The Clicks Group Ltd and Others v The Independent Community Pharmacy Association and Others

The ICPA, representing over 1000 independently owned community pharmacies, complained to the Department of Health that the Clicks Group corporate structure contravened regulation 6(d) of the Regulations relating to Ownership and Licencing of Pharmacies and s 22A of the Pharmacy Act 53 of 1974. The complaint was that entities within the Clicks Group had beneficial interests in community (retail) pharmacies while simultaneously having beneficial interests in a manufacturing pharmacy. The Clicks Group's corporate structure was: Clicks Group (holding company) held 100% shares in New Clicks, which held 100% shares in both Unicorn Pharmaceuticals (a manufacturing pharmacy) and Clicks Investments, which in turn held 100% shares in Clicks Retailers (operating approximately 470 licensed community pharmacies). The ICPA sought revocation of Unicorn's manufacturing licence and all retail pharmacy licences granted after 30 May 2012. The Director-General rejected the complaint, finding that neither Retailers nor its shareholders had a beneficial interest in Unicorn. On appeal, the Appeal Committee upheld the Director-General's decision, finding no contravention of regulation 6(d) because assets of a company do not belong to shareholders. The high court reversed the Appeal Committee's decision, finding the corporate structure unlawful and remitting the matter back.

• What is the correct interpretation of 'beneficial interest' in regulation 6(d) of the Regulations relating to Ownership and Licencing of Pharmacies?
• Whether the Clicks Group corporate structure contravened regulation 6(d) by having beneficial interests in both community pharmacies and a manufacturing pharmacy
• What is the scope and ambit of the Minister's powers under s 22A of the Pharmacy Act 53 of 1974?
• Whether s 22A of the Pharmacy Act is unconstitutional for infringing ss 1(c) and 27 of the Constitution
• Whether the Director-General had jurisdiction to revoke licences on the basis alleged by the ICPA
• Whether the ICPA impermissibly changed the nature of its complaint between the initial complaint and the appeal

The appeal was upheld with costs, including costs of two counsel. The high court order was set aside and replaced with an order dismissing the application with costs including costs of two counsel where so employed.

The binding legal principles established are: (1) In South African law, shareholders of a company do not have a 'beneficial interest' in the company's underlying assets - the company is a separate legal entity and its property is its own, not that of its shareholders; (2) Regulation 6(d) of the Regulations relating to Ownership and Licencing of Pharmacies must be interpreted, on a purposive and textual basis, as limited to proscription of who may own a pharmacy (whether legally or beneficially) and would be ultra vires s 22A of the Pharmacy Act if interpreted to extend beyond ownership; (3) The concept of 'beneficial interest' in regulation 6(d) means someone who is the legal owner of a pharmacy or is legally entitled to the benefits of ownership of the pharmacy, not mere shareholding in a company that owns a pharmacy; (4) Mere shareholding, even 100% shareholding, in a company does not give the shareholder a beneficial interest in the company's assets; (5) Administrative bodies cannot revoke licences without establishing the jurisdictional facts required by the enabling legislation - in this case, licence holders must be given opportunity to explain why licences should not be cancelled or suspended; (6) Regulations cannot be used to interpret or extend the meaning of primary legislation; (7) The Minister's power under s 22A is limited to prescribing who may own a pharmacy and conditions of such ownership, not to regulating financial interests generally.

The majority made several non-binding observations: (1) The high court erred in equating beneficial interest in a pharmacy owned by a company with the financial interest its shareholder has in the company; (2) No evidence was adduced by the ICPA of any actual patient prejudice, conflict of interest, or instances where patients were sold Unicorn products inappropriately; (3) There was no evidence that the Clicks arrangement negatively affected public access to medicines or that it enabled price manipulation; (4) The high court made declaratory orders that were never sought before the Director-General or Appeal Committee and which implicated entities (like Unicorn and Retailers) that the court found were not in contravention; (5) The ICPA impermissibly changed its cause of action between the original complaint and the appeal while seeking the same relief. The dissenting judgment of Makgoka JA contains significant obiter observations: (1) It is undesirable to use concepts developed in the law of ownership to interpret socio-constitutional provisions; (2) The English law concept of 'beneficial interest' should not be imported into interpretation of South African statutory enactments; (3) A purposive interpretation should recognize that shareholders do have an interest (even if not ownership) in a company's assets through their rights to dividends, control of directors, and liquidation proceeds; (4) Corporate structures that interpose entities to circumvent regulatory prohibitions should be viewed skeptically; (5) Where provisions implicate constitutional rights (like access to healthcare under s 27), courts should prefer interpretations that advance those rights; (6) Technical procedural objections should not defeat adjudication of important public interest disputes where no prejudice results.

This case is significant for: (1) Clarifying the meaning of 'beneficial interest' in South African regulatory law, particularly in the pharmaceutical sector; (2) Reaffirming the fundamental principle of corporate law that shareholders have no beneficial interest in the underlying assets of a company; (3) Establishing limits on administrative interpretation of regulations - regulations cannot be used to extend the meaning of primary legislation; (4) Demonstrating the application of the separate legal personality doctrine in the context of complex corporate structures; (5) Addressing the interplay between pharmaceutical regulation, corporate structures, and the constitutional right of access to healthcare; (6) Emphasizing the importance of establishing jurisdictional facts before administrative action such as licence revocation can be taken; (7) The dissenting judgment offers an alternative approach that prioritizes purposive constitutional interpretation and would have adopted a broader reading to prevent regulatory circumvention through corporate structuring. The case has important implications for pharmaceutical industry regulation and corporate structuring in regulated industries.