Product recall and liability of manufacturers in class-action lawsuits

With the Tiger Brands listeriosis outbreak still fresh in our minds and now the centre of a class-action lawsuit, it’s pertinent to study a remarkably similar event that occurred in Canada a decade earlier.

In early 2018, there was an outbreak of listeriosis in South Africa involving mainly products made by Tiger Brands. The outbreak was traced to the company’s Polokwane plant. An estimated 200 people died from listeriosis and there was a large-scale recall of ready-to-eat cold-meat products across the country.

Later in the same year, the High Court certified that class-action litigation could proceed against Tiger Brands. The exact number of claimants in the class action was not clear at the time of writing this article. However, given the nature of the product involved (a mass-consumed product), the number of claimants could be substantial.

The parallels between the outbreak of listeriosis in 2018 in South Africa and the outbreak in Canada in 2008 are remarkable. The focus of this article is on the Canadian event and the lessons it may provide for those involved in the Tiger Brands litigation in South Africa.

In 2008, hundreds of people fell sick after consuming contaminated ready-to-eat meats manufactured by a company called Maple Leaf Foods Inc. This culminated in the class-action case of 1688782 Ontario Inc versus Maple Leaf Foods Inc. The case made its way up the Canadian judicial system until it reached the Court of Appeal in 2017.

Claimants in this case were businesses or retailers who had franchises with Maple Leaf to sell its products. The claimants alleged that Maple Leaf was negligent when it supplied contaminated ready-to-eat meats to their businesses. Consequently, they sought damages for lost sales and impairment to their reputation arising from the recall of Maple Leaf’s products.

As is typical in cases of this nature, there was no direct evidence proving who among the claimants actually received contaminated products, because some of the recalled products were probably not contaminated.

There is one major point of difference between the Maple Leaf case and the yet to be filed class action against Tiger Brands in South Africa. In the Maple Leaf case, the claimants were business people trading in Maple Leaf products, who were claiming for pure economic losses suffered as a result of the product recall.

By contrast, the claims against Tiger Brands are by people who allege to have suffered physical harm, or dependants/guardians of those who died from consuming listeria-contaminated food. This distinction is important because it has implications on how the test for liability is applied.   

Liability of a manufacturer – in cases where an unsafe product harms many consumers and other parties – hinges on two fundamental questions. The first question is: was the harm reasonably foreseeable? In English law, the same question revolves around the issue of whether the defendant owed the plaintiff a duty of care.

Harm is more likely to be foreseeable the closer the victim is to the manufacturing process. Thus, if a manufacturer distributes a contaminated food product that harms a customer it would be very difficult to argue that such harm was not foreseeable.

Things may well be different if a retailer claims for lost sales arising from the same contaminated product following a recall. A second question on which liability depends is: are there any public policy reasons suggesting that liability should not attach to the manufacturer? In simple terms, this question seeks to ascertain whether making the manufacturer liable for the harm is socially desirable.

In the Canadian case of Maple Leaf, the trial court found that Maple Leaf owed the claimants a duty of care and that there were no public policy reasons militating against imposing liability. Accordingly, the court ruled against Maple Leaf. The company then appealed the decision to the Ontario Court of Appeal. This court ruled that Maple Leaf did not owe a duty of care to the claimants.

The court made it clear that there is a difference between owing a duty of care to supply consumers with healthy and safe products on the one hand, and owing a duty of care to retailers against reputational harm arising from unsafe products.

The court went further to state that the reputational harm alleged by the claimants was not reasonably foreseeable. On the question of public policy reasons, the court found that there were no pressing public policy reasons to warrant legal protection against the losses incurred in this case.

The decision by the Ontario Court of Appeal confirms yet another reality that obtains in most common-law jurisdictions in as far as claims for pure economic losses are concerned. A pure economic loss is a financial loss that does not arise from any form of physical harm. This is what the Maple Leaf class action was about. As a rule, most countries place significant restrictions on claims for damages for pure economic loss.

Economists and legal scholars have advanced different reasons to justify why pure economic losses should not attract damages. Economists argue that liability rules should seek to impose damages only for wrongs that result in socially relevant externalities or harm. Most wrongs that cause pure economic loss fall outside this category.

Lawyers, on the other hand, argue that pure economic loss as a type of harm is difficult – if not impossible – to foresee, therefore it would be unjust to find someone liable for unforeseeable harm.

However, as pointed out earlier, although the Maple Leaf and the Tiger Brands class-action cases, in Canada and South Africa respectively, both involve an outbreak of listeriosis, the claims against the two companies are different. While Maple Leaf faced litigation for pure economic loss, Tiger Brands (from the information currently available) faces claims for physical harm, specifically illness and death of consumers who ate the contaminated ready-to-eat meats.

The Tiger Brands class action is virtually unprecedented in South Africa. Class-action litigation is not as common in South Africa as in other parts of the world, such as the United States (US). Consequently, the rules that courts will apply are not clear, due to a lack of precedents.

Despite this, listeria-induced illnesses are common in South Africa. In other words, listeriosis is a disease that occurs regularly in the general population.  About 40 people die annually from listeriosis in South Africa according to the statement by the Minister of Health Dr Aaron Motsoaledi when he announced the end of the listeriosis outbreak in 2018.

This presents yet another legal complication for the claimants, because they must exclude the listeriosis that could have originated from consumption of other food products, from that attributable to the consumption of Tiger Brands products specifically. In other words, claims of this nature get complicated because of the inevitable evidentiary gaps that arise.

When confronted by an evidentiary gap, a court has two broad choices. First, it can dismiss the case on the grounds that claimants failed to discharge the burden of proof resting upon them. Most common-law legal systems including South Africa, subscribe to the principle that he who alleges must prove.

A second choice for the court is to resort to what some call judicial engineering. This term encompasses several things such as introduction of a new liability rule, reformulating an existing rule, or providing a different interpretation.

All these dimensions have the same objective – to avoid a situation where a claimant goes uncompensated. In cases such as the one facing Tiger Brands, judicial engineering is highly likely because of the consumer-protection pressures involved. This prediction is not devoid of empirical evidence.

When mass claims arising from injury and death from asbestos started to rise in the 1950s, courts in the United Kingdom introduced new liability rules such as the “material contribution” rule and the “materially contributing to the risk of injury” rule to overcome evidentiary gaps.

A similar trend emerged in the US at the height of asbestos claims starting in the 1970s. American courts introduced rules such as the “injury in fact” rule that allowed functionally unimpaired claimants to file claims.

This resulted in many asbestos companies and their insurers facing liability they could not have foreseen. In the process, many companies that faced a floodgate of claims under the reinvented liability rules filed for bankruptcy under the Chapter 11 legislation.

It remains to be seen how the Tiger Brands class action plays out. Often these cases end up being settled out of court, because not many companies want to be tied to litigation that may take years to conclude. Even then, class actions are notorious for the low amounts paid out per capita that they yield. The money that actually ends up in the pocket of each claimant is often not worth the preceding wrangle.