CATCHWORDS TRADE PRACTICES - Consumer Protection - Prosecutions - Offences admitted - Failure to comply with prescribed consumer product safety standard - Distribution of 150 pedal bicvcles - Omission of spoke protection quard - Omission of label identifvina manufacturer or assembler - Failure to supply instructions manual - Side reflectors incorrectlv positioned - Reliance by defendant distributor upon assemblv agent - Previous complaint in respect of omission of chain quard - Position of retailer supplied with non-complving product - Factors relevant to penaltv. Trade Practices Act ss. 62, 63AA,. 79 EVALINE JILL HAMLYN V NORMAN ROSS STORES PTY LIMITED G.298 OF 1984 EVALINE JILL HAMLYN V WALTONS STORES (INTERSTATE) LIMITED G.297 OF 1984 WILCOX J 13 DECEMBER 1984 SYDNEY IN THE FEDERAL COURT OF AUSTRALTA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G.298 of 1984 ) ) GENERAL DIVISION BETWEEN : EVALINE JILL HAMLYN Prosecutor AND: NORMAN ROSS STORES PTY LIMITED Defendant ORDERS CORAM WILCOX J DATE 13 DECEMBER 1984 PLACE SYDNEY THE COURT ORDERS _THAT l. The defendant be convicted of a contravention of s.62 of the Trade Practices Act 1974 being the offence alleqed in the information in these proceedings. 2. The defendant pav a fine of Twentv thousand dollars ($20,000.00) to the District Reqistrar of this Court within twenty-one (21) davs of this dav. 3. The defendant pay the costs of the prosecutor in the proceedinas. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY No. G.297 of 198 GENERAL DIVISION BETWEEN : EVALINE JILL HAMLYN Prosecutor AND: WALTONS STORES CINTERSTATE) LIMITED Defendant ORDERS CORAM WILCOX J DATE 13 DECEMBER 1984 PLACE SYDNEY THE COURT ORDERS THAT l. The defendant be convicted of a contravention of the Trade Practices Act 1974 being the offence alleqed in information in these proceedinas. 2. The defendant vay a fine of Five hundred dollars ($500.00) to the District Registrar of this Court within twenty-one (21) davs of this dav. 3. The defendant pay the costs of the prosecutor in proceedings. 8.62 of the the IN_THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G.298 of 1984 eed GENERAL DIVISTON BETWEEN : EVALINE JILL HAMLYN Prosecutor AND: NORMAN ROSS STORES PTY LIMITED Defendant Wo. G.297 of 1984 BETWEEN: EVALINE HILL HAMLYN Prosecutor AND: WALTONS STORES (INTERSTATE) LIMITED Defendant REASONS FOR JUDGMENT CORAM WILCOX J DATE 13 DECEMBER 1984 LACE SYDNEY Frosecutions have been brought under 5.79 of the Trade Practices Act 1974 against each of two defendants for a breach of s.62(1)(a) of that Act. Each defendant has pleaded quilty and the two matters, which are related, have, by consent, been heard together. As a result of a takeover in Julv 1982 the two companies are related in ownership, each beina members of the 2. Waltons Group otf Companies. the holding company of which 15 Waltons Bond Limited. Relevantly. s.62 provides: "62(1) A corporation shall not, in trade or commerce, supplv goods that are intended to be used. or are of a kind likelv to be used, by a consumer if the aoods are of a kind - (a) in respect of which there is a prescribed consumer product safetv standard and which do not comply with that standard: Section 63AA of the Act authorises the Minister, bv notice under his hand published in the Commonwealth of Australia Gazette, to declare that. in respect of goods of a kind specified in the notice, a particular standard, or a particular part of a standard. prepared or approved by the Standards Association of Australia 15 a consumer product safetv standard for the pvurposes of s.62. Bv a notice published in the Cazette on 30 Qctober 1980 the Minister declared that in respect of pedal bicvcles manufactured in. or imported inro. Australia after 31 October 1980 the standard specified by Australian Standard 1927-1978, "pedal bicycles", published bv the Standards Association of Australia and as amended from time to time (with a presentlv irrelevant addition), is a consumer product safetv standard for the purposes of s.62. Norman Ross Stores Ptv Limited. the defendant in matter 3. G.298 of 1984, operates discount retail stores in New South Wales, Queensland and the Australian Capital Territorv, at some of which it offers for sale pedal bicvcles. Over a number of years. the company, usina the business name Harmac Imports, has imported bicvcles in unassembled, or "knocked down". form and has had the bicvcles assembled, warehoused and distributed to its stores by an agent in Svdnev named Eugene Liao & Co Pty Limited. Eugene Liao & Co has specialist experience in relation to pedal bicvcles, beirnad a licensee of the Standards Association to use the mark of that Association on certain models of bicvcles - not ancluding the subiect model - which it produces. On 23 October 1981 Eugene Liao & Co received from Korea a container load consisting of 150 "Speed Line" mens 10-speed bicycles in knocked down torm. The company assembled these bicvcles and distributed most of them. directlv or indirectiv, to various Norman Ross stores, retaining the balance of the shipment in its warehouse. From time to time there were returns. The minimum number of the bicycles held in stock at anv one time between 23 October 1981 and 25 August 1383 was 40. On 29 Julv 1983 the prosecutor. an officer of the Trade Practices Commission. visited the Norman Ross store at Chatswood. New South Wales. She examined one of the bicvcles on display and observed that 1c had derailleur qears but that it did not have anv spoke protection in the rear wheel to prevent the drive chain from interfering with the wheel. That event might occur if the rear derailleur was not correctlv adiusted. On 23 Auqust 1983 Ms | 4. Hamlvn returned to the store and purchased one of the bicvcles. Attached to 1t was a sticker inscribed "manufactured 7/81". The bicvcle appeared to be fullv assembled but it failed to comply with Australian Standard 1927-1978 in the following respects: "Cay (b) (c) it did not carrv a label stating the reqistered name and address of the Australian assembler or distributor in breach of Clause 1.4(i) which states as follows: MARKING. Pedal bicycles shall be marked in the followina wav: (i) A label stating the reqistered name and address of the Australian manufacturer or assembler or the reqistered name and address of the Australian distributor shall be attached to the bicvcle frame using a pressure sensitive durable adhesive compound.' 1t was sold without a manual containing instructions in Enalish for its use and maintenance in breach of Clause 1.5 which provides: 'INSTRUCTIONS FOR USE. MAINTENANCE AND ASSEMBLY. A manual containinag instructions in Enalish for use and maintenance based on the details qiven in Appendix A shall be attached to the frame of the bicvcle. or for a partiallv assembled bicvcle. placed within the retail package ...'°. 1t was fitted with derailleur qears and its rear wheel was not quarded to prevent the drive chain or derailleur from interfering with or stoppina the rotation of the wheel throuch improper adjustment of the rear derailleur in breach of Clause 2.10.2 which provides: 'Spoke Protection. The rear wheel of bicvcles fitted with derailleur qears shall be quarded to prevent the drive chain or derailleur from interfering 5. with or stopping the rotation of the wheel throuqh 1mproper adjustment of the rear derailleur': and (d) the centre of the vellow side reflector : mounted on the spoke of each wheel was more than 76 mm from the inside of the wheel rim in breach of Clause 2.16.3 which provides: 'Side Reflectors. Each wheel shall be fitted with vellow side reflectors which shall be visible from both sides of the bicycle. The reflectors shall be mounted on the spokes and the centre of the reflectors shall be within 76 mm of the inside of the rim. The centre of the side reflector on the front wheel was 95 mm from the inside of the wheel rim and the centre of the side reflector on the rear wheel was 82 mm from the inside of the wheel rim." On 25 August 1983 the Trade Practices Commission advised Norman Ross of the fact that "Speed Line" mens 10-speed bicvcles ' without spoke protectors had been found on sale in the Chatswood store. Worman Ross promptlv telexed the managers of its various stores instructing them to withdraw from sale that particular model. During 1982 the manager of the Canberra store of Waltons Stores (Interstate) Limited, the defendant in matter G.297 of 1984, acquired from the Woden store of Norman Ross four "Speed Line" brand mens 10-speed pedal bicvcles in order to offer them Tor sale in his store. These bicycles came from the batch of 150 bicvcles which had been assembled on behalf of Norman Ross bv 7 Eugene Liao and Co. On 18 Auaqust 1983 Mr Michael Kilev of the Canberra office of the Trade Practices Commission visited the Waltons store in Canberra and examined one of the bicvcles. He observed that it had derailleur qears but that it did not have any spoke protection in the rear wheel. On 25 Auqust 1983 Mr Kilev returned to the store and purchased one of the bicvcles. It bore a paper sticker on the frame inscribed "manufactured 7/81". Although the bicvcle appeared to be fullv assembled it failed to complv with the Australian Standard in the respects already mentioned. By telex dated 25 August 1983 the Trade Practices Commission advised Waltons that "Speed Line" mens 10-speed bicvcles without spoke protectors had been tound on sale in the Waltons store in Canberra. Waltons telexed all its stores to withdraw from sale that particular model but it turned out that oniv the Canberra store had this particular model un stock. On 8 September 1983 officers of the Commission held a formal interview with executives of Norman Ross and Waltons. During this interview it was admitted that 73 of the bicvcles had been sold bv Norman Ross stores since 1981, that - although the executives could not be sure - each of such bicvcies did not have spoke protectors, that each of the bicvcles still held in stock lacked spoke protectors and that the purpose of the sale was primarily for "consumer use". One of the versons who attended the meeting was Mr R E Stanley. who had been employed as a bicycle buver bv Norman Ross for a number of years and. since September 1982, for the Waltons Group. Mr Stanlev has aqiven evidence that, after receipt of the telex from the Commission of 25 Auqust. he made enquiries as to the stock held by the various stores in the group. Seventv-seven "Speed Line" mens 10-speed bicycles were found. On his instructions thev were returned to Eugene Liao & Co for work to be carried out so as to make them complv with the Australian Standard. According to the evidence of Mr Stanlev, steps have been taken to avoid a recurrence of the problem. The standinad procedure now 1s that imported bicvcles will be delivered to the Waltons warehouse at Chullora where several bicycles out of the batch, selected at random, will be checked for compliance with the Standard. Additionallv, it was stated at the meeting on 8 Seprember 1983 that in future the company 7111 submit to Technisearch Limited. a tester approved by the Standards Association, samples of bicvcles prior to importation of a shipment. Counsel for the prosecutor drew my attention to two convictions of Waltons Limited. a parent of each of the defendant companies, for breaches of s.53(a) of the Trade Practices Act: see Doolan v Waltons Limited (1981) ATPR 40-257. Doolan v Waltons Limited 11982) ATPR 40-294. But those offences were of a verv different nature, involving as thev did misleading advertisina, and I do not think that they should affect the penaltv to be imposed in the present cases. It is, however. relevant to take 8. into account material in the Statement of Aqreed Facts relating to a quantity of "Speed Line" BMX bicycles imported during 1981 by Harmac Imports, assembled in Australia during 1981 and 1982 bv Eugene Liao & Co and put on sale by Norman Ross Stores from about May 1981 and bv Waltons from about September 1982. In Januarv 1983, and as a result of an accident having occurred, the Trade Practices Commission became aware that these bicvcles were being offered for sale without chain quards in contravention of the Australian Standard. The matter was discussed with executives of the Group. who admitted that ali of the "Speed Line" BMX bikes were in that condition. However, the Commission decided not to prosecute. By a letter dated 17 March 1983 the Commission advised the Group that it would not institute prosecution proceedings in that instance provided that the Group conducted a full public recall of the bicycles in order to fit chain quards and that it took steps to ensure that adequate internal procedures were put in place to prevent a recurrence. The Commission attached to its letter a copy of a media release rssued by 1t in which it drew attention to the danger involved in viding bicvcles without chain quards. The release referred to the accident which had occurred, wherein a four vear old bov had been injured when he fell after his overalls caught in the chain of a bicvele without a chain quard which had been purchased at a Norman Ross store. The release warned bicvcle suppliers and retailers "that anv further contraventions of this safetv standard which come to the Commission's attention are likelv to be prosecuted". The Group adreed to the conditions in the 9. Commission's letter and it did in fact call in and rectify the BMX bikes. Unfortunately, no attention was given to the "Speed Line" 10-speed bicycles. The defendants submit that there 1s no basis for inferrina a deliberate breach by them of the Australian Standard. The evidence is that the cost of the part required to provide protection for the spokes of each bike is about $8.00. as against an originally envisaged retail price of $299.00. Thev araue that. in such a context, 1€ 1s most unlikely that the part would have been omitted out of a desire to save expense. I accept that submission. The failure to complv with the Standard should be seen as the result of carelessness rather tnan of deliberate desiaqn. In considering the dearee of carelessness involved in the offences a distinction should, I think. be drawn between the positions of the two defendants. Norman Ross was the importer of the bicvcles. It emploved specialist buvers who were conversant with the terms of the Australian Standard and the requirements of the Australian market. Those buvers went overseas to select the bicvcles with a representative of Eugene Liao & Co. They had the opportunitv, as well as the responsibility, of determining compliance with the Standard before lodqainag any order with the Manufacturer. Norman Ross undertook responsibility for the delivery into Australia of the bicvcles and their assembly in this country bv their agents. Norman Ross acted as wholesaler 10. being responsible, through its agents, for actual delivery to retail store managers who could not reasonablv be expected to be well conversant with the requirements of the Standard. Senior officers of Norman Ross had been involved in the recall of "Speed Line" BMX bacycles in earlv 1983, the recall being based upon the failure of the bicycles to complv with the Australian Standard; and in relation to a matter closely akin to the maior complaint in the present cases, the absence of a spoke protection device. Some of the matters of present complaint mav not have heen immediatelv obvious but two of them, the lack of a manufacturer's label and of a spoke protection quard, should have been instantaneouslv apparent to anvbodv with a knowledqe of the requirements of the Standard. Indeed one would not require a knowledge of the Standard to remark upon the absence of a spoke protection quard. Those responsible for the assembliv at Euqene Liao & Co can only be reaarded as having been extremely careless in allowing the bicvcles to leave their warehouse in that condition but similar criticism mav be made of the relevant officers of Norman Ross. When the fault was reported protection quards had to be ordered from a Melbourne manufacturer; apparently the "knocked down" bicycles had been imported without them. The evidence does not reveal whether the models inspected in Korea had the quards. If so, it is surprising that their absence was not remarked upon when the shipment arrived in Australia. If not. the original selection was at fault. Further there was. apparentlv, no system of inspection bv officers of Norman Ross of the bicvcles at the time of distribution from the il. warehouse. The company was prepared to deleqate to Eugene Liao & Co the dutv of ensuring compliance with the requirements of the Standard, and therefore s.62 of the Act. If that reliance proves unjustified the companv must bear the responsibility. In this particular case the matter is made more serious, from Norman Ross' point of view, bv the fact that the Commission had recently drawn to the attention of that companv the fact that "Speed Line" BMX bikes had been assembled bv Euqene Liao & Co without chain quards. That experience put Norman Ross upon notice of the need to check the condition of all of the "Speed Line" bicycles - not just the "Speed Line" BMX bicycles - which had been assembled by Eugene Liao & Co and which were then held at the Eudene Liao & Co warehouse or in its retail stores. In his evidence, Mr Stanlev sought to explain this omission bv stating that the 150 "Speed Line" mens 10-speed bicycles had not been separatelv noted at a stock take in August 1982 and he suaqested that the reason was that all of the bicvcles had bv then been distributed to retail stores. Confronted with the stock records of Eugene Liao & Co. produced by the Director of Public Prosecutions to the defendants' solicitors and which indicated to the contrarv, Mr Stanley said that these bicvcles must have been missed by those taking stock at the warehouse. However this mav be, it is clear that the records of Eudene Liao & Co would have revealed the presence of some of the 10-speed bicycles in that company's warehouse. The store managers would have been able to report that thev held in stock others of the 12. 10-speed bicycles. But nobody asked either Eugene Liao & Co or the store managers so the bicvcles remained on sale in an unsafe condition. . The four breaches of the Standard are of varvina practical importance. The failure to attach a label micht prejudice a consumer in the event of a claim arisina. The failure to provide a manual might limit the abilitv of an owner efficiently to use and to maintain the bicycle. The position of the side reflectors is a matter which relates to the safe use of the bicvcle but the present breach appears to be of minor importance. There is nothing to suagest that the dearee of non-compliance in this case is such as to affect in a siaqnificant way the reliabilitv of the side reflectors. © The lack of spoke protection is in a different cateaqory. A faulty adjustment of the rear derailleur miqht easilv lead to the drive chain or the derailleur fouling the spokes and causind an accident. Such an accident might have very serious consequences. especiallv if the bicvcle was at that time travelling at a fast speed or in traffic. There is no evidence that an accident has in fact occurred - although the Commission would not necessarilv know if it had - but that possibilitv remains in relation to the 71 bicvcles which were sold prior to the matter being discovered and which have not been rectified. The maximum penaltv fixed bv Parliament for a 13. contravention of Part V of the Trade Practices Act, in the case of a corporation, is $50,000.00: see s.79. The selected maximum indicates the potential seriousness of such an offence. The information against Norman Ross relates only to the Chatswood sale but 1t is appropriate, as was common ground at the hearina, to have reaard to the totality of the matter and to the fact that, in all, 150 bicvcles were involved. It must be taken into account, in favour of Norman Ross. that the companv promptly and satisfactorily rectified the breaches of the Standard in respect of the stock retained bv it when those breaches were brought to its attention by the Commission. Regard must be had to the absence of anv prior conviction of Norman Ross, to the fact that the Waltons Group has now set up a svstem which 1s desiqned to obviate the problem in the future and to the fact that the breach was the product of carelessness rather than deliberation. However, the penalty should also reflect the fact that the dearee of carelessness was high and that 1t was carelessness in relation to the safe use of a vroduct imported and distributed bv the companv. The policy behind Part V is that corporations enaaaed in trade and commerce bear the responsibility of compliance with the standards prescribed by or under that Part for consumer protection; of which personal safetv is perhaps the most fundamental matter. This defendant had had the benefit of a recent experience which should have alerted it to the possibilitv of danger. Although the penaltv should not be oppressive it should be such as to emphasise the serious circumstances of the particular offence and to have a tendencv to deter the defendant 14. and others in trade or commerce from contravening Part V of the Act and the requirements of relevant Australian Standards. Having regard to all of these matters I have reached the conclusion that the appropriate penalty to be imposed in respect of the offence committed bv Norman Ross is the sum of $20,000.00. The position of Waltons is rather different. Relevantly, Waltons was a mere retailer displavinag for sale a limited number of the "Speed Line" 10-speed bicycles which its local manager had acquired from another retailer. A manacer of a retail store cannot be expected to be expert in each of the products sold through his store: he is. I think. entitled to assume that the compliance of a particular product with a relevant Australian Standard is a matter which would have been checked bv the importer or distributor of the product. The legal liabilitv of the retailer remains but there mav be a considerable difference in the relevant dearee of culpabilitv. In a case where the fact of non-compliance with a relevant Standard was not apparent on inspection by a careful, but non-specialised, store manager it may be appropriate to impose a purely nominal penalty. That is not this case; the absence of the spoke protectors should have been noticed by the manager of the relevant department in the store, especially after the recall of the BMX bikes. A real penaltv must be imposed but it should take into account the mitigating ciccumstances mentioned above in relation to Norman Ross, the lesser dearee of culpability of the retailer compared with that of the importer-distributor and the small number of the 15. relevant bicycles offered for sale by Waltons. Under all of those circumstances a penalty of $500.00 is appropriate. I certify that this and the QourtessxC ite) preceding pages are a true copy of the Reasons for Judgement herein of his Honour Mr Justice Wilcox. ae ™ 3) ia fey