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By | OUT-LAW.COM 20th August 2007 09:29

Product safety: don't let a crisis turn into a disaster

How to prepare for the worst

With Mattel recalling 18 million toys and Cadbury on the receiving end of a conviction for making and distributing unsafe chocolate, many manufacturers will be looking again at what they can do in the event of a product safety problem.

What should a company do when faced with a product safety crisis? How can it handle the practical, legal and PR implications of a damaging product recall?

A company's first act must come long before a product is even made, never mind found to be faulty. A crisis such as Mattel's does not creep up on a firm, it bursts in an explosion of publicity and logistical headaches. A company that has not previously put a plan in place has little chance of managing the situation effectively.

There must be an incident management team set up to handle product safety incidents. Product safety touches many areas of a business, so there should be team members from senior management and from the technical, legal, marketing and sales departments.

An incident management plan should also be prepared, which sets out the procedures that will be followed in the event of a product recall.

Preparation should also involve looking into whether the company should have product recall insurance to cover the expensive recall process. Common in the food and pharmaceutical industries, this insurance is not yet common elsewhere, but could be a vital element in ensuring that a problem's costs are contained.

In order to lay down these plans, a company should know the law relating to product safety. The General Product Safety Regulations came into force on 1st October 2005. The purpose of the Regulations is to ensure that all products used by consumers are safe. Similar provisions for food products are contained in the General Food Regulations of 2004.

A safe product is a product which, under normal or reasonably foreseeable conditions of use, presents no risk or only the minimum risk which is considered to be acceptable, compatible with the product's use, and consistent with a high level of protection for consumers.

It is a criminal offence under the Regulations to put on the UK market products that do not meet this safety requirement.

The Regulations require producers and distributors to "take appropriate action" to avoid risk to consumers, including "withdrawal, adequately and effectively warning consumers as to the risks or, as a last resort, recall".

When deciding whether or not to recall, a company must consider the risk to safety, the likelihood of injury and whether the issuing of a warning to distributors or directly to customers will reduce the risk of injury to an acceptable level.

It is an offence under the Regulations not to notify the enforcement authorities about any product which poses a risk to safety. The Regulations give the UK enforcement authorities powers to order a product recall where the action being undertaken by the producer is insufficient to prevent risk to safety.

Most recalls, though, are carried out voluntarily, and in circumstances where the safety risk is low, by businesses that are keen to act responsibly in order to preserve their reputation and relationships with customers.

Distributors also have duties under the Regulations not to sell or supply products that they know, or ought to presume, are unsafe, and to co-operate in product recalls and in passing on information to consumers.

In addition, certain products have specific rules for recall, for example, medical devices. Voluntary industry guidelines exist in other sectors, such as those for motor vehicles.

Once it is clear there has been a safety problem and the previously laid-down plan is being acted on, it is often the company's response to public and consumer relations issues that will be remembered long after the initial problem has been solved.

A company should decide quickly what to do, whether to issue a warning, withdraw the product or institute a recall. They must then tell the relevant authority that there has been a problem and inform them what action is being taken.

It should appoint a spokesperson for the incident who is fully briefed on all known facts, because it is vital that the company never appears uncertain or divided in its approach to the problem. Everyone else in the organisation should be told that they are not authorised to make statements regarding the product and a telephone advice line put in place to answer media enquiries.

When facing the media difficult questions cannot go unanswered, so the company should work out its responses to those questions. If a question cannot be answered, it should explain why that is the case and what the company is doing to obtain the information.

Incriminating statements and admissions of liability that could be used against the company in any future civil or criminal action should be avoided, as should public speculations about the cause of a potential defect. This is particularly important if such speculation blames a third-party. Such allegations could ultimately lead to embarrassing public disagreements, a breakdown in business relationships, and potentially a claim for damages.

The company should finally check its insurance policy and ensure that notification requirements are complied with.

A product safety issue can be a huge problem, but it need not be a calamity. It can also prove extremely expensive, and poor crisis management can increase that cost considerable.

Cadbury was fined £1 million and ordered to pay the prosecution's costs of £152,000. The fine is unprecedented in product safety cases, but is representative of a hardening line by the courts for "regulatory" breaches. The court made it clear that they considered Cadbury to have been seriously negligent. Cadbury were also criticised for the failure to immediately notify the authorities that they had reason to believe the chocolate was injurious to health.

Planning, preparation and full knowledge of the law is a company's best chance of preventing a safety crisis becoming a disaster.

At Pinsent Masons, we have extensive experience in advising clients over the life of a product, from IP protection at the product development stage, through regulatory compliance to advertising and sales as well as product liability. If you require further information, please contact Tom Stocker.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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