Phumelela Gaming and Leisure Limited v Gründlingh and Others

Phumelela Gaming and Leisure Limited (Phumelela) is a totalisator operator licensed to operate betting in seven of the nine provinces. It conducted horseracing at seven of the twelve racecourses in South Africa. Totalisators pool all money wagered and distribute dividends to winners after deductions, whereas bookmakers quote fixed odds in advance. The bookmakers (Gründlingh and Schüler) used Phumelela's published totalisator dividends to determine payouts for "exotic bets" (complex bets on multiple races). Phumelela brought a delictual claim based on unlawful competition, seeking an interdict preventing bookmakers from using its published results and dividends. The High Court granted the interdict. The Supreme Court of Appeal reversed this decision by majority, finding the conduct was not wrongful because it had long been legislatively sanctioned. Phumelela sought leave to appeal to the Constitutional Court, arguing the SCA failed to develop the common law in terms of section 39(2) of the Constitution and that the judgment resulted in arbitrary deprivation of its property under section 25.

• Whether the Supreme Court of Appeal failed to develop the common law of unlawful competition in terms of section 39(2) of the Constitution to promote the spirit, purport and objects of the Bill of Rights
• Whether the judgment of the Supreme Court of Appeal resulted in an arbitrary deprivation of Phumelela's intellectual property in breach of section 25 of the Constitution
• Whether the test for wrongfulness in delictual claims of unlawful competition must incorporate constitutional norms and values
• Whether direct access should be granted to challenge the constitutionality of the definition of 'open bets' in the National Gambling Act 7 of 2004
• Whether there is a constitutional issue justifying this Court's jurisdiction

1. The application for leave to appeal is granted. 2. The appeal is dismissed. 3. The application for direct access is dismissed. 4. There is no order for costs.

The binding legal principles established are: (1) Section 39(2) of the Constitution imposes a mandatory obligation on all courts to promote the spirit, purport and objects of the Bill of Rights when interpreting legislation and developing common law or customary law - this is not discretionary. (2) When applying open-textured normative concepts like wrongfulness in delict, courts must view the legal convictions of the community (boni mores) through the prism of constitutional norms and values. (3) The application of section 39(2) requires a balancing exercise that considers all relevant constitutional rights, not merely those favorable to one party - property rights under section 25 must be balanced against freedom of trade under section 22. (4) The constitutional property clause (section 25) does not immunize property owners from all forms of competition; competition is consistent with and protected by the right to freedom of trade in section 22. (5) The test for wrongfulness in unlawful competition involves weighing multiple factors (honesty, fairness, trade morals, existing legal protection, importance of competition, whether parties are competitors, international conventions, motive) against the constitutional framework.

The Court made several non-binding observations: (1) While the SCA judgment did not expressly give consideration to the impact of the Bill of Rights in determining legal convictions of the community, it should not be lightly assumed that the Court did not take this into account, particularly given its previous decisions in Carmichele and Van Eeden. (2) It is preferable for courts to have the benefit of a well-considered judgment from the Supreme Court of Appeal on common law development before the Constitutional Court considers the matter, to avoid acting as a court of first and last instance. (3) Litigants should raise issues of common law development at the outset of litigation for the benefit of both the court and opposing parties, though failure to plead section 39(2) specifically in lower courts does not necessarily bar raising it in the Constitutional Court. (4) It would have been preferable for the SCA to expressly state what effect, if any, constitutional norms and values had on the issues under consideration. (5) The Court observed that the Bill of Rights does not expressly promote competition principles, but the right to freedom of trade in section 22 is consistent with a competitive regime and recognition that protecting competition is in the public welfare.

This case is significant for clarifying the application of section 39(2) of the Constitution in developing the common law. It establishes that: (1) Courts have a mandatory obligation (not discretion) to promote the spirit, purport and objects of the Bill of Rights when interpreting legislation and developing common law, particularly when applying normative concepts like wrongfulness. (2) This obligation applies in all cases involving incremental development of common law rules, not only in startling new developments. (3) The legal convictions of the community (boni mores) test for wrongfulness must now necessarily incorporate constitutional norms and values. (4) Constitutional rights cannot be invoked selectively - all relevant Bill of Rights provisions must be balanced, including potentially competing rights like property (section 25) and freedom of trade (section 22). (5) The property clause (section 25) is not absolute and cannot immunize property owners from all competition. The case demonstrates the incremental constitutionalization of the common law while maintaining established delictual principles. It also reaffirms that direct access will not be granted where the Court would act as court of first and last instance without compelling circumstances.