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[2013] ZAGPPHC 128
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Something Magic Theatre Organisation v National Lotteries Board (10307/12) [2013] ZAGPPHC 128 (17 May 2013)
NORTH
GAUTENG HIGH COURT PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
CASE
NO: 10307/12
DATE:17/05/2013
In
the matter between:
SOMETHING
MAGIC THEATRE
ORGANISATION
.......................................
APPLICANT
v
NATIONAL
LOTTERIES
BOARD
....................................................................
RESPONDENT
JUDGEMENT
MAKUMEJ
[1]
In this application the applicant seeks an order in terms whereof the
decision of the respondent to withdraw the allocation
of a grant
totalling some R24 million to the applicant be reviewed and set
aside.
[2]
The applicant is a non-profit organisation formed in 2006, with a
primary view to provide arts, the culture and heritage training
and
extended services.
[3]
Amongst its projects developed between 2008-2010 is a street kids
programme as well as a training programme using drama and
theatre to
assist the rehabilitation activities of the Department of
Correctional Services. This programme in particular empowers
street
kids to develop skills for survival in an environment that might
otherwise lead to criminal activity.
[4]
The applicant in carrying out its objects over the years has
established professional relationship with well-established
institutions
such as the City of Tshwane, the University of Pretoria
as well as the department of correctional services. The applicant
says
that these institutions have in fact supported the applicant's
aforesaid primary mission.
[5]
Like all non-governmental and non-profit organisations who seek to
assist in the upliftment of the social living conditions
of the poor
in our country funding has always been a problem. It was for this
reason amongst others that the government established
the National
Lotteries Board when it passed Act of parliament known as the
Lotteries Act number 57 of 1997.(The Act)
[6]
The respondent is a juristic person established under section2 of the
Act.
Section
21 of the Act created a National Lottery Distribution Trust Fund (The
fund)
into which all monies raised through National Lottery Competitions
are paid. The board administers the fund primarily for
purposes of
allocating grants to socially worthy projects. There are a number of
distribution Agencies which are nothing but subcommittees
of the
board whose task is to facilitate the adjudication of funding
applications and the distribution of funds to charities or
organisations whose applications have been successful.
[7]
In the year 2010 the applicant developed a concept around archiving
Traditional Dance as a way to preserve culture and titled
the project
"MOVE MY SOUL. "On the 29th January 2010 the applicant
lodged an application with the Respondent seeking
funding over a
period of three years for this project. The funding would be spread
as follows:
(i)
First year R25 145,220
(ii)
Second year R27 659 742
(iii)
Third year R30,425 716.20
[8]
At the time when the applicant filed its application for funding the
regulations governing the process and the adjudication
of such
applications had not as yet been put into operation. This was done
only on the 30th July 2010.lt is Regulation number 644
published in
Government Gazette number 9340 dated the 20th July 2010. Section 3-9
of PART II of the regulations is applicable in
this matter.
[8]
A brief history of the dispute in this matter is that after the
Distribution Agency for Arts and Culture had received the application
it proceeded to asses and adjudicate on it.
[9]
On the 20th September 2010 the Distribution Agency wrote to the
applicant requiring the applicant to submit to the Agency proof
of
approval for change of financial year end. This was done and
eventually on the 11th November 2010 the Arts Distribution Agency
took a decision to allocate an amount of R24935 220-00 being funding
for 1 year for the applicant's project "MOVE MY SOUL"
[10]
The document by the Distribution Agency in which it approved funding
was placed before the Chief Executive Officer for approval
and to set
in motion the preparation and signing of the grant agreement between
the Board and the Applicant.
[11]
When the Chief Executive Officer received the documents from the
distribution Agency he instructed Mr Mvelisi Hlungulu the
Compliance
Manager to scrutinize the audited financial statements of the
applicant as well as to do a site inspection and file
a report on his
findings.
[12]
Mr Hlungulu's report appears on pages 261-270 and is dated May
2011.The report which is detailed mentions many disturbing features
about the applicant including the fact that Mr Patrick Dlamini who
prepared and signed the applicant's financials was not a qualified
auditor.
[13]
Having received the report of the Compliance Manager the Chief
Executive Officer addressed a letter to the chairperson of the
Arts
Distribution Agency dated the 7th June 2011 in which he writes as
follows:
"we
request that allocation made to the following projects be formally
withdrawn:
43413-lmbongiYesizwe
Trust
42592-Something Magic Theatre
Investigations
conducted by our compliance staff has indicated that the audited
statements submitted by both these applicants have
been -fraudulently
signed. The auditor whose signature is claimed to verify the audit
has denied signing the financial statement
and has stated that the
letterhead of this company was fraudulently used."
[14]
The Distributing Agency held a meeting between the 6th-14th June 2011
and having discussed the letter of the CEO as well as
the report of
the compliance Manager took a decision to withdraw the allocation
made to the applicant in November 2010. A formal
letter dated the
12th July 2011 was addressed to the applicant by the Board. The
letter reads as follows:
"Please
be advised that the allocation made to your organisation has been
withdrawn by the Distributing Agency for Arts and
Culture and
National Heritage at their meeting of 6 to 14 June 2011 due to the
fact that the audited statements submitted by you
have been
fraudulently signed. The Auditor whose signature is claimed to verify
the audit has denied signing the financial statements
and has stated
that the letterhead of his company was fraudulently used".
[15]
It is this decision as contained in that letter which the applicant
seeks to be reviewed and set aside. The applicant is not
asking the
court that the respondent be ordered to pay the allocated amount of
R24 million.
[17]
I hasten to say that the mere setting aside of the decision will not
automatically lead to the release of the R24 million to
the
applicant. I say this because the report of the Compliance Manager Mr
Hlungulu is not only full of other irregularities it
is recommended
that the decision be reconsidered and also that legal advice be
sought regarding the legality of accepting revised
financial
statement as well as the involvement of the applicants board member
in the affairs of another organisation known as Shivava.
[18]
In paragraph 5.1.2 of the report Mr Hlungulu says the following under
the heading "FINDING":
"We
also noted the Malulekes mentioned in 5.1.1 above are also directors
of author NLDTF funded project called Shivava Cultural
Development(Project No:376170) that has been allocated R9784500-00
for the 2010 call. Our site visit to this project(Shivova) revealed
a
number of serious concerns on the management of and expenditure on
the NLTDF grant already paidfsee Shivava site visit report
also
submitted with this report)
[19]
Before dealing with the issues in this matter I deem it appropriate
to quote in full some sections contained in PART II of
the
regulations relating to distribution of funds from the National
Lottery Distribution Trust Fund.Section3 reads as follows:
"Upon
receipt of an application for adjudication a Distribution Agency
shall determine whether the application meets the criteria
and the
applicant has submitted all the mandatory documents in the
application2010(l)and-
(a)
If the application does not meet the criteria and contain all the
mandatory documents such application will be declined on the
basis
that it does not meet the criteria or that it is an incomplete
application and the applicant will be informed accordingly.
[20]
Section 7 reads as follows:
(a)
A distribution Agency may approve a grant subject to the conditions
that-
(b)
The grant be paid after receipt of a positive pre-grant site
inspection or visit.
THE ISSUES
[21]
The first issue raised by the applicant is whether the respondent
made a decision within the meaning of section 1 of the Promotion
of
Administrative Justice Act 3 of 2000(PAJA) by approving the
application for funding of "Move my soul" project.
[22]
The respondent argues that the decision is not a reviewable decision
within the meaning of section 1 PAJA.I do not agree with
that
contention for purposes of PAJA '"decision" means:
"Any
decision of an administrative nature made or proposed to be made or
required to be made as the case may be, under an empowering
provision
including a decision relating to making, suspending, revoking or
refusing to make an order, award or determination".
[23]The
Act read with section 3-7 of the regulations empowers the
Distribution Agency on receipt of an application for funding to
do
certain things. Section 3 of PART II of the regulation speaks of
determine whether the application meets the criteria and when
the
determination has been done that the application does or does not
meet the criteria then take a decision to reject or approve
the
grant.
[24]
I am satisfied that the decision taken by the Board on the 11
November 2010 granting the applicant the sum of R24 million is
an
administrative decision which is reviewable. However the applicant is
not asking this Court to review the decision taken on
the 11th
November 2010.The decision that the applicant seeks to have reviewed
is the decision taken on the 12th July 2011 in which
the grant made
was reversed.
[25]
What is in issue as regards that second decision is whether it was
administrative dealings which should be subjected to judicial
to
judicial review in terms of PAJA. The Applicant contends that it is
an administrative decision that should be reviewed. The
Respondent
argues that the decision to withdraw the allocation is tantamount to
declining the application due to the fact that
the Audited Financial
Statements of the Applicant were found to be fraudulent. The
Respondent argues that the withdrawal is nothing
but an advise to the
applicant that the application is declined.
[26]
When the Distribution Agency made the grant it was subject to
approval by the CEO who is the delegated functionary having been
duly
delegated by the Board. The decision to grant was therefore not final
as there was a suspensive condition as set out in the
instructions
given by the CEO to the Compliance Manager. Mr Hlungulu in his report
on paragraph 1.2 says the following:
"A
grant agreement was generated and as per NLB processes all the grant
documentation had to be quality checked and signed
by the NLB CEO who
in April 2011 after reviewing the said documentation requested.
Compliance Division to conduct a site visit
(as a risk management
intervention) on the organisation to verify, the project and
organisational data, Governance and financial
management system of
the organisation, as the information provided on the application form
on these was not comprehensive enough"
[27]
When the CEO gave the instructions as he did to the compliance
division he did so in accordance with Section 4 of the Regulations
which reads as follows:
"When
assessing the application a Distribution Agency may at any time
request any additional information or documents other
than mandatory
documents in form 2010/1.
[28]
The decision to allocate the grant was accordingly not final as the
assessing body and the CEO still needed certain information
before
the grant agreement could be signed and money paid out to the
Applicant.
[29]
The Respondent argues that the withdrawal of the grant is because the
applicant failed to furnish the Respondent with a(l the
mandatory
documents together with its application in that the financiaI
statements were not signed by an auditor.
[30]
Section E to the application form for a grant sets out the mandatory
documents that must accompany the application form one
of the
documents is the most recent annual financial statements of the
organisation for two consecutive years signed and dated
by a
registered independent accounting officer or an Auditor.
[31]
The undisputed evidence is that the audited financial statements that
were attached to the Application for a grant were not
prepared and
signed by an auditor or an accounting officer.
[32]
The audited financial statements are mandatory documents and if they
are missing the application of the applicant did not meet
with the
criteria and fell to be declined on that basis only.
[33]
The problem in this matter is that when the Distribution Agency
assesed and adjudicated on the application they were not aware
that
the application was defective for want of properly signed Audited
financial reports. Had the Agency been aware at that time
it would
have there and then declined the application. However once it was
brought to their attention that the application was
defective the
Distribution Agency acted in accordance with the provisions of
section 3 of the Regulations.
[34]
The withdrawal is not a decision within the meaning of PAJA and is
accordingly not reviewable. What the Distribution Agency
did was to
follow the letter of the law and decline the application. The
Applicant is not being shut out all it means is that the
Applicant
can file a fresh application with the correct documents for
consideration. The fact that the applicant submitted new
financial
statements after it was brought to its attention that the original
financial statements were defective does not cure
the defect because
by that time a decision to withdraw had already been made.
[35]
The issue about proper and reliable financial statements is key to
the whole issue of grants.Section3(h) is but one of the
examples
where reference is made that the Distribution Agency will proceed to
assess the application in accordance with the requirement
in
regulation 3-6 of Regulation Relating to Allocation of Money in the
National Lottery Distribution Trust Fund.
[36]
Section 3 (9) is further evidence of the extent to which the Board
takes this aspect serious it reads that if a grant is approved
to an
organisation such organisation shall comply with procedure and
conditions stipulated in their notice to ensure that such
further
distribution conforms to the directives of the Minister and the
requirements in regulation 3-6.Section 30(4) and (5) of
the Act are
further evidence on this aspect.
[37]
The writer Cora Hoexter in the book titled ADMINISTRATIVE LAW IN
SOUTH AFRICA Second Edition published December 2011 page 231
under
the heading "Direct Effect" writes as follows:
"As
already noted, there is pre paja support for the idea that
administrative decision should be final before they are reviewed.
Finality was a significant factor in PODLAS v Cohen and Bryden NNO in
relation to a decision to hold an enquiry in terms of
section 152
of
the
Insolvency Act 24 of 1936
and to issue notices to persons to
attend the enquiry. It also played a role in PARK- Ross v Director,
Office for Serious Economic
Offences in relation to a decision to
recommend the prosecution of a person. In Eastern Metropolitan
Substructure v Peter Klein
Investments Pty Ltd a matter decided on
exception the court reasoned that a local authorities' decision to
recover money by means
of legal proceedings lacked the finality
required to attract rights to administrative Justice. The decision
was a preliminary or
interlocutory step having no determinate effect
on the parties rights."
[38]
In the present matter the withdrawal of the grant does not have a
final and determinate effect, ft does not preclude or prevent
the
applicant from re-submitting the application with proper annexure as
required by the rules.
[39]
I am accordingly of the view that the decision to withdraw is not
reviewable
[40]
The last aspect raised in this matter is that concerning the
audi-alteram partem rule. The applicant argues that before the
decision to withdraw the grant the Respondent should have granted the
applicant an opportunity to be heard.
[4]
In principle it is correct. Procedural fairness in the form of Audi
alteram partem is concerned with giving people an opportunity
to
participate in the decision that will affect them and be granted a
chance of influencing the outcome of those decisions. However
in
METRO PROJECTS CC VS KLERKSDORP MUNICIPALITY 2004(1} SA 16,SCA
Conradle JA said the following about fairness in the context
of
public procurement:
"Fairness
must be decided on the circumstances of each case. It may in given
circumstances be fair to ask a tenderer to explain
an ambiguity in
its tender, it may be fair to allow a tenderer to correct an obvious
mistake, it may particularly in a complex
tender be fair to ask for a
clarification or details required for its proper evaluation whatever
is done may not cause the process
to lose the attributes of fairness
or in the local government sphere, the attributes of transparency,
competitiveness and cost
effectiveness".
[42]
In this matter it is contended that when the CEO instructed the
Distributing Agency to withdraw the grant based on the report
of the
Compliance Manager that there was a duty on the Distributing Agency
to afford the applicant a hearing before the decision
was taken,
which was not done.
[43]
A similar situation as in the present matter arose in the case of
THABO MOGUDI SECURITY VS RANDFONTEIN LOCAL MUNICIPALITY 2010
(4) ALL
SA REPORTS 314 (GSJ).ln that matter after the adjudication committee
of the municipality had recommended that a security
services tender
be awarded to the Applicant, The City Manager decided to withdraw the
tender process and called for fresh tenders.The
Applicant argued that
it was never afforded an opportunity to address the defendant on
whatever short comings had been found in
the applicant's capability
to fulfil the tender specification.
[44]
In dealing with that matter, GAUTSCHI AJ said the following at page
324 paragraph 38:
"I
nevertheless proceed to consider whether the applicant should have
been afforded a hearing before the municipal manager
decided to abort
the tender process and call for tenders afresh, ft is well recognised
that the right to audi alteram partem is
dependent upon
circumstances. It is contextual and relative, The right to make a
representation will usually arise where a person
may be adversely
affected by a decision. It is also no answer to say that the person
who would be adversely affected by a decision
may have Httle or
nothing to argue in regard thereto or that a fair hearing could have
made no difference to the result This is
however not so much a case
where nothing would be achieved by affording the applicant a hearing
on the basis that the applicant
could not conceivably have
contributed anything but a case where the circumstances dictate that
the applicant should not be afforded
any opportunity to make
representation. Although the decision to abort the process would
adversely affect the applicant, it did
not have the right to be
awarded the contract in terms of the written rules of the bidding
which the applicant initialled".
[45]
The decision taken on the 11th November 2010 was subject to certain
conditions being met that decision conferred no right on
the
applicant until the conditions were fulfilled. When the Distribution
Agency received an adverse report and decided to withdraw
it's
decision it was not withdrawing any right that had already vested on
the applicant. The applicant's request did not meet the
mandatory
specification and for that matter the grant was not awarded.
[46]
The suggestion that the applicant should have been afforded a hearing
will place an impossible burden upon the respondent who
have to deal
with hundreds of other applications.
[47]
As was stated in the matter of NATIONAL LOTTERY BOARD VS SA
EDUCATION AND ENVIROMENT PROJECT 2012(4} SA 504 at page 509: that
guidelines serve a useful purpose and generally accord with the
regulation. Their object is to ensure that monies are disbursed
only
to grantees that are demonstrably capable of administering them for
their intended purposes and also that applicants for funding
are
treated similarly. When receiving applications for funding the
decision maker's mind must be directed to these purposes. In
doing so
it is entitled to treat some aspects of the guidelines as peremptory
requirements such as that the financial statements
of grantees be
audited."
[48]
The applicant's application was scrutinized, assessed and was found
to be defective. The guidelines read with the rules require
that the
application be declined.
[49]
Accordingly I have come to the conclusion that:
(i)The
application is dismissed
(ii)The
applicant is ordered to pay costs.
Dated
at Pretoria on this the . Day of 17 May 2013.
Makume
J
(JUDGE
OF THE HIGH COURT)