Genesis Medical Aid Scheme versus the Registrar of Medical Schemes

Medical  Aid Scheme
27 Jul 2017

Personal medical savings accounts cannot be regarded as ‘trust property’ affirms the Constitutional Court in Genesis Medical Aid Scheme versus the Registrar of Medical Schemes.

The Constitutional Court judgement handed down on 6 June 2017, followed a hearing before the court that was held on 7 February 2017. In its ruling, the Court found for the Appellant, the Genesis Medical Scheme (Genesis), upholding its right to appeal against an order of the Supreme Court of Appeals.

At the heart of the matter was the Medical Schemes Act (131 of 1998), particularly section 35 (9) and a dispute about whether funds in a medical scheme’s members’ personal medical savings accounts (PMSAs) should be treated as liabilities of a scheme, or should be regarded as assets of a scheme.

The matter originated as a review application in the Cape Town High Court when Genesis sought to review and have set aside a decision by the Registrar of Medical Schemes (Registrar), rejecting the scheme’s annual financial statements.

The Registrar had rejected Genesis’ financial statements believing that they did not correctly reflect the scheme’s financial position. The Registrar maintained that Genesis’ accounting was incorrect, as it mistakenly reflected PMSA account funds as assets in its balance sheet.

Genesis also excluded interest accumulated on personal medical savings accounts from its list of liabilities. This, the Registrar held, was because Genesis was retaining the interest for its own coffers. The scheme felt this was appropriate, as the PMSA funds were assets of the scheme.

The Registrar said this, too, was incorrect; the PMSA funds were being held as a ‘trust property’ in terms of the Financial Institutions (Protection of Funds) Act (FIA) and therefore did not form part of Genesis’ assets.

Supporting its view, the Registrar invoked a 2007 High Court decision in the matter regarding Omniheath in which the factual matrix was that: the liquidators of the insolvent medical scheme had argued that its PMSA funds fell into its insolvent estate and should be divided amongst creditors. At the time, the Registrar had argued that the PMSA funds were ‘trust property’ in terms of the FIA and could not form part of the scheme’s insolvent estate. The Court in Omnihealth agreed with the Registrar, finding that the funds were ‘trust property’ under the FIA and could not fall into Omnihealth’s insolvent estate.

When hearing the review application against the Registrar brought by Genesis, the Cape High Court disagreed with Omnihealth and upheld Genesis’s application, holding that the FIA did not assist the Registrar because the funds were not ‘trust property’. It continued that the scheme was the holder of all the funds, including PMSA funds.

When the judgement came before the Supreme Court on appeal, the High Court’s decision was reversed with the court affirming Omnihealth.

Genesis then approached the Constitutional Court seeking leave to appeal against the decision of the Supreme Court of Appeal. Its right to do so was confirmed by a majority* judgement.

In arriving at the majority decision, the Justices held that PMSA funds do not constitute ‘trust property’ in terms of the Financial Institutions Act.

Relying on the definition of ‘business of a medical scheme’ in the MSA, the court held that the definition contemplated two contracting parties, and a mutual exchange of value (quid pro quo), with the parties being the scheme and its member. The quid pro quo involved the scheme undertaking liability in exchange for money. The relation was therefore commercial, not fiduciary. Funds allocated to PMSAs could not be treated differently.

MSA accounting provisions reinforced this conclusion. The MSA requires a medical scheme at all times to have aggregate–value assets that exceed aggregate–value liabilities and net assets. It would ‘flout logic’, accounting practice, and principles of trust law for any funds held in trust to be included in the calculation of ‘assets’ for the purposes of this ‘solvency margin’.

The Constitutional Court held that, if PMSA funds were trust funds to be excluded as assets for all purposes, these provisions would require a scheme – to meet the section 35 (3) solvency margin – to find outside, non-PMSA assets to the value of the PMSA trust assets. The majority continued that this would not be logical, practical or just and found in favour of the Appellant.

 

First judgement written by Cameron J (Mogoeng CJ, Nkabinde ADCJ, Froneman J, Khampepe J, Madlanga J, Mhlantla J, Pretorius AJ and Zondo J concurring).

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Bonang Masia
Bonang Masia

Bonang Masia is a Director in GMI’s Public Law and Commercial Litigation Department. Her practice area mainly spans around advisory work for public and private sector clients, particularly on the exercise of public power, corporate governance, procurement, PFMA and National Treasury obligations, and corporate and commercial matters in the healthcare sector. Her primary passion lies in Competition Law. Bonang also attends to litigation arising from contractual disputes, procurement, and interpretation of legislation.

Send a legal query to Bonang Masia
Anita du Toit
Anita du Toit

Anita du Toit is an associate at GMI in the Commercial Litigation and Public Law Department. Anita specialises in legal areas including personal injury matters, medical negligence, forensic investigations, property law, general litigation, public law and commercial litigation.

Send a legal query to Anita du Toit
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