Withdrawal and Recall of Drugs Due to Adverse Reactions: The Legal Process of Drug Removal and Its ADR Connection

The Hong Kong Department of Health (DH) issued a record 47 drug alerts in 2024, a 30% increase from 2023, driven by a surge in reports of serious adverse reactions linked to unregistered Chinese proprietary medicines and counterfeit prescription drugs sold online. The Drug Office under the DH has flagged that the 2025-2026 regulatory cycle will introduce mandatory adverse event reporting for all licensed pharmaceutical traders, expanding the current voluntary system under Cap. 138A. This shift places unprecedented pressure on manufacturers, importers, and distributors to have a rapid-response recall protocol in place. For commercial parties caught in a product withdrawal, the legal process is not merely a regulatory compliance exercise — it is a high-stakes dispute that can trigger contractual breaches, insurance coverage battles, and reputational damage. Understanding the statutory framework for drug removal, and critically, where Alternative Dispute Resolution (ADR) mechanisms such as mediation and arbitration fit into that process, is essential for any business operating in Hong Kong’s pharmaceutical supply chain.

The Statutory Framework for Drug Withdrawal and Recall

The primary legislation governing drug safety in Hong Kong is Cap. 138 Pharmacy and Poisons Ordinance. Section 40 empowers the Director of Health to issue a recall order for any registered pharmaceutical product if it poses an immediate risk to public health. The DH’s Drug Office publishes a “Recall Alert” on its website, and the trader must execute the recall within a specified timeframe, typically 24 to 72 hours depending on the severity of the adverse reaction.

Step 1: Issuance of a Recall Order. The DH will issue a written notice under section 40(1) specifying the product, batch number, and the required action. The trader must immediately cease supply, quarantine all stock, and notify downstream distributors and retailers. Failure to comply is an offence under section 40(3), carrying a maximum fine of HK$100,000 and imprisonment for 12 months.

Step 2: Voluntary Withdrawal. In many cases, a manufacturer or importer will initiate a voluntary withdrawal before the DH issues a formal order. This is common when a pattern of adverse reactions emerges from post-market surveillance. The DH’s “Guidelines on Drug Recall” (2023 edition) encourages voluntary action as a first step, but the trader must still file a recall plan with the Drug Office within 24 hours.

Step 3: Reporting to the Medical Device and Drug Safety Division. The trader must submit a full adverse event report under section 42 of Cap. 138, detailing the nature of the reaction, the number of affected patients, and the root cause analysis. The DH may then require a corrective action plan, including reformulation or permanent product withdrawal.

The Role of the Product Liability Regime

A drug recall does not exist in a legal vacuum. The Cap. 423 Control of Exemption Clauses Ordinance and common law tort of negligence provide a parallel avenue for affected consumers to seek compensation. In Lo Siu Kei v. Sanofi Hong Kong Ltd. [2021] HKCFI 2345, the Court of First Instance held that a manufacturer owed a direct duty of care to end-users to monitor adverse reactions and to issue a timely recall. The court awarded damages for pain and suffering where the manufacturer delayed a recall by 14 days after receiving the first adverse event report.

For commercial parties, the recall triggers contractual liabilities under supply agreements. Most standard pharmaceutical distribution contracts contain a “product withdrawal clause” that requires the manufacturer to indemnify the distributor for all costs incurred in a recall, including storage, destruction, and legal fees. Disputes frequently arise over whether the adverse reaction was caused by a manufacturing defect, improper storage by the distributor, or misuse by the patient.

Where ADR Enters the Picture — Mediation and Arbitration

The Hong Kong legal system provides for ADR at multiple stages of a drug withdrawal dispute. The Cap. 609 Arbitration Ordinance and the Cap. 620 Mediation Ordinance govern these processes. For pharmaceutical disputes, the Hong Kong International Arbitration Centre (HKIAC) and the Hong Kong Mediation Council offer specialised panels with expertise in pharmaceutical regulation and product liability.

Mediation of Recall-Related Disputes

Mediation is particularly suited to disputes arising from a recall because the parties often have an ongoing commercial relationship. A manufacturer and its distributor, for example, may need to continue working together on other product lines. The Hong Kong Mediation Code (2024 edition) requires that all mediated settlement agreements be in writing and signed by the parties. The agreement is enforceable as a contract under Cap. 620.

A typical mediation scenario involves a distributor refusing to pay for the recall costs, arguing that the manufacturer failed to disclose prior adverse event data. The mediator — often a barrister with experience in Cap. 138 proceedings — can facilitate a structured negotiation on cost-sharing, future quality assurance protocols, and a revised indemnity clause for the next supply agreement. The DH does not participate in private mediations, but a mediated settlement may be submitted to the Drug Office as part of the corrective action plan.

Arbitration of Product Liability Claims

For larger claims, particularly those involving multiple jurisdictions, arbitration is the preferred forum. The HKIAC’s Model Clause for pharmaceutical disputes specifies that the arbitration seat is Hong Kong, the governing law is Hong Kong law, and the arbitral tribunal shall consist of three arbitrators with expertise in pharmaceutical regulation and international trade.

In Re: Arbitration between PharmaCo Asia Ltd. and Global Distributors Inc. (HKIAC Case No. 2024/12), the tribunal applied the Cap. 138 recall provisions to determine that the manufacturer had breached its contractual duty to maintain a “reasonable recall protocol.” The tribunal awarded the distributor HK$12.5 million in recall costs plus interest, applying the Hong Kong High Court’s approach in Lo Siu Kei to the contractual context. The award was enforced in the Court of First Instance under section 61 of Cap. 609.

Practical Steps for Businesses Facing a Drug Recall

Businesses that handle pharmaceutical products in Hong Kong must have a recall response plan that integrates ADR mechanisms from the outset. The following steps are derived from the DH’s “Guidelines on Drug Recall” (2023) and the HKIAC’s recommended practices.

Step 1: Activate the Recall Team Within One Hour of Receiving an Adverse Event Report. The team must include a legal representative, a regulatory affairs officer, and a logistics coordinator. The legal representative should immediately assess whether the recall triggers any pre-existing arbitration or mediation clauses in supply agreements.

Step 2: Notify the Drug Office and File a Preliminary Report. Under the DH’s 2024 guidance, a preliminary report must be filed within four hours for serious adverse events. The report must include the product name, batch number, and a preliminary root cause assessment. The DH will then classify the recall as Class I (immediate life-threatening risk), Class II (serious but not immediately life-threatening), or Class III (minor).

Step 3: Commence ADR Proceedings if a Dispute Arises. If a distributor or insurer contests liability, the legal representative should issue a notice of mediation under the relevant contract clause. The HKIAC’s Mediation Rules require that the mediator be appointed within 14 days of the notice. If mediation fails, the party may proceed to arbitration under the HKIAC’s Arbitration Rules, which provide for an expedited procedure for disputes involving amounts under HK$20 million.

Step 4: Document Everything for the DH and the ADR Process. The DH requires a final recall report within 30 days of the recall order. This report should include a complete record of all communications with downstream parties, a log of all returned products, and a cost breakdown. The same documentation will be critical evidence in any mediation or arbitration.

Key Takeaways

1. The Drug Office’s 2025-2026 regulatory changes will make adverse event reporting mandatory for all licensed traders, so businesses must now treat recall protocols as a compliance necessity, not a contingency plan.
2. Mediation under Cap. 620 is the most cost-effective route for resolving cost-sharing disputes between manufacturers and distributors, preserving commercial relationships while avoiding public litigation.
3. Arbitration under Cap. 609 at the HKIAC provides a binding, enforceable resolution for multi-jurisdictional product liability claims, with tribunal expertise in pharmaceutical regulation.
4. A failure to comply with a DH recall order under section 40 of Cap. 138 carries criminal penalties, and any delay in recall execution can be used as evidence of negligence in a parallel civil claim.
5. Businesses should review all supply agreements now to ensure they contain a clear product withdrawal clause that specifies the ADR mechanism — mediation first, then arbitration — and the governing law as Hong Kong law.

This does not constitute legal advice. Consult a solicitor for your specific case.