Commerce Commission v Myriad Marketing Limited HC Dunedin CP 22/00

[2001] NZHC 632

IN THE HIGH COURT OF NEW ZEALAND
DUNEDIN REGISTRY CP 22/00

UNDER The Fair Trading Act 1986
BETWEEN THE COMMERCE COMMISSION
Plaintiff

AND MYRIAD MARKETING LIMITED
Defendant

Hearing: 19 June 2001

Counsel: B J Horsley and G Searanck for Plaintiff
P J Page for Defendant

Judgment: 11 July, 2001

JUDGMENT OF PANCKHURST J

Solicitors:
The Commerce Commission, Wellington for Plaintiff
Cook Allan Gibson, Dunedin for Defendant

Introduction:

[1] What is a toy? That is the issue in this case. More particularly, I am asked to decide whether an imitation feeding bottle in which confectionary was sold was a toy for the purposes of the Product Safety Standard (Children’s Toys) Regulations 1992.

[2] If so, Myriad Marketing Limited (Myriad) imported into New Zealand and distributed confectionary items known as “Big Baby” and “Chewy Baby” which did not meet the safety standards prescribed under the Fair Trading Act 1986 in terms of the regulations and the relevant safety standard, NZS 5822:1999. This standard is entitled “The Prevention of Ingestion and Inhalation Hazards In Toys Intended For Use By Children Under 3 Years of Age”.

Factual Background:

[3] Myriad is a Dunedin-based company. Over several years it has imported novelty confectionary items generally from Asia and distributed them to retailers for sale to the general public. Mr N T Craig, a director of the company, described novelty confectionary as a niche market, in which Myriad is centrally involved.

[4] To December 1998 Myriad had imported about 94,000 units of “Big Baby” and “Chewy Baby”. The feeding bottles each contain 50 grams of hard confectionary, being multi-coloured and shaped. The label gives a breakdown of the content of the confectionary, details of the distributor, and identifies China as the place of manufacture. Prominent on the face of the label are the words “Not for infants or children under 6 years old”. Mr Craig explained that this warning was directed to the confectionary itself, not the feeding bottle container. The confectionary on account of its size and hard outer coating, is considered potentially hazardous for younger children particularly those aged less than three years. However, the warning was extended to cover children up to six years in keeping with the target market.

[5] The feeding bottle itself is about ten centimetres high. It closely resembles a normal baby’s bottle having a millilitre scale on one side (from 10 to 60 millilitres) and a screw cap with a protruding teet. However, the quality of the container is not such that it is suitable for storage of a liquid. The seal between the teet and the screw cap is prone to leaks. Moreover, the teet does not have a hole in it. Nonetheless the general appearance is of an eye-catching imitation baby’s bottle which could be used as a play thing when the contents have been consumed.

[6] The feature which excited the attention of the Commerce Commission was the teet itself. As with a real baby’s bottle it was removable from the screw top. The teet has a diameter of about 29 millimetres across its flat base. Herein lies the problem. The product safety standard, NZS 5822:1992, includes as appendix D a “test for (an) ingestion or inhalation hazard”. With reference to children aged 36 months or less any toy, or toy component, which can be removed from the toy, or broken off, or dislodged during normal use may present an ingestion or inhalation hazard.

[7] The operative test is whether the toy or component part will fit within a defined ““truncated circular right cylinder “. The dimensions of the cylinder are defined. It is obviously intended to be indicative of the mouth and throat of a young child. The inner circumference of the cylinder is 32 millimetres. Its length is 25 millimetres on the shortest side and 57 millimetres on the longest side. This means that the cylinder is flat at one end but angled, at a 45 degree bevel, at the other. If a toy, or detachable component, can fit completely within the truncated cylinder it is deemed to constitute an ingestion/inhalation hazard. The subject teet did so.

[8] The possible breach of NZS 5822:1992 was referred to the Commerce Commission by an officer of the Ministry of Consumer Affairs in December 1998. The attention of such officer was drawn to the product by a visiting official from the United Kingdom, who had had experience with a like product in that country. Examples of “Big Baby” and “Chewy Baby” were purchased for testing. Contact was then made with Mr Craig in Dunedin.

[9] He immediately pointed out that the product had been internationally marketed for about four years (including in the United States and Europe) without complaint or any problems of which he was aware. He said that the target market was children aged 6 to 10 years, with a secondary market of children 10 to 14 years. The aim was to promote the confectionary as a humorous novelty item. Children in the target age group were considered likely to be attracted to the idea of carrying confectionary in an imitation feeding bottle. Mr Craig continued that the confectionary itself was not considered suitable for younger children, hence the warning on the label not for infants or children under six years old. In these circumstances he indicated that Myriad was not prepared to voluntarily recall the product, nor did it consider that public notification of a hazard was warranted.

[10] There matters rested until the New Year. On 13 January 1999 Mr M A Theobald, an investigator with the Commerce Commission, wrote to Myriad concerning the matter. On 25 January Mr Craig replied. His letter indicated that Myriad was not holding any undistributed stock. Moreover, the letter contained an assurance that the feeding bottle container would be modified in the future so that the teet was not detachable from the screw top. This was easily achievable since the teet had four holes in its base which matched small plastic protrusions from the inner surface of the screw top. Such protrusions could be heat-sealed to provide a bond through the teet itself. Thereby the teet was effectively fixed to the screw top. The composite item was of sufficient size not to fall foul of the truncated cylinder test for an ingestion or inhalation standard.

[11] Nonetheless and not until 14 March 2000 the Commission issued this proceeding. Myriad was named as the second defendant and another North Island based company as the first defendant. It was a distributor of the same products.

[12] On 20 June 2000 I made an order, by consent, for an injunction under s41 of the Fair Trading Act 1986 restraining both defendants from ‘further supplying ‘Big Baby’ and ‘Chewy Baby’ with a removable plastic teet.” No doubt both defendants consented to an injunction in these terms in the knowledge that the modified container complied with the relevant standard in any event.

[13] In its statement of claim the Commerce Commission also sought declaratory relief. In relation to Myriad declarations were sought that between January and December 1998, it supplied products (“Big Baby “ and “Chewy Baby”) which presented an ingestion and inhalation hazard in terms of NZS 5822:1992, and secondly, that the supply of such products was in breach of s30(1) of the Fair Trading Act. Similar declarations were originally sought against the other defendant. However, a discontinuance eventuated in light of the fact that Myriad was the importer and national distributor, whereas the other defendant was solely a distributor.

[14] In July 2000 Myriad moved to strike out the declaratory relief claim. It did so on the basis that jurisdiction no longer existed to grant such relief or, alternatively, that such relief would inevitably be declined as a matter of discretion. That the differences between the parties related to “past actions “, and were therefore said to be “hypothetical” was at the heart of the strike out argument. However, the Master refused the application. Hence the matter proceeded to trial.

The Regulatory Scheme:

[15] The parent Act is the Fair Trading Act 1986. Section 29 enables regulations to be made in respect of goods of any description prescribing for the purpose of preventing or reducing the risk of injury to any person “a product safety standard . . .”. Section 30 of the Act in turn requires compliance with any such product safety standard. In particular no person may supply, offer to supply or advertise to supply goods unless they comply with the relevant standard.

[16] The Product Safety Standards (Children’s Toys) Regulations 1992, made pursuant to the Act, declare NZS 5822:1992 to be a product safety standard in respect of toys (regulation 4). For present purposes the important aspects of the regulations are the interpretation and application provisions, whereby what is a “toy” is defined and the age group of the children intended to be protected by them is identified.

[17] The regulations provide:

“2. Interpretation - For the purpose of these regulations ‘toy’ means any object manufactured, designed, labelled, or marketed as a plaything for use in learning or play by a child; and includes -

(a) Rattles, dummies, and teethers:

(b) Squeeze tops:

(c) Tops for attaching to a crib, stroller, playpen, or baby carriage:

(d) Pull and push toys:

(e) Pounding toys:

(f) Blocks and stacking toys:

(g) Tops for use in baths, paddling pools, and sand:

(h) Rocking, spring, and stick horses, and similar articles:

(i) Musical chime toys:

(j) Jacks in the box:

(k) Stuffed, plush, and flocked animals, and similar articles:

(l) Games and puzzles:

(m) Dolls:

(n) Toy cars, trucks and other vehicles.”

With reference to the relevant age group:

“3. Application - (1) These regulations apply to toys manufactured, designed, labelled, or marketed for use by children exactly 3 years of age or under whether or not the toys are manufactured, designed, labelled, or marketed for use by children over that age. (2) These regulations do not apply to -

(a) The toys described in the Schedule to these regulations; or

(b) Secondhand toys supplied, or offered for supply, or advertised for supply otherwise than in trade.”

[18] The Schedule lists toys to which the regulations do not apply (regulation 3(2)(a)) including balloons, books, writing materials, modelling materials, flotation aids, bicycles and playground equipment.

[19] The standard itself, NZS 5822:1992, is a comprehensive document which runs to over forty pages. It commences with a description of its “scope “ in these terms:

“This standard sets out safety requirements and test methods for the prevention of ingestion and inhalation hazards in toys intended for use by children aged to 3 years.”

Such description is consistent with the long title to the standard, namely “The Prevention of Ingestion and Inhalation Hazards In Toys Intended For Use By Children Under 3 Years of Age”.

The Affidavit Evidence:

[20] The Commerce Commission filed four affidavits in support of its case. Mr Theobald, the investigator, detailed the course of the investigation. I have already drawn extensively on his evidence in setting out the factual background.

[21] Mr K J Stevens, a research scientist in a mechanical testing laboratory at Wellington, was retained by the Commission to test the subject products in terms of the standard 1999. He conducted a drop test with the screw top/teet assembly. He readily concluded that the teet could be removed from the screw top or dislodged during normal use (that was of course before the heat-sealed modification). Secondly, he found that the teet did fit completely within the truncated circular right cylinder defined by Appendix D of NZS 5822:1992. Accordingly the teet constituted an ingestion or inhalation hazard.

[22] Ms Prudence Vincent and Ms Geraldine Keith, both qualified psychologists with extensive experience of working with young children, tested the product in the hands of infants under three years of age. They each concluded that children as young as about two years four months were able to unscrew the top and, once they did so, that the teet was easily removable. Moreover, testing indicated that the feeding bottle was attractive to children under the age of three years as a toy.

[23] Evidence on behalf of Myriad was supplied first in an affidavit from Mr Craig. I have already drawn extensively upon this material in describing the background facts. Mr Craig’s essential thesis was that “Bib Baby” and “Chewy Baby “ were not suitable products for infants, to the contrary that the target market was children between six to ten years, with a secondary market extended to children up to fourteen years. The affidavit also confirmed that the products had been marketed world-wide for several years (“over six and a half million units . . . sold in Europe alone”). Myriad had distributed the confectionary in Australia, Singapore, and New Zealand since 1995 without a complaint of any kind.

[24] Mr Jim Chan, a Hong Kong company director, also made an affidavit on Myriad’s behalf. His company produces and exports the subject confectionary, using a Chinese factory as the manufacturing base. Mr Chan offered the observations that neither the confectionary type, nor the quantity (50 grams), made it suitable for the under three year market. He added that given the total weight of the confectionary a container for its storage during the course of consumption was necessary. Hence he said the aim of the imitation baby’s bottle was to appeal to the intended market of children six years of age or over, who would see it as a novelty item. Mr Chan also pointed out that children under three years were not buyers, but rather were reliant upon parents or others. Hence he saw it as “pointless” to package the product in a container which may subsequently be used as a plaything by them. (Perhaps, but those who purchase for young children may equally be attracted to the imitation bottle as a potential plaything for younger children).

[25] Generally, in my view, there was no element of significant dispute in relation to the evidence adduced. The witnesses relied upon by the Commission not surprisingly focused their attention upon infants under three years of age. The conclusions reached with reference to that age group were not challenged. Myriad, on the other hand, maintained that the product was neither intended for use by children under three years of age nor “manufactured, designed, labelled or marketed as a play-thing . . .” for them. In short neither party sought to engage the evidence of the other, rather they each offered evidence from quite different perspectives.

[26] It follows, in my view, that the real issue in the case is one of interpretation. That is the interpretation of the regulations in order to decide whether they apply to this product. Put broadly is the commercial intention with which the product is marketed determinative, or is the test the attractiveness of the product to children less than three years of age?

The Contentions:

[27] It was common ground that the question of interpretation derives from the similar wording used in regulations 2 and 3. To recap, the former prescribes that a toy “means any object manufactured, designed, labelled or marketed as a plaything for use in learning or play by a child . . .” while regulation 3 provides that the regulations “apply to toys manufactured designed, labelled, or marketed for use by children exactly 3 years of or under . . .”, regardless that such toys are also manufactured, designed, labelled, or marketed for use by children over three years of age.

[28] Counsel for the Commission focused most upon the concept of “design” , which referred to the creative or conceptual process from which the item resulted. Design was necessarily an objective concept, otherwise a person could rely upon their subjective intention to effectively avoid the product safety objective of the legislation. In other words a purposive approach to interpretation was required, not one where the emphasis was upon the intent of those responsible for creating and selling the product.

[29] Mr Page, on the other hand, contended that the natural meaning of the operative words in the two regulations was decisive. The combination of concepts - manufactured, designed, labelled, or marketed “for use” as a plaything by children up to three years - necessarily imported the element of intention. Hence the inquiry was: what is this product for (rather than, to what use can it be put).

[30] Counsel also argued that unless the ambit of the regulations was determined by reference to “what a designer or manufacturer was actually trying to achieve” the standard “would have almost universal application”. This would follow from the fact that a child may be attracted to almost anything as a potential plaything. Such uncertainty, and scope for all manner of products to be caught, could not have been intended in terms of the regulations.

[31] In this regard cross-examination of Mr Theobald was relied upon. He was shown a real baby’s bottle (although one of less than normal size) and asked:

“The reason why you wouldn’t regard real feeder bottles as toys is because they aren’t intended to be played with by children are they? They actually have a specific purpose in life, yes.”

This answer, Mr Page submitted, demonstrated that intention was determinative.

Conclusions:

[32] To my mind the key words “manufactured, designed, labelled, or marketed . . .” for use as a plaything by children under three are capable of shades of meaning. What might be broadly termed objective and subjective approaches to their interpretation are sensibly open on a reading of regulations 3 and 4 in their particular context.

[33] It follows, I think, that a purposive approach is required. Section 5(1) of the Interpretation Act 1999 mandates as much:

“Ascertaining meaning of legislation - (1) The meaning of an enactment must be ascertained from its text and in the light of its purpose.”

As to purpose s29 of the Fair Trading Act 1986 provides that regulations may be made “in respect of goods of any description or any class . . ., prescribing for the purpose of preventing or reducing the risk of injury to any person, a product safety standard . . .”. Further, such regulations may relate to “the performance, composition, contents, manufacture, processing, design, construction, finish or packaging of the goods”, their testing, or “markings, warnings, or instructions” which accompany them.

[34] Hence, expressly, the purpose of regulations made pursuant to s29 is the prevention of, or reduction in, the risk of injury to persons arising from products. How far is such purpose of assistance in the interpretation of regulations 2 and 3?

[35] I accept the submission of counsel for the Commission that the subjective intention of the manufacturer or marketer of a product cannot determine for what and for whom, such product was manufactured, designed, labelled, or marketed in terms of the regulations. Such an approach would rob the regulations of much of their effectiveness. The purpose of the regulations, safety of products, may be thwarted.

[36] On the other hand, I do not accept that because a product is attractive to children up to three years of age as a plaything it is, therefore, a toy. That would be to substitute for the plain words of the regulations a test or approach other than that which they convey. In my view the operative element is usage. The test is whether the particular product is “for use” as a plaything by children exactly three years of age or under. In determining usage regard is to be had to the manufacture, design, labelling, or marketing of the product. These are alternative concepts. If in relation to any one, with regard to usage, a positive answer results (eg the product is manufactured for use as a plaything by children up to three years), then the regulations apply.

[37] It follows that the required approach is an objective one. The test is whether viewed through the eyes of a reasonable person it can be said that the object or product in question was either manufactured, designed, labelled, or marketed as a plaything for use by children up to three years? If on that objective basis the answer is yes, then NZS 5822:1992 applies.

[38] Are “Big Baby” and “Chewy Baby” products which are covered by the regulations? In my view neither the confectionary nor its container was labelled nor marketed for children up to three years of age. To the contrary, the label recommended that the product was not for infants or children under six years of age. Also, both the evidence and independent examination of the confectionary suggests that it was not manufactured (made) or designed for children of tender years. The confectionary’s hardness and size (about that of a peanut) indicates as much.

[39] That leaves the feeding bottle itself. May a container, used to package a foodstuff, be caught under the regulations? In my view it can provided such container falls within the terms of the regulations. In other words viewed objectively was the feeding bottle manufactured, designed, labelled, or marketed for use as a plaything by children up to three years? In particular would a reasonable person consider that this imitation bottle was manufactured or designed for this age group? Reasonably, I consider the answer to that question is yes. Hence that the regulations do apply to the feeding bottle in which “Bib Baby “ and “Chewy Baby “ was sold.

[40] This decision should not be taken to mean that whenever a product is sold in some form of container which may in due course be used as a plaything by young children the regulations will apply. Obviously many discarded containers, packages and bottles may have appeal as playthings in the hands of children, but it does not follow such items were manufactured or designed as such. In short it is not usage per se, but whether an item was manufactured, designed, labelled or marketed for usage by young children.

Disposition:

[41] As noted earlier the Commission seeks two declarations, namely that in 1998 Myriad supplied products which constituted an ingestion or inhalation hazard, and that such supply was in breach of s30(1) of the Fair Trading Act.

[42] Relief pursuant to the Declaratory Judgments Act 1908 is of course discretionary. Section 10 states as much and continues “the Court may, on any grounds which it deems sufficient, refuse to give or make any such judgment or order”. Nonetheless the discretion must be exercised judicially and a number of general principles have been evolved. As to these see the commentary in Sims Court Practice at L/217-224.

[43] On balance I do not consider it is appropriate or necessary to make formal declarations in this case. The relevant events occurred in 1998. Myriad (and its then co-defendant) consented in June 2000 to a permanent injunction with reference to the further supply of this product “with a removable plastic teet”. Most importantly, it is common ground that when the problem was drawn to Myriad’s attention, remedial steps were promptly taken so that the imitation feeding bottles complied with the standard. Lastly there has been considerable delay in bringing the matter to the present conclusion.

[44] In my view the ruling contained in this judgment is sufficient for the Commission’s purposes. In the circumstances I doubt that declarations would serve any useful function. I also consider that this was a test case concerning the proper interpretation of the Product Safety Standard (Children’s Toys) Regulations 1992. On that account I do not think that costs should follow the event and accordingly there shall be no order as to costs.