oo TRADE PRACTICES ~- consumer product safety standard - childrens nightclothes - fire risk labelling - supply of nightdresses without required fire risk warning - mislabelled to indicate reduced fire hazard - prosecution for contravention of ss.53(A) and 62 of Trade Practices Act - factors relevant to penalty - unintentional mislabelling - family company - small number of employees - importance of safety standards. Trade Practices Act 1974 Trade Practices Revision Act 1986 VERNON JOHN GARDAM v SPLENDID ENTERPRISES PTY LTD WAG 17 OF 1987 FRENCH J. 16 April 1987 Perth IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION www Sw No. WAG 17 of 1987 BETWEEEN: VERNON JOHN GARDAM Prosecutor and SPLENDID ENTERPRISES PTY LTD Defendant MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 16 APRIL 1987 WHERE MADE: Perth THE COURT ORDERS THAT: 1. The defendant 1s convicted on its plea of guilty on each of the four counts in the information. 2. The defendant is fined in respect of the four counts as follows:- (1) on the first count - $2,000.00 (11) on the second count - $ 500.00 (iii)on the third count - $ 500.00 (av) on the fourth count - $2,000.00 3. The defendant is to pay the prosecutor's costs to be taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. + See med - tee a ee ae etm ee IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION we NO. WAG 17 of 1987 BETWEEN: VERNON JOHN GARDAM Prosecutor and SPLENDID ENTERPRISES PTY LID Defendant CORAM : FRENCH J. 16 April 1987 REASONS FOR JUDGMENT Splendid Enterprises Pty Ltd is a family company which has for the past 8 years manufactured and supplied "Jolie" brand childrens night dresses. In February 1986 the company supplied to a wholesaler, George Wills & Co. Ltd, a quantity of the night dresses bearing a label with the reassuring text "STYLED TO REDUCE FIRE DANGER". The message on the labels was false. To accord with the relevant statutory standard what the clothes should have carried was a warning in the following terms:- "WARNING HIGH FIRE DANGER KEEP AWAY FROM FIRE" and to reinforce the text it should have surmounted a triangular logo containing a flame. When a child wearing naghtclothes comes into contact with fire the risk and severity of burns that 1t can suffer may be affected by the design and fabric type of the nightclothes that it wears. The standard contravened in this case was introduced to reduce the risk and severity of burns suffered by children in such accidents and, by appropriate labelling, to make parents more conscious of the relative risks of different categories of garments. It 1s false labelling in contravention of the standard which brings the company, the defendant in these proceedings, before the Court charged on 4 counts with contraventions of the Trade Practices Act 1974. The charges are as follows:- "1. THAT on or about 20 February 1986 at Perth in the State of Western Australia Splendid Enterprises Pty. Ltd., of 6 Lyall Street, South Perth aforesaid did commit an offence by contravening section 79(1) of the Trade Practices Act 1974 by contravening section 53(a) of the said Act in that, in trade or commerce in connection with the supply of goods, namely "Jolie" brand childrens nightdresses, the said Splendid Enterprises Pty. Ltd. did falsely represent by means of labels attached to the said goods, that the said goods were of a particular standard, namely that they were "Styled To Reduce Fire Danger". 2. AND FURTHER THAT on or about 6 March 1986 at Innaloo in the State of Western Australia Splendid Enterprises Pty. Ltd. of 6 Lyall Street, South Perth aforesaid did commit an offence constituted 3. by section 79(1) of the Trade Practices Act 1974 by contravening section 53(a) of the said Act in that, in trade or commerce in connection with the supply of goods, namely "Jolie" brand childrens nightdresses, the said Splendid Enterprises Pty. Ltd. did falsely represent by means of labels attached to the said goods, that the said goods were of a particular standard, namely that they were "Styled To Reduce Fire Danger". 3. AND FURTHER THAT on 2 July 1986 at Innaloo in the State of Western Australia Splendid Enterprises Pty. Ltd. of 6 Lyall Street, South Perth aforesaid did commit an offence constituted by section 79{1) of the Trade Practices Act 1974 by contravening section 53(a)} of the said Act in that, in trade or commerce in connection with the supply of goods, namely "Jolie" brand childrens nightdresses, the said Splendid Enterprises Pty. Ltd. did falsely represent by means of labels attached to the said goods, that the said goods were of a particular Standard, namely that they were "Styled To Reduce Fire Danger". 4. AND FURTHER THAT on or about 20 February 1986 at Perth in the State of Western Australia Splendid Enterprises Pty. Ltd. of 6 Lyall Street, South Perth aforesaid did commit an offence constituted by section 79(1) of the Trade Practices Act 1974 by contravening section 62(1)(a) of the said Act, in that the said Splendid Enterprises Pty. Ltd., in trade or commerce did supply goods to George Wills and Co. Limited which were of a kind likely to be used by a consumer, namely, "Jolie" brand childrens nightdresses, being goods of a kind in respect of which there was a prescribed consumer product safety standard in respect of childrens nightclothes declared in a notice under section 63AA(1) of the said Act and published in the Commonwealth of Australia Gazette No. $215 of 19 June 1985, which said goods did not comply with that standard." To each of them the defendant pleads guilty. The Statutory Framework Prior to 1 July 1986 s.63AA of the Trade Practices Act 1974 authorised the relevant Minister (in this case the Attorney 4. General), by notice in the Gazette, to declare that a standard prepared or approved by the Standards Association of Australia with additions or variations specified in the notice, was a consumer product safety standard for the purposes of s.62 of the Act. Sub-section 62(1) of the Act provided:- "A corporation shall not, in trade or commerce, supply goods that are intended to be used, or are of a kind likely to be used, by a consumer 1f the goods are of a kind - (a) in respect of which there is a prescribed consumer product safety standard and which do not comply with that standard; ...." Paragraph (a) of s.53 of the Act provided then, as ut does now:- "A corporation shail not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connection with the promotion by any - means-of the supply or use of goods or services - (a) falsely represent that goods are of a particular standard, quality, grade, composition, style or model or have had ae particular history or particular previous use;...." Subsection 62(1) and para. 53(a) imposed the prohibitions which are material for present purposes. The penalties for their contravention are fixed by s.79 which, prior to 1 June 1986 included the following provisions:- sane ee 5. "1. A person who contravenes a provision of Part V other than section 52 is guilty of an offence punishable on conviction - (a) an the case of a person not being a body corporate - by a fine not exceeding $10,000; or (b) in the case of a person being a body corporate - by a f1ne not exceeding $50,000. 2. Where a person 1s convicted of two or more offences constituted by or relating to, contraventions of the same provision of Part V, being contraventions that appear to the court to have been of the same nature or a substantially similar nature and to have occurred at or about the same time (whether or not the person is also convicted of an offence or offences constituted by, or relating to, another contravention or other contraventions of that provision that were of a different nature or occurred at a different time), the court shall not, in respect of the first-mentioned offences, impose on the person fines that, in the aggregate, exceed the maximum fine that would be applicable in respect of one offence by that person against that provision." The section was amended by the Trade Practices Revision Act 1986 with effect from 1 June 1986 to embrace accessorial liability and to increase the level of maximum penalties applicable. Sub-section (1) now reads:- "A person who ~ (a) contravenes; (b) aids, abets, counsels or procures a person to contravene; (c) induces, or attempts to induce, a person whether by threats or promises or otherwise, to contravene; a - ° i - " aoe | wengppenqepemaera= age ee he =p re (d) is ain any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of; or (e) conspires with others to contravene, a provision of Part V other than section 52, 52A, 650 or 65R or sub-section 65F(9) is guilty of an offence punishable on conviction - (f) in the case of a person not being a body corporate - by a fine not exceeding $20,000; or (g) in the case of a person being a body corporate - by a fine not exceeding $100,000." The amending Act also repealled ss.62 and 63AA with effect from 1 July 1986. In lieu of these and related provisions it introduced Division 1A - Product Safety and Product Information into Part V of the Act. The ministerial power to declare consumer products safety standards is now to be found in s.65E which forms part of the new Division. Prohibitions of the kind formerly imposed by s.62 of the Act are now to be found in s.65C. Paragraph 53(a) is not directly affected by the 1986 amendments. 7. The Minister's Notice Acting pursuant to his powers under sub-s.63AA(1) Minister did on 19 June 1985, by notice in the Gazette declare a Consumer Product Safety Standard for childrens nightclothes. The notice in the relevant parts provided:- "NOW THEREFORE I, Lionel Bowen, Attorney General of the Commonwealth of Australia hereby: (ii) declare that, in respect of goods specified in Division 1 of the Schedule to this notice, the standards specified in Division 2 of the Schedule as varied by the variations specified in Division 3 of the Schedule 1S a consumer product safety standard for the purposes of section 62 of the Trade Practices Act 1974. THE SCHEDULE Division 1: Particulars of goods. Childrens nightclothes including pyjamas, pyjJama-style overgarments, nightdresses, dressing gown and infant sleep bags (but not including any article of head wear, footwear, or hand wear) of any of the sizes 0 to 14 as specified in Australian Standard 1182-1980 "Size Coding Scheme for Infants' and Childrens Clothing (Underwear and Outerwear)", published by the Standards Association of Australia on 1 September 1980. Division 2: The Standard (a) Australian Standard 1249-1983, "Childrens Nightclothes Having Reduced Fire Hazard", published by the Standards Association of Australia on 2 May 1983; or (b) Australian Standard 1249-1983, "Childrens Nightclothes Having Reduced Fire Hazard", published by the Standards Association of Australia on 2 May 1983, as amended by Amendment No. 1 of 4 April 1985. the 8. Division 3: Variations The Australian Standards specified in Division 2(a) 1s varied by deleting clause 1.2. The Australian Standard specified in Division 2(b) is varied by deleting clause 1.2. Dated this 7 day of June 1985. LIONEL BOWEN Attorney General" Australian Standard Relating to Childrens Nightclothes Having Reduced Fire Hazard The standard which was the subject of the Minister's notice and therefore a consumer product safety standard for the purposes of the Act, was prepared by the Committee on Burning Behaviour of Textiles and Textile Products established by the Standards Association of Australia. It is a committee on which State and Federal Governments and instrumentalities, industry and consumer interests and various scientific bodies are represented. The standard is divided into various Sections. By clause 1.5 of Section 1 it defines three categories of childrens nightclothes:- "1.5 CLASSIFICATION. Childrens nightclothes shall be classified for the purpose of labelling as follows: Category 1 - Garments made from fabric of the low fire hazard type and which comply with section 2. These garments include pyjamas, pyjama~style en eee peewee eee weep em 9. overgarments, nightdresses, dressing gowns, infant sleep bags and the like. Category 2 - Garments designed to reduce fire hazard and which comply with section 3. These garments include pyjamas and pyjama~style over garments. Category 3 - Garments such as pyjamas, pyjama~style over garments, nightdresses, dressing gowns, infant sleep bags which comply with section 4 but do not comply with section 2 or section 3." Sections 2, 3 and 4 of the standard then set out requirements for category 1, 2 and 3 garments respectively. category. Section 5 prescribes labelling requirements for each In particular clause 5.1.1 provides:- "RBire Hazard. Childrens nightclothes shall be labelled with a durable and permanently fixed label indicating the fire hazard in accordance with the classification stated in clause 1.5. The label shall bear the words and symbols set out in table 5.1 and shall comply with the label specification stated in Appendix B." Table 5.1 requires category 1 garments to be labelled "LOW FIRE DANGER" and category 2 garments to be labelled "STYLED TO REDUCE FIRE DANGER". Category 3 garments however must bear a warning in the following terms:- 10. "WARNING HIGH FIRE DANGER KEEP AWAY FROM FIRE" and its text is to surmount a triangular logo incorporating a stylised flame. Dissemination of the Standard The standard has been publicised not oniy by the formal notice appearing in the Gazette but also in a more digestible form by the Trade Practices Commission. In particular, the Commission published in March 1984 a circular entitled "Mandatory Standards under the The Trade Practices Acts Flammability Safety Standard for Childrens Nightclothes". The circular contained a summary of what it described as "The Basic Requirements of the Revised Standard for the Flammability of Childrens Nightclothes". In setting out the requirements of the standard it referred to category 2 and category 3 garments as follows:- "Category 2 Garments: 13. Category 2 Garments must carry a red printed label (white background) which says "STYLED TO REDUCE FIRE DANGER": that means the shape and style of the meee ery itp ee haa ll. garment reduces the risk of it catching alight. If it does catch alight, the fabric will not burn very fast because the garment is close fitting. 14. Category 2 covers babies all in ones, track suit types and other close fitting nightclothes (see pages 10 and 11 of AS1249-1983). Ordinary pyjamas and "Baby Doll" types are suitable if their measurements are restricted to those stated in the standard. These garments must not be made from fabrics which have a pile or nap such as molleton or cotton chenille which can spread flame rapidly over the surface of the fabric (i.e. "flash") The use of trims in this category is restricted where they do not satisfy the burning or ignition requirements for category 1. (For further details refer to the standard). Category 3 Garments: 15. Category 3 garments must bear a large red label printed in black as follows: | WARNING HIGH FIRE DANGER KEEP AWAY FROM FIRE 16. This category is for childrens nightclothes which cannot be classified as either category 1 or category 2. If the fabric catches alight, the garment will burn rapidly, but particularly dangerous features like long flowing skirts and fiercely burning fabrics are prohibited." Counsel for the defendant informed the Court that his client had rece1ved a copy of the circular prior to the commission of the offences with which it is charged. 12. Conduct Constituting the Otfences Although the defendant 1s charged with 4 contraventions of the Act they relate in substance to the one transaction. AS appears from an agreed statement of facts tendered by the prosecutor, the defendant carries on business in Western Australia as a manufacturer and supplier of Jolie brand childrens nightdresses. The nightdresses so manufactured are sold throughout Australia. For a period of about 8 years the defendant has supplied George Wills & Co. Ltd ("Wills") with the garments. On 27 November 1985 it received from Wills an order for the supply of 218 Jolie nightdresses including 64 size "0" and 36 size "1" in a style designated JN1. The nightdresses were of a type subject to the Consumer Product Safety Standard AS1249-1983. They did not fall into category 1 and on visual inspection it was apparent that the size "0" nightdress was not within the form fitting design limitations of category 2. So Mey regen ae oe pete Mt eae Pr rowan 13. In spite of this at least 5 of the garments supplied to Wills were labelled "STYLED TO REDUCE FIRE HAZARD", the label applicable to a category 2 garment. They are in fact category 3 garments and should have carried the warning appropriate for that classification. The supply of the goods to Wills on 20 February 1986 constituted a contravention of the prohibition imposed by paragraph 62(1)(a) of the Act and thereby an offence under sub-s.79(1). The contravention arose because the supply of the wrongly labelled goods was a supply of goods of a kind likely to be used by a consumer but not complying with the prescribed consumer product safety standard. Thus it constituted the offence charged in count 4. Essentially the same transaction gives rise to the charge set out in count 1. However the prosecutor has there fixed upon the representational aspect of the defendant's conduct by reference to the mislabelling and alleged a contravention of paragraph 53(a) of the Act. The part of that paragraph relevant for present purposes refers to false representations that goods are of a particular standard. . ee Zima ae ee - a Se teen ATL eee cere Se te Rn 14. The word "standard" appearing in paragraph 53(a) 1s not defined in the Act. The Minister's power to declare certain prescriptions to be consumer product safety standards under' sub-s.63AA(1) is limited to those which are "a particular standard, or a particular part of a standard prepared or approved by the Standards Association of Australia or by a prescribed association or body". I am satisfied therefore that consumer product safety standards lawfully declared under s.63AA fall within the genus "standard" to which para. 53(a) refers. As will be seen later in these reasons, it is not alleged that the representations made were deliberate in the sense that it may be said that the defendant or its principals knew that the garments were mislabelled. But such knowledge is not necessary in order that an offence under para.53(a) may be established. It is a provision which attracts a strict liability ~- Darwin Bakery Pty Ltd v Sulley (1981) 36 ALR 371 at 376. The second count arises from the supply by Wills of the mislabelled goods to a retailer on or about 6 March 1986. There 1s nothing to suggest that the supply involved any conduct on the part of the defendant beyond its original supply to Wills. 15. The question whether the defendant's conduct theretore amounted also to a representation to the retailer purchasing from the wholesaler is one of fact. It is possible that a number of representations as to goods will be made to a number of persons upon sale by the manufacturer to a wholesale distributor - cf£.Barton v Croner Trading Pty Ltd (1984) 54 ALR 541, at 553, Korezynski v Wes Loftus (Aust) Pty Ltd (1985) 62 ALR 225 at 229. The plea of guilty constitutes an admission of all essential elements of the offence and must in this case be taken as an admission that the representation alleged in the second count was made. The third count arises from the display by a retailer of the mislabelled goods on 2 July 1986, the date upon which they were purchased by the prosecutor, an officer of the Trade Practices Commission, in the course of a periodic compliance check of garments on display in retail stores. Again, no further conduct on the part of the defendant was involved beyond the original supply of the goods to Wills. On 1 July 1986 the repeal of s.63AA took effect. The effect of that repeal upon consumer product safety standards declared under the section was not canvassed before me. moses eee 9g, eer arse ey ren sapere = mem ore ; 16. In any event the third count alleges a false representation that the goods were of a particular standard in ' contravention of para.53(a). To establish the contravention 1t 15s not necessary to establish that the standard in question was a declared consumer product safety standard. Whether the representation related to a standard for the purpose of para. 53{a) is a matter in respect of which I accept that by the plea of guilty there has been an admission of all relevant facts. The generation of four charges out of one transaction in | this case, might be said to indicate a degree of prosecutorial overkill. It is reasonably arguable that the first and fourth counts cover different aspects of the transaction, one relating to compliance with the consumer product safety standard and the other relating to the element of a misrepresentation arising out of the mislabelling. Accepting that, 1t is difficult to see what useful purpose is served by counts 2 and 3. In fixing penalty I will have regard to the fact that all the charges arise out of the one ' transaction. ee - Oe ee 17. Background of Defendant and Circumstances of Offences The defendant 1s the family company of Mr & Mrs El1 zoha. Mrs Zoha operates aS a working director running its business of a manufacturer and supplier of childrens nightdresses. That has been built up over the last 8 years to the point that for the year ended 30 June 1985 the gross income from factory sales was $352,596.00. Mrs Zoha in that year received a salary of $25,600.00. Mr Zoha received $34,000.00. The company derived income from what were evidently unrelated sources in that year. I was informed by counsel that these sources of income were no longer available to it. Mr Zoha no longer receives a salary from the defendant. The defendant employs some 12 persons of whom 4 are fulltime and 8 permanent parttime workers. It has not previously been prosecuted or convicted for any contravention of the Trade Practices Act. According to a letter written by Mrs Zoha to the Trade Practices Commission on 29 February 1986, the mislabelling was an error. EN ate ee pry ore al nt aren yn We gee Tyr ere ee eet 18. She had been aware she said for several years that the fire labelling of childrens nightwear was of great importance. She had taken pains she said, to ensure that all nightwear was correctly labelled. The mislabelled batch was the result of an inexperienced machinist whose work was not checked by the regular packer. According to an affidavit sworn by Mr Zoha, Mrs Zoha was away on a business trip and her regular packer was in hospital at the time that the mislabelling occurred. The temporary person relieving the regular packer failed to detect the errors. It was not contested by the prosecutor that the offences were the result of unintentional error. Counsel for the defendant told the Court that his client had taken steps to ensure there could be no repetition of such conduct in the future. These measures were not spelt out. Further, it appeared that the defendant had not taken any steps to ascertain how many, if any, of the mislabelled garments had been sold. Nor had any consideration been given to any public notification by the defendant of the error so that members of the 19. public who had purchased their garments might be alerted to the true position with respect to the labelling. Counsel told the Court that the whole episode had been a traumatic one for Mr & Mrs Zoha. Neither were present in Court when the matter came on for the penalty hearing. The only affidavit tendered was given by Mr Zoha. No statement of the measures to be taken to ensure compliance with consumer safety standards in the future was given. I must confess to being left with a feeling of unease as to whether those standing behind the defendant even now fully appreciate the seriousness of the obligation imposed in respect of the labelling of childrens nightclothes. Principles Regulating Discretion In Action For Penalty The appropriate level of penalty to be fixed will vary according to the circumstances of each case and the class of relevant considerations is not closed. Nevertheless it appears to be well established that the following matters are relevant to the punishment to be imposed. 20. l. The objectives of Lhe AcL. 2. The importance of any untrue statement made. 3. The degree of wilfulness or carelessness involved in making such a statement. 4. The extent to which the statements in question depart from the truth. 5. The degree of their dissemination. 6. The resulting prejudice to consumers. 7. Whether any and if so what efforts have been made to correct the statements. 8. The need to impose deterrent penalties. - Hartnell v Sharp Corporation (1975) 5 ALR 493, Eva v Mazda Motors (Sales) Pty Ltd [1977] ATPR 40-020, O'Neill v El Camino Autos Pty Ltd (1980) 42 FLR 35, Dawson v World Travel Headquarters Pty Ltd (1981) 53 FLR 455 The sections of the Act which provide for the declaration of consumer product safety standards and their enforcement are plainly of the highest importance. The substitution of a reassurance as to compliance with the appropriate standard for a statutorily required warning 1s a matter of considerable gravity. In the present case the offences were not committed wilfully or with any intention to deceive. Their commission was the product of carelessness and lax management. As Smithers J. said in Eva v Mazda Motors (Sales) Pty Ltd (supra) at 17309:- 21. " ...Contraventions due to carelessness are not permissible and must be punished. Of course such contraventions are not in the same order of culpability as those invoking an intention to deceive." The statement which comprises the misrepresentation in this case departs from the truth in the most radical way - it offers reassurance when it should tender warning. The degree of dissemination is unknown but it is a reasonable probability that some purchasers will have bought similarly mislabelled garments. As to the degree of prejudice to consumers, that too is an unknown quantity. Tt is plain that no efforts have been made to rectify the problem arising from the mislabelling. The need to impose deterrent penalties is accepted and it ius also accepted that they must not be so high as to be oppressive —- Crossan v Common [1985] ATPR 40-542. As the defendant has pointed out there has already been some publicity adverse to it as a result of this prosecution. As to adverse publicity it has been said in Thompson v J.P. Fossey Limited [1978] ATPR 40-080 that it is often the inevitable consequence of wrong doing and in most cases 1s without influence in the assessment of penalty. - ee ee ee ee ee ee ee 22. I regard the contravention in this case as serious, although caused by carelessness rather than any deliberate intention to deceive. In mitigation the defendant is a vehicle through which a family business 1s conducted. There are a number of persons whose livelihood evidently depends upon the continuance of the business. Any fine imposed on the defendant whilst being at a level sufficient to mark the seriousness of the offences, must not be so high as to be oppressive. I also have regard to the fact that each of the offences springs from a single transaction. On that basis I will impose fines totalling $5,000.00 broken up in the following way:- l. As to the first count on the information - $2,000 2. As to the second count - $500. 3. As to the third count - $500. 4. As to the fourth count - $2,000. The defendant will pay the prosecutor's costs. 23. I certify that the preceding twenty two (22) pages are a true copy herein of the Reasons for Judgment of his Honour Mr Justice French. *- , f Associate: Cizateeh Lerpclenee. " f pater J, Apr l [VE 7 Counsel: . for the Prosecutor: Mr S. O'Sullivan instructed by the Director of Public Prosecutions - for the Defendant: Mr N. Viswalingam instructed by Castiglione & Bowen & Co. Date of Hearing: 14 April 1987 Date of Judgment: 16 April 1987