Phumelela Gaming and Leisure Ltd v Gründlingh and Others

• Jurisdiction: South Africa
• Judge: Langa CJ, Moseneke DCJ, Mokgoro J, O'Regan J, Sachs J, Skweyiya J, Van Der Westhuizen J and Yacoob J
• Judgment Date: 18 May 2006
• Citation: 2007 (6) SA 350 (CC)
• Docket Number: CCT31/05
• Hearing Date: 15 November 2005
• Counsel: D N Unterhalter SC (with J M Heher, J A Cassette and A G Gotz) for the applicant G J Marcus SC (with A P H Cockerell) for the first and second respondents S V Notshe SC for the fourth respondent
• Court: Constitutional Court

Langa CJ:

Introduction C

[1] A person who wishes to wager money on the outcome of a horserace may choose to place a bet with a bookmaker or on a totalisator. The two systems are different in that the bookmaker quotes odds in advance while the totalisator does not fix odds in advance but pays out 'dividends' in proportion to the amount of money wagered. To the D extent that both rely for their business on the betting money of the public, they are in competition. Both operate by virtue of licences issued by the provinces and their activities are regulated by provincial legislation [1] within the framework of national legislation [2] and the Constitution. E

[2] This case concerns a delictual claim by a totalisator against two bookmakers on the grounds that they are exploiting its dividend results in a manner that constitutes unlawful competition.

The parties F

[3] The applicant is Phumelela Gaming and Leisure Ltd (Phumelela), a public company which has its place of business in Turffontein, Johannesburg. It is licensed to operate totalisator betting in seven of the nine provinces and conducts horseracing at seven of the twelve racecourses in South Africa. Phumelela applies for leave to appeal against the judgment of the Supreme Court of Appeal. It also seeks direct access to this Court to challenge certain provisions of the G National Gambling Act 7 of 2004 (the Act).

[4] Mr André Gründlingh and Mr Ulrich Osmund Schüler, the first and second respondents respectively, conduct business as bookmakers (they will be referred to collectively in this judgment as H 'the bookmakers'). The third respondent is the Minister of Trade and Industry (the minister). The fourth and fifth respondents are the National Gambling Board and

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the Gauteng Gambling Board respectively. The sixth respondent is the Gauteng MEC for Finance A and Economic Affairs.

The dispute

[5] Totalisators work on the basis that all the money placed on any particular betting event is pooled and, after deductions for administration fees and taxes, divided equally among the winners. The B amount of money paid out to an individual winner therefore depends on the size of the pool and the number of winning bets.

[6] The totalisator operated by Phumelela is a national computerised system for betting on horseracing and other sports, operating on and off racecourses throughout the country. Phumelela C currently has approximately 2 600 terminals at 220 branches throughout the country, which are linked to a central computer at Phumelela's head office. Bets can also be placed by telephone or on the internet. The results of the races and the totalisator dividends to be paid out are publicised widely by Phumelela at the racecourse, on D television, over a phone-in service, in the press and on certain radio channels.

[7] A bookmaker, on the other hand, fixes odds in advance. A bookmaker may take 'fixed odds bets', 'starting price bets' and 'open bets', depending on what the provincial legislation and the bookmaker's individual licence permits. To determine a 'fixed odds E bet', a bookmaker, prior to the race, calculates contingencies on a particular event happening. With an 'open bet' no fixed odds are agreed upon at the time that the bet is laid, but the amount to be paid out is dependent on other contingencies. 'Starting price bets' are a sub-category of open bets and entail an on-course bookmaker F offering the odds that are the average of all the fixed-odds at the start of the race.

[8] Apart from a simple bet on which horse will win a race, there are the so-called 'exotic bets'. These are more complex in that punters must predict, for example, the winner of four or six consecutive horse races, or the first to third or first to fourth G places in a particular race in the correct order. As these results are more difficult to predict, winners are fewer and dividends larger. This in turn makes these bets attractive to punters.

[9] Phumelela approached the Pretoria High Court seeking an interdict, which the High Court granted, prohibiting the bookmakers from unlawfully taking bets which were not 'fixed odds bets', and H from engaging in conduct that amounts to unlawful competition by using Phumelela's published results or dividends derived from its totalisator pool, as a basis on which to offer or take bets.

[10] When the matter came before the Supreme Court of Appeal on I appeal by the bookmakers, [3] the decision of the High Court was reversed on both issues. On the first, the unanimous finding of the Supreme

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Court of Appeal was that the 'exotic bets' that formed the subject matter of the complaint were 'fixed odds A bets', which meant that bookmakers were perfectly entitled to deal with them. This aspect has not been pursued any further by Phumelela and no issue is made of it in these proceedings. On the second issue, the Supreme Court of Appeal held by a majority that the conduct of the bookmakers was not wrongful and did not constitute the delict of unlawful competition. The application to appeal to this Court is B concerned only with this issue.

The Supreme Court of Appeal

[11] In its majority judgment, the Supreme Court of Appeal accepted that Phumelela 'and its predecessors have developed a business system of such reliability and sophistication that it has earned the trust of C the betting public', and that the 'resulting income potential is part of its goodwill and as such a valuable asset'. [4] The majority in the Supreme Court of Appeal held that Phumelela's business system constitutes property and also inclined to the view that the bookmakers, in the course of their business, 'appropriate the D results of [Phumelela's] endeavour to calculate pay-out dividends, something that is fundamental to the operation of its totalisator business'. [5]

[12] The Court saw the test for wrongfulness in the context of an action based on unlawful competition as based on public policy and the legal convictions of the community, which would ordinarily include E 'not only right-thinking members of the community who might be expected to hold a view on the particular topic but also . . . those involved in the industry'. [6] In the application of the test, the Court considered that factors which come into play include: F

'an inherent sense of fairplay and honesty; the importance of a free market and strong competition in our economic system; the question whether the parties concerned are competitors; [and] conventions with other countries, like the Convention of Paris'. [7]

[13] Whilst the majority judgment accepted that legislative provisions are expressions of policy, it held that they may, and in the G Court's view they do in this case, give expression to the community's legal convictions. [8]

[14] After reviewing legislative enactments [9] on the issue from as far back H

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as 1961, the majority of the Court concluded that, 'apart from a short interval of proscription enacted by the Gauteng Provincial A Legislature', legislation in the Transvaal (more recently in Gauteng) and nationally did not consider it offensive for bookmakers to make use of totalisator dividends in calculating the payout on exotic bets. The Court observed that for many years before 1995, such conduct by bookmakers was expressly permitted and that in terms of the national B Act presently in force it is lawful. [10]

[15] The Court took the view that once it was accepted that the practice was legislatively sanctioned and had been so for a long time, it could never be said to be unfair or dishonest. It reasoned that it was unlikely that the legal convictions of the community would, after a C long period where a practice was accepted and legislatively sanctioned, suddenly turn around and frown upon such practice. [11] It held that the conduct in question was neither unfair nor dishonest and accordingly did not amount to unlawful competition. D

[16] In a comprehensive and careful minority judgment, Comrie AJA disagreed with the majority finding, his view being that the competition was unlawful. [12]

[17] I pause here to note that the national Act referred to in the reasoning of the Supreme Court of Appeal is the National Gambling E Act 7 of 2004. The Act was not in force when the application for an interdict was entertained by the High Court. It only came into force a few months before the matter was heard by the Supreme Court of Appeal.

The application before this Court F

[18] In this Court, Phumelela challenges the finding of the Supreme Court of Appeal that the conduct of the bookmakers is not wrongful. Phumelela contends that the Supreme Court of Appeal erred in that it relied on the provisions of the Act as well as various provincial enactments but omitted to have any regard to the provisions of the G Constitution when it embarked on its investigation of the legal convictions of the community (the boni mores). More specifically, Phumelela contends that the majority judgment of the Supreme Court of Appeal failed to develop the common law, as envisaged in s 39(2) of the Constitution, which requires every court to promote 'the spirit, purport and objects of the Bill of Rights' when H interpreting legislation, and when

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developing the common law or customary law. [13] It was contended in the A alternative that the Supreme Court of Appeal developed the common law of unlawful competition in a manner which results in the unlawful appropriation of Phumelela's intellectual property, in breach of s 25 of the Constitution. [14]

[19] It bears noting that the application made to this Court is somewhat different in focus to the case brought before the High Court and the Supreme Court of Appeal. In those Courts, Phumelela's case was B that the bookmakers should be prohibited from using Phumelela's results or dividends...