In a recent decision of the Supreme Court of Appeal (SCA) the court decided that a supplier of goods cannot rely on a clause excluding liability for defects in the goods supplied, where the goods delivered were entirely different to the goods bargained for. In dealing with the element of wrongfulness, the SCA held that policy considerations may dictate that a manufacturer that caused pure economic loss by supplying a defective product to be held liable for such loss.

In the matter reported as Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd, Hirsch a manufacturer and supplier of spices, concluded a supply agreement containing a liability exemption clause in its favour.

It was subsequently discovered by health inspectors that Chickenland’s peri-peri hot sauce contained a banned substance. This was found to be in the spice that Hirsch supplied to Chickenland.

Chickenland was obliged to recall these sauces and as a result suffered a substantial loss.

In the court of first instance, Chickenland alleged that the contractually agreed upon terms of the contract were that each of the spice racks would be fit for human consumption and that they would be free of any banned substance. The court upheld the counter-claim of Chickenland against a claim by Hirsch for amounts owing on account and Hirsch appealed the judgement to the SCA.

As far as the exemption clause is concerned, the SCA held that where it purported to exclude all terms, warranties or representations as to the quality or the fitness of the foodstuff, such a clause was contrary to public policy and therefore unenforceable.

The court held that where the supplier supplied a foodstuff containing a banned contaminant which rendered it unfit for human consumption, the supplier failed to perform in terms of the contract and to deliver what was agreed upon, namely a substance fit for human consumption or free of any banned substances.

This case places an obligation on suppliers to ensure that goods they supply comply with what would have been tacitly been agreed upon by both parties, namely that the goods are fit for the purchase for which they are purchased. It is not possible for a supplier to contract out of this (tacit) obligation by way of an exemption of the liability clause in the agreement.

Written by Leander Opperman – Partner, Commercial property and Litigation Department – Adams & Adams

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