CCT322/22 
[2023] ZACC 38

Hearing Date: 11 May 2023

Judgement Date: 28 November 2023

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On Wednesday, 29 November 2023 at 09h30, the Constitutional Court handed down judgment in an application for confirmation of the order of constitutional invalidity granted by the High Court of South Africa, North West Division, Mahikeng (High Court).

The High Court declared sections 84(1)(e), 87(1)(a) and 87(3) of the North West Gambling (NW Gambling Act) invalid and unconstitutional to the extent that they empower the MEC for Tourism, Environment, Conservation and Tourism (MEC for Tourism) to make regulations prescribing the gambling levies which licensees are required to pay. These confirmation proceedings arise from amendments made by the MEC for Tourism to Regulation 73(1) of the North-West Gambling Regulations 2002 (impugned amendment), relying on the empowering provisions. These amendments significantly increased the gambling levies payable by licensed casinos in the North West Province.

The first applicant, the Casino Association of South Africa (CASA), is a voluntary association that represents various licensed casino operators across the country. CASA’s members operate 36 of the 38 operational casinos in South Africa, including all four of the casinos in the North West. Peermont Global (North West) (Pty) Limited (Peermont), the  second applicant, is a casino licensee which owns and operates two casinos in Mmabatho, North West, namely, Palms Casino and Rio Casino. The third applicant, Sun International (South Africa) Limited (Sun International), is licensed to operate the Sun City Casino, North West, and was, until February 2022, licensed to operate the Carousel Casino in Hammanskraal, Gauteng.

The MEC for Tourism is the first respondent. The second respondent is the MEC for Provincial Treasury (MEC for Treasury). The third respondent is the North West Gambling Board (Board). The fourth respondent is the Minister of Finance. He is the only respondent who does not participate in these proceedings.

The impugned amendment was a culmination of a process that commenced in November 2018, when the Board published for comment a proposed amendment to regulation 73(1) in terms of which there would be a levy increase. CASA raised several objections to the proposed amendment and made extensive representations to the Board. On 15 February 2019, the MEC for Tourism promulgated a second version of the amendment to regulation 73(1) which merely corrected typographical errors in the draft published in November 2018. On 23 and 24 January 2020, the MEC for Tourism relying on the empowering provisions, promulgated the impugned amendment, which was, in all material respects, the same as the first proposed amendment published in November 2018. On 3 February 2020, the Board notified casino licensees in the Province of the impugned amendment and that they should pay the prescribed amended tariffs with effect from 1 February 2020.

In July 2020, the applicants launched an application in the High Court seeking an order reviewing and setting aside the impugned amendment. In addition, “to the extent necessary”, the applicants sought an order declaring the empowering provisions to be unconstitutional and invalid. The applicants contended that the decision to promulgate the impugned amendment was unlawful and reviewable on the following grounds.

First, the empowering provisions were unconstitutional as they: (a) delegate legislative power to impose provincial taxes or levies to the Provincial Executive, in breach of section 228(1) of the Constitution and the principle of separation of powers (section 228 challenge), and (b) assign “plenary legislative power” from the Legislature to the Executive, without adequate guidance to the Executive as to how the power should be exercised (delegation of plenary power challenge). Second, in the event it was found that the empowering provisions do not authorise the imposition of provincial taxes and levies and thus do not contravene section 228(1) of the Constitution, the applicants asserted that the impugned amendment itself amounts to an unconstitutional imposition of tax. Third, in breach of section 87(3) of NW Gambling Act, the MEC for Treasury did not concur in the impugned amendment (section 87(3) challenge).

In the alternative, the applicants challenged the amendment by way of a review application. They complained about the lawfulness and fairness of the process by which the amendment was promulgated (review challenge).

In opposition, the respondents relied on a number of technical defences, including: CASA’s lack of standing; lack of authority of CASA’s deponent to the founding affidavit; and the alleged misjoinder of the Minister of Finance. On substance, the respondents contended that a gaming levy as contemplated in regulation 73 is not a provincial tax as contemplated in the definition of “provincial tax” in section 1 of the Provincial Tax Regulation Process Act (Process Act), as it is not imposed by the national Gambling Act or any other national legislation, but by NW Gambling Act.

In its judgment, the High Court referred to sections 43(b) and 104(1) of the Constitution as vesting legislative authority in the Provincial Legislature. The Court also noted that sections 119 to 124 of the Constitution set out the process for the introduction and passing of provincial legislation. The Court then alluded to the trite principle that the Legislature (including a Provincial Legislature) is generally entitled to delegate subordinate regulatory authority to other bodies, including the Executive, subject to constitutional controls.

The High Court concluded that the empowering provisions are unconstitutional and invalid on the basis that they impermissibly delegated law-making power to the MEC for Tourism. It based its conclusion on a supposed concession made by the respondents’ Counsel in this regard. The High Court accordingly directed the respondents to pay the second and third applicants, together with interest, the difference between: (a) the gambling levies that the second and third applicants had paid and would have paid in terms of the impugned amendment, from the date of the amendment to the date of the Court’s judgment; and (b) the gambling levies that would have been payable during this period had regulation 73(1) not been amended.

Having reached this conclusion, the High Court did not consider the other grounds raised by the applicants, namely: (a) the section 228 challenge and its alternative challenge; (b) the section 87(3) challenge; or (c) the review challenge.

In the Constitutional Court, the applicants submit that the High Court’s order of invalidity should be confirmed by this Court as the empowering provisions unconstitutionally delegate powers to the Provincial Executive to impose taxes and levies in contravention of section 228 of the Constitution. In this regard, the applicants rely on this Court’s decision in Shuttleworth where it was emphasised that “the dominant purpose” of a statute must be considered to determine whether a charge amounts to a tax or levy. Further, the applicants advance the challenges they pursued in the High Court.

In their contention against the confirmation of the High Court order, the first to third respondents oppose confirmation of the declaration of constitutional invalidity. In the event of the Constitutional Court confirming the constitutional invalidity of the impugned provisions, the respondents submit that the declaration of invalidity should be suspended for 24 months to enable the Provincial Legislature to remedy the defects.

As a preliminary point, the respondents argue that the applicants were inordinately late in their challenge to the Regulations. The assertion is that the Regulations were initially introduced in 2002. If the imposition of the gambling levies in regulation 73(1) was impermissible, it was so from the outset. Thus, the respondents submit that the review challenge, if brought under PAJA, should have been brought within 180 days of their obtaining knowledge of regulation 73(1) as initially promulgated. Thus, the 180-day limit imposed by section 7 of PAJA had long passed.

With regard to the substance of the applicants’ section 228 constitutional challenge, the respondent contend that: (a) The provisions of the NW Gambling Act and its purpose would be frustrated were the MEC for Tourism not empowered to impose levies and fees; (b) that section 228(1) only applies to provincial taxes imposed by national legislation, thus the empowering provisions do not constitute a tax, but a regulatory measure; and (c) that the imposition of levies and fees by the MEC for Tourism is not plenary in nature in that it is regulated by regulation 73 which is a subordinate piece of legislation promulgated in terms of section 84, the regulation and any amendments to it do not pass, amend or repeal the NW Gambling Act.

In the unanimous judgment penned by Makgoka AJ (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Potterill AJ, Rogers J, Theron J and Van Zyl AJ concurring) the Constitutional Court held that this its jurisdiction is engaged in terms of section 167(5) of the Constitution as this matter relates to the confirmation of an order of constitutional invalidity by the High Court.

The Court further found that, in declaring the empowering provisions unconstitutional, the High Court erroneously held that the respondents’ Counsel had conceded during argument that the empowering provisions unconstitutionally delegated law- making power to the MEC for Tourism. The Judge had misunderstood the nature of the concession made by Counsel in the High Court proceedings.

The concession concerned a different “delegation”, namely, that the MEC for Treasury was not entitled to delegate her concurrence powers to the Treasury Head of Department in terms of section 87(3) of the NW Gambling Act. The concession, therefore, had nothing to do with the delegation of plenary powers to the Executive. Other than this erroneous basis for its conclusion, the High Court’s judgment did not proffer any reasoning for its conclusion that the empowering provisions are unconstitutional and invalid.

On the merits of the case, and with regards to the respondents’ preliminary PAJA delay objection, the Court held that the applicants do not challenge the gambling levies as they were before the amendment. The respondents’ objection would have some force had the applicants sought to impugn the pre-amendment regulation 73. The applicants’ challenge is limited to the regulation post-amendment. The impugned amendment was promulgated on 24 January 2020. The application was launched on 17 July 2020, well within the 180- day period prescribed in section 7 of PAJA. There is therefore no merit in this objection.

With regard to the respondents’ argument that the NW Gambling Act, as a provincial Act, is exempt from complying with the Process Act, the Court held that this contention is unsustainable. Section 228 of the Constitution envisages that a Provincial Legislature may impose two forms of provincial taxes, namely (a) taxes, levies and duties (other than income tax, value-added tax, etc.); and (b) flat-rate surcharges on any tax, levy or duty that is imposed by national legislation. Therefore, the reference to “national legislation” in section 228(1) refers to national legislation which imposes a tax, levy or duty and upon which a provincial flat-rate surcharge is imposed by a Province. In other words, section 228(1)(b) envisages the imposition of a surcharge by a Provincial Legislature upon a national tax, levy or duty.

The Court held that the contention that the reference to “imposed by national legislation” in the Process Act’s definition of “provincial tax” means that a provincial tax is confined to a tax, levy or duty imposed by the national legislation has no merit. First, it would mean that section 228(1) of the Constitution envisages the imposition of a provincial tax by a Provincial Legislature but only where the tax is imposed by national legislation. That cannot be, reasoned the Court, as a Provincial Legislature has no authority to enact national legislation.

In addition, such an interpretation would permit Provinces to impose taxes and levies without limitation, and in particular, without complying with the requirements in section 228(2) of the Constitution or the Process Act, provided they do so by way of provincial legislation. But the limitations on “the power of a provincial legislature” to impose taxes, levies, duties and surcharges is expressly provided for in section 228(2), pursuant to which the Process Act is enacted. Such an interpretation would render section 228(1)(a) nugatory.

The Court held that it is settled that the power of taxation and appropriation of government funds are reserved for Legislatures, and that the Executive has no power to raise taxes itself. In Shuttleworth, this Court held that the seminal test for determining whether a statute imposes a tax is whether the primary or dominant purpose of the statute is to raise revenue or to regulate conduct. Relying on Canadian case law (Greenhouse Gas and Westbank) the Court reasoned that the fact that the dominant purpose of a statute is regulatory is not determinative of the enquiry. It must further be determined whether the impugned charge has a sufficient nexus with the regulatory scheme of the statute in question. This analysis might reveal that, even though the dominant purpose of the statute as a whole is regulatory, the dominant purpose of the impugned provision is not part of that regulatory scheme but is instead the imposition of a tax.

The Court then considered various provisions of the NW Gambling Act and found that the dominant purpose of the Act as a whole is regulatory in nature. It authorises the Board to regulate gambling in the North West Province. The next question, said the Court, is whether there is a sufficient nexus between the gambling levies and the regulatory scheme of the NW Gambling Act. The Court held that the required nexus with the scheme will exist where the charges themselves have a regulatory purpose. The Court highlighted various aspects of the charge imposed by the NW Gambling Act in this regard.

First, it held that the preamble of the NW Gambling Act says that “gambling provides a significant source of public revenue for the Province” and that “the levying of such taxes has to be dealt with in terms of the Provincial Legislation”. This, the Court held, clearly shows that the purpose of imposing the gambling levies is more than the regulation of gambling by funding the Board.

Second, section 21 provides that the Board is funded by monies transferred from the Department headed by the MEC for Tourism. Thus, the Board is not directly funded by gambling levies. The Department therefore has a discretion to decide upon the amount of funds to allocate to the Board from time to time.

Third, section 87(1)(f) provides that levies “shall be paid to the Board for the benefit of the Provincial Revenue Fund”, while section 87(2) provides that gambling levies “shall be a debt due to the Provincial Administration”. Section 226(1) of the Constitution establishes a Provincial Revenue Fund for each Province into which all revenues raised or received by the provincial government in question must be paid.

Fourth, section 89(1) describes the gambling levies as a tax, by empowering the MEC for Tourism to enter into agreements with the provincial government to regulate and coordinate the levying and collection of “gambling levy or any similar tax”.

Fifth, the gambling levies are imposed upon the casino licence holders and are paid into a general revenue fund – the Provincial Revenue Fund – for general purposes of benefitting the population in the Province as a whole. The revenue generated from the gambling levies is clearly meant to support the provincial government’s activities in general.

Sixth, the levies received by the Board from licensees, and paid across to the Provincial Revenue Fund, far exceed the grants received by the Board from the Provincial Government, and a sizeable portion of the revenue generated by means of gambling levies and taxes is thus used for purposes other than funding the operations of the Board.

The Court found that this all serves as ample evidence that the dominant purpose of the impugned provisions of the NW Gambling Act – namely sections 84(1)(d), 87(1)(a) and 87(3) – and of regulation 73(1) has nothing to do with regulating gambling in the Province. It found that the gambling levies imposed by regulation 73(1) are revenue- generating charges, whose purpose is to raise funds for the Province. This is despite the dominant purpose of the statute being regulatory.

For these reasons, the Constitutional Court confirmed the order of the High Court declaring the empowering provisions unconstitutional and invalid, with the declaration of invalidity taking effect from 23 January 2020. Having reached this conclusion, the Court held that it is not necessary to consider the review challenge, or whether the empowering provisions constitute an impermissible delegation of plenary powers, as found by the High Court.

The Court then determined whether the second and third applicants are entitled to the repayment of the gambling levies unlawfully imposed and paid pursuant to the impugned amendment. The second and third applicants had paid the gambling levies under protest. The Court held that the consequences of invalidity can only be corrected if the gambling levies paid pursuant to the unlawful amended regulation 73(1) are repaid to the second and third applicants. The Court held that repayment is a just and equitable order under section 172(1)(b) of the Constitution. The Court reasoned that not all the taxes and levies imposed and paid in terms of the Regulations are repayable; as such, the declaration of invalidity did not affect the regulations and payments before the promulgation of the impugned amendment. The Court ordered the respondents to pay the applicants’ costs.

The Full judgment  here