Industry eyes threat of litigation culture
Increased awareness of health and a sensationalist media have raised the threat of litigation against drinks producers to new heights. Olly Wehring spoke to Paul Howcroft, the commercial litigation partner at law group Marriott Harrison, to discover how the soft drink industry best protect itself from any such damaging scenario.
There can be no denying that the blame culture is upon us and it is here to stay. No company appears immune from this phenomenon, including the manufacturers of soft drinks. Like any other business, they may find themselves in all manner of litigation arising out of their activities and processes.
Companies will inevitably have contracts relating to ingredients, packaging, manufacturing equipment, property, employment and transport as well as agreements with their customers. Their products and markets also involve them in many intellectual property matters, media, promotions and sponsorships which are all areas that can, and often do, give rise to problems and disputes. Of all the problems that might give rise to litigation though, the most serious is a contamination incident.
Those in the industry since 1990 will understand the term 'the Perrier situation'. Paul Howcroft, a commercial litigation partner at Marriott Harrison in London remembers the nightmare scenario well.
"The Perrier contamination in 1990 saw a market leader's product being withdrawn from sale and suspended for several months during which time its market share was lost to competitors," he says. "Only a small proportion was recovered as a result of a devastating effect on its reputation and hence brand value." The consequences of such an incident are likely to give rise to litigation either by or against the drinks company.
"Consumers who suffer injury from a contamination inevitably have product liability claims against the manufacturer which will either be brought directly or through claims against the retailer," says Howcroft. However, a consumer is only likely to bring such proceedings, or join a class action, if the effects have been sufficiently serious. In the UK, for example, damages for personal injury are relatively low, so unless the claimant can show some significant injury, it would not be worth their while pursuing a claim. In the case of a fast-moving consumer goods industry like soft drinks, a contamination that really did result in significant injury would affect a huge number of consumers and the total claims would drive the manufacturer out of business.
Howcroft is quick to point out that, in practice however, contamination incidents rarely result in any or many damaged consumers, or certainly nothing they can prove. In the case of Perrier, for example, the water was contaminated with benzene, a carcinogen that can cause leukaemia. "The level of benzene was substantially higher than recommended limits but was probably less than that inhaled by someone filling their car with petrol or walking down a street congested with traffic," he says.
Such contamination incidents tend to get blown out of all proportion by a combination of factors. Firstly, there are the very tight, often only 'recommended', limits on levels of anticipated contaminant substances and stiff regulations or standards. Then, of course, there is the mass media, which will delight in any contamination story with potentially serious health consequences, even if the likelihood of the consequences coming to pass is infinitesimally small.
Once the incident has occurred, a wealth of commercial disputes may arise. Howcroft describes the possible scenarios: "Fighting the press would be a waste of time and would easily be portrayed as an attempted cover up, making the story even better. The press needs to be handled, not challenged. If the press have got the story from the manufacturer, who announces at the same time that immediate steps are being taken, the damage to reputation will be considerably less than if the story emerges as an investigative discovery."
Then there are other controlling bodies to consider. "Arguing with the Food Standards Agency and other local and national bodies such as the Retail Consortium would also be counter productive," says Howcroft. "Again, it is better for them to be told rather than find out themselves. As the value of the product is relatively small, there should be no need for any battles with consumers or retailers, and replacements or refunds should be promptly offered without question."
Further along the chain are the retailers of the product. Disputes may arise from claims for the recovery of administrative and other costs, particularly on the part of the larger supermarket chains. Howcroft feels that this is dependent on the severity of the incident. "The relative bargaining position of the supermarkets, as against a drinks manufacturer, may lead to exorbitant claims," he says. "They would have to be extreme before the manufacturer dared to fight."
As it is the drinks manufacturer who has suffered the real damage, it is the party most likely to bring claims against others, rather than being on the receiving end. Again, this will depend on the facts of the case and what caused the contamination. "Apart from insurance, there will obviously be no claim to bring if the contamination was entirely the fault of the manufacturer itself," says Howcroft. "If not, there may be a claim against a supplier of a contaminated ingredient, contract cleaners, the suppliers of packaging or contract packers, the manufacturers of defective equipment or the transporters, depending on how the contamination was caused."
The liability of such parties will depend on the terms of the contract, the specifications of the product, the service to be provided and any limits to liability. In the case of the UK, unreasonable terms may be unenforceable pursuant to the Unfair Contract Terms Act of 1977, particularly if they are contained in standard terms and conditions, rather than being the subject of negotiation. "If a contamination is caused by the action of someone with whom the manufacturer does not have a contract, there may still be liability for negligence," Howcroft points out. Again, whether there proves to be sufficient duty and causation will depend on the facts.
One of the main difficulties a drinks manufacturer may face when seeking to pass the blame to others is the extent to which food producers have to take their own care and precautions to overcome potential hazards. For example, a claim against a supplier of a contaminated ingredient may well be met with a defence to the effect that the drinks manufacturer ought to have taken their own steps to check the purity of the ingredient provided. That could lead to debate as to whether the manufacturer had sufficient HACCPs and testing that might have avoided the contamination.
When, or if, the litigation gets to court, Howcroft says defendants must be careful how they approach their case. "A claimant has a duty to take all reasonable steps to minimise its losses, and a defendant may challenge the steps taken by the manufacturer," he says. "A dispute of this sort is inevitable, as it will always be arguable what the right course to adopt was, faced with the crisis of a contamination incident. As these incidents rarely involve real risks to health, a defendant will inevitably say that the drinks supplier overreacted and that it did not recover, transport, warehouse and destroy the stock as efficiently as it could have done." The courts, however, have little sympathy when such arguments are advanced too rigorously by a defendant that caused the chaos.
From the point of view of minimising losses and being in the best position in any subsequent litigation, Howcroft gives the following advice:
- Have contingency plans in place for a contamination incident so that all key directors, staff and outside consultants can be contacted and spring into action immediately.
- Check the insurance position. Insurance should not be confined to product liability claims as the substantial losses and expenses of a contamination incident are more likely to have other causes. As soon as the incident occurs, insurers should be notified. The insurers are likely to want to take control of any related proceedings and will probably want to choose the solicitors. In the UK, liase as soon as possible with the British Soft Drinks Association, which is a source of experience, and with the Foods Standards Authority. Take action to recall stock immediately, rather than waiting to be forced into it by the authorities or the media. In light of potential media interest, PR specialists must be involved.
- Maintain written records of meetings, discussions and steps taken. In the chaos and urgency of a contamination incident it is easy to regard the keeping of records as an unnecessary distraction, but the drinks manufacturer will be in a much stronger position in the event of any subsequent litigation.
Paul Howcroft, solicitor advocate and commercial litigation partner at Marriott Harrison, London. He acted for the drinks manufacturers in the successful lead action against a carbon dioxide manufacturer and suppliers arising from the UK soft drinks industry-wide contamination of June 1998.
I'm not one naturally to side with the hugely rich and influential, but I can't help but feel a twinge of sympathy for those members of the Taittinger clan who wanted to keep the family business. Alas...
The last month has seen the launch of two prestige wines from South Africa, not hitherto a region renowned for super-premium offerings. But if these two take off, Chris Losh expects to see more super-...
A new public relations agency has been appointed for two of Coors Brewing Company's beer brands....
Sweden's state-owned retail monopoly Systembolaget is launching an SEK8m (US$960,000) ad campaign to defend its hold on alcohol sales in the country....
Interbrew UK has poached two marketing managers from rival brewers....
Anheuser-Busch is to follow the US launch of its B(E) beer by rolling out the brand in the UK....
Cobra Beer has announced plans to launch Cobra Lower Cal/Lower Carb in the UK....
Interbrew UK has announced plans to launch a new speciality beer....
- Whatever happened to binge Britain? - comment
- How to turn a domestic spirit into a global brand
- The dangers of squaring up to your competitor
- The US beer market - A level playing field for all
- Remy Cointreau's Q2 and H1 - preview
- Sidney Frank CEO to head Clooney's import co
- Diageo sells off United Spirits' Bouvet Ladubay
- Captain Morgan distillation trial queried by USVI
- Irish whiskey brands could fail without bulk
- Sazerac sues Brown-Forman over Tennessee Fire
- Global Beer Trends 2015 : Global Beer Trends and Long-term Forecasts
- Global sparkling wine insights - market forecasts, product innovation and consumer trends research
- Future growth opportunities for global spirits
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends research
- Global Wine Market to 2019 - Market Size, Development, and Forecasts