Eversheds Food and Drink - Horsemeat Scandal Presentation - 3rd October 2013. Presented by Deborah Polden, Mary Kelly, Andrew Terry and Simon Brooks, Eversheds LLP. Lessons learned; - Background - Developing crisis - Supply chain - Contingency planning - Communication - Response - Looking to the future

1. Horsemeat scandal – lessons learned
Deborah Polden, Mary Kelly, Andrew Terry and
Simon Brooks
Eversheds LLP
3 October 2013
#thinkfoodlaw

2. Horsemeat scandal – Lessons learned
Product Recall
Deborah Polden
Partner
Eversheds LLP

3. Horsemeat - Background
• January 2013 – survey by FSA Ireland
• Products from 3 processing plants contained
horse and pig DNA
• FSA advise no food safety risk (however bute ...)
• Contaminated meat discovered in France,
sourced from Romania

4. Horsemeat - Developing crisis
• Police investigation – operations suspended at 2
UK plants
• Industry-wide tests conducted
• Tens of millions of product withdrawn from sale
• Widespread media coverage for several weeks

5. Lessons learned – Supply chain
• No food business is immune from risk of recall
• Can’t test for all possible contaminants
However :
• Understand your supply chain
• Increased focus on transparency /traceability
• More complex the supply chain, greater the risk
• Revisit specifications and terms and conditions
• Audit your suppliers

6. Lessons learned – Contingency
planning
• Companies with existing contingency plans react
more quickly and effectively
• Need recall plan, but keep strategy flexible
• Protect your brand – but may not be able to
recover all costs !
• Importance of clarity around test methods and
reporting obligations

7. Lessons learned - Communication
• Communication is key to stay ahead of crisis
• Media training for spokesperson
• Clear channels of communication with suppliers,
customers and FSA
• Consider extent of information provided to
customers – think ahead !
• Involvement of MPs/journalists – FOIA Requests

8. Lessons learned - Response
• Maintain record of steps taken and rationale
• Keep contemporaneous file (e-mails, costs, etc)
• Monitor impact of actions (units of product etc)
• Update FSA as appropriate
• Document management – investigations, testing,
privilege
• Take early legal advice – extent of legal
obligations, naming of suppliers

9. Looking to the future
• Increased testing being undertaken...
• More claims about provenance of food...
• Increased consumer awareness...
• Where will the next crisis come from ?

10. Food and Drink Seminar
Supply Chain Contracting: Lessons Learned
Mary Kelly
Senior Associate
Eversheds LLP

11. Introduction
• Characteristics of supply chain contracting
• Issues arising in the horsemeat scandal
• Future proofing supply chain contracts
• Other considerations

12. Supply chain contracting
• Consumer at the end of every supply chain
• Brand risk and legal risk
• End to end process
• Many points of potential failure
• Lack of control of remote suppliers
Characteristics

13. Supply chain contracting
• Complex web of contractual relationships
• Who is responsible?
• What can be recovered?
– loss of profits
– logistics and storage costs
– marketing and advertising expenditure
– changes to testing, packaging and labelling
– reputational loss
• Traceability
• Specifications
• Enforcement of inspection and audit rights
Issues arising in horsemeat scandal

14. Supply chain contracting
• Identify critical remote suppliers
• Approved suppliers
• Systematic vetting and inspection
• Flow down of contract terms
• Third party benefit terms
• Collateral warranties from approved remote suppliers
• Quantify risks up front
Future proofing contracts

15. Supply chain contracting
• Holistic view of the supply chain
• Risk management
• Risk reporting and early warning systems
• Documented responsibilities and allocation of risk
...don’t just rely on the contract
Other considerations

16. Horsemeat scandal – lessons learned
Brand protection
Andrew Terry
Partner
Eversheds LLP

17. Brand protection
• Case studies
– What worked well and what didn’t?
– Findus and Iceland
– Tesco and Waitrose
• Reputation management
• Lessons learned
Overview

18. Brand protection
Findus - a “labelling issue”?

19. Brand protection
• 50 years in UK, global sales of £1billion
• Of 18 beef products tested, 11 contained 60-100%
horsemeat
• Sorry for “any inconvenience caused”
• Initial withdrawal based on “labelling issues”
• No “food safety or health issues”
• Website and social media out of date or inactive
Findus – what happened?

20. Brand protection
Iceland - denying the issue?

21. Brand protection
Iceland - denying the issue?

22. Brand protection and reputation
management
Tesco – formal response

23. Brand protection and reputation
management
• “The problem we’ve had with some of our meat lately is
about more than burgers and Bolognese. It’s about some
of the ways we get meat to your dinner table. It’s about
the whole food industry.”
Tesco – ASA challenge

24. Brand protection
Tesco – social media response

25. Brand protection
Open letter
Waitrose

26. Brand protection
• Consider your legal rights
– Defamation – relatively easy to threaten a claim (pending the
new Defamation Act?)
– Privacy – injunctive relief an option
– PCC / Ofcom complaints
• What can you achieve?
– Prevent publication and/or shape story
– Helps prevent unchallenged stories becoming “fact”
– Apology or correction
– Damages
Dealing with unfair or inaccurate coverage

27. Brand protection
• Communicate quickly, regularly and consistently – don’t forget
social media
• Monitor coverage
• Get the tone right - human touch
• Acknowledge problem and accept blame when appropriate
• Apologise openly
• Be transparent - communicate steps being taken
• Put a communications team and strategy in place before a crisis
• Take action against unfair or inaccurate publicity
Lessons for the business

28. Horsemeat Scandal
Insurance Issues
Simon Brooks,
Head of Insurance
Eversheds LLP

29. Horsemeat Scandal
• Product Liability Insurance
• Product Recall Insurance
• Other Insurance Products
Insurance Issues

30. Product Liability Insurance
Policies provide an indemnity “in respect of all sums that the
Policyholder shall become legally liable to pay as
Compensation arising out of accidental
1. Bodily Injury to any person
2. Damage to material property not belonging to or in the
custody or under the control of the Policyholder or any
Employee occurring during the Period of Insurance in
connection with the Business within the Geographical
Limits”

31. Product Liability Insurance
• Bodily Injury trigger?
– “This is a matter of food fraud not food safety” Tonig
Borg, EC Commissioner for Health and Consumers
– Phenylbutazone or ‘Bute’
• Property Damage trigger?
– The Lasagne theory - Supply of horsemeat for
incorporation into other “beef” products – is the “beef
product” damaged property?

32. Product Liability Insurance
What is Damage?
“ An unwanted physical change in the relevant subject
matter even if the change was not permanent or
irreparable provided that it did impair the value or
usefulness of the subject. ”
Mr Justice Langley in Tioxide Europe Ltd v. CGU

33. Product Liability Insurance
What is Damage?
• Bacardi – Martini
“The mix of concentrate and water ceased to exist and the
finished product came into existence at the moment of
such admixture; what resulted was not damaged
concentrate and water but a defective new product; the
mix of concentrate and water was never intended to retain
its identity and the more natural description of events is
simply that a defective product resulted leading to an
overall economic loss suffered through recall.”
• Economic loss from a defective product, but not a
physically damaged product.

34. Product Recall Insurance
• The insurer agrees to “… reimburse the Insured for … any
Loss arising out of Insured Events” and to “…pay the
Insured for Crisis Response fees incurred in the rendering
of crisis management services in response to an Insured
Event”.
• “Loss” is recall expenses, third party recall expenses, loss
of gross profit, rehabilitation of product expenses,
increased cost of working and product extortion demands.
• Insured Events - Accidental Contamination, Malicious
Contamination, Product Extortion, Government Recall

35. Product Recall Insurance
• Accidental Contamination -
an error in manufacturing of an insured product, or the
introduction of an ingredient that is contaminated or unfit
for purpose, or an error in storage/distribution, provided
that the subsequent use of the insured product has led or
would lead to bodily injury, sickness, disease or death, or
physical damage to property.

36. Product Recall Insurance
• Malicious Contamination
the “actual, alleged or threatened intentional malicious and
illegal alteration or adulteration of an insured product (or
adverse publicity in this regard) so as to give the
Insured/the public reasonable cause to believe that the
product has been or is likely to be rendered dangerous or
unfit for intended use”.
• Product Extortion
A threat to carry out Malicious Contamination followed by
payment of a demand.

37. Product Recall Insurance
• Government Recall
• An error in the manufacture, production, preparation,
assembly etc of and insured product or the
introduction of an ingredient that is contaminated or
unfit for purpose
• PROVIDED THAT –
– the product has been determined by a competent
authority to be injurious to health or unfit for
human consumption AND
– the insured has a regulatory obligation to recall or
withdraw the product
“

38. Product Recall Insurance
• ”Unfit for human consumption”
• Article 14.5 of the European Regulation provides that “in
determining whether any food is unfit for human
consumption, regard shall be had as to whether the food is
acceptable for human consumption according to its
intended use.”

39. No Government Recall
• “People who have bought any Findus beef lasagne
products are advised not to eat them and return them to
the shop they bought them from”.
• “In the particular cases of the Findus lasagne and the
Tesco burgers, they have been withdrawn from sale.
Anyone who has them in their freezer should return them
to retailers as a precaution”.
• “the Food Standards Agency recommends that any
retailers or producers that have sourced beef products
from the French company Comigel should conduct a
precautionary withdrawal of product”.

40. No Government Recall
• “If caterers have any doubts about the provenance of their
product, they should seek assurance from their suppliers.
Any recalled products should not be used or sold”.
• “In addition to the widespread testing we are doing, we’ve
instructed the industry to urgently carry out its own tests
on processed beef products to see whether horsemeat is
present”.

41. Product Recall Insurance
• Crisis Response Costs Cover
– fees and expenses incurred by the insurers’ approved
crisis management consultancy in responding to an
Insured Event; or
– fees and expenses incurred for immediate assistance to
the Insured, even if coverage for any loss yet to be
been confirmed.

42. Insurance Market Response
• Reliance on Bodily Injury or Property Damage Triggers
• Adverse Publicity Coverage
– Insured Event – reporting in the media of actual or
alleged accidental contamination in which the insured’s
products are named
– Cost

43. Keep up to date
• Twitter: @EvershedsFAD
• Hub: foodanddrinkhub.eversheds.com