IN THE HIGH COURT OF SOUTH AFRICA 
(CAPE OF GOOD HOPE PROVINCIAL DIVISION)

CASE NO. 12016/98

and

AND RACING BOARD

JUDGMENT DELIVERED THIS   26TH   DAY OF    OCTOBER,     1998

The relevant part of section 29(f) provides that when

".. any legal entity in respect of which the State, or any organ of the State or any organisation with which the state is concerned has any financial interest, except as far as taxes are concerned, in any gambling activity ..." 
such entity shall be disqualified from obtaining or being granted a licence.

The second respondent, the Transnet Pension Fund, which has been established with legal personality in terms of section 2 of the Transnet Pension Fund Act, No. 62 of 1990 holds 26% of the shares in a company, Stocks Hotels & Resorts Holdings (Pty) Ltd ("Holdings"), which in turn holds 54,5% of the shares in another company, Stocks Hotels & Resorts Limited ("Limited"). This is a public company listed on the Johannesburg Stock Exchange. The balance of the shares in Limited are held by various investors on the Stock Exchange. Limited holds 100% of the shares in Stocks Hotels & Resorts (Cape) Holdings (Pty) Ltd ("Cape Holdings") which company in turn, holds 100% of the shares in applicant.

First respondent, the Western Cape Gambling and Racing Board, ("the Board"), which has been established by section 2 of the Gambling Law, is given the power to consider and grant applications for licences under the Gambling Law. On 30 June, 1998, the Board advised the applicant that it had procured the opinion of senior counsel which is to the effect that the applicant is disqualified in terms of section 29(f) of the Gambling Law from obtaining or being granted a licence

The Board suggested that the applicant seek "a declaratory order ... to address this situation".

The applicant now applies for an order declaring that it is not, by reason of the 'provision of section 29(f), disqualified from obtaining or being granted a casino licence by the Board.

The Board has not given notice of its intention to oppose the application and second respondent abides the decision of the Court.

There are competing applicants for the casino licence. They have all been given notice by the Board of the relief being sought by the applicant and they do not appear to oppose the relief sought.

I turn to the question whether second respondent is an "organ of the State" within the meaning of section 29(f).

The concept "organ of State" as used in section 7(1) of the interim constitution
(Act 200 of 1993), was considered in Directory Advertising Cost Cutters   v
Minister for Posts, Telecommunications and Broadcasting and Others, 1996(3) SA
800 (T) at 810 F-G where van Dijkhorst, J, in disapproving of the wider meaning
given to the concept in Baloro and Others   v   University of Bophuthatswana and
Others, (1995(4) SA 197 (B), formulated the test as follows:
'The concept as used in section 7(1) of the constitution must be limited to institutions which are an intrinsic part of government -i.e. part of the public service or consisting of governmental appointees at all levels of government - national, provincial, regional and local - and those institutions outside the public service which are controlled by the State - i.e. where the majority of the members of the controlling body are appointed by the State or where the functions of that body and their exercise is prescribed by the State to such extent that it is effectively in control. In short, the test is whether the State is in control. "

and at 809G-H concluded

"An 'organ of State' CStaatsorgaan') is an institutional body by means of which the State governs ...
An organ of State is not an agent of the State; it is part of government (at any of its levels) ".

In the Baloro case, it was held that the university is an organ of State under section 7(1) and that it is therefore subject to the application of Chapter 3 of the interim constitution.

after analysing the statutes of the pension fund in the following terms":

and holding that the pension fund's existence was a subsiduary one:

'Ten eerste is die eerste respondent ingestel vir werknemers wat in die diens van die Staat staan. Ten tweede kan sy statute slegs met die goedkeuring van 'n uitvoerende staatsfunksionaris (die Premier) gewysig word, en ten derde is die uitsluit/ike doel van die eerste respondent se bestaan om aan te sluit by en diensvoordele te verskaf by die diens van staatsamptenare ".

They point out that generally

"...where the government delegates power to another body or person to enact or to enforce coercive laws which subject members of the public to punishment, Chapter 3 will apply. This prevents the legislature from assigning to others powers that the legislature itself could not legitimately wield".

The authors then set out three tests

'Though this list may not be exhaustive, the primary litmus tests for determining whether a particular entity or actor is statutory body or functionary are the government control test, the government entity test, and the government function test".

Regarding the "control test", the authors say:

"At a minimum, a government control test entails that it is not enough for a body to have been created by statute to warrant application of the constitution. To state the inquiry more positively, a government control test would likely hold that in order to subject a body to the constitutional standards the court must answer affirmatively one of the following two questions: Is the body part of one of the three branches of government? If not, does the government retain 'direct' control over the body in question?

The "government entity" test is a wider test, it appears:

'Does the entity perform tasks pursuant to some form of statutory authority? Is the task performed in furtherance of some government objective? Such a test ensures that state-created and state-funded bodies that serve State objectives cannot be insulated from constitutional review.

Finally, the "government function" test, the ambit of which is even wider:

with the substance of our freedom, and not merely jts form, may feel justified in subjecting such bodies to constitutional scrutiny ".

The purpose of the above discussion of the concept of an "organ of State" is to ascertain the actions of which entities should be held properly to be subject to the constitutional limits set out in the bill of rights contained in Chapter 3 of the interim constitution. In interpreting the concept "organ of State" in the Gambling Law, one must start from the context of that Law and also consider its object and purpose.

Since the government control test appears to be the preferred test (even in a constitutional setting) adopted by our courts, it is appropriate to consider the degree of control which the State has over the pension fund.

Transnet Ltd., for the benefit of whose employees the Fund was established, is a trading company which is wholly owned by the State.

Section 2 of the Transnet Pension Fund Act, No. 62 of 1990 provides for the establishment of the Fund. Section 5 of this Act provides that control and management of the pension fund shall be governed by the Rules of the Fund and that the Rules shall be published by the Minister of Mineral and Energy Affairs and Public Enterprises (the Minister) after having obtained the concurrence of the Minister of Finance. The Rules may be amended by the Board of Trustees of the
Fund, subject to the approval of the Minister, acting with the concurrence of the Minister of Finance.

The Rules of the Fund were published by the Minister under Government Notice R2355 on 1 October, 1990, and provides that:
(a)	The object of the Fund is to provide benefits for members and beneficiaries of the Fund;
(b)	that the Fund shall be controlled by a Board of Trustees, which is made up as follows:
(I)      (E)ach trade union may appoint a member and an alternate;
(ii) the Managing Director of Transnet Limited shall appoint a Chairman for the Board and a number of members and their alternates equal to the aggregate number of members and alternates, respectively, appointed by the trade unions; and
(c)	that the duty of the Chairman, members and alternates towards the Fund shall be of a fiduciary nature and that they shall, when acting in such capacities, seek only the benefit of the fund, its members, pensioners and other beneficiaries, to the exclusion of all other considerations or objectives.
(d)	POWERS OF THE BOARD
(1) The Board may, with the approval of the Managing Director and the Minister, acting in concurrence with the Minister of Finance -

(aa)   amend the rules;
(bb)   prescribe the manner in which the award of benefits
shall be considered by the Fund; and (cc)   take any action (including the control of the finances
and the administration of the Fund) not specifically
provided for in the Rules, that may be necessary to
achieve the objects of the Fund.

money, invest or cause to be invested the monies of the fund not immediately required for current expenses, to the best advantage of the Fund.

Such control as there is by Transnet and the State is limited to -
(e)	the appointment of the Chairman of the Board of Trustees by the managing director of Transnet who also appoints an equal number of Board members as are appointed by representatives of trade unions; and
(f)	the Board exercising its powers (including the power to amend the Rules of the fund) with the approval of the managing director of Transnet and the Minister, with the concurrence of the Minister of Finance.

The State, through the Ministers therefore does have some control over the functions of the Fund, but the effect of the control is limited by the nature of the functions of the Fund, the primary object of which is to provide benefits for members and beneficiaries of the Fund. The Board appoints an investment committee which invests and causes to be invested the monies of the Fund to the best advantage of the Fund. The State plays no role in the decisions of the investment committee. Neither the State nor any organ of State derives any benefit whatsoever from the Fund. The investments of the Fund, including the 26% shareholding in Holdings, are made independently of the State or any organ thereof.

The Rules of the Fund and the provisions of the Transnet Pension Fund Act do not suggest that the Fund is part of government in the sense that it is part of the public service or that it is an instrinsic part of government. It is not controlled by the State in the sense that the majority of the members of its Board are appointed by the State. The Fund does not exercise a governmental function, nor are the functions of the Fund, or the exercise of such functions, prescribed by the State to the extent that it can be said that the State is in control of the Fund. The Rules do provide that the Board carries out its powers with approval of the Minister, acting in concurrence with the Minister of Finance, but neither the Rules nor the Act require that the Fund carry out tasks in furtherance of some government objective. It is not a body by means of which the State governs.

Having regard to these considerations, I am of the view that the Fund is not an "organ of State" as meant in section 29(f) of the Gambling Law.

I turn now to the question whether it can be said that the Fund is "an organisation with which the State is concerned".

The terms used by the legislature are of wide connotation. The Oxford English Dictionary gives as one of the meanings of "concerned"-

'To be in a relation of practical connection with; to have to do with; to have a share in; to be engaged in, with ".

"...the context... is not limited for the language of the rest of the statute regarded as throwing light of a dictionary kind on the part to be interpreted. Often of more importance is the matter of the statute, its apparent scope and purpose, and, within limits, its background ";

and at 664 -

'Seldom indeed is language so clear that the possibility of differences of meaning is wholly excluded, but some language is much clearer than other language; the clearer the language the more it dominates over the context, and vice versa, the less clear it is the greater the part that is likely to be played by the context".

»

I turn first to Chapter IV of the Gambling Law, which deals with licencing and approval. Section 26 read with section 2(2) of the Gambling Law reiterates the limited right to gambling for which it provides. Section 27 sets out all the kinds of licences which may be granted by the Western Cape Gambling and Racing Board. Section 28 provides that a limited class of person qualifies to be awarded a licence to conduct gambling. Section 29, in turn sets out those entities and persons who may not participate in the conduct of gambling. Persons excluded include any person who does not qualify as stipulated in section 28, political office-bearers, the spouse of certain disqualified persons and any legal entity in respect of which the State, an organ of the State or any organisation with which the State is concerned has any financial interest in any gambling activity. Section 30 further extends the disqualification to obtain a gambling licence to persons having certain direct or indirect interests. It introduces the notion of "the power to exercise a significant influence over the gambling business" of another.

The Lotteries and Gambling Board was appointed in 1994 in terms of section 3 of
the Lotteries and Gambling Board Act No. 210 of 1993. In terms of this Act the
Board was requested to report to Government on the advisability of allowing
lotteries and gambling in South Africa.   The investigations of this Board shortly
preceeded the passing of the National Gambling Act, No. 33 of 1996 and of the
Western Cape Gambling Law.   In its interim report of October, 1994, the Board
suggested that gambling in South Africa should proceed from certain fundamental
principles, one of which is that
"...governments should not have ownership, control, management of or shareholding in other forms of lotteries or gambling activities "

(the form of gambling which is excluded by the words "other forms" is a national state lottery).
In Chapter 4 of its final report of March, 1995, the Board sets out what it considers to be certain "principles for gambling in South Africa" which the government "must strictly adhere to in policy and legislation". The Board stated that -

"...gambling... should be strictly controlled, well regulated and effectively policed"

and that

".. justice, fairness and equity in the system can only be served if the utmost good faith, transparency and frankness prevails ".

Dealing with the principle of protection of gamblers, the Board confirmed that -

".. policy and legislation... should proceed on the premise that control structures, regulatory measures, rules and other standards should primarily be aimed at the protection of the gambler ... his good faith and trust and his positive perception of the industry should be protected in policy and Law".

Concerning the principles of "Transparency, Honesty, and Integrity" it is stated that

"... the gambling industry world wide ...is invariably associated with crimes, abuse, manipulation, favouritism and many other negative aspects. It is, therefore, incumbent on the policy-makers, legislature and the industry to avoid the development of such a perception in gamblers' eyes and the public ".

Turning specifically to government involvement in the gambling industry, the Board reconfirmed that -
".. the government's involvement in other lotteries, gaming and wagering should be excluded. Its functions should be limited to authorisation, control and regulation for the purpose of maintaining law, order and fairness in the industry".

And further stated:

'in some (countries) the government owns, controls, and regulates every facet of the industry. Information reveals that such jurisdiction has a higher vulnerability to corruption, bribery and abuse ..."

and that therefore,

".. apart from the National Lottery, both central and provincial governments should have no involvement in all other forms of gambling apart from the control thereof by legislation ".

Finally, the Board recommended that

"...legislation shall exclude central and provincial governments and parastatal bodies from holding shares or other forms of power in the gambling industry excluding the national lottery".

Having regard to the "principles of gambling" which underlie the recommendation of the Lotteries and Gambling Board, as well as the recommendation itself, it seems clear that a fundamental principle is that the involvement of Government in any form in which it can exercise an influence over any gambling operation, or which could be in conflict, real or perceived, with the duty of the Government to institute measures to adequately and fairly authorise, control and regulate the gambling industry, or which might open the door to corruption, bribery and abuse, should be excluded.

The recommendation of the Board in regard to government involvement appears to be reflected in section 13(1) of the National Gambling Act, No. 33 of 1996, which provides:
"Subject to the provisions of this Act, gambling in the Republic shall be regulated in accordance with the following principles:

(a) ...

(f)      the State or any organ of the State or any organisation with which the State is concerned shall from 10 May 1999, apart from taxes and levies, not have any financial interest in any gambling activity: Provided that any provincial licencing authority considering an application for a licence contemplated in paragraph (j) before 10 May 1999 shall disregard such financial interest held by the State, such organ of the State or organisation ... ".

Paragraph (j) relates to casino licences.

(1) the State,
(2) any organ of the State, or
(3)     any organisation with which the State is concerned, has any financial interest … in any gambling activity. ,

The use of the words "concerned with" however, implies more than just a relationship involving control. It includes the State being engaged in or with an organisation, having to do with the organisation or having some practical connection with the organisation.
The object and purpose of the Fund is to provide benefits for its members and beneficiaries, being the employees of Transnet Ltd, a company which is wholly owned by the State. The State, through the ministers involved and with whose approval and concurrence the Board of Trustees of the Fund carries out its functions, is engaged with the Fund in providing these benefits to Transnet employees. There is, however limited the control it has may be, a relationship of practical connection between the State and the Fund. Such connection and control is sufficiently direct and close to conclude that, having regard to the object and purpose of the legislation, the Fund is "an organisation with which the State is concerned" within the meaning of section 29(f) of the Gambling Law.

I turn to the question whether the Fund would, "in respect of" the applicant have "any financial interest ... in any gambling activity ..." by reasons of its 26% shareholding in Holdings. The words "any financial interest" used in section 29(f) are wide. It is not easy to establish its limitations.

Financial interest is defined in section 1(18) of the Gambling Law as: 
"...in relation to a company or corporation, means -
(a) having a right or entitlement to share in profits or revenue;
(b) being the holder of any real right in respect of any property of the company or corporation;

And that the use of words "in" and "acquired" in the section:

"...indicated that the legislature intended penalising a transaction where the person's interest results from something in the nature of a right or title which relates his own financial position to that of the business in such a manner that the fluctuating fortunes thereof affect him either beneficially or detrimentally".

The apparent object and purpose of the provisions of section 29(f) is to exclude the State, in any form, from exercising an influence over the gambling activities of another entity and thus to exclude possible fraud, corruption, bribery and abuse. In addition, it is the function of the State to authorise and control the gambling industry with the purpose of maintaining law, order and fairness in such industry. Having regard to these functions of the State, I am of the view that the words "financial interest in any gambling activity" should be read to include the case where such interest derives from shareholding in a company, either directly, or through intermediate companies, which carries on gambling activities. This is so whether or not such shareholding gives rise to any form of control over the gambling activities carried on. It is the mere holding of a financial interest of this nature by the State, an organ of State or by an organisation with which the State is concerned, in the gambling activities of a legal entity, which leads to the disqualification of such entity from acquiring a casino license. The reason is that in such a case, there would be conflict between the duty of the State to control and regulate the gambling industry and the financial interest which the State, any organ of State or any organisation with which the State is concerned has in such gambling activities to be carried on by the entity seeking a casino licence.
It follows that the Fund does have a "financial interest" within the meaning of section 29(f), in the proposed gambling activities of the applicant. This could result in a conflict, real or perceived, between the State's duties of control and regulation of the gambling industry and the financial interest of the Fund, being a body with which the State is "concerned". One of the objects of the provision under consideration is to exclude this conflict between duty and interest. It does so by disqualifying the applicant, being an entity in respect of which the Fund, an organisation with which the State is concerned, has a financial interest in the very activity the State has a duty to control and regulate.

It follows that the application for the declaratory order sought by the applicant cannot succeed.

The application for the declaratory order sought by the applicant is dismissed.
W J LOUW