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BEFORE IT BLOWS UP: THE IMPORTANCE OF PRODUCT RECALL POLICIES
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The recent news coverage regarding the fire risk in Samsung's Galaxy Note 7 smartphones and the perceived mismanagement in Samsung’s recall of these products, provides a timely reminder to New Zealand suppliers of the importance of having a clearly defined voluntary product recall policy in place – before a crisis hits.

Understanding when you should conduct a voluntary product recall – and how you should conduct it - ahead of time can minimise damage to your relationship with customers and your brand.

What not to do: Samsung’s case of the fiery cell phones

Upon initial reports from customers that the Note 7s were overheating and catching fire, Samsung issued its first voluntary recall and began sending out new Note 7s as replacements. However, during this process Samsung failed to provide customers with clear information about how to return the faulty Note 7s. Customers attempting to return devices to Samsung retailers were turned away and told to contact Samsung directly themselves. Different mail carrier companies announced different guidelines for returning the potentially flammable devices. Numerous customers reported inconsistent upgrade fees, taxes or restocking fees.

Furthermore, it soon became apparent that the replacement Note 7 devices were also at risk of catching fire. The company received more complaints of burns and property damage. There was a limbo period where customers were given no official information from Samsung about the safety of the product, how to return the phones and whether replacements would be provided.

After an incident in America where an airplane was forced to evacuate after a Note 7 caught fire during boarding, Samsung eventually announced an expanded voluntary recall on all original and replacement Note 7 devices worldwide. Customers were given the option of a refund or another Samsung device as a replacement. By this point many customers were exasperated as in some instances they were returning the phones for the second time in a matter of weeks.

Samsung’s experiences exemplify why it is important for suppliers to have sound product recall policies in place. New Zealand businesses therefore need to consider the following information.

When is a voluntary product recall necessary?

Voluntary product recalls are governed by section 31A of the Fair Trading Act 1986. Ultimately, it is the decision of the supplier whether a voluntarily recall of a product is required if it is satisfied that a product, or the use of a product, will or may cause injury to a person or does not comply with a product safety standard.

Section 32 of the Fair Trading Act provides a useful guide to suppliers when determining whether to conduct its own voluntary product recall. Factors to consider include:

  • the likelihood of an injury occurring to a person as a result of the reasonably foreseeable use or misuse of the product;
  • the seriousness of the injury likely to be suffered by the user of the product or any other person;
  • whether such injury is likely to be a frequent occurrence;
  • any steps that the supplier has taken to mitigate the risk of injury; and
  • whether, taking into account the ordinary and intended use of the product, the public interest favours the issuing of a product recall notice.

What procedure must be followed?

If a voluntary product recall is initiated, a supplier must provide the Chief Executive of the Ministry of Consumer Affairs with the following details within two working days of the recall:

  • a sufficiently detailed description of the product;
  • a description of the danger that led to the product being recalled;
  • details of what the consumer needs to do in response to the recall, including any precautions the customer needs to take and where to take the product for repair, replacement or refund; and
  • the supplier’s name and contact details (physical address, phone and email).

These details will then be available on the Ministry of Consumer Affairs website for at least two years after the date of the product recall. We also recommend a supplier provides these details on its website for a reasonable length of time.

Can a supplier be asked to undertake a voluntary recall process?

If the Commerce Commission is satisfied that a product will, or may, cause harm to any person, they may request a supplier to undertake a voluntary product recall process under the Fair Trading Act.

If a supplier fails to agree to undertake a voluntary recall process, there is the possibility that the Minister of Consumer Affairs could order it to undertake a ‘compulsory product recall process’ for the product, pursuant to section 32 of the Fair Trading Act. However this section of the Fair Trading Act is very rarely used as most suppliers would undertake a voluntary process first.

Should you recall products outside the Fair Trading Act regime?

In theory, a supplier can conduct a voluntary product recall outside the ambit of the Fair Trading Act. This could be done where a supplier is concerned about a product but does not consider the product will, or may, cause injury to any person. For example, an intellectual property dispute could lead to a voluntary product recall outside the Fair Trading Act. A supplier in this instance would not want to alarm its customers (or cause unnecessary damage to its brand) by issuing a voluntary product recall under the Fair Trading Act that unnecessarily claims its product will or may, cause injury.

A supplier in this instance would need to clearly and concisely communicate to its customers the distinction of conducting a voluntary product recall outside the Fair Trading Act.

Lessons learned…

Samsung’s Note 7 recall has cost the company both revenue and reputational damage. The way the product recall was conducted was confusing for customers, as they were generally kept in the dark about the entire situation and there were very few ways to get face to face with a Samsung representative.

In light of Samsung’s experiences, New Zealand businesses should consider whether they have sufficient product recall policies in place for their own goods. Businesses should be aware that product recalls will occur in tight timeframes and it is therefore best to have a policy ready before it is needed and the pressure is on. Well thought-out product recall policies will avoid situations with multiple rounds of recall, confusing information from the company and a general lack of consistency. This forward planning will allow relationships with customers to be preserved and company reputations kept intact.

If you have any queries on the Fair Trading Act’s product recall provisions, require help reviewing or creating a voluntary product recall plan or need assistance implementing a product recall; contact David Lewis or Hayley Miller.

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