In the case of Optivest Health Services (Pty) Ltd v The Council for Medical Schemes and Others, the Supreme Court of Appeal (“the SCA”) found that the Medical Schemes Act 131 of 1998 (“the Act”) and the Financial Sector Regulation Act 9 of 2017 (“the FSRA”) permit the Registrar of the Council of Medical Schemes (“the Registrar”) to launch an investigation into the conduct of medical scheme brokers.
Background
On 27 May 2019, a former employee of Optivest Health Services (Pty) Ltd (“Optivest”) emailed the Deloitte tip-off line alleging that resigned members of medical schemes continued to pay service fees to Optivest, a broker. The Registrar became aware of the email on or about 31 May 2019.
In light of the tip-off, Open Water Advanced Risk Solutions (Pty) Ltd (“Open Water”) was appointed by the Registrar to investigate the affairs of Optivest. Open Water was asked to investigate Optivest's compliance with the Act and to obtain and investigate all documents relating to broker commissions and service fees paid to Optivest by the medical schemes and/or members of medical schemes.
No prior notice was given to Optivest of the investigation. The inspection took place at Optivest's premises on 21 and 22 October 2019 and Optivest cooperated with Open Water during this inspection. A further inspection occurred on 14 November 2019. At this point, Optivest no longer cooperated with Open Water and sought to challenge the Registrar's authority to inspect its affairs.
Legislative Scheme
Section 7 of the Act provides that a key purpose of the Council is to protect the interests of beneficiaries at all times. Section 8 of the Act explains that for this protection to ensue, the Council, through the Registrar, is authorised to take any appropriate steps which it deems necessary.
Section 44 of the Act provides that the Registrar may order an inspection into any person if he thinks that an inspection will provide evidence of non-compliance with the Act. Sections 129, 134 and 135 of the FSRA include similar provisions. These sections of the FSRA permit the Council, as a financial sector regulator, to conduct investigations via the Registrar.
Section 47 of the Act provides that the Registrar shall, where a complaint is lodged with the Council, furnish the party complained against with full particulars of the complaint and request the party to furnish the Registrar with their written comments within 30 days or a longer period as the Registrar may allow.
Section 65 of the Act requires all brokers of medical schemes to be accredited. Regulation 28C of the Medical Schemes Regulations (“the Regulations”) empowers the Council to suspend or withdraw accreditation if the broker has conducted its business, in a manner that contravenes the Act.
Proceedings in the High Court
Optivest challenged the decision taken by the Registrar on three grounds:
- The Council, through the Registrar, was not lawfully entitled to initiate an investigation into Optivest as it is a broker and not a medical scheme in terms of section 44 of the Act;
- Optivest should have, as a matter of procedure, been made aware of the investigation before its implementation in terms of section 47 of the Act; and
- The investigation was not rationally connected to the purpose for which it was sought.
The High Court dismissed Optivest's application.
Findings of the SCA
The court referred to the case of Bonitas Medical Fund v The Council for Medical Schemes (“Bonitas”). In doing so, the court explained that an investigation in terms of section 44 of the Act is exactly that, it is merely an investigation. Accordingly, the SCA held that an investigation of this nature is for the collection of evidence, which does not affect rights.
As such, investigations of this nature do not constitute administrative action and are not reviewable in terms of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”). However, they are reviewable under the principle of legality. In this regard, Optivest was correct in instituting its review under the principle of legality and not under PAJA.
The SCA rejected the lawfulness challenge. In quoting the Constitutional Court case of Cool Ideas 1186 CC v Hubbard, the court reiterated that section 44 of the Act, like all statutes, must be interpreted in accordance with its ordinary grammatical meaning, in light of the purpose of the Act and the context.
The court found that since section 44 of the Act and the FSRA provisions do not define “any person”, the ordinary grammatical wording of the Act permits the Registrar to order an investigation into a broker and that such powers are not confined to medical schemes.
Furthermore, the court held that in order for the purposes of the Act to be achieved, namely, to ”protect the interests of beneficiaries at all times” as per section 7 of the Act, the Council is given a wide scope of powers and is permitted to launch an investigation into brokers.
By interpreting section 44 of the Act in the context of the Act as a whole, especially given that regulation 28C of the Regulations entitles the Council to suspend or withdraw the accreditation of a broker, the court held that this granted the Council the ancillary power of investigation into brokers, which flows from the Council's primary power of suspending or withdrawing a brokers accreditation.
In referring back to the case of Bonitas, the court reiterated that in order for the Council to discharge its statutory obligation of protecting the interests of beneficiaries at all times in terms of section 7 of the Act, prior notice of an investigation cannot be given to an entity suspected of non-compliance with the Act. This is so because the subject matter of an investigation would have the opportunity to destroy evidence of its non-compliance with the Act, should prior notice be given. Requiring prior notice would thus defeat the purposes of the Act as envisaged by section 7.
The court also rejected the rationality challenge. Given that Open Water's conduct did not go beyond an investigation into Optivest, which is what section 44 of the Act permits, the court did not find that irrationality was present.
Conclusion
The Council, through the Registrar, is capable of investigating the affairs of brokers. This is a power that is awarded to the Council by section 44 of the Act. A lack of prior notice to the subject matter of an investigation will not result in procedural unfairness. As long as the entity appointed by the Council to embark on an investigation does not go above and beyond to render their conduct as something more than an investigation, irrationality will not arise.
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