August 31, 2011 Articles

Reporting Product Occurrences to Canadian Authorities

By Julia Mercier and Cheryl Woodin

On June 20, 2011, the Canada Consumer Product Safety Act (CCPSA) came into with the objective of providing better oversight of and response to risks created by consumer products in Canada.

The CCPSA has significant implications extending far beyond Canadian borders. This is because the act requires all manufacturers, importers, distributors, retailers, advertisers, and testers of consumer products and their components to report to Health Canada any occurrences where a product sold in Canada has caused or could have caused serious injury anywhere in the world. Reporting of incidents worldwide to Canadian health authorities is a very significant expansion of Canadian consumer protection legislation.

The obligations of the CCPSA extend beyond the manufacturers to importers, distributors, retailers, advertisers, and testers of consumer products. Significantly, and unlike its counterpart in the United States, the U.S. Consumer Product Safety Act (USCPSA), the Canadian act includes advertisers and testers within its ambit. To ensure that reporting obligations can be met, the CCPSA's reach has significant implications for how products are tracked through the distribution process

Any entity that is now caught by the broad net of the CCPSA should be advised to consider its newly expanded reporting obligations to Canadian health authorities and to develop a method for keeping track of the importation and distribution of products in Canada so that compliance is possible.

What Is a Consumer Product?
The CCPSA applies only to "consumer products," which are defined to include a product and any components, parts, or accessories that may reasonably be expected to be used for a non-commercial purpose. The term "non-commercial purpose" is not defined.

Some products are explicitly excluded from the scope of the CCPSA. They include cosmetics, food, medical devices, drugs, natural health products, pest control products, fertilizers, and motor vehicles.

Be Aware of Banned Products
The CCPSA prohibits certain products that cannot be manufactured, imported, advertised or sold in Canada. Examples include baby walkers with wheels and baby bottles containing bisphenol A (BPA). The schedule of banned products can and likely will be amended from time to time by government through regulation. Health Canada's website will provide notice of amendments to this regulation.

In addition, the CCPSA prohibits the manufacture, import, advertising, or sale of consumer products that are a "danger to human health or safety." This statutory threshold for consumer products contains the following components:

  • unreasonable hazard;
  • which is existing or potential;
  • as a result of the products' normal or foreseeable use; and
  • the hazard is reasonably expected to have an acute or chronic adverse effect on health, either immediately or longer term.

Whether a consumer product meets this threshold will require some subjective measure of interpretation by the regulated entity.

Finally, the act prevents packaging or labeling that creates an erroneous or misleading impression about the product's safety.

Incident Reporting under the CCPSA
The CCPSA creates a duty for manufacturers, importers, advertisers, suppliers, or testers to report incidents within two days of becoming aware of an incident. The term "incident" is broadly defined to include an occurrence, a defect, or incorrect, insufficient, or missing information on a label or instructions that has resulted or may be expected to result in serious adverse health effects or a product recall that signals the actual or potential existence of a defect.

What is significant is that the CCPSA, unlike other product safety laws, includes incidents that occur outside Canada. So, if an incident occurs in, for example, France, there may well be a duty to report that incident in Canada. Generally, a company's product defect tracking and reporting system is region specific. The CCPSA now requires an integrated worldwide system for effective risk management.

In addition to this initial duty to report, which applies to the broader group of regulated entities, the manufacturer or importer (if imported from outside Canada) must also provide the minister of health with a written report within 10 days of becoming aware of an incident. This written report must include an outline of the steps that the manufacturer or importer proposes to take to address the circumstances of the reported incident.

Fortunately, it has now been clarified that institutions are not required to report incidents of which they became aware before the CCPSA entered into force.

Incident report forms for consumers and industry are already available on Health Canada's website.

Product Recalls
At the heart of the CCPSA is the minister of health's power to order an immediate recall of a consumer product that the minister believes is "a danger to human health or safety." This is a new power under the CCPSA, and it is buttressed by the minister's ability to carry out a recall at the expense of the person ordered to recall the consumer product if there is noncompliance with the CCPSA.

To reinforce the reach and effect of the CCPSA beyond Canadian borders, retail sellers of a product can be made responsible for the recall.

Heightened Record-Keeping Requirements
The CCPSA mandates record keeping so an adequate record of consumer products through the supply chain exists to facilitate reporting and recalls. Retailers will be required to maintain for a period of six years any documents containing the name of the person from whom they obtained the product, as well as the location and period of time during which the product was sold. This requirement appears to apply to all retailers regardless of size. Manufacturers, importers, advertisers, and testers will also be required to document the name and address of persons from whom they obtained the product or to whom it was sold for the same time period. It is not clear to us what circumstances would result in an advertiser "obtaining" the product so that this record-keeping obligation would be engaged.

Inspection and Testing Powers
The CCPSA invests the minister of health with a broad range of powers, including the power to order the testing of products by a manufacturer or importer at the manufacturer's or importer's own expense.

The CCPSA also gives inspectors significant power under the legislation, such as the ability to enter any place—except a dwelling—without a warrant, and the power to seize, test, take photos, and take records relating to products.

Furthermore, confidential business information, or trade secrets, may be disclosed without notice or consent in order to carry out the protective functions of the CCPSA.

Penalties for Contravention of the CCPSA
The penalties for contravening the CCPSA are significant. The maximum fine for a summary conviction offense is $250,000, six months' imprisonment, or both. For any subsequent offences the maximum penalty is $500,000, 18 months', imprisonment, or both. Penalties for an indictment conviction offense can be as high as $5,000,000, two years' imprisonment, or both.

When a person has knowingly or recklessly violated a section of the CCPSA, this constitutes an aggravating factor. If a person contravenes a recall or stop work order, that person is liable up to the amount of $25,000.

It is also important to note that an offense that is perpetrated over several days will be treated as a separate offense for each day of its commission.

Furthermore, a company's officers and directors may be held personally liable if they "assented to, or acquiesced in, the commission of the offence."

CCPSA as a Counterpart to the USCPSA
The types of products that are excluded from the scope of the CCPSA, the power to ban products that pose a danger to human health or safety, and the power to order testing are all similar to what is prescribed by the U.S. Consumer Product Safety Act (USCPSA). Differences are significant, though, and include the following:

  • inclusion of advertisers and testers of consumer products;
  • longer deadlines for detailed reporting on a product defect;
  • the power to issue a recall order without court authorization;
  • the power relating to erroneous and/or misleading labeling and advertisement regarding a product's safety;
  • broader, warrantless search and seizure powers for "any place" except houses;
  • record-keeping duties for product advertisers and testers;
  • greater flexibility with respect to the disclosure of confidential documents for the purpose of carrying out functions under the CCPSA; and
  • greater exposure to penalty for directors, officers, and agents on a lower threshold for liability and regardless of whether or not a penalty is imposed on the corporation.

Managing the Risks of the CCPSA
The CCPSA creates obvious risk management implications for producers, distributors, sellers, importers, and advertisers outside Canada in addition to existing obligations under the USCPSA. In general terms, education about the content of the CCPSA will be required.

More specifically, American companies should designate persons in Canada to be charged with the maintenance of records pertaining to the importation and distribution of products within Canada. This will ensure that products that have been deemed unsafe are easier to trace.

In addition, the duty to report extends not just to the product itself (which includes components, accessories, and parts) but also to incidents "related to" the product. This necessitates a post-sale monitoring system that is sophisticated enough to cross-reference common components between product lines.

Finally, retailers may be responsible for carrying out a recall, despite their lack of involvement in the design or manufacturing of the product defect itself. Retailers may wish to consider a contractual indemnification built into supply contracts that would allow recovery of expenses incurred due to such product recalls from the product's distributors and manufacturers.

Much is it still unknown about how incident reporting under the new CCPSA will work. There are currently no published regulations under the CCPSA, but these will follow and may include the exemption of certain organizations from the CCPSA.

The Canadian government will address "frequently asked questions" arising from interpretation and application of the CPSA and will post regulations as they are introduced on the Health Canada website.

Keywords: litigation, products liability, CCPSA, Canada Consumer Product Safety Act, Consumer Product, Incident Report

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