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The New Zealand Sugar Company (NZSC), trading as Chelsea Sugar, recently found itself in hot water after being fined nearly $149,500 by the District Court due to a prosecution brought by the Ministry of Primary Industries (MPI). The penalty came after the company manufactured, sold and distributed sugar products contaminated with lead – an alarming lapse that put both consumers and the business at risk.
We look at the role that insurance and risk management plays in such a scenario.
How Did This Happen?
The contamination saga began in September 2021, when NZSC imported raw cane sugar from Australia. Unbeknownst to NZSC, their sweet cargo was about to take a bitter turn –
- The sugar was transported to New Zealand aboard the cargo ship Rin Treasure, which had previously carried metal sulphide concentrates (including lead and zinc).
- Prior to shipment, a cleanliness survey report on 3 September 2021 revealed that the vessel’s holds were not fit to transport bulk raw sugar. However, after a cleaning process, a new report declared the holds suitable for carriage of raw sugar.
- Unfortunately for NZSC (and its customers), this cleaning was ineffective and, during the voyage, the sugar accumulated high concentration levels of lead contamination.
- Despite collecting samples for testing between 15 and 24 September 2021, NZSC proceeded with production and distribution as usual. This is because NZSC’s internal procedures at the time allowed for production, sale and distribution of food to occur before heavy metal testing was completed and the results became available.
- On 7 October 2021, test results confirmed significant lead contamination. However, rather than halting its production and distribution operations immediately, NZSC opted for additional testing, which yielded the same results.
- MPI was informed on 3 November 2021, and the products were recalled the following day. However, some of the contaminated product had already been refined, sold and distributed. NZSC incurred significant costs of $3,400,000 as a result – including lost sales and compensation to customers.[1]
As the operator of a food business, NZSC is subject to several food laws and regulations.[2] NZSC was prosecuted under the Food Act 2014 by MPI and was sentenced by the Court on 7 February 2025. NZSC pleaded guilty to two representative charges of:
- breaching or failing to carry out its statutory duties (ss 240(4) and 80(c)); and
- negligently endangering, harming, or creating / increasing risk (ss 224(1)(c) and 14).
The High Cost of Oversight
This case underscores the critical risk of transport contamination for food producers, and it highlights the importance of maintaining robust insurance and risk management policies. A comprehensive product liability insurance policy could have significantly mitigated the financial impact of this disaster on the company. Such policies typically cover:
- regulatory fines, where not prohibited by law;
- recall and withdrawal costs, helping businesses to remove contaminated products from the market;
- liability for personal injury or property damage, where failure to recall could foreseeably cause harm; and
- legal defence costs, particularly for civil liability claims for damage to property, loss of profit and recall costs.
A Marine Cargo policy may also respond to losses if there is physical damage to the product.
Lessons for the Industry
The NZSC incident serves as a cautionary tale for manufacturers and suppliers alike. Beyond having the right insurance for one’s business (including Statutory Liability, Product Liability and Marine Cargo insurance) companies must rigorously vet transport conditions, act swiftly on contamination risks, and ensure immediate regulatory compliance. When safety is compromised, hesitation can be costly – both in dollars and in public trust.
In an industry where precision and care are paramount, the line between success and scandal can be razor thin. For food producers, a proactive approach to quality control and risk management, including insuring against such risk, isn’t just advisable; it’s essential.
If you would like to read the Court’s decision in full, please click here.
If you have any questions about the right insurance for your business or how this decision might affect you, please get in touch with our Insurance Team and Trade and Transport team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
[1] See the Court’s decision on sentencing in Ministry for Primary Industries v New Zealand Sugar Company [2025] NZDC 2132 at [58].
[2] These include the Food Act 2014, the Food Regulations 2015, and the Australia New Zealand Food Standards Code created by Food Standards Australia New Zealand.
