HCI loses bid to interdict lottery operator in court

Lottery operator Ithuba said on Tuesday that Hosken Consolidated Investments (HCI) will no longer be able to "bully it" now that the casino and hotel company has lost its bid to interdict the company in court.

Judge David Unterhalter dismissed the case with costs on Monday.

HCI had sought to get an urgent interdict allowing it to access Ithuba’s financial statements over claims involving overpayment of fees to Ithuba’s management company, Zamani.

Ithuba CEO Charmaine Mabuza is a shareholder of both Ithuba and Zamani.

HCI, in its court papers, had argued that Zamani had been paid management fees of 4.67% of Ithuba’s gross revenue, and that it was entitled to only 3%.

The company had also sought an order directing Ithuba to pay its monthly management fees into an attorney’s trust account. This was done so that the salaries of Ithuba’s employees would paid by Zamani, and not by Ithuba.

In 2014 Ithuba won the bid to run SA’s lottery operations for eight years.

HCI loaned R341m of "establishment" capital to Ithuba so that the BEE company would be able operate the lottery, HCI CEO Johnny Copelyn said.

The loan agreement included certain terms that would kick in if the loan were repaid before its full term, including management oversight and a 1% management fee, he said.

Unterhalter ruled that HCI could in future exercise its right of management oversight over Ithuba, which included the payment of a 1% management fee but required regulatory approvals that had not been granted.

"I find that since Hosken Consolidated Investments cannot presently exercise its right of management oversight, it has no claim to payment of the 1% fee and no claim upon the management fees that Ithuba is currently paying to Zamani," he said in the judgment.

He said HCI had not shown that Zamani was not entitled to the 4.67% fee.

Mabuza said HCI had no leg to stand on after its loss in court and that the licence ran until June 2023.

"Ithuba is keen to put all of HCI’s bullying antics behind it and run the lottery, which is what it has been mandated to do. HCI’s loan has been paid back in bank guarantees and, as a funder, we believe they have no rights to the business," said Mabuza on Tuesday.

Copelyn said the award showed HCI still had a case which would be heard in March next year.

"This week's decision by the Honourable Justice Unterhalter is merely one declining to grant us interim relief pending the hearing of the matter in March next year," he said.

"The arbitrator's award is very clear. It says they owe us R166m in capital plus interest thereon at agreed rates until the end of the contract. It says we were completely justified in exercising our right of oversight from April 2016 and that Ithuba must pay us the agreed fees for oversight from that date as soon as we have complied with regulatory requirements," he said.

In March the court will consider whether there is any reason not to make that award an order of court, Copelyn said.

He said there was nothing in the current judgment which suggested the court had any thought that there was something wrong with the award and HCI "has every expectation it will in due couse enforce the award".

HCI may not need to merge with Ithuba in order to get oversight over Ithuba.

"From there we have a single issue in dispute: namely whether a ‘merger’ is required to exercise ‘oversight’. We do not believe this is the case but even if we are wrong there will come a moment where the competition authorities have finalised the merger issue and we believe payment cannot be avoided even if it is delayed," Copelyn said.

andersona@businesslive.co.za