Delta Beverages loses US$16 million case to South African supplier

Blakey misrepresented to Schweppes Zimbabwe that the rates at which it would be supplied materials was similar to that provided to Delta when in reality Blakey charged Schweppes Zimbabwe a significantly higher rate.

DELTA Beverages subsidiary Schweppes Zimbabwe, represented by Harare lawyer Advocate Thabani Mpofu, has lost a lawsuit involving R247 million (US$16 million) with a South African packaging supplier.

Schweppes was represented by Advocate Thabani Mpofu instructed by Wintertons while Blakey Investments, the plastic packaging firm, was represented by Advocate Firoz Girach instructed by Atherstone & Cook.

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High Court Judge Justice Tawanda Chitapi said a party to a contract should not be allowed to seek to invoke exchange control regulations as a way out of an obligation and where that party seeks to do so there must be congent evidence to show that the law was contravened.

“Accordingly the plaintiff has not made out a case for the issue of the declaratur as sought. It is ordered that the application by Schweppes be and is hereby dismissed with costs,” said Justice Chitapi.

The Zimbabwe case is part of the larger case before the High Court of South Africa in KwaZulu-Natal, Durban, in which Delta Beverages and Schweppes Zimbabwe are the first and second applicants respectively. Blakey Investments is cited as the first respondent.

Delta and Schweppes Zimbabwe are part of the global AB InBev group of companies, with their registered offices in Harare, Zimbabwe. Blakey has its registered offices in Durban.

At the High Court in Zimbabwe, Delta was seeking that the supply agreement it entered into with Blakey be declared void, alternatively voidable or unenforceable.

The facts of the matter are that the CEO of Blakey, identified in court papers as Mr Panday, first started doing business with the applicants in 2002 at the time when he was employed as a marketing manager with a plastic manufacturing company. He eventually went out on his own and established Blakey.

He has been doing business with the applicants for almost 15 years, although they contend it was for a lesser period. Essentially the applicants contracted with Blakey to supply flexible packaging materials made from plastic based on an ad hoc arrangement, for which there was no need to subject such an agreement to the Zimbabwean foreign exchange control regulations.

Over the course of time and due to a national shortage of raw materials in South Africa, Blakey entered into discussions with the applicants, who were represented by Ms Cynthia Malaba, for the purposes of concluding an agreement that committed the applicants to purchase minimum bulk quantities of materials, agreeing on fixed pricing of the product and for the applicants to provide ‘forecasting’ to Blakey of the minimum quantity that it would be require to supply.

According to Blakey, it was oblivious of any need for such an agreement to comply with exchange control regulations, particularly as the parties had had a fairly long business relationship. Eventually in May 2018, Schweppes Zimbabwe concluded an agreement with Blakey for the supply of raw materials and the supply of flexible wrapping.

Following an internal audit in 2019 at Delta, they discovered the existence of the supply agreement between themselves and Blakey, which the aforementioned Ms Malaba had apparently concluded without the approval and oversight by various other departments within Delta, including the legal department and the company secretary, particularly where the company was significantly exposed.

According to Delta, prior to this audit, they were under the impression that Blakey was an ad hoc supplier of goods. Ms Malaba was subjected to a disciplinary enquiry by Delta, but left employment before this could commence.

Delta now contends that the agreement signed with Blakey is unenforceable against it as it contained terms that are ‘unusually oppressive’ in nature, for example allowing Blakey to amend the standard price for the supply of goods for any reason.

It was submitted by Delta that even if the goods were of a defective quality, it would be precluded from not paying for these based on the terms of the agreement. The agreement also bound Delta to make ‘forecasts’ of minimum quantities of material that they intended to order, which were binding on it.

The agreement furthermore made Blakey the exclusive supplier of materials to Delta, which exclusivity triggers the application of Zimbabwean foreign exchange control regulations as Delta was contracting with a foreign entity.

As a result of what it describes as a ‘commercially oppressive contract’, Delta refused to accept further deliveries of goods from Blakey and contested the basis on which the supply agreement was concluded.

The contract between Delta and Blakey provided in clause 21 of the supply agreement for a referral of all disputes emanating from the contract to arbitration. The position adopted by Delta is that if the supply agreement is susceptible to being set aside as being void ab initio, then it must follow that any arbitration provided for in the contract, cannot proceed on the basis of the tainted main agreement.

The legal position is that if an agreement is void ab initio then all the consequential clauses thereto fail with it. Blakey refused to accept the contention by Delta and proceeded to refer the matter to arbitration under the auspices of the fourth respondent.

Delta issued a statement of defence, in which it raised three special pleas contending that the agreement fails to comply with Zimbabwean Exchange Control Regulations of 1996 and that the agreement is unenforceable as it is contra boni mores.

In so far as the latter contention, Delta relies on the onerous terms which Ms Malaba imposed on the company, including a term which made Blakey the exclusive supplier of packaging products to Delta. They contend that no reasonable business person, acting in the interests of Delta, would have agreed to such terms.

Delta contends that on a proper interpretation of clause 21, it is not severable from the remainder of the agreement and does not survive the illegality which taints the main agreement. This, as appears below, is disputed by Blakey.

With regard to the Schweppes Zimbabwe agreement, it is contended that this too fails to comply with the Zimbabwean exchange control regulations and that Blakey had allegedly failed a supply assessment conducted by Coca-Cola South Africa (‘CCSA’). As the CCSA is part of the AB InBev global group of companies, Blakey would have been precluded from doing business with Schweppes Zimbabwe.

It is further contended that Blakey misrepresented to Schweppes Zimbabwe that the rates at which it would be supplied materials was similar to that provided to Delta when in reality Blakey charged Schweppes Zimbabwe a significantly higher rate.

As in the Delta arbitration, Schweppes Zimbabwe has also challenged the validity of the arbitration but nonetheless participated in the pre-arbitration conference in order to ensure the protection of its interests.

Both applicants contended that the stay of the arbitral proceedings should be granted on the basis that the High Court of Zimbabwe is the forum conveniens on the basis that both agreements require performance in Zimbabwe, clothing the Zimbabwean courts with jurisdiction.

They further contend that a number of witnesses are Zimbabwean nationals who can only be subpoenaed in Zimbabwe, particularly Ms Malaba who is a Zimbabwean citizen. The applicants further submit that it is proper that the Zimbabwean courts pronounce on the validity of the supply agreements in as much as they would require an application of Zimbabwean law, specifically in respect of the interpretation of exchange control regulations and of Zimbabwean competition law, and whether Zimbabwean courts would compel the applicants to be bound by an agreement which is contra boni mores.

Thus, it is at this juncture that Justice Chitapi has ruled that a party to a contract should not be allowed to seek to invoke exchange control regulations as a way out of an obligation and where that party seeks to do so there must be congent evidence to show that the law was contravened.

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