Do You Know Your Onions?

The recent issues McDonalds have had with customers falling sick with E coli has highlighted the potential problems that can arise with a supply chain.  Press reports state there have been regulatory investigations, claims for compensation for personal injury and a drop in global sales.  It has now been suggested that the E coli was traced to onions provided to 900 restaurants in the US.  The overall cost has not been reported but no doubt it will be huge.

How would this supply chain issue be approached if it was to happen in England and Wales?  Assuming I am instructed by a company in McDonald’s position to recover the costs incurred what would I advise?

The first thing to consider is the extent to which the claims against the company are covered by insurance and pass on the details to the relevant insurer for them to deal with.  Insurance policies should also be checked to see if there is any cover for legal expenses.

The next step is to locate a copy of the written contract the company has in place with its supplier.  A signed written contract is preferred as there should be less argument about the terms agreed.  If there is no written contract then a detailed note of what was discussed and agreed at the outset together with any emails between the parties will have to suffice.  

The contract with the supplier may contain clauses which set out the specification for the items supplied or specific details of the quality required.  It is likely that such terms will also be implied so that there will be a breach of the contract if the goods turned out to be unsatisfactory.  There may be terms which attempt to restrict or limit liability and indemnities should things go wrong. The contract will usually set out how it is to be terminated. 

The supplier may challenge the claims made by the company - perhaps on the basis that they were not liable for the issues with the goods, or the expert evidence relied on by the company is incorrect or the company has failed to keep its losses to a minimum.   A supplier may have a subcontractor who supplied it with the faulty goods and it may be that the supplier will seek to pass on some liability and cost to the subcontractor. 

In addition to ascertaining the legal position under the contract and the potential claims against the supplier there are also practical and commercial issues to consider.  If the company has an ongoing obligation to supply its customers then it will need to hold sufficient stocks and /or find and bring on stream an alternative supplier.  The company will need to devote resources to deal with the incoming claims and to log and evidence any losses incurred.  The financial position of the supplier will also need to be considered – there is no point in pursuing the supplier if the claim is going to put the supplier out of business.

As with all disputes, the advice is always to reach some settlement as the parties can control the terms agreed rather than having a decision imposed by the Judge at the end of lengthy and expensive Court proceedings.  Court proceedings are the antithesis of fast food.