Contaminated meat: legal implications for corporates

On 16 January 2013 the Food Standards Agency (FSA) confirmed that the Food Safety Authority of Ireland had identified horse and pig DNA in a range of beef products on sale at several supermarkets. This prompted widespread testing of beef products across the EU which led to the discovery of further incidences of contamination and mis-labelling and the mass recall across Europe of processed meat products. To date, producers and retailers in the UK have recalled at least 34 products due to horsemeat contamination and many more as a precautionary measure. In response to the horsemeat scandal, the FSA has launched a UK-wide survey of food authenticity, to be completed by local authorities in three phases, testing 514 products. In addition, criminal action is being pursued and authorities in the UK have made a number of arrests on suspicion of offences under the Fraud Act. The European Commission announced on 16 April 2013 that it had detected extensive food fraud across the EU, after finding traces of horsemeat in 4.55% of some 7000 products tested, and that it was considering a proposal to review the EU food chain legislative framework, including strengthening official controls and imposing financial sanctions on food fraudsters.

The cost of the recalls has yet to be quantified but the losses (which will include the cost of the product recalls, business interruption losses, damage to reputation and the settlement of any third party compensation claims) may be significant for some parties who will be looking to recoup their losses from other parties down the supply chain and, where relevant, their insurers.

Civil liability

Consumer claims

Eating horsemeat is not considered to pose a danger to human health, although there is concern about horses treated with veterinary medicines which may be harmful such as the drug phenylbutazone, known as “bute”, which can cause serious blood disorders in humans and is prohibited from entering the food chain (Regulation EU 37/2010).  However, the levels of bute thus far detected in the products tested have been described as posing a negligible risk to human health (tests by the EU published in April 2013 found bute in 0.5% of samples).

Consumers are not parties to the relevant contracts of supply, but they will of course have contracts with the retailer where the product in question was purchased by them. However given the fact that eating horsemeat does not pose a risk to health, there will be no loss on which to found a claim for breach of contract.

Consumers may seek to pursue tortious claims against the manufacturers of the contaminated products. Under English law, manufacturers of defective products owe a duty of care to a class of persons to whom damage (meaning personal injury or property damage) is foreseeable if that product is defective. The standard is tested objectively and the manufacturer will not be at fault if a particular danger could not have been anticipated, which is perhaps debatable in this case. There is, however, no physical injury as a result of eating the contaminated meat, and as a result there is unlikely to be any serious risk of personal injury litigation.  Moreover, whilst certain consumer and religious groups have been offended by the prospect of the unwitting consumption of horsemeat and pork, the English courts have been reluctant to give remedy for mere offence or distress caused absent any physical harm and normally require a recognisable medical condition as a pre-condition to compensation (White v Chief Constable of South Yorkshire [1999] 2 A.C. 455). Any consumer actions against manufacturers advanced on this basis are therefore unlikely to succeed.

The absence of a health risk also means that producers (including own-branders and importers into the EU) will not be exposed to liability under the Consumer Protection Act 1987 (as amended) (which transposes the Product Liability Directive (85/374/EEC and 1999/34/EC) into UK law) which imposes strict liability on producers for damage caused by defective products and allows consumers who are injured or suffer damage as a result of defective products to sue for compensation without having to prove that the producer was negligent.

Commercial disputes

Commercial claims are likely; the issue has highlighted serious issues with transparency down the supply chain and producers and retailers who have suffered financial losses as a result of the product recalls are likely to pursue claims against suppliers for breach of contract. Contractual liability may arise following the breach of express terms in the contracts of supply (which may refer to the nature or character of the product (i.e. in the form or a warranty or guarantee)) and/or implied terms under the Sale of Goods Act 1979 (as amended) and the Sale of Goods and Services Act 1982 (as amended). This implies terms as to the description, quality and fitness for particular purpose of products and arise in all contracts of sale/supply. Contractual liability may also attach to pre-contractual statements which refer to the qualities of the product. These statements can be incorporated into the contract as terms or, alternatively, form the basis of a separate contract between the buyer and seller or the buyer and a third party. The buyer will be able to claim damages in a breach of contract claim and, in some cases, reject the goods and terminate the contract.

Criminal liability

In addition to the prospect of fraud, there is also the potential for criminal liability under a number of regulations relating to food safety and labelling for any parties who sold meat products which were mislabelled or otherwise contaminated.

Product safety

The Food Safety Act 1990 (as amended) provides the framework for all food legislation in the UK. Under the 1990 Act it is an offence to sell food which is not of the nature or substance demanded (section 14) and to falsely or misleadingly describe or present food (section 15). Section 14 can apply whether the person’s act is deliberate or otherwise but the purchaser must have been “prejudiced” in that the product, not being the thing demanded, is detrimental to the purchaser.  The test for a false description under section 15 involves an assessment of what an ordinary person would understand by the description. Therefore, if products have been sold labelled as beef which in fact contained other meats not identified, it is possible that the food has been falsely described or is likely to mislead as to the true composition of the food and a section 15 offence has been committed. There are a number of defences including where the offence was committed was due to the act or default of another person and where a person can prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

As there is no question at present as to the safety of the horse meat, the enforcement authorities are unlikely to invoke the General Product Safety Regulations 2005 (SI 2005/1803) (which implement the EC General Product Safety Directive (2001/95/EC)) in any enforcement action against food producers and distributors. These Regulations are essentially concerned with safety and prohibit producers and distributors from placing an unsafe product on the market.

Food labelling

There are a number of regulations which concern the labelling of food. These include the Food Labelling Regulations 1996 (as amended), the Meat Products (England) Regulations 2003 and the Consumer Protection from Unfair Trading Regulations 2008.

It is an offence under the Food Labelling Regulations 1996 (Regulation (44(1)) to sell food which is not marketed or labelled in the manner prescribed by Section II of the Regulations.  Meat products are also subject to specific compositional and labelling requirements and the Meat Products (England) Regulations 2003 require, amongst other things, that the labels on meat products must include an indication of any added ingredient of animal original (Regulation 5(2)). 

There are also general regulations concerning the description of products. Under the Consumer Protection from Unfair Trading Regulations 2008 a business which sells misdescribed products can face criminal liability for committing a misleading action which amounts to an unfair practice. These Regulations, which are enforced by Trading Standards and the Office of Fair Trading, also contain defences including where the offence was due to mistake, the information relied upon was from a third party and the business took all reasonable precautions to avoid the commission of an offence.

Insurance position

Product liability insurance

Product liability policies are principally concerned with damage caused to persons and other property by a defective product that is supplied by the insured. The basic indemnity provided is for protection of the insured against legal liability for or in respect of bodily injury, illness or disease or physical damage to property not in the custody or control of the insured which is caused by the product.  In this regard, the policy reflects the law of tort by requiring some form of external physical loss or damage. In English law, “damage” usually refers to a changed physical state to external property and the relevant alteration must be harmful in the commercial context (Pilkington United Kingdom Limited v CGU Insurance Plc [2004] EWCA Civ 23).  A defect or deterioration in the commodity or product itself is not “damage”.

Whilst there is no personal injury to speak of in relation to the horsemeat scandal, there may be some scope for argument in relation to coverage for legal liability in respect of damage caused to a product which has been mistakenly contaminated (e.g. at a meat processing plant) with another meat product (such as horsemeat). The test is whether there has been any physical change to the product as a result of the incorporation or inclusion of the defective product.  If the defective product causes harm to the finished product, such that its value is diminished, physical damage will have occurred. In Omega Proteins v Aspen Insurance UK Ltd [2010] EWHC 2280 (Comm), although the question of whether there had been damage to property within the meaning of the product liability policy was not in issue, the judge proceeded on the basis that the mixing of contaminated animal material (fit only for disposal) with other materials caused damage to those other materials (by rendering them unusable). There will be room for debate here, however, as whilst horse meat is fit for human consumption, it may be argued that the end product was rendered unsalable as a beef product (its particular purpose according to the contract of supply) as a result of the inter-mixture of the products.

Product liability policies typically exclude the costs of recalling, replacing or repairing the product itself and any liabilities assumed by contract or agreement, so any claim under the policy would be restricted to liabilities in tort (i.e. liability which would have attached in the absence of a contract).

Product recall insurance

Product recall policies (which are often arranged as part of or an extension to products liability insurance) generally cover the insured’s legal liability for the costs of removing, recovering, repairing or replacing a product which is defective or dysfunctional; and/or financial losses incurred by customers or third parties which arise as a result of product impairment (i.e. a product failing to perform the function for which it was manufactured, designed or sold). They also typically cover the costs and expenses incurred by the insured which are associated with the cost of recalling its own products (which may also include business interruption losses and brand restoration costs). It is questionable whether a mislabelled meat product will be considered defective or dysfunctional for the purposes of product recall cover, but it may be that such products can be said to be impaired in that it does not perform the function for which it was manufactured and sold (being a beef product).

Where the cover is for the costs and expenses incurred by the insured in respect of a product recall, product recall policies will often stipulate that the recall must be necessary in order to prevent or mitigate against the prospects of legal liability arising from the use or consumption of the product. Some product recall insurance policies will contain more stringent limitations which specify that there must be an actual or imminent threat of danger, injury or harm associated with the product’s use.  As a result, insureds may find that they are potentially exposed to uninsured losses where a precautionary recall was carried out in the absence of actual or imminent danger of injury or harm.

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