About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2015
>>
[2015] ZAGPPHC 457
|
|
Gidani (Pty) Limited v Minister of Trade And Industry and Others (81420/2014) [2015] ZAGPPHC 457 (4 July 2015)
)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE NO: 81420/2014
DATE: 04/07/2015
In
the matter between:
GIDANI (PTY)
LIMITED
Applicant
and
MINISTER
OF
TRADE
AND
INDUSTRY
First Respondent
NATIONAL
LOTTERIES
BOARD
Second Respondent
ITHUBA
HOLDINGS (PTY) LIMITED
Third
Respondent
MZANSI
GAMES (PTY)
LIMITED
Fourth
Respondent
GRAND
LOTTERY (PTY)
LIMITED
Fifth Respondent
JUDGMENT
Tuchten
J
:
1
This is an application
to review and set aside two decisions made by
the first respondent (the Minister). Both relate to the question who
the Minister
would license as the third operator of the SA National
Lottery (the lottery) for the eight year period beginning on 1 June
2015.
By
Page 2
notice
of
motion
dated
7
November
2014,
the
applicant
(Gidani) launched the
present
review and brought
an urgent application for
temporary interdicts
to
stop
the
Minister
from
issuing
the
lottery license
to
the
third respondent (lthuba)
and
to
stop lthuba
from
taking
any steps to implement any license agreement concluded between the
Minister and lthuba. But
on
24 November 2014, before
the urgent application
could
be
heard,
the
Minister
awarded
the
license
to
lthuba. Gidani then
proceeded only with the application to stop lthuba from
taking steps
required
in
the
license
agreement
to
prepare
itself to assume its
duties on 1
June
2015. I
heard
the application for interim
relief
on
7
December
2014 and
dismissed it
in
a
written judgment (the
interim judgment)
handed down on 9 December
2014. The present judgment should, for background purposes and for a
recitation of
the
applicable
statutory
material, be
read
together with
the interim
judgment.
Of course, as I
made clear,
[1]
my earlier conclusions were
provisional,
in
the
sense that they were made on
the
material before me at the
time,
and were
not to
be
taken
as
binding
on
the
court
hearing the review in
due course. I heard
the present case, for
review
relief,
over 20 to 22 May 2015 and again on 23 and 24 June 2015.
Page
3
2
Inthe review, Gidani
attacks firstly the decision to negotiate the
terms of a license with lthuba in preference to Gidani and secondly
the decision
to award the license to lthuba. The case made by Gidani
in its founding affidavits is, in point of paper, very extensive but
fortunately
counsel for Gidani at my request identified the grounds
of attack. I need only refer to those which follow. Firstly, that the
Minister
acted unfairly in selecting lthuba as the tenderer as his
first choice for negotiations towards a license agreement when the
second
respondent (the Board) had recommended that Gidani should be
the Minister's first choice of negotiating partner. Secondly, that
lthuba did not have available at the date on which the Minister made
his decision, 24 November 2014, the necessary financial means
to
conduct the lottery which are, so runs the argument, required as a
prerequisite for any award of the license,. Factually, Gidani
says,
the papers demonstrate that lthuba did not, at that date, have the
necessary financial means. Thirdly, that lthuba had not
put up a
performance bond of R125 million which all those tendering for the
license had been told must be provided by the date
upon which the
license was issued. Fourthly, the decision to award the license to
lthuba was irrational because certain provisions
in the license
agreement (called in the papers "the guarantee") would, if
implemented, inevitably result in lthuba's
insolvency. A decision in
the
Page 4
present
context which if implemented will result in the insolvency of the
lottery operator, is, Gidani says, irrational.
3
Gidani, the Minister,
the Board and lthuba all participated through
counsel in the present application. The fourth respondent (Mzansi)
and the fifth
respondent (Grand Lottery) abided.
4
Before the enactment
of the
Lotteries Act
[2]
(the Act),
lotteries
were
prohibited.
The evil which the common law sought to prevent in
this
regard was that lotteries
encouraged
poor
people to gamble rather
than
use their
lottery stakes
to
feed
their families.
But that
policy
changed with the
inception of
the
Act. The loss of
the stakes was not
considered to
be
an
evil
as
such.
Although certain
other lotteries
were rendered
lawful,
only
the
National
Lottery
provided
for in
Chapter
2
of
the
Act was empowered
to
collect
money
from the general
public.
Only
one
operator of
the
lottery
may
be
licensed
to
conduct
the
lottery
at
any given time. The operator of
the
lottery is
obliged
to pay
part
of
its
net income to worthy causes. It has been authoritatively stated that
it is
Page
5
...
clear that the intention of the Lotteries Act is that the National
Lottery should generate as much money as possible for distribution
to
those causes.3
5
Counsel
for
all
concerned
were agreed
that
s 13(2)(b)
created
certain jurisdictional
prerequisites
to
the
exercise
by
the
Minister
of
his
powers
under
the
Act.
Of
importance for present purposes is s
13(2)(b)(ii),
that
the Minister be satisfied that ...
the
applicant has the necessary financial ... resources to conduct the
National
Lottery.
[3]
This,
counsel were agreed, meant that the Minister had to form the opinion,
based on reasonable grounds, having regard to the material
before him
when he made the decision to grant the license, that lthuba had on
the date on which the Minister issued the license,
24 November 2014,
financial resources available to conduct the lottery for the whole of
the license period. This period is eight
years, to run from 1 June
2015, the day after the license granted to the present incumbent,
Gidani, expired.
Page 6
6
Section 13(3) provides:
In considering whether to
grant the licence, the Minister shall take into account-
(a)
whether any person who appears to the Minister to be likely to manage
the business or any part of the business of the
National Lottery
under the licence, is a fit and proper person to do so;
(b)
whether any person for whose benefit that business is likely to be
conducted, is a fit and proper person to benefit from
it; and
(c)
whether any person who is likely to manage the business or any part
of the business of the National Lottery under the
licence or a sports
pool, will do so-
(i)
with all due propriety and strictly in accordance with the
Constitution, this Act, all other applicable law and the licence
for
the National Lottery together with any agreement pertaining to the
licence;
(ii)
so that the interests of every participant in the National Lottery
and sports pools are adequately protected; and
(iii)
subject to subparagraphs (i) and (ii), so that the net proceeds of
the National Lottery and sports pools
are as large as possible.
7
The provisions
of s 13(3)(c)(iii) relating to the ability of the
persons likely to manage the lottery to run the lottery so that the
proceeds
of the lottery are as "large as possible" were
debated at length during argument. Counsel for Gidani pointed to the
other
provisions within s 13(3). Those provisions, counsel submitted,
although not expressly said to be so, are in fact jurisdictional
in
nature. It is inconceivable that
Page 7
the
Minister could be empowered under the Act to appoint a licensee whose
managers and shareholders or other persons likely to benefit
from the
lottery business were not fit and proper persons. So too, counsel
argued, it was similarly inconceivable that the Minister
could be
empowered to grant a license to a person whose managers would not do
so with all due propriety or otherwise than strictly
in accordance
with the Constitution or would manage the business otherwise than so
that the interests of lottery participants would
be adequately
protected. Counsel for the respondents accepted that the provisions
of s 13(3) other than s 13(3)(c)(iii) are jurisdictional.
8
Counsel for Gidani
submitted that s 13(3)(c)(iii) was similarly
jurisdictional. Counsel for the respondents submitted that it was
not. Within the
provision itself, it is rendered subordinate to the
requirements that the managers of the lottery business must act in
accordance
with law and protect adequately participants in the
lottery. The provision requires no more, submitted counsel, than that
managers
of the lottery business must strive for as large net
proceeds as possible
within the context of their business plans
and policies.
The measure does not in terms describe the
maximising of net proceeds as jurisdictional.
Page
8
9
I agree with counsel
for the Board who submitted that the broad
purpose of s 13(3) is to ensure that the personnel of the operator
and those who are
likely to benefit from the award of the license are
both capable of administering the lottery and are suitable persons to
do so.
The question to which the Minister's mind should be directed
by s 13(3) is whether the persons identified can be trusted to
administer
the lottery to its maximum potential and are reliable,
trustworthy, competent business persons. In that sense the
provisions
are jurisdictional, in that it would be absurd to award
the license to persons who had the personal attributes contemplated
but
would not strive to maximise the potential of the business,
subject to proper business ethics and adherence to the law and the
protection of the customers of the lottery. No absurdity would
result, as it would in the case with the other provisions within
s
13(3)(c), if the measure were not jurisdictional, except in the sense
I have described.
10
Itherefore conclude that having regard to
the purpose of the Act and
the other factors I have mentioned, maximising the net proceeds of
the lottery is not determinative
of the Minister's decision making
power but is a highly important factor which the Minister must weigh
in the decision making process.
Page 9
11
Section 13(2)(a) provides that before granting
a license to operate a
lottery, the Minister must... by notice in the Gazette and in not
less than two newspapers circulating in
every province invite
interested parties to apply in writing for a copy of a request for
proposal or any other document which may
be made public ... .
12
The Minister chose
to initiate
the
decision making process
by issuing a notice inviting interested parties to apply for a
request for proposal (RFP).
The
RFP
is
a lengthy
document, running
to
some
172
pages.
[4]
13
Section 14 empowers the Minister to include
in the license
"conditions" to be determined by him after consultation
with the Board. Section 14(2) lists a number of
such conditions which
the Minister "shall" include in the license.
14
Counsel for all the parties agreed that the
RFP fulfils the function
of delegated legislation and is to betreated as equivalent to a
framework created during a tender process.
Counsel accepted that the
principle articulated in
Al/pay Consolidated Investment Holdings
(Pty)
Ltd and
Others
v
Chief
Executive Officer,
South
African Social
Security
Page 10
Agency,
and Others
[5]
(Allpay[1])
is applicable to the RFP.
The
result
is
that
the
RFP
is
not
merely
an
internal
prescript
that
may
be
disregarded at
whim.
Once
a particular administrative process is prescribed by law, it is
subject to the norms of procedural fairness codified in PAJA.
Deviations from the procedure will be assessed in terms of those
norms of procedural fairness. That does not mean that administrators
may never depart from the system put in place or that deviations will
necessarily result in procedural unfairness. But it does
mean that,
where administrators depart from procedures, the basis for doing so
will have to be reasonable and justifiable, and
the process of change
must be procedurally fair.
15
I agree with counsel for Gidani that in the
present context, this
means that the Minister was not at liberty to depart from material
provisions of the RFP unless he did so
in accordance with the
machinery provided in the RFP itself for this purpose, and then at
the very least after notice to all the
participants in the process
that he intended to do so.
16
The relevant provisions of the Act, which
I quoted in full in the
interim judgment, do not prescribe the procedure by which the
Minister must exercise his statutory power
to select an operator for
the lottery. But
Page 11
irrespective
of
the
process
selected
by
the
Minister,
before
it
is commenced,
the
Minister ... shall
by
notice
in the
Gazette
and
in not
less
than two newspapers
circulating
in
every
province
invite
interested parties
to apply in
writing
for
a copy of a request for proposal
or
any other document which may be made public……
[6]
All
counsel
appearing
in
the
case
agree
that
this
means
that
the
Minister must
follow a
fair process
and
that
as
part
of
the
process,
the
Minister
must
be
satisfied that
the applicants whom he
is
considering for
award of the
license have the
necessary financial
resources to
conduct
the lottery
[7]
and must
take
into account whether an applicant
will
maximise
net
proceeds
to
the
NLDTF.
[8]
The
process
chosen
by
the
Minister
is
embodied
in
the RFP.
17
I shall deal first with the argument that
the Minister acted
unlawfully in choosing to negotiate with lthuba rather than with
Gidani. Some background context is necessary
for the evaluation of
this argument. I described in the interim judgment how the Board
proposed Gidani as the Minister's first
choice negotiating partner
and how the Minister decided rather to negotiate with lthuba. Was
this choice open to the
Page 12
Minister,
given the provisions of the RFP? That, I think, is the issue I must
decide at this level.
18
The case for Gidani is that the Minister,
having committed himself to
the process identified in the RFP, was not entitled, unfairly and
arbitrarily, to depart from that
process as the Minister saw fit.
19
In order to evaluate this argument, I must
identify what the various
parties say are the relevant provisions in the RFP. The purpose of
the RFP, at this level, is to enable
the Board to advise the Minister
toward the Minister's ultimate task of selecting an operator by
identifying from the tenderers
a proposed "Preferred Applicant"
and a proposed "Reserve Applicant". The RFP itself defines
these expressions.
The Preferred Applicant is the Applicant
recommended by the [Board] to the Minister, following an evaluation
and adjudication process
that has met all the requirements and to
whom the Minister may consider appropriate to award the License.
20
The Reserve Applicant is an Applicant
whom the [Board] recommends to
the Minister, in the event that the Preferred Applicant fails to
conclude the License Agreement
with the Minister.
Page 13
21
Counsel submitted that the proper interpretation
of these provisions
is that the Preferred and Reserve Applicants are those whom the Board
recommends to the Minister for the purposes
mentioned. I accept that
these submissions are correct.
22
Counsel for Gidani identified different
features in the RFP which
show how the Board is required by the Minister to exercise its
recommendation function. The process required
the Board to conduct
its evaluation in three stages, ie a pre-qualification investigation
(stage 0), a technical evaluation (stage
1) and a financial
evaluation (stage 2). Counsel for Gidani say that the process was
detailed, extensive and carefully and thoroughly
considered and
envisaged a rigorous evaluation and adjudication process, conducted
according to carefully weighted criteria. I
shall accept that it was
and did.
23
Counsel go further. They
say that the RFP does not make provision
for
the use
of
technical criteria as
an
overall
analytical
tool
beyond
the
technical evaluation
stage, for the "invigoration of the lottery"
[9]
as an
evaluative
factor,
for
a holistic
or
cumulative
evaluation by
the...
Page 14
Minister
[10]
and
the
appointment
by
the
Minister
of
independent
advisers
after
he
received
the
recommendations
of the
Board.
[11]
24
I think that this reasoning misses the
point. The RFP process, at
this level, was not designed to identify how the Minister would make
his decision. Its purpose, again
at this level, was to identify how
the Board would evaluate the competing tenders for the purpose of
advising the Minister. The
Minister was thereafter required to make
up his own mind, by reference to such factors as he might properly
regard as significant
but always subject to the Act and the
provisions of the RFP.
25
The power to appoint the operator of the lottery is conferred by s
13(1) of the Act, which provides that the Minister may
after
consultation with
the Board issue the necessary license. It is
settled law that a statutory provision which requires a decision to
be taken
in
consultation with another functionary requires the
concurrence of that functionary. But a decision which is required to
be taken
after
such consultation
requires
no more than that it be taken in good faith, after consulting
Page 15
with
and
giving
serious
consideration
to
the
views
of
the
other
functionary.
[12]
26
It
is
established that
such
consultation
did take
place.
One
of
the
functions
of
the Board is to
advise
the
Minister on the issuing of the
license
to conduct the lottery.
[13]
The RFP
did
not
purport
to prescribe
to
the Minister to whom he should award the license.
27
I have
mentioned
that
the
Act
requires
the
existence
of
certain
jurisdictional facts
prerequisite to the exercise by the Minister of his
decision making
power.
[14]
Counsel
were
agreed that the requirement
in
s 13(2)(b) that the
Minister "shall be
satisfied"
stands in
contrast
to
a
provision requiring the objective existence of the fact.
[15]
28
It is the Minister who must be satisfied of
the existence of the
jurisdictional facts made necessary under s 13(2)(b) for the decision
lawfully
to be made, ie whether the successful applicant has, or has
unconstrained access to, sufficient appropriate knowledge and
experience to conduct the lottery; has the necessary financial and
Page 16
other
resources to do so; will show a clear and continuous commitment to
the social upliftment programme identified in the Act and
to the
advancement upliftment and economic empowerment of persons
disadvantaged by unfair discrimination; and that no political
party
or political office-bearer has any direct financial interest in such
applicant or any of its shareholders.
29
It is as well to mention here the principles
fundamental to the
approach of the aspects of this review which come down to an attack
on the rationality of the Minister's decisions.
No organ of state may
exercise any power or perform any function beyond that conferred by
law. Furthermore, the decisions of all
organs of state, without
exception, must be rationally related to the purpose for which the
decision making power was given, for
otherwise the exercise of the
power would be arbitrary and at odds with the Constitution.
30
It is useful to keep the concepts of reasonableness
and rationality
distinct. Reasonableness requires a simple test: was the decision one
which a reasonable decision maker could have
reached? Rationality and
reasonableness evaluations may overlap. However the rationality
evaluation must bear in mind. The Executive
has a wide discretion in
selecting the means to achieve its constitutionally permissible
objectives. Courts
Page 17
may
not interfere with the means selected simply because they do not like
them, or because there are other more appropriate means
that could
have been selected. But, where the decision is challenged on the
grounds of rationality, courts are obliged to examine
the means
selected to determine whether they are rationally related to the
objective sought to be achieved. What must be stressed
is that the
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.
[16]
31
Section 14 makes provision for "conditions"
to be included
in the license. Section 14(2) describes certain such "conditions"
which must be in the license but the
same subsection makes clear that
the Minister may, after consultation with the Board, include other
provisions falling within the
rubric of what the Act calls
conditions.
32
The RFP identifies two broad categories
of relevance to the task of
evaluation: technical factors and financial factors. Within these two
categories, the RFP makes provision
for subcategories or subcriteria.
These subcriteria are called "metrics" in the papers. A
process was developed pursuant
to which these subcriteria were given
arithmetical
Page 18
weightings.
The evaluation process
was
complicated
because the applicants
were
advised
to
provide
two
projections
based on their business
models. These were called in
the
RFP
the
Base Case and the Conservative Case
forecasts.
The Base
Case
Forecast
[17]
must represent
the version
of the
business plan that
best illustrates
the
Applicant's
view
of
the
financial
projections
that result
as
a
consequence
of
the
proposals
set
out
in the Applicant's
Application.
33
The
Conservative
Case
Forecast,
[18]
on
the
other
hand,
was
not
defined
but
was
interpreted
as
being
founded
on
historic
lottery turnover
figures.
The
evaluators
concluded
that
all
the
applicants
gave
unrealistically high Base
Case Forecasts and took this into account
when
evaluating
the
competing proposals.
34
Four applicants in all paid the R50
000 to receive a copy of the RFP
and the R2,5 million to submit a proposal. These were Mzansi, Grand
Lottery, lthuba and Gidani.
In the scoring on technical factors, an
organ
of the Board called the Evaluation Committee (the EC) scored lthuba
higher than Gidani (91,52 to 86,78), and scored Grand
Lottery third
(83,1). A 70% score was required to progress to the next round
Page 19
of
evaluation,
ie
financial factors.
[19]
The EC
then
evaluated
the
applicants
for financial
factors, scoring lthuba
first with 87,95, Grand
Lottery
second
with
80,24
and
Gidani
third
with
76,76.
The
EC's
report
conveying
these
findings
was
on
2
June
2014
presented
to
the
Board, which
in this
capacity
featured
in
the
papers
as
the
Adjudication Committee
(the
AC) .
35
The AC began its process on about 17 June
2014. In the assessment of
the three proposals before it, the AC conducted site visits and
consulted with members of the EC and
the AC's own legal gaming and
financial experts. The AC accepted the scoring in the EC's technical
evaluation but differed from
it in relation to financial evaluation.
The AC scored Grand Lottery first for financial evaluation with a
score of 83,98, lthuba
second with 82,95, and Gidani third with
79,72.
36
Although Gidani came third on financial
scoring, the AC (and thus the
Board) selected Gidani as the Preferred Applicant. The decision of
the AC was reached
by majority
vote. The Board justified its
recommendation in paragraphs 13.2 and 13,3
of its report to the
Minister:
Page 20
The recommendation is
based on the differential between the conservative and base case
which provides an indication of the possible
risks attached to the
applicant achieving the proposed turnover. ... lthuba has the highest
differential of 145% followed by Grand
Lottery at 35% and Gidani at
-3.4%. If one compares the operational efficiency of the three
Applicants, Gidani would be the preferred
Applicant as their proposal
is substantially less volatile than the other Applicants. Although
lthuba has the highest differential,
cognisance has been taken of the
risk mitigation strategies adopted in terms of their marketing and
payout strategies. The turnover
projections are critical
to the NLDTF contributions as
they ultimately determine
the contributions that could be made. In
terms of contributions to the NLDTF, Gidani reached the highest
contributions in terms
of percentage and the lowest in terms of Rand
value over the period of the license (Gidani 34% and R16bn, lthuba
27% and R22bn
and Grand Lottery 32% and R32bn). Based on the
financial opinion sought, Gidani's turnover figures seem to be more
realistic as
compared to the other Applicants.
37
On 11August 2014, the Board submitted
its report to the Minister. The
Minister held a meeting with members of the Board. The Minister then
decided not immediately to
read the report of the Board and its
recommendations. He instructed officials from his department and his
lawyers to review the
evaluation and adjudication process. This
review began on 11 August 2014. During the review process, it
was recommended to
the Minister that financial experts be retained to
undertake an independent assessment of the evaluation of the four
Page 21
applicants
which
had
been
conducted
by the
EC
and
the
Board.
A
firm
called
Genesis
Analytics
was
retained
for
this
purpose.
Genesis
proceeded
to
assess
the
evaluation
of
the
four
applicants
at the financial
evaluation level.
[20]
Genesis submitted written
reports to the Minister and also made an oral presentation to him.
38
Genesis' first report was dated 1 October
2014. It evaluated the
applicants under the rubrics of business plan, marketing and
communications, contribution to the NLDTF,
financial assessment and
model and BBBEE and general information. In its final assessment,
Genesis took the view that both Mzansi
and Grand Lottery should fall
out of the reckoning.
39
The Minister accepted this advice which,
in fact, accorded with the
views of the AC and the Board. There is no attack upon this aspect of
the decision making process. Indeed,
in my view, the decision to
exclude Mzansi and Grand Lottery from further consideration was both
rational and reasonable. What
was left then was, if I may use the
expression, a two horse race between Gidani and lthuba.
Page 22
40
Genesis proceeded in section 7.2 of this report to consider the
question
whether lthuba or Gidani should be treated as "preferred
bidder". Genesis reasoned that on its substantive assessment,
the two were closely matched with both performing generally well in
every category and each displaying slightly different strengths
compared to the other across categories.
41
In paragraph 167 (within section 7.2) of this report, Genesis
expressed
the opinion, for which it gave reasons which (assuming the
correctness of the assumptions upon which the reasons were based)
were
both reasonable and rational, that both lthuba and Gidani were
... capable of successfully operating the Lottery from a financial
evaluation perspective.
42
In paragraph 169, Genesis identified what it called the most
substantial
difference between the two: the NLDTF contribution. It
concluded that lthuba presented "a risk" of lower NLDTF
contributions.
This was because on lthuba's business model, it
proposed a
lower
percentage
contribution to the
NLDTF
(27,4% on lthuba's base model compared to 34% for Gidani).
This meant that for lthuba to achieve a higher absolute NLDTF
contribution,
lthuba had to achieve a turnover significantly higher
than Gidani. As Ishall show, to achieve parity with
Page
23
Gidani's
forecast absolute NLDTF contribution, lthuba would have to generate a
turnover some
25% higher
than Gidani.
43
I think it is important to remember
that this risk is based on a
forecast related to the turnovers which Genesis thought the
respective applicants were likely to achieve
during the license
period. Forecasts, or predictions, are just that: they may be
conservative, prudent or reckless; they may be
based on historical
data or be mere thumbsucks; but they are not facts.
44
The furthest that any of the advice
given to the Minister went in
this regard was what Genesis said in paragraph 169.2:
In
our
opinion, lthuba's
sales
forecast is
unrealistic
and
therefore this cannot be
the basis to determine
which
of the
applicants
is likely to deliver higher absolute contributions.
The
relevant
question is how much
higher would
lthuba's
sales
have
to be relative
to Gidani in
order
to
ensure
absolute
contributions to
the NLDTF
are
the
same. We have
calculated
this
at
around
25%
higher.
In
our
view,
whilst
lthuba does more than
Gidani on the business plan and
is
therefore likely to
achieve higher sales,
we
are of the opinion
that
this seems
unlikely
and presents a risk of lower contributions.
[21]
Page 24
45
Genesis went on to identify other perceived
differences between the
bids of lthuba and Gidani. Gidani did better on marketing spend and
retail commissions. lthuba did better
on high level financial
measures. Gidani did better on financial risk assessment. lthuba did
better on BBBEE. lthuba, said Genesis,
... does perform better
on an investment and business plan perspective
as
it
offers
a
more
substantial invigoration of
the
Lottery operation
and
therefore we would expect lthuba to provide
for
a
more
substantial
expansion of
the Lottery
game revenue
and
distribution reach.
[22]
46
The Minister then asked Genesis to provide
a quantitative scoring of
the competing bids. Genesis responded to this request in a letter
dated 17 October 2014 (the Genesis
scoring report). In performing
this task, Genesis used the qualitative measures it had identified in
its report. It considered
the weighting to score its metrics;
generally but not invariably it weighted the individual criteria
equally. It used the scoring
approach reflected in procurement
regulations. The Genesis scoring report concludes:
The scores are largely in
line with the substantive analysis contained in the Genesis Report
... which indicates that the
Page 25
scoring metrics are doing
a good job of representing the substantive analysis. In particular:
...
lthuba and Gidani scored very close together overall and well above
the other Applicants. In terms of the individual categories,
lthuba
does better on the business plan with Gidani better on marketing and
NLDTF contributions, whilst both are fairly equal on
the financial
analysis....
47
The result of the Genesis scoring report was
that Gidani came out the
overall winner on financial evaluation by 0,6%. That the scoring
placed Gidani and lthuba closely together
was broadly consistent with
the analyses of the EC and the Board. The Minister took the view, one
that in my opinion cannot be
faulted (given my conclusion that the
Act read with the RFP did not compel the Minister to select the
applicant with the highest
absolute contribution forecast) for
rationality 1or reasonableness, that Gidani and lthuba were evenly
matched.
48
On 23 October 2014, the Minister selected lthuba as Preferred
Applicant.
He did so, in essence, because he thought that lthuba and
Gidani were closely matched on scoring but lthuba's plan to
invigorate
the lottery appealed to him. On the advice presented to
the Minister,
at
this
stage,
I cannot fault the
Minister's conclusion that both had demonstrated their ability
sustainably to operate the lottery.
Page 26
49
Fundamental to the conclusions reached by the AC, the Board and
Genesis
was that both lthuba and Gidani had the necessary financial
resources to run the lottery. The question before me is not whether
lthuba did have the necessary financial resources but whether the
Minister could reasonably have been satisfied that it did. All
those
who evaluated this aspect thought that it did. There seems to me to
be no basis for a finding that the Minister could not
have come to
the same conclusion, at the stage when the Minister was considering
whom to appoint as Preferred Applicant. But as
I shall show, matters
changed when it came to the negotiation of a license agreement.
50
Similarly fundamental to
the reasoning of all
concerned in
arriving at this
point
was
an
assumption
legitimately made
on
the
strength of
the
RFP
and a draft
license
agreement
which
was
available to all the
bidders
through
the
Virtual
Data
Room
[23]
that
irrespective
of
how
optimistically (or
unrealistically, in
the
view
of
some)
an
applicant
had been in forecasting its projected turnover
during
the life of the
new
license,
the
Successful
Applicant
would
not
be
required to
commit to
its
turnover
forecast.
Instead,
the
Successful
Applicant would
only
be
required
to
commit
to
paying
a
stated percentage of
its
turnover
to
the NLDTF.
With
all
commercial
gambling,
as
every
experienced
gambler
Page 27
knows,
matters are so arranged that the odds favour the house. So but for
rank administrative incompetence or a disastrous slump
in the numbers
of prospective gamblers, the Successful Applicant is guaranteed a
profit. That is why the competition for this license
is so keen.
51
The importance of this is that there was no
significant risk that
lthuba's unrealistic projected turnover forecast would, on the
hypotheses I have mentioned, impact on its
ability to run the
lottery. It follows therefore, at this juncture in the analysis, that
the Minister was free in principle to
take the risk that lthuba would
not make good on its forecast and that lthuba's absolute contribution
to the NLDTF would turn out
to be lower than it would have been if
the Minister had selected Gidani as Preferred Applicant and had
proceeded,
on the
basis of no commitment to absolute
contribution,
to award the license to Gidani.
52
Perhaps the decision can be characterised
as displaying an excessive
appetite for risk. Iexpress no opinion on the question because it is
not within my province to do so.
The decision to appoint the
Preferred Applicant lay with the Minister. Even if the decision to
appoint lthuba as Preferred Applicant
can be criticised on this
score, it is neither irrational nor unreasonable. Perhaps lthuba is
correct in its optimistic
Page 28
forecast
of its own potential. If it were to turn out that those who doubted
lthuba's ability to deliver on its forecast are correct,
the remedy
would lie in the political sphere.
53
For these reasons, in my judgment, the
application to set aside the
decision of the Minister to select lthuba as Preferred Applicant
cannot succeed.
54
But
the
Minister
was
concerned by
the
prospect
that
lthuba's forecast had
been
characterised by
his
advisers
as
unrealistic. He
investigated this
aspect
further.
He
factored a
potential
commitment by
the Successful
Applicant
[24]
to
a
fixed
rand
value
contribution
to
the
NLDTF
into
his
thinking. Even
before
selecting lthuba
as Preferred
Applicant,
the
Minister
instructed
Genesis
to
explore
the
issues which would arise
from
the
insertion
into the
license
agreement
of
a
provision committing
the
Successful
Applicant to
such
a
fixed rand
value
commitment. Genesis
responded in a letter dated 17
October
2014. The
letter
sets
out
the
specific
questions posed
by
the
Minister.
These questions related
firstly
to
the role
of
an
expansion in
the lottery
within
the
respective proposals of lthuba and Gidani and secondly lthuba's
profit
margin
and
the
risks
faced
from a
decline
in
sales,
having
regard
Page 29
to
lthuba's modelled 1,2% nett profit. In paragraph 1.2.3 of the letter,
the following question is recorded:
Please consider whether a
risk arises for lthuba's business model given its narrow profit
margin, in the event of a significant
drop in sales.
55
The
conclusion
to
which
Genesis
came
in
relation
to
this
question
was
that
even if lthuba were to suffer a "relatively severe drop in
sales",
[25]
lthuba would
still be likely to
meet its financial
obligations.
But
this conclusion
was
arrived
at
on
the
assumption
that
no
fixed
rand
contribution
commitment
(as
opposed
to
a
commitment
expressed as
a percentage of
turnover) was imposed on
lthuba. Such a
fixed
rand commitment changed
the
position
and,
indeed, changed the position
utterly.
This is how Genesis deals with the case if lthuba
were
to be subject to a
fixed
rand
contribution:
[26]
In terms of NLDTF
contributions, lthuba is also far more dependent on the expansion of
the Lottery to increase the NLDTF contribution
simply because it
proposes a NLDTF contribution percentage that is far lower than
Gidani. lthuba proposes a NLDTF contribution
roughly 6% lower than
Gidani and therefore needs to achieve sales of 25%-27% higher than
Gidani to make similar NLDTF contributions.
Page 30
We note
that this cannot
necessarily be
fixed
by contracting for
the
payment
of
minimum
contribution level
equal
to
current
contributions
by
lthuba.
[27]
This is
because
even
under
inflationary growth in
lottery sales (which is far higher than historic
growth), lthuba
wouldfall
short
of
current
contribution
levels by roughly R150m
per annum but is only forecast to make a profit of
roughly R250m
over the
license
period.
It
therefore seems
unlikely
that it could honour
such payments without losing money
and
going insolvent.
[28]
[my
italics]
56
The irrationality argument in relation
to the decision to appoint
lthuba to operate the lottery focusses on the undertaking in the
license agreement under which lthuba
commits to a fixed rand
undertaking to contribute R16,5 billion to the NLDTF over the
lifetime of the license. This commitment
will, argues Gidani, cause
lthuba to go insolvent. If lthuba goes insolvent, it cannot operate
the lottery.
57
Under the Act, as the Act read at the time
the decision was made, the
insolvency of the operator would have the consequence that South
Africa would be without a national
lottery until a new operator was
appointed. The Act was however amended. Prior to its amendment, the
Act did not contemplate that
the country should not have a
Page
31
national
lottery.
[29]
The
position as a result of the amendment
is
now
different.
But perhaps more to the
point, contributions to the worthy
causes
which have relied on or believe that they might receive such
contributions
will
cease
or
be
disrupted
if the
lottery
operator
becomes
insolvent. A decision
made in
the
face of this likely outcome,
Gidani
says, is
irrational.
58
Although
this
was
an
administrative
decision, I
need
not
for
the
purposes
of
the
irrationality
attack,
dwell
on
the
provisions
of the Promotion
of Administrative
Justice
Act,
3
of
2000
(PAJA).
Every exercise of public
power is subject to judicial
scrutiny
for rationality.
This
does
not
mean
that
the
court
may
take
over
the
function
of
government
to
formulate and
implement
policy.
The
question is whether
the
means
chosen
are
rationally
connected
to
the
ends sought to
be achieved.
[30]
The
examination
of the
means and ends
relationship is not aimed
at determining
whether
some
means
will
achieve
the
purpose
better
than
others but
whether the
means employed are
rationally related to the purpose for which the power
Page 32
was
conferred. "The
means"
in
this
context includes
everything
that is done to achieve
the purpose.
[31]
59
I have set out the advice which the
Minister received from Genesis at
some length because it was the only advice which bore upon the
consequences of the importation
of a fixed rand undertaking into the
license agreement. The most significant consequence, for present
purposes, of the fixed rand
undertaking was the risk that it brought
of lthuba going insolvent during the currency of the license. Absent
the fixed rand undertaking,
the advice of Genesis, which was not
irrational, was that lthuba's business model did not present a
significant risk of insolvency.
60
But, as Genesis recognised, that very
risk arose when the fixed rand
commitment was imported into the license agreement. Absent this
commitment, it did not much matter
for the purposes of decision
making and within the context under discussion what lthuba's likely
turnover was. The Minister had
reason to believe that under either
Gidani or lthuba, the operation of the lottery would be sustainable.
Page 33
61
But once the Minister decided that a fixed
rand commitment by lthuba
was an appropriate "condition" to include in the license
agreement, that question assumed great
significance. The evidence
shows that lthuba would have to achieve a turnover of 29% more than
Gidani's forecast (a prospect which
the Minister's advisers
characterised as unrealistic) or 86% more than Gidani's actual
historic turnover to break even.
62
There is no suggestion that the Minister
appreciated that in order to
satisfy himself as to the sustainability of the scheme to which
lthuba offered to commit under the
license agreement, he needed to
consider whether lthuba was likely to achieve such a turnover. This
is not a case where the Minister
considered the facts relative to the
question and made a decision in favour of lthuba which some might
consider imprudent. The
Minister provided reasons for his decisions
in an extensive document dated 13 January 2015. There is no reference
in the reasons
to this, in my view, critical question. My conclusion
is that the Minister simply failed to consider this question at all.
I am
fortified in this conclusion by the evidence. Mr Hodge, Genesis'
lead economist, states that Genesis concluded that lthuba's probable
turnover would lie somewhere in a range above that of Gidani but
below that forecast by lthuba. "We did not," said Mr
Hodge
at paragraph 11.3 of his affidavit, "seek to identify where in
this range
Page 34
lthuba's
sales are likely to be." Mr Felet, also an economist and a
partner at Genesis, stated in a footnote to paragraph 8.2
of his
affidavit that in assessing lthuba's probable sales, "a revenue
forecast somewhere between that of Gidani at R48bn
and that of lthuba
at R85bn should be used."
63
I accordingly find that a vital component
within the means and ends
analysis was missing from the Minister's consideration. I emphasise
again that the question at this level
is not whether it is likely or
not that lthuba will achieve a turnover large enough to save it from
insolvency. The question is
whether the Minister gave the necessary
consideration to this component of the analysis. In my judgment, the
Minister did not adequately
consider the point.
64
it was submitted by counsel for lthuba
that lthuba's commitment to
the fixed rand commitment showed that lthuba's shareholders and
backers sincerely believed that lthuba
could honour the commitment
and that this saved the decision from irrationality at this level. I
do not agree. Firstly, the question
is not whether those behind
lthuba believed what they said. The question is whether there was
material on the strength of which
the Minister could conclude that
what had been forecast would be achieved. Secondly, the commitment
was not a guarantee, properly
so called. No financially powerful
third party had
Page 35
undertaken
to made lthuba's commitment good. All the Minister had to go on was
the hope that lthuba's shareholders and funders would
want to make
good on lthuba's commitment. And then there was no indication that
those shareholders and funders would be financially
able to make good
the very substantial amounts that the commitment might require.
65
lt follows therefore, in my judgment,
that the decision to appoint
lthuba the Successful Applicant and to award the license to lthuba
was irrational. The same facts
lead to a conclusion under s
6(2)(e)(iii) of PAJA that the Minister took the decision without
considering this relevant consideration.
On either basis, the
decision to award the license to lthuba must be declared under s
172(1)(a) of the Constitution to be invalid.
66
Counsel for Gidani submitted that the
element of the fixed rand
commitment vitiated not merely the decision to award the license to
lthuba but also the decision to select
lthuba as Preferred Bidder. I
do not agree. At the stage before choosing the preferred bidder, the
Minister was merely exploring
the concept. Whether the importation of
this commitment would lead to insolvency depended on the numbers
built into the commitment
measured against the chances that lthuba
could meet the commitment. It was, as I see it, not at that
Page 36
stage
of the decision making process necessary for the Minister to consider
the insolvency issue. That would only arise when and
if lthuba during
negotiations declared its willingness to accept the fixed rand
commitment.
67
For completeness I should deal with
two further submissions by
counsel for Gidani with which I do not agree. Counsel submitted that
the Minister was not entitled to
appoint and rely on the advice of
independent experts (other than lawyers) outside the Board to help
him to form a view on the
decisions he was called upon to make. But
clause 8.4 of the RFP declares that the evaluation of the competing
proposals will be
undertaken by an
...
evaluation team, which may include Advisers ...
"Advisers"
is defined in the RFP to include
...
external third parties advisers or consultants appointed by
... the Minister.
68
The employment of such persons is thus
expressly authorised by the
RFP. Counsel further criticised the Minister for considering the
reports of the AC and the Board only
after he received advice from
his chosen external adviser, Genesis. In my view the order in which
the Minister
Page 37
reads
and evaluates the various advices, reports and recommendations
submitted to him is for the Minister to determine. He should
not
ignore any thing that is put up to him. It is not suggested that he
did so.
69
Counsel for Gidani submitted that by
permitting lthuba to undertake
the fixed rand commitment, the Minister had permitted lthuba to
improve its proposals. This, so
ran the argument, was impermissible,
unless at the least all the other applicants were offered a similar
opportunity. But s 14(2)
of the Act gives the Minister a wide
discretion to include "conditions" in the license. I see no
improvement on a proposal
where the applicant is required to commit
to something offered by the applicant in that very proposal.
70
There are further grounds on which I
find that the decision to award
the license to Gidani was invalid under s 172(1)(a) of the
Constitution. They relate to the performance
bond of R125 million
which the RFP required a Successful Applicant to put up.
71
Under s 13(2)(b)(ii) of the Act, the
Minister had to have been
satisfied when he issued the license that lthuba had the necessary
financial resources to conduct the
lottery. One of the financial
resources
Page 38
required
is the performance bond in question. Clause 2.9 in Section 2 of the
RFP makes provision for this bond:
2.9.1
The Licensee will be
required
to
submit on
the
day of
the
issue of the License, a bank guarantee
or
performance
bond
in the
amount
of
R125m
to
be
issued
in favour
of the
[Board]
by
a
South
African Commercial
Bank
or
DFl.
[32]
The amount
of
R125m
has been calculated as a
percentage of an assumed
estimated
annual turnover.
This
amount will be reviewed
annually.
Applicants
may
suggest
an alternative approach
for this calculation. In
the
event
that
the amount
is
adjusted upwards, an additional performance
bond
or
supplementary
performance
bond may be required.
Multiple performance bonds
can
be issued to make up the aggregate amount of R125m.
2.9.2
The performance bonds may require cash to be held on deposit with or
to be pledged
as security in favour of the South African Commercial
Bank or DFI issuing the performance bond.
2.9.3
This performance bond will bind the Licensee to fulfil and perform
its contractual
commitments and obligations in accordance with the
License Agreement, throughout the License Period and up until the
last official
date of claiming prizes in any game supplied under the
License.
2.9.4
The cost of issuing and maintaining the performance bond is to be
covered by the
Licensee.
Page 39
2.9.5
A
pro
forma
form
of
performance bond
will
be
contained in the VDR
[33]
and will
be
required to be
commented
on
by
the
Applicant in
their
Application,
with the final form of
the performance bond being negotiated as part
of
the License
Agreement. Salient
provisions relating to the performance bond shall form
part
of
the
License
conditions.
2.9.6
The License conditions shall provide for and shall permit the [Board]
to request payment of an amount
of money as compensation in respect
of a failure by the Licensee, or any person acting in terms of or
under the License for non-performance
as specified in the License. In
the event of penalties not being paid or non-performance or
inadequate performance, the performance
bond may be called.
2.9.7
The requirement of the performance bond is in addition to the
requirement for the Licensee to provide
security in relation to prize
monies.
72
The scheme of the RFP is that the Minister
will first announce his
decision to award the license. Then, at some later date, the license
agreement will be signed. In
accordance with this scheme,
clause 4.1.1 of the RFP obliges the Successful Applicant within ten
business days of the decision
to award the license to provide written
confirmation from a South African commercial bank or DFI in regard to
the financial guarantees
or performance bonds required.
Page 40
73
Paragraph 17.10.1 in Section 17 of the RFP
states that the
... Performance Bond is
required to ensure that the Licensee complies with the terms of the
License, including the transition period.
74
The transition
period
is
not defined
but transition
is provided for
in
Section
13
of
the
RFP.
Under
clause 13.1,
each
applicant
was required
to
provide
a
transition plan
covering
the period
from award of the
license
to
the
commencement of
operations
showing
how
it proposed
to
take
over
from
the
then
current license holder. The hope was expressed (in
the
transition timetable
[34]
that
the
transition would begin on
1
November
2014.
75
Counsel for the Minister and lthuba
submitted that the requirement
that the performance bond cover the transition period as well as the
license period proper was of
little moment in the scheme of the RFP
and that the risk to the Minister arose purely from the operator's
actions during the currency
of the license period. I do not agree.
Clause 4.2.5 of the RFP provides for financial penalties for breach
of the license agreement.
Clause 4.2.3 requires the Successful
Applicant to commit to milestones in relation, amongst others, of its
transition
Page 41
plan
against the risk of penalties for the failure to achieve key
milestones.
76
The purpose of this performance bond is clear:
to provide the
Minister with security against the risk that a potential lottery
operator, which might be a hitherto untried lottery
operator, would
fail to comply with its obligations under the license agreement to
the prejudice of the broad body of citizenry
of the Republic and the
NLDTF whose interests the Minister represented.
77
But the license agreement was ultimately
drawn, not to impose an
obligation on lthuba to provide the performance bond of R125 million,
but so that the provision of the
guarantee was made a resolutive
condition of the license agreement. Clause 3.2.1.1 of the license
agreement provided that the resolutive
condition was that lthuba
furnish the Board with the bond by no later than 28 November 2014.
Clause 3.1.1 of the license agreement
recorded that lthuba had
provided the Board with a "letter of comfort" from a
commercial bank or DFI regarding the bond.
78
The letter of comfort was not identified
in the license agreement as
such but there are three such letters in the record. One was issued
by Rand Merchant Bank and two by
the Standard Bank. The first is from
Page 42
RMB,
dated 21 November 2014. The RMB letter explains that RMB has provided
lthuba with a document setting out the
... summary terms on
which RMB expects to be able to provide the necessary R905 million to
fund the equity and debt requirements
of lthuba... .
The
RMB letter goes on to say that the letter confirms RMB's "interest"
in providing the funding but that the letter did
not constitute a
"commitment" to providing funding.
79
The second letter, dated 27 February
2015, from Standard Bank recites
that the Bank had received
... credit approval is to
provide lthuba with a senior secured debt facility of ZAR 500 million
... .
But
as with so much in this case, the devil is in the commercial detail
because the letter goes on to state that the availability
of the
funds will be
... subject to the
completion of our due diligence process which includes finalisation
of satisfactory documentation, all legal
and regulatory requirements
and the related legal opinions and satisfactions of conditions
precedent to the disbursing of the financing.
Page 43
There
is no indication in the papers that any of this was completed.
80
The third letter of comfort is again from
Standard Bank, dated 12
March 2015. The letter records that the "finalisation of the
[Bank's] requisite finance and project
documentation" has not
been achieved as at the date of the letter. The reasons for the
absence of finalisation is not divulged.
The letter proceeds to state
that a "number of conditions precedent that are required to be
addressed prior to first disbursement"
have not yet been
"addressed".
81
I shall say no more about these letters
than that they provide no
comfort at all. There is nothing in either of the letters that says
any more than that lthuba is in the
process of negotiating a loan
agreement with the Bank.
82
It this were the position as at 12 March
2015, then the position as
at 24 November 2014, when the license agreement was signed, could not
have been any better for lthuba.
The RMB letter dated 21 November is
probably the letter of comfort to which the license agreement refers.
At best for the Minister,
that letter of comfort gave the mere
illusion of comfort.
Page 44
83
On the fifth day of argument, lthuba
made application to admit
further evidence. In a separate judgment, I dismissed this
application save only in respect of one document:
a performance bond
for R125 million dated 29 May 2015, issued by Investec Bank Ltd. This
document demonstrates that while lthuba
has now put up the bond,
until that date lthuba did not put up any such performance bond and
the Minister operated during that
period on risk because the
possibility of lthuba's malperformance was unguaranteed.
84
It will be seen that the license agreement
did not conform to the
provisions of the RFP regarding the requirement that the bond be put
up at the latest on the day the license
was issued. The RFP itself
provided that changes to the RFP could be made by the Board in
consultation with the Minister and, in
clause 2.7.2 within Section 2
All Applicants will
receive notification of changes [to the RFP] only via the VDR.
85
In my view the provisions in the RFP
requiring the bond to be put up
by the latest on the day the license was issued were material. The
provisions were designed to
ensure that at the latest at the time the
Minister committed to licensing the Successful Applicant, the
security was in place.
Such security markedly reduced the risk posed
by a licensee with no previous experience of running the lottery and
with no
Page 45
excess
of assets over liabilities from which penalties and damages could be
recovered. The ability by the Successful Applicant to
provide the
bond also enabled the Successful Applicant to demonstrate (in a
relatively modest way, given the sums at stake) that
the Successful
Applicant was creditworthy.
86
There is no suggestion on the papers
that the Board amended the RFP
to provide for the provision of the bond to be a mere condition, as
opposed to an obligation, as
contemplated in the RFP, to provide the
bond against the award of the license; nor is there any suggestion
that the other applicants
were given notice of the proposed change in
relation to the bond. The obligation to provide a bond against the
issue of the license
would have operated to exclude all prospective
applicants who were not financially powerful enough to provide the
bond as called
for by the RFP. The obligation would also have had the
effect, at least potentially, of compelling prospective applicants to
commit
part of their financial capacities towards raising such a bond
before they could hope for the issue of a license. In this sense,
the
necessary finance constituted venture capital. An applicant which was
released from this obligation stood at a significant,
and in my
judgment untoward, advantage against its competitors.
Page
46
87
The provision in the RFP requiring the
bond to be in place before any
harm could be done by the new licensee was further attenuated by
clause 3.2.2 of the license agreement:
3.2.2
The above resolutive post-license conditions have been inserted for
the benefit
of the Minister who can, in his sole discretion -
3.2.2.1
waive the fulfilment of any of the resolutive post-license
conditions; or
3.2.2.2
postponethe due date for fulfilment thereof ... .
88
Clause 3.2.3 of the license agreement
provided for the lapsing of the
license and the restoration of the
status
quo
ante
if any of these resolutive conditions were not fulfilled. But the
protection which clause 3.2.3 afforded was itself significantly
attenuated by the power sought to be vested in the Minister, in his
sole discretion
(inter alia
without any obligation to consult
the Board) to waive conditions or postpone their operation. The
Minister thus purported to secure
for himself under the license
agreement the power entirely to dispense with the R125 million
performance bond.
89
In fact the Minister did, more than
once, postpone the date for the
fulfilment of the condition regarding the provision of the bond. When
the case was argued before
me over the period 20-22 May 2015, the
Page 47
due
date had been postponed to 31 May 2015, the day Gidani's license
expired. The Minister thus allowed lthuba to operate during
the
transition period without having provided any bond. Part of the
reason why the Minister did this emerges from lthuba's own
answering
affidavit.
90
In paragraph 54.3 of lthuba's main answering
affidavit, the
allegation is made that although a delay from 31 August to 23 October
2014 on the part of the Minister in announcing
the Preferred
Applicant made it difficult for lthuba to secure finance
Despite this, lthuba had
secured the performance guarantee by the time of the signing of the
License. By agreement between the Minister,
the [Board] and lthuba,
the performance guarantee would not be effective until 29 May 2015.
91
I do not see how this statement can
be true. Although the failure by
lthuba to provide the performance bond was pertinently raised by
Gidani, no such document was
placed before the court until the
performance bond issued by Investec on 29 May 2015 was admitted
during argument on 24 June 2015.
92
lthuba goes on in paragraph 55 of the
same affidavit, which was sworn
on 9 April 2015, to say that the
Page
48
... mere existence of
litigation, no matter how meritless, resulted in a perception of some
risk to lthuba's creditors. Quite understandably,
as a result of the
pending litigation, Standard Bank has conducted a rigorous due
diligence process to assess the risk arising
from the litigation
before it will release R500m of debt funding to lthuba.
93
It was clear from the text of and materials
referred to in lthuba's
own affidavit that RMB had fallen out of the picture and Standard
Bank was, at the date the affidavit was
signed, still considering its
position. The irresistible conclusion on the papers is that at the
time when this argument on this
case began, lthuba had either no debt
funding at all or had no debt funding of any significance.
94
As a matter of fact, it is now clear
that the statement in lthuba's
answering affidavit that lthuba had provided the performance bond was
not true. As I explained in
paragraph 83 above, lthuba secured a
performance bond for R125 million as required by the RFP on 29 May
2015 and not before.
95
The crucial date, however, for present
purposes, is 24 November 2014,
the day on which the Minister issued the license. At that date, on
lthuba's own version, it had
no debt funding of any significance; not
even a commitment to provide funding which was conditional upon
lthuba's being awarded
the license.
Page 49
96
Counsel for the Board made the argument
that because the inability of
lthuba to obtain funding was caused by the litigation launched by
Gidani, the Minister was excused
from the legal obligation imposed by
s 13(2)(b)(ii) to satisfy himself that the applicant has the
necessary financial and other
resources to conduct the lottery. Quite
apart from the obvious problem of establishing causation in the
absence of any evidence
from the relevant Bank, the purpose of the
measure does not permit words to be implied into it to ground this
submission.
97
Counsel for the Minister and the Board
made the argument that the
deviations from the RFP which I have described were mere
"discrepancies" which were permitted
under clause 1,5,7 of
the RFP which provides:
Where a discrepancy
occurs between the RFP and the License, the License will take
precedence, unless the relevant provision is inconsistent
with the
Lotteries Act, in which case the Lotteries Act shall prevail.
98
In my view, this provision was designed
to cover minor, non-material
differences within the provisions of the two instruments. If this
were otherwise, the Minister would
be free to contract on terms
entirely at variance with the RFP and, for example, be entitled to
waive or eliminate entirely from
the license agreement the
requirement that the
Page 50
Successful
Applicant put up the R125 million performance bond. I do not think
the deviations from the scheme of the RFP upon which
I have
concentrated can be said to be minor or non-material.
99
These findings have two consequences.
The first is that the Minister
acted beyond his powers in entering into a license agreement which
was conditional on lthuba's providing
the necessary performance bond
for R125 million by any date later than the date of signature of the
license agreement. The second,
more far reaching, consequence is that
the Minister could not have been satisfied, in the light of the fixed
rand commitment, that,
as at the date on which the license agreement
was concluded, 24 November 2014, lthuba had the necessary financial
resources to
conduct the lottery. It was unable to put up a guarantee
for R125 million. It could hardly have actually secured the much
larger
funding required to finance its equity, capital and debt
needs.
100
To put it another way: the Act prescribes
that a Successful Applicant
must,
before
it is so
constituted,
establish to
the reasonable satisfaction of the Minister that it has the necessary
financial resources to operate the lottery.
The RFP is clear on this
topic. Clause 17.6.4.5 requires that the Successful Applicant must
obtain
fully committed
financing from its funders
before
the Minister can award
Page 51
the
license. Clause 2.5.8 provides that each Applicant must be in a
position to show at the date of issue of the license that its
finances are
irrevocably
committed.
101
The Minister got it right
when he said in the forward to the RFP that the
ultimate
aim of the
RFP is to identify a
credible
lottery
licensee that
will
run
the
lottery
effectively.
It
is
not
open
to
the
Minister
to
contract
with
the
Successful
Applicant
on the
basis that
the Successful
Applicant
will
try
to
demonstrate
its financial
credibility
after
the award to it of the
license. It is not open to the Minister to run the risk that the
Successful Applicant will fail to negotiate
or trade itself into
financial
credibility.
[35]
102
In the result, Gidani has established
that mandatory and material
procedures or conditions prescribed by an empowering provision in the
RFP read with the Act were not
complied with by the Minister, a
ground of review provided by s 6(2)(b) of PAJA.
103
I must therefore declare under s 172(1)(a)
of the Constitution that
the conduct of the Minister in issuing the license to lthuba was
inconsistent with the Constitution
and
therefore invalid. Under
Page 52
172(1)(b)
of the Constitution and s 8(1) of PAJA, I must now assess what remedy
would be just and equitable in the circumstances
and it is to that
question that I now turn.
104
In
Allpay
Consolidated
Investment
Holdings
(Pty) Ltd and Others v
Chief Executive
Officer,
South African
Social
Security Agency
and
Others
[36]
(Allpay[2]),
the
Constitutional
Court
set out, in
the
context of
a
public tender
case,
the
principles
to
be
applied
in
the
evaluation
of
a
just
and
equitable remedy
after a finding
of constitutional
invalidity.
The court
referred first to the
principle identified
in
Steenkamp
NO
v
Provincial
Tender Board, Eastern
Cape
2007
3 SA
121
CC
para 29 that
it goes without saying
that every improper performance of an administrative function would
implicate the Constitution and entitle
the aggrieved party to
appropriate relief. In each case the remedy must fit the injury. The
remedy must be fair to those affected
by it and yet vindicate
effectively the right violated. It must be just and equitable in the
light of the facts, the implicated
constitutional principles, if any,
and the controlling law. It is nonetheless appropriate to note that
ordinarily a breach of administrative
justice attracts public-law
remedies and not private-law remedies. The purpose of a public-law
remedy is to pre-empt or correct
or reverse an improper
administrative function. ... Ultimately the purpose of a
public remedy is to
afford the
prejudiced party
Page 53
administrative
justice, to
advance efficient
and
effective public
administration compelled
by
constitutional
precepts
and at a broader level,
to entrench the rule of law.
[37]
105
The court continued:
[29]
... The emphasis on correction and reversal of invalid
administrative action is
clearly
grounded in s 172(1)(b) of the Constitution,
where it is stated that an order of suspension
of a declaration of
invalidity may be made 'to allow the competent authority to
correct
the
defect'
(own emphasis). Remedial correction is also
a logical consequence flowing from invalid and rescinded contracts
and enrichment law
generally.
[30]
Logic, general legal principle, the Constitution and the
binding authority of this court all point to a default
position that
requires the consequences of invalidity to be corrected or reversed
where they can no longer be prevented. It is
an approach that accords
with the rule of law and principle of legality.
[31]
In
the
merits judgment
[38]
this court stated:
'Once a finding of
invalidity ... is made, the affected decision or conduct must be
declared unlawful and a just and equitable order
must be made. It is
at this stage that the possible inevitability of a similar outcome,
if the decision is retaken, may be one
of the factors that will have
to be considered. Any contract that flows from the constitutional and
statutory
Page 54
procurement framework is
concluded not on the state entity's behalf, but on the public's
behalf. The interests of those most closely
associated with the
benefits of that contract must be given due weight. Here it will be
the imperative interests of grant beneficiaries
and particularly
child grant recipients in an uninterrupted grant system that will
play a major role. ...'
[32] This
corrective principle operates at different levels. First, it must be
applied to correct the wrongs that led
to the declaration of
invalidity in the particular case. This must be done by having
due regard to the constitutional principles
governing public
procurement, as well as the more specific purposes of the Agency Act.
Second, in the context of public-procurement
matters generally,
priority should be given to the public good. This means that the
public interest must be assessed not only in
relation to the
immediate consequences of invalidity - in this case the setting-aside
of the contract between SASSA and Cash Paymaster
- but also in
relation to the effect of the order on future procurement and
social-security matters.
[33]
The primacy of the public interest in procurement and
social-security matters must also be taken into account when
the
rights, responsibilities and obligations of all affected persons are
assessed. This means that the enquiry cannot be one-dimensional.
It
must have a broader range.
Page
55
106
A party before
the court in
Allpay[2]
proposed
that the court articulate a
general
formulation
for
when
it
would
be
just
and
equitable
to deviate
from
the
corrective
principle.
In
response
to
this
the
court
pointed
out
[39]
that
a
general
statement
of
this
kind
might
not
be
desirable or even feasible once it is accepted that the application
of
the
corrective principle is not uniform. The corrective principle might
be capable of
implementation at certain levels, but not others.
107
The first
point to be made in the
present context
is that the default
position
is
that
the
rule of
law
be
upheld.
In the
present
case,
the
deviation from
the
standards
laid
down
by
the
lawgivers
[40]
was
pronounced. The law has
set its face against a situation
in
which a license could be awarded
to
a person which
had
not shown,
at
the
time
of signing the license
agreement, the existence
of
the
necessary
financial
resources.
The
parties
to
and
concerned
with the
license
agreement, ie
the
Minister,
the Board
and lthuba,
designed a
scheme to circumvent the
law in this regard. There is a compelling ground in public policy to
require that this deviation be corrected.
In
addition, I
have
found the
license
agreement
to
be irrational in one of
its vital components.
Page
56
108
There is no great need in public policy
for the public to continue to
have uninterrupted access to the diversion and prospect of unearned
wealth provided by the lottery.
But the purpose of the lottery is to
provide funds to good causes. Any interruption in the conduct of the
lottery will have severely
detrimental consequences for those
institutions that rely, or have a reasonable expectation of relying,
on funding generated by
the lottery.
109 I
give scant weight to the position
of lthuba. In paragraphs 45 and 48
of the interim judgment I said the following"
Gidani is worried that if
lthuba is allowed to prepare itself to take up its responsibilities
on 1 June 2015 by entering into contracts
and making other financial
commitments, lthuba will create, as it were, facts on the ground and
position itself better to make
an argument to a reviewing court that
upon a finding of invalidity in relation to the Minister's decision,
the award of the license
to lthuba should not be set aside because of
the great prejudice to lthuba and because of the dislocation to the
administration
of the lottery that this would cause.
... I am by no means
convinced that a market participant in this high risk high reward
industry which chooses to spend money on
risk will receive much
judicial sympathy in the context described.
Page 57
110
lthuba went ahead alive to the
risks it ran. I accept that it
has committed very substantial sums of money to the venture. Those
risks to my mind are inherent
in a tender environment which is
subject to the rule of law.
111
The Minister, with the
support and cooperation of both lthuba and the
Board,
entered
into the
license
agreement
while
litigation
to
prevent
their
doing
so was
pending.
Now that
all the
evidence
is
in,
I
cannot
see
any
reason
for the
haste
with which
this
happened
other
than
a
desire
to create the very facts
on
the ground to which
I
referred in the interim
judgment.
To add to this, these
respondents starved
Gidani of documentary
information
which Gidani
thought needed
to
make
a proper
assessment
of
its
case.
[41]
112
I do not say, in relation to information,
that they broke the law in
their efforts to keep information away from Gidani. This was a case
which called urgently for general
discovery. I have little doubt that
if Gidani had sought a general discovery order, it would have been
granted one. But such an
order was not sought and the Minister and
the Board took a narrow view of the documents to which Gidani was
entitled, ie the record
before the Minister as at 24 November 2014,
the date of
Page 58
the
award of the license, and those documents which might properly be
described as having been referred to in their affidavits.
I have no
doubt that practicalities, particularly a perceived need to prevent
its opponents from creating facts on the ground,
informed Gidani's
decision to press ahead without seeking a general discovery order for
fear that this might further delay the
hearing of the review.
113
The consequence was at least three
interlocutory applications were
brought by Gidani for access to documents. One of these came before
me and I dismissed it. The
other two, I was told, remain
undetermined. The respondents which opposed the interlocutory
application which came before me had
good grounds for resisting it. I
found in their favour. I am prepared to accept that the respondents
had good legal grounds, absent
a general discovery order, for
resisting the interlocutory applications which did not come before
me.
114
But while private litigants no doubt
are under no such, or a much
attenuated, obligation, the organ of state respondents are under a
legal obligation to uphold the
spirit of the Constitution. In the
present context, that effectively meant opening their files to
Gidani, an aggrieved contestant
in a two horse race. No legitimate
government interest could be advanced by demanding strict compliance
with procedural law before
they did so. I give some
weight in the
Page 59
consideration
of remedy to this factor. It is in the public interest that a flawed
decision, defended in this manner, should not
be allowed to stand.
There is a risk that the full picture has even now not emerged.
Giving this factor weight will also contribute
towards affording
Gidani administrative justice.
115
The Minister has damage control powers
under the Act. Sections 13A
and 138 were imported into the Act by Act 32 of 2013. They read as
follows:
13A Appointment of organ
of state to conduct National Lottery
(1)
In the event that the Minister decides on
justifiable grounds not to
issue a licence as contemplated in section 13, the Minister may,
after consultation with the board,
licence or authorise an organ of
state to conduct the National Lottery for a period not exceeding
eight years, on such terms and
conditions as the Minister deems
appropriate, including such conditions as stipulated in section 14(1)
and (2).
(2)
In deciding whether justifiable grounds contemplated
in subsection
(1) exist, the Minister shall consider any relevant factor including
but not limited to-
(a)
national government policies or priorities;
(b)
the need to grow local industries and
to procure goods from local
manufacturers;
(c)
the need to transfer skills and technology
to the citizens of the
Republic; and
Page 60
(d)
the need to comply with the legislative
framework for the promotion
of broad-based black economic empowerment and transformation.
(3)
In appointing an organ of state to conduct
the National Lottery, the
requirements contemplated in section 13(2)(a) do not apply.
(4)
The licence issued to an organ of state may allow
such organ of state
to appoint any other person to conduct certain lotteries of the
National Lottery on behalf of such organ of
state, subject to the
written approval of the Minister: Provided that the board has made a
recommendation to the Minister to allow
such appointment if the
person to be appointed has satisfied the provisions of section
13(2)(b) and any other requirements or conditions
as directed by the
Minister.
(5)
The Minister shall publish in the Gazette the appointment
of an organ
of state to conduct the National Lottery in terms of this section.
138.
Temporary licence
The Minister may at any
time owing to the fact that-
(a)
the licensee is for any reason whatsoever
unable to conduct the
National Lottery in terms of the conditions of the licence or is
unable to meet the conditions of the licence
to the satisfaction of
the Minister;
(b)
the licence to conduct the National
Lottery is suspended for any
reason whatsoever;
(c)
the licence to conduct the National
Lottery is revoked in terms of
this Act; or
(d)
the licence to conduct the National
Lottery has expired, after
consultation with the board, appoint or authorise any person or
organ of state
as the case may
be, for a
Page
61
non-renewable period not
exceeding 24 months to conduct the National Lottery on such terms and
conditions the Minister deems appropriate.
116
Two matters of significance arise from
this new legislation. Firstly,
the Act as amended provides ample scope for the Minister to limit or
even eliminate the risk that
the lottery will cease to function.
Under s 13A(1) the Minister may, in a proper case, decide not to
issue a license at all, in
which case he may appoint an organ
of state to run the lottery. Under s 13B(a), where the licensee is
for any reason whatsoever
unable to conduct the National Lottery, the
Minister may under certain circumstances issue a temporary license.
117
Secondly, the legislature has allocated
this decision making power to
the Minister. I appreciate that this will require the Minister to
take further decisions which may
aggrieve one or more of those
interested and lead to further litigation. But I do not think that
this would justify the intervention
of the court into the province of
the Executive.
118
In all these circumstances, I think
that a just and equitable remedy
will be to set aside the decision of the Minister to issue the
license to lthuba and consequentially
set aside the license agreement
itself but to suspend this part of the order for a period to enable
the Minister to take further
steps in the light of this judgment.
Page
62
119
Counsel for the Minister asked that
a period of suspension of one
month be afforded to the Minister for this purpose. I shall accede to
this request.
120
Costs in my view should follow the
result. I have considered whether
to exempt the Board from the costs order. But the Board went further
than merely placing information
before the court. It actively
supported the Minister and lthuba. So it is fair to say that the
Board has been substantially unsuccessful.
121
As to the costs of the two unresolved
interlocutories: although these
costs were reserved for consideration by the reviewing court, counsel
for the Minister made the
valid point that these interlocutories have
not been argued yet. I shall assume that if they had been argued, the
respondents would
have won on the merits. However, because Ihave
decided the review, the interlocutories no longer give rise to live
issues and should
be disposed of. I have set out that in my view the
Minister, consistent with his obligations to promote the spirit of
the Constitution,
should not have made an issue in relation to the
production of documents. In line with the rule in
Jenkins
v
SA
Boilermakers
Iron Steelworkers
and
Shipbuilders
Society
1946 WLD at 15, I rule that there
should no order as to costs on the interlocutories. As I have not had
the benefit of full argument,
Ishall
Page 63
provide
in the order for the parties to revisit the question of the reserved
costs, if so minded.
122
I make the following order:
1
The application to set aside the decision of the first
respondent
(the Minister) to select the third respondent (lthuba) as the
Preferred Applicant for the third license for the South
African
National Lottery (the lottery) is refused.
2
The decision of the Minister to award the third license
for the
lottery to lthuba is declared under s 172(1)(a) of the Constitution
to be inconsistent with the Constitution and invalid.
3
The license issued by the Minister to lthuba on 24 November
2014 and
the license agreement concluded on that date between the Minister and
lthuba are both hereby set aside; provided, however,
that the
operation of the order in this paragraph 3 is suspended for a period
of one month (ie 31 calendar days) from the date
upon which this
order is handed down.
4
The awarding of the third license is remitted to the Minister
for
reconsideration.
Page 64
5
The Minister, the second respondent and lthuba, jointly
and
severally, must pay the costs of this application including the costs
consequent upon the retention and employment of both
senior and
junior counsel.
6
No order is made in relation to the costs reserved for
determination
by this court; provided, however, that any party may on notice to all
other parties delivered within 10 days of the
date on which this
order is handed down, set the costs order in this paragraph down for
reconsideration by the court. If no such
notice is delivered, the
costs order will, upon the
effluxion of the period
of ten days, be.
________________
NB
Tuchren Judge of the High Court
4
July 2015
For
the applicant:
Adv
DN Unterhlater SC and Advs AD Stein and J Mitchell Instructed by
Bowman Gilfillan Inc
Johannesburg
For
the first respondent:
Adv
HN Maenetje SC and Advs PG Seleka and MD Stubbs Instructed by Cheadle
Thompson and Haysom Inc Johannesburg
Page
65
For
the second respondent:
Adv
M ChaskalsonSC and Adv BO Lekokotla Instructed by Gildenhuys Malatje
Inc
Pretoria
For
the third respondent:
Adv
IV Maleka SC and Advs C Steinberg and N Ferreira Instructed by David
Barn Attorneys
Pretoria
GidanilotteryReview81420.14
[1]
Paragraph 10
[2]
57 of 1997
[3]
Firstrand
Bank Ltd v National Lotteries Board
[2008] ZASCA 29
;
2008
4 SA 548
SCA paras 7-9
[4]
The
purpose
of
the
evaluation
process
is
well
captured
by
the
terms
of
clause
8.2
of
the
RFP.
The
process
was
designed
to
"assess
which
Applicant will maximise
the net
proceeds
for
distribution
to
good
causes.”
[5]
2014 1
SA
604
CC para
40
[6]
Section 13(2)(a)
[7]
Section 13(2)(b)(ii)
[8]
Section 13(3)(c)(iii)
[9]
Which
was
one
of
the
factors
which
the
Minister
says
caused
him
to
prefer
lthuba as
his
first
choice negotiating partner
and
ultimately to choose
lthuba
to
operate
the lottery.
[10]
The way the Minister describes the process by which he made up his
mind.
[11]
In
fact
the Minister did make use of independent advisers for the purpose of
further
informing
him before he exercised his decision making power. He
appointed a firm of
economists called Genesis, who
provided
the Minister with advice in the form,
amongst
others, of reports.
[12]
Unlawful Occupiers, School Site v City of Johannesburg
2005 4 SA 199
SCA para 13
[13]
Section 10(a)
[14]
Section 13(2)(b)
[15]
Compare the discussion in this regard in Democratic Alliance v
President of the Republic of South Africa and Others
2013 1 SA 248
CC paras 21-26.
[16]
Albutt
v Centre for the Study of Violence and Reconciliation and Others
2010 3
SA 293
CC para 51
[17]
Clause 14.9.1
[18]
Clause 14.10
[19]
Mzansi was thus disqualified from progressing further, although it
was in fact evaluated for financial factors.
[20]
The Minister also retained a
firm
called Honeycomb BEE Ratings
to
assess the Board's
BBBEE
evaluation.
I
mention
this
only
for
the
sake
of
completeness.
The BBBEE assessments
are not in issue.
[21]
My italics
[22]
My italics
[23]
Clause 2.3.1 of the RFP provides that each applicant will have sight
of the draft license via the VDR. The Draft License is defined
in
the definitions section of the RFP.
[24]
ie as
defined
in the
RFP
as the Applicant
who
has
been
recommended
as
the
Preferred
Applicant
and
who
then enters into
and
successfully concludes
the
license
negotiations with the
Minister
[25]
Paragraph 10 of the letter
[26]
Paragraphs 5 and 5.1 of the letter
[27]
I think that this reference to "current contributions of
lthuba" is an error and should be read as "current
contributions of Gidanr.”
[28]
I have omitted a footnote to paragraph 5.1 of the letter which
states that Genesis sourced the contribution shortfall and
profitability
from an adjusted conservative model discussed in
Genesis' initial report
[29]
The amendments in question were effected by the Lotteries Amendment
Act, 32 of 2013, which commenced on 14 April 2015 pursuant
to
Proclamation R19 of 2015, published in the Government
Gazette of that date pursuant to
s 34 of the
Amendment
Act.
[30]
Ronald Bobroff & Partners Inc v De La Guerre
2014 3 SA 134
CC
paras 6-7
[31]
Democratic Alliance v President of the Republic of South Africa and
Others
2013 1 SA 248
CC paras 32 and 36.
[32]
DFI is defined as any development finance institution in the RSA
[33]
Defined as the Virtual Data Room containing the documents for the
RFP
[34]
At internal p23 of the RFP
[35]
I
do not
come to any conclusion on the question whether a firm commitment
from a financial institution which is subject to the condition
that
the license be awarded passes muster in the context under
discussion.
[36]
2014
4 SA 179
CC
[37]
In my quotations from Al/pay[2] , Iomit all footnotes.
[38]
Allpay[1]
[39]
Para 34
[40]
Parliament in relation to the
Lotteries Act and the Minister,
perhaps
in a metaphorical sense, in relation to the RFP.
[41]
I have no doubt that the absence of complete information was at
least part of the reason why Gidani in its founding and
supplementary
founding affidavits took numerous points that were
later abandoned.