How consumer health businesses manage disputes

In a turbulent world where the risk of supply chain disruption can quickly materialise, and in a claims culture driven by increasing consumer demands and ready availability of third-party funding for litigation, there is cause for consumer health businesses to re-evaluate how best to manage the risk of disputes and what to do when claims are brought against them.

An evolving picture on risk

There are some dispute risks that global consumer health businesses are well set-up to mitigate already.

For example, well-established product recall procedures can be triggered when issues are identified with goods that present a risk of harm to the public. Refunds or replacement goods can be offered to ensure customers are not worse off as a result of the recall. Together, those measures mitigate against product liability or consumer law claims.

Consumer health businesses also have sophisticated processes for handling data and managing cyber risk that mitigate risks of data breaches, limiting the risk of regulatory investigations and customer compensation claims being raised against them.

In cases where the product portfolios of consumer health businesses include products falling within the definition of medicines or medical devices there are other safeguards that mitigate against the risk of claims. Compliance with strict regulatory requirements around safety and efficacy, ethics, health technology assessment, and the post-market surveillance regime that applies in the case of medical devices, helps address risk that, should it materialise, can lead to claims against the manufacturer.

Consumer health businesses may also operate in accordance with ethics policies and/or have internal ethics committees to guide responsible product development. These tools of governance also mitigate risk. They may be of use to consumer health businesses exploring how new technologies such as artificial intelligence (AI) systems might be used in innovative new products, such as those in the digital fitness and wellbeing market.

However, there are new risks emerging that consumer health businesses may not be so well prepared for which impact their exposure to potentially costly claims and disputes.

Global consumer health businesses often have long supply chains. The resilience of global supply chains has been tested in recent times by war, as we have seen in Ukraine, pandemics, as we have seen with Covid-19, and other unexpected events – like the blockage of the Suez canal last year. The climate emergency poses unpredictable risks to global supply chains too. These events can have a significant impact on the supply of goods and can materialise quickly. Production processes can be brought to a halt, or the shipment of important materials, components or finished products be delayed by such events.

Where supply chain issues materialise and cause delays or disruption then this can lead to disputes, both with retailers expecting manufacturers to deliver goods on time and with suppliers over liability for the delay and disruption and underlying cost of that.

A change in business model can also expose companies to new dispute risks.

Increasingly, manufacturers are exploring ways to sell their goods directly to consumers, cutting out the middlemen retailers in the process. Volvo, for instance, has developed a subscription model that allows customers to obtain new vehicles directly from them, without having to go to a car dealership. Where manufacturers sell direct to consumers, they take on ownership of the customer relationship. Whilst they develop new processes for new routes to market, manufacturers may suffer from slow responses to queries, inadequate complaints handling, and other traits of poor customer service, which might expose manufacturers to greater risk of claims.

There are other new risks of disputes emerging for consumer health businesses from the environmental, social and corporate governance (ESG) agenda.

On corporate governance, there is a sharp focus on ethical business practices. Some of this is being driven by policy and regulation.

In the UK, the Modern Slavery Act, for example, requires consumer health businesses and others to scrutinise labour practices throughout the supply chain and disclose the steps they are taking to address modern slavery risks. Modern slavery issues in the supply chain, or problems with bribery and corruption in overseas operations, not only risk significant censure and criminal penalties in some cases – it is a significant reputational matter for businesses. This and similar legislation is only likely to be strengthened in the future. In this context, we are seeing an appetite from shareholders, including institutional investors, to raise securities litigation claims against directors of companies where they consider they are responsible for wrongdoing that results in the devaluing of their investments.

Evolving policy and regulation in relation to the climate emergency is also broadening consumer health businesses’ risk profiles. There is regulatory scrutiny on what businesses say they are doing to reduce their greenhouse gas emissions and mitigate climate risk and how that matches up to the actions they are taking.

Shareholders are also increasingly demanding action from businesses to address financial risks they associate with climate change. This is manifesting itself in arguments that directors' legal duties, such as those under section 172 of the 2006 Companies Act to promote the success of the company for the benefit of its members, require them to take climate change considerations into account – for example, when making investment decisions. We expect to see claims of this nature being more regularly lodged as action on combatting climate risks increases.

Climate-related litigation can also relate to historic and future liability for carbon-intensive activities. We have seen climate campaigners, such as Client Earth, take legal action in this respect already.

Where previously some legal claims against businesses may have been unviable for individuals to bring, now we are seeing a trend towards mass claims – where specialist claimant law firms seek to aggregate claims from multiple individuals within a single lawsuit. A buoyant market for third-party litigation funding is also driving often speculative claims against major corporations.

Actions for addressing the new dispute risks

There are things consumer health businesses can do proactively to address the new risks of disputes they face.

Putting in place robust policies and systems for managing customer communications and complaints can help consumer health businesses resolve disputes timeously without matters escalating to legal claims.

A review of supply chain operations can identify opportunities to de-risk against disruption and work with suppliers to overcome compliance risks.

Copy clearance experts can help consumer health businesses ensure that marketing materials do not foul fall of the UK’s advertising rules – the Advertising Standards Authority has a particular focus on combating so-called ‘greenwashing’ and, beyond ‘naming and shaming’ companies for non-compliance, can refer cases to consumer law regulators where it identifies persistent or particularly egregious breaches.

In-house legal teams can also help. They can flag existing regulatory risk and highlight emerging policy and advise on the actions consumer health businesses should take to comply. They will also be well placed to assess the risks of possible ESG-related litigation risk.

Where disputes do materialise, consumer health businesses will want to engage specialist legal advisers to find the appropriate solution. Working with experts in navigating the risk posed by mass claims – where the total value of damages can run into hundreds of millions or even billions of pounds – will be vital.

Last year, Pinsent Masons acted for Google in a landmark case in relation to mass actions in which the UK Supreme Court unanimously decided that a representative action brought against Google should not proceed, and in healthcare has defended a large number of claims raised against medical device manufacturers, including in relation to product liability.

With the risk environment evolving in light of factors such as geopolitical tensions, climate risk and innovative new business models, now is the time for consumer health businesses to consider whether they are set up to manage disputes effectively.