Canada: Letting the Punishment Fit The Crime: Proposed Product Recall Legislation Contemplates Stiff Penalties

Last Updated: August 7 2008
Article by Douglas C. New

In the song A More Humane Mikado1, the Mikado reviews the various punishments that will befall his subjects for legal infractions. In particular, with respect to purveyors of non-performing health products, the Mikado sings:

"The advertising quack who wearies
With tales of countless cures,
His teeth, I've enacted,
Shall all be extracted
By terrified amateurs"

While the proposed Canada Consumer Product Safety Act (Bill C-52) and the corresponding amendments2 to the Food and Drugs Act do not provide for the extraction of teeth by non-qualified health practitioners, presumably without the benefit of an anaesthetic, Canadian businesses, including their officers, directors, agents and "mandataries"3, will risk penalties that are potentially equally as painful to their pocketbooks if they fail to comply with the new consumer product safety regime when implemented.

Bill C-52 was tabled in the House of Commons in early April, 2008 and, following second reading on May 1st, was referred to the Parliamentary Standing Committee on Health for further consideration. Based on comments made by various members of Parliament in connection with the motion to refer the Bill to Committee, there appears to be general support for Bill C-52 from all federal parties.

In addition to its principal features which include provisions for (i) the mandatory reporting of serious adverse product incidents and defects; and (ii) the granting of power to Health Canada to institute mandatory product recalls4, Bill C-52 contemplates substantial penalties for non-compliance. This is, in part, in response to a general public perception that monetary penalties under existing health and safety legislation are low enough so as to be considered by some businesses as simply a "cost of doing business" in Canada.

Fines and Imprisonment

Generally, a contravention of Bill C-52 will expose a violator who is convicted on indictment to a maximum fine of $5,000,000 and/or to imprisonment for up to 2 years. For summary convictions, the exposure for a first offence is a maximum fine of $250,000 and/or imprisonment for up to 6 months (subsequent summary convictions carry the risk of a maximum fine of $500,000 and/or imprisonment for up to 18 months).

Provided that the offender has not been wilful or reckless in breaching the law, "due diligence" will be a permitted defence to any such charge. Accordingly, businesses will be well advised to put in place compliance programs containing the requisite policies and procedures to reduce the risk of being found guilty of breaches of this legislation.

However, where the breach is the result of a wilful or reckless action, there will be, on conviction on indictment, no maximum limit to the fine that may be imposed by a court. Summary convictions will also be subject to higher maximum fines and substantially longer jail terms are provided for both types of convictions.

The maximum fines noted above are not inconsequential in and of themselves but, given the fact that each day that an offence is ongoing will constitute a new and separate offence, aggregate fines could, in theory, be much higher than the stated maximums. In deciding on an appropriate sentence, the court will be required, in addition to any other generally applicable sentencing guidelines, to take into account both the harm and risk of harm connected with the offending actions and the vulnerability of the individuals using the product.

Administrative Monetary Penalties

The legislation also provides for an administrative monetary penalty (AMP) regime. The use of AMPs as enforcement tools in new Canadian laws is becoming a common practice. In this case, AMPs will be restricted to those situations where a person has not complied with either a recall order issued by an inspector under section 32 or mandatory order under section 33 to take a particular measure such as ceasing to sell a product.

Maximum AMPs per violation will be set at $5,000 for persons involved in non-commercial activities and for non-profit organizations and $25,000 in all other cases.

It appears from the wording of Bill C-52 that a notice of violation process, akin to traffic offence ticketing, may be adopted by Health Canada. Specifically, AMP proceedings will be initiated by way of the issuance of a notice setting out the alleged violator's name, the alleged violation, the penalty and manner of payment and, subject to any restrictions contained in the proposed regulations (which have not yet been published), the amount of a lesser fine if the AMP is paid within a prescribed time and manner.

Readers who have received parking tickets may notice a similarity between that enforcement process and the portion of the proposed AMP regime that reduces penalties in return for quick payment without objection. While introducing an enforcement process that encourages guilty pleas in return for lower penalties may be viewed by Health Canada as a practical means to reduce the administrative resources required to undertake prosecutions, in practice this option may not be considered attractive to alleged violators who may have concerns that any such admissions could place them at a disadvantage in defending subsequent civil actions connected with the alleged AMP violations.

Violations will be determined on the facts using a balance of probabilities test rather than the higher criminal standard of beyond a reasonable doubt. The defences of the exercise of due diligence and having a reasonable and honest belief of the existence of facts that if true would exonerate an alleged violator are expressly excluded under Bill C-52. As with offences, officers, directors, agents and mandataries have potential personal liability as well if they directed, authorized, assented to, acquiesced in or participated in the commission of the violation.

Lastly, each day that a violation continues will be treated as a new and separate violation raising the prospect of aggregate AMPs which could far exceed the respective $5,000 and $25,000 maximums described above.

Caveat Venditor

The expression caveat emptor, let the buyer beware, is well known. However, with the proposed enactment of the Bill C-52, manufacturers, importers, distributors and retailers will need to learn the meaning of the expression caveat venditor – let the seller beware. Fines and AMPs for offences and violations of Bill C-52 when enacted could be significant.

Footnotes

1 Song No. 6, Act II, The Mikado, Gilbert and Sullivan.

2 Bill C-51.

3 While the term is not defined in Bill C-52, the ordinary dictionary meaning suggests that potentially any person acting under instructions could be included.

4 See the article Update on Proposed Mandatory Product Recall Law in our Consumer Product Safety and Recall Management Bulletin (April, 2008) for further details on the principal provisions of Bill C-52.

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