Meridian Operations Company NPC and Others v MEC for Limpopo Department of Education and Another (4582/2016) [2017] ZALMPPHC 39 (27 November 2017)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(LIMPOPO DIVISION, POLOKWANE)

CASE NO: 4582/2016

Reportable

Of interest to other judges

Revised.

27/11/2017

In the matter between:

MERIDIAN OPERATIONS COMPANY NPC FIRST APPLICANT

MERIDIAN COLLEGE POLOKWANE SECOND APPLICANT

NORTHERN ACADEMY PRIMARY SCHOOL THIRD APPLICANT

NORTHERN ACADEMY SECONDARY SCHOOL FOURTH APPLICANT

and

THE MEC FOR LIMPOPO DEPARTMENT FIRST RESPONDENT

OF EDUCATION

THE HEAD OF THE LIMPOPO DEPARTMENT SECOND RESPONDENT

JUDGMENT

MAKGOBA JP

[1] This is a review application in terms of the provisions of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”).

The application concerns two reliefs sought by the Applicants.

[2] First, the review and setting aside of the decision that was taken by the First Respondent on or about 6 April 2016 to dismiss the appeal that had been made to him by the Second, Third and Fourth Applicants in terms of section 48(5) of the South African Schools Act 84 of 1996 and the substitution thereof with a decision that the appeal is upheld.

[3] Second, and consequent upon a demand for payment being made by the Limpopo Department of Education, the issue of a declaratory order that the second, third and fourth Applicants are not liable to repay the subsidies that were paid to them by the Limpopo Department of Education in terms of section 48 of the South African Schools Act 84 of 1996 in respect of the period 15 July 2013 to 14 February 2014 in the amounts of R 543 028.74, R 973 440.00 and R 1 311 840.00 respectively.

[4] The First Applicant, Meridian Operations Company NPC, is a non-profit company incorporated in terms of the Companies Act 71 of 2008 (“the Companies Act”). The First Applicant is also a non-profit organization duly registered with the Department of Social Development in terms of the Non-Profit Organisations Act 71 of 1997 (“the NPO Act”) with registration number 116-433NPO. The First Applicant owns the Second, Third and Fourth Applicants, the three being independent schools duly registered as such with the Second Respondent in terms of section 46 of the South African Schools Act 84 of 1996 (“the Schools Act”).

[5] The Second, Third and Fourth Applicants were recipients of subsidies from the Limpopo Department of Education (“the Department”)

in terms of section 48 of the Schools Act including the period 15 July 2013 to 14 February 2014. The three Applicants were the

Appellants in an appeal that was made to the First Respondent in terms of section 48(5) of the Schools Act. Their unsuccessful appeal is the subject matter of the present review application.

[6] According to the Norms and Standards for School Funding published in GN 869 of 31 August 2006 (“the Norms and Standards”) the conditions for eligibility for an independent school to be considered for subsidy are that the independent school concerned

(a) is registered by the Provincial Education Department (PED);

(b) has made an application to the PED in the prescribed manner;

(c) has been operational for one full school year;

(d) is a registered non-profit organisation in terms of the Non-Profit Organisations Act 71 of 1997;

(e) is managed successfully according to a management checklist determined by the PED;

(f) agrees to unannounced inspection visits by officials of the PED or person duly authorised by the PED and

(g) has not been established in direct competition with a nearby uncrowded public school of equivalent quality.

Factual Matrix

[7] The only condition that is presently of moment in the present review application is condition (d), which concerns the NPO Act.

[8] On 22 November 2012 the First Applicant (Meridian Operations Company NPC) purchased the school business comprising of the Third and Fourth Applicants as going concern. A company known as Capmac (then known as Business Venture Investments NO 1606 (Pty) Ltd) purchased the immovable properties together with the buildings thereon at which the schools were operated. A company called Curro Holdings Ltd (“Curro”) held 65% of the shares of Capmac. The remaining 35% of the shares in Capmac was held by the Schools and Education Investment Impact Fund (“SEIIF”) and Old Mutual Life Assurance Company South Africa (“OMLASCA”).

[9] A management agreement was concluded between the First Applicant, Capmac, SEIIF and Curro. This agreement provided inter alia that the schools owned by the First Applicant would provide tuition to learners at the schools in question and accommodation to learners at Capmac boarding houses. Capmac would, with the consent of the schools, appoint Curro in terms of Management Agreement to manage the schools businesses and affairs. In terms of the said agreement Curro, SEIIF and OMLACSA had become the sole shareholders of Capmac.

[10] A facilities Provision Agreement was concluded between Capmac and the First Applicant. This agreement regulated the allocation of school fees paid by parents of learners who attended the schools in question.

It is mentioned that the funding of the schools consists of the school fees paid by learners and the subsidy which should be received from the Department. The agreement provided that school fees income was split so that 40% of the fees were apportioned to Capmac in respect of the provision of its services and the making available of movable and immovable assets in order to conduct the schooling activities, and 60% of the fees were apportioned to the school. The income received by the school was utilized for payment of the teachers’ remuneration, operational expenses and to pay management fees to Curro. It is mentioned that 80% of the total management fees charged by Curro are paid by Capmac and the balance of 20% by the schools in question.

[11] Accordingly, by way of the aforesaid agreements, the First Applicant became the owner of the schools business comprising of the Second, Third and Fourth Applicants and Capmac became the owner of the immovable properties together with the buildings thereon at which the schools are operated. The aforesaid agreements make it apparent that Curro’s relation to the school business comprising of the Second, Third and Fourth Applicants is limited to the provision of management services to the schools in question, for which it is paid a management fee by the First Applicant, and that Curro does not own the schools in question.

[12] On 7 June 2013 and after the First Applicant purchased the Second, Third and Fourth Applicants, Curro informed the Department in writing that Curro had purchased same. The Applicants contend that such information communicated to the Department was incorrect and that the error occurred because the author of the aforesaid letter did not properly understand the correct relationship between Curro, Capmac and the First Applicant, as well as the other three Applicants.

[13] On 15 April 2014 the Department sent a copy of an internal memorandum to the Applicants recording that the schools in question had been bought by Curro in 2012; that Curro was a profit making organisation which was listed on the Johannesburg Stock Exchange (“JSE”) and that a query was raised regarding the payment of subsidies in terms of section 48 of the Schools Act to unqualified schools. The memorandum recommended that the payment of the subsidies be placed on hold.

[14] The aforesaid memorandum was followed by a letter dated 17 April 2014 from the Department. In this letter the Department recorded that the schools in question had been purchased by Curro; that Curro was listed on the JSE “as an education company” and that the schools in question did not qualify for subsidies in terms of section 48 of the Schools Act and / or section 176 of the Norms and Standards for subsidies in respect of the years 2013 and 2014. The Department accordingly demanded repayment of the subsidies that were paid to the Second, Third and Fourth Applicants during 2013 and 2014 in the amounts of R 543 028.74, R 973 440.00 and R 1 311 840.00 respectively.

[15] In subsequent correspondence to the Department Curro made an attempt to correct the said error and informed the Department that the First Applicant had in fact purchased the schools in question. Representatives of Curro also met with representatives of the Department on 30 July 2014 and 9 October 2014 in an effort to explain the true facts to the Department. Notwithstanding the efforts by Curro the Applicants received a letter from the Department dated 11 May 2015 conveying to the Applicants that consequent upon finding that the schools in question did not qualify for subsidies, the subsidies were terminated.

[16] The Applicants were dissatisfied with the finding that the schools in question did not qualify for subsidies and the termination of the subsidies, and on 8 June 2015 the Second, Third and Fourth Applicants lodged an appeal with the First Respondent in terms of section 48 (5) of the Schools Act.

[17] On or about 6 April 2016 the Applicants’ attorneys received a letter from the First Respondent advising that the Second, Third and Fourth Respondents’ appeal had been dismissed. The First Respondent gave the following reasons for the dismissal of the appeal:

“3. The reason for the dismissal of the appeal is that Curro Holdings, a company listed on the JSE owns Meridian College Polokwane, Northern Academy Primary and Northern Academy Secondary Schools.

4. The three (3) schools mentioned herein were bought by Meridian Company and Curro Holdings is the holding company of the Meridian

Company, Curro Holdings is listed on the JSE, therefore it does not qualify for government subsidy”

[18] The effect of the dismissal of the appeal by the First Respondent was that the Second, Third and Fourth Applicants would no longer receive subsidies from the Department in terms of section 48 of the Schools Act.

In this review application the Applicants seek an order that the impugned decision be reviewed and set aside, and be substituted with a decision that the appeal be upheld.

Grounds of Review

[19] The grounds of review upon which the Applicants rely regarding the impugned decision are one, more or all of the following:

19.1. The impugned decision was taken upon one, more or all of the following errors of fact, alternatively, errors of mixed fact and law, namely

19.1.1. That the Second Respondent has determined that the Applicants, or any one of them, are not registered non-profit organisations in terms of the NPO Act, and withdrew subsidies to them on the strength of that finding;

19.1.2. That Curro owns the Second, Third and Fourth Applicants and

19.1.3. That Curro is the holding company of the First Applicant.

19.2. That the decision was materially influenced by these errors as per section 6(2)(d) of PAJA.

Points in limine

[20] The Respondents raised the following points in limine and argued that the review application should be dismissed on these grounds alone:

20.1. That the founding affidavit as well as its confirmatory affidavit are are irregular in that they have not been properly sworn to and attested as required in terms of the Regulations promulgated in terms of the Justice of the Peace and Commissioners of Oaths Act 16 of 1963.

20.2. That the Second, Third and Fourth Applicants did not have locus standi to lodge an appeal in terms of section 48(5) of the Schools Act; that the First Applicant should have lodged the appeal and therefore the appeal did not comply with section 48(5) of the Schools Act and was defective.

[21] For the sake of convenience I shall deal with and decide on the points in lime towards the end of my judgment in this matter.

Legal Framework

[22] The First Applicant is a non-profit company duly incorporated in terms of the Companies Act 71 of 2008. Over and above that the First Applicant is a non-profit organisation duly registered in terms of section 13 of the Non-Profit Organisations Act 71 of 1997.

[23] The provisions concerning non-profit companies are set out in Schedule 1 of the Companies Act which provides the following:

1. Objects and policies –

“(1) The Memorandum of Incorporation of a non-profit company must -

(a) Set out at least one object of the company, and each such object must be either -

(i) a public benefit object, or

(ii) an object relating to one or more cultural or social activities, or communal or group interests;

(2) A non-profit company –

(a) must apply all of its assets and income, however derived, to advance its stated objects, as set out in its Memorandum of Incorporation and

(b) Subject to paragraph (a) may –

(i) acquire and hold securities issued by a profit company; or

(ii) directly or indirectly, alone or with any other person, carry any business, trade or undertaking consistent with or ancillary to its stated objects.

(3) A non-profit company must not, directly or indirectly, pay any portion of its income or transfer any of its assets, regardless of how the income or asset was derived, to any person who is or was an incorporator of the company, or who is a member or director, or person appointing a director of the company, except –

(a) as reasonable

(i) remuneration of goods delivered or services rendered to or at the direction of, the company; or

(ii) payment of, or reimbursement for, expenses incurred to advance a stated object of the company.

(b) as a payment of an amount due and payable by the company in terms of a bona fide agreement between the company and that person or another;

(c) as payment in respect of any rights of that person, to the extent that such rights are administered by the company in order to advance a stated object of the company; or

(d) in respect of any legal obligation binding the company.

[24] 2. Fundamental transactions -

“(1) A non-profit company may not –

(a) amalgamate or merge with, or convert to, a profit company; or

(b) dispose of any part of its assets, undertaking or business to a profit company, other than for fair value, except to the extent that such a disposition of an asset occurs in the ordinary course of the activities of the non-profit company.

[25] A non-profit company is not required to have members but if its Memorandum of Incorporation provides for the company to have members, the company may allow for membership to be held by juristic persons, including profit companies. In casu it is common cause that the First Applicant is a subsidiary of Curro in terms of section 3(1)(a)(ii) of the Companies Act.

[40] I come to the conclusion that the impugned decision, insofar as it constitutes an administrative action in terms of PAJA, falls to be reviewed and set aside. Insofar as the impugned decision did not constitute administrative action in terms of PAJA, it did constitute an exercise of public power by the First Respondent and it is thus subject to review on the basis of the principle of legality.

Relief sought consequent upon the Review

[41] Consequent upon the review of the impugned decision, same falls to be set aside in terms of section 8(1)(c) of PAJA.

The section provides that

“8(1) The Court or tribunal, in proceedings for judicial review in terms of section 6(1), may grant any order that is just and equitable,

including orders –

(a) …………………

(b) …………………

(c) Setting aside the administrative action and –

(i) remitting the matter for reconsideration by the administrator, with or without directions; or

(ii) in exceptional cases -

(aa) substituting or varying the administrative action or correcting a defect resulting from the administrative action…”

[42] In casu the Applicants pray for an order in terms of section 8(1)(c)(ii)(aa) of PAJA, that is substitution or variation of the administrative action. The Applicants acknowledge that the power of a Court provided in section 8(1)(c)(ii)(aa) is extraordinary and is exercised sparingly. The Applicants submit that the circumstances of this case are exceptional within the ambit of section 8(1)(c)(ii)(aa)

of PAJA and that the Court should substitute the First Respondent’s decision with a decision that the appeal be upheld rather than remit the matter to the First Respondent for reconsideration.

See: Gauteng Gambling Board v Silverstar Development Ltd and Others 2005 (4) SA 67 (SCA) at pars [28] – [29].

[43] In the more recent and authoritative decision of the Constitutional Court in Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Ltd and Another 2015 (5) SA 245 (CC) it was held that the factors to be taken into account in deciding if a case is exceptional are:

(1) whether the Court would be in as good a position as the administrator to make the decision;

(2) whether the decision is a foregone conclusion;

(3) the delay caused by the litigation has to be considered; and

(4) bias or incompetence on the part of the administrator.

[44] In casu, I am of the opinion that there are exceptional circumstances to justify substitution of the First Respondent’s decision and these are that

(a) the First Respondent was faced with only two outcomes, namely to grant the appeal or dismiss it;

(b) the First Respondent decided the incorrect outcome where the correct outcome was self – evident;

(c) this Court has all the relevant information at its disposal to the extent that the outcome is a foregone conclusion; and

(d) it would serve no purpose to remit the matter to the First Respondent for reconsideration just so that he can decide on the correct outcome.

[45] It is noted that the Department made a demand for repayment of the subsidies in respect of the period 15 July 2013 to 14 February 2014 in the amounts of R 543 028.74, R 973 440.00 and R 1 311 840.00 respectively.

The demand for repayment was premised upon the incorrect basis that Curro had bought and owned the Second, Third and Fourth Applicants and that Curro did not qualify for subsidy. This is contrary to the correct facts as shown in this judgment. I agree with the Applicants’

submission that it would be appropriate for this Court to grant a declaratory order that the Applicants are not liable to repay the subsidies to the Department in terms of section 8(1)(d) PAJA.

Technical Arguments by Respondents

[46] The Respondents have raised two technical arguments in the form of points in limine. The Respondents contend that the Applicants’ founding affidavits are irregular in that they have not been properly sworn to and attested as required in terms of the Regulations promulgated in terms of the Justice of the Peace and Commissioners of Oaths Act 16 of 1963. That it is not apparent from the attestation clause whether the deponent is a male or female in as much as the words “he / she” appear on the affidavit without indicating whether the deponent is male or female. That either “he” or “she” should have been cancelled to indicate the gender of the deponent. In response the Applicants contend that the argument is overly technical and falls to be dismissed. I agree with the Applicants contention.

[47] The Respondents rely on the authority in Absa Bank Ltd v Botha NO and Others 2013 (5) SA 563 (GNP) for the proposition that the failure to differentiate between male and female (or “she / he”) in the attestation of an affidavit renders the affidavit irregular. In my view that case is distinguishable from the present matter. The case relied upon by the Respondents concerned a verifying affidavit in a summary judgment application where the Defendants objected to the application by notice in terms of Rule 30, as an irregular proceeding on the grounds that the Plaintiff’s affidavit in support of summary judgment did not constitute an affidavit as contemplated in Rule 32(2). The present matter concerns a review and not summary judgment and in the present matter the Respondents have not resorted to the provisions of Rule 30.

In addition, the Respondents have not indicated that they were prejudiced by the purported defect in the aforesaid affidavits but

instead chose to accept the validity of the affidavits and answered same.

[48] In any event the Court has a discretion to refuse an affidavit which does not comply with the Regulations. See: Absa Bank Ltd v Botha NO and Others supra at para [8].

In Standard Bank v Dlamini and Another (42232/2015) [2016] ZAGPPHC 26 (22 January 2016) it was held that the requirements as contained in the Regulations are not peremptory but merely directory. See also Lohrman v Vaal Ontwikkelingsmaatskappy (Edms) Bpk 1979 (3) SA 391 (T). The point in limine is accordingly dismissed.

[49] The second point in limine raised by the Respondents is that the Second, Third and Fourth Applicants did not have locus standi to lodge an appeal in terms of section 48(5) of the Schools Act; that the First Applicant should have lodged the appeal. That the

appeal did not therefore comply with section 48(5) of the Schools Act and was defective. The Respondents’ argument in this regard has no merit. The First Respondent, to whom the appeal was lodged, never raised this issue when the Applicants’ appeal was adjudicated, but determined the appeal on the basis that they did have locus standi.

Conclusion

[50] The review application falls to succeed and the following orders are granted:

(a) That the decision that was taken by the First Respondent on or about 6 April 2016 to dismiss the appeal that had been made to him by the Second, Third and Fourth Applicants in terms of section 48(5) of the Schools Act is reviewed and set aside and substituted with a decision that the appeal is upheld.

(b) It is declared that the Second, Third and Fourth Applicants are not liable to repay the subsidies that were paid to them by the Limpopo Department of Education in terms of section 48 of the Schools Act in respect of the period 15 July 2013 to 14 February 2014.

(c) That the Respondents shall pay the costs of this application jointly and severally, the one paying the other to be absolved, such costs to include the costs of two Counsel.

________________________

E M MAKGOBA

JUDGE PRESIDENT OF THE

HIGH COURT, LIMPOPO

DIVISION, POLOKWANE

APPEARANCES

Heard on: 30 October 2017

Judgment Delivered: 28 November 2017

For Applicants: Adv. J P Vorster SC

Adv. C P Wesley

Instructed by: De Klerk & Van Gend Attorneys

c/o DDKK Attorneys

Polokwane

For Respondents: Adv. E K Tsatsi

Adv. M Masindi

Instructed: State Attorney