As allegations about hygiene failings in the poultry industry emerge, we are aware that issues of product recall and liability will be a priority for food retailers and suppliers in the wake of widespread media coverage. Following on from last year’s horsemeat investigation, these new health and safety concerns will trigger higher consumer expectations which may, in turn, result in further regulations of the food supply chain.

As the extent and implications of the allegations become clear, businesses will require guidance on rebuilding potentially damaged (fairly or otherwise) reputations and brands, whilst avoiding any further damaging publicity.

The regulatory framework

EU and UK rules prohibit selling, offering or advertising food which does not comply with food safety requirements.

Under UK law, food fails to comply with food safety requirements if:

  1. it has been rendered injurious to health (this refers to the addition of any article or substance to the food);
  2. it is unfit for human consumption; or
  3. it is so contaminated that it would not be reasonable to expect it to be used for human consumption in that state.

It is also unlawful under to sell or offer for sale, food which is “not of the nature or substance or quality demanded” by consumers. This covers the scenario where the food is not unsafe, but we have sensitivities regarding its condition, for example the horsemeat investigation in the UK in 2013.

Definitions of what is deemed “safe” are controlled by EU law and food not of the nature, substance or quality demanded is not automatically deemed unsafe. However, there is no doubt that the presence of campylobacter crosses the safety threshold. Whilst it is the most common cause of food poisoning in the UK that is no reason to tolerate it; it is avoidable at every stage of the food chain.

The Food Standards Agency (the FSA) is responsible for food safety and food hygiene across the UK. The FSA works with local authorities to enforce food safety regulations, although there is inevitably criticism that many of the enforcement powers are delegated to local authorities, and thus not co-ordinated centrally. Environmental Health Officers working for local authorities have the power to inspect any food intended for human consumption which has been sold, or is offered or exposed for sale in the UK. If an officer considers food to be in breach of food safety requirements, he may issue a notice stating that the food is unfit for human consumption and is to be removed, or the officer may seize the food, and remove it from premises immediately. Attention is likely to be even more concentrated on poultry in the food chain as a result of the latest media coverage.

There is an existing Food Standards Agency campaign (“ACT”) and food businesses wherever they sit in the food chain should familiarise and align themselves with the regulator’s campaign. Part of that is also doing what they can in relation to others in the food chain e.g. farms, abattoirs and slaughterhouses, suppliers and distributors, holding them to account.

The horsemeat investigation in 2013 was about deliberate fraud in the meat supply chain for profit; it was not about safety. This challenge is about safety, and particularly affects one of the most commonly-consumed foodstuffs across the world. Whether The Guardian’s investigation is quite the scoop claimed is very debatable, but without doubt it will draw close attention to the issue and to the compliance and credibility of all in the food chain who directly or indirectly supply consumers.

Even consumers have a part to play though – many are even now trying to break the habit of a lifetime and not washing raw chicken before cooking.

Product liability and recall

If this issue raises concerns for your business here are some guidelines for you to follow:

  • Contact your suppliers to see what they are doing about this issue. Is an investigation under way?  What are the results of any testing?  When are further test results expected?
  • Carefully consider undertaking a programme of testing samples of products in your supply chain and exercising any rights of audit in your supply contracts.
  • Campylobacter can be deadly. If you have any concerns about the safety of products supplied to you, you should not be placing such products on the market, and it is an offence to do so. Is quarantining certain batches an option pending the outcome of further investigations?
  • If you do have concerns about food already on the market, the extent of any product recall needs to be carefully considered, in conjunction with your suppliers / retail customers. Given the heightened pressure that the Food Standards Agency may come under to take more proactive steps to reduce the problem at source, it may not be sufficient for suppliers to argue that the answer is simply straight-forward food hygiene steps in the kitchen. Balance the need for a swift response against the extent and reliability of the information you hold at the current time. Before action is taken, your local EHO and/or the Food Standards Agency will need to be notified. The Food Standards Agency is already co-ordinating a campaign to reduce the threat from campylobacter; familiarise yourself with the detail and align your business and its approach to that campaign: http://www.food.gov.uk/news-updates/campaigns/campylobacter/
  • Keep a record of any steps taken and the costs incurred, including a detailed log of management time diverted to dealing with the issue – this will be necessary if looking to recover your costs from your supplier down the line.
  • Ensure a system is in place to monitor any action taken. The FSA may expect to be updated on a regular basis.  Where possible, consult with customers and suppliers over the information provided to regulators or customers.  Recognise that journalists and MPs may request information held by the FSA under the Freedom of Information Act.
  • If disposing of any product through a third party, ensure that you receive certificates confirming that the product was disposed of in accordance with appropriate procedures, to ensure that there is no possibility of illicit on-sale.
  • If you think you may be caught up in this investigation:
    • Contact specialist lawyers with experience of assisting in managing recalls.
    • Take care over the wording of any communications, particularly if naming any third parties.
    • Explain the steps taken to ensure safety, quality and traceability to your retail customers.
    • Fix regular calls with key customers and relevant suppliers to ensure you are up to date on the latest developments. You may need to respond to a barrage of urgent requests for information from customers and regulators.
    • Engage PR advisers. Recognise that this is an evolving issue and agree a strategy to protect your reputation and your brand. Work hard now to try to stay ahead of the crisis.

Insurance cover

In many cases of contamination of food giving rise to death or personal injury or a recall of affected products, companies across the supply chain would want to investigate whether their insurance policy responds in respect of any costs it incurs or liability which it may face.  There are a number of different types of policies which food businesses may have including Product Liability, Product Recall or Product Contamination policies.  However, in the present situation where the campylobacter bacteria is present in a significant proportion of chickens which result in personal injury each year, even where such insurance policies are held, they are unlikely to be triggered.  Insurers are likely to argue that any increased food safety risk results from the lack of proper cooking or poor food hygiene, rather than some unforeseeable contamination incident or “defect” in the product.  It would, however, be prudent to consider the wording of any policies and discuss the position with your insurance broker.

Financial implications

Businesses will need to consider the impact on their own working capital cycle and headroom. Quite apart from the immediate cost impact which heightened testing may add, or which stock seizure or impounding will have, accounts receivable may become difficult, even impossible to collect in a timely manner.

In the more highly leveraged financing arrangements, the loss of major customers or turnover could easily trigger covenant breaches in finance and investment agreements. Where a brand is backed by private equity investors, borrowers and investees need to be alive to these issues and be ready to address them up front with their banks and investors, who will also be concerned as to the impact of the allegations on their borrowers capacity, to sustain the business and the business model.

In some cases, the stress may be so intense that it leads to the possibility that businesses may fail. Lenders and investors will be concerned to support sound businesses, but for those whose margins are thin, or whose leverage is high, the capacity for patience may be limited. If there is a real possibility that the company will fail, then directors need to consider carefully the duties they owe to the company’s creditors, as directors may incur personal liability should they fail to do so.

Reputation management

As all businesses recognise, a positive reputation for a brand or product takes many years of investment to build, but it can be destroyed in an instant. Companies in the food sector are especially vulnerable to reputational damage through industry-specific issues, especially those relating to allegations concerning food safety and hygiene.

Once a bad story breaks, it will escalate rapidly via social media and rolling news channels, turning a local issue into a major global risk.  For that reason, if you are being wrongly criticised for involvement in a food crisis, then that must not be ignored and you should take immediate steps to put the record straight.  The media landscape can change very quickly, and inaccuracies can creep in to news stories, so make sure that coverage is under constant review.

From a practical perspective, ensure a media team is in place.  Identify a spokesperson and ensure they are always fully briefed.  Inconsistent or late messages will have a very destabilising impact on the market and on customers.

If you have a social media presence, ensure that this space is not ignored.  Provided that the right steps are being taken to investigate the incident, then it is an effective way of reassuring customers and keeping them up to date.  It is also a means of quickly correcting inaccurate rumours that can rapidly spread across social media and the internet. Where a business has a social media or high profile advertising presence but suddenly goes quiet in the face of a food safety incident, this will lead to frustration, dissatisfaction and uncertainty which can be hugely damaging.

Legal privilege

Bear in mind that documents you create including internal communications and investigations may have to be disclosed in any subsequent litigation. The results of tests required by the FSA will not be subject to legal privilege. However, if your lawyers request additional tests to be undertaken so that they are able to advise you in relation to your legal position, it may be possible to claim privilege over such communications and test results. We suggest that you speak to your internal or external legal advisers before embarking on internal investigations.