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ip @ ashurst 09 Oct 2018 Consumer Safety Standards: No Origo-nal verdict for Daiso franchisee

Director of Consumer Affairs Victoria v Origo & Co Pty Ltd (formerly Daiso (Australia) Pty Ltd) [2018] FCA 1111

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 What you need to know

  • A franchisee of Japanese retail company Daiso has been found to have contravened a number of mandatory safety standards in relation to the sale of products in the Daiso range.
  • The Court viewed favourably the franchisee's cooperative approach to dealing with the regulator, resulting in the Court making orders on terms substantially similar to those agreed between the parties.
  • Amongst other orders, a pecuniary penalty of $355,000 was ordered.

What you need to do

  • Work proactively with your advisors to ensure your business has in place an appropriate program for complying with all applicable laws and product standards.
  • Do not assume that a product can be lawfully sold in one jurisdiction because it is compliant in another.
  • If you believe your business is selling products that do not comply with applicable standards, take proactive steps to rectify the issue, and seek legal advice.

Background

Origo & Co Pty Ltd (Origo), formerly known as Daiso (Australia) Pty Ltd, operates a number of Daiso franchise retail stores in Victoria and New South Wales. Daiso is a Japanese retail franchise that sells a range of affordable Japanese products, almost all priced at $2.80.  Origo currently operates six stores in Victoria and one in New South Wales.

Consumer Affairs Victoria investigation and allegations

Between 2011 and 2017, Consumer Affairs Victoria (CAV) inspectors began visiting Origo's stores to review Origo's compliance with Australia's consumer protection regime. Over 11 separate visits, CAV inspectors purchased or seized a range of Daiso products that were deemed not to comply with various mandatory safety and information standards.

CAV commenced proceedings against Origo in April 2017, alleging that Origo had supplied the following products in  breach of applicable mandatory standards:

  • projectile toys: lacked a compliant perimeter for high speed propellers and rotors, and failed to have warnings relating to the danger of injuries to the eyes and face;
  • toys for children up to and including 36 months of age: contained or liberated small part, and thereby failing reasonably foreseeable abuse and small parts tests;
  • luggage straps: did not have permanently attached the requisite prescribed warning;
  • cosmetics: did not correctly list or display ingredients; and
  • sunglasses: did not mark or attach the lens category number and description.

CAV also alleged that Origo had engaged in misleading and deceptive conduct by providing sunscreen products marketed and labelled as "sunblock". The term "sunblock" is a misnomer because sunscreens filter to varying degrees but do not completely block sunburning radiation.

During the period of CAV's investigation, Origo sold 15,295 items of non-compliant products, generating a profit of $24,030.

Proceedings

After proceedings were commenced, Origo elected not to defend the matter and admitted liability in respect of the alleged contraventions. Origo and CAV also prepared a Statement of Agreed Facts (SOAF), and agreed a form of proposed declarations and orders for Justice Moshinsky to consider.

The parties proposed that Origo:

  • be restrained from supplying, possessing or offering for supply goods subject to mandatory product standards for a period of three years, unless it carried out an agreed compliance program;
  • pay for the cost of CAV destroying and disposing of all contravening goods seized through the investigation;
  • pay a pecuniary penalty of $355,000;
  • publish a public notice of its contravention and the availability of refunds (at Origo's expense) to customers who purchased the contravening goods; and
  • pay $15,000 as a contribution to CAV's costs of the proceeding.

Decision

Justice Moshinsky considered the suitability of accepting orders that are agreed by the parties to a proceeding.  In this case, his Honour felt that the relevant questions to be determined were:

  1. Is the Court sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences?
  2. Is the penalty that the parties propose an appropriate remedy in the circumstances?

His Honour considered that Question 1 was satisfied, because the SOAF identified and particularised the matters in issue with precision, and contained sufficient indication of how and why the relevant conduct contravened the legislation. 

In relation to Question 2, his Honour's view was that the orders were appropriate because:

"…they serve to record the Court’s disapproval of the contravening conduct, vindicate the Director’s claim that Origo contravened the legislation, assist the Director in carrying out his regulatory duties in the future, inform the public of the contravening conduct, and deter other corporations from contravening the legislation."

His Honour also cited in favour of granting the orders the High Court's statement in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 that:

"…such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention."

Turning to the appropriate pecuniary penalty, Justice Moshinsky concluded the amount of $355,000 was appropriate, because:

  • the contraventions were serious, in that they put at risk the safety of consumers, but were not aggravated by any resultant loss or damage;
  • the contraventions, while not deliberate, occurred repeatedly and over an extended period;
  • the steps Origo took to address its compliance issues were inadequate, especially in respect of the independence and supervision of its compliance process; and
  • Origo co-operated with CAV during inspections, follow up correspondence and legal proceedings.

As a result, his Honour decided to accept the consent orders, including the proposed pecuniary penalty, substantially in the terms proposed by the parties.

 

Authors: Lisa Ritson, Partner; and Daniel Barnett, Graduate

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