Let's say the HD guy is going to do an event and is also inspecting other vendors at the same event. He disallows several vendors who he considers competition. DEFINITELY conflict of interest.
HD guy is doing an event. Another inspector is doing the inspections and disallows the competing vendors. Conflict of Interest?? Hard to prove. Maybe yes, maybe no??
In my 6 years of experience at festivals, I have never seen a booth shut down by a HD inspector. They will ask you to comply and basically, you do. Even if you have to run to the store to get bleach, a thermometer, whatever. In fact, unless you are a certified mobile unit, which is permitted on an annual basis, you need to turn in an application to be a "Temporary Restaurant". That is how they know who you are and what you are selling before hand.
The only way I would figure they'd "disallow" a vendor is if they didn't file the paperwork beforehand (expecting to slip by w/o paying the fee) and didn't have a legit setup at the event.
In my experiences, HD inspectors are easy to work with as long as you don't come off as trying to pull a fast one on them. If you are trying to comply, even if you are lacking in some areas, they are generally very pleasant and helpful.