The number of product recalls and public notices of voluntary product withdrawals issued over the past year is unprecedented in Canada. With new draft legislation likely to be implemented, Canadian corporations need to re-examine their legal and business strategies for preventing and managing product recalls in the face of regulators with increased power and an ever more litigious public.

The Current Product Recall Situation

Many of the recent product recalls in Canada have been high profile: recalls of tainted pet food, toys painted with lead materials, computers containing batteries with the potential to explode, and candy unfit for consumption.

This sharp uptick in the number of products deemed to have the "potential to harm" has alarmed the public, who grow ever more watchful. At the same time, Canadians, perhaps taking their cue from their American cousins, are much less reticent about suing in the wake of these recalls, often by way of a class action.

Globalization has turned product recalls into a crossborder, multiple jurisdiction exercise that requires a high degree of coordination between American and Canadian counsel.

Understanding the Canadian legal landscape can only assist U.S. counsel in coordinating the recall process and managing the litigation risks.

The Impact of Proposed Legislation

Until recently, there were very few circumstances in Canada under which a regulator could require a company to recall a product.

As a result, in many situations, your Canadian subsidiary was deciding whether or not to recall a product based on its own internal assessment of the situation.

That could change dramatically if the draft changes to two key pieces of Canadian legislation tabled on April 8, 2008 - the Consumer and Safety Products Act and the Food and Drugs Act - are passed.

Until recently, one of the few areas where a regulator could take action, was with respect to food products where the Canadian Food Inspection Agency reasonably believed the food posed a risk to the public. The draft amendments tables to the Food and Drug Act now extend this power to therapeutic and cosmetic products.

More importantly, the proposed amendments to the Consumer Product Safety Act extend recall powers to any consumer product where an inspector believes on reasonable grounds there is a danger to human health or safety. In the past, Canadian authorities had recall powers for only a small category of products.

Under the proposed modifications to both pieces of legislation, inspectors have powers to make orders or seek court orders to take any measures necessary to force compliance with the legislation.

No one is spared: everyone in the chain of production, distribution and transport, and even advertisers, can be the target of a recall order.

Minimizing the Risk

In the past, Canadian regulators have had the power to make other compliance orders that essentially control the sale of suspect products by seizing or detaining them at our border, or by issuing public advisories. Under the draft amendments they will have additional powers to make orders to remedy any non-compliance with the legislation or its regulations.

While many of these actions do not constitute an official recall, they may have just as far reaching consequences for your company as a mandated recall of your product from the marketplace.

Because the proposed legislation gives broad discretionary powers to Canadian officials and only minimal due process, except in the case of criminal prosecutions, it is all the more important to carefully coordinate recalls where the product is sold in both Canada and the United States.

This is particularly important so because of the potential effect of the regulator's actions on the public perception of your company and its products.

Canadian regulators have the power to disclose to the public both confidential personal and business information, as well as the risk to human health or safety a consumer product poses.

This makes "managing" the regulator a priority as soon as any incident comes to your attention.

Managing the Regulator

In order to manage the regulator, it is critical you know the regulator for your industry.You are therefore able to quickly identify the information that will be asked in the event of an incident that could give rise to a recall or other enforcement measure.

Planning, in advance, for this day means you must:

  • Know your Canadian regulator and who, within your company or subsidiary, is responsible for maintaining relations with the regulator and;
  • Know your manufacturing and distribution chain.

Given the regulator's broad powers to require information and seize documents, it is essential for you to have answers ready for the regulator before questions are asked.

In anticipation of the questions and required documents, you should develop systems that:

  • Allow your company to track product by batches or lots;
  • Identify the manufacturing ring plants or subcontractors involved in the chain of production; and
  • Identify the transporters used.

All, from cradle to market.

Your ability to provide the regulator with this detailed information can reduce the chance of a recall or reduce its magnitude considerably - and therefore, minimize damage to your company and its reputation.