gives rise to
uncertainty and contradictions.
There are three related arguments that were
raised. First, that the inclusion of the logistics fee as a component of the
SEP, is
inconsistent with regulation 5(2)(f) which requires the fee to be
determined by agreement between the manufacturer and the wholesaler
or
distributor. This, it was argued, could not be complied with where a
manufacturer uses more than one wholesaler or distributor
to market its
medicines. In that event, if there are different agreements between the
manufacturer and the different intermediaries,
there may be more than one SEP
for the same product which would be inconsistent with section 22G(3)(a) of the
Medicines Act. |
| [306] | Regulation 5 deals with
the setting of the SEP at the commencement of the regulations. What the
regulation requires is that there
should be agreement between the manufacturer
on the one hand and the relevant wholesaler or distributor on the other, as to
the SEP
at which the medicine would be sold at the commencement of the
regulations. The logistics fee had therefore to be determined in
advance and
built into the SEP. If there was more than one wholesaler or distributor all
would have had to be party to the agreement.
Construing regulation 5 in this
way avoids any contradiction between regulation 5(2)(f) and section 22G(3)(a).
There would be only
one logistics fee and that fee would have been taken into
account in determining the SEP. |
| [307] | It is not permissible for
a manufacturer to fix different SEPs for different wholesalers and distributors.
It follows that once the
SEP has been set, it controls all sales by the
manufacturer unless and until the SEP is changed in accordance with the
provisions
of the regulations. If wholesalers and distributors who were not
party to the original agreement are subsequently used to market
the medicine,
they must agree to do so on the basis of the existing logistics
fee. |
| [308] | It was also contended that
if the logistics fee is included in the SEP then, instead of selling at the SEP
which is what section 22G(3)(a)
requires, the manufacturer will in truth be
selling at the core price. This is not so. Sales must be at the SEP. The fact
that
the “logistics fee” is taken into account in calculating the
SEP is not inconsistent with this. The sale must be at
the SEP subject to a
provision that the manufacturer will pay the wholesaler or distributor the
agreed logistics fee. The manner
and time of payment of that fee will depend on
the terms of their agreement. |
| [309] | Finally, it was contended
that payment of a logistics fee cannot be reconciled with regulation 6 which
provides: |
“A manufacturer, importer, distributor or wholesaler may not charge any
fee or amount other than the single exit price in respect
of the sale of a
medicine or Scheduled substance to a person other than the
State.”
| [310] | In the context of the
Medicines Act and the regulations as a whole, regulation 6 must be read as
referring to a fee other than the
logistics fee. Otherwise it would be contrary
to the Medicines Act which makes provision for wholesalers and distributors to
charge
an “appropriate” fee for selling medicines. Construed thus
there is no contradiction between regulations 5 and
6. |
Appropriate dispensing fee for
pharmacists: regulations 10 and 11
| [311] | Section
22G(2)(b) authorises the Minister on the recommendation of the Pricing Committee
to make regulations “on an appropriate
dispensing fee to be charged by a
pharmacist or by a person licensed in terms of section 22C(1)(a)” of the
Medicines Act.
Regulations 10, 11 and 12 deal with the dispensing fee for
medicines and Scheduled substances in Schedules 1 to 8 of the Medicines
Act.
Regulation 13 deals with Schedule 0 medicines. It is contended by the
Pharmacies that the dispensing fees thus prescribed
are not
“appropriate” and that these regulations are accordingly
invalid.[226] |
| [312] | The SCA held that there is
no absolute standard for determining what is “appropriate”, and that
reasonable persons may
well disagree about
this.[227] It held, however, that
“appropriate” is a justiciable standard, requiring a balance to be
struck between the needs of
the public to have access to affordable medicine and
the interests of pharmacists who are an essential link in the supply chain.
It
said that a fee that is unjust or unfair could not be regarded as an
“appropriate”
fee.[228]
|
| [313] | Counsel for the applicants
submitted that the SCA erred in adopting this approach. They contended that
courts are ill equipped to
deal with economic matters and ought not to sit in
judgment on what are essentially political decisions taken by the executive in
making regulations. I do not agree that a court should refrain from examining
the lawfulness of the dispensing fee simply because
the decision as to what it
should be involves economic and political considerations. The exercise of all
public power is subject
to constitutional
control[229] and it is the duty of
courts if called upon to do so to determine whether or not power has been
exercised consistently with the requirements
of the Constitution and the law.
In the present case it is contended that the dispensing fee prescribed in the
regulations is not
an “appropriate” fee within the meaning of
section 22G(2) of the Medicines Act. It was the duty of the courts which
have
dealt with this matter, including this Court, to decide whether this contention
is correct. |
| [314] | The purpose of section 22G
of the Medicines Act read in the context of the Medicines Act as a whole is to
enhance the accessibility
and affordability of medicines. This is an obligation
of the state which in terms of section 27 of the Constitution is obliged to
take
reasonable measures to enhance access to health
care. |
| [315] | Section 22G requires the
measures taken to achieve this end to be “appropriate”. The cost of
medicine is relevant to
accessibility, but it is not the only factor. The
medicine must be available to those who require it. Pharmacies are an essential
component of the distribution chain. If pharmacies go out of business the
accessibility of medicines will be impaired. An appropriate
fee is thus one
which at least strikes a balance between these requirements of cost and
availability. |
| [316] | This does not mean, as the
SCA pointed out, that there is only one appropriate fee, or that courts are
entitled to substitute their
decision for that of the Pricing Committee and the
Minister, because they consider it to be better than theirs. Unless a court is
satisfied that the dispensing fee is in fact inappropriate it is not entitled to
interfere with the decision of the Minister and
the Pricing Committee, even if
it disagrees with it. |
| [317] | According to Professor
McIntyre the dispensing fee should be a professional fee for services rendered
by pharmacists in connection
with the sale of medicines. It should be
sufficient to enable a well-run pharmacy to make a reasonable profit. This is
not disputed.
What is disputed is whether the prescribed dispensing fee is
sufficient for this purpose. |
| [318] | The SCA held that the
dispensing fee was not “appropriate” because “the unassailed
factual material on record”
showed that the fee will not provide
pharmacists with sufficient revenue to cover their operating
costs.[230] The “factual
material” referred to consisted in the main of reports made by experts
concerning the impact that the prescribed
dispensing fee will have on the
viability of pharmacies, and the material on which such reports are
based. |
The introduction of a professional
dispensing fee
| [319] | Before the regulations
came into force pharmacists sold medicines to clients at a mark-up over the
purchase price. In addition there
was a small dispensing fee of R1,30 per item
and other small charges for containers and broken bulk when part but not all of
a package
of medicine was sold. The Medicines Act shifts revenue from a mark-up
on the sale of medicine, to a prescribed dispensing
fee. |
| [320] | Professor McIntyre says
that the approach adopted by the Pricing Committee was that the dispensing fee
should provide an appropriate
remuneration for the pharmacist’s
professional services, taking into account not only the time and expertise
involved in dispensing,
but also the costs associated with that service. In
making these calculations regard should be had to income that can be derived
from professional services other than dispensing, for which charges can be made.
A fee that gives effect to these considerations
should also be as simple as
possible and clear and understandable to the consumer. A flat fee for medicine
in the more expensive
range serves this purpose. A percentage fee for medicine
in the lower cost range is necessary to ensure that such costs are not
“overburdened”. |
| [321] | Her response to the
allegation that the fee is not appropriate is that the Pricing Committee
conducted a thorough investigation, considered
all the information put before
it, and applying these principles concluded that the prescribed dispensing fee
would enable well-run
pharmacies to make a reasonable
profit. |
Different types of pharmacies
| [322] | PSSA contend that there
are four different types of pharmacies whose operations will be affected in
different ways by the dispensing
fee. They are community pharmacies, courier
pharmacies, pharmacies in medical centres and hospital pharmacies. There are
also different
considerations relevant to community pharmacies in urban areas
and those in rural areas. The Pharmacies argue that the dispensing
fee is not
sufficient to enable any of these types of pharmacies to trade profitably. In
support of this contention they rely on
the evidence of three experts, Mr
Jordaan, Dr Stillman and Mr Kellerman. I deal later with this
evidence.[231] |
Community
pharmacies
| [323] | Community pharmacies are
retail pharmacists that operate shops. They have a dispensary (the back shop)
from which medicine is sold,
and a front shop which deals in consumer goods.
According to Professor McIntyre the Pricing Committee asked PSSA and other
associations
representing pharmacists to provide them with information to show
the actual costs of dispensing medicines, but none of the associations
did so.
Instead, they provided information showing the revenue and expenditure of
pharmacies as one business, without the breakdown
necessary to separate
dispensing from other activities including the running of the front shop.
Similar averments are made by Dr
Pillay and Dr
Zokufa. |
| [324] | This is disputed in the
replying affidavit by Mr Honeysett, who is the principal deponent to affidavits
on behalf of New Clicks.
He says in response to this
allegation: |
“[I]t is now suggested that the applicant has only in this application
made available information which it was previously invited
to produce. This is
simply untrue and it is striking that the information given now is not properly
addressed. The applicant in
fact made a full presentation at the oral hearing
to which it was invited. What Dr Zokufa does not disclose is that at the end of
that hearing it was complimented by representatives of the Department and
Pricing Committee for the completeness of its representations
and its
helpfulness. It was only after the regulations were already published and after
I complained about its content to Dr Pillay,
that he invited further
information.”
| [325] | This is not a dispute that
can be resolved on the papers. What is relevant and of importance, however, is
that whether it asked for
this information or not, the Pricing Committee appear
to have dealt with the dispensing fee without having such information. In
doing
so it made assumptions that, on the papers before us, cannot be
sustained. |
The back shop and the front
shop
| [326] | First, it is assumed that
the dispensaries of community pharmacies subsidise the front shops. In this
regard Dr Zokufa says that
“[e]ffectively, mark-ups on medicines have
heavily cross-subsidised expenses related to front shop activities” to
date.
He goes on to say that it is not appropriate, as implied by New Clicks
and PSSA, that the dispensing fee “should be increased
in order to address
the threat to financial viability imposed by inefficient front shop
operations.” Professor McIntyre’s
evidence is to the same effect,
and she says that consumers ought not to bear such
costs. |
| [327] | Neither Dr Zokufa nor
Professor McIntyre provide any evidence in support of the assertion that the
dispensaries subsidise the front
shops, nor do they indicate the source of this
allegation. The Pharmacies dispute this assertion and the averment that this
can
be implied from their opposition to the dispensing fee. They contend that
it is not a logical proposition for, if this were so,
pharmacists would confine
their operations to dispensing and rid themselves of loss-making
activities. |
Revenue from compounding
| [328] | The Pricing Committee and
the Minister say that in addition to revenue from the dispensing fee, regard
must be had to additional revenue
streams that pharmacists can earn from
compounding medicines, primary care drug therapy, and from other services such
as tests and
taking blood pressure for which the pharmacist can charge
separately. They do not say how they calculated the revenue stream from
these
“additional sources of revenue” or what weight was given to it in
their calculations. It seems, however, to have
been treated as a significant
factor, on which much emphasis is placed in their affidavits. It also seems
clear from their evidence
that in formulating the final regulations the Pricing
Committee did not take “compounding” and “admixing”
into
account in determining the dispensing fee. |
| [329] | The Pharmacies dispute the
contention that there are material revenue streams apart from dispensing that
are available to pharmacists.
They say that on a proper construction of the
Medicines Act and the regulations, compounding is part of dispensing and that
revenue
from other sources is negligible. Dr Stillman says that in his
calculations all revenue was taken into account including revenue
that may have
been earned from compounding and other sources. |
| [330] | There is a dispute on the
papers as to whether dispensing includes compounding. In the definition of
compounding contained in the
regulations made in terms of the Pharmacy Act, 53
of
1974[232] |
“‘dispensing’ means the interpretation and evaluation of a
prescription, the selection, manipulation or compounding
of the medicine, the
labelling and supply of the medicine in an appropriate container according to
the Medicines Act and the provision
of information and instructions by a
pharmacist to ensure the safe and effective use of medicine by the patient and
‘dispense’
has a corresponding meaning”.
| [331] | In the Pricing
Committee’s report to the Minister on the draft regulations submitted by
it on 18 December 2003, it is said that
the dispensing
fee |
“would cover all of the following services: the interpretation and
evaluation of a prescription, the selection, manipulation
or compounding of the
medicine, the labelling and supply of the medicine in an appropriate container
and the provision of information
and instructions by a pharmacist to ensure the
safe and effective use of medicine by the patient. It should also be noted that
this
fee will also cover both the professional remuneration and the
pharmacy’s operating costs.”
This fee would cover
all services outlined in the definition of dispensing above. This in substance
is the definition of dispensing
in the Pharmacy Act regulations.
| [332] | Although this is not
repeated in the report on the final regulations – there is no reference
there to what dispensing includes
– neither Professor McIntyre nor Dr
Zokufa offers any explanation for the comment in the first report as to what
dispensing
includes. Nor do they say why the Pricing Committee subsequently
changed its mind. The first mention of the view that compounding
is not
included in the dispensing fee was in the High Court proceedings where the
Minister and the Pricing Committee contended that
compounding is not part of
dispensing. |
| [333] | The authority of
pharmacists to supply medicines comes from the Pharmacy Act and its
regulations,[233] which define
dispensing as including compounding. Dr Thiede refers in his affidavit to
“dispensing in the sense contemplated
by the regulations”. He does
not explain why the regulations contemplate a distinction being made between the
meaning of “dispensing”
in the Pharmacy Act regulations, and its
meaning in the Medicines Act, nor does he say why the Pricing Committee took a
different view when it made its report to
the Minister on the draft regulations
where the basic fee structure was set. |
| [334] | It hardly seems to be
practical for a medicine compounded or admixed pursuant to a doctor’s
prescription for a particular patient
to be subjected to the requirements for
setting and publishing the SEP for medicines. Nor would I construe section
22G(3)(a) as
requiring that. In my view “manufacturer” in section
22G(3)(a) must be construed as being a person other than a pharmacist
or a
licensed health professional. If that is so, the section does not apply to
medicine “made” by them for particular
patients through compounding
or admixing. |
| [335] | This does not mean,
however, that the regulations do not have to deal with compounding and admixing.
Sections 22C(1)(a) and 22C(5)
of the Medicines Act require persons other than
pharmacists to be licensed to “compound and dispense”. Section
22G(2)(a)
requires the pricing system to be for “all medicines and
Scheduled substances” sold in the Republic. That would include compounded
and admixed medicines sold by pharmacists
and licensed health
professionals. |
| [336] | Section 22G(2)(b)
contemplates that the regulations will make provision for an appropriate
dispensing fee to be charged by a pharmacist
or licensed health professional.
The General Regulations made in terms of the Medicines Act in 2003 define
“compound”
as meaning to prepare, mix, combine, package and label a
medicine for dispensing, and define “dispense” in the case of
a
pharmacist, as meaning “dispense” as defined in the regulations
under the Pharmacy Act. Those regulations define dispensing as including
compounding. |
| [337] | The Medicines Act defines
“sell” as meaning “sell by wholesale or retail . . . or
prepare or possess for purposes
of sale”. A pharmacist who compounds or
admixes medicines for a customer pursuant to a doctor’s prescription and
“sells”
the compounded or admixed product, dispenses
it. |
| [338] | “Compounding”
and “admixing” involve the preparation by a pharmacist of medicine
for sale to the public, and
are components of dispensing. Section 22G(2)(b)
requires provision to be made for an appropriate dispensing fee to be charged by
pharmacists and licensed health professionals. That fee should therefore deal
with compounding and admixing. |
| [339] | Professor McIntyre
concedes that pharmacists may spend a considerable amount of time compounding
and admixing medication. It is,
however, clear from the regulations and the
Pricing Committee’s own evidence that the dispensing fee has been set in a
way
which makes no provision for this. It is not clear what the implications of
this will be for the average pharmacist or licensed
doctor, though the Minister
and the Pricing Committee contend that compounding constitutes a significant
revenue stream additional
to dispensing, which will supplement the revenue
stream of the pharmacy. What is clear, however, from the evidence is that
compounding
of oncology medicine is a highly specialised time consuming task,
requiring a significant capital investment, and special skills.
If no allowance
is made for this activity in the regulations, the “one size fits
all” dispensing fee will impact more
severely on those specialists, than
the “average” pharmacist. |
| [340] | The Minister and the
Pricing Committee do not indicate how compounded and admixed medicines are to be
dealt with in terms of the Medicines
Act and regulations if they are not
included within the concept of dispensing. Counsel for the Minister and the
Pricing Committee
could offer no answer to this conundrum other than to suggest
that there is no limit on the prices pharmacists can charge for the
preparation
and sale of such medicines. But that does not fit the structure and purpose of
the Medicines Act and regulations. |
| [341] | In my view the only way
that compounding and admixing can be dealt with, if regard is had to the
provisions and purpose of the Medicines
Act, is to treat these functions as
being an aspect of the dispensing function for which special provision has to be
made in addition
to the basic “dispensing fee”. And this, the
regulations fail to do. This omission is a factor relevant to the issue
of the
appropriateness of the dispensing
fee. |
Calculating the profitability of the
dispensary
| [342] | Professor McIntyre deals
with the approach adopted by the Pricing Committee to the calculation of the
dispensing fee. She says that
the Pricing Committee requested PSSA and other
associations representing pharmacists to provide information that demonstrated
the
actual costs of dispensing, but none of these associations did so. The
information provided apparently dealt with the shop as a
whole without a
breakdown of the separate activities of the front shop and the back shop.
According to Dr Thiede, who is a member
of the Pricing Committee, the dispensing
fee was calculated “on the basis of the dispensing activity and the
operational costs
relating to dispensing.” Yet nowhere in the minutes or
the affidavits is any reference made to the source of such information,
or how
the calculation was made in the absence of the information from pharmacists that
was considered by the Pricing Committee to
be essential for this
purpose. |
| [343] | The Pharmacies offer
expert evidence to demonstrate that pharmacies will not be viable if the pricing
system in the regulations is
applied. The evidence of Mr Jordaan, Dr Stillman
and Mr Kellerman is relied on to support this contention. In response, the
Minister
and the Pricing Committee rely on the evidence of Dr Pillay, Dr Thiede,
Professor Henry, Professor Mossialos and Professor Mooney.
Of these, only Dr
Thiede and Dr Pillay deal directly with the calculations made by the
Pharmacies’ experts. |
Mr Jordaan's
evidence
| [344] | Mr
Jordaan was employed as head of professional services at Purchase, Milton and
Associates from whom New Clicks had acquired their
chain of pharmacies. He
addresses the question whether the dispensaries in this chain of pharmacies,
treated as separate entities,
will be profitable if operated in terms of the
prescribed dispensing fee. He submits a report in which he concludes that the
overall
impact of the dispensing fee will be to place the continued viability of
the New Clicks pharmacies seriously at risk. |
| [345] | The community pharmacies
whose records were used by Mr Jordaan were acquired by New Clicks during 2003.
There were 80 pharmacies
in the chain. This was before the regulations came
into force. Mr Jordaan’s calculations are made on the basis of unaudited
records of sales of medicines during 39 days between August 2003 and January
2004, said to have been selected randomly. |
| [346] | He analyses the
information in these records and calculates the contribution that different
aspects of the business of the chain make
to the chain’s gross profit.
His calculations, which are not always easy to follow, lead him to conclude that
the gross profit
of the back shop expressed in rand terms would have been
reduced by 57,35% if the dispensing fee prescribed in the regulations had
been
applicable at that time. |
| [347] | His evidence is disputed
on three grounds – that he is not an expert, that his sample is too small
to be reliable and that he
has not had regard to revenue streams for
professional services other than dispensing, for which pharmacists are entitled
to charge.
In addition the calculations are also
criticised. |
| [348] | Mr Jordaan is a pharmacist
with an auditing diploma and experience in the operation of pharmacies. His
evidence on the impact of
the dispensing fee on profits involved the extraction
and analysis of data from the New Clicks records. There is no reason to doubt
his qualifications to undertake such a task. |
| [349] | He prepared four tables
dealing with the turnover in New Clicks stores and the gross profit rates on
sales in the various sectors
of these stores. The first three tables deal with
large, medium and small stores. The fourth is a model of a
“typical”
pharmacy prepared from the information in the first three
tables. He uses this model for the calculations in his
report. |
| [350] | The information is derived
from computer records of sales in the various stores which are exported on a
daily basis to a central data
base that New Clicks maintains and which is under
Mr Jordaan’s control. |
| [351] | The tables show the
contribution to total sales made by each of six departments in the stores and
the rates of gross profits on the
sales from such departments. The departments
are described as Beauty, Clinic, Fast Moving Consumer Goods, Prescription, OTC,
Vitamins
and Health. OTC are over the counter sales. Prescriptions and OTC are
from the “back shop” and the others from the
“front
shop”. |
| [352] | The fourth table, which is
the model on which he works, is as follows: |
|
Category Contribution to Total Sales
|
Gross Profit%
|
|
Beauty
|
0.85%
|
32.20%
|
|
Clinic
|
0.42%
|
|
|
Fast Moving Consumer Goods
|
2.35%
|
24.12%
|
|
Prescription
|
61.18%
|
27.36%
|
|
OTC
|
22.11%
|
30.87%
|
|
Vitamins & Health
|
13.08%
|
27.95%
|
There is no gross profit percentage shown for the Clinic which
contributes only 0,42% to turnover and has apparently been ignored
in the
calculations.
| [353] | The back shop contributes
approximately 83,29% to the shop’s turnover and the front shop 16,7%. The
tables dealing with large,
medium and small stores reveal a similar pattern. As
Dr Stillman points out in his report the gross profit rates in the different
departments do not differ materially. The back shop is clearly responsible for
most of the store’s “gross profit”.
There is, however, what
seems to be a patent error in Mr Jordaan’s report where he says that the
back shop contributes 27,9%
of the gross profit. This is inconsistent with the
comment he makes in the same paragraph of the report that the front shop makes
a
minimal contribution to gross profit and sales. The figures speak for
themselves that the back shop’s contribution to gross
profit is close to
84% of the total gross profit. |
| [354] | This patent error does not
seem to me to be of particular relevance to the conclusions reached by Mr
Jordaan. It is not commented
on by any of the experts. If correct, it may
possibly have been relevant to the allocation of expenses between the back shop
and
the front shop, though that has not been done on the basis of contributions
to gross profit. A more nuanced approach has been adopted
allocating particular
expenses according to their relevance to the activities of the front shop and
the back shop. That allocation
is not seriously disputed by Dr Thiede who
describes it as a “defensible
approach”. |
| [355] | Dr Thiede does, however,
question the reliability of Mr Jordaan’s conclusions. He says that
calculations were made on the basis
of records taken at random over 39 days in a
period of six or seven months (some calculations were done on six months, others
on
seven) from 80 pharmacies in one chain, and that this is not a representative
sample from which inferences can be drawn concerning
the industry as a
whole. |
| [356] | The calculations involved
an analysis of 651 966 transactions for the sale of medicines. It is no doubt a
small sample of the total
industry, but the conclusion that the dispensing fee
will convert profit-making pharmacies in the New Clicks group into loss-making
businesses is consistent with the analysis of the impact of the dispensing fee
on courier pharmacies, pharmacies in medical centres
and hospital pharmacies
dealt with by Dr Stillman. |
| [357] | Dr Thiede also criticises
Mr Jordaan’s report in so far as it deals with an income statement of a
typical pharmacy. He says
that in some respects the calculations made are
unclear, and incorrectly modelled, but he does not point specifically to items
other
than those to which Mr Jordaan responded and has given satisfactory
explanations, nor does he offer an alternative model of a typical
pharmacy. |
| [358] | There
is a further criticism that the report was prepared on the basis of estimates of
what the SEPs would be. But that must also
have been the case as far as the
dispensing fee is concerned because the SEPs were not known at that time. Mr
Jordaan says that
he assumed that the SEPs would on average be 20% less than the
manufacturer’s pre-regulation price list which was the “industry
perception” at that time. This is not disputed in the evidence nor is it
suggested that the SEPs would prove to be higher
than that. As Mr Jordaan
points out, if the SEPs prove to be lower than he assumed for the purpose of his
report, this would aggravate
the adverse impact of the dispensing fee on a
pharmacy’s business. |
Dr Stillman's
report
| [359] | Dr
Stillman is an economist specialising in the economics of competition policy and
regulatory issues. He considers the position
of the four categories of
pharmacies to which I have referred and concludes that the dispensing fee will
not provide any of them
with sufficient revenue to make them viable. He
prepared two reports to deal with this issue: the first to support the
contention
made by the Pharmacies that the regulations will destroy the
viability of pharmacies; and the second to reply to criticisms of his
report
made in the answering affidavits. |
| [360] | His qualifications to give
this evidence were also challenged. Whilst Dr Stillman’s expertise is not
directly concerned with
the pharmaceutical industry, he is a highly qualified
economist well able to undertake an analysis of the accounting
records. |
| [361] | Dr Stillman was provided
with information of the net sales, gross profit and operating profit of each of
75 New Clicks pharmacies
during a period of six months from July to December
2003. Information concerning the other five stores was considered by New Clicks
not to be reliable. Six of the remaining 75 pharmacies were excluded by Dr
Stillman from his analysis because they were start-up
stores or were going
through a process of refurbishment that disrupted their
operations. |
| [362] | Mr Jordaan’s
analysis in respect of the New Clicks pharmacies is relied on by Dr Stillman to
calculate whether the 69 pharmacies
in the chain would be profitable if revenue
had come from the dispensing fee. He analyses the data, using Mr
Jordaan’s estimate
that the dispensing fee will result in a 57,35%
reduction in gross profit expressed in rand terms. Applying this factor to the
69
shops in the chain, 14 of which were already operating at a loss, he
concludes that all but two of the shops would have operated
at a loss. The
other two would have made a small net profit, but not enough to warrant an
investment being made in them. |
| [363] | Dr Stillman’s
conclusions concerning the New Clicks pharmacies depend on the reliability of Mr
Jordaan’s report. That
report was based on an analysis of 80 pharmacies,
11 of which were rejected by Dr Stillman as not being sufficiently reliable for
his purposes. None of the applicants’ witnesses comment on this and it is
not possible from the evidence to say whether this
affects the reliability of
either or both reports. |
| [364] | Whilst some of Dr
Thiede’s criticisms of Mr Jordaan’s report are not without
substance, he does not analyse the model
produced by Mr Jordaan in any detail.
He offers no positive evidence of the model on which the Pricing Committee
worked to satisfy
itself that the dispensing fee is appropriate and that
pharmacies will be viable if it is applied. In the result the only evidence
we
have on the operating profit of a dispensary of a community pharmacy taken in
isolation, apart from assertions unsupported by
evidence, is that provided by Mr
Jordaan. |
Courier pharmacies
| [365] | Courier pharmacies, as
their name suggests, deliver medicine to their clients. They operate
dispensaries but do not have front shops.
Their services are of particular
importance to people who because of illness or other reasons cannot easily
access community pharmacies.
They serve chronically ill patients providing them
with medication (often expensive) at their homes and process claims for refunds
from medical aid schemes. |
| [366] | In considering the
profitability of courier pharmacies Dr Stillman relies on data from Chronic
Medical Dispensary (CMD), which is
owned by the fourth respondent in this
appeal. CMD is one of the three largest courier pharmacies in South Africa.
These pharmacies
deal in high volumes of sales and have a low profit margin. In
April 2004 CMD had an operating profit margin of 1,1%. The calculations
provided to Dr Stillman show that if revenue had been based on the dispensing
fee, CMD would have had a negative operating profit
margin of
5,1%. |
Medical centres
| [367] | Medical centres offer a
range of health services provided by doctors, dentists, and other health
professionals including pharmacists.
These pharmacies are similar in most
respects to community pharmacies, but are said to have front shops that are much
smaller than
those of community pharmacies. Dr Stillman relies on information
provided by Medicross, the operator of 44 pharmacies in these centres,
and Mr
Kellerman, a consultant to Medicross. According to this information, if the
revenue of these pharmacies had been based on
the dispensing fee the gross
profit of the pharmacies would have been reduced by 68% and the pharmacies would
have had operating
losses equal to 33% of revenue. In his second report Dr
Stillman corrects these figures. In the interim SEPs had been published
and Mr
Kellerman could now rely on that information instead of estimates on which his
first assessment had been based. As a result
he reduced the figures to a gross
profit loss of 59% and an operating loss of
20%. |
Hospitals
| [368] | Hospitals are required to
have pharmacies to serve their patients. Some of these pharmacies have small
“front shops”
as well. Dr Stillman was provided with data on actual
revenue and expenses of pharmacies in the Netcare group in 2003, and with
estimates by Mr Kellerman of the impact on the revenue if that had been based on
dispensing fees under the regulations. This indicated
that the gross profit of
the pharmacies would have been reduced by 63% and that this would have resulted
in an operating loss equal
to 8,7% of revenue. |
| [369] | The estimates of the
impact that the dispensing fee will have both on the operations of pharmacies in
medical centres and on hospitals
were thus made by Mr Kellerman and not by Dr
Stillman. Mr Kellerman says that the data was provided to him by the operator
of the
medical centre pharmacies and included details of 4,5 million
transactions. He analysed the 4,5 million transactions to determine
the
weighted average net cost of sales which he estimated to be close to the future
SEP for such sales. He does not say, however,
how he used this information to
calculate the total of the dispensing fees which would have been received for
the 4,5 million transactions. |
| [370] | His analysis of data from
hospital pharmacies was on 12 million transactions in 2003 and was done to
enable Dr Stillman to compare
the financial results that were actually obtained
in 2003 with the results that would have been obtained if the new regulations
had
been in effect. He confirms that estimates were made and provided to Dr
Stillman. The estimates appear from Dr Stillman’s
report, but not the
details of how they were made. |
| [371] | Dr
Stillman’s evidence as far as medical centres and hospital pharmacies are
concerned is based on Mr Kellerman’s analysis
of relevant data, which is
not set out in any detail in Mr Kellerman’s affidavit, nor commented on by
any of the applicants’
experts. The accuracy of the data is, however, not
challenged. Although the basic information is stated baldly, it has been
verified
by Mr Kellerman on oath, and there is no reason to reject
it. |
| [372] | The response of the
Minister and the Pricing Committee to the charge that the dispensing fee will
destroy the viability of pharmacies
is two-pronged. First, they rely on experts
to support their determination of the dispensing fee, and to criticise the
correctness
of the conclusions reached by Mr Jordaan, Dr Theron and Dr Stillman.
Secondly, they contend that the evidence relied on by the Pharmacies
is based on
a static model which assumes that there will be no change in market conditions.
That assumption, they contend, cannot
be made. There are presently too many
pharmacies for the population served by them, and the pricing scheme is premised
on the assumption
that when it comes into force the market will become more
rational and pharmacies that are not viable will close down. The volume
of
business of those pharmacies that remain will increase, and will be sufficient
to enable them to trade profitably. |
| [373] | The experts on whom the
Minister and the Pricing Committee rely are Dr Pillay, Professor Henry,
Professor Mossialos, Professor Mooney
and Dr Thiede. Of these five, only Dr
Pillay and Dr Thiede comment on the Jordaan and Stillman
reports. |
| [374] | Dr Pillay’s comments
are directed to Mr Jordaan’s conclusions concerning the impact of the
dispensing fee on gross profit
margins. He joins issue with Mr Jordaan on the
relevance of gross profit, saying that the negative gross profit margin on which
he relies is not an indicator of viability. He asserts that to determine
viability regard should be had to the revenue and operational
expenses of the
dispensary only, saying: |
“One should bear in mind that the regulations only affect the dispensary
within a retail pharmacy. None of the data that has
been supplied to date
addresses the income and expenditure of the dispensary which is directly
relevant to the regulations. Providing
information on the income and
expenditure of the entire pharmacy or store is irrelevant since the regulations
only relate to the
dispensary.”
| [375] | He also says that the
dispensing fees prescribed by the regulations do not differ materially from fees
offered in other countries
where prices are regulated. He gives no details,
however, of the countries he has in mind or of the way dispensing fees are
controlled
there. |
| [376] | Whilst gross profit may
not in itself be an indicator of the viability of a particular store – a
well-run store with high volumes
will fare better than a badly run store with
low volumes – gross profit is a factor relevant to viability. There must
be a
margin at which a pharmacy will not be viable, and that is the focus of Dr
Stillman’s evidence. |
| [377] | I have already referred to
Dr Thiede’s evidence concerning Mr Jordaan’s report. He also
criticises Dr Stillman, challenging
his qualifications and his approach to the
problem. He says that the methodology utilised is not explained in
detail and that it does not conform to standards applicable to rigorous
scientific studies, but does not identify where it is said to fall short of what
may be required to address the issues in the present
case. He criticises Dr
Stillman for looking at the store as a whole instead of the dispensary in
isolation, and for a failure to
have regard to other revenue streams apart from
dispensing and the front shop. These arguments are echoed in the affidavits of
Professor
McIntyre and Dr Zokufa and have already been
addressed. |
| [378] | Dr Thiede’s
criticisms are negative. He offers no positive evidence of the model on which
the Pricing Committee worked to satisfy
itself that the dispensing fee is
appropriate and that pharmacies will be viable if it is
applied. |
| [379] | Professor Henry, a member
of the Pricing Committee, deals with the Australian model. He does not,
however, address directly any of
the expert or other evidence relied on by the
Pharmacies concerning viability, or say how the fees prescribed in the
regulations
were calculated. |
| [380] | According to Professor
Henry the Australian scheme is based on the subsidisation of medicines sold. It
allows for a two-tier system,
in which there is a dispensing fee of AU$4,66 and
a retail margin of 10% on prescription items up to AU$180. Using an exchange
rate
of AU$1 = R5 (the rate he adopts) this works out at approximately R23 per
prescription plus 10% of the retail price. Nothing is
said about whether
discounts or other incentives are permissible, how compounding and admixing is
dealt with in Australia, nor how
rural pharmacies or specialist pharmacies such
as hospital pharmacies are dealt with under the
scheme. |
| [381] | Professor Henry does not
say how medicines costing more than AU$180 are dealt with. Dr Theron in a
report attached to her affidavit
deals with this, saying that the retail margin
is AU$18 for medicines costing AU$180 or more up to AU$360, and 5% for medicines
costing
AU$360 or more. This allegation is not
denied. |
| [382] | The Australian dispensing
fee is higher than the dispensing fee prescribed by the regulations, but in
Professor Henry’s view
this is accounted for by the difference between the
purchasing power of the Rand and the Australian Dollar. He also says that the
dispensing fee prescribed by the regulations compares favourably with dispensing
fees allowed in developing countries. He does not
give any information,
however, of what the provisions of those schemes are or how they compare with
the Pricing Committee’s
proposals. |
| [383] | The Australian system
described by Professor Henry has features similar to the system adopted by the
Pricing Committee, but differs
from the latter in material respects. It does
not have a SEP (which is apparently unique to South Africa) and makes provision
for
other charges to be made by pharmacists, though these are not explained or
dealt with in his evidence. The most important distinction,
however, is that
the Australian dispensing fee has no cap. There is a 10% surcharge on the
retail price of all medicines, reducing
to 5% as the retail price gets higher.
The South African model is quite different. |
| [384] | Professor Mossialos deals
with pricing systems in other countries but does not give sufficient detail to
enable reliable comparisons
to be made. He deals only cursorily with the
dispensing fee, saying that it is “very reasonable” within the
context
of the current framework of South Africa’s pharmaceutical system.
He does not, however, engage in the debate concerning the
impact of the
regulations on the viability of pharmacies in the South African context, or deal
in any way with the expert reports
relied upon by the
Pharmacies. |
| [385] | Professor Mooney deals
only with the question whether regulation or free market principles should have
been followed as a matter of
policy in the formulation of the pricing system.
This is in response to Professor Kantor’s affidavit criticising regulated
prices. Professor Mooney’s evidence is not relevant to the question
whether the dispensing fee is or is not an “appropriate”
fee. |
Changing conditions
| [386] | The assumption that market
conditions will change is a reasonable assumption. It appears from Dr
Stillman’s report that 14
of the community pharmacies acquired by New
Clicks were trading at a loss in 2003. According to PSSA’s written
submissions
made in response to the draft regulations, an actuarial analysis
based on a survey of 176 community pharmacies conducted by PSSA
showed that 24%
of these pharmacies operated at a loss during the 2003 financial year. Of this
group of loss-making pharmacies,
39% had an annual turnover of less than R2,47
million, 27% a turnover of between R2,47 million and R3,82 million, 23% a
turnover
of between R3,82 million and R6,28 million, and 9% a turnover in excess
of R6,28 million. |
| [387] | Dr Zokufa says that a
critical factor in setting the dispensing fee was the present dispensing
workload which was considered to be
too low. He goes on to say that pharmacists
must find a way of addressing this issue and also ways of supplementing their
income
by finding sources of revenue other than dispensing fees. He seems to
accept that on current volumes the dispensing fee may not
be
adequate. |
| [388] | It is reasonable to assume
that once the impact of the more stringent market conditions demanded by the
regulations is felt, the number
of pharmacies will be reduced and the volume of
business available to those who survive will increase. There is, however, no
evidence
to show what the impact of this is likely to be on the profitability of
pharmacies, or on the accessibility of medicines, particularly
in rural areas,
where it is acknowledged by Professor McIntyre that trading conditions are
difficult. |
Evaluation of the evidence
| [389] | The Pharmacies rely on
section 6(2)(e)(iii) of PAJA, which provides that a ground for reviewing
administrative action is that “irrelevant
considerations were taken into
account or relevant considerations were not considered”. They also
contend that the prescribed
dispensing fee is not authorised by the Medicines
Act because it is not an “appropriate”
fee. |
| [390] | I have previously
mentioned that courts must be sensitive to the special role of the executive in
making regulations. This, and the
special expertise of the Pricing Committee,
are factors to which due regard must be paid in the present case. What is or is
not
relevant, and what is appropriate, were in the first instance matters for
the Pricing Committee and the Minister to decide. But,
as pointed out in
Bato Star,[234] a court
should not “rubber-stamp” a decision simply because of the identity
of the decision maker.[235]
|
| [391] | The Pricing Committee
seems to have calculated the dispensing fee without any evidence of the
breakdown of the income and expenditure
of the dispensaries, information they
considered to be important for the proper determination of the dispensing fee.
They assumed
that dispensing subsidises the operations of the front shops of
community pharmacies. They have not, however, provided any evidence
to support
this assertion, which is denied by the Pharmacies. As Dr Stillman points out,
it is unlikely that front shops would be
operated if they were indeed
loss-making ventures. The Pricing Committee does not say what weight was
attached to this assumption
in the calculation of the dispensing
fee. |
| [392] | The Minister and the
Pricing Committee allege that pharmacists can add to their income by charging
for professional services that
are presently rendered without charges being
made. They do not say, however, what weight was attached to this consideration
in fixing
the dispensing fee. If that had been done the assumption could have
been interrogated. The evidence of the Pharmacies is that this
would be
negligible, and there is no evidence to contradict
this. |
| [393] | The Minister and the
Pricing Committee do not deal with the impact of the dispensing fee on rural
pharmacies. Professor McIntyre
says that the Pricing Committee considered the
predicament of rural pharmacies which are “economically disadvantaged,
primarily
because of a comparatively low turnover and also unfavourable payment
conditions from wholesalers.” They concluded, however,
that this is the
result of “distortions in the health sector” and that “an
appropriate dispensing fee should be
as neutral as possible in respect of such
distortions.” No mention is made of what those distortions (if any) are
other than
low turnover and adverse payment conditions. Moreover, they do not
suggest how these distortions could be overcome, what the impact
of the
dispensing fee will be on the economically disadvantaged rural pharmacies, and
how that will affect access to medicines in
rural
areas. |
| [394] | Against this background
the attitude of Professor McIntyre and Dr Zokufa to the hearings at which oral
representations were made by
the Pharmacies and others affected by the draft
regulations is relevant. They are both at pains to distance the Pricing
Committee
from these hearings, saying that they were hearings called by the
Department and were not meetings of the Pricing
Committee. |
| [395] | It is correct that the
“hearings” were not meetings of the Pricing Committee. The decision
to convene the hearings was,
however, taken at a meeting of the Pricing
Committee on 27 January 2004 and is recorded in the amended minutes of that
meeting.
According to these minutes the oral representations would be organised
and led by the “Directorate” and Pricing Committee
members would
also be invited. The minutes record that: |
“The Directorate should finalise dates for the stakeholder representations
and inform the Committee members by 6 February 2004.
The draft programme should
be circulated to the Committee members.”
It is also
recorded that:
“A standard invitation for the representations to be drawn up by the
Department’s Legal Unit. In this invitation, it
should be clarified that
the presentations sessions will only be for presentation and not clarification.
Also indicated should be
the fact that only stakeholders who have submitted
written comments can sit in for oral representations.”
| [396] | The invitations to make
oral representations were sent out near the beginning of February. The minutes
of the Pricing Committee’s
meeting on 20 February record the following
under the heading: “Update on plans for stakeholder representations
discussion”: |
“The Directorate presented the draft stakeholder presentation schedule and
informed the committee on the way forward. After
a lengthy discussion the
following decisions were taken”.
The decisions are then
listed and include the following:
“• As associations present the general views it would be helpful to
the committee to hear the views of the individuals
belonging to such an
association. It would give the committee an opportunity to weigh the different
data. It was suggested that
individual groupings should however be told to give
different information than what would be provided by the association.
. . . .
• All committee members should indicate the dates on which they would be
able to attend stakeholder presentations between 8
and 26 March
2004.
. . . .
• All members of the Pricing Committee should commit to attend the
stakeholder presentations.
• The key purpose of the presentations is to listen and not engage in
discussions. The Pricing Committee and the Department
will have an opportunity
to ask questions but no questions of clarification will be allowed from the
stakeholders.
• A list of key questions should be developed and the data being presented
should be interrogated very carefully.”
| [397] | Pointedly Professor
McIntyre and Dr Zokufa both say that the Pricing Committee took into account
what was contained in the written
representations made concerning the draft
regulations but do not say the same about the oral representations. All that is
said is
that the hearings were recorded both on videotape and audiotape and the
tapes were available for those members of the Pricing Committee
“who so
wished, to access what was said”. Professor McIntyre says she watched
some of the videotapes of some of the
hearings – she does not say which
– but no suggestion is made that any other members of the Pricing
Committee did so,
or that any report on the oral hearings was compiled and
considered by the Pricing Committee. |
| [398] | I have previously referred
to the invitation that was addressed to
“stakeholders”.[236]
That invitation stresses the importance of the hearings and the need to supply
“accurate and substantiated information to
the Department and the Pricing
Committee on how the proposed regulations may affect your interests.”
Professor McIntyre attached
a copy of the invitation to her affidavit. She does
not suggest that any statement in the invitation concerning the participation
of
the Pricing Committee was incorrect or made without the authority of the Pricing
Committee. |
| [399] | Although it was not
necessary to invite oral representations in addition to the written
representations that had been made, and although
it was not necessary for all
the members of the Pricing Committee to attend the stakeholder meetings, once
the invitation had been
issued the information furnished at the meetings could
not be ignored. Information as to how the regulations would affect the
interests
of pharmacists was material to the work of the Pricing Committee.
Arrangements should have been made for those who attended the
oral hearings to
report to the Pricing Committee on the representations that were made. This,
however, was not done and it seems
that in deciding upon the recommendation to
be made to the Minister on an appropriate dispensing fee, regard was had only to
the
written representations. There is nothing to show that the concerns
expressed by the Pharmacies at the oral hearings or the information
provided by
them at the hearings was taken into account by the Pricing
Committee. |
| [400] | The Pricing Committee was
the only body able to explain how they arrived at the dispensing fee and how
they satisfied themselves that
it would be sufficient to meet the concerns
raised in the many representations made to them by pharmacists and
pharmacists’
organisations that the dispensing fee will cause pharmacies
to operate at a loss and destroy the viability of the profession. If
this had
been done the information may have been sufficient to rebut these
averments. |
| [401] | Their response was,
however, negative. It comes down to this. There are too many pharmacies and
their workload is too low. Ways
must be found to address this, and to develop
additional sources of revenue other than dispensing. The evidence tendered by
the
Pharmacies that, on the basis of the prescribed dispensing fees, pharmacies
will cease to be viable is flawed. All relevant factors
were taken into account
by the Pricing Committee and given careful consideration. The dispensing fee is
appropriate and compares
favourably with fees in foreign countries where prices
of medicines are regulated. |
| [402] | The only direct evidence
of the impact of the dispensing fee on the viability of pharmacies is that
contained in the written representations
made to the Pricing Committee which
form part of the record, and in the expert evidence relied on by the Pharmacies.
Although there
are criticisms of it, there is a substantial body of evidence
which called for an answer by the Pricing Committee and the Minister.
This,
however, was not forthcoming. |
| [403] | The Pricing Committee has
provided no models or other evidence to demonstrate how the dispensing fee was
calculated or how the members
of the Pricing Committee satisfied themselves that
it was appropriate. It has not told us what assumptions it made about the
probable
SEPs in calculating the dispensing fee, or how it assessed the
dispensing fee when it seems to have had no data dealing with dispensary
revenue
and expenses which it considered to be essential for that purpose. It has not
addressed in any meaningful way the contention
that the dispensing fee will lead
to pharmacy closures that will impair accessibility to health care particularly
in rural areas.
The assertions made by Professor McIntyre and Dr Zokufa about
additional revenue sources and the subsidisation of the front shop
by the back
shop, are at best flimsy. The failure to make provision for compounding in the
dispensing fee is a material misdirection. |
| [404] | “Accountability,
responsiveness and openness” on the part of government are foundational
values of our Constitution.
An allegation has been made by professional
organisations representing pharmacists that the dispensing fee will destroy the
viability
of pharmacies, and impair access to health care. That allegation is
supported by a sufficient body of evidence to show that this
is a real
possibility. In the circumstances the applicants were under an obligation to
explain how they satisfied themselves that
this would not be the result of the
dispensing fee prescribed in the regulations. They were the only persons who
could provide this
information. They did not, however, do so. Absent such
explanation, there is sufficient evidence on record to show that the dispensing
fee is not appropriate. |
Appropriate
dispensing fee for doctors and other health professionals: regulation 12
| [405] | Both New Clicks and PSSA
challenge the validity of the regulations as a whole. In their Notice of Motion
PSSA claim in the alternative
that certain regulations should be set aside as
being invalid. In this alternative prayer, the validity of regulation 12 is not
challenged. New Clicks did not raise any challenges in the alternative to their
main prayer claiming that the regulations as a whole
are invalid. In argument,
however, they contended that if their argument on the other regulations
challenged by them succeeds, regulation
12 should also be declared invalid,
because it cannot be severed from the other regulations. No argument was
addressed to us as
to whether or not the fees prescribed in regulation 12 are
appropriate and I express no opinion on that. As far as severance is
concerned,
that is dealt with in the judgment of the Court and need not be addressed
here. |
Schedule 0 medicines
| [406] | Regulation
13 provides that the “appropriate fee” to be charged by any person,
other than a wholesaler or distributor,
in respect of Schedule 0 medicines
“shall not exceed the percentage mark-up in respect of that medicine or
Scheduled substance
that was applied at the date of commencement of these
regulations.” No attempt was made in either the written or oral arguments
to justify this regulation. The “fee” is clearly not appropriate.
It differentiates between those whose mark-ups were
not the same at the
prescribed date. Those selling at a substantial profit are entitled to continue
to do so. Those selling at
a small profit or even at a loss to attract
customers are obliged to continue doing so. It was contended that the challenge
to the
regulation is moot because Schedule 0 medicines have been excluded from
the operation of the Medicines Act in terms of section
36.[237] This, however, was only
done on 19 November 2004, some five months after the regulations were
promulgated, and four months after
the applications were launched in the High
Court. During that period, retailers who failed to comply with regulation 13
will have
been liable to be prosecuted if the regulation stands. Moreover, the
exclusion in terms of section 36 may be withdrawn or amended,
and as long as
that is the case, it cannot be said that the regulation will be
“moot” in the future. Regulation 13 must
therefore be declared to
be invalid. |
Regulation 14(5)
| [407] | This regulation requires a
manufacturer, importer, exporter, wholesaler, distributor, pharmacist, person
licensed in terms of section
22C(1)(a), or any other person selling a medicine
or Scheduled substance in the Republic, if requested to do so by the
Director-General,
to provide information relating to particular medicines and
Scheduled substances. PSSA contends that the information called for
by the
regulation is not sanctioned by section 22G of the Medicines Act which makes
provision only for regulations to be made for
the “introduction of a
transparent pricing system”. |
| [408] | Regulation 14(5) entitles
the Director-General to request information
concerning |
“the comparative efficacy, safety and cost effectiveness of the medicine
or Scheduled substance relative to that of other medicines
or Scheduled
Substances in the same therapeutic class compiled in a manner consistent with
guidelines published by the Director-General
in the Gazette from time to
time.”
PSSA contends that this has no intelligible
meaning and is void for vagueness. Also, that it does not deal with the
introduction
of a transparent pricing system for medicines and is therefore
ultra vires.
| [409] | Information as to costs,
quality and risks of medicine being sold is relevant to a transparent pricing
system. So too is comparative
information about such matters which may help
consumers to know whether the price of a particular medicine is in line with
that of
other medicines which might be taken for the same complaint. Although
the regulation is in broad and general terms, the power is
not unlimited and is
constrained by the requirement that it must be exercised reasonably to give
effect to the purpose of the
legislation.[238] |
| [410] | The regulation empowers
the Director-General to seek information relevant to pricing. How he does so,
should he elect to call for
information, will determine whether the information
sought is relevant to a pricing system and whether it meets the requirements
of
certainty that are called for. The power itself, however, construed in the
context of the Medicines Act and the regulations,
is sufficiently clear to
determine its boundaries. The objection to regulation 14(5) must therefore be
dismissed. |
Regulations 21(a) and (c)
| [411] | Regulation 21 empowers the
Director-General to |
“publish or otherwise communicate, or require manufacturers, importers,
wholesalers, distributors, pharmacists or persons licensed
in terms of section
22C(1)(a) of the Act to publish or otherwise communicate in such manner and
format as he or she may by notice
in the Gazette determine, information in
relation to a particular medicine or Scheduled substance or class or category of
medicines
or Scheduled substances or the sale of a medicine or Scheduled
substance for the purpose of—
(1) informing the public
of—
(a) the therapeutic value of a medicine or Scheduled substance relative to the
single exit price set by the manufacturer;
(b) the single exit price, strength, dosage form and pack size of a medicine or
Scheduled substance;
(c) the risks associated with a particular medicine or Scheduled substance
relative to the single exit price of that medicine or
Scheduled
substance”.
| [412] | PSSA objects to this
regulation for the same reasons that it objects to regulation 14(5), contending
that it is not related to a transparent
pricing system and that it is void for
vagueness. The price, therapeutic value and risks associated with a medicine
are relevant
to price and transparency. However, the therapeutic value of and
risks associated with a particular medicine are objective standards
which remain
the same whatever the SEP might be. How such factors can be described in
relation to the SEP, other than by stating
the SEP which is dealt with in
subsection (b), is not clear to me. |
| [413] | The regulation must be
construed as being limited to empowering the Director-General to publish or
require others to publish or communicate
information concerning the therapeutic
value, risks and single exit price of medicines that is reasonably related to a
transparent
pricing system. |
| [414] | The regulation does not
require any person or persons to do anything unless and until the
Director-General publishes a notice requiring
them to do so. If a notice is
published that simply requires publication of details of the therapeutic value,
risks and single exit
price of the medicine it would be relevant and could not
be objected to as being vague. If a notice should require that information,
and
in addition require the therapeutic value and risks to be dealt with
“relative to the single exit price” it would
in my view be too vague
to be complied with. More than that would be required from the direction. What
that might possibly be is
beyond me now. Greater certainty would have to be
given to it in the Director-General’s notice should the occasion arise for
such a notice to be issued. |
| [415] | If, for that purpose, the
Director-General requires information to be published “relative to the
single exit price” the
notice must indicate what, in addition to the SEP,
is required. The notice will be valid only if the “additional”
information
is relevant to a transparent pricing system and is called for in
terms that are sufficiently clear to enable the persons affected
to know what is
required. Construed in this way, the regulation is neither ultra vires nor too
vague to be enforced. I would therefore
dismiss the objection to the
regulation. |
The Director-General's power to
declare that the SEP is unreasonable: regulations 22 and 23
| [416] | Regulation 22 vests in the
Director-General a power to determine that the SEP of a medicine or Scheduled
substance is unreasonable.
The factors to which the Director-General must have
regard in making such a determination are listed in regulation
23. |
| [417] | Regulation 22 makes
provision for a hearing to be given to the person who will be affected by such a
determination,[239] and goes on to
provide[240] that if the
Director-General “is not convinced” after such enquiry that the SEP
is reasonable, |
“he or she may publish a notice in the Gazette to the effect that in the
opinion of the Director-General, the single exit price
is unreasonable and must
state the reasons for such opinion.”
If this is done,
reasons have to be given by the Director-General for such a determination. The
publication appears to be the only
sanction attaching to the determination.
There is no requirement in the Medicines Act or in the regulations dealing with
the setting
of the SEP, that the SEP must “be reasonable”; the only
requirement is that the SEP must not exceed the 2003 benchmark
set in regulation
5(2)(c) or the international benchmarks contemplated by regulation 5(2)(e). As
long as the SEP meets those requirements
it is valid.
| [418] | It
may be that regulations 22 and 23 were intended to provide a mechanism for
addressing differences that might arise in relation
to the determination of the
maximum SEP or to the application of the contemplated international benchmarking
standards. If that
had been done it would have provided a mechanism for
addressing such issues. The regulations are, however, not directed to that
end.
They empower the Director-General to act if he or she is not convinced
that a SEP is reasonable, whether or not that SEP has been fixed in accordance
with the regulations. |
| [419] | A
public declaration by the Director-General that he is not convinced that a SEP
that meets the requirements of the regulations is
reasonable, is unrelated to a
pricing system which does not require prices to be set at amounts that the
Director-General is convinced
are reasonable. Indeed, such a requirement would
be of doubtful validity, and other criteria are set for the determination of the
SEP. As long as the SEP complies with the requirements of the pricing system,
the views of the Director-General as to the reasonableness
of the price are
irrelevant. In the circumstances regulations 22 and 23 are not authorised by
section 22G of the Medicines Act and
are accordingly
invalid. |
Conclusion
| [420] | The conclusions to which I
have come on the challenges on the regulations, and those reached by the other
members of the Court, are
summarised in the judgment of the Court. I agree that
the appropriate order to be made in this case is the order made in that
judgment. |
NGCOBO J:
Introduction
| [421] | Although the High Court
(both the majority and the minority judgments) considered the question whether
the Promotion of Administrative
Justice
Act[241]
(PAJA) applied to the regulations which are the subject matter of these
proceedings and reached different conclusions, the Supreme
Court of Appeal (SCA)
found it unnecessary to consider that question. In this Court, as in the courts
below, both PSSA and New Clicks
(together referred to as “the
pharmacies”) contended that PAJA was applicable in these proceedings. The
Minister and
the Pricing Committee (together referred to as “the
applicants”) contended otherwise. The threshold question that must
be
decided in this case is therefore whether PAJA is applicable as contended by the
pharmacies. |
| [422] | The Chief Justice has
concluded that PAJA applies. Moseneke J, for reasons advanced in his judgment,
has found it unnecessary to
consider the question of the applicability of PAJA.
He prefers instead to assume without deciding that the administrative justice
standards of lawfulness, reasonableness and procedural fairness as given effect
in PAJA apply in this case. I am unable to agree
with this approach. In
concluding that PAJA governs this case, the Chief Justice holds that PAJA, in
general, applies to regulation-making.
I prefer to answer the narrow question,
namely, whether PAJA applies to the specific power to make regulations conferred
by section
22G(2)(a)-(c) of the Medicines and Related Substances
Act[242] (Medicines Act). For
reasons advanced by the Chief Justice, I agree that PAJA is applicable to this
narrow question. But there
are additional reasons why PAJA is
applicable. |
| [423] | The approach adopted by
the SCA to the question whether PAJA governs these proceedings raises the
question whether the SCA was obliged
to consider the applicability of PAJA. In
particular, this raises the question whether where, as here, the parties have
expressly
relied upon PAJA, a statute that was enacted to give effect to section
33(1) of the Constitution and to codify the principles of
administrative
justice, it is permissible for a court to decide the matter on the basis of
section 33(1) of the Constitution without
a prior finding that the provisions of
PAJA are deficient in the remedy that they provide. This issue has been raised
in this Court
before albeit in different
contexts.[243]
On each occasion, this Court has found that a decision on this issue was not
required for the resolution of those cases. This occasion
is different. And as
I shall show, a decision on this issue is necessary in this
case. |
| [424] | In addition, there is a
difference of opinion between the Chief Justice and Moseneke J on the question
whether the dispensing fees
adopted in the regulations are appropriate. The
Chief Justice has concluded that they are not. Moseneke J concludes that they
are,
save in relation to courier and rural pharmacies. He finds that the
dispensing fees do not take into account the unique circumstances
of these
pharmacies. For reasons set out below, I agree with this finding. However, I
am unable to agree with the conclusion that
Moseneke J reaches on the issue of
the appropriateness of the dispensing fees. Nor do I agree with the remedy that
he proposes in
relation to courier and rural pharmacies. While I agree with the
Chief Justice that the dispensing fees are not appropriate, my
reasons for
reaching that conclusion differ somewhat from those relied upon by
him. |
| [425] | I write separately
therefore to: (a) consider the question whether the SCA was obliged to determine
whether PAJA is applicable in
these proceedings; (b) provide additional reasons
why I hold that PAJA governs these proceedings; and (c) provide my reasons for
concluding that the dispensing fees adopted by the regulations are not
appropriate as required by section 22G(2)(b) of the Medicines
Act. |
Is it necessary to decide the question
of the applicability of PAJA?
| [426] | In their respective
notices of motion, both PSSA and New Clicks sought orders reviewing and setting
aside the recommendation of the
Pricing Committee. In addition, they sought
orders declaring invalid the Regulations made pursuant to section 22G(2) of the
Medicines
Act. In seeking these orders, the pharmacies relied upon the
provisions of section 6 of PAJA. In particular, New Clicks submitted
that the
Regulations are unlawful because “they have been adopted in a manner which
is in conflict with the requirements of
section 6 of PAJA . . .”. Section
6 of PAJA substantially codifies the grounds of
review.[244] |
| [427] | In argument, both in this
Court and in the courts below, the pharmacies submitted that the review of the
recommendation of the Pricing
Committee is governed by PAJA. In this Court,
PSSA devoted a chapter in its written argument contending that PAJA governed
these
proceedings. For their submissions, the pharmacies relied on the grounds
of review set out in PAJA. They submitted that the making
of regulations by the
Minister constitutes administrative action and is therefore subject to review
under PAJA. |
| [428] | In their supplementary
argument in this Court, the applicants contended that neither the recommendation
nor the Regulations made pursuant
to such recommendation are subject to review
under PAJA. They submitted that neither amounts to administrative action as
defined
in PAJA. In the alternative they submitted that given the decision by
the majority of the High Court that the conduct of the Pricing
Committee and the
Regulations were reviewable in terms of the common law and the Constitution, it
is not necessary to determine in
this case whether or not PAJA
applied. |
| [429] | Both judgments in the High
Court considered the question of the applicability of PAJA and reached different
conclusions. The majority
held that both the recommendation of the Pricing
Committee and the ministerial regulation-making authority were not subject to
PAJA.
It held that they were subject to review under the constitutional
doctrine of legality, section 33(1) of the Constitution and the
common law. For
its part, the minority held that PAJA was
applicable. |
| [430] | On appeal, the SCA
approached the matter on the basis of the doctrine of legality. Relying on this
doctrine, the SCA held that the
Minister cannot accept recommendations or
promulgate regulations that do not fall squarely within section 22G of the
Medicines Act.[245] The SCA
accordingly refrained from considering the question of the applicability of PAJA
after concluding that it had no bearing
on its
judgment. |
| [431] | Now there can be no
question that the pharmacies sought judicial review of the recommendation of the
Pricing Committee and the Regulations
based on that recommendation. For their
causes of action, they expressly relied upon the provisions of section 6 of
PAJA. They
were right. In Bato Star this Court held that “the
cause of action for the judicial review of administrative action now ordinarily
arises from PAJA,
not from the common law as in the
past.”[246]
And it went on to hold that “the authority of PAJA to ground such causes
of action rests squarely on the
Constitution.”[247] |
| [432] | The rationale for the
holding in Bato Star appears from the following
passage: |
“In Pharmaceutical Manufacturers Association of SA and Another: In re
Ex parte President of the Republic of South Africa and Others, the question
of the relationship between the common-law grounds of review and the
Constitution was considered by this Court. A
unanimous Court held that under
our new constitutional order the control of public power is always a
constitutional matter. There
are not two systems of law regulating
administrative action — the common law and the Constitution — but
only one system
of law grounded in the Constitution. The Courts' power to
review administrative action no longer flows directly from the common
law but
from PAJA and the Constitution itself. The grundnorm of administrative law is
now to be found in the first place not in
the doctrine of ultra vires, nor in
the doctrine of parliamentary sovereignty, nor in the common law itself, but in
the principles
of our Constitution. The common law informs the provisions of
PAJA and the Constitution, and derives its force from the latter.
The extent to
which the common law remains relevant to administrative review will have to be
developed on a case-by-case basis as
the Courts interpret and apply the
provisions of PAJA and the
Constitution.”[248]
(Footnotes omitted.)
| [433] | PAJA is national
legislation contemplated in section 33(3) of the Constitution, which the
legislature was required to enact to give
effect to the rights guaranteed in
section 33. As its long title proclaims, the purpose of PAJA
is: |
“To give effect to the right to administrative action that is lawful,
reasonable and procedurally fair and to the right to
written reasons for
administrative action as contemplated in section 33 of the
Constitution”.
| [434] | In
NAPTOSA,[249]
the Cape of Good Hope High Court had occasion to consider whether in the context
of the Labour Relations Act,[250]
(LRA) it is appropriate to grant relief directly under section 23(1) of the
Constitution without a complaint that the LRA was constitutionally
deficient in
the remedies that it provides. The court held that it could not conceive that
it is permissible for an applicant, save
by attacking the constitutionality of
the LRA, to go beyond the regulatory framework which it
establishes.[251] In reaching
this conclusion, the High Court was concerned that were the practice to be
permitted, it would encourage the development
of two parallel streams of labour
law jurisprudence, one under the LRA and the other under section 23(1). It
considered this to
“be singularly
inappropriate”.[252] |
| [435] | In
NEHAWU,[253] this Court
considered NAPTOSA but refrained from expressing any opinion on it as it
found that it had no application in that case. In
Ingledew,[254]
again this Court referred to NAPTOSA and observed, that together with
other cases referred to in Ingledew, it “cast doubt on the
correctness of the proposition that a litigant can rely upon the Constitution,
where there is a statutory
provision dealing with the matter without challenging
the constitutionality of the provision
concerned.”[255] |
| [436] | In my view, there is
considerable force in the view expressed in NAPTOSA. Our Constitution
contemplates a single system of law which is shaped by the Constitution. To
rely directly on section 33(1) of
the Constitution and on common law when PAJA,
which was enacted to give effect to section 33 is applicable, is in my view
inappropriate.
It will encourage the development of two parallel systems of
law, one under PAJA and another under section 33 and the common law.
Yet this
Court has held that there are not two systems of law regulating
administrative action – the common law and the Constitution –
“but
only one system of law grounded in the
Constitution.”[256]
And in Bato Star we underscored this, holding that “[t]he
Courts’ power to review administrative action no longer flows directly
from
the common law but from PAJA and the Constitution
itself.”[257] |
| [437] | Where, as here, the
Constitution requires Parliament to enact legislation to give effect to the
constitutional rights guaranteed in
the Constitution, and Parliament enacts such
legislation, it will ordinarily be impermissible for a litigant to found a cause
of
action directly on the Constitution without alleging that the statute in
question is deficient in the remedies that it
provides.[258] Legislation
enacted by Parliament to give effect to a constitutional right ought not to be
ignored. And where a litigant founds
a cause of action on such legislation, it
is equally impermissible for a court to bypass the legislation and to decide the
matter
on the basis of the constitutional provision that is being given effect
to by the legislation in question. Thus in Bato Star this Court held
that “[t]o the extent, therefore, that neither the High Court nor the SCA
considered the claims made by the
applicant in the context of PAJA, they
erred.”[259] A fortiori
here where the cause of action is expressly founded on
PAJA. |
| [438] | It follows that the SCA,
as we held in Bato Star, erred in failing to consider whether PAJA was
applicable. The question whether PAJA governs these proceedings cannot be
avoided
in these proceedings. That question formed a large part of the
judgments in the High Court. Both the majority and the minority
considered the
question and gave reasoned judgments for their respective views, but were
divided on the issue. In deciding this
question, this Court is therefore not
sitting both as a court of first and last instance. We have the benefit of the
reasoned judgments
of the High Court. In my view our decision in Bato
Star compels us to confront the question of the applicability of PAJA in
these proceedings. It is to that question that I now turn.
But before
considering the applicability of PAJA it is necessary to consider first, the
nature of the powers and functions conferred
by section 22G(2) of the Medicines
Act upon the Pricing Committee and the
Minister. |
The nature of the process involved
in making regulations under section 22G(2)
| [439] | Section 22G(2)
provides: |
“(2) The Minister may, on the recommendation of the pricing committee,
make regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule 0
medicines.”
| [440] | In this case we are not
concerned with the general regulation-making power given to the Minister by
section 35 of the Medicines Act.
That section requires the Minister to make
General Regulations “in consultation with the
council.”[260] We are
concerned here with the specific powers and functions conferred on the Pricing
Committee and the Minister to introduce a
transparent pricing system for all
medicines and Scheduled substances, to determine an appropriate dispensing fee
to be charged by
pharmacists and other health care professionals, and an
appropriate fee to be charged by wholesalers and distributors. In order
to
carry out the objectives of the section, both the Minister and the Pricing
Committee must act together. |
| [441] | Section 22G(2) provides
for a unique process. It is unique in the sense that it requires the Minister
to make regulations “on
the recommendation of the Pricing
Committee.” The recommendation of the Pricing Committee is therefore a
jurisdictional fact
for the exercise by the Minister of her power to make
regulations. Section 22G(2) contemplates that the Minister will only make
regulations if the Pricing Committee recommends them. Neither the Minister nor
the Pricing Committee can act alone. They must act
together. Section 22G(2)
therefore contemplates a single process commencing with an investigation of the
matters set out in paragraphs
(a) to (c) of section 22G(2) by the Pricing
Committee, followed by a recommendation on appropriate regulations, then a
consideration
of the draft regulations by the Minister, culminating in a
decision to make the regulations. |
| [442] | The process conducted by
the Pricing Committee and the making of the regulations based on the
recommendation of the Pricing Committee
are interlinked. The one is incomplete
without the other. Once the process is complete, in the sense that the
regulations are made,
they become inseparable. Thus the recommendation of the
Pricing Committee represents part of the process of regulation-making.
The
process of making regulations on the specific matters set out in section
22G(2)(a) to (c) must therefore be seen as a single
process involving both the
recommendation of the Pricing Committee and the making of regulations by the
Minister based on that recommendation.
If the process followed by the Pricing
Committee is flawed, the ensuing recommendation is similarly flawed, so are the
regulations
based on such recommendation. It is this process that we are
concerned with in these proceedings. And the question is whether PAJA
applies
to this process. |
Does PAJA apply to section
22G(2)?
| [443] | The majority in the High
Court found that both the activities of the Pricing Committee and
regulation-making by the Minister do not
amount to administrative action.
However, they held that both “are subject to review on the principles of
common law, the
principle of legality as contemplated in section 1 of the
Constitution and section 33(1) of the Constitution.” But section
33(1) of
the Constitution applies to “administrative action” within the
meaning of section 33(1) of the Constitution.
It is not clear from the judgment
of the majority whether the finding that the conduct of the Pricing Committee
and the Minister
in exercising the powers conferred by section 22G(2) are
subject to review under section 33(1) of the Constitution, was intended
to be a
finding that the exercise of such power amounts to administrative action under
section 33(1). What is clear is that the
majority held that the conduct of the
Pricing Committee in making a recommendation to the Minister and the
regulation-making do not
constitute administrative action contemplated in
section 1 of
PAJA.[261] |
| [444] | The minority found that:
(a) the recommendation of the Pricing Committee is a jurisdictional prerequisite
for the making of regulations
by the Minister and could adversely affect
“the rights of the pharmaceutical industry and the public in
general”[262]; and (b) has a
“direct external legal effect” because the regulations can only be
made upon the recommendation of the
Pricing Committee. As the minority put it,
“the recommendations are upon promulgation transformed into the
regulations.”
It therefore held that the conduct of the Pricing Committee
in making a recommendation amounts to administrative action within
PAJA.[263] It also concluded that
regulation-making also amounted to administrative action within the meaning of
PAJA.[264] |
| [445] | For its part the SCA found
that the recommendation of the Pricing Committee is a jurisdictional fact for
the exercise of the power
to make regulations by the Minister. It held that the
recommendation of the Pricing Committee “has to be in accordance with
the
provisions of section 22G i.e. it must be a lawful administrative action as
provided for by section 33(1) of the
Constitution.”[265]
It went on to hold that this “flows from the principle of legality that
the Minister cannot accept a recommendation or promulgate
a regulation that does
not fall squarely within the section
[22G].”[266] It took the
view that “the regulations had to withstand the test of
legality.”[267] Given this
approach, the SCA concluded that the question whether ministerial regulations
and the conduct of the Pricing Committee
were reviewable under PAJA, has no
bearing on its
judgment.[268] |
Administrative
action in the Constitution
| [446] | The starting point in
determining whether PAJA is applicable to the exercise of the power conferred by
section 22G is section 33(1)
of the Constitution. The meaning of administrative
action must be determined by reference to section 33 of the Constitution and
not
PAJA. Once it is determined that the exercise of the executive power authorised
by section 22G(2)(a) to (c) is administrative
action within the meaning of
section 33, the next question to consider is whether PAJA nevertheless excludes
it. The answer to this
question must be sought, in the first place, in the
exclusionary provisions of PAJA. Reference to these provisions of PAJA is not
for the purposes of determining whether the process involved here is
administrative action, but whether PAJA excludes the exercise
of this specific
power from its ambit. It follows therefore that the provisions of PAJA cannot
be used as an aid to determining
the meaning of administrative action in the
Constitution. At best they can be used to fortify the inference that PAJA
excludes the
exercise of this specific power from its ambit. The first question
that must be answered therefore is whether the exercise of the
power conferred
by section 22G(2) constitutes administrative action under section 33 of the
Constitution. |
| [447] | The meaning of
administrative action within the meaning of the Constitution was first
considered by this Court, in Fedsure Life Assurance v Greater Johannesburg
TMC. There the Court held: |
“In addressing this question it is important to distinguish between the
different processes by which laws are made. Laws are
frequently made by
functionaries in whom the power to do so has been vested by a competent
legislature. Although the result of the
action taken in such circumstances may
be ‘legislation’, the process by which the legislation is made is in
substance
‘administrative’. The process by which such legislation
is made is different in character to the process by which laws
are made by
deliberative legislative bodies such as elected municipal councils. Laws made
by functionaries may well be classified
as administrative; laws made by
deliberative legislative bodies can seldom be so
described.”[269]
| [448] | And in President of the
Republic of South Africa v South African Rugby Football Union (SARFU 3),
this Court articulated the test for determining whether conduct constitutes
administrative action as follows: |
“In s 33 the adjective ‘administrative’ not
‘executive’ is used to qualify ‘action’. This
suggests
that the test for determining whether conduct constitutes ‘administrative
action’ is not the question whether
the action concerned is performed by a
member of the executive arm of government. What matters is not so much the
functionary as
the function. The question is whether the task itself is
administrative or not. It may well be, as contemplated in Fedsure, that
some acts of a legislature may constitute ‘administrative action’.
Similarly, judicial officers may, from time
to time, carry out administrative
tasks. The focus of the enquiry as to whether conduct is ‘administrative
action’ is
not on the arm of government to which the relevant actor
belongs, but on the nature of the power he or she is
exercising.”[270]
(Footnotes omitted.)
The Court went on and said:
“As we have seen, one of the constitutional responsibilities of the
President and Cabinet Members in the national sphere (and
premiers and members
of executive councils in the provincial sphere) is to ensure the implementation
of legislation. This responsibility
is an administrative one, which is
justiciable, and will ordinarily constitute ‘administrative action’
within the meaning
of s 33. Cabinet Members have other constitutional
responsibilities as well. In particular, they have constitutional
responsibilities
to develop policy and to initiate legislation. Action taken in
carrying out these responsibilities cannot be construed as being
administrative
action for the purposes of s 33. It follows that some acts of members of the
executive, in both the national and
provincial spheres of government will
constitute ‘administrative action’ as contemplated by s 33, but not
all acts by
such members will do
so.”[271] (Footnotes
omitted.)
| [449] | It is clear from the last
mentioned passage that the implementation of legislation is “an
administrative [responsibility], which
is justiciable, and will ordinarily
constitute ‘administrative action’ within the meaning of s[ection]
33.” In
SARFU 3 the Court noted that it is not always easy to
determine whether the exercise of executive power amounts to formulation of
policy
or implementation of legislation. However, it held that the question
whether the exercise of executive power amounts to implementation
of legislation
depends primarily upon the nature of the power. The source of the power and its
subject matter, are also relevant
in deciding whether the action concerned
amounts to administrative action. In this regard it
held: |
“Determining whether an action should be characterised as the
implementation of legislation or the formulation of policy may
be difficult. It
will, as we have said above, depend primarily upon the nature of the power. A
series of considerations may be
relevant to deciding on which side of the line a
particular action falls. The source of the power, though not necessarily
decisive,
is a relevant factor. So, too, is the nature of the power, its
subject-matter, whether it involves the exercise of a public duty
and how
closely it is related on the one hand to policy matters, which are not
administrative, and on the other to the implementation
of legislation, which is.
While the subject-matter of a power is not relevant to determine whether
constitutional review is appropriate,
it is relevant to determine whether the
exercise of the power constitutes administrative action for the purposes of s
33. Difficult
boundaries may have to be drawn in deciding what should and what
should not be characterised as administrative action for the purposes
of s 33.
These will need to be drawn carefully in the light of the provisions of the
Constitution and the overall constitutional
purpose of an efficient, equitable
and ethical public administration. This can best be done on a case by case
basis.”[272] (Footnotes
omitted.)
| [450] | The conduct of the Pricing
Committee and the Minister in exercising the power conferred on them by section
22G(2) involves the performance
of functions that the legislation prescribes.
It requires the introduction of a transparent pricing system, the fixing of an
appropriate
dispensing fee to be charged by those who dispense medicines and
fixing an appropriate fee to be charged by wholesalers and distributors,
by the
Minister acting on the recommendation of the Pricing Committee. The nature of
the power as well as its subject matter is
concerned with the implementation of
legislation. The exercise of this power can readily be subjected to section 33.
The exercise
of the power conferred by section 22G(2) therefore constitutes
administrative action within the meaning of section 33. To suggest
that the
performance of these functions does not amount to implementation of legislation
and therefore administrative action, because
the Minister performs these
functions through regulations, seems to me, to put form above substance. As
pointed out earlier, in
Fedsure this Court held that although laws made
by functionaries in whom the powers to do so have been vested amount to
legislation, the
process by which such legislation is made is in substance
administrative
action.[273] |
| [451] | Once it is determined that
the exercise of powers given to the Minister and the Pricing Committee under
section 22G(2) amounts to
administrative action within the meaning of section
33, the exercise of those powers is governed by PAJA unless PAJA excludes the
exercise of such powers from its
scope.[274] The question that
falls to be considered next therefore is whether the powers and functions
performed by the Minister and the Pricing
Committee under section 22G(2) fall
within the definition of administrative action within the meaning of PAJA. Put
differently,
the question is whether PAJA excludes from its ambit the exercise
of such powers and functions. Like any statute, PAJA must, where
possible, be
construed in a manner that is consistent with the
Constitution.[275] |
Does
PAJA exclude from its ambit the powers conferred by section 22G(2)?
| [452] | Section 1 of PAJA defines
administrative action to mean: |
“any decision taken, or any failure to take a decision, by—
(a) an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in terms of any
legislation; or
(b) a natural or juristic person, other than an organ of state, when exercising
a public power or performing a public function in
terms of an empowering
provision,
which adversely affects the rights of any person and which has a direct,
external legal effect, but does not
include—
(aa) the executive powers or functions of the National Executive, including the
powers or functions referred to in sections 79(1)
and (4), 84(2)(a), (b), (c),
(d), (f), (g), (h), (i) and (k), 85(2)(b), (c), (d) and (e), 91(2), (3), (4) and
(5), 92(3), 93, 97,
98, 99 and 100 of the Constitution;
(bb) the executive powers or functions of the Provincial Executive, including
the powers or functions referred to in sections 121(1)
and (2), 125(2)(d), (e)
and (f), 126, 127(2), 132(2), 133(3)(b), 137, 138, 139 and 145(1) of the
Constitution;
(cc) the executive powers or functions of a municipal
council;
(dd) the legislative functions of Parliament, a provincial legislature or a
municipal council;
(ee) the judicial functions of a judicial officer of a court referred to in
section 166 of the Constitution or of a Special Tribunal
established under
section 2 of the Special Investigating Units and Special Tribunals Act,
1996 (Act No. 74 of 1996), and the
judicial functions of a traditional
leader under customary law or any other
law;
(ff) a decision to institute or continue a
prosecution;
(gg) a decision relating to any aspect regarding the appointment of a judicial
officer, by the Judicial Service Commission;
(hh) any decision taken, or failure to take a decision, in terms of any
provision of the Promotion of Access to Information Act, 2000;
or
(ii) any decision taken, or failure to take a
decision, in terms of section 4(1)”.
| [453] | Subparagraphs (aa), (bb)
and (cc) exclude from the scope of PAJA executive powers and functions of the
National Executive, Provincial
Executives and Municipal Councils. However,
subparagraphs (aa) and (bb) proceed to list specific executive powers and
functions
that are excluded. These subparagraphs introduce this list by using
the phrase “including the powers or functions referred
to” and
proceed to refer to specific provisions of the Constitution which are then
listed in the subparagraphs. The provisions
of the Constitution that deal with
the implementation of legislation at both national and provincial levels are
omitted from the
list. |
| [454] | The question is whether
the omission of the power to implement legislation was intended to bring the
exercise of those functions within
the ambit of PAJA. Put differently, the
question is whether the list of executive functions or powers listed in
subparagraphs (aa)
and (bb) were intended to be the only powers excluded from
PAJA or whether the functions and the powers listed in the subparagraphs
were
listed merely to provide examples of powers or functions that are excluded from
the scope of PAJA without seeking to limit the
list to those powers specifically
referred to in the subparagraphs. This is essentially a matter of construction,
in particular,
the meaning to be given to the word “including” in
the context in which it occurs. |
| [455] | As a general rule, the
terms “including” or “includes” are not terms of
exhaustive definition but terms of
extension.[276] However, they
may, depending on the context, be used as terms of exhaustive
definition.[277] As the court put
it in Dilworth v Commissioner of
Stamps: |
“The word ‘include’ is very generally used in interpretation
clauses in order to enlarge the meaning of words or
phrases occurring in the
body of the statute; and when it is so used these words or phrases must be
construed as comprehending, not
only such things as they signify according to
their natural import, but also those things which the interpretation clause
declares
that they shall include. But the word ‘include’ is
susceptible of another construction, which may become imperative,
if the context
of the Act is sufficient to shew that it was not merely employed for the purpose
of adding to the natural significance
of the words or expressions defined. It
may be equivalent to ‘mean and include’, and in that case it may
afford an exhaustive
explanation of the meaning which, for the purposes of the
Act, must invariably be attached to these words or
expressions.”[278]
| [456] | The sense in which the
term “including” is used must be ascertained from the context in
which it is used.[279] In De
Reuck v Director of Public Prosecutions, WLD, this Court referred to
“useful guidelines for this determination” and
said: |
“The correct sense of ‘includes’ in a statute must be
ascertained from the context in which it is used. Debele provides useful
guidelines for this determination. If the primary meaning of the term is well
known and not in need of definition
and the items in the list introduced by
‘includes’ go beyond that primary meaning, the purpose of that list
is then usually
taken to be to add to the primary meaning so that
‘includes’ is non-exhaustive. If, as in this case, the primary
meaning
already encompasses all the items in the list, then the purpose of the
list is to make the definition more precise. In such a case
‘includes’ is used exhaustively. Between these two situations there
is a third, where the drafters have for convenience
grouped together several
things in the definition of one term, whose primary meaning - if it is a word in
ordinary, non-legal usage
- fits some of them better than others. Such a list
may also be intended as exhaustive, if only to avoid what was referred to in
Debele as ‘ʼn moeras van onsekerheid’ (a quagmire of
uncertainty) in the application of the
term.”[280] (Footnotes
omitted.)
| [457] | As pointed out earlier,
section 1 of PAJA excludes from the definition of administrative action, amongst
other powers, “the
executive powers or functions of the National
Executive”. However subparagraph (aa) of section 1 proceeds to list
specific
provisions of the Constitution which are excluded from the definition
of administrative action. Among these provisions listed are
the provisions of
subsections 85(2)(b) to (e) of the Constitution. Subsection 85(2)(a) which
provides for the power to implement
legislation is conspicuous by its omission
from this list. The question is whether failure to mention subsection 85(2)(a)
which
refers to the implementation of national legislation, was intended to
bring the implementation of legislation within the definition
of administrative
action in PAJA. |
| [458] | All the powers or
functions that are listed in subparagraph (aa) are clearly executive powers or
functions. In particular, the powers
and functions set out in subparagraphs (b)
to (e) of subsection 85(2) and subparagraphs (d) to (g) of subsection 125(2) of
the Constitution
are manifestly executive powers. Subsection 85(2)
provides: |
“(2) The President exercises the executive authority, together with the
other members of the Cabinet,
by—
(a) implementing national legislation except where the Constitution or an Act of
Parliament provides
otherwise;
(b) developing and implementing national policy;
(c) co-ordinating the functions of state departments and administrations;
(d) preparing and initiating legislation;
and
(e) performing any other executive function provided for in the Constitution or
in national
legislation.”
While section
125(2) provides:
“(2) The Premier exercises the executive authority, together with the
other members of the Executive Council,
by—
(a) implementing provincial legislation in the
province;
(b) implementing all national legislation within the functional areas listed in
Schedule 4 or 5 except where the Constitution or
an Act of Parliament provides
otherwise;
(c) administering in the province, national legislation outside the functional
areas listed in Schedules 4 and 5, the administration
of which has been assigned
to the provincial executive in terms of an Act of
Parliament;
(d) developing and implementing provincial
policy;
(e) co-ordinating the functions of the provincial administration and its
departments;
(f) preparing and initiating provincial legislation;
and
(g) performing any other function assigned to the provincial executive in terms
of the Constitution or an Act of
Parliament.”
| [459] | None of the powers or
functions listed in subparagraphs (aa) or (bb) go beyond what is generally
understood to be the executive powers
or functions. In other words the powers
or functions introduced by the term “including” do not go beyond the
meaning
of executive power or function. The purpose of the list is not
therefore to extend the meaning of executive powers or
functions.[281] On the contrary
the ordinary meaning of executive power or function “already encompasses
all the items in the
list”.[282] In these
circumstances the purpose of listing the powers or functions in subparagraphs
(aa) and (bb) is to make the definition of
executive function or power more
precise. It seems to me that in the context in which it occurs, the term
“including”
is used to limit the executive powers or functions to
those listed in subparagraphs (aa) or (bb). |
| [460] | Nor can it be said that
the implementation of legislation was omitted from the list of what amounts to
executive power or function
because implementing legislation is so obviously an
executive function that it required no
mention.[283]
But the same can be said of all the other powers or functions listed in
subparagraph (aa), in particular, those set out in subparagraphs
(b) to (e).
They are so manifestly executive functions that they would not need any mention.
Yet the legislature in PAJA decided
to mention them specifically but omit
implementation of legislation. It is also true that the phrase “any other
executive
function” found in subparagraph 85(2)(e) of the Constitution is
very wide indeed. But it cannot be said to include implementation
of
legislation which is deliberately excluded from the list. That phrase must be
construed to refer to functions that are not set
out in subparagraphs (a) to (d)
of subsection 85(2). |
| [461] | The conclusion that the
deliberate exclusion of implementing legislation from the list of executive
powers or functions that do not
fall within the ambit of PAJA was intended to
bring the exercise of those powers or functions within the ambit of PAJA, is
irresistible.
Indeed it would have been an easy matter for the legislature to
have excluded expressly implementation of legislation from the scope
of PAJA. I
agree with the observation by the Chief Justice that in doing so the legislature
would have excluded from the scope of
PAJA the very core of administrative
action which is implementation of legislation. I also agree with the
observation of the SCA
that it is unlikely that PAJA, which was enacted to give
effect to section 33 of the Constitution and to codify the principles of
administrative justice would have “reduced the level of administrative
justice”.[284]
There are further considerations which fortify this
conclusion. |
| [462] | There can be little doubt
that the implementation of national legislation is the exercise of an executive
power or function. Section
85(1) of the Constitution expressly provides that
“the executive authority of the Republic is vested in the
President”.
Section 85(2)(a) expressly provides that “the President
exercises the executive authority together with other members of the
cabinet by
. . . ” among other things, “implementing national legislation . . .
”. What is significant is that
in relation to the executive powers or
functions of the Provincial Executives, PAJA omits from the list of excluded
powers those
dealing with the implementation of legislation whether national or
provincial or the administration of national legislation assigned
to a
Provincial
Executive.[285] |
| [463] | It is not without
significance that the omission of implementation of legislation from the list of
executive powers or functions excluded
from the scope of PAJA comes after this
Court in Fedsure and in SARFU 3 had authoritatively laid down the
definition of administrative action within the meaning of section 33(1) of the
Constitution. In Fedsure this Court held that although laws made by
functionaries in whom the powers to do so has been vested by a competent
legislature,
amount to legislation, the process by which such legislation is
made is in substance administrative. And such laws are to be classified
as
administrative action.[286] And
in SARFU 3 this Court held that the implementation of legislation whether
it is at provincial or national level by the relevant executive authority
will
ordinarily amount to administrative
action.[287] |
| [464] | Nor is it a coincidence
that in its definition of administrative action, PAJA omits from its list of
excluded executive powers those
dealing with implementation of legislation,
which this Court held amounts to administrative action within the meaning of
section
33 of the Constitution. And significantly PAJA excludes from its ambit
those powers which this Court held do not amount to administrative
action such
as developing policy and initiating
legislation.[288] PAJA defines
administrative action in line with the decisions of this Court in Fedsure
and SARFU 3. |
| [465] | It seems to me that where,
as here, this Court has given a construction to a concept used in the
Constitution, and Parliament in subsequent
legislation giving effect to a
provision of the Constitution which embodies such a concept, it is safe to
assume that the legislature
when using the concept in question intended it to be
given the meaning which has been given to it by this
Court.[289] Here this Court has
construed administrative action within the meaning of section 33 of the
Constitution to include the exercise
of the power to implement legislation but
to exclude the exercise of the power to develop policy or initiate
legislation.[290] |
| [466] | Given this construction of
the concept of administrative action as used in the Constitution, it is safe to
assume that in PAJA, which
was promulgated subsequently, the legislature
intended administrative action to bear the same meaning that it bears under
section
33(1) of the Constitution as authoritatively defined by this Court. The
omission of the power to implement legislation in the list
of executive powers
excluded from the ambit of PAJA, and the inclusion of the power to develop
policy or initiate legislation in
the list of powers excluded from the ambit of
PAJA, is consistent with the construction of the concept of administrative
action by
this Court. As pointed out earlier, PAJA must, when possible be
construed consistently with the
Constitution.[291] |
| [467] | I agree with the Chief
Justice that the definition of “decision” in PAJA does not exclude
regulation-making.[292] The
reference in the main part of the definition to “any decision of an
administrative nature” and the general provision
of subparagraph (g) to
“doing or refusing to do any other act or thing of an administrative
nature”, brings the making
of regulations contemplated in section
22G(2)(a) to (c) within the ambit of the definition of a
“decision”. |
| [468] | Nor does the exclusion of
a decision in terms of section 4(1) of PAJA indicate an intention to exclude
regulation-making from the
definition of administrative action in
PAJA.[293] Section 4(1)
contemplates “administrative action [which] materially and adversely
affects the rights of the public . . . ”
and that the administrator will
give effect to the right to procedurally fair administrative action. However,
it leaves it to the
administrator to decide on how to give effect to the right
to procedurally fair administrative action. It is the decision of the
administrator in this regard which is excluded from the definition of
administrative action. |
| [469] | Sachs J holds that
“PAJA is not generally applicable to this case, but only [applies] in
respect of the regulations fixing the
dispensing fee.” He draws attention
to certain provisions of PAJA, which he holds indicate that PAJA is not
generally applicable
to regulation-making in these proceedings. As pointed out
earlier, the provisions of PAJA cannot be used to determine whether action
constitutes administrative action within the meaning of section 33 of the
Constitution. They may only be used to support the inference
that PAJA excludes
from its ambit the exercise of the power in question. Sachs J accepts
this. |
| [470] | The point that needs to be
stressed here is that we are not concerned here with a general regulation-making
power. We are concerned
with a unique process which involves the recommendation
by the Pricing Committee and a decision by the Minister to make regulations
based on the recommendation of the Pricing Committee. It is a process which
requires both the Pricing Committee and the Minister
to act together in
implementing the provisions of section 22G(2). The question is whether PAJA
applies to this specific process,
in particular, whether the nature and the
effect of the power granted by section 22G(2)(a) to (c) amounts to
administrative action
within the meaning of section 33 of the
Constitution. |
| [471] | Viewed in isolation
regulation-making authority may be said to be a legislative act. However, as
pointed out previously, it is incorrect
to view individually the component parts
of what is essentially a single process. The regulation-making is as much part
of the entire
process as the recommendation of the Pricing Committee itself.
One cannot excise this step from the rest of the process for the
purposes of the
operation of PAJA. The making of the recommendation by the Pricing Committee
and the making of the regulations by
the Minister are part of a process which,
when viewed in its entirety, is, in my view, administrative. One is dealing
here with
a dual stage administrative action – first, the recommendation
of the Pricing Committee and second, the decision of the Minister
to make
regulations based on such recommendation. The regulation-making is an integral
part of a process which when viewed as a
whole is administrative. The character
of the parts is governed by the nature of the
whole. |
| [472] | Sachs J finds that
“the notion of procedural fairness and the right to be given reasons fit
in closely with adjudicative justice
for individuals.” But section 4 of
PAJA suggests otherwise. It contemplates that administrative action may affect
the rights
of the public in general and that the administrator will give effect
to the right to procedurally fair administrative action even
in such a case.
This could be done either by holding a public enquiry or following a
“notice and comment procedure”
or following some other procedure
that gives effect to the right to procedurally fair administrative
action.[294] |
| [473] | Subsection 4(2) describes
the procedure to be followed where the administrator decides to hold an enquiry.
Such procedure includes
the appointment of a suitably qualified panel to hold
public enquiries. At the conclusion of the enquiry the panel must
“compile
a written report on the enquiry and give reasons for any
administrative decision . . . recommended.” In addition, it must
publish
a summary of the report in a government gazette. If the administrator decides
to follow a notice and comment procedure,
the administrator must call for
comments and consider comments received before making a decision. PAJA
therefore contemplates administrative
action that affects not only an individual
but also affects the public in general and prescribes how the right to
procedurally fair
administrative action is to be given effect in such a
case. |
| [474] | Section 4 contemplates a
dual stage process, one commencing with a panel holding public hearings and
making a recommendation to an
administrator and the second stage involving the
decision by the administrator based on such a recommendation. The process
contemplated
in section 22G(2)(a) to (c) fits in with the dual stage process
envisaged in section 4 of PAJA. The Medicines Act makes provision
for the
appointment of the Pricing Committee by the Minister. The function of the
Pricing Committee is to investigate a transparent
pricing system and fees to be
charged by health care professionals, wholesalers and distributors. It may do
this by calling for
submissions from interested persons and considering these
representations. Thereafter the Pricing Committee prepares a report that
is
accompanied by draft regulations on the issues that it is required to
investigate. |
| [475] | And, as happened in this
case, the Minister accepted the draft regulations and published them in the
government gazette for public
comment. The Pricing Committee subsequently
considered the submissions and public hearings were held on the draft
regulations.
The Pricing Committee thereafter made its final recommendation to
the Minister on the determination of the single exit price, dispensing
fees and
fees to be charged by wholesalers and distributors. The Minister accepted this
recommendation which was in the form of
draft regulations and promulgated the
regulations. The procedure that was followed by the Pricing Committee and the
Minister fits
in, and is consistent with that envisaged in section 4. In my
view the difficulty referred to by Sachs J does not therefore arise
in relation
to the specific process envisaged by section 22G(2)(a) to
(c). |
| [476] | Nor am I persuaded that
categorisation of the exercise of public power as adjudicative or legislative
provides the criterion as to
whether the exercise of the power in question
amounts to administrative action. The trend in modern administrative law has
been
to move away from formal classification as a
criterion.[295] It is clear from
the decisions of this Court in Fedsure and SARFU 3 that the use of
labels in order to determine whether the action in question is administrative or
legislative is not helpful. Thus
in Fedsure this Court held that the
process may in form be legislative but yet administrative in
substance.[296] Similarly in
SARFU 3 the Court held that what matters is not the functionary
who is performing the function in question but the function that is being
performed.[297] It seems to me
that the fruitful enquiry is to look at the nature and effect of the power that
is being exercised. This would provide
a more rational foundation for
determining what is administrative action. |
| [477] | There is commonwealth
jurisprudence that is consistent with this approach. In Homex Realty &
Development Co Ltd v Village of
Wyoming,[298] the Supreme
Court of Canada said the following: |
“It seems to me that a similar analysis should be employed in the present
case. That is, it is not particularly important
whether the function of the
municipality be classified as ‘legislative’ or as
‘quasi-judicial’. Such an
approach would only return us to the
conundrums of an earlier era. One must look to the nature of the function and
to the facts
of each case. I would adopt what was said by Judson J. in the
Wiswell case. Although Judson J. dissented in Wiswell, being of
opinion that adequate notice had been given, he did say
:
‘I do not think that it helps one towards a solution of this case to put a
label on the form of activity in which the Metropolitan
Council was engaged when
it passed this amending by-law. Counsel for the municipality wants to call it
legislative and from that
he argues that they could act without notice. The
majority of the Judges prefer the term quasi-judicial. However one may
characterize
the function, it was one which involved private rights in addition
to those of the applicant and I prefer to say that the municipality
could not
act without notice to those
affected.’”[299]
(References omitted.)
| [478] | In CREEDNZ Inc v
Governor-General[300] the New
Zealand Court of Appeal said the following: |
“The next matter for consideration is the nature of the power exercised by
the Governor-General in Council. The mere fact
that the decision is embodied in
an instrument, an Order in Council, that is legislative in form does not
necessarily preclude the
imposition by implication of an opportunity to be
heard. Again, it is well settled in this country that a body which is
exercising
functions that are legislative in form and substance may be subject
to an implied duty to observe the requirements of natural justice.
Furthermore,
the dividing line between ‘adjudication’ (or
‘administration’) on the one hand and ‘legislation’
on
the other, is not always easy to draw and the attempt may be an arid exercise
for in the twilight area the conceptual foundations
for a distinction are not
self-evident. It is more profitable to focus on the nature and effect of the
decision under the statutory
scheme than to search for labels to characterise
the Executive Council’s functions under s 3(3)”. (References
omitted.)
| [479] | It follows therefore in my
judgment, that the categorisation of action as being adjudicative is not
determinative of whether the action
in question is administrative or not. What
matters is the nature and the effect of the power
conferred. |
| [480] | For all these reasons, I
conclude that, upon a proper construction of PAJA, the implementation of the
provisions of section 22G(2)
by the Pricing Committee and the Minister fall
within the ambit of PAJA. The exercise of that power or function by the Pricing
Committee
and the Minister amounts to administrative action within the meaning
of section 1 of PAJA. |
| [481] | In the event I agree with
the Chief Justice that PAJA generally addresses the four requirements of section
33(1) of the Constitution
relating to just administrative action, namely,
lawfulness (section 6(2)(f)(i) and
6(2)(i)),[301] reasonableness
(section 6(2)(h)), procedural fairness (section 6(2)(c)), and the provision of
reasons (section 5). I also agree
that in relation to the procedural challenge
the question to be decided is whether the procedures followed by the Minister
and the
Pricing Committee in the process of making regulations were in all the
circumstances of the case fair. |
Procedural
fairness
| [482] | In Zondi this Court
had occasion to consider the content of procedural fairness, albeit in a
different context. On that occasion we said: |
“Procedural fairness, by its very nature, imports the element of fairness.
And fairness is a relative concept which is informed
by the circumstances of
each particular case. In each case the question is whether fairness demands
that steps be taken to trace
the identity of the person against whom a decision
is to be made. It is therefore neither possible nor desirable to attempt to
define
the circumstances where the dictates of fairness will require the
decision-maker to take steps to ascertain the identity of the livestock
owner.”
. . . .
“The overriding consideration will always be what does fairness demand in
the circumstances of a particular
case.”[302]
| [483] | The ultimate objective is
to afford persons who may be adversely affected by the decision an opportunity
to make representations before
the decision is
made. |
| [484] | I agree with the Chief
Justice that the process that was followed by the Pricing Committee and the
Minister was substantially consistent
with the requirements of procedural
fairness in PAJA. The pharmacies and other interested persons were afforded the
opportunity
to make written and oral representations on the draft regulations.
The fact that some members of the Pricing Committee were not
present at some of
the hearings, does not, in itself, affect the fairness of the process. Oral
representations were made in addition
to written representations. And, as
Professor McIntyre points out, “to give members of the Committee a full
picture of everything
that happened [at the oral hearings], the presentations
were audio and video-taped and made available to members of the
Committee.”
The record of the oral representations was therefore
accessible to members of the Pricing Committee. All that was required was
for
the members of the Pricing Committee who were not present at the oral hearings
to avail themselves of the opportunity to watch
the video tapes of the oral
representations. |
| [485] | New Clicks submitted that
on the applicants’ own version, the Pricing Committee did not consider the
oral representations.
It is clear from the evidence of Dr Zokufa and Professor
McIntyre that the Pricing Committee considered the written representations
at
its meetings. What is less clear is whether the oral representations were
considered by the Pricing Committee. Professor McIntyre
says that she
“watched some of the video tapes of some of the
presentations.” Whether other members of the Pricing Committee did so is
not apparent from the record. If the other
members of the Pricing Committee had
watched the video tapes, they would have said so. Nor is there any indication
on the evidence
of Professor McIntyre and Dr Zokufa whether oral representations
were considered by the Pricing Committee. On the contrary there
are indications
that the members of the Pricing Committee did not consider the oral
representations because the oral hearings were
not meetings of the Pricing
Committee. In their evidence both Dr Zokufa and Professor McIntyre emphasised
the oral hearings were
not the meetings of the Pricing Committee but that of the
Department. In addition, they emphasised that the Pricing Committee considered
written representations but said nothing about oral
representations. |
| [486] | In the view I take of the
matter I do not consider it necessary to decide whether failure by the Pricing
Committee to consider oral
representations affected the fairness of the process.
It seems to me that if the Pricing Committee was bound to consider oral
representations,
and they failed to do so, such failure amounts to a failure to
take into account a relevant consideration. This aspect is dealt
with more
fully later in this judgment. |
The
Regulations
Regulation 5(2)(c)
| [487] | Regulation 5(2)(c) was
challenged on the grounds that it is contradictory and vague. There is merit in
this challenge. This regulation
purports to provide a formula for the
calculation of the manufacturer’s component of the price of a medicine or
Scheduled substance
before determining the SEP. Its provisions and the formula
set out therein cannot therefore be construed as referring to the SEP.
They
make reference to the sales before the SEP was in existence. Regulation 5(2)(c)
does not purport to provide for the manner
of the calculating the single exit
price. Yet Appendix A which purports to give examples of how to calculate the
manufacturer’s
price, purports to provide a manner for the
“calculation of single exit price . . . ”. Appendix A plainly
contradicts
regulation 5(2)(c). It is inconsistent with regulation 5(2)(c). I
agree with Yacoob J in this regard. |
| [488] | However, it is quite clear
that the reference to “single exit price” in Appendix A should be
the reference to “weighted
average net selling price”. Ordinarily
one would replace “single exit price” with “weighted average
net
selling price” in the appendix. However, there is another problem
with regulation 5(2)(c). |
| [489] | The manufacturers are told
to calculate their prices of medicines or Scheduled substances “with
reference to the price of that
Scheduled substance in other countries in which
the prices of medicines and Scheduled substances are regulated and
published”.
Identifying those countries may not be a problem. The
problem is what are the manufacturers supposed to do with the prices of those
countries? What impact must these prices have on the determination of the price
to be set by the manufacturers in this country?
And what if there are different
prices. |
| [490] | Recently, this Court had
occasion to consider the doctrine of vagueness. The occasion was in
Affordable Medicines where we said: |
“The doctrine of vagueness is founded on the rule of law, which, as
pointed out earlier, is the foundational value of our constitutional
democracy.
It requires that laws must be written in a clear and accessible manner. What is
required is reasonable certainty not
perfect lucidity. The doctrine of
vagueness does not require absolute certainty of laws. The law must indicate
with reasonable
certainty to those who are bound by it what is required of them
so that they may regulate their conduct accordingly. The doctrine
of vagueness
must recognise the role of Government to further legitimate social and economic
objectives. And should not be used
unduly to impede or prevent the furtherance
of such
objectives.”[303]
| [491] | It is clear from the
regulation that the manufacturers are required to have regard to the prices of
medicines in other countries where
medicines are regulated and published. The
question is whether regulation 5(2)(c), so construed, indicates with reasonable
certainty
to the manufacturers what they are required to do with the foreign
prices, in particular, what impact these prices should have on
determining
prices in South Africa. The regulation gives no guidance at all. In its report
to the Minister dated 19 April 2004
the Pricing Committee acknowledged that
there are “wide variations between manufacturers in South Africa and in
countries with
effective price regulation across products.” The
regulation offers no guidance to the manufacturers as to how they are required
to deal with different prices for the same product in different countries. The
matter is left entirely in the hands of the manufacturers.
The failure of
regulation 5(2)(c) to give such guidance must be viewed against the obligation
to introduce a transparent pricing
system. The failure to provide guidance
leaves the manufacturers at large to select any price they choose. This can
hardly be said
to be consistent with the policy objectives of section 22G(2). I
conclude therefore that regulation 5(2)(c) is invalid for
vagueness. |
Regulation 8(3)
| [492] | The
increase in the SEP is governed by regulations 5(2)(a), 5(2)(b), 7, 8 and 9.
Regulation 5(2)(a) tells us when any increase in
the SEP may commence. It may
not be increased “for a period of one year after the commencement of [the]
regulations . . .
”. Regulation 5(2)(b) directs us to the provision in
terms of which an increase may be made. An increase may be made in
terms of
the provisions of regulation 8. Regulation 7 tells us how often the SEP may be
increased. It may only be increased once
a year. And regulation 8(1) in turn
permits the Minister to increase the SEP, while regulation 8(3) permits the
manufacturers to
do so. However, the provisions of regulation 8 are subject to
the provisions of regulation 5(2)(a). Regulation 5(2)(b) says
so:“[s]ubject
to sub-regulation 5(2)(a) the single exit price may be
increased in terms of regulation 8 of these
regulations”. |
| [493] | The
effective date of any increase in the SEP is therefore governed by regulation
5(2)(a). And it follows therefore that the SEP
may not be increased within a
year after the commencement of the regulations. The problem is how to reconcile
regulation 8(3)(iv)
which purports to permit an increase in the SEP within a
year of the date of the commencement of the regulations. It does so because
it
prevents the increase of the SEP “within the period of six months
beginning from the date of commencement of [the] regulations”,
thereby
implying that an increase may be effected after six months but within a year of
the date of the commencement of the regulations.
Regulation 8(3)(iv) is clearly
inconsistent with regulation 5(2)(a) to which it is
subject. |
| [494] | Regulation 8 contemplates
two instances in which there may be an increase in the SEP. One is by the
Minister in terms of regulation
8(1). This regulation contemplates that there
will be an annual increase in the SEP and that such an increase will be
determined
by the Minister. It is also clear that what the Minister determines
under regulation 8(1), is the extent to which the SEP may be
increased.
However, manufacturers are not obliged to increase their SEP by the extent
determined by the Minister. They may charge
less to enable them to compete with
their competitors. But if they decide not to increase their SEP by the
percentage determined
by the Minister, they may nevertheless still increase it
during that particular year. They may only do this four times a year.
However,
such an increase may not exceed the amount of increase determined by the
Minister in terms of regulation 8(1). |
| [495] | The scheme that emerges
from regulation 8 is this: the increase contemplated in regulation 8(3) is an
increase by the manufacturer
that is subsequent to the annual increase
determined by the Minister in terms of regulation 8(1). This is so because the
increase
contemplated in regulation 8(3) is subject to regulation 8(1). The
manufacturers need not increase their SEP by the amount determined
by the
Minister. However, should they decide to increase the SEP, such increase may
not exceed the increase determined by the Minister.
And if they require to
effect an increase that goes beyond that determined by the Minister in terms of
regulation 8(1), then the
provisions of regulation 9(1) apply. That regulation
provides that the “Minister may, in exceptional circumstances, authorise
a
manufacturer . . . to increase the price of a medicine or Scheduled substance by
a specified amount greater than that permitted
in terms of regulation
8”. |
| [496] | Thus
construed there is no room for regulation 8(3)(iv) which contemplates an
increase in the SEP not only within six months of the
commencement of the
regulations, but even before the Minister has determined any increase to the
original SEP. This regulation cannot
be reconciled with regulation 5(2)(a) to
which it is subject. It follows that it must be
invalid. |
| [497] | The problem relates to the
reference to “single exit price” and “first published in
respect of that year”
in regulation 8(3)(i). The Minister does not
determine what the single exit price for the year is. What the Minister does is
to
determine “the extent to which the single exit price” may be
increased. In the second place the Minister does not publish
the single exit
price. That is the function of the manufacturers. The reference to the
“single exit price” and “first
published in respect of that
year” is therefore vague. What the scheme of regulation 8 has in mind is
that whatever increase
that is made by manufacturers, such increase should not
go beyond the increase determined by the Minister in terms of regulation
8(1),
unless such increase is authorised by the Minister in terms of regulation
9(1). |
| [498] | I
conclude therefore that regulation 8(3)(i) is void for vagueness. However, this
can be cured by deleting the words “as first
published” and
inserting the words “amount of increase determined by the Minister in
terms of regulation 8(1) as being
the extent to which”, in front of the
words “single exit price of the medicine or Scheduled substance”,
and inserting
the words “may be increased” in front of the words
“in that year”. Regulation 8(3)(i) will therefore read:
“such
increase does not exceed the amount of increase determined by the Minister as
being the extent to which the single exit price of the medicine or Scheduled
substance may be increased in respect of that
year.” |
The remaining
regulations
| [499] | Save for the above, and in
relation to regulation 22 and 23, I concur in the judgment of the Chief Justice.
In relation to regulations
22 and 23, I concur in the judgment of Yacoob
J. |
| [500] | It now remains to consider
the challenge to the appropriate dispensing
fee. |
The appropriate dispensing fee
| [501] | Section 22G(2)(b) deals
with the determination of an appropriate dispensing fee to be charged by
pharmacists or other health care
professionals who may dispense medicines under
the Medicines Act.[304] Its
relevant part provides: |
“The Minister may, on the recommendation of the pricing committee, make
regulations—
. . . .
(b) on an appropriate dispensing fee to be charged by a
pharmacist or by a person licensed in terms of section 22C(1)(a).”
| [502] | In terms of section
22G(3)(b) pharmacists and other dispensers of medicines may not sell medicines
at a price higher than the
SEP.[305] However section
22G(3)(c) provides that the provisions of section 22G(3)(b) “shall not be
construed as preventing a pharmacist
or person licensed [to dispense medicine
under the Medicines Act] to charge a dispensing fee as contemplated in
subsection (2)(b)”.[306]
Section 22G(3)(c) therefore constitutes an exception to the prohibition against
the sale of medicines at a price higher than the
SEP. Section 22G contemplates
that a dispensing fee is a fee that may be charged in addition to the
SEP. |
| [503] | All the parties as well as
the courts below approached the matter on the footing that the subsection
authorises the Minister, on the
recommendation of the Pricing Committee, to fix
an appropriate dispensing fee. Following the recommendation of the Pricing
Committee,
the Minister promulgated regulations 10, 11, 12 and 13, which fix
dispensing fees. Broadly speaking, the regulations distinguish
between
medicines that are dispensed without a prescription and those dispensed on the
basis of a prescription. In addition, they
fix a different fee for other
dispensers of medicines such as medical practitioners, dentists and professional
nurses. And since
a dispensing fee is a fee that may be charged in addition to
the SEP, the regulations fix a dispensing fee by reference to the
SEP. |
| [504] | The dispensing fee in
respect of medicines dispensed without a prescription is 16% of the price where
the SEP is less than R100, and
R16 where the SEP is R100 or
more.[307] In the case of
medicines that are dispensed on the basis of a prescription, the dispensing fee
is 26% of the SEP where the SEP is
less than R100, and R26 where the SEP is R100
or more.[308] Other dispensers
such as medical practitioners, dentists and professional nurses may charge a
dispensing fee of 16% of the SEP where
the SEP is less than R100, and R16 where
the SEP is more than R100.[309]
In addition, the regulations deal with the manner of calculating dispensing fees
to be charged in respect of a person admitted as
an
inpatient[310] and in respect of
Schedule 0 medicines.[311] The
dispensing fee is subject to review annually in order to keep up with the
CPI[312],
PPI[313] and “the need to
ensure the availability, affordability and quality of medicines . .
.”.[314] |
The
challenge
| [505] | The main ground of attack
on the dispensing fees is that they are not appropriate as required by section
22G(2)(b). The pharmacies
contended that the dispensing fees are not
economically viable for pharmacies and would result ultimately in the demise of
retail
pharmacies. New Clicks submitted that in fixing the dispensing fees, the
Minister ignored certain relevant considerations such as
the profit margin
required for pharmacies to survive, the different circumstances and thus
different cost structures which pharmacists
may operate in different areas, the
working capital cost borne by pharmacists in conducting their businesses, the
cost of storing
medicines and the time spent by pharmacists in providing
dispensing services. |
| [506] | In effect, the main
contention by New Clicks is that in fixing the dispensing fees, the Pricing
Committee failed to have proper regard
to the viability of pharmacies, which is
a relevant consideration in determining an appropriate dispensing fee. This
much appears
from the submission by New Clicks that the issue of the viability
of pharmacies is an issue which “seems to have singularly
passed by the
Pricing Committee, which ultimately made a recommendation without any regard to
the viability thereof for pharmacists.”
It seems to me therefore that the
ground of review urged by New Clicks is that relevant matters were not given
proper consideration
by the Pricing Committee, a ground comprehended in section
6(2)(e)(iii) of PAJA. |
| [507] | For its part, PSSA
challenged the dispensing fees on three broad grounds. First, it submitted that
the fees are not appropriate because
they: (a) will drive pharmacies out of
business; (b) fail to take account of the different types of pharmacies; and (c)
will reduce
access to medicines. Second, and for substantially the same reasons
as in the first ground, PSSA contended that the fees are unreasonable
and
arbitrary. Third, it submitted that the dispensing fees violate section 22 of
the Constitution in that they impermissibly regulate
the choice of profession
and they will drive pharmacists out of the
profession. |
| [508] | The first ground of attack
by PSSA raises substantially the same issue as New Clicks, namely, whether the
Pricing Committee ignored
relevant considerations in determining the dispensing
fees. The second ground of attack, namely, that the dispensing fees are
unreasonable,
is closely related to the first ground. If the Pricing Committee
ignored relevant considerations referred to by PSSA so that the
ultimate fees
determined will result in the demise of pharmacists, such fees can hardly be
said to be fees that a reasonable Pricing
Committee could have fixed. The third
ground of attack, namely, the alleged violation of section 22 of the
Constitution, stands
on a different footing. It raises the question of the
permissible scope of regulation of a
trade.[315] |
The
findings of the SCA
| [509] | The SCA held that the
evidence on the record “establishes that the fees are not appropriate and
that the respondents, within
whose peculiar knowledge the calculation [of the
dispensing fee] fell, were unable to give any rational explanation for the
quantum
of the fees.”[316]
It found that “on the unassailed factual material on record” access
to medicines will be seriously threatened because
the quantum of fees fixed by
the regulations is insufficient to cover the costs of dispensing
medicine.[317] In effect the SCA
upheld the contention by the pharmacies that the quantum of fees was fixed
without regard to the viability of
pharmacies. It is apparent from the judgment
of the SCA that its conclusion was influenced by the lack of explanation from
the Pricing
Committee and the Minister as to how the fees were
calculated. |
Issues presented
| [510] | What lies at the heart of
the challenge to the dispensing fees is the contention that the dispensing fees
as determined in the regulations
are not viable for pharmacies and will drive
them out of business. In effect the pharmacies contend that, in determining the
dispensing
fees, the Pricing Committee did not have due regard to the viability
of the dispensing fees for pharmacies, as they were bound to
do. This
contention was upheld by the SCA, which in effect concluded that the fees were
not viable for pharmacies. Failure by a
decision maker to take into account a
relevant consideration in the making of an administrative decision is an
instance of an abuse
of
discretion.[318] As pointed out
earlier, this is a ground of review which is expressed in section 6(2)(e)(iii)
of
PAJA.[319] |
| [511] | There is obviously an
overlap between the ground of review based on failure to take into consideration
a relevant factor and one based
on the unreasonableness of the decision. A
consideration of the factors that a decision maker is bound to take into account
is essential
to a reasonable decision. If a decision maker fails to take into
account a factor that he or she is bound to take into consideration,
the
resulting decision can hardly be said to be that of a reasonable decision maker.
It seems to me to follow that if, in determining
the dispensing fees, the
Pricing Committee was bound to take into consideration the viability of the fees
for pharmacies, but failed
to do so properly, the resulting fees can hardly be
said to be one that a reasonable Pricing Committee could
fix. |
| [512] | As I see it therefore the
central question in this case reduces to whether the Pricing Committee gave
proper consideration to the
viability of pharmacies in fixing the dispensing
fees. This question raises two separate, but related, questions. The first is
whether the Pricing Committee was bound, in fixing an appropriate dispensing fee
pursuant to section 22G(2)(b), to have regard to
the viability of pharmacies so
that failure to do so amounted to failure to take into account a consideration
relevant to the determination
of an appropriate fee. The second question, which
only arises if the first question is answered in the affirmative, is whether the
Pricing Committee gave due regard to the viability of
pharmacies. |
| [513] | Factors that a decision
maker is bound to consider in making a decision must be determined by construing
the statute conferring the
discretion. Where, as here, the statute in question
does not expressly state what factors are to be considered, these factors must
be determined by implication from the subject matter, scope and purpose of the
empowering statute including the policy objectives
of the empowering
statute.[320] Considerations that
are relevant to the determination of an appropriate dispensing fee must
therefore be sought in the purpose of
section 22G(2)(b) read in the context of
the Medicines Act and its underlying policy objectives. What then is the
purpose of section
22G(2)(b)? |
The purpose of
section 22G(2)(b)
| [514] | The purpose of the
subsection is clearly to give effect to the right of access to health care
services comprehended in section 27(1)(a)
and (2) of the
Constitution.[321] This section
guarantees the right of access to health care services and enjoins the state to
“take reasonable legislative
and other measures, within its available
resources, to achieve the progressive realisation of [this right].” The
right to
health care services includes the right of access to medicines that are
affordable. The state has an obligation to promote access
to medicines that are
affordable. |
| [515] | Consistent with its
obligation, the state has developed the National Drug Policy (NDP). This is a
comprehensive policy document which
sets out health, economic and national
development objectives of the state. What is immediately relevant for present
purposes is
chapter four of the NDP which deals with drug pricing. The aim of
the drug pricing policy is “[t]o promote the availability
of safe and
effective drugs at the lowest possible cost”. This is to be achieved by,
amongst other things, “negotiating
drug prices and by rationalising the
drug pricing system in the public and private sectors”. To this extent
the policy proposes
the establishment of a Pricing Committee to monitor and
regulate drug prices; the regulation of price increases; introduction of
transparency in the pricing structure of pharmaceutical manufacturers,
wholesalers and those who dispense drugs; the introduction
and enforcement of
non-discriminatory pricing systems; and the replacement of the wholesale and
retail percentage mark up system
with a pricing system based on a fixed
professional fee. |
| [516] | With
these policy objectives in mind, the legislature introduced an amendment to the
Medicines Act in the form of section
22G.[322] As the preamble to the
Medicines and Related Substances Control Amendment Act of 1997 declares, the
purpose of the amendment was among others, “to provide for measures for
the supply of more affordable medicines
in certain circumstances”,
“to provide for the establishment of a pricing committee” and
“to regulate the
purchase and sale of medicines by wholesalers”.
And in its amended form, the preamble to the Medicines Act now declares as
one
of its purposes, “to provide for measures for the supply of more
affordable medicines in certain circumstances” and
“to provide for
the establishment of a pricing committee; to regulate the purchase and sale of
medicines by manufacturers,
distributors, wholesalers, pharmacists and persons
licensed to dispense medicines”. |
| [517] | The manifest purpose of
section 22G(2)(b) is to enhance accessibility and affordability of
medicines.[323] It is in the
light of this purpose that the factors relevant to the determination of an
appropriate fee must be determined. An
appropriate fee illuminates factors
relevant to its determination. It is therefore necessary to consider first the
meaning of an
appropriate dispensing fee. The Medicines Act does not define
appropriate dispensing fee. However the term appropriate dispensing
fee must be
construed in the light of the purpose of section 22G(2)(b), namely, to promote
the availability of medicines at the lowest
possible
cost. |
The meaning of “appropriate
dispensing fee”
| [518] | As the SCA held, an
appropriate dispensing fee must be fair and just. Indeed it can hardly be
argued that a dispensing fee that is
unjust or unfair is
appropriate.[324] The dispensing
fee must be fair not only to the public, but also to pharmacies. The fee must
not be such that it will render medicines
inaccessible to the general public.
Nor must it be such that it drives pharmacies out of business. Its
determination requires a
consideration of conflicting interests of the public
who are entitled to access to affordable medicines, on the one hand, and the
interests of dispensers who, in terms of the Act, are essential to the public
for the supply of medicines and whose economic viability
is implicitly
recognised by the Act and is of “national importance”, on the other
hand.[325] |
| [519] | That said, one should not
lose sight of the primary objective of section 22G(2)(b). Its primary objective
is to promote access to
medicines at the lowest cost possible. This objective
is consistent with the constitutional right of access to health care services
and the constitutional obligation of the state to take measures in order to
ensure the progressive realisation of this
right.[326] No doubt the
interests of the pharmacists is a factor to be taken into consideration.
However, they must yield to the interests
of the general public. This of course
does not mean that the interests of the pharmacists are to be
overlooked. |
| [520] | In fixing an appropriate
dispensing fee, the Pricing Committee and the Minister have a duty to strike a
balance between the need to
make medicines available and accessible to the
public at the lowest possible cost and the need to keep pharmacies in business.
If
in serving the interests of the public the price of medicines is to be
reduced, this would not be sufficient to render inappropriate
the fee determined
by the Pricing Committee. But the reduction should not be such that it will
result in the closure of the pharmaceutical
industry. For the need for the
continued existence of pharmacies, is implicit, if not explicit, from the
objective to enhance the
accessibility and affordability of medicines.
Pharmacies are crucial to the public for the supply of medicines. The
applicants
acknowledge this, for, Professor McIntyre in her affidavit admits
that “the survival of the retail pharmacy sector is essential
for medicine
delivery”. Without that supply, access to medicines would be compromised.
And this would undermine the objective
of the Medicines Act to make medicines
accessible to the general public. This is common cause on the
record. |
| [521] | But appropriateness is not
a precise criterion. There may well be a range of dispensing fees which may be
said to be appropriate.
What must be prescribed must be within that range. It
follows that the Pricing Committee and the Minister exercise some discretion
in
the determination of the appropriate dispensing fee. But they must remain
within the range of what is appropriate and observe
the limits for the exercise
of discretion. What must constantly be borne in mind is that courts have a
limited role in reviewing
the exercise of an administrative discretion. They
should guard against substituting their views on what is appropriate for that
of
the Pricing Committee and the Minister. Their role is to ensure that
administrative action is lawful, reasonable and procedurally
fair. |
| [522] | There is a further
consideration that is equally important in the context of this case. The
determination of an appropriate dispensing
fee is informed by both economic and
other policy considerations. And as the Chief Justice observes, the task of the
Pricing Committee
calls for expertise and understanding of a complex market in
which medicines are traded. The Pricing Committee possesses such expertise
and
it consists of individuals with diverse backgrounds and experience in these
matters. Courts have no expertise in these matters.
As a general matter, they
should only interfere with a fee fixed by the Pricing Committee if the fee is
one that is beyond the range
of what is appropriate. Such a fee would have to
be challenged on the ground that it is one that a reasonable decision maker
could
not
fix.[327] |
| [523] | It follows that the
submission by the government that courts have no business to review the
appropriateness of the dispensing fee
must be
rejected. |
| [524] | It is against this
background that the question whether the Pricing Committee was bound to consider
the viability of the dispensing
fees for pharmacies in fixing dispensing fees
must be determined. |
Was the Pricing Committee
bound to consider the viability of pharmacies?
| [525] | It is implicit, if not
explicit from the objective to promote access to medicines by all at the lowest
possible cost that there must
be a supply of medicines. Access to medicines
presupposes the availability of medicines. And the availability of medicines
presupposes
the existence of a supply of medicines. Without the supply of
medicines there can be no access to medicines. The pharmaceutical
industry is
the source of that supply and thus the availability of medicines. Without
pharmacies, access to medicines would be compromised.
The pharmaceutical
industry is therefore essential to the public for the supply of medicines. The
importance of pharmacies is recognised
by the NDP whose national development
objectives include “support[ing] the development of the local
pharmaceutical industry
and the local production of essential
drugs.” |
| [526] | Once it is accepted, as it
must be, that pharmacists are crucial to the objectives of the Medicines Act, it
must also be accepted
that there is a need for them to survive. But those who
are involved in the pharmaceutical industry do so for profit. An appropriate
dispensing fee must be rationally related to the cost of doing business. It
must be such that it makes it worthwhile for pharmacies
to remain in business.
And the economic viability of pharmacies is implicitly recognised by the
Medicines Act. As the Australian
Federal Court observed in the context of price
fixing for pharmaceuticals in that country: |
“Pharmacies, like nursing homes, members of the medical profession and
some hospitals are the creatures of the private sector.
Those who operate them,
no matter how much professional dedication they bring to their task, do so for
profit. If it were not feasible
to operate them profitably, pharmacy businesses
would not exist any more than would nursing homes or medical practices. The
legislature
must be taken to understand this and to have intended prices to be
fixed which would enable pharmacies to continue to operate profitably.
In
saying what I have, I do not mean that it follows that the prices must be such
as to enable all pharmacies to operate profitably
or that the prices might not
be such as would make some pharmacies uneconomical perhaps because of an over
concentration of them
in one area, the existence of them in sparsely populated
areas, inefficient operation or for other reasons. But fundamentally, so
it
seems to me, the legislature must have intended that the price to be fixed would
be one which would enable properly run pharmacies
in appropriate geographical
areas to operate with a reasonable margin of profit. I emphasise the word
‘reasonable’.”[328]
| [527] | A dispensing fee that has
the effect of driving pharmacies out of business, has the potential to cut the
supply of pharmaceutical
products, and thus undermines access to drugs and,
ultimately, runs counter to the objectives of the Medicines Act. An appropriate
dispensing fee must consider the need for pharmacies to receive, in addition to
the cost to them of the drugs, some recompense for
the trouble and expense of
supplying the product. In addition, there is a need for such income to amount
to a sufficient consideration
to induce a sufficient number of pharmacists to
continue to operate as approved pharmacies under the provisions of the Medicines
Act. |
| [528] | The viability of the
dispensing fee for pharmacies is therefore a relevant factor which the Pricing
Committee is bound to take into
account when determining an appropriate
dispensing fee. Also relevant in this regard are the different types of
pharmacies that
exist in practice such as community pharmacies, hospital
pharmacies and courier pharmacies; different circumstances and thus different
cost structures which pharmacies may operate in different areas such as all the
inherent differences between provinces, between small
and large pharmacies,
between pharmacies situated in major cities and those in small rural towns; and
those located in areas where
doctors are also dispensing medicines; and so on.
All these are matters that the Pricing Committee and the Minister were bound to
take into consideration in determining the appropriate dispensing
fee. |
| [529] | The Pricing Committee and
the Minister did not suggest otherwise. On the contrary they maintained that
these matters were taken into
consideration. While New Clicks in its written
argument accepted that the deliberations of the Pricing Committee show that it
was
conscious of the fact that it had to fix a dispensing fee that was viable
for pharmacies, New Clicks nevertheless contended that
the dispensing fee was
fixed without proper regard being paid to the viability of pharmacies. Before
determining the question whether
relevant considerations were properly taken
into account by the Pricing Committee, it will be convenient to investigate
first the
nature and scope of the obligation of a decision maker to consider
relevant factors. |
The nature and scope of the
obligation to consider relevant factors
| [530] | The Pricing Committee and
the Minister must apply their minds to all relevant and material information
placed before them. They must
properly evaluate such information and attach
such weight to it as the degree of its importance requires. They should not pay
lip
service to this
obligation.[329]
In Bangtoo Bros. v National Transport Commission, the court considered
the meaning of the expression “apply its mind to the matter” and
said: |
“It is clear from the cases that a body constituted by statute is obliged
‘honestly to apply its mind to the matter’
for decision. I am for
the moment concerned with what is meant by the expression ‘apply its mind
to the matter’, certain
aspects of which have already been covered by this
judgment. It seems to me essential that the tribunal is essentially obliged to
consider all relevant and material information placed before it. To pay mere
lip-service to this obligation is not sufficient, just
as it would be a
dereliction of duty to hear representations which are pertinent, and then to
ignore them. The problem arises whether
the Court is concerned with the degree
of importance which the tribunal attaches, in the exercise of an honest
judgment, to the relevant
considerations. Take a case, for example, where a
factor which is obviously of paramount importance is relegated to one of
insignificance,
and another factor, though relevant, is given weight far in
excess of its true value. Accepting that the tribunal is the sole judge
of the
facts, can it be said that it has in the circumstances postulated properly
applied its mind to the matter in the sense required
by law? After much anxious
consideration I have come to the conclusion that the answer must be in the
negative.”[330] (Footnotes
omitted.)
| [531] | The Pricing Committee and
the Minister must therefore do more than pay lip service to the viability of
pharmacies. They must address
the need for pharmacies to exist in a meaningful
way when fixing the appropriate fee, and be able to demonstrate that they have
done
so. This could be done by explaining the manner in which the viability of
pharmacies was given effect. They must give an explanation
of how the
appropriate fee was calculated. This explanation is crucial to the process of
determining an appropriate fee. It explains
to the public and the
pharmaceutical industry the manner in which the fee was arrived at. It
discloses the reasoning process of
the Pricing Committee. And it enables those
who have an interest in the fee to assess whether the Pricing Committee has
properly
discharged its statutory duty. This explanation should generally be
contained in the report of the Pricing Committee making a recommendation
to the
Minister. |
| [532] | In Bato Star we had
occasion to consider the meaning of the phrases “have regard to” and
“have particular regard to” in
the context of the need to take
transformation into consideration in awarding fishing quotas. On that occasion
we said: |
“All these considerations point inexorably to the conclusion that the
words ‘have regard to’ and ‘have particular
regard to’
in the constitutional and statutory context, require a decision-maker to do more
than give lip service to s 2(j).
The decision must address the need for
transformation in a meaningful way when decisions are made, and be able to
demonstrate that
this has been done. A failure to do so is unlawful, and the
ensuing decision is open to
attack.”[331]
And
we continued and said:
“It follows that, if the Minister were to fail to heed this injunction, he
would be acting unlawfully and his decision would
be open to attack. It is
incumbent upon the Minister to put forward facts from which it will appear that
he has indeed paid due
regard to the need to promote transformation. A Court
reviewing the decision of the Minister has an obligation to ensure that the
section has been complied with. Where there is a dispute as to whether the
Minister has complied with s 2(j), the Court considering
the matter must examine
the facts relied upon by the Minister as establishing compliance with s 2(j),
and satisfy itself that there
has been compliance with this
provision.”[332]
| [533] | It now remains to consider
whether the Pricing Committee and the Minister in fixing the dispensing fees
properly applied their minds
to matters that they were bound to consider such as
the viability of pharmacies. |
| [534] | The record shows that the
Pricing Committee and the Minister were conscious of the need to consider the
viability of pharmacies in
fixing an appropriate fee. Indeed in the minutes of
the meeting of the Pricing Committee held on 20 and 21 November 2003 the Pricing
Committee is recorded as having concluded that the “pharmacy outlets play
an important role and it is therefore imperative
that this market is not
jeopardised by the committee’s recommendation”. They were also
conscious of the varying circumstances
in which different types of pharmacies
operate. They were mindful of the fact that an appropriate fee should cover
both the professional
remuneration and the operating costs. In short, the
Pricing Committee was alive to the factors that were relevant to the
determination
of an appropriate fee. |
| [535] | What is singularly lacking
in the record is an explanation of how the dispensing fees were arrived at.
There is no explanation as
to why the Pricing Committee chose the figures that
it chose. While the Pricing Committee indicated that the fee covers both the
professional remuneration and operating costs, it does not explain what was
allocated to each of these component parts of the fee.
As the SCA observed,
“except for a general statement that all factors were taken into account,
there is no evidence or document
that shows what those factors were, what weight
they bore, whether any calculations were made and, more particularly, whether
any
regard was given to the viability of the dispensing profession.” It
was this lack of explanation for quantum of the dispensing
fees that led the SCA
to conclude that there was no rational explanation for the quantum of fees and
that therefore the fees were
not
appropriate.[333] |
| [536] | As pointed out previously,
the Pricing Committee and the Minister were obliged to address the viability of
the fees for pharmacies
in a meaningful way, and demonstrate that they have done
this. It was incumbent upon them to put forward facts from which it would
appear that they had paid due regard to the viability of pharmacies so that a
court considering a dispute relating to the viability
of the fees could examine
those facts and satisfy itself that they have properly discharged their
statutory duty. In particular,
they had to explain how they arrived at the
figures that they adopted. In the absence of such explanation it is difficult
to assess
whether they had due regard to the viability of pharmacies. The mere
statement by the applicants that they have done so is
insufficient. |
| [537] | Dr Zokufa states that
“the regulations were modelled on the principles underpinning the
Australian system although they have
been adapted to the circumstances
prevailing in the Republic”. The Australian jurisprudence on the need to
furnish an explanation
for the quantum of dispensing fees is instructive. It is
true, the Australian cases were decided under the Australian statute which
requires a decision maker to furnish reasons for its decision. In the second
place under the Australian legislation, the fees are
determined by a tribunal
which hears submissions from the interested parties. In principle, the
obligation of the Pricing Committee
to furnish an explanation for the fees
adopted is no different from that of the Australian tribunal. Therefore I
consider the rationale
for the furnishing of reasons articulated by the
Australian cases applicable in our context. |
| [538] | In In re: the
Commonwealth of Australia and the Pharmacy Guild of Australia and Another,
Sheppard J said: |
“The provision of reasons is an important aspect of the tribunal's overall
task. Reasons are required to inform the public
and parties with an immediate
interest in the outcome of the proceedings of the manner in which the tribunal's
conclusions were arrived
at. A purpose of requiring reasons is to enable the
question whether legal error has been made by the tribunal to be more readily
perceived than otherwise might be the case. But that is not the only important
purpose which the furnishing of reasons has. A prime
purpose is the disclosure
of the tribunal's reasoning process to the public and the parties. The
provision of reasons engenders
confidence in the community that the tribunal has
gone about its task appropriately and fairly. The statement of bare conclusions
without the statement of reasons will always expose the tribunal to the
suggestion that it has not given the matter close enough
attention or that it
has allowed extraneous matters to cloud its consideration. There is yet a
further purpose to be served in the
giving of reasons. An obligation to give
reasons imposes upon the decision-maker an intellectual discipline. The
tribunal is required
to state publicly what its reasoning process is. This is a
sound administrative safeguard tending to ensure that a tribunal such
as this
properly discharges the important statutory function which it
has.”[334]
| [539] | In Dornan and Others v
Riordan and Others[335]
the appeal court expressed similar concerns in the context of failure by the
tribunal to explain why it had adopted a base figure
of Aus $3.50 for each ready
prepared item as an amount to be charged by the pharmacists. In that case even
though the tribunal had
disclosed the material that it had taken into
consideration, the court held that this was not sufficient. The tribunal had to
disclose
the reasoning process that led to its determination. In this regard
the court said: |
“It is, however, impossible to understand from the reasons given by the
tribunal why it was that the tribunal adopted the precise
base that it did.
Although the interim report of the tribunal was 239 pages in length and had many
lengthy appendices, including
Deloittes’ report, and although the report
of 28 August 1989 was itself 178 pages in length, the reasons do not make it
clear
why the base figure of $3.50 for each ready prepared item was adopted. It
seems from the interim and the final reports that the
tribunal was substantially
influenced by what was contained in the Deloittes’ study. But even so,
while the reasons disclose
the material which the tribunal took into account, it
is impossible to glean from the tribunal’s reasons what was the reasoning
process that let it to its
determination.”[336]
And
later the court remarked:
“These two statements are too general to make it clear what it was the
$3.50 was considered to represent. Was the $3.50 thought
to be fair return to
pharmacists having regard to their labour and their capital invested, was it
thought to be a break-even fee
for an average pharmacy, was it thought to be the
most that the Commonwealth could reasonably be expected to pay or was it
something
else? The reasons do not
disclose”.[337]
| [540] | The Dornan case
also illustrates the difficulties that may result from a failure to furnish
reasons for the fees adopted. Failure to explain
how the fees have been
calculated makes it impossible for the court to properly evaluate the challenge
to the fees adopted. As we
pointed out in Bato Star, the decision maker
must put forward facts from which it will appear that they have considered the
matter. This is essential because
the court must evaluate those facts in order
to satisfy itself that the empowering statutory provision has been complied
with. In
the Dornan case the determination of the tribunal was also
challenged on the grounds that (a) it failed to have regard to relevant
considerations;
and (b) its determination was unreasonable. In dealing with
these further grounds of challenge, the court remarked as
follows: |
“We do not think it useful to discuss these further grounds of challenge
which were shortly argued in the appeal. Counsel
for both sides submitted that,
by reference to the tribunal’s final report, to its interim report, to
Deloittes’ study
and to other material, it could be ascertained that the
tribunal took such and such into account or relied on this and that. The
grounds were argued accordingly, reference being made to relevant legal
authorities and to factors to which the tribunal may or may
not have given
weight. In our opinion, as the tribunal did not explain its course of
reasoning, the basis for the grounds tended
to fail, for the argument could find
no foothold on any firm ground. For example, not having been informed why the
$3.50 was adopted,
it is difficult to hold that there was not a basis upon which
a reasonable decision-maker could have come to that result. But this
is simply
to say that the reasons for the decision are so elusive that it was impossible
for the pharmacists to establish those grounds
of challenge —
unreasonableness, material and immaterial considerations etc — upon which
they relied. The major flaw
in the tribunal’s decision was that the
tribunal did not state reasons adequate to enable the court to determine whether
or
not any other error had occurred in the reasoning
process.”[338]
| [541] | The failure by the Pricing
Committee to explain how it arrived at the figures it adopted made it difficult
to evaluate the appropriateness
of the dispensing fees adopted, and thus to
determine whether the Pricing Committee has properly applied its mind to the
viability
of pharmacies. Not having been told why the figures were adopted, it
is difficult to determine whether the Pricing Committee properly
applied its
mind to the viability of pharmacies, and ultimately whether there was a basis
upon which a reasonable decision maker
could have fixed the fees in dispute. It
is true and the record indicates that the Pricing Committee was always conscious
of the
need to fix a fee that would be viable for pharmacies. This is not
enough. The reasons are elusive. The Pricing Committee had
to demonstrate that
they had done so. |
| [542] | The need to furnish an
explanation for the quantum of fees adopted is especially important in the
context of section 22G(2). The
Minister is required to make regulations based
on the recommendation of the Pricing Committee. The Minister does not merely
rubber
stamp the recommendation of the Pricing Committee. She is required to
apply her mind to the recommendation and make a decision whether
to accept such
recommendation. She cannot therefore accept the fees proposed by the Pricing
Committee simply because they have been
proposed by the Pricing Committee. She
must satisfy herself that the fees proposed by the Pricing Committee are
appropriate within
the meaning of section 22G(2). She can only do this if she
is furnished with an explanation as to how the fees were arrived at.
Without
such information, the Minister cannot properly evaluate the appropriateness or
otherwise of the fees proposed by the Pricing
Committee. |
| [543] | There is much to be said
for the conclusion reached by the SCA that the record “establishes that
the fees are not appropriate
and that the [applicants], within whose peculiar
knowledge the calculation [of the fees are], were unable to give any rational
explanation
for the quantum of the
fees.”[339] Ordinarily
failure to provide an explanation would lead to the inference that there is no
rational explanation for the fees determined
and that the fees are therefore
arbitrary.[340] This is more so
here, where the fees have been challenged on the ground that they are not
appropriate. However, it is not necessary
to reach that conclusion here because
there are considerations which suggest that the Pricing Committee did not
properly apply its
mind to factors which it was bound to consider. It is
sufficient for the purposes of this judgment to refer only to a few of these
to
illustrate the point. These matters concern facts that are either common cause
or not in dispute or appear from the evidence
on behalf of the applicants. They
relate to the viability of the dispensing fees for pharmacies; the special
situation of rural
pharmacies and courier pharmacies; the problem of
compounding; and the failure to consider oral
representations. |
The viability of the
dispensing fees for pharmacies
| [544] | In a briefing by the
Department to the Parliamentary Portfolio Committee on Health on 17 February
2004, Dr Zokufa is reported to have
said the following in response to a question
from a member of the Portfolio Committee to the effect that pharmacists were
concerned
that they would not be able to sustain their business if they charged
the 24% dispensing fee: |
“With regard to the concern around dispensing fees, the presenter said
that South Africa has 2500 retail pharmacists and they
are not enough to cover
the whole country. There is a need to increase this number. The 24% and R24.00
dispensing fee is a minimal
figure. The Department was interested in seeing
what pharmacists would say about it. Their survival would be influenced by
volumes
of prescriptions that they get. The more prescriptions they get and the
more items they dispense, the more they would get the 24%
or R24.00 dispensing
fee. The Department felt that the dispensing of medicines should be left to the
pharmacists and not medical
practitioners. This would ensure an increase in the
volume and number of items that the pharmacies dispense. If the Department
were
not strict about how it gave licences to people who are not pharmacists, the 24%
or R24.00 dispensing fee would not make the
sector viable. This is because the
pharmacists would not be seeing big volumes, as these would have been dispensed
by persons who
were not pharmacists.”
Later in the same
briefing session, Dr Zokufa is reported as having further said:
“The assumption is that the current volume of medicines distributed from
pharmacies is far less than what it should be because
there are doctors who are
also dispensing medicines. If this is changed around and doctors no longer
dispense medicines, that pharmacist
would see an increase in the volume of
medicines dispensed. With a 24% profit margin, this small pharmacist’s
business should
be able to succeed . . . Dr Zokufa said that these Regulations
were putting a huge challenge to every sector in the health industry.
For the
first time, the retail pharmacists were challenged to show how they would come
out with 24% or R24 from the medicines they
sell . . . Pharmacies do not only
make their living out of prescription medicine, they make profits from their
front shops too.
The big discount pharmacies were not worried about the
regulations because they received high volumes of prescriptions, and they
make
most of their money from the front shops which were not affected by these
Regulations.”
| [545] | Dr Zokufa admitted these
allegations “[i]nsofar as [they] correctly reflect the statements made to
[the] parliamentary portfolio
committee on Health”. Apart from saying
that “[t]he statements . . . must be read as a whole and must be seen in
their
proper context”, he did not dispute the accuracy of the allegations.
Nor did he suggest what that proper context is. These
allegations must
therefore be accepted as an accurate reflection of what he said in the Portfolio
Committee on Health. This statement
must be taken as further amplification of
the reasons for the dispensing fees adopted. |
| [546] | What emerges from the
statement by Dr Zokufa is this: “the current volume of medicines that is
distributed by pharmacies is
far less than what it should be” because of
competition from other dispensers of medicines such as medical practitioners.
Unless there is an increase in the volume of medicines dispensed by pharmacies,
the dispensing fees adopted would not be viable for
pharmacies. This is so
“because the pharmacists would not be seeing big volumes, as these would
have been dispensed by persons
who were not pharmacists.” The solution to
this low volume lies in leaving the dispensing of medicines to pharmacists and
not medical practitioners. And therefore, unless the Department is strict about
how it issued licences to other people who wish
to dispense medicines,
“the 24% or R24.00 dispensing fee would not make the sector viable.”
Implicit in the statement
is the acceptance that without an increase in the
current volume of medicines that are dispensed by pharmacies, the dispensing
fees
adopted would not be viable for
pharmacies. |
| [547] | Of course this statement
by Dr Zokufa must be read in the light of his evidence in the High Court. He
accepts that workload is an
important variable in determining an appropriate
dispensing fee. He accepts too that the current workload of community
pharmacies
is too low. He makes much of the admission by representatives of
PSSA that if there is an increase in the workload of pharmacies,
they would be
prepared to accept a lower dispensing fee and the R24 would be tolerable if
there is an increase in the workload.
Significantly, he does not challenge the
suggestion implicit in the statement by PSSA that unless there is an increase in
the volume
of medicines dispensed by pharmacies, 24% or R24 is not viable for
pharmacies. Instead he says that “the key issue is that
retail pharmacies
with a very low workload will face financial viability constraints”, and
adds that the solution does not
lie in increasing the dispensing fee but in
“seek[ing] ways of increasing the dispensing
workload”. |
| [548] | Now the dispensing fees
were adopted with full knowledge that they would not be viable unless there was
an increase in the volume
of medicines dispensed by pharmacies. On the
applicants’ own version, it is therefore clear that without an increase in
such
volume, the dispensing fees adopted are not appropriate. There is no
evidence that such increase has occurred. Nor is there any
explanation from the
applicants as to why dispensing fees whose viability is admittedly dependent
upon an increase in the volume
of medicines that are dispensed by pharmacies,
has suddenly become viable without such an increase. It is true, the figures of
24%
or R24 were increased to 26% or R26 respectively. There is no suggestion
that this increase was to compensate pharmacies for the
fact that the volume of
medicines that they dispense was unlikely to
increase.[341] |
| [549] | The Pricing Committee was
bound to consider, among other factors, the viability of dispensing fees for
rural pharmacies given the
low volume of medicines dispensed by them, and the
slight likelihood of their increasing that volume as well, and those pharmacies
with a very low workload which were admittedly bound to “face financial
viability constraints.” Notwithstanding the
suggestion that the solution
to the low volume “is to seek ways of increasing the dispensing
workload”, there is nothing
in the deliberations of the Committee to
suggest that it ever applied its mind to the question of how the workload was to
be increased
to meet the concern. |
| [550] | In the Portfolio Committee
Dr Zokufa suggested that the increase of the workload could be achieved by
leaving the dispensing of medicines
to pharmacies and not medical practitioners.
But to do so would have run counter to section 22G(2)(b) read with section
22C(1)(a)
of the Medicines Act which expressly recognises that medical
practitioners would dispense medicines. Indeed regulation 12 permits
medical
practitioners to charge a dispensing fee that is less than that fixed for
pharmacies. Therefore the course suggested was
manifestly not open to them.
The regulations were made on the footing that medical practitioners will
continue to dispense medicines
and therefore that the volume of medicines
dispensed by pharmacies will continue to be low because medical practitioners
are also
dispensing medicines. |
| [551] | There was also a
suggestion that the Department would have to be strict about how it issues
licences to persons who are not pharmacists.
Perhaps Dr Zokufa had in mind the
licensing policy as contained in the NDP which
says: |
“Medical practitioners and nurses will not be permitted to dispense drugs,
except where separate pharmaceutical services are
not available. In such
instances/situations where dispensing by doctors and nurses has to take place,
such persons will be in possession
of a dispensing licence issued by the Medical
Control Council. Criteria for the granting of such licence will include
inter alia, the application of geographical
limits.”
| [552] | But that course too was
not open to them. In Affordable Medicines we had occasion to consider a
constitutional challenge to sub-regulation 18(5)(a), (c), (d) and (e) dealing
with the issuing of licences
to dispense medicines under the Medicines
Act.[342] The medical
practitioners feared that the government would use the regulations to deny them
licences to dispense medicines where
there were pharmacists in the area,
consistent with this policy. In that case, the government denied that it had a
policy of denying
licences to dispense medicines to medical practitioners where
there were pharmacists in the vicinity. Nevertheless we found that
the purpose
of sub-regulation 18(5) (a), (c), (d) and (e) was “manifestly to protect
pharmacies against competition from medical
practitioners and nurses” and
that the sub-regulation was not authorised by the Medicines
Act.[343] In addition, in that
case, the Department of Health not only denied that it had a policy of denying
licensing to medical practitioners
where there were pharmacists in the vicinity
but also expressly disavowed any intention of using the impugned regulations to
deny
licences to medical
practitioners.[344] |
| [553] | The Pricing Committee
seems to have been mindful of the fact that an increase in the volume of
medicines dispensed by pharmacies was
crucial to their viability. However, it
is clear that what was perceived to be a solution to the low volume problem
could not be
implemented as this would have been inconsistent with the Medicines
Act. The problem of low volume is a matter to which the Pricing
Committee was
bound to apply its mind. What if there was no increase? What was to become of
those pharmacies whose financial viability
was admittedly threatened, were they
to close shop, and if they do, what impact would this have on the promotion of
access to affordable
medicines? The Pricing Committee does not seem to have
properly applied its mind to these matters. |
| [554] | In any event, on the
applicants’ own admission, the present dispensing fees are not viable for
pharmacists unless there is an
increase in the volume of medicines that they
dispense. Both logic and common sense suggest that in the absence of evidence
of the
increase in such volume, the dispensing fees adopted cannot be said to be
viable for pharmacies. Nor can the dispensing fees adopted
be said to be the
fees that a reasonable Pricing Committee could adopt. It follows that while the
Pricing Committee was conscious
of the need to take into consideration the
viability of pharmacists, it did not give proper attention to this
requirement. |
Rural pharmacies
| [555] | The other consideration
relates to the treatment of rural pharmacies. Professor McIntyre accepts that
“these pharmacies are
generally in a difficult economic position.”
They are, according to her, economically disadvantaged by “a comparatively
low turn-over and also unfavourable payment conditions from wholesalers.”
But this factor did not influence the Pricing Committee
to treat rural
pharmacies differently. The Pricing Committee took the view that because the
disadvantage results from “distortions
in the health sectors . . . an
appropriate dispensing fee should be as neutral as possible in respect of such
distortions.”
In effect therefore the Pricing Committee, while mindful of
the plight of rural pharmacies, did not give proper regard to it in
determining
the appropriate dispensing fees. |
| [556] | Most people who live in
the rural areas are comparatively disadvantaged. Many do not have the basic
facilities that are taken for
granted in the urban areas. Some have to walk
long distances to get health care services. For some, indeed by far the
majority,
access to health care services is still a distant dream. What is more
they are comparatively poor. One needs no evidence to establish
this. Those
who live in this country know this. They witness these conditions daily. Both
the print and the electronic media tell
the story of rural communities.
Pharmacies who operate in rural areas have to contend with these problems. But
they have problems
of their own. They are, as Professor McIntyre tells us,
economically disadvantaged by amongst other factors, “a comparatively
low
turn-over and also unfavourable payment conditions from wholesalers.” The
legislature must be taken to understand all
of this and to have intended that
fees to be fixed would enable pharmacies in the rural areas to operate
profitably and not to close
shop. |
| [557] | Rural communities are
entitled to have access to affordable medicine, just like those who live in
urban areas. As pointed out earlier,
pharmacies who operate in these areas
provide an essential service – they are crucial for the supply of medicine
and thus access
to affordable medicine. There are about 350 pharmacies in the
rural areas. According to the evidence, a rural pharmacist plays
a dual role,
namely, that of a health care advisor and that of a dispenser of medicine. But
these pharmacies are also entitled to
make a reasonable profit. Otherwise they
will close their businesses. And this will result in the rural communities
being deprived
of access to affordable medicine. This could hardly be the
purpose of section 22G(2)(b). A dispensing fee that does not take into
account
the fact that rural pharmacies are economically disadvantaged cannot be said to
be fair and just. |
| [558] | The Pricing Committee has
not given adequate reasons for ignoring their plight. The bold statement that
distortions in the health
sector should not affect dispensing fees fixed, is
simply not adequate. It simply begs the question. Why should their plight be
ignored? What consequences will the dispensing fees have to the viability of
these pharmacies, and ultimately, to the promotion
of access to affordable
medicines? These questions do not appear to have been addressed by the Pricing
Committee. The question
which the Pricing Committee had to consider is not
whether distortions in the health sector should affect the dispensing fees, but
whether given the admitted economic disadvantages suffered by rural pharmacies,
were the dispensing fees viable for them. In any
event the disadvantages
suffered by rural pharmacies do not stem only from distortions in the health
sector, but they also stem from
the very circumstances under which they operate
such as poverty of the communities they
service. |
| [559] | While the Pricing
Committee adopted the “principle of neutrality” in relation to rural
pharmacies, it did not apply this
principle to the differences between
wholesalers and distributors. In relation to wholesalers, it took the view that
the differences
between wholesalers and distributors should be recognised,
because “it is not the role of the Committee to remove wholesalers
from
the market.” Why should the same consideration not apply to rural
pharmacies, who are admittedly economically disadvantaged?
This is not to
suggest that rural pharmacies must necessarily be allowed to charge higher
dispensing fees. Whether that should
be so is not for courts to decide. The
point here is that the Pricing Committee was bound to apply its mind properly to
the situation
of rural pharmacies and thereafter give cogent reasons for its
decision. Instead it focused on wrong questions, namely, whether
distortions of
the health sector should be allowed to affect the dispensing fee. In doing so,
it erred. |
| [560] | All of this must be viewed
against the admission by Professor McIntyre that rural pharmacies have a low
turnover and the statement
by Dr Zokufa that community pharmacies with a very
low workload will face financial viability constraints as a result of the
dispensing
fees. Yet the Pricing Committee did not consider whether the
dispensing fees would remove rural pharmacies from the market. In
my view the
Pricing Committee erred in focusing on whether the distortions in the health
sector should affect the dispensing fee.
What the Committee was bound to
consider was whether given the economic disadvantage suffered by rural
pharmacies, was the dispensing
fee viable for
them. |
Courier pharmacies
| [561] | Then there are courier
pharmacies. Two factors are said to set courier pharmacies apart from community
pharmacies and which cumulatively
render them more vulnerable to a capped fee.
In the first place these pharmacies supply mainly high cost medicines such as
drugs
for HIV patients, medicines used for renal dialysis and oncology drugs for
cancer patients. According to the evidence, this means
that the R26 ceiling is
likely to have a larger effect on their gross profit than on the profits of a
typical community pharmacy.
The other factor is that these pharmacies do not
have front shop operations to absorb any pharmacy losses. Any regulation that
has the effect of reducing their gross profits is likely to have an adverse
impact on them. The courier pharmacy business model
focuses on dispensing drugs
and essentially only drugs. |
| [562] | The Pricing Committee
considered the position of courier pharmacies in the context of wholesalers and,
in particular, where they fit
in the supply chain. It took the view that its
recommendation could not be based on efficiency or on protecting business models
based purely on the level of risk that they involve. The attitude of the
Pricing Committee towards courier pharmacies is summed
up in the affidavit of Dr
Zokufa who says that these pharmacies represent “a business model selected
by the owner of the pharmacy”
and that business models “are flexible
and can be adjusted to the changing needs and circumstances of a
business”. In
short, the message to courier pharmacies is adapt or
die. |
| [563] | I agree with Moseneke J
that the question which the Pricing Committee was bound to consider is whether
the dispensing fees would be
viable for courier pharmacies. It was not called
upon to consider whether the various business models should be protected. These
pharmacies provide an essential service to the chronically ill – the most
vulnerable. The record indicates that they dispense
at least 12% of the
prescription medicines by channel measured by value. It is therefore clear from
the record that these pharmacies
are differently situated than the other
pharmacies. And it is not without significance, as pointed out earlier, that
the Pricing
Committee considered it necessary to recognise the differences
between distributors and wholesalers because it did not want to remove
wholesalers from the market. It is difficult to understand why the same
considerations were not applied in relation to courier pharmacies.
It seems to
me that by focusing on the question whether the various business models should
be protected, the Pricing Committee failed
to apply its mind properly to the
question of the viability of the dispensing fees for courier pharmacies, a
question which it was
bound to consider. In doing so, the Pricing Committee
erred. |
Compounding of medicines
| [564] | In its report of 18
December 2003 to the Minister, the Pricing Committee made it quite clear that
dispensing fees for pharmacists
covered the professional services provided by
pharmacists, including the compounding of medicines. The report also stated
that the
dispensing fees covered both the professional remuneration and the
pharmacy’s operating costs. Again in the same report, the
Pricing
Committee, which considered what the dispensing fees covered in the light of the
definition of “dispensing fee”
as contained in the Regulations
Relating to the Practice of
Pharmacy,[345] confirmed that the
dispensing fee included compounding. However, in the High Court both Professor
McIntyre and Dr Zokufa averred
that the dispensing fees did not include
compounding. Their assertion is neither borne out by the regulations nor the
record. There
is no explanation for this apparent
inconsistency. |
| [565] | These statements were
apparently made to refute the contention by pharmacies that the dispensing fee
is the primary source of professional
income for pharmacies. The pharmacies
were basing their contention on the reports of the Pricing Committee which
stated more than
once that the dispensing fees included compounding. The
applicants now allege that in addition to dispensing fees, pharmacies are
free
to charge for other services such as compounding. But if this is so, this would
mean that pharmacies may charge whatever they
want for the other services
including compounding. This can hardly be said to be consistent with the
primary object of the Medicines
Act to promote access to medicines at the lowest
cost possible. |
| [566] | If the contention now made
by Dr Zokufa and Professor McIntyre is to be accepted, then it means the Pricing
Committee did not apply
its mind to compounding, a matter that they were bound
to consider. This flows from their admission that “a pharmacist may
spend
a considerable amount of time in regard to compounding and admixing of
medication”. And compounding is one of the professional
services rendered
by pharmacists. Pharmacists sell compounded medicines, which consist of a
mixture of medicines that they may have
purchased either from wholesalers or
manufacturers. Now section 22G(3)(b) expressly prohibits the pharmacists from
selling medicines
at a price higher than the single exit price. The only
exception allowed is for pharmacists to charge a dispensing fee contemplated
in
section 22G(2)(b). The obvious question that arises is at what price are the
pharmacists to sell compounded medicines. This
is a matter which the Pricing
Committee and the Minister had to consider. On their own admission therefore,
the Pricing Committee
did not consider this matter. Here too, they
erred. |
Ignoring oral representations
| [567] | The final instance of
failure to have regard to a relevant matter to which reference should be made is
that relating to oral representations.
New Clicks submitted that it is plain on
the evidence of Professor McIntyre and Dr Zokufa that the Pricing Committee
ignored oral
representations. Both Professor McIntyre and Dr Zokufa distanced
the Pricing Committee from the oral hearings. They maintained
that oral
hearings were held at the instance of the Department of Health and that the
meetings at which oral representations were
made were not meetings of the
Pricing Committee but meetings of the Department. Both were at pains to
emphasise that the Pricing
Committee considered written representations at its
meetings. They said nothing about oral
representations. |
| [568] | Other than Professor
McIntyre there is no suggestion that any member of the Pricing Committee
reviewed the recordings of the oral
representations. Nor is there any
indication that the Pricing Committee ever considered the oral representations.
It is therefore
plain from the evidence of Professor McIntyre and Dr Zokufa that
the Pricing Committee did not consider oral representations that
were made on
the draft regulations. In the light of this evidence it must be accepted that
the Pricing Committee made its recommendation
to the Minister without regard to
the information that was presented at the oral hearings on the very issues that
the Pricing Committee
had to consider. The question is whether the Pricing
Committee was bound to consider oral
representations. |
| [569] | It is clear from the
minutes of the Pricing Committee meeting held on 27 January 2004 that the
Pricing Committee took a decision to
hold oral hearings. It was also decided at
that meeting that the Directorate of the Department of Health would initiate
this process
by, among other things, arranging dates of hearings, issuing
letters of invitation and leading the discussion at the hearings. It
was also
decided that each stakeholder would be allocated one hour to make a
presentation. The draft programme had to be circulated
to members of the
Pricing Committee. I should point out here that the process of convening and
managing oral hearings had to be
led by the Directorate which serves as the
secretariat for the Pricing
Committee.[346] Indeed in its
report to the Minister dated 19 April 2004, the Chairperson of the Pricing
Committee expressed “gratitude to
Dr Humphrey Zokufa and the Department of
Health secretariat who have provided such effective support and inputs to their
work . .
. ”. |
| [570] | It is equally clear that
the Pricing Committee considered oral representations to be vital to its task.
The importance attached to
oral representations by the Pricing Committee appears
from the decisions it took at its meeting of 20 February 2004 where it
considered,
among other issues, “Update on plans for stakeholder
representations discussions”. While accepting that not all members
of the
Pricing Committee would be able to attend the hearings, it was decided that
“all members of the Pricing Committee should
commit to attend the
stakeholder presentations” and that to this extent “all committee
members should indicate the dates
on which they would be able to attend
stakeholder presentations between 8 and 26 March 2004”. The minutes of
that meeting
also reflect the following decisions taken which demonstrate the
importance that the Pricing Committee attached to oral
representations: |
| § | “It is not possible for members of
the committee to participate in all
representations; |
| § | as associations present the general views
it would be helpful to the committee to hear the views of the individuals
belonging to such
an association. It would give the committee an opportunity to
weigh the different data; |
| § | the Directorate should forward copies of
the written comments to the committee members as the comments are received;
|
| § | the
Pricing Committee and the Department will have an opportunity to ask questions
but no questions of clarification will be allowed
from the stakeholders;
and |
| § | a list
of key questions should be developed and data being presented should be
interrogated very carefully.” |
| [571] | In addition, the letter of
12 February 2004 by the Director-General of Health inviting the stakeholders
“to make oral representations
on [their] written comments on the proposed
regulations on the pricing of medicines” underscores the importance of the
oral
hearings not only to the Department but also to the Pricing Committee.
That letter outlined the purpose of oral hearings as
follows: |
“The purpose of these sessions is to hear oral presentations from
stakeholders and to give them an opportunity to fully canvass
their concerns and
comments regarding the proposed regulations. There will be no negotiation or
debates between the Department or
the Committee on the one hand and yourselves
on the other concerning the proposed regulations.
The Pricing Committee is a technical committee whose task is to make
recommendations to the Minister of Health. You are therefore
advised to prepare
your written and oral inputs in as much detail as possible and with a view to
supplying accurate and substantiated
information to the Department and the
Pricing Committee on how the proposed regulations may affect your interests.
Where the regulations
raise more than one possibility, you are advised to
include all possible impacts in your presentations.
The object of these sessions is not to provide further clarification by
departmental officials or members of the Pricing Committee
on the proposed
regulations. Consequently no questions for clarification will be
answered. The Department and the Pricing Committee would like to hear your
comments on, and interpretation of, the regulations as opposed
to their own
views. This said, you may by all means indicate areas that are not clear to you
and in what way they lack such clarity.”
| [572] | In the light of the above,
it is difficult to accept that the oral hearings were meetings of the Department
only. It is difficult
to reconcile that assertion with the decisions taken by
the Pricing Committee as reflected in its minutes and the letter inviting
oral
representations. The fact that the meetings were called by the Department does
not in itself make those meetings to be meetings
of the Department. When the
draft regulations were published on 16 January 2004, for example, interested
persons were invited to
submit representations to the Director-General and this
invitation was issued at the instance of the Minister. The applicants do
not
suggest that the Pricing Committee did not consider such representations because
they had been requested by the Minister and
had to be forwarded to the
Director-General. On the contrary they repeatedly emphasised that they
considered written representations.
This must be so because the Directorate
provides secretariat support to the Pricing Committee. It was for that reason
that the
Directorate was responsible for organising oral hearings. It is not
clear why the applicants should now seek to distance the Pricing
Committee from
the oral representations which were invited to benefit both the Pricing
Committee and the Department. |
| [573] | Be that as it may, it is
clear from the record that the Pricing Committee considered it not only
necessary, but also important to
hold oral hearings. Indeed the importance of
the oral hearings to the task of the Pricing Committee cannot be gainsaid. The
purpose
of oral representations was “to give [the stakeholders] an
opportunity to fully canvass their concerns and comments regarding
the proposed
regulations.” To this extent the stakeholders were “advised to
prepare [their] written and oral input in
as much detail as possible with the
view to supplying accurate and substantiated information to the Department and
the Pricing Committee
on how the proposed regulations may affect [the
stakeholders] interests.” And in the letter inviting oral
representations,
the stakeholders were told that “[t]he Department and the
Pricing Committee would like to hear [their] comments on, and interpretation
of,
the regulations as opposed to their own views.” Oral representations
therefore had to address matters that were relevant
to the recommendation of the
Pricing Committee. They were to address a matter that lies at the very heart of
this litigation, namely,
the viability of the dispensing fees for pharmacies.
In these circumstances the Pricing Committee was bound to consider matters
addressed during the oral hearings. |
| [574] | In Bangtoo Bros.
the Court held that it would be “a dereliction of duty to hear
representations which are pertinent and then to ignore
them.”[347] It seems to me
that having decided that oral representations are pertinent to its
recommendation, the Pricing Committee was bound
to properly apply its mind to
such representations. Representations were available on audio and video tapes.
They were therefore
easily accessible to all members of the Pricing Committee.
I consider it to be equally a dereliction of duty to call for oral
representations
which are pertinent and then to ignore them. By ignoring oral
representations, the Pricing Committee deprived itself of information
that it
had committed itself to achieve during the oral hearings. That information was
not only vital, but was manifestly relevant
to its recommendation as
demonstrated by the decisions taken by the Pricing Committee in relation to oral
hearings. In ignoring
the oral representations, the Pricing Committee ignored
relevant matters which it was bound to take into account. The duty of the
Pricing Committee was to apply its mind properly to all materials before it
including matters raised at the oral hearings. It failed
to do so when it
ignored oral representations. In doing so it
erred. |
Conclusion
| [575] | It is necessary to stress
two points by way of conclusion. The first is that the determination of
dispensing fees is a matter that
belongs to the discretion of the Pricing
Committee and the Minister. The point here is that the manner in which the
discretion was
exercised violated PAJA. Discretion must be exercised in
accordance with the principles of administrative justice as codified in
PAJA.
The role of the courts is to police the exercise of that discretion. Where it
is exercised in a manner that is inconsistent
with PAJA, the courts will, and
must intervene. Failure by a decision maker to take into account matters that
the decision maker
is bound to take into consideration, is an instance of an
abuse of that discretion. The enquiry in this case is therefore whether
the
Pricing Committee and the Minister properly applied their minds to the matters
that they were bound to take into consideration.
If they did not, the resulting
fees can hardly be said to be ones determined in accordance with the behest of
section 22G(2)(b)
and thus appropriate. |
| [576] | The other is that the fact
that the fees fixed will result in the demise of some pharmacies is not
necessarily indicative of the inappropriateness
of the fees. This may result
from many factors including inefficiency. To reach that conclusion, the
pharmacies would have to put
up facts which show that but for the dispensing
fees pharmacies would be viable. Nor does the reduction in the profits
necessarily
suggest that the fees are inappropriate. On this record I am unable
to reach that conclusion. In my view the record is simply inadequate
for that
conclusion to be reached. But the conclusion I reach is that the dispensing
fees adopted are inappropriate because in the
exercise of their discretion, the
Pricing Committee and the Minister ignored certain relevant factors which they
were bound to take
into consideration. |
| [577] | The considerations
referred to above, individually and cumulatively, lead to the conclusion that
the Minister and the Pricing Committee
failed to properly apply their minds to
the matters which they were bound to consider. The resulting dispensing fees
cannot be said
to be appropriate. In the result, regulations 10 and 11 are
invalid in that they adopt dispensing fees that are not appropriate.
And for
reasons given by the Chief Justice, I agree that regulation 13 is also invalid.
For these reasons, I agree with the conclusion
reached by the Chief Justice that
the fees adopted are not appropriate. In view of this conclusion, it becomes
entirely unnecessary
to consider the challenge based on section 22 of the
Constitution. |
| [578] | In view of the judgment of
the Court dealing with the remedy, it is not necessary to deal with the remedy
in this judgment. |
SACHS J:
| [579] | I have had the pleasure of
reading the careful and comprehensive judgment of Chaskalson CJ. Its reach is
prodigious and its line
of reasoning clear and persuasive. I am happy to concur
in it, subject to a qualification which I make below. I have also had the
benefit of reading the judgment of Ngcobo J and wish to express my agreement in
broad terms with the forceful additional arguments
he advances, subject to a
similar qualification. In reaching the same conclusions as they do, I follow a
different route in one
significant respect. Chaskalson CJ holds that
subordinate legislation in general should be controlled by the Promotion of
Administrative
Justice Act[348]
(PAJA), and Ngcobo J holds that PAJA is applicable to the facts of this case. I
believe, on the other hand, that control of subordinate
legislation in general
should be accomplished by employing a constitutionally embedded principle of
legality, and that PAJA is not
generally applicable to the regulatory scheme at
issue in this case, but only to the particular regulations fixing an appropriate
dispensing fee. As will be seen, the differences in our respective approaches
do not relate either to philosophy about constitutional
control of public power,
or to the outcome on the facts of the case. They concern the appropriate
constitutional pathway to be followed. |
The
applicability of PAJA
| [580] | While the Constitution,
like nature, abhors a vacuum, it does have what may appear to be lacunas. One
of the tasks of the judiciary
is, when called upon, to fill in these apparent
gaps. It does so not by a process of invention but by one of completion. The
courts
use what is there as the foundation for discerning what is not manifest;
they render explicit what is implicit. They plumb the overall
structure and
design of the Constitution, and let themselves be guided by the values that the
Constitution articulates. Memory of
past abuses, sensitivity to social context
and appreciation of the goals which the Constitution sets for our society, also
serve
as pointers. |
| [581] | With these considerations
in mind, I will deal with what appears to me to be a notable lacuna in the
Constitution, one which is replicated,
I believe, in PAJA. It concerns the
status and reviewability of subordinate or delegated legislation, which appears
to have fallen
between the constitutional cracks. The answer is not to leave it
in obscurity, but to rescue it from the awkward void in which it
finds itself.
The issue then is simultaneously to
imagine[349] and give substance to
constitutional concepts into which subordinate legislation can be assimilated
without losing its specific texture.
In legal terms many questions arise: How
should subordinate legislation be classified? Where in the constitutional
scheme of things
does it belong? Is it essentially an extension of the
legislative process, or should it be seen basically as an aspect of
administration? |
| [582] | In my view it is clearly
both. Thus to say that the making of subordinate legislation involves the
implementation of primary legislation
and is therefore part of administrative
law, is to state the question, not to resolve it. The question that
remains is: is it a form of implementation which falls under the
concept of
administrative action as envisaged in section 33 of the Bill of Rights,
or is it in essence an extension of the legislative process that happens to be
undertaken
by the administration, thereby falling to be considered under a
different constitutional rubric? And if the latter, what constitutional
and
legal principles govern it? |
| [583] | The judgment of Chaskalson
CJ contends that subordinate legislation does indeed fall within the notion of
administrative action as
governed by section 33. As such, the constitutional
control which would apply to subordinate legislation is to be found in section
33 of the Constitution, as embodied in PAJA. In my view, however, the source of
constitutional control of subordinate legislation
is located rather in an
expanded notion of legality in a constitutional democracy, as applied to
law-making that affects the public
in a general way. I believe that section 33
and PAJA are together designed to control the exercise of public power in a
special
and focused manner, with the object of protecting individuals or small
groups in their dealings with the public administration from
unfair processes or
unreasonable decisions. This function should not be diffused. It involves the
micro-management of public power,
and is all the more effective because of its
intense and coherent focus. The principles of legality in a constitutional
democracy,
on the other hand, operate more at the macro level. Their function
is not so much to avoid individual injustice as to ensure that
the processes of
rule-making are consistent with the way public power should be articulated in
the open and democratic society envisaged
by the Constitution. These
principles, for their turn, should have a larger and more context-driven
sweep. |
| [584] | Judicial review is an
aspect of administrative law that covers both the micro and the macro dimensions
of the exercise of public power.
The duality of judicial review has long been
acknowledged. As this Court said in
Fedsure:[350]
|
“Prior to the enactment of the interim Constitution, our superior Courts
asserted a power to review subordinate legislation as well as administrative
and executive action. The jurisdiction to do so was said to lie in the
inherent jurisdiction of the Courts. The legal principles and the body of law
developed
by the Courts in the application of this power were often referred to
as ‘administrative
law’.”[351] (Footnote
omitted) (My emphasis.)
| [585] | Taken together the micro
and the macro dimensions of administrative law are complementary. Each attends
to a different aspect of
the same public power, and each is governed by the same
foundational principles of accountability, responsiveness and
openness.[352] Furthermore,
whether the administration is involved in the narrow task of dealing with the
rights of individuals or in fulfilling
the wider function of creating
subordinate legislation, it must act according to the same broad democratic
values and principles
enshrined in the Constitution, including those expressly
set out in Chapter 10 of the
Constitution.[353] Against this
background whether judicial review of delegated legislation is conducted through
the lens of legality, as I believe
it should be, or through the prism of section
33 and PAJA, as the Chief Justice holds, the consequences should be at least
roughly
the same. In both cases judicial review should be animated by the same
constitutional philosophy. The question to be asked in both
instances should
be: what expectations are individuals and the public entitled to have of
governmental conduct in the open and democratic
society envisaged by the
Constitution? If I choose the path of legality, I do so because I believe that
it corresponds more directly
with the reality of the national polity, fits in
better with the overall constitutional scheme, and provides a sounder foundation
for future development.[354]
Conversely, I believe that the “shoe” of section 33 is simply too
tight to serve the function of providing appropriate
constitutional control of
subordinate legislation, and that PAJA recognises
this. |
| [586] | I accordingly agree with
the two judgments to the extent that they hold that if PAJA is applicable, there
is no scope for bypassing
it. Yet I do not accept that PAJA is in fact
applicable (except in the specific respect of fixing the precise amount
chargeable
as a dispensing fee.) The point of departure for the enquiry cannot
be PAJA itself. The statute may refine the constitutional provision;
it cannot
define it.[355] It follows that
the list of items which PAJA expressly excludes from its ambit at most indicates
what the legislators thought that
section 33 contemplated and then, only in a
negative way by means of exclusion. It cannot serve as a guide to what section
33 in
fact envisages. The starting point of the enquiry must rather be an
analysis of section 33 itself. This in turn must be located
within the overall
manner in which the Constitution deals with the functioning of the public
administration. |
| [587] | The first point to note in
this respect is that section 33 does not stand alone as a solitary bulwark
against arbitrary or unfair
exercise of public power. Administrative justice in
itself has less work to do than it had in the pre-democratic era. The courts
are no longer constrained by the doctrine of parliamentary supremacy, when the
courts had to “claim space and push boundaries
to find means of
controlling public
power.”[356] |
| [588] | As this Court said in
SARFU (3) in the era of constitutional democracy, public administration,
which is part of the executive arm of government, is subject to a variety
of
constitutional controls.[357] The
Constitution is committed to establishing and maintaining an efficient,
equitable and ethical public administration which respects
fundamental rights
and is accountable to the broader public. The importance of ensuring that the
administration observes fundamental
rights and acts both ethically and
accountably should not be understated. In the past, the lives of the majority
of South Africans
were almost entirely governed by labyrinthine administrative
regulations which, amongst other things, prohibited freedom of movement,
controlled access to housing, education and jobs and which were implemented by a
bureaucracy hostile to fundamental rights and accountability.
The new
Constitution envisages the role and obligations of government quite
differently.[358] |
| [589] | The constitutional goal is
supported by a range of provisions in the
Constitution.[359] First, in the
Bill of Rights there is the right of access to
information[360] and the right to
just administrative action.[361]
Secondly, all the provisions of the Bill of Rights are binding upon the
Executive and all organs of
state.[362] The Bill of Rights,
therefore, imposes considerable substantive obligations upon the administration.
Thirdly, Chapter 10 of the
Constitution, titled Public Administration, sets the
values and principles that must govern public administration and states that
these principles apply to administration in every sphere of government, organs
of state and public
enterprises.[363] This Chapter
also establishes a Public Service Commission to promote the values of public
administration.[364] Fourthly,
Chapter 9 of the Constitution establishes the office of the Public Protector
whose primary task is to investigate and
report on conduct in the public
administration which is alleged to be
improper.[365] Fifthly, the
Constitution establishes the office of the Auditor-General whose responsibility
is to audit and report on the financial
affairs of national and provincial state
departments and administrations as well as
municipalities.[366] |
| [590] | Section 33 fits neatly
into this new and expansive constitutional framework. As this Court said
further in SARFU (3): |
“The principal function of s 33 is to regulate conduct of the public
administration and, in particular, to ensure that where action taken by the
administration affects or threatens individuals, the procedures followed
comply with the constitutional standards of administrative
justice.”[367] (My
emphasis.)
| [591] | This brings me to the
second point to be noted, namely, that the right to just administrative action
is contained in the Bill of Rights,
which focuses on the fundamental rights of
all individuals in our country. Thus, almost every section of the Bill of
Rights starts
with the words “everyone has the right . . .”.
Section 33 follows that format and states: |
“Just administrative action.—
(1) Everyone has the right to administrative action that is lawful, reasonable
and
procedurally fair.
(2) Everyone whose rights have been adversely affected by administrative action
has the right to be given written reasons.
(3) National legislation must be enacted to give effect to these rights, and
must—
(a) provide for the review of administrative action by a court or,
where
appropriate, an independent and impartial
tribunal;
(b) impose a duty on the state to give effect to the rights in
subsections
(1) and (2); and
(c) promote an efficient administration.”
| [592] | On the face of it, these
provisions envisage the rights of individuals, (“everyone”), to be
treated in a just manner
by the public administration. They fit well with what
Hoexter calls “administrative
acts”.[368] She writes that
an administrative act is probably best defined as an act that implements or
gives effect to a policy, a piece of
legislation or an adjudicative decision.
This is the operational side of the state: since policies, laws and judgments
are not self-executing,
they have to be put into operation by public authorities
responsible for administering them. She points out that administrative
acts
include every conceivable aspect of government activity – granting a
licence, promoting a clerk, stamping a passport,
arresting a suspect, paying out
a pension. |
| [593] | By way of contrast
subordinate legislation refers to law-making of a generalised character. As
Chaskalson P said in Executive Council, Western
Cape:[369] |
“In a modern State detailed provisions are often required for the purpose
of implementing and regulating laws, and Parliament
cannot be expected to deal
with all such matters itself. There is nothing in the Constitution which
prohibits Parliament from delegating
subordinate regulatory authority to other
bodies. The power to do so is necessary for effective law-making. It is
implicit in the
power to make laws for the country and I have no doubt that
under our Constitution Parliament can pass legislation delegating such
legislative functions to other
bodies.”[370]
| [594] | In South Africa, as in
most countries, the bulk of legislation is in fact produced not by original
law-making authorities but by administrative
authorities. An array of terms is
used for different types of delegated legislation: regulations, proclamations,
rules, orders,
declarations, directives, decrees and schemes are some of the
most
common.[371] |
| [595] | As Hoexter points out,
delegated legislation is probably the easiest of the acts by the administration
to identify, partly because
of the form in which it typically appears published
in the Gazette, with a title, numbered clauses and so
on.[372] Formal appearance,
however, is not always conclusive, and other characteristics of legislation are
also important: Legislation usually
contains rules of general application which
apply impersonally to the whole society, or to a specific community within it,
rather
than to individuals. |
• Unlike adjudication, legislation is usually concerned not with resolving
individual disputes but with implementing social
policies that are intended to
advance the public interest.
• Legislation usually operates prospectively. This means that it has
consequences only for events that occur after the legislation
has come into
operation.
• Legislation is usually intended to remain in force for an indefinite
period.
• Legislation requires publicity in an official publication in order to
become
valid.[373]
| [596] | Section 33 is directed
towards administrative acts of an adjudicative kind, and not to legislative
functions carried out by the administration.
The notions of procedural fairness
and the right to be given written reasons fit in closely with adjudicative
justice for individuals.
They are not, without undue interpretative strain
consonant with subordinate legislation. The concept of procedural fairness has
come to occupy a central place in controlling adjudicative (decision-making)
administrative acts. In administrative law procedural
fairness based on natural
justice is a well defined concept which comprises two fundamental rules of fair
procedure: that a person
may not be a judge in his or her own cause; and that a
person must always be fairly
heard.[374] It is easy to
understand how this principle operates in relation to applications for planning
permission or liquor licences. |
| [597] | It is difficult to see how
it applies in relation to regulations of general application affecting thousands
of suppliers of medicines
and tens of millions of purchasers. As Baxter points
out: |
“Audi alteram partem, as a doctrine, does not contemplate the kind
of ‘mass access’ that is required for such decisions, nor does it
provide
an assurance that the public authority will or can hear the range and
diversity of views all those affected by the decisions involved.
More tailored
procedures have to be
employed.”[375]
Similarly,
the right of everyone who has been adversely affected by subordinate legislation
to be given written reasons, while completely
appropriate for individuals
negatively affected by an administrative act (decision), seems highly inapposite
for the millions of
people affected, or potentially affected, by a new
law.
| [598] | Thus I believe a
distinction may, and should be drawn between legislative and administrative
functions, or between rule-making and
adjudication.[376] An integrated
system of rules and institutions should be developed to enhance the
effectiveness, fairness and accountability of
administrative rule-making.
Preferably the legislature should provide expressly for these rules and
institutions. In the absence
of such legislation, however, the void has to be
filled by constitutionally-based principles of judicial review. While section
33
undoubtedly reflects a broad constitutional philosophy of fair dealing
between citizens and the state it does not in itself provide
an adequate format
for judicial review of law-making as opposed to law-implementation. It is
geared towards protecting the individual
in his or her dealings with the public
administration, and is not focused on the way laws of general application are
made. |
| [599] | This brings me to the
third basis for contending that PAJA does not apply to subordinate legislation,
namely, the text of PAJA itself.
Section 1
states: |
“‘administrative action’ means any decision taken, or
any failure to take a decision, by—
(a) an organ of state, when—
(i) exercising a power in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in terms of any
legislation; or
(b) a natural or juristic person, other than an organ of state, when exercising
a public power or performing a public function in
terms of an empowering
provision, which adversely affects the rights of any person and which has a
direct, external legal effect”.
(My
emphasis.)
It appears that the use
of the word “decision” had its origins in an equivalent Australian
statute, which does not apply
to delegated
legislation.[377] In England,
too, the courts have developed different principles of judicial review in
relation to subordinate legislation and administrative
acts,
respectively.[378] Thus Wade and
Forsyth point out:
“In the case of rules and orders which are clearly legislative as opposed
to administrative, there is normally no room for
the principle of natural
justice which entitles persons affected to a fair hearing in advance. But where
regulations, though general
in form, bear particularly hardly on one person or
group, an exception may be made. Orders for such things as housing and planning
schemes, although they may affect numerous people, are for this purpose treated
by Parliament, and also by the courts, as matters
of administration and not of
legislation.”[379]
It
seems that in Germany, as well, a distinction is made between delegated
legislation and administrative
acts.[380] Even though the
borderline between the two is not always easy to determine, and there will be
examples of administrative functioning
that takes the form of legislation but in
reality amounts to an administrative
act,[381] the distinction is, in
my view, both philosophically sound, practically useful and jurisprudentially
valuable.
| [600] | “Decision” in
turn is defined in section 1 as meaning: |
“any decision of an administrative nature made, proposed to be made, or
required to be made, as the case may be, under an empowering
provision,
including a decision relating to—
(a) making, suspending, revoking or refusing to make an order, award or
determination;
(b) giving, suspending, revoking or refusing to give a certificate, direction,
approval, consent or permission;
(c) issuing, suspending, revoking or refusing to issue a licence, authority or
other instrument;
(d) imposing a condition or restriction;
(e) making a declaration, demand or requirement;
(f) retaining, or refusing to deliver up, an article;
or
doing or refusing to do any other act or thing of an administrative nature, and
a reference to a failure to take a decision must
be construed
accordingly”.
The emphasis here is clearly
on administrative (adjudicative) acts concerning such matters as orders,
permissions and licences. There
is nothing to suggest that law-making is to be
covered. Indeed, the very word “decision” points away from the idea
of
a generalised norm applicable in an open-ended way to the public at large. A
decision to adopt a law merely initiates the process
of law-making, it does not
constitute it.
| [601] | The provision dealing with
PAJA that goes on to deal with the right to fair administrative action has a
similar focus. Section 3
provides: |
“Procedurally fair administrative action affecting any person.—(1)
Administrative action which materially and adversely
affects the rights or
legitimate expectations of any person must be procedurally fair.
(2)(a) A fair administrative procedure depends on the circumstances of each
case.
(b) In order to give effect to the right to procedurally fair administrative
action, an administrator, subject to subsection (4),
must give a person
referred to in subsection
(1)—
(i) adequate notice of the nature and purpose of the proposed administrative
action;
(ii) a reasonable opportunity to make representations;
(iii) a clear statement of the administrative
action;
(iv) adequate notice of any right of review or internal appeal, where
applicable; and adequate notice of the right to request reasons
in terms of
section 5.” (My
emphasis.)
Once more the emphasis is on the rights of “any
person”.
| [602] | The only section in PAJA
which shifts the focus from ‘any person’ to the public, is section
4, which reads: |
“Administrative action affecting public.—(1) In cases where an
administrative action materially and adversely affects
the rights of the public,
an administrator, in order to give effect to the right to procedurally fair
administrative action, must
decide whether—
(a) to hold a public inquiry in terms of subsection
(2);[382]
(b) to follow a notice and comment procedure in terms of subsection
(3);[383]
(c) to follow the procedures in both subsections (2) and
(3);
(d) where the administrator is empowered by any empowering provision to follow a
procedure which is fair but different, to follow
that procedure; or
(e) to follow another appropriate procedure which gives effect to section
3.”
This section is clearly
capable of encompassing subordinate legislation. Yet there is nothing in the
language to suggest that it
compels the inclusion of subordinate legislation.
On the contrary, the text is consistent with a requirement that special
processes
be followed when a planned administrative act is likely to have a
significant impact on the rights of the public. Thus a decision
to build a road
or a railway line or to proclaim a housing or planning scheme could have a major
public impact bearing heavily on
those affected. Similarly, the declaration of
large tracts of land as national parks or fire-controlled zones could affect a
large
number of landowners. As will be seen, it is my view that unlike the
general regulatory scheme at issue in this matter, the determination
of the fee
by the Pricing Committee and the Minister of Health constitutes administrative
action materially and adversely affecting
the rights of the public. In these
circumstances, giving a specific hearing to each and every one of the
individuals affected might
be quite impractical. What is envisaged is a
collective process both of granting a hearing and of communicating an outcome.
While
the requirement of such a special process is indicative of a philosophy of
government favouring openness, it does not, in my view,
achieve indirectly what
the rest of PAJA does not do directly, namely extend its scope to subordinate
legislation generally.
| [603] | Section 5, on the other
hand, returns the focus firmly to complaints by individuals. Dealing with the
furnishing of reasons for adverse
administrative action, it
provides: |
“Reasons for administrative action.—(1) Any person whose
rights have been materially and adversely affected by administrative
action and who has not been given reasons for the action may, within 90 days
after the date on which that person
became aware of the action or might
reasonably have been expected to have become aware of the action, request that
the administrator
concerned furnish written reasons for the action.” (My
emphasis.)
Here again the focus is on the rights of
“any person” to receive written reasons. Furthermore, it applies to
administrative
action that has already been completed, and not to the making of
laws that will operate into the future. Reasonable and justifiable
departures
from the giving of reasons are permitted, but the administrator must forthwith
inform the person making the request of
such
departure.[384] This is just not
the stuff of delegated legislation. The requesting and giving of written
reasons accords well with the rights
of someone aggrieved by the refusal of
planning permission or rejection of an application for a liquor licence. It
seems quite inappropriate
as a mechanism to protect the rights of people who
have not as yet been affected by any decision (administrative act), but who fear
their rights in the future may be jeopardised when subordinate legislation comes
to be implemented. Explanation of the purposes
intended to be served by
subordinate legislation might be an important means of ensuring public
accountability. It is quite different
in character from furnishing an aggrieved
individual with reasons for action undertaken by the administration.
| [604] | Section 6, which deals
with judicial review of administrative action, and which is accordingly
specially relevant to the present enquiry,
manifests the same orientation
towards administrative acts. It uses language such as “an
administrative action”, speaks about the administrator who took it,
repeatedly refers to the action. Thus the crucial paragraph dealing
with reasonableness, reads as follows: |
“6(2) A court or tribunal has the power to judicially review an
administrative action if—
. . . .
(h) the exercise of the power or the performance of the function
authorised by the empowering provision . . . is so unreasonable that no
reasonable person could have so exercised the power or performed
the function .
. . ” (My emphasis.)
I do
not suggest that the language used is so precise and restrictive as absolutely
to exclude subordinate legislation. Yet its whole
tenor is to subject to
judicial review specific acts taken in the past by an administrator, and not to
contemplate review of regulation-making
of a general kind intended to apply in
the future. Certainly there is no express power granted to review subordinate
legislation,
a glaring omission in a statute that has been criticised for
suffering more from over rather than
under–elaboration.[385]
| [605] | Finally it is necessary to
refer to the remedies which PAJA provides. Section 8
reads: |
“Remedies in proceedings for judicial review.—(1) The court or
tribunal, in proceedings for judicial review in terms
of section 6(1), may grant
any order that is just and equitable, including orders—
(a) directing the administrator—
(i) to give reasons; or
(ii) to act in the manner the court or tribunal
requires;
(b) prohibiting the administrator from acting in a particular manner;
(c) setting aside the administrative action and—
(i) remitting the matter for reconsideration by the administrator, with or
without directions; or
(ii) in exceptional cases—
(aa) substituting or varying the
administrative action or correcting a defect resulting from the administrative
action; or
(bb) directing the administrator or any other party to the proceedings to pay
compensation;
(d) declaring the rights of the parties in respect of any matter to which the
administrative action relates;
(e) granting a temporary interdict or other temporary relief; or
(f) as to costs.”
| [606] | Once more, strikingly
absent from this list is an express power which in terms permits setting aside
of subordinate legislation, either
wholly or in part. The omission of such an
express power was not fortuitous but followed on the deliberate omission,
lamented by
Hoexter, of the power to review subordinate
legislation.[386] The fact is
that the power to declare delegated legislation to be ultra vires, historically
such a significant part of judicial
review in administrative law, is not
mentioned at all. It seems to me to be both inappropriate to ‘read
in’ that power
when it was manifestly not contemplated, and unnecessary
when the constitutional objective can be achieved with more constitutional
comfort and greater practical efficiency by other
means. |
| [607] | The absence of any direct
reference in PAJA to subordinate legislation is not in itself conclusive, but
rather section 33 of the Constitution
that establishes the limits of PAJA not
the other way round. The question that has to be resolved is whether the
absence of express
reference in PAJA to subordinate legislation contradicts the
required reach of the principles of section 33, or accurately reflects
their
limits. |
| [608] | In responding to this
question I start with the assumption that in our constitutional democracy
subordinate legislation cannot exist
in a review-free limbo, but must be subject
to judicial review directed towards ensuring accountability, responsiveness and
openness.
There appear to be three possible responses to the apparent lacuna in
PAJA. The first would be to give section 33 the more expansive
meaning
attributed to it by Chaskalson CJ, and then stretch the language in PAJA to
include subordinate legislation. The second
would be to treat PAJA as
unconstitutional to the extent that, without apparent justification, it excludes
review of subordinate
legislation. The third is to see no incongruency at all
between section 33 and PAJA, but rather to view them both as being directed
towards the well-focused objective of protecting the rights of individuals or
relatively discrete groups in their dealings with the
public authorities. The
function of section 33 and PAJA would accordingly not extend to controlling
subordinate legislation, which
would be subject to other forms of constitutional
control. Given this interpretation, section 33 and PAJA would accord with one
another rather than be in conflict. I believe that the third approach is the
one most consistent with the structure and values of
the Constitution. Support
for this approach comes not from eagerness to promote symmetry for its own sake
– over-tidiness
of the law in an untidy world may not be a virtue –
but from an acknowledgment of a significant difference in character between
the
making of regulations of general impact, on the one hand, and their specific
implementation in particular cases, on the
other. |
| [609] | As indicated above,
section 33 and PAJA do not stand alone as bulwarks against arbitrary or
inappropriate use of public power. The
work they do will benefit from being
focused on the rights of the individual man and woman in the street, or of
relatively small
groups, who find themselves adversely affected by
administrative decisions touching directly on their lives. Conversely, judicial
review of subordinate legislation can be more effectively and robustly done if
not forced to tip-toe on the narrow pedestal appropriate
for reviewing
administrative acts.[387] For
these reasons, therefore, I would hold that section 33 of the Constitution, as
embodied in the provisions of PAJA, is not the
mechanism for providing judicial
review of a general regulatory scheme such as the one under consideration in the
present case. |
| [610] | Before dealing with what I
consider the appropriate constitutional matrix within which to review
subordinate legislation, I must stress
that the non-applicability of PAJA in
this area does not leave the law-making bodies free to operate in secrecy
without paying heed
to those affected by the laws. The era of the top-down
diktat (decree from above), based on the notion that “we in government
know best what is good for you” are gone. There can be no return to the
days when regulation-makers regarded themselves as
being at large to make new
regulations in any way they chose, and with whatever content they liked,
provided that they had appropriate
authority to make the rules and that the
regulations were not wholly irrational and bore some resemblance to or had some
connection
with the enabling statute. The absence of control through PAJA does
not signify the existence of a void. Rather, it acknowledges
space for other
more effectively grounded processes of controlling subordinate
law-making. |
Applicability of the principle of
legality in an open and democratic society
| [611] | Administrative bodies are
not only concerned with making decisions in individual situations; they are also
and more principally engaged
in discharging a broad network of statutory
responsibilities.[388] Baxter
points out that because they have a host of statutory mandates, public
authorities are much more likely to be preoccupied
with attaining certain
overall goals than with ensuring that fairness and justice is attained in
specific situations. To attain
these overall goals (and sometimes merely for
the purpose of maintaining internal co-ordination), public authorities develop
sets
of generalised standards which provide a framework within which their
officers exercise the statutory powers entrusted to them.
Baxter explains
further that these standards take various forms, ranging in formality from
published regulations having the force
of law to “policies”,
“guidelines”, and
“manuals”.[389] The
analysis that follows will focus only on published regulations having the force
of law. Different considerations might apply
to other administrative rules and
standards. |
| [612] | If the result of excluding
such law-making from the purview of section 33 and PAJA would effectively be to
immunise subordinate legislation
from judicial review, save for limited grounds
such as bad faith or outright irrationality, the outcome would be
constitutionally
unacceptable. A strained reading of PAJA would in these
circumstances have much to commend itself. I feel, however, that there
is an
alternative and better way of securing constitutional supervision of subordinate
legislation. The approach I propose shares
the philosophy underlying section
33, but is not founded on that section, nor is it constrained by the format of
PAJA. In my view
the basis for judicial review of subordinate legislation lies
in an expansive notion of legality derived from both express provisions
and
implied principles of the Constitution. It flows from the notion of
constitutional legality, the foundational and organising
principle which binds
together the text of the Constitution in a unified and coherent whole. Legality
in this sense draws its life-blood
from multiple texts of the Constitution and
lies at the structural heart of our constitutional
democracy.[390] |
| [613] | At the very least, as
Hoexter points out, it has to be acknowledged that legality is a controlling
principle for all exercises of
public power. The constitutional principle of
legality is of application even when the action in question is an exercise of
public
power that does not qualify as “administrative
action”: |
“Legality is thus capable of coming to the rescue when the action in
question does not qualify for review in terms of the Promotion of
Administration Justice Act or in terms of s 33, but is nevertheless action taken
in pursuance of public power . . . [T]he content of the constitutional principle
of legality is surprisingly far-reaching and . .
. overlaps to a considerable
extent with the requirements of legality imposed by s 33 and by the
Act.”[391]
| [614] | Legality is an evolving
concept in our jurisprudence, whose full creative potential will be developed in
a context-driven and incremental
manner.[392] In the leading case
of Pharmaceutical Chaskalson P
stated: |
“In Fedsure this Court held that the doctrine of legality, an
incident of the rule of law, was an implied provision of the interim
Constitution.
It stated:
‘It seems central to the conception of our constitutional order that the
Legislature and Executive in every sphere are constrained
by the principle that
they may exercise no power and perform no function beyond that conferred upon
them by law. At least in this
sense, then, the principle of legality is implied
within the terms of the interim
Constitution.’
This was reaffirmed in President of the Republic of South Africa and Others v
South African Rugby Football Union and Others (Sarfu 3), where this Court
outlined different ways in which the exercise of public power is regulated by
the Constitution. One of the constitutional
controls referred to is that
flowing from the doctrine of legality. Although Fedsure was decided
under the interim Constitution, the decision is applicable to the exercise of
public power under the 1996 Constitution,
which in specific terms now declares
that the rule of law is one of the foundational values of the Constitution.
. . . .
Section 2 of the Constitution lays the foundation for the control of public
power. It provides:
‘This Constitution is the supreme law of the Republic; law or conduct
inconsistent with it is invalid, and the obligations
imposed by it must be
fulfilled.’
. . . .
The exercise of all public power must comply with the Constitution, which is the
supreme law, and the doctrine of legality, which
is part of that law.
[A]dministrative law, which forms the core of public law, occupies a special
place in our jurisprudence. It is an incident of the
separation of powers under
which courts regulate and control the exercise of public power by the other
branches of government. It
is built on constitutional principles which define
the authority of each branch of government, their interrelationship and the
boundaries
between them.
. . . .
The written Constitution articulates and gives effect to the governing
principles of constitutional law. Even if the common-law
constitutional
principles continue to have application in matters not expressly dealt with by
the Constitution, (and that need not
be decided in this case) the Constitution
is the supreme law and the common law, in so far as it has any application, must
be developed
consistently with it, and subject to constitutional
control.”[393] (Footnotes
omitted.)
| [615] | This approach was further
developed in
Metrorail,[394] where
O’Regan J emphasised that our Constitution both constructs and restrains
the exercise of public power in our democracy.
She pointed out that determining
the scope of public power, therefore, and any duties attached to it requires an
analysis not only
of the statutory provisions conferring the power, but also of
the social, political and economic context within which the power is
to be
exercised and a consideration of the relevant provisions of the Constitution.
If this approach is followed, she stated, the
ambit of public duties of organs
of state will be drawn in an incremental and context-driven
manner.[395] |
| [616] | I believe that the present
case requires us to consider the ambit of the public duties of those responsible
for drafting and adopting
subordinate legislation. These duties can be summed
up in the notion of legality as it operates in relation to delegated
legislation.
I believe that in this context legality must have both a
procedural and a substantive dimension. I will deal with each in
turn. |
Constitutional control of subordinate
law-making: the procedural dimension
| [617] | In the pre-democratic
South African administrative law tradition, little attention was given to the
process by which administrative
rules or standards were formulated by public
authorities. Writing shortly before the interim Constitution was adopted,
Baxter suggested
that an administrative process analogous (though by no means
identical) to what American administrative lawyers term
‘rule-making’
would greatly improve the existing situation and would
lay a foundation for a modern system of administrative law under the new
Constitution.[396] |
| [618] | Wade and Forsyth point out
that in the United States the Federal Administrative Procedure Act of 1946 gives
a right to ‘interested
persons’ to ‘participate in the
rule-making through submission of written data, views or arguments’ and in
some
cases Congress has prescribed a formal
hearing.[397] Hearings
preliminary to rule-making have thus become an important part of the
administrative process in the United States. But
there is often no right to an
oral hearing and there is a wide exception where the authority finds “for
good cause” “that
notice and public procedure thereon are
impracticable, unnecessary or contrary to the public
interest.”[398] |
| [619] | English law, they observe,
appears to have moved in the opposite direction. Yet in reality the practice
counts for more than the
law.[399]
Consultation with the interests and organisations likely to be affected by rules
and regulations is a firmly established convention,
so much so that it is
unusual to hear complaints. They conclude that “[i]t may be that
consultation which is not subject to
statutory procedure is more effective than
formal hearing, which may produce legalism and
artificiality.”[400] |
| [620] | Historically
administrative law in South Africa has paid little attention to the American
approach and has in fact been strongly influenced
by principles of judicial
review first developed in England. Central to these principles was the
acceptance of the notion of the
supremacy of Parliament. Judicial review of
subordinate legislation accordingly based itself on presumptions as to the
intent of
Parliament when it enacted the primary legislation. These related to
substantive matters concerning the content of the delegated
legislation, a
question which will be dealt with later. They did not touch the procedures to
be followed in the making of subordinate
legislation. Thus there was no
principle that persons who stood to be affected by subordinate legislation had a
right to be heard.[401] Provided
the person or body that produced the subordinate legislation was duly authorised
by the primary legislation to do so, and
provided that any procedural
formalities required by the enabling statute had been complied with, no
requirement of public involvement
in the process would be presumed or
required. |
| [621] | By way of contrast, in our
present era the principle that government, and organs of state, are accountable
for their conduct is an
important principle that bears on the construction of
constitutional and statutory
obligations.[402] Secret
law-making, whether at the level of original or subordinate legislation is
anathema to the notion of constitutional democracy.
The degree of public
involvement may vary. Thus, deliberative bodies will normally deliberate in
public, while non-deliberative
bodies will find other means of facilitating
public involvement. The new philosophy is illustrated by numerous provisions in
the
Constitution devoted to encouraging public involvement in the processes of
adopting national and provincial legislation, as well
as municipal
laws. |
| [622] | Thus section 57 empowers
the National Assembly to: |
“make rules and orders concerning its business, with due regard to
representative and participatory democracy, accountability,
transparency and
public
involvement.”[403]
Section
59 of the Constitution goes on to require that:
“(1) The National Assembly
must—
(a) facilitate public involvement in the legislative and other processes of the
Assembly and its committees; and
(b) conduct its business in an open manner, and hold its sittings, and those of
its committees, in public . . .
(2) The National Assembly may not exclude the public, including the media, from
a sitting of a committee unless it is reasonable
and justifiable to do so in an
open and democratic society.”
The provisions governing
public participation in the National Assembly are mirrored in the provisions
governing the National Council
of
Provinces.[404] There are similar
provisions relating to provincial legislatures and
municipalities.[405]
| [623] | Another provision of the
Constitution that embodies the foundational principle of accountability,
responsiveness and openness is section
32. It
states: |
“Access to information.—(1) Everyone has the right of access
to—
(a) any information held by the state;
and
(b) any information that is held by another person and that is required for the
exercise or protection of any
rights.
(2) National legislation must be enacted to give effect to this right, and may
provide for reasonable measures to alleviate the administrative
and financial
burden on the state.”
| [624] | The Preamble to the
Promotion of Access to Information
Act[406] (PAIA) establishes the
new approach to the exercise of public power which has followed the achievement
of constitutional democracy: |
“Preamble.—RECOGNISING
THAT—
* the system of government in South Africa before 27 April 1994, amongst others,
resulted in a secretive and unresponsive culture
in public and private bodies
which often led to an abuse of power and human rights violations
. . . .
AND IN ORDER TO—
* foster a culture of transparency and accountability in public and private
bodies by giving effect to the right of access to information;
* actively promote a society in which the people of South Africa have effective
access to information to enable them to more fully
exercise and protect all of
their rights”.
It is also
instructive to refer to the objects of PAIA, which include:
“generally, to promote transparency, accountability and effective
governance of all public and private bodies by, including,
but not limited to,
empowering and educating
everyone—
(i) to understand their rights in terms of this Act in order to exercise their
rights in relation to public and private
bodies;
(ii) to understand the functions and operation of public bodies;
and
(iii) to effectively scrutinise, and participate in, decision-making by public
bodies that affects their
rights.”[407]
| [625] | What all these provisions,
both constitutional and statutory, have in common is a commitment to
accountability, responsiveness and
openness in government. They presuppose a
democracy that is not only representative but participatory. Indeed the
Constitution
itself was a product of national dialogue, first outside of then
inside Parliament. We have developed a culture of imbizo, lekgotla,
bosberaad
and indaba.[408] Hardly a day
goes by without the holding of consultations and public participation involving
all stake-holders, role-players and
interested parties, whether in the public or
the private sector. The principle of consultation and involvement has become a
distinctive
part of our national ethos. |
| [626] | It would be strange indeed
if the principles of participatory democracy and consultation operated when the
chain of public power began
with the enactment of the original legislation, then
vanished at the crucial stage when the general principles of the original
statute
were being converted into operational standards and procedures, only to
re-surface at the stage of the implementation of provisions
impacting on
specific individuals. The principle at stake at the intermediate
regulation-making process would relate not so much
to securing fair procedures,
as to ensuring openness, responsiveness and accountability. The need to secure
fairness would, however,
increase in intensity to the degree that the interests
of individuals came directly to be affected. |
| [627] | Because transparency and
responsiveness relate more to the broad character of the workings of our
democracy than to doing justice
to an individual, all interested parties, not
only those whose rights stand to be adversely affected, are entitled to know
what government
is doing, and as concerned citizens, to have an appropriate say.
Indeed, those whose rights stand to be beneficially affected by
an ameliorative
measure have no less an interest than those who stand to lose something. The
right to speak and be listened to is
part of the right to be a citizen in the
full sense of the word. In a constitutional democracy dialogue and the right to
have a
voice on public affairs is constitutive of dignity. Indeed, in a society
like ours where the majority were for centuries denied
the right to influence
those who ruled over them, the right “to be present” when laws are
being made has deep significance. |
| [628] | The problem, then, is not
whether the values of accountability, responsiveness and openness should
apply to the adoption of subordinate legislation, but how. In
particular, what does the Constitution looked at as an organic and principled
whole, and not as a patchwork of discrete injunctive
texts, require in terms of
procedures that will meet constitutional standards? How can one ensure that the
processes are manageable
and efficient? This is an area that cries out for
express legislative guidance. Experience in this country and abroad, both
positive
and negative, needs to be weighed. A decade of constitutional
democracy provides invaluable insight into the problems involved.
Yet the fact
is that such legislation is not there. The proposal by the South African Law
Reform Commission that it be included
in PAJA was not
accepted.[409] In the absence of
such legislation it will therefore be incumbent on the courts, oriented by the
foundational constitutional principles
of accountability, responsiveness and
openness, and cognisant of the fact that we are living in a constitutional
democracy, to ensure
that proper procedures are followed when subordinate
legislation is being made. |
| [629] | At this stage it is
neither necessary nor advisable to attempt to lay down specific rules as to what
processes would meet those standards.
As in the case of procedurally fair
administrative action concerning individuals, much will depend on the setting in
which the subordinate
legislation is being adopted, the nature of the power
being exercised, the purpose of the rules being made, the people who stand
most
directly to be affected and the social and economic context in which the measure
will function. An appropriate balance will
need to be struck between
facilitating meaningful public access to the process and achieving economic use
of time and resources.
Indeed, it should be borne in mind that endless
consultation can be as paralysing to democratic decision-making as insufficient
consultation.[410] |
| [630] | In this respect section 4
of PAJA offers interesting examples of procedures which Parliament has already
adopted in relation to decisions
affecting the public. They include the holding
of public enquiries and the use of notice and comment
procedures.[411] In particular,
the enabling statute itself might indicate directly which procedures should be
followed. The forms of facilitating
an appropriate degree of participation in
the law-making process are indeed capable of infinite variation. What matters
is that
at the end of the day a reasonable opportunity is offered to members of
the public and all interested parties to know about the issues
and to have an
adequate say. What amounts to a reasonable opportunity will depend on the
circumstances of each case. Prudence allied
to principle indicates that this is
an area where the law should develop in a fact-sensitive and incremental
way. |
Constitutional control of subordinate
law-making: the substantive dimension
| [631] | In the pre-democratic era,
the doctrine of ultra vires[412]
was used to strike down subordinate legislation that did not meet certain
judicially-established criteria. In the well-known case
of Kruse v
Johnson[413] Lord Russell laid
down limited grounds for unreasonableness, as determined by the courts
exercising common law powers of judicial
review, in the context of subordinate
legislation adopted by public representative bodies. After stating that in
general the courts
should not interfere with subordinate legislation as adopted
by duly authorised bodies, he went on to
observe: |
“. . . I do not mean to say that there may not be cases in which it would
be the duty of the court to condemn byelaws made
under such authority as these
were made as invalid because unreasonable. But unreasonable in what sense? If,
for instance, they
were found to be partial and unequal in their operation as
between different classes, if they were manifestly unjust, if they disclosed
bad
faith, if they involved such oppressive or gratuitous interference with the
rights of those subject to them as could find no
justification in the minds of
reasonable men, the court might well say Parliament never intended to give
authority to make such rules,
and they are unreasonable and ultra
vires.”[414]
| [632] | The principles of
reasonableness were accordingly rooted in presumptions about the intention of
Parliament. Today the power and the
constraint come not only from the
empowering statute, but from the Constitution, which governs the manner in which
the statute must
be applied. This is not to say that the intentions of the
Legislature, as expressed or implied, fall out of the picture. On the
contrary,
they will provide the point of departure for the enquiry. The framework for the
investigation will continue to be the
objectives sought to be achieved by the
enabling law. What is new, I believe, is the constitutional requirement of
legality, in
this connection in relation to the substantive character of the
measure concerned. In this context legality requires compliance
not only with
the empowering statute, but with general constraints on the exercise of public
power flowing from the nature of our
constitutional democracy, in particular the
requirement that government be open, responsive and
accountable. |
| [633] | In my view, if rationality
is required as the minimum for the legality of primary
legislation,[415] something more
than mere rationality will be needed to ensure the legality of subordinate
legislation. The functionaries who are
responsible for drafting subordinate
legislation are exercising a public power of great significance, but with no
overt checks and
balances. It is they who are responsible for translating the
general precepts of the statute into operational standards and processes.
Even
if they choose to consult widely and actively, their ultimate deliberations will
ordinarily take place behind closed doors.
The principles of accountability and
responsiveness require that the procedures for public involvement they establish
in each case
be reasonably related to the material they have to consider. If
challenged, they should be able to account for the regulations they
have
adopted, and to do so in a manner that shows a reasonable fit between the
requirements of the empowering statute, the material
at their command and the
final text. |
| [634] | In more general terms,
they have weighty statutory and constitutional obligations to fulfil. Writing
in the context of the constitutional
obligations of the providers of rail
services to protect the safety of commuters, O’Regan J in
Metrorail,[416]
observed: |
“[T]he Court requires the bearer of constitutional obligations to perform
them in a manner which is reasonable. This standard
strikes an appropriate
balance between the need to ensure that constitutional obligations are met, on
the one hand, and recognition
for the fact that the bearers of those obligations
should be given appropriate leeway to determine the best way to meet the
obligations
in all the circumstances. As this Court reasoned in Minister of
Health and Others v Treatment Action Campaign and Others (No 2) [2002] ZACC 15; [2002 (5) SA
721 (CC); 2002 (10) BCLR 1033 (CC) at para 38]:
‘Courts are ill-suited to adjudicate upon issues where Court orders could
have multiple social and economic consequences for
the community. The
Constitution contemplates rather a restrained and focused role for the Courts,
namely, to require the State to
take measures to meet its constitutional
obligations and to subject the reasonableness of these measures to
evaluation.’”
| [635] | I think the same
principles of reasonableness must govern the exercise of powers to translate the
original law into operational regulations.
The situation is quite different
from one where courts arrogate to themselves the right to declare that
Parliament has not acted
reasonably in adopting a certain piece of legislation.
For the courts to do so would be to make a political judgment that would
be both
institutionally and constitutionally inappropriate. A court can require that
Parliament act rationally,[417]
follow due manner and form,[418]
stay within its sphere of law-making
competence,[419] and does not
violate the Bill of Rights[420] or
any other provisions of the Constitution. The case of subordinate law-making is
different, however. What is in issue here is
not the reasonableness of the
original legislation, but the reasonableness of the manner in which it is being
given effect to. To
say that the drafters must fulfil their functions and craft
regulations in a reasonable way is in this respect a legal not a political
judgment. To hold the opposite would be to assume that Parliament and the
Constitution would be satisfied if the functionaries concerned
carried out their
mandate in an unreasonable manner. Indeed, it would be odd if public officials
could be held to the standard of
reasonableness required by section 33 in their
dealings with individual persons, but not be so held when drafting rules which
stand
to affect scores and perhaps millions of
individuals. |
| [636] | What is required, then, is
a reasonable fit between the enabling law and the subordinate law. For the
purposes of the present matter
it is not necessary to provide precise and
exhaustive details of how the reasonableness of the fit would be tested.
Clearly, the
drafters of the regulations must have great leeway in deciding how
best to achieve the objectives of the enabling law; policy-making
belongs to
them, not the courts. Furthermore, when exercising judicial review the courts
will give appropriate weight to the fact
that the Parliamentary system promotes
political accountability and that we live in an open society in which all are
free to criticise
acts of government. Nevertheless, a constitutional democracy
requires more than the right to criticise the public authorities after
the
event. All public power must be exercised in a way that meets constitutional
standards. Accountability is not just a hallmark
of good government in a
political sense. It is a requirement of constitutional government in a legal
sense. Accountability implies
that justification be given where necessary for
exercises of public power, establishing that they meet constitutional and
statutory
standards. |
| [637] | The standard of
reasonableness is used as a measure throughout the Constitution, notably in
regard to the fulfilment of positive obligations
to realise social and economic
rights,[421] and with respect to
permissible limitations of protected
rights.[422] I see no reason why
the standard should not be used as the overall principle for measuring whether
or not subordinate legislation
fits appropriately with the scheme of its
empowering law. Reasonableness is capable of being determined objectively. It
is sometimes
easier to illustrate in the negative than in the positive: viewed
in the context of its objectives and the situation in which it
is due to be
implemented, the terms of subordinate legislation must not be so wide in their
reach or so disproportionate in their
impact as to place them beyond the limits
of what a reasonable law-maker would have considered appropriate.
Proportionality will
always be a significant element of reasonableness. What
the concept of proportionality loses in terms of predictability, it more
than
makes up for by being congruent with context and responsive to the intensity
with which the relevant constitutional values are
triggered. In my view, the
logic of our new constitutional dispensation requires that the common
law’s one-time ultra-technical
preoccupation with categories and
classifications as the basis for judicial review, now be replaced by the
adoption of the generalised,
principled and flexible standard of review embodied
in the notion of reasonableness. |
| [638] | It needs to be observed
that in the pre-democratic era the distinction drawn between legislative and
adjudicative (quasi-judicial)
acts was all-important for administrative law.
This was because the need to grant an opportunity for a hearing would only be
accepted
by the courts in the case of adjudicative acts. If the act was
classified as legislative, no right to a hearing would have been
recognised.
The artificiality of the distinction being drawn by the courts was convincingly
criticised by Milne JA in South African Roads Board. He pointed out that
he was |
“. . . not persuaded that the categorisation of statutory powers of action
or decision into executive (or administrative) and
legislative should in all
cases provide the criterion as to whether the repository of the power is obliged
in exercising it to observe
the dictates of natural justice. It seems to me
rather that a distinction should be drawn between (a) statutory powers which,
when
exercised, affect equally members of the community at large and (b) those
which, while possibly also having a general impact, are
calculated to cause
particular prejudice to an individual or particular group of
individuals.”[423]
| [639] | Today the situation is
quite different. The right to notice and public involvement arises under the
principle of legality in a constitutional
democracy. It is not restricted to
the natural justice principle embodied in the audi alteram partem rule. In this
respect labelling
an act as either legislative (rule-making) or adjudicative
(rule-application) ceases to be of vital significance. The remedy in
relation
to both is roughly the same. |
| [640] | One may thus envisage a
continuum ranging from pure law-making acts at one end, to pure administrative
(adjudicative) acts at the
other. All will be subject to constitutional control
that is of both a procedural and a substantive kind. There will be a difference
of emphasis rather than of kind, to take account of the different constitutional
and public law values implicated at each end of
the spectrum. Hybrid regulatory
systems involving both generality (regulatory scheme) and specificity
(adjudicative act) could then
be comfortably accommodated at appropriate places
along the spectrum. The precise form of the hearing required in each case and
the manner in which substantive reasonableness will be determined, will
accordingly depend more on the nature of the interests at
stake in each
particular instance than on the label or labels to be attached. In this way
administrative law emerges from its constitutional
chrysalis as an integrated
body of law. Shed of the remnants of its one-time fragmented and
particularistic form, it has been metamorphosed
into a comprehensive,
principled, operational and elegant new legal
figure. |
Application to the facts of this
case
| [641] | I turn to the facts of the
present case. The fundamental feature governing the making of regulations by
the Pricing Committee and
the Minister was that the task be accomplished in a
manner that was open, responsive and accountable. These constitutional
considerations
applied whether the steps taken were characterised as legislative
or as representing administrative action. The more general the
regulations were
in effect and the more indefinite in outcome, the more they fall now to be
reviewed according to the broad principles
of legality in a constitutional
democracy. Conversely, the more specific in their adverse impact and the more
immediate the moment
of their application, the more readily do they come within
the provisions of section 33 and PAJA. It should be stressed, however,
that the
fact that the borderline between making subordinate legislation, on the one
hand, and taking a decision in respect of administrative
action on the other,
could have been porous, would not have been of special constitutional moment.
In the open and democratic society
envisaged by the Constitution, the same broad
expectations of how government should function must straddle the conceptual
frontier.
What matters is not the classification, but the character of the
power being exercised. |
| [642] | I will deal first with the
general regulatory scheme. The overall scheme produced by the Pricing Committee
and the Minister affects
the public at large and applies indefinitely into the
future. It is law-making in its fullest sense. Its broad objective in terms
of
the Medicines Act is to introduce transparency into the whole process of
manufacturing, distributing and selling medicines. It
is also designed to bring
prices down to more affordable levels. The public in general was entitled to
know how the Pricing Committee
planned to conduct its operations, what the
essential subject-matter of its work would be and how the public could be
involved in
making representations to it. These requirements flow not from
section 33 and PAJA, but from the broad principle of legality as
expressly
envisaged in various texts of the Constitution and implicit in its very
structure and design. |
| [643] | Interested members of the
public were also entitled to expect that the regulations as eventually published
would fit reasonably within
the framework established by the Medicines Act,
interpreted in the light of the Constitution. Not only were they entitled to
have
their say, they could expect that attention would be given to their
representations. At the same time, they would have had to accept
that however
strongly they felt on a particular topic, ultimately it lay with the Pricing
Committee and the Minister to make policy
choices, provided the options selected
fell within the bounds of what was reasonable. Furthermore, they would have had
to accept
that within the constraints of what was reasonable, the Pricing
Committee and the Minister had a wide discretion as how best to realise
the
objectives of the Act. |
| [644] | These principles of
legality in a constitutional democracy, then, are applicable to judicial review
of the regulatory scheme as a
whole, including those laying down the need for a
single exit price. They would also include the regulations establishing the
principles
of price control, price increases, benchmarking and publication.
Taken together these and other regulations establish the overall
normative
structure controlling the cost of medicines. At the stage, however, when the
scheme is in place and detailed implementation
of its rules as they directly
affect individuals and groups happens, the decisions on implementation could
well come to be subject
to the provisions of section 33 and PAJA. This is a
matter that need not be decided now. |
| [645] | Whereas Chaskalson CJ and
Ngcobo J apply section 33 and PAJA to their analyses of the regulatory scheme as
a whole, I follow the pathway
of legality as understood in a constitutional
democracy. Accepting in broad terms as I do their respective evaluations of the
evidence
before us, but basing myself on the principles of legality rather than
of section 33 and PAJA, I agree that the overall regulatory
scheme passes
constitutional muster, both in terms of the procedures followed and in respect
of the reasonableness of its outcome. |
The
fixing of the dispensing fee
| [646] | Both their judgments, as
well as that by Moseneke J, dealt separately and in some detail with the
question of the fixing of an appropriate
dispensing fee. The remaining part of
this judgment will be concerned with that question. In my view the
determination of the maximum
dispensing fee which pharmacists may charge
represents a discrete aspect of the work of the Pricing Committee and the
Minister.
The objective here is not so much to establish a general normative
structure, but to determine a precise figure for a particular
activity of a
directly identified group of persons. The price tag put on the activity of the
pharmacists affects their interests
materially, adversely and in an immediately
operative way. It follows that the fixing of the dispensing fee is sufficiently
specific
to constitute action of an adjudicative rather than a law-making kind.
As such, it falls to be reviewed under the provisions of
section 33 and PAJA.
This does not, however, require any dramatic change to the character of the
review. The effect of invoking
section 33 and PAJA is simply to highlight a
twofold and very specific responsibility on those who have the task of
determining the
fee. Firstly, they are required to show particular concern to
hear the views of those who stand to lose out, namely, the pharmacists,
and
secondly they must ensure, that in relation to the very specific competing
interests at stake, the fee ultimately arrived at
is a reasonable one. The
difference is one of intensity and degree, not one of
kind. |
| [647] | The result of this
analysis is that no less than four constitutional and statutory considerations
require that the fixing of the dispensing
fee be reasonable: first, to meet the
test of legality for subordinate legislation in general; second, to meet the
specific requirements
of section 33 and PAJA in relation to this particular
determination as a form of administrative action; third, to comply with the
statutory duty of fixing a fee that is “appropriate”; and, finally
to be part of a “reasonable” measure to
realise the constitutional
right of everyone to access to health care, to which I will refer
later. |
| [648] | It is unnecessary for me
to repeat the facts of this case, which have been thoroughly analysed by my
colleagues. I accept in broad
terms the evaluations made by Chaskalson CJ and
Ngcobo J, focusing as each does on different features of the way the Pricing
Committee
dealt with the evidence. Section 33 and PAJA necessitated that
special attention be given to eliciting and listening to the several
voices of
the pharmacists. The evidence suggests that although there were aspects of the
process that could and should have been
better managed, they did not affect the
process as a whole in sufficiently material a manner as to vitiate it. I
accordingly agree
that the procedures followed in determining the dispensing fee
were not constitutionally flawed. |
| [649] | Finally I turn to the
substantive reasonableness of the dispensing fee, which counsel for New Clicks
acknowledged lay at the heart
of the dispute (“ultimately it was about
numbers”). In broad terms I adopt the evaluations in this respect made by
Chaskalson
CJ and Ngcobo J. I would, however, give more centrality than their
judgments do to certain constitutional principles. I believe
these principles
should be given special weight in determining whether the Pricing Committee and
Minister’s approach to the
appropriateness of the fee was
reasonable. |
| [650] | Thus a major element
informing the reasonableness of the work of the Pricing Committee was section 27
of the Constitution, which reads: |
“Health care, food, water and social security.—(1) Everyone has the
right to have access to—
(a) health care services, including reproductive health care;
. . . .
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve the progressive realisation
of each of these
rights.
(3) No one may be refused emergency medical
treatment.”
The determination of the appropriate
dispensing fee had accordingly to be evaluated as a measure undertaken to
achieve the realisation
of access to health care services.
| [651] | The importance of this
objective cannot be overestimated. Though illness strikes the rich and the poor
alike, its impact on the poor
is aggravated by harsh living conditions and what
is frequently the extreme difficulty of getting access to health care and
medication.
Hence the duty on the state to take special measures to assist
those who are the most vulnerable to disease and, simultaneously
the most
lacking in resources. The question, however, is not simply whether the
objective of the regulation is worthy, which it
clearly is, but whether it is
reasonable. Put another way, the mere fact that it serves a rational purpose in
pursuing a legitimate
government aim, would not in itself be enough. It would
have to pass the test of being reasonable. |
| [652] | What is reasonable depends
very much on the social, economic and historical context. Considerable
discretion must be accorded to
those entrusted with responsibility for drafting
regulations. As Yacoob J said in
Grootboom,[424] |
“A court considering reasonableness will not enquire whether other more
desirable or favourable measures could have been adopted,
or whether public
money could have been better spent. The question would be whether the measures
that have been adopted are reasonable.
It is necessary to recognise that a wide
range of possible measures could be adopted by the State to meet its
obligations. Many
of these would meet the requirement of reasonableness. Once
it is shown that the measures do so, this requirement is
met.”[425]
| [653] | When reasonableness is
considered it becomes particularly important to ensure that vulnerable sections
of the population are protected.
The discretion of the rule-makers becomes
attenuated to the degree that the fundamental rights of the people who are most
disadvantaged
are affected. In this regard our Court has frequently pointed to
the extremely uneven development of our
country.[426] It is a matter of
common knowledge that people living in deeply impoverished rural areas have
access to far fewer pharmacies than
those living in the more affluent areas of
the towns. It was accepted by the Pricing Committee that rural pharmacies do
not have
the turnover of scripts that enable many urban pharmacies to stay
afloat. Similarly, we are informed that courier pharmacies which
provide a
service of special value to those who are vulnerable through infirmity and have
difficulty getting to the chemist, work
on particularly tight
margins. |
| [654] | Thus, though the principle
of ‘one-size-fits-all’ has the great administrative virtue of being
easy to understand and
simple to apply, it becomes highly problematic where
rural and courier pharmacies are concerned. In a setting where health needs
are
vastly different, the very uniformity that establishes operational strength
becomes the source of constitutional infirmity.
As Yacoob J pointed out in
Grootboom: |
“Reasonableness must also be understood in the context of the Bill of
Rights as a whole. . . . To be reasonable, measures cannot
leave out of account
the degree and extent of the denial of the right they endeavour to realise.
Those whose needs are the most
urgent and whose ability to enjoy all rights
therefore is most in peril, must not be ignored by the measures aimed at
achieving realisation
of the right. It may not be sufficient to meet the test
of reasonableness to show that the measures are capable of achieving a
statistical
advance in the realisation of the right. Furthermore, the
Constitution requires that everyone must be treated with care and concern.
If
the measures, though statistically successful, fail to respond to the needs of
those most desperate, they may not pass the
test.”[427]
| [655] | For these reasons I agree
that adoption of the ‘one-size-fits-all’ approach to the dispensing
fee in relation to rural
pharmacies and courier chemists, fails to meet the
constitutionally enjoined standard of reasonableness. Accordingly I agree that
the regulation is invalid to this extent. |
| [656] | I have more difficulty in
relation to the impact of the measures on the other pharmacists, more
particularly as concerns the economic
viability of their activities. Here
another constitutional right comes into play. In Affordable
Medicines[428] this Court was
called upon to consider the impact on the viability of medical practice of a
measure which required doctors to apply
for a licence to dispense medicines from
their approved premises. This necessitated an evaluation by the Court of
section 22 of
the Constitution, which
reads: |
“22. Freedom of trade, occupation and profession.—Every citizen has
the right to choose their trade, occupation or profession
freely. The practice
of a trade, occupation or profession may be regulated by
law.”
| [657] | Ngcobo J said that the
inclusion of the above section in the Constitution is not only because of past
discriminatory patterns which
excluded persons from applying certain trades or
taking up certain professions because of their race or gender. He pointed out
that: |
“What is at stake is more than one’s right to earn a living,
important though that is. Freedom to choose a vocation
is intrinsic to the
nature of a society based on human dignity as contemplated by the Constitution.
One’s work is part of
one’s identity and is constitutive of
one’s dignity. Every individual has a right to take up any activity which
he or
she believes himself or herself prepared to undertake as a profession and
to make that activity the very basis of his or her life.
And there is a
relationship between work and the human personality as a whole. ‘It is a
relationship that shapes and completes
the individual over a lifetime of devoted
activity; it is the foundation of a person’s existence’.
Though economic necessity or cultural barriers may unfortunately limit the
capacity of individuals to exercise such choice, legal
impediments are not to be
countenanced unless clearly justified in terms of the broad public interest.
Limitations on the right
to freely choose a profession are not to be lightly
tolerated.”[429]
| [658] | It is not difficult to
recognise that standing behind these generalised words are the familiar figures
of the township or Main Road
chemist or the hospital pharmacist or the
white-coated person behind the medicines counter at the far end of the chain
store. These
men and women are by vocation dedicated people who express
themselves through their work and are publicly identified by the concern
they
show in their relationships with their customers. With their professional skill
and human concern, they calm anxieties and
turn their places of work into
important ports of call for wide sectors of the community. A responsive
government accordingly takes
account of the need not only to have prices of
medicines accessible, but to have outlets for medicines that are accessible,
staffed
by people who are accessible, in location and in
manner. |
| [659] | At the same time as there
is a need to acknowledge the position of the pharmacists it is necessary, as
Ngcobo J pointed out in Affordable Medicines, to recognise
that |
“. . . we live in a modern and industrial world of human interdependence
and mutual responsibility. Indeed we are caught in
an inescapable network of
mutuality. Provided it is in the public interest and not arbitrary or
capricious, regulation of vocational
activity for the protection both of the
persons involved in it and of the community at large affected by it, is to be
both expected
and
welcomed.”[430]
Regulation
of prices of medicines is a wholly legitimate form of regulating the profession.
Indeed, preventing excessive profit-taking
from the manufacturing distribution
and sale of medicines is more than an option for government. It is a
constitutional obligation
flowing from its duties under section 27(2).
| [660] | In this respect I would
tend to agree with Moseneke J that the mere fact that a government measure could
result in service-providers
losing their competitive edge so as to face being
driven out of business, would not in itself be enough to make a measure legally
inappropriate (unreasonable). The maintenance of “business as
usual” is not a constitutional principle, and the concept
of
reasonableness should not be used as an apparently neutral instrument which,
regarding the status quo as the settled norm, serves
to block transformation and
freeze challengeable aspects of our public
life.[431] |
| [661] | Counsel for the state in
fact argued that the pharmacy industry would have to change its mindset so as to
ensure that medicines would
be available at more affordable prices. These may
be policy considerations of which government has to take account, and to which
a
court would defer. The constitutional dimension will only arise when the impact
of implementing such a policy is disproportionately
severe in relation to the
viability of pharmacies. The extent of the potential impact in the present
matter becomes highly relevant
because, as this Court has recognised, it is not
always possible to draw a clear line of distinction between regulation that
affects
the practice of a profession on the one hand, and one that affects
choice on the other.[432] Where,
objectively viewed, the regulation of the practice of a profession impacts
negatively on choice, such regulation must be
tested under section 36(1), the
limitations clause in the Bill of Rights. As such it must meet, amongst other
requirements, the
standard of reasonableness, of which proportionality analysis
is an important component. This means it will always be a matter of
context,
impact and degree and ultimately, a question of balance and proportionality to
be worked out on the facts of the case. |
| [662] | The problem in the present
matter is that the evidence concerning potential impact on the economic
sustainability of the pharmacies,
appears to be inconclusive. The regulations
as a whole make for a drastic (though constitutionally propitious) intervention
by the
Ministry of Health in respect of lowering the price of medicines. The
issue that remains unresolved on the evidence is whether the
dispensing fee is
fixed at a price calculated to drive a disproportionate number of pharmacists
out of business. |
| [663] | This is a new measure that
has caused trauma to members of a legitimate and respected profession, who play
an important social role
in providing access to health care. It may be unclear
whether the distress of the pharmacists arises from self-induced and
self-serving
panic, or is based on objective fact. Yet the problem is that
there is no base-line or norm from which to judge the potential impact
of the
measure. This is not a case where a system is in place and government decides
on an incremental shift one way or the other.
The state is in fact embarking
upon an important new regulatory enterprise. I believe that the principle of
accountability imposes
on it a special responsibility in the particular
circumstances to show that it has taken all reasonable steps to assess, take
account
of and justify the potential knock-on effects on the pharmacy profession
of its new intervention. The more the risk, the greater
the
precaution. |
| [664] | In this respect, when the
reasonableness of the measure is put in issue by evidence that is more than
lightweight, an element of persuasiveness
or justification is required from the
Ministry. It needs to go beyond reliance on placing itself inside the ordinary
parameters
within which a court would habitually give the nod to official
discretion. There are circumstances, such as in the present case,
where the
nature of the matter, including its novelty and the uncertainty of its potential
impact, requires persuasive evidence to
indicate that the measure falls within
the bounds of what is reasonable. There will be other more stable and
predictable circumstances
where the weighing of different elements should be
left to the administrative body itself, with the court being obliged on the
facts
to adopt a far more deferential posture. In the long run the Ministry,
the profession and the public will be better served by calculations
that are
manifestly reasonable, than by assertions that might or might not be true but
lack convincing substantiation. |
| [665] | Many years have been spent
by the Ministry on the project. The Pricing Committee, with well qualified
persons in its ranks, has worked
diligently and expended a great degree of
effort in fulfilling its statutory responsibilities. That in itself, however,
does not
suffice. It is important that the evidence be such as to show to all
those affected and to the public in general, that the Pricing
Committee has,
after diligent enquiry into the basic issues involved and with a reasonably high
degree of likelihood in relation
to the material before it, “got it
right”, or, at the very least, not got it
wrong. |
| [666] | In the present case, I am
not satisfied that the evidence proves that the impact of the limit on the
dispensing fee will be such as
to drive a disproportionate number of chemists
out of business. Nor, however, am I convinced that it will not have that
effect.
Because this is a new measure, and because there is a real and not
purely speculative possibility of pharmacists in large numbers
being rendered
insolvent, (and, I should add, because on all the evidence it is not clear that
responsibility for the high price
of medicines is not being unduly attributed to
the retailers rather than to those higher up in the chain), I find myself
unpersuaded
that the Pricing Committee and the Minister basically did not get it
wrong. It follows that I do not find the evidence firm enough
to support a
finding that the newly introduced dispensing fee meets the test of being
reasonable
(“appropriate”). |
MOSENEKE
J
Introduction
| [667] | I have had the benefit of
reading the separate judgments of Chaskalson CJ and Ngcobo J. In part my views
diverge from theirs. In
order to identify properly the differences it is
necessary to draw attention to the five broad issues to be decided. The first
collection
of issues relates to procedural contentions. The second issue probes
whether the impugned regulations by the Minister of Health
(the Minister) and
the recommendations of the Pricing Committee constitute administrative action
within the meaning of the Promotion of Administrative Justice Act
(PAJA).[433]
The third set of issues raises the question whether the process of making the
regulations satisfied the procedural fairness required
by PAJA. The fourth and
fifth issues relate to the validity of regulations, which govern the single exit
price and the appropriate
dispensing fee
respectively. |
| [668] | I start with procedural
matters. I am in respectful agreement with the findings of the Chief Justice in
this regard. In particular,
I agree that the Supreme Court of Appeal (SCA) is
entitled to regulate its procedure and that it was well within its power in
directing
that the objection to its jurisdiction should be heard together with
the merits of the application for leave to appeal. Nothing
justified the
piecemeal hearing the Minister contended for or the decision not to advance any
argument on the merits before that
court. I have no hesitation in holding that,
in the circumstances of the case, the SCA adopted the correct procedural
course. |
| [669] | I also cannot uphold the
contention by the Minister and the Pricing Committee that the decision of the
SCA is a nullity and ought
to be set aside by reason only of the provisions of
section 20(4)[434] of the Supreme
Court Act 59 of 1959. It will be remembered that the provisions require that no
appeal shall lie to the SCA except
with leave of the court below, or if refused,
of the SCA itself. For the reasons advanced by the Chief Justice, I agree that
in
a proper case, a court of appeal may hear and decide a case premised on a
constructive refusal of leave to appeal. However, in the
case before the SCA it
was unnecessary to decide the claim of constructive refusal because the decision
of the High Court refusing
leave to appeal came to hand ahead of the decision of
the SCA. |
| [670] | New Clicks, the
Pharmaceutical Society of South Africa (PSSA) and other respondents (the
Pharmacies) took the procedural point, that
because the Minister had refused to
argue the merits before the SCA, she should be refused leave to do so in this
Court. The Chief
Justice rejects this contention. I agree. The
Minister’s stance before the SCA is open to criticism but it would not be
in
the interest of justice for an issue of such great public moment to be
decided by default and without hearing the Minister responsible
for making the
impugned regulations. |
| [671] | The
Chief Justice and Ngcobo J take the view that it is necessary to decide whether
the conduct of the Minister and of the Pricing
Committee is reviewable as
administrative action under section 33 of the Constitution and PAJA. They
conclude that the recommendations
of the Pricing Committee and ministerial
regulation-making are so reviewable. For reasons that I advance later in the
judgment,
I find it unnecessary to decide whether the tenets of administrative
justice under the Constitution and PAJA apply to ministerial
regulation-making.
However, for the purposes of this case I do assume, in favour of the Pharmacies,
that PAJA does apply to the
making of the recommendations and the regulations
under section 22G of the Medicines and Related Substances Act (the Medicines
Act).[435] |
| [672] | As did the Chief Justice
and Ngcobo J, I consider the making of regulations under section 22G(2)(b) one
continuous process involving
at different times the Pricing Committee and the
Minister up to the point of promulgation. The Pharmacies are unhappy with the
deliberations
of the Pricing Committee that led to the making of the
regulations. Having carefully weighed their contentions, I also find that
on
the facts, it cannot be said that the process of making recommendations and
regulations was procedurally unfair. I think that
the procedure followed in
making the regulations does pass muster under the procedural fairness
requirements of section 4(1) read
with section 3 of
PAJA. |
| [673] | I turn to the regulations
governing a single exit price which are under attack on several grounds. Let me
at the outset observe that
it is beyond debate that the overall legislative
scheme which introduces a single exit price is constitutionally authorised under
section 27(1)(a) and (2) of the Constitution. I further take the view that
except as qualified in the judgment of Yacoob J, the
regulations on a single
exit price made under the legislative scheme advance access to quality and
affordable medicine for “everyone”
in a lawful and reasonable manner
and without undue oppression to any of the interested parties. Regrettably, I
have to part ways
with several of the findings of the Chief Justice on the
validity or otherwise of the regulations on the single exit price. I need
say
no more because the differences are admirably canvassed in the reasoning and
outcome proposed in the judgment of Yacoob J, in
which I
concur. |
| [674] | With regard to the
validity of the regulations, which introduced an appropriate dispensing fee, I
have concluded that on the evidence
it has not been shown that the dispensing
fee set by the Minister will render pharmacies economically unviable. Nor does
the evidence
tendered by the Pharmacies establish the quantum or level of the
dispensing fee at which any class of pharmacy would be commercially
viable or at
which the regulations ought to have fixed the dispensing fee. At best the
evidence on the commercial impact of the
set dispensing fee on pharmacies, taken
as a whole, is inconclusive, speculative and open to a multitude of business
variables beyond
the proper reach of judicial censure. I hold that the
dispensing fee set by regulations 10, 11 and 12 is appropriate and does pass
muster save as specifically qualified below. |
| [675] | It is so that, for reasons
they advance, the Minister and the Pricing Committee opted for a uniform
dispensing fee for all pharmacies
throughout our country. However, the facts
tend to suggest that marginalised patients in far-flung rural areas or consumers
of vital
and chronic medicines ordinarily rely on the services of rural
pharmacies and courier pharmacies respectively. Though obliged to
do so, there
is no evidence that the Minister or the Pricing Committee, in formulating the
dispensing fee, have applied their minds
properly or at all to issues of access
and affordability of medicines in relation to rural and courier
pharmacies. |
| [676] | In my view, to this extent
only is the dispensing fee set by regulations 10 and 11
“inappropriate” and invalid. The remedy
indicated by this finding
is that the Pricing Committee and the Minister are required to apply their minds
to the condition of rural
pharmacies and courier pharmacies and those they
ordinarily serve and thereafter to determine an appropriate dispensing fee in
the
light of the socio-economic constitutional obligations which underpin and
inform the empowering legislation and regulations made
under
it. |
| [677] | Lastly,
the Minister and the Pricing Committee have conceded that regulation 13 does not
fix an appropriate dispensing fee for the
selling of Schedule 0 medicines as
required by section 22G(2)(c). The concession is well made. The Minister,
however, sought to
persuade us that the validity of regulation 13 need not be
decided as it has since become moot. I do not agree. Regulation 13 is
conspicuously inconsistent with its empowering provision and falls to be set
aside as invalid in these proceedings. |
| [678] | I turn now to furnishing
fuller reasons for the conclusions I have
reached. |
Appropriate dispensing fee
| [679] | Shorn of verbiage, the
claim of the Pharmacies is that the prescribed dispensing fee for pharmacies is
unlawful and falls to be set
aside because it will lead to the demise of most
pharmacies. The Cape High
Court[436]
(High Court) dismissed this claim and found the dispensing fee appropriate
within the meaning of the impugned regulations. However,
on appeal the
SCA[437]
upheld the Pharmacies contention and declared the regulations invalid and of no
force or effect. Before this Court, the Minister
urged upon us to reverse the
decision of the SCA and to find that the dispensing fee does pass
muster. |
| [680] | The impugned regulations
are required to introduce a transparent pricing system for medicines and
Scheduled substances sold in this
country. The regulations were published by
the Minister in Government Notice R553 of 30 April 2004 acting in terms of
powers conferred
on her by section
22G(2)(b)[438]
of the Medicines Act. In particular, regulations 10, 11, 12 and 13 set the
maximum dispensing fees pharmacists and other health
care professionals may
charge a user who is a natural
person.[439] These operative
regulations came into force at the beginning of August
2004.[440] |
| [681] | Under regulation 10 the
starting point for the calculation of a dispensing fee is the single exit price.
The first class of dispensing
fees relates to medicines and Scheduled substances
falling into Schedules 1 and 2 of the Medicines Act and which are supplied to
the user without a prescription. The dispensing fee must not exceed 16% of the
single exit price where the single exit price is
less than R100 and R16 where
the price is equal to or greater than R100. The second class covers medicines
and Scheduled substances
falling into Schedules 3, 4, 5, 6, 7 and 8 of the
Medicines Act and also falling into Schedules 1 and 2 of the Medicines Act in
respect
of which a prescription has been written. The dispensing fee must not
exceed 26% of the single exit price of the medicine or substance
where the
single exit price is less than R100 and R26 where the single exit price is equal
to or greater than R100. |
| [682] | Regulation 11 makes it
clear that where a medicine or Scheduled substance is dispensed on prescription
for a person who has been admitted
as an inpatient, the fee to be charged shall
be calculated as required by regulation 10 and on the entire quantity of the
medicine
or Scheduled substance on the prescription, even if the medicine or
Scheduled substance is drawn from the stock of a pharmacy, ward
or
theatre. |
| [683] | Expectedly, regulation 12
recognises that medical practitioners, dentists, nurses or other licensed
persons do compound and dispense
medicines. However, in terms of the
regulation, they may not charge a dispensing fee of more than 16% of the single
exit price where
the price of the medicine is less than R100 and R16 where the
price is equal to or greater than R100. |
| [684] | The final category of fees
may be levied by any person, other than a wholesaler and distributor, in respect
of Schedule 0 medicines.[441] In
that regard regulation 13 stipulates that the fee shall not exceed the
percentage mark-up in respect of that medicine or Scheduled
substance that was
applied at the date when the regulations took
effect. |
| [685] | It is not without
importance that the dispensing fee scheme brought to life by regulations 10, 11
and 12 prescribes a compulsory annual
review. Every year the Minister is
obliged to reconsider the appropriate fee provisions keeping in mind the
consumer price index,
the producer price index and more importantly “the
need to ensure the availability, affordability and quality of medicines
and
Scheduled substances in the
Republic.”[442] |
Grounds
of attack against the validity of the dispensing fee
| [686] | In submissions before this
Court, the Pharmacies contend that the process of making recommendations by the
Pricing Committee and regulations
by the Minister is administrative action
governed by the review standard of PAJA. In the alternative they argue that the
regulations
are nevertheless vitiated on the basis that they are unreasonable
under the common law read with section 33 of the Constitution.
To demonstrate
this broad submission both sets of respondents have put up separate but related
legal argument and expert evidence. |
| [687] | There are three common
themes running through the complaints of the Pharmacies. The first is that the
prescribed dispensing fee threatens
the economic viability of most pharmacies.
This contention in effect raises the substantive issue of the reasonableness or
otherwise
of the fee. It posits the question whether, on the facts, the maximum
dispensing fee set is likely to lead to the demise of most
pharmacies and in
that way undermine the availability of medicines to the public. The second
theme is that the fee was set without
due regard to all the relevant
considerations. Facially this contention questions the manner in which the
quantum of the dispensing
fee was reached. Yet in effect it raises the issue
whether in its deliberations the Minister, acting on the advice of the Pricing
Committee, acted arbitrarily and capriciously. The third theme is whether on
the papers before this Court the Minister and the Pricing
Committee disclose or
account adequately for how they have arrived at the quantum of the dispensing
fee. |
| [688] | I start with a brief
account of the contentions specific to New Clicks. Its primary attack is that
the dispensing fee is not appropriate
because it is not economically viable.
The set fee for dispensing would result ultimately in the demise of smaller
retail pharmacies
whilst larger organisations, such as New Clicks, would not be
able to operate their pharmacies in a sustainable manner. The viability
argument is advanced in two interrelated and sometimes inseparable senses.
First, it is contended that the dispensing fee cannot
yield a sustainable return
on capital invested in the pharmacies owned by New Clicks but instead will yield
a return on capital between
5% and negative 28%, and second, it would lead to an
overall reduction in the gross profit of New Clicks pharmacies from 28,96% to
14,93%. The compromised gross profit, they say, does not translate to a viable
or economic return on capital. For this contention
New Clicks relies on the
expert evidence of Professor Kantor, Mr Jordaan and Dr Theron. I examine the
expert evidence later in this
judgment.[443] |
| [689] | In a further submission,
New Clicks argues that the Pricing Committee failed to give due consideration to
its contentions on the appropriate
profit margin for the viability of
pharmacies. This it says because, in its submissions to the Pricing Committee,
it made the point
that a gross profit margin of 25% to 26% is a reasonable
minimum threshold for the economic viability of pharmacies. In its minutes
the
Pricing Committee seems to acknowledge the threshold yet it has set a dispensing
fee which, in the view of New Clicks, falls
well short of the minimum profit
margin required for pharmacies to be viable. |
| [690] | New Clicks argues that the
dispensing fee is bad also because there is no indication that regard has been
had to economic factors
that emphasise different commercial circumstances of
pharmacies such as working capital, finance costs, operating and other variable
costs and time spent by pharmacies in providing dispensing
services. |
| [691] | In the last instance, New
Clicks urges that we find, as the SCA did, that regulation 13 is invalid because
it does not determine an
appropriate fee for the selling of Schedule 0 medicines
as required by section
22G(2)(c)[444] of the Medicines
Act but rather prescribes a percentage mark-up. It points to other difficulties
including the fact that the regulation
does not allege that the mark-up is
appropriate and assumes that there is a single and uniform mark-up to be applied
at the date
of commencement of the regulations. |
| [692] | In order to meet the
attack, in this Court, the Minister says the SCA was wrong in deciding the
dispute on the validity of regulation
13 because it has become moot. She draws
attention to two notices published in the Government Gazette, which in effect
exclude Schedule
0 medicines from the provisions of sections 18A and 22G of the
Medicines Act and from the regulations for a period of 3 years. On
the other
hand, New Clicks persists that even though regulation 13 has been presently
excluded from operation, it remains part of
the dispensing fee scheme and thus
its validity falls for determination in these proceedings. It seems to me that
we are now seized
with the dispute on whether the validity of the regulation is
moot and if not whether it has fixed a fee for the sale of Schedule
0 medicines,
which is appropriate within the meaning of section 22G. To this matter too, I
return later in this
judgment.[445] |
Main
submissions of PSSA
| [693] | PSSA respondents say the
prescribed dispensing fee condemns pharmacies to provide their services at a
loss and will force most pharmacies
ultimately to go out of business. They
claim that even if non-professional front shop sales were taken into account,
most pharmacies
will operate at a loss. They observe that not all pharmacies
have front shops. For instance, a courier pharmacy would not have
a front shop.
In any event, they say, an appropriate fee is one that allows pharmacists to
remain professionally viable through the
provision of professional services,
quite aside from any front shop activities, in which they chose to
engage. |
| [694] | Second, the PSSA submit
that the uniform dispensing fee is bad because it does not differentiate between
different categories of pharmacies.
The Minister and the Pricing Committee
omitted to take account of the different types of pharmacies. The effect of
regulations
10 and 11 is to prescribe a single dispensing fee that applies to
all sales of pharmaceutical products by retail pharmacies. On
this argument,
there are different types of pharmacies stocking a divergent range of products
and with differing overhead costs,
yet the dispensing fee does not make adequate
provision for the differences amongst, for example, hospital pharmacies, courier
pharmacies,
community pharmacies and other types of
pharmacies. |
| [695] | Third, the PSSA say that
the dispensing fee will undermine or reduce access to pharmaceutical products
for all citizens, an outcome
which is at odds with the objectives of the
national health policy and the right to health care envisaged in section
27(1)(a)[446]
of the Constitution. This contention rests on the viability concern and is good
only if the regulations objectively speaking are
likely to lead to the demise of
most pharmacies. |
| [696] | Fourth, in an argument
which is also predicated on the cogency of the issue of the viability of
pharmacies, the PSSA contend that
regulation 10 which sets the dispensing fee,
unjustifiably limits the right of pharmacists as a class to “choose a
trade, occupation
or profession” as permitted by section
22[447] of the Constitution
because pharmacies that are not economically viable will have the effect of
discouraging people from choosing
to pursue or remain in the profession. They
submit further that regulation 10 “regulates the profession” within
the
meaning of section 22 of the Constitution and constitutes an arbitrary form
of regulation because its unintended consequence is to
destroy the pharmacy
profession. |
Submissions of the Minister and
the Pricing Committee
| [697] | The Minister and the
Pricing Committee urge us to hold that the dispensing fee is
“appropriate” within the meaning of
section 22G and therefore is
lawful. The Minister draws attention to the purpose of the enabling legislation
and the regulations.
She argues that they promote a legitimate and pressing
object of progressively achieving access to health care services, which embraces
the right of everyone to have access to quality, but affordable medicines. The
Minister asserts that the dispensing fee she has
determined on the
recommendation of the Pricing Committee is an outcome of due and proper
consideration of all relevant factors by
a committee of experts in the field
including a proper evaluation of the operational costs of dispensaries, the
viability of pharmacies
and the circumstances of different classes of
pharmacies. |
| [698] | The Minister contests most
vigorously the suggestion that the fee is unreasonable in the sense that it will
lead to the demise of
pharmacies. She says there is ample evidence of the
factors the Pricing Committee took into account when setting the fees that
should
be charged for dispensing. Attention is drawn to the minutes of the
deliberations of the Pricing Committee and of its Working Group,
affidavits
deposed to by Pricing Committee members, other depositions filed on behalf of
the Minister, proposals and representations
to the Pricing Committee by
stakeholders and the testimony of several experts put up by the Minister and the
Pricing Committee.[448] In her
written argument, the Minister analyses the evidence and thereafter asserts that
there is |
“ample evidence on record . . . that shows what factors were taken into
account, what weight they were given, that calculations
were made and that the
viability of the pharmacy profession was taken into account by the Committee in
the formulation of its recommendations.”
In effect the Minister and the Pricing Committee deny that they
acted arbitrarily and contend that the dispensing fee is reasonable
and
well-suited to the objects of the empowering legislation.
SCA on
dispensing fee
| [699] | Before I turn to the
findings of the SCA on the dispensing fee it is apposite to record that the SCA
had the benefit of argument on
behalf of the Pharmacies only. Counsel for the
Minister declined the repeated invitations of the SCA to make submissions on the
merits of the application before that court on the ground that their brief was
limited to contesting the jurisdiction of the SCA
and did not extend to the case
on the merits. The Chief Justice deals with this matter in greater detail and I
respectfully agree
with his observations. To say the very least the election of
the Minister not to address the merits before the SCA is open to severe
criticism and borders on outright disrespect for the court. Moreover, in a
proper case such an election may constitute a bar to
a litigant to raise the
same issues on appeal. For reasons of public interest advanced earlier it would
be inappropriate to exclude
the Minister’s submissions in this
Court. |
| [700] | The SCA held that what is
an appropriate fee under section 22G has not been left to the discretion of the
Minister but is an objective
prerequisite that can be tested judicially. Absent
that jurisdictional requirement of “appropriateness”, the fee fails
at a threshold level and the regulations that prescribe it would be void for
lack of a legal basis. Relying on the reasoning of
Ngcobo J in Hoffmann v
South African
Airways[449]
on the meaning of the words “appropriate relief” found in section 38
of the Constitution, the Court construed “appropriate”
to refer to a
fee that is not unfair or unjust. |
| [701] | On the facts the SCA found
that the dispensing fee was not appropriate because
|
“[e]xcept for a general statement that all factors were taken into
account, there is no evidence or document that shows what
those factors were,
what weight they bore, whether any calculations were made and, more
particularly, whether any regard was given
to the viability of the dispensing
profession”.[450]
The SCA found that the evidence tendered by the Minister and the
Pricing Committee is “[b]ereft of an
explanation”[451] and that
the Pricing Committee opted for an inexplicable “deafening
silence”[452] and therefore
that on a “brief analysis of the evidence” there was no bona fide
dispute of fact.[453] The SCA
clearly preferred the expert evidence of Dr Stillman and Mr Jordaan tendered on
behalf of the Pharmacies and rejected the
evidence of the experts of the
applicants, Professor McIntyre, Professor, Mossialos, Dr Thiede, Professor
Henry, Professor Mooney
and Dr
Pillay.[454] The SCA concluded
that on the evidence access to medicine is seriously threatened because the
quantum of fees for dispensing is
insufficient to cover the cost of
dispensing.[455]
| [702] | Suffice it to observe
that, before this Court, the Minister and the Pricing Committee contested most
strenuously the correctness of
the evidentiary finding and conclusion of the
SCA. As will appear more fully later, the Minister also urges that the
dispensing
fee set is not open to judicial review except on the ground of
rationality. The Minister does not concede that the making of recommendations
by the Pricing Committee followed by ministerial regulation-making is
administrative action reviewable under PAJA. In supplementary
written argument,
she contends that ministerial regulation-making is not susceptible to the review
standard prescribed by PAJA. |
| [703] | Ineluctably we are called
upon to consider (a) whether the determination of an “appropriate
fee” envisaged by the legislature
in section 22G of the Medicines Act is
susceptible to judicial review and if so whether the regulation-making process
is governed
by PAJA; (b) whether on the facts it has been shown that the
dispensing fee is inappropriate because it will lead to the demise of
most
pharmacies; (c) whether the Minister had proper regard to all considerations
relevant to the determination of the dispensing
fee and (d) whether there is an
adequate account of how the decision on the dispensing fee was arrived at.
Ahead of these considerations,
I sketch the constitutional and legislative
backdrop to the impugned regulations. Although not contested, it furnishes an
invaluable
context. |
Constitutional and
legislative background
| [704] | There is no dispute
amongst the parties, nor can there be, that our Constitution imposes an
obligation on the state to take reasonable
legislative and other measures,
within available resources in order to achieve the progressive realisation of
everyone’s right
to have access to health care
services.[456] Properly so, the
right of access to health care services embraces the right to access quality and
affordable medicines. Of course,
the right of access to health care services
forms part of a cluster of justiciable socio-economic rights under our
Constitution.
In Soobramoney v Minister of Health,
KwaZulu-Natal,[457]
Chaskalson P restated the context in which socio-economic rights have to be
comprehended: |
“Millions of people are living in deplorable conditions and in great
poverty. There is a high level of unemployment, inadequate
social security, and
many do not have access to clean water or to adequate health services. These
conditions already existed when
the Constitution was adopted”.
[458]
| [705] | I venture to add that a
little more than a decade has elapsed since the inception of the obligation of
the state to respect, protect,
promote and fulfil socio-economic rights. Much
has been done to reduce deplorable living circumstances spawned on many of our
people
by our blighted past. But I fear that even more has to be done. The
state remains obliged to root out poverty and want. It must
accelerate
reasonable and progressive schemes to ameliorate vast areas of deprivation
afflicting millions of our people and in particular
inadequate health
care.[459]
The well-earned and lofty thrust of our Constitution is at strenuous odds with
demeaning deprivation. Abject poverty wrenches dignity
out of any life. Access
to affordable medicines is an important component of any scheme directed at
poverty reduction and the physical
well-being of all our
people. |
| [706] | It seems self-evident that
there can be no adequate access to medicines if they are not within one’s
means. Prohibitive pricing
of medicine, the SCA correctly found, would in
effect equate to a denial of the right of access to health care. Equally true
is
that the state bears the obligation to everyone to facilitate equity in the
access to essential drugs which in turn affect the quality
of care. Ordinarily,
in the private sector availability of essential drugs would occur through
licensed dispensers. Pharmacies
form an important but not exclusive part of the
group of dispensers of pharmaceutical products. The legislature correctly
recognises
the importance of dispensers in making medicines accessible and to
that end provides for their licensing by virtue of their respective
professions.[460] |
| [707] | With a view to meeting its
obligation of providing access to health care to everyone, the state has
developed and is implementing
a national drug policy as part of the National
Health Policy. The drug policy document decries the lack of equity in access to
essential
drugs in the pharmaceutical sector, the rising drug prices, already
high in international terms, evidence of irrational use of drugs
and ineffective
procurement and logistics practices. The goal of the drug policy is said to be
|
“to ensure an adequate and reliable supply of safe, cost-effective drugs
of acceptable quality to all citizens of South Africa
and the rational use of
drugs by prescribers, dispensers and
consumers”.[461]
| [708] | Chapter 4 of the policy
document calls for a new and transparent pricing structure of medicines in which
the retail mark-up system
would give way to a fixed professional fee and price
increases would be regulated. Rightly so, none of the parties or experts in
the
field was heard to contest the legitimacy of these state policy objectives. In
fact experts on both sides of the divide attest
to the intractable tension in
this country and elsewhere between the quest for affordable medicines and
spiralling retail prices
of essential drugs. |
| [709] | The Medicines and Related
Substances Control Amendment Act of
1997[462] and the Medicines and
Related Substances Amendment Act of
2002[463] are in part the sequel
to the drug policy. The legislation introduced a variety of measures, which may
be seen as pointed at the
reduction of prices of essential drugs. Seen
collectively the new measures are intended to exert downward pressure on the
cost of
medicines to the public. The measures include the introduction of
generic substitution;[464] a
prohibition of bonuses, rebates and other unacceptable incentive
schemes;[465] allowing parallel
importation of medicines;[466]a
ban on sampling of medicines;[467]
requiring licensing of manufacturers, wholesalers, distributors and dispensers
of medicines.[468] In turn,
section 22G introduces the requirement of a transparent pricing system
stipulating a single exit price for all medicines and Scheduled substances
sold
in the country. It permits the Minister to make regulations on an appropriate
dispensing fee to be charged by a pharmacist
or by any other licensed dispenser
such as a doctor, dentist or nurse. |
| [710] | In Mistry v Interim
Medical and Dental Council of South Africa and
Others,[469] Sachs J, writing
for the Court, also concluded that the purpose of the Medicines
Act |
“was not merely to regulate the manner in which Scheduled substances were
made available to the members of the public, but
to control the quality and
supply of medicines
generally”.[470]
Keeping
in mind the constitutional imperative on access to health care for everyone,
section 22G of the Medicines Act is directed
at enhancing in a transparent
manner the accessibility and affordability of quality medicines to the public at
large.
| [711] | The Pharmacies say the
Pricing Committee thought that their primary function was to reduce the price of
medicines. They submit that
“the purpose of section 22G is not to reduce
the prices of medicines by statutory price control”. They concede that
the purpose of the empowering provision is the reduction of prices but, in their
view, it should occur through only transparency
and “consistency in the
determination of medicine prices”. In that way, they argue, the Minister
and the Pricing Committee
had an ulterior
purpose;[471] acted for a reason
not authorised by the empowering
provision;[472] took account of
irrelevant
considerations[473]and
acted in a manner that was not rationally connected to the purpose of the
empowering
provision.[474] |
What
is an appropriate dispensing fee?
| [712] | It is so that
“appropriate” is not a word of precise connotation. Yet one must
agree that the qualification “appropriate”
must mean, as found by
the SCA, a fee “specially suitable” or “proper” to the
purpose of the statute. Naturally,
to be appropriate the fee must be just and
fair to all affected by its
determination.[475] What is or is
not an appropriate fee can be objectively determined by reference to the purpose
of the enabling legislation and the
lawful boundaries for the exercise of the
public power conferred. In other words the exercise of the power must be
lawful, and properly
related to the governmental purpose
pursued.[476] |
| [713] | It does not however mean
that the term “appropriate” in itself lays down an absolute or
immutable standard. It is correct
that people well informed of the subject
matter, might very well take different views on what is appropriate. The
ultimate question
must be whether the determination of appropriateness falls
within a range of what may be reasonably regarded as proper, well-suited
and
fair. That determination falls to be made by balancing out the relevant but
often competing factors and thereafter striking
equilibrium amongst all factors.
The competing factors would include the factual context, the purpose of the
power, the nature of
the measures impugned and its impact on affected parties
and on the public interest. |
| [714] | In the present matter an
appropriate dispensing fee, at the very least, must reflect a suitable balance
between the availability and
affordability of quality medicines. Availability
points to continued supply of medicines to ensure ready access. For that
purpose
dispensers of medicines are vital. As we have seen earlier,
affordability is an incident of access to essential drugs. Implicit
in the
requirement of affordable medicines is a pricing regime that does not render
medicines out of the reach of most users and
thereby frustrate access to quality
health care. |
Is the determination of an
appropriate fee reviewable by the courts?
| [715] | In this Court, the
Minister contended that the determination of an appropriate dispensing fee is a
matter that the legislature has
left to the discretion of the Minister acting on
recommendation of the Pricing Committee. She contends that what constitutes the
equilibrium amongst all relevant factors is left to the Minister to strike. On
this argument the appropriateness of the fee is not
a jurisdictional fact
because it is not capable of a single objective standard. At most, the Minister
argues, courts are permitted
to determine whether there is a rational basis upon
which the dispensing fee was set in the
regulations. |
| [716] | It is now well settled
that in our constitutional democracy the exercise of all public power must occur
lawfully and is susceptible
to judicial
scrutiny.[477]
It is so that the enabling statute empowers the Minister to set the fee on the
advice of the Pricing Committee. But that does not
mean the legislature has
left the determination of what is an appropriate dispensing fee within the
subjective discretion of the
Minister. Clearly, section 22G does not immunise
the regulation-making power of the Minister from judicial scrutiny. It is trite
that a wielder of public power must exercise the power lawfully. That means the
authority must be exercised within the bounds set
by the empowering legislation,
in a rational manner and within the constraints of the
Constitution.[478]
It must follow that competent courts may enquire into the lawfulness or
otherwise of the determination of an appropriate dispensing
fee by the Minister
under section 22G(2)(b) by virtue of the principle of
legality.[479] |
| [717] | What then is the proper
standard for judicial review in relation, first to the recommendations of the
Pricing Committee and second
to the ministerial regulations prescribing the
dispensing fee? The answer clearly lies in whether the deliberations of the
Pricing
Committee, or the ministerial regulation-making or both, constitute
administrative action within the meaning of section 33 of the
Constitution.[480] After much
deliberation, the majority judgment in the High Court concluded that the
deliberations of the Pricing Committee and the
ministerial regulations do not
constitute administrative action under PAJA. The SCA found it unnecessary to
decide whether PAJA
is implicated. It invalidated the regulations on the ground
that they had failed the legality test. In this Court the Pharmacies
resuscitated their reliance on the administrative justice dictates of PAJA. In
supplementary written argument, the Minister advanced
the opposite view that
neither the recommendation nor the regulations constitute administrative
action. |
| [718] | In Bato
Star[481] this Court made it
clear that: |
“There are not two systems of law regulating administrative action - the
common law and the Constitution - but only one system
of law grounded in the
Constitution. The Courts’ power to review administrative action no longer
flows directly from the common
law but from PAJA and the Constitution itself.
The grundnorm of administrative law is now to be found in the first place not in
the doctrine of ultra vires, nor in the doctrine of parliamentary
sovereignty, nor in the common law itself, but in the principles of our
Constitution.”
(Footnotes omitted.)
In regard to the applicability of PAJA to a cause of action
based on administrative review, O’Regan J observed that:
“The provisions of s 6 divulge a clear purpose to codify the grounds of
judicial review of administrative action as defined
in PAJA. The cause of
action for the judicial review of administrative action now ordinarily arises
from PAJA, not from the common
law as in the past. And the authority of PAJA to
ground such causes of action rests squarely on the Constitution. It is not
necessary
to consider here causes of action for judicial review of
administrative action that do not fall within the scope of PAJA. As PAJA
gives
effect to s 33 of the Constitution, matters relating to the interpretation and
application of PAJA will of course be constitutional
matters.”[482] (Footnotes
omitted.)
| [719] | In Bato
Star this Court applied PAJA. It was, however, common cause that the
decision under review amounted to administrative action. For that
reason the
proper scope of the definition of administrative action in section 1 read with
section 6 of PAJA did not concern
us.[483] It does concern us now.
The parties have locked horns on whether ministerial regulation-making and
recommendation of the Pricing
Committee are governed by the standard of
administrative justice envisaged in section 33 of the Constitution and
PAJA. |
| [720] | Whether or not the
exercise of public power constitutes administrative action under the
Constitution is a matter of considerable complexity.
In SARFU (3) this Court observed that what
matters in the enquiry is the nature of power exercised and not the arm of
government wielding the
power.[484]
It remarked that the mere fact that an executive arm of government exercises the
power does not make the action “administrative”.
It made a
distinction between implementation of legislation that would constitute
administrative action and policy making that would
not. About this distinction
the Court elaborated: |
“Determining whether an action should be characterised as the
implementation of legislation or the formulation of policy may
be difficult. It
will, as we have said above, depend primarily upon the nature of the power. A
series of considerations may be
relevant to deciding on which side of the line a
particular action falls. The source of the power, though not necessarily
decisive,
is a relevant factor. So, too, is the nature of the power, its
subject-matter, whether it involves the exercise of a public duty,
and how
closely it is related on the one hand to policy matters, which are not
administrative, and on the other to the implementation
of legislation, which is.
While the subject-matter of a power is not relevant to determine whether
constitutional review is appropriate,
it is relevant to determine whether the
exercise of the power constitutes administrative action for the purposes of s
33. Difficult
boundaries may have to be drawn in deciding what should and what
should not be characterised as administrative action for the purposes
of s 33.
These will need to be drawn carefully in the light of the provisions of the
Constitution and the overall constitutional
purpose of an efficient, equitable
and ethical public administration. This can best be done on a case by case
basis.”[485] (Footnotes
omitted.)
| [721] | In
Minister of Home Affairs v Eisenberg and Associates: In re Eisenberg and
Associates v Minister of Home Affairs and
Others[486]
ministerial regulations were impugned also on the ground that they
constituted administrative action within the meaning of section
33 of the
Constitution and the provisions of PAJA. Writing for a unanimous Court,
Chaskalson CJ considered the definition of “administrative
action”
in section 1 of PAJA which refers to “any decision taken, or a failure to
take a decision in terms of section
4(1)” and
said: |
“The definition of ‘decision’ does not refer to the making of
regulations and it is not clear whether this constitutes
administrative action
for the purposes of PAJA. Moreover, the definition of ‘administrative
action’ specifically excludes
‘any decision taken, or a failure to
take a decision, in terms of section 4(1)’. It may be open to doubt,
therefore,
whether reliance could be placed on PAJA in the circumstances of this
case.”[487] (Footnote
omitted.)
In that case the Court considered it unnecessary to decide
whether ministerial regulation-making is administrative action stating
that
it
“raises complex issues including the question whether a construction of
PAJA that excludes the making of regulations from the
ambit of administrative
action would be consistent with the
Constitution.”[488]
Several
legal writings draw attention to the interpretive minefield surrounding the
definition of administrative action in PAJA and
whether it implicates
ministerial
regulations.[489]
| [722] | I consider it neither
prudent nor necessary to decide, in this case, the complex and contested issue
of the proper standard of review
of ministerial law-making. Having disposed of
the case on the ground of legality, the SCA declined to decide the issue. As
was
to be expected, review under PAJA is not one of the grounds on which the
Minister felt aggrieved and approached this Court. That
fact is borne out by
the Minister’s main heads of argument that do not deal with the level of
review set by PAJA at all. Only
in belated supplementary heads of argument does
the Minister seek to reply to the respondents’ contentions based on PAJA.
In any event, at the hearing, her application for the admission of late and an
additional set of heads of argument was contested
by the Pharmacies. Moreover,
although the Pharmacies do rely on the standard of administrative justice
envisaged in PAJA they also
rely on alternative grounds of
review. |
| [723] | I am well aware that there
may be compelling reasons for holding ministerial regulation-making reviewable
under PAJA. The difficulty
is that there are at the very least equally
persuasive considerations that ministerial legislation is not administrative
action and
does not fall within PAJA but is controlled and limited by the
Constitution and legislation that confers the power to the minister
concerned.
Perhaps the immaculately reasoned judgment of Sachs J is a telling example of
the depth and intricacy of the debate on
administrative justice and subordinate
law-making. Shortly put, I do not consider myself to have had the benefit of
full argument
on a matter of much, much importance for the proper development of
our administrative law which hopefully will pay due regard to
prudent
considerations which inform the separation of powers required by our
Constitution. |
| [724] | Given the conclusion I
have arrived at on the facts I need not decide the issue. I shall, however,
assume without deciding that the
administrative justice standard of lawfulness,
reasonableness and procedural fairness espoused by the Constitution is given
legislative
effect in PAJA[490]
and that it applies to the recommendation of the Pricing Committee and to
ministerial regulation-making. On this approach, I am
now called upon to
evaluate the conduct of the Minister and the Pricing Committee, where
appropriate, against the review standard
of reasonableness. The litmus test
would be whether the decision impugned is “so unreasonable that no
reasonable person”[491]
could have arrived at it. |
| [725] | In Bato Star
O’Regan J says the following about the review standard of
reasonableness:[492] |
“What will constitute a reasonable decision will depend on the
circumstances of each case, much as what will constitute a fair
procedure will
depend on the circumstances of each case. Factors relevant to determining
whether a decision is reasonable or not
will include the nature of the decision,
the identity and expertise of the decision-maker, the range of factors relevant
to the decision,
the reasons given for the decision, the nature of the competing
interests involved and the impact of the decision on the lives and
well-being of
those affected. Although the review functions of the Court now have a
substantive as well as a procedural ingredient,
the distinction between appeals
and reviews continues to be significant. The Court should take care not to
usurp the functions of
administrative agencies. Its task is to ensure that the
decisions taken by administrative agencies fall within the bounds of
reasonableness
as required by the Constitution.” (Footnotes
omitted).
Will the dispensing fee cause the demise of
pharmacies?
| [726] | New
Clicks respondents say the dispensing fee will in time lead to the closing down
of most pharmacies. They owe this conclusion
to the expert evidence of
Professor Kantor, a university professor of economics, Mr Jordaan, a pharmacist
and economist and Dr Theron,
a university lecturer in
economics. |
| [727] | Professor Kantor starts
his affidavit by recognising that the stated purpose of the regulations is to
ensure availability, affordability
and quality of medicines. He accepts that
South Africa is a mixed economy in which the market functions subject to
regulatory control
by law consistent with the Constitution; that in principle
the regulation of the sale of pharmaceutical products is to be expected
and that
the regulation should strike a fair balance between access to health care and
viability of services providing health care.
He recognises that the increase of
medical expenses is a global phenomenon as societies spend increased proportions
of their available
income on medical expenses. However, as a matter of economic
principle, he is opposed to “price control systems” because
in
practice they become “cost plus systems”. He says that in effect
price control means higher prices because the industry
affected normally
negotiates with its regulator for costs levels that are fed back into the
pricing system at the expense of the
consumer. In his opinion, the government
would have done best by securing best prices from manufacturers of drugs while
leaving
distribution to be regulated efficiently by normal market
forces. |
| [728] | Much should not be made of
Professor Kantor’s aversion for “price control systems”
because New Clicks in whose favour
his opinion was proffered does not agree with
Professor Kantor’s sentiment. Mr Honeysett, on behalf of New Clicks, says
he
“accepts the desirability of and need to regulate medicines (and
particularly the price thereof) in order to make medicines
affordable to the
public”. This view is echoed in the expert opinion of both sides. Dr
Theron, for New Clicks, and also the
Minister’s expert witnesses,
Professor McIntyre and Professor Mooney hold that for many good reasons the
price of medicines
must be regulated in order to realise access to affordable
medicines. |
| [729] | Professor McIntyre who is
an associate professor of health economics and an expert in that field refutes
the evidence of Professor
Kantor. She draws attention to the fact that
Professor Kantor is an expert in monetary economics and not in economics of
pharmaceuticals
or of the health sector. She refutes the notion that the market
for health care is highly competitive and “free” because
it exhibits
a wide range of material imperfections. She says therefore that it would have
been inappropriate to design medicine
pricing regulations without taking into
reckoning these market distortions. |
| [730] | Her affidavit sets out a
catalogue of what she calls “pervasive . . . imperfections” of the
health care market. I recite
only a few. She testifies that the theory of
perfect competition assumes that consumers have perfect knowledge about the
goods and
services that they consume. However, in the health sector there is an
asymmetry or an imbalance of information between the health
professional and the
patient, or if you will, between the consumer and the supplier. The patient
does not demand the medicine but
the health professional operates in effect as
the agent of the patient and makes decisions in regard to the use of medicines.
The
phenomenon is known as “supplier induced demand”. This
prescription or pharmacist-initiated consumption, often relates
to ill health,
long-term disability or death. This imperfect agency relationship translates
into sellers charging high prices without
negatively influencing demand for
health care products. In other words, the market allows retailers to operate
inefficiently and
still survive, something which an open “free”
market would not tolerate. |
| [731] | Another distortion of the
market is the existence of significant barriers to entry and exit in the market
for health care at the level
of entering pharmacy and other health related
professions and at the level of patenting of pharmaceutical products, which
effectively
create a monopoly and result in high prices of new medicines.
Professor McIntyre also mentions that the existence of economies of
scale in
health care services, particularly in production, tends to create an oligopoly
that translates into higher prices. She
also cites the existence of risk and
uncertainty as the need and demand for health care is irregular and
unpredictable and tends
to lead to high costs. |
| [732] | Professor Mooney, a
professor of health economics from Perth, Australia and an expert in the field
of health economics, also rejects
Professor Kantor’s clamour for
“free market forces” in the pharmaceutical sector and makes out a
case for the need
for regulation of the pharmaceutical sector. He makes the
point that in nearly all countries, including South Africa, the pharmaceutical
market distorts normal supply and demand and does not allow value for money or
efficiency in the sector. He says a patient presenting
at a pharmacy is not
well placed to assess the reasonableness of the price proposed; she is not in a
good position to bargain, in
part because she needs the medicine and because she
has an unequal power relation with the health professional. Both are aware of
the imbalance. In an imperfect market, regulation is indispensable because
suppliers of pharmaceutical goods might charge higher
prices than they would in
a competitive market. In his words either the patient’s wallet or the
patient’s health suffers. |
| [733] | The SCA also found the
regulations bad because section 22G does not authorise “statutory price
control” of medicines.
Whatever the precise import of statutory price
control it has not been shown to be ousted by the empowering statute or
impermissible
under our Constitution. Moreover, as we have seen, expert
evidence other than Professor Kantor’s supports an urgent need for
regulation of essential medicines. I do not agree that by devising a scheme to
make medicines affordable through regulation 10,
which sets the dispensing fee
for pharmacies, the Minister’s conduct is ulterior, irrelevant or
irrational to the purpose of
section 22G(2) and
(3). |
| [734] | The overt and, might I
add, legitimate purpose of the legislation is to increase access to medicines
and Scheduled substances by,
amongst other measures, exerting downward pressure
on their prices. The legislation seeks to achieve that purpose through a
“pricing
system”. That must mean an organised scheme or method,
which implicates prices of medicines. The scheme must be transparent.
It must
include a single exit price, which shall be the only price at which
manufacturers shall sell medicines and an appropriate
fee to be charged by
retailers, distributors and wholesalers of medicines. In my view, the Minister
and the Pricing Committee were
not only right but were obliged to consider and
pursue the object of price reduction of essential medicines in order to advance
greater
access to affordable medicines. |
| [735] | Returning to Professor
Kantor’s evidence, he concludes that the prescribed dispensing fee is
inappropriate because pharmacies
require an adequate return on capital invested
“with due regard for the structures and risk inherent in the market in
question”.
The dispensing fee does not allow an adequate return on
capital without which in time pharmacies will decline and close down. He
readily admits that this conclusion is derived from the evidence of both Dr
Theron and Mr Jordaan pertaining to the economics and
finances of retail
pharmacies in South Africa. |
| [736] | The evidence of Professor
Kantor does not quantify what is an adequate return on capital for pharmacies;
it does not say what the
structures of the industry are; nor what the risk
inherent in the pharmacy market is. He does not give an account of what gross
sales margins would ensure the survival of the industry nor does he tell us
whether he has critically examined the evidence of Dr
Theron and Mr Jordaan and
which facts or opinion in their evidence fortify his extravagant
conclusion. |
| [737] | Professor McIntyre agrees
that the survival of the retail pharmacy sector is essential for medicine
delivery but denies that the regulations
threaten the survival of the sector and
that the dispensing fee is inappropriate. She says the regulations have been
designed with
due caution and consideration of financial viability issues. She
notes that Professor Kantor’s opinion is dependent on that
of Dr Theron
and Mr Jordaan but disputes the appropriateness of their assessment of adequate
return on capital. She says that their
assessment fails to recognise that the
dispensing fee is only one source of income for retail pharmacies. The Pharmacy
Council recognises
other professional services that pharmacists may legitimately
provide as additional sources of revenue. She says that their calculation
of
what is an adequate return on capital is flawed because it is not limited to
costs related to dispensing activity. |
| [738] | Professor McIntyre
disputes that there is a causal link between the regulations and the survival of
the pharmacy sector. She says
Mr Jordaan and Dr Theron ought to have recognised
that recent studies in the sector show that 24% of the community pharmacies are
currently operating at a loss for reasons unrelated to the regulations. She
says the move from a mark-up on the manufacturer’s
price of medicine to a
professional fee based on pharmacy practice creates an opportunity for that
profession and the rest of the
health care sector to adjust their business
practices and to achieve efficiency gains that will accrue to the benefit of all
South
Africans. She rejects the assertion that the regulations will not achieve
their objectives of accessibility to affordable medicines
and says if applied
they certainly will. |
Expert evidence of Dr
Theron
| [739] | At the outset, Dr Theron
observes that in the last decade both in South Africa and elsewhere health care
and pharmaceutical costs
have risen sharply and have driven governments to
implement cost containment measures in various forms. Where health care is
primarily
a public function, as in Australia and the European Union (EU), the
state uses its power to implement cost reduction in a variety
of ways. She
cites examples of EU countries, which have experimented extensively with price
controls including profit
controls.[493] She observes that
international experience has shown that market responses alone will be
insufficient to bring down costs of pharmaceutical
products and that some
regulation is necessary, even if it is for a limited period of time. She
concludes that in determining an
appropriate pricing structure regime, regard
should be paid to the specific structure of the health care market in the
country in
question. |
| [740] | Dr Theron turns to the
structure of the pharmaceutical sector in South Africa and observes that the
supply side is characterised by
more than 100 manufacturers in an oligopolistic
market. Annual turnover of pharmaceutical companies is estimated at R10,7
billion.
Manufacturers are said to wield “market power”. In the
private sector medicines are dispensed through retailers who
are supplied by
manufacturers through wholesalers and distributors. Some products go directly
to dispensaries in hospitals, clinics
and commercial pharmacies. Dr Theron says
rationalisation in the industry may eliminate the traditional role of full line
wholesalers
and that may be detrimental to retail pharmacies in rural and under
serviced areas which the pricing regulations are designed to
protect. |
| [741] | She points to a
significant change on the retailing side of the market, which is still dominated
by a large number of small retailers.
Corporates are now permitted to enter the
market and this has led to the formation of large pharmacy chains with
significant buying
and distribution power, all of which should augur well for
retail prices. |
| [742] | Dr Theron concludes that
the pharmaceutical sector in South Africa is an industry in transition from a
small-scale expensive market
to a modern retailing market. She is of the view
that although in the past it was characterised by high costs and high margins,
increasing competitive pressure has reduced the margins and profit levels. She
says it is accepted that price regulation is probably
necessary to
“achieve a more rapid reduction in pharmaceutical prices”. She
urges that these developments should be
taken into consideration in designing
and implementing a price regulation framework. |
| [743] | Dr Theron suggests that in
any price regulation environment, “international convention and
practice”[494] requires
observance of three principles: that the enterprise should be permitted to make
an adequate return on capital; that the
price regimes should be subject to
periodic review; and that price regulations should reflect the cost structures
of the industry.
Dr Theron then tests two of the requirements against what she
sees as the impact of the pricing regulations. She correctly records
that the
regulations in their final form do provide for periodic
review. |
| [744] | First, she sets a
benchmark of an average gross profit of 26% as representing an economic rate of
return for retail pharmacies in
South Africa “based on cost
structures”. The source of or justification for the benchmark is not
stated. Relying on
the calculations by Mr Jordaan, she concludes that
“operating costs” (excluding advertising costs) amount to 26,19%.
She says the effect of the “[r]egulations will be an overall reduction in
the gross profit percentage to a level of 14,93%”.
In her view, this
clearly does not represent a fair rate of return. She emphasises that the
potential gross profit margin of 49%
earned by pharmacies in practice is reduced
to 25,98% after taking into account “patient costs, medical aid costs,
discounts,
administration fees and
write-offs”. |
| [745] | Next, Dr Theron discusses
her requirement that pricing regulations must reflect the cost structure of the
industry. She again stresses
that for this exercise the “true retail
margin” of 25,98% should be used as opposed to the perceived retail margin
of
49%. She explains again that the higher gross profit of the two is whittled
down to 25,98% by “discounts to medical aids and
the like”. Dr
Theron again relies on calculations by Mr Jordaan that “pharmacies achieve
a gross profit margin of 25,98%
but bear total direct expenses of 26,19%”.
She continues, “[a]ccordingly, a significant reduction in the current
gross
profit levels will materially affect profit margins.” Dr Theron
concludes, in an unintelligible statement that, “the
greatest reduction
which the industry could bear is a reduction of the gross profit level from
25,98% to 26% particularly having regard to the present total direct expenses
of 26,19%”. (My emphasis.) |
| [746] | Dr Pillay disputes the
opinion evidence of Dr Theron. The SCA dismissed the evidence of Dr Pillay as
having nothing to do with the
issue to be
decided.[495] I have found no
reason to discard his evidence summarily and as irrelevant. Dr Pillay points
out that Dr Theron argues that a gross
profit of 26% is required to maintain
viability. He denies this assertion. He testifies that he examined the
financial statements
of 176 pharmacies supplied to the National Department of
Health by PSSA through its consultant, Mr Boyce. He found that there are
pharmacies that showed a gross profit of 26% that are not viable and there are
pharmacies achieving a gross profit margin of 26%
that are viable. Dr Pillay
concludes that these facts tell that there is no relationship between viability
and gross profit. Gross
profit percentage, he argues, is not a predictor of the
viability of retail pharmacy. Dr Pillay says that in order to predict whether
a
retail pharmacy is viable or not one needs to assess the income and the
expenditure of the dispensary. He says the pricing regulations
affect only the
dispensary within the retail pharmacy. He makes the point that none of the data
put up by the Pharmacies “addresses
the income and expenditure of the
dispensary which is relevant to the regulations”. He says putting up
information on the
income and expenditure of the entire pharmacy or store is
irrelevant since the pricing regulations relate only to the
dispensary. |
| [747] | Dr Pillay says he does not
agree with Dr Theron’s reliance on the calculations of Mr Jordaan because
there are a number of uncertainties
with his analysis. He does not however
specify the uncertainties he relies upon. He says it is unclear how she arrived
at the proposed
model of a dispensing fee and that her conclusion that retail
pharmacies will be unviable is speculative. |
| [748] | Lastly, Dr Pillay makes
the interesting point that the reckoning of 14,93% gross profit may be open to
inaccuracies also because the
calculation would have to predict the single exit
price of manufacturers. At the time of the calculation of the gross profit of
14,93% single exit prices had not been set. Dr Pillay says the internal
estimates by the National Department of Health of gross
profit of retail
pharmacy would be in the order of 20% and not as low as Dr Theron suggests.
|
| [749] | The opinion evidence of Dr
Theron is useful in many respects. Her treatment of aspects of comparative
international approaches to
rising health care costs, the structure of the South
African pharmaceutical market and principles of price regulation is instructive.
The same cannot be said of her discussion of the impact of the pricing
regulations on the adequacy of return on capital invested
in pharmacies and on
the cost structure of the industry. I have chosen to render her vital
conclusions on adequacy of capital and
costs in her own words and sadly as
recorded they make little or no sense at all. Moreover, the cogency of her
conclusions on return
on capital and operating costs depends on the calculations
of Mr Jordaan. |
| [750] | First, she sets herself
the task of telling why under the pricing regulations the return on capital is
inadequate and therefore threatening
to the viability of retail pharmacy. But
she does not tell us, even once, what is the prudent rate of return on capital
for retail
pharmacies. What she tells us is that a pharmacy should achieve a
gross profit on sales of 26%. But why? She does not tell us
why that gross
margin will achieve an adequate return on capital and which cost structure must
be maintained to yield a prudent or
fair rate of return. The cardinal error she
makes is that she equates gross profit with pharmacy viability. The equation is
obviously
wrong because it is not a reliable predictor of viability of retail
pharmacy. |
| [751] | Second, Dr Theron
observes, and I agree as a matter of common sense, that the adequacy of return
on capital is a function of the costs
structure of the industry. It seems plain
that the higher the costs of an enterprise or industry the lower its return on
capital
and the lower the costs the higher is the return. What she tells us,
without pointing to any evidence, is that pharmacies do achieve
a
“perceived” 49% gross profit on sales but the gross margin is
reduced to a “real” 25,98% by a long list
of costs, which she does
not attribute to the pricing regulations. Dr Theron is in effect making
the startling statement that for pharmacists to reach the viable
margin of 26%
they must at the outset make a gross profit of
49%. |
| [752] | Third, Dr Theron says the
impact of the pricing regulation is to reduce the gross profit further to a
level of 14,93%. This figure
is derived from Mr Jordaan’s calculations.
The sufficiency of a gross return of 14,93% or of any positive gross return
depends
on the ideal rate of return on capital. Dr Theron does not suggest one.
Simply put a gross profit margin of 14,93% of a dispensary
is not a reliable
predictor that it will not be viable. Therefore a reliable and accurate
apportionment of operating costs to the
dispensary within a pharmacy business is
cardinal. Mr Jordaan’s calculations are directed mainly at that
task. |
The evidence of Mr Jordaan
| [753] | Mr
Jordaan is an important witness for the case of New Clicks. It will be
remembered that all the other expert testimony of New Clicks
is predicated on
his calculations. The SCA accepted what it called “a detailed
exercise” of separating the operating
costs of the dispensing business
from the costs of the front shop and that the pricing regulations will cause an
operating net loss
of R5,33 per line
item.[496] The SCA dismissed the
opinion of five experts put up to meet these calculations on the basis that it
was irrelevant or did not deal
with viability of pharmacies or amounted only to
criticism of Mr Jordaan’s
report.[497] |
| [754] | Mr
Jordaan is a qualified pharmacist and has completed an auditing diploma in cost
accounting and internal auditing. He is currently
studying for a Masters degree
in pharmaceutical economics. He works for a business group that owns 80
pharmacies and is about to
merge with New Clicks, which has been licensed to
operate and own 57 of the 80 pharmacies. It is expected that all 80 pharmacies
will be taken over by New Clicks shortly. Mr Jordaan is head of professional
services and his responsibilities include managing
the health care business,
implementing good pharmacy practices and refining the financial discipline of
the business. He has access
to the central database of the
group. |
| [755] | He
explains that he has undertaken a financial analysis of the business activities
of all 80 pharmacies in order to determine the
impact of the pricing regulations
on the business. He says that an average retail pharmacy business
ordinarily has two components. The back shop dispenses prescriptions and sells
medicines
and Scheduled substances over the counter (OTC). The front shop
conducts normal trade including the sales of vitamins and health
products,
beauty products and fast moving goods such as toiletries. The pharmacies may be
classified as large, medium and small
outlets and are located over a broad
geographical spread. From raw data accessible to him Mr Jordaan prepared three
tables depicting
the contributions to total sales and to gross profit by the
front shops and the dispensaries in each of the categories of small,
medium and
large. In a fourth table he depicts totals or averages of the three earlier
tables. He claims that the pattern of averages
found in the fourth table
represents a typical pharmacy in the sector. From the tables, Mr Jordaan makes
the first but important
conclusion that “the OTC and dispensary portion .
. . contributes 27,9% of the gross profit and sales of 83,29%.” The
difficulty is that the vital figure of 27,9% that represents the average gross
profit contribution by the dispensary does not feature
on any of the four
tables. In any event, what is noteworthy is that the dispensary businesses seem
to make very high sales contributions
but yield very low gross profits to the
businesses as a whole. |
| [756] | On a schedule Mr Jordaan
sets out monthly operating expenses of both the front shop and back shop over
seven months ending March 2004.
The costs are made up of direct costs
attributable only to the back shop business such as pharmacists’ salaries
and indirect
costs, which cover the entire pharmacy business. First he
allocates 100% of direct salary costs of pharmacists and assistants to
the back
shop and 20% of the salary costs of the front shop staff to the back shop. The
rest of the costs, known as the indirect
costs, are apportioned between the
front shop and back shop on a ratio of 16,71/ 83,29. The ratio is informed by
the respective
contribution to turnover of the two sub-businesses. An extension
of this reasoning is that the back shop must bear 83,29% of the
monthly
operating costs and the front shop must carry 16,71% of the monthly operating
expenses. This apportionment is used to determine
an average cost per line
item. This Mr Jordaan does by dividing the number (651 966 OTC and dispensary
transactions) of line items
sold by the dispensaries in the New Clicks
dispensary businesses during August 2003 to January 2004 into monthly
operational expenses
attributable to the back shop in accordance with the 17/83
apportionment formula. The result of this calculation, Mr Jordaan calls
an
average cost per line. |
| [757] | The next step in the
calculation is an attempt to determine the impact of the pricing regulations on
the gross profit per rand value
of each of the 651 966 items dispensed by New
Clicks pharmacies over six months. The dispensed items were sorted into three
groups
in accordance with the dispensing fee envisaged in pricing regulations
10(1), 10(2) and 13. However, in order to determine the impact
of the pricing
regulations on gross profit per rand value of each item dispensed, it was
necessary to make an assumption on the level
of the single exit price.
Expectedly, Mr Jordaan does so and in that regard he relies on the industry
perception. He says: |
“By applying the position prior to the introduction of the pricing
regulations, the average cost per line item amounted to
blue
book[498] cost less 19.54%. Given
that it is the industry perception that the single exit price to be introduced
in accordance with the Regulations
will amount to a cost of blue book less 20%,
it appears from a financial perspective that the single exit price will have
little
bearing on the cost of the product in our calculation. Of course, if the
single exit price is less than blue book less 20%, the
adverse effects on the
operation of a pharmaceutical enterprise will be
compounded.”
Mr Jordaan says that he then
“notionally” applied the prescribed dispensing fee on the 651 966
items in their respective
categories and found that there would be an overall
reduction in gross profit percentage from 28,96% to 14,93%.
| [758] | Mr Jordaan makes two
further conclusions from his workings. First, using the apportionment formula
of 17/83 he arrives at a total
cost per line item of R19,20, which after
implementing the new pricing regime under the regulations is reduced to R13,87
per line
item. The result is a net loss per line item of R5,33. Second, he
says the overall effect of the regulations is to place at risk
the continued
viability of the New Clicks pharmacy business. In his words, the
“back-shop transactions account for the overwhelming
majority of
transactions and contribute the greatest portion of the profit in a
pharmaceutical enterprise”. |
| [759] | The
Minister and the Pricing Committee have put up the affidavits of several
experts[499] who criticise and
contest the reliability and usefulness of the methodology used by Mr Jordaan and
have denied and challenged the
validity of the conclusions on viability of
pharmacies. I shall incorporate their critique where it coincides with mine.
There
are three fundamental difficulties with Mr Jordaan’s reckonings and
conclusions. |
| [760] | The
first relates to the fairness and accuracy of the apportionment of operating
costs between the front shop and the pharmacy. He
attributes 83% of the costs
to the pharmacy and only 17% to the front shop. But he tells us that the
pharmacy business generates
83% of turnover but only 27,9% of gross profit of
the combined business. In his final conclusion Mr Jordaan appears to contradict
this statement when he says that the back shop contributes “the greatest
portion of the profit”. It appears to me inequitable
that the front shop,
which generates nearly 72,1% of the gross profit of the whole enterprise, should
shoulder only 17% of the operating
costs while the back shop is lumbered with a
grossly disproportionate burden of costs. Of course this disproportionate
allocation
taints the calculation of the total cost per line item and the
resultant net loss per line item of R5,33. It will be remembered
that the SCA
relied on this net loss per line item for its conclusion that pharmacies will
not be viable under the new pricing regime. |
| [761] | The Chief Justice suggests
that the criticism of Mr Jordaan’s cost apportionment method is
unjustified because Mr Jordaan made
a “patent error” in stating that
the pharmacy business generates 83% of the turnover but only 27,9% of the gross
profit
of the front shop and back shop combined. This may be so. Yet the
apportionment is open to more fundamental criticism, which is
that it assumes
that but for the new dispensing fee the operating costs of New Clicks are
efficient, optimal and representative of
the industry. Moreover further
criticism of his calculations is set out in the paragraphs to
follow. |
| [762] | The second difficulty
arises from the assessment of the impact of the dispensing fee imposed by the
pricing regulations. The complex
but necessary process of determining the
single exit price of each line of medicine or Scheduled substance was yet to be
accomplished.
Mr Jordaan chose to hazard an informed guess of the likely single
exit price. He readily admits that this indispensable portion
of the
calculations is based on speculation fuelled by “industry
perception” and his own “financial
perspective”. |
| [763] | The
next collection of issues relates to the integrity of the process. Professor
Thiede draws attention to the fact that the raw
internal management data used
covers only approximately six months of trading; is unaudited and has not been
attached for external
verification. Dr Pillay has deposed to the fact that
before the litigation New Clicks was requested several times to disclose data
but to no avail. Raising another issue, Professor Thiede says that a sample of
80 pharmacies is small and is not randomly drawn
from a totality of pharmacies
in South Africa. It constitutes only 3% of all pharmacies in the country and
cannot be said to depict
the average pharmaceutical enterprise in the
country. |
| [764] | I
am satisfied that the evidence advanced by New Clicks does not establish its
primary line of attack against the regulations, namely
that the impact of the
dispensing fee imposed by the regulations is to endanger the viability of the
retail dispensing business conducted
by New
Clicks. |
The expert testimony of Dr
Stillman
| [765] | It is convenient to
examine the expert evidence advanced on behalf of PSSA respondents on the
viability of retail pharmacies. Dr
Stillman, PhD and applied macroeconomist,
explains that the goal of the financial analysis contained in his report
(Lexecon 1) is
to assess the impact that the new regulations are likely to have
on the future economic viability of different segments of the pharmacy
industry
in South Africa. The segments covered by the financial analysis are courier
pharmacies, community or retail pharmacies,
hospital pharmacies and pharmacies
in medical centres. The basic methodology entails comparing, in each segment,
the operating profits
that a pharmacy has realised in a specified recent past
with the operating profits that the pharmacy would have realised if the same
medicines had been sold during the same period but under the dispensing fee
imposed by the pricing regulations. By operating profit
he means gross profit
less operating expenses and, in turn, gross profit equals revenues less costs of
the goods. He correctly observes
that a positive operating profit is not
necessarily enough to keep business open because it does not always allow for
interest expense
and return on capital. In my view, equally true is that a
positive operating profit alone is inconclusive, it may be a sign of a
viable
business or of an unhealthy business. Dr Stillman is also right that negative
operating profits are a strong indication that
the pharmacy is not likely to be
viable. |
| [766] | Dr Stillman correctly
observes that compensating pharmacists through a capped dispensing fee signals a
drastic change for them. One
must however remember that in its submissions to
the Pricing Committee, the PSSA supported the migration from a mark-up on the
costs
of medicines to a system of professional dispensing fees. In the past
pharmacists bought medicines from wholesalers and distributors
at a cost
specified by manufacturers (blue book) less a discount and then dispensed the
product to the customer at a mark-up over
cost. The historical mark-up on sales
to consumers is 50%. Dr Stillman says in recent years medical aid schemes have
reduced the
pharmacists’ net mark-up to the region of 20%. Dr Theron and
Mr Jordaan set the same net mark-up at 26%. Be that as it may,
I agree that the
predictable impact of the capped dispensing fee will take two forms. First, the
capped dispensing fee will reduce
the current gross profit margins that
pharmacies realise from selling medicines on the historical mark-up basis.
Second, the more
expensive the medicine sold by a retail pharmacy the more
adverse the impact of the capped fee on the gross profit of the
pharmacy. |
Courier pharmacies
| [767] | Courier
pharmacies specialise in the provision of chronic and repeat prescription
medicines. As their name suggests, they deliver
medicines to a customer’s
address of choice. They utilise extensively information technology to manage
remote delivery from
centralised storage and distribution centres. They do not
need retail front shops. Their service includes managing prescription
cycles
for patients to encourage compliance with their prescriptions; assisting in
lodging of medical aid claims and advising patients
on special requirements like
HIV management programmes and delivery of high costs drugs such as
antiretrovirals, medicines used for
renal dialysis and oncology treatment. On
the evidence, mainly three firms namely Medicines Pharmacy, Medipost and CMD use
this
business model. It is suggested that due to competition amongst the three
firms to obtain medical aid business and to better community
pharmacies, profit
margins have become thin. |
| [768] | Dr Stillman analyses the
financial data of the operations of CMD for April 2004. CMD processed 30 000
prescriptions for stated revenues
of R10,6 million, realising a gross margin of
17% and an operating profit margin of 1,1%. The same financial data for April
2004
was subjected to the 26%/R26 dispensing fee regime. By mid May 2004
certain manufacturers had implemented single exit prices, which
cover about 46%
of the prescriptions filled during April 2004. The dispensing fee’s for
the balance of the prescriptions was
based on actual purchase costs for April
2004 in lieu of missing single exit prices. This exercise, Dr Stillman reports,
led to
a gross profit margin of 10,8% and an operating profit margin of negative
5,1%. He concedes that the analysis is based on one month’s
data and that
the majority of single exit prices were not available and actual purchase costs
were used as proxies. He concludes
that this result reinforces the view that
given the structural challenges of the courier pharmacy, which include low
margins, high
cost products and no front shop, it is highly unlikely that the
courier pharmacy can remain an economically viable
business. |
| [769] | It
is unclear why the workings of Dr Stillman were limited to data for one month
and why the financial data for the same or other
months of the two older and
larger operators in the business of courier pharmacies was not processed for
greater statistical reach
and reliability. It must be remembered that CMD did
show a gross profit margin of 10,8% for the month. Single exit prices will
eliminate discounts to pharmacies but will also apply downward pressure on the
manufacturers’ prices. The actual impact of
single exit prices on highly
priced medicines remains unknown. I am not persuaded that the evidence
adequately establishes that
the entire courier segment, on the probabilities,
will not be viable under the regulations. |
| [770] | That, however, is not the
end of the matter. The report of Dr Stillman raises squarely the structural
challenges facing courier pharmacies.
As a segment of retail pharmacy, courier
pharmacies do not have front shops to absorb pharmacy losses, if any. We are
told, and
it has not been shown otherwise, that they focus mainly on delivery of
high cost medicines to patients who have succumbed to chronic
ailments. This
class of medicines renders their business disproportionately vulnerable to a
pricing regime that imposes an inflexible
cap on the dispensing fee and reduces
their gross profit. The evidence suggests that apart from the impact of the
pricing regulations,
their operating margins are thin. In the rigid cap of R26
on high cost drugs lurks the seed of destruction, albeit later, of the
courier
pharmacy. The vast expanse of our country and its dotted and sparse rural and
semi-urban settlements must bring home the
value of the service courier
pharmacies render. The real question is not whether now courier pharmacies are
likely to be viable,
but rather whether the Pricing Committee and ultimately the
Minister brought their minds properly to bear on these distinguishing
features
and therefore on the appropriateness of the uniform dispensing fee in relation
to courier pharmacies. |
| [771] | I could find only one
reference to courier pharmacies in the deliberations of the Pricing Committee.
A minute of one of its meetings
records a presentation to the Pricing Committee
on the logistics function in the industry followed by a discussion on courier
pharmacies.
The Pricing Committee noted that courier pharmacies fit into the
supply chain and are registered as wholesalers. They concluded
that the Pricing
Committee’s recommendations should be based on efficiency and they should
“be careful of making legislation
in order to protect business models
purely on the basis of the levels of risk they involve.” The Pricing
Committee considered
but refused to adapt the dispensing fee cap to the
circumstances of courier pharmacies and by regarding them as wholesalers, in
effect
required them to negotiate for a logistics fee alongside wholesalers
under the single exit price regime. |
| [772] | Courier
pharmacies occupy an important space in ensuring access to medicines for a class
of principally marginalised consumers. They
dispense 12% of prescription
medicines by channel and measured by
value.[500] The Pricing Committee
and the Minister took the view that courier pharmacies do not deserve separate
consideration and treatment.
In my view, they misdirected themselves. Their
“one size fits all” solution to dispensing fees courier pharmacies
may
charge, in time, will frustrate access to essential drugs by those who may
be bedridden or cannot readily reach community pharmacies
and have to endure
chronic and often life threatening afflictions. Arguably they need the
medicines most and tend to survive on
expensive drugs. In my view, the Pricing
Committee and the Minister made irrelevant considerations or failed to pay
regard to what
matters in relation to the legislative objects of access to
quality medicines. The issue is not whether the business model of courier
pharmacies should be protected but whether the capped dispensing fee will
devastate the access to essential medicines for the class
of consumers they
serve. The dispensing fee cannot be said to be appropriate for courier
pharmacies. |
Retail or community
pharmacies
| [773] | Lexecon Report 1
characterises retail pharmacies as the backbone of the pharmacy industry in
South Africa. Together they dispense
approximately 56% of all prescription
medicines to the public. To complete the picture, hospital pharmacies, courier
pharmacies
and dispensing doctors dispense 19%, 12% and 13% of medicines
measured by value, respectively. The report makes the point that from
a
structural point of view community pharmacies are not quite as vulnerable to the
new regulations on dispensing fees as courier
pharmacies. Dr Stillman advances
two reasons to support the conclusion. The first is that the interdependence
between the back
and front shop operations dictates a composite evaluation of
the impact of the pricing regulation on “a total store basis”.
The
second reason is that retail pharmacies tend to carry fewer high cost drugs than
courier pharmacies. The impact of the R26
cap on gross profit is directly
related to the cost of medicines that a pharmacy
supplies. |
| [774] | Simply put the owner of a
pharmacy will assess the profitability of the front shop before closing down the
dispensary and in turn
she will look at the viability of the dispensary before
closing down the front shop. Dr Stillman argues that
|
“the front shop operations of community pharmacies to some extent act as a
buffer that, all else equal, reduce the likelihood
that the new regulations on
dispensing fees will force the closure of community
pharmacies.”
Dr Stillman however warns that the buffer
is smaller than casual observers of the industry may imagine because of
competition from
other retailers of front shop products and the average net
profit for community pharmacies is already low, ranging between 3% and
4%
depending on the size of the pharmacy.
| [775] | However not all
appreciated the importance of evaluating the impact of the pricing regulations
on a “total store basis”.
On behalf of the PSSA it was argued that
the financial viability of the dispensary should be evaluated alone and to the
exclusion
of the front shop. For New Clicks Mr Jordaan also tried to evaluate
the profitability of the dispensary separately from the front
shop. To that end
he tried to strip the operating costs of the pharmacy from the costs of the
front shop only ultimately to lumber
the dispensary with 83% of all costs. On
behalf of the Minister and the Pricing Committee it was also asserted that the
viability
of the financial operations of the dispensary should be assessed alone
and that dispensaries should not subsidise front
shops. |
| [776] | This approach is correctly
criticised by Lexecon Report 2. The better approach to the viability of the
pharmacy enterprise is to
assess the profitability of the dispensary and front
shop pharmacy as one store. A front shop is optional. Therefore, one must
accept that a pharmacy owner would not operate a front shop unless it makes a
positive contribution to the total profit of the store.
A complaint of
cross-subsidisation between the two ends of the enterprise or an exercise to
disentangle their respective financial
performances runs contrary to the reality
of the business structure of a retail pharmacy. |
| [777] | The report then undertakes
an analysis of the impact of the pricing regulations on the operating profits of
New Clicks pharmacies.
It concludes that under the new dispensing fee “it
is likely that most community pharmacies will be put under severe financial
pressure and that many will be forced to close.” The conclusion is
derived from the calculations presented by Mr Jordaan.
I have already set
out[501] the severe difficulties
which are evident in the workings of Mr Jordaan on the relationship between
revenues and gross profit contributions
of the front shop and the back shop, on
the inequitable allocation of operating costs between the two ends of the
business and on
the speculative use of estimates of single exit prices for the
calculations. In my view these bases of calculations supplied by
Mr
Jordaan’s evidence undermine considerably the usefulness of the impact
analysis advanced in Lexecon Report 1. Moreover,
the conclusion that many
pharmacies will be forced to close stands in sharp contrast to Dr
Stillman’s preference for a “total
store basis” evaluation of
viability. On the latter basis, he says, it is unlikely that pharmacy
enterprises will close. |
| [778] | In my view, the expert
testimony advanced in the report on retail or community pharmacies does not
properly show that the pricing
regulations are inappropriate because they will
render “most” or “many” or “some” community
pharmacies
unviable. |
Pharmacies in rural
areas
| [779] | South
Africa currently has 2569 registered retail pharmacies. Of these 350 or 14% are
located in rural areas. There, often the pharmacist
is the important and the
only source of health care advice and a sole dispenser of medicine. There is,
however, a striking dearth
of information on rural retail pharmacies on the
papers. The minutes of the Pricing Committee identify as “key
points”
the principle of not distinguishing between rural and urban
pharmacies and between branded and generic medicines. One senses a
determination
not to permit exceptions that will undermine the pricing
regime. |
| [780] | Dr Zokufa suggests that
the workload of prescriptions in private pharmacies is too low for viability in
the long run. He provides
details of prescription workload in private sector
pharmacies of 40 scripts per day in 2002, which now reportedly stand at 70
according
to the PSSA. He compares this with a workload norm of 100
prescriptions per day per pharmacy in the public sector. Statistically
each
community pharmacy serves, on average, around 3000 people virtually all of whom
are members of medical aid schemes. He makes
the point that retail pharmacies
with a very low workload will face financial viability constraints. He provides
a table which shows
the number of pharmacies in relation to the population per
100 000 and a relative oversupply of private pharmacies in Gauteng, Kwa-Zulu
Natal and Western Cape. The difficulty is that the table does not tell us much
about private pharmacies in rural areas. |
| [781] | The
question is whether the regulations are bad for this reason. There is no
evidence to help evaluate the financial fate of rural
pharmacies. None of the
parties before us have nailed their colours to the mast of pharmacies in rural
areas. There is, however,
an eerie stillness on the papers about the structure,
operations and financial well-being of this class of pharmacies. Put otherwise,
one cannot from the papers develop a sense of the nature of accessibility of
medicines through private sector pharmacies in rural
outskirts. Given the
accessibility purpose of the empowering legislation, the lot of rural pharmacies
ought to be one of the centrepieces
of the regulated dispensing fee. The very
silence on the plight of rural pharmacies and their customers in the
deliberations of
the Pricing Committee and the Minister speaks loudly of a
failure to have regard to a relevant and important consideration of access
to
affordable medicine by often marginalised rural dwellers. The dispensing fee
cannot be said to be appropriate in relation to
pharmacies serving in rural
areas. |
Hospital pharmacies
| [782] | The
Pricing Committee and the Minister are adamant that they have considered
carefully the operating costs and revenues of private
hospital pharmacies and
are satisfied that the regulated dispensing fee would not lead to their closure.
Dr Stillman disagrees but
concedes that a private hospital is legally compelled
to have a pharmacy on site and that the regulated dispensing fee would cause
a
hospital pharmacy to close “only if the pharmacy losses were so large that
it made economic sense to close the entire hospital”.
Dr Zokufa makes the
point that private hospitals generate significant profits, particularly from
high cost medicines, through the
contractual relationship with pharmacists on
site. They will now have to ensure adequate recovery from main line services
such as
admission and theatre
fees. |
Conclusions
| [783] | I have come to the
conclusion that the pivotal attack on the pricing regulations on the ground that
they are likely to lead to the
closure of most or many or some pharmacies cannot
be upheld. The evidence seen as a whole does not establish the contention
advanced
by the Pharmacies. At best for the Pharmacies the evidence raises the
ever-present possibility that the new dispensing fee will
exert downward
pressure on the profitability of pharmacies and that some whose profit margins
are already low may be forced to close. |
| [784] | It is not surprising that
the expert evidence falls short of resolving several intractable issues
associated with the assessment of
the viability of a business. It is trite that
an enterprise must realise an adequate return on capital. The challenge is
fixing
an appropriate level of return. The evidence does not venture to fix
one. The evidence rightly notes that an adequate return is
always relative to
the market structure and its inherent risks. The Pharmacies submitted to the
Pricing Committee and in evidence
that a 26% gross profit margin on sales will
lead to an adequate return on capital. But the evidence does not show that
there is
a fixed equation between financial viability and gross profit. Even if
there is such an equation in one financial period or sector
of the industry, it
may not be so in another. Again the evidence tells us that the reliability of
this prediction depends on the
structure of the market. The variable elements
of the structure are too many to list. They are canvassed in the evidence of
both
sides. These include the chosen business model, the size and location of
the enterprise; the operating costs and related efficiency
gains of the
pharmacy; the prescription workload, which in turn is conditioned by external
factors such as the ratio of pharmacies
to population and the level of national
expenditure on health care. |
| [785] | The Lexecon Reports do
much to capture, albeit cryptically, the structure and risks in each category of
pharmacy enterprise. Rightly
so the reports do not pretend to be definitive
because it can only flesh out what may happen on the basis of a static model.
In
the dynamic hustle of adapting to a new pricing regime within the
pharmaceutical sector possibilities, as always, are endless. That
explains why
the Minister is obliged to review the impact of the regulations every year that
the regulations are in force. The extravagant
conclusion that the regulated
dispensing fee will force pharmacies to go to the wall is in my view premature
and is not adequately
predicted by the evidence. What is more, I do not think
the economic viability of an entire sector in the economy is as readily
and
uniformly predictable as the Pharmacies would have us
believe. |
| [786] | Subject
to the qualification that will follow in relation to courier pharmacies and
pharmacies located in rural areas, I take the
view that the dispensing
regulations are “appropriate” within the meaning of section 22G of
the Medicines Act. They
are lawful inasmuch as they are rationally connected to
the admittedly legitimate purpose of rendering medicines and Scheduled
substances
affordable and accessible to the public. Finally, keeping in mind
the reasonableness test articulated in Bato Star, I am unable to find
that the decision of the Pricing Committee and of the Minister is one that no
reasonable person could have arrived
at. |
| [787] | The PSSA sought to
persuade us that regulation 10 which sets the dispensing fee, unjustifiably
limits the right of pharmacists as
a class to “choose their trade,
occupation or profession” as permitted by section 22 of the Constitution
because pharmacies
that are not economically viable will have the effect of
discouraging people from choosing to pursue or remain in the profession.
They
submit further that regulation 10 “regulates the . . . profession”
within the meaning of section 22 of the Constitution
and in an arbitrary manner
because its unintended consequence is to destroy the profession of pharmacy.
This line of argument may
hold water if the evidence shows that the new pricing
regulations threaten the continued existence of pharmacies. I have found that
it has not been shown that regulation 10 renders pharmacies unviable. In my
view, save to the extent described earlier, the pricing
regulations are
reasonable, lawful and properly advance the socio-economic goal of access to
affordable medicines set by the empowering
statute and our Constitution. This
line of argument must also fail. |
| [788] | The
SCA is quite correct that regulation 13 is ultra vires the power conferred by
section 22G(2)(c) and falls to be set aside as invalid.
The Minister says the
SCA was wrong in deciding the dispute on the validity of regulation 13 because
it has become moot. As we
saw earlier, two Government Notices exclude Schedule
0 medicines from the provisions of section 18A and 22G of the Medicines Act
and
from the regulations for a period of 3 years. I agree with the Pharmacies and
hold that regulation 13 remains part of the dispensing
fee scheme and its
validity is open to determination in these
proceedings. |
| [789] | Finally, I have found that
the dispensing fee is not appropriate for purposes of courier pharmacies and
pharmacies in rural areas.
The Minister, acting on the recommendation of the
Pricing Committee is obliged to consider afresh the appropriateness of the
dispensing
fee set in relation to both
categories. |
Remedy
| [790] | The appeal must succeed
save as stated below. Regulation 13 is unlawful and must be set aside. No case
has been made out for the
suspension of the declaration of invalidity of
regulation 13. As we have seen, for some time now the application of regulation
13
has been suspended. The declaration of invalidity must take immediate
effect. |
| [791] | Second, in my view
appropriate relief in relation to regulation 10 should take the form of an
exemption for courier pharmacies from
the operation of the regulated dispensing
fee until the defect is corrected within a specified period rather declaring
invalid the
whole of regulation 10 with the resultant prejudice to the public at
large. In its written argument the Treatment Action Campaign
amicus delineates
the adverse impact of striking down the dispensing regulations without ordering
suspension of invalidity as an
interim holding position. They advocate an order
directing the parties to negotiate an appropriate fee. The latter course is not
open to us if the appeal substantially succeeds, as I have
found. |
Madala, Mokgoro, Skweyiya and
Yacoob JJ concur in the judgment of Moseneke J.
YACOOB
J:
| [792] | I
have had the privilege of reading the careful, detailed and clear judgment by
the Chief Justice (the main judgment). I read the
judgment with considerable
admiration and agree gratefully with most of
it.[502] There are however three
areas concerning the interpretation and constitutional validity of the
regulations in relation to which
I find myself in disagreement with the main
judgment. Hence the need for this short
judgment. |
| [793] | I have also read the
judgment of Moseneke J and agree with all of the reasoning and its conclusion.
I agree with Moseneke J that
it is unnecessary to decide whether the Promotion
of Administrative Justice Act[503]
is applicable to the regulations at issue here, and with his conclusions
concerning the appropriateness of the dispensing fee. It
follows that I cannot
endorse the reasoning and conclusions in these respects in the main judgment or
in the judgments of Ngcobo
J and Sachs J which I have read with considerable
interest. I also cannot agree with the judgment of Ngcobo J concerning the
regulations
where its terms are inconsistent with this
judgment. |
| [794] | The three conclusions in
the main judgment in relation to which my reasoning and conclusions differ
are: |
(a) Regulation 5(2)(c) is void for
vagueness.[504]
(b) Regulation 8(3) is void for
vagueness.[505]
Perspectives
on section 22G
| [795] | It is appropriate to set
out some perspectives on section 22G of the
Act[507] before considering each
of the issues listed in the previous paragraph. Section 22G to the extent
relevant provides: |
“Pricing committee.—(1) The Minister shall appoint, for a period not
exceeding five years, such persons as he or she
may deem fit to be members of a
committee to be known as the pricing committee.
[Sub-s. (1) substituted by s. 8(a) of Act No. 59 of 2002.]
(2) The Minister may, on the recommendation of the pricing committee, make
regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule 0 medicines.
[Para. (c) added by s. 8(b) of Act No. 59 of
2002.]
(3)(a) The transparent pricing system contemplated in subsection (2)(a) shall
include a single exit price which shall be published
as prescribed, and such
price shall be the only price at which manufacturers shall sell medicines and
Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or a
wholesaler or distributor shall sell a medicine at a price
higher than the price
contemplated in paragraph (a).
[Para. (b) substituted by s. 8(c)
of Act No. 59 of 2002.]
(c) Paragraph (b) shall not be construed as preventing a pharmacist or person
licensed in terms of this Act to charge a dispensing
fee as contemplated in
subsection (2)(b).”
| [796] | The object of section 22G
is to introduce a transparent pricing system. This is to be done by the
Minister of Health (the Minister)
on the recommendation of the Pricing
Committee. The regulations may provide for an appropriate dispensing
fee,[508] and an appropriate fee
to be charged by wholesalers and
distributors.[509] The Act
prescribes several imperatives for the pricing system. The pricing system that
is introduced pursuant to the section must
include a single exit price that must
be published as prescribed. The only express prohibitions contained in the
section are that
a manufacturer may not sell at a price other than the single
exit price to anyone except the
state[510] and that no other
person in the supply chain may sell at a price higher than the single exit
price.[511] A pharmacist licensed
to charge a dispensing fee is, by implication, prohibited from selling medicine
at a price higher than the
single exit price and the dispensing fee
combined. |
| [797] | I agree with the analysis
in the main judgment to the effect that the aim of the section is to provide
affordable medicine and that
the section authorises a measure of price control.
However, it must be emphasised that the section does not oblige the Minister
and
the Pricing Committee to come up with a regime in which the maximum prices of
all medicines and Scheduled substances are fixed
in terms of a formula which is
mathematically calculable. There is nothing in the section which expressly or
by necessary implication
says that the single exit price must be contained
within certain defined limits. |
| [798] | There would accordingly
have been no problem with the regulations in relation to the single exit price
if they had simply: |
| (a) | allowed the
manufacturer to set the price and agree the logistics fee at all times and in
relation to all medicines; |
(b) provided that the manufacturer may increase prices only once a year;
and
| (c) | given the
Director-General the power to declare prices to be unreasonable and publish that
declaration in the Government Gazette. |
| [799] | It must have been
understood by all involved in the process that the introduction of a transparent
pricing system that exerted a downward
pressure on the prices of medicines and
Scheduled substances would be a complex endeavour. All would have realised that
a system
of this kind could be perfected only after a painstaking, careful and
sensitive process and that the reduction of these prices to
acceptable levels
would take time. The ideal of a transparent pricing system that renders
medicines and Scheduled substances available
to all at affordable prices is as
difficult to achieve as it is vital to our democracy. I regard these
regulations to be the first
step in the development of the pricing system and
this is the context in which I consider the validity of those regulations about
which there is a regrettable difference. |
| [800] | It was suggested that
there was some incongruity because section 22G does not refer to an
“importer” while the regulations
do. That omission is, in my view,
of no moment. Section 22C makes it abundantly clear that manufacturers,
wholesalers or distributors
can also “import” medicine provided they
have a licence to do so.[512]
Importers as a category, although not expressly defined as such, are those
manufacturers, wholesalers or distributors who are licensed
to import medicine
in terms of the Act. It would have been better if the definition in the
regulations said so but the fact that
they define importer in a different way
cannot detract from the inescapable conclusion as to what the term means in the
Act. That
is the only meaning that can be ascribed to the
term. |
Regulation 5(2)(c)
| [801] | I have already pointed out
that section 22G(3)(a) requires the pricing system to include a single exit
price. Most of the regulations
are concerned with the single exit price and
regulation 5(2)(c) is part of the mechanism by which the single exit price is
set by
the manufacturer or importer for all medicines and Scheduled substances
that were being sold in South Africa as at the date of the
commencement of the
regulations.[513] The meaning and
effect of regulation 5(2)(c) must be determined in its
context. |
| [802] | The single exit price is
defined in regulation 2 as meaning: |
“the price set by the manufacturer or importer of a medicine or Scheduled
substance in terms of these regulations combined
with the logistics fee and VAT
and is the price of the lowest unit of the medicine or Scheduled substance
within a pack multiplied
by the number of units in the
pack”.
| [803] | Some point was made about
the fact that the word “price” is used twice in the definition and
that the definition can make
sense only if the word “price” means
something different in each of its uses. I do not see how it matters if the
word
“price” does have a different meaning in each of its uses in
the definition provided that the different meaning is clear
and provided further
that the fact that the word has a different meaning in each of its uses does not
confuse. The essence of the
definition of the single exit price is that it is
“the price set by a manufacturer or importer of a medicine or Scheduled
substance
in terms of these regulations combined with the logistics fee and
VAT”. The definition adds that the single exit price “is
the price
of the lowest unit . . . within a pack multiplied by the number of units in the
pack”. This clarifies that it is
necessary to establish a single exit
price in respect of the lowest unit and work from there. In other words the
single exit is
the price set by the manufacturer or importer together with the
logistics fee and VAT in relation to the lowest unit in the
pack. |
| [804] | There
is nothing vague about this definition. It makes a distinction between what may
be referred to as the core price which is “the
price set by a manufacturer
or importer . . . in terms of these regulations” on the one hand, and the
single exit price on
the other. The single exit price is the core price
“combined with the logistics fee and VAT”. The distinction between
the price set in terms of these regulations in the process of determining the
single exit price on the one hand, and the single exit
price itself which is a
combination of the price initially set, the logistics fee and VAT must not be
lost. |
| [805] | Regulation 5(1) is
consistent with this definition. It provides for the setting of a price by the
manufacturer or importer and its
combination with the logistics fee to arrive at
the single exit price.[514] It
provides: |
“5(1) Upon commencement of these regulations the price of a medicine or
Scheduled substance must be set by the manufacturer,
or where the medicine or
Scheduled substance is imported by a person other than the manufacturer, the
importer of the relevant medicine
or Scheduled substance, and combined with the
logistics fee in order to arrive at a single exit price for the relevant
medicine or
Scheduled substance.”
| [806] | Regulation 5(2)(c) must be
construed with this distinction in mind. It is appropriate at this stage to set
out the regulation without
the proviso: |
“5(2) The single exit price must be set in accordance with the following
provisions—
. . . .
(c) the price of each medicine or Scheduled substance to be set upon the date of
commencement of these regulations by the manufacturer
or importer must not be
higher—
(i) in respect of a Scheduled substance that is not a medicine, than the
weighted average net selling price per unit of each Scheduled
substance for the
calendar year 2003. . . ;
(ii) in respect of a medicine, than the weighted average net selling price of
the medicine which must be calculated using the
formula:
‘S divided by the total number of lowest units (eg a tablet) for all of
the packs of the same dosage strength of the medicine
sold in the year
2003’
Where S = the total rand value of net sales (being sales less discounts) for all
packs of the same dosage strength of the medicine
sold in the year. . .
.
(Note: Examples of the manner in which the weighted average net selling price
must be calculated are cited in Appendix A of these
regulations.)”
| [807] | The first issue to be
decided is the meaning of the word “price” in the introductory words
of regulation 5(2)(c). Does
“price” refer to single exit price or
to the core price that is the price set by the manufacturer or importer before
the logistics fee and VAT are added? Textually, there is little reason to
suppose that the price to be set in regulation 5(2)(c)
is a reference to the
single exit price. Regulation 5(1) requires the manufacturer or importer to set
a price upon the commencement
of the regulations in a context which makes it
quite clear that it is a price set without reference to a logistics fee or to
VAT.
Regulation 5(2)(c), when speaking about the “price” that is
“to be set upon the date of commencement of these
regulations by the
manufacturer or importer” can be nothing else but a reference to the
“price” that “must
be set by the manufacturer, or . . . the
importer” in terms of regulation 5(1). |
| [808] | It has been suggested that
the fact that Appendix A to the regulations refers to the calculation of the
single exit price in the process
of providing examples of the way in which
certain calculations are to be made, is sufficient to justify the conclusion
that the price
to be set by the manufacturer or importer in terms of regulation
5(2)(c) is the single exit price despite the fact that regulation
5(2)(c) does
not use this phrase. It is therefore necessary to examine the relevant aspects
of regulation 5(2)(c) in order to determine
the purpose and meaning of Appendix
A to the regulations. |
| [809] | It is apparent that
regulation 5(2)(c) requires that the price to be set by the manufacturer or
importer not be higher than the “weighted
average net selling price”
of both a Scheduled substance and a medicine. We also see that, unlike the
position in relation
to Scheduled substances, the “weighted average net
selling price” of medicine in the year 2003 is to be calculated using
the
formula provided, which in effect refers to sales less discounts. The note at
the end of regulation 5(2)(c) expressly states
that Appendix A cites
“[e]xamples of the manner in which the weighted average net selling price
must be calculated”.
Consistently with this Appendix A is
headed: |
“EXAMPLES OF THE MANNER IN WHICH THE WEIGHTED AVERAGE NET SELLING PRICE
MUST BE CALCULATED”.
There is a fundamental difference
between the weighted average net selling price on the one hand and the single
exit price on the
other. The single exit price is the core price plus the
logistics fee and VAT. The weighted average net selling price during the
year
2003 is an amount that must not be exceeded by the price set at the commencement
of the regulations.
| [810] | Appendix A gives two
examples. Unfortunately, each example has a sub-heading beginning with the
words “[c]alculation of single
exit price for . . .” and ends with a
conclusion that “the single exit price” of the medicine has been
determined.
Yet, as has been pointed out, the appendix was concerned with the
determination of the weighted average net selling price during
the year 2003.
There was no single exit price in the year 2003. The calculation understandably
does not refer to any logistics
fee. I conclude therefore that Appendix A is
concerned with providing examples of the calculation of the weighted average net
selling
price in the year 2003 and not the single exit price of the medicine
concerned. Appendix A therefore does not provide enough justification
for the
conclusion that the word “price” in the introductory words of
regulation 5(2)(c) is a reference to the single
exit
price. |
| [811] | It
follows that there is a difference between regulation 5(2)(c) which refers to
the core price and not the single exit price, and
those parts of Appendix A
which refers to “the” single exit price. The analysis of regulation
5(2)(c) in relation to
Appendix A shows that the words “single exit”
are wholly inconsistent with the scheme of the regulations in relation
to the
single exit price. I would therefore hold that the words “single
exit” wherever they appear in Appendix A must
be severed from the appendix
so that the appendix reads “price”. |
| [812] | A related problem is
concerned with the way in which the weighted average net selling price for sales
during 2003 is to be calculated.
Is the calculation to be based on sales by
manufacturers to wholesalers and retailers, or sales by wholesalers to
pharmacists, or
sales by retailers and practitioners to the general public? I
take the view that the relevant price to be taken into account in
the
determination of the weighted average net selling price is the price at which
the medicine or Scheduled substance was sold by
the manufacturer or importer.
After all, it is the manufacturer or importer who is required to set the price
in terms of regulations
5(1) and 5(2)(c). The price to be set is exclusive of
the logistics fee and VAT. The weighted average net selling price of the
wholesaler to the retailer would, in the ordinary course, have included the
wholesaler’s profit. To provide that the price
set by the manufacturer or
importer excluding the logistics fee or VAT must not exceed the weighted average
net selling price in
sales by wholesalers to retailers would be incongruous. It
would furthermore have been unreasonable to expect the manufacturer or
importer
in setting the price in terms of regulation 5(2)(c), to make extensive
investigations concerned with the prices at which
the wholesaler had sold to
retailers and the discounts that had been
given. |
| [813] | The point was also taken
that there was uncertainty whether the weighted average net selling price had to
be calculated taking into
account sales to the state or whether all sales to the
state had to be ignored for the purpose of this calculation. In my view the
provision is sufficiently certain. The single exit price is the price at which
medicine is to be sold to parties other than the
state. The calculation of the
weighted average net selling price must therefore exclude sales to the state.
It was not necessary
for the regulations to say so in so many
words. |
The provisos to regulation 5(2)(c);
medicines sold for the first time after 1 January 2004
| [814] | The main judgment holds
that the proviso to regulation 5(2)(c) which sets out the way in which the price
of medicine that came to
be sold in South Africa after 1 January 2004 must be
calculated is vague. I suggest that the methodology is clear enough. The
proviso
is set out in identical terms as a qualification of regulations
5(2)(c)(i) and 5(2)(c)(ii) except that the former refers to a Scheduled
substance and the latter to medicines. It reads as
follows: |
“provided that where sales of the Scheduled substance or
medicine[515] commenced at the
beginning of January 2004 or thereafter, the price of such substance or . . .
medicine[516] must be calculated
using the average of the total rand value of sales less the total rand value of
the discounts for the period for
which the Scheduled substance or
medicine[517] was sold and with
reference to the price of that Scheduled substance or
medicine[518] in other countries
in which the prices of medicines and Scheduled substances are regulated and
published.” (footnotes inserted)
| [815] | I have already found that
according to the main body of regulations 5(2)(c)(i) and 5(2)(c)(ii) the price
of each medicine or Scheduled
substance (excluding the logistics fee and VAT) to
be set upon the date of commencement of the regulations by the manufacturer or
importer must not be higher than the weighted average net selling price of that
medicine or Scheduled substance during the year 2003.
The proviso tells the
manufacturer or importer how to calculate the price (excluding the logistics fee
and VAT) of a medicine or
Scheduled substance not sold in this country during
the year 2003. In other words a medicine or Scheduled substance that was sold
in South Africa for the first time on or after January 2004. The price in
relation to these medicines or Scheduled substances could
not be pegged at a
level higher than the 2003 weighted average net selling price. The regulation
therefore provides that the price
of a medicine or Scheduled substance which
began to be sold in South Africa on 1 January 2004 or
thereafter |
“must be calculated using the average of the total rand value of sales
less the total rand value of discounts for the period
for which the Scheduled
substance or medicine[519] was
sold and with reference to the price of that Scheduled substance or
medicine[520] in other countries
in which the prices of medicines and Scheduled substances are regulated and
published.” (footnotes inserted)
| [816] | The body of regulations
5(2)(c)(i) and 5(2)(c)(ii) provide a mechanical calculation for determining the
maximum price at which a medicine
already selling in this country before January
2004 may be sold. The aim of providing for this level of calculability is to
avoid
the wholesale rise in the prices of medicines or Scheduled substances.
This would have been an obviously unfortunate negative consequence
of the
introduction of a pricing system aimed at lowering the prices of medicines and
Scheduled substances. |
| [817] | The problem in relation to
medicines and Scheduled substances that began to be sold in this country less
than five months before the
regulations came into effect would have been the
unfairness of pegging maximum prices at the level of introductory prices. It is
generally understood in the commercial sector that introductory prices in
relation to medicines could be lower even than their cost
as a legitimate
marketing exercise. |
| [818] | The regulators therefore
decided that, in the setting of the price for this limited category of medicines
and Scheduled substances: |
| (a) | the formula set
out in regulation 5(2)(c)(ii) would be used as a starting point in the
calculation of the price; and |
| (b) | the setting
of the price would further be informed by the price at which the medicine or
Scheduled substances concerned is sold in
other countries in which the prices of
medicines and Scheduled substances are regulated and
published. |
| [819] | I cannot agree with the
main judgment that the proviso, like the body of regulation 5(2)(c), sets an
upper limit. I do not read it
in this way. The body of regulation 5(2)(c) says
that the price set by the manufacturer or importer must not be higher than the
weighted average net selling price. The proviso, in each case, provides a
method by which the price is to be calculated. |
| [820] | This method of setting the
price in each of the provisos undoubtedly gives to the manufacturer or importer
wider leeway than the method
by which the prices are to be set in terms of the
body of regulations 5(2)(c)(i) and 5(2)(c)(ii). The Chief Justice finds this
pricing
mechanism to be vague. I do not agree. My understanding of the way in
which the Minister and the Pricing Committee approached the
single exit price is
that it provided a calculable method for determining the maximum price at which
medicine that had been selling
in the country for a relatively long time would
be sold, to ensure a more flexible method of calculation for medicine which
began
to be sold here only recently, and to leave it to the manufacturer or
importer to determine the single exit price in relation to
medicine that comes
to be sold here in the future as is implied by regulation
19. |
| [821] | In the nature of things,
prices of commodities are not precisely calculable. It is true that, in
relation to medicine that came to
be sold in this country after January 2004,
the manufacturer or importer have more scope to determine the single exit price
than
they had in relation to medicines and Scheduled substances sold in South
Africa before January 2004. It may also be that in relation
to this latter
category the manufacturer or importer is not permitted to go beyond the highest
price at which the medicine is sold
in any other country. I need not however
decide this point. The manufacturer or importer of a medicine to be registered
for sale
after the coming into operation of the regulations could theoretically
set a price even higher than the highest price at which that
medicine is sold in
any other country. But all pricing by the manufacturer or importer is subject
to international benchmarking. |
Regulation 8
is not vague
| [822] | The
main judgment holds that regulations 5(2)(a), 5(2)(b), 7 and 8 are contradictory
and regulation 8 is void for being vague. I
do not agree. It is undoubtedly
the duty of drafters of regulations to ensure that they are not difficult to
interpret and that
they are clearly set out. Some difficulty and lack of
clarity however does not excuse us from the obligation to try to make sense
of
them. |
| [823] | The major concerns in the
main judgment arise out of the provisions of regulations 5(2)(a), 5(2)(b), 7 and
8. I set these out below. |
Regulations 5(2)(a)
and 5(2)(b) provide:
“(2) The single exit price must be set in accordance with the following
provisions—
| (a) | for
a period of one year after commencement of these regulations the single exit
price shall not be increased; |
| (b) | subject to
sub-regulation 5(2)(a) the single exit price may be increased in terms of
regulation 8 of these regulations. . .
.” |
Regulation 7 reads:
“7. Subject to the provisions of regulations 5, 8 and 9, the single exit
price of a medicine or Scheduled substance may only
be increased once a
year.”
Regulation 8 provides:
“8(1) The extent to which the single exit price of a medicine or Scheduled
substance may be increased will be determined annually
by the Minister, after
consultation with the Pricing Committee, by notice in the Gazette with regard
to—
(a) the average CPI for the preceding year;
(b) the average PPI for the preceding
year;
(c) changes in the rates of foreign exchange and purchasing power parity;
(d) international pricing information relating to medicines and Scheduled
substances;
(e) comments received from interested persons in terms of regulation 8(2);
and
(f) the need to ensure the availability, affordability and quality of medicines
and Scheduled substances in the
Republic.
(2) Not less than three
months before making a determination in terms of regulation 8(1), the Minister
must publish a notice in the
Gazette declaring his or her intention to make that
determination and inviting interested persons to furnish him or her in writing
with any comments thereon or any representations they may wish to make in regard
thereto.
(3) Subject to the provisions of regulation 8(1), a manufacturer or importer
may no more than once a quarter increase the single exit
price of a medicine or
Scheduled substance within a year provided that—
(i) such increase does not exceed the single exit price of the medicine or
Scheduled substance as first published in respect of that
year;
(ii) the increase in the single exit price is applied to all sales of the
medicine or Scheduled substance and not to selected categories
of
purchasers;
(iii) the manufacturer or importer notifies the Director-General of the increase
in the single exit price at least 48 hours prior
to the implementation of such
increase;
(iv) the single exit price may not be increased as contemplated in terms of this
regulation 8(3) within the period of six months
beginning from the date of
commencement of these
regulations.”
| [824] | Regulation 7 is central to
the regulations which define the regime for the increase of the single exit
price. It permits the increase
of the single exit price of a medicine or
Scheduled substance once a year and provides further that the increases in terms
of regulation
7 may not take place more than once a year. It seems clear that
any increase in the single exit price must be published. This follows
from the
definition of the single exit price. The word “year” is defined as
“the period of 12 months beginning
on 02 May”. Every single exit
price can therefore be increased in terms of regulation 7 only once during the
period 2 May
of one year until 1 May of the next
year. |
| [825] | Regulation 7 is however
subject to regulations 5, 8 and 9. The qualification in regulation 5(2)(a) is
to the effect that the single
exit price set at the commencement of the
regulations cannot be increased for a period of one year after it has been set.
The price
would have been set as at 2 May 2004 which is the date of commencement
of the regulations. In the absence of the qualification rendering
regulation 7
subject to regulation 5(2)(a), the manufacturer or importer would have had the
right to increase the single exit price
during the first year of the operation
of the regulations. The object of the qualification is to prevent this.
Regulation 5(2)(a)
therefore qualifies regulation 7 to the extent that there can
be no regulation 7 increase in the first year. |
| [826] | Regulation 5(2)(b) is to
the effect that subject to the provisions of regulation 5(2)(a), the single exit
price may be increased in
terms of regulation 8. Both regulations 5(2)(a) and
5(2)(b) read together make it plain that there may be no regulation 7 annual
increase in the first year of the single exit price but that a regulation 8
increase is nevertheless permissible. |
| [827] | But regulation 7 is also
subject to regulation 8. In broad terms, regulation 8 allows a manufacturer or
importer to increase the
single exit price once a quarter provided, amongst
other things, that the increased price does not exceed the maximum price
determined
by the Minister in terms of regulation 8(1). There is, on the face
of it, a contradiction between regulations 7 and 8. Regulation
7 allows an
unqualified right to increase the single exit price, but only once a year.
Regulation 8(3) allows an increase once a
quarter provided that the increase
does not result in a price higher than that determined by the
Minister. |
| [828] | I am driven to the
conclusion that the regulations provide for two increase mechanisms: an increase
by the manufacturer or importer
in terms of regulation 7 once during every year
after the expiry of the first year of their coming into operation, whether or
not
there has been a ministerial determination of the maximum increase to be
permitted in terms of regulation 8(1); and single exit price
increases that
manufacturers or importers may make once a quarter of each year in terms of
regulation 8(3) provided amongst other
things that these increases do not take
the single exit price beyond the upper limit determined by the
Minister. |
| [829] | The affidavit of Professor
McIntyre confirms on behalf of the Pricing Committee that regulation 7 allows a
manufacturer or importer
to increase the single exit price once every year. In
relation to regulation 8(3), however, Professor McIntyre’s evidence
is to
the effect that increases once a quarter were contemplated by the regulations to
cater for price fluctuations and that manufacturers
or importers who had
decreased prices to below the single exit price established for that year could
thereafter increase the single
exit price once a quarter up to the maximum
established for that year. This is consistent with what I have found. The
affidavit
by Professor McIntyre omits to mention that the quarterly increases
are permissible only if there is a regulation 8(1) ministerial
notice and only
if they do not take the increase beyond that permissible in terms of that
notice. A manufacturer or importer who
has decreased or kept a single exit
price below that permissible by reason of the increase allowed in terms of
regulation 8(1) may
increase the single exit price every quarter provided that
the increase allowed in terms of regulation 8(1) is not exceeded. A
manufacturer
or importer who had increased the single exit price to a level
beyond that permissible in terms of the subsequently published regulation
8(1)
notice cannot make any regulation 8(3) quarterly
increase. |
| [830] | The other conditions set
in regulation 8 for the increase are also instructive. The minority in the High
Court found regulation 8(3)(i)
to be incomprehensible. It provides that the
increase of the single exit price allowed by regulation 8(3) must not exceed
“the
single exit price of the medicine or Scheduled substance as first
published in respect of that year”. The reference to the
single exit
price first published in respect of any year must be a reference to an increase
that was published by a manufacturer
or importer before the Minister made any
determination in terms of regulation 8(1). It will have been noted that the
Minister is
not obliged to make any determination of the maximum allowable
increase before 2 May of a particular year. Nor is there a provision
that
prohibits manufacturers or importers from making an increase before any
determination by the Minister or otherwise than in terms
of that
determination. |
| [831] | I accordingly interpret
regulations 7 and 8 as follows: |
| (a) | The
manufacturer or importer have the right to increase the single exit price once a
year during each year (as defined) after 2 May
2005. |
| (b) | This right exists whether or not the
Minister has made a determination before 2 May
2005. |
| (c) | The Minister may make a determination
as to the maximum allowable increase annually. There is no provision as to
precisely when the
determination must be
made. |
| (d) | A manufacturer or importer who makes
an increase before the determination by the Minister is not bound by any
limit. |
| (e) | A manufacturer or importer who has
not made any increase before the determination of the maximum by the Minister
can, after the determination,
make and publish an increase provided that the
conditions in regulations 8(3)(ii) and 8(3)(iii) are
fulfilled. |
| [832] | The position of the
manufacturer or importer who has made and published an increase in terms of
regulation 7 before any determination
by the Minister in terms of regulation
8(1) is in effect determined by regulation 8(3)(i) to which reference has just
been made.
The increase permitted to a person in this category must not exceed
“the single exit price . . . as first published in respect
of that
year”. I have already said that a manufacturer or importer who increases
the price in terms of regulation 7 will be
obliged to publish the increase in
the price. In the circumstances, the only plausible meaning to be ascribed to
regulation 8(3)(i)
is that the increase must not exceed the increase in the
single exit price of a medicine or Scheduled substance as first published
by the
manufacturer or importer in respect of that year in terms of regulation
7. |
| [833] | I am of the view that the
regime is subtle and creative. A manufacturer or importer may increase the
single exit price once a year.
If, however, it transpires that the
Minister’s determined maximum is higher than the increased price published
before the
determination, the manufacturer or importer takes the risk. They
cannot increase the single exit price beyond the increase they
first published
without waiting for the Minister’s
publication. |
| [834] | One more point must be
made in relation to the price increase regime. There was a suggestion that
regulation 8(3)(iv) adds to the
confusion and contradiction created by the
section. The regulation prohibits a regulation 8(3) increase within a period of
six months
from the date of commencement of the regulations. Regulation
5(2)(a), on the other hand, prohibits an increase for a period of one
year after
the commencement of the regulations. It must be remembered that the regulation
8(3) increase is permissible only if there
is a regulation 8(1) determination.
Regulation 8(3)(iv) simply means that even if there is a ministerial
determination in terms
of regulation 8(1) no manufacturer or importer may make a
regulation 8(3) increase in the first six months of the operation of the
provisions. Regulation 5(2)(a) prohibits an increase for a year after the
commencement of these regulations absent a regulation
8(1) determination. Once
there is a regulation 8(1) determination, however, a regulation 8(3) increase is
permissible upon the expiry
of six months of the date of commencement of the
regulations. |
| [835] | The
regulations concerning the single exit price are complex but understandable.
They do mean that the manufacturer or importer of
a medicine might sell at a
price higher than that allowed by the ministerial determination and that the
manufacturer or importer
of another medicine might be obliged to limit increases
to the maximum determined by the Minister. This consequence is in my view
of no
moment. It does not detract from the Act which requires a single exit price in
relation to each substance. Manufacturers
or importers can choose whether they
wish to pre-empt the ministerial determination and face the consequence that
their price turns
out to be lower than that determined by the Minister, or wait
for the Minister’s determination only to find that they would
have
increased the price to an amount beyond the maximum allowed by the ministerial
determination. |
Regulations 22 and 23 comply
with the Constitution
| [836] | Finally,
the main judgment holds that the provisions of regulations 22 and 23 are not
sanctioned by section 22G of the Act and are
therefore invalid. Again,
regrettably, I cannot agree. Regulations 22 and 23
provide: |
“22.(1) The Director-General may determine that the single exit price of a
medicine or Scheduled substance is unreasonable
and communicate to the relevant
manufacturer, importer, wholesaler or distributor, in a manner which he or she
deems appropriate,
such determination together with the basis upon which the
determination has been made.
(2) With regard to the determination contemplated in regulation 22(1), the
Director-General must consult with the relevant member
of the supply chain and
consider any representations made by that member concerning the reasonableness
of the single exit price.
(3) Where the Director-General is not convinced, after the consultation and
representations contemplated in regulation 22(2), that
the single exit price is
reasonable, he or she may publish a notice in the Gazette to the effect that in
the opinion of the Director-General,
the single exit price is unreasonable and
must state the reasons for such opinion.
23. In determining whether the price of a medicine or Scheduled substance is
unreasonable as contemplated in regulation 22, the Director-General
must have
regard to—
(1) the single exit price at which the medicine or Scheduled substance is being
sold in the relevant market;
(2) the single exit prices at which other medicines or Scheduled substances in
the same therapeutic class are being sold in the relevant
market;
(3) the prices at which the medicine or Scheduled substance and other medicines
or Scheduled substances in the same therapeutic class
are being sold in
countries other than the Republic;
(4) changes in the CPI, the PPI and the relevant rates of foreign exchange;
(5) purchasing power parity with reference to the Republic and any other country
in which the medicine or Scheduled substance is
sold;
(6) the relative availability within the Republic of medicines or Scheduled
substances in the same therapeutic class as the medicine
or Scheduled substance
and the safety and efficacy of the medicine or Scheduled substance relative to
other medicines or Scheduled
substances in the same therapeutic class;
(7) the nature of any indication in respect of which the medicine or Scheduled
substance has been registered in the Republic;
(8) the size of the market for the medicine or Scheduled substance in the
Republic relative to that in other countries;
(9) any relevant information provided by the Council for Medical Schemes
established in terms of the Medical Schemes Act, 1998 (Act
No 131 of 1998);
(10) the size of the obstacle, represented by the single exit price, to access
to the medicine or Scheduled substance relative to
the public interest in having
widespread and general access to the medicine or Scheduled substance;
(11) such other factors which in the view of the Director-General are relevant
to the pricing, or the costs of manufacture or sale,
of the medicine or
Scheduled substance.”
| [837] | The regulations have
nothing to do with the subjective views of the Director-General. A prerequisite
for the coming into operation
of regulations 22 and 23 is a determination by the
Director-General that the single exit price of a medicine or Scheduled substance
is unreasonable. This is an objective determination subject to judicial control
and must be made with due regard to the factors
listed in regulation
23. |
| [838] | The next stage in the
process is that the Director-General communicate that determination to the
manufacturer, importer, wholesaler
or
distributor.[521] The
Director-General is thereafter obliged to consult with “the relevant
member of the supply chain” and consider any
representations made
concerning the reasonableness of the single exit price. If the Director-General
is not convinced by the representations
made that the single exit price is
reasonable, there may be a publication in the Government Gazette to the effect
that the single
exit price is unreasonable. The Director-General is obliged to
give the reasons for this opinion. |
| [839] | Regulations 22 and 23 read
together represent, in my view, a creative and imaginative approach to the way
in which downward pressure
may be exerted on the price of medicines and
Scheduled substances. I have already said that an important object of section
22G is
to render medicine affordable. The process of doing so is complex to say
the least. The publication of a notice in the Government
Gazette to the effect
that the single exit price is unreasonably high constitutes a limited sanction.
It could result in the reduction
of the sale of the medicine and it is this real
possibility that the manufacturer, importer or wholesaler would take into
account
in determining the single exit price, in making increases and in
considering whether or not to make an increase before the ministerial
maximum is
published in terms of regulation 8(1). |
| [840] | Reference has been made to
the fact that the single exit price cannot be unreasonable if it complies with
regulations 5 and 19, and
in particular, conforms with international benchmarks.
This is undoubtedly so. The single exit price can be said to be unreasonably
high only if it is palpably higher than the price allowed by the other
regulations. |
| [841] | Section
22G of the Act contemplates a pricing system with the object of ensuring a
downward pressure on the price of any medicine
or Scheduled substance.
Regulations 22 and 23 are consistent with this objective and sanctioned by the
Act. |
Madala, Mokgoro, Moseneke and
Skweyiya JJ concur in the judgment of Yacoob J.
LANGA DCJ:
| [842] | I have had the privilege
of reading the separate judgments in this matter prepared by Chaskalson CJ,
Moseneke J, Ngcobo J, Sachs J
and Yacoob J, as well as the judgment of the
Court. I agree with the order made in the judgment of the Court. Save in the
respects
indicated below, I concur in the judgments of Chaskalson CJ and Ngcobo
J. |
| [843] | One of the issues to be
resolved in this case concerns the applicability of the Promotion of
Administrative Justice Act, 3 of 2000
(PAJA). Both the Chief Justice and Ngcobo
J hold that PAJA applies to the power to make the relevant regulations in terms
of the
Medicines and Related Substances Act, 101 of 1965 (the Medicines Act).
Although the Chief Justice holds that in general PAJA applies
to
regulation-making, I prefer to confine my agreement to the narrow question as
framed by Ngcobo J in paragraph 422 of the judgment.
Subject to this
qualification, I am in respectful agreement with paragraphs 23 to 263 and 278 to
410 in the judgment of Chaskalson
CJ and am also in substantial agreement with
the judgment of Ngcobo J. |
| [844] | I agree with the reasoning
and findings of both the Chief Justice and Ngcobo J that the dispensing fees set
by the regulations are
not “appropriate” as envisaged by section 22G
of the Medicines Act. |
| [845] | For the reasons given by
Yacoob J, with whom I agree on this aspect, I am unable to agree with both the
Chief Justice and Ngcobo J
that regulation 5(2)(c) is void for vagueness. I
also agree with Yacoob J’s conclusion that the objection to regulations 22
and 23 should be
dismissed. |
O’REGAN J:
| [846] | I have had the opportunity
of reading the judgments prepared in this matter by Chaskalson CJ, Moseneke J,
Ngcobo J, Sachs J and Yacoob
J. I concur, in large part, with Chaskalson
CJ’s judgment, in particular with paragraphs 23-181; paragraphs 183-264;
paragraphs
278-416 and paragraph 420. |
| [847] | I have only three
differences which I wish to record: first, in my view, no sharp line can be
drawn between the requirements of procedural
fairness and reasonableness when it
comes to assessing the failure by a decision-making body to consider
representations made to
it.[522]
In my view, such a failure raises issues of both process and substance. To the
extent, therefore, that members of the pricing committee
failed to consider
properly, or at all, the oral representations made at the hearings during April
2004, it constituted a procedural
flaw as well as a flaw going to substance. I
concur with Chaskalson CJ that the dispensing fees set by the regulations are
not appropriate
and should therefore be set aside. To the extent that the
proceedings of the pricing committee were not fair in that they failed
to take
into account the representations made by the Pharmacies in respect of the
dispensing fee, no other or further relief would
have been granted to the
applicants in this case in this respect and nothing further therefore turns on
it. I also endorse the reasoning
of Ngcobo J in this respect at paragraphs 567
– 574 of his judgment. |
| [848] | Secondly, I agree that
regulation 5(2)(c) is void for vagueness, but my reasons for doing so coincide
with those given by Ngcobo J
at paragraphs 487-491 of his judgment, rather than
those given by Chaskalson CJ. Thirdly, I agree for the reasons given by Yacoob
J that the challenge to regulations 22 and 23 should
fail.[523] |
| [849] | I wish to add that
although Ngcobo J decides the question of the applicability of the Promotion of
Administrative Justice Act, 3 of 2000, on a narrower basis than Chaskalson CJ,
much of the reasoning he employs in doing so seems equally applicable to me to
the wider
question and I support it. I also support much of the reasoning he
provides in concluding that the dispensing fees set in the regulations
are not
“appropriate” within the contemplation of section 22G of the
Medicines Act. |
VAN DER WESTHUIZEN J:
| [850] | I have read the detailed
and thoroughly reasoned judgments prepared in this matter by my colleagues. For
the sake of clarity, I very
briefly state my position on some of the issues
dealt with in their judgments. |
| [851] | I agree with the
conclusion of Ngcobo J that the Promotion of Administrative Justice Act, 3 of
2000 (PAJA) applies to the power to
make regulations conferred by section
22G(2)(a)-(c) of the Medicines and Related Substances Act 101 of 1965 (the
Medicines Act).
Much of the reasoning of Ngcobo J may be equally valid as to
the wider question regarding the applicability of PAJA to regulation-making
in
general. In this regard I also find the reasoning of Chaskalson CJ persuasive.
However, like Ngcobo J, I wish to refrain from
answering the wider question. I
do not regard it as necessary to do so in this
case. |
| [852] | On the validity of the
regulations I agree with Yacoob J, for the reasons advanced in his judgment. I
am therefore specifically of
the view that regulations 5(2)(c) and 8(3) are not
void for vagueness and that regulations 22 and 23 are valid. I reach this
conclusion
even though I do not find the regulations easy to understand and
interpret. |
| [853] | I agree with the
conclusion reached by Chaskalson CJ and Ngcobo J that the dispensing fees set in
the regulations are not “appropriate”
within the contemplation of
section 22G of the Medicines Act, and with much of the reasoning advanced in
their judgments. Amongst
the factors leading me to this conclusion are the
unsatisfactory explanations offered on behalf of the Pricing Committee on the
relationship
between the dispensary and the front shop of community pharmacies
and on the question whether compounding and admixing are included
in the
dispensing fee, as well as the apparent failure to consider the oral
representations of April 2004, pointed out in the judgments
of Chaskalson CJ and
Ngcobo J. I am not necessarily persuaded by the Pharmacies that the regulations
would result in the demise
of a significant number of pharmacies. However, as
pointed out by Ngcobo J, the failure by the Pricing Committee to explain how
it
arrived at the figures it adopted made it impossible to determine whether the
Pricing Committee has properly applied its mind
to the viability of pharmacies.
I agree with Moseneke J that the Minister and the Pricing Committee misdirected
themselves in taking
the view that courier pharmacies do not deserve separate
consideration and treatment. I also agree that the dispensing fee cannot
be
said to be appropriate in relation to pharmacies in rural areas. I am unable to
hold that the regulations regarding the dispensing
fee are otherwise valid. The
incorrect “one size fits all” approach, viewed together with the
other troublesome aspects
of the Minister and the Pricing Committee’s case
on the dispensing fee, has to result in the conclusion that the fee cannot
be
regarded as
“appropriate”. |
For the applicants: MTK Moerane SC, P Coppin and B Vally, instructed by the
State Attorney
For the First Respondent: JJ Gauntlett SC and AE Bham, instructed by
Sonnenberg Hoffman Galombik
For the Second to Eighth Respondents: W Trengove SC, A Cockrell and M Du
Plessis, instructed by Webber Wentzel Bowens
For the First Amicus Curiae: DI Berger SC, F Ismail and A Hassim, instructed
by AIDS Law Project
[1] The Medicines and Related
Substances Control Act, 101 of 1965. The short title of the Act is now the
Medicines and Related Substances Act, 1965. We shall refer to it as “the
Medicines Act” throughout.
[2] See in this regard the remarks
of Kriegler AJA in Administrator, Cape v Raats Röntgen and Vermeulen
(Pty) Ltd [1991] ZASCA 126; 1992 (1) SA 245 (A) at 254B-E, and Sachs J in Mistry v Interim
Medical and Dental Council of South Africa and Others 1998 (4) SA 1127 (CC)
at paras 17-20[1998] ZACC 10; ; 1998 (7) BCLR 880 (CC) at paras 10-13.
[3] Medicines and Related
Substances Control Amendment Act, 90 of 1997.
[4] Sections 27(1)(a) and 27(2) of
the Constitution.
[5] The Medicines Act regulates
both medicines and other Scheduled substances. In this judgment, when we refer
to medicines, we are
also referring to other Scheduled substances.
[6] Subsequent to the passing of
the amending legislation of 1997, but before it was brought into force, the
legislature passed a new
piece of legislation, the South African Medicines and
Medical Devices Regulatory Authority Act, 132 of 1998, which repealed all but
a
few provisions of the Medicines Act. This new legislation was promulgated on 11
December 1998 and was to come into force on a
date to be determined by the
President. Proclamation R49 of 1999 purported to bring the legislation into
force on 30 April 1999,
but that proclamation was set aside. See
Pharmaceutical Manufacturers Association of South Africa and Another: In re
Ex parte President of the Republic of South Africa and
Others [2000] ZACC 1; 2000 (2) SA
674 (CC); 2000 (3) BCLR 241 (CC) at paras 1-4. The legislation was thus never
brought into force and was repealed by the Medicines and Related Substances
Amendment Act, 59 of 2002.
[7] By Proclamation R23 of 28 March
2003 published in Government Gazette No 24627.
[8] New Clicks South Africa
(Pty) Ltd v Tshabalala-Msimang and Another NNO; Pharmaceutical Society of South
Africa and Others v Minister
of Health and Others 2005 (2) SA 530 (C).
[9] New Clicks South Africa
(Pty) Ltd v Tshabalala-Msimang and Another NNO; Pharmaceutical Society of South
Africa and Others v Minister
of Health and Another 2005 (3) SA 231 (C).
[10] Pharmaceutical Society of
South Africa v Tshabalala-Msimang and Another NNO; New Clicks South Africa (Pty)
Ltd v Minister of Health
and Another 2005 (3) SA 238 (SCA); 2005 (6) BCLR
576 (SCA).
[11] The Court granted
applications by the Treatment Action Campaign and Innovative Medicines South
Africa to present argument as amici
curiae. The Treatment Action Campaign
provided both written and oral submissions, while Innovative Medicines South
Africa provided
only written submissions, and did not seek leave to address the
Court orally.
[12] Full details of the
arguments appear in the judgment of Chaskalson CJ below at paras 59-82.
[13] See paras 76-77 of the
judgment of Chaskalson CJ.
[14] See paras 52-58 of the
judgment of Chaskalson CJ.
[15] See paras 83-84 of the
judgment of Chaskalson CJ.
[16] Chaskalson CJ, Langa DCJ,
Ngcobo, O’Regan and Van der Westhuizen JJ. The reasoning of Chaskalson CJ
and Ngcobo J differs in
that Chaskalson CJ holds that PAJA applies to the making
of all regulations, whereas Ngcobo J decides the matter narrowly in respect
of
the powers in issue in this case, and leaves the question whether PAJA applies
to all regulation-making open.
[17] Sachs J who holds that the
general regulatory scheme is governed by the principles of legality.
[18] Moseneke, Madala, Mokgoro,
Skweyiya and Yacoob JJ. See the reasoning in the judgment of Moseneke J at para
671.
[19] See the judgments of
Chaskalson CJ (at paras 208-210); Moseneke J (at para 727-734).
[20] Chaskalson CJ, Langa DCJ,
Ngcobo, O’Regan, Sachs and Van der Westhuizen JJ. The reasoning of
Chaskalson CJ and Ngcobo J is
slightly different, but they both reach the same
conclusion.
[21] Moseneke, Madala, Mokgoro,
Skweyiya and Yacoob JJ. See the reasoning in the judgment of Moseneke J at
paras 779-781, and at paras
767-772.
[22] See para 263 of the main
judgment by Chaskalson CJ.
[23] Langa DCJ, Moseneke, Yacoob,
Madala, Mokgoro, Sachs, Skweyiya and Van der Westhuizen JJ. The reasons appear
from the judgment of
Yacoob J at paras 804-811.
[24] Chaskalson CJ holds
regulation 5(2)(c) which refers to Appendix A to be void for vagueness. See
para 277 of the judgment of Chaskalson CJ. Ngcobo J (with whom O’Regan
J
concurs) also holds the regulation to be void for vagueness, though for somewhat
different reasons.
[25] See para 281 of the main
judgment by Chaskalson CJ.
[26] See para 300 of the judgment
of Chaskalson CJ.
[27] See para 286 of the judgment
of Chaskalson CJ.
[28] Moseneke, Yacoob, Madala,
Mokgoro, Skweyiya and Van der Westhuizen JJ. The reasons appear from the
judgment of Yacoob J at paras
822-835.
[29] Chaskalson CJ, with whom
Langa DCJ, O’Regan and Sachs JJ concur, concludes that regulation 8(3) is
void for vagueness. See para 292 of Chaskalson CJ’s judgment. Ngcobo J
concludes that regulation 8(3)(iv) is invalid; and that regulation 8(3)(i) is
invalid, but can be saved by an appropriate severance and reading in. See paras
492-496, and 498 of his judgment.
[30] See the judgment of
Chaskalson CJ at para 304.
[31] See the judgment of
Chaskalson CJ at para 406; see also the judgment of Moseneke J at para 677.
[32] Langa DCJ, Moseneke, Madala,
Mokgoro, Ngcobo, O’Regan, Sachs, Skweyiya, Van der Westhuizen and Yacoob
JJ. See the reasoning
in paras 836-841 of the judgment of Yacoob J.
[33] Chaskalson CJ disagrees. He
holds that the regulations do not require the single exit price to be set at an
amount that the Director-General
considers to be reasonable, and that his views
as to the reasonableness of the single exit price are accordingly irrelevant.
In
the circumstances the regulations are not authorised by section 22G of the
Medicines Act and are invalid. See paras 418-419 of his
judgment.
[34] Coetzee v Government of
the Republic of South Africa; Matiso and Others v Commanding Officer, Port
Elizabeth Prison, and Others [1995] ZACC 7; 1995 (4) SA 631 (CC); 1995 (10) BCLR 1382 (CC)
at para 16; Chief Lesapo v North West Agricultural Bank and Another [1999] ZACC 16; 2000
(1) SA 409 (CC); 1999 (12) BCLR 1420 (CC) at para 31.
[35] 1952 (3) SA 809 (A) at
822C-E
[36] Section 8(1)(c) of PAJA.
[37] As Lord Macnaghten reasoned
in a somewhat different context but in a memorable formulation that is
applicable here:
“In order to enable him to come to a just and true conclusion it is his
duty, I think, to avail himself of all information
at hand at the time of making
his award which may be laid before him. Why should he listen to conjecture on a
matter which has become
an accomplished fact? Why should he guess when he can
calculate? With the light before him, why should he shut his eyes and grope
in
the dark?”
The Bwllfa and Merthyr Dare Steam Collieries
(1891) Limited v The Pontypridd Waterworks Company 1903 AC 426 (HL) at 431.
This case involved the estimation of loss of profits. Similar reasoning has
been applied in South African courts,
see Devland Investment Co v
Administrator, Transvaal 1979 (1) SA 321 (T) at 327-8.
[38] Government Gazette 26304 GN
R553, 30 April 2004.
[39] See para 193 below for the
provisions of section 22G.
[40] The issue concerning the
standing of the Pricing Committee is dealt with in the judgment of the Court
where it is held that in the
circumstances of this case the Pricing Committee
has standing to join in the application for leave to appeal.
[41] S v Basson [2004] ZACC 13; 2005 (1)
SA 171 (CC); 2004 (6) BCLR 620 (CC) at para 22.
[42] 1990 (1) SA 57 (A).
[43] Id at 67F-G, 68C-D;
Pharmaceutical Society of South Africa and Others v Tshabalala-Msimang and
Another NNO; New Clicks South Africa (Pty) Ltd v Minister
of Health and
Another 2005 (3) SA 238 (SCA); 2005 (6) BCLR 576 (SCA) at para 15.
[44] See Mabaso v Law Society,
Northern Provinces, and Another [2004] ZACC 8; 2005 (2) SA 117 (CC); 2005 (2) BCLR 129 (CC)
at para 23 where this Court confirmed, in a different context, that the SCA is
entitled to regulate its own process. See also
Universal City Studios Inc
and Others v Network Video (Pty) Ltd [1986] ZASCA 3; 1986 (2) SA 734 (A) at 754G and the
authorities there cited.
[45] 1915 AD 599.
[46] See Gentiruco A.G. v
Firestone SA (Pty) Ltd 1972 (1) SA 589 (A); Sita and Another v Olivier NO
and Another 1967 (2) SA 442 (A); Oliff v Minnie 1952 (4) SA 369
(A).
[47] Id.
[48] Id at 608E-F.
[49] [1996] ZASCA 87; 1996 (4) SA 735 (A).
[50] Id at 740B-D.
[51] 1978 (1) SA 687 (A).
[52] 1985 (1) SA 287 (A).
[53] Id at 294B.
[54] Above n 51 at 691C.
[55] Above n 43 at paras 25, 26, 28 and 96.
[56] Id at para 14.
[57] Section 34 of the
Constitution provides:
“Everyone has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing
before a court or, where
appropriate, another independent and impartial tribunal or
forum.”
[58]
S v Venter 1999 (2) SACR 231 (SCA). Above n 43 at para 31 n 30.
[59] Section 173 of the
Constitution provides:
“The Constitutional Court, Supreme Court of Appeal and High Courts have
the inherent power to protect and regulate their own
process, and to develop the
common law, taking into account the interests of
justice.”
[60]
New Clicks South Africa (Pty) Ltd v Tshabalala-Msimang and Another NNO;
Pharmaceutical Society of South Africa and Others v Minister
of Health and
Another 2005 (3) SA 231 (C).
[61] Id at 236F-G.
[62] Above n 43 at para 28.
[63] Id at paras 13 and 14.
[64] Id at para 40.
[65] Id.
[66] Section 27 of the
Constitution reads:
“(1) Everyone has the right to have access to—
(a) health care services, including reproductive health care;
. . . .
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve the progressive realisation
of each of these
rights.”
[67]
This is the order sought in the Notice of Motion lodged on behalf of the PSSA.
For all practical purposes the Notice of Motion in
the New Clicks application
was the same.
[68] 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 2005 (2) SA 530 (C)
at paras 41-43. See below, paras 127-135 where the definition of
“decision” in PAJA is addressed.
[69] Id at para 45.
[70] Id.
[71] Id at para 61.
[72] Id at para 49. See below at
paras 120-126 where the definition of “administrative action” in
PAJA is addressed.
[73] Id at para 50.
[74] Id at paras 32 and 36
(Traverso DJP).
[75] Id at para 40.
[76] Above n 43 at para 49.
[77] The relevant provisions of
section 22G are provided in para 193 below.
[78] Section 33(1).
[79] Section 33(3).
[80] Bato Star Fishing (Pty)
Ltd v Minister of Environmental Affairs and Others [2004] ZACC 15; 2004 (4) SA 490 (CC);
2004 (7) BCLR 687 (CC) at para 25.
[81] This is an extract from
“‘Administrative Action’ in the courts” a paper
delivered by Professor C Hoexter
for a comparative administrative justice
workshop held at Cape Town from 20-22 March 2005. The paper has not yet been
published.
[82] [2003] ZACC 10; 2003 (5) SA 281 (CC); 2003
(8) BCLR 838 (CC) at paras 52-53.
[83] It said, at para 53 n 30,
that this “raises complex issues including the question whether a
construction of PAJA that excludes
the making of regulations from the ambit of
administrative action would be consistent with the Constitution.”
[84] See para 130 below for the
full text of section 4.
[85] Above n 80. In Bato Star, the Court held
that since PAJA was applicable, that case could not be decided without reference
to its provisions.
[86] Bato Star, id at para
25; Investigating Directorate: Serious Economic Offences and Others v Hyundai
Motor Distributors (Pty) Ltd and Others: In re Hyundai Motor
Distributors (Pty)
Ltd and Others v Smit NO and Others [2000] ZACC 12; 2001 (1) SA 545 (CC); 2000 (10) BCLR
1079 (CC) at para 21.
[87] [1898] 2 QB 91.
[88] Id at 99-100.
[89] R v Abdurahman 1950
(3) SA 136 (A) at 150D.
[90] Id at 143F.
[91] See the discussion of this
topic by Jansen JA in Theron en Andere v Ring van Wellington van die NG
Sendingkerk in Suid-Afrika en Andere 1976 (2) SA 1 (A). Jansen JA suggested
that a distinction should be drawn between what he termed the “formal
test” and the “material/extended
formal standard test”. In
the case of the former, the courts will not interfere with the merits of the
decision and are concerned
only with the manner in which the decision was
exercised (at 13F-G). In the case of the latter, which Jansen JA held to apply
in
the case of judicial bodies created by statute or contract, a decision could
be set aside on the basis that it was not reasonably
supported by the evidence
(at 20D-21C).
[92] [1948] 1 KB 223 (CA).
[93] Id at 230.
[94] 1972 (3) SA 726 (A).
[95] Id at 735G.
[96] See Bato Star above n
80 at paras 44 and 45; Jowell and
Lester, “Beyond Wednesbury: Substantive Principles of
Administrative Law”, [1987] Public Law 368, at 372; Cane An
Introduction to Administrative Law 3ed (Clarendon Press, Oxford 1996) ch 9;
Hoexter The New Constitutional and Administrative Law: Volume II –
Administrative Law (Juta, Lansdowne 2002) at 186-7.
[97] Section 24 of the interim
Constitution.
[98] Section 33(1) of the interim
Constitution read as follows:
“The rights entrenched in this Chapter may be limited by law of general
application, provided that such limitation—
(a) shall be permissible only to the extent that it
is—
(i) reasonable; and
(ii) justifiable in an open and democratic society based on freedom and
equality; and
(b) shall not negate the essential content of the right in question,
and provided further that any limitation
to—
(aa) a right entrenched in section 10, 11, 12, 14(1), 21, 25 or 30(1)(d) or (e)
or (2); or
(bb) a right entrenched in section 15, 16, 17, 18, 23 or 24, in so far as such
right relates to free and fair political
activity,
shall, in addition to being reasonable as required in paragraph (a)(i), also be
necessary.”
[99]
Section 8.
[100] Section 23.
[101] Section 28.
[102] Section 22.
[103] Bel Porto School
Governing Body and Others v Premier, Western Cape, and Another [2002] ZACC 2; 2002 (3) SA
265 (CC); 2002 (9) BCLR 891 (CC) at paras 86-90.
[104] Section 1(d).
[105] Section 57(1)(b) provides
that:
“The National Assembly may make rules and orders concerning its business,
with due regard to representative and participatory
democracy, accountability,
transparency and public
involvement.”
[106]
Section 72 of the Constitution.
[107] Sections 116(1)(b) and
118(1)(a) of the Constitution.
[108] Sections 152(1)(a) and
(e), section 154(2) and 160(4)(b) of the Constitution.
[109] See n 115 where the definition of “organ of
state” appears.
[110] [1998] ZACC 17; 1999 (1) SA 374 (CC);
1998 (12) BCLR 1458 (CC).
[111] Id at para 27 in the
judgment of Chaskalson P, Goldstone and O’Regan JJ. Although this was not
a unanimous judgment, Kriegler
J and other members of the Court who expressed
contrary views on certain of the issues in the case, did not dissent from this
proposition.
See para 117 in the judgment of Kriegler J.
[112] Item 23(1) and (3) of
Schedule 6 to the Constitution.
[113] Section 36 of the
Constitution reads as follows:
“Limitation of rights.—(1) The rights in the Bill of Rights may be
limited only in terms of law of general application
to the extent that the
limitation is reasonable and justifiable in an open and democratic society based
on human dignity, equality
and freedom, taking into account all relevant
factors, including—
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision of the
Constitution, no law may limit any right entrenched in
the Bill of
Rights.”
[114]
Bato Star above n 80 at para
22.
[115] Section 1 of PAJA defines
“organ of state” as having “the meaning assigned to it in
section 239 of the Constitution”.
According to section 239 of the
Constitution an “organ of state” means
“(a) any department of state or administration in the national, provincial
or local sphere of government; or
(b) any other functionary or institution—
(i) exercising a
power or performing a function in terms of the Constitution or a provincial
constitution; or
(ii) exercising a public power or performing a public function in terms of
any legislation,
but does not include a court or a judicial
officer”.
[116]
2000 (1) SA 1 (CC); 1999 (10) BCLR 1059 (CC) at para 142.
[117] “Any” is a
word of wide import. See Commissioner for Inland Revenue v NST Ferrochrome
(Pty) Ltd 1999 (2) SA 228 (T) at 232D-E and the authorities there cited.
[118] Bato Star above n
80 at para 44; Daniels v Campbell NO
and Others [2004] ZACC 14; 2004 (5) SA 331 (CC); 2004 (7) BCLR 735 (CC) at paras 43-44;
National Director of Public Prosecutions and Another v Mohamed NO and
Others [2002] ZACC 9; 2002 (4) SA 843 (CC); 2002 (9) BCLR 970 (CC) at para 33; Hyundai
above n 86 at paras 21-22.
[119] Subparagraph (ii) of
subparagraph (b) of the definition of administrative action.
[120] Above n 68 at para 49.
[121] Section 22G of the
Medicines Act. See para 193 below where the relevant provisions of section 22G
are provided.
[122] Above n 110.
[123] It was not suggested by
either party that “may” in section 22G should be construed as
“must”.
[124] General Regulations made
in terms of the Medicines and Related Substances Act, 101 of 1965 as amended in
Government Gazette 24727 R510, 10 April 2003.
[125] Regulation 38(4).
[126] Hoexter The New
Constitutional and Administrative Law above n 96 at 107-10 and references there
cited.
[127] Affordable Medicines
Trust and Others v Minister of Health of RSA and Another [2005] ZACC 3; 2005 (6) BCLR 529
(CC) at para 49; Pharmaceutical Manufacturers Association of SA and Another:
In re Ex parte President of the Republic of South Africa and Others [2000] ZACC 1; 2000 (2)
SA 674 (CC); 2000 (3) BCLR 241 (CC) at para 20; Fedsure above n 110 at para 58.
[128] Bato Star above n
80 at para 45.
[129] [2001] UKHL 26; [2001] 3 All ER 433 (HL)
at 447A.
[130] In R (Mahmood) v
Secretary of State for the Home Department [2000] EWCA Civ 315; [2001] 1 WLR 840 at para 18.
[131] [2002] ZACC 5; 2002 (4) SA 768 (CC);
2002 (7) BCLR 702 (CC) at para 63.
[132] Bato Star above n
80 at para 45.
[133] Id.
[134] See paras 136-141
above.
[135] See para 130 above for
the text of section 4.
[136] Id.
[137] [1997] ZASCA 2; 1997 (3) SA 204 (A) at
231I-232D[1997] ZASCA 2; ; 1997 (4) BCLR 531 (A) at 542F-543A.
[138] [1993] 3 All ER 92 (HL)
at 106D-H.
[139] See also Premier,
Mpumalanga, and Another v Executive Committee, Association of State-Aided
Schools, Eastern Transvaal [1998] ZACC 20; 1999 (2) SA 91 (CC); 1999 (2) BCLR 151 (CC) at
para 39.
[140] 1919 AD 30 at 44.
[141] See for instance,
Yates v University of Bophuthatswana and Others 1994 (3) SA 815 (B) at
847I-849B; Schoultz v Voorsitter, Personeel-Advieskomitee van die Munisipale
Raad van George, en ’n Ander 1983 (4) 689 (C) at 707F-H.
[142] R v Price 1955 (1)
SA 219 (A) at 223E-G. Section 147 of the Criminal Procedure Act, 51 of 1977 now
makes provision for cases to continue if a quorum is broken due to death or
incapacity. See S v Malinde, above n 42, for a discussion of these
provisions.
[143] 1975 (1) SA 681 (A).
[144] Id at 704G-H.
[145] See regulation 38 of the
General Regulations above at para 139.
[146] S v Naudé
above n 143 at 699B-C.
[147] See below from para
311.
[148] Above n 80 at paras 44-45
[149] Section 6(2)(a) of PAJA
reads:
“A court or tribunal has the power to judicially review an administrative
action if—
(a) the administrator who took it—
(i) was not authorised to do so by the empowering
provision;
(ii) acted under a delegation of power which was not authorised by the
empowering provision; or
(iii) was biased or reasonably suspected of
bias”.
[150]
Regulation 2 of the regulations.
[151] Regulation
5(2)(c)(ii).
[152] Id.
[153] See regulation 2 and
regulation 5(1).
[154] Regulation 6.
[155] See the definition of
“logistics fee” in regulation 2 and regulation 5(2)(f) and (g).
[156] Regulation 10.
[157] Regulation 5(2)(e).
[158] Above n 43 at para 57.
[159] Id at para 58.
[160] [1995] ZACC 3; 1995 (3) SA 391 (CC);
1995 (6) BCLR 665 (CC).
[161] Id at para 19.
[162] 1988 (4) SA 645 (A) at
668H-669D.
[163] 1986 (2) SA 555 (A) at
562H-563A.
[164] Above n 160 at paras 14-16.
[165] Paragraph 2.2 of the
National Drug Policy for South Africa.
[166] Chapter 4 of the National
Drug Policy.
[167] I have considerable doubt
whether it is.
[168] Paragraph 4.1 of the
National Drug Policy (my emphasis).
[169] Id.
[170] Section 15C provides:
“Measures to ensure supply of more affordable medicines.—The
Minister may prescribe conditions for the supply of more
affordable medicines in
certain circumstances so as to protect the health of the public, and in
particular may—
(a) notwithstanding anything to the contrary contained in the Patents Act, 1978
(Act No. 57 of 1978), determine that the rights with
regard to any medicine
under a patent granted in the Republic shall not extend to acts in respect of
such medicine which has been
put onto the market by the owner of the medicine,
or with his or her consent;
(b) prescribe the conditions on which any medicine which is identical in
composition, meets the same quality standard and is intended
to have the same
proprietary name as that of another medicine already registered in the Republic,
but which is imported by a person
other than the person who is the holder of the
registration certificate of the medicine already registered and which originates
from
any site of manufacture of the original manufacturer as approved by the
council in the prescribed manner, may be imported;
(c) prescribe the registration procedure for, as well as the use of, the
medicine referred to in paragraph
(b).”
[171]
Section 18A reads as follows:
“Bonusing.—No person shall supply any medicine according to a bonus
system, rebate system or any other incentive
scheme.”
[172]
Section 22F provides:
“Generic substitution.—(1) Subject to subsections (2), (3) and (4),
a pharmacist or a person licensed in terms of section
22C(1)(a)
shall—
(a) inform all members of the public who visit the pharmacy or any other place
where dispensing takes place, as the case may be,
with a prescription for
dispensing, of the benefits of the substitution for a branded medicine by an
interchangeable multi-source
medicine, and shall, in the case of a substitution,
take reasonable steps to inform the person who prescribed the medicine of such
substitution; and
(b) dispense an interchangeable multi-source medicine instead of the medicine
prescribed by a medical practitioner, dentist, practitioner,
nurse or other
person registered under the Health Professions Act, 1974, unless expressly
forbidden by the patient to do
so.
(2) If a pharmacist is forbidden as contemplated in subsection (1)(b), that fact
shall be noted by the pharmacist on the prescription.
(3) When an interchangeable multi-source medicine is dispensed by a pharmacist
he or she shall note the brand name or where no such
brand name exists, the name
of the manufacturer of that interchangeable multi-source medicine in the
prescription book.
(4) A pharmacist shall not sell an interchangeable multi-source
medicine—
(a) if the person prescribing the medicine has written in his or her own hand on
the prescription the words ‘no substitution’
next to the item
prescribed;
(b) if the retail price of the interchangeable multi-source medicine is higher
than that of the prescribed medicine;
or
(c) where the product has been declared not substitutable by the
council.”
[173]
Section 22H reads as follows:
“Purchase and sale of medicines by wholesalers.—(1)(a) No wholesaler
shall purchase medicines from any source other than
from the original
manufacturer or from the primary importer of the finished product.
(b) A wholesaler shall sell medicines only into the retail sector.
(2) Subsection (1) shall not be construed as preventing the return of medicines
for credit purposes only, to the manufacturer or
wholesaler from which that
medicine was initially obtained.
(3) Any wholesaler may in the prescribed manner and on the prescribed conditions
be exempted by the Director-General from the provisions
of subsection
(1).”
[174]
Sections 15C, 18A, 18B, 18C, 22A, 22C, 22F and 22H.
[175] See above n 172 for the full text of section
22F(4).
[176] See Du Plessis
“Statute Law and Interpretation” in Joubert et al (eds) The Law
of South Africa, First Reissue vol 25 (Butterworths, Durban 2001) at para
285.
[177] Section 22A(3).
[178] See section 22A(4) and
(5) of the Act. In terms of section 22A(9)(a)(i) of the Act, no one may supply
Schedule 7 and 8 medicines
without a permit issued by the Director-General.
[179] Section 22A(4) and
(5)(a).
[180] Section 22C(1)(b) of the
Medicines Act.
[181] See para 193 above where
the text of section 22G is provided.
[182] Section 29(k).
[183] This is consistent with
the definition of “distributor” in the pricing regulations: see para
242 below.
[184] It is not necessary here
to deal with the special power vested in the Minister to sanction the importing
of medicine protected by
the patent in terms of section 15C.
[185] Section 22C(1)(b) reads
as follows:
“Licensing.—(1) Subject to the provisions of this section—
. . . .
(b) the council may, on application in the prescribed manner and on payment of
the prescribed fee, issue to a manufacturer, wholesaler
or distributor of a
medicine or medical device a licence to manufacture, import or export, act as a
wholesaler of or distribute,
as the case may be, such medicine or medical
device, upon such conditions as to the application of such acceptable quality
assurance
principles and good manufacturing and distribution practices as the
council may determine.”
Section
22C(6) reads as follows:
“No manufacturer, wholesaler or distributor referred to in subsection
(1)(b) shall manufacture, import, export, act as a wholesaler
of or distribute,
as the case may be, any medicine unless he or she is the holder of a licence
contemplated in the said
subsection.”
[186]
Regulation 12(2)(a) provides: “A person can only import a medicine or
scheduled substance if such person is licensed in terms
of the Act to import
medicines”.
[187] Regulation 19 deals with
the procedures to be followed in applying for such licences. Only persons
referred to in section 22C(1)(b)
are competent in terms of the regulations to
make such applications.
[188] See above n 173 for the text of section 22H.
[189] Section 22G(3)(a).
[190] Section 22G(3)(b).
[191] See above n 171 where the text of section 18A is
produced. Section 18B reads as follows:
“Sampling of medicines.—(1) No person shall sample any medicine.
(2) For the purposes of this section ‘sample’ means the free supply
of medicines by a manufacturer or wholesaler or its
agent to a pharmacist,
medical practitioner, dentist, veterinarian, practitioner, nurse or other person
registered under the Health
Professions Act, 1974, but does not include the free
supply of medicines for the purposes of clinical trials, donations of medicines
to the State, tendering to the State and quality control by inspectors.
(3) The use of medicines or Scheduled substances for exhibition purposes shall
be as
prescribed.”
[192]
Act 90 of 1997 and Act 59 of 2002 were both brought into force on 2 May
2003.
[193] 1907 TS 910.
[194] Id at 915.
[195] Regulation 1 provides:
“The sale of medicines and Scheduled substances in the Republic of South
Africa is subject to the conditions
stipulated in these regulations.”
[196] This is dealt with above
in paras 208-210.
[197] See the definitions in
regulation 2.
[198] Section 15C is discussed
above in paras 206-207.
[199] The General Regulations
define “parallel importer” as “a person who parallel imports a
medicine into the Republic
on the authority of a permit issued in terms of
regulation 7(3)”.
[200] According to regulation
2, “‘logistics fee’ means the fee that is payable in respect
of logistical services”.
[201]
“‘[L]ogistical services’ means those services provided by
distributors and wholesalers in relation to a medicine
or Scheduled substance
including but not limited to warehousing, inventory or stock control management,
order and batch order processing,
delivery, batching, tracking and tracing, cold
chain storage and distribution”.
[202] “‘[S]ingle
exit price’ means the price set by the manufacturer or importer of a
medicine or Scheduled substance
in terms of these regulations combined with the
logistics fee and VAT and is the price of the lowest unit of the medicine or
Scheduled
substance within a pack multiplied by the number of units in the
pack”.
[203]
“‘[R]etailer’ means a person who is not a wholesaler,
importer, exporter, manufacturer or distributor who sells
a medicine or
Scheduled substance to a user and includes a person licensed in terms of section
22C(1)(a) of the Act”.
[204]
“‘[U]ser’ means a natural person to whom a medicine or
Scheduled substance is sold for use and excludes a manufacturer,
importer,
exporter, wholesaler, distributor, retailer and any other person selling
medicines or Scheduled substances in the Republic”.
[205] S v Le Grange 1962
(3) SA 498 (A) at 502-3.
[206] Section 22C(1)(b) and
22C(6).
[207] Dawood and Another v
Minister of Home Affairs and Others; Shalabi and Another v Minister of Home
Affairs and Others; Thomas and Another
v Minister of Home Affairs and Others
[2000] ZACC 8; 2000 (3) SA 936 (CC); 2000 (8) BCLR 837 (CC) at para 47; Affordable
Medicines above n 127 at para
108.
[208] Id.
[209] Id.
[210] The definition of SEP in
regulation 2 and regulation 5(1).
[211] Above n 43 at para 51(c).
[212] Id at para 52. Footnotes
to this paragraph of the judgment have been omitted from the quotation. They
refer to the definition of
importer and the definition of the SEP with the words
“or importer” in that definition emphasised.
[213] The text of the section
and its relevance to this case has been referred to in para 193.
[214] Above n 43 at para 54.
[215] Id at para 55.
[216] Regulation 2. The
definition of “logistics fee” appears above at n 200.
[217] Regulation 2. The
definition of “logistical services” appears above at n 201.
[218] The full text of the
definition is set out at para 247.
[219] Persons selling medicines
include wholesalers and pharmacists. But wholesalers can also be importers who
sell to pharmacists.
[220] Regulation 7 subject to
regulations 5, 8 and 9.
[221] Regulation 9.
[222] Ex parte Chairperson
of the Constitutional Assembly: In re Certification of the Constitution of the
Republic of South Africa, [1996] ZACC 26; 1996 1996 (4) SA 744 (CC); 1996 (10) BCLR 1253
(CC) at para 131.
[223] The issue of publication
is dealt with in paras 295-296 below.
[224] Regulation 9(2):
“In considering an application as contemplated in regulation 9(1) the
Minister must take into
account—
(a) the nature and extent of any adverse financial, operational and other
circumstances for the manufacturer or importer if the application
made in terms
of regulation 9(1) is not approved;
(b) the effect, if any, on the availability of the medicine or Scheduled
substance within the Republic if the application made in
terms of regulation
9(1) is not approved;
(c) the nature of the health condition for which the medicine or Scheduled
substance is a registered indication within the Republic
and the extent to which
public health would be adversely affected should the medicine or Scheduled
substance become unavailable or
unaffordable within the Republic;
(d) the extent to which the rights contemplated in section 27(1)(a) and 27(3) of
the Constitution may be adversely affected or
limited—
(i) should the single exit price not be increased by the amount requested in the
application; and
(ii) should the medicine or Scheduled substance become unavailable or
unaffordable within the
Republic.”
[225]
Regulation 5(2)(f). Above n 43 at para
56.
[226] This is a challenge to
the lawfulness of the regulation concerned. See section 6(2)(f)(i) of PAJA and
para 189 above where lawfulness
is discussed.
[227] Above n 43 at para 79.
[228] Id at para 77.
[229] Affordable
Medicines above n 127 at para 48;
Pharmaceutical Manufacturers Association above n 127 at para 20.
[230] Above n 43 at para 89.
[231] Below at paras 344-358
and 359-371.
[232] Regulations Relating to
the Practice of Pharmacy, Government Gazette 21754 GN R1158, 20 November
2000.
[233] Id.
[234] Above n 80.
[235] Id at para 48.
[236] At paras 164-166
above.
[237] Section 36 provides:
“The Minister may, on the unanimous recommendation of the members present
at any meeting of the council, by notice in the Gazette
exclude, subject to such
conditions as he may determine, any medicine from the operation of any or all of
the provisions of this
Act, and may in like manner amend or withdraw any such
notice.”
[238]
Affordable Medicines above n 127
at para 126.
[239] Regulation 22(2).
[240] Regulation 22(3).
[241] Act 3 of 2000.
[242] Act 101 of 1965. I
should emphasise that I refrain from deciding whether PAJA is applicable to
regulation-making in general.
[243] National Education
Health and Allied Workers Union (NEHAWU) v University of Cape Town and
Others 2003 (3) SA 1 (CC); 2003 (2) BCLR 154 (CC) and Ingledew v
Financial Services Board: In re Financial Services Board v Van der Merwe and
Another [2003] ZACC 8; 2003 (4) SA 584 (CC); 2003 (8) BCLR 825 (CC).
[244] Bato Star Fishing
(Pty) Ltd v Minister of Environmental Affairs and Others [2004] ZACC 15; 2004 (4) SA 490
(CC); 2004 (7) BCLR 687 (CC) at para 25.
[245] Section 22G of the
Medicines Act provides:
“(1) The Minister shall appoint, for a period not exceeding five years,
such persons as he or she may deem fit to be members
of a committee to be known
as the pricing committee.
(2) The Minister may, on the recommendation of the pricing committee, make
regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule 0 medicines.
(3) (a) The transparent pricing system contemplated in subsection
(2)(a) shall include a single exit price which shall be
published as prescribed,
and such price shall be the only price at which manufacturers shall sell
medicines and Scheduled substances
to any person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or a
wholesaler or distributor shall sell a medicine at a price
higher than the price
contemplated in paragraph
(a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist or person
licensed in terms of this Act to charge a dispensing
fee as contemplated in
subsection (2)(b).
(4) To the members of the pricing committee who are not in the full-time
employment of the State may be paid such remuneration and
allowances as the
Minister, with the concurrence of the Minister of Finance, may
determine.”
[246]
Bato Star above n 244 at para 25;
Zondi v Member of the Executive Council for Traditional and Local Government
Affairs and Others [2004] ZACC 19; 2005 (3) SA 589 (CC); 2005 (4) BCLR 347 (CC) at para
99.
[247] Bato Star id.
[248] Bato Star above n
244 at para 22.
[249] NAPTOSA and Others v
Minister of Education, Western Cape, and Others 2001 (2) SA 112 (C).
Section 23(1) of the Constitution provides that: “Everyone has the right
to fair labour practices”. The Labour Relations Act, 1995, was enacted to
give effect to the right to labour relations guaranteed by section 23 of the
Constitution.
[250] Act 66 of 1995.
[251] NAPTOSA above n 249 at 123I.
[252] Id at 123B.
[253] NEHAWU above n 243 at para 17.
[254] Ingledew above n
243.
[255] These cases are discussed
in Ingledew. The cases that were referred to in Ingledew were
largely concerned the question whether in an action against the state, a
litigant may, in addition to the right to require discovery
in terms of Rule 35
of the Uniform Rules of Court, seek relief in terms of section 32 of the
Constitution (the right of access to
information). One line of cases suggests
that a litigant may in addition to the rules rely on section 32. These cases
include Swissborough Diamond Mines (Pty) Ltd and Others v Government of the
Republic of South Africa and Others 1999 (2) SA 279 (T) at 320C-D; Phato
v Attorney-General, Eastern Cape, and Another; Commissioner of the South African
Police Services v Attorney-General, Eastern
Cape, and Others 1995 (1) SA 799
(E) at 815G; Khala v Minister of Safety and Security 1994 (4) SA 218 (W)
at 225 F and 226 G; Van Niekerk v Pretoria City Council 1997 (3) SA 839
(T) at 850B. The other line of cases cast doubt on the correctness of the
proposition that a litigant can in an action against the
state, in addition to
the right to require discovery in terms of Rule 35, seek relief in terms of
section 32. These cases are Inkatha Freedom Party and Another v Truth and
Reconciliation Commission and Others 2000 (3) SA 119 (C) at 135J-137C; and
Alliance Cash and Carry (Pty) Ltd v Commissioner, South African Revenue
Service 2002 (1) SA 789 (T). These cases must be understood in the context
of the rules relating to discovery. However, to the extent that the
Swissborough line of cases suggest that a litigant can rely upon the
Constitution where there is a statutory provision dealing with the matter
without challenging the constitutionality of the provision concerned, I am
unable to agree with their reasoning.
[256] Bato Star above n
244 at para 22; Pharmaceutical
Manufacturers Association of SA and Another: In re Ex parte President of the
Republic of South Africa and Others [2000] ZACC 1; 2000 (2) SA 674 (CC); 2000 (3) BCLR 241
(CC) at paras 33 – 45.
[257] Bato Star id.
[258] NAPTOSA above n 249 and Ingledew above n 243.
[259] Bato Star above n
244 at para 26.
[260] The Medicines Control
Council established under section 2 of the Medicines Act.
[261] 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 2005 (2) SA 530
(C) at paras 40-5 and 49- 50.
[262] Id at para 31.
[263] Id at paras 30-2 and
41.
[264] Id at para 58.
[265] Pharmaceutical Society
of South Africa and Others v Tshabalala-Msimang and Another NNO; New Clicks
South Africa (Pty) Ltd v Minister
of Health and Another 2005 (3) SA 238
(SCA); 2005 (6) BCLR 576 (SCA) at para 49.
[266] Id.
[267] Id at para 93.
[268] Id at para 94.
[269] Fedsure Life Assurance
Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and
Others [1998] ZACC 17; 1999 (1) SA 374 (CC); 1998 (12) BCLR 1458 (CC) at para 27.
[270] President of the
Republic of South Africa and Others v South African Rugby Football Union and
Others 2000 (1) SA 1 (CC); 1999 (10) BCLR 1059 (CC) at para 141.
[271] Id at para 142.
[272] SARFU 3 above n 270 at para 143.
[273] Fedsure above n 269 at para 9.
[274] Were it to be found that
on its face PAJA excludes such powers, then the question of the
constitutionality of PAJA would arise.
In the view I take of the matter this
question does not arise.
[275] Bernstein and Others v
Bester and Others NNO [1996] ZACC 2; 1996 (2) SA 751 (CC); 1996 (4) BCLR 449 (CC) at para
59; De Lange v Smuts NO and Others [1998] ZACC 6; 1998 (3) SA 785 (CC); 1998 (7) BCLR
779 (CC) at para 85; S v Dzukuda and Others; S v Tshilo 2000 (4) SA 1078
(CC); 2000 (11) BCLR 1252 (CC) at para 37(a); Investigating Directorate:
Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd and
Others: In re Hyundai
Motor Distributors (Pty) Ltd and Others v Smit NO and
Others [2000] ZACC 12; 2001 (1) SA 545 (CC); 2000 (10) BCLR 1079 (CC) at paras 21-26;
National Director of Public Prosecutions and Another v Mohamed NO and Others
[2003] ZACC 4; 2003 (4) SA 1 (CC); 2003 (5) BCLR 476 (CC) at para 35; Zondi above n
246 at para 102; and Affordable
Medicines Trust and Others v Minister of Health of RSA and Another [2005] ZACC 3; 2005 (6)
BCLR 529 (CC) at para 36.
[276] Ndlovu v Ngcobo;
Bekker and Another v Jika 2003 (1) SA 113 (SCA) at para 20; R v Louw and
Another 1934 CPD 365 at 367-8; Jones & Co v Commissioner for Inland
Revenue 1926 CPD 1 at 5.
[277] R v Debele 1956
(4) SA 570 (A) at 575A-576E.
[278] Dilworth and Others v
Commissioner of Stamps [1899] A.C. 99 at 105-6.
[279] De Reuck v
Director of Public Prosecutions, Witwatersrand Local Division and Others
[2003] ZACC 19; 2004 (1) SA 406 (CC); 2003 (12) BCLR 1333 (CC) at para 18.
[280] Id.
[281] Id.
[282] Id.
[283] SARFU 3
above n 270 at para 142; Fedsure
above n 269 at para 27; Permanent
Secretary, Department of Education and Welfare, Eastern Cape, and Another v
Ed-U-College (PE) (Section 21) Inc [2000] ZACC 23; 2001 (2) SA 1 (CC); 2001 (2) BCLR 118
(CC) at para 18. Compare Union Government v Rosenburg (Pty) Ltd 1945 AD
120 at 126-7.
[284] Above n 265 at para 94.
[285] Subparagraph (bb) of
section 1 of PAJA.
[286] Fedsure above n 269 at para 27.
[287] SARFU 3 above n 270. See also Ed-U-College above n
283 at para 18.
[288] SARFU 3 id at para
142.
[289] Compare the rule of
construction that where the legislature uses words which have received judicial
construction, in the absence
of anything to the contrary, Parliament must be
presumed to have intended the words to bear the same meaning that courts have
attributed
to them. Ex parte Minister of Justice; In re R v Bolon 1941
AD 345 at 359; S v Zemura 1974 (1) 584 (RAD) at 589D-E; Webb v
Outrim 1907 A.C. 81 at 89; Barlow and Another v Teal 1885 Q.B.D. 403
at 405.
[290] SARFU 3 above n 270 at para 142; Ed-U-College above
n 283 at para 18; Pharmaceutical
Manufacturers Association above n 256 at para 45.
[291] Above n 275.
[292] Section 1 of PAJA defines
decision as follows:
“any decision of an administrative nature made, proposed to be made, or
required to be made, as the case may be, under an empowering
provision,
including a decision relating
to—
(a) making, suspending, revoking or refusing to make an order, award or
determination;
(b) giving, suspending, revoking or refusing to give a certificate, direction,
approval, consent or permission;
(c) issuing, suspending, revoking or refusing to issue a licence, authority or
other instrument;
(d) imposing a condition or restriction;
(e) making a declaration, demand or requirement;
(f) retaining, or refusing to deliver up, an article;
or
(g) doing or refusing to do any other act or thing of an administrative nature,
and a reference to a failure to take a decision must
be construed
accordingly”.
[293]
Section 4 of PAJA provides:
“(1) In cases where an administrative action materially and adversely
affects the rights of the public, an administrator, in
order to give effect to
the right to procedurally fair administrative action, must decide
whether—
(a) to hold a public inquiry in terms of subsection (2);
(b) to follow a notice and comment procedure in terms of subsection (3);
(c) to follow the procedures in both subsections (2) and
(3);
(d) where the administrator is empowered by any empowering provision to follow a
procedure which is fair but different, to follow
that procedure;
or
(e) to follow another appropriate procedure which gives effect to section 3.
(2) If an administrator decides to hold a public
inquiry—
(a) the administrator must conduct the public inquiry or appoint a suitably
qualified person or panel of persons to do so;
and
(b) the administrator or the person or panel referred to in paragraph (a)
must—
(i) determine the procedure for the public inquiry, which
must—
(aa) include a public hearing;
and
(bb) comply with the procedures to be followed in connection with public
inquiries, as prescribed;
(ii) conduct the inquiry in accordance with that
procedure;
(iii) compile a written report on the
inquiry and give reasons for any administrative action taken or recommended;
and
(iv) as soon as possible thereafter—
(aa) publish in English and in at least one of the other official languages in
the Gazette or relevant provincial Gazette a notice
containing a concise summary
of any report and the particulars of the places and times at which the report
may be inspected and copied;
and
(bb) convey by such other means of communication which the administrator
considers effective, the information referred to in item
(aa) to the public
concerned.
(3) If an administrator decides to follow a notice and comment procedure, the
administrator must—
(a) take appropriate steps to communicate the administrative action to those
likely to be materially and adversely affected by it
and call for comments from
them;
(b) consider any comments
received;
(c) decide whether or not to take the administrative action, with or without
changes; and
(d) comply with the procedures to be followed in connection with notice and
comment procedures, as
prescribed.
(4) (a) If it is reasonable and justifiable in the circumstances, an
administrator may depart from the requirements referred to in
subsections (1)(a)
to (e), (2) and (3).
(b) In determining whether a departure as contemplated in paragraph (a) is
reasonable and justifiable, an administrator must take
into account all relevant
factors, including—
(i) the objects of the empowering
provision;
(ii) the nature and purpose of, and the need to take, the administrative
action;
(iii) the likely effect of the administrative
action;
(iv) the urgency of taking the administrative action or the urgency of the
matter; and
(v) the need to promote an efficient administration and good
governance.”
[294]
Section 4 of PAJA.
[295] Administrator,
Transvaal, and Others v Traub and Others [1989] ZASCA 90; 1989 (4) SA 731 (A) at 759A-C;
South African Roads Board v Johannesburg City Council 1991 (4) SA 1 (A)
at 12E-15I. In the Traub case at 762F-763I, the SCA rejected the
distinction between quasi-judicial and purely administrative as a basis for
determining whether the audi principle applies.
[296] Fedsure above n 269 at para 27.
[297] SARFU 3 above n 270 at para 141.
[298] 116 DLR (3d) 1.
[299] Id at 10-11.
[300] [1981] 1 NZLR 172 at
188-9.
[301] Section 6(2)(f)(i) and
(i) of PAJA provides:
“(2) A court or tribunal has the power to judicially review an
administrative action if —
. . . .
(f) the action itself —
(i) contravenes a law or is not
authorised by the empowering provision;
(i) the action is otherwise unconstitutional or
unlawful.”
[302]
Zondi above n 246 at paras
113-4; Minister of Public Works and Others v Kyalami Ridge Environmental
Association and Another (Mukhwevho Intervening) [2001] ZACC 19; 2001 (3) SA 1151 (CC); 2001
(7) BCLR 652 (CC) at para 109; Premier, Mpumulanga, and Another v Executive
Committee, Association of State-Aided Schools, Eastern Transvaal [1998] ZACC 20; 1999 (2) SA
91 (CC); 1999 (2) BCLR 151 (CC) at para 39.
[303] Affordable Medicines
above n 275 at para 108.
[304] Dispensing fees apply to
both medicines and Scheduled substances falling into schedule 1 to 8. The
reference to medicines in this
judgment will include a reference to scheduled
substances.
[305] Section 22G(3)(b).
[306] Section 22G(3)(c).
[307] Regulation 10(1)
provides:
“The appropriate dispensing fee as contemplated in section 22G(2)(b) of
the Act to be charged by pharmacists must be calculated
as
follows:
(1) With regard to medicines and scheduled substances falling into Schedules 1
and 2 of the Act, in the absence of a prescription
the dispensing fee, exclusive
of VAT, must not exceed -
(a) 16% of the single exit price of a medicine or Scheduled substance where the
single exit price of that medicine or Scheduled substance
is less than one
hundred rands;
(b) sixteen rands in respect of a medicine or Scheduled substance where the
single exit price of that medicine or Scheduled substance
is greater than or
equal to one hundred
rands.”
[308] Regulation 10(2)
provides:
“(2) With regard to medicines and scheduled substances falling into
Schedules 3, 4, 5, 6, 7, and 8 of the Act, and medicines
and Schedules
substances falling into Schedules 1 and 2 of the Act in respect of which a
prescription has been written, the dispensing
fee, exclusive of VAT, must not
exceed -
(a) 26% of the single exit price in respect of a medicine or Scheduled substance
where the single exit price of that medicine or
Scheduled substance is less than
one hundred rands;
(b) twenty six rands in respect of a medicine or Scheduled substance where the
single exit price of that medicine or Scheduled substance
is greater than or
equal to one hundred
rands.”
[309]
Regulation 12 provides:
“The appropriate dispensing fee as contemplated in section 22G(2)(b) of
the Act to be charged by persons licensed in terms
of section 22C(1)(a) of the
Act must be calculated, exclusive of VAT, as
follows:
(1) Where the single exit price of a medicine or Scheduled substance is less
than one hundred rands, the dispensing fee must not
exceed 16 % percent of the
single exit price in respect of that medicine or Scheduled substance.
(2) Where the single exit price of a medicine or Scheduled substance is one
hundred rands or more, the dispensing fee must not exceed
sixteen rands in
respect of that medicines or Scheduled substance.
(3) The provisions of this regulation 12 must be reviewed annually by the
Minister with regard to the CPI, the PPI, and the need
to ensure the
availability, affordability and quality of medicines and Scheduled substances in
the
Republic.”
[310]
Regulation 11 provides:
“Where a medicine or Scheduled substance is dispensed in terms of a
prescription written for a person who has been admitted
as an inpatient the
dispensing fee shall be calculated in terms of regulation 10 in respect of the
entire quantity of the medicine
or Scheduled substance reflected on such
prescription, irrespective of whether the medicine or Scheduled substance is
issued from
the stock of the pharmacy or from ward or theatre
stock.”
[311]
Regulation 13 provides:
“The appropriate fee to be charged by any person, other than a wholesaler
or distributor, in respect of Schedule 0 medicines
shall not exceed the
percentage mark-up in respect of that medicine or Scheduled substance that was
applied at the date of commencement
of these
regulations.”
[312]
CPI is defined in regulation 2 as:
“the Consumer Price Index as determined and published by Statistics South
Africa from time to
time”.
[313]
PPI is defined in regulation 2 as:
“the Production Price Index for pharmaceutical products as determined and
published by Statistics South Africa from time to
time”.
[314]
Regulation 10(3) provides:
“The provisions of this regulation 10 must be reviewed annually by the
Minister with regard to the CPI, the PPI, and the need
to ensure the
availability, affordability and quality of medicines and Scheduled substances in
the
Republic.”
[315]
Affordable Medicines above n 275
at paras 57 to 67 and paras 73 to 95.
[316] Above n 265 at para 89.
[317] Id.
[318] Affordable
Medicines above n 275 at para
35.
[319] Section 6(2)(e)(iii) of
PAJA provides:
“(2) A court or tribunal has the power to judicially review an
administrative action if—
(e) the action was taken—
(iii) because irrelevant
considerations were taken into account or relevant considerations were not
considered”.
[320] Compare Affordable
Medicines above n 275 at paras 34,
38 and 39.
[321] Section 27(1)(a) and (2)
of the Constitution provides:
“(1) Everyone has the right to have access to—
(a) health care services, including reproductive health care;
. . . .
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve the progressive realisation
of each of these
rights.”
[322]
This amendment was part of a package of amendments that were largely aimed at
giving effect to the National Drug Policy. It was
brought about by two separate
amendments: the first amendment by section 14 of the Medicines and Related
Substances Control Amendment Act, 90 of 1997, and the second by sections 6, 7
and 8 of the Medicines and Related Substances Control Amendment Act, 59 of
2002.
[323] See para 516 above.
[324] Above n 265 at paras 76-77.
[325] Above n 265 at para 77.
[326] Section 27 of the
Constitution.
[327] Bato Star above n
244 at para 44.
[328] Commonwealth of
Australia v Pharmacy Guild of Australia and Another 91 ALR 65 at 86.
[329] Bangtoo Bros. and
Others v National Transport Commission and Others 1973 (4) SA 667 (N) at
685A-D; Bato Star above n 244 at
para 99.
[330] Bangtoo Bros. id
at 685A-D.
[331] Bato Star above n
244 at para 99.
[332] Id at para 103.
[333] Above n 265 at para 89.
[334] Above n 328 at 88.
[335] 95 ALR 451.
[336] Id at 455.
[337] Id at 456.
[338] Id at 462.
[339] Above n 265 at para 89.
[340] Pretoria North Town
Council v A.1.Electric Ice-Cream Factory (Pty) Ltd 1953 (3) SA 1 (A) at
16F-G; Livestock & Meat Industry Control Board v Robert S. Williams (Pty)
Ltd 1963 (4) SA 592 (T) at 598C; Minister of National Revenue v
Wright’s Canadian Ropes Ltd 1947 A.C. 109.
[341] It should be recalled
that when the draft regulations were published for comment in December 2003, the
fees were fixed at R24/24%
for retail pharmacies and R14/14% for others.
Subsequent to the oral hearings, the Pricing Committee again discussed this
issue
which resulted in the draft regulations being published on 19 April 2004.
Those regulations fixed the fees at R24/24% plus a 1.5%
mark-up on the cost of
the medicine dispensed. On 20 April 2004 the Pricing Committee held a meeting
with the Minister and this
resulted in the review of the dispensing fee which
was then R26/26%, the mark-up was dropped. It seems clear that the 1.5% mark-up
would have resulted in greater remuneration to pharmacies where the drugs were
expensive. It is also clear that the Pricing Committee
suggested the 1.5% to
cover stock costs and not to deal with issues relating to a number of scripts
dispensed by pharmacies.
[342] Affordable Medicines
above n 275.
[343] Id at para 119.
[344] Id at para 113.
[345] Regulations Relating to
the Practice of Pharmacy published in Government Gazette No 21754, Government
Notice R1158 on 20 November
2000. Regulation 1 of these regulations defines
“dispensing” to mean:
“the interpretation and evaluation of a prescription, the selection,
manipulation or compounding of the medicine, the labelling
and supply of the
medicine in an appropriate container according to the Medicines Act and the
provision of information and instructions
by a pharmacist to ensure the safe and
effective use of medicine by the patient and ‘dispense’ has a
corresponding
meaning”.
[346]
Regulation 38(4) of the General Regulations Made in Terms of the Medicines and
Related Substances Act published in Government Gazette 24727, Government Notice
R510 on 10 April 2003, provides:
“The Director-General may designate employees of the Department to serve
as the secretariat of the
Committee.”
[347]
Bangtoo Bros. above n 329 at
685.
[348] Act 3 of 2000.
[349] The legal imagination
does not invent materials that do not exist. Rather, it reconfigures already
acknowledged legal materials
according to a new underlying or organising
principle. Such a principle derives its force from the fact that it is
recognisable,
incontrovertible and possessed of great and immediate explanatory
power. It produces a fresh way of looking at and appreciating
the significance
of the materials as a whole. The whole is made up of the parts, but is greater
than the parts, and solidifies their
interrelationship. Central to my analysis
is the concept, drawn expressly and implicitly from the text of the
Constitution, that
South Africa is a constitutional democracy. This basic
understanding is more than an aid to the interpretation of a particular text.
It serves as an independent structural element in the analysis. In the
celebrated words of the American constitutional scholar
Charles Black what is
involved is a move from:
“. . . the method of purported explication or exegesis of the particular
textual passage considered as a directive action .
. . to the method of
inference from the structures and relationships created by the constitution in
all its parts or in some principal
part”. (In Structure and
Relationship in Constitutional Law (Ox Bow Press, Woodbridge 1985) at
7)
He points out that this involves shifting constitutional
reasoning from interpretation of isolated texts to analysis based on structure
and relation as created by the Constitution. (At 31-35).
[350] Fedsure Life Assurance
Ltd and Others v Greater Johannesburg Transitional Metropolitan Council
and Others [1998] ZACC 17; 1999 (1) SA 374 (CC); 1998 (12) BCLR 1458 (CC).
[351] Id at para 23.
[352] Section 1 of the
Constitution provides:
“The Republic of South Africa is one, sovereign, democratic state founded
on the
following values:
(a) Human dignity, the achievement of equality and the advancement
of
human rights and freedoms.
(b) Non-racialism and non-sexism.
(c) Supremacy of the constitution and the rule of law.
(d) Universal adult suffrage, a national common voters roll,
regular
elections and a multi-party system of democratic government, to
ensure accountability, responsiveness and openness.”
[353]
Section 195 of the Constitution provides for the basic values and principles
governing public administration as follows:
“(1) Public administration must be governed by the democratic values
and
principles enshrined in the Constitution, including the following
principles:
(a) A high standard of professional ethics must be promoted
and
maintained.
(b) Efficient, economic and effective use of resources must be promoted.
(c) Public administration must be development-oriented.
(d) Services must be provided impartially, fairly, equitably and
without
bias.
(e) People's needs must be responded to, and the public must
be
encouraged to participate in
policy-making.
(f) Public administration must be accountable.
(g) Transparency must be fostered by providing the public with
timely,
accessible and accurate
information.
(h) Good human-resource management and career-development practices, to maximise
human potential, must be
cultivated.
(i) Public administration must be broadly representative of the
South
African people, with employment and personnel management
practices based on ability, objectivity, fairness, and the need to
redress the imbalances of the past to achieve broad
representation.
(2) The above principles apply to—
(a) administration in every sphere of government;
(b) organs of state; and
(c) public enterprises.
(3) National legislation must ensure the promotion of the values and
principles
listed in subsection (1).” (My
emphasis.)
[354]
See Black above n 2 at 46-47 Discussing the famous New York Times v
Sullivan case 376 U.S.254 (1964) he argues that it is idle to pretend that
the First Amendment and Equal Protection clauses in the Bill of
Rights dictated
the decision, which was really based on the concept that no judge or jury could
penalise free expression in a matter
of such high national importance as the
right to criticise a racist public official. He concludes ( at 49)
“[n]othing but
possible gain in predictability could come from selection
of a ground which forces one to talk about, realistic factors of national
political involvement.”
[355] Thus any obscurity in the
rather convoluted test for reasonableness contained in section 6(2)(h) of PAJA
must be resolved in favour
of and not against the broad, unqualified sweep of
section 33(1). See the discussion in Bato Star Fishing (Pty) Ltd v Minister
of Environmental Affairs and Others [2004] ZACC 15; 2004 (4) SA 490 (CC); 2004 (7) BCLR 687
(CC) at paras 44-45. Echoes of the Wednesbury test which confines
judicial review concerning the substance of administrative decisions to
irrationality rather than reasonableness
(see Chaskalson CJ at para 108) should
have no place in the open and democratic society envisaged by the
Constitution.
[356] Chaskalson P in
Pharmaceutical Manufacturers Association of SA and Another: In re Ex parte
President of the Republic of South Africa and Others [2000] ZACC 1; 2000 (2) SA 674 (CC);
2000 (3) BCLR 241 (CC) at para 45. (Pharmaceuticals)
[357] South African Rugby
and Football Union v President of the Republic of South Africa 2000 (1) SA 1
(CC); 1999 (10) BCLR 1059 (CC) at para 133. (SARFU (3))
[358] Id.
[359] Id at para 134.
[360] Section 32(1).
[361] Section 33.
[362] Section 7(2) and section
8(1).
[363] Section 195(2).
[364] Section 196.
[365] Section 182(1)(a) and
(b).
[366] Section 188(1)(a) and
(c).
[367] SARFU (3) above n
10 at para 136.
[368] Hoexter The New
Constitutional and Administrative Law Vol II Administrative Law (Juta, Cape
Town 2002) 28-31, with assistance from Rosemary Lyster, general editor Iain
Currie (Hoexter). She distinguishes between
administrative acts and
administrative action. In her view administrative action is wide enough to
include subordinate legislation.
In this respect her approach is in line with
that of Chaskalson CJ in the present matter. While I agree with the underlying
objective
and much of the end result, I differ over the modalities.
[369] Executive Council,
Western Cape Legislature, and Others v President of the Republic of South Africa
and Others [1995] ZACC 8; 1995 (4) SA 877 (CC); 1995 (10) BCLR 1289 (CC). (Executive
Council Western Cape)
[370] Id at para 51.
[371] See Hoexter above n 21 at
29.
[372] Id.
[373] Id at 29-30.
[374] Wade and Forsyth
Administrative Law 8 ed (Oxford University Press, New York 2000) at 436.
(Wade and Forsyth)
[375] See Baxter
“Rule-making and the Policy Formulation in South African
Administrative–Law Reform” in Corder and others Administrative
Law Reform (Juta and Co Ltd., Cape Town 1993) at 186. This article was
later republished in (1993) Acta Juridica. (Baxter in Corder)
[376] See O’Regan J
“Rules for Rule-making: Administrative Law and Subordinate
legislation” in Corder id at 160-162.
(O’Regan in Corder)
[377] Hoexter above n 21 at
102. She goes on to say that a narrow interpretation of the word
“decision” must be resisted stoutly,
since it perpetuates a
discredited separation of administrative function between
“legislative” and “purely administrative”.
She observes
that it is true that a number of provisions and one ground of review relating
particularly to delegated legislation
were left out of the Act and deliberately
so, but contends that other provisions, notably those allowing for notice and
comment procedures,
would apply to delegated legislation. She adds that the
South African Law Commission (SALC) draft Bill included a duty on the State
Law
Adviser to publish protocols for rule-making, a duty on administrators to
communicate their rules and standards in an appropriate
way to those likely to
be affected by them, and provisions relating to the keeping of registers and
indexes of rules and standards,
but that they were intentionally omitted from
PAJA. The ground of review for vagueness also appeared in the draft Bill. All
of
these were left out of the final version. (Hoexter at 102 fn 203).
[378] Wade and Forsyth above n
27 at 875.
[379] Id.
[380] Hoexter above n 21 at
112.
[381] See for example South
African Roads Board v Johannesburg City Council 1991 (4) SA 1 (A).
(South African Roads Board)
[382] Subsection 2 goes on to
state:
“If an administrator decides to hold a public
inquiry—
| (a) | the
administrator must conduct the public inquiry or appoint a suitably qualified
person or panel of persons to do so;
and |
| (b) | the administrator or the person or
panel referred to in paragraph (a) must
— |
(i) determine the procedure for the public inquiry, which must—
(aa) include a public hearing;
and
(bb) comply with the procedures to
be followed in connection with inquires, as prescribed;
(ii) conduct the inquiry in accordance with that procedure;
(iii) compile a written report on the inquiry and give reasons for any
administrative action taken or recommended; and
(iv) as soon as possible
thereafter—
(aa) publish in English and in at least one of the other official languages in
the Gazette or relevant provincial Gazette a notice
containing a concise summary
of any report and the particulars of the places and times at which the report
may be inspected and copied;
and
(bb) convey by such other means of communication which the administrator
considers effective, the information referred to in item
(aa) to the public
concerned.”
[383]
Subsection 3 provides:
“If an administrator decides to follow a notice and comment procedure, the
administrator must—
(a) take appropriate steps to communicate the administrative action to those
likely to be materially and adversely affected by it
and call for comments from
them;
(b) consider any comments received;
(c) decide whether or not to take the administrative action, with or without
changes; and
(d) comply with the procedures to be followed in connection with notice and
comment procedures, as
prescribed.”
[384]
Section 5(4).
[385] See Hoexter above n 21 at
112, where she points out:
“[T]he Act perpetuates the heavy-handed all-or-nothing style of
‘old’ administrative law by placing the focus on
concepts
such as ‘decision’, ‘rights’ and ‘direct, external
legal effect’. . . . A reliance on concepts,
to supply answers to
fundamental questions of application
‘encourages judges and lawyers to spend their time working out the content
of these concepts, instead of working out the factors
relevant to judicial
intervention and
non-intervention.’”
[386]
See above n 30.
[387] Black asks why should one
not explicitly base constitutional holdings
“not on Humpty-Dumpty textual manipulation, but on the sort of political
inference which not only underlies the textual manipulation
but is, in a well
constructed opinion, usually invoked to support the interpretation of cryptic
text?”
The manipulation he decried related to a case
concerning a state law under which a man was prosecuted for bringing his
indigent brother
into the state. Five judges held the state law to be
unconstitutional under the commerce-clause theory, four, under the privileges
and immunities clause. The real principle, he pointed out, had nothing to do
with texts concerning inter-state commerce or privileges
and immunities, but was
that the USA was a unitary state in which, because of its nationhood, internal
barriers to travel were unthinkable.
There is, of course, no question of Humpty-Dumpty manipulation in the present
matter. I believe, however, that the real principle
governing review of
subordinate legislation stems from the way law-making should be controlled in a
constitutional democracy, and
not from loading on to a provision in the Bill of
Rights to carry more than it was designed to bear. (Above n 2 at 29)
[388] Baxter in Corder above n
28 at 177.
[389] Id.
[390] As Black at above n 2 at
31 states, there is
“ . . . a close and perpetual interworking between the textual and the
relational and structural modes of reasoning, for the
structure and relations
concerned are themselves created by the text, and inference drawn from them must
surely be controlled by
the
text.”
[391]
Hoexter above n 21 at 84.
[392] See the discussion on
constitutional control of public power by O’ Regan J in Rail Commuters
Action Group and Others v Transnet Ltd t/a Metrorail and Others 2005(2) SA
359[2004] ZACC 20; ; 2005 (4) BCLR 301 (CC) at paras 85-86. (Metrorail)
[393] Pharmaceutical
above n 9 at paras 17, 19, 20 and 45.
[394] Above n 45 at para
85.
[395] Id.
[396] Baxter in Corder above n
28 at 178.
[397] Wade and Forsyth above n
27 at 876.
[398] Id.
[399] Id.
[400] Id.
[401] Id.
[402] Metrorail above n
45 at para 76.
[403] Section 57(1)(b).
[404] Sections 70(1)(b) and
72.
[405] Sections 116(1)(b), 118,
152(1)(e) and 160(7).
[406] Act 2 of 2000.
[407] Section 9(e).
[408] To mention a few of the
popular names given to the widespread practice of organising consultations.
[409] Hoexter points out that
the draft Administrative Justice Bill that was appended to the South African Law
Commission’s Report on Administrative Justice (1999) included a
duty on the State Law Advisor to publish protocols for rule-making, a duty on
administrators to communicate their
rules and standards in an appropriate way to
those likely to be affected by them and, provisions relating to the keeping of
registers
and indexes of rules and standards, but that these were left out of
the final version. (Above n 21 at 102 at fn 203)
[410] O’Regan in Corder
quotes the classic work of Schwartz on Administrative Law (1984) as stating that
a statute in the United
States which required a public inquiry resulted in a
hearing with a nearly 8000 page record to determine whether peanut butter should
consist of 87.5 or 90 per cent peanuts. (Above n 29 at 174 at fn 87)
[411] See section 4 (3) of
PAJA.
[412] According to Hoexter the
courts still use the term ‘ultra vires’ as before to indicate that
an action is outside of its
lawful parameters, illegal and of no force or
effect. However, the meaning of the term has changed. Hoexter states that the
‘vires’ in question are now those of the Constitution, and
not simply those of Parliament. Above n 21 at 81.
[413] [1898] 2 QB 91 (Div
Court).
[414] Id at 99-100.
[415] See Pharmaceutical
above n 9 at paras 84-85.
[416] Above n 45 at para
87-88.
[417] Pharmaceuticals
above n 9 at para 84.
[418] Executive Council
Western Cape above n 22 at para 47.
[419] As provided for in
sections 43 and 44 of the Constitution.
[420] Section 8(1) of the
Constitution.
[421] Sections 25, 26 and
27.
[422] Section 36.
[423] Above n 34 at 12E-G.
[424] Government of the
Republic of South Africa and Others v Grootboom and Others 2001 (1) SA 46
(CC); 2000 (11) BCLR 1169 (CC). (Grootboom)
[425] Id at para 41.
[426] Soobramoney v Minister
of Health, KwaZulu-Natal [1997] ZACC 17; 1998 (1) SA 765 (CC); 1997 (12) BCLR 1696 (CC),
City Council of Pretoria v Walker [1998] ZACC 1; 1998 (2) SA 363 (CC); 1998 (3) BCLR 257
(CC), Grootboom above n 77, Western Cape Provincial Government and
Others: In re DVB Behuising (Pty) Ltd v North West Provincial Government and
Another [2000] ZACC 2; 2001 (1) SA 500 (CC); 2000 (4) BCLR 347 (CC), Port Elizabeth
Municipality v Various Occupiers [2004] ZACC 7; 2005 (1) SA 217 (CC); 2004 (12) BCLR 1268
(CC), President of RSA and Another v Modderklip Boerdery (Pty) Ltd and
Others [2005] ZACC 5; 2005 (8) BCLR 786 (CC).
[427] Above n 76 at paras
43-44.
[428] Affordable Medicines
Trust and Others v Minister of Health of the RSA and Others [2005] ZACC 3; 2005 (6) BCLR
529. (Affordable Medicines)
[429] Id at paras 59-60.
[430] Id at para 60.
[431] See Sunstein, The
Partial Constitution, (Harvard University Press, Cambridge 1993) at 3-4.
Discussing the dangers of what he refers to as status quo neutrality, he writes
that neutrality takes
“as a given and as a baseline for decision, the status quo, or what
various people and groups now have: existing distributions
of property, income,
legal entitlements, wealth, so-called natural assets and preferences. A
departure from the status quo signals
partisanship; respect for the status quo
signals neutrality. When government does not interfere with existing
distributions, it
is adhering to the neutrality requirement, and it rarely needs
to justify its decision at all. When it disrupts existing arrangements,
it is
behaving partially, and is thus subject to constitutional doubt.
. . . .
In constitutional law, then, we should understand the prevailing conception of
neutrality to be one that treats as legally uncontroversial
any decision to
respect existing distributions, and as legally suspect any decision to disrupt
them.”
In South Africa the apparent objectivity of the
notion of status quo neutrality could frequently result in unconscious
partiality
in favour of protecting systemic mal-distribution. In a society
where distributions are manifestly unequal and unjust, it is a defence
of the
status quo and the failure to make corrective intervention, rather than a
re-distributive initiative, that could be open to
a charge of
unreasonableness.
[432] Affordable
Medicines above n 81 at para 93.
[433] Act 3 of 2000.
[434] The full text is cited in
paragraph 60 of the judgment of the Chief Justice.
[435] Act 101 of 1965.
[436] 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 2005 (2) SA 530
(C).
[437] Pharmaceutical Society
of South Africa and Others v Tshabalala-Msimang and Another NNO; New Clicks
South Africa (Pty) Ltd v Minister
of Health and Another 2005 (3) SA 238
(SCA); 2005 (6) BCLR 576 (SCA).
[438] Section 22G of the
Medicines and Related Substances Act states:
“(1) The Minister shall appoint, for a period not exceeding five years,
such persons as he or she may deem fit to be members
of a committee to be known
as the pricing committee.
(2) The Minister may, on the recommendation of the pricing committee, make
regulations—
(a) on the introduction of a transparent pricing system for all medicines and
Scheduled substances sold in the Republic;
(b) on an appropriate dispensing fee to be charged by a pharmacist or by a
person licensed in terms of section 22C(1)(a);
(c) on an appropriate fee to be charged by wholesalers or distributors or any
other person selling Schedule O
medicines.
(3)(a) The transparent pricing system contemplated in subsection (2)(a) shall
include a single exit price which shall be published
as prescribed, and such
price shall be the only price at which manufacturers shall sell medicines and
Scheduled substances to any
person other than the State.
(b) No pharmacist or person licensed in terms of section 22C(1)(a) or a
wholesaler or distributor shall sell a medicine at a price
higher than the price
contemplated in paragraph (a).
(c) Paragraph (b) shall not be construed as preventing a pharmacist or person
licensed in terms of this Act to charge a dispensing
fee as contemplated in
subsection (2)(b).
(4) To the members of the pricing committee who are not in the full-time
employment of the State may be paid such remuneration and
allowances as the
Minister, with the concurrence of the Minister of Finance, may
determine.”
[439]
The definition of user appears in regulation 2.
[440] Regulation 24(5) read
with regulation 2 sets the effective date at three months after the commencement
date of 2 May 2004.
[441] Schedule 0 medicines
include all substances that are subject to registration in terms of the
Medicines Act and which are not listed
in any of the other schedules.
[442] See regulations 10(3) and
12(3).
[443] Below paras 726-782.
[444] Above n 435.
[445] Below para 788.
[446] Sections 27(1) and (2) of
the Constitution states:
“(1) Everyone has the right to have access to–
(a) health care services, including reproductive health care;
(b) sufficient food and water;
and
(c) social security, including, if they are unable to support themselves and
their dependants, appropriate social
assistance.
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve progressive realisation
of each of these
rights.”
[447]
Section 22 of the Constitution states:
“Every citizen has the right to choose their trade, occupation or
profession freely. The practice of a trade, occupation or
profession may be
regulated by
law.”
[448]
Professor McIntyre, Dr Pillay, Professor Mossialos, Professor Henry and Dr
Thiede.
[449] 2001 (1) SA 1 (CC); 2000
(11) BCLR 1211 (CC) at paras 42-45.
[450] Above n 437 at para 82.
[451] Id at para 83.
[452] Id at para 82.
[453] Id at para 89.
[454] Id at para 86-88.
[455] Id at para 89.
[456] Section 27(1) and (2) of
the Constitution above n 446.
[457] [1997] ZACC 17; 1998 (1) SA 765 (CC);
1997 (12) BCLR 1696 (CC) at para 8.
[458] See also the unanimous
judgment of the Court in Government of the Republic of South Africa and
Others v Grootboom and Others 2001 (1) SA 46 (CC); 2000 (11) BCLR 1169 (CC)
at para 25.
[459] Minister of Health and
Others v Treatment Action Campaign and Others (No 2) [2002] ZACC 15; 2002 (5) SA 721 (CC);
2002 (10) BCLR 1033 (CC) at para 36.
[460] Section 22C(1)(a) states:
“(1) Subject to the provisions of this
section–
a) the Director-General may on application in the prescribed manner and on
payment of the prescribed fee issue to a medical practitioner,
dentist,
practitioner, nurse or other person registered under the Health Professions Act,
1974, a licence to compound and dispense
medicines, on the prescribed
conditions”.
On section
22C(1)(a), Ngcobo J in Affordable Medicines Trust and Others v
Minister of Health of RSA and Another [2005] ZACC 3; 2005 (6) BCLR 529 (CC) stated at paras
33 and 38:
“Nor is there anything that prevents Parliament from conferring upon the
Director-General the discretion to determine those
conditions. Discretion has
an important role to play in decision-making. And its scope may vary.
. . . .
The power of the Director-General to prescribe conditions under subsection is
limited by the context in which these powers are to
be exercised. Thus the
power to prescribe conditions must be exercised in the light of, amongst other
considerations, the government
purpose to increase access to medicines that are
safe for consumption, the purpose for which the discretionary powers are given,
and the obligations of medical practitioners who have been issued with
dispensing licenses. All this provides sufficient constraint
on the exercise of
the discretionary powers conferred by the
subsection.”
[461]
Preamble to the national drug policy document.
[462] Act 90 of 1997.
[463] Act 59 of 2002.
[464] Section 22F of the
Medicines Act, above n 435.
[465] Id at section 18A.
[466] Id at section 15C.
[467] Id at section 18B.
[468] Id at section 22C.
[469] 1998 (4) SA 1127 (CC) at
para 17[1998] ZACC 10; ; 1998 (7) BCLR 880 (CC) para 10.
[470] Id. It is clear that the
judgment cites with approval the dicta of Kriegler AJA in Administrator, Cape
v Raats Röntgen and Vermeulen (Pty) Ltd [1991] ZASCA 126; 1992 (1) SA 245 (A) at 254B-E.
See also Pharmaceutical Manufacturers Association of SA and Another: In re Ex
parte President of the Republic of South Africa and Others [2000] ZACC 1; 2000 (2) SA 674
(CC); 2000 (3) BCLR 241 (CC) at para 61.
[471] Section 6(2)(e)(ii) of
PAJA.
[472] Within the meaning of
section 6(2)(e)(i) of PAJA.
[473] Within the meaning of
section 6(2)(e)(iii) of PAJA.
[474] Within the meaning of
section 6(2)(f)(ii)(bb) of PAJA.
[475] See remarks of Ngcobo J
in Hoffmann above n 449 at paras
42-43.
[476] S v Lawrence; S v
Negal; S v Solberg 1997 (4) SA 1176 (CC); 1997 (10) BCLR 1348 (CC);
Pharmaceuticals above n 470;
Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional
Metropolitan Council and Others [1998] ZACC 17; 1999 (1) SA 374 (CC); 1998 (12) BCLR 1458
(CC); President of the Republic of South Africa and Others v South African
Rugby Football Union and Others (SARFU 3) 2000 (1) SA 1 (CC); 1999 (10) BCLR
1059 (CC); Bel Porto School Governing Body and Others v Premier, Western
Cape, and Another [2002] ZACC 2; 2002 (3) SA 265 (CC); 2002 (9) BCLR 891 (CC);
Affordable Medicines above n 460.
[477] S v Makwanyane and
Another [1995] ZACC 3; 1995 (3) SA 391 (CC); 1995 (6) BCLR 665 (CC) at para 156;
Prinsloo v Van der Linde and Another [1997] ZACC 5; 1997 (3) SA 1012 (CC); 1997 (6) BCLR
759 (CC) at para 25; President of the Republic of South Africa v Hugo
[1997] ZACC 4; 1997 (4) SA 1 (CC); 1997 (6) BCLR 708 (CC) at para 13; Fedsure above
id at para 58; New National Party of South Africa v Government of the
Republic of South Africa and Others [1999] ZACC 5; 1999 (3) SA 191 (CC); 1999 (5) BCLR 489
(CC) at para 19; Pharmaceuticals above n 470 at paras 17 and 20; Bel Porto id
at para 87; Minister of Health and Others v Treatment Action Campaign and
Others (No 2) above n 459;
Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Others
[2004] ZACC 15; 2004 (4) SA 490 (CC); 2004 (7) BCLR 687 (CC) at para 22; Affordable Medicines
n 460 at para 49.
[478] Bel Porto above n
44 at para 87, Bato Star above n 45 at para 22.
[479] Bato Star id.
[480] Section 33 reads as
follows:
“Just administrative action.
(1) Everyone has the right to administrative action that is lawful, reasonable
and procedurally fair.
(2) Everyone whose rights have been adversely affected by administrative action
has the right to be given written reasons.
(3) National legislation must be enacted to give effect to these rights, and
must
(a) provide for the review of administrative action by a court or, where
appropriate, an independent and impartial tribunal;
(b) impose a duty on the state to give effect to the rights in subsections (1)
and (2); and
(c) promote an efficient
administration.”
[481]
Above n 477 at para 22.
[482] Id at para 25.
[483] Id at para 24.
[484] Above n 476 at para 141; also see Permanent
Secretary, Department of Education and Welfare, Eastern Cape, and Another v
Ed-U-College (PE) (Section 21) Inc [2000] ZACC 23; 2001 (2) SA 1 (CC); 2001 (2) BCLR 118
(CC) at para 18; Zondi v MEC for Transitional and Local Government Affairs
and Others [2004] ZACC 19; 2005 (3) SA 589 (CC); 2005 (4) BCLR 347 (CC) at para 104.
[485] SARFU 3 above n
44 at para 143.
[486] [2003] ZACC 10; 2003 (5) SA 281 (CC);
2003 (8) BCLR 838 (CC).
[487] Id at para 52.
[488] Id at para 53 n 30.
[489] Joubert The Law of
South Africa (LAWSA) 2 ed vol 1 (LexisNexis Butterworths, Durban 2003) at
paras 79-81; Joubert, LAWSA First Reissue vol 10 Part 1 (Butterworths,
Durban, 1998) at para 6; Boulle, Harris and Hoexter Constitutional and
Administrative Law (Juta, Cape Town 1989) at 88-90; De Waal, Currie and
Erasmus The Bill of Rights Handbook 4 ed (Juta, Lansdowne 2001) 504-505;
Klaaren “Administrative Justice” in Chaskalson et al
Constitutional Law of South Africa (Juta, Cape Town, 1996) at 25.1-25.2;
De Ville Judicial Review of Administrative Action in South Africa
(LexisNexis Butterworths, Durban 2003) at 39-40; Henderson “The Meaning of
Administrative Action” (1998) 115 SA Law Journal 634 at 634-635;
Hoexter The New Constitutional and Administrative Law 1 ed vol 2 (Juta,
Lansdowne 2001) at 102; Burns Administrative Law under the 1996 Constitution
2 ed (LexisNexis Butterworths, Durban 2003) at 21-22; Currie and Klaaren
The Promotion of Administrative Justice Act Benchbook (Siberlink, Cape
Town 2001) at 83-84 para 2.38.
[490] Above n433; Bato Star n 477 at paras 23 and 25; Zondi above
n 484 at para 99; Affordable
Medicines above n 460 at para
49.
[491] See section 6(2)(h) of
PAJA which reads:
“(2) A court or tribunal has the power to judicially review an
administrative action if–
(h) the exercise of the power or the performance of the function authorised by
the empowering provision, in pursuance of which the
administrative action was
purportedly taken, is so unreasonable that no reasonable person could have so
exercised the power or performed
the
function”.
[492]
Above n 477 at para 45.
[493] Dr Theron says that for
example the UK once targeted a return on capital of between 17% and 21%.
[494] Dr Theron does not
explain the source of the international convention and practice she relies upon
and whether it is subject to any
contextual variation.
[495] Above n 437 at para 86.
[496] Above n 437 at para 85.
[497] Above n 437 at paras 85-87.
[498] Mr Jordaan explains
that
“[t]he blue book, is the reference price list compiled and published by
the Pharmaceutical Publishers from data obtained from
pharmaceutical
manufacturers, which is used as a basis to calculate the suggested dispensing
price of medicine.”
[499] Dr Thiede,
Dr Pillay, Professor Henry and Professor Mossialos.
[500] Of the four channels of
distribution described in Dr Stillman’s report, being retail pharmacies,
hospital pharmacies, courier
pharmacies and dispensing doctors, the courier
pharmacies have a 12% share in the dispensing of prescription medicines measured
by
value.
[501] Above paras 753-759.
[502] Main judgment paras
23-84, 190-263, 278-286 and 293-415.
[503] Act 3 of 2000.
[504] Main judgment paras 264
– 277.
[505] Main judgment paras 287
– 292.
[506] Main judgment paras 416
– 420.
[507] Medicines and Related
Substances Act 101 of 1965.
[508] Section 22G(2)(b).
[509] Section 22G(2)(c).
[510] Section 22G(3)(a).
[511] Section 22G(3)(b).
[512] Section 22C(2).
[513] 2 May 2004.
[514] The fact that regulation
5(1) does not refer to VAT is, in my view, neither here nor there.
[515] The proviso to regulation
5(2)(c)(i) refers to a Scheduled substance while the proviso to regulation
5(2)(c)(ii) refers to medicine.
[516] Id.
[517] Id.
[518] Id.
[519] Id.
[520] Id.
[521] Regulation 22(1).
[522] See paragraphs 181-183 of
his judgment.
[523] See paragraphs 836-841 of
his judgment.
PDF format
RTF format