Uthingo Management (Pty) Ltd v Minister of Trade and Industry and Others (37942/2006) [2007] ZAGPHC 8; [2007] 2 All SA 649 (T) (5 March 2007)

/SG

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

DATE: 05/03/2007

CASE NO: 37942/2006

REPORTABLE

In the matter between:

UTHINGO MANAGEMENT (PTY) LTD APPLICANT

And

THE MINISTER OF TRADE AND

INDUSTRY 1ST RESPONDENT

THE NATIONAL LOTTERIES BOARD 2ND RESOPNDENT

GIDANI (PTY) LTD 3RD RESPONDENT

JUDGMENT

SERITI, J

This matter came before court by way of a motion.

In the part A of the notice of motion the applicant was seeking an order, inter alia, in the following terms:

“2. That pending the final determination of the applicant’s review application set out in Part B of this Notice of Motion:

(a) the second and third respondents be interdicted and restrained from operating a national lottery within the Republic of South Africa;

(b) the first respondent alternatively the second respondent be interdicted and restrained from terminating the national lottery presently operated by the applicant in terms of the Lotteries Act and the licence issued to it under section 13(1) of the Lotteries Act;”

In part B of the notice of motion the applicant is seeking for an order, inter alia, in the following terms:

“2. Reviewing and setting aside the decision of the first respondent to award to Gidani a licence issued in terms of section 13 of the Lotteries Act, 57 of 1997, to conduct a national lottery, which decision was communicated to the Applicant on 4 October 2006;

3. Directing the first respondent to issue to Uthingo a licence, in terms of section 13 of the Lotteries Act, 57 of 1997, to operate the national lottery; ...”

When the matter came before this court for hearing the prayers contained in part A of the notice of motion had fallen away.

Only part B of the notice of motion had to be adjudicated upon.

In its replying affidavit, the applicant stated that it seeks that the decision of the minister be referred back to the minister for consideration afresh in terms of the act.

2. Founding Affidavit

The founding affidavit was deposed to by Dr Isaac Seboko Monamodi, Chief Executive Officer of Uthingo Management (Pty) Ltd.

In the first few paragraphs he describes who the parties are. The second respondent, is described as the National Lotteries Board, a juristic person established in terms of the provisions of section 2 of the Lotteries Act.

The determination of the review application in good time prior to the expiry of the Uthingo licence on 1 April 2007 would avoid the need for seeking the interim interdict application comprising part A of the notice of motion.

In terms of the review application, Uthingo seeks to review and set aside a decision taken by the Minister to award to Gidani a licence issued in terms of section 13 of the Lotteries Act to conduct the national lottery in South Africa. The said decision was communicated to Uthingo on 4 October 2006.

In terms of the provisions of the Promotion of Administrative Justice Act 3 of 2000 read together with section 33 of the Constitution of the Republic of South Africa, 1996 and common law, Uthingo seeks the review and setting aside of the decision of the minister.

The grounds upon which the review application is brought are the following:

1. The provisions of the Lotteries Act requires of the Minister that, before he awards a licence to any person to operate the national lottery, he must first, in terms of section 13(2)(b) of the Lotteries Act, satisfy himself as to certain matters.

There is nothing contained in the Minister’s reasons which indicates that he satisfied himself as to any of the requirements of section 13(2)(b) of the Lotteries Act.

Had the minister and the Board properly performed their functions and responsibilities in terms of the Lotteries Act, the result would have been that Uthingo would have been awarded the new licence.

3. First respondent’s answering affidavit

The deponent thereof is Minister of Trade and Industry, Mr M. B. M Mphahlwa. He alleges that he has furnished the applicant with his reasons for the decision to award the licence to Gidani and he stands by these reasons.

As is reflected in the first paragraph of section 6 of the reasons, having applied his mind to the matter, he was satisfied that the evaluation process had been conducted fairly and independently by the Board and like the Board, he placed particular importance on the greater financial contribution which Gidani proposed to make to the National Lottery Distribution Trust Fund. In his view, applicant, Gidani and Iqwija Gaming (Pty) Ltd had all shown that they could successfully operate the national lottery.

What distinguished the Gidani bid from the other two bids was its commitment to pay a flat rate of 34% of its turnover to the National Lottery Distribution Trust Fund, whose funds are directed to socially beneficial projects.

The commitment to contribute to the National Lottery Distribution Trust was a decisive factor. He denies the allegation that he failed to apply his mind to the eligibility of Gidani in terms of section 13(2)(b)(iv) of the Act and the probity of Intralot. Prior to taking decision to award the licence to Gidani, he considered the recommendation of the Board in great detail, together with his Director General held lengthy discussions on the recommendation and the competing merits of various bids, held three meetings with the Board to clarify matters arising out of their recommendation and sought legal advice from the departmental’s legal advisor on legal matters relating to the award of the licence.

He applied his mind extensively to the eligibility of Gidani in terms of section 13(2)(b)(iv) because after the announcement of the preferred bidder but prior to the award of the licence, the involvement of Messrs Max Sisulu and Chris Nissen in Gidani had become an issue of public controversy.

In his discussions with the Board on 25 June 2006 and 27 June 2006 the question of compliance with section 13(2)(b)(iv) was discussed. The Board furnished him with written memorandum setting out the identities of the key individuals in each of the shareholders of the bidders. He considered the said memorandum and was satisfied that none of the persons there listed were political office bearers within his understanding of that term as used in the Act.

At a meeting with the Board on 27 September 2006, his legal advisor, Mr Shaheed Alli orally advised him that having regard to the definition of “political office bearer” in section 1 of the Act and the provisions of the Constitution of the ANC, ordinary members of the National Executive of the ANC were not “political office bearers” for the purposes of section 13(2)(b)(iv) of the Act, and that it was only those officials on the National Executive Committee with specific duties to the ANC, namely the president, deputy president, national chairperson, secretary general, deputy secretary general and treasurer who were “political office bearers” for the purposes of the Act.

On the basis of the advise given to him by Mr Alli, he remained satisfied that the involvement of Messrs Sisulu and Nissen in Gidani did not disqualify it in terms of section 13(2)(b)(iv).

Except for key individuals involved in each of the shareholders, he was not aware of the identities of each of the individual shareholders in each of the shareholding companies of Gidani. The Board directed a specific enquiry to Gidani in relation to section 13(2)(b)(iv) and in response Gidani confirmed that there were no political office bearers directly interested in any of its shareholders. Having personally investigated the position of key individuals in the shareholders of Gidani, he was content to rely on the confirmation received from Gidani in respect of persons other than the key individuals.

As far as the probity investigation of Intralot and Gidani are concerned he was informed by the Board that Gidani’s completed probity declaration was submitted to the National Intelligence Agency for investigation, and having conducted its probity investigation, the National Intelligence Agency gave its approval to Gidani.

National Intelligence Agency is the primary intelligence gathering agency of South Africa State. It has powers, personnel and international relationships with foreign intelligence agencies which made it particularly well suited to conduct a probity investigation of Gidani.

After the award of the licence to Gidani, it came to his attention that the National Minister of Education Ms Naledi Pandor is a shareholder in Black Management Forum Investments (Pty) Ltd which is a 10% shareholder in the applicant.

In view of the fact that he awarded the licence to Gidani, he conducted no probity investigation into the applicant. He has not made a determination that the applicant and its shareholders and personnel were fit and proper to conduct the National Lottery.

The licence of the applicant expires on 31 March 2007 and he has no powers to extend the said licence beyond 31 March 2007.

He denies that there was any abdication of his responsibilities in respect of the fit and proper assessment of Gidani and that he did not apply his mind to the requirements of section 13(2)(b)(iv) of the Act.

He denies that he has given any undertaking that unless the negotiations are finalised with Gidani by 31 March 2007, he will enter into negotiations with the applicant.

He further denies that Mr Chris Nissen is a member of the National Executive Committee of the ANC.

Prior to deciding to award the licence to Gidani, he was satisfied that Intralot was a fit and proper person to be involved in the operation of the national lottery.

On the basis of the Boards’ report and his discussions with his director general and the Board, he was satisfied that through its relationship with Intralot, Gidani had access to the necessary knowledge and experience.

Confirmatory affidavit of Mr Shaheed Alli was attached.

4. Second respondent’s answering affidavit

Mr J A Foster, Chairperson of the National Lotteries Board deposed to the affidavit.

He states that in recommending Gidani as the preferred bidder the most decisive factor was Gidani’s commitment to pay a flat rate of 34% of its turnover to the National Lottery Distribution Trust as opposed to the applicant’s commitment to pay a staggered contribution that was considerably lower, ranging between 27% and 30% depending on turnover.

The applicant is the current operator of the national lottery, when considering how to evaluate the different bids for the second licence under consideration in this case, the Board decided that in the interest of fairness to all bidders, it would evaluate all the bids, including the applicant’s bid without reference to the applicant’s operation of the national lottery under the current licence.

The methodology used to evaluate the different bids was put in place by the Board prior to the Board receiving any bids.

One of the features of the method of evaluation adopted by the Board was the weight given by the Board to the respective bidders relative proposed contribution to the National Lottery Distribution Trust Fund. The crucial importance of relative contributions to the National Lottery Distribution Trust Fund was emphasised in the RFP.

He describes in details how the bids were evaluated.

He further says that on 23 April 2006 the Board agreed to recommend Gidani as the preferred bidder and the applicant as the second preferred bidder. The decision to identify a second preferred bidder was taken for the following reasons:

(a) The RFP in paragraph 3.8 provides that should negotiations on the final terms of the licence fail to be concluded to the satisfaction of the Minister, the Minister reserves the right to take up negotiations with any other applicant.

(b) Given the time pressure on the process, the Board was of the opinion that it would expedite matters if, in the event that negotiations on the final terms of the licence fail to be concluded to the satisfaction of the Minister, another bidder would already have been identified as the next preferred bidder.

(c) The Board also believed that the announcement of a second preferred bidder would signal to the preferred bidder that the negotiations on the final licence were to be taken seriously and should not drag on endlessly.

RFP requires all bidders to furnish detailed probity declarations in respect of shareholders, directors, management, employees and subcontractors.

The Board does not have resources and expertise itself to confirm correctness of the contents of the probity declarations furnished by the bidders, particularly in view of the fact that much of the information concerned, relates to activities outside South Africa.

Besides engaging the services of Grant Thornton, whose brief was to determine whether the Board’s evaluation process had been properly followed and whether the process was applied in an unbiased, fair and impartial manner, the Board made sites visits. At all international sites that the Board attended, it enquired from the local regulatory authorities whether they were aware of any probity problems with the relevant bidders. In all the cases, the regulatory or state authorities in question stated that they were not aware of any probity problems.

In respect of the two preferred bidders, the Board took the added step of investigating probity issues. On receipt of the report of the National Intelligence Agency, same was transmitted to the Minister.

On 25 June 2006 together with Chief Executive Officer of the Board Professor Vevek Ram, they held a meeting with the Minister, who was accompanied by his director general. At the meeting wide range of issues contained in their recommendations were discussed. At this meeting, Minister requested them to supply him with details of the key shareholders and personnel of each bidder.

A follow-up meeting took place on 27 June 2006.

After the announcement of the two “preferred bidders” several meetings were held with Gidani to negotiate the terms of the licence. The said negations were concluded on 31 August 2006.

On 4 September 2006 the Board wrote a letter to the Minister enclosing the Board’s report regarding the said negotiations.

On 27 September 2006 he attended a meeting with the Minister at which meeting, the proposed licence was discussed. In addition to the proposed terms of the licence, the “political office bearer” requirement of section 13(2)(b)(iv) of the Act was considered. By the time of this meeting there had been considerable public controversy about the involvement of ANC National Executive Committee members in the shareholders of Gidani.

During the meeting and at the request of the Minister, the legal advisor of the Minister, Mr Alli, gave oral advice on the “political office bearer” requirement. He advised that the involvement of members of he National Executive Committee of the ANC in shareholders of Gidani, did not disqualify it in terms of section 13(2)(b)(iv) of the Act.

On 29 September 2006 the Minister signed the licence.

After the award of the licence, it came to the attention of the Board that Ms Naledi Pandor, the National Minister of Education is a shareholder in Black Management Forum Investment (Pty) Ltd which is a 10% shareholder in the applicant.

The probity declaration requires the disclosure of some, but by no means not all, persons who have a direct financial interest in the bidder or a shareholder of the bidder. The identities of minor shareholders in subsidiaries of a bidder are not disclosed in the probity declaration.

As part of his role in the performance of the evaluation exercise, he perused all the probity declarations of the bidders and satisfied himself that none of the persons shown by the probity declarations who had a direct financial interest in the bidders or their subsidiaries were political office bearers. He was aware of the position of Messrs Nissen and Sisulu and concluded that they were not political office bearers within the meaning of the Act.

5. Third respondent’s answering affidavit

Same was deposed to by Mr Bongani Augustine Khumalo, its Chief Executive Officer and Chairman of the Board of Directors of Gidani.

He described the shareholders of Gidani, and pointed out inter alia, that Mr Max Sisulu holds 2.5% of the shares of Wheatfield, which is a shareholder of Gidani.

He further alleges that Mr Nissen is not a shareholder in Gidani. He holds 8.9% of the shares in VG, which holds 75% of the shares in Vunani which holds 13.5% of the shares in Gidani. As such, his interest in Gidani is both remote and miniscule (approximately an effective indirect shareholding of 0.9%. Accordingly Mr Nissen does not hold a “direct financial interest” in Gidani or in a shareholder of Gidani as contemplated in section 13(2)(b)(iv) of the Act.

In any event, Mr Nissen is not a “political office bearer”. Contrary to what is alleged in the press reports relied upon by Uthingo, he is not a member of the NEC of ANC. Mr Nissen holds no position in any elected national or provincial structure of the ANC.

Mr Sisulu holds 2.5% of the shares in Wheatfields, which in turn holds 13.5% of the shares in Gidani. As such, his interest in Gidani is both remote and miniscule (approximately an effective indirect shareholding of 0.3375%. Accordingly Mr Sisulu does not hold a “direct financial interest” in Gidani or in a shareholder of Gidani as contemplated in section 13(2)(b)(iv) of the Act.

Mr Sisulu is one of 87 members of the ANC’s NEC. He is not an “official” or “office bearer” of the ANC. In terms of clause 16 of the ANC’s constitution, its officials are the holders of the following posts: President, Deputy President, National Chairperson, Secretary General, Deputy Secretary General, Treasurer General and National Chaplaincy. Mr Sisulu does not hold any of the said posts. Alternatively, the Minister had rational grounds for being satisfied that Mr Sisulu is not a “political office bearer” and there are no grounds for interfering with the Minister’s judgment in this regard. In any event even if Mr Sisulu is to be regarded as being an “official” of the ANC, his financial interests in Wheatfields and, indirectly in Gidani are of such minute proportions as to render the de minimis principle applicable.

Intralot Greece, holds 60% shares in Intralot South Africa, which in turn holds 22.5% of the shares of Gidani Intralot Greece or subsidiaries of Intralot Greece have extensive knowledge and experience of operating national lotteries and related games in a wide range of jurisdictions. Intralot presently operates the national lottery and related games in Bulgaria, Cyprus, Italy, Malta, Moldova, Peru and Poland.

In terms of an arrangement between Gidani and Intralot Greece, Gidani has unconstrained and continuous access to Intralot Greece’s knowledge and experience.

The negotiations between Gidani and National Lotteries Board were completed by 31 August 2006.

On 26 September 2006 Gidani provided the National Lotteries Board, with a written assurance that no political party or political office bearer has any direct financial interest in Gidani or any of its shareholders.

The knowledge or experience that will be necessary for Gidani to operate the national lottery will, in large part, but not only, be provided by Intralot South Africa. As appears from the affidavit of Mr Antonopuolos, the Intralot companies have vast knowledge and experience of operating national lotteries and Gidani will have unconstrained access to such knowledge and experience.

Gidani provided the National Lotteries Board with detailed information regarding Gidani’s shareholding structure. The National Lotteries Board had access to information concerning Gidani’s shareholding together with the written assurance given by Gidani that it complied with the requirements of the political shareholding criterion.

The National Lotteries Board had detailed information concerning the allegations against Intralot and referred said information to the National Intelligence Agency for further investigation. At the time Minister announced preferred bidders he had all necessary information to make up his mind as required by the Act.

A supporting affidavit signed by Mr Constantinos Anlonopoulos, Chairman of the Board of directors and Chief Executive Officer of Intralot SA Integrated Systems and Services was attached. He is also a member of boards of directors of Intracom Holdings SA and Gidani (Pty) Ltd.

He dealt with the relationship between Gidani and Intralot group of companies and the “fit and proper” status of Intralot, and disputed the allegation that Intralot does not pass the probity test. He referred to various jurisdictions where Intralot was found to be “fit and proper” to operate a national lottery.

He also pointed out that as far as probity is concerned, Intralot complied fully with the probity questionnaire which was part of the Request for Proposal, and submitted its probity documents as part of Gidani’s response to the tender.

6. Applicant’s replying affidavit

It was deposed to by Dr Isaac Seboko Monamodi

He sated that the duties imposed on the Minister by the Lotteries Act, particularly those imposed by section 13(2)(b)(iv) are mandatory. The Minister has no discretion. If a shareholder in Gidani (or a shareholder in a shareholder of Gidani) is a political office bearer, then the Minister cannot be satisfied that the requirements of section 13(2)(b)(iv) have been met.

There is nothing contained in the Minister’s reasons that amounts to a statement of compliance with the requirements of the Lotteries Act.

As far as the probity enquiry of Gidani and Intralot is concerned, the Minister relied on what the Board told him about the investigations carried out by National Intelligence Agency. On the face of the National Intelligence Agency’s report, it is not clear who exactly, was investigated. In fact, the NIA’s report refers to “security screening” and not probity investigation.

The fact that the honourable Minister Pandor is disqualified from being a shareholder of a shareholder in Uthingo was not fully appreciated at the time of the preparation of the bid documents.

There was no intention on the part of either Uthingo or Ms Pandor to mislead the Board or the Minister.

7. Supplementary Affidavit – Applicant

On the day of the hearing, it was brought to the attention of the court that a day prior to the hearing, a notice of motion by the applicant and a supplementary affidavit were inserted in the court file by the applicant’s attorney.

I was not aware of it until the first respondent’s counsel started arguing.

In the said notice of motion, the applicant is seeking an order directing that the applicant be granted leave to introduce a supplementary affidavit of Mzolisi Goodman Diliza.

In the said supplementary affidavit, Mr Diliza alleges that on Friday, 16 February 2007, he purchased 7500 ordinary shares of R1.00 each in BMFI, at a total purchase price in the amount of R7 500.00 from Ms Grace Naledi Pandor. He took transfer of the said shares on Friday 16 February 2007.

The supporting affidavit to the application to file the abovementioned supplementary affidavit of Mr Diliza was deposed to by Dr Monamodi. In the said supporting affidavit it is staed that the fact of Ms Pandor’s shareholding in BMFI was not known to the directors of the applicant nor its legal representatives prior to the launch of this application or the submission of the bid for the new national lottery licence. The consultants retained by the applicants to assist in the preparation of he applicant’s bid did not pick up the shareholding of Ms Pandor in BMFI.

The applicant, acted reasonably and relied on the consultants and the checking exercise the latter was required to perform to ensure the applicant’s compliance with the Lotteries Act.

“(2) A Court or tribunal has the power to judicially review an administrative action if – ...

(b) a mandatory and material procedure or condition prescribed by an empowering provision was not complied with; ...

(e) the action was taken ...

(iii) because irrelevant considerations were taken into account or relevant considerations were not considered;

(iv) because of the unauthorised or unwarranted dictates of another person or body; ...

(f) the action itself ...

(iii) is not rationally connected –

(aa) the purpose for which it was taken;

(bb) the purpose of the empowering provision;

(cc) the information before the administrator; or

(dd) the reasons given for it by the administrator;”

As stated earlier, in his answering affidavit the Minister stated that at his meeting with members of the Board, the said members furnished him with written memorandum setting out the identities of the key individuals in each of the shareholders of the bidders. He further stated that he considered the memorandum and he was satisfied that none of the persons there listed were “political office bearers”.

The memorandum referred to in the previous paragraph emanates from the Lottery Board. The said memorandum clearly does not contain a complete list of all the shareholders, particularly the shareholders in the entities that constitute the applicant. It has only, the names of what it termed the “key personnel”.

In Pepcor Retirement Fund v Financial Services Board 2003 (6) SA 38 (SCA) 58, par 47, the learned CLOETE JA said the following:

“In my view, a material mistake of fact should be a basis upon which a Court can review an administrative decision. If legislation has empowered a functionary to make a decision, in the public interest, the decision should be made on the material facts which should have been available for the decision properly to be made. And if a decision has been made in ignorance of facts material to the decision and which therefore should have been before the functionary, the decision should [subject to what is said in para (10) above] be reviewable ...”

In S A Defence & Aid Fund and Another v Minister of Justice 1967 1 SA 31 CPD at p 33G-H the learned CORBETT J said:

“Before the State President is entitled to exercise this power to declare an organisation to be unlawful organisation he must be satisfied that one or more of the conditions set forth in paras (a) to (e) of sec 2(2) obtain. In order to satisfy himself in this way he must have before him some information relating to such matters as the aims and objects of the organisation in question, its membership ...”

In Rustenburg Platinum Mines Ltd (Rustenburg Section, Appellant – and Commissioner for Conciliation, Mediation and Arbitration, First Respondent, TJ Moropa NO, Second Respondent and Z Sidumo, Third Respondent, Case Number 598/05 (yet unreported judgment of the SCA,) at p23-24, para 29 the learned CAMERON JA said:

“For what both Carephone and PAJA required the LAC to do was to consider whether the commissioner’s decision to reinstate Sidumo was ‘rationally connected’ to the information before him and to the reasons he gave for it. ‘Rational connection’ as FRONEMAN DJP explained in Carephone (para 37), in a passage this Court approved and applied in the light of PAJA, that there must be a rational objective basis justifying the connection the commissioner made between the material before him and the conclusion he reached.”

My view is that for the Minister of Trade and Industry to comply with the requirements of section 13(2)(b)(iv) and (3)(b) of the Lotteries Act mentioned above, must at least be aware or have had information about all the shareholders of the third respondent and all individual shareholders in the entities which constitute the third respondent. Failure to secure the said information will not enable the Minister to comply with the provisions of the Lotteries Act mentioned above.

The Lotteries Board, when advising the minister as required by section 10(a) of the Lotteries Act perform an administrative act, as the Minister might act in accordance with their recommendation. Furthermore, when advising the Minister, the Board is bound to apply principles of openness and transparency. Failure on their part to consider all the relevant and material information prior to advising the Minister, is also subject to judicial review as provided for in section 6(2) of the Promotion of Administrative Justice Act supra.

There are serious shortcomings in the investigation the Board carried out and consequently in the memorandum they presented to the minister. The Board did not investigate and their memorandum does not contain information (which is material to the Minister and their recommendation) about the individual shareholders of the entities that constitute both the applicant and the third respondent.

Failure to investigate and determine all the individual shareholders in the entities which constitute both the applicant and third respondent resulted in the Board recommending the applicant as the “second preferred bidder” despite the fact that one of the shareholders in Black Management Forum Investment (Pty) Ltd is a “political office bearer” who has a direct financial interest in a shareholder of the applicant.

The Minister and the National Lotteries Board failed to consider or take into account a mandatory and material information prescribed by section 13 of the Lotteries Act, namely the shareholders in the entities which constitute the applicant.

Furthermore, irrelevant considerations, namely “key personnel” were taken into account.

This court is entitled to set aside the decision of the minister as provided for in section 6(2)(b) and (e)(iii) of the Promotion of Administrative Justice Act >supra.

In the light of the finding I have made above, I do not believe that it is necessary to deal with the other arguments raised in this matter.

The court therefore makes the following order:

1. The decision of the first respondent to award to Gidani a licence issued in terms of section 13 of the Lotteries Act 57 of 1997 to conduct a national lottery is set aside.

2. First, second and third respondents, jointly and severally are to pay the costs of the applicant, which costs will include costs consequent upon the employment of two counsel.

W L SERITI

JUDGE OF THE HIGH COURT

I agree

37942/2006

Heard on: 06/02/2007

For the Applicant: Adv J J Gauntlett SC & B Leach

Instructed by: Werksman Inc, Pretoria

For the 1st and s2nd Respondents: Adv M Kuper SC

Instructed by: State Attorney, Pretoria

For the 3rd Respondent: D N Unterhalter SC &

N H Maenetje

Instructed by: Bowman Gilfillan Inc, Pretoria

Date of Judgment: 05/03/2007