Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Harms DP, Ponnan JA, Maya JA, Shongwe JA and Tshiqi JA
• Judgment Date: 17 March 2011
• Citation: 2011 (4) SA 276 (SCA)
• Docket Number: 20/10
• Hearing Date: 14 February 2011
• Counsel: MJ Fitzgerald SC (with JC Butler SC) for the appellant. A Subel SC (with J Blou SC) for the respondent.
• Court: Supreme Court of Appeal

Ponnan JA (Harms DP, Maya JA, Shongwe JA and Tshiqi JA concurring):

Introduction D

[1] Messrs Robert Brozin and Fernando Duarte entertained the vision of establishing a chain of fast food chicken outlets. In time they were joined by Mr Eric Parker, who had expertise in marketing and brand development, and the three of them launched Nando's, a branded fast food franchise chain specialising in grilled Portuguese chicken. From those E relatively humble beginnings in 1991 the Nando's brand rapidly expanded within South Africa, into neighbouring countries, and some 30 countries internationally. The respondent, Chickenland (Pty) Ltd (Chickenland), a wholly owned subsidiary of Nando's Group Holdings Limited, is the primary operating entity within the Nando's Group.

F [2] The business model chosen by Chickenland for the franchise business is what may loosely be termed a joint venture partnership. Each new franchise store became a subsidiary of Chickenland. Typically, Chickenland owned 51% of that subsidiary and its joint venture partner, who was the actual operator of the store, owned 49%.

G [3] While still in its infancy, Chickenland prepared the chicken in a central kitchen and delivered them in refrigerated trucks to the restaurants of its joint venture partners, where they were sold to customers. But, as the Nando's brand expanded, it proved more convenient for Chickenland to supply its joint venture partners with marinades, sauces and dressings that were prepared to its specifications. In time it also H began to market bottled sauces, initially through its restaurants and thereafter through leading supermarket chains, both locally and internationally.

[4] Spices and condiments were important ingredients of Nando's sauces and marinades. When Chickenland experienced problems with its I then supplier of spices, it turned to the appellant, the Freddy Hirsch Group (Pty) Ltd (Hirsch), whose primary business was the manufacture of spices. On 29 August 1994 Chickenland applied in writing to Hirsch on the latter's standard credit application form for a line of credit. Hirsch approved the application and took to supplying the latter with spice packs consisting of a blend of different spices prepared in accordance J with the latter's specifications.

Ponnan JA (Harms DP, Maya JA, Shongwe JA and Tshiqi JA concurring)

[5] The reverse of the Hirsch credit application form that had been A completed by Miss Lesley Smith, who was duly authorised to do so on behalf of Chickenland, contained what were termed Standard Conditions of Sale and Credit. Those included, inter alia, provisions relating to payment (which had to be effected within 30 days), interest, reservation of ownership and delivery. Most importantly it provided: B

'4.

Limited liability

4.1

The Company shall not be liable for any defect in the goods by reason of faulty production, workmanship, quality of raw materials or otherwise unless:

4.1.1

it is established that the goods were correctly installed C and properly cared for and used, and

4.1.2

the Customer notifies it in writing of the defect within seven days of the delivery of the goods.

4.2

The Company's liability shall be limited, at its option, to:

4.2.1

repairing such goods free of charge; or

4.2.2

supplying the Customer with similar replacement goods free of charge or D

4.2.3

passing a credit for the purchase price of the goods

provided that the Company shall under no circumstances whatsoever be responsible for any consequential or other damages whatsoever.

4.3

Notwithstanding anything to the contrary contained or implied in these conditions the liability of the Company E arising out of any defect in the goods shall not exceed the purchase price of the goods concerned.

4.4

Save as set out herein all conditions, terms, warranties or representations (express or implied, statutory or common-law) as to quality, fitness, performance or otherwise in relation to the goods are excluded. F

4.5

When the Customer purchases the goods for re-sale, the Customer shall ensure that the purchaser of the goods is apprised of these conditions so as to ensure that the purchaser's claims (if any) against the Company are limited to the extent stated herein.

4.6

The Customer indemnifies and holds the Company harmless G against all claims, loss, damage, expense or proceedings of whatsoever nature against or on the part of the Company arising out of the sale or distribution of the goods whether defective or not for any reason whatsoever.'

[6] In signing the application on behalf of Chickenland, Ms Smith H inscribed the words 'standard conditions not checked' immediately above her signature and below the following warranty:

'I/we warrant and certify that the above information is true and correct and that I am/we are duly authorised to sign this application for credit facilities and I/we have read the conditions of credit set out on the reverse hereof and agree to be bound thereby.' I

[7] During January 2004 Geoff Bloch, the group technical compliance officer who was responsible for all facets of food safety within the Nando's group both locally and globally, was visiting the United Kingdom when he was informed that the UK health authority in Manchester had tested Nando's extra-hot peri-peri sauce and found it to J

Ponnan JA (Harms DP, Maya JA, Shongwe JA and Tshiqi JA concurring)

A be positive for Sudan 1 dye. Sudan 1 is a red dye that is used in colouring solvents, oils, waxes and shoe and floor polishes. It is considered to be a genotoxic carcinogen rendering it unfit for human consumption. It has been banned by the World Health Organisation, and its presence is not permitted in foodstuff for any purpose in this country and most others B internationally.

[8] Chickenland was obliged by the Food Standards Agency of the UK to cause newspaper advertisements to be placed in newspapers in the UK informing consumers of the Agency's finding, and given 48 hours to withdraw any contaminated products from all supermarket shelves in the C UK. Subsequent investigations identified cayenne pepper that had been sourced in India by Hirsch and supplied to Chickenland in certain of the spice packs as the contaminant. A worldwide recall of Chickenland's peri-peri sauces followed.

[9] The directors of Chickenland then met on several occasions with D Freddy Hirsch, the chairman and founder of the Hirsch Group, and his sons, all directors of Hirsch, in the hope that they could persuade Hirsch to compensate them for their losses, which at that stage was assessed to be in the region of R12 million. Aside from an undertaking by Hirsch to extend the credit period first from 30 to 60 days and thereafter to E 90 days, no further agreement could be reached. Hirsch, having referred the claim to its insurers, eventually refused to engage in any further discussions with representatives of Chickenland, on the basis, so it was asserted by them, that continuing to negotiate had the potential to jeopardise their insurance claim.

F [10] In the meanwhile the extended period of 90 days for repayment having been exceeded by Chickenland, Hirsch began to agitate for payment of the outstanding moneys due to it. Chickenland refused to pay. Impasse having been reached, Hirsch, relying on the standard terms and conditions to be found on the reverse of Chickenland's credit G application, caused summons to be issued against Chickenland for payment of the sum of R1 368 861,69 in respect of goods sold and delivered by it for the period November 2002 to April 2004. That claim was admitted by Chickenland. But Chickenland asked that judgment on Hirsch's claim be stayed pending adjudication on its counterclaims.

H [11] Chickenland alleged that the material, express and/or implied and/or tacit terms of the agreement were that:

(a)

each of the spice packs would be fit for human consumption;

(b)

each of the spice packs would be subjected to a stringent process of quality control and testing which would include the detection and I removal of any foreign matter or substance not fit for human consumption;

(c)

the ingredients in the spice packs would be subjected to acceptable selection processes to comply with the requirements of the Food Standards Agency in the UK and the applicable South African legislation, including the Foodstuffs, Cosmetics and Disinfectants Act 54 of 1972 J and the regulations promulgated thereunder, and

Ponnan JA (Harms DP, Maya JA, Shongwe JA and Tshiqi JA concurring)

with the applicable law in foreign jurisdictions where the spices were A to be supplied;

(d)

the spice packs would be free of any banned substance.

Asserting that those terms had been breached inasmuch as the spice packs contained Sudan 1, which at all material times was banned for use B in food products, thus rendering them unfit for human consumption, Chickenland's counterclaim for damages for breach of contract and delict alleged, inter alia, that:

'12.

In breach of the terms and warranties applicable to such transactions however:

12.1

each of the spice packs listed . . . contained a substance C known as Sudan 1 which is and was at all material times:

12.1.1

banned for use in food products in terms of GNR1008/1996 promulgated under the Foodstuffs, Cosmetics and Disinfectants Act 54 of 1972 (the Act) . . . ;

12.1.2

a substance which rendered the spice packs unfit for D human consumption and which contaminated the spice packs;

12.1.3

a substance considered by the Food Standards Agency in the United Kingdom and relevant South African Statutory Authorities as being a banned substance in foodstuffs and/or harmful or potentially E harmful to human beings;

12.1.4

an added colourant.

12.2

the spice packs were unfit for human...