Australian Competition and Consumer Commission v Skippy

Federal Court of Australia|2006-10-18|Before: Tracey J

REASONS FOR JUDGMENT 1 There are before the Court four matters in which criminal proceedings are brought against the defendant. Each proceeding was commenced by information and summons. Each information and summons was dated 20 April 2006: see O 49 r 1 of the Federal Court Rules. 2 Proceeding VID 385 of 2006 alleges an offence against s 75AZS(1) of the Trade Practices Act 1974 ("the Act"). 3 Proceeding VID 386 of 2006 alleges an offence against s 75AZC(1)(a) of the Act. 4 Proceeding VID 387 of 2006 alleges an offence against s 75AZC(1)(k) of the Act. 5 Proceeding VID 388 of 2006 alleges an offence against s 75AZS(1) of the Act. 6 It appears that, at some time after 18 July 2006, when one of the then directors of the defendant swore the affidavit referred to below at [9] on behalf of the company the defendant has gone into liquidation. Oral evidence was given to the Court by an officer of the prosecutor, Dianna Kinski, by which I was satisfied that service on the informations and summonses had been effected at the registered office of the defendant prior to it going into liquidation. The defendant was notified of the hearing: its solicitors had signed a consent order on 11 August 2006 fixing the date for hearing as 3 October 2006. 7 When the matter was called on for hearing on 3 October 2006 there was no appearance for the defendant. I directed that pleas of not guilty be entered in respect of each of the charges and the hearing proceeded. 8 The prosecutor relied on: · A Statement of Agreed Facts filed on 27 June 2006; · An affidavit of Dianna Kinski dated 5 July 2006; · A second affidavit of Dianna Kinski dated 5 July 2006; · An affidavit of Samantha Louise Ellis dated 29 June 2006; · An affidavit of Lee Bowkett dated 26 June 2006; · A further affidavit of Dianna Kinski dated 27 September 2006; and · An affidavit of Phillip Hunter dated 27 September 2006. 9 There was also filed an affidavit by one of the then directors of the defendant, Boris Seroshtan, dated 18 July 2006. It dealt with mitigatory matters. Notice was given to Mr Seroshtan to attend for cross examination on his affidavit but he failed to attend. Accordingly, I have accepted the evidence relied on by the prosecutor where that evidence is inconsistent with the evidence of Mr Seroshtan.

THE RELEVANT LEGISLATIVE BACKGROUND 10 Section 65C(1)(a) of the Act provides as follows: '65C(1) a corporation shall not, in trade or commerce, supply goods that are intended to be used, or are of a kind likely to be used, by a consumer if the goods are of a kind: (a) in respect of which there is prescribed consumer product safety standard and which do not comply with that standard; .........." 11 Section 75AZC(1) relevantly provides: "(1) A corporation, must not in trade or commerce, in connection with the supply or possible supply of goods or services, or in connection with the promotion by any means of the supply or use of goods or services, do any of the following: (a) falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model, or have a particular history or particular previous use; ... (f) make a false or misleading representation about the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy. Penalty: 10,000 penalty units. (2) Subsection (1) is an offence of strict liability.' 12 Section 75AZS of the Act relevantly provides: '(1) If: (a) a corporation, in trade or commerce, supplies goods; and (b) the goods are intended to be used, or are of a kind likely to be used, by a consumer; and (c) the goods are of a kind: (i) in respect of which there is a consumer product safety standard prescribed by regulations made for the purposes of section 65C and which do not comply with that standard; or (ii) … (iii) … the corporation is guilty of an offence punishable on conviction by a fine not exceeding 10,000 penalty units. (2) Subsection (1) is an offence of strict liability. …' 13 By Section 4AA of the Crimes Act 1914 (Cth) a penalty unit is defined to mean $110. As a result the maximum penalty which may be imposed on a corporation for each of the offences with which the defendant stands charged is $1,100,000. 14 In determining appropriate penalties for offences under the Act, the Court is bound by s 16A of the Crimes Act 1914 (Cth) to impose a sentence "that is of a severity appropriate in all the circumstances of the offence." In undertaking this task the Court is required, by s 16A(2) to take into account a range of matters to the extent that they are relevant and known to the Court. Section 16C requires the Court to have regard to the financial circumstances of a defendant before imposing a fine but the Court can impose a fine even if the defendant's financial position cannot be ascertained. 15 A consideration, which is not specifically referred to in s 16A of the Crimes Act but which has assumed considerable importance in the case law which has developed in relation to Part V of the Act, has been general deterrence. The absence of specific reference to general deterrence has not been interpreted as meaning that it is not a relevant consideration. The contrary is true: R v Sinclair (1990) 51 A Crim R 418 at 430. In many cases decided under the Act, this Court has placed considerable emphasis on general deterrence as being an important factor to be brought to account where penalties or sentences are imposed for contraventions of Part V. This approach finds support in the expressed object of the Act 'to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection' (see s 2) and the significant monetary penalties, provided for in the Act, for contravention of consumer protection provisions such as those presently under consideration. It has become accepted that the imposition of substantial penalties for breaches of provisions which are designed to protect consumers, will serve to alert members of the business community to the provisions of the Act and the serious consequences which may flow from their contravention: see eg Pugh v Clark Rubber Limited (1993) ATPR 41-258 at 41, 473; Miller v Cunningham's Warehouse Sales Pty Ltd (1994) ATPR 41-321 at 42, 269; Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [1999] FCA 1175 at [24]. This principle has been applied even where defendant companies have gone into liquidation and there is no realistic prospect of a substantial monetary penalty ever being paid: see eg Australian Competition and Consumer Commission v Vales Wine Company Pty Ltd (1976) ATPR 41-528 at 42, 776; Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd [2004] FCA 376 at [23]-[25]. 16 In Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [1999] FCA 1175 at [10]-[12] Weinberg J noted certain observations of French J in Gardam v Splendid Enterprises Pty Ltd (1987) ATPR 40-779 at 48, 502 to 48, 503 which he found to be a helpful statement of the principles which governed the determination of penalties to be fixed for breaches of the consumer protection provisions of the Act. His Honour held that these principles remained relevant notwithstanding the introduction of s 16A of the Crimes Act. The relevant observations of French J in Gardam are: 'The appropriate level of penalty to be fixed will vary according to the circumstances of each case and the class of relevant considerations is not closed. Nevertheless it appears to be well established that the following matters are relevant to the punishment to be imposed. 1 The objectives of the Act. 2 The importance of any untrue statements made. 3 The degree of wilfulness or carelessness involved in making such a statement. 4 The extent to which the statements in question depart from the truth. 5 The degree of their dissemination. 6 The result in prejudice to consumers. 7 Whether any and if so what efforts have been made to correct the statements. 8 The need to impose deterrent penalties. The sections of the Act which provide for the declaration of consumer product safety standards and their enforcement are plainly of the highest importance. ... In the present case the offences were not committed wilfully or with any intention to deceive. Their commission was the product of carelessness and lacks management. As Smithers J said in Geoffrey John Eva v Mazda Motors (Sales) Pty Ltd …. "….contraventions due to carelessness are not permissible and must be punished. Of course such contraventions are not in the same order as culpability as those involving an intention to deceive."'

THE AGREED FACTS 17 As already noted the parties have filed a Statement of Agreed Facts. That statement reads as follows: '1. Skippy Australia Pty. Ltd. ("the defendant") was incorporated on 21 December 2004 in the State of Victoria and is a corporation within the meaning of the Trade Practices Act 1974 ("the Act"). 6. The directors of the defendant at all material times were Artour Balaiants and Boris Seroshtan. 7. The defendant has at all material times carried on business as a retailer and wholesaler of baby products under the name of Skippy Australia, from its warehouse at Factory 2/1-3 Bricker Street, Cheltenham, Victoria ("the warehouse") and via the internet. 8. The defendant has at all times sold baby products to consumers: · directly from the warehouse, · via its website at the address www.babygoodsaustralia.com.au, and · via the eBay Australian auction website at www.ebay.com.au. 9. Baby products sold by the defendant have included baby walkers and cots. 10. The defendant operated its eBay account with the User ID Skippyaustralia from 25 January 2005. Between 9 May 2005 and 14 July 2005, 122 bids were placed on the eBay Australian auction website at www.ebay.com.au for baby walkers advertised by the defendant. 11. Between 7 February 2005 and 31 August 2005 the defendant advertised and sold baby walkers and cots to consumers, from its warehouse and via the internet. Consumer Product Safety Standard - Baby Walkers 12. The Trade Practices (Consumer Product Safety Standard) (Baby Walkers) Regulations 2002 ('the regulations') provided at all material times that for section 65C of the Act, compliance with sections 6.1, 6.4 and 9.3 of F977-00, which is the American Society for Testing and Materials Consumer Safety Specification for Infant Walkers, was prescribed as the consumer product safety standard for baby walkers ("the walker standard"). 13. The regulations define "baby walker" as a device that: "consists of a frame on wheels designed to support, inside the frame and with the child's feet touching the ground, a child who has not yet learned to walk; and … is propelled by the movement of the child." 14. Section 6.1 of the walker standard specifies requirements concerning stability. 15. Section 6.4 of the walker standard specifies requirements concerning the prevention of falls down steps. Section 6.4 provides: "the walker shall maintain contact with and be supported only by the test platform at the conclusion of the tests in 7.6" 16. Section 7.6 of the walker standards specifies step tests to be performed to determine compliance with section 6.4 17. Section 9.3 of the walker standard specifies requirements concerning the labelling of the product with warning statements. Supply of Baby Walkers to ACCC 18. On 8 July 2005 the Australian Competition and Consumer Commission ("the ACCC") received a complaint from a consumer, Samantha Louise Ellis ("Ms. Ellis"), concerning a baby walker purchased from the defendant via its eBay website. 19. On 12 July 2005 an ACCC officer visited the defendant's eBay website and identified two models of baby walker advertised by the defendant. … 20. On 14 July 2005 an officer of the ACCC attended the warehouse and purchased the following goods ("the baby walkers") from the defendant: · Two boxed baby walkers of the same model, each described as "Brand New Baby Walker with push bar", and · Two boxed baby walkers of the same model, each described as "Brand New Baby Walker & Rocker 2 in 1" 21. The ACCC officer had concerns about apparent non-compliance of the baby walkers with product safety standards relating to labelling and performance characteristics. 22. On 3 August 2005 the ACCC sent to the defendant by email and by facsimile transmission a letter dated 3 August 2005 outlining the ACCC's concerns regarding, inter alia, the baby walkers' non-compliance with the walker standard, and attaching a document titled "Product Recall - A Guide for Suppliers". … 23. On 10 February 2006, one of each model ("tested baby walkers") of the baby walkers was sent by the ACCC to an independent testing organisation to be tested for compliance with product safety standards. 24. The results of the tests conducted by the said testing organisation show that each of the two tested baby walkers failed to comply with the standard, in that in each case: (a) The baby walker was not labelled with any warning statements, contrary to section 9.3 of the standard. (b) Contrary to section 9.3.2 of the standard, the baby walker was not labelled with the following warning: WARNING Never leave child unattended. Always keep child in view while in walker. (c) Contrary to section 9.3.3 of the standard, the baby walker was not labelled with warnings addressing the following matters: · Use only on flat surfaces free of objects that could cause the walker to tip over (section 9.3.3.1 of the standard), · To avoid burns, keep the child away from hot liquids, ranges, radiators, space heaters, fireplaces etc. (Section 9.3.3.2 of the standard), (d) Contrary to section 9.3.4 of the standard, the baby walker was not labelled with a separate stairs warning visible to the consumer when placing the child in the walker, the required stairs warning, as set out in section 9.3.4.2 of the standard, being as stated below: WARNING - STAIR HAZARD Avoid serious injury or death Block stairs/steps securely before using walker (e) Contrary to section 6.3 of the standard, when tested in accordance with section 7.6 of the standard, which is titled "Step(s) Tests", the baby walker did not maintain contact with the test platform and was not supported only by the test platform at the conclusion of the tests described in section 7.6 of the standard, being: (f) i Forward Facing Step Test (section 7.6.3 of the standard) ii Sideward Facing Step Test (section 7.6.4 of the standard) iii Rearward Facing Step Test (section 7.6.5 of the standard) Supply of Baby Walker to Samantha Ellis 25. At all times the defendant advertised baby products for sale on the eBay Australian auction website at the address www.ebay.com.au ("the eBay website"). 26. On or about 10 June 2005, Ms. Ellis visited the eBay website and placed a bid for a baby walker described as "Baby Walker with Push Bar" from the product list for Skippy Australia. ... 27. On or about 11 June 2005 Ms Ellis received notification of her winning bid from the defendant, and was provided with details of payment options. Ms. Ellis paid the defendant for the baby walker, by way of direct credit to its account, a total amount of $63 which consisted of a purchase price of $34 and $29 for postage and handling. 28. On or about 16 June 2005 the defendant supplied a baby walker ("the baby walker") to Ms. Ellis. The baby walker was delivered by the defendant to the residential address of Ms. Ellis in Surrey Downs in South Australia. 29. Ms. Ellis had a number of concerns about the baby walker, including the absence of warning labels to advise of possible hazards. She raised those concerns with the ACCC. The ACCC did not refer those complaints to the defendant prior to proceedings being issued by the ACCC. However, prior to her communications with ACCC, Ms. Ellis had directly communicated her concerns regarding the baby walker's performance and quality to the defendant. 30. The ACCC determined that the baby walker failed to comply with the walker standard, in that: (a) The baby walker was not labelled with any warning statements, contrary to section 9.3 of the walker standard (b) Contrary to section 9.3.2 of the walker standard, the baby walker was not labelled with the following warning: WARNING Never leave child unattended. Always keep child in view while in walker. (c) Contrary to section 9.3.3 of the walker standard, the baby walker was not labelled with warnings addressing the following matters: · Use only on flat surfaces free of objects that could cause the walker to tip over (section 9.3.3.1 of the walker standard), · To avoid burns, keep the child away from hot liquids, ranges, radiators, space heaters, fireplaces etc. (section 9.3.3.2 of the walker standards), (d) Contrary to section 9.3.4 of the walker standard, the baby walker was not labelled with a separate stairs warning visible to the consumer when placing the child in the walker, the required stairs warning, as set out in section 9.3.4.2 of the walker standard, being as stated below: WARNING Avoid serious injury or death Block stairs/steps securely before using walker Consumer Product Safety Standard - Cots 31. The Australian consumer product safety standard for children's household cots ("the cot standard") is: Australian/New Zealand Standard AS/NZ 2172:1995, Cots for Household use - Safety requirements, approved by Standards Australia on 30 January 1995 varied by deleting clauses 1,2,4,7 and 10. 32. For the purposes of section 65C of the Act, the cot standard was declared on 1 July 2003 to be the consumer product safety standard for children's household cots, excluding certain types of cots, by Consumer Protection Notice No. 10 of 2003 published in the Commonwealth of Australia Gazette No. GN 25 of 25 June 2003. 33. The cot standard specifies safety requirement for cots, including requirements as to material, design, labelling and marking. The cot standard is applicable to cots in use in household situations with the exception of folding cots and carry cots. The Cot Advertisement 34. At all material times the defendant advertised baby products for sale on its website at the address: www.babygoodsaustralia.com.au. 35. On 19 July 2005 an ACCC officer visited the said website and saw an advertisement for a baby cot ("the cot advertisement"). … 36. In the cot advertisement, the defendant represented that the advertised baby cot was of a particular standard, in that the defendant represented that the advertised baby cot "Meets Australian standards". The said representation was false. 37. On 14 July 2005 a cot ("the test cot") of the style that appeared in the cot advertisement had been purchased by an officer of the ACCC from the defendant at its warehouse at Factory 2/1-3 Bricker Street, Cheltenham, Victoria. 38. On 25 July 2005 the test cot was tested by an accredited cot testing organisation, being Furntech - Australasian Furnishing Research and Development Institute ("Furntech"). 39. The results of the tests conducted by Furntech showed that the test cot failed to comply with the cot standards, in that: (a) Contrary to Clause 5.1 of the cot standard, several joints on the test cot were not close fitting. (b) Contrary to Clause 6.1(c) of the cot standard, the gap between the filler bars was a limb entrapment hazard, (c) Contrary to Clause 6.4 (a) of the cot standard, the guides of the dropside mechanism did not allow the dropside to move freely up and down, (d) Contrary to Clause 6.6 of the cot standard, the test cot had holes or openings between 6 mm and 12 mm in diameter, which presented a finger entrapment hazard, (e) Contrary to Clause 6.7(a) of the cot standard, castors on the test cot were more than 50mm in diameter, (f) Contrary to Clause 6.8(a) of the cot standard, there were protrusions within the cot, being mattress base attachment brackets, that were accessible to a 95mm diameter head form, (g) Contrary to Clause 6.8(b) of the cost standard, there were protrusions of more than 8 mm that were not so designed that they could not snag onto clothing, (h) Contrary to Clause 6.9 of the cot standard, there were sharp edges and sharp points on the test cot, (i) Contrary to Clause 9.2 of the cot standard, there was a gap accessible from within the test cot that was sufficiently small not to allow a sphere of 30mm diameter to pass through, (j) Contrary to Clause 9.6 of the cot standard, the access fastening devices on the dropside mechanism of the test cot failed to hold access in the fully closed position, (k) Contrary to Clause 9.7 of the cot standard, the dropside mechanism was significantly deformed, (l) Contrary to Clause 11.1 of the cot standard, the test cot did not include any of the required information on a leaflet in the cot package, (m) Contrary to Clause 11.2 of the cot standard, the test cot did not include any of the required information on a swing tag or label attached to the cot, (n) Contrary to Clause 11.3 of the cot standard, the test cot did not include any of the required information on the external surface of the packaging, and (o) Contrary to Clause 12 of the cot standard, the test did not include any of the required permanent and indelible marking on the mattress base. 40. Furntech regarded several instances of non-compliance as serious hazards. 41. On 3 August 2005 the ACCC sent to the defendant [a]letter …regarding, inter alia, its concerns about the baby cot. False Representation as to Rights and Remedies 42. When an ACCC officer attended the warehouse on 14 July 2005, she observed a sign that appeared to limit the availability of refunds. The sign was fixed to the window of an office located inside the warehouse. 43. On 23 August 2005, the ACCC officer attended the warehouse again and observed that the following words appeared on the said sign: STOCK CLEARANCE NO REFUNDS EXCHANGE ONLY 44. The defendant, in displaying the sign, made a representation to all persons who purchased goods from the defendant: (a) that such persons had no right, under any circumstances, to recover from the defendant a refund of the whole or any part of the price paid by such persons for the goods, and (b) that the only remedy or right to relief available to such persons, under any circumstances, with respect to goods purchased by them which goods they wished to return to the defendant, was to exchange the said goods. 45. The said representation was a false representation as to the existence or exclusion of rights or remedies that were available to purchasers of goods from the defendant, including rights or remedies that were available pursuant to the common law, and pursuant to State and Commonwealth legislation, including S.75A of the Act, such as those described below: (c) Sub-section 75A(1) of the Act provides, inter alia, that where a corporation supplies goods to a consumer in the course of a business, and there is a breach of a condition that is, by virtue of a provision of Division 2 of the Act, implied in the contract for the supply of the goods, that consumer is, subject to section 75A, entitled to rescind the contract. (d) Sub-section 75A(3) of the Act provides, inter alia, that where a contract for the supply of goods by a corporation to a consumer has been rescinded in accordance with the section 75A, the consumer may recover from the corporation, as a debt, the amount or value of any consideration paid or provided by him or her for the goods. 46. At all material times, sub-sections 75A(1) and 75A(3) of the Act gave a purchaser of goods from the defendant the right to rescind a contract for the sale of those goods in certain circumstances, and the right to obtain a refund of the purchase price for those goods from the defendant. 47. Sub-section 68(1) of the Act makes void any term of any term of a contract that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying the application of section 75A. 48. In addition to rights and remedies that are available to consumers pursuant to the Act, there are rights and remedies available pursuant to the Fair Trading Act 1999, and the common law. Communications between the ACCC and Skippy Australia Pty Ltd / Product Recall 49. The ACCC officer who attended the warehouse on 14 July 2005 spoke to a director of the defendant, who identified himself as Arthur, being Artour Balaiants. 50. The ACCC officer advised 'Arthur' of the ACCC's concerns regarding the baby walkers' non-compliance with the walker standard. 'Arthur' advised the ACCC officer that he would agree to withdraw the two models of baby walker from sale. 51. On 18 July 2005 the ACCC sent to the defendant by email and by facsimile transmission a letter dated 18 July 2005 outlining the ACCC's concerns regarding the baby walkers' non-compliance with the walker standard and requesting that the defendant confirm its advice on the baby walkers' withdrawal from sale from the warehouse and from the eBay website. 52. On 19 July 2005, the ACCC received an email with an attachment dated 19 July 2005 from the defendant confirming that it would take the baby walkers off the market. 53. On 3 August 2005 the ACCC sent to the defendant by email and by facsimile transmission of the letter dated 3 August 2005 … outlining the ACCC's concerns regarding the baby walkers' non-compliance with the walker standard, and the cot's non-compliance with the cot standard, and attaching a document titled 'Product Recall - A Guide for Suppliers') ('the product recall guide'). 54. On 8 August 2005, the ACCC received an email from the defendant dated 8 August 2005 advising of its preparations to take the items in question off the market. 55. On 18 August 2005, the ACCC received by facsimile transmission a letter dated 18 August 2005 from Mr Frank Chila of Dibbs Abbott Stillman, solicitors for the defendant. The letter stated, inter alia: · That when the ACCC expressed concern on 14 July 2005 about the baby walker purchased by it, the defendant immediately ceased supplying the baby walkers, · That upon receipt of the ACCC's letter of 3 August 2005, the defendant immediately ceased supplying the cots, · That the defendant would undertake an immediate voluntary recall of the baby walkers and cots, and · That the baby walkers and cots were supplied to the defendant by a China-based supplier, and that a test report ("the SGS test report") in relation to at least one of the products had been supplied to the defendant by that supplier. 56. In accordance with the product recall guide, Dibbs Abbott Stillman sent a letter dated 19 August 2005 to the Parliamentary Secretary to the Treasurer, care of the ACCC, advising that its client Skippy Australia Pty Ltd was conducting a voluntary recall of specified products ("the specified products") being: 1. Brand New Baby Walker with Pushbar 2. Brand New baby Walker and Rocker 2 in 1 3. Cot - Model TZC-512, and 4. Cot - Model TZC-507 The letter dated 19 August 2005 also advised that the specified products were sold between May and August 2005. 57. Product recall notices were placed on the website of the ACCC at www.recalls.gov.au in relation to the specified products on 23 August 2005. 58. By email dated 23 August 2005 to the ACCC, Dibbs Abbott Stillman advised that its client proposed to place a notice of recall in the Herald Sun newspaper. 59. On 25 August 2005 an ACCC officer telephoned Mr Frank Chila of Dibbs Abbott Stillman in relation to the proposed recall notice. The ACCC gave Mr Chila advice as to ways in which the defendant could increase the effectiveness of the recall procedure, including advice as to: · A national recall being warranted, considering that sales had been made via the internet, · The appropriate layout of any recall notice; and · The advisability of direct contact with persons who purchased goods via eBay. 60. The defendant arranged for a product recall notice to be published in the Herald Sun newspaper on 3 September 2005. 61. The defendant placed a product recall in the warehouse from 25 august 2005 until 1 January 2006. 62. On 2 December 2005, Dibbs Abbott Stillman sent to the Product Safety Policy Section of the ACCC a letter dated 1 December 2005 attaching a report by the defendant with respect to the outcome of its voluntary recall ('the report') 63. By letter dated 6 December 2005 to the defendant, care of Dibbs Abbott Stillman, the Product Safety Policy Section of the ACCC advised, on the basis of the information then available to them, that they had reviewed the information contained in the report, and they considered that an appropriate recall had been undertaken. They advised that no further reports were required on the understanding that the defendant would continue to repair, replace or refund any further affected units that came to its attention.'

CONVICTIONS 18 I am satisfied beyond reasonable doubt, on the basis of the Statement of Agreed Facts and the unchallenged affidavit evidence relied on by the prosecutor, that the defendant is guilty of each of the offences of which it stands charged. I therefore convict the defendant on each charge.

APPLICATION OF THE RELEVANT SENTENCING PRINCIPLES 19 It will be necessary to examine separately the circumstances surrounding the commission of each offence. There are, however, some matters that are common to all or most of them which can be noted at the outset. These are: · No relevant prior conduct is alleged against the defendant. · The offences did not result from a deliberate attempt on the part of the officers of the defendant to flout the Act and relevant standards. Rather, the offences arose from lax management and inadvertence. · When the prosecutor became aware of the contraventions relating to the baby walkers and the cots, it requested the defendant to withdraw the items from sale. The defendant agreed to do this and to issue recall notices. It placed a product recall notice in its warehouse and in a newspaper but not on its website. · No injuries were suffered as a result of the contraventions. · The defendant indicated its intention to plead guilty to the charges at the earliest available opportunity. The prosecutor accepts that this was indicative of remorse, and acceptance of responsibility and a willingness to facilitate the course of justice. · The contraventions involving the baby walkers and the cots placed at risk the lives and physical welfare of very young children. 20 The defendant's accounts for the financial year 2005-6 were in evidence. They disclosed accumulated losses of $53,022.45. The prosecutor had sought more up-to-date information shortly before the hearing but the defendant had not provided it. Mr Boris Seroshtan had sworn in July that the financial pressure under which the company was then labouring had led to him and his fellow director considering cessation of operations. I infer that this subsequently occurred. The likelihood then is that the company does not have assets which may be applied to meet any financial penalty which the Court may be minded to impose.

The Baby Walker Offences (VID 385 and VID 388 of 2006) 21 These offences arise under s 75AZS(1) of the Act. The product safety standards applying to baby walkers were developed in the light of experience of the use of such walkers in the United States. Young children using walkers had been injured, sometimes seriously, and died as a result of accidents which occurred whilst they were using the walkers. On occasions, injury occurred when children in the walkers fell down stairs or manoeuvred them so that they came in contact with hot surfaces. The various warnings which form part of the standard were directed to alerting those supervising the children to the type of risk which experience had shown was associated with use of such walkers. The warnings were intended to lessen the risk of harm befalling vulnerable young children. The failure to provide the cautionary notices meant that parents and carers were deprived of essential warnings and advice. The walkers also failed the stability tests prescribed in the relevant standard. This meant that they were more likely to capsize when being used by a child who had yet to learn to walk. For these reasons these offences are, in my view, extremely serious. The walkers were on the market for some six months. Forty seven were sold. Following the issuing of the recall notices 36 of them were returned. The whereabouts of the 11 remaining walkers is unknown.

The Cot Advertisement (VID 386 of 2006) 22 This offence arises under s 75AZC(1)(a) of the Act. A prospective purchaser of the cot advertised by the defendant on its website was led to believe that each such cot met Australian Standards. This was untrue. Tests carried out on one of the type advertised by the defendant showed that the cot failed to comply with the relevant Australian safety standard in 15 respects. The safety standard was specifically directed to reducing 'the likelihood of death or injuries to children.' Again, the conduct of the defendant, in contravening the Act by misrepresenting that the standards were met, placed vulnerable children at risk. Twenty two of the cots were sold. Fourteen of these were returned after publication of the recall notices. There was no evidence as to whether or not any of the purchasers of these cots had read and been influenced by the statement about compliance with Australian standards.

The No Refunds Signage (VID 387 of 2006) 23 This offence arises under s 75AZC(1)(k) of the Act. The notice displayed in the defendant's warehouse advised customers that 'Stock Clearance No refunds Exchange only' Purchasers were thereby advised that, should they buy a faulty product, the only remedy available to them was a subsequent exchange. The option of return of the product and the obtaining of a refund was, so they were told, not available. There would be no point in applying for a refund; any such request would be denied. Contrary to the terms of the notice a wider range of remedies was available to purchasers of defective products. Those remedies were provided by the Act (see eg s 75A) and complementary State legislation. There was no evidence as to the number of customers (if any) who had observed the notice or had been misled by it to act to their detriment.

PENALTIES 24 Of the offences charged the most serious are those relating to the baby walkers. The two charges are linked. The prosecutor's investigation of the conduct of the defendant in marketing the baby walkers was commenced following a complaint from a member of the public who had purchased a walker from the defendant through the internet. The prosecutor then arranged for similar walkers to be purchased from the defendant and caused them to be subjected to analysis. As already noted, this analysis revealed that the walkers did not comply with standards prescribed pursuant to s 65C of the Act. Proceeding VID 385 of 2006 relates to the 'controlled' supply of the walkers to an officer employed by the prosecutor. Proceeding VID 388 of 2006 relates to the supply of the walker to the member of the public who complained to the prosecutor. Any supply of the walkers would constitute a breach of s 75AZS(1) of the Act. Forty seven such sales were admitted. Charges have only been laid in respect to the sales to the prosecutor and the complainant. Of the two sales the one to the complainant is the one in respect of which the defendant bears the greater degree of culpability. It was to be used by her daughter and would have been had the complainant not been alert to the deficiencies in the product and the absence of labelling. The walkers purchased by the investigator were not destined for use by any child. In considering the quantum of the penalties for these two offices (and, indeed, all the penalties to be imposed) I am required also to give effect to the totality principle in order to avoid a crushing aggregate penalty and to ensure, so far as is possible, that the aggregate penalty reflects the totality of the criminality involved: Australian Competition and Consumer Commission v Chubb Security Australia Pty Ltd [2004] FCA 1750 at [141] - [143]. Having regard to all the circumstances I consider that the appropriate penalty in proceeding VID 388 should be $450,000 and in proceeding VID 385, $50,000. 25 The offence relating to the statement that the cots complied with Australian standards when they did not is also serious. No fewer than 15 departures from the prescribed standard were identified. I consider that a penalty of $350,000 is warranted in proceeding VID 386. 26 The final offence concerned the notice which advised customers that refunds were not available for products sold by defendant during a stock clearance. In my view an appropriate penalty in proceeding VID 387 is $10,000. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice TRACEY.

Solicitor for the Prosecutor: Commonwealth Director of Public Prosecutions

Federal Court Rules Trade Practices Act 1974(Cth)

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Judgment (10 paragraphs)

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