If you’ve been keeping up with the news this week, it will have been difficult to miss the furore which has ensued following the closing of hundreds of KFC restaurants up and down the country.
The cause of this – reportedly costing the chain £1m per day – has been attributed to a change in suppliers. Setting aside the nation’s fried-chicken-shortage-induced frenzy, this does raise some important questions regarding the contractual relationship between KFC and DHL (their new supplier).
DHL’s failure of delivery presumably constitutes a breach of their contract, raising the question of the consequences that might flow from this. Much of this will depend upon the allocation of risk and various liabilities documented in the agreement. With both parties being commercially experienced and no doubt having the benefit of vast legal teams, a court would be reluctant to deviate from a strict interpretation of the contract. It may be that DHL were able to limit their liability in the event of such a breach to a maximum figure, or to a certain species of loss. The contract may, for example, purport to exclude liability for consequential loss. On the face of it a layperson might assume that this leaves KFC unable to claim for a (undoubtedly substantial) loss of profits. This is in fact a common misunderstanding; the courts have made it clear that a contract must exclude direct loss in order to avoid a claim for loss of profit, since consequential loss should appropriately be regarded as an indirect loss. If non-delivery was a condition of the contract, KFC may be entitled to terminate the same.
The fact that 95% of KFC’s restaurants are franchised may further complicate things, since it is arguable that the individual franchisees would on the face of it be barred from enforcing a breach by virtue of the common law doctrine of privity. Having said this, they may well have an enforceable interest under the Contracts (Rights of Third Parties) Act 1999 depending upon the Franchise Agreement or a right to claim against KFC (as franchisor) for a breach of contract.
If you would like to learn more about how we can help with your business’s commercial contracts, please do not hesitate to contact Danielle Collett-Bruce in BakerLaw’s Company and Commercial department at email@example.com or call 01252 931 116 to discuss further.