Australian Competition & Consumer Commission v MNB Variety Imports Pty Ltd [1998] FCA 81

REASONS FOR JUDGMENT HIS HONOUR: There are before the court two charges brought under the Trade Practices Act 1974 (Cth) ("the Act") against MNB Variety Imports Pty Ltd ("the Defendant") alleging contravention of section 65C(1)(a) of the Act. Section 65C(1)(a) provides that a corporation must 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 in respect of which there is a prescribed consumer product safety standard and which do not comply with that standard. Under section 79(1) of the Act a person who contravenes inter alia section 65C is guilty of an offence punishable on conviction, in the case of a person being a body corporate, by a fine not exceeding $200,000. The charges relate to the supply of two different categories of goods. · The first relates to the supply on or about 22 November 1994 of goods consisting of 216 pairs of swim aids which failed to comply in five separate respects with the prescribed consumer product safety standard, namely Australian Standard AS1900-1991. Each of the instances of non-compliance related to labelling, three in relation to the goods themselves and two in relation to the packaging. · The second relates to the supply between 15 March 1995 and 3 April 1995 of 9000 pairs of sunglasses which failed to comply in four separate respects with Australian Standard AS1067.1-1990. The Defendant has pleaded guilty to both charges and the only question before me is the appropriate penalty to be imposed under section 79 of the Act. The Defendant was incorporated in 1984 and has carried on business under a number of names, most recently MNB Variety Imports Pty Limited. The Defendant is a trustee of a family trust, details of which are not before the court. However, the income derived from the Defendant's business is the main source of income of the family of Murli Naraindas Bhojwani who is generally known as Mark Bhojwani. Mr Bhojwani has, since the Defendant began carrying on business, been its driving force and its controlling mind. During the 1980s and perhaps early into the 1990s the Defendant was involved mainly in the importation of electronic goods and watches. However, since the early 1990s the Defendant has branched out into variety and novelty goods, many of which are imported from south-east Asia. The goods which are the subject of the charges fall into that latter category. The Defendant has some history of contravention of the Act, the significance of which may be the subject of some dispute. In 1994 the Defendant was convicted for supplying balloon blowing kits which did not comply with the relevant consumer product safety standard. Von Doussa J of this court imposed a penalty of $6000 for reasons which appear in Miller v Cunninghams Warehouse Sales Pty Ltd; Miller v MNB Electronics Pty Ltd (1994)16 ATPR 41-321. On 17 June 1996 the Defendant was also convicted of eight product safety offences in the Local Court of New South Wales being contraventions of section 27 of the Fair Trading Act 1987 (NSW) which is in relevantly identical terms to section 65C. Under section 16A of the Crimes Act 1914 (Cth) the court, in determining sentence, is required to impose a sentence or make an order that is of a severity appropriate in the circumstances of the offence. Under 16A(2) in addition to any other matters, the court must take into account each of the matters that are therein set forth as are relevant and known to the court. Submissions have been addressed to me in relation to the paragraphs of section 16A(2) which are said to be relevant and I shall deal with those seriatim. Paragraph (a) - The nature and circumstances of the offences. As I have said, the offence in relation to the swimming aids related to inadequacy of marking. The goods themselves, under the relevant standard, failed to comply with requirements that they be legibly and indelibly marked with the following information: (a) name, trade name or trademark of the manufacturer or supplier in Australia; and (b) manufacturing batch identification. They also failed to comply with the requirement that they be legibly and indelibly marked in a colour contrasting with the background with the words in block capitals not less than 6 mm in height: "WARNING: USE ONLY UNDER COMPETENT SUPERVISION". The packaging failed to comply with requirements of the Standard that there be clearly marked in a conspicuous position the name, trademark or trademark of the manufacturer or supplier in Australia and with the warning referred to above. The evidence of Mr Bhojwani in relation to these goods was to the effect that when he saw the goods upon their importation into Australia, he noted that the package contained a warning saying "CAUTION: DO NOT OVER-INFLATE; THIS IS NOT A LIFE-SAVING DEVICE; NEVER LEAVE CHILDREN UNATTENDED". His evidence was to the effect that, having observed that warning on the package, he assumed that the package complied with the requirements of the Standard. There was no evidence of any particular steps having been taken to require that the supplier of those goods ensure compliance with the relevant Australian Standard. The most that can be said is that when Mr Bhojwani buys such goods, he tells the trading house which supplies them that the goods are destined for Australia. In relation to the sunglasses Mr Bhojwani gave evidence that, in the course of a visit to Hong Kong in about December 1994, he visited one of the local trading houses known as Euro-East Electronics Limited ("Euro-East") from which he frequently purchases goods for import into Australia, and that he bought the sunglasses from Euro-East. He says that Euro-East is a trading house which he had dealt with many times before. Having been shown a line of sunglasses, he ordered approximately 9900 dozen units, being, 99 dozen of each of 100 assorted designs. He said, in an affidavit filed in the proceedings, that he made it plain to Euro-East that the goods were destined for Australia. The precise terms of the communication are unclear. However, a letter from Euro-East addressed to the Defendant dated 24 January 1996, says: We are rather surprised to note that action is being taken against your company regarding the quality of the sunglasses. We agree we had assured you that these sun glasses meet the Australian Standards. It looks like that [sic] the factory has changed the goods and has not kept its commitment. There is also evidence in the form of a record of interview of Mr Bhojwani by officers of the prosecutor which contains the following exchange: Mr Doolan: Right, so you had nothing to do with the wording on those tags? Mr Bhojwani: They were supplied with the sunglasses because when I bought them you know I told them sunglasses had we have a Standard in Australia and we must meet the Standard requirements before we can import these. They said Yes, we know everything about Australia, we know about Europe, we know about America. The invoice which was received by the Defendant in relation to the sunglasses contained, amongst other things, a statement as follows: Above sunglasses pass the ultra-violet and infra-red requirements of ASA-1067-1-1990 Australian-Sunglass Standard. In addition the sunglasses contained a tag saying inter alia the following: These sunglasses are guaranteed against faulty workmanship for 12 months after date of purchase. Guarantee does not include accidental breakage or scratching. These sunglasses pass the ultra violet and infra red requirements of ASA-1067-1-1990-Australian Sunglass Standard under Trade Practices Act. Mr Bhojwani said in evidence that, in the light of the notation on the invoice and the tag on the glasses which he saw when they arrived, he assumed - although he made no other check - that the glasses complied with the relevant Standard. The charge in relation to the sunglasses is that they failed to comply with the Standard in one respect in failing to have the words "Sunglasses - these glasses are intended to reduce sun glare in ordinary circumstances". In fact the sunglasses contained the following wording in the tag: These sunglasses are intended to reduce sun glare in ordinary circumstances. They are recommended for all sport and outdoor activities. The non-compliance in that respect is almost de minimis. However, there are three other respects in relation to the Standard which were said not to be complied with. They relate to the field of view of the lenses, the difference between the refractive powers of the lenses and the difference between the luminous densities at various points centred on the datum centre of a pair of lenses. Evidence was given by affidavit by Associate Professor Stephen John Dain concerning the significance of those three matters. He said that the density problem associated with those sunglasses is, for the wearer, one of judgment of depth, in particular judgment of things which are moving: If something moves across in front of you and you have significantly unequal tints in the lenses, then in one direction the object will appear to come closer to you and move away and in the other direction it will appear to go away from you and then come back. So in one direction the object will be judged as being further away than it really is. This is of particular concern in terms of driving a vehicle. For example, when a motor vehicle or other fast-moving object is approaching a crossing in front of another vehicle, a driver may judge the distance of this vehicle as being either too close or too far away. In relation to refractive power, Professor Dain said that the problem is that irregular refractive changes in a lens can give rise to distortion and misjudgment of the position and distance of both static and moving objects, which again has implications in tasks like driving. For example, a driver is liable to misjudge the position or distance of pedestrians or vehicles. The second problem is that unwanted refractive power may cause blurred vision and/or discomfort such as headaches and eye strain. In relation to field of view, Professor Dain said that restrictions in field of view also have relevance to driving as the frame or the outer edge of the lens could impede the driver's view. Indirectly the requirement also ensures that there is adequate coverage of the lens to allow an acceptable level of ultra-violet radiation protection by minimising the ultra-violet reaching the eye around the lens. Thus the non-compliance of the spectacles may be seen to be matters which could go to personal safety of the users. While the non compliance in relation to the swim aids is not in relation to their physical capacity to perform but in relation to labelling, those matters are also matters of considerable significance. The items in question are for the use of small children. Mr Bhojwani accepts that prior to the time of the contravention in question, his attention had been drawn to the existence of requirements for compliance with standards. In connection with the investigation which led to the proceedings before von Doussa J, Mr Bhojwani was interviewed by Messrs Miller and Stevens, officers of the prosecutor. Those officers swore affidavits which were not challenged. They were to the effect that, after the conclusion of the interview to which reference is made above, they discussed with Mr Bhojwani means by which the defendant might ensure compliance with other mandatory consumer product safety standards in the future. They say that they gave Mr Bhojwani explanatory guide booklets, prepared by the Federal Bureau of Consumer Affairs, about consumer product safety standards for a number of mandatory standards, including guide booklets covering toys for children under three years of age, sunglasses and fashion spectacles and flotation toys, being the standards which are the subject of the charges. They say that there was also discussion with Mr Bhojwani concerning compliance procedures which he might adopt to ensure that products met relevant safety standards including the obtaining of test certificates. Mr Bhojwani said that he read the affidavits of Messrs Steven and Miller and confirmed the contents of the affidavits, except that he did not specifically recall receiving from either of them the booklets I have described. However, he did say in the course of cross-examination that one of the reasons why he raised standards in his discussions with Euro-East was the existence of the pamphlets. I am satisfied that Mr Bhojwani received pamphlets which indicated that there were standards applicable to children's flotation toys and to sunglasses. The pamphlet relating to flotation toys and swimming aids contains in appendix C a compliance check list which highlighted both marking of goods and marking of packages being the provisions to which I have referred above. The pamphlet with respect to sunglasses did not set out the details of the requirements which were not complied with but drew attention to the fact that there were requirements, the detail of which was not reproduced in the publication. The above facts lead to the conclusion that at the end of 1994 and the beginning of 1995 the Defendant must have been aware of the existence of standards relating to both categories of goods which are the subject of the two charges. Nevertheless, it appears to me to be clear that no particular steps were taken in relation to ensuring compliance with the requirements in relation to the flotation toys, although Mr Bhojwani may have believed that there was compliance. Whether there was a reasonable basis for that belief may be a different matter. In relation to the glasses, there is a basis on the evidence before me to conclude again that Mr Bhojwani had taken some steps to ensure compliance. Nevertheless it is clear that there are other steps which could have been taken to ensure compliance and which were not taken. There is now before me an undertaking given to the prosecutor for the purpose of section 87B of the Trade Practices Act. That undertaking was given on 18 August 1997 and accepted by the Commission on 31 October 1997. It contains an undertaking that within one month of its being signed, the Defendant would implement a trade practices compliance program in the form there referred to. The form requires the following: · maintaining up to date copies of all prescribed consumer product safety standards that relate to products supplied by the Defendant; · identifying the suppliers from whom the Defendant purchases its products and forwarding to those suppliers up to date copies of the relevant safety standards; · upon identifying a prospective product for importation and distribution into Australia, making the necessary inquiries to ascertain whether the product is required to comply with any standard; · if the Defendant supplies a product or intends to supply a product, obtaining a sample from the supplier and having it tested to ensure that the product complies, ensuring that the product and its packaging are marked as required and ensuring that the product complies with the relevant standard prior to supply. The relevance of the undertaking is that it indicates the steps which could have been taken by the Defendant. On the evidence before me, the steps clearly had not been taken prior to the time of the contraventions in question. Paragraph (e) - Whether any injury, loss or damage resulting from the offences. It is not suggested that any injury, loss or damage has in fact resulted, although clearly enough there was the risk of injury. That risk is described by Professor Dane in relation to the sunglasses. In relation to the lack of marking on the swim aids, the risk of injury to small children as a result of wrong use has to be taken into account. On the other hand, it is clear from the evidence before me that, once non compliance was drawn to the attention of the Defendant, steps were taken to recall the items in question. Thus, while there was a risk, once the risk had been drawn to the attention of the Defendant, reasonable steps were taken to avoid the risk. However, there must be a qualification to that statement. Investigations in relation to the swim aids were undertaken by the State authority in May 1995. As a consequence of an approach then made, the Defendant despatched a facsimile to its customers requesting recall of the items, offering a full refund in consideration. When the Commission's officers made inquiries in November the same form of request was despatched. That suggests that there was no follow-up of the earlier request for recall and there is no evidence as to whether any items were in fact sent back pursuant to that recall. In relation to the sunglasses, it should be noted that of the 100 different varieties it is only one variety which is the subject of the complaint and recall notices were advertised promptly upon the Defendant being informed of the circumstances. Paragraph (f) - The degree to which the person charged has shown contrition for the offence. The material to which I have just referred is relevant to that question. I am satisfied that Mr Bhojwani regrets the contraventions. The giving of the undertaking, albeit following some negotiation between legal advisers, is an indication of a concern to ensure compliance with the requirements of the Act and is in my view an indication of contrition. Paragraph (g) - The fact that the person charged has pleaded guilty. As I have said the Defendant has admitted the offences and has not put the Commonwealth to the expense of a defended trial. Indeed, I should say the conduct of the proceedings in relation to penalty involved admission of all of the matters alleged in the affidavits filed on behalf of the prosecutor. Paragraph (h) - The degree to which the person involved has co-operated with law-enforcement agencies in the investigation of the offence. The Commission accepts that the Defendant has co-operated with it in its investigation of the matter. Paragraph (j) - The deterrent effect that any sentence or order under consideration may have on the person. These provisions are not matters of pure form, even though it appears that in the event no damage has been done. These provisions have been enacted by the Commonwealth Parliament in order to protect consumers from goods which may be defective and also to ensure that consumers are aware of the limitations on goods and the limit to which they might be effective to do what they are intended to do. It is important that the business community be aware of its responsibility to ensure that relevant safety standards are complied with. There was some evidence from Mr Bhojwani as to the difficulties involved for him in complying with the compliance program. For example, he said that his buying is done on overseas visits where he might see thousands of new products at any time in trade shows and demonstrations and that he has to decide quickly whether to place an order and take the business. He says that compliance with the program to which I have briefly adverted above will place him at a disadvantage in relation to competitors who do not so comply. It seems to me that the compliance program is not unreasonable and indeed it is no more than one would expect a responsible trader to engage in for his own protection. It is not to the point, it seems to me, that there are traders who are prepared to flout the law and take the risk. In addition, it seems to me that the fine which should be imposed should not be such as can be disregarded by a trader as being no more than a business expense. Traders should accept, in my view, that the cost of a compliance program should be a small cost to avoid the penalty which would otherwise be imposed. There is, however, no evidence before me as to the actual cost of the compliance program to which I have referred, other than the possible loss of business by reason of having to test goods before a decision is made to import them. Such a cost is almost impossible of assessment. The actual cost of providing copies and ensuring the tests would be not insignificant but it is a reasonable expense of carrying on the business of importing goods which are to be supplied to consumers and which are manufactured in circumstances where the importer has no control over the manufacturer. I consider that the cost of failing to comply should be set at a level which is significantly greater than the cost of ensuring compliance by a program such as that described. Paragraph (k) - The need to ensure that the person charged is adequately punished for the offence. That involves considerations similar to those to which I have just referred. As I have said, these matters are matters of significance and not of pure form and the penalty must hurt to some extent. Paragraph (m) - The character, antecedents, cultural background, age, means and physical or mental condition of the person. The Defendant is, of course, a company, although as I have said its business appears to be the source of income for Mr Bhojwani and his family. The Defendant employs 10 persons full-time including two members of Mr Bhojwani's family. Mr Bhojwani supports his children and his aged mother. There is unchallenged evidence before me that he has over a number of years exhibited considerable generosity to members of the community. He is a Hindu and he has, it appears, been of very great benefit to the members of the Hindu community in Australia and to needy people in India. Mr Bhojwani has indicated that he has on a number of occasions paid out substantial sums of money in aid of needy people in those circumstances. There is also evidence before me in the form of an affidavit from a chartered accountant, Mr Aslan Joe Moses who said that he had always found Mr Bhojwani to be a man of integrity and high moral standards and that in his dealings with him both professionally and socially he had always demonstrated moral and ethical judgment. I have no evidence before me that would lead me to doubt that Mr Bhojwani is an honourable and decent member of the community, although of course it is his company which is charged with the offence. Nevertheless, as I have said, it is Mr Bhojwani's mind which is the controlling mind of the Defendant. Those considerations lead me to conclude that these offences were not contumelious ignoring of the provisions. Rather they were the result of lax control of the affairs of the Defendant. Some point was made by the prosecutor of findings made by von Doussa J in the earlier proceedings to the effect that, since learning of the offences then before his Honour, the Defendant had taken appropriate steps to put in place compliance programs. His Honour therefore concluded that the likelihood of similar offences occurring in the future was reduced. It seems that his Honour's expectation was not fulfilled in the case of the Defendant. Nevertheless, as I have said, the undertaking has now been given in the form to which I have referred. Paragraph (n) - The prospect of rehabilitation. That does not appear to me to be a relevant consideration in the present case. Paragraph (o) - the probable effect that any sentence or order would have on any of the Defendant's family or dependants. The Defendant, being a company, could not have family or dependants except through Mr Bhojwani. The evidence really does not indicate one way or the other what effect an order could have on the family or dependants of Mr Bhojwani. The Defendant's financial circumstances were not before the court except to the extent that Mr Bhojwani gave evidence that it has virtually no assets, being a mere trading company and that as a result of adverse changes in exchange rates between the Australian dollar and the United States dollar this financial year may result in significant losses. Mr Bhojwani accepted that the Defendant has banking arrangements which will enable it to carry on business by borrowing, if need be, to cover the losses. There is no evidence therefore that would suggest that any particular fine would impact inappropriately on Mr Bhojwani or his family. The maximum fine as I have said is $200,000. The offences in question do not appear to me to be anywhere near the top of the range which might be permissible under the Act. It may be relevant that the same offence under the Fair Trading Act carries a penalty of only $100,000 at the present time although the maximum under the Trade Practices Act was increased from that figure to $200,000 in 1992. Bearing in mind that the severity of the offence is not such as would attract anything near the maximum penalty, I do not regard that increase as being particularly relevant. On the other hand I am mindful of the penalty which was imposed on the Defendant by von Doussa J in respect of a similar offence and I am aware that penalties were also imposed by the local court in relation to the offences under the Fair Trading Act. I consider that the Defendant should be told that one cannot commit similar offences without an increase in penalty. There are two separate charges involved. While there is no suggestion that there is such a similarity as would attract the provisions of section 79(2) of the Trade Practices Act, I consider that I should take into account that the two offences are similar and in a sense resulted from the same lax administration on the part of the Defendant. For that reason and for the reason that the matters have been dealt with together although they are separate offences, I am disposed to fix a fine which I would then divide equally between the two charges. I consider that the gravity of each of the two is more or less the same. I consider that the total appropriate penalty is $25,000. My view therefore is that there should be a fine of $12,500 in respect of each of the two charges. The prosecutor has asked for the costs of the proceedings. In the circumstances what I propose is an order that the Defendant pay to the prosecutor costs of $1500 to cover both charges. I would also direct that any order for costs in relation to the other proceedings against the Defendant which were discontinued be offset against that order. Counsel for the Defendant requests that I direct that the fines not be payable before 30 June 1998. I accept that I have a discretion as to the timing of payment for fines imposed. I order that the Defendant pay fines in respect of each offence of $12,500 no later than 30 June 1998 and I order that the costs not be payable until after the costs of proceedings 77 of 1997 have been taxed or agreed. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett