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Allens Arthur Robinson

Food Update – October 2003

Welcome to Allens update on food legislation, policy, news and cases.

Feature article: From junk food to junk lawsuits

Food companies and fast food restaurants in America are preparing themselves to be the next targets of America's obsession with class action litigation. Australian-based companies would be prudent to take note of these developments, report partner Peter O'Donahoo and lawyer Mark Grasso.

Introduction

Ever since Caesar Barber, a 270 pound maintenance worker who ate fast food meals on almost a daily basis, sued America's favourite fast food chains, the responsibility of food companies for the rising levels of obesity in the community has been vigorously debated. According to recent statistics, more than 60 per cent of Australians are now overweight, with 20 per cent ranking as obese, which is similar to the figures in the United States.

While Barber's case is currently dormant, and a subsequent class action in New York (Pelman & Ors v McDonald's Corporation & Ors) was recently dismissed, it is significant that obesity lawsuits are drawing not just the expected barrage of criticism, but also praise for the impact which they are likely to have on the practices of food companies and restaurants. Recent reactions of American food companies and regulators show that the threat of further lawsuits, irrespective of their merits, is having a noticeable effect on corporate conduct.

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Pelman & Ors v McDonald's Corporation & Ors

In August 2002, a class action lawsuit was filed in the Supreme Court of New York on behalf of all New York State children and their parents who had eaten at McDonald's restaurants and become 'obese, overweight [and] developed diabetes ... and/or other detrimental and adverse health effects and/or diseases' as a result.

The Complaint (equivalent to a Statement of Claim) alleged that McDonald's was negligent, and acted in breach of consumer protection legislation, in failing to warn its customers that its products contain high levels of fat, sugar and cholesterol, which 'have been shown to cause' obesity and other adverse health effects and are physically and psychologically addictive. Not surprisingly, McDonald's applied to have the case dismissed. The company's application focused on defects in the pleadings, but also submitted that the case should be struck out as no jury would ever find in the plaintiffs' favour.

In January 2003, the US District Court granted the application, but gave the plaintiffs leave to re-plead their claim. In his judgment, Sweet DJ recognised that '[p]ublic health is one, if not the, critical issue in society', but held that:

[L]egal consequences should not attach to the consumption of hamburgers and other fast food fare unless consumers are unaware of the dangers of eating such food.

Sweet DJ struck out the Complaint on the ground that '[n]o reasonable person could find probable cause based on the facts in the Complaint without resorting to 'wild speculation'.' His Honour's thoughts were encapsulated in the following statement:

If a person knows or should know that eating copious orders of supersized McDonalds' products is unhealthy and may result in weight gain (and its concomitant problems) because of the high levels of cholesterol, fat, salt and sugar, it is not the place of the law to protect them from their own excesses. Nobody is forced to eat at McDonalds. (Except, perhaps, parents of small children who desire McDonalds' food, toy promotions or playgrounds and demand their parents' accompaniment.) Even more pertinent, nobody is forced to supersize their meal or choose less healthy options on the menu.

In addition, Sweet DJ noted that it would be difficult for any obesity suit to obtain class action certification due to the myriad of factors which contribute to obesity.

In February 2003, the plaintiffs filed an Amended Complaint which, while more detailed than the original Complaint, still contained numerous pleading defects and led to a further application by McDonald's to have the case dismissed. Sweet DJ ruled on that application on 4 September 2003, dismissing the Amended Complaint and denying the plaintiffs leave to re-plead. During the hearing of the application, the plaintiffs' lawyer undertook not to pursue one of the more sensational claims in the Amended Complaint that McDonald's products have been processed to such an extent that they constitute a hidden health hazard of which consumers are not aware. The remaining claims were struck out by the Judge because the plaintiffs had failed to properly plead any deceptive acts of substance on the part of McDonald's, let alone the causal link between their consumption of McDonald's food and their obesity. On this issue, Sweet DJ said:

Information about the frequency with which the plaintiffs ate at McDonald's is helpful, but only begins to address the issue of causation. Other pertinent, but unanswered questions include: What else did the plaintiffs eat? How much did they exercise? Is there a family history of the diseases which are alleged to have been caused by McDonald's products? Without this additional information, McDonald's does not have sufficient information to determine if its foods are the cause of plaintiffs' obesity, or if instead McDonald's foods are only a contributing factor.

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Other developments in America

Further obesity lawsuits are inevitable. In June 2003, in a scene reminiscent of John Grisham's The King of Torts, a group of high profile American class action lawyers met in Boston to discuss tactics for pursuing coordinated lawsuits against the fast food industry. John Banzhaf, an ex-tobacco litigator, has been reported as saying:

We'll give them (fast food companies) six to nine months and see if they do put up the warnings. If they don't, then they may face a lawsuit.

Many food brands have announced their intentions to place greater emphasis on health and nutrition in response to 'consumer preferences'. In May, Kraft Foods was hit with a lawsuit, filed by a non-profit organisation known as BanTransFats.Com Inc, seeking an injunction restraining Kraft from marketing and selling its Oreo cookies to children because the biscuits contain harmful trans fats (discussed in our Focus: Food August publication). The lawsuit was abruptly withdrawn, but Kraft recently announced that it will remove trans fats from all of its products, cap the size of single-serve packages, eliminate marketing in schools and increase nutritional labelling.

On the regulatory side, the US Food and Drug Administration will require the amount of trans fats to be listed on all food nutrition labels, although not until 2006. The Bush Administration's 2004 budget will include USD$100 million to combat various health problems, including obesity.

At the same time, two bills prohibiting fast food lawsuits are currently before the US Congress. If passed, the Personal Responsibility in Consumption Act and the Commonsense Consumption Act will preclude any obesity claims against food companies whose products comply with food labelling regulations

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Implications for Australia

To date, no obesity lawsuits have been commenced in Australia. An article in The Australian newspaper reported Maurice Blackburn Cashman and Slater & Gordon as saying that such lawsuits have no prospects of success in this country following recent tort law reforms. However, history shows that it is only a matter of time before obesity class actions will make their way from America to here.

Some Australian food companies are not taking any risks. Masterfoods Australia has promised to remove trans fats from Mars bars, and McDonald's has introduced its 'Salads Plus' menu with much publicity, even handing out apples at train stations. Also, the fast food industry has begun television campaigns promoting 'healthy eating'.

In addition, the Federal Minister for Children and Youth Affairs has threatened to regulate, and even ban, food and drink advertising aimed at children. Further Government action is likely after the Government's National Obesity Taskforce hands down its report on the problem of obesity in Australia, including child obesity, in November.

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Conclusion

Although they sound far-fetched, the threat of obesity lawsuits may be real. There is no doubt that the public and government regulators are taking an active interest in the problem of obesity, including the role that advertising may play. The publicity which was given to the Pelman case has clearly had an impact on the conduct of food companies.

 In the circumstances, Australian food companies would be wise to review their products, marketing practices and the extent to which nutritional information about their products is available. These actions will ensure that they are well placed to answer any allegations by class action lawyers should the fat suits reach our shores.

If you would like to discuss this subject, please call Peter O'Donahoo on +61 3 9613 8742 or email him, Peter O'Donahoo.

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Legislation update

Alcohol advertising requirements introduced

On 15 August, the Commonwealth, State and Territory Governments introduced rigorous new requirements for alcohol advertising following a review of the existing alcohol advertising self-regulatory system. The review, documented in the Report of the National Committee for the Review of Alcohol Advertising was conducted in response to growing complaints of alcohol advertisements targeted at young people and on the internet. The Government recommendations included:

  • including the internet in the definition of advertising;
  • transparency of reporting to government on alcohol advertising;
  • prompt adjudication and inclusion of public health experts on adjudication of complaints;
  • encouraging participation and including alcohol beverage manufacturers in advertising code; and
  • setting up protocols on promotion of alcohol beverages that target the youth.

[Source: Department of Health and Ageing]

Cartagena Protocol on Biosafety implemented as law

The international Cartegena Protocol on Biosafety entered into force on 11 September. The protocol is designed to protect biological diversity and human health from potential risks arising from genetically modified organisms by providing a legal framework for the cross-border movement of GMOs. The protocol establishes a set of international rules for dealing with GMOs which ensures that countries can make informed decisions on whether to import GMOs intended for introduction into their environment, for example, GMO commodities imported into a participating country will have to fulfil specific documentation requirements.

[Source: Convention on Biological Diversity]

National Biotechnology Strategy released

The Department of Agriculture, Fisheries and Forestry finalised its National Biotechnology Strategy on 17 August, following a formal consultation process with key industry players. The strategy adopts a chain approach to the development and adoptions of biotechnology in agriculture, food and fibre industries – it identifies the need to ensure biotechnology benefits for the Australian community while protecting human health and ensuring environmental protection.

In summary, the strategy:

  • provides a framework for developing new agriculture, food and fibre industries and recognises that many areas of biotechnology are potentially highly relevant;
  • addresses the need for communication with rural and regional Australia to facilitate their decision-making about new biotechnology;
  • recognises the importance of regulation to ensure the safety of new applications of biotechnology in the agriculture, food and fibre sectors;
  • acknowledges that community and industry acceptance of future commercial applications of agricultural biotechnology is likely to hinge on the outcomes of current debates about genetically modified crops; and
  • discusses AFFA's ongoing role with other agencies to facilitate market access for both existing producers of non-biotechnology products and producers of biotechnology products.

[Source: Department of Agriculture, Fisheries and Forestry]

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News

Australia to approve GM canola

October 3 – Australia's Office of the Gene Technology Regulator (OGTR) said it had found a genetically altered canola developed by the company Monsanto to be as safe as regular canola. The canola is modified to make it resistant to the broadleaf herbicide glyphosate. The OGTR said: 'The development of herbicide resistance has been identified as a potential risk. However, this issue has been thoroughly assessed and will be managed by registration conditions imposed on glyphosate use by the Australian Pesticides and Veterinary Medicines Authority.'

Earlier this year, the OGTR approved a GM altered canola produced by the Aventis CropScience group, which is also altered to be herbicide -resistant. The OGTR's plan has been released for public comment until 28 November, after which a final ruling on the GM canola will be made.

[Source: AAP]

Pan may resume manufacturing this week

October 2 – Manufacturer Pan Pharmaceuticals may begin manufacturing a limited number of products again within the next week, the TGA said on 1 October. The TGA announced on 28 April that it had suspended Pan's manufacturing licence because of grave quality and safety breaches by the company. The announcement sparked the biggest medical recall in Australian history and left the company in administration. Creditors voted recently to liquidate the company after rejecting a rescue bid by millionaire businessman Fred Bart and Pan founder Jim Selim. Bart is taking legal action against McGrath, challenging the decision to liquidate the company

On 1 October the TGA said its recent audit of Pan's Sydney plant found 'a satisfactory level of compliance' with standards for the production of soft gel capsule products. The company had indicated it would lodge a formal application to have its licence reinstated for low risk soft gel capsules such as herbs, vitamins and minerals. 'Pending the company meeting the appropriate fit and proper person test, the TGA may be in a position to lift the licence suspension over the next week,' the TGA said in a statement.

[Source: Therapeutic Goods Association]

Weston's Wagon Wheels sold to Arnott's

September 29 – George Weston Foods has announced that it will sell its three leading biscuit brands, Weston's Wagon Wheels, Quatro and Chocolate Wheaton to Arnott's Biscuits under an agreement which is subject to the approval of the Australian Competition and Consumer Commission. Arnott's says that the biscuits will be produced at its New South Wales and South Australian bakeries, and there are plans to introduce new flavours and formats which will bring more jobs to the company. The purchase brings the Arnott's group's total share of the Australian biscuit market to around 57.5 per cent. 

[Source: George Weston Foods]

GM Crops refused insurance

September 27– New Zealand's second-biggest insurer, Vero, will not cover farmers for liability against damage or injury from the use of genetic modification technology after the moratorium on the commercial release of GM crops is lifted at the end of October. Vero informed its brokers in a memo of the decision to include the exclusion in farmers' liability policies. 'We perceive that the use of genetic modification technology in farming will present liability risks that we do not wish to insure,' the memo said.

Environment Minister Marian Hobbs, Federated Farmers and the Insurance Council agreed that other companies would follow the lead set by Vero, formerly Royal & SunAlliance, in refusing cover. But Ms Hobbs said Vero's decision was based on past history. 'There is no past history in New Zealand and limited information elsewhere in the world for GMOs.' It was not unusual for the industry to be conservative about covering something like a GMO until it had better information about the sort of financial exposure it might carry.

Insurance Council chief executive Chris Ryan said it was likely, as the Greens said, that other companies would follow Vero, but this was not necessarily a long-term stance. Insurance companies overseas were beginning to offer GM protection and the same thing would probably happen in New Zealand.

[Source: New Zealand Herald]

Wendy's adds low fat alternatives to the menu

September 23 – Following the lead of other fast food manufacturers, US chain Wendy's Restaurants is to offer a fresh fruit cup instead of French fries in its Kids' Meals. Wendy's will also offer reduced fat (2 per cent) milk or low fat (1 per cent) chocolate milk as Kids' Meal beverage alternatives in restaurants across America.

[Source: just-food.com]

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British public strongly denounce GM food

September 22 – The UK government released a report on its 'GM Nation' public debate on the future for GM foods. The report sums up feedback from 1200 letters and more than 600 public meetings attended by at least 8000 British people since June 2003.

The document will be used in conjunction with scientific and economic evaluations of GM crops and field trial results to inform the UK government's decision on whether to end the moratorium on the commercial growing of GM crops later in 2003. The report indicated that British people are generally uneasy about GM, with more than half the people attending the debates saying they never wanted GM crops grown in the UK.

However, the report contained some evidence that opponents of GM crops 'hijacked' public meetings and sent most of the letters, skewing the outcome. Further, the report said that when informing themselves on the subject, '[m]ost people relied on secondary reports of research, often from interested parties, without checking back to see if the research had been reported accurately.'

[Source: Ferret.com.au]

McDonald's healthier menu produce good sales results

September 15 – Less than 2 months after its launch, McDonald's healthier Salads Plus range has proven to be a success, following sales results showing that the range already accounts for 10 per cent of sales. The healthier menu was, in part, introduced in response to claims that consuming McDonald's food causes obesity.

[Source: Australian Financial Review]

FSANZ releases survey on consumer food labelling issues

September 5 – The results of a recently released survey by Food Standards Australia and New Zealand, entitled Food labelling Issues - Qualitative Research with Consumers, show that consumers are using food labels to make healthy choices about food. The survey found that health claims, allergen declarations, genetically modified food declaration and novel or irradiated food declarations were low on the list of consumers' priorities when making choices for food. The most commonly used parts of food labels were the best before dates, ingredients lists and nutritional information panels. FSANZ said that the research indicated that although consumers are using food labels to make choices about their food, further information and education is needed to help them understand the other important elements of healthy eating and to make health choices. FSANZ has worked, in consultation with industry and health professionals, to ensure that such information is available to consumers. The survey was conducted not long before the Food Standards Code came into force in December 2002.

[Source: Food Standards Australia and New Zealand]

McDonald's US suit thrown out

September 4 – A lawsuit accusing McDonald's Corporation of using misleading advertising to attract children to eat unhealthy food has been thrown out by a US federal judge. The judge found that the plaintiffs' case lacked specific allegations that they witnessed any particular deceptive advertisement and the information provided by the plaintiffs was insufficient to prove that McDonald's products caused the alleged injuries.

[Source: Reuters]

McDonald's healthier menu improves sales results

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New national food safety standards for seafood

September 1 – Food Standards Australia and New Zealand is currently developing new food safety standards for the seafood industry pursuant to a general overhaul of food safety standards for the primary industry sector in Australia (Primary Production and Processing Standards). The new standards will be compulsory across all states and territories and will address the harvesting, production, processing, handling and storage of seafood. It will also apply to imported seafood. The standards will also provide consumers with added measures of safety against common food-borne illnesses associated with seafood consumption. Approval of a new seafood standard is expected in mid-2004, with work on a PPP standard for poultry meat due to commence in December 2003.

[Source: Food Standards Australia and New Zealand]

EU asks WTO to challenge Australia's quarantine regime

August 29 – The European Union has asked the World Trade Organisation to rule on the legality Australia's quarantine regime in relation to the importation of certain EU food products. The request follows failed discussions between Australia and the EU back in May in relation to EU's problems with access to the Australian market. EU considers that the Australia's restrictions applied to certain EU agricultural products breach WTO rules, claiming that the system unjustifiably blocks the import of a number of products not based on scientific risk assessment.

[Source: Europa Online]

Food export growing for Australia

August 13 – Australia's food industry remains its leading manufacturing sector and major export earner, according to a report, Australian Food Statistics 2003, produced by the Department of Agriculture, Fisheries and Forestry. The Minister for AFFA, Warren Truss noted however, that the report's data covers only the 2001-02 financial year, and so does not reflect the impact of the drought on the industry over the past 12-18 months. The report is an annual publication that provides data on food industry production and trade, and is a reference tool for government and industry, particularly the National Food Industry Council – an alliance between government and industry to promote competitiveness and profitability of the food industry.

[Source: Department of Agriculture, Fisheries and Forestry]

Manufacturers pass GM labelling requirements

August 1 – Food Standards Australia New Zealand has released the results of a survey, Australian Pilot Survey of GM Food Labelling of Corn and Soy Food Products, showing that most Australian manufacturers are complying with the labelling standard for genetically modified food. The relevant provision is standard 1.5.2 of the Food Standards Code, which requires any food, food ingredient of processing aid produced using gene technology and containing novel DNA and/or novel protein to be labelled as 'genetically modified'. This standard also allows up to 1 per cent unintentional presence of GM food or ingredient in a final food product. FSANZ tested 51 samples of commonly consumed foods containing soy or corn. Although 10 were found to have traces of GM material, all were well below the 1 per cent adventitious level. Four out of the five soy milks found to contain traces of GM were labelled as being sourced from non-GM ingredients. FSANZ indicated that companies making non-GM claims on soy milk had sourced ingredients relying on identity preservation systems. When labelling food as 'GM free' or otherwise, legal requirements under the Trade Practices Act for misleading claims must also be considered.

[Source: Food Standards Australia and New Zealand]

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