Pugh, I.G. v Clark Rubber Ltd

[1993] FCA 577

IAN GORDON PUGH v. CLARK RUBBER LIMITED
Nos. VG321 and VG322 of 1993
FED No. 577
Number of pages - 6
Trade Practices
(1993) ATPR 41-258

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Heerey J(1)

CATCHWORDS

Trade Practices - offences against Product Safety Standard provision - failure to affix warning notice and child resistant fasteners to bean bags - factors taken into account in discretionary imposition of penalty - conduct of defendant in proceedings - lack of candour - special nature of standards designed to protect human life - absence of injury.

Trade Practices Act 1974 (Cth) ss.65C(1)(a), 79(1)(a)

Crimes Act 1910 (Cth) s.19B

Pretorius v Venture Stores (Retailers) Pty Ltd (1992) ATPR 41-166

HEARING

MELBOURNE, 12 August 1993

#DATE 24:8:1993

Counsel for the applicant: Mr T Ginnane

Solicitor for the applicant: Australian Government

Solicitor

Counsel for the respondent: Mr D Armitage

Solicitor for the respondent: Blake Dawson Waldron

ORDER

The Court Orders that:

1. The defendant be fined $25,000 on the charge brought in the matter VG 321 of 1993.

2. The defendant be fined $25,000 on the charge brought in the matter VG 322 of 1993.

3. The defendant pay the prosecutor's costs including reserved costs.

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

JUDGE1

HEEREY J The defendant has pleaded guilty to two charges of contravening s.79(1)(a) of the Trade Practices Act 1974 (Cth) by supplying goods which did not comply with a prescribed consumer product safety standard, contrary to s.65C(1)(a). The goods in question were bean bags. There were two standards which the defendant breached. First, bean bags are required to contain a warning label or notice in the following form:

"WARNING - Small Lightweight Beads Present a Severe Danger

to Children if Swallowed or Inhaled."

Secondly, bean bags must have a child-resistant slide-fastener fitted to every opening through which bean bag filling can be inserted or removed. (See Statutory Rule No. 246 of 1987, reg 11.)

1. These standards were introduced as a response to the death of children in Queensland and New South Wales from ingesting bean bag filling. The Commonwealth regulation, introduced in 1987, followed similar regulations already in force in New South Wales, Queensland, Western Australia and Tasmania.

2. The defendant, currently a member of the David Jones Group, has been in business since 1947. It operates approximately 37 stores throughout Australia, twelve of which are in Victoria. It has sold bean bags for some 20 years. There is no allegation that it has any previous convictions for breaches of consumer protection legislation.

3. On 8 July 1991 Mr Ian Pugh, a compliance officer with the Federal Bureau of Consumer Affairs, purchased bean bags from retail shops of the defendant at 1517 Dandenong Road, Oakleigh and 509 Bridge Road, Richmond. The Bureau notified the defendant on the same day of the non-compliance with the standards. The defendant arranged an immediate recall from its stores and rectification by the manufacturer.

4. On 6 August 1991 Mr Pugh interviewed Mr Thomas Dixon, the General Manager of the defendant's retail division. Mr Dixon's responsibility included the operation of all the company's retail outlets, including buying. In the interview Mr Dixon said that the bean bags were supplied to the defendant by a manufacturer trading under the name "The Softy's". Between 8 April and July 1991 that firm supplied to 14 of the defendant's stores 170 bean bags, all of which failed to comply with the two standards mentioned. Of these bags, 71 were sold to members of the public prior to the breach being detected. The remainder were recalled. It is not suggested that the defendant acted otherwise than promptly in relation to the recall. The cost of that recall has been borne by the manufacturer.

5. Mr Dixon told Mr Pugh that prior to 8 July 1991 the defendant was aware of the prescribed safety standard for bean bags but those in question had been purchased "outside the normal merchandising system". Under normal circumstances, he said, goods purchased by the defendant were submitted to the defendant's merchandise office who were aware of all product standards. The goods in question were purchased by "a retail supervisor who would not normally be charged with the responsibility of purchasing".

6. The only evidence tendered on behalf of the defendant was an affidavit sworn by Mr Paul Egan, who has been the General Manager of the defendant since February 1993. Mr Egan deposed that Mr Dixon was no longer an employee of the defendant and that "the passage of time since July 1991 has made it difficult for Clark Rubber to obtain information in relation to a number of issues in these proceedings". Mr Egan deposed to his belief as to certain matters on information from a Mr John Davies, currently the defendant's State Manager for Victoria but in 1991 a "Zone Supervisor". Mr Egan says in his affidavit says that Mr Davies "assisted Mr Dixon specifically in relation to these events in July 1991". However, it emerged in the course of Mr Egan's cross-examination that the "retail supervisor" referred to by Mr Dixon in the record of interview was in fact Mr Davies himself. It was Mr Davies who purchased the bean bags in question. He was, as the defendant would know, the best possible source of information concerning the offences.

7. No evidence was proffered on behalf of the defendant to explain its failure to call Mr Davies. For Mr Egan's affidavit to state that Mr Davies "assisted Mr Dixon specifically in relation to these events in July 1991", in a context where it was Mr Dixon who had represented the defendant at the interview and spoken of some unnamed "retail supervisor" as having made the purchase, is quite misleading. The reader of the affidavit, having been informed that Mr Dixon was no longer an employee of the defendant, and that it was difficult for the defendant to obtain information, would naturally infer that Mr Davies' role in July 1991 had been to assist Mr Dixon in the aftermath of the offences - investigation, dealing with the Bureau and the manufacturer, arranging for the recall and like matters. The affidavit conceals Mr Davies' central role as the individual who purchased the bean bags on behalf of the defendant. It is difficult to avoid the conclusion that this was done deliberately.

8. As a consequence of the tactical course the defendant has adopted, a number of relevant questions remain unanswered. Given that the defendant had been selling bean bags for 20 years, and, according to Mr Dixon at the interview, the defendant had been aware of the relevant consumer product safety standard, what was the precise state of Mr Davies' personal knowledge at the time? (Mr Egan said in cross-examination that he understood that Mr Davies did have "an understanding" of the particular standards.) Did Mr Davies see the bean bags? If, as the defendant now asserts, the reason for the defect was the change in ownership of the manufacturer, how did the new owner come to manufacture goods which differed from the previous product? Was there no sample of old stock to follow? What did Mr Davies know about this? What was the attraction in going outside the "normal merchandising system"? Were there circumstances which should have put Mr Davies on notice?

9. There is no evidence as to these matters and no inferences can be drawn as to Mr Davies' knowledge or conduct at the time. But to the extent that a defendant pleading guilty to an offence may have taken into account in its favour a frank and candid disclosure to the Court of all the circumstances surrounding the offence, the present defendant has disqualified itself from that benefit.

10. Mr Egan produced an internal document of the defendant entitled "Standard Operating Procedure No. 18" dated 26 September 1991 dealing with the purchase of goods. The document includes a requirement that "all products required to meet an Australian standard must have the appropriate approval prior to inclusion on any product range. The relevant item standards must be approved by the merchandise manager". Mr Egan also deposed: "I am informed by personnel in Clark Rubber's merchandise office that the procedures outlined in this document were followed by the Merchandise Officer prior to 26 September 1991, although they were apparently not set out in writing". In the unexplained absence of evidence from Mr Davies, or direct evidence from anybody else, I am not prepared to find that this hearsay assertion of Mr Egan represents the truth.

11. Mr Egan also deposed that the defendant sells a significant number of swimming pools and associated products and is therefore "particularly sensitive to and aware of the importance of compliance with all applicable safety standards". However, the evidence proffered does not persuade me that in July 1991 the defendant had in place adequate systems to ensure compliance with these standards.

12. At some time after July 1991 the defendant introduced a stock keeping system called "SKU". This system involves giving each product a number which is unique for that product which must be entered in cash registers before that product can be sold. The effect of this is that it is impossible for any products to be sold in the defendant's stores which have not been approved by the responsible Merchandise Managers.

13. Mr Egan has been instrumental in up-dating the job description of the defendant's Merchandise Controller and Buyers so as to include a requirement that persons holding those position are accountable for ensuring that all merchandise complies with Federal and State Consumer Protection Standards.

14. I am satisfied that the defendant has now established internal procedures which are reasonably adequate for ensuring compliance with consumer product safety standards. However, questions remain concerning the conduct of the defendant in relation to the breaches which have in fact occurred and the penalty that is appropriate in the light of that conduct and other relevant factors.

15. Counsel cited a number of cases where Judges of this Court have dealt with breaches of consumer product safety standards. Those cases included Pretorius v Venture Stores (Retailers) Pty Ltd (1992) ATPR 41-166 in which Northrop J said (at 40,292):
    

"I do not find it helpful to refer to the amount of penalty

imposed in other cases. No two cases are identical and in

my opinion it is not helpful to refer to the penalty imposed

by a court on the particular facts of one case."

1. I respectfully agree with that comment. I do not see the Court's discretion in imposing an appropriate penalty as a kind of valuation exercise requiring the comparison of various elements in the instant case with similar or contrasting elements in other cases and adjusting the dollar amounts of those fines accordingly.

2. The maximum penalty at the time of the offence for contravention of a provision of Part V was $100,000; that amount has since been increased to $200,000 by Act No. 222 of 1992. The prosecutor accepted, correctly in my view, that s.79(2) applied in the present case, with the consequence that the effective maximum aggregate for both offences is $100,000.

3. In fixing a maximum penalty of $100,000 for offences against Part V, including contravention of s.65C(1)(a), Parliament must have contemplated that there could be circumstances sufficiently serious to warrant a penalty of that order. Of the elements that might make an offence that serious, one would think first and foremost is risk to human life. Where that element is present, as it is here, the penalty imposed should reflect the supreme importance of the value sought to be protected.

4. Counsel for the defendant, while admitting that the offence was a serious one, urged that the Court should exercise its discretion under s.19B of the Crimes Act 1910 (Cth) and discharge the defendant upon its entering into a recognisance. Alternatively, he submitted that an appropriate penalty was $2,000.

5. In my view the seriousness of these offences renders either proposal quite inadequate. As I have noted, the consumer product safety standard that was breached in the present case was one designed to protect human life and, moreover, human life at a stage of special vulnerability. In the present case the products sold were doubly dangerous. The presence of either the child-proof fastener or the warning label would have lessened the risk, but these goods had neither. Seventy one of the defective bean bags have passed into the community and are practically speaking beyond identification and recall. Some of them at least can be expected to remain in Victorian households for an indefinite period. The evidence does not disclose any harm that has occurred thus far. But that circumstance is a matter of good fortune rather than the consequence of any ameliorative conduct by the defendant which might tell significantly in its favour. Were a light penalty to be imposed because of this factor and some tragic event occured subsequently, it would be too late to adjust the penalty.

6. The defendant was a retailer experienced with goods of this description. No satisfactory explanation has been established as to just how the breach occurred. In all the circumstances I consider a penalty of $25,000 on each charge to be appropriate. There will be orders in each case that the defendant pay the prosecutor's costs including reserved costs.