Businesses have to act swiftly to recognise when a product fails to meet quality standards. Hugh Price discusses the implications
In 1990 Perrier’s bottled water was found to be contaminated with benzene, a
poisonous liquid shown to cause cancer in laboratory animals. Perrier initially contended that the contamination was caused by the mistaken use of a fluid containing benzene to clean the machinery on the bottling line that filled Perrier bottles for North America.
Perrier claimed that the contamination resulted from an isolated incident and yet they recalled 70 million bottles in North America, hoping that the explanation would contain the problem.
However benzene contaminated bottles were also discovered in Holland and Denmark. Perrier had to announce a world wide recall and alter their original explanation. Benzene, it now said, is naturally present in carbon dioxide (the gas that makes Perrier bubbly) and is normally filtered out before the water is bottled. For some unknown reason workers had failed to change the filters.
At the time Perrier was the leading imported water provider in the US with around 6% of the bottled water market.
Soon afterwards Perrier had to drop the words “naturally sparkling” from its label, as it had to concede that the water was artificially carbonated. By 1995, Perrier sales had fallen to one-half their 1989 peak.
Perrier’s experience in dealing with this contamination demonstrates how a badly handled explanation and product recall can seriously damage a product’s brand and business in the long term.
The recent press reaction to the Cadbury Creme Eggs recall has again highlighted this area and should be of concern to businesses and consumers alike.
Are we over reacting to low risk potential problems or acting prudently by putting public health and safety at the top of the priority list?
In the recent past, government intervention has impacted on the beef industry (BSE cull) and in the mass destruction of Bernard Matthews’ turkeys. Sony has had problems with exploding batteries and laptops that cause electric shocks. Apple now faces potential recall problems with its iPod Nano screens scratching too easily and not ‘fit for purpose’.
What is the legal position? How do we balance the risk of injury against the commercial impact that an unnecessary recall can cause to producers ?
The legal position is fairly straightforward in that it is an amalgam of case law – (Donoghue v Stephenson , the famous snail in the ginger beer bottle, much loved by generations of law students – which established the principle that privity of contract was not a bar to a claim in negligence plus statute law and European regulation.
At the heart of the issue is the fact that recalls of consumer goods have risen over 20% in the last 12 months.
In fairness to the UK, we have a much better record than that elsewhere in Europe where statistics produced by accountant PricewaterhouseCooper disclosed an increase in Europe of 175% (four per week in February 2004, to 11 per week 12 months later).
Under the General Product Safety Regulations 2005 (enacted in the UK in October of that year) producers must take steps to avoid any risks that may arise from their product. Measures include advising customers of the risk (for example, ‘contains nuts’ as was the problem in the recent Cadbury Creme Eggs case) or product recall.
The problem is that the producer is ‘damned if it does’ because of the cost implications and ‘damned if it doesn’t’ because of the brand and commercial damage that would be caused if problems do occur.
However, the balance should always be exercised in favour of recall if a real danger exists. The Food Safety Act 1990 imposes criminal sanctions in certain circumstances.
In June last year Cadbury was again in the limelight by delaying notification to the Food Standards Agency that salmonella had been detected in one of its plants some months earlier. It was thought that the risk to customers was not high.
The FSA took a different view and a product recall was imposed shortly after notification. Specialist advise concluded that any salmonella ingestion (however small the risk of harm) was unacceptable.
Shortly afterwards evidence of an outbreak of a rare strain of the disease was blamed on Cadburys’ failure to report and/or act. The effect on the firm was considerable, resulting in recall costs estimated at £13m full year costs of £20m and lost sales of £5m. This year the company did not hesitate to recall the Cadbury Creme Eggs for wholly understandable reasons.
What can be learned from all of this is that it is a very foolish business that allows its products to be sold on the open market when it knows or has reasons to believe that public health could be adversely affected.
This opens it up to serious consequences in terms of exposure to criminal prosecution (including senior management, depending on the circumstances) and detrimental implications to its brand, especially where foodstuff is concerned.
The short delay in the reporting of a problem in the Bernard Matthews case is still the subject of consideration by the authorities. Perhaps there are lessons still to be learnt from the Cadbury’s salmonella incident.
Plainly the government and Europe recognise the potential for disaster. In my view the balance is about right as consumers must have confidence in knowing that the foodstuff they eat, and electrical or other goods that they buy, are inherently safe.
For those businesses that are exposed to recall situations all is not lost. Insurers have long since provided product recall insurance. Surprisingly the take-up by UK business is relatively low. Businesses that want to remain active need to have a recall strategy plan and insurance cover in place. In this way shocks of the electric kind can be avoided. IT
Hugh Price is a partner at Hugh James Solicitors