Plaintiff v First Defendant

Mr P Hiland, Solicitor to the Director of Consumer Affairs Victoria

1 This case concerns the supply of thong-shaped, novelty cigarette lighters ('the lighters') by the first defendant, Toplite. The second defendant, Mr Gao, is Toplite's sole director and company officer. He and his wife, Ming Zhu Lu, each own one share in the company.

2 The plaintiff, the Director, alleges that Toplite and Mr Gao have contravened provisions of the Fair Trading Act 1999 ('the Act') relating to product safety, misleading and deceptive conduct and the making of false representations. Although the relevant provisions of the Act were repealed on 1 January 2011, it is common ground that the alleged contraventions occurred whilst it was still in operation and that its provisions remain applicable in relation to the relief claimed in the proceeding.

3 The Director seeks injunctive and declaratory relief to which the defendants have agreed. Some of the injunctive relief initially sought in the originating motion is no longer pursued. Issues such as costs have also been agreed to by the parties.

4 Even though the parties have agreed to proposed orders, the Court must satisfy itself that the relief sought by consent is appropriate and must consider whether to exercise its discretions in the manner sought.[1]

• declarations under s 36 of the Supreme Court Act 1986 and s 158(2)(b) of the Act;

• orders under s 149A or s 158 of the Act obliging Toplite to have public warning, product recall and refund notices published;

• orders under ss 149A, 153A(3) and 158(1) of the Act requiring Toplite to arrange for two reviews to maintain its compliance program to ensure its future compliance with the product safety laws and unfair practices provisions of the Act which have been replaced by the provisions of the Australian Consumer Law (Victoria); and

• orders under ss 129A and 149A(3)(f) of the Act that Toplite and Mr Gao pay for the destruction and disposal of the lighters.

• Ian James McCulloch, a Compliance and Enforcement Officer employed by the Market Intervention Division of Consumer Affairs Victoria ('CAV'), sworn on 29 July 2010;

• Peter James Hiland, the solicitor for the Director, sworn on 13 August 2010, and 19 October 2010; and

• Charles Charalambous, a Product Safety Officer also employed by the Market Intervention Division of CAV, sworn on 13 August 2010 and 19 October 2010;

• a tray box containing 29 lighters each featuring a map of Australia;

• a second tray box containing lighters featuring a picture of a kangaroo; and

• two samples of the lighters featuring maps of Australia.

• Shirley Qiao, an administrative assistant employed by Toplite, sworn on 27 September 2010;

• Mr Toby Yiu, a solicitor at Holding Redlich who undertook a compliance program for Toplite, affirmed on 5 October 2010;

9 The affidavit material satisfies me of the facts set out below. (I note that counsel for the Director sought the Court's determination as to the admissibility of the evidence of alleged admissions made on 7 July 2010 by Mr Gao to Mr Hiland, as the Director's delegate, during his examination under s 106I(1)(c) of the Act. I do not address that issue because my findings of fact are based on the evidence deposed to in the affidavits and that constituted by the items tendered.)

10 Mr Gao caused Toplite to be registered in 1996 as the vehicle for his business of importing cigarette lighters and supplying them as a wholesaler to other wholesalers and to retailers. The company operates from an office and showroom premises in Keilor Park in Victoria.

11 Since about 2000, Toplite has been importing Australian souvenir products for sale throughout Australia to other wholesalers and retail outlets. It advertises a large number of souvenir items including pencil cases, satchels, rucksacks, tea towels, beach towels, kitchen sets, rubber items, jewellery, ashtrays, wine accessories, clothing, kitchen products, pens and wallets.

12 In 1996, Mr Gao and his wife Ms Lu were Toplite's only directors and shareholders and Ms Lu was the company secretary. Ms Lu has not been involved in the company since she ceased to be a director and company secretary in 1 July 2009. The business has grown from one employing only Mr Gao and Ms Lu in 1996 to one with 15 to 20 full time employees between about July 2009 to July 2010.

13 Toplite sells about 50,000 cigarette lighters each year. The 'Credit Memos' exhibited to Ms Lu's affidavit show that the lighters were sold for $2.50 each to Lanbo Trading, $2.00 to Ho Lun Trading and $2.70 to Airlie Beach Trading Post. Mr Gao deposes that Toplite's turnover was $2,630,000.98 for the 2009-2010 financial year.

14 Mr Gao trains, supervises and directs Toplite's sales staff; he also sells the company's products himself. It is he who is responsible to ensure that the imported products comply with the safety laws. His practice has been to obtain a report from the Chinese manufacturer confirming that cigarette lighters comply with an applicable international safety standard. Toplite also relies on a customs broker to assist with importation and border controls to ensure standards compliance. As far as ban orders and the like are concerned, it has been the practice for Ms Lu and Ms Qioa, who succeeded her as Toplite's office manager, to search the websites of CAV and the Australian Competition and Consumer Commission ('ACCC') for relevant information.

15 Toplite arranged the manufacture of the lighters in China as Australian souvenirs. It ordered 3600 from Wenzhou Figo Industry and Trade Company Limited of Wenzhou, Zhejiang, China. Toplite collected the lighters shortly after they reached Australia on about 27 October 2009.

16 The lighters were packed for display in boxes. The boxes had images of two of the lighters and an Australian map and the words 'Thong Lighter' and 'AUSTRALIA' on both the top and undersides of their lids. The undersides of the lids were visible when they were raised for display purposes. On the front of the boxes on display, there were images of kangaroos and the words 'THE LIGHTER FOR THAT LAID BACK LIFESTYLE'. The sides of the boxes bore images of two koalas on what appear to be eucalyptus branches together with the words 'Thong Lighter' and 'Australia'.

17 Drawings exhibited to Mr Gao's affidavit indicate that the lighters were 80 mm long and 33.1 mm wide. They were embossed with the word 'Australia' and either a map of Australia or a kangaroo. There was a sticker with a bar code and safety information stuck to the back of each of the lighters. That sticker also carried the statement, 'MADE IN CHINA', in what appeared to be the same sized type as that used for the safety warning.

18 To comply with Australian regulations, the lighters had a trigger mechanism involving an ignition spring and a safety spring. The manufacturer claims that depression of the springs requires the application of force which would not be within the capacity of a child under three years of age. I make no findings of fact as to the operation or effect of the child safety mechanism.

19 Toplite sold 30 of the lighters to Airlie Beach Trading Post of Airlie Beach Queensland, on 9 February 2010, and 120 more to Ho Lun Trading Pty Ltd of Seven Hills NSW, on the same day.

20 On about 10 February 2010, a former Toplite customer told Darren Xia, a Toplite salesperson in South Australia, that novelty lighters were banned in that state. Mr Xia informed Ms Qioa who, in turn, told Mr Gao. Ms Qioa checked the CAV and ACCC websites. After discussing what she found on the websites with Mr Gao, they decided that the interim ban order did not apply. They concluded that the lighters were not 'novelty lighters', as they did not resemble toys. Toplite did not withdraw the lighters from sale.

21 On 12 February 2010, Toplite sold 30 more lighters to Lanbo Trading Company of Mermaid Waters, Queensland. I accept that the company made no sales in Victoria.

22 On 9 and 12 March 2010, Mr Charalambous, Mr McCulloch and other inspectors from CAV attended the Toplite premises; they seized a total of 3420 of the unsold lighters.

23 On about 29 July 2010, Mr Gao was served with the originating motion commencing this proceeding.

24 On about 9 August 2010, Toplite sent a letter to its customers, requesting the purchasers to stop selling the lighters and to return unsold items. 97 of the 180 lighters sold were recovered in this way.

25 On about 11 August 2010, Toplite engaged Holding Redlich, solicitors, to audit its compliance regime, to report recommendations for future compliance measures and to train its officers and employees responsible for ensuring compliance with the relevant provisions of the Act, safety standards and ban orders.

26 On about 16 August 2010, Mr Yiu, who is a Senior Associate with Holding Redlich with relevant experience, interviewed Mr Gao, Ms Lu and Ms Qioa. On 15 September 2010, Mr Yiu provided compliance training to relevant Toplite employees. On 5 October 2010, Holding Redlich produced a report tailored to the company's ongoing compliance obligations.

Alleged contravention of the interim and permanent ban orders

27 The declarations first sought are to the effect that Toplite has breached the Act by supplying the lighters in contravention of interim and permanent banning orders made by the Minister for Consumer Affairs and that Mr Gao has also breached the Act by being knowingly concerned in, a party to or involved in the contravention. Mr Gao's involvement is alleged to have been in 'ordering, purchasing or otherwise acquiring' the lighters for Toplite to supply, 'authorising or approving their supply' by Toplite and refusing or refraining from ensuring that the lighters Toplite did supply complied with the Act's Part 3 product safety provisions.

28 The Minister acts in the public interest when banning the supply of dangerous toys. The courts have recognised the utility of declarations that statutory provisions have been breached in litigation undertaken in the public interest.[2] There is also a real legal controversy to be resolved. There are no discretionary grounds for refusing the order.

29 The declarations sought are that the lighters 'do not comply with an interim ban order prohibiting the supply of dangerous goods' published in the Victorian Government Gazette on 1 September 2009 and renewed on 26 November 2009 and a permanent ban order published on 26 February 2010 in the Gazette. Each order banned the supply in Victoria of 'novelty lighters'.

30 A 'novelty lighter' was defined in the banning orders as:

a device typically used for igniting or lighting of cigarettes, cigars, or pipes that has a toy-like appearance, has entertaining audio or visual effects, or resembles, in any form or function, an item that is commonly recognised as appealing, attractive, or intended for use by children under 5 years of age, including such a device that takes toy-like physical forms, including common household items, weapons, cell phones, batteries, food, beverages, musical instruments, and watches, whether or not the device includes a child resistant feature.

31 The first issue is as to whether the parties are correct in agreeing that the lighters failed to comply with the bans (although it seems that what they have agreed is rather that Toplite contravened the banning orders by supplying the lighters). In any event, the question is as to whether the lighters were 'novelty lighters' within the meaning of that term in the ban orders.

32 I have examined the lighters tendered. I consider that each does fit the description of a 'novelty lighter' in the interim and permanent banning orders. They are, in my view, 'toy-like' in appearance: appearing to be small rubber thongs of the type which might be used when dressing a doll or as a plaything for a child. As such, I am satisfied that they each 'resemble in ... form ... an item that is commonly recognised as appealing, attractive or intended for use by children under 5 years of age'. The definition applies despite the fact that the lighters do have the child resistant feature which makes them more difficult to operate. It also applies even though the lighters were also souvenir products.

33 Sections 38 and 44 of the Act provided that it was an offence to contravene interim and permanent ban orders, respectively.

34 The word 'supply' under paragraph (a) of the definition in s 3 of the Act included 'supply ... by way of sale'. Under paragraph (c) of the s 3 definition, 'supply' in relation to goods under the product safety provisions in Part 3 of the Act included 'exhibit, expose or have in possession for the purpose of sale ... or for any purpose of advertisement, trade or business'.

35 Toplite did contravene the interim ban orders by the sales of the lighters. It also contravened the permanent ban order by exhibiting the lighters and advertising them for sale up to about the date of the inspection of its premises by officers of Consumer Affairs Victoria on 9 March 2010. The declarations sought should be made in terms relating to the supply of the lighters by Toplite.

36 I am further satisfied that Mr Gao was involved in the contraventions in the manner alleged.

Alleged misleading and deceptive conduct and making of false representations

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

1. False representations in relation to goods and services

A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion or advertising by any means of the supply or use of goods or services -

(a) falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or ...

(e) represent that goods or services have a sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have; or ...

(i) make a false or misleading representation concerning the place of origin of goods; or ...

(l) make a false or misleading representation about the production, manufacture, preparation or supply of any goods; or ...

(n) make a representation that is false, misleading or deceptive in any material particular.

38 The Director seeks declarations that Toplite and Mr Gao have engaged in misleading and deceptive conduct in breach of s 9(1) by:

(a) supplying the Thong Lighters with their metal surface inscribed with either the image of a kangaroo or the word 'Australia' inscribed immediately underneath the image of a map of Australia filled in with the image of the Australian flag and the word 'Australia' inscribed immediately underneath the image;

(b) using images such as - a map of Australia, the Southern Cross, kangaroos, koalas, eucalyptus leaves, boab trees, thong lighters, the word 'Australia' the words 'Thong lighter' in close proximity to the word 'Australia' and the statement 'THE LIGHTER FOR THAT LAID BACK LIFESTYLE!' between the images of kangaroos and near the image of Boab trees, - on the tray box containing the novelty Thong Lighters and presenting them for sale to the public; and

(c) failing to inform purchasers properly that the Thong Lighter was made in China, designed by a Chinese lighter manufacturing company, finished and packed in China using Australian imagery (provided by Toplite Trading Pty Ltd) and imported for sale in Australia as a souvenir novelty lighter by Toplite Trading Pty Ltd;

(d) created an association or connection between the Thong Lighter and Australia or the skills of Australians which did not exist; and

(e) represented that the Thong Lighter was made in Australia or an Australian product when, in fact, the Thong Lighter was made in China and was not an Australian product.

39 The Director seeks additional declarations that Toplite and Mr Gao falsely represented that:

(a) the lighters had an association or connection with Australia or the skills of Australians, when in fact there was no such association or connection;

(b) the lighters were made in Australia, when in fact they were made in China; and

(c) the lighters were Australian products, when in fact they were not;

(d) falsely represented that the lighters have had a particular history (contrary to s 12(a));

(e) falsely represented that the lighters have benefits that they do not have (contrary to s 12(e));

(f) made a false or misleading representation concerning the place of origin of the lighters (contrary to s 12(i));

(g) made a false or misleading representation about the production, manufacture or preparation of the lighters (contrary to s 12 (l)); and

(h) made a representation that is false, misleading or deceptive in a material particular (contrary to s 12 (n).

40 In his comprehensive submissions, counsel for the Director stated the relevant principles to be applied where the Court is considering allegations of misleading and deceptive conduct in breach of the Act. He also referred to relevant authorities. I have taken all the submissions into account and will mention just some principles applicable to s 9(1) as well as s 52 of the Trade Practices Act 1974:

(a) the general words of s 52(1) of the Trade Practices Act needed to be widely interpreted and not read down;[3]

(b) section 52 was not confined to conduct that was intended to mislead or deceive and remedies might have been available against a person acting honestly and reasonably whose conduct had misled or deceived or was likely to do so;[4]

(c) the test as to whether conduct was misleading or deceptive or likely to mislead or deceive was objective;[5]

(d) the class of consumers likely to be affected by the conduct must have been considered;[6]

(e) whether conduct amounted to a representation was a question of fact to be considered in the context of all the surrounding circumstances;[7]

(f) in the case of representations to the public, 'ordinary' or 'reasonable' members of the class of prospective purchasers were to be considered;[8]

(g) material qualifying a potentially misleading primary statement was to be sufficiently prominent or conspicuous to prevent the primary statement from being misleading and its degree of prominence may have varied with the potential of the primary statement to be misleading or deceptive;[9] and

(h) it was not necessary for there to be a representation for the section to be infringed[10] and false impressions, conveyed by pictures rather than words, could constitute misleading conduct.

41 In QDSV Holdings Pty Ltd v Trade Practices Commission,[11] Sackville J considered whether a label about the origin of goods contravened the s 52 misleading or deceptive conduct or s 53(eb) representation provisions of the Trade Practices Act 1974, stating that the following factors should be taken into account :

(b) the class of persons likely to be affected and their characteristics including their expectations and likely understanding;

(d) it should not be assumed either that those persons would be 'extraordinarily stupid' or that they would be 'scrupulous to analyse the nuances of language' used on labels; and

(e) the analysis of a label's conveyed meaning should take account of the prominence of the particular slogans or phrases and expectations. [12]

42 Sackville J also expressed the view in QDSV that an Australian product would be advantaged where consumers, including tourists, wanted an item of 'Australiana' as a souvenir.[13] In his view, a prominent catchphrase or slogan would be likely to be more influential in the decision to buy a relatively inexpensive item.[14]

43 The Director argues in this case that the imagery both on the lighters themselves and on the boxes in which they are displayed represented that they had a connection with Australia or the skills of Australians, that they were made in Australia or were Australian products. Essentially, the representation is said to have been that the lighters were made in Australia. The use of the imagery of the Australian flag, kangaroos, koalas, eucalyptus branches and leaves, the references to Australia and the laid back Australian lifestyle are all said to have constituted that principal representation. The label on the back of the lighters carrying the words 'MADE IN CHINA' was, according to the Director, inadequate to qualify the representation and overcome its misleading or deceptive nature.

44 The Director relies particularly on the decision of the Full Federal Court in Siddons Pty Ltd v The Stanley Works Pty Ltd.[15] There, the court considered the effect of the word 'Australia' immediately below the name of a spanner socket which was not made in this country. Given what Wilcox and Heerey JJ described as the public consciousness of the need to promote Australian goods, their Honours held that a significant number of targeted consumers would be misled or deceived and would conclude that the product was made in Australia.[16] Burchett J disagreed that such a construction would be placed on the two unlinked words, even by an obtuse person. And, referring to the criminal nature of the offence of breaching the Trade Practices Act 1974, his Honour went on to say that 'the court should be slow to erect a fanciful or doubtful construction which will never have effect'.[17]

45 Counsel for the Director nevertheless cites another passage from the dissenting judgment, where Burchett J says:

Something the respondent does must have the relevant effect. Where a marketer resorts to the vague but powerful persuasions of emotional imagery, he may infringe, without making any untrue or even imprecise, statement, by conveying a message in despite of logic.[18]

46 Burchett J joined the majority in upholding a cross-appeal, concluding that the use of an image of a map of Australia on the box in which spanners were packed did constitute a misrepresentation of Australian identity but not that the product was made in Australia.[19]

47 I am not satisfied that Toplite did represent that the lighters were made in Australia in the way the Director argues it did. The nature of the product is important. The lighters were sold as relatively inexpensive souvenirs of Australia, to be bought or kept, as counsel for the Director acknowledged, for remembrance sake. The significance of and effect upon the target consumer group of the images of Australian flora and fauna, the map of Australia and the use of the word 'Australia' and reference to the Australian lifestyle on the lighters and their display boxes should all be considered in that light.

48 A souvenir provides a reminder of the place visited. In my view, the Australian images and indeed the form of the lighters and the display packaging would have been understood by the members of the target audience, which included tourists, to be aimed at evoking memories of a visit to Australia, rather than giving the impression that the lighters were made here. The effect of the imagery linking a souvenir with Australia upon the targeted consumer was therefore likely to have been quite different from that in the case of the tools which were the subject of the appeals in Siddons.

49 I am not dissuaded from this conclusion by the Director's argument that it would be significant to a tourist that a souvenir of Australia be made in this country and that that would be the visitor's expectation with regard to the lighters. The significance of local production depends at least in part, in my opinion, upon the nature of the product; for example, it might be considered an expected essential characteristic of an aboriginal artefact that it be produced locally. Local production of relatively cheap novelty item, like the lighters, would not be of such significance to the reasonable target consumer who might very well even expect that such an inexpensive item would be more likely to be manufactured offshore than in Australia.

50 Even if the imagery used on the lighters and their packaging might be regarded as having represented that the lighters were made in Australia, that representation would have been qualified by the adequately prominent label stating that the product was made in China. The labels on the tendered lighters seem to be firmly stuck to the back of the products. The text is small, but the words 'MADE IN CHINA', like the heading 'WARNING! KEEP AWAY FROM CHIDREN' on the labels, are capitalised. The letters in the words 'MADE IN CHINA' appear to be in the same sized font as those used in the warnings and the instructions about the lighters' safe use.

51 Those declarations and the other relief premised upon the defendants having engaged in misleading or deceptive conduct and false representations should be refused.

52 I will otherwise make the orders in the form of the remaining orders sought by consent at the hearing. The Court was informed that the defendants consented to the making of the orders for the publication of warning, recall and refund notices, injunctive relief, the compliance program and review orders, the payment for the destruction and disposal of goods or in relation to costs. The only difference between the orders to which consent was given and those to be made is the removal from the agreed terms of any references to misleading or deceptive conduct and the making of representations in breach of the Act. In any event, it is my view that those remaining orders should be made.

[1] See: Director of Consumer Affairs Victoria v DW International Trading Pty Ltd [2010] VSC 515 [4] (Dixon J).

[2] See ACCC v Eurong Beach Resort Ltd [2005] FCA 1134 [5],[6] (Keifel J); Director of Consumer Affairs Victoria v DW International Trading Pty Ltd [2010] VSC 515 [44] (Dixon J).

[3] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 202 (Mason J).

[4] Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45, 85 [103] (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ) ('Campomar').

[5] Medical Benefits Fund v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1, 15 [29] (Stone J) (Moore and Mansfield JJ agreeing).

[6] Campomar, 85 [102]-[103] (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ).

[7] Ibid, 84 [100] (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ).

[8] Ibid, 84-5 [101] - [103] (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ).

[9] Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1, 17 [37], [38] (Stone J, Moore and Mansfield JJ agreeing).

[10] Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, 491 (Northrop J) 504 (Lockhart and Gummow JJ).

[11] [1995] FCA 1431; (1995) 59 FCR 301 ('QDSV').

[15] (1991) 29 FCR 14 ('Siddons').