- The Johannesburg High Court has ruled in Pick n Pay’s favour in the application it brought against a franchisee over a nearly R200 million debt.
- But franchisee, John. A Baladakis, is vowing to fight this and plans to appeal the judgment.
- His application for leave to appeal will be heard on Wednesday.
The Johannesburg High Court has ruled in favour of Pick n Pay in a case the JSE-listed retailer brought against one of its key franchisees over a nearly R200 million debt it is allegedly owed.
The judgment, which was handed down on Friday, also referred to some of arguments made in the legal case by franchisee John A Baladakis’s as “vague”, “frivolous” and “superficial”.
But Baladakis has vowed to fight back, saying in a statement on Sunday that he plans to appeal the court ruling that allows Pick n Pay to assume control of his stores, which generate annual turnover of more than R1.5 billion.
Baladakis, who has been a Pick n Pay franchisee for three decades and operates 10 supermarkets and nine liquor stores on the East Rand, said that Pick n Pay had already “begun to attempt to gain physical control of some of the stores” on Saturday, but that on the same day he delivered a notice of application for leave to appeal the judgment and order at the Supreme Court of Appeal.
The application, which will be heard in the Johannesburg High Court on Wednesday, “suspends the operation and execution of the order granted to Pick n Pay pending the outcome of the application and subsequent appeal”.
Baladakis, who is a past head of the Franchise Association of SA, said that, in effect, it meant the order cannot be enforced by Pick n Pay.
Contacted for comment, Pick n Pay spokesperson Tamra Veley said: “The court ruled in Pick n Pay’s favour and we respect both the court and their right to appeal.”
Ahead of the case being heard in court last week, News24 reported how Baladakis believed Pick n Pay’s implementation of a bulk discounting model six years ago put his franchise group in its current situation. In the initial reports News24 carried, Baladakis said the amount in question was R194 million. However, the amount mentioned in the court ruling was R188 million.
Baladakis told News24 previously he did not think the debt was lawful, so he decided to challenge it.
The ruling on Friday therefore came as a blow to him.
“We are extremely disappointed in the court’s ruling. Pick n Pay are attempting to forcibly gain control of our family-run business, which has been part of their success over the last three decades. The ruling was made despite the fact that the debt is a result of changes Pick n Pay itself made. Will continue to fight this matter with all the means at our disposal.”
He added the changes in the discounting model Pick n Pay introduced to its franchises in 2018 favoured sales volumes over margins and had caused financial distress and escalating debt in his business.
The changes employed by Pick n Pay in its franchised stores, according to Baladakis, had created an “unreasonable situation” contrary to the “contract the parties entered into”.
“We have done business with Pick n Pay based on a contract which provides for Pick n Pay to implement a franchise model that would allow both Pick n Pay and the franchisee to derive fair profits. This has not been the case in the past five years. We estimate Pick n Pay are generating average profits of over R100 million a year from our stores. We in turn, are losing millions a year.”
He said the dispute also raised questions about “potentially anti-competitive behaviour” on the part of Pick n Pay as it was the dominant supplier to his stores.
“We find it distressing that despite repeated attempts to resolve the debt situation between ourselves and Pick n Pay management, they have neglected to address it satisfactorily, and are pursuing an alleged debt which does not, in our view, exist. We believe there have been no breach events which could trigger Pick n Pay perfecting the debt and taking over the stores we have worked so hard to build.”
The court ruling on Friday, however, was critical of the arguments put forward in defence against Pick n Pay’s application.
As far as the debt Pick n Pay argued was owed to it, the court ruled that the respondent could not “delay the timeous and full payment of all and any monies due and payable under or in terms of agreements”.
It also said that “agreements must be complied and adhered to otherwise commercial ventures become imperilled”.
As far as the claim put to the court by Baladakis’s legal team was concerned, the court said there were two legs to it, the first being that the implementation of a new discount model by Pick n Pay in 2018 had resulted in the respondents “suffering extensive losses, which include loss of profits and additional indebtedness and interest yet to be qualified”.
The second aspect of the argument was premised on the provisions of the Competition Act which rested “on bad conduct on the part of the applicant in imposing fair, unreasonable or unjust prices”.
The court ruled that both causes of action were vague and the argument that had been presented was “superficial”.
It was particularly scathing of the argument put forward that Pick n Pay’s application contravened the Competition Act.
The court said the respondent had argued that should an order be granted in Pick n Pay’s favour, “the applicant would establish control over the business of the respondent’s as defined by the Competition Act”.
It added that Baladakis’s legal team argued that this would result in a merger between Pick n Pay and the respondent’s businesses and would therefore contravene provisions of the Competition Act “as a merger” necessitated a formal notification to competition authorities. The basis of this argument, it said was that this notification had not been delivered, and that the approval of the so-called merger had not occurred.
The court found though that Pick n Pay had demonstrated that following this argument no “security could be perfected without obtaining merger approval”.
“This would have a drastic consequence for commercial life in South Africa as the process of merger approval typically takes months to finalise in circumstances where perfection must typically take place on an urgent basis in order to protect the commercial interests of the security holder,” said the court.
The court said this “novel approach” to the Competition Act by Baladakis’s team was unsustainable, arguing that if a “sensible and business-like” approach was applied to the matter, the definition of merger is “intended to capture only those transactions that carry the potentiality of effecting long-lasting structural changes in the relevant markets”.
It said that imposing further restraints in the business world “unduly restrains freedom of trade and competition”.
“Say, for instance, a newcomer wants to do business with the applicant. The newcomer does not have financial resources but is given the opportunity by the applicant of credit, provided the newcomer pledges its immovable assets as security. Imposing merger authorisation by the competition authorities in the event of executing security would deter opportunities to such newcomers”.
The court ruled that “bearing in mind the financial resources” of the respondent as related in the answering affidavits and that the businesses involved millions of rands, this defence in terms of the Competition Act was “opportunistic and frivolous”.