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IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

CASE NO: 1306/2018

In the matter between:

ANDRE MAXWELL                                                                                                  Applicant

and

ROYAL ALDORANCE KHOSANA                                                               First Respondent

SAMWUMED MEDICAL SCHEME                                                        Second Respondent

THE REGISTRAR OF MEDICAL SCHEMES                                            Third Respondent

CASE NO: 16996/2018

In the matter between:

THE REGISTRAR OF MEDICAL SCHEMES                                                          Applicant

and

SAMWUMED MEDICAL SCHEME                                                             First Respondent

ROYAL ALDORANCE KHOSANA                                                          Second Respondent

ANDRE MAXWELL                                                                                    Third Respondent

 

JUDGMENT - 9 OCTOBER 2018

 

ENGERS, AJ

[1] As will appear from this judgment, it deals with two separate applications, in which the same parties appear in different capacities. For the sake of clarity, therefore, and without any disrespect intended to the parties, I shall refer to them as Maxwell, Khosana, SAMWUMED and the Registrar.

[2] Case no. 1306/2018 is an application brought by Maxwell for the removal of a curator. He has done so under the same case number as the original application for the appointment of the curator. Case no. 16996/2018 is a "new" application brought by the Registrar for the removal of the curator. I shall deal in the main with Maxwell's application, and where I deal with the Registrar's application will say so expressly.

[3] The second respondent ("SAMWUMED") is a medical scheme which was established for the benefit of municipal workers. It is accordingly closely associated with SAMWU[1], the trade/labour union to which municipal workers belong.

[4] SAMWUMED caters for the health of around 80 000 people, of whom about 36 000 are members, and the remainder are dependents of members. The annual contribution income is in excess of R1,2 billion, and the scheme has about R1 billion in reserves.

[5] The close connection between SAMWUMED and SAMWU is illustrated by the fact that of the members of SAMWUMED's board of trustees, its decision­ making body, at least 9 have to be nominated by SAMWU.

[6] In about 2016, problems arose when there were two rival factions in the union, both claiming the right to nominate (and remove) members of the board of trustees. It became impossible to constitute a board of trustees, and the remaining trustees sought the assistance of the third respondent, the Registrar of Medical Schemes.

[7] The Registrar did not act immediately, but the faction problem in the union persisted. Eventually, in February 2018 the Registrar applied in terms of section 56 of the Medical Schemes Act[2] read with section 5 of the Financial Institutions (Protection of Funds) Act[3], for the appointment of a curator to the scheme. The application was opposed, and was heard by Andrews AJ. On 3 May 2018, she granted an order placing SAMWUMED under provisional curatorship, and appointing Khosana as the provisional curator. The provisional curator's interim powers were set out in some detail, such powers to be exercised subject to the control of the Registrar. A rule nisi was issued, calling on any interested persons to show cause on the return day why an order should not be granted confirming (i) the curatorship, (ii) the appointment of Khosana as curator and (iii) the powers of the curator (which appear to be identical to those of the provisional curator). Paragraphs 4 and 4.5 of the order provided for the curator to report to the Registrar on her curatorship within 12 months, and also to report to him on SAMWUMED's affairs on a monthly basis.

[8] It must be stressed that the only reason for placing SAMWUMED under curatorship appears to have been the dysfunctionality resulting from an irregularly constituted board of trustees. SAMWUMED was not in any financial difficulty (unlike most entities which are placed under curatorship).

[9] Paragraph 4.6 of Andrews AJ's order read

"The curator shall take all steps which are necessary to convene a special general meeting of [SAMWUMED] at which trustees who are fit and proper for this purpose shall be elected in the stead of the currently elected trustees, and trustees otherwise be appointed in accordance with the rules of the Scheme, and report thereon within the twelve (12) month period referred to herein.

[10] Andrews AJ also ordered that a copy of the order be served on SAMWU (which had not been cited as a party), and any other union having an interest in SAMWUMED, and on all the current trustees.

[11] The return date of the rule nisi was 30 July 2018. On that date, the rule was extended and the return date postponed, to 25 October 2018.

[12] Khosana's provisional curatorship thus began in May, about 4 months ago. The present application was launched on 16 August, when she had been curator for about 3 months.

[13] Maxwell brings this application in his capacity as a member of the scheme. He was also the deputy chairman of the board of trustees prior to the commencement of the curatorship. Maxwell seeks an order removing Khosana as interim curator of SAMWUMED, and appointing one Kevin Aron as the interim curator. The notice of motion is cast in the form of interim relief pending the outcome of an action to be instituted for the selfsame relief.

[14] The application is opposed by Khosana, who also purports to oppose on behalf of SAMWUMED. A timetable was set for the filing of further affidavits, and the matter postponed to 18 September.

[15] The Registrar did not oppose, but filed an affidavit in which he stated that Maxwell's application was academic, because he, the Registrar, was bringing his own application for the removal of Khosana. On 13 September he launched that application, setting it down also for the 18^th September, in which he seeks to cancel Khosana's appointment as provisional curator, and appoint a new provisional curator with the same powers and mandate as provided for in Andrews AJ's order The notice of motion also asks that the costs, on a scale between attorney and own client, be paid by SAMWUMED. At the hearing, I was informed that this was an error, and that costs were actually being sought against Khosana and not SAMWUMED.

[16] Neither of the applications seeks to anticipate the return day of 25 October.

[17] The legal basis for Maxwell's application[4] is section 5(9) of the FIA, which reads as follows: "The court may, on good cause shown, cancel the appointment of the curator at any time."

[18] Maxwell's grounds for asking for the removal of Khosana may be conveniently grouped into categories.

a. What I shall call the Medshield issue.

b. Khosana's actions in terminating certain of SAMWUMED's contracts.

c. Khosana's proposals for changing the benefit structure of SAMWUMED.

d. What he regards as profligate expenditure, including Khosana's own remuneration.

e. Personnel problems, inter alia the suspension of various staff, including most of higher management, by Khosana, and the hiring of allegedly unsuitable staff.

[19] I shall deal with each of these in turn, to see whether any of them constitutes good cause for the removal of the curator.

[20] Before doing so, I need to establish whether Maxwell has locus standi to apply for the relief claimed in his application.

[21] As will be seen from subsection 5(9), quoted above, it does not specify who may bring an application for the removal of a curator. This is in contrast to some of the other subsections.

a. Subsection (1) provides for the registrar (and only the registrar) to apply for the appointment of a curator;

b. Subsection (3) provides for the registrar or the institution to anticipate the return day;

c. Subsection (8) provides that any person, on good cause shown, may apply to set aside or alter any decision, or any action taken, by the curator or the registrar.

[22] Subsection (9) gives the court the power to cancel an appointment. The only requirement is that "good cause" must be shown. Since the subsection gives no indication as to who may furnish such good cause, I conclude that any interested party may do so. Maxwell, as a member of the scheme is, in my view, such an interested party.

[23] It was argued by Mr Watt-Pringle SC, who appeared with Ms Drake, for Khosana, that subsection (9) deals not with the removal of a curator, but with the termination of the curatorship itself. Accordingly, he argued, it did not give Maxwell locus standi in respect of the relief claimed.

[24] The subsection refers to the "cancellation of the appointment of the curator" which to my mind means an individual curator, and not the curatorship. Such a cancellation could in fact relate to one of several co-curators, leaving the curatorship itself in place. Accordingly, I find that Maxwell is able to seek the removal of the curator, and I turn to deal with the grounds raised by him.

[25] Maxwell alleges that there was a "disturbing" six-year gap in the curriculum vitae ("CV'') of Khosana which formed part of the papers before Andrews AJ. He is correct about the gap, since the CV in those papers shows Khosana's work history until only 2012 at which time she was employed by Medshield, another medical scheme, as its principal officer. He also alleges that in 2012, Medshield was placed under curatorship amid allegations of mismanagement and financial irregularities, and that the board of trustees of Medshield found Khosana to be unfit to be principal officer.

[26] Khosana denies that there was any gap in the CV she furnished. The alleged gap in the CV is in my opinion, far less significant than the allegation surrounding her termination of employment with Medshield. Any possible misconduct on the part of Khosana at Medshield would almost certainly have affected the judgment of Andrews AJ, not as to whether to place SAMWUMED under curatorship, but whom to appoint as provisional curator. At the very least, she would have dealt with these allegations even if she decided to appoint Khosana.

[27] The failure to place what I consider to be material facts before Andrews AJ is not the fault of Khosana. The application was brought by the Registrar, who must surely have been aware of the facts surrounding the Medshield curatorship.

[28] In opposing the application, Khosana has chosen to deal with allegations surrounding Medshield by blandly stating that she is no longer employed by Medshield. This in no way allays my disquiet. If the allegations regarding Khosana are correct, then I would have some difficulty, without some further evidence or explanation, in seeing her as a fit person to be curator of a medical scheme. In itself, this issue would probably constitute good cause to remove the curator.

[29] It is common cause that Khosana has terminated at least two major contracts of SAMWUMED. One is with a service provider, Melamed, with whom SAMWUMED had a three-year contract. The other is a contract with Alexander Forbes for the management of certain assets.

a. I have noted the arguments on both sides regarding the contract with the service provider. Whether the cancellation of this contract will result in higher costs (as Maxwell maintains), I cannot say for sure, although it seems probable, since the scheme would be able to secure better rates in return for a longer commitment to the service provider.

b. What concerns me far more, is that Khosana appears to have acted without properly consulting with the personnel of SAWMWUMED whose expertise in running the scheme for many years would be of crucial importance. There is a pattern here of Khosana taking decisions without regard to the input of anyone else at SAMWUMED, including the termination of the Alexander Forbes contract, and the proposed benefit changes.

c. Whether the termination of the Alexander Forbes agreement will have the consequences alleged by Maxwell or not, it is again a decision taken by Khosana without proper consultation.

[30] Khosana was appointed as curator of SAMWUMED for the primary purpose of overcoming the problems associated with the faction fighting in the union. This is reflected in paragraph 4(6) of Andrew AJ's order. I find it disturbing that she has seen fit to make what are possibly far-reaching decisions without having addressed the main problem that she was supposed to.

[31] Maxwell alleges that Khosana has proposed radical changes in the benefit structure of SAMWUMED.

a. This is also, to my mind, a radical change contemplated by someone who is only a provisional curator, and whose primary target should be to re­ establish a proper board of trustees.

b. Nevertheless, it is only a proposed restructuring of benefits. Before any such restructuring could be implemented, various procedures would have to be complied with, including obtaining the approval of the Registrar.

c. Whether such a restructuring would benefit the members of SAMWUMED is not a question which I need consider.

[32] Maxwell alleges that SAMWUMED Is paying unduly large amounts, not only to the curator herself, but in respect of her expenses, and to various consultants appointed by her. It is common cause that Khosana is being paid a salary of R234 000 per month, plus expenses (which Maxwell alleges to be R150 000 per month, but which Khosana states are capped at R100 000). Maxwell also alleges various irregularities in Khosana's expenses claims, including duplication, and claiming in respect of persons other than herself.

[33] Khosana's remuneration was fixed by agreement with the Registrar. It is always difficult to assess the reasonableness of such as salary, but the amount does at first sight appear excessive. Maxwell alleges that Khosana is not even engaged full-time in the curatorship, but comes to SAMWUMED's offices only part-time on three days per week. Khosana's denial of this, and the suggestion that she does other work away from the offices, is far from convincing.

[34] As for Khosana's expenses, I note that Khosana does not reside in Cape Town. and accordingly has to travel to Cape Town and provide for accommodation while she is here. I do not intend to consider whether under these circumstances, her expenses are unreasonable. It does, however, raise the question as to why a suitable person could not have been found who lives in the Cape, to act as curator for a Cape Town based scheme.

[35] As to the various consultants whom Khosana has appointed or used, it seems to me that this has resulted in SAMWUMED incurring expenses which it either need not have incurred, or which are far greater than was necessary.

[36] AII in all, I am of the view that the curatorship has resulted in SAMWUMED incurring exorbitant expenses, which expenses are ongoing, and which are essentially unproductive in that they are not in any way helping to solve the problem which gave rise to the curatorship.

[37] Maxwell alleges that Khosana has suspended several of the personnel of SAMWUMED, including most of its higher management

a. It is common cause that a number of SAMWUMED managers have been suspended (or have left), although there is a dispute as to how this has come about. Maxwell alleges that it is a result of Khosana treating staff with disrespect. Khosana, on the other hand, alleges that she was treated with disrespect by the staff.

b. It is not necessary for me to decide who is in the right, the suspender or the suspendees. Khosana appears to have gone on something of a witch hunt to uncover past irregularities. If needs be, those alleged irregularities may have to be investigated, and appropriate action taken, but the present state of hostility between Khosana and the staff of SAMWUMED is highly toxic to SAMWUMED and its members.

[38] Maxwell also alleges that Khosana has seen fit to employ certain ex­ employees of SANWUMED, who left under questionable circumstances, as well as her ex personal assistant. Once again, I do not intend to go into the rights and wrongs of this issue.

[39] In the light of all the above, I consider that good cause has been shown for the removal of Khosana. I did consider whether I should not leave this decision for the judge who hears the matter on the return day. My primary concern is the interests of the members of SAMWUMEO, who are suffering ongoing prejudice. Having regard to the expenditure which SAMWUMED is incurring, and the prospect of further decisions being taken by Khosana which will have permanent or long-term effects, I have decided that her removal cannot wait.

[40] I am mindful of the fact that the return day of Andrews AJ's is on 25 October, and that the immediate removal of Khosana is in effect a modification of Andrews AJ's order, and is being made without notice to some interested parties, including SAMWU.

a. In my view, the crucial question to be considered on the return day is the curatorship itself. My decision to remove Khosana will not affect that aspect.

b. The court on the return day would in any event have to consider the identity of the permanent curator. The court would have been entitled to reject Khosana as permanent curator, in which case a suitable alternative would have to be found.

c. All the interested parties will therefore still have the opportunity of presenting their viewpoints and arguments, including Khosana herself.

[41] A more difficult problem arises as to the lacuna which will be left if I remove Khosana as curator. It is undesirable to leave a scheme under curatorship without a curator, even for a short period of about two weeks.

[42] Maxwell has proposed that Kevin Aron be appointed in Khosana’s place. The Registrar objects to Aron. His objection is based on the fact that Aron at some time performed consultant services for SAMWUMED. I have difficulty in seeing this as a disqualifying factor, but a more fundamental problem is that Maxwell does not have locus standi to propose a curator. I therefore need not resolve the question of whether Aron is a fit and proper person to be appointed.

[43] In his application, the Registrar, in addition to seeking the removal of Khosana, asked for a new curator to be appointed, and I shall deal with the latter aspect below. In view of the decision I have come to on Maxwell's application, it is strictly-speaking unnecessary to deal with the grounds on which the Registrar seeks Khosana's removal. I would however like to make the following comments.

a. The Registrar says .that he has lost trust in Khosana as curator, and that this justifies her removal. This is an oversimplification. The loss of trust must be based on reasonable grounds, and it is thus necessary to examine the basis for his loss of trust.

b. This seems to boil down to the fact that Khosana has not put in motion any procedures to constitute a new board of trustees, including calling a General Meeting. The Registrar also alleges that Khosana is unable to do this. This was the main reason for her appointment, and her failure or inability to deal with the issue is considered by the Registrar as justifying her removal.

c. Khosana disputes that the Registrar is entitled to have her removed. According to her, the first time she became aware that the Registrar had a problem with her conduct as curator was when she received a letter from him dated 20 July 2018, giving notice of his intention to apply for termination of her services as curator. The letter also invited her to attend a meeting at the Registrar's offices on 23 July to respond to the Registrar's concerns.

d. She attended the meeting. Although she brought an advocate with her as her legal representative, the advocate was not permitted to be in the meeting. During the meeting, she was not given an opportunity to deal with the issues raised in the Registrar's letter.

e. On 24 July, she sent the Registrar a letter, dealing at some length with the issues contained in the Registrar's letter of 20 July. In that letter she gives reasons why she was unable to convene a general meeting until the faction dispute had been resolved[5].

f. It seems to me, prima facie, that the Registrar's actions were somewhat high-handed. Khosana was called upon to deal at very short notice with issues raised for the first time in the letter of 20 July, at which point the Registrar had already formed the intention to remove her. She was not given a fair opportunity to address the Registrar's concerns.

g. One must also bear in mind that it took the Registrar about 18 months before he took action in regard to the situation which had arisen at SANWUMED.

h. Under the circumstances, there has to be serious doubt whether the alleged loss of trust by the Registrar in Khosana could reasonably be justified on the grounds relied on by him. The point is academic insofar as I have found that Maxwell is entitled to seek the removal of Khosana as curator and has made out a case for this.

[44] As stated above, the Registrar also seeks the appointment of a new curator, something which the Registrar clearly has locus standi to do. At the time of lodging the Registrar's application, no suitable candidate had been found. In a supplementary affidavit deposed to on the day before the hearing, the Registrar identified Joe Malose Seoloane as his preferred candidate. Counsel for Maxwell indicated that Maxwell would not object to Seoloane's appointment. I am also of the view that Seoloane would be a suitable appointee.

[45] Should a new provisional curator be appointed, the Registrar will be in a position to consider whether the previously agreed remuneration was too high, and if so, to agree on a lesser amount. In any event, the provisional curatorship may well change to a permanent one on the return day, in which case a suitable remuneration for the permanent curator will have to be determined.

[46]I accordingly intend to grant an order in term of Maxwell's application removing Khosana as curator, and an order in terms of the Registrar's application appointing Seoloane in her stead. This will not, in my opinion, prejudice any party entitled to appear on the return day, in that the identity of the proposed final curator will still be in the discretion of the court.

[47] There remains the question of costs. In the Maxwell application, he should be entitled to his costs, and the parties who opposed his application should bear those costs. This does not include SAMWUMED, on whose behalf Khosana purported to oppose the application. After much consideration, I have decided not to make a punitive costs order.

[48] In the Registrar's application, the position is not quite as straightforward. The Registrar has asked that Khosana pay his costs. on the basis that she should have resigned, and not opposed the application.

[49] In my view, it would be fair that each party bear his or her own costs in the Registrar's application.

a. In the first place, the Registrar nominated Khosana for the position of curator. Had he disclosed the circumstances under which Khosana parted ways with Medshield, the court would have hesitated to appoint her without further information.

b. Secondly, the court is not a rubber stamp for the wishes of the Registrar. The fact that he does not wish Khosana to continue as curator, or says he has lost trust in Khosana, does not automatically entitle him to an order removing her. I have not made any finding on the specific grounds relied on by the Registrar, and the answers given by Khosana to the Registrar's complaints are not completely without substance. Given the autocratic manner which the Registrar adopted, I am not convinced that Khosana was obliged to resign on the basis of the Registrar’s complaints.

c. Although Maxwell filed notice of intention to oppose the Registrar's application, it does not appear that he incurred any substantial costs in doing so.

d. Accordingly, r propose to make no order as to costs in the Registrar's application, which will have the effect of each party bearing its own.

I make the following orders:

A. In Case no. 1306/2018

1. Second respondent is removed as curator of SAMWUMED with immediate effect;

2. First and third respondents are ordered to pay the applicant's costs jointly and severally, the one paying, the other to be absolved.

B. In Case no. 16996/2018

1. JOE MALOSE SEOLOANE is appointed as a provisional curator of SAMWUMED, pending the return day of the rule nisi issued by Andrews AJ on 3 May 2018, and with the same powers and mandate set out in that order.

2. There will be no order as to costs.

 

 

 

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ENGERS AJ

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