Supreme Court of Victoria|2004-12-15|Before: DODDS-STREETON, J.

FAIR TRADING ACT 1999 ("the Act") - Corporate wholesaler supplying toys and other goods in contravention of permanent banning orders and other prescribed safety standards under the Act - Seizure of banned goods by Consumer Affairs Victoria ("Consumer Affairs") in April 2004 - Directors party to contraventions - Further contraventions and failure fully to cooperate or satisfy requirements of Consumer Affairs - "Cease Trading" injunction pursuant to s.151A of the Act sought by Consumer Affairs - Regime of compliance training, certification and review imposed as condition of continued trade in relevant goods - Relevant considerations - Defendants' contraventions blatant and extensive - No compliance regime in place or commitment to cooperate - Cost of compliance necessary incident of trade.

2 The first defendant, SJS Imports Pty Ltd ("SJS") is an importer and wholesale supplier of goods, which are predominantly toys, gifts and homeware products. It commenced business in September 1999. The second defendant, Ms Jen Yung Wang, and the third defendant, Mr Hu Sheng Xie, are husband and wife. Ms Wang was, until her resignation on 23 June 2004, a director of SJS and Mr Xie is currently the managing director of SJS. Both Ms Wang and Mr Xie were at all relevant times directly engaged in the conduct of SJS's business. It appears that both Ms Wang and Mr Xie remain involved in the conduct of SJS's business.

3 At the hearing of the matter on 1 December 2004, the defendants were not legally represented. Mr Xie and Ms Wang appeared in person. Mr Xie sought and obtained leave to appear on behalf of the corporate defendant, SJS. Mr Xie and Ms Wang have difficulty in understanding and expressing themselves in English. They were assisted by an interpreter fluent in Mandarin, whose services were provided by the plaintiff.

4 Ms Wang and Mr Xie informed the Court that SJS conducted a small "husband and wife" business and that the defendants lacked the financial resources readily to comply with the conditions sought by the plaintiff. The plaintiff did not dispute that SJS's business fell within "small business" category. There was, however, no evidence before the Court of the precise scale of the business and no evidence of the assets, financial resources or affairs of any of the defendants.

5 The Minister may make permanent ban orders prohibiting or restricting the supply of specified goods or services pursuant to s.40 of the Act. Pursuant to s.41 of the Act, a permanent ban order must be published in the Victorian Government Gazette. Pursuant to s.34 of the Act, the regulations may prescribe safety standards in relation to goods and services.

6 The plaintiff contends, and seeks declarations, that SJS supplied to retailers and other purchasers a number of dangerous toys which are the subject of permanent banning orders published in the Victorian Government Gazette ("the Gazette"), in contravention of s.44 of the Act.

A toy gun set product known as the Protector Riot Gun Item No. 008 which was the subject of a permanent ban order published on 14 November 2002 in the Gazette. The product contains suction tip darts which pose a choking hazard, particularly to children.

A toy gun set product known as the Electric Shooting Box Lucky Star and a toy military action figurine and missile launcher set known as the Power Steel Super Action, which were both the subject of a permanent ban order published on 28 November 2002 in the Gazette. The products contain a projectile which poses a risk of serious eye injuries.

A toy product known as the Yo Yo Water Ball which is the subject of a permanent ban order published on 20 May 2003 in the Gazette. The product contains a stretchable or elasticised cord which poses a risk of strangulation, particularly to children.

8 The plaintiff further contends, and seeks a declaration, that SJS supplied disposable cigarette lighters with a high spluttering flame which was slow to extinguish, over-filled, structurally unsafe and lacked mandatory warnings and labelling. The plaintiff submits that the cigarette lighters posed a serious risk of burn injuries and failed to comply with the safety standards prescribed in the Consumer Affairs (Product Safety) (Lighters) Regulations 1998, in contravention of s.33 of the Act.

9 The plaintiff seeks declarations that Ms Wang and Mr Xie have been directly or indirectly knowingly concerned in, or party to, the alleged contraventions, within terms of s.145 of the Act.

10 The plaintiff also seeks injunctions pursuant to s.151A of the Act restraining SJS from carrying on the business of supplying goods of the kind listed in Annexure A to the amended originating motion ("Annexure A goods") until it has implemented a compliance programme designed by an approved organisation to reduce the likelihood of a recurrence of contraventions by SJS. Annexure A goods include a number of types of products, such as baby walkers, bunk beds, candles, skimmer boxes and toy guns, which are not necessarily generically the subject of banning orders, but particular examples of which are the subject of a banning order. Alternatively, the plaintiff seeks an order restraining SJS from carrying on a business of supplying goods of the kind listed in Annexure B to the amended originating motion until it has implemented the compliance programme, which requires training and documentation. Annexure B sets out classes of products which the defendants do not deny that they supplied in the present case, contrary to ban orders or prescribed safety standards.

11 Further, the plaintiff seeks orders restraining Ms Wang and Mr Xie from participating in the supply by SJS, or any other entity, of such types of goods.

12 The plaintiff further seeks, as a precondition of any of the defendants carrying on the business of supply of the relevant goods, that:

(a) the compliance programme implemented by SJS be audited by an independent person or organisation with compliance expertise approved by the Director of Consumer Affairs and that a report verifying compliance with any order of the Court be provided to the Director and filed with the Court.

(b) SJS, before supplying any Annexure A goods, first obtains a report from an appropriate independent person or organisation certifying that such goods comply with all applicable banning orders and safety standards.

(c) Two satisfactory annual reports prepared by an approved independent entity, on SJS's compliance for the first and second year of operations respectively, be provided to the Director of Consumer Affairs.

(d) SJS obtains, at its cost, a review of its compliance programme over a two year period, designed to identify potential improvements.

13 The plaintiff also seeks an order pursuant to s.153(b) of the Act that the defendants cause to be published within the first six pages of the "Herald Sun" newspaper, within 14 days of the order, a Public Notice in a prescribed form setting out a "Public Safety Warning Notice" warning of the risk of death or serious injury and requiring owners to cease use of, or to destroy, the relevant products. The notice includes a photograph and short description of each product and the specific safety issue which renders it unsafe for use. It also invites consumers to contact the supplier for further information.

"33. Offence to supply goods or services which do not comply with safety standards

(1) A person must not, in trade or commerce, supply goods that are intended to be used, or are of a kind ordinarily used for personal, household or domestic purposes if-

(a) the goods are of a kind in respect of which there is a prescribed safety standard; and

Penalty: 240 penalty units, in the case of a natural person.

600 penalty units, in the case of a body corporate.

(2) A person must not, in trade or commerce, supply services that are intended

to be used or are of a kind ordinarily used for personal, household or domestic purposes if-

(a) the services are of a kind in respect of which there is a prescribed safety standard; and

Penalty: 240 penalty units, in the case of a natural person.

600 penalty units, in the case of a body corporate."

15 Section 34 of the Act provides that regulations may prescribe a safety standard.

"44. Offence to contravene permanent ban order or fixed term ban order

A person must not supply goods or services in contravention of a permanent ban order or a fixed term ban order.

Penalty: 240 penalty units, in the case of a natural person. 600 penalty units, in the case of a body corporate."

A reference in this Division to a person involved in a contravention of this Act means a reference to a person who-

(a) has aided, abetted, counselled or procured the contravention;

(b) has induced, whether by threats or promises or otherwise, the contravention;

(d) has conspired with others to effect the contravention."

(1) The Minister or the Director may apply to the Supreme Court for the grant of an injunction restraining a person from carrying on a business of supplying goods or services (whether or not as part of, or incidental to, the carrying on of another business) if the person is or has been engaging in conduct that constitutes-

(a) a contravention of any provision of this Act; or

(b) attempting or conspiring to contravene such a provision; or

(d) inducing or attempting to induce a person, whether by threats, promises or otherwise, to contravene such a provision; or

(e) being in any way directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision.

(2) The Supreme Court may grant the injunction sought-

(i) the Court is satisfied that the person is engaging in or has been engaging in conduct of that kind; and

(ii) it appears to the Court that, in the event that the injunction is not granted, it is likely that the person will engage in conduct of that kind and there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind;

(b) if the Court determines it to be appropriate, by consent of all the parties to the proceedings, whether or not the person has engaged in, or is likely to engage in conduct of that kind.

(3) An injunction under this section may be granted-

"153. Power of the courts to require corrective advertising

If, on the application of the Minister or Director, a court is satisfied that there has been a contravention of any provision of Part 2, 3, 4, 5 or 6, the court may make either or both of the following orders-

(a) an order requiring any person involved in the contravention to disclose any information which is in the person's possession or to which the person has access, which is information or of a class of information specified in the order-

(i) to the public or any person or class of persons specified in the order; and

(b) an order requiring any person involved in the contravention to publish an advertisement in the terms specified or determined in accordance with the order-

(ii) in the manner and at the times specified in the order."

20 Section 36 of the Supreme Court Act provides:[1]

"A proceeding is not open to objection on the ground that a merely declaratory judgment is sought, and the Court may make binding declarations of right without granting consequential relief."

21 The Fair Trading Act 1999 was first introduced in Victoria in 1985 pursuant to an agreement between all states to extend the application of laws prohibiting a wide range of deceptive or misleading practices. It was based on relevant provisions of the Trade Practices Act 1974 (Cth).

22 The second reading speech identified the following "compelling advantages" of modelling the proposed Fair Trading Act on its Commonwealth counterpart:

"The law would be comprehensive in its coverage of deceptive business conduct since the context and structure of the prohibitions in the Trade Practices Act are comprehensive. Also, in the absence of constitutional restrictions, the ambit of the State law would extend to cover all business dealing; and
The Commonwealth Act has proven itself in a decade of use. There is a body of case law and a widespread public understanding and acceptance of the law".

23 The Fair Trading Act 1999 represented a significant consolidation of the three core Victorian fair trading acts: the Fair Trading Act 1985, the Consumer Affairs Act 1972 and the Ministry of Consumer Affairs Act 1973. In pursuit of uniform Australian fair trading legislation, the Fair Trading Act 1999 was again modelled on the relevant provisions of the Trade Practices Act.[2] Guidance may therefore properly be drawn from the substantial case law on parallel provisions of the Trade Practices Act when interpreting the provisions of the Act.

24 Section 151A of the Act was introduced by the Fair Trading (Amendment) Act in 2003 as part of a scheme to strength the Act's consumer protection measures by giving additional powers of enforcement to the Director of Consumer Affairs. The Explanatory Memorandum relevantly states:

"Section 151A allows the Minister or the Director to apply to the Supreme Court for a cease trading injunction in relation to a supplier who has contravened, attempted to contravene, conspired to contravene, aided, abetted, counselled or procured a person to contravene, or induced or attempted to induce a person to contravene the Act, or who was knowingly concerned in the contravention of the act; and empowers the Supreme Court to grant the injunction against a person engaging in that conduct where, unless it does so, there is imminent danger of substantial damage to consumers".[3]

25 The section provides for a public interest injunction which, like s.80 of the Trade Practices Act, is aimed at achieving compliance with commercial regulatory legislation. As the courts have consistently recognised, such injunctive provisions are governed by different principles from those aimed at the protection of private proprietary rights. In Murphy v Overton Investments Pty Ltd[4], the Full Court of the High Court reiterated its caveat against drawing analogies with general law claims and remedies, stating:

"This Court has now said more than once that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law".[5]

26 The authorities dealing with s.80 of the Trade Practices Act and like provisions acknowledge the prescription of statutory norms of conduct to protect the public interest.

27 In ICI Australia Operations Pty Ltd v Trade Practices Commission[6] Lockhart J, with whom French J agreed, stated:

"Section 80 is essentially a public interest provision. Conduct of the kind proscribed by both Pts IV and V may be detrimental to the public interest because many persons can be affected and considerable loss or damage may be sustained by them."[7]

"Public interest injunctions are different. Parts IV and V of the act involve matters of high public policy. Part IV and V relate to practices and conduct that legislatures throughout the world in different forms and to different degrees, have decided are contrary to the public interest ...

These are legislative enactments of matters vital to the presence of free competition and enterprise and a just society."[8]

29 Similarly, in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd,[9] Gleeson CJ and McHugh J, in a joint judgment, stated:

"An application for injunctive relief under s.80 is, in its nature, one for the protection of the public interest. The same may be said of s.163A. Any public protection of the applicant's own business or other interests is incidental or collateral. What is sought to be established by the determination of a court is a violation by the respondent of a statutory norm of conduct, and the existence of a duty or liability."[10]

"Section 52 [of the Trade Practices Act] thus is an exercise by the Parliament of its powers to create new norms of conduct and require their observance by specified sections of the community. The legislature may also, in exercise of its powers, adapt remedies known at general law or modify them or create new remedies. It may do so not only to prevent or to compensate for injury done by violation of the new federal norm of conduct, but to enforce or induce compliance with the federal law."[11]

31 In Commonwealth Bank of Australia v White,[12] Byrne J stated:

"It is undesirable that parties should, by entering into an exclusive jurisdiction agreement, be able to circumvent a legislative scheme established by Parliament to protect investors purchasing interests or prescribed interest. Put more positively, the statutes creating these standards of commercial behaviour for persons doing business in this jurisdiction do not exempt foreign corporations. Moreover, the policy behind them would not be served if exemption might be achieved by inserting stipulations as to foreign law or forum."[13]

32 Warren J affirmed the approach of Byrne J in Commonwealth Bank v White (No. 4) where her Honour recognised that: [14]

"The English jurisdiction does not apply trade practices law as known in this jurisdiction by way of the Trade Practices Act and the Fair Trading Act. There may be commensurate statutory provisions but as already observed I was not taken to any. Certainly I was not taken to any English counterpart of s.52 of the Trade Practices Act or s.11 of the Fair Trading Act. In my view, it can be reasonably assumed, therefore, that important Australian public policy considerations that underpinned the reasoning of Byrne J in White (No. 1) were not taken into account or at least were not given the extent of the weight of significance that would have attached in this jurisdiction."

33 In Gardam v Splendid Enterprises Pty Ltd[15] the defendant, a small family garment manufacturing company, pleaded guilty to contraventions of the Trade Practices Act by its supply of children's night dresses, the labels of which stated that the garments had a reduced fire danger. In fact, pursuant to the applicable statutory standard, the nightclothes should have contained a label warning that they had a high fire danger, and should be kept away from fire. The relevant standard was introduced in order to reduce, by appropriate labelling, the risk and severity of accidental burns.

34 French J noted that the defendant had conducted a small family enterprise for the last eight years. It had not previously been prosecuted or convicted for contraventions under the Trade Practices Act. The defendant contended that an inexperienced machinist, whose work had not been checked by its regular packer, was responsible for the unintentional false labelling, which occurred when the working director and the regular packer were absent. The defendant also assured the Court that steps would be taken to ensure that there would be no future repetition of the contravening conduct. However, no details of any proposed preventative steps were spelt out. Further, the defendant had taken no action to ascertain the number of mislabelled garments it had sold, or to publish appropriate public notifications of the false labelling.

35 French J observed that "No statement of the measures to be taken to ensure compliance with consumer safety standards in the future was given."[16] His Honour concluded, "I must confess to being left with a feeling of unease as to whether those standing behind the defendant even now fully appreciate the seriousness of the obligation imposed in respect of the labelling of children's nightclothes."[17]

36 In determining the penalty, his Honour observed that the following matters were relevant:

The degree of wilfulness or carelessness involved in making such a statement.

The extent to which the statements in question depart from the truth.

Whether any and if so what efforts have been made to correct the statements.

The need to impose deterrent penalties."[18]

37 French J accepted that the contravention, although serious, was not committed wilfully, but was the product of carelessness and lax management. He also accepted that, given the small scale of the defendant's business enterprise, and the persons whose employment depended on its continuance, any fine should not be so high as to be oppressive.

38 In McIness v Global Imports Pty Ltd[19] the defendant importer of children's toys pleaded guilty to two charges of supply of a toy hippopotamus, in contravention of s.65C(1)(a) of the Trade Practices Act. The toy was made of a substance which, when dropped, fragmented into pieces of a size which could be swallowed by a small child. It thus represented a danger and contravened the relevant consumer product safety standard prescribed under the Trade Practices Act.

39 The defendant's responsible officers claimed that they had been "shocked" to find that the toy had failed relevant tests, as the Korean manufacturer had assured the defendant that the toy met Australian safety standards.

40 It was not disputed that the defendant ceased to sell the toys immediately when alerted to their non-compliance by federal officers. It also contacted all customers who had purchased the toys in order to recall any unsold stock. The investigating officers were satisfied with the defendant's level of cooperation. The defendant also ceased importing toys altogether.

41 Einfeld J was satisfied that the defendant's breach was not wilful. He recognised that the defendant conducted a small family business and had immediately and fully cooperated. Further, the defendant's officers had demonstrated a "contrite attitude".

"On the other hand, the business was operating for profit. Any doubts about the sale of any products or any delay in their sale would represent a hindrance to the realisation of the profit, or even the return of the moneys paid to the manufacturer and for the shipping expenses, duty and tax. Certainly the commercial community must be deterred from the philosophy of 'selling at all costs', especially to or for children. Although the directors of the defendant may very well not have known of the particular legal requirements or safety standards applicable to toys, they, like the rest of the community, would have known that toys can be dangerous to children. They, like the rest of the community, must have known from widespread publicity that at every Christmas time toys are discovered which are unsafe. As people involved in the trade, they would certainly have been conscious by the time of the second sale involved in these charges that they as distributors of toys had a special responsibility to ensure that everything they sold for young children had to be safe.

In fact, everything the defendant has done in this regard has been done after the danger was drawn to its attention, despite the fact that after November-December 1988, when it joined the Toy Association and had its first Christmas in the toy business, the company must surely have become aware of the need to comply with strict Australian safety standards. It certainly should have been aware of it. Yet prior to being informed of the Bureau's test results, the company seems to have given absolutely no attention at all to what safety standards applied other than at most verbally enquiring of some nameless Korean executives as to whether these toys met the safety standards of any country. Even the fact that it made such enquiries suggest a clear consciousness of the need for safety and the existence of standards and testing in most developed countries. Although the results of the enquiries wrongly led the company into believing that Australia's standard would be passed because Korean standards had apparently been passed, these enquiries are the major factor for not imposing a very heavy fine indeed."

"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."

44 The affidavit of Peter James Hiland sworn 31 August 2004 deposes that he is an executive officer of the Victorian Public Service employed as the General Manager of the Compliance and Enforcement Branch of Consumer Affairs, and is an inspector appointed under s.114 of the Act. Mr Hiland deposes to the Consumer Affairs programme for monitoring compliance with permanent ban orders on dangerous toys and household items. He deposes to prosecutions and pending prosecutions in relation to banned goods and to an education and public awareness programme conducted by Consumer Affairs.

45 Mr Hiland deposes that, in the present case, he directed two search warrants to be executed by Consumer Affairs inspectors at SJS's premises on 15 April 2004 and 16 June 2004 respectively.

46 Following the reports of relevant inspections, Mr Hiland, by letters dated 20 July 2004, requested SJS and Mr Xie (at that date the sole director of SJS), to implement a voluntary recall of the relevant banned products and to publish an appropriate notice.

47 Mr Hiland deposes to the receipt of a letter from SJS dated 21 July 2004 in response. The letter indicated that SJS would comply with s.49 and s.50 of the Act and that it would conduct an immediate voluntary recall of all products subject to banning orders, or n the case of the cigarette lighters, product safety regulations. The letter further stated that SJS would request customers to return the dangerous products in return for a full refund. The letter attached a notice to the customers of SJS regarding the recall of products.

48 Mr Hiland further deposes to receipt of the letter of SJS dated 4 August 2004, which enclosed an extract of "The Australian Chinese News" dated 30 July 2004 containing, at p.38 "a small dense notice" of recall.

49 Mr Hiland states that by letter dated 31 August 2004 addressed to each of the defendants, he expressed dissatisfaction with their response to Consumer Affairs' previous letters and requests. Mr Hiland's letter acknowledged that the defendants had provided information to Consumer Affairs, had written to clients, placed a notice in the premises and had published a notice in the Chinese newspaper, purportedly to comply with Consumer Affairs' requirements. However, the letter stated that SJS's response was inadequate for the following reasons:

"Contrary to Consumer Affairs Victoria's concerns about the continuing circulation of dangerous goods in the community, SJS did not publish a notice in a State circulating newspaper which would bring to the attention of the community as a whole this serious issue. Rather SJS caused to be published an inadequate notice in a newspaper likely to be read mainly by the Chinese community. Even in that newspaper the notice was located on page 38 not within the first 6 pages. There was no basis to suggest that the items were supplied only to or even mainly to Chinese consumers by SJS Imports' customers. They were supplied by those retailers to the community at large;
SJS imposed a 7 day limit on returns of the dangerous goods to qualify for a refund;
SJS had not provided to Consumer Affairs Victoria the information sought from its customers;
Even the notice that was caused to be published was not in accordance with the sample notice that was provided with Consumer Affairs' letter to assist SJS to understand what was being sought from the company. In particular the size and layout of the notice as published were unlikely to attract consumers' attention to the notice; nor was the notice likely to help consumers identify the goods in question; nor did the notice convey the nature of the dangers that the goods present as requested; and the notice restricted the availability of refunds to goods returned within 7 days of the notice; it did not advise consumers that if the goods are not being returned they should be safely disposed.
Contrary to SJS's assertions it had not complied with the requirements of section 49 and section 55 of the Fair Trading Act 1999."

50 At the hearing of the proceeding on 1 December 2004, Mr Hiland gave oral evidence expanding on the matters contained in his affidavit.

51 Mr Hiland described the strategies adopted by Consumer Affairs in order to publicise information about new and existing product bans and product safety standards to retailers, wholesalers and members of the general public.

52 He stated that new banning orders are published in the Gazette. Consumer Affairs also circulates a press release to the media and publishes a notice of the new ban in a major newspaper, which is usually the Herald Sun.

53 Mr Hiland stated that Consumer Affairs publicises its work in the media and provides the public with information about banned products. Print media, television and radio are employed. Consumer Affairs places photographs of banned products on its website, and produces a range of product safety publications which it distributes free of charge to retailers and wholesalers in the course of its regular enforcement exercises in regional and metropolitan centres. Such publications are produced, as far as possible, in the major languages of the communities to which the publications will be distributed.

54 Mr Hiland stated that Consumer Affairs has adopted a strategy of "proportionate enforcement" in relation to product safety bans. It determines the appropriate enforcement stance on a case by case basis, after consideration of all the relevant facts.

55 In the case of a first contravention of the Act by a retailer who adopts a cooperative stance, Consumer Affairs usually accepts the retailer's enforceable undertaking that all banned products offered for sale will be recalled; that refunds will be offered to consumers; and that the retailer will implement a compliance regime to ensure that banned products are not offered for sale in the future.

56 Mr Hiland stated that the fundamental purpose of such a compliance regime is to ensure that the retailer will be able to discriminate in the future between those products that are subject to product safety restrictions and those that are not. Where the same retailer is found to have repeated the contravention, Consumer Affairs usually prosecutes it under the Act.

57 Wholesalers are typically the source of large quantities of product and thus pose a different problem from that of retailers. Mr Hiland stated that Consumer Affairs also adopted an educational response to an initial contravention by a wholesaler in some circumstances. Where the wholesaler offered full cooperation to ensure the removal of all banned goods from the premises and instituted a compliance regime to ensure that no future breaches would occur, Consumer Affairs usually accepted its enforceable undertaking.

58 In contrast, Mr Hiland stated that in the present case, he had formed the view that an enforceable undertaking would not be an adequate enforcement measure in relation to SJS, for the following reasons.

59 First, on at least two separate occasions after contact with Consumer Affairs, SJS had again supplied goods that were subject to banning orders. Secondly, it was apparent that SJS and its directors did not have in place any compliance regime, and had no means of discriminating between those goods which were subject to permanent banning orders or product safety regulations, and those which were not. In addition, it became apparent that at least one of SJS's directors was aware, up to 12 months before first contact with Consumer Affairs, that at least two types of product seized at SJS's premises were banned. In those circumstances, Mr Hiland had concluded that relief should be sought against SJS under ss.151A and 153 of the Act.

60 Mr Hiland also explained the purpose of the various elements of the compliance regime which the plaintiff sought to be imposed on SJS as a precondition of its continued trade in Annexure A goods.

61 He stated that implementation by SJS of a compliance programme was necessary in order to enable SJS to identify in future those goods subject to permanent banning orders or product safety regulations. Under the proposed compliance programme, the Managing Director, or other nominated "compliance officer" within SJS, would be required, by a date prescribed by the Court, to undertake training in the safety and information requirements of the Act, by an accredited training provider or other organisation satisfactory to the Director of Consumer Affairs. In addition, SJS would be required to implement a documentary compliance monitoring system, which must be available for review by Consumer Affairs from time to time. The proposed compliance programme was modelled on the accepted standards for compliance contained in Australian Standard AS3806 of 1998, appropriately adapted for a small business enterprise such as that of SJS.

62 The plaintiff also required an audit and review of the compliance programme. An initial audit by an organisation would ensure that the compliance programme was in fact implemented. Two subsequent periodic audits (to be prepared at the corporate defendant's expense and provided to the Director of Consumer Affairs 13 months and 25 months from the date of any order) were required to ensure that the relevant officer had completed the training programme required, and that SJS was not continuing to supply any goods that breached a banning order or other relevant safety standard. A final independent review of the compliance programme at the end of the 24 month period was sought in order to identify any systemic or recurrent problems.

63 The plaintiff also required certification by an independent person that the goods offered for sale by SJS complied with all applicable banning orders and legislation. Continuing certification would require the defendants to engage a person or organisation acceptable to the Director of Consumer Affairs for a period of 24 months from the date of any order, to provide independent certification in writing that any new product line complied with product safety legislation. The plaintiff submitted that compliance with product safety legislation would thus become routine.

64 Lastly, Mr Hiland stated that the publication of a public notice including a photograph of the particular banned items, and stating the safety risk posed by the goods, was necessary in order adequately to protect the public. He rejected, in that context, SJS's assertion that, as the majority of its customers were fluent in Chinese, a public notice in a major newspaper such as the Herald Sun would be ineffective. SJS was a wholesaler, and it was impossible to identify the customers who might purchase the banned goods from retailers, or the ultimate recipients of the goods.

65 The affidavit of Ian James McCulloch, an inspector pursuant to s.114 of the Act, deposes to his attendance at a retail business in April 2004 in which he discovered eight banned children's guns, which the proprietor stated to have purchased from SJS. Mr McCulloch further deposed that a search warrant was issued on 14 April 2004 pursuant to s.122 of the Act to search SJS's premises situated at 14 - 16 Clifford Street, Huntingdale.

66 On 15 April 2004, together with Inspectors Philip Hutner, Charles Charalambous, Gavin Redfern, Paul Rewer and Bruce Hams of Consumer Affairs, he executed the search warrant at SJS's warehouse premises, which were open to the public for purchase of goods. Mr McCulloch observed a disorganised layout of stock, including children's toys, cosmetics, toiletries, home wares and discount variety goods.

67 Mr McCulloch and Inspector Charalambous had a conversation with Ms Wang, in which she acknowledged that everything in the premises was for sale. Ms Wang initially denied possession of specified toys the subject of permanent banning orders, including Yo Yo balls, Protector Riot Guns with darts, Power Steel Superannuation Action figurines with shooting projectiles, and Electric Shooting Box Lucky Star toy gun sets.

68 Despite Ms Wang's initial denials, Mr McCulloch deposes that substantial quantities of the above were subsequently discovered. When he asked Ms Wang, "Why did you lie to me?" Ms Wang did not reply. When questioned, she did not give a reason for supplying the relevant toys. She responded that she understood that they were banned because they posed serious danger to children.

69 On 15 April 2004, the inspectors seized a total of 3,399 children's toys the subject of permanent ban orders from SJS's premises.

70 At the hearing of the matter, examples of the following toys (seized on 15 April 2004) were tendered:

Protector Riot Gun No. 008;
Electric Shooting Box Lucky Stars;
Toy Military Action Figurine;
Yo Yo Water Balls.

71 Mr McCulloch deposes that on 15 June 2004, a further search warrant under s.122 of the Act was issued in relation to SJS. On 16 June 2004, Mr McCulloch again attended the premises with inspectors Gregory Hinchcliffe, Charles Charalambous, Sergio Diaz, Brett Watson and Len Pawluck. They seized a total of 148 children's toys the subject of permanent ban orders. They also seized 4,678 disposable cigarette lights which they believed to be non-compliant with Consumer Affairs (Product Safety) (Lighters) Regulations 1998 dated 21 April 1998.

72 At the hearing of the matter, examples of the following items (seized on 16 June 2004) were tendered:

▪ Protector Riot Gun No. 008;
▪ Electric Shooting Box Lucky Stars;
▪ Photograph of cigarette lighters, the originals having been destroyed by Consumer Affairs as they posed an unacceptable occupational health and safety risk.

73 During the search on 16 June 2004 Mr McCulloch and Inspector Charalambous spoke to Ms Wang and Mr Xie. Mr McCulloch deposes that Mr Xie acknowledged that he was aware of why the relevant toys had been previously seized in April. Mr Xie initially denied having sold any more of the banned toy guns. He produced a document which he claimed indicated that the offending toy guns had been sent to SJS from China by mistake. Mr Xie then acknowledged possessing Protector Riot Guns the subject of the banning order, which were available for sale, but explained that they were "returns". He provided no details of the claimed returns. Mr Xie denied that SJS possessed further quantities of such guns.

74 Further lots of such guns were, however, subsequently discovered in the course of the search on 16 June 2004. Further types of banned toys were also discovered. Mr Xie did not respond when questioned about them. The inspectors then detected some disposable cigarette lighters which Mr Xie acknowledged to be for sale. Although both Mr Xie and Ms Wang denied that SJS held any further quantities of the cigarette lighters, the inspectors discovered a further 4,585 cigarette lighters. When questioned, Mr Xie did not reply.

75 Mr McCulloch deposes that Mr Xie then stated that he "understood what had happened" and that he realised that he could not sell Protector Riot Guns with darts. He undertook to retain any returned guns and voluntarily to contact the inspector when a significant quantity had accumulated. He agreed not to resell any returned guns.

76 On 26 July 2004, in response to a telephone message from Mr Xie, Mr McCulloch and Inspector Charalambous attended the premises to collect some returned guns.

77 The affidavit of Mr Charalambous sworn 24 August 2004 is to the same effect as that of Mr McCulloch and verifies his account of events.

78 The affidavit of Gregory Hinchcliffe sworn 31 August 2004 deposes that he is employed in the Compliance and Enforcement Branch of Consumer Affairs and is an inspector under s.114 of the Act. Mr Hinchcliffe deposes to the discovery of the disposable cigarette lighters in the course of executing the search warrant on 16 June 2004.

79 The affidavit of Philip John Hunter sworn 31 August 2004 deposes that he is employed in the Compliance and Enforcement Branch of Consumer Affairs and is an inspector pursuant to s.114 of the Act. Mr Hunter is a qualified automotive mechanic and an experienced product safety officer, who is the manager of the Product Safety and Standards Unit in Consumer Affairs. The Unit advises the Director on product safety and makes recommendations on regulations.

80 Mr Hunter deposes to his inquiries in relation to the deaths of small children due to obstructional asphyxia caused by small toy dart guns, testing in relation to such guns and the permanent banning order prohibiting the supply of toy gun sets with suction cup darts small enough to cause a child to choke.

81 He further deposes to his inquiries into toy guns which fire projectiles which have the potential to cause serious eye injuries, the testing conducted and his recommendation that the supply of such toys be prohibited. Notice of the permanent ban order was published in the Gazette of 31 August 2000 and notice of a further permanent ban order which broadened the ban to all projectile toys was published in the Gazette of 28 November 2002.

82 Mr Hunter deposes to his inquiries into Yo Yo Water Balls, the risk of strangulation posed to children by the elastic cord, and his recommendation that their supply be prohibited. A notice of a permanent ban order was published in the Gazette of 30 May 2003.

83 Mr Harris deposes to his participation in the execution of the search warrant on 15 April 2004 at SJS's premises and his tests of the Protector Riot Gun, Yo Yo Water Balls, Power Steel Super Action figurines, and Electric Shooting Box Lucky Star toy gun sets, all of which products he tested either at the premises or subsequently. He concluded that the supply of those products was in breach of the relevant ban orders published in the Gazette.

84 Mr Hunter also deposes to independent tests which he caused to be conducted on disposable cigarette lighters. The tests assessed compliance with Part 2 of the Trade Practices (Consumer Product Safety Standard - Disposable Cigarette Lighters) 1997 (Cth)[20] and revealed that the lighters failed to meet the following required standards:

at the highest setting, the flame height was in excess of 150mm

the flame did not extinguish with 4 seconds of de-activation

the lighter during exposure to 54 C. The lighter burst at a level just below twice the vapour pressure of butane

the lighter did not detail a manufacture or distributor. The lighter did not exhibit a warning label or marking

85 Mr Hunter also examined samples of the seized disposable cigarette lighters. He found that they posed the potential for the escape of gas or odourless fluid, which could result in an explosion without ignition.

86 Mr Hunter sought further advice from Worksafe Victoria and, in accordance with that advice, safely disposed of 4,678 disposable cigarette lighters seized from SJS.

87 I am satisfied that, as the plaintiff submits:

(a) The Minister has made three permanent ban orders relevant to this matter, which took affect on 14 November, 2002; 28 November 2002 and 30 May 2003.

(b) At a time before 7 April 2004, SJS supplied eight or more children's toy gun sets known as "Protector Riot Gun Item 008" to a retailer of toys carrying on businesses as "Discount Kingdom" situated at Mountain Gate Shopping Centre, Ferntree Gully.

(c) On 15 April 2004, SJS supplied a total of 3399 children's toys which were subject to one of the permanent ban orders referred to in (a) above. In particular, SJS supplied 2594 "Yo Yo Water Balls"; 768 "Protector Riot Gun Item 008 toy gun sets; 21 toy military action figurines with toy missile launchers known as "Power Steel Super Action"; and 16 "Electric Shooting Box Lucky Star" toy gun sets.

(d) In or about late May 2004, SJS supplied 24 "Protector Riot Gun Item 008 toy gun sets" to a retailer of toys carrying on business as "$2 More or Less" situated at Forest Hill Chase Shopping Centre, Forest Hill.

(e) In or about late May 2004 SJS supplied 3 "Protector Riot Gun Item 008 children's toy gun sets " to a retailer of toys carrying on business as "Hometown Fine Gifts & Homewares" situated at Forest Hill Chase Shopping Centre, Forest Hill.

(f) On 16 June 2004, SJS supplied a total of 148 children's toys which were subject to one of the permanent ban orders referred to in (a) above. In particular, SJS imports supplied 134 "Protector Riot Guns Item No. 008 toy gun sets" and 14 "Electric Shooting Box Lucky Star" toy gun sets. On the same date, SJS supplied 4,678 cigarette lighters, which were subject to and did not comply with prescribed safety standards under the Consumer Affairs (Product Safety) (Lighters) Regulations 1998.

(g) On the 15 April 2004 and the 16 June 2004, the children's toys and cigarette lighters were, prior to their seizure by inspectors of Consumer Affairs, displayed at SJS in a way which exhibited or exposed the items for the purposes for sale, exchange, trade or business.

(h) The second and third defendant, by virtue of their management of, and day to day work in, or supervision of workers in SJS Imports' businesses were aware of the matters set out in (b) to (g) above. Alternatively, given their roles within SJS Imports, by their failure adequately to instruct their subordinates, they permitted the contraventions.

(i) The defendants have not satisfactorily explained the circumstances of the contraventions of the Act, particularly the further contraventions that occurred following the execution of the first search warrant on 15 April, 2004.

(j) The measures undertaken by the defendants have been inadequate to ameliorate the risks to children in the community posed by SJS Imports' contraventions of the FTA."

88 By a document entitled "Affidavit in support" apparently sworn by either Mr Xie or Ms Wang on 4 October 2004, it is stated:

89 It appears that the defendants, who are not legally represented, filed a number of documents, which included a letter dated 4 October 2004, addressed to the Master of the Supreme Court.

90 The letter asserts that SJS started business in September 1999 and mainly supplies gifts, toys and homewares.

91 The letter states that SJS first imported the Water Yo Yo Balls from China on 24 December 2002 and assumed that sales were "absolutely a legal action because they passed through customs". It states that on being informed by a customer on 22 May 2003 of a ban imposed due to a child's death, SJS stopped importing the products and advised all purchasers to return them in exchange for a full refund. Further, it asserts that SJS cut the elasticised cords (which posed the danger) and sold only modified Yo Yo Water Balls. The letter states that because it was a time-consuming task to cut all the cords, the task was not completed.

92 The letter asserts that SJS assumed that the sale of the Protector Riot Gun Item 008 was lawful, as the product passed through customs. On 25 November 2002, a customer informed SJS of the ban imposed due to the danger posed to children who might swallow smaller or shorter bullets. It states that SJS required its Chinese supplier henceforth to provide only bullets exceeding six centimetres. It asserts that, nevertheless, due to error on the part of the Chinese supplier, 20 further boxes of the banned product were sent on 13 February 2004 (totalling 1,920 items) which SJS started to sell in ignorance. The letter claims that on being alerted, the defendants took steps to recall the product and to separate the guns from short bullets, which they destroyed.

93 The letter states that in April 2004, the Consumer Affairs inspectors seized all the small bullets. They returned in July 2004 and took more small bullets, which SJS had collected from the customers. The letter indicates that the defendants were at first informed, and were under the apprehension, that they were entitled to sell guns with long bullets, but were only subsequently informed, by letter dated 29 September 2004, that they were also banned.

94 The letter states that "SJS ordered [the above product] with just a few quantities before 2002" and after being informed of the ban, stopped supplying them and notified customers.

95 The letter states that SJS ordered only "small quantities" of the above product (120 sets) on 13 February 2004 and, on being advised of the ban, immediately ceased supply and notified customers.

96 The letter states that the disposable cigarette lights were ordered by a particular customer. SJS had not sold the product before, and had no knowledge of the ban prior to being informed by Consumer Affairs.

97 The letter refers to the requirement of advertisement in the "Herald-Sunday" and states that 95% of SJS's customers are Chinese or Chinese Australians who do not read the "Herald-Sun". The letter asserts that the notice already placed in the Chinese newspaper has been effective, and that any non-Chinese customers have been individually notified.

98 The letter refers to the financial problems of SJS and its incapacity to fund the compliance regime sought by Consumer Affairs.

99 It is not disputed that SJS, under the management and control of Ms Wang and Mr Xie, supplied the specified toys subject to the banning orders and the disposable cigarette lighters, which did not comply with prescribed safety standards.

100 I am satisfied that the relevant items were goods subject to banning orders, or prescribed safety standards and that their supply by SJS contravened s.33 or s.44 of the Act. I am satisfied that Ms Wang and Mr Xie were each party to such contraventions.

101 The defendants sought to explain that their breaches were unintentional, due to their ignorance of the banning orders. They claimed that they immediately cooperated, upon being informed of the banning orders. Those assertions conflict with evidence advanced by the plaintiff, and are not persuasive.

102 I am satisfied that there is a significant danger that the defendants, unless their continued trade is subjected to rigorous conditions, will again engage in such conduct, posing an imminent danger of substantial damage to children and other consumers.

103 Mr Bhojani, counsel for the plaintiff, submitted that the plaintiff's principal objectives in seeking the statutory and public interest injunctions under the Act and the declaratory relief were:

preventing the risk of death or serious eye or other injuries to children supplied by SJS in breach of permanent ban orders;
prevention of the risk of death or serious burn injuries to consumers of disposable cigarette lighters supplied in breach of prescribed safety standards;
avoidance of unfair advantage to those businesses which avoided the costs of compliance with product safety laws.

104 The plaintiff contended, and I accept, that the defendants' breaches of applicable legislation were blatant and extensive. Further, their response to the initial detection of contraventions and contact with Consumer Affairs was not fully cooperative. There were repeated and additional contraventions within a very short space of time. It also appeared that the defendants had had long-standing knowledge of the banning orders in relation to some products, but had taken no corrective action and had continued to supply the offending items.

105 Since establishing the business in 1999, the defendants made no attempt to implement any regime for identifying goods subject to permanent banning orders or product safety regulations. SJS did not join the Australian Toy Association.

106 In those circumstances, the plaintiff considered that the acceptance of an enforceable undertaking (which would be appropriate in the case of a wholly cooperative supplier which immediately ceased any contravention) would be an ineffective approach to enforcement in this case.

107 The defendants' presentation of their defence was limited by their lack of legal representation. Although they were not fluent in English, the defendants were assisted by an interpreter. They provided no evidence in admissible form. On a fair construction of their assertions made at the hearing, and in their letter dated 4 October 2004, the defendants acknowledged the initial contraventions, but appeared to assert that the subsequent "repeat" contraventions were inadvertent. The defendants sought to suggest that, rather than deliberately continuing to supply the same types of banned products after the execution of the first search warrant on 16 April 2004, they recalled the banned products and commenced an attempt to modify offending products by, for example, separating the toy guns from dangerously small bullets and cutting the dangerous cords of the Yo Yo product.

108 It would appear that, rather than alerting Consumer Affairs to their possession of banned products, the defendants determined to modify such products without consulting Consumer Affairs. They were, however, unwilling to devote the necessary labour and resources to that exercise.

109 The defendants concede that they learnt of the prohibition on supply of the Water Yo Yo Balls in May 2003 and the Protector Riot Gun in November 2002. Large quantities of those products were detected in April 2004. The defendants do not deny that they have no regime in place for identifying, monitoring and complying with their obligations pursuant to the Act or any other consumer safety legislation or requirements. Until the detection of contraventions by Consumer Affairs, their sole source of information on such matters was advice from customers that particular goods were dangerous and their supply consequently unlawful. The defendants did not take appropriate action when informed of relevant bans.

110 While accepting that the defendants' lack of English language skills may have led to a degree of misunderstanding in their communications with officers of Consumer Affairs, Victoria, I am satisfied that, following the execution of the initial search warrant, they did not cooperate by immediately disposing of all banned goods, placing a satisfactory notice in an appropriate newspaper and adopting measures to enable them to learn of and understand their obligations. Within a two month period, repeated contraventions in relation to some products were detected and a new contravention by supply of large quantities of exceedingly dangerous disposable cigarette lighters was identified.

111 In such circumstances, the plaintiff's requirement that the defendants be restrained from supplying relevant types of goods unless they submit to an effective regime of training and monitoring is fully justified.

112 Although the defendants contend that it would be difficult for them to fund the observance of the required conditions, they have not furnished any evidence of their financial circumstances. Even were the Court to be satisfied that observance of the conditions was extremely onerous for the defendants, compliance with the requirements of consumer safety legislation is an unavoidable cost of carrying on business. In contrast to Gardam v Splendid Enterprise Pty Ltd and McIness v Global Imports Pty Ltd, the present case concerns the imposition of conditions upon the defendants' continued trade in the relevant types of product, rather than the imposition of a fine. While the small scale of a business or its modest resources may justify a reduced penalty, such matters cannot justify relief from the implementation of measures which are essential in order to ensure that the defendants' continued operations will not pose serious danger to children and the general community.

113 In the defendant's case, very wide-scale, blatant contraventions and non-compliance were detected. The defendants' response to the opportunity for voluntary reform offered after the initial search and contact with Consumer Affairs, was wholly unsatisfactory. They continue to demonstrate a fundamental ignorance of their legal and moral obligations independently to inform themselves of, and strictly observe, all applicable restrictions on the supply of toys and consumer products which have the potential to inflict horrendous physical injuries on the community, including its youngest and most vulnerable members. The defendants' repeated contraventions and ineffectual remedial measures do not bespeak contrition, or recognition of the imperative nature of their consumer safety obligations.

114 I therefore consider that a closely scrutinised regime of training and monitored compliance is called for, in order adequately to protect the community. There is a significant risk of serious harm to consumers posed by the defendants' continued supply of the relevant types of goods unless conditions requiring adequate scrutiny, regulation, review and supervised training are imposed. The need to protect consumers, who are principally children, necessarily outweighs the cost and burdens of compliance imposed on the defendants. Mr Hiland has stated, and I accept, that the resources of Consumer Affairs do not permit it to assume direct responsibility for the intensive degree of training and supervision required in the case of the defendants. The defendants must therefore assume the responsibility and cost of instituting and observing the compliance regime, and related measures for certification, review and audit, as a pre-requisite of engaging in the business of supply of the specified types of goods.

[1] Victoria, Parliamentary Debates, Legislative Assembly, 28 May 1985, at 716 (Peter Spyker, Minister for Consumer Affairs).
[2] Victoria, Parliamentary Debates, Legislative Assembly, 25 March 1999, at 187 (Jan Wade, Minister for Fair Trading).
[3] Explanatory Memorandum, Fair Trading (Amendment) Bill 2003.
[4] [2004] HCA 3; (2004) 78 ALJR 324.
[5] [2004] HCA 3; (2004) 78 ALJR 324 at 332.
[6] (1992) FCR 248.
[7] Ibid, at 255.
[8] Ibid, at 256.
[9] (2000) 200 CLR 591.
[10] Ibid, at 602.
[11] Ibid, at 662 (citations omitted).
[12] [1999] VSC 262; [1999] 2 VR 681.
[13] Ibid, at 704.
[14] [2001] VSC 511 (Unreported, Warren J, 21 December 2001) at [40].
[15] (1987) ATPR 40 - 779.
[16] Ibid, at 48,502.
[17] Ibid.
[18] Ibid, at 48,503.
[19] (1993) ATPR 41 - 206.
[20] Applicable in Victoria pursuant to the Consumer Affairs (Product Safety) (Lighters) Regulations 1998 s.4.

Trade Practices Act 1974(Cth)

Fair Trading Act 1999

Supreme Court Act 1986

Consumer Affairs (Product Safety) (Lighters) Regulations 1998

Fair Trading Act 1985

Consumer Affairs Act 1972

Ministry of Consumer Affairs Act 1973

Trade Practices Act 1974(Cth)

Fair Trading Act 1999

Supreme Court Act 1986

Consumer Affairs (Product Safety) (Lighters) Regulations 1998

Fair Trading Act 1985

Consumer Affairs Act 1972

Ministry of Consumer Affairs Act 1973

Trade Practices Act 1974(Cth)

Fair Trading Act 1999

Supreme Court Act 1986

Plaintiff v Defendants

At a glance

Court

Decision date

Before

Source

Judgment (185 paragraphs)

6 The plaintiff contends, and seeks declarations, that SJS supplied to retailers and other purchasers a number of dangerous toys which are the subject of permanent banning orders published in the Victorian Government Gazette ("the Gazette"), in contravention of s.44 of the Act.

15 Section 34 of the Act provides that regulations may prescribe a safety standard.

20 Section 36 of the Supreme Court Act provides:[1]

21 The Fair Trading Act 1999 was first introduced in Victoria in 1985 pursuant to an agreement between all states to extend the application of laws prohibiting a wide range of deceptive or misleading practices. It was based on relevant provisions of the Trade Practices Act 1974 (Cth).

26 The authorities dealing with s.80 of the Trade Practices Act and like provisions acknowledge the prescription of statutory norms of conduct to protect the public interest.

29 Similarly, in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd,[9] Gleeson CJ and McHugh J, in a joint judgment, stated:

31 In Commonwealth Bank of Australia v White,[12] Byrne J stated:

32 Warren J affirmed the approach of Byrne J in Commonwealth Bank v White (No. 4) where her Honour recognised that: [14]

50 At the hearing of the proceeding on 1 December 2004, Mr Hiland gave oral evidence expanding on the matters contained in his affidavit.

85 Mr Hunter also examined samples of the seized disposable cigarette lighters. He found that they posed the potential for the escape of gas or odourless fluid, which could result in an explosion without ignition.

87 I am satisfied that, as the plaintiff submits:

88 By a document entitled "Affidavit in support" apparently sworn by either Mr Xie or Ms Wang on 4 October 2004, it is stated:

89 It appears that the defendants, who are not legally represented, filed a number of documents, which included a letter dated 4 October 2004, addressed to the Master of the Supreme Court.

94 The letter states that "SJS ordered [the above product] with just a few quantities before 2002" and after being informed of the ban, stopped supplying them and notified customers.

95 The letter states that SJS ordered only "small quantities" of the above product (120 sets) on 13 February 2004 and, on being advised of the ban, immediately ceased supply and notified customers.

96 The letter states that the disposable cigarette lights were ordered by a particular customer. SJS had not sold the product before, and had no knowledge of the ban prior to being informed by Consumer Affairs.

Parties

Legislation Cited (56)

Cases Cited (2)