Faith In Nature has become the world’s first company to officially appoint Nature to its Board of Directors. The precedent-setting move gives Nature a vote on key business decisions with Essex Law School academic and Co-Founder of Lawyers for Nature Brontie Ansell joining the Board as the first representative for Nature.
In a fundamental change to their corporate governance structure and in a first for the business world, the decision from the natural hair care and soap company gives the natural world a voice and a vote on the future of the business.
The company has formally amended its constitution, with the result that Nature is now represented on the Board by an individual who is legally bound to speak on behalf of the natural world. The nominated proxy will speak and vote on behalf of Nature, much as a guardian acts on behalf of a child in the courts of law.
This decision extends a growing legal precedent around environmental personhood – the attribution of legal rights to non-human entities – and presents a fresh opportunity for businesses wanting to reduce their environmental impact.
Simeon Rose, Faith In Nature’s Creative Director and driver of the initiative, said: “We’re delighted to be the first to do this but we don’t want to be the last. Our hope is that other businesses who take their responsibility to the natural world seriously will follow suit – and we’re really happy to share details of how and why we did this. We’ve always wanted Nature to be at the heart of what we do and this felt like this is the next serious step we could take to make that a reality. This is much more than spin: by changing our governance structure we are making sure we’re legally accountable and that what’s good for Nature informs our strategy.”
Rose’s vision has been realised by lawyers that helped pioneer the concept of environmental personhood, Paul Powlesland and Brontie from Lawyers for Nature, and Grant Wilson from Earth Law Centre. Earlier this year, the Earth Law Centre assisted with the high profile legal case to attribute legal rights to Nature in Panama. The legal process with Faith In Nature also received significant support and expertise from a pro bono team of corporate experts at international law firm Shearman & Sterling LLP.
In what will be a rotating position, Brontie will be the first board representative for Nature. Brontie is Director and Co-Founder of Lawyers for Nature and is also a Senior Lecturer in Essex Law School at the University of Essex.
Brontie said: “This will hopefully spark a big change in how the business world perceives and acts on its responsibility to the natural world. For too long Nature has been seen purely as an expendable resource: this kind of thinking has led us to the brink of ecological collapse. It can and must change.”
Grant Wilson at the Earth Law Centre, added: “The movement for the Rights of Nature is picking up momentum across the world, but businesses have been slow to recognise that they are a crucial part of this story. Making Nature a Director is a tangible step that businesses can take to ensure that their operations take into account the rights and needs of the natural world.”
The board representative will work in concert with a committee of environmental experts, to make Nature’s case on all major board decisions. Faith In Nature has decided to open-source the legal process to allow other companies to follow its lead.
This story was first published on the University of Essex’s news webpages and is reproduced on the ELR Blog with permission and thanks.
On 3 February 2022, the UK’s regulator of advertising across all media, the Advertising Standards Authority (ASA), published its research in harmful racial and ethnic stereotyping in UK advertising. The survey highlighted a number of important issues that participant consumers raised about the depiction of people from different racial and ethnic backgrounds.
Ads that are likely to cause serious or widespread offence and/or harm owing to particular portrayals of race and ethnicity have long been regulated under the UK Code of Non-broadcast Advertising (CAP Code) and the Code of Broadcast Advertising (BCAP). Rule 4.1 of the CAP Code states that ‘Marketing communications must not contain anything that is likely to cause serious or widespread offence. Particular care must be taken to avoid causing offence on the grounds of age; disability; gender; gender reassignment; marriage and civil partnership; pregnancy and maternity; race; religion or belief; sex; and sexual orientation’. Equivalent provisions are found in Rule 4.2 of the BCAP Code. Marketers are urged to consider public sensitivities before using potentially offensive material and compliance is typically assessed with reference to several factors, including the context, medium, audience, type of product and generally accepted standards.
Advertising can play a role in legitimising stereotypes. Certain types of racial and ethnic stereotypes can, in particular, cause harm by creating a set of limiting beliefs about a person that might negatively affect how they perceive themselves, and how others see them. In the aftermath of the death of George Floyd (whose murder by a police officer in the US city of Minneapolis in 2020 sparked a global movement for racial justice and led to pressure for change across the world), the ASA has been reflecting on what further efforts could be made to address factors that contribute to Black, Asian and other minority racial or ethnic groups experiencing disproportionately adverse outcomes in different aspects of their lives.
As a first step, the regulator commissioned public opinion research in order to establish whether stereotypes associated with race and ethnicity can, when featured in ads, give rise to widespread or serious offence and/or contribute to real-world harm, such as unequal outcomes for different racial and ethnic groups. The research, which was conducted between March and June 2021, comprised two stages: a qualitative study that covered different interest groups, and a quantitative study that was designed to identify the extent to which attitudes and beliefs were held across individual communities and the UK as a whole. The research indicated that: ‘over half of Black, Asian and Minority Ethnic respondents felt that, when they were represented in ads, they are not accurately portrayed, and of those, just over a half felt people from their ethnic group are negatively stereotyped’.
Five categories of racial and ethnic stereotypes were identified by the research (some of which are interrelated):
Roles and characteristics: overt or subtle stereotypical portrayals pertaining to appearance, behaviour, employment status, mannerisms, accent and preferences. Such portrayals may contribute to the homogenisation of vastly diverse groups and can be seen to reinforce or promote outdated views of a particular race or ethnic group.
Culture: the exaggeration and mocking of accents, ‘lazy’ references to culture, cultural appropriation, and the use of imagery suggestive of colonialism.
Religious beliefs and practices: repeated depictions of Muslim or Asian women wearing the hijab were seen by participants as ‘an easy stereotype that lacked authenticity’. There was, however, support for portrayals that did not draw specific attention to a person’s racial or ethnic background.
Objectification and sexualisation: concerns were expressed about depictions of sexualised and/or objectified Black men and women as well as depictions that ‘fetishised and exoticised’ Asian women. However, positive portrayals of the diversity of body shapes and sizes were generally welcomed.
Use of humour at the expense of other ethnic groups: making fun of a group or their appearance, culture or tastes, e.g., the use of different accents can be seen as mocking or ‘othering’ by reinforcing the idea that people from racial or ethnic minorities who speak with an accent are different from White or Western people.
Moreover, the research highlighted three potential types of harm that could develop from adverse portrayals of race and ethnicity:
reinforcement of existing stereotypes through the repeated use of certain portrayals (often described as ‘always showing us the same way’, e.g., the casting of Asian men as shop keepers, waiters and taxi drivers or subtle reinforcements of a servile role). The perceived harm in relation to this was seen in making it easier for others to see people from racial or ethnic minorities as different to the mainstream (‘othering’);
the emergence of new tropes which continue creating a one-dimensional picture of Black, Asian and other minority racial or ethnic groups; and
perpetuating or implicitly reinforcing racist attitudes by depicting racist behaviour: such depictions were felt to pose a risk of evoking past trauma and reinforcing prejudice (even where it was understood that the advertiser’s intention was to challenge negative stereotypes within the messaging of the ad).
The research did not give the ASA reason to believe that its interpretation and application of the Codes’ rules were generally out of step with consumers’ and stakeholders’ opinions. The findings can, however, bring more clarity and valuable insights on the types of ads that pose a risk of causing harm and/or offence. At the end of 2022, the regulator will conduct a review of its rulings in this area to identify newly emerging areas of concern and ensure that it is ‘drawing the line in the right place’.
At this stage, it is not anticipated that a new targeted rule will be introduced into the Advertising Codes to ban the kinds of portrayals identified in the report. Nevertheless, the Committee of Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP), which are responsible for writing and updating the UK Advertising Codes, will consider whether specific guidance on racial and ethnic stereotypes is necessary to encourage creative treatments that challenge or reject problematic stereotypes and diminish issues arising from the repeated presentation of a specific race or ethnicity in a particular way. Finally, the research findings will be presented to industry stakeholders and training will be offered to support advertisers where necessary.
This article was first published on the IRIS Merlin legal database and is reproduced on the ELR Blog with permission and thanks. The original piece can be viewed here.
UK retailers Marks and Spencer (M&S) and Aldi have finally called a truce to the trademark-based legal spat pitting their caterpillar cakes, Colin and Cuthbert, against each other. While details of the settlement have not been made public, Aldi’s Cuthbert will not reportedly return in quite the same form. As Aldi tweeted, upon announcing that an agreement had been reached:
Getting out early on good behaviour, keep an eye out for Cuthy B this Spring 👀👀 x #FreeCuthbert
Colin the Caterpillar, a roll sponge cake decorated with milk and white chocolate icing and sprinkles, has been an M&S stalwart for more than 30 years. The retailer claims to have sold more than 15 million to date. Since 2011, rival products with similarly alliterative names have appeared: Asda’s Clyde, Tesco’s Curly, Waitrose’s Cecil, Co-op’s Curious and Cuthbert.
In April 2021, presumably because it was thought that, of all the caterpillar cakes, Cuthbert most closely resembled Colin, M&S launched legal proceedings to protect its intellectual property and get Aldi to remove the product from its shelves. The retailer claimed that the similarity between the two cakes would lead consumers to think that they were of the same standard, thereby allowing Cuthbert to ride on Colin’s coattails.
Companies often seek to protect, as trademarks, certain signs that help them distinguish their products and services from those of their competitors, such as brand names, logos and slogans. Along with patents (which protect innovative technical solutions) and copyright (which protects creative or intellectual works such as books and music), they are a form of intellectual property.
The Colin v Cuthbert dispute hinges specifically on trademarks, because it related to the distinctive characteristics of commercial assets. M&S has held trademarks in the UK in relation to Colin’s name and green packaging since 2009 and 2020 respectively, but these have not been infringed.
The problem for M&S is that its trademark would probably not extend to the underlying idea of a chocolate roll with a smiley face on it. Securing protection for the shape of a product is actually quite difficult in trademark law – not to mention proving that a competitor has presented his goods as those of somebody else.
The four-finger-shaped KitKat chocolate bar and the shape of the London taxi are two examples of iconic shapes that have not succeeded. One key reason behind this is that the average consumer doesn’t usually make assumptions about the origin of products on the basis of their shape, or that of their packaging, when other graphic or word elements are absent.
Caterpillar cakes have seen decades of children grow up (image via Flickr)
Passing Off
There have been cases in the UK where shapes and packaging have attracted protection under what jurists refer to as the law of passing off. Passing off offers legal protection against harm to what is termed the “goodwill” of a business. And it can be used to protect unregistered trademarks.
Goodwill here is a legal concept, which refers to a business’s means of attracting people’s custom. It is harmed when a trader suggests – through misdescription on packaging or parasitic copying of a well-known product – that their product or service has some association or connection with another trader, when this is not the case.
In 2015, pop-star Rihanna famously won her battle to stop fashion brand Topshop using an unlicensed image of her on a T-shirt. She did so by convincing a judge that customers buying the top would think she had endorsed it. The Court of Appeal ruled that the unauthorised use of her photograph amounted to passing off.
Passing-off claims are notoriously difficult to establish. If someone promotes their bottled drinking water business as “the De Beers of still water”, they may be infringing the De Beers trademark but it is unlikely that a judge would find that they were passing themselves off as connected to De Beers in any commercial sense.
To win a passing-off claim against Aldi, M&S would have essentially had to prove that Colin had built up such a reputation as a signature product – in the same way that Rihanna had done as a music artist and style icon – that customers would be able to recognise it without difficulty. The retailer would also have had to prove that Cuthbert was so similar to Colin that consumers, after opening the packaging, would be misled into thinking that the two were somehow associated.
What is more, the fact that so many supermarket chains now have their own version of a caterpillar cake – coming in a variety of sizes and decorative features – would not have helped in establishing that Colin is unique. M&S would have had to prove that in the minds of cake buyers in the UK, the caterpillar has not become a generic shape for cakes.
Further, Aldi’s excellent Twitter campaign – and the widespread publicity the lawsuit has attracted – will have also contributed to dispersing any consumer confusion.
Lastly, it would have been difficult for M&S to argue that Aldi’s caterpillar cake had damaged or had the potential to damage the goodwill in Colin – that is, its power to attract and retain buyers of the cake. The market for caterpillar cakes is saturated: there are just so many to choose from.
The agreed settlement between the two parties means there was no court judgement on the facts. The terms of the settlement remain confidential. It is unknown whether liability – that is, blame – was admitted by Aldi for the wrong allegedly suffered by M&S.
Rarely does a party in a settlement walk away thinking, I have won. Typically, there is no winner and no loser in a negotiated resolution. This case will nonetheless have seen both M&S and Aldi benefit from the kind of marketing exposure that money cannot readily buy.
This article was first published on The Conversation and is reproduced on the ELR Blog under a Creative Commons Licence. View the original article here.
Dr Anna – Mari Antoniou, Lecturer in Maritime and Commercial Law, has been appointed as the UK’s special national rapporteur at the International Academy of Comparative Law’s (IACL) General Congress, which will take take place in Asunción, Paraguay in 2022.
Dr Antoniou will be representing the United Kingdom for Trade Finance and her report deals with Topic IV of the Congress: ‘The Effectiveness of International Legal Harmonisation through Soft Law – UCP600’. It discusses the UK’s approach to several trade finance issues, including how courts, arbitral tribunals and financial institutions solve recurring problems in documentary credit contracts.
The report’s most significant contribution is an investigation and analysis of two current problems: first, how the COVID-19 pandemic has affected the industry and supply chains; and second, the way the pandemic has forced the issue of digitisation of trade finance.
It discusses the Law Commission’s Electronic Trade Documents project, which is in the consultation phase, and if the proposed draft Bill is adopted by Parliament, electronic transport documents will become a reality.
Dr Antoniou’s report looks at the issue both from a practical perspective and a legal perspective; international trade is worth £1.153 trillion to the UK so an incredibly significant amount is reflected in this report.
Moreover, the legal issues discussed are an excellent example of how the law needs to be updated to reflect the commercial reality. COVID-19 has highlighted other failings in the trade system, but has also emphasised the need for electronic alternatives for an industry deeply rooted in paper-only transactions.
Dr Antoniou’s preliminary report was submitted on 31 August 2021 with final reports due November 2021.
Last October, the UN Working Group on Business and Human Rights launched its report ‘Business, human rights and conflict-affected regions: towards heightened action’. From a transitional justice perspective, the report is hugely important, not only for addressing the lack of attention paid to how businesses contribute to or are linked to human rights violations in conflict settings, but also for dedicating a whole section to reparation and transitional justice. Stressing the importance of engaging with transitional justice as part of business and human rights and considering synergies between the two fields is essential to improve the accountability of businesses and other economic actors for their role in conflict-related human rights violations, provide victims with reparation and prevent recurrence of these violations. Although the report makes a significant step in the right direction, a lot remains to be done to fully integrate lessons from transitional justice into business and human rights frameworks.
Transitional justice is the full range of processes and mechanisms associated with a society’s attempt to come to terms with a legacy of large-scale past abuses, in order to ensure accountability, serve justice and achieve reconciliation. Unlike the field of business and human rights that focuses much of its attention on corporate actors, in transitional justice processes, victims occupy centre stage. This is so because transitional justice deals with the aftermath of massive violations of human rights where a substantial number of people suffered abuses. It addresses victims’ quest for justice, finding out the truth of what happened and why, and redresses the harm they suffered. Giving attention to victims is a moral duty to dignify them as part of a democratic society, a prerequisite to the kind of social reconciliation needed in societies torn apart by violence and, more substantially, a right and a correlative state obligation. As a consequence, victims must be at the forefront of any intervention in post-conflict societies, whether they aim to provide redress for so-called blood crimes or address more structural violations to transform the social contexts that were conducive to conflict.
In transitional justice contexts, businesses and States’ heightened due diligence to prevent human rights violations makes sense precisely because it would help to avoid the victimisation of civilian communities and contribute to achieving guarantees of non-recurrence, transitional justice’s forward-looking pillar. But where violations have already taken place, as is always the case in transitional justice contexts, a consequence of heightened due diligence must be to engage with transitional justice processes, guided by victims’ demands.
Additionally, current transitional justice theory and practice is moving towards a holistic model of transitional justice that is built on the four pillars of truth, justice/accountability, reparation and guarantees of non-recurrence, which operate side-by-side and complement one another to address as best as possible, central demands of victims and societies trying to overcome civil wars. We are pleased that the UN Working Group’s report adopted our suggestion to embrace the holistic approach to transitional justice as part of the application of the UN Guiding Principles on Business and Human Rights by embedding the four pillars of transitional justice, all of which contribute to the reparation of victims, into the Guiding Principles’ remedy pillar. Nevertheless, we believe that there is still more room for businesses to meaningfully engage with transitional justice processes.
Ideally, all actors in societies should contribute to transitional justice mechanisms. However, the expectation is even greater for powerful economic actors who could have benefited from past contexts of violence and that can also find more business opportunities or get access to natural resources as a result of pacification. It is also important to bear in mind that post-conflict reconstruction and transitional justice processes often exist side-by-side and that businesses cannot forego their responsibility to engage with transitional justice processes through contributing to post-conflict reconstruction, but rather have an important role to play in both. While post conflict reconstruction is a complex process aiming at rebuilding a country’s social, economic and political institutions, transitional justice primarily addresses injustices committed during the conflict period and victims’ demands in that respect.
Finally, transitional justice practice has taught us that neither conflicts nor transitions can be easily confined within temporal limits. It is not only difficult to determine the precise moment when a conflict starts or finishes, but the end of a transition period is also often unclear. Armed confrontations might persist despite the formal end of a conflict by a ceasefire or a peace accord, and relapsing into conflict remains a common feature of countries that have endured a civil war. Successive waves of armed confrontations in the Colombian conflict might be a good example of such a ‘conflict trap’, as it has been coined, while legal cases open before Argentinian courts against the former military involved in crimes committed during the 1976-1983 dictatorship might also exemplify the long duration of transitional justice efforts.
What, exactly, this implies for business and human rights of course depends on the particular context, but a couple of insights are worth considering. On the one hand, businesses’heightened duty of due diligence persists despite the formal end of a conflict because confrontations, and therefore the risks of human rights abuses might continue. On the other hand, early engagement with transitional justice mechanisms might benefit businesses by preventing future social or legal demands for justice, truth or reparations that were unaddressed at early stages of the transition. The Apartheid Litigation in US courts is a good example here, as it shows that multinational businesses’ lack of-engagement with reparations as part of the South African transitional justice process led victims to seek other routes to achieve accountability and reparation.
Consolidating synergies between business and human rights and transitional justice, which until recently have been two separate fields of practice with little exchange, requires more conversations between practitioners working in both fields. Inspired by advances in business and human rights and the growing recognition of the role of business in human rights violations, transitional justice has been broadening its scope to include businesses in its remit, still facing many challenges in the process, as the Colombianexample shows. At the same time, the willingness of business and human rights to engage with transitional justice is exemplified by the Working Group’s report. These are steps in the right direction but continued efforts to bring the two disciplines together are crucial in strengthening the efforts of both areas to improve business accountability.
About the authors:
Hobeth Martínez Carrillo is senior research officer at the University of Essex and Senior Atlantic Fellow for Social and Economic Equity (AFSEE), Sabine Michalowski is Professor of Law and Co-director of the Essex Transitional Justice Network (ETJN), University of Essex and Michael Cruz Rodríguez is senior research officer at the University of Essex. Michael holds a PhD in Law from the Universidad Nacional de Colombia.
This post was first published on the Business and Human Rights Journal Blog and is reproduced on our blog with permission and thanks. The original post can be accessed here.
The book examines the different ways non-state rules are applied in international commercial contracts with the aim to understand the legal authority of non-state rules. To do so, the book analyses:
The rule of non-state rules in international commercia law;
The role of non-state rules in international commercial contracts;
The application and interpretation of non-state rules.
Non-state rules can be defined as those rules which come from a source other than the state. This includes uncodified rules (trade usages and general principles of law) and codified rules (restatements of law, model laws, model contract clauses and guidelines). They are, in principle, not binding and they either need to be contracted into or can be contracted out of. The concept of non-state rules is wider than the lex mercatoria which consists of trade usages and practices by merchants and general principles of law, but would not include rules codified by international organisations and trade associations.
The contracting parties in an international contract might be faced with uncertainty and unpredictability as to the applicable law and its content. For at least one of the parties’ choice of law often means the application of a foreign law with sometimes unforeseen consequences. To escape the unpredictability of a foreign law, to create a level playing field between the contracting partners if they cannot agree on the applicable law, or because they prefer a neutral law, the parties might choose non-state rules as the governing law of the contract. Whilst such a choice is usually permitted in arbitration, it is only rarely permitted in litigation. Private international law in most jurisdictions allows the parties to include non-state rules as contractual terms or by reference, but limits choice of governing law to state laws.
Examining the role of non-state rules, beyond being the governing law of the contract, shows that they are frequently used by courts and arbitral tribunals to interpret either the contract or the applicable law. Interestingly, this is frequently done even when the parties have not included a reference to non-state rules in the contract. This can be done to either fill gaps in the contract, to show the compatibility of the applicable law with transnational commercial practice, or to interpret the contract in light of the principles of transnational commercial law. Courts and arbitral tribunals are thus taking a leading role in shaping how non-state rules are used.
This book examines these different ways in which non-state rules are applied in order to understand how this affects their legal authority. By studying the application of non-state rules, it can be understood what role they play in domestic law, what support they have from the international business community, and the position they have in courts and arbitral tribunals.
Published on 16 Mar. 2021 by Routledge
This book demonstrates how non-state rules have legal authority as the applicable law to the contract, as sources of (domestic) law, as legal doctrine/scholarship, and as terms of the contract. They can be considered as law, rules of law, contractual rules, and/or normative practices depending on the situation.
Dr. Hoekstra’s book thus gives a practical overview of different types of non-state rules and their role in international commercial law, and contributes to the theoretical discussion by analysing several key issues related to the legal authority of non-state rules.
In the cover article of The Nation’s 8-15 February issue, Dr. Tara Van Ho, Lecturer in Law at the University of Essex, asserts that businesses operating in Kenya should have predicted that the 2007 national election would result in violence and taken appropriate measures to protect ethnic minority workers.
In ‘Blood on the Tea Leaves,’ author Maria Hengeveld details the story of ‘Anne,’ a worker at a tea plantation in Kenya. The plantation is owned by a subsidiary of London-based Unilever, a multinational purveyor of household goods. Anne, her husband, and her daughters were raped in their home on the plantation. Her husband was one of 11 plantation residents killed. Those who were tortured and killed were members of minority ethnic groups that were believed to have opposed the politician favoured by the population in the area surrounding the plantation. Anne and her co-complainants have argued that Unilever had a responsibility to ensure their safety in light of the severity of the harm posed to them from election-related violence. Dr. Van Ho concurs.
After a tort case against Unilever was dismissed by the English Court of Appeal, the Kenyan claimants wrote to the UN Working Group on Business and Human Rights. The Working Group has a mandate to receive complaints that either a state or business (and sometimes both) has failed to meet the standards set out in the UN Guiding Principles on Business and Human Rights, currently the most authoritative statement on the responsibilities of businesses and states when the former harms human rights. The Working Group can intervene to encourage businesses to abide by their responsibilities, and to correct misinterpretations or misapplications of the Guiding Principles.
In The Nation article, Dr. Van Ho indicates that Unilever’s efforts to prevent Anne and others from accessing an adequate remedy run afoul of what the Guiding Principles expect of businesses.
Dr. Van Ho, her Essex Business and Human Rights Project (EBHR) co-director Dr. Anil Yilmaz Vastardis and Lisa Kadel (then an Essex LLM student and EBHR frontrunner), have previously criticized the English Court of Appeal decision.
In doing so, the book reveals common experiences despite different legal and cultural systems, with victims identifying how businesses have failed to conduct appropriate due diligence and how existing legal structures are inadequate for ensuring victims can access appropriate remedies when their human rights are harmed.
In her own chapter, Dr. Van Ho examines how a mining company upended the lives and communities surrounding the village of Cajamarca, Colombia, by planning to exploit resources without consultation and in a manner that threatened the water safety and security of an entire region.
While many books briefly feature the experiences of victims, this book is intended to place victims at the centre of their own story. In response to the reported experiences, the editors draw important conclusions and make a series of proposals for international and domestic policymakers. When Business Harms Human Rights: Affected Communities that Are Dying to be Heard is available from Anthem Press (260 pages; £80.00, $125.00).
The European Commission published its Farm-to-Fork Strategy on 20 May 2020. In this, the Commission declared that to ‘empower consumers to make informed, healthy and sustainable food choices’, the Commission will propose harmonised mandatory front-of-pack nutrition labelling (FoPNL) by the fourth quarter of 2022.
In this post, Dr Nikhil Gokani, whose research explores the regulation of FoPNL, which was also the topic of his PhD, briefly sets out his views on how the EU should proceed with the regulation of FoPNL. To further develop the understanding of the regulatory issues involved, and bearing in mind the Commission’s target for legislative proposals, Dr Gokani and Prof Amandine Garde (Law & Non-Communicable Diseases Unit, University of Liverpool) are organising a conference on FoPNL – to explore the national, EU and international regulatory issues – which is provisionally scheduled for September 2021.
Back-of-pack nutrition labelling (BoPNL) does not sufficiently contribute to informing consumers, promoting healthier diets or tackling the rise in overweight, obesity and diet-related non-communicable diseases.
Evidence is clear that consumers find BoPNL confusing. They do not perceive nor understand BoPNL well, and they are unable to use this type of labelling effectively to help them make healthier food purchasing and consumption decisions. This is particularly so for consumers of lower socioeconomic groups.
Interpretive front-of-pack nutrition labelling (FoPNL) is an evidence-based intervention to inform consumers, help them make healthier food purchasing and consumption decisions, whilst encouraging manufacturers to reformulate products to make them healthier.
Effectively presented FoPNL is better perceived relative to BoPNL. Surveys have shown high levels of use, and research on various FoPNL schemes has shown improved trolley outcomes. FoPNL has a statistically significant effect in steering consumers’ choices towards healthier products, whilst encouraging product reformulation.
Interpretive FoPNL has consistently been shown to be most effective in improving health-related understanding, reducing processing time and improving purchasing intentions, with simpler schemes generally being better understood.
The EU should introduce a mandatory, interpretive EU-wide FoPNL scheme.
To be most effective, FoPNL should be mandatory for all food products. Any exceptions should be limited and only permitted where there are clear evidence-based justifications. The introduction of a mandatory pan-EU FoPNL scheme in the EU would help ensure a high level of consumer protection and public health while improving the functioning of the internal market. Moreover, this would be consistent with the EU’s obligations to protect consumers and their health, and to comply with fundamental rights as mandated by the EU Treaties and the EU Charter.
FoPNL should be: developed in a transparent manner; based on effective stakeholder engagement with conflicts of interest managed; effective in improving outcomes for all population sub-groups; supported by well-resourced education campaigns; encourage product reformulation; permit the comparison of products within and between food categories; monitored and evaluated for effectiveness; and reviewed periodically.
The presentation of EU-wide FoPNL
The evidence base supports the introduction of a mandatory, interpretive pan-EU FoPNL scheme. Hence, the EU should not move forward with FoPNL option 0 (“Baseline” ie business as usual) nor FoPNL option 1 (“Nutrient-specific labels – numerical” eg NutrInform). With FoPNL option 3 (“endorsement logos” eg Keyhole), consumers tend to over-estimate the healthiness of products, and there is insufficient research on the effectiveness of this type of FoPNL. By contrast, research has shown that option 2 (colour coded eg Traffic Light Labelling) and option 4 (graded indicators eg Nutri-Score) are effective in meeting public health objectives of increasing salience, improving understanding and improving purchasing intention as well as actual purchasing decisions.
Relative to other schemes in use in the EU, Nutri-Score presents a number of advantages which favour its adoption across the EU. Firstly, Nutri-Score is widely supported by a broad range of stakeholders, including many public health organisations and consumers themselves. Secondly, Nutri-Score has been evaluated in several large-scale studies evaluating perception and comprehension in French populations. It has been shown to improve understanding and lead to better basket outcomes, particularly with consumers from more vulnerable populations. Thirdly, the scheme has been adopted by several Member States, which would facilitate its extension to other EU Member States.
The nutrient profiling model underlying EU-wide FoPNL
It is a prerequisite that the development of interpretive FoPNL is based on an evidence-based nutrient profiling model. This model should encourage consumption of fruit, vegetables and wholegrains and other health-promoting food categories and ingredients; and discourage the consumption of fat (especially trans and saturated fatty acids), sugar (especially free sugar) and salt. Smaller portion sizes, energy density, level of processing and artificiality of ingredients may also be reflected in the model. The model, and the way FoPNL displays the classification derived from the model, should permit meaningful comparisons in order to encourage healthier substitutions both within and between categories. The model should classify food based on a scoring system which provides continuous gradations of healthiness of the food in order to encourage continuing reformulation. It should be based on uniform reference values (100g/ml)
Nutri-Score is based on a nutrient profiling model which was originally developed in the UK and was found to be largely consistent with French nutrition recommendations. A diet, which is consistent with recommendations derived from the model, was found to result in improved health markers amongst the population. There is evidence that the Nutri-Score nutrient profiling model would also be effective for diverse European populations.
However, the model would need to be altered to address certain criticisms. To this end, EFSA should be tasked with developing an objective, evidence-based model free from undue industry interference. Alternatively, noting the Commission’s failure to adopt nutrient profiling for the purposes of Article 4(1) of Regulation No 1924/2006, the development of this nutrient profiling should be tasked to a scientific committee of independent experts from across the EU.
In the absence of a mandatory pan-EU FoPNL scheme, the EU should not prohibit mandatory national schemes.
The nutrient profiling model should also be used to regulate the use of health and nutrition claims more effectively, as mandated by Regulation No 1924/2006.
The use of health and nutrition claims is a marketing tool intended to encourage consumers to purchase certain products. As claims lead to an increase in consumption and overall energy intake, it is important that they do not mislead consumers and, in particular, that they do not mask the overall nutrition profile of food products. Under Article 4 of Regulation No 1924/2006, the Commission should have adopted an EU-wide nutrient profiling model to restrict the use of food claims on unhealthy products by 19 January 2009. The Commission should finally fulfil this obligation as a priority to ensure that businesses operate within a level playing field and consumers are finally protected from the most misleading forms of commercial food information. It would be logical for FoPNL and food claims to be based on the same underlying nutrient profiling model.
The EU should extend mandatory back-of-pack and mandatory front-of-pack nutrition labelling to alcohol.
It is extremely concerning that alcoholic beverages containing more than 1.2% by volume of alcohol are exempt from the requirement of displaying a nutrition declaration. Even when such a declaration is provided on a voluntary basis, it can be limited to an energy-only declaration in a non-tabular format.
There is increasing evidence that there is a deficit in consumer knowledge and understanding of the nutritional content of alcoholic beverages and the consequences of their consumption. Moreover, consumers are interested in alcohol nutrition labelling across Member States. In any event, the exemption is illogical bearing in mind that EU consumer law, and the EU Alcohol Strategy of 2006 more specifically, aims to ‘provide information to consumers to make informed choices’.
England is no stranger to strategic or – at times – abusive use of insolvency provisions.
In the early 2000s, a mechanism frequently used by debtors to retain the control of distressed companies at the expense of their creditors was pre-packaged administration. Following some empirical studies and a public consultation, the Coalition Government introduced some changes to the insolvency system to address the concerns from the industry and practitioners. Yet, it seems that Parliament will have to turn again its attention to similar issues in the not-so-distant future.
In fact, the recent case of Virgin Atlantic, which filed for Chapter 15 protection in the USA to shield itself from the claims of its creditors, as well as other trends in the rescue practice, bring back to the fore the ongoing issue of strategic or abusive use of insolvency provisions.
This blog post briefly discusses whether, and the extent to which, we should be worried by these growing trends in the rescue “industry”.
Pre-Packaged Administrations
Pre-packaged administrations are a hybrid form of corporate rescue. These procedures combine the benefits of informal workouts with the properties of formal procedures.
In a pre-packaged administration, the sale of the distressed business is negotiated before the debtor files for insolvency. Usually, the buyer is a person connected to the debtor’s existing shareholders, sometimes even the existing shareholders or directors. The sale is effected shortly after the debtor files for insolvency, leaving the creditors with no remedies and abysmally low returns for the money they lent to the debtor.
In a paper published at the beginning of this year,[1] Dr. Vaccari identified the characteristics that make a pre-packaged administration abusive. This happens when the sale is determined by a close group of players, who collusively act solely to sidestep or subvert insolvency rules and extract value from the company. To be abusive, such actions should cause undue financial harm to the creditors and fail the “next best alternative” valuation standard.
Conscious of the risks associated with pre-packaged administrations, the Coalition Government launched a study into these proceedings which resulted in the Graham Review (2014) as well as in minor regulatory changes. Some of the industry-led measures introduced following the Graham Report are currently under review. The recently enacted Corporate Insolvency and Governance Act 2020 introduced an extension[2] to end of June 2021 to the power to legislate on sales to connected persons, which was granted by the Small Business, Enterprise and Employment Act 2015 (‘SBEEA 2015’) but expired in May 2020.
It seems accurate to claim that the risks of abusive use of pre-packaged administrations, especially in sales to connected parties, have been significantly curtailed since the regulatory and industry-led changes introduced in 2015. Nevertheless, shareholders and directors have not embraced overnight a new, more inclusive and stakeholder-oriented approach to the management of corporate crises. As a result, the rescue industry has developed new mechanisms to sidestep and at times subvert insolvency rules, for the purpose of promoting the interests of out-of-money players (such as shareholders and directors) at the expense of the residual claimants in insolvency (i.e. secured and unsecured creditors).
Recent Trends
Some recent, high profile cases show the emergence of new trends in corporate rescue practice, designed to sidestep or subvert insolvency rules. These trends are light-touch administrations (LTAs), temporary stays on creditors’ claims – sometimes effected internationally – and reverse mergers.
In LTAs, administrators rely on paragraph 64(1), Schedule B1 of the Insolvency Act 1986 to allow the existing directors of an insolvent company to continue exercising certain board powers during an administration procedure. This practice, however, undermines one of the pillars of the English corporate insolvency framework, i.e. that those responsible for the debtor’s failure are not allowed to run the company in insolvency. The idea behind this choice is that independent insolvency practitioners are better placed than existing directors to protect and promote the interests of creditors as a whole, without necessarily affecting the chances of the debtor to be rescued or sold on a going concern basis.
In LTAs, the existing directors are not free to do whatever they want. Directors usually sign with the administrator a consent protocol, prepared by the Insolvency Lawyers Association and the City of London Law Society. Such a protocol introduces restrictions to the use of directors’ powers in order to safeguard the interests of other creditors and stakeholders. However, in a recent article yet to be published,[3] Dr. Vaccari conducted a doctrinal analysis of the guidance provided by the courts in running LTAs and concluded that the interests of unsecured creditors are unduly affected by these procedures.
The recent events in Debenhams’ restructuring support the early findings in Dr. Vaccari’s article. Debenhams became the first high street business in the UK to enter a LTA process in April 2020, after sales plummeted under the nationwide lockdown. To date, Debenhams’ lenders and owners are “highly supportive” of the LTA process and are funding the administration fees. The process is likely to result in a sale of the profitable assets of the business by the end of September 2020.
So, all good? Not really. In the meanwhile, Debenhams is not paying its landlords and suppliers, with the exception of essential ones. Many workers are paid by the Government (and the taxpayers) through the Job Retention Scheme. Also, this LTA represented the third time the retailer underwent some form of insolvency procedure in less than a year. Earlier attempts included a pre-packaged administration after rejecting financial support from Sports Direct’s owner Mike Ashley and a company voluntary arrangement.
In other words, Debenhams is a “zombie” business, something out of The Walking Dead. It has already been killed several times by the market; it is a failed business, yet it is still operating for the benefit of existing shareholders and directors.
Debenhams is not the only recent case of strategic use of insolvency provisions. After the rejection of a bailout request by the UK Government, Virgin Atlantic worked on a £1.2 bln rescue deal with some of its shareholders and private investors to stave off collapse. It is likely that the negotiations will go ahead – despite the shaky financial situation of the company – thanks to a moratorium or stay on executory actions by the creditors. This moratorium is one of the innovations introduced by the Corporate Insolvency and Governance Act 2020[4] and it has been used as part of a restructuring plan procedure under the newly introduced part 26A of the Companies Act 2006.
However, Virgin Atlantic has assets all over the world. In order to protect them from executory actions, the company sought recognition of the English stay under Chapter 15 of the U.S. Bankruptcy Code. Chapter 15 is a part of the U.S. Bankruptcy Code designed to facilitate cooperation between U.S. and foreign courts. It was added to the code in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act, and it allows foreign individuals or companies to file for bankruptcy protection in the U.S. in cases where assets in more than one country are involved. When the order is granted, it is usually recognised all over the world, thus protecting the debtor’s assets against creditors’ predatory actions.
Often, Chapter 15 is filed in conjunction with a primary proceeding brought in another country, typically the debtor’s home country. However, no such proceeding has been opened with reference to Virgin Atlantic. The restructuring plan mentioned above is a company, rather than an insolvency procedure, which means that creditors are less protected than in insolvency. The effect of the Chapter 15 filing is, therefore, to give world-wide recognition to a private agreement negotiated by the company’s directors and key creditors with the support of existing shareholders. A vote on the plan from the wide range of creditors who have legitimate claims against the company will not take place until late August, with a confirmation hearing scheduled for the beginning of September. As a result, the outcome of the Virgin Atlantic case is not dissimilar from Debenhams’ one: the claims of out-of-money shareholders and directors are prioritised against the legitimate interests, rights and claims of other, less sophisticated creditors.
Finally, a practice that it is emerging with renewed preponderance is the use of “reverse mergers” or “reverse takeovers”. A reverse merger is a merger in which a private company becomes public by acquiring and merging with another public company. If the public company files for insolvency first, sells all its assets but keeps its legal standing, the private buyer can go public by merging with the public, insolvent company. In this way, the private buyer avoids the complicated and expensive compliance process of becoming a public company by merging with the insolvent, public debtor. Additionally, all licences, permits, quotas, clearances, registration, concessions etc. conferred on the insolvent debtor will continue with the buyer despite the changing of hands of the controlling interest.
This may, in theory, seem a good idea to maximise the value of the insolvent debtor. Ultimately, the debtor’s listing in the stock exchange (and its public nature) is an asset. What’s wrong in selling it?
First and foremost, the fact is that compliance regulations are sidestepped. Unlike a traditional Initial Public Offering (IPO), reverse merger disclosure documents are generally not reviewed by securities commissions; only by the exchange on which the two companies propose to list. Although this reduces the regulatory burden on issuers, it also dispenses with an important element of investor protection.
These regulations are not simply procedures designed to make life difficult to companies that want to go public. These are procedures designed to protect investors and, ultimately, creditors.
Additionally, another reason to opt for a merger rather than a purchase is if the target company has significant net operating losses that the buyer might be able to use to reduce its tax liabilities. Finally, reverse mergers do not necessarily require concurrent or any kind of financing, as they can take place with a share exchange.
In the U.S. the process has been used by several companies, particularly by start-ups in the automotive sector. These include Nikola Motors, Lordstown, Fisker Automotive, Velodyne Lidar and bus-maker Proterra. At the time of writing, Nikola Motors has a stock exchange value exceeding US$2 bln, while Lordstown has a stock market value of US$1.6 bln. If you haven’t heard these names before, you’re not the only one. Both Nikola and Lordstown have yet to produce their first (electric) vehicle!
It is not surprising that all these companies relied on reverse mergers to go public. Reverse mergers involve less regulatory scrutiny, are cheaper in terms of professional and other expenses, faster than a traditional IPO and able to avoid or minimize market and execution risk on their going-public transactions. Which, ultimately, brings us to the question: are reverse mergers of an insolvent public company a trick or a threat for the debtor’s stakeholders?!?
What’s Next
The Government should respond promptly to these new trends emerging from practice. The commitment to promoting a rescue culture and – more generally – the rescue of distressed yet viable businesses cannot come at the expense of “everything else”. Cases like Debenhams, Virgin Atlantic and the U.S. listing of automotive start-ups suggest that the market is unable at the moment to self-regulate.
The Covid-19 pandemic accelerated a trend towards the strategic or abusive use of insolvency provisions. If unchecked, this trend can only result in more insolvencies and higher taxes.
If suppliers are not paid, the above-mentioned insolvencies will create a domino effect in the industry and they will result in further filings. As for taxes, Dr. Vaccari mentioned in a previous blog post that the re-introduction of the Crown preference is expected to increase the returns to the HMRC. However, higher numbers of insolvency procedures and a downturn of the economy are likely to affect the capacity of companies to generate revenue and – as a result – to pay taxes. If companies pay less taxes and the Government is forced to spend more in subsidies to companies and employees, this is likely to result in cuts to public services and higher rates of taxes for people and companies alike.
The publications mentioned in this article are available on Westlaw, Researchgate.net and Academia.edu. Dr. Vaccari regularly discusses insolvency matters on Twitter and LinkedIn.
[1] E Vaccari, ‘English pre-packaged Corporate Rescue Procedures: Is There a Case for Propping Industry Self-Regulation and Industry-Led Measures such as the Pre-Pack Pool?’ (2020) 31(3) I.C.C.L.R. 170, 184-185.
[3] E Vaccari, ‘Corporate Insolvency Reforms in England: Rescuing a “Broken Bench”? A Critical Analysis of Light Touch Administrations and New Restructuring Plans’ (2020) I.C.C.L.R. (forthcoming).
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