5 October 2021 by , and Dispute Resolution Alert

For organs of state, the institution of legal proceedings should not be a lottery

In the recent full court appeal of Ithuba Holdings (Pty) Ltd v Lottostar (Pty) Ltd and Others Case No. A46/2020 (Mpumalanga Division of the High Court, Mbombela) 31 August 2021, the Mbombela High Court was tasked with considering whether the National Lotteries Commission (Commission) or Ithuba Holdings (Ithuba), which operates the national lottery for the Commission, fell within the definition of an organ of state in terms of the Intergovernmental Relations Framework Act 13 of 2005 (Framework Act).

In the background to this case the Commission and Ithuba had applied for a declaration that Lottostar (Pty) Ltd’s (Lottostar) “scheme, plan arrangement, or system whereby it offers bets, whether or not of a fixed-odds nature on the outcome of lotteries” was unlawful. The Commission and Ithuba further sought an interdict preventing Lottostar from offering such bets.

In the court of first instance, Mphahlele J upheld a preliminary point raised by the Mpumalanga Gaming Board that the parties were not properly before the court as Ithuba and the board are organs of state and were obligated to first attempt all alternative measures to resolve a dispute prior to approaching the court. This is based on section 41(3) and 41(4) of the Constitution, read together with the Framework Act.

On appeal, the full court found that this decision was incorrect based on an analysis of the applicable case law and legislation. Section 239 of the Constitution defines organs of state as:

“any department or state or administration in the national, provincial or local sphere of government; or (b) any other function or institution – (i) exercising a power or performing a function in terms of the Constitution or a provincial constitution; or (iii) exercising a public power of performing a public function in terms of any legislation, but does not include a court or a judicial officer.

The court found that section 41 of the Constitution, as given effect by the Framework Act, has a narrower definition of “organ of state”. The Framework Act, in section 2(2)(g), excludes “any public institution that does not fall within the national, provincial or local sphere of government”. The Commission was held to be such a public institution and thus not an organ of state for the purposes of the Framework Act. 

Legal Proceedings Act

A different concept of organ of state applies to the institution of legal proceedings against organs of state. This is governed by the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002 (Legal Proceedings Act). Section 1 of the Legal Proceedings Act defines an organ of state as:

any national or provincial department;

  • a municipality contemplated in section 151 of the Constitution;
  • any functionary or institution exercising a power or performing a function in terms of the Constitution, or a provincial constitution referred to in section 142 of the Constitution;
  • the South African Maritime Safety Authority established by section 2 of the South African Maritime Safety Authority Act 5 of 1998;
  • the South African National Roads Agency Limited contemplated in section 3 of the South African National Roads Agency Limited and National Roads Act 7 of 1998;
  • the National Ports Authority Limited, contemplated in section 4 of the National Ports Act 12 of 2005, and any entity deemed to be the National Ports Authority in terms of section 3 of that act.

The key distinction between the definition above and the definition of an organ of state in terms of section 239 of the Constitution is that the Legal Proceedings Act’s definition specifically does not include an “institution exercising a public power or performing a public function in terms of any legislation”.

This was discussed in Nicor IT Consulting (Pty) Ltd v North West Housing Corporation [2010] (3) SA 90 (NWM). The defendant, the North West Housing Corporation, was a juristic entity created in terms of the North West Housing Corporation Act 24 of 1982 and took the point that the notices required by the Legal Proceedings Act had not been given before the commencement of the litigation.

It was common cause that the only part of the definition of “organ of state” contained in the Legal Proceedings Act that the defendant, the North West Housing Corporation, might fall under was paragraph (c) of the definition: “any functionary or institution exercising a power or performing a function in terms of the Constitution, or a provincial constitution referred to in section 142 of the Constitution”. With no provincial constitution in the North West Province, only the national Constitution could be looked at to determine whether the defendant was an organ of state.

The High Court noted that the legislature had not included the category (in section 239 of the Constitution) of organs of state exercising a public power or performing a public function in terms of any legislation in the definition in the Legal Proceedings Act. The preamble and title of the act, which refer to “Certain Organs of State”, also supported the conclusion that not all public entities would fall within the definition.

Deriving power from the Constitution

The High Court established that the words “in terms of the Constitution” in the definition meant that the functionary and the power it exercises are identified in the Constitution. Meaning that the power or function exercised is identified in the Constitution itself. This led to the court to conclude that:

“Clearly then, the defendant does not derive its powers or functions ‘in terms of the Constitution’, it derives its powers and functions from its enabling act, the North West Housing Corporation Act. It therefore follows that the defendant is not an organ of state as defined in the act.”

Additionally, the High Court found that the corporation was not an organ of state for purposes of the Act despite the fact that the North West Housing Corporation is represented by the Member of the Executive Council for Local Government and Housing and is listed In Part C of Schedule 3 of the Public Finance Management Act 1 of 1999.

In Haigh v Transnet Ltd 2012 (1) SA 623 (NCK) the High Court followed the reasoning in the Nicor case to reach the conclusion that Transnet was not an organ of state for purposes of the Legal Proceedings Act, as it derives its powers from, and has as its enabling legislation, the SATS Act and not the Constitution. Transnet may perform a public function but it does not fall within the definition of an organ of state in terms of the Legal Proceedings Act. The High Court also noted that the definition in the Legal Proceedings Act and the word “Certain” in the act’s full title make it “abundantly clear” that the act will not apply to all organs of state.

In Haigh, the court mentioned that in National Gambling Board v Premier, KwaZulu-Natal, and Others [2002] (2) SA 715 (CC) it was held that both the National Gambling Board, a juristic person established by section 2 of the National Gambling Act, 2010 and the KwaZulu-Natal Gambling Board, a juristic person established by the KwaZulu-Natal Gambling Act, were organs of state as intended in section 239 of the Constitution. Neither of these bodies was included in the definition of an organ of state for purposes of the Legal Proceedings Act.

In light of the above one must conclude that if legislation that uses the phrase “organ of state” without its own specific definition of the phrase is being considered, the definition in section 239 of the Constitution would apply and an entity such as a gambling board would thus be an organ of state because it exercises power or performs a function in terms of legislation.

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