Product responsibility in a disrupted value chain
The announcement in early January that the quite mouthful (in more senses than one) ‘Tesco Everyday Value Beef Burgers’ sold by UK retail chain giant tested positive for horse DNA has brought to the fore issues of legal and sustainability risks in the on-going disruption of value chain in the retail and FMCG industries. As various players struggle to take over governance of the chain, traditional product ‘owners’ are toppled while newer ones are enthroned. As the new kings should have learnt by now, uneasy lies the head…
Traditionally, it used to be that retail stores were satisfied with playing in the very tail end of the value chain of the industries they worked with, making available to the consuming public goods clearly labelled for their third party manufacturers. Thus, while the manufacturers, and perhaps the logistics industry which is sometimes interposed between them and the retailers, may constitute the supply chain of the retailers, the bulk of the responsibility for product quality lies with named manufacturers.
However, recent creative disruption in certain manufacturing industries, especially food, beverage and other FMCG sectors, have won governance of the value chain for the retail chains, many of which are now able to have goods manufactured under their respective labels (so-called ‘white labels’), sometimes cutting our big, brand-led manufacturers or at least competing with them on the same shelves (mainly on pricing) through direct purchase from low-prized factories. Some of those factories themselves emerged as raw materials producers in the supply chain of the big, brand-led manufacturers acquire basic packaging facilities and deal directly with the retailers. Thus entered the ‘Tesco Everyday Value Beef Burgers’, ‘Sainsbury’s Basic Soap Bar’ and ‘ShopRite Whole Bean Classic Blend Coffee’ (I suspect the Nigerian ‘Domino’s Bread’ would not be a good example here, as that chain has always had a well-developed sister food company).
This has a significant implication for sustainability and corporate responsibility issues in the supply chain. A key area of product responsibility is product information. Traditionally, a retailer could be expected to rely on the manufacturers of goods and other players such as standards and quality assurers, product labelling services and even regulators to assure fidelity to product information. This is no longer the case where retailers have moved into the role of product ‘owners’ and are expected by the public to do a lot more in ensuring the safety, quality and correctness of information regarding their products.
Product liability, negligence and other legal what-nots
As noted earlier, the traditional structure placed the bulk of responsibility on the manufacturers. Lawyers in the common law jurisdictions would be familiar with the string of judicial decisions, which matured in the Donoghue v. Stevenson case [1932] in which the House of Lords affirmed the liability of manufacturers of goods to the end users for negligence resulting in injury. Before that decision, no such liability was recognised, as end users who have purchased goods at a shop would normally not have any contract with manufacturers, the possible breach of which could form the basis for some sort of remedy. In the Donoghue case, a woman successfully brought an action against the manufacturer of a Scottish brand of ginger beer for shock and stomach upset suffered after drinking from a bottled purchased by her friend, at a café, and which was found to be containing decomposed snail. The court held that although there might not have been contract between the two parties, but the ginger beer maker did owe a duty of care to the victim or any other foreseeable user of the product.
The on-going horsemeat issues should be distinguished from the so-called Paisley snail case though. For negligence to arise, injury should have occurred from the breach of duty of care. As yet, no person has come forward to complain of any troubles after consuming the quite mouthful, in more senses than one ‘Everyday Value Beef Burger.’ Which is not to vouchsafe that the notoriously litigious consumer rights activists are not, as we write, trolling the terrain for people who might be interested in seeing their doctors.
Besides that, today’s retail giants cannot be compared to Scottish corner cafés of yore in terms of the responsibility imposed on them by developments in regulations and case law since 1932. The current strict ‘product’ liability regimes are usually wide enough to get both manufacturers and retailers in the net in deserving circumstances, regardless of whose label the offending product carries.
Suffice to say, however, that by taking ‘ownership’ of the products they sell, the retail chains of today have succeeded, perhaps unwittingly, in uniting the laws of contract and tort in favour of the consumers.
The current value chain play may be deliberate strategic move by the retailers. Sorting out the unwitting implication will however be a playground for activists, lawyers, brand consultants and CSR/sustainability experts for some time to come.
Toye, an enterprise lawyer and Partner at the Lodt Law Offices, is also a GRI-certified sustainability reporting expert.{fcomments on}
