Without Prejudice December 2011
The National Lottery Board (NLB) holds in trust approximately R6
billion which it has accumulated over the last three years. Given
that the NLB is now declining applications from charitable
institutions based on "budgetary constraints", the duties
of the NLB and their fulfilment need to be examined.
The National Lotteries Board Act 57 of 1997 established the NLB as
a juristic person. In terms of s14(2)(e), certain amounts of the
money raised by the National Lottery must be paid into the National
Lottery Distribution Trust Fund (NLDTF), where it is held in trust
for the purpose of distribution to a range of charitable
projects.
The Act dictates that set percentages must be allocated to
charitable institutions or other institutions promoting sport and
recreation, arts and culture and miscellaneous other projects,
which are intended to develop the community or uplift the poor.
s28(1), s29(1) and s30(1) all emphasise that allocations of funding
should be distributed "fairly and equitably amongst all
persons who meet the prescribed requirements".
In order to give effect to this, the NLB is required to set up
"Distribution Agencies" to consider applications for
allocations by charitable institutions. Prior to the publication of
regulations by the Minister of Trade and Industry, the Distribution
Agencies developed and applied their own guidelines, often
rigidly.
During August 2010, the Western Cape High Court was called upon to
review decisions taken by the NLB to reject a number of
applications for funding. These were rejected on the basis that
they had not complied with the technical guidelines established by
the Agencies.
The High Court, in adjudicating the matter of South African
Education and Environment Project and Another v National Lotteries
Board and Others, held that these guidelines were not prepared and
promulgated in accordance with the Act and as such any attempt to
interpret them as peremptory rules would be ultra vires and
unlawful. While the guidelines were useful tools for the Agencies
in the uniform consideration of applications, they could not
constitute binding regulations. The court held that the guidelines
served to restrict the power of the Agencies to distribute as much
of the funds as possible in accordance with its mandate and the
object of the legislation. The decisions were therefore set aside
and the NLB was ordered to reconsider them.
The presiding judge also indicated that he had reservations about
the effective functioning of the NLB. He expressed his
dissatisfaction with the fact that charitable institutions had to
wait so long for access to be granted to funds they were prevented
from delivering much needed social services. The NLB lodged an
appeal.
Following the initiation of the case (but before judgment was
granted), two sets of regulations came into force during July 2010.
The first of these was the Regulations Relating to the Allocation
of Money in National Lottery Distribution Trust Fund. Paragraph 3
of the regulations sets out the requirements to qualify for
funding. These requirements include that the entity must be a
juristic person established for charitable, benevolent or
philanthropic purposes, the entity's income and property cannot
be distributed to its members except as reasonable compensation for
services given, and the project must be financially viable and must
produce significant results which would not otherwise have
occurred.
On that same date, the second set of regulations was published: the
Direction and Procedure for the Distribution Agencies in relation
to the Distribution of Funds from the National Lottery Distribution
Trust Fund.
Part I(2) of the latter regulations requires that the Agencies
prioritise developmental needs, enhancement of social and moral
responsibility, as well as economic viability of programmes
designed to advance rural, underprivileged or poor communities.
Further, at least 50% of the total allocation available for
distribution to charitable institutions should be allocated to
areas including training and infrastructure for the elderly, sick
or vulnerable persons, orphans, and disabled and rehabilitation
homes, and the provision of educational facilities, adult literacy
programmes and mentoring skills development.
Part II sets out the procedure for applications and the
adjudication procedures to be followed by the Agencies. The Agency
may grant the application with or without conditions or reject the
application and is required to advise the applicant within 30 days
of its decision. If the application is declined the Agency is also
required to furnish its reasons.
Despite the regulations coming into force more than a year ago, it
has become apparent that, in practice, applications are not being
addressed within the allotted time period and some organisations
are waiting years for responses to their applications. Given that
these organisations rely on funding for their continued operation,
many may be forced to fold as a result of the NLDTF's failure
to respond.
Contrary to what has been reported, most charitable organisations
do not rely solely on funding received from the NLB but rather to
cover only a percentage of their operating costs. We have seen in
practice that when applying for a small amount, some applicants
have been advised by the NLB to apply for their full budgetary
shortfall only for the application to be declined altogether at a
later stage.
In September the Supreme Court of Appeal heard the appeal filed by
the NLB against the decision taken in the high court. In the matter
of National Lotteries Board and Others v South African Education
and Environment Project and Another, the SCA dismissed the
NLB's appeal on the basis that the High Court was correct to
find that the guidelines established by the Distributing Agencies
should not have been applied in such a way as to prevent the NLB
from achieving its legislative mandate. The court noted that the
NLB has failed to meet its target of allocating the entire balance
of the funds held in the NLDTF. The result is that there has been
massive under-expenditure of public money, which it is required to
allocate to charitable institutions.
Cachalia JA reiterated that the NLB holds public funds in trust for
the sole purpose of allocating them to deserving institutions. The
funds do not belong to the NLB to be distributed as and when it
sees fit. The NLB is required to ensure that the entire balance of
these funds is distributed to all institutions that make
application and meet the necessary requirements.
Writing the majority judgment, he emphasised that there is an
administrative duty on the Agencies to consider and justify every
decision on an application individually. Where guidelines are
applied too rigidly, it amounts either to a failure to exercise
discretion or to an improper/unlawful exercise of discretion. The
court stated that the rigid application of the guidelines is one of
the main reasons for the NLB's under-expenditure.
In light of the Act, the regulations and the case law, it is
evident that the NLB has a duty to distribute the funds held in
trust equitably among all applicants that meet the criteria, and
that each application must be properly considered against the
requirements. It no longer befalls the NLB to make its own
guidelines and employ them with an unfettered discretion.
Applicants who rely on such funding do have some right of recourse
against the NLB, but this is only once the application has been
declined or ignored. The applicant would be entitled to lodge an
appeal with the NLB for the reconsideration of its application and
thereafter would be able to approach the courts for judicial review
of administrative action. However, as this can only occur once the
application has been declined or ignored, and given that court
applications can be so lengthy, this would not assist an
organisation that is in desperate need of the funding.
Charitable organisations seeking funding should be in a position to
apply for it without fear that a delayed response or unreasonable
decline is inevitable. Every applicant who meets the regulatory
criteria should be given a portion of the funding. In cases such as
these, organisations should not have to gamble for funds in a
situation where "the house" always wins.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.