On June 9, 2010 the third incarnation of the Canada Consumer Product Safety Act (CCPSA) was placed before Parliament in the form of Bill C-36. The CCPSA is intended to modernize and strengthen Canada's consumer product safety regime by giving Health Canada the authority to order, among other things, consumer product recalls. Bill C-36, having been passed by the House of Commons on October 29, 2010, is now in the Senate.

The fact that Bill C-36 does not differ marketly from its two predecessor bills, both of which had all party support, suggests that the CCPSA will ultimately come into force substantially in the form proposed in Bill C-36. Health Canada which will be responsible for administering the new Act is, consistent with that view, moving forward to put in place the infrastructure and the regulatory framework that will be required by this new legislation. These activities include a series of stakeholder consultations with respect to proposed regulations and policies.

Health Canada has circulated a proposal for the making of Administrative Monetary Penalty Regulations (the "AMP Regulations") for comment. The AMP Regulations are intended to clarify the provisions of the CCPSA that relate to the imposition of administrative monetary penalties ("AMPs") by outlining the process for the classifying of violations, the methodology for the fixing of penalties and the circumstances under which penalties may be reduced. The AMP Regulations also provide insight into the manner in which Health Canada will exercise its new powers under the CCPSA.

Section 49 of the CCPSA provides that every person who contravenes a recall order or an order to take to specified measures with respect to a consumer product, such as an order to stop selling such product, commits a violation under the Act and is liable to the payment of an AMP as provided in Section 53 of the Act. The power to impose AMPs is simply one more tool that the CCPSA will give to Health Canada to ensure compliance with any order issued by it.

Given that the CCPSA also contemplates possible criminal prosecution for breaches of the Act, the question arises as to in what circumstances will Health Canada pursue a remedy of an AMP as opposed to criminal sanctions. Health Canada has indicated that, where a decision is made to proceed with a notice of violation and the imposition of an AMP, criminal prosecution will not normally be pursued. However, if the notice of the violation does not result in the desired compliance, since each day that non-compliance continues will be considered to be a new and separate regulatory breach, Health Canada will expressly reserve the right to prosecute ongoing non-compliance criminally under the CCPSA notwithstanding that a notice of violation may have been issued with respect to similar circumstances.

Health Canada proposes to use a "stepped enforcement" approach in order to obtain necessary compliance with the CCPSA. This approach contemplates that, following a determination that a product is non-compliant, initial attempts to voluntarily negotiate with the business to bring the product into compliance will be undertaken, failing which a warning letter will be issued, failing which a formal order will be served and lastly failing which the AMP process will be initiated with the issuance of a notice of violation.

Health Canada currently contemplates that AMPs will be calculated based on a combination of two "gravity" factors - a "history gravity value" and a "risk gravity value". Violators will be ranked with respect to previous history on a scale of zero (where there has been no previous convictions) to five (where there has been more than one previous violation) and with respect to the risk or danger posed by the violative product on a scale of one (where there is only a risk of minor injury) to five (where there is a risk of serious injury or potential death). The combined "gravity" values will then be applied to a range of penalties starting from minor where the combined "gravity" value is one with a penalty of $1,000 to very serious where the combined "gravity" value is ten and the maximum penalty of $25,000 would be applied.

While a $25,000 AMP in itself would be significant, each day that non-compliance continues will be treated as a separate violation. Accordingly, a violation that continues for 5 days and has a combined "gravity" value of ten would be subject to a $125,000 AMP under the Act.

Once an AMP has been assessed, the violator will have three options to consider: (1) to pay the penalty; (2) to enter into a compliance agreement; or (3) to request a review by the Minister. If the violator elects the payment option, payments made within 15 calendar days will be reduced by 50%. The proposed timelines are intended to be firm with no possibility of extensions contemplated.

Caveat Venditor

The expression caveat emptor, let the buyer beware, is well known. However, with the proposed enactment of the Canada Consumer Product Safety Act, manufacturers, importers, distributors, advertisers and retailers will need to become familiar with the expression caveat venditor – let the seller beware. Fines for offences and administrative monetary penalties for violations of the Canada Consumer Product Safety Act could be significant.