FoodLegal

By John Thisgaard (FoodLegal Co-Principal)

© Lawmedia Pty Ltd, November 2022

Many food businesses associate ‘crisis events’ with scenarios where a regulator has become involved and potentially threatened some sort of enforcement action. However, businesses should also be able to identify crisis events that can occur even when no regulator is involved, so that they can respond appropriately. This article discusses some of the more common crisis events that can arise without a regulator becoming involved.

FoodLegal’s Reacting to a Crisis online workshop on Wednesday 16 November 2022 will provide numerous case-studies and decision-making factors to assist businesses in dealing with crisis events, whether or not a regulator has become involved.

The importance of being able to identify a crisis

Crisis events, by their nature, are often unexpected and can involve significant costs and other consequences. All food businesses should have plans in place to deal with a crisis event should it arise.

It is a mistake to assume that a crisis will only arise when a regulator sends you a letter or knocks on your door. There are many crisis events that can arise even without a regulator becoming directly involved. Being able to recognise these situations and manage them effectively (including knowing when to engage external experts), will help resolve a crisis at the soonest possible point and minimise the legal and commercial consequences.

The remainder of this article provides examples some common scenarios that can result in a crisis even without a regulator being involved.

Consumer complaints

If a consumer has had a negative experience with a product, in many cases they will reach out to the brand owner before complaining to a regulator. This gives a food business an opportunity to identify a potential crisis early. Once a matter is brought to the attention of a regulator it can be escalated and result in substantial scrutiny, even if it turns out that there is no regulatory breach.

Businesses should actively monitor complaints through the lens of important questions, including:

·         Is there a legitimate issue with the product?

·         Is the issue safety-related or quality-related?

·         Does the issue impact other batches or product lines?

Approaching issues with these questions in mind will help identify if there is a potential crisis and will inform the best steps to take.

Competitor complaints

Food businesses may also face complaints from competitors. It is possible that competitors might complain directly to a regulator, which might prompt the regulator to scrutinise the product in question.

However, a competitor might choose to also deal with you directly. The Australian Consumer Law allows competitors to sue each other directly where one business alleges that another has engaged in misleading or deceptive conduct. Similarly, competitors might take action where they believe that their intellectual property has been infringed (for example, where they claim that a business has ‘passed off’ its products as their own).

Due to the significant costs involved in litigation, it is not very common for competitors to instigate court proceedings. Nevertheless, legal action is often used as a threat and even if an action does not proceed all the way to court, it can involve substantial costs and even negative publicity.

A food business should therefore be able to identify where a complaint from a regulator could create a crisis event. The business ought to obtain advice to understand the strength of its legal position, which will help inform the most appropriate response.

Disputes with trading partners

A food business will have relationships with numerous trading partners and other parties such as retailers, suppliers, distributors, exporters and importers. In many cases, the relationship with each party will be formalised in a contract or supply agreement.

A dispute with a trading partner can give rise to a crisis event. For example, if a commercial buyer is concerned that a product is not safe or does not meet certain quality or other standards specified in a supply agreement, the buyer may refuse to accept further stock or even terminate the contract. Similarly, if a supplier is unable to continue providing stock at an acceptable quality, this could negatively affect your relationship with other parties further down the supply chain.

It is important that every food business is aware of their legal and contractual obligations with each of their trading partners. This will not just help in identifying where a dispute or crisis will arise, but will also allow the business to understand its options in managing the issue, including any grounds they have to push back.

Supply chain disruption

A crisis can arise where a certain product or ingredient is no longer available due to supply chain disruption. For example, the ongoing war in Ukraine has impacted the availability of some ingredients, such as sunflower oil.

A supply chain disruption could result in that business having a shortfall of product, or having to source an alternative ingredient that is not reflected on existing product labels.

Internal detection

A business may identify an issue that could give rise to a potential crisis through its own internal compliance and monitoring activities. For example, a business might identify a potential safety issue which would allow them to take action at a much earlier point (and likely at less cost) than if they had waited until they were contacted by a regulator.

Managing crises

Once a crisis has been correctly identified, the business must determine how do best manage it. Although not every crisis is instigated by a regulator, the question of whether a regulator has become involved is often an important factor to consider in assessing how to respond to a crisis.

Our Reacting to a Crisis online workshop on Wednesday 16 November 2022 discusses the decision-making processes and highlights many case studies and insights that will assist in avoiding or mitigating by good management a deterioration in company circumstances – BOOK HERE.

This is general information rather than legal advice and is current as of 8 Nov 2022. We recommend you seek legal advice for your specific circumstances before making any commercial decisions.