About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2010
>>
[2010] ZAWCHC 220
|
|
South African Education and Environment Project and Another v National Lotteries Board and Others (22352/2009) [2010] ZAWCHC 220 (26 August 2010)
IN THE HIGH COURT OF SOUTH
AFRICA
(WESTERN CAPE HIGH COURT,
CAPE TOWN)
CASE NO: 22352/2009
In the matter between:
SOUTH AFRICAN EDUCATION AND
ENVIRONMENT
PROJECT
..........................................................
First
Applicant
CLAREMONT METHODIST CHURCH
SOCIAL IMPACT MINISTRY, SIKHULA
SONKE
…...........................................................................
Second
Applicant
and
NATIONAL
LOTTERIES BOARD
…..............................................
First
Respondent
TEBOGO
MAITSE NO
(as
chairperson of
The Distribution Agency for
Charities)
….....................................
Second
Respondent
DORCAS
JAFTA NO
(as
chairperson of the Distribution Agency for Arts, Culture and
National
Heritage)
…..............................................................
Third
Respondent
THE
MINISTER OF TRADE AND INDUSTRY
….............................
Fourth
Respondent
JUDGE
: P.A.L.
Gamble
FOR THE
APPLICANT
:
Adv. D. Borgstrom
INSTRUCTED BY Edward Nathan
Sonnenberg
FOR THE
RESPONDENTS
:
Adv. N.A. Cassim S.C.
INSTRUCTED
BY
:
Dockrat Attorneys
DATES
OF HEARING
:
18 May 2010
JUDGMENT
: 26
August 2010
REPORTABLE
IN THE HIGH COURT OF
SOUTH AFRICA
WESTERN CAPE HIGH COURT,
CAPE TOWN
CASE NO: 22352/09
In
the matter between:
SOUTH AFRICAN EDUCATION AND
ENVIRONMENT
PROJECT
….............................................................
First
Applicant
CLAREMONT METHODIST CHURCH
SOCIAL
IMPACT MINISTRY, SIKHULA SONKE
…..............................
Second
Applicant
and
NATIONAL
LOTTERIES BOARD
…..................................................
First
Respondent
TEBOGO
MAITSE NO
(as
chairperson of
the
Distribution Agency for Charities)
…..............................................
Second
Respondent
DORCAS
JAFTA NO
(as
chairperson of
the
Distribution Agency for Arts, Culture
and
National Heritage)
….....................................................................
Third
Respondent
THE
MINISTER OF TRADE AND INDUSTRY
…...............................
Fourth
Respondent
JUDGMENT DATED 26 AUGUST
2010
GAMBLE,
J:
INTRODUCTION
[1) The two Applicants in this matter are
non-governmental organizations (NGO's) which render services to
needy and marginalized
people living on the Cape Flats. Their
primary areas of focus in the field of education are in regard to
early childhood development,
childcare, preschool education and
the training of workers in these disciplines.
[2] Like so many of their fellow NGO's the Applicants
struggle to make ends meet and are reliant on donor funding just to
survive.
In the hope of improving their financial position the
Applicants submitted (independently of each other) a number of
applications
for funding to the First Respondent ("the NLB").
[3]
In
the case of the First Applicant (which is known by the acronym SAEP)
there were seven applications for NLB funding during the
period
August 2003 to January 2009, while the Second Applicant (generally
known as "Sikhula Sonke") submitted two applications
- in
July 2007 and November 2008.
[4]
None
of these requests (which for the sake of convenience, I shall call
"funding applications") were successful. Both
Applicants
complain of administrative bungling in the processing of various of
their funding applications and they seek redress
by way of reviews
under the Promotion of Administrative Justice Act,
3
of 2000 ("PAJA")
which is the iegisiative embodiment of the right to fair
administrative action guaranteed under
Section 33 of the Constitution.
1
The Applicants have made it clear
that what they seek at this stage is only the reconsideration of
their various funding applications
by the NLB. They do not seek an
order granting them a funding allocation or monetary award as such.
THE FUNDING APPLICATIONS
[5] In its founding papers the First Applicant referred
to the following seven funding applications, which I shall describe
with
reference to the relevant reference numbers allocated by the
NLB:
5.1
Reference
no. 14842
An application for R642 040.00 submitted on 26 August
2003 (hereinafter "the first funding application")
5.2
Reference
no. 4046
An application for R789 460.00 submitted on 28 July
2004 ("the second funding application'')
5.3
Reference
no. 21797
An application for R500 000.00 submitted on 13 July
2005 ("the third funding application")
5.4
Reference
no. 21524
An application for R976 400.00 submitted on 3 November
2005 ("the fourth funding application")
5.5
Reference
n
o. 28045
An application for Rl 451 910.00 submitted on 24 July
2007 ("the fifth funding application")
5.6
Reference
n
o. 35057
An application for R990 500.00 submitted on 12 November
2008 ("the sixth funding application"); and
5.7
Reference
no. 35336
An application for R313 560.00 submitted on 28 January
2009 ("the seventh funding application")
[6] In its founding affidavit the Second Applicant made
reference to the following two applications for funding submitted on
its
behalf:
6.1
Reference
no. 27999
An application for R570 000.00 submitted on 26 July
2007 ("the eighth funding application"); and
6.2
R
eference
no. 33667
An application for an undisclosed amount submitted on
13 November 2008 ("the ninth funding application"). This
application
appears to have been a re-submission of the eighth
funding application, which was allegedly made because of "delay
and uncertainty
regarding" the outcome of the eighth funding
application.
[7]
Bach
of the nine
funding applications referred to above was refused by the NLB.
URGENCY
[8] On 22 October 2009 the Applicants jointly launched
this application as one of some urgency and sought the allocation of
an
early date for hearing. By the direction of the erstwhile Acting
Judge President the matter was enrolled for hearing on 17 March
2010.
[9] On that day Madima AJ declined
to hear the matter due to lack of urgency.
2
When the matter came before the
Court on 18 May 2010 there was no longer a challenge to urgency and
both
Mr Borastrom
(who appeared for the Applicants)
and
Mr Cassim S.C.
(who appeared for the NLB and the
other respondents) agreed that the matter was ripe for hearing, but
that the costs of 17 March
2010 still had to be determined.
RELIEF SOUGHT
[10] When this application was launched the First
Applicant did not seek the review of all the failed funding
applications. It
contented itself at that state with the review of
funding applications numbers 2, 5, 6 and 7. The Second Applicant
sought the
review of the eighth and ninth funding applications.
[11] The First Applicant abandoned
the relief sought in respect of the second
funding
application and
when the matter was called Mr. Borgstrom informed the Court that the
relief then sought was in respect of funding
applications no. 5, 6,
7, 8, and 9.
Mr.
Cassim SC
immediately
conceded the reviews in respect of funding applications no. 5 and 6
and said that the NLB would reconsider them forthwith.
He indicated
that he would make submissions later regarding the question of
costs.
[12]
Mr
Borgstrom
then
proceeded to argue the review of funding applications no. 7, 8 and 9
and during the course of argument made ample
reference
to the
circumstances surrounding the other funding applications which, he
said, were relevant by way of background. While complaining
that
such reliance was really for "atmospheric purposes", Mr
Cassim SC did not object thereto.
[13]
Mr.
Borgstrom
referred
to the fact that the Applicants sought the referral of all the
disputed funding applications back to the NLB with instructions
and
directions as to how they were to be dealt with thereafter. Given
the history of alleged "institutional chaos"
at the NLB
(of which the various failed funding applications were said to
provide ample proof), it was argued that this approach
was
warranted.
[14] Before dealing with the individual funding
applications sought to be reviewed, it is necessary to look at the
legislative
and regulatory framework which underpins the various
administrative procedures relevant to this matter.
STATUTORY FRAMEWORK
The NLB and the Distribution
Agencies ("the
OA's")
[15] The National Lottery Competition is operated under
licence. In terms of Section 14(2)(e) of the Lotteries Act 57 of
1997
("the Act"), portions of the amounts raised in
competitions must be paid into the National Lottery Distribution
Trust
Fund ("the Fund ").
[16] The fund is established under Section 21 of the
Act. In terms of Sections 10(c) and 22(1) and (2) of the Act, the
NLB administers
and holds the amount in the Fund in trust. In
particular, Section 22(2) dictates that the NLB hold the moneys in
the Fund "for
the purposes" in chapter 3 of the Act. In
essence, these purposes entail that after deducting amounts needed
by the NLB
for its functions, the entire balance of the monies in
the Fund must be appropriated for expenditure by the NLB and
"allocated"
for socially worthy projects in terms of
Section 26 of the Act.
[17] The members of the NLB are appointed by the Fourth
Respondent ("the Minister").
[18] The Minister determines the
proportions of the available amount that should be made available
for different causes. In terms
of current regulations
3
:
Not less than 45% of the amount must be allocated for
"charitable expenditure" (Section 23(b) of the Act and
associated
regulations); and
Not less than 28% of the amount must be made available
for "expenditure on or connected with the arts, culture and
the
national historical, natural, cultural and architectural
heritage" (Section 26(3)(b) of the Act and associated
regulations).
[19] The DA for Charities is primarily responsible for
considering applications for the grant of funds earmarked for
charitable
expenditure; while the DA for Arts performs the same
function in respect of funds earmarked for arts, culture and
heritage.
[20] It is important to note that the DAs are not
juristic persons in their own right: they are committees operating
within the
NLB. Their members are appointed by the Minister in terms
of Section 28(1) and 30(1) of the Act and they are remunerated by
the
NLB.
[21] Once deserving organizations are identified by the
DA's and awarded a grant, the NLB is responsible for making the
requisite
payment and ensuring that all conditions are met and
continue to be met.
[22] The NLB'5 central applications office receives all
applications for grants of lottery funds and liaises with applicants
as
to the progress and outcome of their applications.
[23] It is common cause that the consideration of
applications for funding by the NLB and the DA's constitute
"administrative
action" as defined in Section 33 of the
Constitution and PAJA. As such the decisions are reviewable on the
grounds set out
in Section 6(2) of PAJA. Similarly, any failure to
make a decision is reviewable in terms of Sections 6(2)(g), read
with 6(3)(a)
and (b) of PAJA.
THE NLB
'S
JUSTIFICATION
OF ITS CONDUCT Generally
[24] In argument
Mr
Cassim SC
, in
somewhat forthright terms, stated that the NLB's case was to the
following effect. It says it has the right to fix guidelines
applicable to funding applications and if Applicants do not comply
therewith, that is the end of it. As he put it, "If you
want
the charity, you must meet the requirements the NLB has set".
Ad: The Seventh Funding Application
[25] The NLB justified its refusal
of the seventh funding application as follows. It says that in
2008
it
caWed
for applications
to be made to the DA (Arts) for funding from the National Lottery.
The relevant advertisement called for applications
to be lodged by
30
January
2009
and contained the following condition:
"Applications for projects will be considered
if they include the following documents:
...5.
Signed
Audited Financial Statements for the most recent two years prepared
by a firm of registered auditors."
[26] It says that the First Applicant submitted a set
of financial statements which did not comply with this requirement
in that
they were signed, not by an auditor, but by a management
accountant. Furthermore, the documents submitted did not cover the
requisite
financial years.
[27] In asserting the rationality of
its decision to decline this funding
application,
the NLB pointed to
a six-page document which it had issued entitled "Guidelines
for Submission of Applications" in which
the following is
stated:
"F.
SIGNED
AUDITED FINANCIAL STATEMENTS
It is compulsory for organizations to submit signed
audited financial statements for the two most recent years.
Organizations
that submit only one set of signed audited financial
statements will not be considered...
Applicants must ensure that their auditors are
registered with recognised professional bodies e.g. Public
Accountants and Auditors
Board. Financial Statements that have been
reviewed by an Accounting Officer are not audited. Any application
(sic) that submits
such statements, will be declined..."
Ad: The Eighth Funding Application
[28] In relation to this application
by the Second Applicant the NLB says that the DA (Charities) issued
guidelines in 2007 to
be adhered to in relation to requests for
funding. These include the following requirement which the NLB
claimed in its answering
affidavit
was "peremptory":
“
3.
Please note
that an application should have exactly the
SAME
NAME
throughout
This means that
ALL
the
documents you attach should match the name on the organization's
Registration Certificate, Constitution, Articles and Memorandum
of
Association or Trust Deed....
NOTE:
•
If the names on any of the
above differ, the application will NOT be considered."
[29] The NLB observed that the
application form
fiWed
in on behalf of
the Second Applicant was made out in the name "Sikhula Sonke",
whereas its statutory documents referred
to "Claremont
Methodist Church Social Impact Ministry, Sikhula Sonke". The
NLB claimed that there was a lack of consistency
in the use of names
by the Second Applicant which justified its refusal of the eighth
funding application on the basis of noncompliance
with
guideline 3 above.
Ad: The Ninth Funding Application
[30] In relation to this funding application the NLB
said that the Second Applicant had omitted to submit a set of signed
financial
statements with its application. The unsigned set which it
had submitted was said to be insufficient to enable it to properly
adjudicate the application.
THE STATUS OF THE DA's GUIDELINES
[31] The stance adopted by the NLB
that the Applicants simply failed to comply with the criteria set
out in the various guidelines
issued by the DA's, and the further
contentions that the guidelines were peremptory, drew sharp
criticism from
Mr.
Borgstrom
. It is
therefore necessary to examine this aspect in a little more detail.
[32] The DA's have no statutory or regulatory power to
make rules which are binding on applicants for funding. Accordingly
the
guidelines laid down by them have no formal status and cannot be
interpreted as absolute and inflexible rules.
[33] That does not mean that there are no applicable
principles or rules to ensure that organisations applying for funds
are credible
and financially secure. There are indeed several:
(i)
Under
Section 28(2) of the Act,
"directions"
maybe issued by
the Minister (after consultation with the Ministers of Social
Development) and/or the Minister of Finance
regarding
the allocation of
funds earmarked for charities- These are found in Regulation 3 of
the
"Allocation
Regulations".
(ii)
Similarly
under Section 30(2) of the "Act",
"directions"
may be issued by
the Minister (after consultation with the Ministers for Arts and
Culture; Environmental Affairs; and Science
and Technology) and/or
the Minister of Finance, regarding the allocation of funds earmarked
for arts and culture. These are found
in Regulation 5 of the
"Allocation
Regulations".
(iii)
In
terms of Section 32(3) of the Act, the Minister has the further
power to make
"directions"
which must be
taken into account by the DA's when
"determining
the persons to whom, the purposes for which and the conditions
subject to which the distributing agency is to
allocate any
amounts".
The
Minister has, however, not issued any such directions.
(iv)
Regulation
10(2) of the
"Distributing
Agencies"
regulations
also impose certain rules stipulating that DA's cannot make a grant
to organisations under legal administration, which
are insolvent, or
have breached conditions attached to previous allocations.
[34] The DA's do not, however, have a power of their
own to introduce additional rules in addition to those imposed by
the Minister
and his Cabinet colleagues in the National Government.
The powers of the DA's are limited to receiving and considering
applications,
and suggesting conditions to be imposed when money is
granted. They do not have the power to call for applications, decide
how
much money should be made available for different causes, or to
distribute money.
[35] I agree with the submission
made by
Mr
Borgstrom
that the
"guidelines"
thus cannot
sensibly be interpreted to be peremptory rules imposed by the DA's
which have to be strictly obeyed. If the guidelines
were to be
interpreted in this manner they would plainly be
ultra
vires
and
unlawful. And, it is trite law that a court should, if possible,
avoid an interpretation which results in unlawfulness.
4
Mr Cassim SC
accepted in argument that the
guidelines set by the DA's were no more than that.
[36]
Mr
Cassim SC
went on
to argue that any decision made by the NLB would of course have to
be rational and that such rationality would have to
be evaluated
utilizing the conditions fixed under the guidelines as a yard-stick.
Once again, Mr. Cassim SC submitted quite bluntly
that "that is
the end of the matter". He pointed out that no case had been
made out in the founding affidavit for a
failure by the NLB (or any
of its subsidiary bodies such as the DA's) to apply the guidelines
fairly: there was no inconsistency
argument made out for the
Respondents to address. Similarly there was no attack in the Notice
of Motion relating to the applicability
of the guidelines, and he
complained that the Respondents had not been adequately put on their
defence to explain the necessity
for the guidelines or the relevant
criteria contained therein in their opposing papers. He
accordingly
submitted that it
was now open to the applicants to argue this point.
[37] It was, of course, the
Respondents who raised the applicability of the guidelines and the
alleged peremptory nature thereof
in the opposing papers. And, with
no
prior
warning
in that
regard
it
would have been difficult for the Applicants to
foreshadow
this in their
founding papers. I am therefore of the view that it was open for the
applicants to raise these arguments: if the
respondents felt
prejudiced by the alleged novelty of the point it was open to them
to
apply
for
the
filing of
a
fourth set of affidavits to deal therewith.
[38] In my view a more pragmatic
approach to the guidelines issued by the DAs rs that they are
non-legislative "guiding policies"
of the kind referred to
in cases such as
Akani
Garden Route (Pty) Ltd v Pinnacle P
oint
Casino (Ptv) Ltd
5
and Minister of Education v
Harris.
6
[39] Accordingly such policies cannot override, amend
or be in conflict with the relevant legislative provisions and
cannot be
elevated to a position akin to subordinate the legislation
thereby replacing the Minister's power to make directions. Further,
such policies must be distinguished from legally binding enactments,
since they do not create obligations of law.
[40] But whatever the status of the
guidelines may be (there can be no doubt that they serve a useful
purpose to enable the DA's
to apply some measure of uniformity when
considering applications for funding), it is settled law that such
guidelines should
not be applied with undue rigidity (or
"b\\nd
rigour" as
Mr
Borgstrom
submitted)
and, they cannot be
appVied
in circumstances
in which there is no legitimate concern as to the honesty of an
application and the functionality of the applicant.
7
[41] In the present case, the
Minister has seen fit not to publish regulations dealing with the
criteria to be considered the
DA's or the requirements for a valid
funding application as
such.
Rather it is the
DA's which have issued the guidelines referred to above. Being
guidelines, it seems inimical to me to fair administrative
action
and the exercise of a wide discretion, to label such guidelines as
"peremptory". Such an approach merely serves
to restrict
the discretion unduly.
[42] The approach was well
summarized by Human J in the pre Constitutional era in
Computer
Investors Group Inc and
Another
v
Minister of
Finance.
8
"Where a discretion has been conferred upon a
public body by a statutory-provision, such a body may lay down a
general principle
for its general guidance, but it may not treat
this principle as a hard and fast rule to be applied invariably in
every case.
At most in can be a guiding principle, in no way
decisive. Every case that is presented to the public body for its
decision must
be considered on its merits. In considering the matter
the public body may have regard to a general principle, but only as
a
guide, not as a decisive factor. If the principle is regarded as a
decisive factor, then the public body will not have considered
the
matter, but will have prejudiced the case, without having regard to
its merits."
[43] But if I am wrong and the
guidelines are rightfully to be regarded as
peremptory,
the DA's would
have been at liberty to condone strict noncompliance therewith.
In
Millenium Waste
Management
(Ptv)
Ltd v Chair person. Tender Board: Limpopo
9
,
Jaftha JA describes the preferable approach as follows:
"Moreover, our law permits
condonation of non-compiiance with peremptory requirements in cases
where condonation is not incompatible
with public interest and if
such condonation is granted by the body
in
whose
benefit the provision was enacted (5A Eagle Co Ltd v Bavuma
10
)
[44] What is required is a common
sense approach in order to achieve the purpose of the statutory
enactment, rather than to pedantically
rely on categorical
imperatives and the peremptory application of guidelines.
11
These only serve to restrict
the power of the DA's to distribute as much of the lottery funds as
possible which after all is the
object of the legislation. One is
left with the distinct impression from the papers filed herein that
any number of imaginary
trip - wires were set up by the DA's and the
NLB to defeat this purpose.
[45] Finally, in the
Unlawful
Occupiers, School Site
case
(supra)
the
Supreme Court of Appeal commented as follows regarding
noncompliance with the statutory formality presented in that
case:
"Nevertheless, it is clear from the authorities
that even where the formalities required by statute are peremptory
it is
not every deviation from the literal prescription that is
fatal. Even in that event, the question remains whether, in spite of
the defect, the object of the statutory provision had been
achieved."
CONSIDERATION OF THE UNSUCCESSFUL APPLICATIONS
Ad: The S_ey_enth Funding Application
[46] In submitting the seventh funding application the
First Applicant included a set of financial statements which had
been vetted
by Mr Joshua van der Rede. Mr van der Rede is a
chartered management accountant who holds an Honours degree in
commerce from
the University of South
Africa, is a Feliow of the Institute
of Management Accountants and belongs to the Institute of Management
Accountants. As such,
he is permitted to audit a
variety
of financial
entities, but not public companies. He says that he has previously
audited the books of the First Applicant. It appears
to be common
cause that Mr van der Rede is not an
auditor
i
.e.
he is not registered with the Public Accountants and Auditors Board.
However, he claims that his previous audits of the First
Applicant's
books were conducted in accordance with acceptable South African
auditing standards.
[47] The reason given by the NLB for
the rejection of the seventn funding application was that the First
Applicant's relevant
financial statements had not been "audited".
No
detaW
was
given by the NLB at the time as to what the term "audited"
embraced but the relevant guidelines do state the following:
"Financial Statements that
have b
een
reviewe
d by
an Accounting Officer are not audited."
Once
again
it is not
dear
what the term
"review" is intended to mean and how this differs from
"audit".
[48] It seems however that the NLB required a
particular level of professional assessment/approval of an
applicant's financial
statements.
Why it does so is not evident from
the papers. What is evident, however, is that the DA's have
applied
the concept of
"auditing" inconsistently. So, for instance, in relation
to the most recent guidelines, provision is
made for the submission
of financial statements prepared by
inter
alia
bookkeepers,
accountants or accounting officers provided the application does not
exceed R750 000.00.
[49] Certainly, the NLB is obliged
to take adequate steps to ensure the financial integrity of the
organisation to which it is
making a grant. Given that it itself
recognises various levels of accounting functionaries, it would seem
that its dogged insistence
upon "audited" financial
statements was unduly rigid and consequently unreasonable in the
circumstances, and
certainly,
its consideration
of its own requirement as "peremptory" was not fair in the
circumstances.
[50] In the light of the approach
and the authorities to which I have
referred
above, the
rejection of the seventh funding
application
on this
basis
falls
to be
reviewed.
Ad: The Eighth Funding Application
[51] In argument
Mr
Cassim SC
did not
make much of the NLB's refusal of this application. In fact he all
but conceded that the refusal was reviewable. In my
view it clearly
is. The NLB's requirement of consistency in the use of a name or
acronym in the various funding application documents
once again
makes eminent sense. The NLB must be certain that the application is
being brought in the name of an entity which
is duly registered and
not some other entity relying on the name of a reputable agency.
[52] The Second Applicant has, as it were, a "trading
name" namely "Sikhula Sonke". This is the name by
which
the Claremont Methodist Church's Social Impact Ministry is
commonly known. And given the somewhat cumbersome nature of the full
name, it is not reasonable for the Second Applicant to abuse its
shortened Xhosa "trading name". It is difficult to
understand how the NLB came to reject the eighth application on this
basis. Any reasonable person considering the full name and
the
shortened/trading name used on the application form would surely
realise that this is one and the same body. But if there
was any
confusion this could quite easily have been resolved by a simple
request from the NLB to the Second Applicant for clarification.
[53] In my view the NLB clearly
failed to apply its mind to the eighth funding application and its
refusal thereof falls to be
reviewed
accordingly.
Ad: The Ninth Funding Application
[54] On 13 November
2008
the Second
Applicant submitted an application for funding to the DA for
charities. The amount requested was R300 000.00.
[55] The application was refused on 12 June 2009 and on
2 July 2009 the Second Applicant was informed that the reasons
thereof
were twofold:
55.1. Firstly, it was said that the Second Applicant
had submitted its articles of association without a memorandum of
association
outlining the objects of the organization; and
55.2. Secondly, it was said that the Second Applicant
had submitted only one set of its 2008 financial statements instead
of the
two sets stipulated in the guidelines.
[56] The Second Applicant was
informed that it could file an appeal against this ruling, despite
the fact that neither the Act
nor the Regulations make provision for
an appeal process or the establishment of an appeal tribunal.
Mr
Cassiem S,C
, did
not take the point that the Second Applicant had failed to exhaust
its internal remedies under Section 7(2)(C) of PAJA,
nor was this
point taken in the opposing papers. It is therefore not necessary to
deal with any condonation of this apparent
procedural short-coming
under PAJA other than to remark that it is questionable whether any
right of appeal actually exists at
all.
[57] As a company incorporated under Section 21 of the
Companies Act, 1973 the Second Applicant's memorandum of association
must
contain the provisions stipulated in Sections 21(2)(a) and (b)
of The Companies Act read with Section 52(3) thereof. This is
integral to an association which, in terms of Section 21(l)(b) must
have -
The main object of promoting religion, arts,
sciences, education, charity, recreation, or any other cultural or
social activity
or commercial or group interests."
[58] A Section 21 company does not
have a share
capital
and in terms of
Section 19(l)(b) of the Companies Act, is termed "a
company
limited by guarantee".
It
need not, therefore, have the statutory articles of association as
contemplated in Table B of Schedule 1 to the Companies Act.
However,
in terms of Section 33 of that Act its main object(s) must
appear
from its
memorandum of association.
[59] In terms of Section 59 of the
Companies Act every
company
that is registered
must have a set of articles of association. In relation to a Section
21 company the articles of association
are as prescribed by
Regulation 18 of the Companies Administrative Regulations,
1973,
and consist of
Forms CM 44B and 44C.
[60] The Second Applicant did not
submit to the DA for chanties it's memorandum of association but did
submit its
"Articles
of Incorporation",
so
it says. This document is not one referred to in the Companies Act
but
presumably
it
intended to refer to its Certificate of Incorporation, a copy
whereof is
attached
to the founding
papers and which
c\ear\y
reflects that it
is an
"Association
Incorporated under Section 21".
It
says it also submitted a copy of its certificate of registration of
non-profit organization under the 1997 Act of that name.
[61] The Regulations entitled
"Allocation of Money in The National Lottery Distribution Trust
Fund" published under
GN 3446 in Government Gazette 21619 of 29
September
2000
include the
pro
forma
application
form,
which
In
terms of Regulation 7 thereof, must be
fWled
in by an applicant
for funding. Section E of that document is entitled "Checklist"
and
reads
as
foWows:
"Please make sure
the following documents are attached to this form.
Your organisation's Constitution, Articles of
Association or Trust Deed.
Signed, audited financial statements for the past
two years. A copy of your organisation's registration certificate. A
detailed
budget for funds applied for. Your Business/Implementation
Plan/'
[62] It will be noted that the terms
of Regulation 7 are cast in peremptory language -
"
shall
be made to the distributing
agency on the form in the Annexure".
[63] The Second Applicant says that
it only complied with the provisions of Section E by submitting its
"Articles of Incorporation",
there being no
"Articles
of Association".
It
says too, that its memorandum of association (which was at all times
available) was not sent to the NLB because it was not
requested.
[64] The Second Applicant points out
that in clause 4 of
Part
A of the
guidelines relevant
to the Ninth
Funding Application, reference is made to the inclusion of
"signed
and dated Constitution/Articles and Memorandum of Association/Trust
Deed"
and,
further that clause 9 thereof cautions against the inclusion of
unnecessary additional information. The Second Applicant
says that
the NLB has created confusion amongst applicants by its inarticulate
description of the requisite supporting documents.
[65] In both the answering affidavit
and the heads of argument
f\\ed
on behalf of the
Second Applicant the
point
is made that the
Second Applicant has no Articles of Association, only "Articles
of
Incorporation",
and, it is alleged
that this document accompanied the ninth application. The NLB is
taken to task for not
accepting
the documents.
[66]
Both
the Second
Applicant and its legal representatives seem to have overlooked the
Articles of Association
which
indeed accompanied
the ninth application for
funding.
12
The first allegation made by the NLB
in declining the application is therefore factually incorrect and
the only question is whether
the Second Applicant was required to
also file its memorandum of association.
[67] It appears that the legal
representatives for the Second Applicant also overlooked the
contents of the NLB's letter of 2
July. The NLB is castigated in the
replying papers for referring to the non-submission of the Second
Applicant's "Memorandum
of Articles", the point being
derisively made that there is no such document and that obviously
the NLB was confused and
required either the
"Articles
of Incorporation" or
memorandum
of association.
[68] The Second Applicant contends that it was entitled
to elect which document to submit and says that its application form
was
therefore in order.
[69] A simple reading of the first
reason indicates what the NLB was after: it wanted to satisfy itself
that the aims and objectives
of the Second Applicant met the
criteria for a funding application to the DA for charities. This is
what it is required to do
under the Regulations. This information
would
appear
from
the memorandum but not the Articles of Association which govern the
internal management and functioning of the Second Applicant.
[70] However, to the extent that
Section E of the
application
form referred
to
above, only emphasised the necessity to submit
"your
organization's Constitution, Articles of Association or Trust Deed",
I am of the view
that the Second Applicant supplied what was
required
of
it and that the
rejection of the application on the basis of a
failure
by Second
Applicant to file its memorandum of association is misplaced. In so
doing the NLB has committed a number of reviewable
errors;
70.1 it was materially influenced by
an
error
of
law i.e. that Second Applicant's memorandum of association had to be
supplied;
70.2. it was swayed by irrelevant considerations, viz.
the non-inclusion of the memorandum; and
70.3. it
failed
to have regard to
the other documentation filed (e.g. the Second Applicant's annual
reports
for
2007
and 2008) from which the activities, aims and objectives of the
organization are abundantly
clear.
[71] Accordingly, I am of the view
that
the
refusal of the ninth
funding
application falls
to be reviewed for this reason alone. However, for sake of clarity
in relation to the future handling of the
ninth
funding
application, I will deal
briefly
with the second
reason for refusal viz. only one set of
financial
statements were
filed.
[72] In
response
to the second
reason, the Second Applicant's director Ms Wiemers says in her
founding affidavit that as far as she was concerned,
two copies of
the 2008 financial statements were sent to the NLB. This allegation
is not directly challenged in the answering
affidavit
which is drawn in
wide and
relatively
non-specific
terms.
[73] Rather, the NLB now puts up
entirely different reasons for its refusal of the ninth funding
application. It lists a number
of issues which it says has the
effect that
"the
audit requirements set out in the guidelines were woefully
disregarded by the Second Applicant".
These
included the fact that neither the 2007 or 2008 financial statements
submitted to it were signed by an independent accounting
officer,
that the name of
the accountant or the partners in his/her
firm
are not specified
and that there is no proof of the accounting officer's current
registration.
[74] These reasons
differ
materially
from
those originally given by the NLB in the letter of 2 July 2009 and
are in fact new reasons. It is not open to the NLB to
employ
this tactic. In
Jicama 17 (Ptv) Ltd
v Wes
t
Coast
District
Municipality
13
,
Justice Cleaver quoted with
approval
thejudgment of
Lord Justice Hutchinson in the Court of Appeal in England in
R
v Westminster City Council.. Ex parte Ermakov:
14
"There are .... good policy reasons why this
should be the case.. Jo permit wholesale amendment or reversal of
the stated
reasons is inimical to this purpose. Moreover, not only
does it encourage a sloppy approach by the decision-maker, but it
gives
rise to potential practical difficulties.. (I)t might be
suggested that the alleged true reasons were in fact second thoughts
designed to remedy an otherwise fatal error exposed by the judicial
review proceedings."
MISJOINDER
[75] In a supplementary note filed
shortly after the hearing Mr Cassim
S.C.
sought leave to amplify his argument
which had to be curtailed due to travel requirements. It is wrong,
so he submitted, for the
applicants to have
referred
to seven
or
eight review
applications in a single application. These would
allegedly
have the effect of
improperly
influencing the
adjudicator.
Further, it was
submitted that this led to the Court having
regard
to
matter which
was extraneous to the issues to be
determined.
[76] I will deal more
fully
with this point
below when I comment on the allegations of "administrative
disarray"
at
the NLB. Suffice it to say that there was no misjoinder in the
present case - both the First and Second
Applicants
brought review
applications before the Court and persisted with them. At a late
stage some of the
First
Applicant's
complaints were abandoned by it, while the NLB properly conceded
those cases which were evidently without merit.
[77] There is no question of a
misjoinder in the tactic employed by the applicants. They have
similar causes of action arising
from interrelated
facts.
And to suggest
that each
applicant
(represented by
the same set of legal representatives) should have launched separate
review proceedings would have led to an unnecessary
burdening of
this Court's
roll
with the
concomitant escalation in costs. In my view the approach adopted was
eminently reasonable.
[78] If the complaint is that the
Court has been exposed to extraneous, vexatious or irrelevant
material, the
proper
approach
is to
apply
to
strike out the offending matter. No such application was made.
COSTS
[79] The wasted costs of the hearing
before Madima AJ on 17
Marcn
2010 were reserved
for later determination.
Mr
Cassim S.C.
argued
that those
costs
should be for the
account of the applicants.
[80]
Mr
Cassim S.C.
further
submitted that the respondents were entitled to a tender of wasted
costs
in
respect of those review applications abandoned by the
First
Applicant.
It was
also said the applicants should bear the costs of the supplementary
affidavits
filed
on
8 May 2010.
In
regard to the
latter,
Mr
Borgstrom
said
that these papers were necessary
because
at that stage
urgency was still in issue; the respondents only abandoned this
stance after filing of the supplementary affidavits.
[81] It is not clear why Madima AJ
upheld the
urgency
point on 17
March
2010. In the first
place, the matter had been set down with the permission of Justice
Traverso, who must have been satisfied as
to the degree of urgency
at that stage. Further, Madima AJ did not strike the matter from the
roll as is customary when urgency
arguments are upheld
15
.
Rather, the learned Acting Judge postponed the case to a fixed date
which suited the parties. This may be indicative of the
Court simply
not being satisfied as to the exact degree of urgency. As it was,
the matter was only adjoined for some two months.
[82] In the absence of
dear
reasons as
to why the applicants should bear the costs of the postponement of
the matter on 17 March 2010 (and it was obviously
open to Madima AJ
to make an order to that effect) it seems to me that those costs
should be costs in the cause.
[83] Similarly, the costs of the supplementary
affidavits of 8 May 2010 should be costs in the cause: it appears
that the affidavits
may well have been the spur which induced the
respondents to abandon their attack on the semi-urgency of the
matter.
"INSTITUTIONAL DISARRAY"
[84] In both the applicant's
affidavits
and
their heads of argument there was ample reference to the state of
functioning (the applicants would say "malfunctioning")
of
the NLB and its various agencies. The applicants claimed that
matters at the NLB were so chaotic that it would be appropriate
for
this
Court
to
exercise its powers under Section 8(1) of PAJA and require the
performance of the NLB's functions within specified parameters.
Mr
Cassim S.C.
took
umbrage at the aspersians cast upon his clients and said that if it
was the applicants' intention to bring a
quasi
class action aimed
at
shaking up the efficiency of the NLB's distribution of public funds,
this should have been
properly
pleaded and based
on accurate facts. The sample of complaints before the Court was, he
said, simply not sufficient to draw an
inference of institutional
chaos
and
maladministration.
[85] I agree with
Mr
Cassim S.C.
that
there is not sufficient material before the Court to conclude that a
state of institutional disarray exists at the NLB. Having
said
that,
I would be
failing in my duty if I did not express my reservations about the
functioning of the NLB.
[86] As I mentioned at the beginning
of this judgment, the NLB holds the public's money (wagered in the
hopes of becoming instant
millionaires) in trust for purposes of it
being allocated for socially worthy projects. As this application
has demonstrated
there are many such projects who are simply being
deprived of the opportunity to deliver much needed
soc\a\
services by the
inability to speeding
access
lottery funds.
[87] Certainty,
pubWc
funds should
not
be distributed indiscriminately and it is incumbent on the NLB to
ensure that there are no fraudulent claims. But at the same
time, it
is simply unacceptable that needy
NGO's
and other agencies
in civil
society
should have to wait for more than a year (up to eighteen months in
certain cases, I was told) to
access
much needed funds
which are to spent at grass-roots level. Furthermore, in an era of
transparency
where
fa\r
and
just administrative action is entrenched in the Constitution, there
is no reason why applicants for funding have to partake
in a game of
administrative snakes and ladders, where the slightest
non-compliance with self-imposed peremptory criteria means
that one
has to return to the start.
[88] As an indication of my concern
about the functional ability of the NLB I will fix certain time
limits in relation to the
enforcement of this
order.
ORDER
In the circumstances the following order is made:
1. The decisions of the First Respondent to refuse the
funding applications to it under its reference no's 35336, 27999 and
33667
are hereby reviewed and set aside.
2. The First Respondent is to reconsider the aforesaid
funding applications and to make decisions thereon within sixty
calendar
days of this Court's order.
3. In the event that the NLB declines to grant any of
the funding applications after reconsideration thereof, it is to
provide
the unsuccessful applicant(s) with written reasons for such
refusal, together with the communication of its decision.
4. The First Respondent is ordered to bear the First
and Second Applicants' costs of suit herein, such costs to include
the wasted
costs of 17 March 2010 and the costs of the preparation
and filing of the supplementary affidavits filed by the applicants
on
8 May 2010.
P.A.L. GAMBLE
1
:
Relevant cases to follow]
2
Although
the order granted by Madima AJ was to “dismiss” the
application “due to lack of urgency”, it
is common cause
that the matter was struck from the roll to be heard on an agreed
date two months later.
3
GN
1468 2004 published in Government Gazette 27118 of 15 December 2004
4
Center
for Child Law v Minister of Justice and Constitutional Development
and Others
2009
(6) SA 632
(CC) at para 108 and the cases cited therein.
5
2001(4)
S
A
501 (SCA) at 509C para 7
6
2001
(4) SA 1297
(CC) at p 1304 B para 9-10
7
Hofmeyr
v Minister of Justice
1992
(3) SA 108
(C) at 124-135;
Unlawful
Occupiers. School Site v City Johannesburg
2005 (4) SA 199
(SCA) at 209 F
para 22
1979 (1) SA 879
(T) at 898 C.
8
1979
(1) SA 879
(T) at 898 C.
9
2008
(2) SA 481
(SCA) at 487 G 17
10
1985
(3) SA 42
(A) at 49 G-H
11
Weenen
Transitional Local Council v Van Dyk
2002 (4) SA 653
(SCA) at 659
B-F
12
Rule
53 Record Vol 6 p 695
13
2006
(1) SA 116
(C) at p 121 E-11
14
[1996]
2 All ER 302
(CA) at 315 h - 316 d.
15
Commissioner,
SARS v Hawker Air Services fPtv) Ltd
[2006] ZASCA 51
;
2006 (4) SA 292
(SCA) at 300A