Masstores and Pick n Pay trade blows in Constitutional Court

Walmart-owned retailer Masstores took its battle with Pick n Pay Retailers to the Constitutional Court.

The fight is over whether Pick n Pay is entitled to prevent Masstores’ Game from selling fresh foods in its store at the Cape Gate shopping centre, by enforcing an exclusive right to trade as a supermarket.

Traditionally, mall anchor tenants, such as Pick n Pay in this case, have some form of exclusivity rights in their lease agreements, with the mall owner agreeing it will be the only supermarket at the mall.

These exclusivity arrangements are becoming less common but were the norm for many years.

The case may determine how far traders can go in enforcing exclusivity rights against their competitors, even where there was no contract between the two.

In terms of a lease agreement with Pick n Pay, the owner of the Cape Gate Centre agreed only Pick n Pay and Checkers would be allowed to conduct the business of a supermarket or to sell fresh food products.

In terms of Masstores' lease agreement, Game was allowed to sell nonperishable food but could not "trade as a general food supermarket".

However, in 2013 Masstores' Game expanded its range to fresh produce and fresh-packaged meat and poultry.

Pick n Pay then went to court, saying this was an unlawful interference in its contractual relationship with the owner of the mall.

The court interdicted the interference and the effect was that Game was prevented from selling fresh food at the mall. An appeal to the Supreme Court of Appeal failed.

But in the Constitutional Court on Tuesday, Masstores counsel Fanie Cilliers SC argued that the lower courts were wrong.

He said the law did not allow Pick n Pay to enforce its contract with the mall owner by suing its competitor, with whom it had no contract and which had done nothing more than "trade freely with the public".

Cilliers said to be successful in a lawsuit based on an unlawful interference with contractual relations, Pick n Pay had to show that Game had done something unlawful.

But Game had not interfered with Pick n Pay's freedom to trade and it had not induced the mall owner to breach its contract. "All we did was trade with the public," he said.

But Pick n Pay's counsel, David Unterhalter SC, said to be successful in its case, all Pick n Pay needed to show was that by selling food, Game had, by breaching an undertaking in its own lease agreement not to conduct business as a supermarket, usurped a role the owner had exclusively given to Pick n Pay.

He said Masstores had originally wanted Pick n Pay to be an anchor tenant — because of the "footfall" it would bring to the mall — and had voluntarily assumed the restrictions in its lease agreement. When it then changed its business model, it decided to "intentionally breach its own lease agreement with its landlord".

Unterhalter said it was true that Pick n Pay could have enforced its rights by suing the landlord, but this did not exclude it from also suing Masstores, even though there was no contract between the two.

Judgment was reserved.