REPORTABLE
Case No: 158/2000
In the matter between:

GOLDEN FRIED CHICKEN (PTY) LTD                             Appellant

and

SIRAD FAST FOODS CC and OTHERS                         Respondents

Coram:
HARMS & MPATI JJA and FRONEMAN AJA

Heard:
12 NOVEMBER 2001
Delivered:
22 NOVEMBER 2001
Subject:
Tacit relocation of franchise agreement

JUDGMENT

HARMS JA/

HARMS JA:
[1] The appellant is the franchiser of a well-known fast-food outlet,
Chicken Licken.  The first respondent (‘Sirad’) is a close corporation and one
of its many franchisees; the other two respondents are the members of Sirad.
The issue in this case is whether there is an existing franchise agreement
between the appellant and Sirad.  If not, the appellant is entitled to the relief
sought, namely an interdict preventing Sirad from using its trademarks.  The
court below (Claassen AJ) dismissed the appellant’s application for an interdict
with costs, and the appeal is with its leave.

[2] A franchise agreement was indeed concluded between the appellant and
Sirad on 24 October 1988.  It came into force on 1 November of the same
year and was to endure for a period of ten years.  Provision was made for the
possibility of extending the term of the agreement for a further period of five
years upon substantially the same terms and conditions.  The franchisee’s right
to extend the term of the agreement was subject to a number of conditions,
two of which are relevant at this stage: (a) Sirad had to serve a written notice
on the appellant requiring the extension not later than six months before the
expiry of the initial term and (b) a new agreement in the standard form then
prevailing in the appellant’s business had to be executed.

[3] Sirad failed to give the required notice and consequently no new
agreement was executed.  The initial agreement thus terminated on 31 October
1998.  In spite of this it was business as usual and Sirad continued to trade
under exactly the same conditions as had applied during the initial period:
royalty payments were effected, weekly quality control tests were conducted
by the appellant and Sirad received its supplies as before.  There was
telephonic contact between the appellant’s managing director and Sirad
concerning the payment of royalties and a promotional competition for
Chicken Licken customers.  About August 1999, Sirad even received a letter
from the appellant, instructing it to effect renovations to its premises
(something catered for in the franchise agreement) and Sirad complied.  Then
came the turnabout on 25 August when the appellant, relying on the expiry of
the agreement on 31 October of the previous year, gave Sirad notice to cease
trading as a Chicken Licken outlet by 1 October.

[4] After the termination of the initial agreement and prior to this letter the
parties (in the light of the facts recited) conducted themselves in a manner that
gave rise to the inescapable inference that both desired the revival of their
former contractual relationship on the same terms as existed before. Taken
together, those facts establish a tacit relocation of a franchise agreement
(comparable to a tacit relocation of a lease) between the appellant and Sirad

(Shell South Africa (Pty) Ltd v Bezuidenhout and Others 1978 (3) SA 981 (N)
984B-E). A tacit relocation of an agreement is a new agreement and not a
continuation of the old agreement (Fiat S A v Kolbe Motors 1975 (2) SA 129
(O) 139D-E; Shell 985B-C).  The fact that the appellant had forgotten that the
agreement had lapsed is beside the point because in determining whether a tacit
contract was concluded a court has regard to the external manifestations and
not the subjective workings of minds (Fiat S A 138H -139D).

[5] My reference to the ‘same terms’ does not imply that each and every
term of the initial agreement forms part of the tacit contract (cf. Doll House
Refreshments v O’Shea and Others 1957 (1) SA 345 (T)).  The right to use
the trademarks and get-up of Chicken Licken and the duty to pay royalties no
doubt form part of the new contract but apart from that it is not necessary for
present purposes, and not possible in the light of the paucity of evidence, to
make a finding relating to all the terms of the new agreement.  An important
exception pressed during argument relates to the term or period of the new
agreement.  Sirad was somewhat ambivalent.  At one stage it stated that the
new term is five years, something based upon the fact that the initial agreement
provided for an extension for such a period.  Elsewhere Sirad said that all the
terms of the initial agreement applied, which would suggest a period of ten
years.  The appellant did not address the issue. This is not something that can

be decided on the papers and it is not necessary for us to express any views
upon the matter.  At best for the appellant the period is an undefined one (Kerr
The Law of Sale and Lease 452), in which event a reasonable notice of
cancellation has to be given (ibid 248).  The letter of 25 August hardly
qualifies as a reasonable notice, especially if regard is had to the fact that it
does not purport to be a notice of cancellation and that Sirad had just given
heed to the earlier letter requiring of it to effect substantial renovations to the
premises.   In any event, the appellant did not canvass this aspect of the case
in its papers.

[6] In order to meet this conclusion the appellant relied upon two provisions
of the initial agreement.  The first provided that no amendment, cancellation or
waiver of any term of the agreement would be effective unless in writing and
signed by both parties, and the second that no relaxation or indulgence granted
in respect to a party’s obligations would constitute a waiver.  Relying on the
principle that non-variation and non-waiver clauses are binding (S A  Sentrale
Ko-op Graanmaatskappy Bpk v Shifren en Andere 1964 (4) SA 760 (A)), the
submission was that the conditions for renewal of the initial contract were
entrenched and that unless they were complied with the contract could not
have been extended.

[7] In my judgment the argument misses the point.  It is common cause that
the initial contract was not extended and accordingly since 31 October 1998 at
an end.  Its non-variation and non-waiver provisions likewise lapsed, simply
because there was nothing left to vary or waive.  An entirely different point is
whether a tacit contract was concluded afterwards, albeit on much the same
terms.  Counsel correctly accepted that the parties, in spite of the clauses relied
upon, could have entered into a new written franchise agreement for whatever
term and in whatever form without the preceding notice as required by the
original agreement.  Once that is conceded it has to follow that a tacit franchise
agreement could likewise have been entered into.  The initial contract did not
preclude the conclusion of contracts, tacit or otherwise, at least not once it had
expired.  (I have already mentioned that a tacit relocation is a new agreement
and not an extension of the old one.)  The conditions for extending the initial
agreement cannot govern the conclusion of a new and independent agreement.
(Cf Fiat SA for a comparable conclusion under similar circumstances.)

[8] It follows that the appeal stands to be dismissed.  The court below
decided against the appellant on the grounds of estoppel and unconscionable
conduct but for the reasons given it is unnecessary to say anything about those
issues.

[9] The appeal is dismissed with costs.

_________________
L T C  HARMS
JUDGE OF APPEAL

AGREE:

MPATI  JA
FRONEMAN AJA