S Club 7 face lawsuit

The three male band members were arrested last year

S Club 7 are facing an £800,000 lawsuit from a merchandising company who claim that the group's drugs scandal last year ruined its sales.

PMS International, who make S Club 7's official key rings, lunchboxes and mugs, say the high-profile drugs arrests made retailers reluctant to buy products from them.

Products like S Club 7 Easter eggs have been available

S Club 7's male members, Bradley McIntosh, Paul Cattermole and Jon Lee, were arrested and cautioned for possessing cannabis in March 2001.

PMS are now awaiting a response to a letter to the group's management company, 19, who say the claim is "absolute rubbish" and have vowed to fight the suit.

PMS had bought the worldwide rights to make some official items, which also included toys, stationary, make-up sets and bags, for $900,000 (£630,000).

They expected to make profits by selling the merchandise on to retailers - but said there was "buyer resistance" to items bearing S Club 7's image after the arrests.

"I've been aware of a growing sense of unease as these stories broke and there were subsequent references to the drugs matter," a spokesman for PMS told BBC News Online.

The group also had a TV show

"It has caused us a great deal of concern and we have been advised by our lawyers as to which way to go."

He said it may not have had a big effect on the group's young fans, "but it certainly affected the adult buyers with whom we deal".

The day after the arrests, the trio apologised to their fans, saying: "We have been very stupid, we know we've made a mistake and we're very sorry."

The incident also reportedly persuaded the Labour Party to reject an S Club 7 song, Reach, as their election campaign anthem while Quaker Oats ended talks about the act advertising their products.

'Unfortunate'

But they did keep deals with BT and Cadbury's and were recruited to front Pepsi ads just two weeks after the arrests.

"I have to say that we still think that S Club 7 are absolutely terrific, not only musically but as people, but it's just a very unfortunate set of circumstances," the PMS spokesman said.

A lawyer for 19 Management said: "The claim is absolute rubbish and if they do issue proceedings they will be viciously defended."

S Club 7's latest single, You, is not expected to reach number one on Sunday despite the fact that their last three UK singles hit the top spot.