food law update2015

This Food Law Update provides a snapshot of the recent key developments in the food and beverage sector in New Zealand and Australia.

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1. Introduction 3

2. Food 4

3. Beverage 14

4. Grocery 16

5. Alcohol 20

6. Supplements 22

7. What’s Going On Overseas? 26

(a) United Kingdom(b) United States of America(c) European Union

8. Simpson Grierson’s Food & Beverage Team 28

Contents

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This Food Law Update provides a snapshot of the recent key developments in the food and beverage sector in New Zealand and Australia. We have separated this booklet into industry areas: food (although this may cover other industries), beverages, grocery, alcohol and dietary supplements/complementary medicines.

This booklet also looks at some of the key overseas developments in the food and beverage sector as they often provide an indication of future trends in New Zealand and Australia. Simpson Grierson’s Food & Beverage team prepared this booklet based on news, legal and industry developments and other non-confidential information we have been gathering as part of our practice.

This information is designed and intended to provide general information, and does not constitute legal advice. While the information is current at the time of publication and care has been taken to ensure the information is accurate, we make no representation as to its accuracy. This report should not be relied on to replace professional advice relating to any specific circumstances.

1. Introduction

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There was a significant amount of legislative reform and regulator interest in the food industry across both New Zealand and Australia last year. This ranges from the introduction of the new Food Act in New Zealand to the Australian Competition and Consumer Commission’s (ACCC) focus on credence claims in the food sector.

(I) Legislative Updates

NEW ZEALAND AND AUSTRALIA: Standard 1.2.7 Nutrition, Health and Related Claims

On 18 January 2013, the law in New Zealand and Australia regulating health and nutrition claims was significantly changed with the introduction of Standard 1.2.7 (Nutrition, Health and Related Claims) under the Australia New Zealand Food Standards Code (Standard 1.2.7).

Although Standard 1.2.7 was released in 2013, the date at which point health and nutrition claims must comply with Standard 1.2.7 is drawing closer – 18 January 2016 is just around the corner.

Businesses need to start thinking about making changes now as there is no stock in trade rule. All products / advertising on market must comply come 18 January 2016.

The following paragraphs are simply a reminder of what the requirements under Standard 1.2.7 are when making nutrition and health claims.

Standard 1.2.7

Standard 1.2.7 sets out the claims that can be made about the nutrition content of foods and their health effects, and describes the conditions in which these claims can be made. Broadly, Standard 1.2.7 regulates three categories of claims:

• nutrition content claims (claims about whether there is a presence (or not) of a property of food);

• general level health claims (claims that link an ingredient to a health effect, but do not refer to a serious disease); and

• high level health claims (claims that link an ingredient to its health effect relative to a serious disease or a biomarker).

Nutrition Claims

Nutrition content claims are those claims about the presence or absence of nutrients in food. If a claim is made about a certain property of food listed under Schedule 1 of Standard 1.2.7, certain threshold requirements must first be met (depending on what claims are made). For example, for nutrition content claims about dietary fibre, the food must contain (per serving):

2. FoodAlso important was the implementation of Standard 1.2.7 and the resulting complexities of what nutrition and health claims can be made. This chapter provides a summary of these legislative changes, other voluntary regulatory initiatives and general updates and developments.

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• more than 2g of dietary fibre in order to make a “source of” dietary fibre claim;

• more than 4g of dietary fibre in order to make a “good source of” dietary fibre claim; and

• more than 7g of dietary fibre in order to make an “excellent source of” dietary fibre claim.

For properties of food not listed under Schedule 1, the nutrition content claim may only state that the food contains or does not contain the property of food.

Health Claims (General and High Level)

Standard 1.2.7 also permits “general level health claims” and “high level health claims”.

General level health claims are claims about a substance or

nutrients in food and its effect on health. For example, “Vitamin D is good for your bones” would be considered a general level health claim. These claims can:

• be pre-approved as listed under Standard 1.2.7 (200 currently listed); or

• be self-substantiated (note that there are stringent requirements under Standard 1.2.7 that must be met in order to self-substantiate claims).

In addition, general level health claims cannot be made unless the product meets the Nutrient Profiling Scoring Criteria.

A “high level health claim” is a claim about a substance or nutrient in food and its relationship to a serious disease or to a biomarker of a serious disease. For example “reduces risk of osteoporosis”

would be considered a high level health claim. These claims must be pre-approved as listed under Standard 1.2.7 – only 13 claims are currently pre-approved – and cannot be self-substantiated.

In addition, labelling requirements for all health claims mean that (where applicable) claims must state:

• the food or property of food;

• the health effect;

• any required population group;

• dietary context statement; and

• the form of food to which the health claim relates.

If you have not started already, we recommend that you review any current packaging to ensure that your claims are compliant with the new Standard.

“This chapter provides a summary of these legislative changes, other voluntary regulatory initiatives and general updates and developments.”

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NEW ZEALAND: The introduction of the Food Act 2014

In May last year, the new Food Act 2014 (Act) was passed into law in New Zealand after a long Parliamentary legislative process. The majority of the Act comes into force on 1 March 2016 (when the Food Act 1981 will be repealed). However, provisions relating to product recall and the ability to manage a food safety incident are in effect now.

The purpose of the Act is to establish a flexible, cost-effective and risk-based food safety system of management. This is intended to be a move away from the “one-size-fits-all” approach under the old Food Act (Old Act). We have summarised the key changes below.

FOOD ACT 2014 – KEY CHANGES

Risk-based monitoring & food handling practices

The Act introduces a sliding scale based on specific risks of each food business. Foods are classified into high, moderate/moderate-low and low. There are more stringent obligations imposed on businesses that have a higher food safety risk than lower food safety risk businesses. For example:

High Risk Foods: Higher risk food sectors, such as manufacturers of baby food, dairy and meat must operate under a Food Control Plan (or continue to operate under an equivalent programme under the Animal Products Act or the Wine Act). Many businesses selling higher risk foods already have Food Safety Programmes in place under the Old Act and these will become Food Control Plans on commencement of the new Act. Higher risk foods that currently operate under the Food Hygiene Regulations, will need to operate under a Food Control Plan.

Moderate Risk Foods: Moderate or moderate to low risk food sectors, such as manufacturers of alcohol, crisps and confectionery, must operate under National Programmes (or continue to operate under an equivalent programme under the Animal Products Act or the Wine Act). There are three levels of National Programmes that vary depending on how the food is classified. Businesses subject to National Programmes do not have to register a plan but they will have to follow requirements for producing safe food under the regulations. They will also have to register their business details, keep specified records and have periodic checks, with the frequency depending on which level of National Programme applies.

Lower Risk Foods: Low risk foods sectors, such as home-based early childhood sectors, are not required to operate under a Food Control Plan or National Programme.

In addition, businesses that are performing well will be subject to less frequent checks, while businesses not managing food safety well will receive more scrutiny. Therefore, each food business is able to influence its own compliance costs.

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Product recall and the ability to manage a food safety incident

The power that the regulator has in relation to product recalls has now been expanded. The Chief Executive of the Ministry of Primary Industries has powers including to:

• give directions to a person to dispose of imported food;

• give directions to a person to complete and supply a declaration if there is to be a change of ownership or location of any food or anything that may become food;

• give directions to impose movement or related controls in relation to food that may not comply with the Act to control the risk to human life or public health;

• give directions to recall unsafe, contaminated, mislabelled or incorrectly identified food;

• give directions to manage food;

• give directions to publish statements about the food;

• publish statements about the food; and

• require production of information for the purpose of determining safety and suitability of food.

Exporters The Act applies to all food produced in New Zealand, regardless of whether the food is intended for the domestic market or for export. Therefore, food exporters (except to Australia) must comply with the Act, unless they apply for exemptions for specific foods and/or markets.

Donations in good faith

The Act introduces a new “good samaritan” clause to protect businesses who donate their food in good faith. A donor is protected from civil and criminal liability that results from the consumption of food donated if it was safe and suitable when it left the possession or control of the donor and (if necessary) the donor provided information on how to keep the food safe and suitable.

Food for fundraising Under the Act, there is now a clear exemption allowing Kiwi traditions like sausage sizzles, home baking at school fairs, raffles and charity fundraisers to take place.

New offences and increased fines

The Act also strengthens Government’s enforcement powers by introducing new offences. Food safety officers now have the power to issue infringement notices, a new enforcement option that is an intermediate measure between warnings and court action. There are also greater powers given to the officers to inspect and search food businesses and premises where food is prepared.

Penalties for breaching the Act have significantly increased. The maximum penalties are now $100,000 for individuals and $500,000 for companies.

“The purpose of the Act is to establish a flexible, cost-effective and risk-based food safety system of management. This is intended to be a move away from the “one-size-fits-all” approach under the old Food Act (Old Act).”

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Before the Act comes fully into force, the Ministry of Primary Industries (MPI) will develop and release regulations, tools and guidance, subject to a public consultation process. We understand that the timeframe for development is as follows:

• Development and engagement – October 2014;

• Cabinet approval for consultation and drafting – late 2014 / early 2015;

• Public consultation (3 months) – March/April/May 2015;

• Drafting Regulations and Cabinet approval – June – November 2015;

• Regulation in force – 1 March 2016; and

• Transition period begins 1 March 2016.

We would recommend that companies in this sector carefully monitor and track the development of these regulations and participate in the public consultation process.

NEW ZEALAND & AUSTRALIA: FSANZ Proposal for Revised Food Code

Early last year Food Standards Australia New Zealand (FSANZ) proposed a revision of the Australia New Zealand Food Standards Code (Food Code). Why did the Food Code need to be revised? In 2009, the New South Wales Supreme Court (NSWSC) delivered a judgement in a criminal prosecution under the NSW Food Act. In its decision, the NSWSC commented critically on the legal efficacy of the Food Code. The proposed Code Revision is a direct response to the Court's comments. It is important to note that the Food Code Revision is not intended to alter or amend the legal requirements or obligations, rather (and as FSANZ notes), it is about:

• more clearly presenting requirements that impose an obligation under the Food Code;

• having greater reliance on definitions under the Food Code; and

• presenting the Food Code as a unified instrument.

The Revised Food Code has now been through two rounds of submissions. FSANZ is currently in the process of reviewing the second round of submissions.

AUSTRALIA: Country of Origin Labelling (CoOL)

The Australian House of Representatives Standing Committee on Agriculture and Industry launched an inquiry in April 2014 into country of origin food labelling. The Committee's terms of reference were:

• whether the current CoOL system provides enough information for Australian consumers to make informed purchases;

• whether Australia’s CoOL laws are being complied with and what, if any, are the practical limitations to compliance;

• whether improvements could be made, including to simplify the current system and/or reduce the compliance burden;

• whether Australia’s CoOL laws are being circumvented by importing through third countries; and

• the impact on Australia’s international trade obligations on any proposed changes to Australia’s CoOL laws.

This inquiry was launched around the same time that New Zealand's Primary Production Committee was considering whether to include CoOL requirements in the Food Act 2014 (these requirements were not ultimately included in New Zealand's legislation).

The Country of Origin Food Labelling Report was released on 27 October 2014. The Report recommends the term grown in Australia is used only when 100 per cent of the product is Australian. The Report also recommended banning phrases such as "made in

Early last year Food Standards Australia New Zealand (FSANZ) proposed a revision of the Australia New Zealand Food Standards Code (Food Code). Why did the Food Code need to be revised?

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Australia from local and imported ingredients" and instead giving detail about whether a product that was packaged or canned in Australia contained more or less than 50 per cent Australian ingredients. The list of recommended labels is:

• “Grown in” – 100 per cent content from the country specified;

• “Product of” – 90 per cent content from the country specified;

• “Made in [country] from [country] ingredients” – 90 per cent content from the country specified;

• “Made in Australia from mostly local ingredients” – more than 50 per cent Australian content; and

• “Made in Australia from mostly imported ingredients” – less than 50 per cent Australian content.

The Report discussed whether to introduce country of origin labels on imported food but did not recommend this as it may threaten Australia's trade agreements.

(II) Regulatory Updates

NEW ZEALAND & AUSTRALIA: Health Star Rating System

The Governments of Australia, and more recently New Zealand, have agreed to implement the (voluntary) Front of Pack Nutrition Labelling system.

The Health Star Rating System uses a star rating scale of ½ to 5 stars. These ratings are able to be used on all packaged food products for retail sale, except for some products such as alcohol.

The rating is used to indicate the nutritional value of a product with more stars indicating a better nutritional value. An algorithm that considers the overall nutritional value of the food product – not just one aspect, such as sugar or fat content – determines the number of stars associated with each food.

Companies are now starting to look toward implementing this system. In New Zealand, grocery company Foodstuffs has announced that it would

“The rating is used to indicate the nutritional value of a product with more stars indicating a better nutritional value. An algorithm that considers the overall nutritional value of the food product – not just one aspect, such as sugar or fat content – determines the number of stars associated with each food.”

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adopt the Health Star Rating System on its Pams and Budget packaging. Foodstuffs will begin to incorporate health star rating from early 2015 as contracts are renewed and products updated.

Similar to Foodstuffs in New Zealand, several Australian food and beverage companies have already announced that they will adopt the Health Star Rating System. These include Monster Health Food Co and Sanitarium. Supermarket group Woolworths has announced it will implement the Health Star Rating System on its own brand ranges, including Homebrand, Select, Macro and Gold.

Although the system has not yet come into use, there has been criticism from both sides of the Tasman about the effectiveness of the algorithm used to determine the stars. Some tests have found fast food scoring highly and on the flip side, traditionally ‘healthy’ foods

such as fruit, scoring lower than what many people would expect.

Many of these calculations were made using a rating calculator on an Australian Department of Health website (www.ahmac.gov.au). In September the Department of Health was notified that there was an inconsistency between the online calculator and instructions for manually calculating star ratings. However, this inconsistency was only for certain types of dairy products, specifically dairy beverages. If your company has used this calculator for any dairy products, we would recommend re-calculating to ensure accuracy.

Regulator Focus: Credence Claims

Last year saw a continuation of the ACCC's focus on credence claims, a trend that could likely be followed in New Zealand by the Commerce Commission. Areas in the past

year that the ACCC has conducted compliance and enforcement activities in include beer, pork, honey and free-range eggs.

The ACCC Chairman, Rod Sims, noted that when credence claims were misused “the damage is done in three ways”:

• first, consumers are misled into paying more for a premium feature that doesn’t exist;

• second, competitors who can legitimately make a credence claim unfairly lose their competitive advantage, and

• third, and perhaps most important, innovation suffers when consumers and businesses lose trust in the integrity of claims.

In April 2014, the ACCC accepted an undertaking from Carlton & United Breweries (CUB) in which it admitted it was likely to have breached the Australian Consumer

“Areas in the past year that the ACCC has conducted compliance and enforcement activities include beer, pork, honey and free-range eggs.”

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Law. CUB had a product named "Byron Bay Pale Larger." The ACCC argued this would lead people to believe a brewer in Byron Bay brewed the beer when it did not. CUB also paid two Infringement Notices to the value of $20,400.

Another undertaking was accepted by the ACCC in June from Barossa Farm Produce for false or misleading representations and misleading or deceptive conduct in contravention of Australian Consumer Law. One range of small goods were marketed as coming from heritage Berkshire pigs, other black pig breeds and/or that the pigs were free range. This was not the case.

In another credence claim situation, Basfoods paid penalties of $30,600 in June 2014 following ACCC infringement notices. Basfoods had a product called "Victoria Honey." It was found the product was from Turkey and not made by bees.

A further credence claim related labelling and promotion of eggs as “free range”. In September last year, Pirovic Enterprises was ordered to pay $300,000 by the Federal Court of Australia (FCA) for labelling its eggs as free range, including cartons with images of hens in open pasture, when they were not.

The FCA found that when the term “free range” was used, consumers would believe hens that were able to move about freely on an open range each day, produced the eggs. Pirovic admitted most of its hens did not move about freely on an open range on most days. The FCA found the reason for this was due to a combination of the following factors:

• the stocking densities inside the barns where the hens were housed;

• the flock sizes inside those barns; and

• the number, size, placement, and operation of the physical openings to the open range.

This case formed part of a wider ACCC investigation into free-range claims made by a number of egg producers across Australia. New Zealand seems to be following a similar trend with an owner of an egg producer

receiving 12 months home detention and 200 hours of community service for selling eggs as “free-range” when they were from caged hens.

(III) Case Law

AUSTRALIA: How fresh is "Fresh"?

On 18 June 2014, the FCA found Coles Supermarkets' "freshly baked" bread claims to be misleading. Australia's consumer watchdog the ACCC brought proceedings against Coles for the following claims about their in-store bread:

• Baked Today, Sold Today;

• Freshly Baked;

• Baked Fresh;

• Freshly Baked In-Store; and

• Coles Bakery.

The bread at issue was frozen par-baked bread made by off-site suppliers, which was then transported to Coles in-store bakeries to complete the baking process.

In considering whether Coles' conduct was misleading or deceptive, the FCA considered the words "bake" and "baking" in a consumer sale context. The FCA found the phrase "Baked Today, Sold Today" to convey that the baking process, not some heating or baking process, has taken place "today". In addition, the FCA held the use of the words "fresh" or "freshly" implied the baking of fresh dough. This decision highlights that the definition of "fresh" will be considered in accordance with the dominant message and context of each case. In contrast, the FCA found that the phrase "Coles Bakery" was not misleading and did not add anything to the misleading or deceptive conduct that already exists.

The FCA took the overall impression of the claims to find Coles guilty of misleading or deceptive conduct. This is because ordinary and reasonable members of the public would take from the packaging material and the signage in-store that the bread was prepared and baked onsite. Rather, Coles should have made it clear to consumers

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that the recent baking was the completion of a baking process that had taken place sometime before off-site, and that "freshly baked" actually meant the completion of the baking process of frozen product.

In sentencing, the FCA ordered that Coles be restrained for three years from making any representation that bread products are entirely baked on the day on which they were offered for sale, baked in a Coles Bakery Store on the day on which they were offered for sale, or baked from fresh dough, when that is not the case. Additionally the FCA ordered Coles to display corrective notices in prominent locations in each bakery section of each Coles in Australia. The notice was also to be published on Coles’ website homepage.

There were no compliance orders as proposed by the ACCC, as the Judge believed “the publicity already received by Coles and the publicity likely to be received by the Corrective Notice to be displayed in stores and on the website will amply act as a discipline for the need for compliance”.

In addition, Coles was ordered to pay the ACCC’s costs and the question of the financial penalties will be heard on a later date.

NEW ZEALAND: Fine Prints & Disclaimers

Although not directly related to the food industry, in New Zealand the Court of Appeal (CA) has recently released its precedent setting Godfrey Hirst v Cavalier Bremworth decision (Case). The decision makes it clear that a headline statement will be misleading for the purpose of the Fair Trading Act (FTA) where advertisers make it difficult for consumers to find and understand important qualifying information. The Case provides useful guidance, and acts as a warning, about how to present fine print and disclaimers in advertising without misleading the consumer.

The Case

The Case involved a dispute between carpet manufacturers Godfrey Hirst (Godfrey) and Cavalier Bremworth (Cavalier). Godfrey alleged that Cavalier’s claim about its “superb lifetime” carpet warranties were misleading as the terms and conditions significantly limited the warranties' scope.

Because only some of the claims were successful in the High Court, Godfrey asked the CA to provide clarification on the matters that were dismissed. Around this time the Commerce Commission (Commission) had also become concerned about how frequently headline statements were being qualified and the disparity between these headline statements and their qualifiers. This prompted the Commission to request it become a party to the proceedings, illustrating the severity of the issue and extent of public concern.

Who is a consumer and what is the standard of care expected of them?

The CA’s decision provides two points of clarity regarding the application of the FTA and some principles-based guidance on when qualified headline statements may be misleading. The CA clarified:

• who the consumer is for the purpose of the Act:

The consumer encompasses all consumers targeted by an allegedly misleading claim, except outliers that include “consumers who are unusually stupid or ill-equipped, or those whose reactions are extreme or fanciful”. If a claim is made to the public at large, it is to all the public except the outliers.

• the standard of care expected of the consumer when reading point of sale material:

Consumers must exercise a degree of care which is reasonable having regard to all the circumstances. This includes the level of knowledge, acumen and ability of the target group of consumers. In other words, the consumer is a person who is reasonably careful and has some common sense.

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Key Principles

The principles provided by the CA can be distilled into four key questions. These questions should be used by advertisers to avoid a breach of the FTA when preparing point of sale materials:

• Is the overall impression of the advertisement misleading? It is important to note that the overall impression cannot be assessed by analysing each separate representation in isolation.

• Is information that qualifies a headline statement sufficiently prominent? This includes the proximity of the qualifiers to the headline claim, the prominence of the qualifiers themselves and whether the qualifying information is sufficient to nullify the risk of the headline claim misleading consumers. In practice, this means checking if:

- an asterisk has been used appropriately to draw attention to any qualifiers;

- the path to the qualifiers is short and natural;

- the qualifiers are readable (large enough); and

- the qualifying information is in clear and easy to understand language.

• Is there a glaring disparity between the headline statement and its qualifiers? Where there is a large disparity, sufficient attention must be drawn to the actuality of the claim in the clearest possible way.

• Are consumers enticed into “the marketing web” through a misconception fashioned by the advertiser? It must be noted that a misleading advertisement cannot be saved by a consumer coming to understand the truth about a claim before they “buy”. A consumer simply has to be enticed into “the marketing web” for a breach of the Act to occur.

“This is because ordinary and reasonable members of the public would take from the packaging material and the signage in-store that the bread was prepared and baked onsite.”

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This chapter of our Food Law Update focuses on beverages including new proposals relating to health claims for electrolyte drinks, new policy guidelines for the addition of caffeine to food (including beverages), the ongoing “sugar debate” and the recent lawsuit against Red Bull in the United States.

(I) Regulatory Updates

AUSTRALIA AND NEW ZEALAND: FSANZ sports drink health claims proposal

Food Standards Australia New Zealand (FSANZ) is considering whether electrolyte drinks such as Gatorade and Powerade should be able to carry health claims. This relates to the introduction of Standard 1.2.7 in 2013 which regulates health claims. FSANZ has released a draft food regulatory measure that would allow these types of beverages to make health claims in relation to their purposes. This would also transfer these types of beverages from classification under Standard 2.6.2 – Non-Alcoholic Beverages and Brewed Soft Drinks to Standard 2.9.4 – Formulated Supplementary Sports Foods.

However, there has recently been opposition to this proposal, specifically allowing health claims for electrolyte drinks. Australian Consumer group CHOICE believes that allowing sports drinks to carry health claims will mislead consumers into believing that sports drinks are healthy, when they are not. A health claim like “improves hydration” is the most likely type of claim these types of beverages would include. CHOICE believes “it makes no sense to allow health claims that would only apply to a small group of athletes”.

In New Zealand, the Auckland Regional Public Health Service also opposes this proposal. It has stated in a recent media release that the promotion of electrolyte drinks as a “healthier” alternative “poses a serious public health risk, given our rising obesity epidemic”.

AUSTRALIA AND NEW ZEALAND: Caffeine Policy Guideline

In June 2014, Australia and New Zealand’s health and food regulation ministers agreed on the revised Policy Guideline on the Regulatory Management of Caffeine in the food supply. The policy provides a framework for managing caffeine in foods, including beverages, and will supersede the 2003 Ministerial Council Policy Guideline.

This follows public concern about the risks of increased exposure to caffeine especially among youth. A particular focus has been on energy drinks and their attractiveness to young people, the ease of ingesting caffeine and their use in combination with alcohol.

3. Beverage

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AUSTRALIA AND NEW ZEALAND: Focus on sugar content in beverages

Last year saw further emphasis across the world on sugary drinks and the potential impact they have on health, especially on young people. In New Zealand, several District Health Boards are considering banning sugary drinks in hospitals. The Northland DHB has already done so. In both New Zealand and Australia there is ongoing discussion about whether these types of beverages should be taxed and whether this would be effective.

(II) Case Law

CASE LAW (USA): Red Bull Settles False Advertising Lawsuit

In the US, Red Bull has agreed to settle a false advertising lawsuit involving advertising claims such as “gives you wings”.

The plaintiff in the case alleged that the claim was misleading and deceptive due to the idea that the

energy drink would increase performance and concentration – and this was not “puffery”. Further, that its advertising is false as it suggests that Red Bull provides functional benefits over and above a “simple cup of coffee”.

Red Bull settled the claim without admitting fault, stating in a media release that it settled the lawsuit to “avoid the cost and distraction of litigation”. In addition, the media release stated that “Red Bull maintains that its marketing and labelling have always been truthful and accurate, and denies any and all wrongdoing and liability”.

Under the terms of the proposed settlement (as agreed between Red Bull and the plaintiff but not yet approved by the Court), consumers who purchased any Red Bull product between 1 January 2002 and the settlement date, would be entitled to $10 cash reimbursement or $15 worth of Red Bull products.

“The policy provides a framework for managing caffeine in foods, including beverages, and will supersede the 2003 Ministerial Council Policy Guideline.”

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This chapter of our Food Law Update focuses on the grocery industry. In particular, the recent developments regarding allegations of unconscionable conduct against supermarket retailers in both Australia and New Zealand. In Australia, this has ultimately led to the development of the Australian Food and

Grocery Code of Conduct as outlined below. Lastly, we discuss recent case law around the Federal Court decisions relating to Coles and Woolworths undertakings about fuel docket discounts (noting also that we have discussed the Coles “fresh” decision under the earlier food chapter).

(I) Recent Developments

AUSTRALIA AND NEW ZEALAND: Commission investigations

The conduct and behaviour of some of the larger supermarket retailers has been in the spotlight recently, with regulators in Australia and New Zealand investigating or initiating proceedings against these supermarket chains as a result of allegations of bullying and/or unconscionable conduct. Below is a snapshot of what has been going on in the past year and where we are at to date.

New Zealand

On 20 February 2014, the Commerce Commission launched an investigation into the allegations of anti-competitive behaviour towards suppliers by

Australian-owned Countdown supermarkets. Labour MP Shane Jones used the protection of parliamentary privilege to accuse Countdown of bullying its New Zealand suppliers, including allegations of blackmail and extortion.

The Commerce Commission received 90 complaints and investigated whether Countdown had engaged in any conduct that was misleading or deceptive or otherwise breached the Fair Trading Act. In addition, it considered whether there was any evidence to suggest any of Countdown’s behaviour might breach the Commerce Act.

The Commerce Commission concluded there were no technical breaches of any New Zealand law. However, it did provide two

warnings: “that parties should avoid ambiguity in communications and written terms of trade” and “exchanging information about future competitor behaviour” as “these types of exchanges can create an environment in which anti-competitive agreements or conduct can easily emerge”.

In addition, the Commerce Commission’s Chief Executive made it clear that he was not saying there was nothing to the 90 complaints received: “What I’m saying is there was evidence produced, that evidence did not suggest a breach of the Acts.” This suggests that business behaviour that an average New Zealander would likely consider unfair, may have occurred.

Both Labour and New Zealand First have stated that the outcome of this investigation indicates

4. Grocery

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the law is not strong enough. There are now calls for discussion around whether a mandatory code of conduct for supermarkets – to protect suppliers from anti-competitive behaviour – should be introduced, and whether the law needs to be amended to deal with unconscionable conduct. This would align New Zealand with other international jurisdictions, such as Australia and the United Kingdom.

Australia

On 5 May 2014, the ACCC initiated proceedings in the Federal Court of Australia (FCA) against Coles Supermarkets alleging unconscionable conduct towards its suppliers in its Active Retail Collaboration (ARC). Coles developed the ARC program as a strategy to improve its earnings by obtaining more favourable terms from its suppliers and introduced ongoing rebates to be paid by the suppliers. The ACCC alleges that Coles had breached the Australian Consumer Law when it engaged in unconscionable conduct by providing misleading information to suppliers about savings and value to them, using undue influence and unfair tactics to demand payment of the rebate, taking unfair advantage of its stronger bargaining power and by not

providing the suppliers with sufficient time to agree to the ARC scheme. These proceedings arose as part of the ACCC’s June 2012 to December 2013 extensive investigation into the Australian supermarket sector.

On 10 June 2014, Australia’s vegetable growers industry body AusVeg called for a further ACCC investigation into a levy charged by Woolworths to fund a campaign featuring Jamie Oliver. The campaign is being funded by an additional levy on individual growers at 40¢ per crate, in addition to a fee of up to 5 per cent to pay for marketing and promotion fees. A statement by Woolworths responded by stating the contribution was voluntary for suppliers, however, the suppliers are concerned that if they did not comply with the levy, they would receive fewer orders in the future.

The ACCC took further action against Coles on 16 October by initiating further proceedings in the FCA for unconscionable conduct. The proceedings come from the same investigations as the proceedings that were initiated on 5 May. These proceedings relate to agreements where suppliers paid for the difference between the amount of profit Coles had wanted to make on those goods and the amount it had achieved

“The conduct and behaviour of some of the larger supermarket retailers has been in the spotlight recently, with regulators across Australia and New Zealand investigating or initiating proceedings against these supermarket chains as a result of allegations of bullying and/or unconscionable conduct.”

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and for wasted goods Coles could not sell even after delivery was accepted. The ACCC alleges at times this was also done retrospectively.

The ACCC is attempting to merge the two actions as they come from the same investigation and involve unconscionable conduct by Coles in using its superior bargaining power. Coles is trying to keep the cases separate as the first case deals with conduct against 200 suppliers and the second against five.

AUSTRALIA AND NEW ZEALAND: Australian Food and Grocery Code of Conduct

In Australia, this alleged supermarket behaviour has, in part, led to the development of the Australian Food and Grocery Code of Conduct (Code). The Code aims to prevent unfair practices in the grocery sector, in particular the ability for the big supermarket chains to take advantage of suppliers who are often reliant on them. A draft of the proposed Code has been released. The ACCC has noted that in order for the Code to be effective key issues including coverage and enforceability need to be addressed. In addition, that many of the protections were able to be contracted out of by either party, in their view not addressing the problems that have led to the drafting of the Code. These problems include big supermarkets taking advantage of

their bargaining power. The ACCC argue that the current draft Code would allow this to continue, as the big supermarkets would use this power to contract out of the provisions.

(II) Case Update

AUSTRALIA: Supermarket fuel discount dockets

On 14 April 2014, the FCA made two separate decisions in cases brought by the ACCC against Coles and Woolworths in relation to undertakings given to the supermarkets in relation to fuel docket discounts. In the case against Woolworths, the FCA found a breach of a court enforceable undertaking given to the ACCC. In contrast, the Court found that Coles did not breach its court enforceable undertaking to the ACCC that was identically worded. This was because the advertisements of fuel discounts were different. The undertakings placed a 4¢ per litre limit on fuel discounts. Even though Coles offered discounts of more than 4¢, the offers were independent of each other and therefore not contingent on the supermarket purchase. However, Woolworths’ offer of a discount of more than 4¢ was only available to customers who had purchased from the supermarket and therefore the offer was contingent on the initial purchase from the supermarket.

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“These problems include big supermarkets taking advantage of their bargaining power.”

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This chapter of our Food Law Update focuses on alcohol including a brief explanation of the new alcohol laws in New Zealand, the possibility of further advertising and sponsorship restrictions, and a recent Alcohol Review Board decision from Australia about Woolworths’ Duff beer.

(I) Legislation

NEW ZEALAND: New Alcohol Laws

New liquor laws under the New Zealand Sale and Supply of Alcohol Act 2012 have come into force (for almost one year now). The key changes include:

• new national maximum trading hours for businesses that sell alcohol;

• prohibition on all advertising and marketing that promotes excessive alcohol consumption or has special appeal to minors;

• new requirements around displays and promotions displayed in store;

• businesses cannot serve intoxicated people or allow them to remain on the premises; and

• if you hold an event that requires a special licence, application must be made at least 20 working days before the event is held.

In addition, the supply and promotion of alcohol is now restricted in New Zealand. It is now an offence to:

• promote excessive drinking;

• promote alcohol in a way that has special appeal to minors;

• advertise free alcohol or discounts of 25% or more off the price ordinarily sold; and/or

• offer free goods or services with the purchase of alcohol.

NEW ZEALAND: Ministerial Forum on Alcohol Advertising and Sponsorship

In New Zealand, there is currently a Ministerial Forum on Alcohol Advertising and Sponsorship that is considering further restrictions on alcohol advertising. This comes following calls from members of the public and academics during the Alcohol Law Reform process that doing so will reduce harm from alcohol. The Forum is considering whether further regulation is needed and if so what type of regulation is needed, including whether regulation is voluntary or mandatory. The forum will not look at labelling as that is controlled by FSANZ, nor will it look at restrictions on sales, licensing or

5. Alcohol

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counter advertising. The Forum was expected to report to the Minister of Justice and Associate Minister of Health by the end of 2014.

(II) Advertising Decisions

AUSTRALIA: Duff Beer pulled from shelves

Early last year, the Australian Alcohol Policy Coalition (APC) lodged a complaint with the Alcohol Advertising Review Board about Woolworths’ “Duff” beer being in breach of the Alcohol Beverages Advertising Code (ABA Code). Most people are familiar with “Duff” beer from the popular cartoon television series, The Simpsons. Woolworths released the Duff beer product which was branded to mirror the cartoon product.

The APC were of the view that the product had a “strong or evident appeal to children or adolescents” due to its association with The Simpsons television series. The Review Board held that the product and associated advertising had breached the ABA Code:

“The association of The Simpsons with the product name and packaging, is so strongly entrenched in Australian popular culture, that the name and packaging will draw the attention of under 18 year olds and measures to market the product without references to The Simpsons characters or images cannot be effective to overcome the strong and evident appeal of the product material to underage persons”.

Following the decision, Woolworths removed the cans from its shelves (although they were allowed to sell the stock they already held).

“In New Zealand, there is currently a Ministerial Forum on Alcohol Advertising and Sponsorship that is considering further restrictions on alcohol advertising.”

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This chapter of our Food Law Update focuses on supplements including the New Zealand Natural Health Products and Supplementary Bill, the new Australian Food-Medicine Guidance tool introduced by the Therapeutic Goods Authority (TGA) and recent trends in substantiation requirements for scientific claims made in advertising.

(I) Legislation

NEW ZEALAND: Natural Health Products Supplementary Bill

The Natural Health and Supplementary Products Bill (Bill) has been making its way through Parliament over the last few years. The Bill will introduce a new regulatory regime for low-risk natural health products such as supplementary products and garlic capsules. This will create a separate category of products from food and medicines. The aim of the Bill is to ensure that natural health and supplementary products are safe to use, make true health claims and that the products are made and contain what their labels

say they do. The Bill will require companies to notify the newly formed Authority before releasing any products of this type on to the market. This will include details relating to any health benefits claimed and information to support these claims. The Bill will also require the regulator to develop and maintain two lists of ingredients:

• a list of ingredients prohibited for use in natural health and supplementary products; and

• an open-ended list of ingredients approved either by trusted overseas regulators, recognised in traditional medicine or assessed by the New Zealand regulator as suitable for use in natural health and supplementary products.

When passed into law, the full regulatory scheme will take effect gradually over three years. The Bill currently awaits its third reading in Parliment. There is no indication of when it will be passed.

AUSTRALIA: Food-Medicine Interface Guidance Tool

In Australia, there have been recent developments in relation to the food-medicine interface, with the Australian Therapeutic Goods Authority (TGA) releasing a new Food-Medicine Interface Guidance Tool (Tool). The TGA’s intention of releasing this Tool is to help businesses determine whether a product should be regulated as a food or as a medicine. Previously, it was of the belief that to distinguish

6. Supplements

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between a food and medicine, the overall presentation of the product was key. For example, if you present the product as a food and not a medicine (ie no therapeutic claims are made) then the product will be considered a food and should be regulated as such. However the Tool includes other factors that essentially mean that if the product could fall within the regulation of a food (such as herbal teas) then it cannot be a therapeutic good. The overall effect of this Tool means that many products currently listed as medicines may actually be foods. So what happens with these products? Will the TGA cancel these products as they could be foods? We understand that the TGA have cancelled listings for two food type products and we are told that the TGA may be looking at cancelling more. These new guidelines set out by the Tool may potentially be hard for the TGA to enforce unless they cancel many current registrations. This essentially means that many of the food-type products that are currently listed as medicines could be cancelled and forced to be regulated as a food under the ANZ Food Standards Code.

(II) Advertising Decisions

NEW ZEALAND: ASA substantiation complaints

Last year saw several complaints to the New Zealand Advertising Standards Authority (ASA) in relation to health claims on natural health products and supplements. These complaints focus on the fact that many of the claims made in advertisements for the products are not substantiated by evidence. In almost all cases, the advertiser has removed the advertising as the advertisements have been copied from overseas or a shop worker has not been informed of what it is permissible to say. In order to make health claims the ASA is setting quite a strong level of evidence including multiple peer reviewed studies that back up the claim.

This is illustrated in the ASA decision below where a complaint was upheld on the basis that sufficient evidence was not provided.

“The aim of the Bill is to ensure that natural health and supplementary products are safe to use, make true health claims and that the products are made and contain what their labels say they do.”

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NEW ZEALAND: Health 2000 Decision

Early last year, the New Zealand ASA upheld a complaint against Health 2000. The complaint was in relation to alleged therapeutic claims in an email advert about “GO Healthy Vir-Defence”. The complaint was made by the Society for Science Based Healthcare.

What were the claims in the ad? The ad claimed that the ingredients in the product “have been found to be effective at keeping lurgies at bay, help support the body when bugs do hit, while helping build immune health” and that the product is “designed to support recovery from ills and chills”.

The Complaints Board acknowledged that Health 2000 had provided some substantiation to

support some of the claims made about zinc. However, the Board was of the view that this was the only substantiation supplied to support the large number of claims in the advertisement. And that even though the advertisement had been approved by Therapeutic Advertising Pre-vetting System, Health 2000 had not provided any substantiation of significant substance to the Complaints Board to support the claims made. The complaint was therefore upheld.

Again, this shows that substantiation of any claims made is extremely important and that when responding to any Complaints Board enquiries – full evidence should be provided.

We understand that Health 2000 is appealing this decision.

“The Complaints Board acknowledged that Health 2000 had provided some substantiation to support some of the claims made

about zinc.”

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(A) Unitied Kingdom

Sweet-ban at the checkouts?

On 22 May 2014, the UK’s biggest supermarket chain Tesco announced that it would ban confectionery from its checkouts. This is a result of a survey that showed that 65% of shoppers wanted confectionery removed from checkouts to help them make healthier choices when shopping.

This is part of a Government anti-obesity drive in the UK, which could see tighter regulations imposed on advertising for sugary foods. On 26 June 2013, Public Health of England, established by the UK Department of Health, announced its investigation into the content and timing of advertisements for foods high in sugar, fat and salt.

Traffic light food labelling system

On 13 June 2014, the European Commission (Commission) announced its intention to take legal action against the UK’s traffic light food labelling scheme. The UK’s voluntary traffic light food labelling scheme is a front-of-pack system aimed at promoting healthier choices at the supermarket. The scheme operates by ranking sugar, fat, saturated fatty acid and salt content levels and assigning a red, green or amber

colour to it. The Commission is questioning the compatibility of the scheme with EU law, and is concerned that the traffic light colour coding would “fragment the issue of nutrition labelling in the EU”.

Health warning on all alcohol labels

In August 2014 a group of British parliamentarians, All-Party Parliamentary Group on Alcohol Misuse, released a manifesto of ten measures to reduce alcohol misuse in the UK. One of the measures was to include ‘cigarette style’ health warnings on all alcohol labels. The group noted the success of the warnings on cigarettes in deterring smokers and believe doing the same for alcohol could reduce the harm caused.

Food Crime Unit

A report in the UK has recommended the adoption of a Food Crime Unit. Despite the name, this has not been set up to catch the “Hamburgler”, but instead is a response to the horsemeat scandal. The report’s author Chris Elliott said, “The creation of the national food crime prevention framework will ensure measures are put in place to further help protect consumers from any food fraud incidents in the future”. The suggestions included:

• better intelligence gathering and sharing of information to make it difficult for criminals to operate;

• new, unannounced audit checks on the food industry to protect businesses and their customers;

• the development of a whistleblowing system that would better facilitate the reporting of food crime;

• improved laboratory testing capacity, with a standardised approach for the testing of a food’s authenticity; and

• the encouragement of a culture within the food industry that questions the source of its supply chain.

UK ASA review of food and drink marketing

The UK ASA undertook a review of food and drink marketing, especially to children, and reported back on their processes in May. Although they noted the debates around childhood obesity in the UK, the review was more about ensuring they regulate effectively. The ASA noted the biggest driver behind the review was the change in the way media is consumed, including the rise in complaints about apps and websites. Although they believed advertising controls in the area are working effectively they noted the importance of

7. What’s Going On Overseas?

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checking their position to ensure they continue to regulate appropriately in the future.

The outcome of the review was that its rules on the advertising of food and drink to children are strict enough and there will be no outright ban on such marketing. The review noted the work the ASA was already doing and noted the importance of finding the right balance between advertisements’ ability to inform, entertain and promote choice, as well as fund the media, sport and culture people enjoy, and the potentially harmful effects of advertising.

On the back of this report on 26 June Public Health of England, an agency established by the Department of Health in 2013 to improve the nation’s health, announced an investigation into reducing sugar intake in the UK and that it would take on board the ASA review but would not rule out suggesting changes to advertising rules.

(B) United States Of America

Coca-Cola agrees to settle Vitaminwater deceptive advertising lawsuits

In August 2014, Coca-Cola agreed to settle Vitaminwater deceptive advertising lawsuits. The cases were filed by the Center for Science in the Public Interest (CSPI) who said Coca-Cola was “peddling the product as a healthy alternative to soda”. The description of Vitaminwater as a “vitamin-enhanced water beverage” and use of the phrase “vitamins + water = all you need” was found by the judge, in Coca-Cola’s hearing to dismiss, as having the potential to make consumers believe that the product only contained vitamins and water.

This led to a number of copycat law suits that Coca-Cola settled without admitting liability and agreeing to stop using phrases such as “vitamins + water = all you need” and place calories per bottle on the front of pack, both measures the company was already doing.

US food labels set to change

In February, the Food and Drug Administration (FDA) released a proposal that would see packaged foods sold in the United States display calorie counts more prominently and include the amount of added sugar. This is the first significant update to nutritional labels for 20 years. The FDA would also ensure that the amount of calories listed per serving reflects the portions that people typically eat. That change may result in per-serving calorie counts doubling for some foods such as ice cream.

Comments on the proposal closed on 1 August 2014 and the changes are likely to be implemented over the next three years.

(C) European Union

Proposal to scrap best before dates

Officials of the European Commission tabled proposals in June allowing national governments to extend the list of foods that do not require best before dates, in a move which they believe will mean 15 million tonnes less food a year is discarded by households wrongly worried that it is no longer fit for consumption. These products include coffee, rice, dry pasta, hard cheeses, jams and pickles.

It is estimated 100 million tonnes of food is wasted across Europe each year. Officials noted that long-life foods, such Parmesan cheese, rice or coffee, might change colour, lose texture or have deterioration in flavour but remain edible and safe unless obviously otherwise. They noted “people aren’t stupid and smarter labelling can advise consumers to better understand when stable foods need to be thrown away, or not”. It was noted that “consumers often throw food away unnecessarily because of confusion about the meaning of the ‘best before’ date. Products usually remain edible beyond this date, but are nonetheless thrown away”.

“This is part of a Government anti-obesity drive in the UK, which could see tighter regulations imposed on advertising for sugary foods.”

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Simpson Grierson’s Food & Beverage Team

We offer practical advice addressing issues including product standards, packaging and labelling, advertising, product recall procedures and regulatory approvals. We combine specialist food and beverage knowledge with our expertise in other commercial areas to help our clients meet their business objectives.

Our team includes one Partner, two Senior Associates, two Associates, two Solicitors and one Law Graduate. Associate Ciska de Rijk has dual science and law degrees and is admitted to the High Court of Australia and the Victorian Bar. She has a wealth of experience within the Food and Beverage industry in both Australia and New Zealand.

Our team's experience and understanding of the needs of the industries we serve make us uniquely qualified among law firms to make the significant and quick judgement calls often required in this type of work. This understanding is built through our links with The Marketing Association of NZ, New Zealand Food & Grocery Council, the New Zealand Juice and Beverage Association, The Direct Selling Association of NZ, The Cosmetics Toiletry and Fragrance Association and through being on the Boards of marketing-led organisations.

Our Food & Beverage team provides extensive advice to clients in all parts of the sector, including manufacturers, bioscience companies, distributors and retailers. Our clients include some of the most well-known national and international food and beverage companies.

Our approach – helping clients achieve their commercial objectives

Our clients use us because we have the business sense and legal expertise to show them how they can do what they want to do in this area. This is based on years of experience doing this type of work every day, across industries – such as food and grocery – where wisdom and fast judgement, as much as knowledge of the law, often means the difference between success and failure.

1. We focus on understanding:

• the particular needs of the industries we serve (we do this through our links with industry associations);

• the policy drivers behind the regulations;

• our clients' commercial objectives; and

• our clients' tolerance for risk.

2. Our advice is focused on helping our clients achieve their commercial objectives. We are commercial lawyers who understand and embrace risk, not litigators who seek to avoid it at all costs.

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3. We pride ourselves on being clear with clients about risk. Our advice always sets out our opinion on risk in two categories using a four point scale: the risk of a complaint to a regulator on a scale of negligible-low-moderate-high and the risk of that complaint being successful – on the same scale.

4. We focus on giving definitive advice – providing clarity from complexity – and saying in clear terms what we think our client should do next.

5. Our electronic databases contain much of the important advice we have given over the last 20 years. That means we can respond quickly and cost-effectively.

6. We track sales and marketing law developments in UK and Australia. These developments give us clues about what policy and legal issues will arise in New Zealand. We have found clients hope for insight but they greatly value foresight.

We regularly publish newsletters on a range of food and beverage issues including advertising, compliance, and general commercial issues. To register to receive these please visit www.simpsongrierson.com/register/.

Contact details

Peter Stubbs - Partner

T. +64 9 977 5010 M. +64 21 955 230 E. peter.stubbs@simpsongrierson.com

Ciska De Rijk - Associate

T. +64 9 977 5348 E. ciska.derijk@simpsongrierson.com

“We combine specialist food and beverage knowledge with our expertise in other commercial areas to help our clients meet their business objectives.”

www.simpsongrierson.com

BaRRISteRS aNd SolICItoRSAUCKLAND: Level 27, Lumley Centre, 88 Shortland Street, Private Bag 92518, Auckland 1141, New Zealand. T +64 9 358 2222WELLINGTON: Level 24, HSBC Tower, 195 Lambton Quay, PO Box 2402, Wellington 6140, New Zealand. T +64 4 499 4599CHRISTCHURCH: Level 11, HSBC Tower, 62 Worcester Boulevard, PO Box 874, Christchurch 8140, New Zealand. T +64 3 365 9914