FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v

MHG Plastic Industries Pty Ltd [1999] FCA 970

PRACTICE & PROCEDURE – stay of final orders pending appeal – stay of orders for recall of goods and refund to purchasers – whether subject matter of litigation will disappear if stay not granted – whether practicable to reverse effect of orders at first instance if appeal successful – balancing exercise between cost to intending appellant of complying with orders at first instance and risk to public safety if orders not given immediate effect – whether substantial prospect that appeal will succeed – stay of orders for seal to be affixed to reasons for judgment

Trade Practices Act 1974 (Cth), s65C(1), s83

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v

MHG PLASTIC INDUSTRIES PTY LTD

N418 OF 1999

EMMETT J

13 JULY 1999

SYDNEY

THE COURT ORDERS THAT:

1.         The orders and declarations made on 28 June 1999 be vacated and in lieu thereof the following declarations and orders be made.

THE COURT DECLARES THAT:

2.         Motor cycle helmets models “EXR”, “MXR” and “RXR” manufactured by the Respondent since 1 July 1996 do not comply with Australian Standard AS1698-1988 in that they do not satisfy the performance requirements specified in clauses 6.1 and 6.3 of that Australian Standard.

3.         The Respondent, by supplying to wholesalers and other purchasers motor cycle helmets models “EXR”, “MXR” and “RXR” manufactured by the Respondent since 1 July 1996, has in trade or commerce supplied goods that were intended to be used, or were of a kind likely to be used, by consumers and which did not comply with the prescribed consumer product safety standard relating to the goods, namely Australian Standard AS1698-1988, contrary to s65C(1) of the Trade Practices Act 1974.

THE COURT ORDERS THAT:

4.         The Respondent, by its servants or agents or otherwise howsoever, be restrained from supplying to wholesalers and other purchasers motor cycle helmets models “EXR”, “MXR” and “RXR” manufactured by the Respondent since 1 July 1996.

5.         The Respondent, at its own expense, establish a 1800 telephone number within 14 days of the date of these orders and cause that telephone number at all times to be answered or accommodated by a recorded answering service for a period of six months after the date of these orders.

6.         The Respondent, at its own expense, cause to be published in a major daily newspaper in each State or Territory and in each of the magazines “Two Wheels”, “Live to Ride” and “Performance Streetbike” an advertisement in the form of Annexure A hereto and further that the Respondent take all reasonable steps to ensure that each advertisement be:

(1)        in newspapers, of a size not less than three columns wide (or two and a half columns where available ) by 15cm deep and, in magazines, of a size not less than 11cm wide by 15cm deep;

(2)        in text which is in a type size not less than 10 point;

(3)        within the first twenty pages of the newspaper or magazine;

(4)        published in newspapers once per week over three consecutive weeks with the first advertisement appearing in the first issues in which advertising space is available after 7 days of the making of these Orders; and

(5)        published in magazines once per issue over two consecutive issues with the first advertisement appearing in the first issues in which advertising space is available after 7 days of the making of these Orders;

7.         The Respondent, in respect of any person (“owner”) who:

(1)        telephones the 1800 number established by the Respondent in accordance with Order 5 within 6 months of the date of these orders; and

(2)        quotes the serial number of a model “EXR”, “MXR” and “RXR” helmet having a date of manufacture after 1 July 1996; and

(3)        delivers the helmet bearing the serial number referred to in Order 7(2) above to the retail premises of any retailer listed in Annexure B, entitled “Schedule of Retailers” or any other retailer advised to the Applicant within 7 days of the date of these orders or, where the customer lives more than 100km from the nearest retailer listed or advised, to the Respondent at its premises in Melton by carrier nominated by the Respondent at the Respondent’s expense; and

(4)        provides proof of purchase or ownership by production of a receipt for the helmet or by way of statutory declaration

within 28 days do the following:

(a)        where proof of purchase is provided by the owner, refund the purchase price;

(b)        where proof of purchase is not provided by the owner, refund the recommended retail price at the date of manufacture of the helmet.

8.         The Respondent use its best endeavours to obtain from all wholesalers and retailers in Australia all model “EXR”, “MXR” and “RXR” helmets held by them and manufactured by the Respondent since 1 July 1996.

9.         The Respondent (within 28 days of its obtaining any helmet pursuant to Order 8) refund to the person from whom the helmet is obtained the price of the helmet.

10.       The seal of the Court be affixed to the reasons for judgment dated 15 June 1999.

11.       The Respondent pay the Applicant’s costs of the proceedings.

12.       That Orders 7, 9 and 10 above be stayed until the final determination of any appeal or until further order.

THE COURT NOTES:

12.       The undertaking to the court by the Respondent that it will with all due expedition prosecute an appeal from the orders now made.

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

Annexure A – Advertisement

Annexure B – Schedule of Retailers

EX TEMPORE REASONS FOR JUDGMENT

1                     On 15 June 1999, I published my reasons for reaching conclusions that the helmets sold and distributed by MHG do not comply with the relevant standard (“the Standard”).  I then stood the matter over for argument on the relief that would be appropriate in the light of the conclusions that I had then reached.

2                     On 28 June 1999, I heard argument on the relief proposed by the Commission.  MHG did not mount a challenge to the form of the short minutes of order proposed by the Commission at that stage.  Rather, MHG disputed, as a matter of principle, the Commission's entitlement to the orders, which relevantly included orders for recall of the non-compliant helmets.  For the reasons which I then gave, I rejected the four bases upon which MHG sought to resist the orders asked for by the Commission.  I made orders as proposed by the Commission. 

3                     However, later in the day, by consent of both parties, I stayed Orders 6 and 7 until 30 June 1999 to enable the parties to have discussions concerning the procedure for and terms of the proposed recall.  On 30 June 1999, I extended the stay of those orders to 2 July 1999.  I also stayed Order 5(iv), relating to the advertisement of the proposed recall, to 2 July 1999.  The stays were subsequently extended up to and including today. 

4                     The parties have now agreed to variation of the orders which I made on 28 June 1999, apart from two matters which I have dealt with in the course of argument this morning. Those matters relate to the question of a discount for helmets which have been in use for some time and the question of evidence of purchase.

DISCOUNT

5                     On the basis of the material before me, I do not consider that it is appropriate that, if recall is to be ordered, there should be any discount in respect of the use to which helmets have been put in the meantime.  It is virtually impossible to assess the value of a helmet which does not comply with the Standard.  By definition, of course, there has been no accident which put any given helmet to the test.  Nevertheless, there are many respects in which the helmets would prevent injury notwithstanding that they do not comply with the Standard.  In that sense, users have received some benefit.  However, the value of that benefit, being the risk of injury which has been avoided, is impossible to assess.  In any event, as I have said, I am not satisfied that the helmets have only a limited life.

PROOF OF PURCHASE

6                     The second matter was, in effect, resolved in the course of argument.  MHG required production or evidence of purchase before making a refund in respect of a helmet.  Such a requirement may be difficult to satisfy, for example, in the case of a gift.  It was accepted by the Commission, however, that evidence of ownership of a helmet should be produced.  Accordingly, the orders proposed were varied to take account of that requirement.  That is to say, the proposed payment under the recall procedure would only be made against production of evidence of ownership of the helmet recalled.  Accordingly, orders will be made in accordance with short minutes reflecting the discussions which the parties have had.

STAY OF FINAL ORDERS

7                     However, by consent, a motion was filed today returnable instanter whereby MHG sought a stay of the orders pending the hearing of an appeal.  There are several categories of orders which I now propose to pronounce. 

·                    The first concerns declarations as to compliance with the Standard.

·                    The second is an injunction restraining the further supply of the helmets.

·                    The third category concerns the recall and that involves two steps:

(a)         First, there is the publication of advertisements drawing attention to the determinations which I have made and inviting the owners of helmets, if they wish to, to apply for a full refund. 

(b)        The second is re-acquisition of helmets presently in the custody of wholesalers and retailers.

·                    The final category concerns the sealing of reasons for judgment pursuant to section 83 of the Trade Practices Act 1974 (Cth).

8                     The basis for the stay is that MHG could, if there were no stay, be deprived of the benefit of a successful appeal.  It was suggested that, if the orders were made and given effect to, the subject matter of the appeal would, in effect, be extinguished.   Another more specific concern would be the difficulty of undoing the orders after they had been complied with in the event that an appeal was successful.  Huge difficulties would be involved if payments were made to the owners of possibly 50,000 helmets and a Full Court took a different view from me, such that an attempt to recover payment would be necessary.  It would be impracticable for such a course to be adopted.

9                     I would not be prepared to stay the declarations or the injunction against further distribution.  The making of the declarations and such an order would not in any way interfere with MHG’s obtaining the benefit of a successful appeal.  The real question arises out of the difficulties which would be involved if the recall were given effect to, even if payment pursuant to the recall were stayed.

10                  The scheme of the orders which I propose to make in relation to recall is as follows:

·                    MHG will be required at its own expense to publish, in the newspapers and magazines identified, an advertisement in the form of the annexure which will be attached to the orders. 

·                    MHG must ensure that the publication is in accordance with specified size and placement requirements. 

·                    MHG will then be required to make a payment, where proof of purchase is provided by an owner, of the amount of the purchase price or, where no proof of purchase is provided, of the amount of the recommended retail price at the date of manufacture of the helmet so long as proof of ownership is provided.  Such a payment is to be made to any person who:

1.                telephones an 1800 number to be established by MHG,

2.                quotes the serial number of one of the non-complying helmets having a date of manufacture after 1 July 1996, and

3.                delivers the helmet bearing the serial number to the retail premises of any retailer listed in an annexure or any other retailer advised to the Commission by MHG.

11                  It is almost self-evident, if it is not self-evident, that compliance with such requirements would involve MHG in expense and cost.  I have undisputed evidence before me that MHG might incur up to $4 million in refunding the amounts to which I have referred in respect of helmets manufactured since 1 July 1996.  In addition to the amount of the refunds, there will be the costs of advertising which are estimated at approximately $60,000.  There will also be the cost incurred in transportation of returned product from consumers.  That cost would include interstate shipping costs together with the costs associated with destruction of returned helmets and the subsequent disposal of destroyed helmets.  The transportation, destruction and disposal costs are estimated at approximately $30 per returned helmet.  In addition, there would be the cost in staff and management time which would be involved in attending to the recall.  It is suggested that at least one hour per helmet would be involved, such that approximately 50,000 man hours could be involved in the recall.

12                  MHG, I am told, is the only Australian manufacturer of motor cycle helmets.  Its primary facility is in Victoria although it distributes helmets throughout Australia.  There are other distributors of motor cycle helmets but they are apparently manufactured out of Australia.  There is some evidence before me to indicate that the helmets of other manufacturers, if tested in the way which I have held complies with the Standard, may not satisfy the Standard.  The evidence is not complete in that regard but, in any event, it appears to me that it is not a relevant consideration.

13                  It was put that, because other helmets may not comply, it may be difficult for owners of helmets who return them, in accordance with the recall, to buy a helmet which complies.  That seems to me not to be a relevant consideration.  If it be the fact that there are no helmets available in Australia which comply, it does not help to say that non-complying helmets should necessarily be available.  I am, of course, mindful of the fact that it is not in all respects that MHG’s helmets do not comply.  I am satisfied that it would be better for a motor cyclist to have MHG’s helmet than to have no helmet at all. However, that does not really advance the matter.  Whether or not there are other helmets which do not comply is a matter for the Commission or other people to take steps to remedy.  I am only concerned with enforcing the terms of the Trade Practices Act in relation to the parties before me.

14                  There is a balancing exercise involved in the matter which is now before me.  On the one hand, there is the possible cost to MHG of complying with orders which ultimately the Full Court may set aside. On the other hand, there is the safety of the public.  It is, in a sense, a deficiency in our system that the costs associated with or incurred in complying with orders made at first instance which are ultimately set aside on appeal may fall on an innocent party.  Be that as it may, I have to consider the other matter in the balance, namely the safety of the public.

15                  As I said on 28 June 1999, where the safety of the community is at risk, I am not satisfied that mere financial burden would be sufficient to outweigh the interest of the community.  As I have indicated, on the basis of the evidence before me, I am satisfied that there is a significant risk in the continued use of the helmets.  I have already indicated that I have a degree of sympathy for MHG in the position in which it finds itself.  There has been no suggestion of fault, in a subjective sense, or criticism of the conduct of MHG in the manufacture and supply of helmets.  It was not suggested that it acted otherwise than in good faith in the testing of its helmets and supply to the public.  It is indeed unfortunate that a view was apparently taken of the construction of the Standard which I have held is erroneous.  Nevertheless, I must have regard to, as the primary consideration, the safety of the public.

16                  I am mindful of the requirement for the grant of a stay where, in the absence of a stay, the subject matter of litigation may disappear.  However, one of the primary considerations is whether there is a substantial prospect that the appeal will succeed.  While I do not suggest that an appeal could not be mounted in good faith or that there is no arguable basis for an appeal, for the reasons which I have already given in the matter, I do not consider that there is a substantial prospect of success in the appeal.  That, of course, is not a matter for me to decide, and clearly enough, it is possible that at least two other judges may take a different view.  However, I am not satisfied that the prospects of success are sufficient to outweigh the potential risk to the public by a stay.  A stay would delay the recall of the helmets and thereby enhance the possibility of continued use of the helmets by members of the public, with the possibility of serious physical injury which could be avoided.

17                  In the circumstances, I would only be prepared to stay that part of the orders relating to the recall which requires payment to be made within 28 days of delivery of the helmet and provision of proof of purchase or ownership.  I would be prepared to stay the obligation to make a refund until 28 days after the final disposition of an appeal, subject to an undertaking by MHG to prosecute the appeal with all due diligence.  Such a stay would also extend to payment for helmets reacquired from wholesalers and retailers.

18                  The final matter in respect of which the question of a stay may arise concerns the effect of section 83 of the Trade Practices Act.  Section 83 relevantly provides as follows:

“In a proceeding against a person under section 82 […] a finding of any fact by a court made in proceedings under section 80[…], in which that person has been found to have contravened a provision of […] part V is prima facie evidence of that fact and the finding may be proved by production of a document under the seal of the court from which the finding appears.”

19                  One of the orders proposed is a direction that the seal of the Court be affixed to my reasons for judgment dated 15 June 1999.  No doubt, if such a document were tendered against MHG in proceedings against it, prior to the disposition of any appeal, MHG would be entitled to refer to the fact of the appeal.  There is, I have no doubt, every chance that the trial of such proceedings would be deferred until after the disposition of the appeal.  That, however, is not a complete certainty.  I do not know in what Court such a proceeding might be brought, or the circumstances that might prevail upon the judgment of the judicial officer involved.  Accordingly, I would be prepared to stay the operation of proposed Order 7, pending the final determination of any appeal subject to the same condition, namely, an undertaking by MHG to prosecute the appeal with all due diligence.

Associate:

Dated:              13 July 1999