THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No:  470/06
NOT REPORTABLE

In the matter between:

KWAZULU CMS MONITORING SYSTEMS (PTY) LTD    APPELLANT

v

KWAZULU-NATAL GAMBLING BOARD            FIRST RESPONDENT
PROFESSOR S V NZIMANDE                             SECOND RESPONDENT
THE PREMIER OF KWAZULU-NATAL              THIRD RESPONDENT
THE NATIONAL GAMBLING BOARD
OF SOUTH AFRICA                                              FOURTH RESPONDENT
THE MINISTER OF TRADE AND INDUSTRY     FIFTH RESPONDENT

Coram: Navsa, Jafta, Cachalia JJA, Malan et Mhlantla AJJA

Heard:
20 September 2007

Delivered:  28 September 2007

Summary:
Regulation 156(8), PN 1087 PG, 7 November 2003, promulgated under s 87 of the Kwazulu-Natal
Gambling Act 10 of 1996 provides for a single central electronic monitoring system for the
Province ─ the Provincial Gambling Board had authority to contract for the procurement of the
system.

Neutral citation:  This judgment may be referred to as KwaZulu CMS Monitoring
Systems v KZN Gambling Board [2007] SCA 131 (RSA).

CACHALIA JA

[1] Pursuant to a public tender process the appellant concluded a contract
with the first respondent, hereafter referred to as the Board, for the provision
of a central electronic monitoring system (CEMS) designed to receive and
send data to and from gaming machines. Its function was to monitor the
operation of some 5 000 gaming machines that were to be located at sites
throughout the KwaZulu-Natal Province. Shortly after the contract’s
conclusion in March 2004 the Board allegedly repudiated it. This caused the
appellant to institute a damages claim against the Board and the second
respondent in the Pietermaritzburg High Court. When the matter came
before Levinsohn DJP he separated one issue for determination in terms of
rule 33(4) of the Uniform Rules of Court. This was whether the Board had
the statutory authority to conclude the contract. He decided not, but granted
leave to this court.

[2] The dispute concerns the proper interpretation of reg 156(8), PN 1087,
2003 of the regulations promulgated under s 87 of the Kwazulu-Natal
Gambling Act 10 of 1996 (the Act). At the time of the contract’s conclusion
it read as follows:

‘The electronic monitoring system referred to in this regulation shall be a single one
operated by the Province or entity contracted by the Province which shall have no other
interest in respect of gaming in the Province.’

The crisp question is whether the regulation’s reference to the words ‘the
Province or entity contracted by the Province’ denotes the Province’s
executive, as the respondents contend, or a significant entity within the
‘Province of Kwazulu-Natal’, which is the appellant’s case. If the former
interpretation is correct, it means that only the provincial executive was

authorised to contract for the provision of a CEMS. If, however, the latter
interpretation prevails it would accord with the appellant’s contention that
the authority to conclude the contract vested in the Board. To better
understand the parties’ contentions it is necessary to examine reg 156(8) in
its statutory context and against the background of its promulgation.

[3] The Act’s long title states its purpose as inter alia ‘to provide for
restrictions on gambling, the establishment of a Provincial Gambling Board,
the licensing of persons conducting casinos and bingo games and of gaming
machine operators . . . .’ The Board has two objects. First, to ‘ensure that all
gambling authorised under this Act is conducted in a manner which
promotes the integrity of the gambling industry and does not cause harm to
the public interest (s 6(1)(a)). The second object is to promote the Board’s
objectives in relation to the Province’s gambling industry. In order to give
effect to this object the Board must within six months of its first meeting
refer to the Premier a macro-plan for the licensing of route and site
operators, which inter alia, will specify the number of gaming machines to
be operated in the Province, the types of premises on which they should be
permitted and any other matter which the Premier directs the Board to take
into account (s 6(2)).1

[4] The ‘Minister’, defined in s 1 of the Act as the Member of the
Executive Council or the Premier, is responsible for the administration of the
gambling portfolio in the Province. It will be convenient hereafter to refer
only to ‘the Premier’. Section 5 of the Act establishes the Board whose
members the Premier appoints, in consultation with the cabinet and after
consulting the Provincial Legislature’s Portfolio Committee (see s 8). To be
eligible for appointment to the Board, persons must comply with strict

1 Brand H The Gambling Laws of South Africa p 5-7.

criteria (s 8). Board members hold positions of public trust and the Board’s
‘independence and integrity’ is of paramount importance (s 17(1)). The Act
disqualifies from appointment public servants, political office bearers and
persons who have a financial interest in any gambling activity (s 9(1)). The
Board’s powers and functions derive from s 7 of the Act. They are extensive
and include licensing, regulating and controlling gambling activities in the
Province (s 7(1)(bA)). It also has the responsibility ‘to determine norms and
standards for . . . gaming machines’ whenever there are no national norms
and standards (s 7(1)(o). The Board exercises its powers and performs its
functions independently.

[5] Chapter 5 of the Act deals with gaming machines. It provides that no
person is entitled to maintain premises where gaming machines are operated
unless in possession of a licence. There are three categories of licences
appropriate to gaming machines. First, gaming machines in casinos, second,
those in bingo halls and third, those which ‘route operators’ supply and
maintain on premises outside casinos and bingo halls operated by ‘site
operators’ (s 51).2 This matter concerns gaming machines, in the third
category, which are referred to as limited payout machines (LPM’s).

[6] Section 54 requires that ‘every gaming machine that is authorised by
the Board for use on licensed premises shall be connected to the prescribed
electronic monitoring system’. This includes the LPM’s we are concerned
with. The Act does not specify who or which entity is responsible for the
CEMS’s establishment. But s 87(1)(k) gives the Premier the power to make
regulations regarding ‘any matter applicable to the electronic monitoring

2 Section 1 defines a ‘route operator’ as ‘a person who is licensed in terms of this Act to provide gaming
machines to site operators and to conduct any other prescribed activities’; a ‘site operator’ is defined as ‘a
person who is authorised to keep gaming machines on his or her premises in terms of a licence issued in
accordance with this Act’.

system’.

[7] The regulations prescribing the operation of the CEMS were initially
promulgated as part of the ‘gambling regulations’, PN 274, 1998, PG 5301,
23 September 1998. Casinos, bingo halls and site operated LPM’s were dealt
with respectively in regs 58, 210 and 156. The three regulations were, with
the necessary changes as the context requires, exactly the same in their
terms. Regulation 156(1) provided that the CEMS that s 54 contemplates
shall be any monitoring and control system which –

‘(a)
communicates directly, without using hard wires, with the motherboard of every
limited payout machine connected to such system;
(b)
is able to communicate with the Board’s monitoring and control system through a
protocol determined by the Board; and
(c)
is certified by the South African Bureau of Standards as complying with the
standard referred to as South African Bureau of Standards 1718-3: 1996 Gaming
Equipment Part 3: Monitoring and Control systems for gaming equipment and
which the Board approves for use in the Province’ (My emphasis).

[8] Regulations 156(2) and (3) prescribed, in detail, the nature of the data
and information that the CEMS was required to provide to the Board,
including information on certain revenue transactions, ‘significant events’

and any other information that the Board may have required.3 Regulation
156(4) imposed an obligation on route operators to store the information
specified in sub-regulation (3) for a period of five years in addition to other
information which the Board may have required. Regulation 156(5) imposed
upon the Board an obligation to ‘prescribe a common protocol to facilitate
communication between the Board and the route operator’s monitoring and
control system . . . .’ The route operator was required, in terms of reg 156(6),
to connect all LPM’s to his or her monitoring and control system (which the
Board had approved). Regulation 156(7) made it an offence for any person
to ‘modify or alter’ the CEMS without the Board’s approval.

[9] In promulgating the regulations dealing with the licensing of route and
site operators, including reg 156, the Premier gave effect to the Board’s
‘Macro-Plan for the Licensing of Route and Site Operators’, mentioned
earlier, which he had published in PN 33, PG 5227, on 15 September 1997.
Clause 36 of the plan envisaged that operators would be permitted a system

3 ‘156 (2)  The monitoring and control system contemplated in subregulation (1) of this regulation shall
provide either –
(a)
on-line, real-time monitoring and data acquisition capability in the format and media approved by
the Board;
(b)
dial-up monitoring and data acquisition capability in the format and media approved by the Board;
or
(c)
such other monitoring and data acquisition capability as the Board may determine in the
conditions of licence.
(3)  The monitoring system referred to in subregulation (1) of this regulation shall be designed and operated
to perform and report functions relating to gaming machine meters and other functions in such a manner
that it –
(a)
records the number and total value of tokens or coins placed in each gaming machine for the
purpose of activating play;
(b)
records the number and total value of tokens or coins deposited in the drop box of each gaming
machine;
(c)
records the number and total value of tokens or coins automatically paid out by each gaming
machine;
(d)
records the number and total value of tokens or coins to be paid manually;
(e)
identifies any machine taken off-line or placed on-line of the computer monitor system, including
the date, time and machine identification number;
(f)
is capable of reporting any revenue transactions not directly monitored by token or coin meter,
such as but not limited to tokens and coins placed in the machine as a result of a hopper fill;
(g)
identifies any significant events, which the Board may require from time to time, and as may be
defined in the South African Bureau of Standards standard referred to in subregulation (1) of this
regulation; and
(h)
records any other information as the Board may, from time to time, require.’

of their choice subject to its ability to communicate with the Board’s
‘monitoring and control system’, which could only have meant the CEMS.
The system was to have operated as a single integrated one which, according
to Mr Mafayela who testified for the appellant in the High Court, would
have been able to transmit information from each LPM to a central site,
linked to the Board.

[10] In its analysis of reg 156 the court below observed that

‘Regulation 156(1)(b) speaks of the electronic monitoring system contemplated by
section 54 of the Act being able to “communicate with the Board’s monitoring control
system through a protocol determined by the Board”. That connotes in my view a
relationship between the first-mentioned system and the (Board’s)’.

The court then made reference to sub-regulations 2, 3 and 6, and accepted
that there were two systems, the CEMS and the Board’s, and that the
Board’s role was confined to determining ‘standards and criteria’ for the
CEMS; it was not authorised to contract for the CEMS.

[11] As I have mentioned, the CEMS was envisaged as a single, integrated
system, which had to comply with the standards and criteria that the Board
determined. The Board’s role was clearly not limited only to setting
standards and criteria for the CEMS. It is apparent that reg 156, at least
before its amendment by the addition of reg 156(8), envisaged that the
CEMS would provide a wide range of data and information to the Board to
enable it to monitor each LPM. There is no suggestion in regs 156(1) to
156(7) that the Premier had any such function. Thus, as the recipient of the
data and information from the CEMS, it was the Board’s responsibility, not
the Premier’s, to approve the operation of the CEMS (s 156(1)(c)). The

Premier’s responsibility was limited to prescribing by regulation its
operation. Furthermore, if the Premier was responsible for establishing and
operating the CEMS, reg 156(7) would have made alteration or modification
of the system without the Premier’s approval (not ‘the Board’s’ as the
regulation read) an offence. It is therefore, at the very least, implicit in the
Act, read with regs 156(1) to 156(7) that the Board was authorised to
procure the CEMS.

[12] Before I deal with reg 156(8), which the respondents contend
conferred on the provincial executive the authority to procure the CEMS, it
is necessary to examine reg 58(8), which amended reg 58. This will place
the interpretation of reg 156(8) in its proper historical context.

[13] Regulation 58 (which dealt with gaming machines in casinos) was
amended in PN 38, 11 February 2000, by the addition of reg 58(8). The
amendment was introduced in the context of a jurisdictional dispute over
whether the Board had the power to establish its own provincial CEMS, or
whether the National Gambling Board should establish a single national
CEMS to which all provincial monitoring and control systems would be
linked. The dispute reached the Constitutional Court4 where the National
Board sought a declaration that there may only be a single national CEMS. It
also sought an interdict to restrain the Premier and the Board from
establishing a provincial CEMS. The Minister of Trade and Industry, who is
responsible for the administration of the National Gambling Act, was also
cited as a respondent, but he filed an affidavit supporting the relief claimed.
The court dismissed the application, without considering the merits of the

4 National Gambling Board v Premier, KwaZulu-Natal 2002 (2) SA 715 (CC) paras 5-10.

dispute.

[14] Regulation 58(8) asserted emphatically that the Province had the
authority to establish the CEMS.5 It did not deal with who or which
provincial entity was authorised to contract for the CEMS, and was not
intended to. The reason is obvious; the Premier assumed that the Board had
the authority. It is clear from the Constitutional Court judgment that he
acknowledged this, and the matter was argued on this basis.6 Likewise it
must be accepted that by amending reg 156 with the addition of reg 156(8)
on 7 November 2003,7 when the jurisdictional dispute had as yet not been
resolved, the Premier intended to assert, as he had done when he amended
reg 58(8), that there would be a single CEMS for site operated LPM’s in the
Province.8

[15] The fact that the April 2004 elections changed the provincial
executive’s political composition is, I think, also germane to understanding
reg 156(8)’s genesis. The provincial executive now fell under the political
control of the same party that controlled the national government. Shortly
after the elections the Board repudiated the contract. Later, the newly elected
Premier amended the regulations yet again, to achieve the opposite result his
predecessor had; he made unequivocal provision for a national CEMS to be
established by the National Board. Regulation 156 was substituted with a

5 Id para 34.
6 Id para 25.
7 PN 1087, 2003.
8 When first promulgated on 23 September 1998 reg 58 dealt with the CEMS in casinos, reg 209 with bingo
equipment, reg 210 with LPM’s inside bingo halls and reg 156 with LPM’s outside bingo halls and casinos.
Regulation 58(8) was then amended on 11 February 2000, but not regs 209, 210 and 156. This was
apparently an oversight because it left the other LPM’s out of the loop. On 7 November 2003 reg 58(8) was
amended to read as follows:
‘(8) The electronic monitoring system referred to in this regulation and regulations 209 and 210 shall be a
single one operated by the Province or entity contracted by the Province which shall have no other interest
in respect of gaming in the Province’.
Regulation 156 was similarly amended by the addition of reg 156 (8).

new regulation and now reads as follows:

‘The electronic monitoring system for limited payout machines contemplated by section
54 of the Act shall be the national central electronic monitoring system established and
monitored by the National Gambling Board in terms of section 27 of the National
Gambling Act 7 of 2004’.9

Regulation 210 (which deals with gaming machines in bingo halls) was
similarly amended. What is significant about the latest amendment is that the
Premier again accepted, albeit more explicitly, that the authority to establish
a CEMS lay with an independent board, not with a political authority.

[16] It is in this context and against this background that reg 156(8) must
be interpreted. The court below concluded that the regulation conferred on
the provincial executive the power to operate the CEMS. In arriving at this
conclusion he reasoned that

‘. . . (t)he Minister . . . expressly legislates that the electronic monitoring system which is
referred to in regulation 156(1) to 156(7) inclusive will be operated by “the province” or
“entity” contracted by the province. In my view the intention was clear. Throughout
regulation 156 “the Board” is referred to. Now by amendment it is the province
alternatively an entity contracted by it which operates the electronic monitoring system.
The Minister, if he intended to could quite easily have used the word “Board” instead of
“province”.’

[17] I respectfully disagree with the learned judge’s interpretation. The
word ‘Province’ is defined in s 1 of the Act to mean the ‘Province of
Kwazulu-Natal’. There is, in my view, no cogent reason to depart from this
meaning when interpreting the regulation. On the contrary, there is every

9 PN 1241, 2005.

reason not to. Indeed if it was intended to depart from this meaning, words
indicating this departure would specifically have been used. In any event the
learned judge’s interpretation is, with respect, inconsistent with the scheme
of the Act, which, for good reason, places the responsibility for gambling in
the hands of an independent board, not a politician.

[18] Properly construed, I think, reg 156(8) meant that the Province of
KwaZulu-Natal would have had its own CEMS, operated by the Board or
any significant entity in the Province contracted by the Board. The reference
to the word ‘single’ in the regulation indicates, as I have mentioned, that the
regulation was concerned with having a single CEMS for the Province, not
two (national and provincial). This is the mischief that the regulation sought
to address. It did not, and indeed could not, confer any power on the
provincial executive which the Act did not give it. It follows that the appeal
must succeed.

The following order is made. The appeal is upheld with costs including the
costs consequent on the employment of two counsel.

The order of the court below is replaced with the following order:

‘It is declared that the Board was authorised to conclude the contract.’

______________
A CACHALIA
JUDGE OF APPEAL
CONCUR:
NAVSA JA
JAFTA JA

MALAN AJA
MHLANTLA AJA

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
28 September 2007

Status:
Immediate

Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal

KWAZULU CMS MONITORING SYSTEMS
v
KWAZULU-NATAL GAMBLING BOARD AND OTHERS

The Supreme Court of Appeal today upheld an appeal by Kwazulu CMS
Monitoring Systems (PTY) Ltd (‘CMS Monitoring’) against a decision of the
Pietermaritzburg High Court declaring that the Kwazulu-Natal Gambling Board
did not have the authority to enter into a contract with CMS Monitoring for the
provision of a central electronic monitoring system (CEMS). The SCA held that
the board did have the authority.

The facts were these: Pursuant to a public tender process CMS Monitoring
concluded a contract with the board for the provision of a CMS in March 2004.
The function of the CMS was to assist the board to monitor the functioning of
some 5000 gambling machines, known as limited payout machines. The
machines were to be located at sites outside casinos and bingo halls and each
would be connected to and would transmit information to the CEMS. Shortly
after the conclusion of the contract, the board allegedly repudiated it. This
resulted in CMS Monitoring suing the board for damages. One of the disputes
which arose is whether the board had had the authority to enter into the
contract.

The dispute was over the interpretation of regulation 156(8) of the regulations
promulgated under the Kwazulu-Natal Gambling Act 10 of 1996. It has now
been replaced. At the time of the contract’s conclusion it read as follows:

‘The electronic monitoring system referred to in this regulation shall be a single one
operated by the Province or entity contracted by the Province which shall have no other
interest in respect of gaming in the Province.’

The High Court interpreted the words ‘operated by the Province or entity
contracted by the Province’ to mean that the provincial executive, not the board,
had the authority to enter into the contract. The SCA, however, interpreted it
differently. It found that the regulation did not take away the board’s authority to
enter into the contract, which was implicit in the preceding regulations,
reg 156(1) to 156(7). It also held that the word ‘Province’ was defined in the Act
to mean the ‘Province of Kwazulu-Natal’ and did not mean the provincial
executive. Furthermore it held that to confer the authority on the provincial
executive as a political entity, as the High Court’s interpretation had, is
inconsistent with the purpose of the Act which is to place the responsibility for
gambling in the hands of an independent board.

The interpretation of reg 156(8) was the only issue that the High Court and SCA
considered. The remaining issues are pending in the High Court.