Australian Competition and Consumer Commission v Sontax Australia

Australian Competition and Consumer Commission v Sontax Australia - [2011] FCA 1202 - FCA 2011 case summary — Zoe

[9]

Between 2 July 2010 and 29 November 2010, the Respondent contravened s 65C(1)(a) of the Trade Practices Act 1974 (Cth) (the TPA) by supplying to retailers a total of 2,353 elastic luggage straps, in trade and commerce: (1) that were intended to be used, or were a kind likely to be used, by a consumer; and (2) in respect to which there was a consumer product safety standard prescribed by reg 11C of the Trade Practices (Consumer Product Safety Standards) Regulations 1979 (Cth) (the Regulations), in circumstances where the elastic luggage straps supplied did not comply with the Regulations in that the elastic luggage straps did not have permanently attached to them a warning label as required by regs 11C(3) and 11C(4) of the Regulations in the prescribed form.
By engaging in the conduct described in paragraph 1 above, the Respondent breached cl 13.1 of an undertaking given by it to the Applicant under s 87B of the TPA dated 10 March 2009 (the Undertaking). AND THE COURT ORDERS BY CONSENT THAT: Injunction
The Respondent be restrained for a period of five years, whether by itself, its officers, servants, agents or howsoever otherwise, in trade or commerce in Australia from supplying elastic luggage straps which are intended to be used by, or of a kind likely to be used, by consumers that do not comply with the Regulations or such other prescribed consumer product safety standard as may from time to time be applicable at the time of the supply. Trade Practices Compliance Program
The Respondent must: (1) continue to maintain and administer its existing trade practices compliance program in accordance with the program set out in Annexure A to this Order (the Trade Practices Compliance Program) for a period of three years from the date of this Order; and (2) within three months of the date of this Order, ensure that the Compliance Officer appointed under paragraph 1.1 of the Trade Practices Compliance Program, attends further practical trade practices training focusing on s 65C of the TPA conducted by a suitably qualified compliance professional or legal practitioner with expertise in trade practices law (being a person other than the person who administered any training previously provided to the Compliance Officer pursuant to paragraph 2.2 of the Trade Practices Compliance Program); and (3) provide a written statement to the Applicant confirming the completion of the training required pursuant to paragraph 4(2) above, within two weeks of the completion of that training; and (4) within one month of the date of this Order, replace the Independent Reviewer appointed pursuant to paragraph 7 of the Trade Practices Compliance Program with a new Independent Reviewer in accordance with the criteria set out in paragraph 7.2 of the Trade Practices Compliance Program (the Replacement Reviewer); and (5) within three months of the date of this Order, ensure that the Replacement Reviewer carries out a review of the compliance program elements which is conducted in accordance with paragraphs 7.1, 7.3 and 8 of the Trade Practices Compliance Program and that subsequent reviews are similarly carried out every six months thereafter. Publication Orders
The Respondent shall cause to be published, at its expense, within 60 days of the date of this Order, an advertisement in a local trade magazine and local newspaper in the form of Annexure B to this Order and, further, the Respondent shall use its best endeavours to ensure such advertisement shall be of a size not less than a quarter of one page and in text which is not less than 10 point. Pecuniary Penalty
On or before 18 November 2011, or by such further term and but such instalments as the District Registrar may allow, the Respondent pay to the Commonwealth of Australia, pursuant to s 76E of the TPA, a pecuniary penalty of $40,000 in respect of its contravention of the TPA identified paragraph 1 above. Costs
On or before 18 November 2011, or by such further term and but such instalments as the District Registrar may allow, the Respondent pay to the Commonwealth of Australia, $20,000 as a contribution towards the Applicant's costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE A - TRADE PRACTICES COMPLIANCE PROGRAM (Paragraph 4 of the Orders) ANNEXURE B - ADVERTISEMENT FOR PUBLICATION (Paragraph 5 of the Orders)

[16]

FACTS 9 As noted above, the ACCC and Sontax filed a statement of agreed facts: see [3] above. The agreed facts, so far as is currently relevant, are summarised below. 10 The relevant conduct is agreed to have taken place between 2 July 2010 and 29 November 2010 (the relevant period) in relation to the supply of elastic luggage straps by Sontax intended to be used, or of a kind likely to be used, by a consumer in respect of which there was a prescribed consumer product safety standard and which did not comply with that standard. 11 During the relevant period, Sontax: 1. was a company duly incorporated pursuant to the Corporations Act 2001 (Cth), being a trading corporation formed within the limits of Australia and to which the provisions of the TPA and the CCA apply; and 2. carried on a business as an importer and wholesale supplier of hardware goods to retailers in the hardware, camping, nursery and gardening industries. 12 During the relevant period, Sontax supplied a total of 2,353 elastic luggage straps (Straps) to retailers. The Straps were goods of a kind that were intended to be used by a consumer and fell within the definition of elastic luggage straps in reg 11C(1) of the Regulations. For the purposes of s 65C(1)(a) of the TPA, reg 11C prescribes the consumer product safety standard applying to elastic luggage straps. It requires luggage straps to have permanently attached to them a label (Warning Label) bearing the following warning (Warning): WARNING. Avoid eye injury. DO NOT overstretch. ALWAYS keep face and body out of recoil path. DO NOT use when strap has visible signs of wear or damage. 13 Further, under reg 11C(4) of the Regulations, the Warning Label must: 1. bear the word "warning" in uppercase black letters of not less than 4 millimetres in height on a yellow background; and 2. bear the words "do not" and "always" in uppercase black letters of not less than 2 millimetres in height on a yellow background; and 3. bear the remaining words in lower case black letters of not less than 2 millimetres in height on a yellow background. 14 The label which was attached to the Straps read: "READ WARNINGS CAREFULLY BEFORE USING THIS PRODUCT. FAILURE TO FOLLOW THESE WARNINGS MAY RESULT IN PERSONAL INJURY AND/OR PROPERTY DAMAGE" 1. DO NOT stretch cord more than 50% of the unstretched length. 2. Overstretching can cause hook failure and/or cord failure. DO NOT overstretch cord. 3. Uncontrolled release can cause serious injury. Use extreme caution when stretching and/or releasing the cord. Wear eye and body protection when using this product. 4. Inspect bungee cord regularly for signs of wear. Discard product if cord or hook is cut, abraded, or shows and (sic) signs of damage. 5. DO NOT use to secure heavy or large loads. The label also had in capital letters, printed vertically on the right hand margin of the label, the word "!WARNING!". 15 During the relevant period, the Straps did not comply with reg 11C(3) in that the Warning Label attached to the Straps did not bear all the prescribed words of the Warning and did not comply with reg 11C(4) in that the prescribed words of the Warning that were printed on the Warning Label "WARNING" and "DO NOT overstretch" were not printed in the required height nor on the prescribed coloured background. In particular: 1. the word "warning" was in upper case black letters of 2 millimetres in height on a white background; 2. the words "do not" were in upper case black letters of 1 millimetre in height on a white background; and 3. the remaining word "overstretch" was in lower case black letters of 1 millimetre in height on a white background. 16 By supplying the Straps, during the relevant period Sontax supplied goods which were subject to a prescribed consumer product safety standard which did not comply with that standard in breach of s 65C(1)(a) of the TPA.

[17]

The 2009 ACCC Undertaking 17 In 2008, the ACCC investigated Sontax for supplying elastic luggage straps from 27 July to 25 August 2008 that did not comply with the prescribed consumer product safety standard in contravention of s 65C(1) of the TPA. These elastic luggage straps were found not to have a warning label permanently attached as required, as the label was made out of paper that would easily tear and perish through use and exposure to the elements. The investigation was finalised by the ACCC on 10 March 2009 when it accepted the Court enforceable 2009 Undertaking offered by Sontax pursuant to s 87B of the TPA: see [5(2)] above. 18 Paragraph 13.1 of the 2009 Undertaking required Sontax for a period of three years from the date of the Undertaking coming into effect, to ensure that all goods it supplied that were subject to a prescribed consumer product safety standard under the Act complied with the relevant standard. By supplying the Straps, Sontax supplied goods which were subject to a prescribed consumer product safety standard which did not comply with that standard in breach of paragraph 13.1 of the 2009 Undertaking. 19 Paragraph 13.2 of the 2009 Undertaking also required Sontax within three months of the Undertaking coming into effect, to establish and implement a Trade Practices Compliance Program (in accordance with prescribed requirements) for the employees or other persons involved in Sontax's business, being a program designed to minimise Sontax's risk of future breaches of s 65C of the TPA and to ensure awareness of its responsibilities and obligations in relation to the requirements of s 65C of the TPA. On 24 March 2009, the Compliance Strategies Branch of the ACCC wrote to Sontax detailing the timeline of its obligations arising under the 2009 Undertaking. 20 On 27 June 2010, the ACCC received the Implementation Review Report dated 18 April 2010 (the April 2010 Report) from Michael Lurie & Associates (who had been appointed by Sontax to ensure the Trade Practices Compliance Program was implemented). The April 2010 Report was late. It should have been provided on or before 10 September 2009. 21 On 7 September 2010, the ACCC's Compliance Strategies Branch wrote to Sontax advising that it believed the review recorded in the April 2010 Report was not sufficient to comply with the requirements of the 2009 Undertaking. The ACCC sought a statement in response to its letter confirming, amongst other things, whether Sontax had carried out specific requirements under the 2009 Undertaking such as practical training focusing on s 65C of the TPA and seeking information from Sontax as to whether it had ensured the products it supplies that are subject to a prescribed consumer product safety standard comply with the relevant standard. The ACCC requested a response by 17 September 2010. No response was received by the ACCC by 17 September 2010, or at all. 22 On 26 October 2010, a 382mm elastic luggage strap (one of the Straps) was purchased by ACCC officers from S&C Trading Pty Ltd, trading as Barrow & Bench Mitre 10 (S&C Trading) in South Australia. Further Straps were purchased from S&C Trading on 15 November 2010. The Straps purchased did not comply with the Regulations: see [12] and [13] above. 23 On 1 December 2010 (prior to it receiving a letter dated 13 December 2010 from the ACCC referred to below), Sontax was notified by S&C Trading that S&C Trading had received a letter from the ACCC explaining that the Strap had a non-compliant warning label. Upon becoming aware of the problem, Sontax initiated its recall procedure, which involved placing all stock of the Strap held at Sontax's warehouse on hold. On 14 December 2010, Sontax contacted its retailers to inform them that the Strap was non-compliant and advised them to cease selling the Strap. Retailers were given the option of either returning the Strap and receiving a credit note or retaining the Strap and re-labelling it once new compliant labels had been supplied. 24 On 15 December 2010, Sontax received a letter dated 13 December 2010 from the ACCC advising it that the Straps may not comply with the prescribed consumer product safety standard and that by supplying the Straps Sontax may also have breached the 2009 Undertaking. 25 On 19 January 2011, Sontax advised its sales staff that replacement warning labels were available to replace the non-compliant labels. 26 Sontax has since ceased importing all "Bungee Luggage Straps" and will delete the product once all remaining "compliant" stock has been sold.

[19]

Declarations 28 The parties seek, by consent, declarations to the effect that: 1. Sontax contravened s 65C of the TPA by supplying 2,353 elastic luggage straps that were non-compliant with a consumer product safety standard prescribed by reg 11C of the Regulations; and 2. Sontax breached the 2009 Undertaking it provided to the Applicant pursuant to s 87B of the TPA. 29 The Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth). In Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-438, the High Court identified three threshold requirements before a declaration will ordinarily be made: 1. the question must be a real and not a hypothetical or theoretical one; 2. the applicant must have a real interest in raising it; and 3. there must be a proper contradictor. Each is satisfied in this case. The proposed declarations relate to conduct that contravenes the TPA and the matters in issue have been identified and particularised by the parties. The question is not hypothetical or theoretical; it is real. It is in the public interest for the ACCC to seek the declarations and for the declarations to be made and, finally, Sontax was the proper contradictor. Its conduct is the subject of the declaration. It had a real interest in opposing the declarations sought by the ACCC. 30 Moreover, there was evidence to support the making of the declarations: see [3] above and Australian Competition and Consumer Commission v Skins Compression Garments Pty Ltd [2009] FCA 710 at [13]. 31 Finally, in my view, the declarations sought were appropriate: 1. they are an appropriate vehicle to record the Court's disapproval of the contravening conduct: see Real Estate Institute of Western Australia at [20]-[21]; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organics Inc (No 2) (1993) 41 FCR 89 at 100; Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [21]-[22]; Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2006] FCA 1118 at [8]-[9] and Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140 at [6]; 2. they serve to vindicate the ACCC's claim that Sontax contravened the TPA; 3. they are of assistance to the ACCC in the future in carrying out the duties conferred upon it by the TPA; and 4. they may deter other corporations from contravening the CCA.

[21]

Trade Practices Compliance Program 35 Section s 86C of the TPA relevantly provides: (1) The Court may, on application by the [ACCC], make one or more of the orders mentioned in subsection (2) in relation to a person who has engaged in contravening conduct. … (2)(b) a probation order for a period of no longer than 3 years. … (4)… probation order, in relation to a person who has engaged in contravening conduct, means an order that is made by the Court for the purpose of ensuring that the person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order, and includes: (a) an order directing the person to establish a compliance program for employees or other persons involved in the person's business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and (b) an order directing the person to establish an education and training program for employees or other persons involved in the person's business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and (c) an order directing the person to revise the internal operations of the person's business which lead to the person engaging in the contravening conduct. 36 The purpose of a probation order is to ensure a company-wide awareness of responsibilities and obligations in relation to the contravening conduct or similar or related conduct: Australian Competition and Consumer Commission v Anglo Estates Pty Ltd (2005) ATPR 42-044 at [46]. There must be a nexus between the terms of the compliance program and the contravening conduct: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) ATPR 42-138 at [96]. The compliance program should set out the steps to be taken with sufficient clarity so that it is able to be performed. It should also be in the public interest that the respondent undertake the program: LG Electronics Australia at [14]. 37 In the present case, the parties submitted that ordering the continuance and administration of Sontax's existing compliance program would be beneficial because the compliance program provides specific and ongoing guidance in relation to the training of its staff as to the rights of consumers under the TPA and under the CCA and, secondly, additions to the compliance program were directed at the conduct the subject of the proceeding and seek to prevent any similar breaches in the future. So, for example, the amendments to the program require Sontax to report on the completion of staff training and to report on a review whether its supplies are compliant with the relevant safety standard. 38 In my view, there is a sufficient nexus between the contravening conduct and the proposed compliance program. The proposed program sets out with sufficient clarity the steps to be taken. The agreed facts disclose that Sontax employs about 20 staff. In my view, it is in the public interest that Sontax undertake this compliance program to assist it and its employees in understanding the obligations imposed by the TPA and the CCA and ensuring compliance with those provisions. If those objectives are achieved, consumers ultimately benefit.

[22]

Corrective Advertising 39 Section s 86C relevantly provides: (1) The Court may, on application by the [ACCC], make one or more of the orders mentioned in subsection (2) in relation to a person who has engaged in contravening conduct. … (2)(d) an order requiring the person to publish, at the person's expense and in the way specified in the order, an advertisement in the terms specified in, or determined in accordance with, the order. 40 Corrective advertising is to be used protectively and not by way of punishment: Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483 at 492. Its purposes include: 1. to raise public awareness for consumers and competitors as to the type of conduct that may contravene the Act, and as to the outcome of particular litigation: Target Australia at 43,382; 2. to alert consumers to the fact of the contravening conduct and inform them that they may have some remedy; 3. to aid in the enforcement of a primary order and prevent repetition of the conduct: Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd (No 2) [2010] FCA 644 at [9]. The purposes are not cumulative. 41 However, there must be a nexus between the corrective advertising and the conduct that constituted the breach: Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [54]. Therefore, in deciding whether to make an order for corrective advertising Courts will seek to ensure that it is not disproportionate to the contravening conduct and will take into account the time which has elapsed since the offending conduct: Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270 at 282. 42 In the present case, the parties submit that the utility of the corrective advertising sought by the parties by consent includes: 1. alerting customers who have purchased the Straps or may purchase similar straps in the future that there is a risk of serious injury from the recoil associated with the elastic luggage straps; 2. alerting consumers and suppliers to the fact that the warning label prescribed by the Regulations is an important safety warning; and 3. preventing repetition of the conduct in the future. 43 In my view, there is a nexus between the contravening conduct and the particular order sought for corrective advertising and its content is proportionate to the contravening conduct. Here, the lapse of time since the contravening conduct may be put to one side because these kinds of products continue to be sold.

[29]

Deterrence 56 The ACCC submits that in assessing penalty in this case, the Court should attach most weight to deterrence, both specific and general. Sontax contravened s 65C(1) of the TPA, located in Div 1A of Pt V of the TPA, entitled "Product safety and product information". The primary purpose of s 65C(1) of the TPA is the protection of consumers. 57 It is common ground that the Straps were intended to be used, or were of a kind likely to be used, by a consumer in respect of which there is a prescribed consumer product safety standard and that the Straps did not comply with regs 11C(3) and 11C(4) as they did not bear the appropriate warning in the requisite size and font on a yellow background. 58 The complicating factor in the present case is that the Straps had warning labels affixed to them but the labels were not the correct colour, the typeface was 50% smaller than that required and certain information that was required by the prescribed consumer product safety standard was omitted. The ACCC submitted that these failures made it more difficult for consumers of the Straps to be made aware of the importance of using them in an appropriate manner so as to avoid injury. Moreover, the ACCC submitted that the penalty imposed on Sontax should: 1. operate so that it is not in the financial interest of Sontax or any other company that supplies products subject to a prescribed consumer product safety standard to have ineffectual internal procedures for ensuring compliance with the relevant standards; 2. reflect the seriousness of Sontax having breached its s 87B undertaking; 3. act as a deterrent to other companies who give Court enforceable undertakings to the ACCC and who, by not having appropriate procedures in place, risk breaching these undertakings. 59 Although Sontax acknowledged that any penalty to be imposed must have regard to the principle of deterrence and that the protection of consumers was a primary object of s 65C of the TPA, Sontax submitted that its conduct did not directly affect a class of consumers considered vulnerable (cf Dimmeys at [61]-[63]) and that fact was relevant in assessing deterrence. Further, Sontax submitted that although general deterrence remained critical, specific deterrence was a not a weighty consideration because as soon as they were notified of the issue, they took immediate action to rectify the problem: cf Australian Competition and Consumer Commission v Gourmet Goody's Family Restaurant Pty Ltd [2010] FCA 1216 at [10]-[11]. I reject the significance that Sontax places on these facts and matters. No fact or matter can be looked at in isolation. The items in issue in Dimmeys were children's pyjamas. Children are vulnerable. In the same way, children use or are at least exposed to these Straps. I accept that the extent of the use might be less, but it is still use or potential use by children. Next, steps were taken to rectify the problem but those steps were not exhaustive: see [52] and [66].

[35]

Parity Principle 69 There are no other respondents to this proceeding. Accordingly, no question arises of equivalence of the penalties imposed on Sontax with other contravenors. 70 There are only two cases of penalties under s 76E of the Act that relate to contraventions of s 65C of the Act: Dimmeys and Australian Competition and Consumer Commissioner v Smash Enterprises Pty Ltd [2011] FCA 375. Both cases provide, to an extent, some guidance as to the appropriate penalty here. 71 In the case of Smash Enterprises, Fantastic Furniture supplied to its franchisees a total of 257 bean bag covers, over a six month period between 15 April 2010 to 17 September 2010, to which no warning label was attached in contravention of reg 11 of the Regulations. In supplying the non-compliant bean bag covers Fantastic Furniture also breached an undertaking given to the ACCC pursuant to s 87B of the TPA on 12 November 2008 in relation to the supply of bunk beds that did not comply with the prescribed consumer product safety standard. A penalty of $300,000 was held to be within the permissible range that a Court, without any agreement between the parties, would have considered appropriate. 72 The ACCC submitted that in Smash Enterprises, unlike here, the non-compliant bean bags were for sale to a particularly vulnerable class of consumers, being children, and, unlike here, no warning label at all was attached to the bean bags. However, unlike Smash Enterprises, the undertaking given by Sontax to the ACCC was with respect to the same product being found to be non-compliant. 73 As noted earlier, Dimmeys concerned the supply of children's night gowns that did not comply with the prescribed consumer product safety standard. Many gowns did not carry a low fire hazard warning label. A smaller number of gowns did carried the required label but not in the correct position. The failure by Dimmeys to correctly attach the warning label was a less serious contravention than the failure to attach a warning label. A penalty of $100,000 was imposed. 74 The Dimmeys case is of limited assistance. It is similar in that, like Dimmeys, Sontax attached a warning label although the warning label did not comply with the Regulations. However, the usefulness of Dimmeys is limited, inter alia, by the fact that the penalty arrived at took into account proceedings against the company for similar conduct in breach of the TPA. There is no such aggravating factor here.

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