Piet Olivier | Property yields to purpose: Shoprite Checkers v MEC

06 July 2015 – In the recent Shoprite Checkers v MEC [2015] ZACC 23 the Constitutional Court forgets we have a property clause. In its anxiety to preserve the state’s ability to regulate in the public interest, the Court obscured and weakened our property rights.

Shoprite is about a liquor licence. In 2003, the Eastern Cape government passed the Eastern Cape Liquor Act (“ECLA”), which changed how the sale of alcohol was regulated in the province. Before the passing of the ECLA, Shoprite held a “grocer’s wine licence”, which allowed it to sell wine alongside food in its supermarkets. The ECLA abolished this licence. Shoprite was, instead, allowed to apply for a new licence (called an “all-kinds licence”), which permitted it to sell any kind of liquor, but only in dedicated bottle stores and not in its supermarkets.

Shoprite took the Eastern Cape government to the High Court in Grahamstown. It argued that the ECLA, by taking away its grocer’s wine licence, arbitrarily and unconstitutionally deprived it of property. The High Court agreed. It struck down the relevant parts of the ECLA and referred the matter to the Constitutional Court for confirmation (under section 167(5) of the Constitution, the Constitutional Court must make the final decision whether legislation is unconstitutional). A majority of the Court refused to do this, holding that Shoprite had not been arbitrarily deprived of property and that the ECLA was thus constitutional.

Section 25(1) of the Constitution states that “no law may permit arbitrary deprivation of property”. In order to succeed, Shoprite therefore first had to show that its grocer’s wine licence was “property” in terms of the section (and then go on to show that the ECLA arbitrarily deprived it of this property). Now, some things are quite obviously property, such as pieces of land and other physical objects — like a car or a boat. When it comes to more abstract interests (often called “new property”), it gets trickier. Is a share property? What about intellectual property rights? Or, say, a licence granted by the state?

The Court split three ways on this question. Two of the judgments (together forming a slim six-judge majority) held that the grocer’s wine licence was property, but for very different reasons. Justice Johan Froneman, joined by three other justices, focused on the potential of the wine licence to further other constitutional rights. While not the case with Shoprite, a grocer’s wine licence could be held by a person who needs it in order to run a small business. The licence could therefore further the right to freedom of trade and the related right to dignity. In Justice Froneman’s words, the licence could “be held by a person who needs it to live a life of individual self-fulfillment and reciprocal dignity to others”. For his judgment, the fact that the licence bore the traditional hallmarks of property (it was permanent, had value and could be traded) was more of an afterthought.

Justice Madlanga, joined only by Justice Tshiqi, took issue with this approach. While he agreed that the licence was property, he argued that Justice Froneman’s focus on property’s potential to further other rights rather than on what property actually is diminishes the stand-alone right to property so that “it does little more than ride on the coat-tails” of other rights. And this is true. If something is property only to the extent that it protects other rights, why protect the right to property in the first place? If the state deprives you of your small business, why rely on a hollowed-out and mostly instrumental right to property when you could just go straight to the rights to freedom of trade and dignity? Instead, Justice Madlanga asked the common-sense question: did a grocer’s wine licence share the attributes of more traditional kinds of property? He found that it did. It “was something in hand”, was relatively permanent, could be traded (and even sold) and had commercial value. It was therefore property.

Deputy Chief Justice Moseneke, joined by four other justices, dissented on this issue and held that the licence was not property. Like Justice Froneman, his primary focus was not whether the licence bore the hallmarks of property. Instead, he adopted a largely consequentialist approach: would a finding that the licence is property diminish the ability of the state to regulate in the public interest? According to Justice Moseneke, it would. Such a finding might expose a province to constitutional challenge every time it exercises its power to regulate the liquor industry and “may very well create very difficult property jurisprudence”.

This concern is misplaced, as it confuses the concept of property with when it is acceptable to interfere with property. Of course (as all the justices were at pains to point out) we must not interpret the property clause so as to stymie the state’s responsibility to legislate in the public interest and to right apartheid’s enduring wrongs. But that is why the property clause does not prohibit every deprivation of property — it only prohibits the arbitrary deprivation of property. And a deprivation is not arbitrary if it is a defensible means to a legitimate government end. Because of this, a court can take an honest and direct approach to whether something is property (as Justice Madlanga did) without creating roadblocks to progress and transformation. This approach does not conflate the question of whether something is property (a less value-laden enquiry) with the question of whether the state should be allowed to interfere with it (a different, legitimately more value-laden enquiry)

Justice Froneman’s instrumentalist approach suffers from a similar problem. Whether something is property is not the same as whether its protection furthers other rights. That a piece of property can be put to a progressive purpose doesn’t affect whether it is property, just as speech remains speech whether it is progressive or not. That property can be put to such a purpose does, however, affect whether interference with it would be arbitrary. More specifically, if a particular piece of property realises other constitutional rights, it is less likely that state interference with it would be a defensible means to a legitimate government end. But it doesn’t burnish its status as property.

Justice Moseneke’s judgment has a further, major problem. While he ended up concluding that a grocer’s wine licence is not property, his preference was to avoid the issue altogether as, according to him, deciding it was unnecessary. This was so because asking whether the abolition of the licence was rational (a general requirement of the rule of law and one that does not require deprivation of property) was the same as assuming Shoprite had been deprived of property and asking whether this deprivation was arbitrary.

This ignores established Constitutional Court precedent. In FNB v Commissioner 2002 (4) SA 768, the Court held that the arbitrariness test in section 25(1) is more demanding than the very deferential general rationality test. In other words, it is easier for the state to prove that a law is rational than to prove that a deprivation was not arbitrary. To say that the two tests set the bar equally high is thus flatly incorrect, as was pointed out by Justice Madlanga. In addition, it renders section 25(1) of the Constitution superfluous. Why go to the trouble of convincing a court that your interest is property if the state could justify its actions with a mere rationality test? It also renders section 25(1) ineffective. The state could justify any deprivation of property, provided it could show a rational basis for the decision. This is very easy to do.

Ultimately, Justices Froneman and Moseneke (and thus the majority of the Court) held that, to the extent that Shoprite was deprived of property, this deprivation was not arbitrary. On the other hand, in a move that may demand too much of government, Justice Madlanga held that the deprivation was arbitrary because the government had failed adequately to justify it.

The outcome mandated by Justices Froneman and Moseneke is doubtlessly correct — it would be absurd if the Constitution forever held the state to a licensing regime enacted when FW de Klerk was president. However, their views on how to define property, and the Deputy Chief Justice’s holding that deprivations of property can be justified on the basis of mere rationality, obscure the application of section 25 and weaken our property rights. Fortunately, they are not part of Shoprite’s ratio decidendi and thus do not bind any future court. On these questions, Justice Madlanga was right. Let’s hope the courts choose his approach.

Piet Olivier

About Piet Olivier

Piet Olivier is a researcher at the Max Planck Institute for Comparative and International Private Law in Hamburg, Germany. He is an admitted attorney and holds a BA from the University of Stellenbosch and an LLB from the University of Cape Town. He has clerked at the Constitutional Court in the chambers of Chief Justice Mogoeng and Justice van der Westhuizen. In September he is heading to Oxford to read for a BCL. He is interested in the relationship between private law, the Constitution, and social and technological change.