Measuring ‘spilt milk’

By Ammy Singh
Food & Beverage Technology

In brief 4 min read

Can food and beverage industry participants be found to have engaged in misleading or deceptive conduct for failure to comply with aspects of relevant regulatory regimes? The Federal Court has confirmed that they can. 

How does it affect you?

  • Flogineering Pty Ltd v Blu Logistics SA Pty Ltd [2018] FCA 147 demonstrates that other participants in your industry or supply chain might reasonably assume you have complied with relevant industry regulations, particularly if you take steps (such as referring to or applying approval numbers) indicating that to be so.
  • The case is a useful reminder that conduct can be misleading or deceptive when it misleads other industry participants, and is not directed in any way to the ultimate consumer.
  • While the case arose in a dairy industry context, where the measurement of milk is of critical importance, there is no reason to think that the general principles would not apply in relation to other food and beverage regulatory regimes.

The background

Flogineering Pty Ltd (Flogineering) is a supplier of components of milk ‘flowmetering systems’ that measure the volume of milk. Flogineering’s customers include Fonterra Limited, Murray Goulburn Cooperative Co Limited and Parmalat Australia Pty Ltd. Blu Logistics SA Pty Ltd and the other respondents (Blu Logistics) were former customers of Flogineering. They provide milk bulk haulage services, allowing milk to be moved from dairy farms to tankers, and, in turn, from tankers to milk processors.

Blu Logistics used a milk flowmetering system marked with an approval number for a Certificate of Approval that was, in fact, issued to Flogineering by the Department of Industry, Innovation and Science under the National Measurement Act 1960 (Cth) and the National Measurement Regulations 1999 (Cth). Under this Act and Regulations, only the holder of an approval is permitted to mark its milk flowmetering systems and instruments with the approval number. This is in order to ensure a regulatory system where the pricing of traded goods is based on accurate measurements.

Flogineering claimed that Blu Logistics had engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of sections 18 and 29 of the Australian Consumer Law (the ACL). The central misrepresentation alleged was that ‘any person within the dairy industry observing the approval number’, and particularly dairy farmers and milk processors, was likely to be misled and deceived into believing that Blu Logistics had regulatory approval to mark its milk measuring instruments with an approval number guaranteeing the integrity and accuracy of these instruments.

The decision

Acting Chief Justice Greenwood found in Flogineering’s favour. His Honour noted that Blu Logistics had marked its measuring instruments with the regulatory approval number without Flogineering’s approval. This was despite the fact that Flogineering had an obligation under the industry regulations to ensure that any measuring instruments purporting to comply with the approval were only marked by persons authorised by Flogineering.

His Honour found that Blu Logistics’ conduct was likely to mislead the dairy farmers and milk processors into believing that the measuring instruments were marked with a regulatory approval by persons who had the right to do so. This conduct was found to be commercially significant because both dairy farmers and milk processors understood that Blu Logistics was required to conduct its business in compliance with all aspects of the regulatory requirements. Accordingly, His Honour held this conduct to be in contravention of ss 18 and 29 of the ACL.

Consumers in the supply chain?

One significant aspect of the decision was that the conduct in issue was found to be misleading towards other participants in the dairy supply chain, rather than any ultimate consumer.

Acting Chief Justice Greenwood noted that dairy farmers and milk processors both have a very particular interest in ensuring the accurate measurement of the volume of milk transferred from farms to milk processors. The accuracy of these measurements is crucial to the calculation of each participant’s revenue from the sale of milk. His Honour found that:

Dairy farmers… would undoubtedly proceed on the basis that the tanker could not pull up at the farm gate and at the farmer’s refrigerated vat and undertake any transfer operation unless all regulatory requirements were satisfied, whatever they may be.

In this context, His Honour held that:

Dairy farmers and milk processors are not simply ‘consumers’ of services or goods in a sense relevant to these proceedings. Rather, they are key participants with a very particular interest in the topic of and matters related to the mechanisms by which milk volumes are transferred and measured in the transfer as between farm, bulk haulage contractor and milk processor. In that sense, they are informed consumers in a key sectoral part of the market.

By finding other industry participants to be ‘informed consumers’ in the supply chain who were nevertheless likely to be misled, His Honour’s decision serves as a reminder to food and beverage companies that there are multiple levels of consumers in their supply chain to whom misleading representations might potentially be made. Provided that the conduct takes place in trade or commerce, ss18 and 29 of the ACL apply to representations made to other industry participants in the same way that they apply to representations made to ultimate consumers.

Although this decision relates to dairy regulations, His Honour’s reasoning could well apply to other food and beverage regulatory regimes, particularly where the subject matter is of real commercial concern to industry participants (such as, in this case, the measurement of milk). Food and beverage companies should be mindful of the representations they make, whether to ultimate consumers or others in the industry; and the need to comply with relevant industry regulations, of course, remains paramount.