David Irving, Partner in our Corporate and Commercial team looks at the legal issues involved with the chicken shortage across the country.
It says a lot about the world we live in when the police have this week had to ask the public not to call them about their local Kentucky Fried Chicken (KFC) store being closed temporarily due to chicken shortages as a result of wide spread delivery problems.
The fast food giant said that the store closures were a result of “teething problems” with new delivery partner DHL.
“The chicken crossed the road – just not to our restaurants”, KFC said in a statement.
Delivery had previously been looked after by Bidvest Logistics. This relationship came to an end and a new three way partnership between KFC, DHL and food services logistics provider QSL was announced in November last year.
One assumes that a lot of thought and planning went into the new appointments but clearly something has gone badly wrong – there has been lots of speculation in the news on the reasons why.
And it follows that it is likely the lawyers will get their magnifying glasses out to check the contractual obligations and detail. What has happened is the worst nightmare of any business when they cannot operate. This is quite apart from the reputational damage to all concerned.
From a contractual point of view, KFC will be looking at what they can do about the apparent breaches. On the other hand, DHL, and perhaps QSL, will be looking at how they might be able to limit any liability they have.
In terms of the big legal issues that come to mind:-
Failure to deliver – presumably there will have been benchmarking/service levels in the agreement which have been breached.
Consequences of failing to deliver.KFC will have a claim for breach of contract;
In addition, many of the KFC businesses are franchised by KFC – do they have a claim against KFC or DHL and, if against KFC, can KFC pass that claim on to DHL? What happens if that franchisee goes out of business?
What level of claims can be made and how are they calculated – fixed/liquidated damages limited to a certain amount or is there a more sophisticated calculation clause to work out what the actual loss is? Does this include loss of profits?
Are there any broader claims for damage to the business name or the business itself. One would expect consequential losses to be excluded which could mean that if a franchisee went out of business because of this their claim would be very limited;
KFC will probably also have a right to terminate the agreement although this will not be very appealing given the process they have just gone through and what happened;
Looking at it from the DHL’s side, are any defences even if their position appears hopeless? Can they argue it is someone else’s fault or that the other parties (KFC/QSL) either failed to perform their obligations or gave incorrect information about what DHL were expected to do leading to the debacle?
These issues are rarely black and white.
Who knows? Whilst the lawyers may be rubbing their hands, and the comedians are adding this story to their routines, the priority is to get the current situation and problems sorted out and quickly. The post mortem will follow.
It is a salutary lesson when such big organisations find themselves in this sort of situation. The job to deliver chicken was absolutely clear but turned into a logistical nightmare!
It does emphasise the importance of making sure you have a contract that clearly sets out each parties’ obligations and provides for what happens if the chicken does not cross the road.