Hosken Consolidated Investments (HCI) has failed in a bid to assume management control of national lottery operator Ithuba Trust. Photo: Simphiwe Mbokazi/African News Agency (ANA)

CAPE TOWN – Hosken Consolidated Investments (HCI) has failed in a bid to assume management control of national lottery operator Ithuba Trust after the South Gauteng High Court ruled HCI had no grounds to do so.

HCI, which had disputed the loan agreement since 2016, had sought an interdict, the arguments around which were heard last week, directing Ithuba to pay its monthly management fee to attorneys Webber Wentzel to hold the money in trust until HCI assumed management oversight.

HCI, led by former trade unionist Johnny Copelyn, had disputed some of the covenants of a R325 million loan it had provided Zamani Marketing and the Ithuba special purpose vehicle, to start the lottery. The interest on the loan (34 percent a year over five years) was about R441m as at April 29, 2020.

At stake in the legal proceedings were management fees paid to Zamani, calculated at 4.67 percent of Ithuba’s monthly revenue. Ithuba had disputed HCI’s claims, and alleged that should HCI lose the case, losing bidders might launch counter legal action against the government and may have even led to the lottery being suspended while the legal challenges were under way.

In a ruling yesterday, high court Judge Jarid Unterhalter said: “HCI’s case for overreach and irregularity ranges across a number of issues… HCI’s points of challenge have been met with clear refutations. HCI’s case on these issues is left lacking compelling evidence.”

Zamani Marketing’s chief executive and founder, Charmaine Mabuza, said: “We are delighted to win this court case. The court validated our view that they (HCI) have no claim over us, whatsoever. We have paid our loan to HCI and will continue to do so. For us now it's business as usual. We have a lottery to operate,” she said in an interview. HCI management could not be reached for further comment yesterday.

The judge said HCI had not shown that Zamani was not entitled to the 4.67 percent fee and had been paid in excess of that fee.

The judge remarked in the judgment that how Zamani came to be entitled to a management fee of 4.67 percent on gross revenue of Ithuba, when Zamani’s operating expenses were “modest by comparison, is a matter that warrants attention, but forms no part of this application.” HCI had contended in the court proceedings that Zamani was only entitled to 3 percent fees on Ithuba’s gross revenue.

“The interdicts sought by HCI must be dismissed. The salary relief is not required and a case has not been made for the fee relief,” the high court ruled, and it further ordered that HCI pay the legal costs of Zamani and Ithuba.

“Ithuba’s lottery licence runs until June 2023, ample time within which HCI may be able to enforce its rights, and, should there be reason to do so, given the extent of the monthly fee income that accrues to Zamani, Zamani will receive a flow of revenue sufficient to repay, over time, any past overpayments, including salaries that Ithuba has paid,” Judge Untehalter wrote in the judgment.

He said an earlier arbitration award had recognised HCI’s rights of management oversight, but the award also, however, recognised that regulatory approvals were required before these rights may be exercised. 

“It (HCI) has no claim to the management fees that Ithuba is presently paying to Zamani. And there is accordingly no warrant, on this score, to prevent the management fees from being paid to Zamani and to place them in trust,” the judge ruled.