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[2016] ZAGPPHC 609
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Gidani (Pty) Ltd v Minister of Trade and Industry and Others (65337/2015) [2016] ZAGPPHC 609 (13 May 2016)
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
CASE NO: 65337/2015
13 MAY
2016
In the matter between:
GIDANI
(PTY)
LTD
Applicant
and
THE MINISTER OF TRADE
AND INDUSTRY First
Respondent
THE NATIONAL LOTTER
I
ES
COMMISSION Second
Respondent
ITHUBA HOLDINGS (PTY)
LTD Third
Respondent
MZANSI GAMES (PTY) LTD
Fourth
Respondent
GRAND LOTTERY (PTY) LTD
Fifth
Respondent
Date of
Hearing:
16-19
February
2016.
Date of Judgment: 13 May
2016.
JUDGMENT
MOTHLE
J
INTRODUCTION
1. On 8 August 2015, the
Minister of Trade and Industry
("
the Minister'
)
publicly announced that he had decided to award the licence to
operate the Third National Lottery to Ithuba Holdings (Pty) Ltd
("
I
thuba" ).
Gidani (Pty) Ltd
("
Gidani')
approaches this Court to have that decision
reviewed and set aside.
2.
Gidani as
applicant seeks relief against the first respondent Minister, the
second respondent, the National Lotteries Commission
("the
Commission")
and the third respondent Ithuba. The
Commission is established in terms of the provisions of the
Lotteries Act 57 of 1997,
("the
Act'
),
to participate in the selection of a lottery operator and to
supervise the operation of a lottery.
3. No order is sought
against the fourth and fifth respondents being Mzanzi Games (Pty)
Ltd
("Mzanzi
Games'')
and Grand
Lottery (Pty) Ltd
("Grand
Lottery'')
respectively. These two respondents were cited in the
proceedings to the extent that they participated in the bid for the
acquisition
of the Third National Lottery Licence. They did not
participate in these proceedings.
4. Gidani's application is
thus being opposed by the Minister, the Commission and Ithuba.
BACKGR
O
UN
D
5. The license to operate a
national lottery is granted for a period of 5 to 8 years. South
Africa is now on its third period of
the national lottery. For the
record, the First National Lottery was operated by Uthingo and the
second one, which recently terminated,
had been awarded to and
operated by Gidani.
6. The Second National
Lottery License held by Gidani was nearing its life-span in or about
May 2015. The Minister, on 11 June 2013
issued a Request for
Proposal,
("RFP'')
for the award and issue of the Third
National Lottery License. Gidani, Ithuba, Mzansi Games and Grand
Lottery were identified as
the applicants who had presented
competitive bids. Their applications were considered by the
Evaluation Committee, which then made
recommendations to the
Commission. The latter concluded by a split vote to recommend Gidani
as the preferred applicant and lthuba
as the reserve applicant.
7. On receipt of the
Commission's recommendation, the Minister engaged the services of a
consulting company known as Genesis Consulting
("
Genesis"
)
to have an independent
evaluation of the bids and give him advice. The reports of the
Commission and that of Genesis identified
the strengths and
weaknesses in all four applications and concluded that Gidani and
lthuba were the front runners.
8. In November 2014 the
Minister selected Ithuba as the preferred applicant and Gidani as
the reserve applicant. He then negotiated
and concluded the license
agreement with lthuba which was followed by the issuing of a license
to Ithuba for the Third National
Lottery. Gidani there and then
launched an application for review
("first review
application"),
seeking relief to have the
Minister's decision to select, conclude a license agreement with and
issue the Third National Lottery
Licence to lthuba, reviewed and set
aside. The respondents in that application were as currently cited
in this application.
9. This
first
review
application
of
November
2014
was
heard
and decided
by
this court in 2015. Tuchten
J
set aside and declared invalid
the
license
agreement
concluded
between
the
Minister and
lthuba
as
well
as
the
issue
of
the
license
to lthuba.
He
however
upheld the
decision
by
the
Minister to
select
lthuba
as the
preferred
applicant. In
handing
down
the
declaration of invalidity
of
the
agreement
concluded
and
the
subsequent license
issued,
Tuchten
J
suspended
that
order
for
a
period
of one
month.
10. During that period of
suspension, the Minister, renegotiated with lthuba
as
the
preferred applicant. This resulted in
an
announcement by
the
Minister
on
8
August
2015
that
he
has
decided to award the licence to lthuba. He entered into a license
agreement with
lthuba and
consequently
issued the
licence again to lthuba.
11. Gidani
then
launched
this
second
review
application
in August 2015, challenging the new agreement to
grant lthuba the licence and the subsequent
award of the licence. This is the application
that is presently before
this
Court.
12. Gidani'
s review application
is
launched in
terms
of
the provisions of Section
33 of
the Constitution
[1]
read
with
the
Promotion of
Administrative Justice Act
[2]
('
PAJA'),
all of which provides for the right to
just administrative action.
13. Gidani contends, as its
grounds of review, that the Minister's decision announced on 8 August
2015 is in some instances and
for a variety of reasons, unlawful,
irrational, unreasonable and procedurally unfair.
14.
In
exercising
his
powers to
award
a lottery
licence,
the
Minister has to
act
in
terms
of the
provisions
of
the
Lotteries
Act
[3]
('the Act")
and
the
terms
and
conditions of
the
Request for Proposals
(RFP), issued in
terms of section
13
of the Act
.
..
The
Lotteries Act
14 The
Act provides for the
licensing of a lottery operator. It establishes a National Lotteries
Commission (previously
"
National
Lotteries
Board' ),
which assesses the applications for the
national lottery operator and recommends to the Minister, the
preferred applicant and the
reserve applicant to be awarded the
lottery licence. The Minister is empowered by the Act to award and
issue a lottery license
to an operator.
15. Section 13(3) of the
Act requires the Minister to take into account the question whether
the person who will manage the business
of the National Lottery will
do so such that the nett proceeds of such lottery are as large as
possible. The nett proceeds are
the sums payable to the National
Lottery Distribution Trust Fund
("
the
trust
fund'
).
This
factor that the Minister has to take into account is however not the
only factor that is determined in the process of awarding
the
license. The RFP states that the Minister reserves the right to
"not
necessarily
accept
the
application
with the highest returns
to
good
causes"
.
Therefore while
it is an important factor it is not the only factor that has to be
considered.
16.The primary objective of
the lottery is thus to enable the Commission, through the
establishment of the National Lotteries Development
Trust Fund
('the
Trust
Fund'')
to received
contributions from the lottery operator into the fund for the benefit
of worthy causes. It is therefore in the interest
of the objectives
of the fund, for the Minister to appoint an operator who, amongst
others, will be able to maximise participation
in the lottery and
thereby generate sufficient revenue for contribution to worthy
causes.
Request for Proposal
(RFP)
17. Towards the end of the
lifespan of a lottery license, the Minister, as required by s13 (2)
(a) of the Act, begins a process
of identifying an operator for the
next licensing period. In doing so, the Minister publishes the RFP,
which provides for the terms
and conditions of participation in the
bid for acquisition and award of the license. The process is
undertaken in terms of a timeline
with return dates for submission of
applications, evaluations thereof, adjudication and identification of
the best two entities
to be recommended to the Minister. From these
entities, the Minister then decides on the one applicant as a
preferred applicant
and the other as a reserve applicant. In terms of
the RFP, the Applicants are assessed and scored in accordance with
criteria of
evaluation as follows:
17.1 Business plan 15%;
17.2 Marketing and
communications 15%;
17.3 Contributions to the
National Lottery Development Trust Fund 25%;
17.4 Financial analysis
and model 25%;
17.5 BBEE 10%; and General
information required 10%
18. The Minister conducts
negotiations with the preferred applicant which should then lead to
the conclusion of a licensing agreement
in terms of which the license
will be issued. In the event the negotiations with the preferred
applicant falls through, the Minister
has the option of negotiating
with the reserve applicant or deciding not to award the license at
all or place the operation of
the license under an administrator or
to start the process
de nova.
19. The Act and the terms
and conditions contained in the RFP constitute the overall framework
within which the Minister must
act in awarding and issuing the
license to an operator. Thus sub-sections 13 (2) and (3) of the Act,
read with the provisions
of the RFP constitutes the main legal basis
upon which a lottery operator is awarded the licence.
20. I now turn to deal
with each of Gidani's grounds of review in this application.
GROUNDS
OF
REVIEW
21. Gidani contends before
court that the Minister' s decision to award the licence to Ithuba
has to be reviewed and set aside on
various grounds. In some of these
grounds of review, Gidani advances several arguments in support of
its contentions.
Contribution to the Fund
22. Gidani contends that
Ithuba's proposal will not lead to an increase in the expected
contribution to the trust fund, the following
are the sub-stratum
arguments advanced by Gidani in regard to this ground of review.
Selecting
Ithuba
as a
preferred applicant
:
23. Gidani contends that
the Minister selected Ithuba as a preferred applicant in order to
test Ithuba's contribution model.
24. The Minister states
that the selection of Ithuba as a preferred applicant was based on
its business plans which, according to
him, address the concerns
regarding the decline in interest and participation. The business
plan by Ithuba, as far as the Minister
viewed it, would reinvigorate
the lottery.
25. In his statement of
reasons for the decision dated 8 September 2015 and submitted in
terms of Rule 53 of the Uniform Rules of
Court, the Minister advances
five reasons for selecting Ithuba, which may be summed up as follows:
25.1 Ithuba is expected to
yield higher sales than Gidani due to, amongst others, a higher
capital expenditure on an expanded
distribution network and higher
player pay-out;
25.2 Ithuba undertakes to
introduce hand-held terminals which in turn will lead to a larger
retail terminal network and increase
in sales;
25.3 Ithuba proposes
higher player pay-outs which will improve and enhance the appeal on
the lottery gains. This will then result
in increase in anticipation
and higher sales;
25.4 The risk of lower
trust fund contributions is reduced by the fact that Ithuba is not
relying on increases in player pay-outs
alone, as its bid combines
both increased player pay-outs and increase in capital expenditure;
and
25.5 Ithuba offers more
increase in sales than Gidani.
26. Gidani further argues
that the removal of the guarantee or undertaking in regard to the
contribution to the trust fund, following
the judgment by Tuchten J,
is inconsistent with the reasons given by the Minister for selecting
Ithuba again as a preferred application.
27. This question of
guarantees for trust fund contributions came out during the
negotiation for the license agreement which resulted
in the issue of
the first lottery licence in 2014, after the Minister had then
selected Ithuba as a preferred applicant. The Minister
during the
negotiations with Ithuba at the time, had raised the question of an
undertaking on the part of lthuba as one of the
guarantees to ensure
that there are sufficient contributions to the trust fund. Tuchten J,
in his judgment set aside the decision
to conclude the first license
agreement as being irrational, on the ground that the Minister had
not considered the possible impact
of the undertaking on Ithuba's
solvency. The Minister has now abandoned the idea of guarantees and
as it will appear hereunder,
has, in negotiating the new agreement,
replaced it with the issue of penalties.
28. It is common cause that
the selection of a preferred applicant precedes the negotiations for
the agreement necessary to issue
a licence. Ithuba contends that the
question of guarantees was raised during the negotiations which led
to the conclusion of the
agreement resulting in the issue of the
first invalidated licence. As at that time, Ithuba had already been
selected, for reasons
stated by the Minister above, as the preferred
applicant. The issue of guarantees could thus not have played a role
in that decision.
Besides, Tuchten
J
has dismissed the attack on the Minister's decision to select
Ithuba as the preferred applicant.
29. It is thus this Court's
view that this argument has no merit and it seems to me to be a
rehash, albeit with a slant and different
approach, of the attack on
the Minister' s choice of preferred applicant. This attack was raised
in the first review application.
It was considered and dismissed by
Tuchten J.
Limited
risk
of lower
contribution
to the F
und:
30. The Minister, in his
reasons of 8 September 2015, stated that:
"
While
I
thuba
proposes
a
lower
percentage contribution
of
27% to
the
NLDTF,
there
is
limited
risk
of
a
materially
lower
NLDTF
contribution
in absolute
terms
relative
to Gidani."
31. It is on the basis of
this statement that Gidani contends that the Minister misdirected
himself when he formed the view that
there was a limited risk of
lower contributions to the trust fund. The Minister's view is based
on the second genesis report of
6 August 2015.
32. Gidani contends that
there is no rational basis for the Minister's view that there is a
limited risk of materially lower contributions
to the trust fund. It
argues, that the Minister made a mistake of fact when he formed the
view, relative to Gidani's projected
contributions. The argument
concludes that the Minister acted irrationally and unlawfully by
assuming a risk of lower contributions
to the trust fund. The alleged
unlawfulness arises from the argument that the Minister did not take
into account whether awarding
Ithuba the license, the latter would
make less contributions to the trust fund, inconsistent with the
provisions of Section 13(3)(c)(iii)
of the Act. In support of this
contention, Gidani has provided opinions from experts in order to
counter the projections made by
Genesis.
33. At the time of the
applications in response to the RFP, the applicants have to show
projections as to how they will be able
to maximise contributions to
the trust fund. These calculations are projections and not fact. It
is indeed so that with these kinds
of projections, there is always a
risk that due to the downturn in the economic situation or upswing of
the economic situation
in the country, the projections may turn out
differently. Consequently, each of the projections by any of the
applicants carries
with it a certain element of risk. The Minister
was alive to this fact.
34. In his reasons, of 8
September 2015, he explains that he weighed
"some
risk
of
lower
absolute
NLOTF
contributions"
against the prospect of
"potentially
higher
absolute
NLDTF
contributions
(both
in the short term and long
term)".
He states further as follows:
"
27.
In
my
decision
to
award
the
license
to
I
thuba
in
2014, which
was
reviewed and
set
aside,
I
had
sought
from Ithuba a
minimum guaranteed rand value
contribution to
the
NLOTF
on
each
year
that
improved
upon
historic levels.
28. On reconsideration
of my decision and during negotiations
with
Ithuba
, I decided to
remove the minimum
guarantee rand
value
contribution to
the NLOTF and
obtained advice on
the
possible risk that Ithuba's proposed contribution of 27% to
the NLDTF may result in lower NLDTF
contributions."
35.
The
Minister
decided
that
the
risk
was worth
taking.
Gidani's
contention is
that
the risk-taking on
Ithuba's
projections is irrational
as
it was
made
in theory
and
not
on
a
statutory
commitment
to
realism.
It
cannot
be
expected
of
the
Court
to consider
the
experts'
opinions
and
decide
which
of those
experts the
Minister
should
have
taken
and
further
that
failure
to
do
so
amounts
to
irrationality. Further, the
Supreme
Court
of Appeal
in the matter of
MEC for Environmental Affairs and Development
Planning v
Clairison CC
[4]
opined thus:
"
It
bears
repeating
that
a
review
is
not
concerned with
the
correctness
of
a
decision
made by
a
functionary,
but
with whether
he
performed
the function
with
which he
was
entrusted.
When the law entrusts
the
functionary
with
a
discretion
it means just that: The law
gives
recognition
to
the
evaluation
made
by
the
functionary
to
whom
the
discretion
is
entrusted,
and
it
is
not
open
to
a
Court
to
second-guess his
evaluation.
The role of
a
Court
is
no
more
than
to ensure
that
the
decision-maker
has
performed the
function
with
which
he
was
entrusted."
36. Tuchten
J
in his judgment recognised and accepted that in matter of this
kind, the decision-maker is allowed sufficient space to assume the
risks. Assumption of risks is therefore not equal to irrationality.
There is clearly no merit in Gidani's argument.
Minister's
reliance
on i
nvigoration:
37.
The
Minister
stated in
his
reasons
of
8
September 2015
[5]
that
"Ithuba's
proposal
offers
the
best
opportunity
to
invigorate
the
lottery
and
stem
the
decline
in
public
interest
which may
result
in
substantial upside
in
absolute
NLDTF
contributions both
in
the short term and long term."
38. Gidani contends that
the Minister's reliance on invigoration of the lottery was
"problematic".
In essence Gidani contends
that the Minister's reliance of invigoration of the lottery was
unduly optimistic in the macro economic
climate prevailing in South
Africa. It further argues that invigoration strays from the statutory
and policy framework, and that
the Minister therefore exceeded his
powers in having regard to this factor as a consideration.
39. Gidani fails to
recognise that the Minister's reasoning is that invigoration intends
increasing revenue and therefore increase
in returns to the NLDTF. He
formed the view that the declining public interest and participation
in the lottery, poses a material
risk to its ability to perform its
mandate and improve the contributions to good causes in the long
term. In his view therefore
invigoration was required to address this
risk. Invigoration entails introduction of additional games in order
to maximise participation
as well as additional chances to win. The
increase in player participation is also recognised in the RFP,
paragraph 1.4.2.5 where
it is stated thus:
"
The
licensee
is
expected
to
maintain
and
increase
the
level of player
participation
in
the lottery,
increase
revenue,
expand the
game
variety,
increase
the
net
contribution
to
worthy
causes
and continue
to develop
the National
Lottery
Brand' .
40. The RFP expects in
respect of each applicant a creative approach to game design and
creating new revenue streams.
41. Further, in paragraph
10.7 the RFP states as follows:
"Applicants must
demonstrate
the
ability
and
capacity
introduced both new international and
new unsophisticated localised games
within the
confines of
the
applicable South
African
legislation
quickly and
efficiently, thereby increasing the
national
footprint of
the
lottery.
Applicants
may explore the
use
of
various
different,
but
appropriate
technological platforms
and
channels/outlets
for new
games."
42. I am therefore of the
view that the Minister acted within the confines of the
RFP
in accepting that I thub's proposal offered the best prospect of
a reinvigoration of the lottery. The Minister's decision was thus
not
irrationally.
Inadequate Financial
Resources
43.Gidani contends that
Ithuba did not demonstrate before the Minister that they have
adequate financial resources to operate the
lottery. It argues that
Ithuba failed to provide sufficient equity and irrevocable or fully
committed debts incurred through the
raise of loans from financial
institutions.
44. Section 13(2)(b) of the
Act requires the Minister to be satisfied that the Applicant has the
necessary financial and other resources
to conduct the national
lottery. Gidani contends that Ithuba did not in fact have the
financial resources to conduct the lottery
at the time when the new
license was awarded. It is further contended for Gidani that
Ithuba'srevised funding arrangements were
only finalised on 6 August
2015 and were therefore not in place during the period when the
Minister was negotiating with Ithuba.
45. The relevant section in
the Act, states that the Minister must be
satisfied
that the
Applicant has the necessary financial and other resources to conduct
the national lottery. There is no reference to the
period when the
Minister has to be satisfied. Tuchten
J
is of the view that
"
The
Minister had to
form the opinion,
based
on reasonable
grounds,
having
regard
to the material
facts
before
him
when
he
made
the
decision
to
award the
license, that
Ithuba
had
on
the
date
on
which
the
Minister issued
a
license, financial resources available to conduct the
lottery for
the
whole
of
the
license
period."
I
agree with this conclusion.
The assessment of
financial resources becomes relevant at a time when a decision has
to be taken by the Minister whether to award
the license. This is
further supported by the RFP in paragraph 2.9.1 where the document
states that:
"The licensee
will be
required
to submit
on
the day of issue
of the Licence,
a
bank
guarantee
or
performance bond
in
the
amount
of
R125m to be issued in
favour of the Commission by
a
South
Commercial Bank or OF!."
(My emphasis)
47. The purpose of the
performance bond is to provide security in the event that Ithuba
failed to comply with its obligations under
the licensing agreement.
The argument by Gidani is that the performance bond was not in place
when the Minister made the decision
to award the license to Ithuba is
simply incorrect and cannot stand.
48. In terms of the RFP,
the applicants for the lottery licence had to make available a
performance bond of R125 million, which
Ithuba contends was covered
by the equity fund. Ithuba further contends that the Minister
throughout the negotiations was kept
informed about the financial
resources raised by Ithuba and as at 7 August 2015 when he awarded
the license to Ithuba, the documentation
pertaining to Ithuba's
financial standing was before the Minister.
49. lthuba had proposed
R905 million to operate the lotto. According to lthuba, they intended
to raise R272 million through equity
funding and R650 million from
loans which would constitute debt funding. They further submitted
that the initial equity funding
by H C I was converted to loan
funding as is demonstrated in the documents attached to the record of
decision .
50. Gidani further
contended that HI, which appeared as part of equity provider, had
been withdrawn as such with the Minister's
consent and therefore the
records were not correct in reflecting HCI as part of the equity
provider. This was explained by Ithuba's
counsel, pointing out that
during the course of the negotiations it was decided to withdraw the
amount advanced by HCI as equity
and convert it into a debt loan. The
amount was in the bank only the transaction on papers too place. HCI
therefore never withdrew
its amount from the bank account of Ithuba.
51. Gidani contends further
that the letter advancing the loan of R500 million from Standard Bank
stated suspensive conditions which
were to be met. Consequently, the
loan raised was not fully committed or irrevocable as required by the
RFP. Experts were approached
to give opinions as to what constituted,
in commercial terms, an irrevocable or full commitment as required by
the RFP. One expert
opinion received by Gidani states that some of
the conditions obtained for a loan may not detract from its
irrevocability. This
would refer to a loan received from a bank
subject to signing of documents and agreements pertaining to that
loan. The conditions
must be such that the lender must not be able to
resile or walk away from the said loan.
52. In response to this
allegation, lthuba contends that the Standard Bank had made a
commitment which was irrevocable within the
requirements of the RFP.
The argument advanced is that because companies bidding for the
National Lottery would in the ordinary
course and at that stage, not
have collateral. The very issue of the license would be sufficient
security for the loan. It would
therefore be expected in the ordinary
course of business that a loan would be approved subject to, amongst
others, the borrower
being awarded the license. The formalities for
the signing of agreements pertaining to that loan would occur once
the license has
been awarded. Ithuba further contends that this was
the position in this case and had attached to its papers a copy of
the agreement
that was signed with Standard Bank in September 2015,
subsequent to the award of the license in August 2015.
53.
Gidani's
charge
raises
a
debate
whether
the
content
of
the
letter by Standard Bank contained suspensive
conditions which negated
the
requirement
that
the
financing
must
be
irrevocable. This
comes
down
to
the
question
of
interpretation.
In the
matter of
Natal
Joint Municipal
Pension Fund
v
N
Endumeni
Municipality
[6]
,
the
SCA
on
page
604A
summed
up
the
modern approach
to
statutory
interpretation
as follows:
" . ..
Where more
than
one
meaning
is
possible,
each possibility
must be
weighed
in
the light
of
all these
factors.
The process
is
objective, not
subjective.
The sensible
meaning
is
to
be
preferred to
one
that leads
to
insensible
or
unbusinesslike
results
or
undermines
the apparent
purpose
of
the
document. Judges must
be
alert to
and guard
against
the
temptation
to
substitute
what
they
regard
as
reasonable,
sensible
or
businesslike
for
the
words
actually
use
d
.
.
.
54. Ithuba further submits
that the Minister was entitled to have regard to the difficulties
that will be experienced by a start-up
empowered companies, when it
comes to obtaining loan finance from commercial banks in advance of
the grant of the license, but
will generate the income needed to pay
the loan. The submission is further made that the Minister was
entitled to take the view
that substantial compliance (rather than
exact compliance) is a requirement of the RFP and would suffice. The
funding from Standard
Bank was subject to
"
the
satisfactory completion
of
legal
commercial documentation between Standard Bank
and
Ithuba".
It is however in the nature of business transaction
that financing will be made available subject to conditions, amongst
others,
of the acquisition of a licence. It would be absurd to expect
any commercial entity to commit itself by letter fully prior to the
signing of contract regarding legalities of repayment and the like.
55. In terms of the Act and
the RFP, the Minister has to be satisfied that the successful
applicant had
"
fully
committed
financing"
and
"irrevocably
committed
financing" .
The latter
appears in the RFP while the former in the Act itself. The Minister
took the view that the Standard Bank facility letter
of 6 August 2015
amounted to fully committed debt funding within the meaning of the
RFP. He stated that the completion of the debt
funding agreement was
only subject to the standard administrative process of completing the
legal and commercial documentation
and that no further approvals
within the bank would be required.
56. Gidani further charges
that Ithuba does not comply with the debt/equity ratio which
according to the RFP should not exceed
70130
.
I
thuba counters this by
indicating that the debt equity ratio currently sits at 62/38 which
is well within the ratio prescribed by
RFP. If regard is had to the
capitalised interest, the ratio is 64/36 which is also within the
ratio prescribed by the RFP.
57. The Act does not
require the Court to be satisfied but rather the Minister as the
decision-maker to be satisfied. Over the years
there has been a line
of court decisions defining the Court's
approach to review
applications.
In
the Seminal case
of
Bato Star
Fishing
(Pty)
Ltd
v
Minister
of
Environmental
Affairs
[7]
,
O'
Regan J, writing
for
the
Constitutional
Court
opines:
"
In
treating
the
decisions
of
administrative agencies
with
the
appropriate
respect,
a
Court is
recognising the
proper
role
of the executive within the Constitution.
In doing
so a
Court should
be
careful
not
to
attribute
to
itself
superior wisdom
in relation
to matters
entrusted
to
other
branches of Government.
A
Court should
thus give
due
weight
to findings of
fact and
policy decisions made by those with special expertise
and
experience
in
the
field.
The
extent
to
which
a
Court
should
give
weight
to
these
considerations will
depend upon the
character of
the decision itself,
as
well
as
on the identity of
the
decision-maker.
A decision
that
requires an equilibrium
to be struck between
a
range
of competing interests
or considerations
and
which is
to be taken by
a
person or
institution with
specific
expertise
in
that
area
must be
shown
respect
by
the
Courts.
Often
a
power
will identify
a
goal
to be achieved,
but
will not
dictate
which
route
should
be followed
to
achieve
that
goal. In such
circumstances
a
Court should
pay
due
respect
to
the
route
selected
by
the
decision-maker.
58. I am unable to find
that the Minister acted irrationally or unreasonably in accepting
that the letter from the bank provided
a fully committed funding.
Further, in accepting that Ithuba had sufficient financial resources
to operate the lottery, the Minister's
decision was rational. There
is thus no merit in Gidani's contentions.
Whether lthuba is fit
and proper to operate the license
59. Advancing this point as
a ground of review, Gidani contended that the Minister ignored the
finding by Tuchten
J
that lthuba's CEO misled the Court in stating in her affidavit
that she had provided proof of the adequacy of the financial
resources
to the Minister when the license was awarded in November
2014. The Court found that proof of financial resources was not
provided
to the Minister and therefore he could not have rationally
taken the decision that Ithuba had sufficient resources when he
awarded
the license in November 2014. This was one of the grounds
which led to the Learned Judge setting aside the award of the license
to Ithuba.
60. During argument on this
review, counsel for Ithuba produced an extract from the affidavit of
the CEO in which she stated to
the Court under oath that she had
secured (and not provided) proof of financing. Nowhere in that
affidavit does she aver that she
actually provided proof of financial
resources to the Minister. The extract from the affidavit clearly
points out that the CEO
stated to the Court that she had secured (and
not
provided
as it is now alleged) financial resources
at the time the Minister awarded the first license in November 2014.
61. After the invalidation
of his first award in 2014, the Minister's attention was drawn to
finding by the court in the judgment
by Tuchten J. He wrote to the
CEO of Ithuba seeking an explanation to this discrepancy. The CEO
wrote back explaining to the Minister
that it was an error in the
judgment that she had stated under oath to have provided proof of
financial resources. She drew the
attention of the Minister to the
content of her affidavit where she stated that she had
secured
proof of financial resources at that time. This correspondence
took place after the Judgment of Tuchten J and forms part of the
record which informed the reconsideration of the issue of the license
to Ithuba.
62. I am thus not persuaded
that the Minister had ignored the finding by the Court in the first
review application. I am further
not persuaded that the Minister was
irrational in accepting that the CEO of lthuba was a fit and proper
person to operate the license.
Gidani contends that the
Minister did not consult the Commission.
63. Gidani contends that
the Minister did not consult the Commission when it awarded the
license for the second time. Gidani further
is of the view that since
the Minister stated in the affidavit that he took the decision to
award the license on 7 August, he had
no sufficient time to consult
with the Commission. In this regard, Gidani relies on the SCA
decision of the
South
African
Broadcasting
Corporation v the Democratic Alliance
[8]
in which it is alleged that the
Minister of Communications took less than 2 hours to decide on a
matter which
had
volumes
of
documents.
64. In response to this
charge, both the Minister and the Commission stated that there was
consultation. The record reflects that
the negotiations with Ithuba
started in July 2015 and proceeded into August 2015 during the period
of suspension of the court order
of invalidity, concerning the issue
of the first licence. Both the Minister and the Commission separately
state in their affidavits
that there was ongoing consultation during
the negotiations as well as on 6 of August 2015. The Minister
concluded the agreement
with Ithuba on 7 of August 2015.
Gidani
contends
that
the
Genesis Report
does
not
support
the Minister's
reasons for
the
decision
.
65. Gidani contends that
the second Genesis report, dealing with the risk factor, which the
Minister had considered before making
the award for the second time
was unhelpful and not supportive of the Minister's conclusions and
reasoning. Gidani further argues
that the Minister ignored the first
report of Genesis, which reported on the shortcomings in the Ithuba
model.
66. Genesis
issued
two
reports.
The
first
report
was
issued
prior
to
the award made in November 2014 and
the
second
report in August
2015, prior to the 2015 award. Tuchten
J
in
his judgment
[9]
makes
reference
to
Genesis'
first
report.
66.
The
second Genesis report
concludes
thus
[10]
in
regard
to
the
risk factor:
"
In
terms
of
the risk
that
the
I
thuba
proposal
results
in
lower
NLDTF contributions,
this more
detailed
analysis
indicates
two
things: First,
that
the
risk
is
reduced
by
the
fact
that
I
thuba
is
not
relying on
increases
in
player
pay-outs
alone,
as
the
bid
combines
both
increased
player
pay-outs
and
increases
in
capex
in
the
form
of an
expanded
distribution
infrastructure.
Second, that Ithuba is
more likely to achieve an increase in sales over Gidani that is
closer to the upper end of the range required
than the lower end of
the range in the event the risk materialises."
67. It seems to me that
Gidani's contention on this aspect is misplaced as a ground of
review. The question as to how the Minister
receives and considers
advice on economic projections of the risk entailed, would not, even
to a Court holding a different view
from that advice, constitute an
appearance of irrationality. In
Pharmaceutical Manufacturers of
SA: In re Ex Parte
President
of the
RSA
[11]
,
the
Constitutional
Court
held:
"Rationality in
this sense
is
a
minimum
threshold
requirement
applicable
to
the
exercise
of
all
public
power
by
members
of
the
Executive and
other
functionaries. Action
that
fails
to
pass this
threshold
is inconsistent
with
the requirements of our Constitution
and
therefore
unlawful. The setting
of
this
standard does
not
mean
that the
Court can
or should
substitute
their opinions as to
what
is
appropriate for
the
opinions of
those
in whom
the power
has
been
vested.
As
long
as
the purpose
sought
to
be
achieved
by
the
exercise
of
public
power
is
within
the
authority
of
the
functionary,
and
as
long
as
the
functionary's decision,
viewed
objectively,
is
rational,
a
Court
cannot
interfere with
the
decision
simply
because
it
disagrees
with
it
or
considers
that
the
power
was
exercised
inappropriately."
Gidani contends that the
decision was rushed
65. Gidani contends that
the
Cheadle
Thomson
and
Haysom
report
on the financial standing of Ithuba is dated 7
August 2015 and therefore the Minister could not have had sight of it
before taking
the decision to make the award on 6 August 2015. The
Minister' s response in this regard is that the report which came on
the 7
August was a recording of what he had considered during the
negotiations and consultations, prior to making the award. The
Minister
contends that after being satisfied of the financial
standing of Ithuba, he requested a report recording all that
information,
which report was provided to him on 7 August 2015. The
agreement with Ithuba was concluded on 7 August 2015, after he had
satisfied
himself that all statutory requirements were met. Gidani's
contention has no merit.
The Minister should have
negotiated with Gidani
66. Gidani contends that
after the award for the first license and its agreement were set
aside by the Court in November 2014,
the Minister should have
negotiated with Gidani as a reserve appiicant. However, Gidani could
not point out to any authority,
including in the Act and the RFP,
which obligated the Minister to negotiate with the reserve
applicant. On the contrary, the
Minister is empowered, in his
discretion, to consider and decide on the following options, in the
event the negotiations with
the preferred applicant break down:
66.1 negotiate with the
reserve applicant for a license agreement and issue a license to
the reserved applicant;
66.2 Cancel the bidding
process;
66.3 Appoint an organ of
state to administer the lottery; or
66.4 Start the process
de
nova
with a new RFP.
Gidani's contention is not
supported by law. The Minister is not obligated to negotiate with
Gidani as the reserve applicant.
Gidani's
alleged
"poor
performance”
of
I
thuba:
68. Gidani argues that the
Minister misdirected himself by failing to have regard to Ithuba's
"poor performance"
in managing the lottery during
the period 1 June 2015 to 7 August 2015. It is further contended for
Gidani that the Minister's decision
to award the new licence to
Ithuba was reckless.
69. The period mentioned
above was during the month of July 2015, when the Court had declared
the first license agreement invalid
and had suspended the period of
invalidity. It was during the same period that the Minister was in
the process of re-negotiating
with the preferred applicant, Ithuba,
for the award of the license.
70. In response to this
charge, Ithuba counters that its week by week sales revenue has more
than doubled in the first 24 weeks
as operator. It further compares
this period with that of Gidani whose sales revenue grew by 5%.
Ithuba further raises counter
arguments that Gidani experienced
similar problems when he took over from Uthingo in 2007. It further
submitted that it is common
occurrence for all new lottery operators
around the world to experience teething problems. Ithuba further
counter charges that
Gidani interfered with the installation of its
terminals and equipment of retailers, during the transition period.
71. The Court sees no
relevance in this argument insofar as the Minister's decision to
award the license to Ithuba is concerned.
The comparison between
performance of Gidani as an ongoing operator and the initial
performance of the incoming operator is not
one of the criteria that
the Minister needs to take into account in making the award. I
therefore find it unnecessary to deal
with the arguments relating to
comparison on performance between the two lottery operators. There
is no merit in this argument.
CONCLUSION.
72. Gidani' s grounds of
review do not make out a case of unlawful conduct on the part of the
Minister. It has not been demonstrated
that the Minister acted
unlawfully or breached one or other of the legal provisions in taking
this decision. The reasons for the
decision are fully set out by the
Minister in the statement of 8 September 2015, submitted in terms of
Rule 53 of the Uniform Rules
of Court.
73.
Gidani
conflates the concepts of irrationality and unreasonableness and
fails to distinguish between the
two. In
the
Minister
of
Home
Affairs
v
Scalabrini
Centre,
Cape
Town
and
Others
[12]
,
the Court stated as
follows:
"But
an
enquiry
into
rationality can
be
a
slippery
path that
might easily
take
one inadvertently
into
assessing
whether
the
decision was
one
the
court
considers
to
be
reasonable.
As
appears
from the passage above, rationality entails that the decision
is founded
upon reason-
in
contra-distinction
to one that is arbitrary-
which
is
different
to
whether
it
was
reasonably made. All that
is
required
is
a
rational
connection between the
power being exercised
and the
decision, and
a
finding of
objective irrationality
will be
rare."
74.
Gidani
failed
to
demonstrate
how
the
decision
of
the
Minister
is not
rationally
connected
to
the
objective
sought
to
be
achieved
through
the
decision.. For
the
most
part,
Gidani
sought
to persuade the
Court
that
the
Minister failed
to
consider
other
options
or
means,
in
particular,
to
accept
its
proposal.
In
Albutt v Centre
for
the
Study
of
Violence and
Reconciliation and Others
[13]
the
Constitutional
Court
held
thus:
"But, where the
decision is challenged on the grounds of rationality, Courts are
obliged to examine the means elected to
determine whether they are
rationally related to the objective sought to be achieved. What must
be stressed is that purpose of
the enquiry is to determine not
whether there are other means that could have been used, but whether
the means selected are rationally
related to the objective sought to
be achieved. And if, objectively speaking, they are not, they fall
short of the standard demanded
by the Constitution."
75. Having regard to the
conspectus of the evidence before this Court, I am unable to find
that there is any merit in Gidani's application,
and it stands to be
dismissed.
76. On the question of
costs, the rule is that these should follow the result.
77. In the premises I make
the following order:
1. The application for
review and setting aside of the Minister's decision of 7 August 2015
to conclude the Licence Agreement
with and to award the Third
National Lottery Operator Licence to Ithuba, is dismissed.
2. The applicant is
ordered to pay the costs of the respondents, including costs limited
to three counsel per respondent.
SP MOTHLE
JUDGE
OF
THE
HIGH COURT GAUTENG
DIVISION,
PRETORIA.
For the Applicant, Gidani:
Advocate A E Bham SC
Assisted by: Advocate A D
Steyn Advocate J Misha
Attorneys: Bowman
Gilfillan Incorporated Johannesburg
For the First
Respondent, The Minister
: Advocate H N Maenetje SC
Assisted by: Advocate
Stubbs
Attorneys: Cheadle
Thomson & Hayson Inc. Johannesburg.
For
the
Second Respondent, The Commission
:
Advocate M Chaskalson SC
Assisted by:Advocate B
Lekokotla
Attorneys:Gildenhuys
Malatje Inc. Pretoria.
For
the Third
Respondent, Ithuba:
Advocate IV Maleka SC
Advocate A Cockrel I SC
Assisted by: Advocate CA
Steinberg
Advocate N Stein
Advocate M Seti
Attorneys: David Barn
Attorneys Pretoria.
[1]
The Constitution of the Republic of South Africa Act, 1996.
[2]
Act 3 of 2000.
[3]
Act 57 of 1997.
[4]
2013 (6) SA 235
(SCA) at paragraph 18.
[5]
Paragraph 29 of the 8 September 2015 Reasons for the decision.
[6]
2012 (4) SA 593
SCA.
[7]
[2004] ZACC 15
;
2004 (4) SA 490
(CC) at paragraph 48.
[8]
2015 ZASCA 158
[9]
Paragraph 62 of the judgment.
[10]
Paragraph 23 of the Genesis report of August 2015, (the second
report).
[11]
[2000] ZACC 1
;
2000 (2) SA 674
CC at paragraph 90.
[12]
2013 (6) SA 421
(SCA) at paragraphs 65 to 66.
[13]
2010 (3) SA 293
(CC)