Trade Practices - misleading and deceptive conduct - origin of goods - koala bears designed, filled, stitched, brushed, inspected and labelled in Australia - manufactured from all but one imported component - label using words "Made in Australia" in qualifying context - whether trial Judge in error in concluding label misleading and deceptive - whether Judge should have applied substantial transformation or essential character test - whether Judge in error in applying test of meaning of words in ordinary parlance.

Trade Practices Act 1974 s52 and s53(eb)

Netcomm (Australia) Pty Ltd v Dataplex Pty Limited (1988) 81 ALR 101

Korczynski v Wes Lofts (Aust) Pty Ltd (1985) 10 FCR 348

Thorp v C A Imports Pty Ltd [1989] FCA 515; (1990) ATPR 40-996

Siddons Pty Ltd v The Stanley Works Pty Ltd (1991) 29 FCR 14

Finucane v New South Wales Egg Corporation (1988) 80 ALR 486

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191

Counsel for the Applicant: Mr D M Yates

with Mr R Alkadamani

Solicitors for the Applicant: Chrysiliou Moore Chrysiliou

Counsel for the Respondent: Mr B Walker SC

with Mr I D Faulkner

Solicitors for the Respondent: Australian Government Solicitor

(1) The appeal be dismissed.

(2) The appellant pay the respondent's costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

EINFELD J For the reasons stated by Justice Nicholson, with which Justice Sackville substantially agrees, I agree that the appeal must be dismissed with costs.

SACKVILLE J This is an appeal from a declaration and orders made by Davies J on an application by the Trade Practices Commission against the present appellant: see Trade Practices Commission v Q.D.S.V. Holdings Pty Ltd t/as Bush Friends Australia [1994] FCA 1562; (1994) 128 ALR 551. His Honour declared that two labels affixed by the appellant to soft toy koalas produced and distributed by it were in breach of s.52 and s.53(eb) of the Trade Practices Act 1974 ("the Act"). Davies J also made an order under s.80 of the Act, restraining the appellant "from selling or distributing its toy koala if the infringing labels are attached to or associated therewith".

2. The appellant raises no issue on the appeal in relation to the declaration and order affecting the first of the two labels. However, the appellant contends that his Honour erred in finding that the use of the second label, affixed to the soft toy koala, constituted

(a) conduct that was misleading or deceptive, in contravention of

s.52 of the Act; and

(b) a false or misleading representation concerning the place of

origin of goods, in contravention of s.53(eb) of the Act.

3. The appellant, which trades under the name "Bush Friends Australia" is a wholesaler of soft toys. In early 1994 it began to supply a range of toy animals, including koalas, using the name "Aussie Born". The koalas were sold in several sizes, but were all of a similar design. One of the koalas in evidence is about 17 cm high, and is made of soft synthetic plush fabric pieces. Others are somewhat larger. The fabric is grey in colour, but the belly and the front portions of the two fluffy ears are white. The claws are made of black felt and the koala has black and brown eyes, backed by white felt pieces. The koala is presented in a sitting position, with its arms outstretched and its head turned slightly upwards and to the left. The arms each have a velcro strip sewn into them, so that the koala can be made to sit with its paws clasped together.

4. The koalas were marketed with a triangular cardboard label stapled to the left ear. It is this label which is the subject of the appeal. The label, on the outward side, has a simple depiction of a koala on a yellow background. The words "AUSSIE BORN" are reproduced in large white capital letters on green background, adjacent parallel to one side of the triangle. Against those letters in small print are the letters "TM", indicating that the term "AUSSIE BORN" is used as a trade mark.

5. The other side of the label is in the following form

6. All but the last two lines are in green printing on a white background. The last two lines are in white print on a green background.

7. It appears that two directors of the appellant, Mr Arrata and Mr Hodge, commenced a business in 1989 under the name of "Bush Friends Australia". That business produced from overseas sources a range of soft toys with an Australiana theme. In 1992 the appellant was incorporated and took over the business of Bush Friends Australia. From 1992 the appellant imported soft toys and sold them labelled "Made in China".

8. In April 1994, the appellant established a factory at Dungog in New South Wales, employing between two and four people full time and utilising another 22 local workers on an "out work basis". The factory is solely dedicated to the production of the Aussie Born range of toys, including the koalas.

9. The koala was designed by Mr Arrata. Mr Arrata designed a colour and blend for the synthetic plush fur fabric to be used in the production of the koala. For this purpose he travelled to China and provided specifications to the fabric manufacturer.

10. The plush fur fabric was purchased by another manufacturing firm in China. The second firm cut the fabric by machine, in accordance with a pattern designed by Mr Arrata. Holes were cut to enable the eyes and nose to be inserted later. The firm sewed the pieces of fabric together, but left the head and torso separate. The koala's head comprised six pieces of fabric: grey and white pieces for each of the ears and two pieces for the head. The torso was made of nine fur pieces: two grey pieces at the back, a white piece for the belly, two pieces for each of the upper legs and one piece for each of the lower legs.

11. The Chinese manufacturer stitched by machine all of the seams joining the pieces together, except for the seam joining the head to the torso. The seam running up the back of the torso was only partially sewn up. The Chinese manufacturer also sewed into the ends of each limb black claws cut from felt manufactured in China or Hong Kong. Velcro pieces, also manufactured in China or Hong Kong, were sewn into each upper limb. A fabric label was sewn into the seam at the back of the koala. This label on one side has the words "Bush Friends Australia"; on the other it says "All new materials Gentle Machine Wash Reg Design Applied".

12. The manufacturing process in China was supervised by an employee of the appellant, who travelled to China at least once a month. She usually spent two weeks at a time in China to provide the necessary degree of supervision.

13. The separate head and torso casings were imported into Australia by the appellant, along with eye and noses to be attached to them. The eyes and noses were also purchased from the Chinese manufacturer, but were produced in Taiwan. The casings were transported to Australia inside out, in order to protect the fabric. Of course, at this stage the casings were not stuffed, and thus upon arrival in Australia did not have the appearance of koalas.

14. The parties agreed on a statement of facts detailing the manufacturing processes carried out at the Dungog premises or by outworkers. This statement is as follows:

"(a) The torso casing is turned from inside out to right

side out and shaken and brushed to remove excess

fluff.

(b) The arms and legs of the casing are pushed out and

extended.

(c) All seams are checked for sewing faults and necessary

repairs made by hand.

(d) The head casing is turned from inside out to right

side out and the ears are extended. The seams are

checked and repaired if necessary.

(e) A check is made to see that the eye holes and nose

aperture are in the correct positions which involves

checking the holes and apertures against a chart for

correct sizing.

(f) The correct nose and eye size is selected from the

Respondent's size chart. The eyes are then affixed to

the desired posataon in the eye apertures by a

manually operated machine after a piece of white

material has been correctly placed at the back of each

eyeball.

(g) The nosepiece is then affixed to the nose aperture by

a similar process.

(h) The pressure for the eyes is different to the pressure

for the nose and the pressure must be set at a level

that does not break the eye or nose but is hard enough

to push the locking washer over the locking ridge on

the back of the eye and nose. In this manner the

locking washers are utilised in the process for

affixing the eyes and noses to the face of the toy.

It is necessary to check the pneumatic pressure on the

locking machine which affixes the eyes and nose to

prevent damage to them.

(i) Thereafter the filling of the casings is commenced,

starting at the extremities, that is the hands and

feet. The filling process is carried out by hand.

(j) The filling continues with the stuffing of the head

and the nose area to achieve the correct shaping of

the face. A little is added at a time and is pushed

into place with a wooden rod.

(k) The filling is a 70-30% blend of silicone coated

synthetic material which is purchased by the

(appellant) in Australia.

(l) After filling is completed the head is sewn on to the

torso of the casing. The head must be positioned so

that it fits in proper alignment with the torso. The

position of the head varies according to the

particular design and look desired for the toy. In

some instances the head is sewn at a 45 angle while in

other instances it is sewn at a 90 angle. The sewers

are familiar with variations of designs and fit the

head in the appropriate position to accord with the

design brief. The first stitch is positioned at the

back of the head and is double knotted to anchor the

head in the correct position. The stitching then

continues around the neck region in a blanket stitch

pattern and the tension is pulled tightly on every

third or fourth stitch. It is necessary to place some

extra fill into the back section of the neck to

properly support the head and the final stitching is

then completed with a double knot to avoid any

unravelling of the stitching.

(m) The inner ears are then hand stitched to the side of

the head so that the ears sit forward and give a

proper "koala" appearance.

(n) It is not easy to create an authentic koala look. In

some instances a stitch is made from under the chin

area of the toy to the bottom of the left eye and then

returned to under the chin area and up to the right

eye and again returned to under the chin area.

(o) Thereafter the toy is hand brushed all over using a

claw tooth steel brush. A steel spike is often used

on the seams to pull out small pieces of fabric which

have been caught in the seams and which give an untidy

appearance.

(p) The toy is then the subject of a final inspection

process during which the production manager examines

each toy, checking the general appearance, the

consistency of the filling and (that) the contours of

the toy follow the design and pattern. It is checked

to ensure that the stitching is neat and well

concealed and tied off tightly.

(q) The label is then affixed by a plastic staple to the

left ear in a way which ensures that the plastic

earplug goes completely through the ear and the tag

does not cover the face of the toy. The labels are

triangular in shape so as to not conceal the

appearance of the koala's facial features. The labels

are affixed so that the "Aussie Born" side of the

label faces outwards.

(r) The toys are then hand packed into cartons to comply

with particular customer orders."

15. His Honour found that all the materials used in koalas were overseas materials, except the filling. On the appeal the parties were agreed that his Honour was in error, so far as the filling was concerned. The parties had in fact agreed at the trial that the position was as follows:

"So far as the filling of the koalas is concerned the raw

material is polyester fibre which is imported into Australia

mainly from China in the form of compressed bales. In

Australia it is carded or teased by being put through

combing machines and teased out, that is fluffed up. That

process occurs two or three times and the material is then

blended with silicone to the specifications of the

particular customer. The silicone is produced here."

16. Although Davies J did not make findings about the market for soft toys in Australia, there was uncontradicted evidence that the soft toy market is worth about $30 to $35 million wholesale per annum and roughly double that in the retail sector. "Australiana" soft toys are essentially aimed at the tourist market. They are sold through four main outlets: duty free shops; destination outlets (souvenir outlets attached to tourist attractions); general tourism stores; and department stores. The first two categories of outlets account for the bulk of sales of Australiana soft toys. Sales mostly occur during the period September to February, because this is the peak season for overseas tourists to visit Australia. Approximately 60 per cent of sales of Australiana soft toys during this period are to overseas tourists.

17. Davies J considered that the words on the label should be given their meaning in ordinary parlance. The ordinary meaning of the words "Made in Australia" had been discussed by Gummow J in Netcomm (Australia) Pty Ltd v Dataplex Pty Ltd (1988) 84 ALR 101. This was a case involving a "user friendly" modem, which had been advertised as "Made in Australia". Gummow J first referred (at 105) to the fact that s.53(eb) had been inserted into the Act in 1986. As the Explanatory Memorandum had indicated, the new sub-section was aimed at traders falsely advertising that their goods had been made in a particular country, as this was often a representation inducing consumers to purchase the product.

18. His Honour then addressed what was meant by "a false or misleading representation concerning the place of origin of goods" for the purposes of s.53(eb) (at 106-107):

"Origin" directs attention, consistently with the Oxford

English Dictionary meaning, to the beginnings of existence

of the goods with reference to a source or cause of that

existence; the concept is that of beginning regarded in

connection with its cause. In s.4(1) of the TP Act, "goods"

is defined as including such sophisticated items as ships

and aircraft as well as primary produce such as minerals and

crops. With minerals or crops, it may be quite easy to

state what is their place of origin and so to characterise

representations concerning that place of origin as being or

not being false or misleading. The concept of "place of

origin" will present difficulties where sophisticated

articles derive their value and character as articles of

commerce by various circumstances involving design and

manufacture. There is then more likely to be a complex of

integers constituting the origin of those articles. The

present is such a case.

To say of goods that they were made in Australia plainly is

to make a statement concerning their place of origin. The

making of goods involves the steps and procedures which

preceded and resulted in the formation or composition of the

goods: cf Korczynski v Wes Lofts (Aust) Pty Ltd (1986) ATPR

47-206 at 47,212. When used in relation to equipment, such

as the DPX-224 modem, and without a qualifying context to

limit it, the expression 'Made in Australia' suggests that

the steps in the composition or construction of the item,

including the design work which makes it the technically

proficient equipment it is promoted to be, were taken in

Australia. The expression will, depending on the context,

amount to a representation, and depending on the facts the

representation may be false or misleading."

19. Davies J found, at 558, that the toy koalas were manufactured partly in China and partly in Australia. The manufacturing in China was supervised by an employee of the appellant. All components of the koalas, except for the filling (more accurately, except for the silicone included in the filling) had been produced outside Australia.

20. The words "MADE IN AUSTRALIA" were twice as large as any other words on the reverse side of the label. The larger print size caught the eye. His Honour observed that even without his glasses he could read the words "MADE IN AUSTRALIA" and "AUSSIE BORN", although he could not read any other part of the label. His Honour summarised his conclusion on the words "MADE IN AUSTRALIA" as follows (at 559):

"I consider that the words "Made in Australia", in the print

size in which they appear, are misleading and deceptive.

Only some of the manufacturing process, in the sense

explained by Gummow J in Netcomm, occurred in Australia. A

significant part of the manufacturing process occurred in

China and most of the components were imported."

21. His Honour, at 560, considered that the use of the trademark "AUSSIE BORN" on the front of the label enhanced the impression that, apart from some imported components, the koala was an Australian product.

22. Davies J then considered the qualification contained in the words "with some imported components". A consumer would be misled because he or she would take the term "component" to refer to the materials making up the koala, such as the fur, the nose and the eyes and most, not some, of those components, were imported into Australia.

23. Davies J went on to consider the other statements made in smaller type on the reverse side of the label and found that two of those statements were misleading and deceptive. These were the statements that

"The major component of the manufacturing cost is in

Australian labour and materials"

and

"In order to maintain the highest quality and value, some

elements have been purchased abroad".

24. Davies J noted, at 557, that the approach taken by Gummow J to the meaning of the words "Made in Australia" had not been followed in the drafting of the Trade Practices (Origin Labelling) Bill 1994 which, if passed, would insert a new s.65VE into the Act. That clause would prevent a corporation carrying a representation that goods were "Made in Australia" unless the "goods acquired their essential character or qualities in Australia". The notes accompanying cl. 65VE gave the following examples of circumstances in which goods would acquire their essential character or qualities in Australia:

"(1) The goods were given their essential function, shape

or appearance in Australia.

(2) The major processes which transformed the goods from

their component parts into the finished goods happened

in Australia.

(3) If the goods are promoted as having certain

characteristics or functions, the goods were given the

characteristics or functions in Australia."

25. His Honour noted that the test embodied in cl.65VE is similar to the "substantial transformation test" applied in the United States in relation to preferential tariff provisions in customer legislation: Anheuser-Busch Brewing Association v The United States [1908] USSC 1; 207 US 556 (1908), at 562. Davies J considered that, if the substantial transformation test or its equivalent, the essential character test, were applied in this case, he would have held that the component parts were transformed into a toy koala in Australia and that prior to their transformation they were merely component parts. The goods obtained their essential character as a toy koala in Australia, the skill exercised in the processes undertaken in Australia being crucial to achieve the desired result.

26. However, his Honour concluded, at 558, that the substantial transformation test, although widely applied for the purposes of customs law, was not appropriate for the purposes of issues arising under s.52 and s.53(eb) of the Act. Thus his conclusion on the application of the substantial transformation test did not resolve the question of whether consumers would be misled or deceived by the appellants' labelling or whether there was a misleading representation as to the place of origin of the koalas. His Honour determined this question in the manner already described.

27. Mr Yates, who appeared with Mr Alkadamani for the appellant, made several criticisms of the approach of the trial judge.

. First, the observations of Gummow J in Netcomm were not intended

to lay down principles of universal application, and, in any

event, required attention to be paid to the qualifying context in

which the words "MADE IN AUSTRALIA" were used. The trial judge

had not considered the context, but had concentrated on the words

"MADE IN AUSTRALIA" and then determined whether the misleading

effect of those words had been qualified elsewhere in the label.

. Secondly, the trial judge had erroneously applied a test requiring

all procedures resulting in the formation of the goods to take

place in Australia. This was not the meaning of the statement,

when understood in context.

. Thirdly, the surrounding words, while in smaller type, were

legible and could have been expected to have been read by

purchasers interested in the origin of the goods. The surrounding

words made it clear that non-Australian labour and materials were

involved in making the toys and that components were manufactured

overseas. A reader of the label acting reasonably would have

realised that not all steps which preceded and resulted in the

formation of the toy had taken place in Australia. The label

conveyed that the koala was brought into existence as a toy in

Australia, with the appellant using components, some but not all

of which were acquired overseas. In substance the label, so

understood, was not misleading or deceptive.

28. Before considering the particular criticisms made by Mr Yates, it is convenient to refer to the principles governing cases of this kind. These principles provide the basis for assessing whether the label was misleading or deceptive or contained a false or misleading representation concerning the place of origin of the koalas.

29. It is necessary to examine the circumstances of the particular case, both to ascertain the meaning of the particular representation made by the trader and to determine whether the representation, so understood, is misleading or deceptive for the purposes of s.52 or, in the case of s.53(eb), whether it is a false or misleading representation concerning the place of origin of goods. Each of these tasks will be influenced by a judgment as to the class of persons likely to be affected by the conduct said to infringe s.52 or s.53(eb) of the Act. As Lockhart J said in Finucane v New South Wales Egg Corporation (1988) 80 ALR 486, at 515, the definition of the class of persons likely to be affected by conduct cannot be stated in absolute terms, but must depend upon the particular facts, including, in a case such as the present, the characteristics of purchasers of the product. While it should not be assumed that purchasers are "extraordinarily stupid" (Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 (FCA/FC), at 181, per Franki J), neither should it be assumed that purchasers of products such as toy koalas will be scrupulous to analyse the nuances of the language the trader has chosen to use on labels attached to the merchandise. See generally Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc [1992] FCA 630; (1992) 38 FCR 1 (FCA/FC), at 48-50, per Hill J. The meaning conveyed by the labels will be assessed by construing the language employed, but will take account of such factors as the prominence given to particular slogans or phrases, the nature of the product itself and the expectations and likely understanding of consumers.

30. There have been a number of reported cases concerning the phrase "Made in Australia". Plainly the phrase is valued by traders because of perceived marketing advantages. Korczynski v Wes Lofts (Aust.) Pty Ltd (1985) 10 FCR 348 (FCA/Jenkinson J) was a criminal prosecution relating to masking tape described as having been "Made in Australia". Jenkinson J observed that the phrase "made in" (at 354)

"provides information supposed to be of interest to

consumers and to induce them to purchase the goods,

sometimes because the activities comprehended by the word

'made' are believed to be carried out more skilfully or more

reliably or with more artistry in the place designated by

the phrase than elsewhere, sometimes because the name of the

designated place may excite the patriotism or the economic

self-interest of consumers, sometimes because material used

in the making of the goods in the designated place is

thought to be superior to material used elsewhere".

31. The phrase "Made in Australia" is also likely to provide an incentive to consumers who wish to acquire a toy or souvenir representing a unique aspect of Australian fauna, flora, geography or culture. For such consumers, including overseas tourists, the fact that the item of "Australiana" is also the product of Australia, is likely to give it an advantage over similar products manufactured or produced elsewhere.

32. I have already referred to the observations of Gummow J in Netcomm as to the meaning of the phrase "Made in Australia". In that case (at 207) Gummow J said that the phrase, when used in relation to a modem and without a qualifying context to limit it, suggested that the steps in the composition or construction of the item were taken in Australia. His Honour drew a distinction between a statement that the modem was "Made in Australia" and one that it was "Built in Australia". The latter did not carry the implication that the components themselves were constructed in Australia, or that the technology employed in designing the goods emanated from Australia.

33. Speaking generally, and depending on the circumstances, the statement the goods are "Made in Australia" is an "historical statement (suggesting) at least substantial manufacture in Australia": Thorp v C.A. Imports Pty Ltd [1989] FCA 515; (1990) ATPR 40-996 (FCA/Sheppard J), at 50,967, a case also involving toy koalas said to have been "Made in Australia". As Jenkinson J in Korczynski v Wes Lofts (Aust.) Pty Ltd said (at 354):

"It is no doubt natural that a judge construing the verb "to

make" in a taxing statute, or a lexicographer bent on defining

the verb, should emphasise the transition from non-existence

to existence of the verb's object. But the phrase

"made in" a particular place, in ordinary speech and in

application to objects of commerce, is understood as a

statement primarily about the activities which preceded and

resulted in the transition."

34. In Thorp, Sheppard J considered a case where the cutting and sewing of the material to form the casing of toy koalas took place in Korea, but all other steps in the production of the koalas took place in Australia. His Honour held that, in these circumstances, the koalas could not be described as having been made in Australia. In his opinion, an appropriate designation would have been (at 50,966)

"Designed and finished in Australia using casings (or skins)

made in Korea".

35. In Korczynski it was held that rolls of masking tape could not accurately be described as "made in Australia" where the only process carried out in Australia was to cut small rolls of tape from a much larger roll, already coated with adhesive. In Siddons Pty Ltd v The Stanley Works Pty Ltd [1990] FCA 283; (1990) ATPR 41-044 (FCA/Jenkinson J), it was held (at 51,596) that the words "Made in Australia",

"in application to a tool such as a metal spanner...mean in

ordinary parlance that most of the processes by which a

piece of metal is brought into the shape of a tool as sold

have occurred in this country".

36. Thus the fact that some processes were carried out to the metal after its importation into Australia, in order to improve its strength and durability, did not prevent a conclusion that endorsing the words "Made in Australia" on the spanner constituted conduct in contravention of s.52 and s.53(eb) of the Act.

37. In the present case, as Mr Yates contended, the language used on the label should be interpreted in context. In particular, I accept that the meaning conveyed to consumers by the words "MADE IN AUSTRALIA" should be construed having regard to other statements on the label and to the likely understanding of consumers of those statements. As in Netcomm, this is a case in which evidence as to the habits and attitudes of consumers, in relation to the language used on the label would have been helpful in providing part of the circumstances against which the conduct complained of should be assessed. As in Netcomm no such evidence was tendered. Accordingly, a judgment has to be made as to the meaning of the language used and whether it is misleading and deceptive by reference to such facts as have been established by the evidence.

38. The outside of the label, which is likely to be the side first seen by the consumer, contains the words "AUSSIE BORN TM" and an image of a koala. The most prominent words on the reverse side of the label are "MADE IN AUSTRALIA". This phrase is qualified by the words, in smaller type, "WITH SOME IMPORTED COMPONENTS". The more diligent consumers, assuming they can read English, might read the more detailed information in smaller type, including this sentence:

"In order to maintain the highest quality and value, some

elements have been purchased abroad."

39. Even considering the matter without reference to authority, it is difficult to resist the conclusion that the language used on the label is calculated to convey to consumers the impression that these items of Australiana are substantially manufactured in Australia. The words "MADE IN AUSTRALIA" are given prominence, no doubt in order to catch the eye of the consumer. As Jenkinson J observed in Korczynski, the approach of the lexicographer to the word "made" does not convey the flavour of the meaning of the phrase "made in". More particularly, a dictionary approach does not do justice to the significance of "MADE IN AUSTRALIA" as a catchphrase, connoting, in my opinion, that the product is substantially, if not wholly, the result of manufacturing processes carried out in Australia. The force of the catchphrase is, if anything, increased by the fact that it is attached to an "Australiana" product. The product is not particularly expensive, the smaller koalas retailing for about $20 to $25. The consumer is therefore likely to devote less care to reading labels in a case of this nature than where he or she is buying, for example, expensive items of furniture: compare Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, at 210-211, per Mason J. The slogan or catchphrase, in these circumstances, is likely to play an important part in creating an impression in the consumer.

40. Mr Yates contended that undue attention should not be paid to the phrase "MADE IN AUSTRALIA". He submitted that a consumer could be expected to consider the whole of the label, including the qualifying language. But it is appropriate to bear in mind that, having regard to the proportion of purchasers who are overseas tourists, many consumers will have only a limited facility in English and, to them, the phrase "MADE IN AUSTRALIA" may be the only words on the label that they understand. The consumer who lacks facility in English is not beyond the scope of the protection that s.52 and s.53(eb) of the Act is intended to provide.

41. If, as Mr Yates urged, attention is paid to other parts of the label, the consumer is made aware that not all components used in the manufacture of the koalas are themselves made in Australia. But this is very different from a statement that none of the components, except the silicone blend (constituting 30% of the filling), is manufactured in Australia. Mr Yates pointed out that the dictionary meaning of "some" is a "certain, unspecified number". This meaning is capable of embracing a range from a small percentage to all but one component. Depending on context this may be so. But the juxtaposition of the words "WITH SOME IMPORTED COMPONENTS" and the phrase "MADE IN AUSTRALIA" is not calculated to produce in consumers the impression that virtually all components used in the production process in Australia are imported. Moreover, the statement that

"In order to maintain the highest quality and value, some

elements have been purchased abroad",

if anything, suggests that it is only where Australian components of the requisite quality are unavailable that overseas "elements" have been imported. This sentence does not convey that all components except one have resulted from manufacturing processes undertaken outside Australia, in order to save cost. The sentence is itself misleading.

42. Taking the label in context, it seems to me that even an English-speaking consumer who is prepared to read the label with a moderate degree of care, would believe that the koalas have been produced by a manufacturing process substantially taking place in Australia. The consumer is also likely to believe that most of the components used in the manufacturing process themselves have been manufactured in Australia. A consumer unable or unwilling to do more than glance at the label would be even more likely to form these beliefs.

43. In my opinion the statements made on the label, understood as I have explained, are false in two principal respects. First, the koalas, considered as a complete item, were not substantially manufactured in Australia. The position is similar to that described by Sheppard J in Thorp (at 50,966-50,967):

"It seems to me that there were three essential steps in the

process of manufacture that is in question. In saying this,

I agree with submissions made by counsel for the prosecutor

that it is not appropriate to include the designing of the

koala bears as a step in their manufacture. Many articles

are designed in one country, but made in another. The first

essential step was the cutting and sewing of the material to

form the casing, the second, the filling of the casing, and

the third, the further sewing and checking procedures. It

is true that, of these, only the first was carried out in

Korea, but in my opinion that was the step which transformed

the material which was used into the essential shape and

appearance of a koala bear. It is equally true that each of

the three steps was an essential element in the production

process. Without any one of them, no koala bear would have

been produced. So it might be just as wrong to say that the

bears were made in Korea. Only a statement such as I have

formulated above (i.e. "Designed and finished in Australia

using casings (or skins) made in Korea") correctly describes

the position. As Jenkinson J pointed out in the Wes Lofts

case, a statement such as "Made in Australia" is an

historical statement. The expression suggests at least

substantial manufacture in Australia. In my opinion the

fact that the casings were cut and sewn in Korea prevents

the statement from being one which can be correctly applied

to the articles in question here."

44. It is true that, as Davies J acknowledged, at 556, the work undertaken in Korea in Thorp completed the koalas to a greater extent than in the present case. When imported and turned, the casings in Thorp comprised the facial features, ears, legs and body of the koala. Even so, considerable skilled work remained to be done in Australia, including hand moulding and stitching to ensure the correct facial features and characteristics were achieved, as well as the filling of the casings by means of special machinery.

45. In the present case, as in Thorp, essential portions of the manufacturing process took place outside Australia. The casings were produced from fabric manufactured in China. The casings were themselves manufactured in China to a design that enabled them to be processed in Australia to the stage of a finished koala. There was evidence that the same casings were capable of being used to produce other toys, but it is clear that the casings were in fact used principally, if not exclusively, to produce the koalas. The manufacturing process in China produced casings which were specifically designed, with additional stitching and filling, to constitute the body, head and limbs of the finished koalas.

46. It is not accurate to describe the koalas as having been made in Australia, in the sense of having been substantially manufactured in this country. As in Thorp, it is accurate to say that they were designed and finished in Australia.

47. The statements on the label are also misleading and deceptive because a consumer of the kind who might be expected to purchase the koalas would not be likely to understand that all components of the koala, other than the silicone, were imported. Mr Arrata gave evidence that a customer's decision to purchase a soft toy was based on a combination of the look or cuteness of the soft toy, its feel and its price. Not one single component of the koala visible to the consumer - fabric, eyes, nose, claws - was produced in Australia. The statements on the label would lead a consumer to believe that most of the components used are made in Australia. The fact is that, with a single exception, invisible to the consumer, none was the product of Australia.

48. The label also contains false or misleading representations concerning the place of origin of the goods, in contravention of s.53(eb) of the Act. The label represents that the goods were substantially manufactured in this country and that the components used were not primarily manufactured overseas. Each representation is one "concerning the place of origin" of the koalas, in the sense that each directs attention to the source of the goods, or to the procedures resulting in their production as a finished product: Netcomm, at 106-107. The representations are false or misleading, for the reasons already given.

49. I should note two arguments that were put by Mr Yates. First, he contended that evidence given by Mr Hodge as to the cost of the imported components of the koalas supported the conclusion that the bulk of the manufacturing processes occurred in Australia. Mr Hodge estimated that the average cost of production of the koalas was $10.19 per toy, of which $1.65 (or about 16%) represented imported materials; $1.28 was money expended in Australia other than on labour and overhead; and $7.26 constituted wages and a proportionate share of overheads. Davies J made no findings about the accuracy of these estimates, pointing out that there were significant questions about Mr Hodge's calculations. (Mr Hodge had included in the Australian costs, for example, the salary, air fares and travelling expenses of the employee who supervised the manufacturing processes in China.) In any event, as his Honour said, at 555-556, a mere comparison of cost cannot accurately indicate the extent to which manufacture occurs in China compared with Australia. The very point of off-shore manufacture is to take advantage of low costs in developing countries.

50. Secondly, Mr Yates argued that, in assessing whether the appellant's conduct was misleading or deceptive, it was relevant to take account of the fact that a body known as the Advance Australia Foundation had granted "Australian Made" licences to another soft toy producer. Although the Foundation was said to be a quasi-government body, the evidence did not reveal its charter or responsibilities. Application forms from a particular producer for an "Australian Made" licence were in evidence. These suggested that imported materials and components accounted for 32% of that producer's total product cost ex-factory. However, the decision-making process leading to the grant of a licence to the applicant was not the subject of evidence. In any event it is difficult to see the relevance of a licence granted to another producer of soft toys to whether a particular label is misleading or deceptive, or makes a false or misleading statement concerning the place of origin of goods. In my opinion the evidence referred to by Mr Yates was not helpful in deciding the issues raised by the present case.

51. It follows from what I have said that, if the representations on the label are considered in context, as Mr Yates urged, the appellant's conduct breached both s.52 and s.53(eb) of the Act. However, I should record that I do not think it is correct to contend that Davies J failed to consider the words "MADE IN AUSTRALIA" in context. Although his Honour analysed each statement on the label seriatim, he addressed himself to the overall effect of the label. It was for that reason that he considered the size of the words and the effect of the qualification constituted by the words "WITH SOME IMPORTED COMPONENTS". His Honour formed the view, as I have, that the qualifying words were themselves misleading and deceptive. He also regarded the words "AUSSIE BORN", on the front of the label, as enhancing the impression given by the label that, apart from some imported components, the koala was an Australian product. The conclusion that the label was misleading and deceptive and misrepresented the origin of the goods was based on an assessment of the statements taken in their context.

52. Nor do I think that his Honour applied a test that an item could not be made in Australia unless all procedures resulting in the formation of the goods occurred in this country. His Honour expressed the view at 559, in the passage quoted earlier, that a "significant part of the manufacturing process occurred in China". It was that fact that rendered the statements on the label misleading and deceptive, and justified the conclusion that the label misrepresented the origin of the goods.

53. The respondent challenged, by way of notice of contention, his Honour's conclusion that, if the substantial transformation or essential character test were applied in the present case, the goods obtained their essential character as toy koalas in Australia. His Honour found that the component parts are transformed into a toy koala, and thus acquire their essential character, in Australia.

54. Mr Walker SC, who appeared with Mr Faulkner for the respondent, referred to the test frequently applied in the United States, to determine whether a local manufacturer has to disclose the origin of foreign components in the final product, such as lenses fitted into spectacle frames or jewellery incorporating imported imitation pearls. The test is that

"if the foreign component 'retains its essential character

of function and appearance' then disclosure is required."

Trade Regulation Reports, 7551, "Foreign Origin", at 10,911.

55. Mr Walker submitted that his Honour had not applied the test formulated in the United States authorities. Rather, he had applied the different tests stated in the note accompanying cl.65VE of the Trade Practices Amendment (Original Labelling) Bill 1994. As stated earlier, the note gives examples of circumstances in which goods will satisfy the proposed legislative standard that they acquire their "essential characteristics or quality in Australia". The examples include cases where the goods are given "their essential function, shape or appearance in Australia" or the "major processes which transform the goods from their component parts into the finished goods (happen) in Australia". By contrast, the United States authorities focus on whether the foreign-made components lose their own essential characteristics by incorporation in the finished product: see Trade Regulation Reports, at 10,921-10,922. Mr Walker submitted that, on this test, the casings had not lost their essential characteristics by reason of the processes undertaken in Australia to produce a finished toy koala.

56. In my opinion, it is unnecessary to consider whether his Honour correctly formulated or applied the so-called essential character test. This part of his Honour's reasons was irrelevant to his conclusion that the appellant's conduct was misleading and deceptive (s.52), and that it had made a false or misleading representation concerning the place of origin of the toy koalas (s.53(eb)). For the reasons already given, I do not think any error has been shown in those conclusions.

57. For these reasons I think the appeal should be dismissed. Mr Yates contended that, if the Court were minded to dismiss the appeal, the orders below should be amended to provide for liberty to apply if the Trade Practices Amendment (Origin Labelling) Bill 1994 were to become law. The purpose of such a reservation would be to enable the appellant to apply to discharge or modify the injunction if the conduct restrained were to be specifically authorised by the legislation. However, the reservation of liberty to apply in a final order does no more than reserve to the parties a liberty, which is generally regarded as implied, to apply for any order considered necessary or desirable for the working out of the order. It does not authorise the court to discharge or vary the order: Commonwealth Scientific and Industrial Organisation v Perry (1988) 53 SASR 538 (SCt SA/Banco), at 557, per King CJ. Moreover, the Court has jurisdiction to dissolve a permanent injunction in circumstances where legislation has removed the foundation for the grant of the injunction: CSIRO v Perry, at 558; Coffs Harbour Environment Centre Inc v Minister for Planning (1994) 84 LGERA 324 (NSW CA), at 335-336, per Kirby P. Additionally, Order 37, rule 6 of the Federal Court Rules makes specific provision for a party bound by a judgment to move the Court for orders on the ground of matters occurring after the date of the judgment. This provision gives the Court jurisdiction to vary or dissolve a permanent injunction: Coffs Harbour, at 336, per Kirby P. Thus, if the Bill were ultimately passed by the Parliament in its present form, and if it were thought to authorise conduct by the appellant which is restrained by the Court's order, it would be open to the appellant to apply to the Court to dissolve or modify the order.

58. Accordingly, in my view the appropriate order is simply that the appeal should be dismissed. The appellant should pay the respondent's costs.

R D NICHOLSON J The appellant ("QDSV") appeals from a judgment of Davies J in which it was declared that certain cardboard labels were in breach of ss52 and 53(eb) of the Trade Practices Act 1974 (Cth) ("the Act"). It was further ordered that QDSV be restrained from selling or distributing its toy koala if the infringing labels were attached to or associated with it. These orders were made pursuant to s80 of the Act.

2. The first of the two cardboard labels in question was said in the reasons for judgment to have been the subject of agreement between the parties that it was misleading. Although actual agreement to that effect is disputed on behalf of the respondent, the appeal was not pressed in respect of the first label so that it is unnecessary to consider it further.

3. The findings of his Honour in respect of the content of the second label were as follows:

"The second label has on one side a depiction of a koala on

a yellow background and the words in large letters "AUSSIE

BORN". Against those letters in small print are the letters

"TM". Evidence has been given, which I accept, that the use

of those letters is an indication to the public that the

term "AUSSIE BORN" is used as a trademark.

On the other side of the label is

this description:-

The

AUSSIE BORN

range from the Hunter Valley,

Australia is a product of

BUSH FRIENDS AUSTRALIA

(a wholly owned Australian Company)

The major component of the manufacturing

cost is in Australian labour and materials.

In order to maintain the highest quality and value,

some elements have been purchased abroad.

Gentle Machine Wash

BUSH FRIENDS AUSTRALIA - WORLD WIDE GUARANTEE

If you are not entirely satisfied with your purchase,

you may return it for refund or exchange to

BUSH FRIENDS AUSTRALIA.

Level 5, 62 Pitt Street, Sydney NSW 2000.

Phone: (02) 241 4888

MADE IN AUSTRALIA

WITH SOME IMPORTED COMPONENTS."

4. His Honour then made findings of fact concerning the koala to which the second label was attached. They were as follows:

(1) It was designed by QDSV.

(2) The fur fabric from which it was made was selected by

a director of QDSV in China and purchased there by

another firm.

(3) That Chinese firm then cut the fur fabric into shape

and formed holes therein so as to enable the eyes and

nose of the koala to be inserted later.

(4) The firm then sewed the pieces together, leaving the

head and torso separate.

(5) There was sewn into the koala a tag which on one side

showed the label "Bush Friends Australia" and, on the

other, "All new materials, Gentle Machine Wash Reg

Design Applied". His Honour found the reference to

the design application to be false but said it was not

a matter that arose before him.

(6) The head and torso parts were then turned inside out

and then in that form sent to QDSV in Australia.

(7) The eyes and nose of the koala were produced in Hong

Kong or Taiwan. The appropriate number of them were

usually sent by the Chinese firm to QDSV in Australia

together with the head and torso.

(8) The koalas were completed at a factory in New South

Wales established by QDSV.

(9) The casing was then turned the correct way.

(10) The noses and eyes were then fitted and clipped into

position.

(11) The heads and torsos were then given out to piece

workers who, at their own homes, inserted the filling

and sewed the heads and torsos together and made any

stitching repairs required. They also brushed each

toy.

(12) Each koala was given a final inspection in the

factory.

(13) Labels were then affixed by a plastic staple to the

ear and were affixed so that the "Aussie Born" side of

the label faced outwards.

(14) All the materials, except the filling, were overseas

materials.

5. His Honour included in his reasons a description agreed by the parties of the manufacturing processes carried out in Australia to the further detail of which it is not necessary to go.

6. In relation to finding (5), the grounds of appeal contend that his Honour erred in finding the reference to the design application to be false. It is conceded by the respondent there was no evidence of its falsity, but as the matter played no relevant part before his Honour it cannot form any part in the resolution of this appeal.

7. Although not the subject of a ground of appeal, it appears that his Honour was also in error in his final finding that the filling did not include any overseas materials. At trial, counsel for the respondent advised his Honour that agreement had been reached that, so far as the filling of the koalas was concerned, the raw material of polyester fibre was imported into Australia mainly from China in the form of compressed bales. In Australia it was carded or teased by being put through combing machines and fluffed up. That process occurred two or three times and the material was then blended with silicone to the specifications of the particular customer. The silicone was produced in Australia. Although there is some contention whether this matter was the subject of agreement, it was accepted on the hearing of the appeal that, whether or not that was the case, the filling was derived in that way.

8. His Honour reached the following conclusions in relation to the second label:

(a) The words "Made in Australia", in the print size in which they

appeared, were misleading and deceptive because only some of the

manufacturing process had occurred in Australia. A significant

part of the manufacturing process had occurred in China and most

of the components were imported;

(b) The words "With some imported components" were a qualification.

The word "component" is ordinarily understood to be "a

constituent part". A consumer would take the term as referred to

the materials making up the koala, such as the fur, the nose and

the eyes. A consumer would be misled because most, not some, of

the components were imported.

(c) The statement "the major component of the manufacturing cost is

in Australian labour and materials" was misleading and deceptive.

The major component of cost in relation to materials was the cost

of the imported materials. The reference to Australian labour

failed to direct attention away from the fact that there was

substantial Chinese labour involved in the manufacture of the

koalas and that labour in China was paid at a fraction of the

rate of Australian labour.

In his reasons his Honour had earlier expressed the opinion that

it was unfortunate that an independent accountant had not been

called to give a break-up of costs of QDSV. Evidence had been

given by the Managing Director of QDSV that the average cost of

production of the koalas was $10.19 per toy and that it was made

up of the following:

"(i) $1.65 in respect of imported

materials

(ii) $1.28 in respect of money expended in

Australia other than on labour or overhead

(iii) $7.26 in respect of wages directly applicable to

the toy and a proportionate share of overheads

allocated to the toy

3. Of the average production cost of $10.19,

17% is the amount paid for the imported

material and 83% is the average local

content component."

His Honour said that the relative costs incurred in relation to

what was done in China and what was done in Australia in the

present case were in the range where, if the case was such as to

make the finding appropriate, it could be held that the words

"Made in Australia" were misleading. He pointed out that a

difficulty in making a comparison of that type is that the wages

in China are so much lower than those in Australia so that a mere

comparison of cost did not accurately indicate the extent of the

work done in one country as against that carried out in the

other.

(d) The statement "In order to maintain the highest quality and

value, some elements have been purchased abroad", was misleading

in several ways. The word "element" in association with the word

"purchased" would be taken to refer to parts and materials but

most, not some, of these were purchased abroad. Moreover, the

reference to "some elements have been purchased abroad", misled

the consumer because the fact was that the arrangements between

QDSV and the Chinese firm involved the use of Chinese labour to

undertake a part of the manufacturing process, a process

supervised by an employee of QDSV. Persons reading the label

would not understand that Chinese labour was used in the

manufacture of the toy koalas and this was done, not to maintain

quality, but to reduce cost.

(e) The use of the trademark "Aussie Born" added to the 48 misleading

and deceptive nature of the label because it enhanced the

impression given by the label that, apart from some imported

components, the koala was an Australian product. His Honour left

open the question whether the words "Aussie Born" would be

misleading and deceptive absent the words "Made in Australia" on

the reverse side of the label.

(f) The origin of the goods was misrepresented by the second label

because they were not made in Australia. Rather they were made

partly in China and partly in Australia so that there was a

breach of s53(eb) of the Act.

9. Following these conclusions his Honour referred to evidence which was before him on behalf of QDSV that the Advance Australia Council had certified the use of the words "Made in Australia" for many products which were manufactured in a manner similar to that of the respondent's koalas. However, he found that the material given to the Council, when application was made for certification, did not disclose that there was to be an overseas manufacturing process equivalent to that which the respondent's product had undergone in China and that therefore the evidence was not helpful. Similarly, he gained no assistance from examples in evidence of names and packaging of the goods which suggest a connection with Australia. Although in the argument of the appeal the Court was taken to this evidence, in my opinion his Honour was entirely correct in concluding it was irrelevant and unhelpful to the task before him.

10. The challenge to his Honour's conclusion raised by the grounds of appeal focused substantially on his Honour's examination of the words "Made in Australia" in isolation from the qualifying context which immediately follows them on the label as well as the test he applied in reaching his conclusion as to the meaning of those words considered in isolation. The two matters are intertwined because his Honour acknowledged in his reasons that the words "with some imported components" were words of qualification in relation to the words "Made in Australia".

11. In arriving at his conclusion on the meaning of the words "Made in Australia" his Honour accepted and applied dicta of Gummow J in Netcomm (Australia) Pty Ltd v Dataplex Pty Limited (1988) 81 ALR 101 at 106-7:

"What then is meant by a false or misleading representation

concerning the place of origin of goods? 'Origin' directs

attention, consistently with the Oxford English Dictionary

meaning, to the beginnings of existence of the goods with

reference to a source or cause of that existence; the

concept is that of "beginning" regarded in connection with

its cause. In s4(1) of the TP Act, 'goods' is defined as

including such sophisticated items as ships and aircraft as

well as primary produce such as minerals and crops. With

minerals or crops, it may be quite easy to state what is

their place of origin and so to characterise representations

concerning the place of origin as being or not being false

or misleading. The concept of 'place of origin' will

present difficulties where sophisticated articles derive

their value and character as articles of commerce by various

circumstances involving design and manufacture. There is

then more likely to be a complex of integers constituting

the origin of those articles. The present is such a case.

To say of goods that they were made in Australia plainly is

to make a statement concerning their place of origin. The

making of goods involves the steps and procedures which

proceeded and resulted in the formation or composition of

the goods: cf Korczynski v Wes Lofts (Aust) Pty Ltd (1986)

ATPR 47-206 at 47,212. When used in relation to equipment,

such as the DPX-224 modem, and without a qualifying context

to limit it, the expression 'Made in Australia' suggests

that the steps in the composition or construction of the

item, including the design work which makes it the

technically proficient equipment it is promoted to be, were

taken in Australia. The expression will, depending on the

context, amount to a representation, and depending on the

facts the representation may be false or misleading."

12. The reference by Gummow J to Korczynski v Wes Lofts (Aust) Pty Ltd (1985) 10 FCR 348 was a reference to the following passage in the reasons for judgment of Jenkinson J at 354:

"It is no doubt natural that a judge construing the verb "to

make" in a taxing statute, or a lexicographer bent on

defining the verb, should emphasise the transition from

non-existence to existence of the verb's object. But the phrase

"made in" a particular place, in ordinary speech and in

application to objects of commerce, is understood as a

statement primarily about the activities which preceded and

resulted in the transition. In that application, the phrase

provides information supposed to be of interest to

consumers, and to induce them to purchase the goods,

sometimes because the activities comprehended by the word

"made" are believed to be carried out more skilfully or more

reliably or with more artistry in the place designed by the

phrase than elsewhere, sometimes because the name of the

designated place may excite the patriotism or the economic

self-interest of consumers, sometimes because material used

in the making of the goods in the designated place is

thought to be superior to material used elsewhere."

13. His Honour considered that the view of Gummow J in Netcomm (supra) was that the words "Made in Australia" make a representation as to the place of origin and a statement which concerns the steps and procedures which proceeded and resulted in the formation or composition of the goods. He regarded Gummow J as having distinguished such a statement from "Built in Australia" which Gummow J considered not to relate to the origin in the sense of design and manufacture but rather to "the fitting together of separate parts".

14. His Honour also referred to what had been said by Sheppard J in Thorp v C A Imports Pty Ltd [1989] FCA 515; (1990) ATPR 40-996 at 50-996-7:

"It seems to me that there were three essential steps in the

process of manufacture that is in question. In saying this,

I agree with submissions made by counsel for the prosecutor

that it is not appropriate to include the designing of the

koala bears as a step in their manufacture. Many articles

are designed in one country, but made in another. The first

essential step was the cutting and sewing of the material to

form the casing, the second, the filling of the casing, and

the third, the further sewing and checking procedures. It

is true that, of these, only the first was carried out in

Korea, but in my opinion that was the step which transformed

the material which was used into the essential shape and

appearance of a koala bear. It is equally true that each of

the three steps was an essential element in the production

process. Without any one of them, no koala bear would have

been produced. So it might be just as wrong to say that the

bears were made in Korea. Only a statement such as I have

formulated above correctly describes the position. As

Jenkinson J pointed out in the Wes Lofts case (Korozynski v

Wes Lofts (Aust) Pty Ltd (1986) 10 FCR 348), a statement

such as 'Made in Australia' is an historical statement. The

expression suggests at least substantial manufacture in

Australia. In my opinion the fact that the casings were cut

and sewn in Korea prevents the statement from being one

which can be correctly applied to the articles in question

here."

15. His Honour distinguished the decision in that case on the ground that the work done in Korea had completed the koalas to a much greater extent than in the present proceeding. In that case the facial features were completed and the ears, the legs and the body all sewn together in Korea. When the casings, which were inside-out when imported, were turned in Australia, there was an appearance of a bear, albeit a bear which lacked filling. He found the imported components in the present proceeding to be too separate and incomplete to have that character.

16. It will be observed that in Netcomm (supra) Gummow J, in addressing the application of the words "Made in Australia" to the equipment (the DPX-224 modem), included "design work" in the steps of composition and construction of the item. In contrast, Sheppard J in Thorp (supra) excluded the designing of the koala bears as a step in their manufacture. In my opinion it is not necessary for the resolution of this appeal for that difference to be reconciled or further considered. It is not contended that his Honour should have excluded consideration of design work. The point is not brought into issue by any of the grounds of appeal. Furthermore, Gummow J and Sheppard J were each addressing goods of a different character in a context of different content.

17. It is this contextual approach which both the appellant and the respondent call into question. The appellant contends that his Honour erred in failing to find that the "substantial formation test" was applicable to the determination of the meaning of the words "Made in Australia" or that the "essential character test" was so applicable. By notice of contention the respondent contends that his Honour erred in failing to apply the essential character test. The respondent contends that the essential character test is the one which should apply and can be developed independently of the substantial transformation test referred to in the authorities appearing in the reasons of his Honour. The appellant's contentions in favour of the essential character test placed no reliance upon the United States position; to which his Honour made reference.

18. Both tests were referred to by his Honour in the course of his reasons. He said that the exposition by Gummow J of the words "Made in Australia" in Netcomm (supra) had not been followed by the draftsman of the Trade Practices Amendment (Origin Labelling) Bill 1994. In that Bill it is provided that the description "Made in Australia" may not be used unless "the goods acquired their essential character or qualities in Australia". The following examples were given in notes accompanying proposed cl65VE of that circumstance:

"(1) The goods were given their essential function, shape

or appearance in Australia.

(2) The major processes which transformed the goods from

their component parts into the finished goods happened

in Australia.

(3) If the goods are promoted as having certain

characteristics or functions, the goods were given the

characteristics or functions in Australia."

19. His Honour said that the approach taken in the Bill was similar to that which had been adopted in relation to draw-back and preferential tariff provisions of Customs legislation. He continued:

"In Anheuser-Busch Brewing Association v The United States

[1908] USSC 1; 207 US 556 (1908) Mr Justice McKenna, delivering the opinion

of the Court, said at 562:

"Manufacture implies a change, but every change is not

manufacture, and yet every change in an article is the

result of treatment, labour and manipulation. But

something more is necessary, as set forth and

illustrated in Hartranft v (Wiegmann) 121 US 609.

There must be a transformation; a new and different

article must emerge, 'having a distinctive name,

character or use'."

The substantial transformation test has had wide application

in the United States notwithstanding that, as Joseph A

LaNasa III has observed in 34 Harvard International Law

Journal 381 at 385:

"The substantial transformation standard gives

customs officials the freedom to apply the

standard on a highly subjective, case-by-case

basis that often results in seemingly arbitrary

decisions. In reviewing these origin

determinations, courts have had a great deal of

trouble discerning the point at which a

processing operation causes a product to be

substantially transformed, and as a result, they

have developed a variety of inconsistently

applied criteria. Not only have the courts

failed to develop a uniform set of criteria for

substantial transformation, but they have also

applied the test inconsistently in similar

situations depending upon the purpose of the

determination."

The International Convention on the Simplification and

Harmonization of Customs Procedures 1973 (the Kyoto

Convention) adopted the concept of substantial

transformation, though it modified it by the principle of

change of tariff heading, as did the US Canada Free Trade

Agreement 1988. See G N Horlick and M A Meyer in Rules of

Origin in International Trade, Vermulst, Waer and Bourgeois

eds, 1994, at 404."

20. His Honour stated that he mentioned those matters to emphasise that the substantial transformation test had particular relevance for customs purposes when it was necessary to decide whether a particular manufacturer or importer should obtain the benefit of a draw-back or a tariff preference when the manufacturing process has occurred in more than one country. He added, firstly, that in Australia rules of origin did not originate from a need to define the countries from which all goods originated but rather a specification of the conditions under which tariff preference would be accorded to particular goods so that the current provisions in ss153A-153T of the Customs Act 1901 (Cth) could not be regarded as a relevant guide to the present issue. Secondly, even in the United States where the substantial transformation test is firmly established, matters arising in the context of trade regulations may be considered under somewhat different tests.

21. He therefore concluded that he should approach the issue in the case before him by giving to the words used on the label their meaning in ordinary parlance not the meaning which would be given by the application of the substantial transformation test, or its equivalent, the essential character test appearing in the Trade Practice Amendment (Origin Labelling) Bill. Furthermore, he concluded that the ordinary meaning of the words "Made in Australia" is that enunciated by Gummow J in Netcomm (supra).

22. For the appellants it is contended that what was said by Gummow J in Netcomm (supra) was referrable to the consideration of the item of equipment before him and could not be taken as providing a test of general application. In my opinion that submission is fallacious. Prior to the point where Gummow J made reference to the particular equipment under consideration he addressed the ordinary meaning of the words "origin of goods" as they appear in s53(eb) of the Act. All that Gummow J purported to do was to explain the meaning of the words in their ordinary parlance. That is a legitimate technique of statutory construction. The words to which he referred were given their dictionary meaning. Those meanings are relevant to an understanding of the words "Made in Australia" because as Gummow J stated: "to say of goods that they were made in Australia plainly is to make a statement concerning their place of origin".

23. Gummow J also referred to the fact that legal arguments, such as those used by the applicant in that case in support of the essential nature test, which he described as drawing upon notions of platonic essences, were by no means as unusual as the respondent in that case suggested. However, he said that, in his view, no great assistance was to be derived by approaching the case before him in that way. What was necessary was to construe the statutory provisions in question and then, in the factual setting disclosed by the evidence, to consider the phrases the use of which the applicant complains. In my opinion and with respect, that is an entirely correct approach to the interpretation of the statutory provisions of the Act. It cannot therefore be said that his Honour was in any way in error in applying the dicta of by Gummow J in Netcomm (supra) in order to arrive at the ordinary meaning of the words "Made in Australia".

24. It is the effect of the label on the consumer which is in issue. It is the words of the label which the consumer reads. Accordingly, it is the meaning of those words in ordinary parlance which is in issue as well as the manner in which those words are presented to the eye of the consumer. While it is true that the application of the ordinary meaning of the words leaves the judge deciding the effect of those words without evidence of the impact of those words on consumers, it is the fact that it is the impression of the words which is critical to a determination of whether they are, in the circumstances as found, misleading and deceptive either generally or in relation to the origin of goods. While the nature of the consumer which the Court must posit as the target audience of the label was not argued on the appeal, the Court was taken to Siddons Pty Ltd v The Stanley Works Pty Ltd (1991) 29 FCR 14 in which the preferred approach in determining the minimum standard to be expected of persons in the target audience is to assume a person who is "not particularly intelligent or well informed ... of somewhat less than average intelligence ... (but who is not) ... quite unusually stupid".

25. Questions were raised on the hearing of the appeal concerning the appropriateness of this test when the consumer is a non-English speaking tourist or one with limited English language skills. There was evidence before his Honour, on which it was not necessary for him to make any findings, that about 80 per cent of souvenirs (including soft toys of native fauna) were sold during the peak tourist period, with the majority of tourists coming from Japan, Hong Kong, Europe and America. In my opinion the probability that the label will be read by a consumer who is a person of limited English speaking abilities does not make inappropriate the test of examining the words of the label in terms of common parlance. In particular, it is the case that words emphasised, for example by a different print size, attain an importance in relation to such consumers whose eye may be attracted to words such as "Made in Australia" rather than to any qualifying context. The phrase "Made in Australia" has an appeal, in the case of Australian consumers, to economic patriotism and has the potential, in the case of all consumers, whether skilled in English or not, to be recognised as a designation that the skills of Australians have resulted in the manufacture of the item to which the words are applicable. Certainly the prospect that a label will be read by a consumer of no or limited abilities in English is not a sufficient reason to depart from well established modes of statutory and documentary construction and to introduce a test, such as the substantial transformation or essential character test, to determine the effect of the words in issue.

26. In editions of a brochure, published under the authority of the respondent in conjunction with explanations of circumstances where it was appropriate for consumers to use the words "Made in Australia", which were in evidence before his Honour, reference was made to use of the essential character test. It is unnecessary to examine that material. It was not the subject of any findings by his Honour nor can it have any authority in determining the correct approach both to the sections which his Honour was bound to apply and the words in the label which he was bound to interpret.

27. The contentions for the appellant and for the respondent in favour of an adoption of the substantial transformation or essential character test are to be understood in the context of a further conclusion reached by his Honour that, if either of those tests were applied in the present case, he would hold that the component parts were transformed into a toy koala in Australia and that, prior to their transformation in Australia, they were merely component parts. In his opinion, on those tests, the goods obtained their essential character as a toy koala in Australia. He found that the skill exercised in Australia in filling the head and the torso, and in sewing the two parts together at the correct angle, was critical to achieving the desired result. For the respondent it is contended that his Honour was in error in this respect and that he should have found that the goods obtained their essential character as a toy koala in China. It is not necessary to resolve that plea because no case is established that his Honour should have adopted either test in preference to applying the ordinary meaning of the words "Made in Australia". Certainly it cannot be the case that the tabling in Parliament of the Trade Practices Amendment (Origin Labelling) Bill 1994 in any way justifies the adoption of the approach foreshadowed in that Bill which, ipso facto, has not yet passed into law.

28. The question remains whether his Honour was correct in approaching the words "Made in Australia" separately from the qualifying context of the words "with some imported components". The reason which his Honour gave for doing so was the different print size in which each of the phrases appeared. His Honour noted that the words "Made in Australia" appeared twice as large as any other words on that side of the label and very much larger than most of the words. He said:

"Size is important. The larger the print, the more it

catches the eye. Even without his glasses, the trial Judge

can read the words "Made in Australia" on that side of the

label and also the words "Aussie Born" on the other side of

the label; though he cannot read any other part of the

label.

As a matter of strict theory, if words such as "Made in

Australia" are misleading and deceptive, qualifying words

which are added to render the message accurate should be in

the same sized print, for the qualification is just as

important as the description itself."

29. It is to be observed that in reaching his conclusion that the words "Made in Australia" were misleading and deceptive his Honour said that he reached that conclusion in relation to the words "in the print size in which they appear".

30. In my opinion his Honour did not fall into error in considering the words "Made in Australia" separately from the words "with some imported components". Even if he had considered each set of those words as one continuous phrase he would have been bound to have reached the same conclusions. He was required to give to those words their meaning in ordinary parlance. It is not the case that he failed to consider the words "Made in Australia" in their qualifying context. He proceeded to the words of qualification immediately following considering the words "Made in Australia". If each set of words were considered as one phrase he could not on the facts before him have found that they provided an accurate description of what was disclosed by the findings of fact which he had made. In Thorp (supra) at 50-966, Sheppard J reached the conclusion that the koalos in issue in that case were not correctly described as having been "Made in Australia", the appropriate description rather being "Designed and finished in Australia using casings (or skins) made in Korea". The findings of fact made by his Honour in the present case would have made appropriate a description reading "Designed and assembled in Australia" with additional words relating to the imported components.

31. His Honour was clearly correct on his own findings when he concluded that reference to "some" imported components was inadequate to describe the true situation. For the appellant it was submitted that the word "some" does not convey the meaning of "something less than most of the components". Rather it is said the word "some" has more apt meanings such as "certain", "of a certain unspecified number" and "an unspecified number" (cf The Macquarie Dictionary, 2nd revision, p1613). I do not accept the submission that these meanings in their context are more apt. Furthermore the mere deletion of the word "some" would not leave the qualifying statement as accurate because not all the components were imported. The position was that, with the exception of the Australian element in the filling, all components were imported. It follows that I do not consider that, even if the words "Made in Australia" had been in the same print size as the words "with some imported components", it would have been open to his Honour to have concluded otherwise than he did.

32. The conclusion which his Honour reached that the phrase "the major component of the manufacturing cost was in Australian labour and materials" was misleading and deceptive, was a conclusion which his Honour reached in the face of the evidentiary difficulties identified by him and previously referred to. For the appellant it is submitted that it is clear from the terms of the statement itself that the "manufacturing cost" is a composite sum relating to the cost of labour and the cost of materials. It is contended that the statement, in terms, does not make a discreet statement about the cost of materials and a discreet statement about the cost of labour, so that a reader, acting reasonably, would not understand the statement as so doing. Further, it is said that when the words are read as referring to a composite amount it is accurate and not misleading or deceptive because even if the major component of cost in relation to materials is the cost of imported materials (as the learned trial Judge found), the major component of the composite cost of labour and materials was still Australian having regard to the composite amount of Australian labour compared to the cost of Chinese labour. In my opinion these submissions do not deprive his Honour's reasoning of its validity because even the reference to the composite amount is open to the charge that it does not adequately convey information as to the comparative rate at which labour is costed and seeks thereby to bring to the label a greater Australian character than is apposite. In my opinion his Honour was correct in identifying the reference to cost as being misleading and deceptive where the labour costs in the Chinese and Australian markets were markedly different and the statement was used as a bolster to other references in the label to the Australian origin of the goods.

33. The conclusion his Honour reached in relation to the phrase "in order to maintain the highest quality and value, some elements have been purchased abroad" was also correct. Far more than "some elements" came from abroad. Furthermore, they were not purchased. On the unchallenged findings of his Honour, the conclusion he reached on the phrase is not seen to be in error.

34. For these reasons I consider that the appeal and the notice of contention should each be dismissed.