Brief Summary

Contract Law — Unilateral Discretionary Power — Application for reconsideration of special leave to appeal — Applicants sought to challenge the amendment of credit terms under a Credit Facilities Agreement with the Giannacopoulos Group — The issue was whether SPAR's unilateral alteration of credit terms was subject to the arbitrio boni viri standard — The court held that SPAR's exercise of discretion must be reasonable, honest, and for a proper purpose, and found that SPAR failed to meet this standard, leading to the dismissal of the application for reconsideration with costs.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application in the Supreme Court of Appeal for reconsideration of a previously refused petition for special leave to appeal, brought under section 17(2)(f) of the Superior Courts Act 10 of 2013. The reconsideration was referred for oral argument by the Deputy President of the Supreme Court of Appeal in terms of the statutory mechanism governing petitions and reconsiderations.

The applicants were The Spar Group Limited, The Spar Guild of Southern Africa NPC, and Spar South Africa (Pty) Ltd (collectively referred to in the judgment as SPAR). The respondents comprised a group of corporate entities operating SPAR/SUPERSPAR stores and TOPS liquor stores, together with certain individual respondents identified as the Giannacopoulos brothers. The first to thirteenth respondents were described collectively as the Giannacopoulos Group, and the respondents collectively as the Giannacopoulos respondents.

The procedural history was central to the reconsideration. In the KwaZulu-Natal Division of the High Court, Pietermaritzburg, two urgent applications (the “termination application” and the “drop shipment application”) were heard together by Barnard AJ, who granted relief in favour of the Giannacopoulos respondents. Leave to appeal was granted to the full court, but the full court (Moodley J, with Hadebe and Bezuidenhout JJ concurring) dismissed SPAR’s appeals. SPAR then petitioned the Supreme Court of Appeal for special leave to appeal, which was dismissed by two judges of that court. SPAR thereafter sought reconsideration of that refusal under section 17(2)(f). The President of the Supreme Court of Appeal (acting through Petse AP) referred the matter for oral argument and directed that the merits of the appeal could be argued if required.

The general subject-matter of the dispute concerned contractual credit facilities and drop shipment arrangements within the SPAR voluntary trading group system, and more specifically whether SPAR’s unilateral contractual discretion to vary or terminate credit facilities was constrained by the arbitrio boni viri standard (requiring the discretion to be exercised reasonably, honestly, and for a proper purpose), and whether the discretion had been so exercised on the facts.

2. Material Facts

SPAR operated a wholesale and distribution model through which members of the SPAR Guild obtained goods and related services, including the availability (if approved) of credit facilities. The Giannacopoulos Group had participated in the system for approximately 23 years, operating numerous SPAR/SUPERSPAR and TOPS liquor stores, with approximately 2800 employees. Each corporate entity in the Giannacopoulos Group was a member of the Guild and had concluded a Standard Form of Application for Credit Facilities with SPAR (described by the court as the Credit Facilities Agreement), which enabled the purchase of goods on credit and the use of drop shipment services.

The credit relationship was governed by standard terms, including clause 5, which provided that credit facilities were granted at SPAR’s discretion and that SPAR could, without notice, at any time vary or terminate such facilities. The clause then recorded payment terms that applied “until otherwise notified” by SPAR, namely 19 days for warehouse transactions and 31 days for drop shipment transactions, calculated from the date of the weekly statement.

It was common cause (or treated as effectively uncontested for the purposes of the reconsideration) that the credit terms had remained unchanged for a long period, in some cases over 20 years, until the events of 2019. The court also accepted, based on the record and SPAR’s own papers and concessions in argument, that there was an existing contractual framework regulating the credit facilities rather than a series of discrete, newly negotiated credit agreements concluded afresh each time credit was utilised.

The relationship between SPAR and the Giannacopoulos Group deteriorated in the years preceding the High Court litigation. While the detailed causes of the breakdown were not considered necessary to determine the reconsideration issue, the judgment recorded that SPAR no longer wished to trade with the group or allow them to continue trading under the SPAR brand, and that the period included unsuccessful attempts by SPAR (via ex parte proceedings) to assume control over the group’s retail stores in order to perfect notarial bonds. Those ex parte orders were later set aside, with punitive costs orders against SPAR.

Following the setting aside of the ex parte orders, SPAR altered the credit and drop shipment terms. At a meeting on 23 October 2019, SPAR recorded reasons for restricting and altering the credit and drop shipment arrangements, including concerns about the Giannacopoulos Group’s cash flow and liquidity position as reflected in financial records, the occurrence of returned payments, and labour compliance orders issued by the Department of Labour. The meeting resolved to amend the payment terms for both warehouse and drop shipment transactions from 19/31 days to 7 days, to impose drop shipment supplier credit limits for the top 10 suppliers, and to require further documentation from the Giannacopoulos Group.

The Giannacopoulos respondents challenged the legitimacy and good faith of these alterations. For present purposes, the reconsideration judgment emphasised facts relevant to the exercise of discretion, including that the Giannacopoulos Group contended there had been no default to SPAR and no outstanding debts at the time of the alterations, and that the restrictions and their timing adversely affected trading, including during a peak period.

Two High Court applications followed and were heard together. In the termination application, Barnard AJ set aside the 2019 and 2020 termination decisions and notices and set aside the 23 October 2019 decision varying credit facilities. In the drop shipment application, Barnard AJ declared the imposed restrictions on drop shipment supplies unlawful and invalid, reasoning (among other things) that clause 5 related to payment periods and did not authorise quantity restrictions. The full court dismissed SPAR’s appeals and held, in substance, that SPAR’s discretion under clause 5 had to be exercised reasonably and honestly (arbitrio boni viri) and that it had not been so exercised, criticising SPAR’s conduct and questioning the timing and purpose of the credit reductions.

3. Legal Issues

The central legal question on reconsideration was whether SPAR’s unilateral contractual discretion under clause 5 to vary or terminate credit facilities (and related drop shipment arrangements) was subject to the arbitrio boni viri standard as articulated in the case law, particularly NBS Boland Bank Ltd v One Berg River Drive CC and Others; Deep and Another v Absa Bank Ltd; Friedman v Standard Bank of SA Ltd. The reconsideration also required the court to decide, if the standard applied, whether SPAR had exercised its discretion reasonably, honestly, and for a proper purpose, or whether it had acted arbitrarily or in bad faith.

A further issue, arising from the procedural posture, concerned the requirements for special leave to appeal and reconsideration under the Superior Courts Act. The applicants needed to establish not only reasonable prospects of success, but also special circumstances justifying a further appeal to the Supreme Court of Appeal, given that the matter came before the court as a reconsideration of a refused petition.

The dispute primarily concerned the application of legal standards to facts. It required determining the scope and application of a common-law constraint (arbitrio boni viri) upon a contractual discretion and assessing, in light of the factual context, whether the discretion was properly exercised. It also included an interpretive component concerning whether the clause and surrounding contractual framework created an ongoing binding arrangement or merely enabled discrete, repeatedly renewed offers of credit.

4. Court’s Reasoning

The court began by setting out the statutory framework governing reconsideration under section 17(2)(f) of the Superior Courts Act, emphasising that reconsideration entails effectively reconsidering the special leave application. It reiterated that special leave to appeal requires both reasonable prospects of success and special circumstances, with reference to Cook v Morrison and Another, which describes special circumstances as including, among other things, a substantial point of law, very strong prospects such that refusal would result in a manifest denial of justice, or great importance to the parties or the public.

Turning to the substantive legal point, the court treated the matter as raising a point of law concerning the arbitrio boni viri limitation on contractual discretions. It surveyed authorities describing the content of the standard, including Juglal N O and Another v Shoprite Checkers (Pty) Ltd t/a OK Franchise Division, Dharumpal Transport (Pty) Ltd v Dharumpal, Mount Amanzi Share Block Limited v Body Corporate of Windsor Heights Sectional Title Scheme and Others, and Absa Bank Ltd v Lombard. The court distilled from these cases that, where applicable, arbitrio boni viri requires the discretion to be exercised in good faith, with reasonable judgment, and without arbitrariness, involving an objective assessment of reasonableness.

The core debate was whether clause 5 merely permitted SPAR to decide from time to time whether to extend credit as a fresh offer that the retailer could accept or reject (in which case SPAR argued the NBS Boland principle would not apply), or whether clause 5 formed part of an existing binding contractual arrangement in which the variation power enabled SPAR to unilaterally alter the performance owed by the Giannacopoulos Group under an existing contract (in which case the NBS Boland constraint would apply).

The court rejected SPAR’s characterisation. Applying standard interpretive principles (language, context, and purpose), it held that clause 5 could not be read in isolation and must be understood within the broader standard terms of sale, which included provisions about security, payment allocation, reservation of ownership, restrictions on notarial bonds and pledges, and SPAR’s ability to require security from time to time. These were treated as indicative of a fixed contractual arrangement rather than a series of ad hoc negotiations.

On the language of clause 5 itself, the court emphasised that the power to “vary or terminate such facilities” and the phrase “until otherwise notified” presupposed existing terms that could be varied, not merely hypothetical future agreements. It also relied on SPAR’s own papers, in which SPAR acknowledged that the Giannacopoulos entities were bound by the credit application terms and that the right to credit came into existence simultaneously with SPAR’s right to vary or terminate the facility under clause 5. SPAR’s concession in argument that an existing contract was in place further undermined the contention that each extension of credit constituted a new contract.

Having found that SPAR’s variation of credit terms affected the Giannacopoulos Group’s obligations under an existing contract, the court held that SPAR’s discretion had to be exercised arbitrio boni viri. It distinguished the authorities relied on by SPAR concerning fairness and reasonableness as free-standing bases for non-enforcement of contracts (including Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others, Bredenkamp and Others v Standard Bank of SA Ltd, South African Maritime Safety Authority v McKenzie, and Old Mutual Limited and Others v Moyo and Another), explaining that those cases dealt with the principle that courts do not refuse to enforce contractual terms merely because they appear unfair or unreasonable. The present case, by contrast, concerned a contractual discretion to unilaterally vary the terms of performance, which the common law permits but constrains through the arbitrio boni viri standard.

The court then assessed whether SPAR had met that standard. It regarded the context as important, noting the long-standing credit terms, the Giannacopoulos Group’s reliance on them in structuring its businesses, and the absence of evidence of default or outstanding debt at the time of variation. It considered SPAR’s reasons for variation and the respondents’ challenges to those reasons, including their contention that the liquidity analysis was not a sound measure for supermarkets with high cash turnover, and that the returned debits were a once-off incident tied to banking reactions after SPAR’s purported termination actions. The court further found the sudden imposition of drop shipment limits particularly lacking in justification, noting that historically there had been no such limits, and that imposing limits on drop shipment while leaving warehouse supplies unlimited was illogical if the concern was credit exposure.

The court also attached significance to timing and surrounding conduct. It accepted the thrust of the full court’s view that, when seen together with SPAR’s unsuccessful ex parte perfection efforts and contested termination steps, the variation and restrictions did not appear to be in good faith or for a legitimate purpose. The court concluded that the facts supported the inference that the alteration of credit and drop shipment terms formed part of an effort to throttle the Giannacopoulos Group’s business after SPAR’s earlier steps had failed.

On that basis, the court was not persuaded that SPAR had demonstrated the requirements for special leave to appeal, and consequently it found no basis to vary the earlier decision refusing the petition.

5. Outcome and Relief

The Supreme Court of Appeal dismissed the application for reconsideration of the refusal of special leave to appeal. The applicants were ordered to pay costs, including the costs of two counsel where so employed.

Cases Cited

Cook v Morrison and Another [2019] ZASCA 8; [2019] 3 All SA 673 (SCA); 2019 (5) SA 51 (SCA).

NBS Boland Bank Ltd v One Berg River Drive CC and Others; Deep and Another v Absa Bank Ltd; Friedman v Standard Bank of SA Ltd [1999] ZASCA 60; 1999 (4) SA 928 (SCA); [1999] 4 All SA 183 (SCA).

Juglal N O and Another v Shoprite Checkers (Pty) Ltd t/a OK Franchise Division [2004] ZASCA 33; [2004] 2 All SA 268 (SCA); 2004 (5) SA 248 (SCA).

Dharumpal Transport (Pty) Ltd v Dharumpal 1956 (1) SA 700 (A).

Mount Amanzi Share Block Limited v Body Corporate of Windsor Heights Sectional Title Scheme and Others [2017] ZASCA 38.

Absa Bank Ltd v Lombard [2005] ZASCA 27; 2005 (5) SA 350 (SCA).

Spar Group Limited and Others v Twelve Gods Supermarket (Pty) Ltd and Others [2022] ZAKZPHC 29; 2022 JDR 1909 (KZN).

Erasmus and Others v Senwes Ltd and Others [2005] ZAGPHC 5; 2006 (3) SA 529 (T); (2006) 27 ILJ 259 (T).

Moe Bros v White 1925 AD 71.

Holmes v Goodall and Williams Ltd 1936 CPD 35.

Bellville-Inry (Edms) Bpk v Continental China (Pty) Ltd 1976 (3) SA 583 (C).

Remini v Basson 1993 (3) SA 204 (N).

Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others [2020] ZACC 13; 2020 (5) SA 247 (CC); 2020 (9) BCLR 1098 (CC).

Bredenkamp and Others v Standard Bank of SA Ltd [2010] ZASCA 75; 2010 (4) SA 468 (SCA); 2010 (9) BCLR 892 (SCA); [2010] 4 All SA 113 (SCA).

South African Maritime Safety Authority v McKenzie [2010] ZASCA 2; 2010 (3) SA 601 (SCA); [2010] 3 All SA 1 (SCA); (2010) 31 ILJ 529 (SCA); [2010] 5 BLLR 488 (SCA).

Old Mutual Limited and Others v Moyo and Another [2020] ZAGPJHC 1; [2020] 4 BLLR 401 (GJ); [2020] 2 All SA 261 (GJ); (2020) 41 ILJ 1085 (GJ).

Legislation Cited

Superior Courts Act 10 of 2013, sections 17(2)(d) and 17(2)(f).

Rules of Court Cited

No rules of court were cited in the judgment; the procedure was addressed through section 17 of the Superior Courts Act 10 of 2013.

Held

The court held that the contractual arrangement arising from the standard-form credit facilities documentation constituted an existing contractual framework, and that SPAR’s exercise of its clause 5 power to vary credit facilities was not a series of fresh offers of credit but a unilateral variation affecting the Giannacopoulos Group’s performance obligations under an ongoing agreement. In those circumstances, SPAR’s discretion was subject to the arbitrio boni viri standard requiring the discretion to be exercised reasonably, honestly, and for a proper purpose.

On the facts as evaluated in the reconsideration judgment, SPAR did not demonstrate that its variation of the credit terms and the imposition of drop shipment limits were exercised in accordance with that standard, particularly in light of the context, the lack of evidence of default at the time, the illogical nature of certain limits, and the timing and surrounding conduct. Consequently, the court was not persuaded that the requirements for special leave to appeal were satisfied, and it dismissed the reconsideration application with costs.

LEGAL PRINCIPLES

The judgment applied the principle that, where a contract confers a unilateral discretionary power on one party to vary contractual terms affecting the other party’s performance, the discretion is presumptively constrained by the arbitrio boni viri standard unless the contract clearly indicates that the discretion is wholly unfettered.

The arbitrio boni viri standard, as described in the cited jurisprudence and applied here, requires the discretionary power to be exercised reasonably, honestly, in good faith, and without arbitrariness, assessed objectively in the factual context of the parties’ relationship and the purpose of the discretion.

The judgment further applied the procedural principle that an applicant seeking special leave to appeal (and, on reconsideration, to overturn a refusal of a petition) must show not only reasonable prospects of success but also special circumstances warranting an appeal to the Supreme Court of Appeal, as contemplated by the Superior Courts Act and explained in the court’s jurisprudence.

Spar Group Limited and Others v Twelve Gods Supermarket (Pty) Ltd and Others (1100/2022) [2025] ZASCA 7 (30 January 2025)