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[2019] ZAGPJHC 534
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HCI Invest 15 Holdco Proprietary Limited and Another v Ithuba Holdings Proprietary Limited (RF) and Others (19/31803) [2019] ZAGPJHC 534 (4 November 2019)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG LOCAL
DIVISION, JOHANNESBURG
CASE
NUMBER: 19/31803
In
the matter between:
HCI
INVEST 15 HOLDCO PROPRIETARY
LIMITED
First
Applicant
HCI
TREASURY PROPRIETARY
LIMITED
Second
Applicant
and
ITHUBA
HOLDINGS PROPRIETARY LIMITED
(RF)
First
Respondent
ZAMANI
MARKETING AND MANAGEMENT
Second
Respondent
CONSULTANTS
PROPRIETARY LIMITED
ZAMANI
GAMING PROPRIETARY
LIMITED
Third
Respondent
IMBHUMBHA
MANAGEMENT PROPRIETARY LIMITED
Fourth
Respondent
KWABO
HOLDINGS PROPRIETARY
LIMITED
Fifth
Respondent
PAYTRONX
SYSTEMS PROPRIETARY LIMITED
Sixth
Respondent
INHLANGANO
MANAGEMENT PROPRIETARY LIMITED
Seventh
Respondent
NATIONAL
EMPOWERMENT FUND TRUST
Eighth
Respondent
SOUTH
AFRICAN POST OFFICE SOC
LIMITED
Ninth
Respondent
THE
NATIONAL LOTTERIES
COMMISSION
Tenth
Respondent
JUDGMENT
UNTERHALTER
J
INTRODUCTION
1.
The
Applicants ( to whom I shall refer as HCI ) bring an application to
interdict the First Respondent, Ithuba Holdings Proprietary
Limited (
“Ithuba”) from making any further payments to the Second
Respondent, Zamani Marketing and Management Consultants
Proprietary
Limited ( “ Zamani”), in terms of the management
agreement concluded between Ithuba and Zamani dated
1 November 2013
(“ the management agreement” ). HCI seeks an order
directing Ithuba to pay its monthly management fee
to the attorneys
Webber Wentzel to hold these monies in trust. I shall refer to this
as the fee relief. HCI also seeks to
interdict Ithuba from
paying the salaries of employees of Ithuba, Zamani or any other
entity in the Zamani group, and to require
that the salaries of
employees of Ithuba are paid by Zamani. I shall refer to this relief
as the salary relief.
2.
The
fee relief and the salary relief are sought to operate with immediate
effect, pending the final outcome of certain proceedings.
3.
Ithuba
holds the license to operate the national lottery. The third to ninth
respondents, cited in these proceedings, are its shareholders.
The
third respondent, Zamani Gaming Proprietary Limited (“ Zamani
Gaming”), holds a significant shareholding in Ithuba.
Zamani,
in terms of the management agreement, manages the business of Ithuba
for a management fee.
4.
Ithuba
required funding in order to operate the national lottery. HCI
was willing to fund Ithuba and did so in terms of a
suite of
agreements. Relevant to this matter, the following agreements were
concluded. The Governing Agreement governs the
funding provided
to Ithuba. And on 8 April 2015, Ithuba, Zamani and HCI Invest 15
Holdco Proprietary Limited ( the First Applicant
“ HCI Invest
“) , together with two trusts, entered into the first
addendum to the management agreement ( “
the First Addendum”)
in terms of which HCI Invest became a party to the management
agreement. HCI provided funding to Ithuba.
Among the rights acquired
by HCI Invest under these agreements is a step-in right to
oversee the management of the
business of Zamani and Ithuba
upon the occurrence of a trigger event. Upon the trigger of the step
-in right and the exercise of
the right, HCI invest is entitled to a
fee equivalent to 1 % of Ithuba’s gross monthly revenue ( “
the 1% fee”)
5.
Various
disputes arose between the parties to these agreements. The disputes
were referred to arbitration. One of the disputes was
the claim of
HCI Invest that it had exercised its management oversight rights in
terms of the Governing Agreement read with the
First Addendum, as a
result of the occurrence of an early trigger event. Zamani denied the
early trigger event had occurred.
6.
The
arbitrators made an award on 30 July 2019. The award, among other
relief, declared that HCI Invest is entitled, and Ithuba and
Zamani
are directed, to afford HCI invest its right to management oversight.
In relevant part the award reads as follows
:
“
(6)
It
is declared that first claimant is entitled, and first and second
respondents are directed, to afford the claimant its right
to
management oversight in accordance with clause 5A.3 of the Management
Agreement.
(7)
First and second respondents are directed to take all such steps and
do all such things as shall be necessary to assist in procuring
the
approval of the Minister of Trade and Industry and the National
Lotteries Commission, for the purpose of the first claimant
acquiring
the new Preference Shares and/or existing its right to management
oversight in accordance with clause 5A.3 of the Management
Agreement.
(8)
It is directed that second respondent make payment to the first
claimant of an amount equivalent to 1% (one percent) of the
second
respondent’s gross monthly revenue, per month, upon fulfilment
of the following conditions:
(a)
The
consent of the Minister of Trade and Industry and the National
Lotteries Commission to first claimant’s rights to management
oversight in accordance with clause 5A.3 of the Management Agreement.
(b)
The
approval, if necessary, of the Competition Commission, the
Competition Tribunal or the Competition Appeal Court in terms of
Act
89 of 1998, to first claimant’s right to management oversight
in accordance with clause 5A.3 of the Management Agreement.
(c)
The
exercise by first claimant of its right to management oversight in
accordance with clause 5A.3 of the Management Agreement.”
7.
On
28 August 2019, HCI’s attorneys wrote to Ithuba and Zamani.
Referencing the award in their favour, HCI sought compliance
with the
Governing Agreement and Management agreement; asserted the validity
of HCI Invest’s exercise of oversight rights;
and claimed
an entitlement to the 1% fee. The letter raised two other matters
relevant to the application before me.
First, a detailed
statement and debatement of account was demanded. In
particular, an accounting as to the amounts Zamani
has received from
Ithuba; what amounts should have been received in terms of the
management agreement; and what amounts Zamani
is required to repay to
Ithuba. HCI expressed the view that until this accounting was
prepared, Zamani should receive no further
payments from Ithuba.
An undertaking was then sought in these terms.
8.
Second,
the letter states that it is evident from the award that Zamani has
been recovering staff salaries from Ithuba which Zamani
is obliged to
pay. Undertakings were sought that Zamani will repay to Ithuba all
amounts it received from Ithuba in respect of
salaries and that
Zamani will assume its obligation to pay the salaries of all Ithuba’s
staff.
9.
The
attorneys of Ithuba and Zamani replied to this letter on 4 September
2019. They declined to give the undertakings sought, save
that under
reservation of rights, it is recorded that Zamani has paid the
salaries of all the Ithuba staff since the award was
published. In
sum, the position taken is that both as to the accounting sought by
HCI and the payment of the 1 % fee, HCI
could not exercise
these rights because they are subject to regulatory approvals not yet
secured; and , in addition, the 1% fee
was not payable until the
oversight right was exercised and the fee earned.
10.
This
exchange led HCI to launch the application now before me. It was
launched as an urgent application. The matter has since
come
under case management in the Commercial Court. HCI joined Ithuba’s
shareholders, as the third to ninth respondents.
The National
Lotteries Commission (“NLC”), which oversees the national
lottery, sought to intervene and has been joined
as the tenth
respondent.
THE
SALARY RELIEF
11.
I
deal firstly with the salary relief. Zamani confirms in the
answering affidavit that, since the award, Zamani has taken
over
payment of Ithuba’s salaries and is not recovering the expense
associated with these salaries from Ithuba.
12.
That
being so, the relief sought in prayers 3 and 4 of the Notice of
Motion has fallen away. HCI’s counsel confirmed this.
The
salary relief is forward looking. Zamani has assumed the obligation
to pay the Ithuba salaries and is doing so. Accordingly
no orders
need issue from this court.
13.
HCI
complains that Zamani has not repaid Ithuba for salaries paid
by Ithuba prior to the publication of the award. But that
is a matter
HCI raises as part of its complaint that Zamani and Ithuba have
mismanaged their businesses. It forms no part of the
salary relief.
14.
There
is accordingly no need further to consider the salary relief.
THE
FEE RELIEF
15.
The
fee relief, it will be recalled, seeks an interdict to prevent Ithuba
from making further payments of the management fee
to Zamani.
The payment should rather be paid into trust. The amount to be
transferred is framed in the alternative
as either 4.67% or 3 % of
Ithuba’s gross monthly revenue. HCI also seeks Ithuba’s
monthly management accounts.
16.
The
case advanced in the founding affidavit for the fee relief is this.
The arbitration award is valid and enforceable. HCI Invest
has an
interest to ensure that there is proper management of Ithuba and
Zamani. These companies must provide a proper accounting
which would
reveal the extent to which Zamani has been overreaching in claiming
management fees. It is alleged that Zamani has
been receiving monthly
management fees of 4.67 % of Ithuba’s gross
revenue( and even in excess thereof), when
it is only entitled to 3%.
Furthermore, HCI Invest has a claim for past and future income, in
respect of the 1% fee to which
it is entitled for the exercise
of its step-in right. These matters are somewhat tersely stated in
the founding affidavit
17.
In
the replying affidavit rather more is said as to HCI’s
overreaching complaint and what are said to be irregularities that
emerge from a consideration of the financial information provided in
the answering affidavit. This led to Ithuba and Zamani filing
a
rejoinder ( without opposition). And in the course of the hearing, I
also received a supplementary affidavit from Ithuba and
Zamani and an
affidavit from HCI in response to a rule 35(12) notice that contains
certain documents and explanations upon which
HCI relies.
18.
In
their heads of argument, HCI founds the fee relief on three grounds.
First, the refusal of Ithuba and Zamani to comply with the
arbitration award. Second, a refusal to make management accounts
available to HCI. Third, what is said to be wholesale financial
manipulation.
19.
The
consideration of the fee relief must commence with this question:
what right does HCI establish?
20.
HCI
submits that it enjoys a valid and enforceable award in its favour
that recognizes HCI Invest’s right of management oversight
and
the payment of the 1% fee. The award does indeed recognize these
rights. The award however also recognizes that regulatory
approvals
are required before these rights may be exercised. In respect
of the payment of the 1% fee, the award stipulates
conditions that
must be fulfilled for payment to take place. The conditions are
these: that the Minister approves the right to
management oversight;
the exercise of the right to management oversight by HCI
Invest is in accordance with clause
5A.3 of the management agreement;
and approval by the competition authorities of the right to
management oversight ( if necessary).
21.
HCI
complains that Ithuba and Zamani are being obstructive and
frustrating the fulfillment of these conditions. .No relief is sought
in these proceedings to secure the assistance of Ithuba and Zamani.
There was some debate before me as to whether the Minister
and the
NLC had already given their consent to HCI Invest’s right of
management oversight, at the inception of the license.
The Minister
appears to have subsequently withdrawn that consent and the NLC and
HCI have different positions as to the legal consequence
of that
withdrawal. Nothing ultimately turns on this aspect of the matter
because HCI recognizes in its answer to the NLC’s
intervention
that a fit and proper approval is required in respect of its
management oversight right, and counsel for HCI in his
replying
submissions confirmed this and referenced the approval that is
required from the Minister under the license conditions
when there is
a change of control.
22.
I
can thus approach this aspect of the matter on the following basis.
First, HCI Invest cannot at present exercise its right
of
management oversight in terms of the award because it lacks the
necessary approvals of the Minister and the NLC. Second, HCI
Invest
cannot at present claim payment of the 1% fee because no approval has
been given by the competition authorities. In addition,
HCI invest
cannot yet exercise its right to management oversight, and thus
payment of the 1% fee is not yet due, as the award stipulates
and
clause 5A 3.6 of the first addendum to the management agreement
dictates.
23.
HCI
submits that even if HCI Invest cannot yet exercise the right of
management oversight, nor yet claim payment of the 1% fee,
the award
has recognized these rights. That is so. And HCI no doubt considers
that it will ultimately secure the regulatory approvals
that it
requires – though little as to its prospects has been raised
before me.
24.
The
first issue that arises is this. The 1% fee is not yet payable. It
will be payable when HCI Invest is in a position to exercise
its
right of management oversight and chooses to do so. If and when that
should happen, Ithuba will be paying to Zamani the management
fee, as
it is required to do under the management agreement. HCI Invest,
having assumed management oversight, will then be able
to secure its
1% of the management fee as an incident of its management. There is
no suggestion that Ithuba will not be in a position
to pay the
management fee. On the contrary. HCI’s concern is that Ithuba
is paying too much.
25.
In
these circumstances, it is difficult to see how the risk of harm to
HCI Invest comes about. When it assumes management oversight
and the
1% fee becomes payable, it will be in a position to secure payment
from Ithuba or Zamani. Before that happens, HCI
Invest has no
claim to be paid the 1% fee. Hence it has no claim to the management
fees that Ithuba is presently paying to Zamani.
And there is
accordingly no warrant, on this score, to prevent the management fees
from being paid to Zamani and to place them
in trust.
26.
Counsel
for HCI submitted that HCI Invest’s claim to be paid the 1% fee
is quasi- vindicatory and that the management fees
that Ithuba is
paying to Zamani constitute specific property which must be preserved
so that HCI Invest can , in due course, vindicate
its 1 % fee.
I do not need to determine whether this characterization of the
matter is correct ( it was offered in HCI’s
replying oral
submissions). Even if it is, there is no irreparable harm that is
threatened that requires the preservation of the
management fees in
trust.
[i]
When the 1% fee is
payable, HCI Invest will be in a position to secure its payment from
Ithuba or Zamani.
27.
It
was submitted that HCI Invest has a claim for the 1 % fee that goes
back to the time it first sought to invoke its right of management
oversight. That case has not been made out, and it is at odds with
the award and the terms of the first addendum.
28.
Furthermore,
Ithuba has secured a guarantee from Investec Bank in favour of HCI
Invest in respect of the 1% fee. The guarantee has
certain
limitations as to amount and duration. But the guarantee secures
payment of the 1 % fee over a reasonable future period
during which
HCI Invest might plausibly become able to exercise the right of
management oversight. It obviates the need for the
more drastic
remedy proposed by HCI to sequester management fees in trust.
29.
I
find that since HCI Invest cannot presently exercise its right of
management oversight, it has no claim to payment of the 1% fee
and no
claim upon the management fees that Ithuba is currently paying to
Zamani. If and when HCI Invest is entitled to payment
of the 1% fee,
it will be in a position to secure payment. There is no need for the
fee relief that is sought.
30.
This
finding, however, does not end my consideration of the fee relief
that is claimed by HCI. HCI contends that its right of management
oversight is recognized in the award. For the reasons that I have
already traversed, that right, in terms of the award, can also
not be
exercised at present. Although the award does not render the right
subject to the conditions specified in respect of the
1% fee, it is
clear that the award plainly contemplates that the right of
management oversight requires the approval of the Minister
and the
NLC. And counsel for HCI acknowledged that such approval is required.
Until the approval is acquired, HCI Invest cannot
exercise the right.
And that is how HCI Invest is presently positioned.
31.
HCI’s
case is that it has a right of management oversight; that Ithuba and
Zamani are engaged upon acts of overreach and irregularity
that HCI
would want to be in a position to investigate, but which it cannot
because it cannot exercise its right of management
oversight. It has
sought an accounting from Ithuba and Zamani. Ithuba and Zamani
resist for a number of reasons, including
that HCI Invest is not
entitled to exercise its right under the award. The fee relief
is required, so HCI contends, to preserve
the management fees that
Ithuba is paying Zamani, against the day that HCI can exercise its
right of oversight. If this is not
done, HCI Invest runs the risk
that should it need to restore to Ithuba fees that should not have
been paid to Zamani, those fees
will no longer be available so as to
ensure restitution. HCI emphasizes that its right to management
oversight carries with it
a duty both to the shareholders of Ithuba
and the public that there is no mismanagement of funds which
ultimately are there to
serve the charitable causes for which the
lottery was established. And finally, HCI does recognize in its
replying affidavit that
the fee relief is too drastic as it is
formulated in that Zamani must at least be able to secure funds
sufficient to perform the
services required of it under the
nanagement agreement. In their replying affidavit, HCI state
that they are prepared to
amend the relief that is sought so that
Zamani may receive management fees of R9 miilion per month, being its
claimed monthly operating
expenses.
32.
Both
in the heads of argument and in oral submissions, there was
considerable attention given to the issue as to whether Zamani
was
being paid the correct management fee. HCI contends that Zamani is
entitled to a fee of 3%, but is being paid 4.67 %, and perhaps
more.
This is said to be an overreach. Further, HCI contends that the
financial statements and regulatory filings put up
by Ithuba and
Zamani do not support their claim that the fee payable and paid is
4.67%. HCI says there is evidence of irregularities
in the
management of Ithuba and Zamani, and hence the need for intervention
by way of the fee remedy.
33.
Ithuba
, Zumani and the Ithuba shareholders say that these contentions are
rashly made; that they have no basis; that they are unsupported
in
the founding affidavit, opportunistically pursued in the replying
affidavit; that they are comprehensively rebutted on the basis
of
evidence not surmise; and yet they are incautiously made the subject
of submission before this court. This ,it is submitted,
warrants a
special order for costs.
34.
The
issues of overreach and irregularity, in sum, are these. HCI says
that Ithuba is paying Zamani a fee of 4.67%, yet when
HCI agreed to
fund Ithuba and acceded to the management agreement, the
representative of Ithuba and Zamani who negotiated the accession
represented that the fee was 3%. The financial information disclosed
in the answering affidavit indicates overpayment and irregularities;
and the explanations offered in the affidavits are contradictory.
This, taken together with the failure properly to disclose Ithuba’s
related party transactions and the failure by Zamani to repay Ithuba
for past salary expenditure provides a prima facie case of
overreach
and irregularity.
35.
Ithuba
and Zamani set out a detailed account as to why these claims are
false and the accusations are baseless and pernicious. First,
the
signed management agreement, framed in the usual way to be the whole
agreement, varied only in writing signed by the parties,
provides in
appendix 2 for a fee of 4.67%. The First Addendum by which HCI invest
became a party to the management agreement was
entered into and
signed by Mr Shaik, the deponent to HCI’s affidavits in the
application now before this court. The First
Addendum refers
throughout to the very management agreement of 1 November 2013 which
stipulates for the fee of 4.67%. This, it
is said, could hardly have
escaped Mr Shaik’s attention. The Governing Agreement, which
forms part of the suite of agreements
in terms of which HCI came to
fund Ithuba, also references the management agreement. The
signed and binding management agreement
is conclusive as to the fee,
and Mr Shaik’s knowledge of that agreement entails that HCI
knew the position and could not
have relied on any representations at
variance with the clear terms of the management agreement.
36.
Second,
Mr du Pisanie , the group financial officer of the Zamani group,
provides a detailed account of the financial statements
and
regulatory filings made to the NLC. His evidence explains, so it is
contended, the anomalies that HCI has sought to rely upon.
In
summary, entries in the financial statements that HCI claimed to
evidence overpayments to Zamani are simply aggregated figures
that
represent payments to numbers of service providers. The financial
statements have been audited and there is no reason why
they should
not, together with Mr du Pisanie’s explanations, be accepted.
37.
In
concluding submisions, HCI said that the financial model in the
Governing Agreement, in terms of which Zamani is bound
to
discharge its managerial duties, stipulated a fee of 3 % . Reliance
was placed on an affidavit deposed to by Mr Shaik, in response
to a
rule 35(12) notice, filed in the course of submissions before
me, that made certain corrections and referenced
income and
expenses submitted as part of Ithuba’s license bid that
specified a fee of 3 % in year two. Ithuba and Zamani
point out , in
response , that in terms of the Governing Agreement, the base case
financial model is defined as a model that is
updated from time to
time and the agreement stipulates that HCI Invest had received the
updated model. The Governing Agreement
is not predicated upon the
financial model that formed part of the original bid.
38.
HCI’s
case for overreach and irregularity ranges across a number issues,
with little regard for the conventional stricture
that a case is to
be made out in the founding affidavit. Although HCI harbours an
apprehension that its inability to exercise managerial
oversight
permits Ithuba and Zamani to engage in serial irregularity,
HCI’s points of challenge have been met with
clear
refutations. HCI’s case on these issues is left lacking
compelling evidence.
39.
Whether
any further appraisal of this evidence is required must await two
further enquiries. First, HCI contends for a right of
management
oversight. It cannot yet exercise this right, but apprehends
that harm to managerial rectitude is occurring,
while it
seeks the permissions required to do so. The likelihood that HCI will
secure these permissions is a matter, as I have
observed, barely
traversed. Assuming that HCI will in due course be able to exercise
the right of management oversight, on what
basis does the right
asserted permit of the fee relief that is sought? The right of
management oversight is not a vindicatory
or quasi-vindicatory
right. Outside the claim for the 1% fee issue ( already
canvassed ), HCI is neither the owner nor the
lawful possessor of the
management fees paid by Ithubu to Zamani. On the contrary, HCI’s
apprehension is that Zamani is being
paid management fees ,in excess
of what is due, to the detriment of Ithuba. The right of management
oversight does not give rise
to a vindicatory or quasi vindicatory
claim to the management fees.
40.
It
was submitted in counsel’s opening address on behalf of HCI
that HCI apprehends that absent the fee relief , Zamani does
not have
the assets that will permit of repayment to Ithuba in due course, if
HCI Invest, upon assuming management oversight, finds
that there has
been overreaching by Zamani. HCI submit in their heads that Zamani
lacks a significant asset base and is not retaining
the profits that
accrue to it monthly. These submissions portend an anti-dissipation
interdict.
41.
However,
HCI has made out no case for an anti-dissipation interdict. This
interdict has the special feature that an applicant for
such an
interdict has no claim to the asset that is to be made subject to the
interdict, but rather seeks to have the asset preserved.
In
Knox
D’Arcy
[1]
,
the
appeal court held that, save in exceptional circumstances, it is
necessary to show that the respondent is getting rid of funds,
or is
likely to do so, with the intention of defeating the claims of
creditors. HCI makes no such showing in respect of Zamani
and the
management fees it is paid by Ithuba. Counsel for HCI, in reply,
rightly, made it clear that HCI does not seek an anti-dissipation
interdict.
42.
If
that is so, it is hard to discern what claim HCI can justifiably make
to prevent Ithuba from dealing with its own funds to effect
payments
to Zamani. HCI has no claim to the funds. HCI does seek to preserve
the funds in trust. But HCI recognizes that
it has not shown
that Zamani is dissipating the management fees with intent to avoid
repayment to Ithuba. Ithuba contends
that the fees it has paid
were owing. Zamani agrees. If Zamani is not retaining profits, there
is no showing that it is doing so
to avoid repaying fees to Ithuba.
It has no belief that any repayment is due. There is no basis for the
fee relief as an anti-dissipation
order.
43.
The
fee relief has a further difficulty. It is trite that an applicant
seeking an interim interdict , based on the establishment
of a
prima
facie
right ,must show a well-grounded apprehension of irreparable harm to
the applicant, if the interim interdict is not granted and
the
applicant ultimately succeeds in establishing the right. An interim
interdict is granted upon a consideration of what harm
might occur if
no order issues and the right is proven in the proceedings for final
relief. The contemplated proceedings
for final relief are an
essential feature of the grant of an interim interdict. Those
proceedings demarcate the extent of the harm
that might be prevented
and the prejudice that the respondent might be required to endure.
They are also the means by which the
applicant will finally determine
its claim to the right it relies upon and in contemplation of
which the court may assess
whether the applicant has established a
prima
facie
right.
44.
HCI”s
notice of motion seeks the fee relief pending the final outcome of
the large merger under consideration by the Competition
Commission,
further proceedings to determine Zamani’s entitlement to a
management fee and proceedings to compel payment by
Ithuba and / or
Zamani of any amount due to HCI Invest.
45.
This
formulation of the final relief to be sought by HCI has the following
difficulties. First, it is unclear what proceedings
are
contemplated to determine Zamani’s entitlement to a management
fee. The award has already declared HCI Invest’s
right of
management oversight. If and when that right can be exercised, HCI
Invest will be in a position to determine Zamani’s
entitlement
to a management fee and take remedial steps. That falls within the
remit of the right of management oversight. The
only proceedings that
are required to permit of the exercise of that right are regulatory
permissions and making the award an order
of court.
46.
The
notice of motion makes no mention of proceedings to make the award an
order of court. HCI sought to incorporate this relief
in a draft
order in the course of the hearing. There were objections
raised and the draft order was abandoned.
47.
The
notice of motion also references the merger proceedings under
consideration by the Competition Commission. It is however
clear that
it is proceedings before the Competition Tribunal that must determine
the merger ( and an appeal may lie to the Competition
Appeal Court ).
No mention is made of the other regulatory permissions contemplated
in the award, perhaps on the now abandoned
premise that HCI already
enjoyed these permissions. Curiously, the award does not make the
right of management oversight subject
to merger approval. Yet that is
the final proceeding referenced in which final relief will be sought.
Nor does the founding affidavit
explain what prospects HCI has of
obtaining merger approval and if so on what terms and over what
period of time. All these
are matters relevant to an
assessment of whether an interim interdict should issue and what
prejudice might come about as
a result.
48.
There
is accordingly a failure to link the right of management oversight
relied upon for interim releif to the final relief that
is to
be sought. That creates a fundamental difficulty in establishing the
case for interim relief.
49.
The
fee relief suffers further from the following infirmities. It is
relief that is neither vindicatory, nor predicated upon an
anti-dissipation remedy. It rests upon a right to management
oversight that is recognized in an award which requires and awaits
regularity permissions, the grant of which remain uncertain. And the
award itself has yet to be made enforceable by an order of
court,
which entails yet further litigation between HCI, Ithuba and Zamani.
50.
HCI
has pressed the need for intervention on its claims of overreach and
irregularity. But on the papers, these claims have been
met with
clear rebuttals. HCI has not been able to make a case beyond
conjecture on this score. And, in particular, HCI has not
shown that
Zamani is not entitled to the 4.67% fee and has been paid in excess
of that figure. The shareholders of Ithuba, who
stand to lose from
any fee overreach, make no complaint. Plainly the lawful operation of
the national lottery is a matter of public
importance, given its
charitable objects. The NLC was reminded of its duty to take active
steps of oversight to ensure probity
and legality. This its
counsel assured the court would take place. How Zamani comes to be
entitled to a management fee of
4.67% on the gross revenue of Ithuba,
when Zamani’s operating expenses are modest by comparison, is a
matter that warrants
attention, but forms no part of this
application.
51.
The
interim relief also seeks to have Ithuba furnish monthly management
accounts to Webber Wentzel, presumably to hold in trust.
HCI has
emphasized the importance of securing an accounting from Ithuba and
Zamani. But HCI Invest, as I have explained, does cannot
yet exercise
the right of management oversight, the accounting it seeks is an
incident of that right. No case has been made as
to why the
management accounts must be furnished immediately, and held in trust,
when HCI Invest cannot yet act on an accounting
that is given. HCI
will be in a position to see these accounts, as and when it can
exercise its right of management oversight.
That time has not
arrived. And this aspect of the interim interdict cannot thus be
granted.
52.
HCI
apprehend that Ithuba and Zamani are attempting to frustrate their
right of management oversight. Whether or not that is so,
rather than
seek intervention from this court by way of the fee relief, which
entails a significant diversion of fee income from
Zamani to which
HCI has no immediate claim, HCI can take steps to render its right of
management oversight enforceable. It will
then be able to secure an
accounting and take warranted measures that fall within the scope of
its managerial remit. The disputes
between the parties have now come
under case management, and, as with this application, matters can be
dealt with promptly. Ithuba’s
lottery license runs until June
2023. Ample time within which HCI may be able to enforce its rights,
and, should there be reason
to do so, given the extent of the monthly
fee income that accrues to Zamani, Zamani will receive a
flow of revenue
sufficient to repay, over time , any past
overpayments, including salaries that Ithuba has paid.
53.
For
these reasons, I find that the fee relief cannot be granted.
CONCLUSION AND COSTS
54.
The
interdicts sought by HCI must be dismissed. The salary relief is not
required, and a case has not been made for the fee relief.
55.
That
leaves over for consideration questions of costs.
56.
HCI
sought relief against Ithuba and Zamani. Their opposition has
prevailed, and these respondents are entitled to their costs.
Given
the complexity of the matter, Ithuba and Zamani were justified in
their employment of two counsel, and the costs of
two counsel
are warranted, where two counsel were utilized. Ithuba and Zamani
seek a punitive costs order. They complain
that HCI had no
basis for the claims of overreach and irregularity, and perpetuated
this folly by ever more exaggerated charges
of unconscionable conduct
in the papers and by way of submission. There is a regrettable
predilection for hyperbole in litigation,
but I cannot say that , in
the round, HCI failed to raise issues that warranted a proper
explanation. No special order for cost
is made.
57.
Certain
of the shareholders, cited as respondents for their interest, opposed
the application, filed affidavits and heads and made
oral
submissions. They did so, it was submitted, because they wished to
place before the court that, as shareholders of Ithuba,
they
discerned no overreach or impropriety and wished to rebut HCI claims
of complicity.
58.
I
am unpersuaded that such opposition was warranted. HCI’s notice
of motion sought no relief against the Ithuba shareholders.
No
allegations of complicity were levelled against the shareholders in
the founding affidavit. The shareholders could have abided
the
decision of the court and filed brief affidavits setting out their
position. HCI in its replying affidavit did made allegations
of
complicity. This was a regrettable escalation born of
unnecessary opposition. The shareholders who opposed must bear their
own costs.
59.
HCI,
for its part, sought costs if it was successful ,but sought immunity
from costs if it failed on the basis that its application
was brought
both in its own interests and those of the public. In seeking to
vindicate the public interest , HCI submitted it should
enjoy the
qualified immunity under the
Biowatch
principle.
I find no basis upon which HCI can seek this immunity. That the
management of the national lottery is a matter
of public interest ,I
entertain no doubt. But HCI has brought this application to
secure its commercial interests as a funder
of Ithuba. There is
no reason to think it would have acted in the public interest if it
had no such commercial interests.
HCI must suffer the usual
consequences as to costs that flow from its application being
dismissed.
60.
As
to the NLC, although there were sharp differences with HCI as to the
legal status of past consents and the requirement for further
permissions, it has been unnecessary to resolve these differences,
not least because HCI now accepts that consent consequent upon
a
change of control is required. The NLC intervened ,but wisely sought
no costs, and there the matter rests.
In the
result, the following order is made:
1.
The
application is dismissed.
2.
The
Applicants shall pay the costs of the First and Second Respondents,
including the costs of two counsel, where two counsel were
utilized.
____________________
Unterhalter J
Judge of the South
Gauteng High Court
[1]
Knox
D’Arcy Limited v Jamieson
1996
4 SA 348 (A)
[i]
Fedsure
Life Insurance Co Ltd v Worldwide African Investment Holdings (PTY)
Ltd
2003
3 SA 268
(W) at [27] and [28] affirms that the presumption of
irreparable harm may be rebutted. Here it is so.