THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No:  788/10
In the matter between:

NATIONAL LOTTERIES BOARD                                                  First Appellant
TEBOGO MAITSE NO                                                              Second Appellant
DORCAS JAFTA NO                                                                    Third Appellant

and

SOUTH AFRICAN EDUCATION AND
ENVIRONMENT PROJECT                                                       First Respondent
CLAREMONT METHODIST CHURCH SOCIAL
IMPACT MINISTRY, SIKHULA SONKE                              Second Respondent

Neutral citation:   National Lotteries Board v South African Education and
Environment
Project
(788/2010)
[2011] ZASCA
(28 September 2011).

Coram:
Brand, Van Heerden, Cachalia, Shongwe and Seriti JJA
Heard:
16 September 2011
Delivered:
28 September 2011

Summary:   Administrative action – guidelines not to be applied rigidly and
inflexibly – duty to give reasons – not ordinarily open to a
decision maker, who is required to give reasons, to respond to
a challenge by offering new reasons in its answering affidavit.

________________________________________________________________

ORDER
________________________________________________________________

On appeal from: Western Cape High Court, Cape Town (Gamble J sitting as
court of first instance).

The following order is made:

The appeal is dismissed with costs, including the costs of two counsel.

________________________________________________________________

JUDGMENT
________________________________________________________________

CACHALIA JA (Brand, Van Heerden, Shongwe and Seriti JJA concurring):

[1] This is an appeal, with leave of the Western Cape High Court (Gamble J),
against an order reviewing and setting aside certain decisions of the National
Lotteries Board (the board). The decisions relate to the board‟s refusal to
approve three applications by two registered charities for financial grants from
the National Lottery Distribution Trust Fund (the fund). The main issue in this
appeal concerns whether or not the board was justified in declining the
applications because they did not comply with the guidelines for the distribution
of moneys from the fund.

[2] The fund was created under s 21 of the Lotteries Act 57 of 1997 (the Act)
to receive moneys raised through national lottery competitions. The board, which
is the first appellant, administers the fund primarily for the purpose of allocating

grants to socially worthy projects.1 The South African Education and Environment
Project, the first respondent, and the Claremont Methodist Church Social Impact
Ministry, Sikhula Sonke, the second respondent, are the charities whose grant
applications the board declined. It shall be convenient to refer to the first
respondent by its acronym SAEP and to the second respondent by its
abbreviated name, Sikhula Sonke.

[3] The two charities have, over a period of time, applied to the board for
funding. The projects for which they seek funding support pre-school and
educational facilities in deprived areas of Cape Town. SAEP operates in the
Philippi area by supporting crèches started up by women in the Philippi
community, providing extra-curricular programmes in under-resourced high
schools; offering bridging courses for promising students in preparation for
tertiary education and supporting university students. Sikhula Sonke offers
„educare‟ facilities to approximately 4000 children in 65 pre-schools in the
Khayelitsha community.

[4] Distribution agencies, appointed by the Minister of Trade and Industry,
facilitate the adjudication of funding applications and the distribution of funds to
charities whose applications have been approved.2 The agencies are not juristic
persons in their own right, but sub-committees of the board. They perform their
functions on the board‟s behalf. There are four such agencies of which only two
concern us namely, the DA for Charities, represented by the second appellant,
and the DA for Arts represented by the third appellant. The former is responsible
for considering applications from organisations seeking funds earmarked for
„charitable expenditure‟:3 The Minister of Trade and Industry has determined that
not less than 45 per cent of the amounts available must be allocated for these
purposes. The latter is similarly responsible for considering applications for „arts,
culture and the national historical, natural, cultural and architectural heritage‟. In

1 Section 26 of the Act.
2 Sections 28(1) and 28(2) of the Act.
3 Sections 26(3)(b) and 28 of the Act.

its case, not less than 28 per cent of the amounts available in the fund have to be
paid to meet these objectives.4

[5] Despite the Minister‟s determinations and the overwhelming social need
for these funds, the board and DAs have consistently failed to meet their targets.
This has resulted in major under-expenditure of the moneys earmarked for
allocation. According to the board‟s annual report, in 2008, it set itself the
„strategic objective‟ to „disburse 85 per cent of the funds allocated‟, but made less
than 50 per cent available for allocation. Of this reduced amount the DA for
Charities managed to distribute 40 per cent and the DA for Arts only 29 per cent
of the total amount allocated. This represented 32.5 per cent of the total amount
available in the fund for distribution. In 2009, they fared even worse distributing
only 42 per cent of the allocated funds, which represented only 15 per cent of the
total amount in the fund available for distribution. Of this amount the DA for
Charities distributed 37 per cent and the DA for Arts only 28 per cent. In total, in
2009, the fund had R6 billion in unallocated funds. For the years we are
considering the fund had simply not fulfilled its mandate.

[6] In its founding affidavit SAEP initially sought to review seven of its failed
funding applications under s 6 of the Promotion of Administrative Justice Act 3 of
2000. In Sikhula Sonke‟s case, two applications were put in issue. When the
review was launched, SAEP was content to pursue its review only in respect of
four of its unsuccessful applications. And, when the matter was called, SAEP
abandoned one more leaving three remaining. Counsel for the board conceded
the review in respect of two of these applications leaving only one in issue, which
was identified in the papers as the seventh application. Sikhula Sonke‟s dispute
related to the eighth and ninth applications. Three thus remained, SAEP‟s
seventh application and Sikhula Sonke‟s eight and ninth applications.

4 In terms of s 26(2) of the Act the Minister of Trade and Industry makes these allocations after
consulting with the board. At the time that the applications under consideration were decided
these percentages were determined by the Minister in terms of s 26(3) of the Act in GN 1468 of
2004, published in GG 27118, 15 December 2004. This determination is now contained in new
regulations that applied from 30 July 2010, published in GN R645 in GG 33398, 20 July 2010.

[7] As I mentioned at the beginning, the disputes over the three applications
all concern how the DAs applied the guidelines when declining them. The board
submits that its guidelines are clear, not unduly burdensome and must be
complied with to the letter. Counsel for the board urged us to have regard to the
fact that because the board processes large numbers of applications, which is an
onerous administrative responsibility, it cannot be expected to investigate every
application that does not adhere strictly to the guidelines. Moreover, counsel for
the board submitted, the board‟s staff establishment is limited and its employees
are constrained to apply the guidelines strictly. The board thus contends that by
refusing to consider the three applications here in issue, it was merely applying
the guidelines. It is therefore necessary to consider the status of the guidelines
issued by the DAs and how they are meant to be applied within the context of the
Act‟s statutory framework.

[8] The board is listed as a public entity in Schedule 3 of the Public Finance
Management Act 1 of 1999. It must therefore manage its finances properly by
taking steps to prevent irregular expenditure and payments that do not comply
with its operational policies.5 The powers regulating the manner in which funding
applications are made are provided for in the (Lotteries) Act and regulations.
Under ss 28(2) and 30(2) of the Act, the Ministers of Trade and Industry and of
Finance may issue directions (in the case of the former, after consulting with the
Minister for Social Welfare or with the Ministers responsible for arts, culture,
science, land technology and environmental affairs, as the case may be)
regarding the allocation of funds by the DAs for Charities and Arts respectively.
When the decisions regarding these allocations were made the directions were
contained in regs 3 and 5 of the „Allocation Regulations‟.6 In terms of s 32(3) of

5 Sections 51(1)(a)(i) and 51(b)(ii) of the Public Finance Management Act 1 of 1999.
6 „Allocation of Money in National Lottery Distribution Trust Fund‟ („Allocation Regulations‟),
published under GN R3446, GG 21619, 29 September 2000 – contained in annexure „LJK 20‟,
Vol 1 p 82-93. These regulations have subsequently been repealed and replaced (with effect from
30 July 2010) with the „Regulations Relating to the Allocation on Money in National Lottery
Distribution Trust Fund‟, published under RN R645, GG 33398, 20 July 2010. The applications in
this case fall to be decided under the „old‟ regulatory scheme applicable at the time that they were
made – See Unitrans Passenger (Pty) Ltd t/a Greyhound Coach Lines v Chairman, National

the Act the DAs must comply with directions by the Minister of Trade and
Industry „in determining the persons to whom, the purposes for which and the
conditions subject to which that distributing agency is to allocate any amounts‟.
At the time that the applications under consideration were considered the
Minister had not issued any such directions.7 Regulation 10(2) of the „Distributing
Agencies‟ regulations prohibits the allocation of funds to organisations under
legal administration, that are insolvent, or that have previously breached
conditions of their grants.8 The regulations require applications to be made on a
prescribed form,9 a matter which is relevant to SAEP‟s seventh application.

[9] So, the Act and the applicable regulations make it clear that the
requirements for applications are to be found in the regulations. This does not
mean that DAs may not develop guidelines of the sort here in issue to assist
them in making their decisions. Indeed, because the grant or refusal of an
application involves the exercise of a discretion, our courts have recognised that
it is prudent for decision-makers to apply guidelines or general criteria to assist
them with this task.10 And, provided that these criteria are compatible with the
enabling legislation, the only constraint is that they may not be applied rigidly or
inflexibly in a particular case.11 For if they are applied in this manner the decision-
maker elevates the guideline to an immutable rule and thereby fetters its
discretion, which it may not do.12

Transport Commission; Transnet Ltd (Autonet Division) v Chairman, National Transport
Commission 1999 (4) SA 1 (SCA) para 15-19.
7 Such directions are now contained in the „Directions for the Distribution Agencies in Determining
the Distribution of Funds from the National Lottery Distribution Trust Fund‟, published under
GN R644,GG 33398, 20 July 2010 (which took effect from 30 July 2010).
8 Published under GN R182, GG 22092, 22 February 2001, reg 10.
9 The Regulations entitled „Allocation of Money in National Lottery Distribution Trust Fund‟ are
published under GN 3446, GG 21619, 29 September 2000. Regulation 7 provides for the funding
applications to be submitted to the DA on a prescribed form.
10 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs & others 2004 (4) SA 490 (CC)
para 57.
11 MEC for Agriculture, Conservation, Environment & Land Affairs v Sasol Oil (Pty) Ltd 2006 (5)
SA 483 (SCA) para 19.
12 Foodcorp (Pty) Ltd v Deputy Director-General, Department of Environmental Affairs & Tourism:
Branch Marine & Coastal Management 2006 (2) SA 191 (SCA) para 9.

[10] At the same time decision-makers must be consistent, particularly when
dealing with large numbers of applications, as the board does. There is therefore
a tension between having to apply a guideline strictly and consistently when
making multiple decisions, and applying it flexibly in a particular case. It is this
anxiety that motivates the litigation on the board‟s part – a point counsel for the
board sought to drive home by insisting that a strict application of the guidelines
is unavoidable. But this problem is inherent with multiple decisions, and does not
relieve an administrator of the duty to consider each application individually and
justify every decision. The law requires nothing less. And it is no defence for the
board to attempt to relieve itself of this duty by complaining that it has insufficient
or inadequately trained staff to do this.

[11] That the guidelines in issue here in the main serve a useful purpose, and
generally accord with the regulations, is not disputed. Their object is to ensure
that moneys are disbursed only to grantees that are demonstrably capable of
administering them for their intended purpose and also that applicants for funding
are treated similarly. In addition they minimize the danger of fraud. When
receiving an application for funding the decision-maker‟s mind must be directed
to these purposes. In doing so, it is entitled to treat some aspects of the
guidelines as peremptory requirements, such as that the financial statements of
grantees be audited. For it would be untenable to insist on this requirement for
some organisations, but not for others. However, it is not entitled to treat every
departure from its literal prescriptions as fatal. Not even statutory formalities are
approached in this way. The real question a decision-maker must ask itself is
whether the object of the guidelines has been achieved.13 If it has, then
insignificant or technical instances of non-compliance should generally be
condoned.

[12] Against this background, it is convenient to deal first with Sikhula Sonke‟s
two applications and then consider SAEP‟s application.

13 Cf Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA) para 22.

Sikhula Sonke‟s Eight Application
[13] This application for funding was made on 26 July 2007 and given the
reference number 27999. The amount requested was R570 000. The DA for
Charities declined the application on 27 August 2008, some 13 months later for
two reasons: first, that on its application form and financial statements the
organisation was named „Sikhula Sonke‟ while its full name (Claremont Methodist
Church Social Impact Ministry, Sikhula Sonke) appeared on other supporting
documents; and secondly, that „the management is not fully representative of the
beneficiary community‟.

[14] However, for reasons that do not appear from the record, the DA made
another decision on 15 October 2008. Again the application was refused based
on an „inconsistency in names‟. It informed Sikhula Sonke of its decision by letter
on 22 October 2008 and gave the reason for refusing the application as:
„The inconsistency in names in that the application form and the financials are in the
name of SIKHULA SONKE and the NPO Certificate, Articles of Association and the bank
statements are in the name of CLAREMONT METHODIST CHURCH SOCIAL IMPACT
MINISTRY, SIKHULA SONKE.‟

[15] The board invited Sikhula Sonke to appeal if it so wished. It did so on 18
November 2008. The grounds of appeal indicated that Sikhula Sonke was clearly
an abbreviation of the organisation‟s full name, employed to avoid repetitive and
unwieldy references to the full name; it was also a „trading name‟ used on all its
stationery, letterheads, electronic communications and its website. Six months
passed before Sikhula Sonke was informed on 5 May 2009 that the appeal had
failed. It appears from the record that a „Special Board Committee‟ considered
the appeal and confirmed the DA‟s decision. The reasoning was based upon
paragraph three of the 2007 Guidelines, which required applications to „have
exactly the SAME NAME throughout‟.

[16] Before I consider whether the board‟s insistence on the strict application of
this guideline constituted a lawful basis for refusing the application, I must
mention that the second reason given initially – that Sikhula Sonke‟s
management was not representative of the beneficiary community – was
abandoned on the second occasion when the application was considered. It
appears that the DA introduced this requirement in its public notice calling for
funding applications. How it could have done so is difficult to understand. The Act
requires only that charitable expenditure be made „by any organisation or
institution established for charitable, benevolent or philanthropic purposes . . . .‟14
There is no requirement for the organisation to be „representative of the
beneficiary community‟ before it may qualify for funding. There is a good reason
for this: the unavoidable consequence of imposing such a condition would be to
adversely impact on poor and vulnerable communities having access to sorely
needed funds and services.

[17] The idea that an organisation may be precluded from obtaining public
funding to assist such communities only because its racial composition
apparently differs from the community it intends assisting is not new. It resembles
the racially discriminatory welfare policy from our recent past. That policy
promoted separate services for different race groups and separate boards of
management of welfare organisations. Its effect was to deepen mass poverty and
social inequality.15 To repeat that error would be so inimical to the founding
values of our Constitution – non-racialism, equality and human dignity (as it
relates to ubuntu16) – that it is an unimaginable basis for public policy. In the

14 Section 1.
15 See Leila Patel Social Welfare and Social Development in South Africa (2005) p 73-74.
16 The concept of „ubuntu‟ and its application to case law has been controversial. Here I use it in
the limited and, I think, uncontroversial sense that Mahomed J did in S v Makwanyane & another
1995 (3) SA 391 (CC) para 263 where he said:
„[A] “need for understanding but not for vengeance, a need for reparation but not for retaliation, a
need for ubuntu but not for victimization”. “The need for ubuntu” expresses the ethos of an
instinctive capacity for and enjoyment of love towards our fellow men and women; the joy and the
fulfilment involved in recognizing their innate humanity; the reciprocity this generates in
interaction within the collective community; the richness of the creative emotions which it

absence of any suggestion that the Sikhula Sonke either employs persons or
dispenses funds on a racially discriminatory basis, the board correctly
abandoned this rationale for initially refusing the application.

[18] I turn to consider whether Sikhula Sonke‟s „inconsistency in the use of
names‟ was a proper basis for refusing to approve its funding application. The
board‟s justification for adopting the guideline that the same name be used
throughout the application is to prevent fraud, which could happen if funds are
inadvertently paid to organisations for which they were not intended. Sikhula
Sonke does not take issue with the purpose of the guideline. Its complaint is that
the guideline was applied rigidly resulting in the decision to refuse the funding
application being unreasonable or irrational.

[19] The undisputed facts support Sikhula Sonke‟s stance. It says that it did not
understand the guideline to mean that it could not use abbreviations in its name.
That „Sikhula Sonke‟ was obviously an abbreviation appears from the following:
first, its auditors used the abbreviated name in the annual financial statements;
second, the annual reports accompanying the application, including the cover
sheet and every page of the 2006 and 2007 annual reports bear a logo which
reads „Sikhula Sonke – We grow together‟, and the front cover bears the full
name; third, the letterhead used in correspondence to the board includes the
logo in the top right-hand corner of the page, with the full name in the top left-
hand corner; fourth, the letterhead and application also confirms its registration
numbers as a non-profit and public benefit organisation. The persons who
processed the application entered these numbers into a database, which
generated a printout that referred to the full name.

[20] There could thus have been no doubt that the abbreviated and full names
referred to one and the same entity – more so after the full facts were placed

engenders and the moral energies which it releases both in the givers and the society which they
serve and are served by.‟

before the Special Board Committee. Yet, in its answering papers, the board
insisted that the difference in names could lead to a reasonable suspicion of
fraud. In their written submissions, counsel for the board submitted that it would
have been unreasonable and unnecessarily onerous to expect the board to
embark on an investigation to eliminate the possibility of fraud. This submission
is utterly without merit. There was no need to embark on any investigation as all
the facts were before it. And, if it remained unsure afterwards it could have
clarified the matter with a single telephone call to Sikhula Sonke or its auditors.
Instead, the official who declined the application for this reason applied the
guideline rigidly and thoughtlessly, as did the Special Board Committee. It follows
that the high court was correct to conclude that the board‟s refusal to consider
the application fell to be reviewed and set aside.

Sikhula Sonke‟s Ninth Application
[21] This application was submitted on 13 November 2008 to the DA for
Charities. The amount requested was R300 000 and a reference number 33667
allocated to it. The DA rejected the application seven months later, on 12 June
2009. On 2 July 2009, it furnished its reasons. These were that the „Articles of
Association‟ were submitted without a „Memorandum of Association‟ outlining the
organisation‟s objects; and that only one set of financial statements for the 2008
year were presented instead of two, as the guidelines required.

[22] The high court found that the facts relied on to support these reasons
were demonstrably wrong. The board wisely does not call into question this
finding on appeal. The board, however, sought to rely on a new reason,
introduced for the first time in its answering papers in the high court. This was
that the financial statements had not been signed by an independent accounting
officer and that Sikhula Sonke had not provided proof of the officer‟s official
registration.

[23] There is a factual dispute between the parties as to whether the
application that was submitted by Sikhula Sonke to the board included signed
statements. When the matter was argued before us, it was common cause that
copies of both the signed financial statements were included in the bundle of
documents before us, as was an unsigned copy. Assuming, in the board‟s favour,
that the statements it received in support of this application were unsigned, I do
not think it was reasonable for the board to reject the application for this reason.
If it had any doubt regarding the efficacy of the statements, a phone call to the
accountants would have clarified the matter – a simple exercise that would not
have unduly burdened the board. Instead the guideline was applied rigidly
without any justification. There is, therefore, no merit in the board‟s attempt to
defend this decision on this basis.

[24] The high court dismissed this new ground on another basis; it was
impermissible, the learned judge said, for the board to rely on new reasons for
the first time in its answering affidavits. For this conclusion the high court relied
on the decision of Cleaver J in Jicama 17 (Pty) Ltd v West Coast District
Municipality,17 which has an impressive English pedigree.18

[25] Counsel for the board, however, submitted that this was not a „new
reason‟ but one that appeared from the record. The question therefore, so the
submission went, was whether, objectively viewed, it was reasonable for the
decision-maker to have rejected the application. For this submission counsel
relied on a judgment by the Labour Appeal Court in Fidelity Cash Management
Service v CCMA & others.19 That case involved a review of an arbitrator‟s award.
The court held that an award of this nature may be set aside on review only if it is
one that no reasonable decision-maker could reach. This question, the court
said, must be determined by reference to all the evidence that was before the

17 2006 (1) SA 116 (C) para 11.
18 R (S) v Brent LBC [2002] EWCA Civ 693 para 26 (Schieman L J); R v Westminister City
Council, Ex Parte Ermakov [1996] 2 All ER 302 (CA) at 315h-316d; H W R Wade & Forsyth
Administrative Law 10 ed at 441-442.
19 [2008] 3 BLLR 197 (LAC) paras 102 and 103.

decision-maker. And, it did not matter if the decision-maker failed to identify good
reasons for his decision; as long as the decision, viewed objectively, was
reasonable, this was good enough.

[26] In my view reliance on Fidelity Cash is misplaced. The question here is
not whether there were other reasons in the record that justified the board‟s
decision, but whether it could give reasons other than those it gave initially for
refusing the application.

[27] The duty to give reasons for an administrative decision is a central
element of the constitutional duty to act fairly. And the failure to give reasons,
which includes proper or adequate reasons, should ordinarily render the disputed
decision reviewable. In England the courts have said that such a decision would
ordinarily be void and cannot be validated by different reasons given afterwards –
even if they show that the original decision may have been justified.20 For in truth
the later reasons are not the true reasons for the decision, but rather an ex post
facto rationalization of a bad decision. Whether or not our law also demands the
same approach as the English courts do is not a matter I need strictly decide.

[28] In the present matter the refusal of a funding application involves the
exercise of a discretion. This means that the board could have exercised its
discretion by waiving the requirement for signed statements in the guideline, or
simply condoning the failure to comply strictly with it. It failed to exercise its
discretion properly by applying the guideline dogmatically. The fact that it may
have had other reasons for having come to that conclusion does not change the
fact that the board exercised its discretion unlawfully when it made the decision.
In fact, it exercised no discretion at all. This cannot be remedied by giving
different reasons after the fact. The high court, in my respectful view, got it right.

SAEP‟s seventh application.

20 See Wade & Forsyth (above n 18).

[29] This application, which was allocated the reference number 35663, was
submitted on 30 January 2009 for funding from the DA for Arts. The amount
applied for was R313 560. This was in response to an advertisement calling for
applications. The applications had to be supported by documentation. Of
importance in this regard was the requirement in the 2009 „Guidelines for
Submission of Applications‟ (referred to below) that „[a]pplicants must ensure that
their auditors are registered with recognised professional bodies eg Public
Accountants and Auditors Board‟. However, the advertisement calling for
applications stated only that the application be accompanied by signed audited
financial statements for the two most recent years prepared by a firm of
registered auditors.

[30] The Record filed under Rule 53 of the Uniform Rules indicates that the
application was rejected at a meeting on 28 May 2009 for two reasons: first,
because both sets of financial statements were not „audited‟ and secondly, since
the auditors had not signed one of the sets of statements. However, when the
decision was conveyed to SAEP on 15 July 2009, only the first of the reasons
was given to justify the rejection.

[31] SAEP‟s application included its annual financial statements for the years
ended 30 June 2007 and 30 June 2008. They included reports from an
independent accounting officer, Mr Van der Rede, who is a registered member of
the Chartered Institute of Management Accountants (CIMA). His report
concludes that SAEP‟s financial statements accord with generally accepted
accounting practice. The board‟s internal check list, which is used to capture the
essential information pertaining to an application, indicates – with reference to
Van der Rede – that it was satisfied with the „auditor‟s current membership‟. On
the face of it, the application apparently complied both with Allocation regulation
5(5)(j), which requires an applicant for funding to keep proper accounting
records, and with regulation 5(5)(k), which obliges it to furnish a written report
regarding its finances.

[32] On this basis, SAEP‟s founding affidavit took issue with the board‟s
reason – that both financial statements for both 2007 and 2008 were not audited
– for declining its application. In its answering affidavit the board attempted to
justify this reason by pointing out that Van der Rede‟s report attached to the 2007
statements refers to the 2006 statements (The 2008 statements were not placed
in issue). The board now suggests that no financial statements were submitted at
all for 2007. But this suggestion is disingenuous because all but one of the pages
of the financial statements refers to 2007. The reference to „2006‟ on the
offending page is clearly an error. Indeed the board had found the same error in
a previous application and quite properly merely asked SAEP to correct it. The
board then accepted the corrected version. It is incredulous that the deponent to
the board‟s answering affidavit now attempts to make a case that this error
amounted to „material non-compliance‟ with the guideline when it did not do so
previously.

[33] The board‟s answering affidavit also added that SAEP had not complied
with the 2009 Guidelines in another respect; the financial statements had been
signed off by Van der Rede, who is an „accounting officer‟ and not an auditor
whose qualifications the board recognises.

[34] At this stage it is convenient to deal with the 2009 Guidelines. Under the
heading „Signed Audited Financial Statements‟ in section „F‟ the following is
stated:
„It is compulsory for organizations to submit signed audited financial statements for the
two most recent years. Organizations that submit only one set of signed, audited
Financial Statements will not be considered.
The audited statements must be on a letterhead of the Audit Firm, must reflect the
registration number of the Audit Firm and must be signed and dated.
Financial Statements must be for the most recent audits 2006/2007 and 2007/2008.
Applicants must ensure that their auditors are registered with recognized
professional bodies e.g. Public Accountants and Auditors Board.

Financial Statements that have been reviewed by an Accounting Officer are not
audited. Any application (sic) that submits such statements will be declined.’
(Emphasis added).
An organization that does not have signed two-year audited financial statements may
form a partnership with an organization that has the required financial statements (See
Partnership Guidelines) . . . .‟

[35] These guidelines require only that the applicants‟ auditors are registered
with a recognised professional body. The Public Accountants and Auditors Board
is cited as an example of such body. However, the prescribed form, referred to
earlier, says that applicants must ensure that their auditors are registered with
one of three professional bodies: the Public Accountants and Auditors Board, the
Institute for Commercial and Financial Accountants, and the Institute for Certified
Bookkeepers. The board submits that because CIMA, which recognises
Van der Rede‟s qualifications, is not one of the professional bodies mentioned in
the prescribed form, it was justified in declining the application on this ground.

[36] But the board has never before since the publication of the prescribed
form with the regulations in 2000, insisted on recognition of only those
professional bodies mentioned in it. The 2007 and 2008 Charities Sector
Guidelines, for example, have a list of eight professional bodies with which an
„accounting officer‟ may be registered. CIMA is one of these. In the latest
guidelines issued in 2010, seemingly in recognition of the undue formalism of the
2009 Guidelines, all first time applications for less than R750 000, need only be
submitted by a bookkeeper, accountant, or accounting officer. No formal
accreditation of their qualifications by any professional body is required. Also, in
previous years, the board accepted financial statements prepared by Van der
Rede without question. SAEP thus says that it reasonably relied on this practice
when it submitted these financial statements.

[37] There is no dispute on the papers that Van der Rede conducted a proper
audit and that he had the necessary qualifications and competence to conduct

audits into all financial entities except for public companies (SAEP is not a public
company). The board has not raised any concern regarding SAEP‟s financial
integrity. In these circumstances the board‟s submission that it acted reasonably
when it declined the application because of Van der Rede‟s lack of accreditation
by one of the bodies mentioned in the prescribed form, cannot withstand scrutiny.
The high court also observed that DAs have applied the concept of „auditing‟
inconsistently and that the board‟s dogged insistence upon „audited‟ financial
statements only by a recognised body this time was unreasonable and overly
rigid. Here too, the high court was correct in its conclusion.

[38] To summarise: in each of the three decisions under review, the board
adopted a rigidly formulaic approach to the application of the guidelines, treating
them as „peremptory requirements‟ without exception: in the first, it rejected the
application merely because it used the applicant‟s abbreviated name instead of
the same name throughout the application as the guidelines require; it declined
the second on the ground that the financial statements were not signed; and it
refused the third because of its dogmatic insistence that the „auditor‟ be
recognised by one of three professional bodies prescribed in the regulations
despite the board not having previously adhered to this practice, and the
guideline itself having not clearly required this.

[39] I mentioned at the outset that the funds of the board are aimed at
supporting socially worthy projects and, that for the years under review, the
board failed to disburse R6 billion. The rigid and inconsistent application of the
guidelines, at least partly, explains why this has happened. Equally distressing is
that the board does not appear to understand its mandate properly.
Mr Nevhutanda, the chairperson of the board and the deponent to its answering
affidavit, seems to hold the view that grants given by the board are „gratuities,‟
which are allocated at the board‟s discretion. He is wrong. The board holds public
funds in trust for the purpose of allocating them to deserving projects. And it must
ensure that these funds are allocated to those projects, provided of course that

they meet the necessary requirements. The funds do not belong to the board to
be disbursed as its largesse.

[40] The appeal is dismissed with costs, including the costs of two counsel.

______________
A CACHALIA
JUDGE OF APPEAL

APPEARANCES

For 1st, 2nd and 3rd Appellant:
P Kennedy (with him F A Boda)

Instructed by:

Dockrat Inc Attorneys, Johannesburg

Honey Attorneys, Bloemfontein

For 1st and 2nd Respondent:
D Borgström (with him L Ackermann)

Instructed by:

Edward Nathan Sonnenbergs, Cape Town

Matsepes Inc, Bloemfontein
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
28 September 2011

STATUS: Immediate

NATIONAL LOTTERIES BOARD V SOUTH AFRICAN EDUCATION
ENVIRONMENT PROJECT (788/10)

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

The Supreme Court of Appeal today dismissed an appeal by the
National Lotteries Board (the board) against a decision of the Western
Cape High relating to the board’s refusal to approve three grant
applications by two registered charities, the South African Education
Project and Environment Project (SAEP) and the Claremont Methodist
Church Social Impact Ministry, Sikhula Sonke (Sikhula Sonke). The
board sought to justify their refusal to approve the applications on the
ground that they did not comply with the guidelines that the board has
adopted to prevent grant applicants from acquiring funds fraudulently.

SAEP operates in the Phillipi area by supporting crèches started up by
women in that community, providing extra-curricular programmes in
under-resources schools; offering bridging courses for promising
students in preparation for tertiary education and supporting university
students. Sikhula Sonke offers ‘educare’ facilities to approximately 4000
children in 65 pre-schools in the Khayelitsha community.

Sikhula Sonke submitted two applications to the board: one in July 2007
for R570 000 and the other in November 2008, for R300 000. The board
refused both. It justified refusing the first application because Sikhula

Sonke had used its abbreviated name on parts of its application and not
the same name throughout as the guidelines specified, and the second
because its financial statements had not been signed. The SCA held
that the board was not justified in applying the guidelines rigidly and
unreasonably. This was because ‘Sikhula Sonke’ was obviously an
abbreviated name and the statements, though not signed were
otherwise in order. There could therefore not have been any genuine
concern on the board’s part that these applications were fraudulent.

SAEP had submitted an application for R313 560 in January 2009. The
board refused its application on the ground that SAEP’s auditor had not
been accredited by one of three professional bodies prescribed in the
regulations. Here the SCA found that it was unreasonable for the board
to rely on the regulations in this case when it had not done so since
2000, and further that the guideline itself did not clearly state that only
accreditation by the one of the three professional bodies would be
acceptable.

The SCA observed that for the years under review the board had failed
to spend R6 billion rand, which had been allocated for socially worthy
projects. The reason appeared partly from this case: the board was not
properly applying its guidelines, which was resulting in under-
expenditure. The SCA noted further that the board does not seem to
understand its mandate properly. It seems to think that the grants given
to needy organisations are ‘gratuities’ to be allocated at the boards
discretion.

But this approach, said the SCA was wrong. It said that ‘the board holds
public funds in trust for the purpose of allocating them to deserving
projects. And it must ensure that these funds are allocated to these
projects, provided of course that they meet the necessary requirements.
The funds do not belong to the board to be disbursed as its largesse.’

-- ends --