Deborah Glendinning, Sonia Bjorkquist, Craig Lockwood
Food and Beverage Products
Consumer awareness of issues relating to food and beverages has been heightened by public debates over health regulations, by documentaries, and by actual – and sometimes tragic – health scares.
Not surprisingly, consumer litigation against the food and beverage industry has similarly increased in recent years in North America. Such litigation has been directed at a number of different aspects of the manufacturing and marketing process. Accordingly, food and beverage companies should not only consider the extent to which each of these areas of potential liability arise in the context of their own products, but also how they can minimize the risk of litigation through sound management practices and well-considered marketing, business and legal strategies.
A recall is not just a recall
The very fact of a product recall is often a triggering event for subsequent consumer litigation, even when the recall may not be attributable to the conduct of the product manufacturer or distributor. Indeed, class proceedings are often commenced in the immediate wake of an announced product recall, well before issues of “fault” or even the existence of injury have been established.
Public health authorities require only reasonable grounds for a belief that a product is a threat to health or safety, and err on the side of safety when confronted with a health risk. A company facing a recall of one of its products will therefore typically have to deal with the direct costs of the recall itself, with the costs of follow-on litigation, and with a loss of brand confidence that is all but inevitable. Further, a company whose products have been recalled and have later been found to be uncontaminated has no recourse against the inspecting agency – a principle confirmed in the B.C. Court of Appeal’s 2013 decision in Los Angeles Salad Co. v. Canadian Food Inspection Agency.
Regulators are growing increasingly stringent in response to food safety failures that have put the public at risk, and the federal government’s Safe Food for Canadians Action Plan, being implemented over the next few years, will give greater powers to inspectors and will increase testing capacity. Food products companies would be wise to assume that the risk of recalls is only going to increase.
Selected Best Practices
Develop a distribution list
Ensure your company’s products are able to be traced in the manufacturing process and identified in distribution channels.
Consider utilizing a 1-800 number, a website, newspaper/magazines, and other media (including social media) to effectively communicate with customers and others to whom the recall must be directed.
Implement a recall response team
Have a product recall “team” and response protocols in place in the event of a recall. The best defence is a good offence.
Avoid health claims that may mislead
Claims about a product’s positive effects on health are another common trigger for litigation. In May 2013, for example, the Canadian division of an international food manufacturer settled a class action in Québec for approximately C$1.7 million, the case having been founded on an allegation that some of the company’s products improperly advertised certain positive health effects of probiotics in the absence of a scientific consensus. The case was also an example of “copycat” litigation which parallels similar and more common actions in the U.S., a phenomenon that has become an increasing source of concern for food products companies despite Canada’s distinct legal and regulatory landscape.
Though products sold in Canada must have their health claims pre-approved by the regulator, this does not prevent future litigation over the adequacy of information provided about a product, but increases the onus on companies to consider how they market their products and make accurate disclosure. This onus may become all the more burdensome as the Supreme Court’s recent articulation of the consumer standard in Richard v. Time – namely that of a “credulous and inexperienced” consumer – plays out in the food products arena.
Selected Best Practices
Know your product
Understand how it is made, and where its ingredients are sourced. Substantiate all health claims on labels or websites with research and reports before it hits the shelves.
Know your customer
Consider how the average consumer might interpret your label, and confirm this through focus groups and other marketing research.
Integrate your teams
Ensure your marketing department and your product development team are working with legal counsel at an early juncture to ensure that potentially false or misleading claims are headed off at the pass.
Failure to warn
The inverse of a misleading claim about health benefits is a failure to warn about a product’s harmful effects. In the U.S., recent class actions of this type have targeted products such as energy drinks and fast food. In Canada, by contrast, energy drinks are regulated as “natural health products,” and while this may explain why litigation in respect of such products has not been as prolific in this country, no amount of regulation offers immunity from litigation. Companies should anticipate that as consumer awareness of health risks grows, as U.S. cases establish additional points of comparison, and as the legal and regulatory framework becomes increasingly stringent, the risk of such litigation will only grow.
Selected Best Practices
Back up your warnings
Document potential adverse health effects with research, which may be leveraged to establish a due diligence defence.
Consider your target market
Where appropriate, avoid any perception of marketing to sensitive or vulnerable segments of the population (e.g. children).
Supply chains are no place to hide
The era of the family farm down the road is – for most people – long gone. Extended agricultural supply chains now link local retailers with distributors, growers, and feed producers, only some of which may be located in the same country as the consumer. Yet despite their complexity, the various members of these supply chains are increasingly exposed to a variety of consumer claims. Where suppliers are located outside of the jurisdiction of sale, the distributor of the product will often be the target of litigation. The fact that liability is “joint and several” means that entities at the end of the supply chain will be responsible for any consumer loss even where the source of the harm is attributable to one of its suppliers down the chain. Accordingly, it will be important to ensure that adequate contractual protections are in place so as to protect all rights of recovery and indemnity along the supply chain.
At the same time, suppliers who are not at the end of the supply chain should not assume that they are insulated from direct consumer actions. To the contrary, the Supreme Court recently affirmed that claims of anti-competitive behaviour (including price-fixing) can be lodged not just by direct purchasers one step along the chain, but also by end-users (See further commentary on this topic in this report’s Securities and Consumer Class Actions section.) While this jurisprudence arose outside of the food products arena, at least one recent action has been launched in response to alleged pricefixing against manufacturers of high-fructose corn syrup (the Court ultimately denied class certification in this case for lack of evidence). Going forward, food and beverage companies will be well advised to design and manage their supply chains to minimize this risk.
Selected Best Practices
“KYS” (know your supplier)
Develop a thorough understanding of the players along your supply chain – their jurisdiction, their assets, their processes, etc.
Review and upgrade legal protections
Consider the scope of supplier warranties and indemnities, and consider exclusion of liability clauses for consequential or indirect damages (e.g. lost profits).
2014 Litigation Report: Chapters
Food and Beverage Products
Securities and Consumer Class Actions
Banking and Financial Services
Energy, Mining and Aboriginal
Osler Videos on YouTube
Chair, National Litigation Department
DEBORAH GLENDINNING: Consumer product companies are always targets of litigation and particularly class action litigation. And in my view, companies should not wait to deal with litigation risk until litigation is on the doorstep. What they need to be doing is thinking about what their risk profile is, and what their products are when they put them on the market. And assess the risks at that time, including whether they think they're a potential target for litigation.
And then determine how best to manage those risks in advance of new product launches, particularly when you're dealing with new or innovative products. Because they by definition will have a whole host of new risks associated with them that the market hasn't seen before. So the best advice I can give a consumer products company, is to think about risks before they even come on the horizon, and well before the potential for a class action lawsuit is launched.
A number of factors that are creating an environment of increased product litigation and particularly class action litigation. The first and most obvious one is the fact that we have a class action regime, which is fully engaged in this country and people are accessing it. You combine that with a very active plaintiff's bar, a plaintiff's bar that is expanding, a plaintiff's bar that is establishing strategic alliances with US firms who are very well steeped and experienced in this type of litigation.
Couple that with an extensive expectation on warnings related to products. Consumers are now expecting to be warned about many, many facets of products and its advantages or its uses or its drawbacks than they ever have before. And on top of that you look at the regulatory environment, and governments getting more engaged in looking at consumer products and putting constraints around them.
You put all that together, and you've got the perfect storm to encourage an explosion, quite frankly, of class reaction product litigation, not only in Canada, but around the world. And we are seeing that.
There are a number of aspects which have increased the potential that food product manufacturers are going to get sued. One of the most significant is the recent decision which allows end consumers or product users to sue directly manufacturers and distributors in the supply chain with whom they don't have a direct relationship. That has expanded exponentially the risk for food product manufacturers and distributors because they are now open to litigation from a much broader group of individuals or parties, on a much broader class of claims.
Apart from that, you have to look to the consumers themselves. Consumers in the marketplace are demanding different types of products, products that are organic, products that are fat free, products that are natural. And of course, food products manufacturers want to provide products that comply with these consumer demands. It's basic marketing 101. The difficulty is however, you combine that with the litigious environment in which we find ourselves. And of course, you end up with greater risks of getting sued, if your claims related to organic or light or all natural don't turn out to be true or don't turn out to meet consumers' expectations.
And as a result, we watched very closely as these products came onto the market in the United States to see how consumers and plaintiffs' lawyers would react. And of course, not surprisingly what we've seen is a significant increase of litigation against food product manufacturers who are putting new and innovative products out and are making these claims.
We knew immediately when that started to happen in the United States that it would not take that long for it to migrate north of the border, and join us here in Canada. And in fact that is now starting to happen. So we're very closely watching the trends in the US, we are working with our clients both here and in the United States, and around the world in fact to make sure that we are prepared to deal with this on a collaborative and well managed basis and bring a solution to the litigation as it's coming, that will provide them with an optimal outcome, not just here in Canada, but wherever their claims are made.