Netcare v KPMG: summary of day three

Source: SECTION27

This is a summary of the third day of the Netcare v KPMG case. Today’s proceedings, as the last day of the hearing and the only day upon which all three parties made submissions, were the most detailed. What follows is therefore a condensed, integrated summary of the submissions from all three parties, with a focus on aspects and arguments, which in SECTION27’s view, are of the greatest public interest.

The bulk of the court papers remain confidential, which means that a full analysis of the case at this point is difficult. What follows therefore is a summary and analysis of today’s proceedings on the information that was presented in open court. It is purposed at increasing public awareness of the issues presented in the case and the positions of the parties as far as possible.

In the last hour of the case, for the first time in reply to KPMG’s and the commission’s submissions, Netcare made it clear that it was arguing the case on two fronts in a clear hierarchy. Its primary submission is that KPMG has not complied with the October 2013 consent order and Netcare is therefore entitled to both a declaration that KPMG has not complied with the order and an interim interdict in this regard.

Only if it failed to persuade the court of its initial submission on compliance with the consent order, in Netcare’s view, would it have to meet the stringent requirements for obtaining an interim interdict in terms of the application of the conflict of interests test in South African law.

Compliance with the October 2013 consent order

KPMG dedicated a fair portion of its remaining time to interpreting the consent order and explaining in detail how it had acted in compliance with this order. At the outset, Trengove SC argued that Netcare insists that it is entitled to “extraordinary treatment”, in that the detailed and rigorous process which it proposes for compliance with the consent order is the only manner in which the order may be complied with.

KPMG argued that on Netcare’s approach, honest affidavits by all parties would violate the order, since they would reveal that KPMG staff had been exposed to confidential information. However, if each and every KPMG employee who may ever be involved in the inquiry does not submit an affidavit making a declaration that they had not come into contact with confidential information, they would also be in violation of the court order.

In other words, KPMG argued that in terms of Netcare’s interpretation of the consent order, KPMG would be damned if it attempts to comply and damned if it doesn’t. KPMG therefore argues that the consent order only requires those who have or will come into contact with the order to submit affidavits. This, it argues, is in keeping with the wording of the consent order and is also a better interpretation because compliance is possible.

In reply, Unterhalter SC argued that KPMG’s argument with regard to the consent order was effectively that “enough is being done” to comply with the order because of KPMG’s attempts to isolate and sterilise confidential Netcare information it has under its control. This, in his submission, is insufficient, because the risk of harm to Netcare arises from the uncertainty about what confidential information is in KPMG’s possession and who has seen it.

Netcare therefore concluded that KPMG’s sterilisation attempts were not enough and contradicted the “disciplining mechanism under the order” which is that KPMG’s employees dedicated to the market inquiry would be clean teams, free of anyone who was exposed to Netcare’s confidential information.

In addition, the initial sterilisation at one point in time did not guarantee that there was not later contamination of KPMG employees, which could not be avoided until and unless KPMG fully complied with the stringent terms of the consent order as interpreted by Netcare.

Competition Commission’s submissions

Nature of the Inquiry

The peculiar nature of the market inquiry is at the heart of many of the arguments made by the commission today. Marcus SC took the court through the applicable law and the many documents that illustrate the nature of the inquiry and its importance to the public interest. In particular, Marcus SC stressed that the inquiry, unlike a trial, is not an adjudicative process and the commission does not have an adversarial relationship with any of the participants in the inquiry.

Marcus SC stated that the nature of the inquiry is for the commission to objectively investigate the general state of competition in the various markets that make up the private health care sector. He proceeded to explain that the commission’s statutory powers are, in the main, to make recommendations for policy change, possible regulations and other steps to be taken by regulators, and the remedies it can impose are not punitive in nature.

Critically, in answer to a question put to him by Judge Matojane later on, Unterhalter SC continued to paint KPMG’s role as constituting part of a multifaceted team which would provide many services, including litigation services. Depending on the interpretation of the law of conflict of interests adopted by Matojane, a lot may ride on this disagreement.

The role of KPMG in the inquiry is contested in this case. The commission’s view is that KPMG has not and will not have any decision-making powers in the inquiry, but has and will provide assistance to the panel and the commission. The commission and the eminent panel headed by the former chief justice Sandile Ngcobo will apply their minds to any advice given by KPMG, which forms only one part of the technical support team. Any recommendations and indeed any exercise of power will be those of the commission.

Netcare continuously contested the centrality of KPMG to the market inquiry process, arguing that in terms of KPMG’s proposal for the tender process and its engagement letter upon accepting employment with the commission, KPMG’s role was “fundamentally important”. SECTION27 reiterates that this is yet another premature allegation by Netcare that the commission will act unlawfully by failing to apply its mind or impermissibly delegating its responsibility to run the inquiry in terms of its statutory and constitutional obligations.

Netcare’s changing case

Marcus SC condemned what in his view were Netcare’s repeated attempts to file new affidavits and unilaterally issue amended notices of motion. According to both Marcus SC and Trengove SC, these amendments were made without seeking the indulgence of the court in terms of the court’s rules. Marcus SC “objected in the strongest” of terms to this conduct. He described these actions as “objectionable” and “an abuse of process”.

In summing up this topic, Marcus SC labelled Netcare’s actions in this regard as a “discourtesy to this court” and “a discourtesy to the respondents”. Judge Matojane was urged by Marcus SC to “shut the book at the replying affidavit” which would have the effect of rendering eight of Netcare’s affidavits and two amended notices of motion inadmissible.

Netcare’s response

Unterhalter SC argued that Netcare’s case from the outset was consistent and clear, but that in any event, relief sought was a question of substance rather than form. He argued that Netcare’s case had remained consistent by reference only to the relief which he submitted Netcare had consistently requested from the court, namely: 1) the delivery of its confidential documents and 2) relief for KPMG’s breach in the consent order. He did not address the detail of the commission’s arguments which made reference to the statements from within the notices of motion themselves and correspondence between the parties.

In any event, Unterhalter SC argued that whatever prejudice there was to KPMG and the commission was mitigated by the fact that they were served with the relevant documents prior to the hearing.

Interim interdicts under South African law

Marcus SC made submissions on the requirements for the granting of interim interdicts and then outlined why Netcare had not met any part of the test set out in our law. Importantly, a failure to satisfy any single leg of this test, he noted, means that the judge cannot grant the interim interdict.

A reasonable apprehension of irreparable harm test

In addressing the requirement that an applicant must show a reasonable apprehension of irreparable and imminent harm to its rights if an interdict is not granted, Marcus SC pointed to several facts:

• the commission has undertaken not to use KPMG until the resolution of this dispute;
• the commission has not and will not request information from KPMG which it acquired through its prior work for Netcare;
• the commission has disclosed all correspondence between itself and KPMG;
• KPMG has taken steps to ensure that there is no possibility of disclosure; and
• the commission undertook that it will protect Netcare’s confidential information in terms of the existing regime that is ordinarily used to protect such information.

Marcus SC concluded that, as a result of this, Netcare has failed to show a reasonable apprehension of irreparable harm.

Balance of convenience test

When determining whether to grant an interim interdict, the court must balance the prejudice to the parties. Marcus SC, however, emphasised that the court is also required to have regard to the broader public interest when conducting this analysis, and referred in particular to the case of Cipla v Aventis Pharma (Treatment Action Campaign intervening as amicus curiae).

In this case, the Supreme Court of Appeal ruled that the public interest and not only the interests of the litigating parties must be placed on the scales when weighing where the balance of convenience lies. Similarly to the present matter, the public interest in Cipla also pertained to the importance of the right to healthcare services. Marcus SC argued that in the context of the centrality of the right to healthcare as the rationale for the inquiry, the balance is overwhelmingly in favour of affirming the importance of the inquiry proceeding without delay.

Conclusion: the importance of the public interest

Amidst the array of stark contradictions that emerged during the three days of hearings, on the face of the parties’ submissions, one thing was common cause: that the market inquiry was, in the words of Netcare’s counsel “undoubtedly important” and that the public interest was a central element that the court ought to consider in determining whether to grant interim relief in this matter.

Where Netcare differed in this regard was in its emphasis on the constitutional obligations of KPMG as a public functionary and the best course of action for the commission to take to maintain the integrity of the inquiry.

Both the commission and KPMG were at pains to emphasise that at no stage in the case up until the hearing did Netcare make any attempt to ground its case in constitutional argument. The commission in particular emphasised the importance it placed on the right to healthcare services as the central rationale for the inquiry. Marcus SC on behalf of the commission, decried the delay in the commission’s work, brought on by Netcare, in no uncertain terms: “let me not mince my words, this litigation has been a major setback and inhibition to the inquiry”.

All parties made continuous reference to the fact that the inquiry needed to proceed with integrity, transparency and in a manner that allows the panel to determine the truth.

SECTION27 is encouraged to note that all of the parties to this litigation have accepted and acknowledged the importance of the inquiry into the private health sector and the centrality of the public interest to the inquiry. SECTION27 emphasises that the core purpose of a transparent inquiry conducted with integrity is a realisation of the right to healthcare services enshrined in the Constitution. SECTION27 notes that in terms of the Constitution, this right places obligations on both public and private entities alike.

SECTION27 will continue to monitor the inquiry to ensure that the focus of the inquiry remains the importance of this right and the impact that the current market structure has on patients.

For more information contact:

Umunyana Rugege: 083 458 5677
Tim Fish Hodgson: 082 871 9905