Grobbelaar and Others v Shoprite Checkers Limited

The respondent (Shoprite Checkers) purchased the businesses of Sentra Koop Handelaars Bpk and Megasave (Edms) Bpk on 23 November 1995 from companies in which the three appellants were involved (the first appellant as managing director and shareholder, the second as shareholder and director, and the third as employee). As a condition of the sale, the appellants signed restraint of trade agreements for periods of 24-36 months from termination of their employment, receiving consideration of R500,000 to R1.1 million each. The restraints prohibited them from being involved in competing activities, disclosing confidential information, soliciting employees, or inducing suppliers/customers to terminate relationships with the Shoprite Group. Subsequently, through a reorganization scheme in August 1998, Shoprite Checkers (Edms) Bpk (SCEB) sold its entire business to the plaintiff (then OK Bazaars (1929) Ltd, later renamed Shoprite Checkers Ltd) as a going concern, effective 1 November 1997, subject to Commissioner approval (obtained 27 October 1998). The businesses of Sentra and Megasave were part of SCEB's business. A written cession of restraint rights was also executed on 24 September 1999. The appellants allegedly breached their restraints by establishing The Buying Exchange Company (BEC) in 1998, a competing buying organization. They convened a meeting in August 1998, prepared a detailed business plan (Exhibit S), registered BEC, funded it through associated companies, and facilitated the resignation of 11 members from Sentra and Megasave to join BEC between February and March 1999. The appellants claimed they withdrew from BEC at its first board meeting in November 1998 to avoid breaching their restraints.

• Whether the plaintiff acquired the rights under the restraint of trade agreements and when such rights vested
• Whether acquisition occurred before the alleged breaches and damage-causing events (member resignations)
• Whether a tacit cession of rights occurred through conduct prior to the written cession of 24 September 1999
• The effect of suspensive conditions on the transfer of rights inter partes and inter omnes
• Whether the appellants breached their restraint of trade obligations
• Whether such breaches caused the resignation of members from Sentra and Megasave
• Whether the plaintiff suffered damages as a result of the breaches
• The application of the 'but for' test in establishing causation
• Liability of co-actors pursuing a common purpose in breach of contract

The appeal was dismissed with costs, including costs of two counsel. The declaration of the High Court holding the appellants liable for damages caused by their breaches of the restraint of trade agreements was upheld. The matter of quantum of damages was separated and would be determined subsequently.

1. Rights arising from restraint of trade agreements constitute part of the goodwill of a business and are transferred when the business is sold as a going concern, either through the sale agreement itself or tacit cession evidenced by conduct. 2. A real agreement of cession can be concluded tacitly and inferred from the conduct of parties, without formalities, particularly where parties give effect to a reorganization scheme by one party taking possession and managing the entire business on behalf of the other. 3. Where a cession is subject to a suspensive condition, upon fulfillment of the condition, the rights vest in the cessionary ex tunc (retroactively) as between the parties, but as against third parties the rights vest from the date of fulfillment of the condition, for the protection of such third parties. 4. A cessionary acquires not only the cedent's contractual rights but also rights that have accrued from breaches of those contracts prior to cession, provided the damages are suffered after acquisition. 5. In establishing causation for breach of contract, a plaintiff must prove that the breach was "a cause" of the loss, not necessarily "the cause." Where there are multiple contributing causes, the plaintiff succeeds if the breach was one operative cause. 6. Where parties act in concert pursuant to a common plan to breach contractual obligations, each party is liable for the conduct of the others in achieving their common purpose, and it is unnecessary to establish particular causally-linked acts by each individual defendant. 7. Prima facie proof, in the absence of contradictory evidence from the opposing party, becomes conclusive proof, thereby discharging the plaintiff's onus of proof.

The court made several non-binding observations: 1. The court expressed reluctance to definitively determine the effect of a cession subject to a suspensive condition inter omnes (as against third parties), stating it would "accept" that rights vested on fulfillment of the condition for purposes of third parties, but did not need to express a conclusive opinion on this point given its findings. 2. The court noted it was not necessary to determine whether the businesses of Sentra and Megasave fell within the strict definition of "SC Business" in the sale agreement (defined as "retail supermarket business"), as the trial court had found these businesses were in fact transferred and conducted by the plaintiff, and the real agreement of cession had been concluded tacitly. 3. The court observed that the restraint agreements contained a stipulatio alteri (stipulation in favor of third parties) extending protection to "every other member of the Shoprite group," though this aspect was not central to the decision. 4. The court commented that had the defendants intended to establish merely a "buying forum" rather than a competing organization, one would have expected Sentra and Megasave to have been invited to participate, particularly given prior discussions about "banner groups." 5. The court noted it was "not called upon to consider whether all the damages claimed is a consequence of the resignations of the relevant members," as quantum had been separated for later determination. 6. The court observed that the defendants' attempt to withdraw admissions regarding ownership of the money market account on the eve of the appeal was procedurally problematic, but ultimately found it unnecessary to determine the issue definitively given alternative grounds for liability.

This case is significant in South African contract law for several reasons: 1. **Cession principles**: It clarifies the distinction between obligationary agreements to cede and real agreements of cession, and confirms that cession can be effected tacitly through conduct without formalities. 2. **Transfer of businesses as going concerns**: It establishes that rights arising from restraint of trade agreements form part of the goodwill of a business and are transferred with the business when sold as a going concern. 3. **Effect of suspensive conditions**: It addresses the temporal effect of suspensive conditions on the vesting of rights, distinguishing between effects inter partes (retroactive to agreement date) and inter omnes (from fulfillment date for third party protection). 4. **Restraint of trade enforcement**: It demonstrates robust enforcement of restraint of trade agreements where proper consideration was given and breaches were deliberate and planned. 5. **Causation in contract**: It applies and confirms the "but for" test and the principle that a plaintiff need only prove the breach was "a cause" rather than "the sole cause" of damages. 6. **Liability for concerted action**: It establishes that parties acting in concert to breach contractual obligations pursuant to a common purpose are each liable for the consequences of their collective conduct. The case reinforces the courts' willingness to draw adverse inferences from failures to call witnesses who could provide explanatory evidence, and from attempts to conceal documentary evidence.