Director of Consumer Affairs Victoria v Midas Trading (Australia) Pty Ltd
[2009] VSC 141
•9 April 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 10376 of 2008
| DIRECTOR OF CONSUMER AFFAIRS VICTORIA | Plaintiff |
| v | |
| MIDAS TRADING (AUSTRALIA) PTY LTD (ACN 101 369 948) | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 31 MARCH, 2 APRIL 2009 | |
DATE OF JUDGMENT: | 9 APRIL 2009 | |
CASE MAY BE CITED AS: | DIRECTOR OF CONSUMER AFFAIRS VICTORIA v MIDAS TRADING (AUSTRALIA) PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 141 | |
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Trade Practices – Consumer Protection – Sale by retailer of children’s toys in contravention of Fair Trading (Safety Standards) (Children’s Toys) Regulations 2004 and of toy guns in contravention of a permanent ban order – Breach of prior order of the Court – Whether Court had power to grant a complete cease trading injunction – Consideration of terms of an appropriate limited cease trading injunction – Fair Trading Act 1999, ss.33, 40, 44, 129A, 149A, 151A, 153, 158.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. Bhojani and Mr P. Hiland | Lisa Tickell, Solicitor to the Director of Consumer Affairs Victoria |
| For the Defendant | Mr J.W.S. Peters SC and Mr P.A. Clarke | Leem Lawyers |
HIS HONOUR:
This is an application by the plaintiff, the Director of Consumer Affairs Victoria (“the Director”), for certain orders under the Fair Trading Act 1999 (“the Act”) against the defendant, Midas Trading (Australia) Pty Ltd (”Midas”).
The relief sought by the Director in her Originating Motion issued on 18 December 2008 was comprehensive and far reaching. First, the Director sought, pursuant to s.36 of the Supreme Court Act 1986 or s.158(2)(h) of the Act, four declarations. The first declaration sought was that the following products:
(a)a pre-school, plastic, battery-operated, toy mini-fan known as “My Cooling Fan”:
(b)a pre-school, plastic, battery-operated, interactive, musical toy butterfly known as “Magical Butterfly”;
(c)a pre-school, plastic, battery-operated, interactive, musical toy drum known as “Yippee Music Drum”;
(d)a pre-school, plastic, battery-operated, musical toy bee known as “Happy Bee”;
(e)a pre-school, plastic, battery-operated, frog-shaped toy car known as “Mad Frog”; and
(f)a pre-school, plastic, battery-operated, toy car known as “Dog’s Play”
(“the six toys”) supplied by the defendant did not comply with the Fair Trading (Safety Standards) (Children’s Toys) Regulations 2004, in that “through foreseeable use and abuse of such products the toy [was] capable of breaking into small parts when dropped from a height of 138cm, thereby causing a choking hazard”. The second declaration sought was that the defendant, by supplying as retailers each of the six toys, had contravened s.33 of the Act. The third declaration sought was that the following products:
(a)a toy gun, dart, and target set known as “Wild West Target Set”; and
(b)a toy gun, dart, and target set known as “Wild Bill’s Trick Shot Extravaganza”
(“the two toy guns”) supplied by the defendant did not comply with a permanent ban order published on 28 November 2002 in Victorian Government Gazette No. G48, in that “the projectile discharged from the projectile toy or toy gun, when tested in accordance with Appendix DD of the ban order caused more than 2 out of 10 test foils to rupture, thereby presenting a risk of causing serious eye injuries”. And the fourth declaration sought was that the defendant, by supplying as retailers each of the two toy guns, had contravened s.44 of the Act.
Secondly, in her Originating Motion the Director sought, pursuant to s.149A of the Act, a public warning, product recall and refunds to customers order. Thirdly, the Director sought, pursuant to s.129A and s.149A(3)(f) of the Act, that the plaintiff be permitted to destroy and dispose of the six toys and the two toy guns which had been seized by the plaintiff and any such toys otherwise returned to the defendant, and that the defendant pay to the plaintiff the costs of and incidental to the destruction and disposal of the toys. Fourthly, the Director sought, pursuant to s.151A of the Act, a cease trading injunction to restrain the defendant from carrying on a business of supplying goods to retailers or as retailers to other purchasers. Fifthly, the Director sought, pursuant to s.153(1) of the Act, an adverse publicity order. Finally, the Director sought an order that the defendant pay her costs of the proceeding.
The Relevant Product Safety Statutory and Regulatory Framework
Part 3, Division 1 of the Act is concerned with Safety Standards. It is an offence under s.33 of the Act to supply goods of a kind in respect of which there is a prescribed safety standard and where those goods do not comply with that standard. Section 40 of the Act empowers the Minister to make a permanent ban order or a fixed term ban order prohibiting or restricting the supply of goods or services of a particular kind. It is an offence under s.44 of the Act to supply goods or services in contravention of a permanent ban order or a fixed term ban order.
The Fair Trading (Safety Standard) (Children’s Toys) Regulations 2004 (“the Regulations”) made pursuant to ss.34 and 165(1)(a) of the Act, prescribe safety standards for toys for children under 3 years of age. Regulation 4 contains relevant definitions. It says that “toy”
(a)means an object or a number of objects manufactured and designed, labelled or marketed as a plaything for a child or children up to 3 years of age; and
(b)includes, but is not limited to, the objects listed in Schedule 1 if those objects are manufactured and designed, labelled or marketed as a plaything for a child or children up to 3 years of age.
Schedule 1 to the Regulations relevantly includes the following:
(f) pull and push toys
…
(k) musical chime toys
…
(r) toy cars, trucks and other vehicles.
I expressed the view during the course of the plaintiff’s submissions that the phrase “manufactured and designed, labelled or marketed” had to be read as manufactured and designed or labelled or marketed. As will be seen, this construction was accepted not only by the plaintiff’s counsel, but also by the defendant’s counsel, with the consequence that the defendant then conceded that the six toys were all caught by the Regulations.
Regulation 5(2) of the Regulations states that:
(2)For the purposes of section 34(1) of the Fair Trading Act 1999, the prescribed safety standard for toys from 1 July 2005 is AS/NZS ISO 8124.1:2002 as amended in accordance with Schedule 4.
This is defined in regulation 4 as meaning: “the Australian/New Zealand Standard AS/NZS ISO 8124.1:2002, Safety of Toys, Part 1: Safety aspects related to mechanical and physical properties (ISO 8124.1:2000, MOD), as published by Standards Australia International Ltd and Standards New Zealand on 16 May 2002” (“the ISO Standard”). One relevant amendment contained in Schedule 4 to the Regulations was to include in Annex B to the ISO Standard, item B.1, a reference to “the publication issued by the United States Consumer Product Safety Commission (CPSC) ‘Age Determination Guidelines: Relating Children’s Ages to Toy Characteristics and Play Behaviour’ (September 2002)”, (“the Age Determination Guidelines”).
Clause 4 of the ISO Standard sets out safety requirements for toys. Relevantly, sub-clause 4.4 requires that toys for children up to and including 36 months must not have removable components or must not shatter or break into components, when subject to reasonably foreseeable abuse tests, which fit entirely into the small parts cylinder when tested in accordance with the small parts test.
The ISO Standard identifies potential choking and aspiration hazards associated with small parts as being a primary consideration when assessing whether toys are appropriate for children under three years of age. Annex B to the ISO Standard sets out criteria for establishing age-grading for children’s toys. Guideline B.2 states that when establishing age grading for a toy, the following criteria should be considered:
(a)The toy should match the physical ability of a child to manipulate and play with the specific features of the toy.
(b)The toy should match the mental ability of a child to understand how to use the toy (that is, to understand instructions, sequences of operations, objective of the toy).
(c)The toy should meet play needs and interests at different levels of development.
Guideline B.4.2 of Annex B to the ISO Standard identifies toys appropriate for children under three years of age, including push and pull toys, pounding toys, jack-in-the-boxes, animal figures, cars, trucks and other vehicles. Guideline B.4.2 also identifies the following class of toys as generally having characteristics appropriate for children under three years of age:
(a)Toy vehicles – cars, trucks, boats and trains of simple chunky shape, decorated in primary colours without extensive detail or representations of a particular make or model of vehicle and that require simple actions such as rolling, dumping, pushing and releasing;
(b)Action toys – simple action toys for the identification of sounds or pictures and surprise-action toys; and
(c) Early learning toys – toys that require simple physical motions such as turning wheels or knobs, pulling and letting go.
Further guidance was to be gained from a reading of the Age Determination Guidelines.
Mr David Moss is a contractor engaged by the Department of Justice to provide product safety policy and technical advice to the Director and her staff, including in particular the Product Safety and Standards Unit in the Compliance and Enforcement Branch of Consumer Affairs Victoria. Mr Moss carried out an examination of each of the six toys. In his affidavit sworn on 29 January 2009, he set out the results of his examination of each toy under the headings “Manufacture and design”, “Labelled” and “Marketed”.
On the basis of his examination of the six toys, Mr Moss expressed the view that each of them was an object “manufactured and designed, labelled or marketed” as a plaything for children up to three years of age. As counsel for the defendant pointed out, Mr Moss’ view on labelling was surprising given that he had recorded in respect of three of the six toys that they had been labelled in various ways as not suitable for children under three years. Nevertheless, his view was that each of the six toys was “manufactured and designed” or was “marketed” as a plaything for children up to three years of age.
In their outline of submissions, counsel for the defendant had objected to the admissibility of Mr Moss’ opinion. Once counsel for the defendant accepted that my suggested construction of the phrase “manufactured and distributed, labelled or marketed” was correct and that the six toys therefore came within the Regulations, the objection to Mr Moss’ evidence ceased to be an issue. Nevertheless, I reiterate the tentative view I expressed during the hearing that Mr Moss had not qualified himself as an expert on these questions. Despite his lengthy experience as a product safety adviser, Mr Moss had disclosed no “specialised knowledge” based on his “training, study or experience” of child psychology or the physical and mental ability and interests of children up to three years of age, as required by the definition of “expert” in O44.01 of the Supreme Court (General Civil Procedure) Rules 2005. Mr Moss was in no better position than the Court to decide these questions. I consider that this was made abundantly clear when Mr Moss referred to the fact that he was also:
a parent and grandparent who takes an active role in monitoring the suitability of, attractiveness of and risks posed by, toys to children.
In my opinion, the question whether a toy is “manufactured and distributed, labelled or marketed” as a plaything for children up to three years of age is a factual question to be decided by the Court in accordance with the Regulations, the ISO Standard and the Age Determination Guidelines.
I reject the plaintiff’s submission that the defendant’s objection to Mr Moss’ conclusionary evidence goes to the weight of the evidence rather than to its admissibility. Opinion evidence by a witness not qualified as an expert is not admissible.
There was no dispute that the two toy guns were subject to the permanent ban order, made by the Minister pursuant to s.40 of the Act and published in the Victoria Government Gazette, No. G48 of 28 November 2002, prohibiting the supply of toys that fire projectiles with enough force to cause serious eye injuries (“Ban Order G48”). Ban Order G48 prohibits projectile toys where the energy of the projectile is controlled by a discharge mechanism (for example, a spring or pneumatic system) and that do not comply with clause 7.15.3(a) and/or 7.15.3(b) of Australian Standard AS 1647.2-1992, Children’s toys (Safety Requirements) Part 2: Constructional Requirements
Factual Background
Midas commenced operations in July 2002. It carried on business under the name “Importers Salvage Centre”. At all relevant times, Wen Hsien Chen and his wife, Shu-Wen Huang, were directors of the defendant. Mr Chen said in his affidavit sworn on 23 March 2009 that his first language was Mandarin and that he required the services of an interpreter to read court documents. Mr Chen said that he and his wife work and live in both Taiwan and Australia. The establishment of Midas was his first business venture in Australia.
In March 2005, inspectors from Consumer Affairs Victoria (“CAV”) visited the defendant’s stores in Port Melbourne, Ardeer and Dandenong. They seized stock which it was alleged was being offered for sale in contravention of relevant safety standards and permanent ban orders. On 23 November 2005, in proceeding number 8423 of 2005, Smith J made certain declarations in respect of that stock, including declarations that Midas had contravened s.33 of the Act, by supplying as retailers a pre school multi functional plastic toy bear known as “KX Happy Baby”, a pre school interactive plastic musical teddy bear toy with cord known as “Baby Play Thing”, certain non-complying basketball rings and backboards and certain non-complying baby walkers, and had contravened s.44 of the Act, by supplying as retailers the Wild West Target Set, Wild Bill’s Trick Shot Extravaganza, the toy gun set product known as “Policeman Accouter”, rectangular block candles with Chinese writing in flammable timber like holders, and grey square candles with wicks containing 100% lead.
His Honour also ordered, pursuant to s. 151A of the Act, that:
A.Midas Trading (Australia) Pty Ltd by its servants or agents or otherwise howsoever, be restrained from carrying on a business of supplying goods of the kind listed in Annexure ‘A’ of this order, to retailers or as retailers to other purchasers until Midas Trading (Australia) Pty Ltd has implemented a Compliance Program in accordance with Annexure 'B' of this order designed to ensure that Midas Trading (Australia) Pty Ltd will not supply goods that:
(i)contravene any permanent ban order made pursuant to section 40 of the Fair Trading Act 1999; and
(ii)contravene any interim ban order made pursuant to section 35 of the Fair Trading Act 1999; and
(iii) do not comply with any prescribed safety standard.
B.Midas Trading (Australia) Pty Ltd cause its Compliance Program to be audited by Avteq Consulting Services Pty Ltd, or another like organisation, or a Member of the Australian Compliance Institute, or a firm of solicitors with expertise in consumer protection or trade practices law, approved by the Director of Consumer Affairs Victoria, and an audit report, verifying compliance with this order, be provided to the Director of Consumer Affairs Victoria and filed with the Court before Midas Trading (Australia) Pty Ltd re-commences carrying on a business of supplying goods of the kind listed in Annexure A.
C.Midas Trading (Australia) Pty. Ltd. be restrained from supplying goods of the kind listed in Annexure A unless Midas Trading (Australia) has first obtained a report from Avteq Consulting Services Pty Ltd, or another like organisation or a Member of the Australian Compliance Institute or a firm of solicitors with expertise in consumer protection or trade practices law, approved by the Director of Consumer Affairs Victoria, certifying that any such goods comply with all applicable banning orders made under sections 35 or 40 of the Fair Trading Act 1999 or comply with any applicable prescribed safety standard for the purposes of section 33 of the Fair Trading Act 1999.
D.Midas Trading (Australia) Pty Ltd will retain, at its own expense, a member of the Australian Compliance Institute or a firm of solicitors with expertise in consumer protection or trade practices law to provide the Director of Consumer Affairs Victoria with three annual reports (being at 12 months, 24 months, and 36 months following the making of this order) on Midas' compliance with the Program and these reports will be provided to the Director of Consumer Affairs Victoria respectively within -
(a) 13 months of this order;
(b) 25 months of this order; and
(c) 37 months of this order.
E.Midas Trading (Australia) Pty Ltd will ensure that its Compliance Program is reviewed by a member of the Australian Compliance Institute or a firm of solicitors with expertise in consumer protection or trade practices law at the end of 36 months following this order with a view to identifying and implementing improvements to the Program. Midas Trading (Australia) Pty Ltd will implement any improvements recommended in the review.
Annexure “A” to the order of Smith J contained a list of 48 products or classes of product subject to “Ban Orders or Prescribed Safety Standards for the purposes of the Fair Trading Act 1999”. For present purposes, it is sufficient to note that the list included:
Baby Walkers
Basketball Rings and Backboards
Candle holders and candle decorations
Candles with wicks that contain lead
Toy Guns
Toys for Children under 3.
Annexure “B” to that order set out in some detail what was required to be done by the defendant in implementing its Compliance Program. It would appear that the orders made by his Honour were not opposed by Midas. The defendant was represented at the hearing by a solicitor, who was thought to be more experienced in litigation than its usual solicitors.
As a result of tests carried out on 10 December 2008 on four of the six toys and on the two toy guns, on 11 December 2008 inspectors from CAV visited each of the four stores (Ardeer, Dandenong, Epping and Hoppers Crossing) then being operated by Midas. (The Port Melbourne store had been closed in June 2006.) Tests on the remaining two of the six toys were carried out on 12 December 2008. All of the six toys and the two toy guns failed the appropriate tests.
Inspectors Scott and Dullard visited the defendant’s Ardeer store. They observed and photographed a number of units of three of the six toys stacked on the store’s shelves. After identifying themselves, they spoke to Mr Chen, who was said to be the owner, and later to Shizhong (or Peter) Zhong, who spoke better English and who introduced himself as the Vice General Manager. The inspectors explained that they were looking for toys which they believed did not meet safety standards. After being shown photographs of some of the toys and the two toy guns, Mr Zhong arranged for a staff member to bring more units of some of the toys from the warehouse. In answer to the question whether there had been any training done on product safety, Mr Zhong said that he did not understand what the inspector meant. When asked about his knowledge of safety guidelines or the supply of toys, Mr Zhong referred to what the inspectors had told them “last time” and saying “3 plus and things made size”. The following items which were believed to be contrary to the prescribed safety standards were seized from the Ardeer store:
My Cooling Fan – 3 units
Magical Butterfly – 2 units
Yippee Music Drum – 102 units
Mad Frog – 11 units.
Inspectors McCulloch and Steers visited the defendant’s Dandenong store. They observed and photographed a number of units of four of the six toys and the two Wild West toy guns displayed for sale in the store. After identifying themselves, they spoke to members of the staff about the toys. They were shown more units of the toys and the toy guns at the rear of the premises. When asked, each of the three members of staff spoken to said that they had not received any training in regards to the sale or supply of dangerous or unsafe goods. The following items which were believed to be contrary to the prescribed safety standards were located at the Dandenong store:
My Cooling Fan – 83 units
Magical Butterfly – 6 units
Yippee Music Drum – 34 units
Dog’s Play – 25 units.
In addition, the following items specifically declared in the order of Smith J to not comply with Ban Order G48 were located at the Dandenong store:
Wild West Target Set – 14 units
Wild Bill’s Trick Shot Extravaganza – 54 units.
Some of the above units were seized and the remainder, including the 54 Wild Bill’s Trick Shot Extravaganza units, were made subject to a Notice Prohibiting the Removal of Dangerous Goods, pursuant to s.121(3) of the Act. They were subsequently removed on 12 December 2008. Presumably as a result of further units being located by the defendant, the number of Wild Bill’s Trick Shot Extravaganza units seized and removed from the Dandenong store on that day increased to 210.
Inspectors Ridout and Plumridge visited the defendant’s Hoppers Crossing store. They observed and photographed a number of units of five of the six toys stacked in the aisles of the store. After identifying themselves, they spoke to two members of the staff about the toys. They were taken to the rear of the premises, where they observed a number of units of the sixth toy and more units of one of the other six toys. When asked, one of the staff members spoken to said that she had not heard about banning orders or goods failing to meet mandatory safety standards. The following items which were believed to be contrary to the prescribed safety standards were seized from the Hoppers Crossing store:
My Cooling Fan – 8 units
Magical Butterfly – 19 units
Yippee Music Drum – 3 units
Happy Bee – 6 units
Mad Frog – 8 units
Dog’s Play – 28 units.
In addition, 6 units of Wild West Target Set and 5 units of Wild Bill’s Trick Shot Extravaganza were also seized from the Hoppers Crossing store.
Inspectors Charalambous, Smith and Oscari visited the defendant’s Epping store. They observed and photographed a number of units of My Cooling Fan on a shelf in the children’s toy section of the store. After identifying themselves, they had a conversation with the store supervisor. She said that she did not know that the fan did not meet the safety standards. When asked, she said that neither she nor her staff had received any training in relation to product safety and standards. Twenty-one units of My Cooling Fan, which were believed to be contrary to the prescribed safety standards, were seized from the Epping store.
Following correspondence between the Director’s staff and the defendant in mid January 2009, the following further stock was reported as having been located by the defendant:
Yippee Music Drum – 60 units
Happy Bee – 60 units
Wild West Target Set – 66 units
On 30 January 2009, Mr Zhong signed an undertaking on behalf of the defendant not to sell, lease, transfer, move or otherwise deal with these goods.
In his affidavit, Mr Chen stated that the following further units had been found at the Ardeer, Dandenong and Epping stores since the visits by the CAV inspectors in December 2008:
My Cooling Fan – 44 units
Magical Butterfly – 62 units
Yippee Music Drum – 135 units
Happy Bee – 86 units
Mad Frog – 69 units
Dog’s Play – 36 units
Wild Bill’s Trick Shot Extravaganza – 1 unit.
Mr Chen said that the items located at the Dandenong and Epping stores had been moved to the Ardeer store, where all of the unseized units had been locked in a separate storage area. Although it is not clear, I am assuming that there was no overlap between the extra units referred to in the January correspondence and the extra units referred to in Mr Chen’s affidavit.
The defendant also informed the plaintiff that the two toy guns had been purchased in August 2004 and delivered to Midas in September 2004. The defendant further informed the plaintiff that the purchase dates of the items My Cooling Fan and Yippee Music Drum were recorded as 2 December 2005 and for the remaining four items as 2 December 2006. Thus, the following picture emerges with respect to the defendant’s dealing with the six toys and the two toy guns since 1 December 2005:
Item
Stated Number Purchased by Defendant
Stated Number Sold/Disposed of by Defendant
Number Seized
Stated Number Subsequently Located by Defendant
Number Unaccounted for
My Cooling Fan
360
123
115
44
78
Magical Butterfly
120
81
27
62
(+50)
Yippee Music Drum
480
74
139
195
72
Happy Bee
240
66
6
146
22
Mad Frog
180
32
19
69
60
Dog’s Play
180
43
53
36
48
Wild West Target Set
1020
208
20
66
726
Wild Bill’s Trick Shot Extravaganza
1152
178
215
1
758
As previously stated, this proceeding was commenced on 18 December 2008. After learning about the above discrepancies in the defendant’s records the Director issued, on 5 February 2009, a summons returnable on 10 February 2009, seeking interlocutory public warning, product recall and refunds to customers orders.
On 28 February 2009, Midas published in the Herald Sun newspaper a quarter page black and white advertisement purportedly in part satisfaction of the orders sought in the summons. It was stated in the advertisement that the six toys and the two toy guns, each of which was pictured and described, did not “comply with the relevant Children’s Toys Safety Standard Regulations or are subject to permanent ban orders”.
On 3 March 2009, I ordered by consent that larger, full colour Public Warning and Product Recall Notices be published within 7 days in both the Herald Sun newspaper and The Age newspaper and that Midas pay a full refund to all persons returning toys referred to in the Public Warning and Product Recall Notice. Following the publication of the notices, one item, a Yippee Music Drum, was returned and a full refund paid.
The Explanations Proffered by the Defendant
In his affidavit, Mr Chen proffered various explanations for the defendant’s conduct. He said that Midas stores provided a broad range of goods to consumers. Between 1 January 2005 and 26 February 2009, the defendant’s records showed a total of 24,088 different products available for sale with a value of over $20.94 million. He broke down the 24,088 products into 16 different categories. The toys category included 774 products at a value of nearly $320,000. Thus, toys accounted for only 3.21% of the number of different products on offer for sale and 1.53% of the volume of turnover. At the four stores, the proportion of the number of units of toys sold ranged between 1.59% and 2.35% of the total number of units of all products sold and the proportion of the value of the toys sold ranged between 0.87% and 1.52% of the total value of all products sold.
Mr Chen said that over the past four years Midas had encountered “some trading difficulties”. He produced the defendant’s financial returns for those years (2005-2008) which showed that there had been losses in three of the four years. The defendant had received significant financial support from its shareholders and related companies. Mr Chen said that although Midas had improved its position in the past 18 months, it was still incurring losses. There had been negotiations with a potential equity or joint venture partner.
Mr Chen also explained in some detail the problems that the defendant had had with stock control. Some of the stock did not have barcodes and the systems were outmoded. There had been no stocktake since 2003, apart from an unsuccessful attempt at the Dandenong store in 2005. Mr Chen said that, as a result, it was very difficult for the defendant to know where all of the stock was located and what losses there had been through theft. The potential new partner had lengthy experience with managing stock control issues.
Another problem highlighted by Mr Chen was the high turnover of staff, including supervisors. Mr Chen said that the defendant had 24 employees, consisting of four supervisors, six cashiers, nine floor staff and five office staff. However, he stated in his affidavit:
Further staff will be employed so as to have one person handling buying, receiving, store keeping and stock control, communication with all the stores and the finances. The absence of such a person has contributed to the loss of income and control. In the near future I intend to employ:
(a)an administration clerk who will be responsible for loading of all stock and ensuring that barcodes are allocated to stock without codes;
(b) a buyer;
(c) a debit and credit clerk;
(d) a finance manager; and
(e) a store manager.
The purpose of engaging those individuals is to:
(a)have more effective processes on stock control in store and stock transfers between stores;
(b)properly operate and manage the new computer system that permits stock taking on regular basis;
(c)allow for more structured administration and financial set-up; and
(d)permit management to organize a regular training regime for staff or engage consultants to do that. Managers currently focus on day to day problems.
Mr Chen said in his affidavit that Zen Min Hu, who was appointed General Manager on 30 September 2004, had been asked to resign his positions as director, secretary and employee of Midas in late October 2005. It was Mr Chen’s view that Mr Hu’s time as General Manager was not at all successful. He said that:
It was a time associated with poor management and financial difficulties caused by bad purchasing decisions.
According to Mr Chen, when Mr Hu left in October 2005, Mr Zhong immediately took over the General Manager’s position as well as continuing to perform his existing tasks. He said that it had been difficult for one person, Mr Zhong, to handle all of his current responsibilities properly.
Mr Chen said there had been other problems with the management of Midas in the recent past. He and his wife had been involved in day to day management issues of Midas, even though they did not live in Australia all of the time. This had not been efficient. Mr Chen said that in the future the management located at the various stores would have a greater role.
Mr Zhong agreed with Mr Chen’s explanations. He said in his affidavit sworn on 23 March 2009:
Stock control and storage has been a continuous problem. There has also been a problem with staff processes. The informal way in which stock is transferred from store to store to meet demand has made it very difficult to properly audit stock. The other significant problem has been the inadequacy of the computer software. It does not permit proper tracking of stock.
Mr Zhong also said in his affidavit that:
The causes of the severe financial strain experienced by Midas in 2005 were a combination of the opening of stores in Ardeer and Dandenong in 2004, a dramatic drop in sales at the store located [in] … Port Melbourne …, the excessive stock purchased [by Mr Hu] in 2004 and the poor buying decisions of [Mr] Hu.
Mr Zhong said that he had completed his studies in accounting at Monash University in June 2002 and was employed by Midas in August 2002 as a cash room officer. He was promoted to accountant and Vice General Manager in October 2004. Mr Zhong said that no one was appointed to Mr Hu’s position as General Manager when he left in October 2005. Instead, his responsibilities were immediately taken over by Mr Zhong, who retained the title and responsibilities of Vice General Manager.
Of most relevance from the explanations proffered by the defendant, was what had happened following the making of the orders of Smith J on 23 November 2005. Mr Zhong attended Court that day, but said in his affidavit that he “did not really understand what was being said” in the hearing, which “concluded very quickly”. Immediately after the hearing he had a very brief conversation with Midas’ solicitor outside the courtroom. Mr Zhong said that they did not go through the terms of the order, and that the solicitor said that he would “provide further information about what had happened”. Mr Zhong further said that he did not receive any “specific advice” from the solicitor:
on the impact of the Orders either before or after the Orders were made although I knew that it was necessary to arrange for a compliance program.
He agreed that he received a copy of the order from the Director on or about 13 December 2005.
Mr Zhong said that he believed that he contacted Avteq Consulting Services Pty Ltd (“Avteq”), the company mentioned in Smith J’s order, in December 2005, but was not able to speak to the appropriate person, Mr Stan Rodgers, until January 2006. They met at Midas’ Port Melbourne store on 3 February 2006. Mr Rodgers explained what Avteq could do as part of a compliance program. Subsequently, Mr Rodgers forwarded to Mr Zhong a quotation for the work he believed should be undertaken. Mr Zhong no longer had that document but his recollection was that the sum quoted was “in excess of $20,000”.
Mr Zhong said in his affidavit that:
When I received the Avteq quote I rang Chen in Taiwan. We were both concerned about the price. We did not discuss the details of the Order. Chen does not correspond in English and I did not really understand all of the technical language in the Order. We did discuss the cost in light of Midas’ then financial situation. That was a frequent subject at that time. Midas was continuing to suffer serious financial difficulties. There was an acute cash flow problem which was only being managed by an infusion of funds from Taiwan. We discussed in general terms whether there were other, less costly, ways of attending to the matters Rodgers raised. That conversation did not end with a resolution of what to do next.
After that conversation I did not focus on the Avteq quote or plan but rather tried to work out ways of keeping Midas solvent. I was still new to the task of being in charge of administration of Midas stores.
Mr Chen said in his affidavit that he was in the Middle East “at the time the Orders were made” and that Mr Zhong dealt with the matter on behalf of Midas “in his capacity as a recently appointed director”. (Mr Zhong was a director of the defendant between 18 November 2005 and 4 February 2006). Mr Chen also said that:
I did not receive advice from [the solicitor] … on the impact of the orders. I was not aware of their import. I now know the very severe consequences associated with non compliance with a court order. I was at that time not very familiar with the operation of the Australian Court system.
I have had the Orders explained to me and I understand them. Midas desires to comply with the Orders, as it must.
Mr Chen went on to explain why nothing came of the contact with Mr Rodgers of Avteq.
In late 2005 Midas was under significant financial strain due to poor management. I did not appreciate the seriousness of the court orders or their scope. The quoted sum by Avteq was high and would cause significant difficulties for the company at that time. I was already remitting money from Taiwan to pay the already due bills and other payables. The existing management was particularly busy and pre occupied as I had terminated key staff, including Hu, because of internal performance issues and Midas’ poor returns. This left management staff under a lot of pressure to cope with an increased work load and dislocation caused by the loss of senior staff.
I requested Mr Zhong to look for alternative means to resolve the safety and compliance issues. The continuing financial pressures took my focus away from my obligations in relation to the institution of a Compliance Program.
The result was that no Compliance Program was ever implemented by Midas. The order of Smith J did not mean that it had to be. It was only required if the defendant wanted to sell goods of the kind listed in Annexure “A”. However, given the number and range of the 48 products listed in Annexure “A” and the number and range of the type of products sold by the defendant, it seems to me that Mr Chen and Mr Zhong should have realised that the only safe course for the defendant was to have quickly implemented a Compliance Program, or at the very least have taken steps to ensure that none of the 48 products listed in Annexure “A” were sold by the defendant in the future.
Instead, the two toy guns continued to be sold in contravention of Ban Order G48 and therefore Smith J’s order. Mr Chen said in his affidavit that he was under the belief that all units of Wild Bill’s Trick Shot Extravaganza and the Wild West Target Sets had been removed in 2005 and were no longer available for sale. No basis was given for this belief. Mr Zhong said in his affidavit that as a result of his observation of the thorough and prolonged investigation by the CAV inspectors at the Port Melbourne store, both on the shop floor and in the storage area, and what he was told by the supervisors about the searches in other stores, he believed that all units of Wild Bill’s Trick Shot Extravaganza and the Wild West Target Sets had been located and removed. He said that after March 2005 “it never occurred” to him that there could possibly be any units of the two toy guns remaining in stock.
Further, the six toys commenced to be sold in contravention of the Regulations and therefore of Smith J’s order. No satisfactory explanation was forthcoming from Mr Chen or Mr Zhong as to how this situation came about.
The Defendant’s Position
Mr Chen set out in his affidavit the defendant’s position with respect to the orders sought by the Director. He said that the defendant did not oppose the declarations sought in respect of My Cooling Fan and the two toy guns and that the defendant did not oppose declarations in respect of the remaining toys, if it was found by the Court that they were subject to the Regulations. Mr Chen also said that the defendant did not oppose the orders for the destruction and disposal of the goods and that the defendant pay the cost of such action. Further, Mr Chen said that the defendant did not oppose the making of an appropriate adverse publicity order. However, he said that the defendant did oppose the cease trading injunction sought by the Director, which he understood would have the effect of stopping the defendant trading in goods of any nature for an unlimited or indefinite period.
Mr Chen’s indication in his affidavit that the defendant did not oppose the declarations sought in respect of My Cooling Fan, was no doubt based on the labelling of that toy as being for “12 m+”.
In the defendant’s outline of submissions finalised just before the commencement of the hearing, counsel for Midas indicated that there would be no opposition to the declarations sought in respect of the Magical Butterfly and Yippee Music Drum toys. In their case, the labelling had contained inconsistent statements in respect of the suitability of the toys for children under 3 years.
During the course of final submissions, senior counsel for Midas announced that on reflection, after hearing what had been said by me about the proper construction of the phrase “manufactured and designed, labelled or marketed”, he could no longer dispute that the other three toys were within the relevant categories, as far as “manufacture and design” and “marketed” were concerned, even though they had been labelled as not suitable for children under the age of 3 years. All of these concessions were properly made, in my opinion. This meant that there was no longer any dispute that each of the six toys came within the Regulations. In the end, senior counsel for the defendant stated that the defendant consented to all of the declaratory orders sought by the Director.
The Cease Trading Injunction
Section 151A of the Act provides as follows:
151A Cease trading injunctions
(1)The Minister or the Director may apply to the Supreme Court for the grant of an injunction restraining a person from carrying on a business of supplying goods or services (whether or not as part of, or incidental to, the carrying on of another business) if the person is or has been engaging in conduct that constitutes—
(a) a contravention of any provision of this Act; or
(b) attempting or conspiring to contravene such a provision; or
(c)aiding, abetting, counselling or procuring a person to contravene such a provision; or
(d)inducing or attempting to induce a person, whether by threats, promises or otherwise, to contravene such a provision; or
(e)being in any way directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision.
(2) The Supreme Court may grant the injunction sought—
(a) if—
(i)the Court is satisfied that the person is engaging in or has been engaging in conduct of that kind; and
(ii)it appears to the Court that, in the event that the injunction is not granted, it is likely that the person will engage in conduct of that kind and there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind; or
(b)if the Court determines it to be appropriate, by consent of all the parties to the proceedings, whether or not the person has engaged in, or is likely to engage in conduct of that kind.
(3) An injunction under this section may be granted—
(a) for a specified period; and
(b) on specified terms and conditions.
As a result of the above, the only issue remaining for determination was whether there should be any cease trading injunction granted, and if so, the width of any such order. In the plaintiff’s outline of submissions, it was submitted that as an alternative to the complete cease trading injunction sought, a limited form of order would be appropriate. The following draft order was handed up towards the end of the plaintiff’s final submissions:
3.A. The Court orders pursuant to section 151A of the Act that Midas Trading (Australia) Pty Ltd by its servants or agents or otherwise howsoever, be restrained from carrying on a business of supplying, to retailers or as retailers to other purchasers, goods of a kind or class for which there currently exists, or in the future comes into existence, a Safety Standard, an Information Standard, or a Ban Order. This includes goods of a kind or class listed on Annexure “B” to this Order.
B.(i) An order pursuant to sections 149A, 151A(3), and 158(1) of the Act that Midas Trading (Australia) Pty Ltd retain, as [sic] its own expense, a member of the Australian Compliance Institute or a firm of solicitors with expertise in consumer protection or trade practices law to conduct two audits of the Midas Trading (Australia) Pty Ltd business and to provide the Director of Consumer Affairs Victoria with a report of each audit on the company’s compliance with the requirements of the order at paragraph 3A of this Order as set out below.
(ii)The first audit to be conducted after 18 months of the date of this Order and cover that 18 month period. The report in respect of that first audit to be provided to the Director of Consumer Affairs Victoria within 21 months of the date of this Order.
(iii)The second audit to be conducted after 36 months from the date of this Order and cover the period from 18 months to 36 months from the date of this Order. The report in respect of that second audit to be provided to the Director of Consumer Affairs Victoria within 39 months of the date of this Order.
Counsel for the defendant criticised the late introduction of this alternative cease trading injunction. However, it seems to me that it is always open to the parties to refer to different versions of the orders sought. Just as the plaintiff might want during argument to submit a more limited version of the order as an alternative to the complete cease trading injunction, so a defendant might want during argument to submit its own version of a more limited cease trading injunction, as a fall back position.
In fact, that is what the defendant eventually did. Despite, initially, strenuously opposing the making of any cease trading injunction, counsel announced towards the end of the hearing that the defendant would consent to a cease trading injunction covering toys and toy guns. Following the hearing, the defendant submitted, at my request, a form of proposed order to which it would consent. It read as follows:
Pursuant to s.151A(2)(b) of the Act, until [a date 3½ years from the date of this order] the defendant (whether by itself, its servants or agents or howsoever otherwise) be restrained from carrying on a business of supplying to retailers or as retailers to other purchasers, goods of a kind or class listed in items 6, 18, 29, 54-58 of Annexure B, being goods of a kind or class for which there currently exists the safety standard or an order set out opposite items 6, 18, 29, 54-58 in Annexure B.
Further, I understood that the defendant did not oppose some reasonable auditing requirement.
It was accepted by both sides that there was an overlap between the Trade Practices Act 1974 (Cth) (“the TPA”) and the Act and that guidance might be “drawn from the substantial case law” on parallel provisions in the two Acts, such as s.80 of the TPA, when construing s.151A.[1] In speaking of s.151A of the Act, Dodds-Streeton J, as her Honour then was, said in Cousins v SJS Imports:[2]
[1]Cousins v SJS Imports [2004] VSC 521, [23] (Dodds-Streeton J). See also Cousins v Merringtons Pty Ltd (No. 2) [2008] VSC 340, [48] (Hansen J).
[2][2004] VSC 521, [25]-[30]. All citations omitted.
The section provides for a public interest injunction which, like s.80 of the Trade Practices Act, is aimed at achieving compliance with commercial regulatory legislation. As the courts have consistently recognised, such injunctive provisions are governed by different principles from those aimed at the protection of private proprietary rights. In Murphy v Overton Investments Pty Ltd, the Full Court of the High Court reiterated its caveat against drawing analogies with general law claims and remedies, stating:
This Court has now said more than once that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law.
The authorities dealing with s.80 of the Trade Practices Act and like provisions acknowledge the prescription of statutory norms of conduct to protect the public interest.
In ICI Australia Operations Pty Ltd v Trade Practices Commission Lockhart J, with whom French J agreed, stated:
Section 80 is essentially a public interest provision. Conduct of the kind proscribed by both Pts IV and V may be detrimental to the public interest because many persons can be affected and considerable loss or damage may be sustained by them.
His Honour further stated:
Public interest injunctions are different. Parts IV and V of the act involve matters of high public policy. Part IV and V relate to practices and conduct that legislatures throughout the world in different forms and to different degrees, have decided are contrary to the public interest …
…
These are legislative enactments of matters vital to the presence of free competition and enterprise and a just society.
Similarly, in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd,[3] Gleeson CJ and McHugh J, in a joint judgment, stated:
An application for injunctive relief under s.80 is, in its nature, one for the protection of the public interest. The same may be said of s.163A. Any public protection of the applicant’s own business or other interests is incidental or collateral. What is sought to be established by the determination of a court is a violation by the respondent of a statutory norm of conduct, and the existence of a duty or liability.
Gummow J further stated:
Section 52 [of the Trade Practices Act] thus is an exercise by the Parliament of its powers to create new norms of conduct and require their observance by specified sections of the community. The legislature may also, in exercise of its powers, adapt remedies known at general law or modify them or create new remedies. It may do so not only to prevent or to compensate for injury done by violation of the new federal norm of conduct, but to enforce or induce compliance with the federal law.
[3](2000) 200 CLR 591.
However, counsel for the defendant stressed that whilst there was some similarity between the two sections, the power under s.80 was wider than s.151A. Thus, as s.80(4) now stands, the Court can grant an injunction restraining a person from engaging in conduct of a kind mentioned in subsection (1):
(a)whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;
(b)whether or not the person has previously engaged in conduct of that kind; and
(c) whether or not there is an imminent danger of substantial damage to any person if the first mentioned person engages in conduct of that kind.
This is not the case with s.151A, where, as counsel for the defendant submitted, the Court can only grant an opposed cease trading injunction if the Court is satisfied of three pre-conditions:
(a)that the person is engaging in or has been engaging in conduct of that kind, that is, conduct of the kind mentioned in subsection (1) (s.151A(2)(a)(i) of the Act);
(b) that, in the event that the injunction is not granted:
(i)it is likely that the person will engage in conduct of that kind, and
(ii)there is an imminent danger of substantial damage to any person if the first mentioned person engages in conduct of that kind
(s.151A(2)(a)(ii) of the Act).
With respect to the first pre-condition, counsel for the defendant submitted that there was a body of authority to the effect that the power to grant a cease trading injunction required a connection between the contravening conduct and the conduct sought to be restrained. Reference was made to a number of authorities dealing with s.80 of the TPA.
In Thomson Australian Holdings Pty Ltd v Trade Practices Commission,[4] the majority (Gibbs CJ, Stephen, Mason and Wilson JJ) ruled that:
The parties by consent cannot confer power upon the Court to make orders which the Court lacks power to make. As we have seen, the relevant jurisdiction of the Court in relation to the granting of an injunction is limited to the hearing and determination of actions in which application is made for the making of orders under s. 80 (1) restraining a person from engaging in conduct of a specified kind. The orders made (which were the orders sought) restrain the defendants from engaging in conduct that does not necessarily constitute a contravention of Pt IV. The paragraphs are not limited to restraining the defendants from making an arrangement or arriving at an understanding or giving effect to an arrangement or understanding where the arrangement or understanding has the purpose or would have or be likely to have the effect of substantially lessening competition or restraining the defendants from engaging in conduct giving effect to such a provision. The orders therefore lack the essential feature which distinguishes conduct amounting to a contravention of Pt IV from conduct which does not amount to such a contravention.
[4](1981) 148 CLR 150, 163.
Similar considerations applied to undertakings offered in lieu of an injunction:
Limitations which affect the court's jurisdiction or power to grant a final injunction must be observed in the acceptance of an undertaking when it is offered as a substitute for a final injunction. The court cannot escape such limitations by the expedient of accepting an undertaking in lieu of an injunction. The court cannot put itself in the position of enforcing conduct which it has no capacity to command or compel.[5]
[5](1981) 148 CLR 150, 165 (Gibbs CJ, Stephen, Mason and Wilson JJ).
In ICI Australia Operations Pty Ltd v Trade Practices Commission,[6] Gummow J said, with respect to s.80 of the TPA:
… The power of the Court to grant an injunction is controlled by the words "in such terms as the Court determines to be appropriate."
Thus, the terms of the injunction will not be "appropriate" if, on its face, it operates upon a range of conduct some of which does, but some of which does not, have the relationship required by s.80 with contravention of the Act. The injunction should not prohibit conduct falling outside the boundaries drawn by s.80: see Thomson Australian Holdings Pty Ltd v Trade Practices Commission … The same limitation applies to mandatory injunctive relief. It is, in my view, no support for the grant of an injunction which, from the outset, has an operation outside the boundaries of s. 80, to say that it is open for the party enjoined to apply under s.80(3) to vary the injunction so as to bring its operation wholly within proper limits. The party in question should not be placed under any such obligation in the first place.
[6](1992) 38 FCR 248, 267.
In Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd,[7] Merkel J stated:
Part IV and Parts IVA and V of the TPA deal with fundamentally different subject matters. Part IV of the TPA is concerned primarily with prevention of anti-competitive conduct and promotion of competition in markets within Australia. Parts IVA and Part V are concerned primarily with the fair treatment of consumers and fair trading. It will be unusual for conduct which is alleged to contravene a provision of Parts IVA or V also to contravene a provision of Part IV and vice versa. Accordingly, in general, it is difficult to envisage how injunctive relief that is appropriate in a proceeding based on an alleged contravention of Parts IVA and V could, appropriately, lead to orders enjoining conduct which relates to a contravention of a provision of Part IV unless the conduct in question also touches upon or involves a contravention of the particular provision of Part IV. In such a case an injunction in relation to a provision of Part IV is unlikely to have the relationship required by s.80 with the actual or alleged contravention of the Act which enlivened the Court's jurisdiction under s.80. Put another way, the injunction would not be "appropriate" as there is not a sufficient nexus between the conduct, the subject of the injunction, and the conduct alleged or found to constitute a contravention of a provision of Part IV, IVA or V of the TPA.
[7](1997) 78 FCR 197, 202-3.
In Australian Competition and Consumer Commission v Dermalogica Pty Ltd,[8] Goldberg J said:
Section 80 confers a broad power upon the Court to grant an injunction "in such terms as the Court determines to be appropriate". By reason of subss (4) and (5), the Court is empowered to grant an injunction even in the absence of factors that would, in the case of equitable injunctions, be considered necessary for the exercise of power. However, the power is limited in that the injunction must be in terms that the Court considers to be appropriate, which has been interpreted as requiring a connection between the contravening conduct and the future conduct that is prohibited by the injunction. The rationale for this is that where an injunction is made in terms that are too broad, the party enjoined by the injunction should not carry the burden of making an application to limit its scope: ICI Australia Operations Pty Ltd v Trade Practices Commission …
[8](2005) 215 ALR 482, [107].
Counsel for the defendant submitted that there was no reported case where a provision such as s.151A or s.80 had been used to prevent a wrongdoer from trading at all. They submitted that the plaintiff’s reliance on Foster v Australian Competition and Consumer Commission[9] was misconceived. In their outline of argument, the plaintiff’s counsel cited Foster as a decision that s.80 (and thus s.151A) was wide enough to support a complete prohibition on a person from engaging in a particular field of commercial activity or industry to protect the public from conduct of the kind which constituted the contravention. In Foster, the Court referred to the passage from Gummow J’s judgment in ICI quoted above and continued:
His Honour's reference to terms having "an operation outside the boundaries of s.80” is no more than a paraphrase of the actual words of the subsection "such terms as the Court determines to be appropriate". That paraphrase, we consider with respect, does not illuminate the amplitude which should be given, as a matter of construction, to the grant of power. In our view, a more helpful guide to resolving the question of construction is afforded by this observation, also from ICI v Trade Practices Commission, of Lockhart J (with whom French J agreed) (at 256):
In my opinion subss (4) and (5) are designed to ensure that once the condition precedent to the exercise of injunctive relief has been satisfied (ie contraventions or proposed contraventions of Pt IV or V of the Act), the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly.
This approach of Lockhart J accords with the view often expressed by the High Court that discretions or powers entrusted to Courts should be read liberally for the relevant statutory purpose, without making implications or imposing limitations not found in the express words: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [77] and see generally for the cases Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206 at [187].[10]
[9](2006) 149 FCR 135 (Ryan, Finn and Allsop JJ).
[10](2006) 149 FCR 135, [30]-[31] (Ryan, Finn and Allsop JJ).
It seems to me, therefore, that the plaintiff is correct in her submission that, in an appropriate case, s.151A is wide enough to support a complete prohibition on a person from engaging in a particular field of commercial activity. However, as the plaintiff’s counsel themselves stated in their outline, and as the defendant’s counsel emphasised, the main reason for making such a wide injunction is “to protect the public from conduct of the kind which constituted the contravention”. Much depends, therefore, on how one categorises “the contravening conduct” when considering the question of the nexus between the contravening conduct and the conduct sought to be restrained. While it is readily understandable that the conduct covered by Part IV of the TPA is “fundamentally different”[11] from that covered by Parts IVA and V of the TPA, the line is not so easily drawn between, for example, a retailer selling children’s toys in contravention of the Act and the retailer lawfully selling a whole range of other goods. Do both activities fall within the expression “conduct of that kind” in s.151A(2) of the Act?
[11]Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197, 202 (Merkel J).
In Foster, the judge at first instance found that Mr Foster was engaged in the business of manufacturing and selling a weight loss tablet called “TRIMit” and that he had knowingly made misrepresentations about the circumstances in which the product was sold to consumers and about the qualities of that product. Further, the trial judge found that:
Mr Foster had convictions in relation to the unlawful sale and promotion of weight loss products, and a reputation as the instigator of dubious and failed schemes for profit for the conduct of businesses promoting and selling weight loss products.
The defendant submitted, therefore, that there was a clear connection between Mr Foster’s conduct in the weight loss, cosmetic or health industry which led to the contraventions and an apprehension as to his future conduct in that industry.
The injunction, which was upheld on appeal, was that Mr Foster:
be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in the promotion or conduct by a corporation of any business relating to weight loss, cosmetic or health industry products or services of any kind.
As the defendant pointed out, this was not an order which prevented Mr Foster from earning an income by selling other products apart from weight loss products. Moreover, it was limited to five years. By way of contrast, the defendant submitted, the complete cease trading injunction sought by the Director would prevent it from carrying on any part of its business for ever, or until the Court order was rescinded or varied in the future on an application by the defendant under s.151C of the Act. This was despite the fact that only 16 products (in 2005 and 2008) or eight products (in 2008) out of a range of 24,088 different products had been found to have been sold in contravention of the Act. Restraining conduct which was not a breach of the Act was, the defendant submitted, wholly disproportionate to the past conduct.
Before considering what, if any, cease trading injunction should be made, I should point out that although the defendant indicated that it would consent to its proposed form of injunction, the plaintiff did not accept that it was an appropriate order. Therefore, s.151A(2)(b) has no role to play because that suggested form of injunction is not “by consent of all the parties to the proceedings”. Nevertheless, that form of order could still be made under s.151A(2)(a) of the Act, if otherwise appropriate.
Consideration of the Issue
The first matter to note is the rationale for making a cease trading order when the enjoined conduct would in any event be a breach of the Act. In Trade Practices Commission v Mobil Oil Australia Limited,[12] Toohey J said:
Even though there was no evidence to indicate the offender’s intention to continue the offending conduct, it might be appropriate to mark the court’s disapproval by an injunction as well as a monetary penalty.
In ICI, French J (as his Honour then was) referred to an injunction:
which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court.[13]
[12](1984) 4 FCR 296, 300.
[13](1992) 38 FCR 248, 268.
The next matter to note is the factors which have been said to be relevant to the determination of appropriate orders in a proceeding such as this. In Dermalogica,[14] Goldberg J set out a helpful, non-exhaustive list. The same task has been undertaken in earlier cases.[15] In my opinion, the following factors are relevant in the particular circumstances of this case:
[14](2005) 215 ALR 482, [60], [61], [64].
[15]See, for example, Gardam v Splendid Enterprises Pty Ltd (1987) ATPR 40-779, 48,502-3 (French J); NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, 291-5 (Burchett, Carr and Kiefel JJ).
(a) The objectives of the Act;
(b) The nature and extent of the contravening conduct;
(c) The amount of loss or damage caused;
(d) Any profit made from the contravening conduct;
(e) The circumstances in which the conduct took place;
(f) The degree of deliberateness or carelessness involved;
(g) The size of the defendant;
(h)Whether the contravening conduct was brought about by senior management of the defendant or at a lower level;
(i)Whether the defendant has a culture conducive to compliance with the Act;
(j) Any previous contraventions of the Act;
(k)Whether the defendant co-operated with the investigation, including the defendant’s approach to defending the proceeding; and
(l) The Director’s submissions.
These were serious breaches of the Act, in my opinion. The defendant has now acknowledged that all of the six toys were manufactured and designed, and marketed, for the market of children under 3 years, even if the labelling was inconsistent or stated to the contrary in some cases. These were not goods left over from a time before the Director’s first proceeding resulted in the order of Smith J on 23 November 2005. They were ordered by Midas in flagrant disregard of the restrictions imposed by his Honour.
Mr Zhong said in his affidavit that after Mr Hu’s departure another important task he had to undertake was “signing purchase orders”. He said that this:
involved making decisions on purchases, a task I had not done before. I did not have any training or experience in purchasing product.
Thus, it seems likely that it was Mr Zhong who ordered the purchase of toys that did not comply with the prescribed safety standards. While Mr Zhong must bear some blame, the person who bears most responsibility is Mr Chen, who put Mr Zhong into his position of responsibility without adequate training or resources or experience.
Not surprisingly, the defendant accepted that the declarations sought in respect of the two toy guns could not be opposed. This was the second time breaches of Ban Order G48 in respect of these toys had been brought to the attention of Midas. While Mr Chen and Mr Zhong have put forward their explanations of how this occurred, they demonstrate how little attention was given to complying with the order of Smith J. If even the most basic precaution had been taken, for example, by instructing each store to make sure that there were no further sales of the two toy guns, any toys for children under three years, the offending baby walkers, basketball rings and backboards, and candles, until a Compliance Program had been introduced, then most likely virtually all of the 208 subsequent sales of the Wild West Target Sets and the 178 subsequent sales of Wild Bill’s Trick Shot Extravaganza would have been averted. The photographs of the sets of the two toy guns on the shelves in the Dandenong store and the large number in the storage area suggest that they would not have gone unnoticed by staff, if they had been alerted to the problem.
Therefore, the Director sought a complete cease trading order on the basis that the defendant had shown complete disregard for its legal obligations. Counsel for the Director pointed with some justification to the totally inadequate explanation of what steps the defendant had taken to ensure that the orders of Smith J were not breached. Counsel submitted that the explanations proffered such as poor and disrupted management, extreme financial pressure, inadequate stock control and high turnover of staff were simply no excuse for the failure to take any steps to ensure that non-complying goods were sold contrary to the orders of Smith J. They criticised the apparent attempt to shift the blame on to the former General Manager, Mr Hu. He, after all, had left the defendant’s employ in October 2005 so that he had no responsibility for ensuring that Smith J’s orders were complied with. Counsel also pointed out that out of the multi-million dollar sales revenues in the 2005 to 2008 financial years, the relatively small cost of engaging Avteq or some other company to assist in implementing a Compliance Program could have been undertaken. There was sufficient cash in hand or at the bank at the end of each financial year to meet such an expense. They further submitted that, even though the defendant operated at a loss in the last three of those four financial years, the cost of such a task could have been taken from such discretionary items as advertising or consultancy fees which totalled in the hundreds of thousands of dollars.
I agree that the defendant and its principal director, Mr Chen, are open to severe criticism for the lack of any real attempt to comply with the orders of the Court. I consider that despite the language difficulties and the financial pressure, much more could and should have been done to ensure that the defendant did not again transgress. It simply chose to ignore its legal obligations. In my opinion, the most important figures are not that the defendant has only sold 16 products out of 24,088 products in contravention of the Act. Rather, they are that since 1 December 2005 the defendant has sold 419 toys in breach of s.33 of the Act and 386 toy guns in breach of s.44 of the Act. Each one of those 805 sales had the potential to cause serious injury or death to a young child.
Counsel for the defendant did not dispute these considerations. They submitted, however, that the defendant and its directors had now learned their lesson, understood the importance of complying with their legal obligations and were taking a range of steps to ensure that future breaches did not occur. They referred to the defendant’s co-operative attitude to the Director’s investigation and proceeding.
In my opinion, it is appropriate to grant a cease trading injunction. I am satisfied of all three pre-conditions set out in s.151A(2)(a) of the Act. First, the defendant has been acting in contravention of the Act.
Secondly, I am satisfied that if no injunction were granted it is likely that the defendant would again engage “in conduct of that kind”. Despite what has been said on behalf of the defendant, I have no confidence that it would not once again let pressing commercial considerations dominate its legal obligations. Actions speak louder than words. Even though this second proceeding by the Director against Midas was commenced in December 2008, by the time of the hearing the defendant had done nothing about implementing a Compliance Program apart from entering into a rather vague consulting agreement with Competition Economics Services Pty Ltd on 30 March 2009.
Thirdly, I have no doubt that there is “an imminent danger of substantial damage” to people, in particular young children, if the defendant continues to engage “in conduct of that kind”.
I do not, however, consider that a complete cease trading injunction is warranted at this stage. The evidence shows that the defendant carries on business selling a range of products far wider than those subject to safety standards or ban orders and that there has been no complaint about this part of the defendant’s business. I agree with the defendant’s submission that a complete cease trading order would be a disproportionate response to the defendant’s conduct, serious though it is. It also seems to me not to be a very effective form of order, given that the plaintiff’s counsel accepted that there would be nothing to stop Mr and Mrs Chen from starting up a new Midas company, if the defendant was restrained from carrying on business. In that case, the real losers would be the creditors of the defendant and possibly its 24 employees.
On the other hand, I am not persuaded that it is appropriate to limit the restraint in the cease trading order to toys, as was suggested in the defendant’s proposed form of injunction. In my opinion, that is too narrow a reading of “conduct of that kind” in s.151A(2)(a). I consider that the appropriate nexus between the contravening conduct and the scope of the injunction is best expressed by restraining the defendant from carrying on a business of supplying to retailers, or as retailers to other purchasers, goods that are subject to product safety regulation.
This is very similar to the alternative cease trading injunction submitted by the plaintiff. However, I am not prepared to include Information Standards in the scope of the restraint. Counsel for the plaintiff submitted that Safety Standards, Information Standards and Ban Orders were all dealt with in Part 3 of the Act. This is true, although Information Standards is in a different Division to the other two. It seems to me that breach of an Information Standard is conduct of a different kind to breaches of a Safety Standard or a Ban Order.
Secondly, I accept the defendant’s submission that the restraint should not include goods the subject of Safety Standards, Information Standards or Ban Orders which come into existence in the future. Such a restraint introduces an element of uncertainty which is not appropriate for an order, contravention of which carries the risk of findings of contempt of court. Senior counsel for the defendant highlighted this point by pointing to the use of the word “includes” in the plaintiff’s alternative injunction. Further, it should not be forgotten that breach by the defendant of a future Safety Standard or Ban Order remains a breach of the Act. Disapproval of the defendant’s conduct is sufficiently marked and deterrence of its repetition is (one would hope) sufficiently obtained by a cease trading injunction in the form set out below.
It will be seen that I have followed the plaintiff’s draft in not including any time limit on the restraint, whereas the defendant’s proposed order contained a 3½ year period of restraint. In my opinion, as the defendant failed to take advantage of the opportunity given by the conditional restraint in the order of Smith J, there is no injustice in not fixing a time limit. As counsel for the plaintiff pointed out, the defendant is free at any time, in particular after it has satisfactorily passed the auditing process, to apply to the Court, pursuant to s.151C of the Act, for an order rescinding or varying the cease trading injunction.
During the course of submissions, there was some discussion about the number and timing of the audits proposed in the second part of the plaintiff’s alternative cease trading injunction. I expressed the tentative view that a delay of 18 months before the first audit might not be satisfactory, and that a period of six months before the first audit might be preferable. There was also discussion about the suggestion that it would be more cost effective to have the audits coinciding with the end of a financial year.
After further consideration, I have decided that it is desirable for an audit to coincide with the end of a financial year, but that a delay of nearly 15 months before the first audit is too long. This means that the first audit will have to be conducted after 30 June 2009, in respect of the period between the date of my order and 30 June 2009. Whilst that period is only short, it is important, in my opinion, for the Director to be able to be satisfied that there are no ongoing breaches. Two further audits will also be ordered, in respect of the following two financial years. This means that the audits will cover a period of just over 26 months, against the 36 months suggested in the plaintiff’s alternative order. However, counsel for the plaintiff agreed that there was no magic in the period of 36 months.
Subject to hearing further from the parties, if so desired, about the precise wording, the cease trading injunction I would propose as part of the Court’s Order is as follows:
3.A. Pursuant to s.151A of the Act, Midas Trading (Australia) Pty Ltd by its servants or agents or otherwise howsoever, be restrained from carrying on a business of supplying to retailers, or as retailers to other purchasers, goods of a kind or class for which there currently exists a Safety Standard, an Interim, Permanent, or Fixed Term Ban Order, being the goods of the kind or class listed in Annexure “B” to this Order, and for which there continues to exist such Safety Standard or such Interim, Permanent or Fixed Term Ban Order.
B.(i) Pursuant to sections 149A, 151A(3), and 158(1) of the Act, Midas Trading (Australia) Pty Ltd retain, at its own expense, a member of the Australian Compliance Institute or a firm of solicitors, with expertise in consumer protection or trade practices law, to conduct three audits of the business of Midas Trading (Australia) Pty Ltd and its compliance with the requirements of paragraph 3A of this Order and to provide the Director of Consumer Affairs Victoria with a report of each such audit as set out below.
(ii)The first audit is to be conducted after 30 June 2009, covering the period between the date of this Order and 30 June 2009. The report in respect of that first audit is to be provided to the Director of Consumer Affairs Victoria on or before 30 September 2009.
(iii)The second audit is to be conducted after 30 June 2010, covering the period from 1 July 2009 to 30 June 2010. The report in respect of that second audit is to be provided to the Director of Consumer Affairs Victoria on or before 30 September 2010.
(iv)The third audit is to be conducted after 30 June 2011, covering the period from 1 July 2010 to 30 June 2011. The report in respect of that third audit is to be provided to the Director of Consumer Affairs Victoria on or before 30 September 2011.
The form of cease trading injunction means that it is also appropriate to vary the adverse publicity order initially sought by the Director to require display of the order in each of the defendant’s stores. The defendant consented to this additional order, which was set out in the plaintiff’s alternative cease trading injunction.
As previously stated, the other orders sought by the Director were either consented to or not opposed by the defendant. Accordingly, orders in those terms will also be made.
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