Recalls are important public notice measures undertaken by companies involved in the distribution and sale of consumer products to fulfill regulatory and consumer protection obligations. Recalls may also trigger legal claims and are often viewed as negative developments. However, recent Canadian caselaw confirms that a well-designed and implemented recall program can be part of an effective defence to liability, particularly in response to proposed class action litigation.
Guidance from the Canadian courts on recall programs
Ontario courts have recognized for a number of years that recall programs may be preferable to a class action, particularly in the context of claims for pure economic losses.
Cases prior to 2023
In Richardson v. Samsung, Justice Rady considered a recall and refund program instituted by a manufacturer of cellphones prone to overheating1. The Court held that the manufacturer's prompt refund and recall program served the goals of access to justice and behaviour modification better than a class action, even if some proportion of purchasers remained “out of pocket”. Similarly, in Coles v. FCA Canada Inc., Justice Perell held that a recall and replacement program for defective airbags was superior to a proposed class action2. The existing recall campaign was found to be a more fair, efficient, and manageable procedure, particularly in the context of the plaintiffs' claims for pure economic losses.
Cases from 2023
This trend has been continued by the courts in British Columbia in two recent cases: Larsen v. ZF TRW Automotive Holdings Corp.3 and Bowman v. Kimberly-Clark Corporation4. These developments are of particular interest to consumer product companies, given the growing trend of Canadian class actions being preferentially commenced in BC.
In Larsen, the Court declined to certify a proposed class action related to motor vehicle airbags that had been the subject of a recall and repair program. Notably, the claim was framed entirely in terms of economic loss; the plaintiff did not allege that she or the proposed class suffered any physical injuries due to the alleged defect. Justice Majawa found that the recall was a full answer to the plaintiff's allegations of design defect. The Court also observed that the recall served the goals of class action litigation. The class members' alleged harms were remedied, and “all persons affected by the regulatory recalls” were “made whole”5. There were no attendant access-to-justice concerns. Any proposed class members who owned a recalled but as of yet unrepaired vehicle would be better served by the recall program than a class proceeding. Moreover, the recall campaigns had accomplished the goal of behavior modification by requiring the defendants to act, resulting in the defective product being removed from the market.
In Bowman, the Court similarly declined to certify claims for pure economic loss in a proposed class action related to bacteria-contaminated flushable wipes6.
Justice Matthews found the recall program preferable to a class action for remedying the plaintiffs' economic loss claims. In her reasons, she highlighted several aspects of the recall that mitigated in favour of that outcome7:
- The recall and refund program was initiated quickly (within weeks).
- The notice was developed in conjunction with the Canadian and U.S. regulators.
- The recall was communicated through multiple means (notwithstanding a modest ultimate take-up rate, the notice program was considered to be extensive).
- The refund process was made simple.
Six considerations for designing and implementing a Canadian recall
While the primary considerations in designing and implementing recall programs are regulatory and consumer protection obligations, the caselaw suggests that there are several factors companies should consider in designing recall programs that may help to mitigate product liability litigation risk, particularly for purely economic claims.
1. Act quickly
A swiftly implemented recall program has advantages for claimants over litigation (especially class action litigation) that may take years or longer to reach resolution. Participation is also likely to be higher in a quickly implemented recall, as it will be easier for purchasers to determine if they have used a product within scope. An early recall notice may also demarcate the date by which affected consumers ought to have had notice of their claim (engaging potential limitations defences, or narrowing the estimated size of an affected class).
2. Work with the regulator(s)
Cooperation with the relevant regulator(s) is already standard procedure for most companies in regulated industries. It also lends credibility to the recall program in the eyes of a court both in terms of content and scope.
3. Focus on the three R's: refund, replacement, and/or repair
An effective recall should make the proposed class members/plaintiffs whole. Consider whether a refund, replacement, or repair program is the best way to achieve this goal.
4. Take an expansive notice approach
Consider employing multiple channels and engaging others in the distribution chain to ensure a recall notice has maximum reach. In Bowman, the Court found it compelling that the recall notice was posted on relevant webpages and social media, the defendants contacted retailers directly (who in turn sent letters to consumers), and there was national media coverage that reproduced the wording of the notice.
5. Focus on both reach and take-up rate
The law does not demand perfect compensation. A recall program with a robust notification procedure but seemingly modest take-up rate can still be found preferable to a class proceeding.
6. Make the process user-friendly
Ensure that refund or replacement options are easy to access. In Bowman, consumers were able to claim refunds multiple ways (including online form, telephone, email, social media and mail). No proof of purchase was required for smaller claims of up to five packages. The refund amounts were simplified based on product purchased, and in the form of pre-loaded credit cards. The Court considered all of these factors to be significant.
Footnotes
1. 2018 ONSC 6130, aff'd 2019 ONSC 6845.
2. 2022 ONSC 5575.
3. Larsen v. ZF TRW Automotive Holdings Corp, 2023 BCSC 1471. The action was also not certified with respect to unrecalled vehicles, as the plaintiff had failed to show that there was any common defect in those vehicles.
4. Bowman v. Kimberly-Clark Corporation, 2023 BCSC 1495.
5. Larsen 2023 BCSC 1471 at para 83.
6. Bowman 2023 BCSC 1495.
7. Bowman 2023 BCSC 1495 at paras 254-275.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
