THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No:   594/2010

In the matter between:

PHODICLINICS (PTY) LTD                                                                     APPELLANT

and

PINEHAVEN PRIVATE HOSPITAL (PTY) LTD                  FIRST RESPONDENT

COMMUNITY HOSPITAL GROUP (PTY) LTD              SECOND RESPONDENT

COMMUNITY INVESTMENT HOLDINGS (PTY)
LTD                                                                                              THIRD RESPONDENT

GAUTENG PROVINCIAL GOVERNMENT                    FOURTH RESPONDENT

MEMBER OF THE EXECUTIVE COUNCIL FOR
HEALTH, GAUTENG                                                               FIFTH RESPONDENT

THE CHAIRPERSON OF THE APPEALS
ADVISORY COMMITTEE OF THE DEPARTMENT
OF HEALTH, GAUTENG                                                         SIXTH RESPONDENT

THE HEAD OF DEPARTMENT, GAUTENG
DEPARTMENT OF HEALTH                                           SEVENTH RESPONDENT

Neutral citation:
Phodiclinics (Pty) Ltd v Pinehaven Private Hospital (Pty) Ltd
(594/2010) [2011] ZASCA 163 (28 September 2011)

Coram:
Mthiyane, Maya, Cachalia, Bosielo and Seriti JJA

Heard:
22 August 2011
Delivered:
28 September 2011

Summary:
Proper construction of regulations 7 and 55 of the Regulations
Governing Private Hospitals and Unattached Operating Theatres promulgated
in terms of the Health Act 63 of 1977 ─ Review ─ Orders of substitution and
remittal discussed.

___________________________________________________________
ORDER

On appeal from: South Gauteng High Court, Johannesburg (Saldulker J
sitting as court of first instance):

1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the high court is set aside and replaced with the
following:
‘2.1 The appeal decision of the second respondent dated 28 June 2007,
is reviewed and set aside.
2.2
The matter is remitted to the second respondent for reconsideration
of the fifth respondent’s appeal.
2.3
The second respondent is directed to invite the first, second and
third applicants, and also the fifth respondent, to make such written
representations as they deem appropriate on the appeal. Such submissions
shall be sent to the other parties involved in the appeal.
2.4
The first, second and third applicants, jointly and severally, are
ordered to pay the costs of the fifth respondent in the application, such
costs to include the costs of two counsel.’

___________________________________________________________

JUDGMENT

MTHIYANE
JA
(MAYA,
BOSIELO
and
SERITI
JJA
CONCURRING):

Introduction

[1] At issue in this appeal is the proper construction of regulations 7
and 55 of the Regulations Governing Private Hospitals and Unattached
Operating Theatres (the regulations).1 The appeal is from the decision of
the South Gauteng High Court (Saldulker J) in which the court set aside a
decision of the fifth respondent (the MEC) and his Appeal Advisory
Committee. In his turn the MEC and his appeal body had set aside a
decision of the Head of Department (the HoD) in which the latter had
approved the applications of the first, second and third respondents (the
respondents) under regulation 7 to establish a private hospital in Mogale
City and rejected that of the appellant. The MEC set aside the decision of
the HoD and remitted the matter to him for the reconsideration of both
applications. The appeal is brought with leave granted by the high court.

[2] According to regulation 7(2)(i) an applicant who intends to
establish a private hospital and an unattached operating theatre (a private
hospital) is required to first obtain ‘permission in writing’ from the HoD.
In this matter both applications were considered by the HoD but he
approved the respondents’ and refused that of the appellant.

1 The regulations were promulgated in terms of the Health Act 63 of 1977 and were published under
GN R696, GG 6928, 3 April 1980.

[3] In terms of regulation 55 the appellant lodged an appeal with the
MEC who upheld the appeal, revoked the approval granted to the
respondents and directed that the parties re-submit their applications to
the Department of Health for the adjudication of each application. There
was no service of the appeal on the respondents and they were therefore
not afforded an opportunity to be heard in the proceedings before the
MEC and the appeal body. The process followed by the MEC was
procedurally unfair and the decision flowing from it fell to be set aside on
that ground alone. The respondents were however not content with the
remittal of the matter to the HoD for re-consideration as ordered by the
MEC and were intent on pressing for the reinstatement of the approval of
their application by the HoD – in effect an order of substitution.

The Application in the High Court
[4] The respondents then instituted an application in the South
Gauteng High Court to review and set aside the decision of the MEC,
revoking the approval by the HoD of the respondents’ application to
establish a private hospital and approving the appellant’s application. As
already indicated, the respondents sought an order of substitution as
opposed to an order remitting the matter to the HoD for reconsideration.
An order of substitution effectively meant upholding the initial approval
of the respondents’ application.

[5] The review application is based principally on four grounds. They
contend that: (a) it was incompetent for the appellant to appeal against the
decision approving the respondents’ application; (b) the MEC and his
appeal body failed to appreciate that ‘necessity’ is the sole criterion for
the approval of the application to establish a private hospital under
regulation 7; (c) there had to be identified premises on which the private

hospital was to be built; and (d) there was no ‘lodgement’ of the appeal
by the appellant as required by regulation 56 in the absence of service of
the appeal papers on the respondents.

[6] The appellant conceded that the decision of the MEC fell to be
reviewed and set aside but submitted that the most appropriate relief was
a remittal of the matter for the two applications to be considered afresh by
the HoD. The appellant disputed that the respondents were entitled to a
substitution order. The appellant also submitted that in the event of the
respondents being unsuccessful its counter-review application should be
granted, setting aside the HoD’s refusal to approve its application to
establish a private hospital.

[7] Before discussing above grounds it is as well to briefly set out the
broad scheme of the regulations. Regulations 2 to 6 deal with the
acquisition of a certificate of registration. In terms of regulation 2, the
applicant (or a ‘prospective proprietor’ as the applicant is described in the
regulations) may not establish a private hospital unless he or she or it has
been registered and is in possession of a valid certificate of registration.
Certificates of registration must be reviewed annually.

[8] Regulation 7 (the focal point of the present appeal) requires a
prospective proprietor, before applying for the registration certificate,
first obtain a certain ‘prior approval in writing’. Only after obtaining such
approval may the prospective proprietor proceed to apply for a
registration certificate. The relevant provisions of this regulation will be
discussed in detail later in the judgment.

[9] Regulations 8 to 11 govern an application for registration by a
prospective proprietor who has received the required ‘prior approval in
writing’. Regulations 12 to 20 further regulate applications for
registration. Regulations 21 to 50 prescribe conditions with which private
hospitals must comply. Regulations 50 to 54 provide for inspections.

[10] Regulations 55 to 58 confer a right of appeal on a proprietor or
prospective proprietor and describe the procedure for pursuing the appeal.

A discussion of the grounds of review
[11]  Against the above background I turn to a discussion of the
respondents’ grounds of review which were upheld by the high court and
I do each in turn. Ground (a), dealing with the competence or otherwise
of the appellant to lodge an appeal against the decision of the HoD
granting approval to the respondents is based on the assumption that two
decisions were made by the HoD. The essential disagreement between the
respondents and the appellant is whether the HoD made two decisions in
respect of the two applications or whether he made one composite
decision. The appellant appealed both against the decision to refuse its
application and against the decision granting approval to the respondents.
This led directly to the respondents’ approval being revoked by the
appeal body. The respondents argue that the MEC and his appeal body
were faced with two separate applications for approval and made two
separate decisions and that it was wrong of the appellant to assume that it
was entitled to appeal against both decisions, as one composite decision.

[12] The appellant submits that the HoD rendered a composite decision
in respect of the two applications for approval and that it was entitled to
appeal against the decision in so far as it touched on its own application,

as well as against the part of the decision relating to the awarding of the
approval to the respondents.

[13] The respondents do not dispute the appellant’s right to appeal to
the MEC against the refusal of its own application a right which, it
submits, is provided for in regulation 55.

[14] The issue which then falls to be determined by this court under this
ground is whether the appellant was entitled to appeal not only against the
refusal of its own application but also against the decision of the HoD
granting approval to the respondents in terms of regulation 7(2).2 The
answer to this question depends of course on the proper construction of
regulation 55. It reads as follows:
‘The proprietor of prospective proprietor of a private hospital or unattached operating-
theatre unit may appeal in writing to the Minister against any decision made by the
Head of Department in terms of any provision of these regulations in respect of such
proprietor or prospective proprietor, as the case may be, of a private hospital or
unattached operating-theatre unit.’ (My emphasis.)

[15] The high court concluded that there were two separate and distinct
applications. Two separate records were kept and both applications had to
be considered on their own merits with each driven by their own
application. The court said considering them together would amount to a
competitive adjudication process which was not envisioned in regulation
55.

[16] The high court accepted the respondents’ submission that the
appellant was entitled to appeal against the decision refusing its own

2 This regulation will be discussed fully when dealing with the second ground, of review (ie (b)).

application but not against the approval of the respondents’ application. It
held that on a proper analysis of regulation 55 the words in emphasis, (in
respect of such proprietor or prospective proprietor) are specific, in the
sense that a ‘proprietor’ may only appeal against his or her own
application. The appellant had its own application turned down. The court
said, the granting of the respondents’ application did not establish a direct
relationship required by regulation 55. In this sense when the HoD had to
make a decision in respect of the appellant, it was not a decision ‘in
respect of a proprietor or prospective proprietor’, which denotes some
level of specificity. This is so as there was no ‘direct effect’ as required
by the definition of administrative action in the Promotion of
Administrative Justice Act (PAJA).3 Also the granting of the respondents’
application did not have the capacity to affect legal rights as no right was
implicated in an application that was not theirs. For this conclusion the
court relied on Grey’s Marine Hout Bay (Pty) Ltd v Minister of Public
Works 2005 (6) SA 313 (SCA) para 23.

[17] The court also held that the recommendation of the Appeal
Advisory Committee and its endorsement by the MEC was not provided
for in the regulations. In the court’s view, third parties (such as the court
considered the appellant to be) cannot bring an appeal, otherwise
regulations 55 to 58 would have read differently. In the light of the above
the court set aside the decision to revoke the granting of the application to
the respondents. It held that the MEC and the Appeals Advisory
Committee had no authority to adjudicate the appellant’s appeal as the
latter had no right of appeal against the approval of the respondents’
application.

3 See s 1(b) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA).

[18] In my view the high court erred in holding that the appellant was
not entitled to appeal against the decision granting the respondents’
application. It was incorrect to hold that the HoD rendered two separate
decisions instead of one composite decision. Nor was it legally sound to
hold that only an original party who was part of the application before the
HoD can appeal against a decision made by him.

[19] Both applications before the HoD were evaluated together as is
evident from documents emanating from the Adjudication Committee of
the MEC. For example in the minutes, the Adjudication Committee
evaluates
both
companies’
BEE
scores,
track
records,
social
responsibility commitments together amongst other matters. A
comparative evaluation is also to be found in the recommendations of the
Adjudication Committee where the considerations in the minutes were
endorsed. A comparative assessment of both applications is evident from
the rejection letter as well. Therefore, since it was a composite decision, it
was competent for the appellant to appeal.

[20] The appellant submits that it was directly affected by the decision
to grant the respondents’ application. I agree. It is, I think, inconceivable
that the negative impact of the decision, which the high court admitted to
be present, is inconsistent with a direct impact. During argument our
attention was drawn to the yet unreported judgment of Legodi J in
Limpopo Mediclinic v MEC for Health and Welfare Limpopo Provincial
Government & others [2008] ZAGPHC 83 in support of its contention
that it was entitled to appeal. There the learned judge was called upon to
decide the question whether an unsuccessful applicant who was affected
by a refusal of its application and by the granting of another’s application,
could appeal not only against the refusal of its own application but also

against the granting of the other party’s  application. The judge answered
the question in the affirmative and rejected the submission that the
applicant (Mediclinic) in that case ‘only has an interest in its own
application’ and remarked as follows:
‘Surely, if the applicant’s application for extension of its facility by 40 beds was
refused and was refused because of the granting of permission to the third respondent
to establish a new hospital with 200 beds, and the applicant has other grounds to
challenge such a decision, it could not be said that the applicant’s interest was purely
economical or commercial. In the light of this, the applicant should be found to be
entitled to challenge the administrative action on any ground as set out in section 6 of
PAJA.’
I agree with the reasoning of Legodi J. To the extent that the judgment of
the high court is at odds with the approach in Mediclinic, it erred.

[21] The narrow construction placed by the high court to the provisions
in regulation 55 is not supportable. In my view the provisions are
susceptible to a wide interpretation in the sense that the words ‘in respect
of’ can indicate a causal relationship, and not only a direct one.4 Also
there may be ‘direct impact’ beyond the parties in this case, for example,
in the case of an existing private hospital or a prospective proprietor of a
private hospital in the same area who may want a hearing.

[22] Also the interpretation adopted by the high court is not consistent
with the right to a fair hearing envisioned in PAJA and ss 33(1)5 and 346
of the Constitution. Parties with an existing or prospective interest must
be heard under regulation 55. This is also required in terms of s 39(2) of

4 Greater Johannesburg Transitional Metropolitan Council v Galloway NO 1997 (1) SA 348 (W) at
356D-G.
5 ‘Everyone has the right to administrative action that is lawful, reasonable and procedurally fair.’
6 ‘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.’

the Constitution. Therefore even if this court comes to the conclusion that
there were two separate applications which were considered separately,
the appellant would have been entitled to appeal against both decisions.
For the above reasons I hold that the HoD rendered one composite
decision in respect of the two applications and it was therefore competent
for the appellant to lodge and appeal against it.

[23] I turn to ground (b), in which the respondents argue that the MEC
failed to appreciate that necessity is the sole criterion for determining
whether approval should be the granted under regulation 7. The point of
departure between the parties is that the appellant submits that in the
consideration of the application for approval under regulation 7 necessity
is not the sole criterion but other factors had to be considered, such as the
provision of health care in all parts of the country, the efficient use of
resources and other competing bids.

[24] Regulation 7 reads as follows:
‘(1)
No person shall erect, alter, equip or in any other way prepare any premises
for use as a private hospital or unattached operating-theatre unit without the prior
approval in writing of the Head of Department.
(2)(i) Any person intending to establish a private hospital or an unattached
operating-theatre unit shall first obtain permission in writing from the Head of
Department, who, after consultation with the Director, shall satisfy himself as to the
necessity or otherwise for such a private hospital or unattached operating-theatre unit
before granting or refusing permission.
(ii)
Having obtained such permission, the applicant shall complete Form 1
(Annexure B) and submit plans for approval by the Head of Department, together
with the necessary information, and shall supply any additional information which the
Head of Department may require.
(3)
Permission and approval in terms of regulation 7 are not transferable.’ (My
emphasis.)

[25] The high court held that the words in the regulation make clear that
when the HoD considers whether not to grant an application, the HoD’s
decision is based solely on the criterion of necessity. The court said
necessity is also to be considered parallel to the requirements of
regulation 4, which deals with registration. If regulation 7(2)(i) is read in
a way that allows for other criteria to be considered, then this would be
ultra vires and contrary to s 44(1)(a)(vi) of the Health Act 63 of 1977.7
Therefore, the court concluded that the MEC and the appeal body did not
give regulation 7(2)(i) the effect it envisioned when the respondents’
application was revoked.

[26] On the question whether the appellant had met the criterion of
necessity as set out in regulation 7(2)(i). The high court took the view that
in respect of the appellant’s application it was impossible for the
Department of Health to decide that the requirement of necessity for a
private hospital had been met because the appellant did not identify a
specific site and motivate why there was a need to establish a hospital
there. In respect of the respondents the court had no such difficulty in
accepting that the requirement of necessity was to have been met because
they were already in possession of premises, namely erf 253 Mogale City,
which they identified as the site where the private hospital was to be
erected. Therefore the court held that the Appeals Committee failed to

7 This section provides
‘(1)
The Minister may make regulations ─
(a)
in respect of private hospitals, nursing homes, maternity homes or other similar institutions
where nursing is carried on for the benefit of patients accommodated therein and where fees are
charged by the owner or lessee of any such hospital, home or institution in respect of nursing services
rendered to such patients or where contributions are made by such patients towards the cost of such
services ─
. . .
(vi)
providing for the refusal to register, or the removal from the appropriate register of, any such
hospital, home or institution which the Minister or any specified person or class of person may consider
unsatisfactory on specified grounds.’

appreciate that necessity was the sole criterion for determining the appeal
decision and that the appellant had not met the threshold requirement.
The court appears to have held that necessity was provable by reference
to the possession by a particular applicant of a site or premises where the
private hospital is to be erected or established.

[27] The appellant in its turn accepts that necessity must be considered
prior to the granting of the application, that necessity is a jurisdictional
fact for there to be an approval, but contends that necessity is not the only
criterion and takes issue with the assertion that if other criteria were taken
into account s 44(1)(a)(vi) of the Health Act of 1979 would be
contravened and the department’s action ultra vires. The appellant argues
that this section deals with refusal to register and not with registration
itself. Registration is not dealt with by regulation 7. The appellants also
submit that its contentions are not out of sync with the regulations and s
44(1)(a)(i) of the Health Act.

[28] In my view the high court’s conclusion that necessity was the sole
criterion for determining the grant of the ‘permission’ as required by
regulation 7(2)(i) was correct and should be accepted. However, I do not
think that at the ‘permission’ stage of the application the applicant is, in
terms of the regulation required to identify a precise location where the
hospital is to be established though when the applicant does so, it should
be considered and such information should be taken into account. It
follows that the requirement of necessity is not determined by reference
to a defined site or premises. Even if it were so the appellant and the
respondents were in precisely the same position at the first phase of the
enquiry into the question whether permission in writing should be

granted. The appellant did identify an area in Mogale City in which it
wished to establish a private hospital.

[29] Therefore on a proper reading of regulation 7 it is clear that the fact
that the respondents had lodged an application to establish a private
hospital first did not mean that the late application by the appellant should
not have been considered by the HoD ─ which is the effect of the finding
of the high court. The appellant argued with some force that the
consequences of this approach would lead to absurdity. The appellant
imagined a situation where there are two competing applications to
establish a private hospital within the same area and there is only a need
for one. On the court a quo’s approach the first application, despite being
granted, would obviate the need for granting the second one even if the
losing party had a substantially better application and could establish a
better resourced hospital.

[30] In sum I conclude that the high court was correct in its finding that
necessity was the sole criterion for determining the grant of ‘permission
in writing’ under regulation 7(2)(i). It however erred in concluding that
necessity is determined by reference to a particular site or premises.

[31] Ground (c) is based on the submission that approval can only be
granted in respect of an application that identifies a particular site. I have
to some extent touched on this subject in the discussion of the
requirement of necessity. Relying on the provisions of regulation 7
(underlined at the start of the previous ground of review), the high court
held that since an applicant to establish a private hospital cannot prepare
any premises for use as a private hospital without the approval of the
HoD, this implicitly requires premises to be identified before approval

may be granted. It stated that this is unequivocal and makes commercial
sense. It is impossible, said the court, to assess the necessity of a private
hospital unless a property in a particular area is identified. The court held
that since the appellant had not secured a property on which the private
hospital is to be located, it had not complied properly with the
regulations. In its view the appellant’s application was therefore
incomplete and this was also evidence of its unpreparedness to establish a
private hospital. Saying as the appellant did, that the hospital property
will have 450 parking bays and will serve the greater Mogale area was, in
the court’s view, not sufficient to comply with regulation 7(1).

[32] In this respect, I think, the court erred. The obtaining of premises is
only to be dealt with under regulation 48 dealing with the registration
process and not the regulation 7 approval process.

[33] The interpretation favoured by the court a quo does not make
commercial sense. A prospective proprietor can only specify premises
once it has bought it. It would make no sense to buy premises when there
may not even be an approval. Acquisition should only take place once
there has been approval. I do not think that it is necessary to specify
premises on the application. Necessity is to be addressed for the general
area in which the private hospital is to be located. It would stand to
reason that a private hospital would have to be established in an area that
honours the necessity identified in the application and by the HoD.

8 Regulation 4(1) reads:
‘A private hospital or unattached operating-theatre unit shall not be registered as such and no certificate
of registration shall be issued in respect thereof, unless ─
(1)
the premises on which a private hospital or unattached operating-theatre unit is or is to be
conducted and the equipment which is used or is intended for use in such private hospital or unattached
operating-theatre unit are suitable and adequate for the purposes of the said private hospital or
unattached operating-theatre unit.’

[34] Ground (d), is the conclusion that the appeal was not ‘lodged’ as
required by regulation 56. The complaint here was that the appellant was
required to serve a copy of its appeal on the respondents and the failure to
do so meant that the appeal had not been lodged in accordance with
regulation 56. This ground of review was upheld by the high court.

[35] Regulation 56 provides as follows:
‘An appeal in terms of regulation 55 shall be lodged within seven days of the decision
appealed against having come to the knowledge of the proprietor or prospective
proprietor, as the case may be, and shall clearly state ─
(1)
against which decision such appeal is lodged; and
(2)
the grounds on which such appeal is lodged.’

[36] Regulation 57, in turn, provides as follows:
‘Any appeal in terms of these regulations shall be lodged with the Head of
Department, who shall submit it to the Minister together with his reasons for the
decision against which the appeal is being lodged.’ (My emphasis.)

[37] There is nothing in regulation 56 and 57 to indicate that, for an
appeal to be ‘lodged’, it must be lodged with the affected party. On the
contrary regulation 57 explicitly provides that an appeal ‘shall be lodged
with the Head of Department’, thus suggesting the exclusion of any duty
on the appellant to serve on another party.

[38] In truth, the respondents’ complaint is that they were not afforded a
fair hearing ─ an issue that has already been conceded by the appellant.
Because they were not heard the procedure adopted by the MEC and his
Appeal Advisory Committee was unfair and the decision fell to be set
aside on that basis.

[39] The appellant however disputes that this meant that the appeal, had
not been validly ‘lodged’. On the plain reading of regulation 57 the
appeal had to be lodged with the HoD who had to submit it to the
Minister. It follows, I think, that the duty to ensure fairness rested on the
MEC and his Appeal Advisory Committee to ensure service on the
affected party, namely the respondents in this case.9 In the result this
ground, too, should not have been upheld.

The question of substitution
[40] The respondents asked that the high court should review and set
aside the decision of the MEC and substitute its own decision, effectively
reinstating the initial approval of their application.

[41] There can be no question that, if it is accepted that necessity is the
only criterion at the prior approval or ‘permission in writing’ stage, then
the respondents have at least prima facie met the threshold requirement
and there would be no reason for the HoD not to consider their
application if the matter is referred back to him for reconsideration. But,
by the same token, if it is accepted that necessity is not determined by
reference to the acquisition of an identified premises, the appellant itself
has also established necessity and there will be no reason for its
application not to be considered when the matter is referred back to the
HoD. All what this says is that, on the question of necessity the playing
field as between the appellant and the respondents, is level. No one has an
advantage over the other.  Both have met the threshold requirement of
necessity. So the respondents have not succeeded on the first three
grounds of review and have not achieved any significant success on the
ground of necessity when their situation is matched against that of the

9 Cf Biowatch Trust v Registrar, Genetic Resources & others 2009 (6) SA 232 (CC) para 23.

appellant. The respondents have however succeeded on the ground of
procedural unfairness which entitles them to a remittal of the matter to the
MEC for the two applications to be considered a fresh.

[42] I do not think that they are entitled to an order of substitution. The
starting point is PAJA, which makes it clear that orders of substitution are
only granted ‘in exceptional cases’.10 This is consistent with what this
court has said in this regard:
‘An administrative functionary that is vested by statute with the power to consider and
approve or reject an application is generally best equipped by the variety of its
composition, by experience, and its access to sources of relevant information and
expertise to make the right decision. The court typically has none of these advantages
and is required to recognise its own limitations. . . .That is why remittal is almost
always the prudent and proper course.’11 (My emphasis.)

[43] The high court considered that in this case remittal would serve no
purpose as the result would be a foregone conclusion because the
decision makers (HoD/MEC) will be placed in the same position, with
regard to the same set of facts, as regards the two parties.12 The appellant
takes issue with this conclusion and contends that the present case
involves no forgone conclusion at all. Relying on Hoexter as authority it
argues that an administrative functionary is always better equipped than a
court to make the right decision. The learned author concludes that
‘remittal is almost always the prudent and proper course.’13

[44] There is also a further hurdle facing the respondents in their quest
for an order of substitution. It is the type of relief that, according to PAJA

10 Section 8(1)(c)(ii)(aa) of PAJA.
11 Gauteng Gambling Board v Silverstar Development Ltd & others 2005 (4) SA 67 (SCA) para 29.
12 Hoexter Administrative Law in South Africa (2007) at 489, relying on Johannesburg City Council v
Administrator, Transvaal & another 1969 (2) SA 72 (T) at 76D-E.
13 Fn 14.

is only granted in exceptional circumstances.14 None have been shown to
exist in this case.

Conditioned Counter Review application
[45] The appellant’s counter-review application was conditional upon
any of the respondents’ four grounds of review succeeding. The
respondents having failed on the grounds relied upon the appellant’s
conditional counter application for review falls away.

Costs
[46] The assessment of costs in this matter is something of a conundrum
because each of the parties won and lost something along the way during
the various stages of this litigation. Any costs order contemplated by this
court must of necessity be tempered by those vicissitudes in the exercise
of its discretion. What follows is an attempt to examine the respective
positions of the parties and their entitlement or otherwise to costs. As to
the first, second and third respondents, they were entitled to be heard in
the internal appeal process before the Appeal Advisory Committee of the
MEC. They were unfairly denied the right to be heard. It was common
cause between the parties at that stage that the decision of the MEC and
his appeal body could not stand because of procedural unfairness.
However, the respondents’ persistence in seeking to obtain a substitution
order was ill advised as this judgment has demonstrated. It follows that
they have to bear the costs incurred by the appellant.

[47] As to the costs of the appeal to this court, the appellant has
succeeded in the main, and such costs must therefore be borne by the

14 Fn 12.

respondents. Their quest to obtain an order of substitution was
unsuccessful and, in that respect, the appeal exercise achieved nothing.

[48] In respect of the appellant, it was not to blame for the prejudice
which the first, second and third respondents suffered as a result of the
procedural unfairness meted out to them by the MEC and the Appeal
Advisory Committee so the appellant’s costs incurred up to the
concession should be borne by the MEC.

[49] In the result the following order is made.
1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the high court is set aside and replaced with the
following:
‘2.1 The appeal decision of the second respondent dated 28 June 2007,
is reviewed and set aside.
2.2
The matter is remitted to the second respondent for reconsideration
of the fifth respondent’s appeal.
2.3
The second respondent is directed to invite the first, second and
third applicants, and also the fifth respondent to make such written
representations as they deem appropriate on the appeal. Such submissions
shall be sent to the other parties involved in the appeal.
2.4
The first, second and third applicants, jointly and severally, are
ordered to pay the costs of the fifth respondent in the application, such
costs to include the costs of two counsel.’

___________________
K K MTHIYANE

JUDGE OF APPEAL

Cachalia JA (Maya, Bosielo and Seriti concurring):

[50] I concur with the order of Mthiyane JA, but I reach that result
through a different path.

[51] This appeal arises out of applications by the first to third
respondents (to whom I shall for convenience refer to only as Pinehaven)
and the appellant (Phodiclinics) to the Gauteng Department of Health to
establish private hospitals in the Mogale City area. These applications
were made in terms of the regulations15 governing the establishment of
private hospitals. The Head of Department (HOD) approved only
Pinehaven’s application. Phodiclinics appealed to the Member of the
Executive Council and his Appeals Advisory Committee (the MEC). He
upheld the appeal by revoking the approval granted to Pinehaven and
withdrew the decision declining the Phodiclinics application. He also
invited the parties to re-apply to the HOD to adjudicate their applications
afresh.

[52] Pinehaven then launched review proceedings in the South Gauteng
High Court Johannesburg, before Saldulker J to have the MEC’s decision
reviewed and set aside. It also sought an order that the MEC’s decision be
substituted with the HOD’s approval of its application.  In effect it sought
an order reinstating the HOD’s decision in its favour.

[53] When the matter came before the high court, it was common cause
among all the parties that the MEC’s decision fell to be reviewed and set

15 The regulations were promulgated in terms of the Health Act 63 of 1977 and were published under
GN R696, GG 6928, 3 April 1980.

aside on the ground of procedural fairness. This was because the MEC
had not heard Pinehaven before revoking the HOD’s approval of its
application. The parties also agreed that the order which ordinarily would
follow from the decision being set aside on this ground was a remittal to
the MEC. However, Pinehaven pressed on with four further grounds of
review because it was of the view that if the review was upheld on any of
those grounds, this would entitle it to an order of substitution.
Phodiclinics strenuously contested each of the four grounds, as it did the
prayer of substitution.

[54] The high court upheld all the contested grounds of review and
granted the substitution order that Pinehaven sought. It also dismissed a
conditional counter-review application`n by Phodiclinics against the
HOD’s initial decision. Phodiclinics now appeals against the high court’s
order, with its leave.

[55] The four grounds of review were: first, Phodiclinics was not
competent to appeal to the MEC against the HOD’s decision to approve
Pinehaven’s application because the applicable regulation gave it no right
to – in other words the appeal was invalid; the second ground, which is
advanced as an alternative to the first, was that Phodiclinics did not
‘lodge’ or serve the appeal on Pinehaven as the regulations required, thus
also rendering the appeal invalid; third, the regulations specified that
‘necessity’ was the sole criterion for determining the grant of an approval
for a hospital, and the MEC failed to appreciate this when he took other
considerations into account – notably the parties black economic
empowerment credentials –  in arriving at his decision; and finally, that
only Pinehaven’s application to establish a hospital was valid because the
regulations required an applicant to identify a particular site or premises

for this purpose, which Pinehaven had done and Phodiclinics had failed
to.

[56] As I have mentioned, Phodiclinics has already conceded the review
on the ground of procedural fairness and also accepts that the matter
should be remitted to the MEC to conduct a fair hearing. It seems to me,
therefore, that the essential dispute in this case is less about whether there
is any merit to any of the review grounds, but rather about whether
substitution is the appropriate order if Pinehaven succeeds with any of its
further grounds.

[57] The law on this point seems fairly well settled: The Promotion of
Administrative Justice Act 3 of 2000 makes clear that orders of
substitution are only granted ‘in exceptional cases’.16 This is consistent
with what this court has said about substitution:
‘An administrative functionary that is vested by statute with the power to consider and
approve or reject an application is generally best equipped by the variety of its
composition, by experience, and its access to sources of relevant information and
expertise to make the right decision. The court typically has none of these advantages
and is required to recognise its own limitations . . . That is why remittal is almost
always the prudent and proper course.’17 (Emphasis added.)

[58] So, Pinehaven has a high bar to overcome. Moreover, as Hoexter
explains in reviewing the cases, ‘[f]airness to both sides has always been
and will almost certainly remain an important consideration in this
regard’.18

16 Section 8(1)(c)(ii)(aa) of PAJA.
17 Gauteng Gambling Board v Silverstar Development Ltd & others 2005 (4) SA 67 (SCA) para 29.
18 Hoexter Administrative Law in South Africa (2007) at 489, relying on Johannesburg City Council v
Administrator, Transvaal, & another 1969 (2) SA 72 (T) at 76D-E.

[59] The crux of the high court’s reasoning in granting the substitution
order was that the result would be a foregone conclusion if the matter
were referred back to the MEC. Whether the decision would be a
foregone conclusion is clearly a relevant factor in determining whether to
grant substitution. And I shall bear this in mind when considering each of
the review grounds.

[60] It is evident that whether or not substitution is an appropriate order
depends upon the basis upon which a review is upheld. To cite an obvious
example, if a review is upheld on the ground that a decision-maker had no
power to consider the matter, or was biased, it would make no sense to
refer the matter back to him to reconsider the matter. On the other hand, if
he had the power to make the decision but adopted an unfair procedure in
arriving at the decision, or failed to apply his mind properly, it would
ordinarily be appropriate to remit the decision to him for reconsideration
so that he applies his mind properly and decides the matter in accordance
with a fair procedure.

[61] In the instant case, if we were to hold either that the Phodiclinics
application to the Department, or its appeal to the MEC, was invalid an
order for substitution would follow unavoidably. The reason is, again,
obvious: if its initial application was invalid the Department would only
have had to consider Pinehaven’s application; if the appeal to the MEC
was invalid because Phodiclinics was not competent to appeal, the MEC
would not have had the power to entertain the appeal. In either case a
referral back to the MEC would serve no purpose because the result
would be inevitable – Pinehaven’s approval by the HOD would have to
be confirmed.

[62] So, subject to what I shall say about the second ground of review –
the ‘lodgement’ point – if the first two grounds are upheld on the basis
that the appeal was invalid, as Pinehaven contends it was, a substitution
order would follow. Similarly, if the fourth ground – the Phodiclinics
application did not identify a suitable premises – is good, this would also
mean that Pinehaven’s application was the only valid application before
the HOD and, again, a substitution order would have to follow.

[63] I have some difficulty in understanding why Pinehaven persisted
with, and the high court decided, the third ground of review – that when
the MEC considered the Phodiclinics appeal, he failed to realise that the
regulations required him to consider ‘necessity’ as the sole criterion for
determining the grant of an approval for a hospital.19 Because, once it was
conceded, quite properly, that the appeal proceedings were unfair as
Pinehaven had not been heard, and that the MEC’s decision fell to be
reviewed and set aside on this ground alone, it did not matter whether or
not the MEC applied the regulations correctly. The proceedings were a
nullity, and the appropriate order was a remittal to the MEC, which
Pinehaven conceded before the matter was argued in the high court. This
ground of review therefore falls away.

[64] I revert to the second ground of review, that Phodiclinics did not
‘lodge’ the appeal properly in terms of the relevant regulations because it
failed to serve a copy of the appeal on Pinehaven. As indicated earlier,
this ground was relied on only as an alternative to the first ground, the
assumption being that if it were to be upheld it would follow that the
Phodiclinics appeal would have been be invalid. But this assumption is
not correct.

19 The regulation in question – reg 7(2)(i) – is quoted at para 70 below.

[65] The regulation in question – reg 57 – requires an appeal to be
‘lodged with the Head of Department, who shall submit it to the
[MEC] . . . .’ This Phodiclinics did. But, Pinehaven submits that the
regulation ought to be interpreted in a manner consistent with the right to
fair procedural action, which means that Phodiclinics ought to have
served the appeal on Pinehaven too. Pinehaven’s real complaint,
therefore, is that it was not notified of the appeal, which means that the
hearing was conducted unfairly in its absence.

[66] The clear language of the regulation does not appear to impose any
duty on an appellant to serve the appeal on an interested party. Rather, it
suggests that this duty rests with the HOD, or perhaps the MEC. For
present purposes I need not decide this question and shall assume in
Pinehaven’s favour that its interpretation of the regulation is correct. It,
however, does not follow that because Phodiclinics did not serve a copy
of its appeal to the MEC on Pinehaven that its appeal was invalid, thus
entitling Pinehaven to an order of substitution; it means only that the
MEC’s decision ought to be set aside because he did not adhere to a fair
procedure, which has already been conceded. And, the usual order that
follows would be a remittal to the decision-maker to conduct a fair
hearing, which the parties agreed would be appropriate in these
circumstances.

[67] What remains are the first and fourth grounds of review, which as I
have said earlier would, if successful, entitle Pinehaven to an order of
substitution. I proceed to the first ground, whether Phodiclinics was
competent to appeal against the HOD’s approval of Pinehaven’s
application. This turns on a construction of reg 55, which provides:

‘The proprietor or prospective proprietor of a private hospital . . . may appeal in
writing to the [MEC] against any decision made by the Head of Department in terms
of any provision of these Regulations in respect of such proprietor or prospective
proprietor, as the case may be, of a private hospital . . . .’

[68] Phodiclinics submits that from a plain reading of the regulation its
application to establish a private hospital made it a ‘prospective
proprietor of a private hospital’, and the HOD’s adverse decision against
it gave it a right to appeal to the MEC against that decision. Pinehaven,
on the other hand, contends that Phodiclinics had a right to appeal only
against the HOD’s decision refusing its application, but not the decision
to approve Pinehaven’s application. This is so, the submission proceeds,
because the regulation permits an appeal against a decision only ‘in
respect of such . . . prospective proprietor’. Seen in this way it is
contended that at best for Phodiclinics, it is a third party or objector – not
a prospective proprietor – and the regulation gives no right of appeal
either to a third party or to an objector against the HOD’s ‘prior approval’
of Pinehaven’s application.

[69] However, for Pinehaven to succeed in its submission it would have
to show that the HOD made two separate decisions, one being the ‘prior
approval’ of Pinehaven’s application, and the other, the subsequent
refusal of the Phodiclinics application. It persuaded the high court that
this is in fact what happened. But, I disagree that there were two distinct
decisions. As Mthiyane JA has pointed out in para 19 of his judgment
there was only one composite decision involving both applications. I
concur with his reasoning. The effect of this conclusion is that the
decision to grant the approval to Pinehaven and not to Phodiclinics made
the decision one ‘in respect of’ both Pinehaven and Phodiclinics as

prospective proprietors. Phodiclinics, therefore, clearly had a right to
appeal to the MEC, and this ground of review must fail.

[70] Pinehaven’s fourth and final ground of review is that in its
application to establish a hospital, Phodiclinics failed to identify the
particular site or premises where it intended to establish its proposed
hospital. This, it submitted, was what regs 7(1) and 7(2)(i) required. Its
failure to comply with a peremptory provision in the regulation, therefore,
invalidated the Phodiclinics application. Regulation 7 reads as follows:
‘(1)
No person shall erect, alter, equip or in any other way prepare any premises
for use as a private hospital or unattached operating-theatre unit without the prior
approval in writing of the Head of Department.
(2)(i) Any person intending to establish a private hospital or an unattached
operating-theatre unit shall first obtain permission in writing from the Head of
Department, who, after consultation with the Director, shall satisfy himself as to the
necessity or otherwise for such a private hospital or unattached operating-theatre unit
before granting or refusing permission.
(ii)
Having obtained such permission, the applicant shall complete Form 1
(Annexure B) and submit plans for approval by the Head of Department, together
with the necessary information, and shall supply any additional information which the
Head of Department may require.
(3)
Permission and approval in terms of regulation 7 are not transferable.’
(Emphasis added.)

[71] The regulations do not read easily. There was, however, no attempt
before us to impugn them on the ground of vagueness. So, some sensible
interpretation must be given to them. It seems, at first blush, that if one
reads regs 7(1) and 7(2)(i) together, the permission relating to the
necessity for a private hospital in reg 7(2)(i), and the prior approval to
prepare any premises for use as a private hospital in reg 7(1) requires the

determination of the necessity for a hospital to relate to particular
premises. This is the construction the high court gave to the regulations.

[72] But this interpretation, with respect, makes little sense because
there appears to be no purpose in linking the determination of the need
for a hospital to particular premises. Whether a hospital is erected at
particular premises or some nearby premises can hardly be relevant to the
question of whether or not there is a need for a hospital in some area or
locality. The learned judge in the high court thought that the identification
of particular premises made commercial sense.

[73] I hold a different view. I think it makes little commercial sense for
an applicant intending to establish a hospital to first have to purchase
premises or a site before its application can be approved. It seems that
provided the applicant identifies the area or locality where it intends
establishing the hospital with sufficient specificity, this would be
sufficient to satisfy the ‘necessity’ requirement in reg 7(2)(i).

[74] A close reading of the regulations lends support to this
construction. Regulation 4(1) also has a bearing on this exercise. It says
that a private hospital cannot be ‘registered’ unless the premises on which
the private hospital is situated is ‘suitable’. The suitability of premises is
thus a matter dealt with in reg 4, not reg 7. According to reg 7(2)(ii),
which is quoted above, it is only after permission is granted to establish a
hospital under reg 7(2)(i), that the applicant must complete a form (Form
1) and submit plans for approval. Form 1 is concerned with the
application for registration and, it seems, that registration is only possible
if the ‘situation’ of the premises (street, locality, town) is described. The

plans for approval in reg 7(2)(ii) can only refer to the approval in reg
7(1).

[75] The scheme of the regulations therefore envisages the following
process: first, an applicant for a private hospital must establish the need
or necessity for such a hospital in a particular area. The area or locality
must be described in the application with some specificity but need not
identify, at this stage the exact site or premises; second, if permission is
granted, the applicant applies for registration of the hospital and for this
purpose the situation of the premises, and its suitability are relevant;
finally if the Department grants the registration, the applicant may ‘erect’
or in some other way ‘prepare’ the premises if it obtains the ‘prior
approval’ of the HOD.

[76] The Phodiclinics application described the area for the intended
establishment of a private hospital, in Mogale City, as having a
population of some 200 000 people, which is located close to freeways,
the Hartebeespoort Dam and other developments in the area. In my view,
this information was adequate to determine the necessity or need for a
hospital in this area; if the Department deemed it inadequate, it could
have called for more specific information to narrow down the location.
So, I do not think that Pinehaven has shown that the Phodiclincs
application was invalid because it did not identify particular premises. It
follows that this ground of review also has no merit.

[77] In summary only two of the four grounds of review, namely the
competence of the appeal (ground 1) and the invalidity of the application
for failure to specify premises (ground 4), would, if successful, have
resulted in an order for substitution. There was no merit in either. Ground

2, in truth, amounted to no more than the conceded failure by the MEC to
adhere to a fair procedure, and ground 3 fell away. It follows that the
appeal must succeed.

[78] Because the counter-review application by Phodiclinics was
conditional upon Pinehaven obtaining a substitution order, which it has
failed to, it is not necessary for us to entertain this matter any further.

[79] Regarding the costs of the appeal, the parties agreed that if either
party enjoys substantial success, it would be entitled to its costs. This
Phodiclinics has achieved and, therefore, should be allowed its costs.

________________
A CACHALIA
JUDGE OF APPEAL

APPEARANCES

For Appellant:
GM Budlender SC (with him S Budlender)
Instructed by:
Werksmans Attorneys, Sandton
Symington & De Kok, Bloemfontein.

For Respondents: A Freund SC (with him Ms R Keightley)

Instructed by:

Rothbart Inc, Johannesburg

Rosendorff Reitz Barry, Bloemfontein

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
28 September 2011

STATUS: Immediate

PHODICLINICS (PTY) LTD V PINEHAVEN PRIVATE HOSPITAL
(PTY) LTD (594/2010) [2011] ZASCA 163 (28 SEPTEMBER 2011)

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

The Supreme Court of Appeal (the SCA) today upheld an appeal with costs from the
South Gauteng High Court, Johannesburg.

The appellant, Phodiclinics, and the respondents, Pinehaven Private Hospital,
Community Hospital Group and Community Investment Holdings, had applied to the
Head of Department (HoD) of the Gauteng Health Department for the establishment
of a private hospital. The application of the respondents was approved but that of the
appellant was rejected. The MEC for Health set aside the decision of the HoD and
requested a reconsideration of both applications.

The high court reviewed and set aside the decision of the MEC. The issue before the
SCA was the proper construction of regulations 7 and 55 of the Regulations
Governing Private Hospitals and Unattached Operating Theatres.

The high court held on the first ground of review that it was incompetent for the
appellant to appeal against the decision approving the respondents’ application as
the application of the appellant and respondents were separate. The SCA stated that
the narrow construction placed by the high court to the provisions in regulation 55 is
not supportable. The SCA held that the interpretation of the high court was not
consistent with the right to a fair hearing. On review of the evidence, the SCA held
that the HoD gave one composite decision on both applications of the appellant and
respondents and the appellant was entitled to appeal against the decision.

The high court also held on the second ground of review of the appellant that
necessity is the sole criterion for determining whether approval should be granted
under regulation 7 and necessity is determined by reference to a particular site or
premises. The SCA held that the high court was correct in identifying necessity as
the sole criterion for determining the application but erred in concluding that
necessity is determined by reference to a particular site.

The high court held on the third ground of review that approval can only be granted
in respect of an application that identifies a particular site. The SCA set aside this
decision and held that the acquisition of a site only arose in the registration process
and the interpretation favoured by the high court did not make any commercial
sense since a site can only be specified after it is bought and it would make no
sense to buy a site when there may not be an approval.

The high court held on the last ground for review that the appeal by the appellant
had not been lodged in accordance with regulation 56. The SCA held that there is
nothing in the regulations that indicates an appeal must be lodged with the affected
party and the duty to ensure the respondents was afforded a fair hearing rested on
the MEC.

The SCA held that since the respondents had not succeeded on any of the grounds
of review, the order of substitution granted by the high court which reinstated the
initial approval of the application of the respondents was only to be granted in
exceptional cases which had not been shown in this case and had to be set aside.