Consumer Affairs v Reject Shop; Department of Fair Trading v Reject Shop

Supreme Court of NSW|1999-02-11|Before: Grove J, The Hon J

New South Wales Supreme Court CITATION : Consumer Affairs v Reject Shop; Department of Fair Trading v Reject Shop [1999] NSWSC 62 CURRENT JURISDICTION : Common Law Division FILE NUMBER(S) : 12923/94; 12823/97 HEARING DATE(S) : 11 February 1999 JUDGMENT DATE : 16 February 1999

PARTIES : Commissioner for Consumer Affairs v The Reject Shop (Aust) Pty Limited Director General Department of Fair Trading v The Reject Shop (Aust) Pty Limited JUDGMENT OF : Grove J

COUNSEL : The Hon J. Shaw QC, AG/C. Lonergan (Prosecutor) C. Porter QC/M. Burley (Defendant) SOLICITORS : L. Pacey (Prosecutor) Diamond Peisah & Co (Defendant) CATCHWORDS : Fair Trading Act ; Summary Prosecution; Guilty Pleas; Mitigation ACTS CITED : Fair Trading Act 1987 Trade Practices Act 1974 DECISION : Fines Any Costs Ordered To Be Paid

1 HIS HONOUR : These two summons seek that the defendant be dealt with according to law for a total of eleven offences contrary to the Fair Trading Act 1987 (the Act). The Hon J.W Shaw QC, AG with Mr Lonergan appeared for the prosecutor; Mr C.A. Porter QC and M. Burley appeared for the defendant. Mr Porter tendered pleas of guilty to all offences on behalf of his client and by consent the matters were heard together. Thanks to the cooperation of counsel, the facts were presented by way of an agreed statement. Matters in mitigation were advanced by way of statement and testimony from Mr John Shuster a director of the defendant. Factual contest was virtually non existent but there was some controversy about the conclusions to be drawn and assessments made. 2 I sketch background facts and for convenience I will number the offences charged in summons 12923/94, 1-3 and the balance charged in the summons 12823/97, 4-11. Offence No 1 3 On 2 September 1994 an investigator in the employ of the prosecutor called at a store operated by the defendant at Roselands Shopping Centre where she saw exhibited for sale amongst other things wooden toy trucks consisting of carriages with a wooden screw driver. The inspector indicated that the product would be tested to determine compliance with requisite standards. The store manager stated that he would take the items off sale. Subsequent tests in a laboratory revealed the items presented an inhalation/ingestion hazard. Offence No 2 4 On the same visit on 2 September 1994 the investigator also took possession of products offered for sale described as wooden toy abacus bus and toy abacus cargo trucks. These items failed a tension test and were, similarly to the item mentioned in offence 1, assessed as presenting an inhalation/ingestion hazard. Offence No 3 5 On 22 September 1994 the investigator returned to the Roselands store and purchased four units of a toy product identified as "Magic Balloon Blowpipe". The attention of the store manager was drawn to the circumstance that the item was the subject of a banning order in force pursuant to s 31 of the Act. The manager agreed to withdraw the product from sale immediately and indicated that he would inform a director of the defendant. Offence No 4 6 On 7 November 1994 the manager of the major investigations unit on behalf of the prosecutor attended the defendant's store at Eastgardens where he purchased three units of a product known as a "Tummy Trimmer". He advised the store manager that the item was the subject of a banning order. The item consisted of home exercise equipment comprising two foot pedals connected to a bar handle by a spring or springs. Offence No 5 7 On 8 November 1994 an investigator attended the defendant's shop at Roselands and observed 26 units of the "Tummy Trimmer" product. This manager was informed of the banning order being in force and responded by indicating that the products would be taken from sale that day. 8 It can be noted that in respect of this and the preceding offence, a public recall notice was placed in various newspapers and the store manager in each of the stores operated by the defendant was instructed not to sell the item. Offence No 6 9 On 11 November 1994 an investigator attended the defendant's store at Erina and purchased items including a children's toy known as a "Super Jetfighter". Subsequent testing disclosed failure of an applicable projectile test in that after launch all 10 projectiles discharged by the toy ruptured the test aluminium foil. Offence No 7 10 On the same visit to Erina as is relevant to offence no 6, the investigator purchased a "Pull Along Play Train". A purchase of this item was subjected to testing and was subjected to "drop", "moving components" and "tension" tests all of which it failed. It was assessed to present an inhalation/ingestion hazard. 11 It can be noted that upon notification of these contraventions, the defendant removed these products from sale and public recall notices were placed in the Sydney Morning Herald, Lake Macquarie News, Border Daily Mail, Central Coast Express and La Fiamma newspapers. Offence No 8 12 On 26 November 1994 the manager of the major investigations unit attended the defendant's store at Westfield Shopping Centre Liverpool where he observed stacks of products described as "Santa Bags" displayed for sale. He purchased three of these units after which he spoke to the store manager and informed him that the products were the subject of a banning order in force under 31(1) of the Act. The goods lacked required perforation holes which provide an obvious safety factor in the event that the bags are misused by young children. The manager responded that he would remove the product from sale.

Offence No 9 13 On the following day (27 November) the manager returned to the Liverpool store where he again observed stacks of "Santa Bags". The evidence does not persuade me that there was a deliberate flouting of the advice and undertaking given on the previous day. The investigations of Mr Shuster reveal that the probable reason for the remainder being present was the incomplete carrying out of instruction compounded by the inadequacy of supervision. 14 In relation to the "Santa Bags" public recall notices were placed in the Sydney Morning Herald, Lake Macquarie News, Border Daily Mail, Central Coast Express and La Fiamma newspapers. Offence No 10 15 On 27 November 1994 an investigator attended the defendant's store at Erina and commenced an inspection after speaking to the manager. This revealed approximately 90 elastic luggage straps displayed for sale to each of which was affixed the requisite display "WARNING. Avoid eye injury. Do not overstretch. Strap may rebound." Other straps were displayed for sale which did not bear the requisite warning label. 16 A public recall was implemented by the defendant and notices placed in various newspapers.

Offence No 11 17 On 13 December 1994 an investigator attended the defendant's premises at Top Ryde. On entering the store she observed "Super Jetfighter" toys displayed for sale. Nineteen of this unit were available and the investigator purchased three. The "Super Jetfighter" was of the same type as described in relation to offence no. 6. Undertakings had been given in this Court in proceedings for interlocutory injunction concerning the non availability of such items for sale. That circumstance was drawn to the attention of the manager. As already observed, this toy failed a requisite projectile test. It was agreed that the store at Top Ryde had not opened for business at the time the prosecutor alerted the defendant to its concerns regarding the "Super Jetfighters". Notification was given on 11 November 1994 and the directive for removal given on 14 November. The Top Ryde store had opened for the first time on 12 November. The agreed statement of facts records that upon discovering failure by the manager (of the Top Ryde store) to act on the directive the defendant immediately called an emergency meeting involving all of its Sydney managers to ensure that all necessary procedures were in place and that all of the managers understood them. 18 In respect of each of the offences the defendant, being a corporation is liable to potential penalties not exceeding a fine of $100,000. 19 The defendant has no prior convictions under this Act. It was not suggested that there was relevant conduct or relevant offences to the taking into account in respect of any matters touching the defendant since these occurrences all of which occurred in the span between 2 September and 13 December 1994. Mitigation 20 I have referred to the evidence of Mr Shuster. I accept he was a witness of truth, indeed no suggestion that I ought find otherwise was made. He accepted the amendment to some details of his statement put to him in cross examination. It is unnecessary to recite that material but I should record the thrust of the principal matters which I understood to be relied upon by Mr Porter. The tabulation is my own and is adopted for convenience and I will interpolate remarks where appropriate. (a) An order for payment of the prosecutor's costs is not opposed and it is agreed that the sum sought ($89,772) is a final figure including all aspects of the litigation. The Attorney General confirmed a concession that in fixing fines for the offences the acceptance by the defendant of the obligation to pay these costs would be a matter for consideration. (b) The pleas of guilty themselves attract leniency. I would take these into account in favour of the defendant on two bases, first evidencing genuine regret on the part of the defendant's directors for the offences (the usual expression of contrition seems ill fitted where a corporation is involved) and, second, crediting the utilitarian value of saving the State the cost of any extended trial. The latter is of particular value where the material is assembled and put before the Court as Mr Porter commented (and I agree) with "considerable commonsense by the parties". (c) The offences are somewhat stale, all being committed over four years ago. No blame for delay is sought to be attributed to the prosecutor and I was informed that there had been "various negotiations". I will regard the matter of the four year delay as essential neutral but I take into account the corollary that in the progress of legislative action, the community becomes more safety conscious and it might realistically be said that attention to potential product danger by a trader might be expected to be more acutely focussed in 1999 than it might have been in 1994. (d) In response to investigation the defendant made full and candid disclosure. (e) In no case was it suggested that the breach was deliberate. It was submitted that neither would I find any of them reckless. There is no need to elaborate upon the standard of culpability to qualify as recklessness in connection with penal sanction. I find that the defendant did not act recklessly in respect of any of the offences. (f) The defendant was faced with compliance in an area made difficult by the differences in requirements from State to State. It was implied that it was not unreasonable to obtain goods from reputable suppliers (as was not challenged) which were stated to comply with European standards and assumed therefore not to require further investigation. I accept that this approach was bona fide but I reject that it was reasonable. The defendant self evidently made the decision to trade in New South Wales and it was plainly incumbent upon it to make adequate arrangements to become informed of the requirements in this State and to meet them. Effectively nothing was done other than rely upon the implication that satisfaction for one standard could be assumed to be universal until the prosecutor's investigations provoked some activity. (g) It was conceded that in 1994 compliance mechanisms of the defendant were not "as good as they should have been" but that the measures now being taken including the employment of a highly experienced toy buyer and the testing of items at external laboratories was as much as could reasonably be expected. Attention was drawn to the costs incurred in allied responses following the prosecutor's investigation. I am persuaded by the submission that this expenditure as such is not realistically an amount to be taken into account in mitigation. The defendant ought to have been complying in any event with requirements and the cost involved was a requirement of carrying on the chosen business. The additional costs are a direct result of the circumstance that the defendant did not make timely arrangements to effect compliance. (h) There has been no report of anyone being injured with the items. In this regard and the issue of expenditure canvassed in the preceding paragraph I would respectfully echo the remarks of Einfeld J (dealing with a parallel provision in the Trade Practices Act 1974 and a toy called "Happy Hippo"): "There is an important public interest at stake and although the standards are arbitrary, the existence of such standards is widespread around the western world if not virtually universal. Business people must be conscious of their responsibilities in this regard, even if it means factoring into their price structures the cost consequences of having to ensure that their products are safe and rejecting those that are not. It is only a matter of luck that no child was hurt from the dangerous nature of this particular toy" : McInnes v Global Imports Pty Limited 1993 ATPR 41-206. (i) Some balance sheets of the defendant were produced and it was asserted that they showed that the company was not in a position to pay heavy fines. I am not equipped to analyse the account methods which led to the production of the balance sheets but I can observe that as at 30 June 1998 the stated nett assets appear to approach $9,000,000 and there is a record of retained profits exceeding $5,000,000. Operating revenue (which I take to be virtually the annual takings) was over $115,000,000 and in the light of all the figures I am unwilling to conclude that the negatively assessed profit/loss figure demonstrates any relative impoverishment. (j) None of the offences was particularly serious. The prosecutor expressly challenged this submission and I would uphold the challenge. No doubt the outcome might have been more serious, for example if actual injury had taken place, but in dealing with preventative safety measures, exposure to risk resulting from simple non compliance is itself serious and in my view cannot be categorized any more mildly. (k) Any claim to dismissal pursuant to s 556A of the Crimes Act was disavowed and Mr Porter realistically acknowledged that fines should be imposed. It was reiterated that the defendant had no prior convictions and the evidence of Mr Shuster that the defendant had acted exactly in compliance with the law in 1994 was not contradicted. Finally attention was directed to an asserted sense of practical duplication in some of the offences in that they related to identical goods. Section 62(4) of the Act which reflects the flavour of the principles of totality was referred to. In the light of my assessment of appropriate penalty its specific terms do not need to be applied and I shall limit myself to giving appropriate indications when imposing the fines. Conclusion 21 I conclude that the evidence shows that the responses of the defendant were such that the element usually referred to as "personal deterrence" would not be of any great significance. The offences do however relate to matters of public safety and the element of "public deterrence" is of significant concern. There should be a clear signal to traders that offences arising out of breaches of safety requirement will not be lightly tolerated. Nevertheless in the particular circumstances of these offences and for the reasons adumbrated above the amount of penalty should be tempered but it should be recognized that considerable leniency has been integrated into the assessment of amount. As I have already mentioned it is necessary to give special account to the consent of the defendant to pay the substantial amount representing the whole legal costs of proceedings brought by the prosecutor. Penalties 22 I impose the following fines and I add some notations concerning the assessment of the discrete amounts. First Offence The defendant is fined $2,000.

Second Offence The defendant is fined $2,000. Both the first and second offences relate to wooden toys. The defendant has ceased all trade of such items. Third Offence The defendant is fined $4,000. The neglect to discover the chemical content which included benzine was particularly significant in the case of an item which required little attention to lead to a conclusion that prudence would demand investigation and examination. Fourth Offence The defendant is fined $2,000. Fifth Offence The defendant is fined $2,000. The fourth and fifth offences relate to the same stock discovered in separate stores on succeeding days. Qualified by my earlier remarks about electing to move into this State to trade, I accept that the defendant marketed these items in the knowledge that there was no ban upon them in the States where it had previously operated namely Victoria and South Australia.

Sixth Offence The defendant is fined $4,000. The design of the toy including the potential to launch projectiles is a matter which adds in my view to culpability when no adequate testing or inspection is undertaken. Seventh Offence The defendant is fined $2,000. Eighth Offence The defendant is fined $4,000. Ninth Offence The defendant is fined $4,000. The eighth and ninth offences concern the "Santa Bags". The need for air holes in such bags to avoid risk to some of our most vulnerable population is widely appreciated. The description suggests that the bags were likely to come into the possession of the extremely young. I regard it as being just as important to have adequately supervised and ensured compliance with withdrawal after attention was drawn (ninth offence) as the failure to appreciate and act on the danger. Tenth Offence The defendant is fined $2,000. The elastic straps were most likely to be used by adults. As only some of the items were not labelled, the oversight can to an extent be understood if not excused. Eleventh Offence The defendant is fined $2,000. As this is the same item as related to the sixth offence being the toy jet plane which launched projectiles. It was apparently stocked in a store prior to opening and I have taken into account that there are two offences in respect of the same item and that there was the infortuitous timing of the investigation and the opening of the store. 23 The total of the fines imposed above is $30,000. I further order the defendant to pay the prosecutor's costs assessed at $89,772. I note that payment may be enforced in respect of both these amounts pursuant to the Fines Act 1996. I certify that paragraphs 1 - 23 are a true copy of the reasons for judgment herein of the Honourable Mr Justice Grove.

Associate: V.J. KING Date : 16 February 1999 14 1 HIS HONOUR : These two summons seek that the defendant be dealt with according to law for a total of eleven offences contrary to the Fair Trading Act 1987 (the Act). The Hon J.W Shaw QC, AG with Mr Lonergan appeared for the prosecutor; Mr C.A. Porter QC and M. Burley appeared for the defendant. Mr Porter tendered pleas of guilty to all offences on behalf of his client and by consent the matters were heard together. Thanks to the cooperation of counsel, the facts were presented by way of an agreed statement. Matters in mitigation were advanced by way of statement and testimony from Mr John Shuster a director of the defendant. Factual contest was virtually non existent but there was some controversy about the conclusions to be drawn and assessments made. 2 I sketch background facts and for convenience I will number the offences charged in summons 12923/94, 1-3 and the balance charged in the summons 12823/97, 4-11. Offence No 1 3 On 2 September 1994 an investigator in the employ of the prosecutor called at a store operated by the defendant at Roselands Shopping Centre where she saw exhibited for sale amongst other things wooden toy trucks consisting of carriages with a wooden screw driver. The inspector indicated that the product would be tested to determine compliance with requisite standards. The store manager stated that he would take the items off sale. Subsequent tests in a laboratory revealed the items presented an inhalation/ingestion hazard. Offence No 2 4 On the same visit on 2 September 1994 the investigator also took possession of products offered for sale described as wooden toy abacus bus and toy abacus cargo trucks. These items failed a tension test and were, similarly to the item mentioned in offence 1, assessed as presenting an inhalation/ingestion hazard. Offence No 3 5 On 22 September 1994 the investigator returned to the Roselands store and purchased four units of a toy product identified as "Magic Balloon Blowpipe". The attention of the store manager was drawn to the circumstance that the item was the subject of a banning order in force pursuant to s 31 of the Act. The manager agreed to withdraw the product from sale immediately and indicated that he would inform a director of the defendant. Offence No 4 6 On 7 November 1994 the manager of the major investigations unit on behalf of the prosecutor attended the defendant's store at Eastgardens where he purchased three units of a product known as a "Tummy Trimmer". He advised the store manager that the item was the subject of a banning order. The item consisted of home exercise equipment comprising two foot pedals connected to a bar handle by a spring or springs. Offence No 5 7 On 8 November 1994 an investigator attended the defendant's shop at Roselands and observed 26 units of the "Tummy Trimmer" product. This manager was informed of the banning order being in force and responded by indicating that the products would be taken from sale that day. 8 It can be noted that in respect of this and the preceding offence, a public recall notice was placed in various newspapers and the store manager in each of the stores operated by the defendant was instructed not to sell the item. Offence No 6 9 On 11 November 1994 an investigator attended the defendant's store at Erina and purchased items including a children's toy known as a "Super Jetfighter". Subsequent testing disclosed failure of an applicable projectile test in that after launch all 10 projectiles discharged by the toy ruptured the test aluminium foil. Offence No 7 10 On the same visit to Erina as is relevant to offence no 6, the investigator purchased a "Pull Along Play Train". A purchase of this item was subjected to testing and was subjected to "drop", "moving components" and "tension" tests all of which it failed. It was assessed to present an inhalation/ingestion hazard. 11 It can be noted that upon notification of these contraventions, the defendant removed these products from sale and public recall notices were placed in the Sydney Morning Herald, Lake Macquarie News, Border Daily Mail, Central Coast Express and La Fiamma newspapers. Offence No 8 12 On 26 November 1994 the manager of the major investigations unit attended the defendant's store at Westfield Shopping Centre Liverpool where he observed stacks of products described as "Santa Bags" displayed for sale. He purchased three of these units after which he spoke to the store manager and informed him that the products were the subject of a banning order in force under 31(1) of the Act. The goods lacked required perforation holes which provide an obvious safety factor in the event that the bags are misused by young children. The manager responded that he would remove the product from sale.

I certify that paragraphs 1 - 23 are a true copy of the reasons for judgment herein of the Honourable Mr Justice Grove.

Last Modified: DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (15 paragraphs)

Cited By (1)