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Faulty products can be recalled, but not a lost reputation

Faulty products can be recalled, but not a lost reputation

There has been a pretty good example of the consequence of failing to monitor product safety in the past few weeks, with the massive, ongoing Mattel toy recalls. The paint on some toys apparently contains an unacceptable quantity of lead. Two separate recalls have been based on this particular problem, together with another relating to magnets that come off clip-together toys.

It will be interesting to watch the international fallout. Already lawsuits are being filed in Mattel’s litigious home country. What we can be sure of is Mattel and probably its insurers will be paying an awful lot of money to lawyers. Add to that the out-of-pocket cost of the recall which will be many tens if not hundreds of millions of dollars, and you have a financial burden that must impact seriously upon the company.

But even that is not the real cost. How many of you are going to rush out and buy a Mattel toy for your children or grandchildren right now? Protecting the brand has to be Mattel’s number two priority – after safety. Or perhaps they go hand in hand.

Looking at the lead-paint issue, one question that has been raised is the legal status of the safety standards in New Zealand. There is a product safety standard under the Fair Trading Act 1986 that deals with the safety of toys for children three years and under. Much of the standard deals with choking hazards (infants don’t have a proper cough reflex), but it does also prohibit the use of paint which contains lead. Although the standard is not mandatory with respect to products that are marketed to older children (which many of the recalled products were) there is provision in the act for the Minister of Consumer Affairs to initiate mandatory recalls of unsafe products if the manufacturer doesn’t. That power has rarely had to be exercised.

The product safety standards under the Fair Trading Act are only a few of the standards that keep our goods safe, of course: for instance, electricity regulations apply to electrical goods. However, the Fair Trading Act standards tend to apply to products that are imported or manufactured and bought and sold by a large number of traders in New Zealand. They apply to supply and offer for supply at every level: import, wholesale, retail. A breach by a seller can result in fines of up to $200,000 for a company, or $60,000 for an individual. However, there are defences to prosecution under the Fair Trading Act: reasonable mistake, reasonable reliance on information supplied by a third party or that the breach was caused by events outside your control when you had taken all reasonable precautions. What is “reasonable” takes into account the risk, so a child safety issue requires a great deal of attention.

Is it reasonable for a retailer to rely on a company with as strong a brand as Mattel to have carried out all relevant checks? You would think so, otherwise every toy retailer in the country would have to test every product that came into their shops. But it just goes to show how important constant vigilance is, when safety is at stake.

We’ll hear a lot more about this recall, but one important message that it sends is the value in carrying out a full recall in a public and practical manner. We’ll see whether Mattel’s prompt action can turn this negative situation into a position of brand strengthening. With some hard work on its part, that is indeed possible. I guess that the retailers will be heaving a sigh of relief that this didn’t happen right before Christmas, though.

This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.


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