As the recent horsemeat scandal has shown, the food industry supply chains are complex and multi-jurisdictional. Where there is a chink in the armour, the potential repercussions can be far-reaching. Processors, intermediaries, wholesalers, retailers and ultimately, of course, consumers can be affected.The relevant authorities will deal with any regulatory and criminal investigations arising. However, private civil actions by the industry players affected might also arise.
Where a party is considering instituting legal proceedings or is at risk of being sued, he should consider the extent to which any contractual arrangements might affect his options for recourse and his own potential exposure. A thorough review of all contractual obligations and entitlements should be carried out.
The first step is to check if there are any written contracts in place. A contract might not be a single piece of paper or document, but could comprise standard terms and conditions on the back of an invoice or even a chain of correspondence or other interaction between the parties. It is also important to consider who has actually entered into the contract as, under Irish law at least, a contract can only be enforced by those parties.
Once the scope of the contract has been ascertained, all relevant terms should be analysed. Particular issues to note in this regard include:
- Contractual terms can be both express and implied. While the contract might not include an express term covering a particular issue, the courts may imply a term in certain circumstances.
- There may be different remedies for breaches of different terms. Where a term goes to the root of the contract, its breach may entitle the innocent party to treat the contract as at an end, in addition to suing for damages. However, breach of a less fundamental term may only give rise to an action in damages and the innocent party may be required to fulfil his own contractual obligations. Furthermore, some contracts expressly provide that particular remedies are to apply in particular circumstances and may seek to delineate the amount of damages payable by way of a pre-estimate.
- Exemption Clauses / Liability Caps - Many contracts contain provisions that seek to exclude or limit a party’s liability not only for breach of the contract, but also for general negligence. A contract might also seek to restrict a party’s ability to recover for certain types of losses (e.g. loss of profits) and might place a specific monetary cap on liability.
- Termination Clauses – Such clauses should be carefully reviewed to determine the circumstances in which termination is permitted and the length and form of notice (if any) which must be given to the other party.
- Governing Law / Jurisdiction - A governing law clause determines which country’s law applies to the contract. A jurisdiction clause specifies the jurisdiction where disputes arising under the contract may be litigated. The practical impact of these clauses should not be underestimated. A party may find that he is subject not only to aspects of foreign law that he did not anticipate when the contract was entered into, but also that he has to litigate or defend an action in a foreign jurisdiction.
The recent scandals besetting the food industry make it clear that there are lessons to be learned from a risk assessment/management perspective. Many producers and suppliers are no doubt carrying out comprehensive audits of their compliance with relevant legal and regulatory requirements as a matter of precaution and updating their policies and procedures as necessary. It may be worthwhile including in such audits a review of contractual arrangements and considering how they impact upon one’s potential exposures and rights of redress. Consideration can then be given to what can be done now to close off any anticipated potential problems and what might be done at the next re-negotiation opportunity.