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[2014] ZAWCHC 77
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Thuo Gaming Western Cape (Pty) Ltd v Chairperson of the Western Cape Gambling And Racing Board (11360/11) [2014] ZAWCHC 77; [2014] 3 All SA 471 (WCC) (21 May 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
REPORTABLE
APPEAL
NO: 1277/13
CASE
NO: 11360/11
DATE:
21 MAY 2014
In
the matter between:
THUO
GAMING WESTERN CAPE (PTY)
LTD
.....................................................
Appellant
And
THE
CHAIRPERSON OF THE WESTERN CAPE
GAMBLING
AND RACING
BOARD
................................................................
Respondent
FINAL
DRAFT JUDGMENT
: 21
MAY 2014
GAMBLE, J:
INTRODUCTION
[1] In this appeal Thuo Gaming Western
Cape (Pty) Ltd (“Thuo”) seeks to overturn an order made
by Van Staden AJ on 20
December 2012 (in respect whereof reasons were
furnished on 26 February 2013) dismissing an application by Thuo for
the review
of certain conditions imposed by the Western Cape Gambling
and Racing Board (“the Board’) when it granted a licence
to Thuo in May 2010 to operate certain gambling machines during the
period 1 June 2010 to 31 May 2011.
[2] Thuo is a wholly owned subsidiary of
Grand Parade Investments Limited (“GPI”), a listed
company, which has extensive
interests in gambling and horse racing
activities in the Western Cape. Those activities fall within
the purview of the Board
which is a juristic person established in
terms of sec 2 of the Western Cape Gambling and Racing Act 4 of 1996
(“the Provincial
Act”), and which is charged with a
variety of functions in relation to the gambling and racing
industries in this province.
[3] Before us (as in the Court
a quo
)
Thuo was represented by
Advs S.P. Rosenberg SC
and
A.D.
Brown
while the Board was represented by
Advs I. Jamie SC
and
H.J. De Waal
. We are indebted to counsel for their
assistance in this matter.
[4] There are a number of statutory and
regulatory instruments at play in this matter which have to be
understood and interpreted
contextually. As Wallis JA put it in
the
Natal Pension Fund
case
[1]
:
”
Interpretation is the process
of attributing meaning to the words used in a document, be it
legislation, some other statutory instrument,
or contract, having
regard to the context provided by reading the particular provision or
provisions in the light of the document
as a whole and the
circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration
must be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision
appears; the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where
more than one meaning is
possible each possibility must be weighed in the light of all of
these factors…The process is objective,
not subjective.
A sensible meaning is to be preferred to one that leads to insensible
or unbusinesslike results or undermines
the apparent purpose of the
document. Judges must be alert to, and guard against, the
temptation to substitute what they
regard as reasonable, sensible or
businesslike for the words actually used. To do so in regard to
a statute or statutory
instrument is to cross the
divide
between interpretation and legislation;…The ‘inevitable
point of departure is the language of the provision
itself’,
read in context and having regard to the purpose of the provision and
the background to the preparation and production
of the document”
[5] For purposes of this matter, it is
therefore necessary to have regard to the emergence of the legalized
gambling industry, both
before and after the commencement of the
constitutional era, and the response of the authorities thereto.
Its historical
setting is, to my mind, important in understanding the
industry’s place and the control thereof in our society.
BACKGROUND
[6] Gambling has been defined as:
“
The wagering of money or
something of material value (referred to as ‘the stakes’)
on an event with an uncertain outcome
with the primary intent of
winning additional money and/or material goods. Gambling thus
requires three elements to be present:
consideration, chance and
prize…The term
gaming
in this context
typically refers to instances in which the activity has been
specifically permitted by law.”
[2]
[7] At common law, gambling
debts were not enforceable in our Courts on the basis that the
underlying contract was
contra bonos mores
having been tainted
by
turpitudo
.
[3]
As the judgment of Fagan JA in
Gibson’s
case makes it
clear, “
immorality
” lay at the core of the
reluctance to enforce such debts.
[8] Prof. N. Carnelley pointed out in
LAWSA
[4]
that prior to 1965 each province in the Republic had its own gambling
legislation. With the introduction of the Gambling Act, 51
of 1965,
there was a consolidation of existing provincial legislation and most
gambling activities, save horseracing, were prohibited.
[9] But informal
gambling activities were nevertheless rife as they no doubt had been
elsewhere in the world for
centuries. In the townships and
backyards of the Witwatersrand, “
FAFI
” games were
very popular
[5]
.
And on street corners and pavements all over the country, young men
could be seen playing a game in which the wager was
to guess under
which of several bottle tops a piece of crumpled tin foil had been
hidden.
[6]
Gambling also found its way into mainstream sporting activities such
as cricket, as the evidence before the King Commission
of Enquiry
into Cricket Match Fixing held in Cape Town in June 2000 suggested
[7]
.
[10] As Prof. Carnelley also
observes, horseracing has always been treated differently to other
forms of wagering and has
been regulated through various provincial
ordinances and,
inter alia
, rules of the Jockey Clubs over the
decades. For purposes of this case it is not necessary to
consider horseracing.
[11] Prof. Sampie Terblanche
[8]
reminds us that the apartheid government was a deeply Calvanistic
regimé with strong ties to the Dutch Reformed Church.
There can be little doubt, therefore, that all forms of gambling
other than horse racing were anaethema to the Nationalist
government.
However, with the establishment of the Bantustans a
somewhat unusual phenomenon arose. The so-called TBVC states
[9]
were regarded by the apartheid government as “
independent
”
countries and, accordingly, the adherence to the demands of the
church in regard to immoral gambling activities was not
seen to be
applicable in these areas. Brand
[10]
records that during the period 1977 to 1994 a total of 17 casino
licences were issued in the Bantustans, many of them to a company
known as Sun International Limited. The conduct of gambling in
these casinos was controlled by the so-called “
governments
”
in the Bantustans who obviously did not regard gambling as immoral.
[12] The Bantustans were,
generally, located in rural areas and as Prof. Terblance
[11]
points out were occupied in the main by a poor agrarian
proletariate. Certainly these were not the sort of people who
could
afford to spend significant sums of money at casinos. The
supreme irony that then arose was that residents of South Africa
travelled across the Bantustan “
borders
” to be
freed of the yoke of turpitude which precluded them from gambling at
home, yet it was they who contributed handsomely
to the welfare of
these casinos and ultimately of the Bantustans. Residents of
the Western Cape had to travel relatively
far to cross these
“
borders
” and many, in search of the ultimate
jackpot, took weekend cruises on ocean- liners which operated
floating casinos outside
of the Republic’s territorial waters.
[13] While legitimate
gambling activities then took place outside of the “
borders
”
of the Republic (and in many cases not that far from home), some
entrepreneurs were more creative and began to operate “
gaming
clubs
” at which card games and gambling machines were
available to patrons in the cities. As the judgment of King J
in
Highstead Entertainment
[12]
demonstrates, one such operation owned companies in Cape Town,
Sandton and Durban at which hundreds of people were employed.
[14] It would be fair to say
then that by the early 1990’s various forms of gambling
activities were taking place
within the borders of the Republic of
South Africa. Those that were geographically located in the
Bantustans were regarded
as lawful while many activities (such as the
“
gaming clubs
”) were said to be illegal. The
emergence of a unitary state was imminent as the multi-party
negotiations which preceded
the adoption of the Interim Constitution
in 1993 proposed, and this no doubt presented concerns as far as the
Bantustan casino’s
were concerned. Once adopted the
Interim Constitution, 200 of 1993, made provision in Schedule 6
thereto for provincial competence
in respect of “
casino’s,
racing, gambling and wagering
”. Against this constitutional
imperative statutory control was necessary. To this end
the government appointed
a Commission of Enquiry under the
chairmanship of Mr. Justice Howard in 1993 to investigate the
potential legalization of gambling
in South Africa.
LEGISLATIVE
FRAMEWORK
[15] Flowing from the Howard
Commission’s report, the Lotteries and Gambling Board Act 210
of 1993 was passed with a view
to establishing a statutory board to
control gambling, lotteries and fund-raising activities. In
1995 the Lotteries and Gambling
Board under the stewardship of Prof.
Nic Wiehahn, produced a report which formed the basis of the National
Gambling Act, 33 of
1996 (“the 1996 Act’). In its
main report of March 1995, that board recommended that a maximum of
40 casino licences
be awarded countrywide.
[13]
[16] The Constitution of the Republic of
South Africa, 1996
[14]
grants concurrent national and provincial legislative competence in
respect of “
casinos, racing, gambling and wagering,
excluding lotteries and sports pools
”, while the latter two
activities are the subject of national legislation in the form of the
Lotteries Act 57 of 1997
. Consequently, gambling and racing in the
Western Cape are regulated by both the Provincial Act and the
National Act referred to
hereunder.
[17] The chronology of the
legislation relevant to this case is the following. In May 1996
the Provincial Act was passed
and brought into operation in August
1997. That Act (as subsequently amended) defines,
inter
alia
, -
21.1 A “
gambling
machine
” which is –
“
any mechanical, electrical,
video, electronic, electro- mechanical or other device, contrivance,
machine or software, other than
an amusement machine, that –
(a)
is available to be played or operated upon payment of a
consideration; and
(b)
may, as a result of playing or operating it, entitle the player or
operator to a pay- out,
or deliver a pay-out to the player or
operator”
and,
21.2 A “
limited
pay-out machine
”, which is a “
gambling machine
outside of a casino in respect of the playing of which the
stakes and prizes
are limited as prescribed by regulations
made in terms of the National Act.
”
[18] In December 2000 the relevant
Minister in the National Cabinet issued the “
Regulations on
Limited Pay-Out Machines”
(“the LPM Regs”), in
terms of the powers conferred upon him under the 1996 Act.
[19] In 2004 Parliament passed the
National Gambling Act, 7 of 2000 (“the National Act”)
which repealed the 1996 Act
in its entirety. This Act came into
operation on 1 November 2004.
[20] In 2007 the LPM Regs were amended
pursuant to the provisions of sec 88 of the National Act.
THE PROVINCIAL
ACT
[21]
In
this matter, the Board (as established in terms of sec 2 of the
Provincial Act) is responsible for the licensing and control of
LPM’s
in the Province. To this end sec 2(2) provides that:
“
S2(2) The right to carry on
any gambling or racing or activities incidental thereto in any
manner, whether directly or indirectly,
within the Province shall,
subject to sub-section (4), vest exclusively in the Board.”
Sec 2(4) is to the following effect:
“
S2(4) The main object of the
Board shall be to control all gambling, racing and activities
incidental thereto in the province subject
to this Act and any policy
determinations of the Executive Council relating to the size, nature
and implementation of the industry.”
The reference to “
Executive
Council
” is to “
the Executive Council of the
Province
” as contemplated in sec 132 of the Constitution.
[22] In 2011 Thuo made application
under sec 46 of the Provincial Act to the Board for a “
route
operator licence
”. Such a category of licence (which
can only be issued to a company) is required under sec 46(2):
“
S46(2) A route operator
licence is required by every company which permits or engages in the
business of operating limited
pay-out machines in or on one or more
premises licensed in terms of sec 47”
In terms of sec 46(2)(A) such a licence
is granted exclusively to the operator:
“
S46(2)(A) A route
operator licence shall attach to the operator specified in the
licence.”
And under sec 46(3), the Board is
entitled to impose conditions in respect of any route operator
licence it may issue:
“
S46(3) A route operator
licence shall authorise, subject to any conditions which the Board
may impose, the operation of approved
limited pay-out machines in or
on premises or such part of such premises as are licensed in terms of
sec 47.”
[23] Closely linked to the
route operator licence is a “
site licence
” which
must be issued under sec 47 of the Provincial Act. As the
phrase suggests, this licence is required by the entity
(not
necessarily the owner) which is responsible for operating the site on
which an LPM is to be located. In common parlance
this entity
is referred to as the “
site operator
” and the
licence is also called a “
site operator licence
”.
For convenience, I shall set out the section in full:
“
47 Site
Licence
(1)
A site licence is required for any premises in the Province in or on
which
limited pay-out machines are placed by the holder of a
route operator licence.
(2)
A site licence shall authorise, subject to any conditions which the
Board
may impose, the keeping and exposing for play in or on the
licensed premises or such part of such premises as is specified in
the
licence of any limited pay-out machines operated in terms of sec
46.
(3)
A site licence shall attach to the premises specified in the licence.
(4)
The Board shall not grant an application for a site licence unless it
is satisfied that -
(a)
the person who or which will be responsible for the operation of the
gambling business on
the site; and
(b)
subject to the proviso to sec 30(2), all persons holding a financial
interest of five percent
or more in the person contemplated in para
(a), comply with the provisions of sec 28 or 29, as the case may be,
and 30.”
[24]
The
reference in sec 47 to secs 28, 29 and 30 relates to the various
criteria enumerated for qualification and/or disqualification for
licences such as age (over 18), legal disability (e.g. insolvency),
political office, (membership proscribed) criminal convictions
and
the like.
[25]
Under
the National Act, an LPM is defined as:
“
a gambling
machine with a restricted prize, described in sec 26.”
[26]
Sec
26(1) sets the basis for the relevant National Minister’s
regulation of LPM’s:
“
26(1)
Cognisant of the potentially detrimental socio-economic impact of a
proliferation of limited pay-out machines, the Minister
must regulate
the limited pay-out machine industry in accordance with this section.
[27]
Sec
26(2) in turn prescribes certain issues that must be
covered by such regulations:
“
S26(2)
The Minister, by regulation made in accordance with sec 87, must –
(a)
establish a program for the gradual introduction of
limited pay-out machines in the Republic, in clearly defined and
delineated phases;
(b)
establish a mechanism for ongoing socio-economic
impact assessment of
the use of limited pay-out
machines in the Republic;
(c)
establish criteria which, on the basis of the
assessments contemplated in para (b), must be
satisfied before
the commencement of each
successive phase of the program to introduce limited
pay-out machines in the Republic;
(d)
prescribe a limit on the maximum number of licensed limited pay-out
machines that may be
introduced in each phase –
(i)
within the Republic;
(ii)
within any particular province; and
(iii)
at any one site, and may prescribe
different site maximums applicable in
different circumstances;
(e) after consulting the
Board, determine the circumstances in which a site may be licensed,
and for that purpose, may establish different categories of sites,
and different requirements with respect to each such category;
and
(f) prescribe a limit on
the maximum –
(i)
aggregate stake permitted to commence and
complete a limited pay-out gambling game;
(ii) single
pay-outs allowed from a limited pay-out
machine; and
(iii) aggregate pay-out
in respect of each game
played.”
[28]
Sec
26(3) of the National Act lists some ten minimum standards which
the Minister may prescribe in relation to applications for licences
regarding LPM’s. These are:
“
(a)
Standard information to be required from applicants;
(b)
Minimum evaluation criteria to be applied by licensing
authorities;
(c)
Evaluation procedures to be followed by licensing
authorities;
(d)
Compliance standards for limited pay-out machines,
including the maximum number
of single game cycles over a
particular period of time;
(e)
The methods by which a prize won on a limited pay-out
machine may be paid;
(f)
Any essential or defining elements of a limited pay-out
gambling game;
(g)
The procedures that constitute the start and end of a single
game on
a limited pay-out machine;
(h)
The accounting standards that must be met, and accounting records
that must be kept, by
route operators, site operators and independent
site operators;
(i)
Minimum information to be provided by licensees concerning
the sourcing, distribution, movements, conversions and
disposal of limited pay-out machines; or
(j)
Measures to limit the potentially negative socio-economic
consequences of access to gambling opportunities, including
public notices at licensed premises.”
[29]
Then
sec 26 goes on to deal with the registration and control of such
machines:
“
(4)
A person must not –
(a) distribute a limited
pay-out machine to a site operator
or
independent site operator, or allow such a machine
to be made available for play unless that machine has
been registered in accordance with this Part; or
(b) move a limited pay-out
machine from one site to
another without the prior approval of, and subject to
monitoring and control by, the provincial licensing
authority that registered that machine.”
[30]
The
section proceeds to impose the following obligations on a route
operator:
“
(5)
A route operator –
(a) must not make available
for play –
(i) more limited
pay-out machines than the
maximum number for which the operator is
licensed; or
(ii) on any particular
site, more limited pay-out
machines than the site is licensed to
accommodate;
(b) must maintain the limited
pay-out machines owned
and operated by that route operator; and
(c) must collect money
from those machines and pay any
applicable provincial taxes or levies in respect of
those machines.”
[31]
In
terms of the definitions contained in the National Act, route and
site operators are defined with reference to sec 18 which concerns
sites. A “
site
” is defined as the
“
premises licensed in terms of the applicable provincial law
for the placement of one or more limited pay-out gambling machines
contemplated
in sec 18.”
[32]
I
shall repeat sec 18 in its entirety because of the central role
that that section plays in this case:
“
18
Sites
(1)
A provincial licensing authority may –
(a) license a person as a site operator to
operate limited pay-out machines in or on specific named premises;
and
(b) determine the hours of operation for that site
which may be the same as, different from or outside the normal hours
of operation of the primary business conducted at that site.
(2)
The operation of limited pay-out machines must be incidental to
and not be the primary business conducted in any premises licensed as
a site, if that site falls within an incidental use category
determined by the Minister in terms of sec 26(1)(b).
(3)
A site operator may be linked to a particular route operator or may
be independent,
if provided for in terms of applicable provincial
laws.
(4)
A site operator who is linked to a route operator may –
(a) keep
limited pay-out machines owned by the route operator on the
site; and
(b) make
those machines available to be played by
members of the public.
(5)
An independent site operator has the same rights, powers and duties
as –
(a) a route
operator in terms of sec 26; and
(b) a site
operator in terms of subsection (4)(b).
(6)
Only a juristic person may be licensed to own or operate more than
five limited
pay-out machines as an independent site operator.
(7)
A licensed site operator or independent site operator must –
(a)
prominently display at the entrance to the
designated area –
(i) the licence issued to that operator;
(ii)
a copy of the licence issued to the relevant
route operator, if applicable; and
(b) maintain adequate control and
supervision of all
limited pay-out machines at the site during the
licensed hours of operation”
[33]
Sec
53 of the National Act plays a significant roll in highlighting
socio-economic considerations relevant to gambling. It
reads as follows:
“
53
Economic and social development issues to be considered
(1) When
considering an application for a licence, other than an employment
licence,
or when considering an application for the transfer of a
licence, a provincial licensing authority –
(a) must consider the commitments,
if any, made by the applicant or proposed transferee
in
relation to –
(i) black economic
empowerment; or
(ii) combating the incidence
of addictive and
compulsive gambling;
(b) must consider the potential
socio-economic impact on the community of the proposed licence; and
(c) may impose reasonable and
justifiable conditions on the licence to the extent necessary to
address
the matters referred to in paras (a) and (b).
(2) At least once every year
after the issuance of a licence other than an employment licence,
the
provincial licensing authority that issued that licence –
(a) must review the
commitments considered in terms of subsection (1)(a) and the
achievements
of the licensee in relation to those commitments; and
(b) may impose further or
different reasonable and justifiable conditions on the licence to the
extent necessary to address the matters referred to in subsection
(1)(a) and (b).”
[34]
The
National Act also has detailed provisions relating to competition
issues:
“
54
Competition issues to be considered
(1) When considering an
application for a licence, other than an employment licence, or when
considering an application for the transfer of a licence, a
provincial licensing authority must consider whether approving the
application is likely to substantially affect competition in the
gambling industry generally, or in respect of the proposed activity
–
(a) within that province, in the
case of a provincial licence; or
(b) within the Republic, in the case
of a national licence.
(2) After considering the
matters contemplated in subsection (1), the provincial licensing
authority
must refuse the application unless there are overriding
public interest reasons for approving it, if it appears that
approving
the application would result in the applicant, alone or in
conjunction with a related person, achieving market power.
(3) For the purposes of
subsection (2) –
“
market power
” has the meaning set out
in
sec (1) of the Competition Act, 1998 (Act 89
of 1998);
“
public interest reasons”
include the
reasons
set out in
sec 12(A)(3)
of the
Competition Act,
1998
; and
“
a related person
” means a person –
(i) who has direct
or indirect control
over the applicant;
(ii) over whom the
applicant has
direct or indirect control; or
(iii) who is directly or
indirectly
controlled by a person referred to
in subparagraph (i) or (ii).”
[35]
Lastly,
there is sec 87 of the National Act which deals with
regulations. For present purposes it is necessary to deal only
with
sec 87(2)(e)(iii):
“
(2) After consulting the
Council the Minister may make regulations concerning –
(a) ..
(b) ..
(c) ..
(d) ..
(e) minimum standards in respect of
licensing procedures
by provincial licensing authorities including –
(i) ..
(ii) ..
(iii) the criteria to be
complied with before any
licence
is granted in terms of this Act or
applicable provincial law.”
The council referred to in this section
is defined in sec 1 as “
The National Gambling Policy Council
established by section 61
”.
[36]
Lastly,
I refer to the LPM Regs issued by the National Minister under
the 1996 Act. Firstly, there are the following relevant
definitions:
“
independent
site operator
” means a site operator, who is not
linked to a route operator and is licensed to own and operate limited
pay-out machines
on a single site and is responsible for maintaining
the machines, effecting the collection of money and paying the
provincial taxes
and levies due to the provincial licensing
authorities;
“
limited
pay-out machine
”
means a gambling machine outside of
a casino in respect of the playing of which the stakes and prizes are
limited as prescribed
by these Regulations”
“
route
operator
”
means a company registered in terms of the
Companies Act, 1973 (Act 61 of 1973), which is –
(a)
licensed to own and operate limited pay-out machines;
(b)
responsible for maintaining limited pay-out machines;
and
(c)
responsible for effecting the collection of money and
paying the provincial
taxes and levies in respect of any
limited pay-out machine under its licence;
“
site
operator”
means –
(a) the licensee who is entitled to
keep limited pay-out machines owned by a route operator on his
premises and to make them available to be played by members of the
public; or
(b) where a provincial licensing
authority licenses the premises on which the activities contemplated
in para (a) are conducted, that licensed premises.”
It bears mention that the definition of
“
site
” in the LPM Regs was repealed with the
passing of the National Act in 2004.
[37]
Reg
2(2) deals with the maximum number of limited pay-out machines
which may be licensed in any particular province. In the case
of the Western Cape this has been set at nine thousand machines.
In Reg 3 one finds a limitation on the number of LPM’s
at any
particular site:
“
(1)
Subject to the provisions of subregulation (2), the maximum
number of limited pay-out machines
which may be allowed
by a provincial licensing authority to be operated on
a single
site must be five.
(2)
The Board, may, on good cause shown and upon application by a
provincial licensing authority,
approve the operation of
limited pay-out machines in excess of
five machines and not
more than forty: Provided that such application must be made
in respect
of every site for which limited pay-out machines in
excess of five is sought.”
[38]
Under
Reg 5 the maximum stake with which a LPM game may
be commenced and played to its conclusion is Five Rand and, in terms
of Reg 6(1)
the maximum prize payable by any one LPM machine is Five
Hundred Rand. Persuant to Reg 7 progressive jackpots are not
permitted
on LPM’s, nor may the licensee of any LPM offer any
prize in excess of the sum of five hundred Rand.
[39]
In
terms of Reg 9 there are only three categories of operator
licences which may be issued in regard to LPM’s, namely, a
route
operator’s licence, a site operator’s licence and
an independent site operator’s licence. Evidently the
Board has decided that independent site operators will not be
permitted to operate in the Western Cape and accordingly no more
need
be said in relation to this category of operator.
[40]
Reg
13 provides for the standardisation of LPM’s in accordance
with certain standards of the SABS. Reg 14 has strict
provisions
relating to the movement of LPM’s from one site to
another. Such movement must receive the prior approval of the
Board
which must monitor, document and strictly control such
movement.
[41]
When
a provincial licensing authority intends to invite applications
for new licences it must do so through statutory notices in the
relevant Provincial Gazette and to newspapers circulating in the
Province (Reg 17). There then follows a transparent process
which includes the advertisement of any applications received, the
inspection thereof, the investigation and evaluation thereof,
and the conducting of public hearings in relation thereto. It
is not necessary to go into any detail in this regard save
to say
that there is a high degree of transparency built into the whole
process of licensing of LPM’s.
[42]
Reg
31 places a limit on the number of LPM’s at any particular
site. It reads as follows:
“
A route operator may not make available for play –
(a) more
limited pay-out machines than the maximum number of machines for
which that route operator is licensed; and
(b) more
limited pay-out machines on a site than the relevant site is licensed
for.”
[43]
Reg
37 contains a host of criteria which must be considered by the
Board when it considers any licence application. These include
the route operator’s qualifications to hold a licence, its
suitability, its business plan, the economic empowerment and
community benefits which any particular application may bring, the
geographical spread of LPM sites and the extent to which an applicant
for a licence is able to demonstrate the achievement of Black
economic empowerment with the operation and selection of the relevant
LPM sites.
[44]
Finally,
Reg 41 resonates with the provisions of sec 18 of the
National Act and sets formulae according to which it may be
determined whether
the proposed operation of LPM’s at a site is
“
incidental to the primary business at [any] particular
premises” or not.
THE SOCIAL IMPACT OF LEGAL GAMBLING
[45]
From
the aforegoing it is clear that the gambling industry in general
and the LPM form of gaming, in particular, is heavily regulated:
and
for good reason. Having been constitutionally sanctioned,
organized gambling has shrugged off the mantle of moral opprobrium
which it once bore in South Africa and the somewhat schizophrenic
state of the “
casino republics
” has been
addressed. But this legitimation of the once illegitimate comes
with in-built safeguards to protect the vulnerable
users of a past
time that can quickly turn the wealthy to paupers and reduce the poor
to penury.
[46]
And
so we see that the Preamble to the National Act includes the
following important statements of intent:
“
It is
desirable to establish certain uniform norms and standards, which
will safeguard people participating in gambling and their
communities
against the adverse effect of gambling, applying generally throughout
the Republic with regard to casinos, racing,
gambling and wagering,
so that –
·
gambling activities are effectively regulated, licensed,
controlled and policed;
·
members of the public who participate in any licensed
gambling activity are protected;
·
society and the economy are protected against
over-stimulation of the latent demand for gambling; and
·
the licensing of gambling activities is transparent, fair
and equitable;
It is expedient
to establish certain national institutions, and to recognize the
establishment of provincial institutions, which
together will
determine and administer national gambling policy in a co-operative,
coherent and efficient manner.”
[47]
The
Preamble to the Provincial Act is in similar vein, but contains a
little more detail to tailor it to local needs:
“
WHEREAS
gambling and racing can contribute to the economy of the province of
Western Cape; and
WHEREAS the
growth and success of gambling and racing are dependent on public
confidence and trust that gambling and racing are
conducted honestly
and competitively and free from criminal or corruptive elements; and
WHEREAS it is
necessary to ensure the health, safety, general welfare and good
order of the inhabitants of the Province; and
WHEREAS it is
recognized that public confidence and trust and the health, safety,
general welfare and good order of the inhabitants
of the Province are
dependent upon the strict regulation of all persons, premises,
practices, associations and activities relating
to gambling and
racing; and
WHEREAS it is
recognized that opportunities for gambling and racing entail
particular risks and dangers to the inhabitants of the
Province,
which justify the imposition of appropriate restrictions, regulations
and controls; and
WHEREAS no
applicant for a licence or for an approval in respect of gambling or
racing has any right to a licence or approval”.
THE MAIN PLAYERS
[48]
Against
that detailed backdrop I turn to the application for a route
operator’s licence which was the focus of the review before the
Court
a quo.
Before doing so, I propose to give brief
details of the relevant principal players in the local gambling
industry.
[49]
We
are told in the papers that there are currently only two route
operators in the Western Cape – Thuo and Vukani Gaming Western
Cape (Pty) Ltd (“Vukani”). While the LPM Regs
permit a maximum of nine thousand machines in the Western Cape,
only
two thousand machines have been licensed and they have been evenly
split between Thuo and Vukani.
[50]
Of
Vukani’s related corporate entities we know nothing, but we
are told by the deponent to the founding affidavit, Ms. Lazelle
Parton, that she is the Group Corporate Affairs Manager of GPI
Management Services (Pty) Ltd (“GPIMS”) which is a wholly
owned subsidiary of the GPI Group, and which provides a variety of
support services to the subsidiaries in that group, including
Thuo.
Judging from certain of the annexures in the application, there is a
commonality of directors – e.g. Messrs Hassen
Adams and
Alexander Abercrombie sit on the boards of both GPI and Thuo.
[51]
One
of the entities with which Thuo does business is Gold Circle
(Pty) Ltd. Little detail is furnished about Gold Circle’s
ownership or directors, but in the answering affidavit deposed to by
the chairperson of the Board, Mr. Takalani Madima, we are
referred to
barely legible extracts from Gold Circle’s website.
Consideration of that website shows that Gold Circle
is a company
which operates in the horseracing and betting industries in
KwaZulu-Natal: nothing is said about the Western Cape.
From the
website it does not appear that there is any commonality of
directorships between Gold Circle GPI or Thuo.
[52]
However,
in para 50 of the answering affidavit (to which I shall
revert in more detail later), Madima alleges that Gold Circle holds
the
“
Totalisator Licence
” in the Western Cape and
KZN, and operates from 57 totalisator premises in the Province.
He also asserts that it owns
41% of the shareholding of Betting World
(Pty) Ltd, a large national bookmaker which evidently operates from
26 premises in the
Western Cape
[15]
.
In the circumstances the Board claims that Gold Circle, both on its
own and through its association with Betting World is
actively
involved in horseracing and sports, online and telephone betting in
the Western Cape.
[53]
There
seems to be little doubt that Gold Circle is involved in both
the traditional form of betting (where a bookmaker offers a punter
a
fixed set of odds on a specified result
[16]
)
as well as the tote
[17]
.
Gold Circle was not a party to these proceedings nor was it given any
notice of the litigation.
THUO’S ROUTE OPERATOR LICENCE
FOR 2010/11
[54]
The
papers show that Thuo was granted its first route operator’s
licence in about 2004, and that there was thereafter an annual
renewal which was effected. Prior to the issue of Thuo’s
first route operator’s licence the Board issued a document
styled “
Request for Proposal
” (“RFP”).
This was a detailed exposition of the relative statutory
requirements, as well as an intimation
to potential applicants of the
Board’s stance on certain issues of policy.
[55]
So,
for example, the Board told prospective licensees
that it did not intend licensing “
Independent Site
Operators
” (as referred to above) at that stage and it also
told applicants how it saw the functioning of LPM operations in the
Province.
“
Limited
Gambling Machine Operator
”
The concept of an
Operator originates from the view that it is generally more cost
effective for owners of premises on which a relatively
small number
of limited gambling machines is exposed for play, not to own those
machines, given the technical requirements, but
rather to enter into
an agreement with a licensed Operator, who owns and maintains such
gambling machines. The Premises Manager
shall be responsible
for the proper maintenance of the Premises to ensure neatness and
hygiene. The extent of the initial
investment in Premises by
Applicants by way of the replacement or upgrading of features or
infrastructure, such as painting or
the refurbishment of décor
shall be entirely at the discretion of Applicants but will be taken
into account in the evaluation
of the bids received. Ongoing
maintenance of this nature subsequent to initial licensing will be
the subject of a standard
agreement, in terms of which responsibility
for maintenance of the various areas of responsibility will be
appropriately apportioned
between the Operator on the one hand and
the Premises Manager on the other.
In addition, the
Operator shall be responsible for the maintenance of the limited
gambling machines located on the Premises, shall
give effect to the
collection of taxes and other monies, and shall pay the fees and
taxes due to the Board and the Province.”
[56]
In
regard to the number of LPM’s it was prepared to
license, the Board said that it envisaged one thousand LPM’s
for a
maximum of three operators:
“
If fewer
than three Applicants are found suitable for licensing, the Board
reserves the right to increase the number of machines
allocated per
Applicant proportionally, subject to national norms, or to
re-advertise and invite other Applications.”
[57]
The
Board spelled out fully in the RFP how it envisaged the
relationship between the holder of a route operator’s licence
and
a site operator’s licence:
“
Relationship
between the Operator and the Premises Manager”
In terms of
section 47(1) of the Law a Premises Licence is required for any
Premises in the Province in or on which limited gambling
machines are
placed by an Operator. Section 47(2) further stipulates that a
Premises Licence shall authorize, subject to
any conditions which the
Board may impose, the keeping and exposing for play in or on the
licensed Premises or such part of the
Premises as is specified in the
licence, of any limited gambling machines operated in terms of
section 46.
The holder of an
Operator Licence will enter into an agreement with the Premises
Manager in respect of the Premises in or on which
limited gambling
machine operations are envisaged to occur. The Board must be
informed of the nature of such agreements,
as it has a responsibility
to monitor agreements, to ensure that monopolistic practices do not
arise, and that such agreements
are fair both to the Operator and to
the Premises Manager. The Board must further establish that the
terms of such agreement
will not have a negative impact on the
immediate surroundings of the Premises. This aspect will be
further dealt with in
phase 2 of the Process. …
When issued, a
Premises Licence will attach to the Premises in respect of which it
has been granted and will not be transferrable.
The Premises
Licence shall make reference to the identity of the Operator
authorized to expose limited gambling machines for play
on such
Premises, and it shall be the responsibility of the Operator, which
shall be placed in physical possession of the Premises
Licence, to
ensure that such Premises Licence is prominently displayed on the
licensed Premises and that a certified copy of such
Premises Licence,
endorsed to such effect by the Chairperson and the Chief Executive
Officer of the Board, or their authorized
delegates, are retained and
readily accessible at the Operator’s offices.”
[58]
The
Board also stipulated a formula in the RFP for the distribution
of profits on the basis that 60% went to the route operator and
40%
to the “
Premises Manager
” (presumably intended to
be a synonym for a “
site operator
”). It
also warned that it would keep a close eye on monopolistic practices,
particularly in regard to a casino
operator acquiring a financial
interest in a route operator. It is clear from the RFP that the
Board wanted to clearly distinguish
the relationship between a route
operator and a site operator.
[18]
[59]
The
introduction of LPM’s in the Western Cape was to occur
incrementally. Firstly, the route operators were to be
identified and licensed. Then, suitable premises were to be
identified by the route operator and once the premises had been
vetted by the Board it would issue a “
Premises Licence
”
under sec 27(c) of the Provincial Act.
[19]
The route operator was to conclude a provisional agreement with the
holder of such “
Premises Licence
” which was to be
approved by the Board:
“
Successful
Applicants for Operator Licences shall enter into draft agreements
with the persons or entities exercising control over
the premises in
respect of which limited gambling machine premises licences are
envisaged to be applied for. Each such draft agreement
shall be
concluded for a minimum term of two years, contingent on compliance
by the parties with the Law, Regulations and Rules.
Any other
agreements entered into by Operators which purport to be
unconditional or do not contain the express terms stipulated
above
will not be acknowledged by the Board.
The Board may at
any time review an agreement approved by it. The indicated
period of two years will be to the benefit of
both parties as it will
give both the opportunity of consolidating their relationship.
It will furthermore provide the Board
with a reasonable period in
which to monitor the progress of such relationship and assess the
economic practices of the parties.”
[60]
The
RFP is undated but it clearly preceded the promulgation of the
National Act since it contains references to the 1996 Act and the
Provincial Act. Looking at the proposal or “
bid
document
” (as the parties termed it) submitted by Thuo, one
can see that the company eagerly awaited the introduction of LPM’s
in the Province:
“
In 2004,
the Western Cape will become the first major province to allow a
legal Limited Gambling Machine (“LGM”) business
to be
established. In taking this lead, the government has recognized
that well regulated limited pay-out gaming can be a
stimulant for
economic activity and empowerment, a provider of entertainment, and a
source of additional revenue for the benefit
of the whole community.”
[61]
What
the RFP and the bid document submitted in response thereto show
is that both parties understood the fundamentals of the LPM industry
in the Western Cape, but, realizing that it was still nascent,
accepted that adjustments and changes would be inevitable as the
industry found its feet.
[62]
On
2 June 2008 the Board issued a route operator licence to Thuo
(then trading as “
Grandslots
”) for the period 1
June 2008 – 31 May 2009. A month before the expiry of
that licence, the Board’s Mr.
C. September wrote to Thuo
informing it that the Board had reviewed the licence conditions of
all (in reality, both), route operators
and proposed imposing
additional conditions. It highlighted the intended changes to
Thuo’s licence conditions and invited
its comments a month
hence.
[63]
The
Board initially proposed changes to conditions 26 and 30 of the
licence conditions (I shall call this “
Version 1”
)
which were to read as follows:
“
26
No single
business entity or natural person shall own more than 5% of the two
thousand allocated limited pay-out machines (LPM’s)
approved by
the Board….
30
No Route
Operator, its Group/Parent Company, director or employee of a Route
Operator shall have a direct or indirect interest in
any of the
licensed sites.”
[64]
Thuo’s
Mr. Giovanni Rizzo (its General Manager and an Executive
Director) responded to the Board’s proposals on 29 May 2009.
He did so cautiously, pointing out that the Board had not furnished
reasons for the proposed changes (many of which were new) and
reserved Thuo’s rights to amplify its comments once the Board’s
reasons were known.
[65]
In
regard to proposed condition 26 Mr. Rizzo said the following:
“
The
proposed condition is a new one and should be deleted. It seeks
to impose an arbitrary limitation on site operators which
serves only
to stifle competition and commercial enterprise and ultimately BEE.
The Board already regulates the number of site
licences in the
various areas in the Province and places demographic quotas in
respect of site owners and the competition laws
regulate
anti-competitive practices. There is therefore no justification for
further imposing quotas on an industry that is already
significantly
regulated.”
And, in regard to proposed condition 30 he said this:
“
The
proposed condition is a new one and, in our view, is unacceptable and
should be deleted. It will only serve to inhibit
commercial
enterprise which is not the function of the Board or the purpose of
the Act.”
[66]
On
3 June 2009 the Board issued a new route operator licence to Thuo
to cover the period 1 June 2009 to 31 May 2010. It
attached to the licence its list of conditions in which conditions 26
and 30 were in the same form as Version 1.
[67]
On
15 September 2009 the Board sent Thuo a revised set of conditions
(I shall call this “
Version 2
”) in which the
disputed clauses remained the same. Version 2 did, however,
contain other changes to Version 1 which
are not material to this
case.
[68]
The
parties met the following day to discuss the proposed changes
generally, and following thereupon, Parton wrote to the Board
expressing Thuo’s objections to,
inter alia
, conditions
26 and 30 as follows:
“
Ad
condition 26
Once again, the
Act does not contain any provision to support the imposition of this
condition and it is submitted that the imposition
of the condition
would be beyond the powers of the Board and would be
ultra vires
the powers of the Board.”
Ad condition
30
The Act, the
Rules and the Regulations do not prohibit the conduct that the Board
would seek to prohibit by imposing this condition.
As such, it
is submitted that any attempted imposition of this condition by the
Board would be beyond the powers of the Board.”
[69]
It
seems as if the Board applied its mind (at least in part) to these
objections for, on 11 January 2010, it wrote to Thuo with further
proposed changes to the conditions, which I shall term “
Version
3
”. In this version, condition 30 had been
renumbered as “
13
” but its contents remained
unchanged. Condition 26 had been renumbered as “
11
”
and read as follows:
“
11
No single
business entity or natural person shall own sites which, in total,
operate more than 5% of the 2000 allocated limited
pay-out machines
(“LPM’s”) approved by the Board.”
[70]
On
26 January 2010 Thuo’s attorneys wrote to the Board dealing
with the proposed conditions
seriatim.
In respect of the
clauses under discussion the following was said in respect of Version
3:
“
Ad
condition 11
..We are not
aware of any provision in the Act that supports the imposition of
this condition and we submit that the imposition
of the condition
would be beyond the powers of the Board as the condition is neither
necessary nor expedient for the purposes of
the Act.”
Ad condition
13
..The Act, the
Rules and the Regulations do not prohibit the conduct that the Board
seeks to prohibit in imposing this condition.
As such, we
submit that any attempted imposition of this condition by the Board
would be beyond the powers of the Board.”
[71]
To
this the Board replied on 11 March 2010. It first roundly
commended itself for adopting what it called “
a more
inclusive and transparent process
” in relation to seeking
to reach agreement with Thuo on the licence conditions. It then
went on to say that, despite
various requests by Thuo to see the
conditions imposed on Vukani’s licence, it was not prepared to
disclose these, relying
on various confidentiality provisions.
[72]
The
Board then proceeded, for the first time in almost a year, to
share its thinking behind the proposed changes with Thuo.
September
offered the following explanations:
“
Condition
11
:
This condition
was enacted pursuant to sec 35 of the Western Cape Gambling and
Racing Act, 1996 and
sec 54
of the
National Gambling Act, 2004
.
With the roll-out of the limited pay-out machine industry, the Board
always insisted broad based ownership, to ensure that
as many
businesses (
sic
) benefit from this industry.
The restriction
of one single owner to have no more than one hundred LPM’s is
reasonable. In the RFP, it was stated
that the Board must
ensure the (
sic
) monopolistic practices do not arise and by
not restricting the site owners in terms of the number of LPM’s,
it could be
viewed as if the Board is in fact encouraging it.
We refer to the
aforegoing, without detracting from the fact that specific National
legislation, being the
Competition Act, also
applies to licence
holders….
“
Condition
13:
The intent with
(
sic
) introduction of the LPM industry, and the role of the
two Route Operators, as set out in the RFP, was that Route Operators
develop
small businesses which have existing primary businesses.
The Board intended for the site owners to operate independently of
the Route Operators (
sic
) was not considered during the
roll-out. The rules as well as the ICS are set out in such a
manner that it (
sic
) creates segregation of duties and
activities between the two.”
[73]
On
26 May 2010 the Board issued a new route operator licence for the
period 1 June 2010 to 31 May 2011 to Thuo. Attached to that
licence were the conditions as contained in Version 3.
SUBSEQUENT DEVELOPMENTS
[74]
Subsequent
thereto and in the period July to September 2010 there
were on-going discussions between the parties in the form of meetings
and
correspondence in which Thuo attempted to persuade the Board to
reconsider conditions 11 and 13. The latter dug in its heals
in
what ultimately became a sterile debate.
[75]
But
during the course of these discussions, the real motivation for
the Board’s position emerged. In September 2010 Mr.
Adrian Funkey, GPI’s Chief Executive Officer and a director of
Thuo, pointed out to the Board that with the imposition of
condition
11 Thuo’s site operator, Gold Circle, was automatically in
breach of the condition in that it owned 26 sites on
which about 130
of Thuo’s LPM’s were exposed for play.
[76]
In
reply, on 16 September 2010 the Board confirmed that it was aware
of the fact:
“
that Gold
Circle currently exceeds its LPM quota in terms of condition 11 of
the Route Operator Licence Conditions of Thuo Gaming
Western Cape
(Pty) Ltd, effective 1 June 2010…
Five per cent of
two thousand LPM’s equates to one hundred LPM’s.
Our records reflect that Gold Circle currently
operates one hundred
and thirty five LPM’s.
Please be
informed accordingly, that all Gold Circle applications approved by
the Board after 1 June 2010 will be placed in a “POOL”.
These licences will only be released upon closures (
sic
) of
existing Gold Circle sites.”
The Board went on to invite Thuo to make
written representations to its CEO “
regarding this control
imposed to ensure your compliance with aforementioned licence
condition.”
[77]
The
“
POOL
” arrangement was considered
problematic and so on 29 September 2010 Thuo wrote to the Board
seeking clarity on,
inter alia
, the following issues:
“
(1)
In the event that Thuo chooses not to license any more Gold Circle
sites, will the Board allow
the existing and operational
Gold Circle sites (29 sites/135 LPM’s)
to continue operating,
based on the fact that they were licensed prior to 1
June 2010
when condition 11 was
imposed?
1.1 If the assumption in point (1) above is
correct, will Thuo be allowed to re-allocate LPM’s between the
existing operational Gold Circle venues? i.e. reducing
the number of LPM’s at poor performing Gold Circle
sites and relocating them to
better performing Gold
Circle operational sites, whilst still maintaining one
hundred and thirty five LPM’s operational amongst the
twenty nine licensed sites.
1.2
For sites to be released from the “POOL”, would we
have to close
an existing Gold Circle venue to replace it with the
new one, or would we have to close several venues until
we are
within the limitations of condition
11 before the Board will release any sites from the
“POOL”?
[78]
To
this enquiry the Board responded as follows on 18 October 2010:
“
(1)
Yes, currently the 29 sites/135 machines can continue to
operate; however, the objective is to ensure that the LPM’s
allocated to Gold Circle
would eventually be no more than
one hundred LPM’s:
1.1
No, no allowances will be made for the re-allocation of machines.
Prior to the movement of LPM’s,
approval is
requested by the Route Operator and
granted by the Board. Once the LPM’s are removed,
then the total
number of LPM’s allocated to Gold Circle
has officially
been reduced. The Route Operator
would thus not be permitted to allocate any more
LPM’s to Gold Circle should such allocation result in
Gold Circle operating more than one hundred LPM’s.
1.2
In this regard the Board has
resolved that the machine count would have to dip below the one
hundred
machine/five per cent of two thousand machines mark before
any new sites can be released from the Pool.”
[79]
Thuo
was then given an opportunity to make submissions at the meeting
of the Board on 26 October 2010. But its pleas were in vain
and
on 10 November 2010 the Board informed Thuo in writing that its
request for the proposed deletion of license conditions 11
and 13 had
been denied. Thuo was informed by the Board of its right to
request reasons in accordance with the provisions
of the Promotion of
Administrative Justice Act, 3 of 2000 (“PAJA”).
[80]
Thuo
took up the offer to request and on 6 December 2010 the Board
offered the following formal reasons for its decision under the
relevant
provisions of PAJA:
·
The parties
in casu
already had a stake in various
gambling operations in the Province.
·
The two conditions (11 and 13) were included in the amended
licence conditions in order to guard against the formation of
monopolies
and/or oligopolies.
·
The primary aim of the LPM industry was never, expressly or
impliedly, intended to be that route operators should acquire LPM
sites,
as the RFP granted only two route operators licences with each
route operator already having 50% of the market.
·
Per the RFP, the LPM industry was “
rolled out
”
on the premise of developing small and medium businesses, for site
owners to provide a secondary form of entertainment on
the one hand
and route operators to invest by assisting those owners interested in
installing LPM’s on their sites.
It was thus never
intended for big/larger entities such as the route operators.
·
The concerns raised by Thuo regarding potential prejudice to
Gold Circle had already been addressed.
·
The Board further considered the requirement for route
operators to monitor compliance at LPM sites. This aspect could
potentially
be compromised in the event of a route operator also
owning sites.
·
The Board was obliged to consider relevant factors and
information inhibiting Thuo from achieving the threshold stipulated
in Condition
11 should it be approached by the licence holder in this
regard.
[81]
Against
that procedural background, then, the scene was set for the
review application before the Court
a quo
. It merits
mention that at no stage did Thuo allege any procedural irregularity
on the part of the Board. On the contrary,
I am impressed by
the way in which the Board conducted itself herein in its attempts to
ensure procedural fairness and, in particular,
application of the
audi alteram
principle.
[82]
In
his reasons furnished in February 2013 Van Staden AJ cautioned
himself against being unduly interventionist and showed due deference
to the decisions of the Board, particularly, having regard to the
fact that this was a matter involving a discretion in relation
to the
issuing of a licence.
[83]
I
shall deal more fully hereunder with certain of the points taken in
the papers before the Court
a quo
. Suffice it to
say at this stage that the papers followed, in the main, the
allegations set out above. On the
eve of the hearing before Van
Staden AJ the Board sought leave to file a late affidavit by its
erstwhile CEO, Mr. Maroba Matsapola.
The affidavit was allowed
in without reply thereto from Thuo.
[84]
The
purpose of the late affidavit was effectively to remove the
embarrassment occasioned to the Board by the argument put up by Thuo
in its heads of argument filed with the Court
a quo
.
While we did not have insight into those heads it appears as if the
complete illogicality of Condition 11 in its final form
had
ultimately dawned upon the Board. Accordingly, the Board
decided to revise Condition 11 completely (what I shall term
“
Version
4
”) as appears from the following extract from Matsapola’s
affidavit:
“
3. I confirm that the intention of
the respondent, with the imposition of Condition 11, was
to prohibit a single entity or natural person from operating more
than 5% of the total of 2000 limited pay-out machines (“LPM’s”),
available for allocation. The intention was not to restrict the
rights of owners of the properties on which LPM’s are found.
4. However, in order to avoid any
uncertainty, I will recommend to the Board that Condition 11 be
immediately amended to read as follows:
‘
A
licence holder shall not expose for play limited pay-
out machines (LPM’s) at any site if the effect thereof
would be that the operator of such site, whether an artificial or
natural person, is permitted to operate more than 5% of
the
2000 allocated LPM’s.”
[85]
Matsapola
went on to say that he was confident that the Board would
adopt the recommended amendment to Condition 11 and went on to
explain
why the amendment was being brought so late:
“
8. The reason why the
condition has not been amended earlier, and the reason why the
respondent
seeks to have this affidavit introduced at this late
stage, is because the applicant has properly raised its
interpretation of
Condition 11 for the first time when its heads of
argument were filed. If that interpretation had been raised
during the
consultation process regarding Condition 11, it would have
been amended before it was adopted.”
[86]
I
should point out that the illogicality in the earlier versions of
Condition 11 is obvious on a plain reading thereof. The
objection to the condition was in relation to the ownership of sites
by the site operator in circumstances where ownership
per se
was irrelevant to the operation of such a site.
[87]
In
any event, the matter proceeded before the Court
a quo
with
Condition 11 as per Version 4 and Condition 13 as it had been
throughout in Versions 1, 2 and 3.
MOOTNESS
[88]
Before
this Court counsel were asked whether the issue between the
parties was not moot given that the relief originally sought in the
notice of motion related to a licence which had expired on 31 May
2011, or at latest 31 May 2012. Counsel assured the Court that
Conditions 11 and 13 were standard form conditions which the Board
intended applying henceforth in respect of all route operator
licences and
Mr. Jamie SC
produced the conditions attached to
the latest such licence which confirmed this.
Mr.
Rosenberg SC
supported that the view of the Appellant that
the matter was not moot and informed the Court that the parties both
wished
a final pronouncement on the point to avoid further litigation
going forward.
[89]
The
parties were
ad idem
that the proper way to approach the
matter then was for the Court to exercise its powers under sec
8(1)(d) of PAJA and to issue
a declaratory order. To this end
Mr. Rosenberg SC
prepared a draft order, the substance whereof
met with the approval of
Mr. Jamie SC
.
[90]
In
the result, Thuo asked this Court to grant the following relief in
the event that the appeal was successful:
”
a A declaratory
order is issued to the effect that the Respondent’s imposition,
in the Applicant’s route operator license from time to time,
of:
(i) The condition
reading: “A licence holder shall not expose
for play limited pay-out machines (LPM’s) at any site if the
effect thereof would be that the operator of such site, whether
an
artificial or natural person, is permitted to operate more than 5% of
the 2000 allocated LMP’s”; and
(ii) The condition reading:
“No Route Operator, its Group/Parent Company, director or
employee of a Route Operator shall have a direct or indirect interest
in any of the licensed sites.”
is unlawful and of no force and effect.”
THE ARGUMENTS ON APPEAL
[91]
Against
the background of the amended relief sought,
Mr. Rosenberg
SC
focussed the argument for Thuo fairly sharply. In the
first instance, he contended that the imposition of Conditions 11 and
13, as standard-form conditions henceforth, was impermissible in that
it unnecessarily trammelled the discretion of the decision-maker
in
the evaluation of licence applications. It was argued
that the proper place for the imposition or enforcement of
the
Board’s policy considerations was through the promulgation of
regulations. The failure to properly accommodate
the Board’s
policy considerations and designs had the effect that the conditions
in question did not pass the rationality
test on review
[20]
.
[92]
In
addition to that line of argument,
Mr. Rosenberg SC
attacked the imposition of a limitation of 5% of the allocated LPM’s
in Condition 11 (Version 4) as lacking rationality.
He
complained that the Board had provided no basis whatsoever for its
choice of the level of percentage: why was it not 1%, or
10%, or even
25%?
[93]
Mr. Jamie SC’s
riposte was to the following effect.
Firstly, he said, there was nothing untoward in the way the Board had
gone about attaching
Conditions 11 and 13. He maintained that
the conditions followed the Board’s statutory obligations under
both the National
and Provincial Acts to curb monopolistic practices,
to promote Black economic advancement in the industry and to promote
smaller
businesses (so-called SMME’s – “
small,
micro and medium enterprises
”). In addition, he
reminded the Court of the fact that it was not entitled to
second-guess policy choices made by the
Board and that a measure of
judicial deference was called for
[21]
.
[94]
The
thrust of
Mr. Rosenberg SC’s
argument centered on
the following passage from the judgment of Nugent JA in
Kemp N.O.
v Van Wyk
[22]
:
“
[1] A public official who is
vested with a discretion must exercise it with an open mind but not
necessarily
a mind that is untrammelled by existing principles or
policy. In some cases, the enabling statute may require that to
be
done, either expressly or by implication from the nature of the
particular discretion, but, generally, there can be no objection
to
an official exercising a discretion in accordance with an existing
policy if he or she is independently satisfied that the policy
is
appropriate to the circumstances of the particular case. What
is required is only that he or she does not elevate principles
or
policies into rules that are considered to be binding with the result
that no discretion is exercised at all. Those principles
emerge
from the decision of this Court in
Britten and Others v
Pope
1916 AD 150
and remain applicable today.”
THE CASE PUT UP BY THE BOARD
[95]
When
Thuo formally asked the Board in November 2010 for its reasons
under PAJA for imposing Conditions 11 and 13 the explanation was
the
following. Firstly, it claimed that it was empowered under secs
12(4) of the Provincial and 48(5) of the National Acts
to impose
conditions at its discretion, a discretion which it claimed was a
wide one. It went on to explain its reasoning
as follows:
“ ●
The 2 conditions (11
and 13) were included in the amended licence conditions in
order to guard against the formation of
monopolies and/or oligopolies.
·
The primary aim of the LPM industry was never, expressly or
impliedly, intended to be that Route Operators should acquire LPM
sites,
as the RFP granted only two Route Operators licences with each
Route Operator already having 50% of the market.
·
Per the RFP, the LPM industry was rolled out on the premise
of developing small and medium businesses, for site owners to provide
a secondary form of entertainment on the one hand and Route Operators
to invest by assisting those owners interested in installing
LPM’s
on their sites. It was thus never intended for big/larger
entities such as the Route Operators.
·
The concerns raised by Thuo regarding potential prejudice
to Gold Circle had already been addressed.
·
The Board further considered the requirement for Route
Operators to monitor compliance at LPM sites. This aspect could
potentially
be compromised in the event of a Route Operator also
owning sites…”
[96]
The
position may be illustrated with reference to an example
put up by
Mr. Jamie SC
in argument. A popular hamburger
restaurant in Sea Point (for the sake of convenience I shall call it
“
Paul’s”)
has as its primary business the
selling of fast-food. Located in its large reception area is a
collection of slot machines
owned by Thuo for use by patrons who want
an additional thrill to the consumption of one of the hamburgers for
which “
Paul’s
” has become famous. Thuo
supplies the machines to “
Paul’s
” and
attends to the maintenance thereof as well as the collection of
revenue. For those purposes “
Paul’s”
is a site operator and Thuo is a route operator. In terms of
their site management agreement, Thuo takes 60% of the profit
on the
machines and “
Paul’s”
40%”.
However, “
Paul’s
” is not the owner of the
restaurant premises – These are rented from “
Mutual
Co
” through “
ZX Properties Services
.”
[97]
In
terms of Condition 13 (as formulated in all Versions) Thuo may
have no interest in “
Paul’s
”, “
Mutual
”
or “
ZX
”. And, since “
Mutual
”
is a company listed on the Johannesburg Stock Exchange, Thuo may not
hold shares in that company either, whether directly
or through its
property portfolio on the Johannesburg Stock Exchange. These
limitations apply not only to Thuo, but also
to,
inter alia
,
Adams, Abercrombie and Pattton in their personal capacities.
[98]
In
terms of Condition 11, as originally drafted, “
Paul’s
”
may not own its premises if the total number of LPM’s it
operates, exceeds one hundred. And, if “
Paul’s
”
opens branches in table View, Mitchell’s Plain and Gugulethu,
the total number of LPM's at the four premises may not
exceed one
hundred. The restrictions imposed in terms of this condition
apply to both natural persons and corporate entities.
[99]
Thuo’s
complaint in the founding affidavit in relation to
Condition 11 is that:
(1) “
It abitrarily limits the scope
of the business that…[Thuo]…is able to conduct through
its key accounts such as Gold
Circle”;
(2) The effect thereof is “
to force
site operators such as Gold Circle to downscale the size of their
operations to the arbitrary extent imposed by the Board
in Licence
Condition 11 even if the operator in question does not control a
dominant share of the LPM market and is not in contravention
of the
competition laws”;
(3) The number of sites available for
licensing and LPM operation are limited and so the enforcement of
Condition 11 “
may well mean that both …[Thuo].. and
Vukani may not be able to expose all of the 1000 LPM’s
allocated to each of them
for play”;
(4) In any event the Board has control over
the site licence application process and has thereby exercised
control over any unnecessary proliferation of LPM’s;
(5) In reality the Board seeks to use
Condition 11 to limit the number of sites at which Thuo may place
machines and, in particular, the Board intends to restrict the number
of LPM sites operated by Gold Circle.
[100]
In regard to Condition
13, Thuo complains that it seeks to limit “
the
freedom of enterprise”
[23]
of Thuo, its shareholders, directors and employees who have black
economic empowerment entities through which they wish to grow
their
personal wealth.
[101]
In the answering affidavit
Madima, in dealing with Condition 11, says
that when the Board first called for applications for route operator
licences the intention
was “
to create opportunities for the
direct involvement of small and medium sized enterprises and to
provide impetus for individual entrepreneurs.
In order to
achieve this objective, the number of licences held by a single
operator must be limited
.”
[102]
In regard to Condition
13, Madima says again that the LPM industry
was started with a view to developing small and medium businesses and
that it was not
intended that larger entities such as route operators
should be able to acquire site licences. The route operators
were required
to fulfill a developmental role for example, by
investing in LPM’s and helping site operators apply for
licences. In
such circumstances, says Madima, route operators
will become conflicted and will not be able to serve their primary
functions in
an unbiased manner.
[103]
From the aforegoing
it can be seen that the imposition of the
conditions in question is steeped in issues of policy and they are
routinely imposed
by the Board with the express intention of giving
effect to those policy considerations. I have no quibble
with the
Board seeking to advance policy considerations spelled out
in both the National and Provincial Acts. Indeed that is
exactly
what it should strive to achieve. But when it does so
by way of licensing conditions it must ensure that it does so fairly
and rationally. Fairness requires it to ensure that all
applicants for licensing are made aware of the intention to impose
conditions of that type. It is axiomatic that to do so enables
an applicant to know what limitations may be imposed on the
proposed
authority to operate LPM’s, for it to prepare its application
in the light thereof, and, importantly, for it to
decide not to
submit an application in the event that the proposed conditions are
not to its liking, are considered unduly onerous,
or will be
detrimental to its business enterprise
[24]
.
[104]
I have set out above
in some detail the relevant information conveyed
to Thuo by the Board in the RFP. The limitations imposed
through Conditions
11 and 13 do not appear therefrom and so no
reasonable LPM operator would have been alerted thereto
[25]
.
And, that is precisely what Thuo complains of in the replying
affidavit.
[105]
As Nugent JA observed
in
Kemp N.O
.,
supra
, the
decision-maker exercising a discretion in relation to the grant of a
licence must do so without the process being restricted
by
considerations of policy. Otherwise the discretion is not
properly exercised.
[106]
I agree with
Mr. Rosenberg SC
that the only way to ensure the
proper implementation of policy guidelines or decisions in matters
such as this is to incorporate
them in regulations. Such a
regulatory process will ordinarily include advertising for public
comment, a public airing of
views and ultimately the publication of
the regulations in a public document. These may be harsh and
they may make inroads
into a party’s right, for example, under
sec 22 of the Constitution. But, at the end of the day, they
provide clearly
delineated perameters against which all applications
for the type of licence in question can be evaluated. That
really is
the essence of a transparent process in the field of
administrative law in a constitutional democracy.
THE LATE AMENDMENT TO CONDITION 11
[107]
The late amendment
to Condition 11 on the eve of the hearing before
Van Staden AJ highlights the manifest confusion and hence
irrationality which
had plagued the first three versions thereof.
Whereas the earlier versions focussed on ownership of the LPM’s
themselves
which were to be operated, Version 4 dealt with the
ownership of the site at which the LPM’s were to be operated.
The
change in focus is material and tends to show just how the
earlier Versions were lacking in rationality. Certainly, Thuo
was entitled to challenge the absence of rationality in the manner in
which it did.
[108]
But to my mind, even
when the changes were made to Condition 11 by
the introduction of Version 4, the fundamental problem persisted:
both Conditions
11 and 13 were not rationally connected to any
empowering provisions under either the National Act, the Provincial
Act, or any
of the relevant regulations. There is nothing in
either statute which empowers or obliges the Board to fix the
impugned conditions.
The closest one finds is sec 26(2)(d)(iii)
of the National Act which obliges the Minister to regulate by
subordinate legislation
the maximum number of LPM’s that may be
placed at any one site.
Non constat
that the Board is
empowered to incorporate such a limit as a condition of issue of the
licence in question.
[109]
As far as Condition
13 is concerned, it seeks to impose limits on
ownership of the site at which machines are to be placed, in
contradistinction with
the restriction of ownership of LMP’s by
the route operator. Once again, this condition lacks
rationality, firstly,
because there is nothing in either the National
or Provincial Acts which empowers the Board to place this sort of
restriction on
an entity such as Thuo. Further, it seems to me
to be an unwarranted restriction on Thuo’s right to trade
freely.
[110]
There can be little
doubt that having regard to the historical
background to the development of the gambling industry sketched
above, and in particular
in the Bantustan era, the authorities would
want to ensure that the LPM industry was not concentrated in the
hands of a few influential
players, but that there should be access
thereto across the broader spectrum of commercial activities, both
large and small.
To that end a fair spread of LPM’s at a
variety of sites across the Province would no doubt be desirable.
[111]
At the same time, the
gambling authorities would want to be assured
that the potential of poor people wanting to get rich quickly is
balanced against
responsible use of LPM’s in circumstances
where disposable income might be limited. For that reason, the
careful and
prudent placement of LPM’s at the correct
localities is critical.
[112]
But these over-arching
objectives are not achieved by limiting the
extent of a party’s interest in the premises at which an LPM is
located.
Those objectives are only attainable once a proper
consideration and assessment of all relevant circumstances has taken
place.
That exercise is the responsibility of the relevant
Minister, who would be the appropriate functionary to legislate
accordingly
through the promulgation of regulations. Once
again, it is not the function of the Board to fix a policy.
[113]
But somewhat paradoxically
the Board does not seek to rely on
socio-economic factors to justify its conditions. Rather, it
expresses concern about conflicts
of interest that might arise
between the defined role of route and site operators. In doing
so it misses the point, since
it effectively precludes a party like
Thuo from playing any part whatsoever in the growth of site operators
and, most importantly,
operates harshly against persons in the
position of directors or employees of companies which own LPM’s
from having any interest
in an entity owning the site rather than
operating from such site.
[114]
The absence of any
material in the Rule 53 record which demonstrates
what the possible basis for such a condition would be only serves to
confirm
the view that the condition is irrational.
CONCLUSION
[115]
I am accordingly of
the view that the Court
a quo
erred in
refusing to review the imposition of Conditions 11 and 13 in the
licences of the Applicant. It is common cause that
in the event
of the appeal being upheld the
declarator
referred to earlier,
should be issued.
[116]
In the circumstances
I would make the following order:
1. The appeal is
upheld and the order of the Court
a quo
is replaced
with the following order:
(a) A declaratory order is issued
to the effect that the Respondent’s imposition, in
the
Applicant’s route operator license from time to time, of:
(i) The condition reading:
“
A license holder shall not expose for play limited pay- out
machines (LPM’s) at any site if the effect thereof
would be that the operator of such site, whether an artificial or
natural person, is permitted to operate more
than
5% of the 2000 allocated LPM’s”;
and
(ii) The condition reading:
“
No Route Operator, its Group/Parent Company,
Director or Employee of
a Route Operator shall have
a direct or indirect interest in any of the licensed sites”
is
unlawful and of no force and effect.
(b) The Respondent shall be
liable for the costs of the application, including the costs of
two
counsel.
2. The
Respondent is ordered to pay the costs of the appeal, including
the
costs of two counsel.
GAMBLE, J
I agree: It is so ordered
ALLIE, J
I agree.
DOLAMO, J
[1]
Natal Joint Municipal Pension Fund v Endumeni
Municipality
2012 (4) SA 593
(SCA) at
603F-604A
[2]
Wikipaedia Online Encyclopaedia
s.v
“Gambling”.
[3]
Gibson v Van der Walt
1952
(1) SA 262
(A)
Turpitudo
is defined in Cassell’s New Latin Dictionary as “
moral
baseness
”.
[4]
Law of South Africa (2
nd
Ed) Vol 10 Part 2 p164
et seq.
[5]
Wikipaedia, Online Encyclopaedia
describes the activity as
follows: “
FAFI
or
FA-FI
(pronounced
FAH-FEE
),
also known as mo-china, is a form of betting played mainly by black
South African women, particularly those living in South
African
townships, and is believed to have originated with South Africa’s
Chinese community. This game can also be
linked to the Italian
lottery which is also called the numbers racket.
[6]
Informal enquiry has it that this game was
commonly referred to as “FINDA-FINDA”.
[7]
http://static.espncricinfo.com/db/NATIONAL/RSA/K
ING_COM/KING_COMMISSION_GIBBS-TRANS_O8JUN2000.HTML
[8]
A History of Inequality in South Africa 1652-2002 Part 3: Chapter 9
The Systemic Period of the Political Hegemony of the Afrikaner
Establishment (1948-1994)
[9]
An acronym for Transkei, Bophuthatswana, Venda
and Ciskei
[10]
Gambling Laws of South Africa
,
Vol 1, General Introduction pvii
[11]
Op.cit
[12]
Highstead Entertainment (Pty) Ltd t/a “
The
Club
” v Minister of Law
and Order and Others
1994 (1) SA 387
(C) at 390G
[13]
Brand
, Loc.cit
[14]
Sec 104 (1)(b)(i) read with Schedule 4 Part A
[15]
In sec 1 of the National Act a “
bookmaker”
is
defined as “
a person who directly or indirectly lays
fixed-odds bets or open bets with members of the public or other
bookmakers, or takes
such bets with other bookmakers”.
The definition of a “
totalisator
bet”
is to be found in sec 4(2) of the National Act.
“
4(2) A person places or
accepts a totalisator bet when that person stakes money or anything
of value on the outcome of an
event or combination of events by means of –
(a) a system in which
the total amount staked, after deductions provided for by law
or by agreement, is divided among the persons who make winning bets
in
proportion to the amount staked
by each of them in respect of a winning bet or
(b) a scheme, form or
system of betting, whether mechanically operated or not, that
is operated on similar principles.”
[16]
Say, a two-one chance of horse A winning the
Metropolitan Handicap at Kenilworth on date Z.
[17]
The colloquial abbreviation for the totalisator in which all bets
are pooled and the proceeds divided up in accordance with the
proportion of stake v success.
[18]
In argument
Mr.
Rosenberg SC
used the phrase “
put
up a firewall
” to illustrate the
importance of the distinction.
[19]
With the promulgation of the National Act in 2004
the term changed from “
premises
licence
” to “
site
operator’s licence
”.
[20]
Counsel relied on the following cases in support
of this argument:
Trinity
Broadcasting (Ciskei) v Independent Communications Authority of
South Africa
2004 (3) SA 346
(SCA) at
354 para 20;
Head, Western Cape
Education Department and Others v Governing Body, Point High School
and Others
2008 (3) SA 18
(SCA) at 29
para 16
[21]
B
ato Star Fishing (Pty) Ltd v Minister
of Environmental Affairs and Others
[2004] ZACC 15
;
2004
(4) SA 490
(CC) at 513-5
[22]
2005 (6) SA 519
(SCA) at 522 para 1
[23]
There is no direct reference to sec 22 of the
Constitution in the founding affidavit, and the import of the phrase
is therefore
not clear.
[24]
Tseleng v Chairman, Unemployment Insurance
Board and Another
1995 (3) SA 162
(T)
at 177-8
[25]
Minister of Environmental Affairs and Tourism
and Another v Scenematic Fourteen (Pty) Ltd
[2005] ZASCA 11
;
2005
(6) SA 182
(SCA) at 198 para 18.