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Product Risk Year in Review 20��

In our sixth annual review of product risk developments, we review decisions during 20�� by Australian courts relevant to manufacturers, suppliers and insurers who do business in Australia.

These cases reflect the major issues before the courts in relation to advertising and product liability. This year, a number of the cases are “non-product” cases – for example, they involve the supply of services rather than products, or the duty owed by local government to users of a skate park. However, the general principles – such as what constitutes an “obvious risk” – are relevant to suppliers of product. Advertising cases dominate this year’s publication, and if one lesson can be drawn it is that fine print disclaimers will not be enough to avoid a finding of misleading conduct. A number of the cases involve the interaction between misleading and deceptive conduct and intellectual property law, and the product safety cases reinforce the importance of using the exact form of wording prescribed by a mandatory product safety standard. There is one High Court case which considers the relationship between the implied warranties under the Trade Practices Act �974 (Cth) and NSW provisions which authorises contractual terms that exclude or restricts liability in relation to recreational services.

Notably, the year was marked by the transition to the Australian Consumer Law which came into effect on � January 20��. Information about the new laws is contained in our separate publication, The Australian Consumer Law: An Essential Guide for Product Manufacturers and Suppliers. The changes are yet to fully filter down to the courts with most of the cases still being decided under the old Trade Practices Act �974 (Cth).

Product Risk Year in Review 20��

Jocelyn KellamCo-editor Partner, Sydney

Madeleine KearneyCo-editor Senior Associate, Sydney

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Index

Misleading and deceptive conduct

Bundle of joy – adopting the representations of a third party:Granitgard Pty Ltd v Termicide Pest Control Pty Ltd [20��] FCAFC 8� 5

Be careful when relying on reputation alone: Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd [20��] FCA �62 7

False and misleading conduct: Court sends warning SMS:Australian Competition and Consumer Commission v SMS Global Pty Ltd [20��] FCA 855 9

All fired up over novelty cigarette lighters: Director of Consumer Affairs (Vic) v Toplite Trading Pty Ltd [20��] VSC 408 ��

Terms and conditions not sufficiently prominent to qualify misleading and deceptive representation:Australian Competition and Consumer Commission v TPG Internet Pty Ltd [20��] FCA �254 �2

Mobile phone premium content providers subscribed to misleading and deceptive conduct: Australian Competition and Consumer Commission v Global One Mobile Entertainment Limited [20��] FCA �9� �4

Restaurant in hot water for Sunday and public holiday surcharges:Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd (t/as Signature Brasserie) [20��] FCA �05 �6

All a-twitter about third party testimonials:Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd (No 2) [20��] FCA 74 �7

Cancer program not cured by disclaimer:Australian Competition and Consumer Commission v Jones (No 5) [20��] FCA 49 �8

Harvey Norman’s catalogue of misleading and deceptive conduct leads to penalties:Australian Competition and Consumer Commission v Harvey Norman Holdings Limited [20��] FCA �407 20

Failure to warn of patent infringement equates to misleading and deceptive conduct:Sanofi-Aventis Australia Pty Ltd v Apotex Pty Ltd (No 3) [2011] FCA 846 22

Honest intentions keep tanning salon fair:Body Bronze International Pty Ltd v Fehcorp Pty Ltd [20��] VSCA �96 2�

Fast track default judgment serves a warning:Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [20��] FCA 695 25

Blogger in deep water for using Speedo:Speedo Holdings B.V. v Evans (No 2) [20��] FCA �227 27

Reputation found to exist in coffee plunger even when not associated with name or trademark:Bodum v DKSH Australia Pty Limited [20��] FCAFC 98 29

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Index

Trade Practices Act / ACL – Mandatory product safety standards

A warning to resellers of inadequately labelled goods:Australian Competition and Consumer Commission v Robinson [20��] FCA �7 ��

Detailed warning fails to satisfy safety requirements:Australian Competition and Consumer Commission v Sontax Australia (�988) Pty Ltd [20��] FCA �202 �2

Retailer feels the heat over missing fire hazard warnings:Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [20��] FCA �72 �4

Bean bags breach Fantastic Furniture’s undertaking:Australian Competition and Consumer Commission v Smash Enterprises Pty Ltd, Spotlight Pty Ltd and Fantastic Furniture Pty Ltd [20��] FCA �75 �5

Trade Practices Act / ACL – Warranties and guarantees

Flying high – what standard is required in relation to service providers?:Fugro Spatial Solutions Pty Ltd v Cifuentes [20��] WASCA �02 �7

Exclusion clause unseated by narrow interpretation:Insight Vacations Pty Ltd v Young (20��) 24� CLR �49 �9

Sale of goods – contract

Claim for breach of contract shot by Arrow:Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [20��] WASCA 65 4�

Negligence

Success for mesothelioma sufferer despite relatively low exposure to asbestos cement dust:Lowes v Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) [20��] WASC 287 4�

Reasonable care required when operating machinery:Mungis (No 2) Pty Ltd (in liq) v Still [20��] NSWCA 26� 45

A slippery slope for “dangerous recreational activities”:Vreman and Morris v Albury City Council [20��] NSWSC �9 47

Noxious gas appeal just a cloud of steam:Koljibabic v BHP Billiton Nickel West Pty Ltd [2011] WASCA 87 49

Key Contacts 50

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Bundle of joy – adopting the representations of a third party

Granitgard Pty Ltd v Termicide Pest Control Pty Ltd [20��] FCAFC 8�

An intermediary which reproduces a third party's document on its website may be taken to have adopted the representations within that document, including any representation which is false, misleading or deceptive.

An intermediary will unlikely to be taken to have adopted the representations where its website merely provides a direct link to the document.

Granitgard and Termicide Pest Control are competitors in the pest control and management industry in Queensland. Granitgard and Termicide both supplied barrier systems to prevent subterranean termites infesting buildings; Termicide's product was called "Termiglass."

In 2007 Termicide had included on its website a link in the form of the CSIRO Appraisals logo, which opened up a CSIRO Appraisal document. In 2008, the link was altered to display the Termiglass logo and allowed the viewer to download the Appraisal document in PDF form,

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or go directly to a page which reproduced its content. The Appraisal document claimed that Termiglass:

will satisfy Australian Standard �660.�4-2000 "Termite Management – New building work"; and

provide a suitable physical barrier against subterranean termite entry.

Granitgard also claimed that the Appraisal document represented that Termiglass had been tested by the CSIRO and appraised as satisfying the Australian Standard.

At first instance Justice Logan of the Federal Court rejected Granitgard's contention that in reproducing the Appraisal document on its website, Termicide had adopted the Appraisal document as its own. He acknowledged that while Termicide had an interest in reproducing the Appraisal document, it was not a necessary implication that Termicide had adopted any of the opinions expressed within it.

Granitgard appealed to the Full Federal Court, arguing that Justice Logan had erred in concluding that Termicide had not adopted the Appraisal document as its own. Justices Kenny, Lander and Reeves agreed.

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Had Termicide only provided a link to the original Appraisal document, as was the case in 2007, the appeal would have been dismissed. However, Termicide had also reproduced the body of the Appraisal document on its website in 2008, removing the CSIRO Appraisal's logo and replacing it with its own. In doing so the Court held that Termicide had acted in a way that effectively adopted the Appraisal document as its own.

The Court, however, agreed with Justice Logan in ruling that Termicide had not made a representation that the CSIRO had tested Termicide. An examination of the Appraisal document as a whole revealed that the words "test" and "assess" were used in distinct ways: the former when referring to specific experiments pending at the time of publication, the latter to describe the evaluation of whether Termicide would comply with the Australian Standard. Nowhere in the Appraisal document was it stated that CSIRO had tested Termicide – only that it had assessed it. The Court held that a reasonable reading of the Appraisal document would reflect this.

The Full Court also upheld Justice Logan's findings that the representations made by Termicide were not misleading and deceptive and in breach of section 52 of the Trade Practices Act �974 (TPA), namely that Termiglass:

forms "an impenetrable barrier" to termites;

provides a barrier that is "too hard to chew, too heavy to move and too small to crawl through;"

will satisfy the requirements of the Australian Standard; and

provides a suitable physical barrier against subterranean termite entry.

Granitgard had adduced exhibits into evidence which purported to show that Termiglass did not satisfy the requirements of the Australian Standard and that Termiglass failed in providing an effective barrier to subterranean termites. However, on the whole of the evidence, Justice Logan concluded that it was more probable than not that Termiglass had complied with

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the Australian Standard for size and shape requirements, and that Termiglass did provide an effective physical barrier against Termites.

The fact that Termicide had installed over 27,000 Termiglass barriers without evidence of subterranean termite penetration was influential in Justice Logan's decision. This fact also suggested the truth of Termicide's representation that Termiglass formed "an impenetrable barrier" to termites that is "too hard to chew… etc."

The success of Termiglass was also corroborated by expert evidence presented to the Court, including that of Dr French, a former CSIRO scientist and an expert on termites and particle barrier systems.

The Full Court accordingly rejected Granitgard's appeal on these grounds, and found that in reaching his conclusion, Justice Logan had comprehensively considered the evidence before him.


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Be careful when relying on reputation alone

Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd [20��] FCA �62

Caution must be exercised when making positive representations regarding the authenticity and origin of products, even where the target audience is imputed with greater knowledge than the general population.

Mere belief and experience that a product is genuine are not enough to justify a representation that it is.

Tonnex International and Dynamic Supplies were both engaged in the wholesale supply of printer and computer consumables to resellers in Australia.


Dynamic alleged that Tonnex had engaged in false and misleading conduct by falsely representing that all of its products were “�00% genuine original equipment manufacturer” contrary to section 52 of the Trade Practices Act �974 (Cth) (“TPA”). Dynamic argued that because Tonnex acquired its products from sources including unauthorised distributors, it could not be certain that the products were not counterfeits.

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Justice Yates noted that Tonnex lacked any system to check the authenticity of its products; he held that it was not enough for Tonnex to hold the belief, established through experience, that a supplier was reputable. He subsequently concluded that Tonnex could not be reasonably certain that all its products were genuine, and had thus engaged in conduct that was misleading or deceptive.

It did not follow, however, that Tonnex’s products were necessarily counterfeit: in this regard, Dynamic failed to discharge its onus of proof and could not establish that Tonnex had also falsely represented that the goods were of a particular standard, quality, value, grade or composition in contravention of section 5�(a) of the TPA, or had falsely represented that the goods had performance characteristics, uses or benefits they did not have, contrary to section 5�(c) of the TPA. That is, the representations were misleading but were not necessarily false.

Tonnex had also claimed that it sold “�00% genuine Australian products” and as such, were “protecting Australian jobs.” It later attempted to clarify this statement to mean that although the actual products themselves were manufactured overseas, Tonnex purchased them through Australian channels and thus supported the jobs of employees within the Australian trade channel.


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Justice Yates rejected this qualification, and held that a

“substantial number of persons” would have understood the statement as meaning that the products originated in, and were made in, Australia. This was the case even when considering the target audience as industry members with greater knowledge of printer consumables than the general population.

He also criticised Tonnex’s clarification as an argument of convenience which attempted to validate a very strong promotional statement. As such, Justice Yates found that Tonnex had also contravened section 5�(eb) of the TPA, for making false and misleading representations as to the place of origin of goods.

Copyright infringement

Dynamic also alleged that Tonnex had infringed its copyright. A significant issue in these proceedings involved a compatibility chart (March 2008 CSV file), which was compiled by Dynamic employee, Mark Campbell. The file organised information including price, product information and compatibility with various models of printers, into a consumer-friendly manner which facilitated comprehensive searches

of printer consumables. Dynamic argued that:

the March 2008 CSV file was a compilation expressed in words, figures or symbols, and thus a literary work for the purposes of the Copyright Act �968 (Cth);

the March 2008 CSV file was an original literary work, under section �5 of the Copyright Act, and thus attracted copyright; and

that Tonnex had reproduced a significant portion of the March 2008 CSV file in its 2008-2010 price lists and compatibility charts.

Although Tonnex challenged the originality of the March 2008 CSV file, Justice Yates of the Federal Court was satisfied that copyright subsisted: the information in the compatibility chart had been selected and organised to achieve greatest utility for consumers, while Mr Campbell's intellectual effort, skill and judgment was more than negligible.

Given the similarities and identical idiosyncrasies that existed in Tonnex's compatibility charts and the March 2008 CSV file, Justice Yates also went on to find that Tonnex had infringed Dynamic Supplies' copyright.

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False and misleading conduct: Court sends warning

Australian Competition and Consumer Commission v SMS Global Pty Ltd [20��] FCA 855

Intent isn't needed to make a finding that conduct is misleading and deceptive and representations false, but it is relevant to penalties.

Businesses should ensure they do not misuse logos, falsely claim government endorsement or overstate industry experience.

SMS Global provides its clients with the ability to send SMS and MMS messages to its customers’ mobile telephones, using a portal on the SMS Global website.

During 20�0, the SMS Global website featured the Australian Government Endorsed Supplier Arrangement (ESA) logo containing the words “Australian Government Endorsed Supplier.” It also published and distributed promotional brochures which stated that SMS Global was “a Government endorsed specialist.” At no point was SMS Global ever a Government-endorsed specialist.

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The Australian Competition and Consumer Commission contended that SMS Global had:

falsely represented that it was a government endorsed specialist and was a member of AIMIA (the national peak body representing the interactive media and digital content sector), contrary to sections 52 and 5�(d) of the Trade Practices Act �974 (Cth) (TPA); and

that it had exaggerated its industry experience by claiming it had established its business in 200� and had served "thousands of clients."

The ACCC also alleged that SMS Global's director, Mr Carl Krumins, was a party to SMS Global's contravention.

In proceedings before the Federal Court, SMS Global and Mr Krumins admitted to making the government endorsement representations and that their conduct was misleading in contravention of section 52 of the TPA. However, they argued that their conduct was not deceptive because they had not been deliberately misleading. Justice Murphy disagreed, finding that the weight of authority with respect to section 52 suggested that "misleading" and "deceptive" were synonymous for "to lead into error" and did not require a finding

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of intent (although the question of intent was relevant to the question of what penalty was appropriate).

SMS Global's website also featured AIMIA's logo. At the time that the logo was placed on the website SMS Global was a member of AIMIA and was authorised to use the logo in this manner. However, due to an administrative oversight on the part of Mr Krumins the annual subscription fees were not paid when they fell due. On the basis that AIMIA's constitution provided that membership ceased three months after non-payment of subscription fees the representation that SMS Global was a member of AIMIA was misleading and deceptive.

On the basis that SMS Global was not a government endorsed specialist, and was not a member of AIMIA, the Court also found that the representations contravened section 5�(d) of the TPA, in that they amounted to a false representation regarding an approval or affiliation.

With respect to the industry experience representations, Justice Murphy found that these exaggerated SMS Global's experience and were likely to mislead consumers in contravention of section 52 of the TPA.

He also found that Mr Krumins had been knowingly involved in SMS Global's contraventions of the TPA on the basis that at all material times he controlled and maintained and/or was responsible for approving the contents of the relevant materials.

In assessing the pecuniary penalty payable under section 76E, Justice Murphy took the view that SMS Global and Mr Krumins had been deliberately misleading in relation to the Government Endorsed Supplier representations. This however was mitigated by the fact that there was no evidence of actual loss or damage, and that SMS Global and Mr Krumins had remained co-operative throughout the proceedings.

SMS Global and Mr Krumins were fined $85,000 to be paid jointly and severally. However no pecuniary penalty was payable in relation to the AIMIA representation, on the basis that the representation was not false when it was first placed on the website, the conduct was not deliberate, and was promptly rectified when brought to their attention.

Justice Murphy also made declarations, publication orders and injunctions in relation to the breaches of sections 52 and 5�(d) of the TPA.


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All fired up over novelty cigarette lighters

Director of Consumer Affairs (Vic) v Toplite Trading Pty Ltd [20��] VSC 408

The nature of the product is an important consideration when determining whether a representation is misleading or deceptive.

Unreasonable for consumers to expect that cheap novelty items be manufactured locally even when they feature strong Australian imagery.

Chenglin Gao was the sole director of Toplite, a company in the business of importing Australian souvenir products to other wholesales and retail outlets in Australia. These proceedings concerned Toplite’s supply of thong-shaped novelty cigarette lighters.

Toplite imported these lighters from a Chinese lighter manufacturing company. They were embossed with the word “Australia” and either the image of a kangaroo or a map of Australia. The boxes the lighters were sold in featured images of Australian native flora and fauna, a map of Australia, the Southern Cross, and the statement “THE LIGHTER FOR THAT LAID BACK

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LIFESTYLE.” There was a sticker on the back of the lighter which contained safety information and also said “MADE IN CHINA.”

The Director of Consumer Affairs Victoria (CAV) contended that Toplite and Mr Gao had engaged in misleading and deceptive conduct contrary to section 9 of the Fair Trading Act �999 (Vic). CAV argued that the Australian imagery conveyed the representation that the lighters were made in Australia and were Australian products, and that the

“MADE IN CHINA” sticker was inadequate to qualify the representation.

CAV also alleged Toplite and Mr Gao had:

falsely represented that the lighters had a particular history, contrary to section �2(a);

falsely represented that the lighters had benefits that they did not have, contrary to section �2(e);

made a false or misleading representation concerning the place of origin of the lighters, contrary to section �2(i);

made a false or misleading representation about the production, manufacture or preparation of the lighters, contrary to section �2(l); and

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made a representation that was false, misleading or deceptive in a material particular, contrary to section �2(n).

Justice Williams of the Supreme Court of Victoria did not agree with CAV, holding that the nature of the product was of particular import in this case. The lighters were sold as souvenirs of Australia, and the use of Australian images should be considered in light of this. Rather than suggesting that the lighters were Australian products, the images were aimed at evoking memories of Australia, and the target audience would have understood this. Further, any representation that the lighters were manufactured in Australia would have been qualified by the "MADE IN CHINA" sticker.

CAV also argued that it would be of some significance to select consumers of the target audience that an Australian souvenir be locally produced. Justice Williams felt that while an Australian-made item may be of significance to some of the target audience, the fact that the lighter was a cheap novelty item would make it unreasonable for a consumer to expect that it was manufactured locally.

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Terms and conditions not sufficiently prominent to qualify misleading and deceptive representation

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [20��] FCA �254

In order to correct a false dominant message, the qualifying information must be given a level of prominence relative to the dominant message.

"Prominent" is to be given its ordinary meaning, and requires something to be conspicuous, strike attention.

This case arose in response to a national advertising campaign by TPG Internet for a broadband internet service, "Unlimited ADSL2+" The campaign featured on television stations, radio stations, newspapers, websites, magazines, cinema screens, brochures, public transport, and billboards. TPG advertised the broadband service at "$29.99 a month" on a six month contract. However, in order to take advantage of the offer, the consumer also had to:

rent a home telephone line from TPG;�

pay an additional monthly charge of $30 for the telephone line rental;

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pay an upfront set-up fee of $129.95.

The overriding visual message in the advertisements was that Unlimited ADSL2+ was available for only $29.99 a month. On the television advertisements, the voice-over reiterated the on-screen message. In the print advertisements, the bundled services and "min charge = $509.89" condition was in small print; while on radio these terms and conditions were delivered in a rapid-fire manner.

The Australian Competition and Consumer Commission alleged that the advertisements represented that consumers could purchase Unlimited ADSL2+ without the need to acquire any additional services and pay any additional monthly charges ("bundling condition"), or pay an upfront setup fee ("no setup fee condition"). The ACCC alleged that this breached sections 52 (misleading and deceptive conduct), 5�(e) and 5�(g) (false representations) and 5�C (component pricing) of the Trade Practices Act �974 (Cth) (TPA).

The matter was heard by Justice Murphy in the Federal Court. Because the campaign was run in two phases during 20�0 and 20��, both the TPA and the Australian Consumer Law (ACL) applied in the proceedings. The equivalent ACL provisions are

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sections �8, 29(�)(i), 29(�)(m) and 48 of the ACL, however, the judgment largely refers to the TPA provisions.

TPG denied the allegations arguing that the advertisements were adequately qualified.

According to Justice Murphy, the dominant message conveyed by the advertisements was that consumers acquiring Unlimited ADSL2+ could do so for $29.99 without any further obligations, which was not the case. TPG argued that the smaller print in the advertisements acted as corrective or qualifying information.

While Justice Murphy was willing to concede that the “no setup fee” condition was qualified by the extra information, he disagreed with respect to the bundling condition: the disparity between the dominant message and corrective information was too significant, and would leave the ordinary or reasonable consumer with a false impression. This constituted conduct in breach of sections 52, 5�(e) and 5�(g) of the TPA.

With respect to the alleged breach of section 5�C of the TPA relating to component pricing, it is important to note that in this circumstance, the consumer was paying for a service over a period of time, rather than in a lump sum. As such, section 5�C(5) required only that the single price of $509.89 be prominent, though not necessarily as prominent than the monthly price of $29.99. Even so, at least in relation to the earlier advertisements, the Court found that the full price was not sufficiently prominent. In these advertisements, the minimum charge was only specified in small white font in the visual advertisements, while in the radio advertisements, it was delivered so quickly that only the words

“min. charge” were used.

Justice Murphy held that the relevant test was whether the words were

“prominent” within the ordinary meaning of the word and that in the earlier advertisement minimum charge was not conspicuous or noticeable enough to be described

“prominent”, but that “unobtrusive” was a better description. As such, TPG was found to have breached section 5�C.


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Mobile phone premium content providers subscribed to misleading and deceptive conduct

Australian Competition and Consumer Commission v Global One Mobile Entertainment Limited [20��] FCA �9�

"Fine print" disclaimers may not be adequate to correct an otherwise misleading impression created by an advertisement.

Disclaimers/explanations must be communicated at the same time as the main representation

– a subsequent explanation does not overcome misleading or deceptive conduct.

The Court may have regard to the size of the parent company of a wholly-owned subsidiary when determining the pecuniary penalty under section 76E of the Trade Practices Act.

Global One Mobile Entertainment and 6G provided mobile telephone premium content services and were wholly owned subsidiaries of MobileActive. During 20�0, in an effort to increase subscriptions to their services, Global One and 6G released a series of television advertisements wherein consumers could:

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obtain the song "One Time" by Justin Bieber as a mobile ringtone;

win $100,000 in cash and weekly prizes in a mobile phone quiz game; and

receive the Space Invaders or Doodle Jump games on their mobile phone.

These advertisements regularly appeared during children's and family programs, despite the fact that the offers were not open to people under �5 years of age without permission from the bill payer.

In order to purchase the product referred to in the advertisements, viewers were required to pay an initial sign-up fee as well as an ongoing subscription fee which, depending on the advertisement, was calculated on a six-day, weekly or daily basis. This information was conveyed in small text at the bottom of the screen. The small text also referred viewers to MobileActive's website for more information. It was accepted that if this small text was read, there would be no misapprehension as to the nature of the service provided.

Common to each of the advertisements was background music, moving images, information that a number or word needed to be texted, and a voiceover which referred only to the specific ringtone, quiz

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or game. Apart from the small text and the use of the word "subscribe" at the beginning of the advertisements, no other reference was made to an ongoing subscription service which involved both a sign-up and periodical fee.

The Australian Competition and Consumer Commission (ACCC) commenced proceedings against Global One and 6G, contending that the overall affect of each advertisement was to represent that by sending an SMS message at a standard SMS rate to the number provided, the viewer would purchase a one-off service, rather than becoming a subscriber to a service charged at premium rates.

The matter was heard by Justice Bennett of the Federal Court, who found that Global One and 6G had engaged in conduct that was misleading or deceptive contrary to section 52 of the Trade Practices Act �974 (Cth). They were also found to have made representations, in connexion with the supply or possible

supply of services or promotion of the supply of services:

that the services had a particular standard, quality, value or grade, contrary to section 5�(aa); and

that the services had performance characteristics, uses or benefits they did not have, contrary to section 5�(c).

Justice Bennett noted that it was important to recognise both the transient nature of television advertisements and the fact that consumers frequently pay low attention to them. Given the graphics, voiceover, the need to note a number to which the SMS is sent, and the small size of the writing, it was highly unlikely that an adult would notice or sufficiently focus on the actual content of the small text. Further, the use of the word “subscribe” was deemed inadequate to convey that what was actually offered was a subscription to an ongoing service.

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Global One and 6G contended that the advertisements were not misleading because once a viewer texted the provided number, they received an SMS which reiterated the message in the small text of the advertisements. Disagreeing, Justice Bennett held that a subsequent explanation of the effect of an offer does not overcome misleading or deceptive conduct which occurred at the time of the publication of the advertisement. Further, the fact that the viewer did not incur any losses upon receiving the confirmatory text did not mean that they were not misled in the first place.

In imposing pecuniary penalties, Justice Bennett took into consideration both the financial positions of Global One and 6G as well as the size of MobileActive: while she recognised that the parent company could not be punished, to ignore its size would be to encourage corporations to organise themselves in such a manner as to keep the size of pecuniary penalties to a minimum.


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Restaurant in hot water for Sunday and public holiday surcharges

Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd (t/as Signature Brasserie) [20��] FCA �05

Restaurant menus must include any surcharges prominently in a single price.

Refusal to pay an infringement notice may result in the imposition of a much a greater penalty by a court, even where the issue has been rectified.

Le Sands Restaurant and Le Sands Café operated a restaurant, trading as Signature Brasserie. Signature Brasserie published menus listing items and its prices as supplied from Monday to Saturday. These menus were provided to customers, amongst other days, on Sundays and public

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holidays. At the bottom of the menu, in small print, was a statement which said surcharges of �0% and �5% would be applied on Sundays and public holidays respectively.

The Australian Competition and Consumer Commission (ACCC) claimed that these menus had contravened section 5�C (single pricing provision) of the Trade Practices Act �974 (Cth) (TPA).The practical impact of section 5�C on restaurant menus is that they must, in a prominent way and as a single figure, specify the actual price for the menu items on Sundays and public holidays, rather than including the regular price and a statement that surcharges were applicable on those days. Signature Brasserie changedBrasserie changed changed its menu accordingly and requested that the ACCC’s infringement notice be withdrawn. When the ACCC declined to comply with this request, Signature Brasserie refused to pay the $6,600 penalty which accompanied the notice. In response, the ACCC commenced these proceedings and

both parties were ordered by Justice Jagot in the Federal Court to attend a mediation conference.

In considering the appropriate pecuniary penalty to be awarded under section 76E of the TPA, Justice Jagot referred to Australian Competition and Consumer Commission v Gourmet Goody’s Family Restaurant Pty Ltd [20�0] FCA �2�6 – a case with similar facts, and which readers may recall was reported in last year’s annual review. Justice Jagot reaffirmed that the principal object of the penalty is general deterrence, however it must remain proportionate to the culpability of the contravener.

Although Signature Brasserie had rectified its menus soon after receiving the infringement notice, the cost of the current proceedings should have been avoided by its compliance with the initial penalty. As such, Justice Jagot imposed a penalty of $15,000 and $1,500 in costs.


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All a-twitter about third party testimonials

Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd (No 2) [20��] FCA 74

Many businesses now use social media sites such as Facebook and Twitter to advertise and market their products and services. However, the use of social media carries significant risks, including the risk that businesses may be held liable for comments posted by third parties on their Facebook and Twitter pages.

Businesses must ensure the accuracy of statements posted on their social media sites, including by taking action to remove misleading content posted by third parties as soon as they become aware of it.

Allergy Pathway operated allergy clinics. In August 2009 the Australian Competition and Consumer Commission brought an action against Allergy Pathway and its Director, Paul Keir, for:

engaging in misleading or deceptive conduct, contrary to section 52 of the Trade Practices Act �974 (Cth);

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falsely representing that services are of a particular standard or quality; contrary to section 5�(aa);

representing that services have benefits which they do not have, contrary to section 5�(c); and

engaging in conduct that is liable to mislead the public as to the nature, the characteristics, and the suitability for their purpose of their services, contrary to section 55A.

The representations were in relation the Allergy Pathway’s ability to diagnose and treat allergies. The ACCC was successful in these proceedings and Allergy Pathway was ordered to publish corrective advertising and, in order to avoid a permanent injunction, give a court-enforceable undertaking that it would not make the representations which the Court had found to be false, misleading or deceptive. The period of the undertaking was three years.

In the most recent proceedings, the ACCC alleged Allergy Pathway was in contempt of court for breaching the undertaking, including occasions where testimonials were written and posted by clients on Allergy Pathway’s Facebook pages. The ACCC further argued that Mr Keir had breached his undertaking by being party to the breaches. In response, Allergy Pathway contended that it had not breached its undertaking because it did not

“publish” the third party testimonials.

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Justice Finkelstein of the Federal Court found it useful to consider the meaning of “publication” within proceedings for the tort of defamation: in such cases, a party who accepted responsibility for the continued publication of a statement would generally be considered as having published the statement in question.

After it was demonstrated that Allergy Pathway knew of the publications and decided not to remove them, Justice Finkelstein concluded that Allergy Pathway had in fact accepted responsibility for the testimonials. As such, Allergy Pathway became the “publisher” of the testimonials and had breached its undertaking.

Allergy Pathway and Keir were fined $7,500 each. Justice Finkelstein discharged the undertakings and imposed a three-year injunction, as well as an order that Allergy Pathway publish corrective advertising on its website, Facebook and Twitter pages.

This case highlights the importance for companies of monitoring and reviewing not only the content which they post on their social networking applications, but the way the public interacts with them through these sites.


�8

Cancer program not cured by disclaimer

Australian Competition and Consumer Commission v Jones (No 5) [20��] FCA 49

Individuals can be liable for contraventions of sections 52 and 53 of the Trade Practices Act in relation to claims made on internet sites (among other things).

A disclaimer may not be enough to avoid a finding of misleading conduct – it is the overall impression that matters.

Darryl Jones, a professional personal trainer and body builder, established his own health care centre (the Darryl Jones Health Resolution Centre) which advocated utilising natural remedies to treat disease.

The Darryl Jones Health Resolution Centre also operated a website, which featured an e-book called

“The Truth about Overcoming Cancer.” The website and e-book claimed that Mr Jones’ “program” could treat or prevent cancer, and that it was more effective than pharmaceutical drugs, radiotherapy, surgery and chemotherapy. This program essentially labelled glucose as the prime cause of cancer and advocated laetrile (otherwise known as vitamin B�7) as a cancer preventative.

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The Australian Competition and Consumer Commission brought an action against Mr Jones, alleging that he:

had engaged in misleading or deceptive conduct, contrary to section 52 of the Trade Practices Act �974 (Cth) (TPA); and(TPA); and; and

that he had made representations, in connection with the supply or possible supply of services or the promotion of the supply of services, that the services had performance characteristics, uses or benefits that they did not have, in contravention of section 5�(c).

The matter was heard by Justice Logan in the Federal Court. He acknowledged that while, prima facie, sections 52 and 5� applied only to corporations, these sections must be read in conjunction with section 6, which extends their application to individual persons where the conduct involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast This includes the internet.

Mr Jones did not deny that he had made the representations in question, but rather argued that he had reasonable grounds for making them.

The ACCC adduced expert evidence that Mr Jones’ representations were incorrect, were not supported by any scientific evidence, and that

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�9

no reasonable grounds for making them existed. Justice Logan accepted this evidence, holding that there was no reliable evidence, scientific or otherwise, which could support the representations or even provide reasonable grounds for making them.

The website and e-book did contain some disclaimers. For example, the e-book included the following in bold capitals on the inside cover:

“All thoughts and comments in this book are that of the author, they are not meant as medical advice. Observations are those of the author. Testimonies are those of the patients involved. In respect of the important work of the health care industry, the Darryl Jones Health Resolution Centre strongly advises that that the contents of this booklet are a reflection of the author’s strong beliefs gained through over �8 years of observation. When taking responsibility for your own health, we advise those reading

this book/manual to seek advice and accountability from your health professional.”

Justice Logan also dealt with Mr Jones’ disclaimers on both the website and e-book by saying that merely including a disclaimer will not serve to absolve someone from contravening section 5� of the TPA. Reading the website and the e-book as a whole, it was clear that their purpose was to commend Mr Jones’ program and deprecate the practice of oncology and accepted approaches to remedying cancer. As such, the website and e-book remained misleading or deceptive despite the disclaimers.

Mr Jones was permanently restrained from making, or being involved in others making, or encouraging others to make, any claim concerning the treatment or prevention of cancer or any medical condition in the course of trade or commerce without first obtaining written medical or scientific advice to support the claim.


20

Harvey Norman’s catalogue of misleading and deceptive conduct leads to penalties

Australian Competition and Consumer Commission v Harvey Norman Holdings Limited [20��] FCA �407

Geography relevant to whether conduct misleading or deceptive.

When considering the penalty to be awarded under section 76E of the Trade Practices Act 1974 (Cth) (TPA);, the court will balance the nature and extent of the contravening conduct with the co-operation and contrition of the contravening party.

Harvey Norman Holdings Limited (HNHL) is a corporation which, as part of its business, grants franchises to independent franchisees who carry on business in the retail industry under the “Harvey Norman” trademark. HNHL is responsible for the Harvey Norman website, and also controls the preparation of Harvey Norman catalogues advertising goods for sale.

In November 20��, the Australian Competition and Consumer Commission (ACCC) commenced proceedings before Justice Collier

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of the Federal Court, alleging misleading conduct in relation to catalogues published by HNHL.

The 3D conduct

It was alleged that during July 20�0, HNHL had prepared a catalogue titled

“Harvey Norman – the Electrical Specialist – �D Finals Fever”, advertising �D enabled televisions. The overall message of the catalogue was to encourage consumers to purchase a �D enabled television so that they could watch the Australian Football League and National Rugby League Grand Finals. A copy of the catalogue was also published on the Harvey Norman website.

In September, HNHL became aware that the Australian Communications and Media Authority had issued licences to the Seven and Nine Networks to broadcast the Finals in Sydney, Melbourne, Brisbane, Newcastle, Adelaide and Perth only.

Despite this, HNHL published 4.25 million copies of the catalogue, including �.75 million which were distributed outside of the �D broadcast cities. Neither the website nor the catalogue mentioned that the broadcast was only available in �D format in the �D broadcast cities.

The catalogue conduct

The ACCC also complained that catalogues published by HNHL


2�

during October 2008 and July 20�� represented that the goods and prices advertised within them were available at Harvey Norman retail stores in general, rather than in one single nominated store.

Each catalogue was said to prominently feature the “Harvey Norman” trademark and/or slogans such as “Best Brands – Best Advice – Best Value – Nationwide” and

“Harvey Norman – Australia’s #�.” On the last page of the Catalogues was a list in bold of Harvey Norman retail stores within the State or Territory in which the catalogue was distributed. On one of the pages, though never the first, and in fine print was included the condition that the advertised offers were only available at a single nominated Harvey Norman store (the Catalogue Condition).

Section 76E penalties

HNHL admitted to having engaged in misleading and deceptive conduct and co-operated with the ACCC in agreeing upon the pecuniary penalties payable. Both parties submitted that the appropriate penalties would be:

$500,000 with respect to the 3D conduct and having breached section 5�(c) of the TPA; and

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$750,000 with respect to the catalogue conduct and having breached section 5�(g) of the TPA and section 29(�)(m) of the ACL.

Justice Collier considered the nature and extent of HNHL’s conduct with respect to the �D catalogue and found that HNHL was well aware that �D broadcasting was subject to the grant of licences by ACMA, and that despite knowing that consumers in regional areas would not be able to watch the Finals in �D, nevertheless distributed the �D catalogue in these areas. She further noted that HNHL had taken no steps to correct the representation that consumers would be able to watch the Finals in regional areas.

With respect to the catalogue condition, Justice Collier found that the fine print meant it was unlikely to be noticed by the consumer, especially when considered alongside the prominent use of the Harvey Norman trademark. She believed that the use of the trademark encouraged the belief that Harvey Norman was a single corporate entity, as opposed to consisting of independent franchisees, and that the catalogue condition was not sufficient to dispel any contrary impression. As such, it was likely that the consumer would

• be misled into thinking that the advertised offers contained in the catalogues were available at all Harvey Norman retailers in general, as opposed to one single nominated store.

Justice Collier was extremely critical of HNHL, describing HNHL’s conduct as “an expensive, misleading and calculated campaign of sizeable proportions, characterised by blatant and deliberate disregard of the truth… cynical strategies… and the contemptuous manipulation of the expectations of ordinary consumers…”. However, this was mitigated somewhat by HNHL’s high level of co-operation with the ACCC.

Given that HNHL also agreed to publish corrective notices, Justice Collier was prepared to agree with the penalties submitted by both parties.


22

Failure to warn of patent infringement equates to misleading and deceptive conduct

Sanofi-Aventis Australia Pty Ltd v Apotex Pty Ltd (No �) [20��] FCA 846

The respondent's failure to warn that use of its generic product may constitute a breach of the applicant's patent amounted to misleading and deceptive conduct.

Sanofi-Aventis Australia had obtained a patent under the Patents Act �990 (Cth) for the administration of the pharmaceutical product leflunomide as a method of preventing or treating the skin disorder psoriasis. Subsequently, Apotex registered a generic version of leflunomide on the Australian Register of Therapeutic Goods in respect of the treatment of psoriatic arthritis.

The proceedings concerned alleged patent and copyright infringements. Apotex unsuccessfully cross-claimed that Sanofi's product was not patentable because an inventive step had not been taken and that Sanofi's product information was not covered by the Copyright Act 1968 (Cth) because Sanofi had failed to establish authorship.

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Sanofi alleged that Apotex’s offer to supply its product as well as its failure to warn of a potential breach of patent amounted to a misrepresentation to medical practitioners, pharmacists and patients. Additionally, Apotex’s giving of a certificate to the Therapeutic Goods Administration under the Therapeutic Goods Act �989 (Cth) was also alleged to amount to misleading and deceptive conduct.

Apotex’s proposed conduct to supply its generic leflunomide product without a warning was found to convey the following false and misleading representations:

medical practitioners are entitled to prescribe and use the leflunomide products for the treatment of active psoriasis;

pharmacists are entitled to dispense and use the leflunomide products for the treatment of active psoriasis; and

patients are entitled to use the leflunomide products for the treatment of active psoriasis.

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In establishing that a failure to warn may amount to misleading and deceptive conduct, Sanofi relied on Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (�999) �64 ALR 2�9, which held that a failure to warn that the use of a product in a particular way may constitute an infringement of a patent is misleading or deceptive conduct in trade or commerce.

The court held that Apotex's submission of the TGA certificate was in good faith and that Apotex believed on reasonable grounds that it was not

“marketing” its generic product and did not propose to market its product in a way that would infringe Sanofi's patent. This finding was made because Sanofi had failed to prove that the representation conveyed in the certificate was misleading or deceptive.


2�

Honest intentions keep tanning salon fair

Body Bronze International Pty Ltd v Fehcorp Pty Ltd [20��] VSCA �96

Provided a person intends to honour a representation as to future conduct at the time it was made, the fact that it does not come to pass does not render it misleading or deceptive conduct.

Not every intentional breach of contract is unconscionable under section 51AC of the Trade Practices Act (Cth) (TPA). The breach must be accompanied by morally reprehensible conduct.

Body Bronze International was a franchisor of body tanning salons. In February 2007, it entered into a Heads of Agreement with Fehcorp to franchise a new tanning salon. Clause �5 provided that if Fehcorp’s fit-out costs exceed $250,000, Body Bronze would lend additional funds as required for the fit-out (the Finance Arrangement). Both parties then executed a Franchise Agreement in March 2007, which left out the Finance Arrangement and also contained an entire agreement clause.

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When Fehcorp claimed to have exceeded $250,000 in fit out costs, Body Bronze advanced a total of\ $19,250.

A dispute later arose regarding an invoice for $22,207.08. Body Bronze sought reimbursement after paying the invoice, however Fehcorp refused, relying on the Finance Arrangement. Body Bronze argued that the entire agreement clause in the Franchise Agreement superseded the Finance Arrangement. It subsequently issued a notice of breach demanding reimbursement, and eventually took possession of the salon.

The trial judge found that the Finance Arrangement did form part of the contract, and accordingly awarded damages against Body Bronze for:

breach of contract;

engaging in misleading and deceptive conduct, contrary to section 52 of the TPA; and

engaging in unconscionable conduct contrary to section 5�AC of the TPA.

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The CEO and sole director of Body Bronze, Mr Scott Meneilly and Mr Brian Mitchell, were also found personally liable under section 75B of the TPA for being "involved" in the breaches.

Mr Meneilly and Mr Mitchell challenged the finding of their liability in the Victorian Supreme Court, arguing that while Body Bronze had breached its contract, it had not contravened either section 52 or 5�AC.


The trial judge concluded that Body Bronze had been misleading and deceptive by representing that it would lend to Fehcorp the amount of fit-out costs where they exceeded $250,000. This was despite accepting that Mr Meneilly and Mr Mitchell had, at the time of making the representation, intended to honour the finance arrangement.

The Victorian Court of Appeal emphasised that the mere fact a representation as to future conduct does not come to pass does not necessarily make it misleading or deceptive, even where another party has relied on the representation and acted upon it.


24Misleading and deceptive conduct

Section 5�A of the TPA provides that where a representation is made with respect to any future matter, the representation is misleading when the person making it has no reasonable grounds for doing so. The Court of Appeal found that the trial judge had erroneously reached his conclusion without recourse to section 5�A: given that Body Bronze had the intention and means of honouring the financial arrangement at the time the representation was made, there was no basis for concluding that such a representation was misleading or deceptive.

Given that Body Bronze had not contravened section 52, Mr Meneilly and Mr Mitchell could not be held liable for any involvement of such a breach.

Unconscionable conduct

The trial judge also concluded that Body Bronze had engaged in unconscionable conduct by first refusing to uphold the Finance Arrangement and then terminating the Franchise Agreement on the basis of Fehcorp’s non-payment of the invoice.

The Court of Appeal noted the notion of “unconscionable conduct” under section 5�AC of the TPA is not confined by equitable doctrines; rather it is necessary to consider whether the conduct, “in all the circumstances,” involved “a high level of moral obloquy.” In considering whether Body Bronze’s conduct was unconscionable in this sense, it accepted that an intentional breach of contract does not necessarily involve the requisite moral character that would render it unconscionable. Something more is required.

In this case, Body Bronze had experienced financial pressures due to market downturn: the decision to repudiate was driven by rational commercial considerations. Further, there had been no inequality of bargaining position or undue influence. At all times Body Bronze had acted openly, even giving Fehcorp �4 days to respond to the notice of breach. Body Bronze had not acted in an unreasonable or irreconcilable way, or failed to show regard for conscience; thus, the Court of Appeal found that Body Bronze’s conduct was not unconscionable.

Accordingly, it found that Body Bronze had not contravened section 5�AC and Mr Meneilly and Mr Mitchell could not be held not liable for any involvement of a breach of section 5�AC.


Fast track default judgment serves a warning

Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [20��] FCA 695

Non-appearance can be interpreted as a lack of co-operation which is relevant to the assessment of what penalty should be imposed.

Marksun Australia is an Australian company which carries on a business promoting and selling “Ugg Boots from Australia” on at least �� websites. In actual fact, the Ugg Boots sold by Marksun were made in China. Marksun also published on its websites a copy of the “Australian Made” Logo, further indicating that the Ugg Boots were Australian made.

In September 20�0, the Australian Made Campaign Limited, which administers the use of the Australian Made logo, contacted Marksun in relation to its improper use; in November 20�0 Marksun removed the logo from one of its websites but two further unauthorised uses on other websites remained.

Marksun was found to have:

engaged in conduct that was misleading or deceptive in contravention of section 52

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of the Trade Practices Act (TPA) and section �8 of the Australian Consumer Law (ACL);

made representations concerning the place of origin of the Ugg Boots that were false or misleading in contravention of section 5�(eb) of the TPA and section 29(�)(k) of the ACL; and

represented to customers that the Ugg Boots had approval to use the

"Australian Made" Logo in contravention of sections �8 and 29(�)(g) of the ACL.

Marksun's contravening conduct was divided into two categories for the purposes of determining the fine payable, namely: claiming that the Ugg Boots were made in Australia (Made in Australia Conduct) and using the “Australian Made” Logo on two websites (Use of Logo Conduct).

It did not appear at any stage during the proceedings, and accordingly, the ACCC sought default judgment.

Injunction

In accordance with section 2�2 of the ACL, the ACCC sought an injunction permanently restraining Marksun from the contravening conduct.

Although a court’s power to grant an injunction is very broad, it is subject to at least three limitations as identified in Australian Competition and Consumer Commission v Z-Tek

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Computer Pty Ltd (�997) 78 FCR at 20�-204:

the power is confined by reference to the scope and purpose of the legislation – the relief should be designed to prevent a repetition of the conduct for which the relief is sought;

there must be a sufficient nexus between the contravention and the injunction granted; and

the injunction must be related to the case or controversy.

As these conditions had been met the injunction was granted.

Corrective advertising

The ACCC also sought an order that Marksun publish a information notice on each of its websites in accordance with section 246 of the ACL. Justice Gilmour held that the publication notice that was being sought was not punitive in nature and may aid the enforcement of the primary orders and prevent the repetition of the contravening conduct.

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Pecuniary penalty

Additionally, the ACCC successfully sought the imposition of a pecuniary penalty under section 76E of the TPA and section 224 of the ACL.

In deciding whether to apply a penalty Justice Gilmour had to take into account a number of factors, including:

the maximum penalty available ($1.1 million);

deterrence for the offender and others "who may be disposed to engage in prohibited conduct of a similar kind";

possible damage to the "Australian Made" Logo where misuse could impact the value of Made in Australia claims more generally;

the deliberate marketing campaign to benefit from the perception that Marksun's Ugg Boots, as an iconic Australian product, are made in Australia;

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the financial position of Marksun, which has as least �� .com.au websites, engaged lawyers and accountants from a number of countries worldwide to incorporate Marksun and register its trademarks, and Marksun's close alliance with a foreign corporation with a multi-million dollar annual turnover;

Marksun's lack of co-operation and refusal to acknowledge liability or culpability; and

Marksun's previous record – it was not found to have previously contravened the CCA or ACL;

The Made in Australia Conduct received a pecuniary penalty of $330,000.

The Use of Logo Conduct received a pecuniary penalty of $100,000.

In addition to the penalties, the Court ordered Marksun to pay a lump sum of $50,000 to the applicants.

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Blogger in deep water for using Speedo

Speedo Holdings B.V. v Evans (No 2) [20��] FCA �227

Domain names which contain a company's mark without that company's consent may be found to be misleading or deceptive.

The court can give effect to orders against a respondent who is known to it only under an alias.

Speedo Holdings B.V. and the second applicant, Speedo International Limited (together, Speedo) are well known manufacturers, distributors and sellers of swimwear both in Australia and overseas. Speedo is the registered owner of numerous trade marks, including “SPEEDO.”

In August 20�� Speedo alleged that a Mr Dave Evans had, from 2008 to 20�0, registered a number of domain names containing the name SPEEDO without Speedo’s consent, including:

http://www.aussiespeedoguy.net

http://www.speedosnextdoor.com

http://www.yearofthespeedo.com

The content of these sites featured images of men wearing Speedo-like swimming briefs and "related offensive images." Speedo

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complained that the domain names were substantially identical with, or deceptively similar to, the SPEEDO trademark and, subsequently, in contravention of section �20 of the Trade Marks Act �995 (Cth).

Speedo further claimed that Mr Evans' conduct had been unlawfully passing off and was misleading and deceptive, in breach of sections 52 and 5�(c) of the Trade Practices Act �974 (Cth).

The initial concerns centred on Speedo's difficulties in serving the Originating Application and Statement of Claim. Before commencing the proceedings, Speedo's solicitors had communicated via email with Mr Evans, who had acknowledged that "this is a valid email address with regard to correspondence." However, he repeatedly failed to attend court, or file a defence or address for service.

Justice Flick was satisfied that emailing Mr Evans was sufficient service, relying on rule ��.0�(5) of the Federal Court Rules 20��, which allows the receipt of documents via email where the party is not represented by a lawyer but provides an email address.

Given Mr Evan's failure to file a defence or any affidavit evidence, Speedo applied for a default judgment. Justice Flick consented. The issues were thus whether Speedo's Statement of Claim


had sufficiently established that registered trade marks had been infringed. Of this, he was satisfied.

Justice Flick was similarly satisfied that the Statement of Claim also made out the elements of the tort of passing off, as well as misleading and deceptive conduct, although he gave no details in his judgment.

Justice Flick accordingly ordered that Mr Evans:

be restrained from infringing the SPEEDO trademarks;

be restrained from registering and/or operating any domain name containing the name SPEEDO or a name substantially identical or deceptively similar to SPEEDO;

transfer the registration of the infringing domain names to Speedo.

If Mr Evans failed to transfer the registration of the infringing domain names, Justice Flick allowed the Court's Registrar to sign all necessary documents to give effect to the transfer.

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As an aside, Justice Flick dealt with Mr Evans' repeated failure to provide further details as to his identity. Mr Evans had on his website and by an email to the Court questioned the Court's ability to impose a ruling on him given that "Dave Evans" was a fictitious person. However,

"Dave Evans" remained the administrative contact listed on the websites, and the respondent continued to operate under the business name of "Dave Evans".

Justice Flick noted that the Court rules allow proceedings to be commenced against a business name, and also for variations to be made to an order. Thus, any error in the identification of the respondent would not preclude the Court from giving effect to the orders made. He further added that Mr Evan's excuses were no justification for his failure to appear.

29Misleading and deceptive/passing off

Reputation found to exist in coffee plunger even when not associated with name or trademark

Bodum v DKSH Australia Pty Limited [20��] FCAFC 98

It is possible to protect the reputation of a brand or product

"get-up" through use as an alternative to registration.

Bodum successfully established that its Bodum Chambord Coffee Plunger had a reputation or 'secondary meaning' which existed in the minds of consumers without a direct association to the Bodum name or logo.

Since April �986 Bodum had promoted, advertised and sold the Bodum Chambord Coffee Plunger in Australia. In July 2004, DKSH Australia began to distribute and sell the lookalike Euroline coffee plunger in Australia; the two products were overwhelmingly similar in terms of appearance, choice of materials and manufacturing techniques, however the Euroline plunger was not branded, and the packaging featured Euroline’s name rather than Bodum’s.

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Bodum’s central contentions on appeal were that DKSH:

had falsely represented to consumers in Australia that the Euroline coffee plunger is the Bodum Chambord Coffee Plunger, or is sold with the licence of Bodum and in doing so, engaged in misleading and deceptive conduct contrary to section 52 of the Trade Practices Act �974 (Cth); and

engaged in passing off the Euroline coffee plunger as the Bodum Chambord Coffee Plunger, causing damage to Bodum's goodwill and reputation which existed in the plunger.

Although the primary judge found that “the Bodum brand itself has a significant reputation in the homewares/housewares market”, he did not find that reputation extended to the “naked coffee plunger features”.

Additionally, he found that the absence of the Bodum name and logo on the Euroline plunger told the reasonable consumer that the rival coffee plunger was not a Bodum product, and thus no reasonable consumer was, or likely to be, misled or deceived by the rival’s adoption of the features and shape alone nor could it amount to passing off.

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Trade Practices – misleading and deceptive/passing off

�0Misleading and deceptive/passing off

Reputation established through advertising

On appeal, counsel for Bodum contended, and Justices Greenwood and Tracey agreed, that the point of Bodum’s (extensive) advertising was to associate the distinctive shape and features of the plunger with Bodum as the point of origin for the product (ie. that “the distinctive features of the product in that sense are reinforced by the use of the trade mark”.

This use of advertising led the majority of the Full Federal Court to find that a significant secondary reputation existed in the Bodum Chambord Coffee Plunger, and that reputation was not “distinctly tied” to the Bodum brand.

Misleading and deceptive

Because the Euroline mark is only on the box and the plungers are regularly displayed out of the box, the majority of the Full Court found that the DKSH Euroline plunger was not sufficiently distinguished and that a reasonable or ordinary member of the class of consumers looking to buy a coffee

plunger may be misled into thinking that the Euroline plunger is the Bodum plunger.

In dissent, Justice Buchanan pointed to the trial judge’s findings that Bodum had taught consumers to be wary of imitations and to look for the original because of the number of imitations on the market. He rejected the suggestion that consumers may be misled “merely by the similarity of features” between the plungers because customers knew to look for the Bodum trade mark. To that extent, Justice Buchanan believed that it was sufficiently clear to consumers that the product that they were purchasing was not a Bodum product.

Passing off

To be successful in an action for passing off, it is necessary to prove:

there is goodwill or reputation attached to those goods or services in the mind of the purchasing public by association with the identifying "get-up"; and

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a misrepresentation to the public, leading the purchasing public to believe that the goods or services offered by the respondent are the goods or services of the plaintiff; and

that damage has or is likely to be suffered as a result of the misrepresentation.

As with misleading and deceptive conduct under section 52, passing off is not made out merely by demonstrating that the rival manufacturer is found to have copied the features of its rival's product.

Considering the above factors, the majority of the Full Federal Court found that the adoption of the Euroline brand name on the packaging was insufficient to distinguish the rival product from that of the Bodum Chambord Coffee Plunger.

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��Mandatory product safety standards

A warning to resellers of inadequately labelled goods

Australian Competition and Consumer Commission v Robinson [20��] FCA �7

ACCC demonstrates its willingness to prosecute small eBay businesses.

However, capacity to pay relevant to size of penalty imposed.

Mr Robinson operated an eBay account where he sold infants’ and children’s clothing. On 3 December 2007, he first sold a product known as the “Grobag” (a children’s sleeping bag) which he imported from a supplier in China though his eBay account and eBay store.

Grobags were invented and manufactured by the UK company Gro-Group International, and exclusively supplied in Australia

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by Bambini Pty Ltd. Bambini alerted Gro-Group, which ascertained that the Grobags were rejected stock stolen from its manufacturer in China.

Bambini contacted the ACCC alleging that Mr Robinson, along with other eBay traders, was selling the stolen stock in Australia which was not labelled with the fire hazard information required by the mandatory standard for Children’s Nightwear (namely the Trade Practices (Consumer Product Safety Standards) (Children’s Nightwear and Paper Patterns for Children’s Nightwear) Regulations 2007). The standard required that the Grobags be labelled with the words

“Warning, High Fire Danger, Keep Away From Fire” on a tag close to the back of the neck of the garment.

Mr Robinson pleaded guilty to each of the eight charges laid under section 75AZS(�) of the Trade Practices Act �974 (Cth) (TPA).

Although the TPA does not ordinarily apply to natural persons, Mr Robinson

could be prosecuted because he distributed his products with the aid of the postal service.

At one stage a representative from Bambini offered to buy all of Mr Robinson’s stock “in the interests of child safety”. After selling all of his stock to Bambini, the defendant purchased a further 60 Grobags from his Chinese supplier and then offered to resell them to Bambini. Justice Besanko found this behaviour to be reckless and described Mr Robinson as an “unsophisticated businessman”.

In addition to the relevant sentencing considerations set out in sections �6A and �6C of the Crimes Act �9�4 (Cth) Justice Besanko also considered the importance and applicability of general deterrence. Although this was a matter that was considered to be an important consideration in sentencing, Justice Besanko imposed a relatively modest penalty of $11,000 after taking into consideration Mr Robinson’s income and the fact that his household did not appear to have the means to pay a substantial fine.

Trade Practices / ACL – Mandatory product safety standards

�2Mandatory product safety standards

Detailed warning fails to satisfy safety requirements

Australian Competition and Consumer Commission v Sontax Australia (�988) Pty Ltd [20��] FCA �202

Where a mandatory standard prescribes a warning the exact wording (including font requirements) must be complied with even where detailed warnings are given.

In determining the appropriate penalty to be imposed for breaches of cosumer protection legislation Practices Act (Cth) (TPA), the Court's primary concern is both specific and general deterrence. The Court will also consider the nature of the contravening conduct, the company's culture of compliance and its capacity to pay, as well as its contrition and co-operation.

Sontax Australia is an importer and wholesale supplier of hardware goods.

The Australian Competition and Consumer Commission alleged that Sontax had breached section 65C(�)(a) of the TPA between July and November 20�0 for supplying

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to retailers 2,�5� elastic luggage straps which did not comply with the relevant safety standard.

The Trade Practices (Consumer Product Safety Standards) Regulations �979 (Cth) prescribe the safety standard for elastic luggage straps. In particular, regulations ��C(�) and (4) require the labels to be of a certain colour, typeface and bear the following warning:

“WARNING. Avoid eye injury. DO NOT overstretch. ALWAYS keep face and body out of recoil path. DO NOT use when strap has visible signs of wear or damage.”

The labels which were attached to the straps were in fact far more detailed. However they failed to comply with the Regulations because the labels did not bear all of the prescribed words, and the words “WARNING” and “DO NOT overstretch” were not printed in the required height nor on the prescribed coloured background.

The ACCC also accused Sontax of breaching an Undertaking given in March 2009. The 2009 Undertaking was in relation to similar proceedings, wherein the warning label on Sontax’s straps failed to comply with the Regulations because there were printed on paper which could easily tear and perish, and were not permanently attached.

��Mandatory product safety standards

Sontax admitted that the straps contravened section 65C(�)(a) and that it had also breached its 2009 Undertaking. It generally agreed to the relief sought by the ACCC, including that a penalty be imposed under section 76E of the TPA. However Sontax disagreed with respect to the suggested penalty of $80,000-$120,000, instead arguing that a more appropriate penalty should not exceed $20,000.

The matter was heard in the Federal Court by Justice Gordon.

In considering the nature and extent of Sontax’s contravention, Justice Gordon felt that the fact that the straps did have a warning label attached to them (albeit one did not comply) was a complicating factor, but specific and general deterrence was a critical consideration, especially given section 65C’s primary focus is the protection of consumers.

Justice Gordon also recalled that Sontax had failed to comply with the Regulations in previous similar circumstances, and considered the fact that Sontax had failed to publicly publish its non-compliance after being made aware of the most recent breach as an aggravating factor given that Sontax was required to act pursuant to its 2009 Undertaking. While Justice Gordon accepted that Sontax had acted carelessly as opposed to deliberately, she noted that carelessness was not a defence.

Despite this, Justice Gordon did recognised Sontax’s immediate contrition and full co-operation with the ACCC during the proceedings. In doing so, Sontax saved both parties and the Court a substantial amount of time and resources.

Ultimately, Justice Gordon considered that a pecuniary penalty of $40,000 was appropriate. She also agreed to both parties’ submissions with respect to relief and ordered:

a declaration be made that Sontax had contravened the TPA by supplying non-compliant safety straps;

a declaration be made that Sontax breached its 2009 Undertaking;

an injunction under section 232 of the Competition and Consumer Act 20�0 (Cth) restraining Sontax from engaging in similar conduct for five years;

a probation order requiring Sontax enter into a compliance program; and

Sontax to publish corrective advertisements.

In regards to the party’s dispute about costs, Justice Gordon considered a contribution of $20,000 towards the ACCC’s costs was reasonable.

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�4

Retailer feels the heat over missing fire hazard warnings

Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [20��] FCA �72

While the courts will consider the respondents' culpability in breaching consumer protection legislation Act, the primary object of a pecuniary penalty is specific and general deterrence.

Where the respondent has previously been involved in similar contraventions of the Trade Practices Act (Cth) (TPA), the need for specific deterrence will be substantial.

Dimmeys Stores is a large retailer of consumer goods, operating around Australia.

In November 20�0, the Australian Competition and Consumer Commission (ACCC) commenced proceedings in the Federal Court of Australia, alleging that Dimmeys had contravened section 65C(�)(a) of the TPA, by supplying goods that were intended to be used by a consumer but which did not comply with a prescribed consumer safety standard.

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The allegations related to children’s dressing gowns which did not comply with the prescribed consumer safety standard AS/NZS �249:200�

“Children’s nightwear and limited daywear having reduced fire hazard”, in particular:

children's dressing gowns labelled "Glamour Girl" and "Apache Boys", supplied between � May and 24 June 20�0; and

children's dressing gowns labelled "Minitong" and "Zhong Da", supplied between �6 April 2009 and 2 September 20�0.

The Glamour Girl and Apache Boys gowns did not carry fire hazard warning labels as required by clause 5.2(c) of the standard, while the fire hazard information labels on the Minitong and Zhong Da gowns were incorrectly placed, located on the side seams towards the bottom, as opposed to inside the back neck of the gown as required by clause 5.�(a) of the Standard.

Dimmeys agreed with the facts alleged by the ACCC, but argued that the $500,000 penalty sought by the ACCC under section 76E of the TPA was outside the appropriate range. Dimmeys suggested a total of $180,000 as an alternative.

Justice Gordon affirmed that the principal object of a penalty under section 76E is deterrence, both

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specific and general. In determining the appropriate pecuniary penalty, Justice Gordon recognised that Dimmeys had not acted deliberately, but also criticised it for not having in place a satisfactory system for ensuring compliance with consumer safety standards. She did acknowledge that Dimmeys had fully co-operated with the ACCC after it was informed of its breach, however considered this in light of the nature of its conduct.

Justice Gordon regarded Dimmeys’ contravention as serious for giving rise to the risk of fire and burning to a “significantly vulnerable” class of consumers ie. infants and children wearing the gowns. Further, Justice Gordon acknowledged that Dimmeys had previously breached the TPA on two occasions in �999 and 200�, the latter contravention also involving fire hazard labelling of children’s nightwear. Given the primary object of a penalty under section 76E is deterrence, and that the Standards were enacted to protect vulnerable consumers, she concluded that the penalty must be substantial.

As such, Justice Gordon ordered that Dimmeys pay a total of $400,000 consisting of $300,000 for the Glamour Girl and Apache Boys gowns contraventions, and $100,000 for the Minitong and Zhong Da gowns contraventions.

Mandatory product safety standards

�5

Bean bags breach Fantastic Furniture’s undertaking

Australian Competition and Consumer Commission v Smash Enterprises Pty Ltd, Spotlight Pty Ltd and Fantastic Furniture Pty Ltd [20��] FCA �75

A failure to include a warning required by a mandatory standard put Fantastic Furniture in breach of a previous undertaking, leading to a $300,000 penalty.

The Australian Competition and Consumer Commission alleged that bean bag covers supplied by each of the respondents did not comply with the labelling requirements of a mandatory consumer safety standard. The ACCC and the first two respondents settled the proceedings, with this decision only concerning the Fantastic Furniture.

Fantastic Furniture was found to have contravened section 65C of the Trade Practices Act �974 (Cth) (TPA) by supplying 4,�84 bean bag covers to consumers though its stores and 2�5 covers to franchisees that operated Fantastic Furniture Stores in circumstances where the bean bag covers did not have a warning label required by Regulation �� of the Trade Practices (Consumer Product Safety Standards) Regulations �979 (Cth).

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The required warning is as follows:

“WARNING: Small lightweight Beads Present a Severe Danger to Children if Swallowed or Inhaled”.

This conduct resulted in Fantastic Furniture breaching its 2008 undertaking made to the ACCC under section 87B of the TPA. In that instance, Fantastic Furniture did not comply with the prescribed safety standard for bunk beds. The undertaking required Fantastic Furniture ensure that all goods supplied by Fantastic Furniture that are subject to a prescribed safety standard and/or information standards under the TPA comply with the relevant standard for a period of three years.

Matters taken into consideration by the Court

In coming to her decision, Justice Gordon took into account a number of factors including:

seriousness – the contravening conduct was deemed to be serious, and although no injuries were reported, the risk of harm was high;

compliance – Fantastic Furniture ceased supplying the bean bag covers within � days of receiving notice of non-compliance, furthermore, Fantastic Furniture complied with the ACCC's investigation; and

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admission – Fantastic Furniture has admitted to the alleged conduct.

Finally, Justice Gordon took note that since this matter came to the attention of management, Fantastic Furniture has:

engaged HWL Ebsworth to conduct a comprehensive trade practices risk assessment;

appointed a dedicated trade practices compliance manager and adopted a formal trade practices compliance policy;

commenced delivery of trade practices compliance training;

reviewed and revised recall procedures; and

reviewed all products to ensure that they comply with relevant mandatory safety standards.

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Court orders

By consent, the Court:

made declarations of the contraventions;

imposed a pecuniary penalty under 76E of the TPA in the amount of $300,000;

granted an injunction under section 2�2 of Sch 2 of the Competition and Consumer Act 20�0 (Cth) restraining Fantastic Furniture from engaging in similar conduct for five years;

required Fantastic Furniture to pay $10,000 towards the ACCC's costs for these proceedings.

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�7

Flying high – what standard is required in relation to service providers?

Fugro Spatial Solutions Pty Ltd v Cifuentes [20��] WASCA �02

The implied warranty that services will be rendered with due care and skill is not confined to a lack of care on the part of the supplier.

It includes situations where a supplier is vicariously liable for the actions of a third party.

When chartering an aircraft, the aircraft is "material" supplied in connection with the pilot's services for the purpose of the implied warranties.

On �� August 200�, a twin-engine aircraft crashed less than two minutes after taking off from Jandakot Airport after the right-hand engine failed.

Fugro Spatial Solutions provided air charter services for commercial purposes and was engaged by Nautronix (Holdings) to transport its employees and sonar buoys to a nominated site, where Nautronix could test its equipment. Of the five employees on board, two were killed while the others were seriously injured.

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At first instance, Justice Murray found that the pilot Alec Penberthy responded to the emergency in a negligent manner: Both Mr Penberthy and Fugro, as his employer, were held liable. He also determined that the engineer, Mr Aaron Barclay, be apportioned one-third of the liability in negligence, for improperly designing the sleeve bearing which caused the failure of the right-hand engine-driven fuel pump.

On appeal at the Western Australian Supreme Court of Appeal, the finding that Mr Penberthy had breached his duty of care to the passengers and Nautronix was upheld. However liability was instead apportioned at 20% to Mr Penberthy and 80% for Mr Barclay. While Mr Penberthy had failed to apply basic flying theory in his response to the emergency, the serious risk of harm was solely created by Mr Barclay’s negligence.

The Court of Appeal also upheld Justice Murray’s dismissal of Nautronix’s claim against Fugro for a breach of the charter contract. Included in this was a claim for breach of the implied statutory warranties in section 74 of the Trade Practices Act �974 (Cth) (TPA). While the Court agreed that the warranties were not implied into the charter contract, it found that Justice Murray was incorrect in concluding that, if terms had been implied by section 74, they had not been breached by Fugro.

Warranties and guarantees

Trade Practices / ACL – Warranties and guarantees

�8

Nautronix argued that the warranties in section 74 should be implied into the charter contract. These warranties are:

that the services will be rendered with due care and skill; and

that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied.

Contracts “for or in relation to the transportation… of goods for the purposes of a business… carried on or engaged in by” Nautronix are not subject to the implied warranties in section 74. The Court looked to the terms and conditions of the charter contract in order to determine the purpose of the contract. It held that the transportation of Nautronix’s equipment was a significant aspect meaning that the implied terms did not apply.

The trial judge held that there would have been no breach of the warranties in section 74 of the TPA because it had not been established that Fugro lacked reasonable care and skill in the provision of the aircraft

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and the services of the pilot. This reasoning implies that the warranty that the “services will be rendered with due care and skill” was confined to the lack of care and skill for which the supplier is directly, as opposed to vicariously, liable. The Court of Appeal rejected this, saying that the service include the piloting of the aircraft which was not carried out with due care and skill.

In addition the Full Court held that the trial judge should have found that there was a breach of the implied warranty that the aircraft was reasonably fit for the purpose for which it was supplied. In doing so the Court adopted a wide definition of “materials” to include the aircraft as material supplied in connection with the pilot’s services (although it should be noted that neither party made any submissions that the aircraft was not “materials” supplied with the services).

Mr Barclay has since been granted special leave by the High Court to appeal the finding of his liability to Nautronix for pure economic loss suffered as a result of the accident.


�9

Exclusion clause unseated by narrow interpretation

Insight Vacations Pty Ltd v Young (20��) 24� CLR �49

Although NSW permits parties to exclude liability for recreational services, this does not apply to the implied warranties under section 74 of the Trade Practices Act (Cth) (TPA).

Readers may recall that earlier proceedings involving these parties were reported in last year’s annual review. This case is an appeal in the High Court from those earlier proceedings, and considers the effect of section 74(2A) of the TPA.

Mrs Young had bought a European package tour from Insight Vacations. In October 2005, while travelling by coach from Prague to Budapest, Mrs Young stood up from her seat and was injured when the coach braked suddenly.

Mrs Young successfully sued Insight Vacations in the District Court of New South Wales for breaching the warranty of due care and skill implied by section 74(�) of the TPA.

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The contract between Mrs Young and Insight Vacations contained an exclusion clause which excluded Insight Vacations from liability where

“a passenger occupies a motorcoach seat fitted with a safety belt.” Insight Vacations argued that because the contract stipulated the governing law as that of New South Wales, the exclusion clause was authorised by section 5N of the Civil Liability Act 2002 (NSW) (CLA). This permitted a term of a contract for the supply of recreational services to limit or preclude liability from breach of an implied warranty that the services will be rendered with due care and skill.

The legal issue to be determined concerns the interaction of section 74(2A) of the TPA and section 5N of the CLA. Generally speaking, the implied statutory warranties in the TPA are not able to be excluded or modified by contract (section 68 of the TPA). However section 74(2A) provides:

“If:

(a) there is a breach of an implied warranty that exists because of this section in a contract made after the commencement of this subsection; and

(b) the law of a State or Territory is the proper law of the contract;


40

the law of the State or Territory applies to limit or preclude liability for the breach, and recovery of that liability (if any), in the same way as it applies to limit or preclude liability, and recovery of a liability, for breach of another term of the contract.”

The High Court held that section 74(2A) of the TPA did not pick up or apply section 5N of the CLA. This is because section 74(2A) refers to

“the law” which applies to limit or preclude liability. However, section 5A of the CLA does not directly limit or preclude liability – “it does no more than permit the parties to certain contracts to exclude, restrict or modify certain liabilities”. As such section 5N of the CLA is outside the scope of section 74(2A).

At any rate, the contract between Mrs Young and Insight was for services to be performed wholly outside the State of NSW. This means that even if the proper law of the contract was the law of New South Wales, section 5N of the CLA did not apply to the contract as properly constructed, the CLA only applies to the supply of recreation services in New South Wales.

Further, had the exclusion clause been valid, the Court nevertheless gave it a narrow interpretation saying it would not have precluded Insight Vacations’ liability because its application was limited to the times when a passenger “occupied a motorcoach seat.” Given that Mrs Young was not in her seat at the time of her accident, the exclusion clause would not have applied in the particular circumstances of the accident.


4�

Claim for breach of contract shot by Arrow

Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [20��] WASCA 65

Where a contract for the supply of parts specifies the manufacturer, supplying a part from a different manufacturer may amount to a breach. However, the identity of the manufacturer may be irrelevant to the loss suffered.

A party awarded nominal damages is not necessarily regarded as "successful" so as to warrant an order for costs.

Arrow Electronics Australia was in the business of supplying electronic components. Motium used such electronic components in its design and manufacture of specialised electronic equipment, which it then sold on to third parties. In 2006, Motium received an order for power supply units from a company in the United States, DTI. Motium and Arrow entered into a contract by which Arrow agreed to supply Vishay mosfets with a breakdown voltage of 40 volts for power supply units.

The contract included the following provisions:

all conditions and warranties are expressly excluded to the maximum extent permitted by law;

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where the liability of Arrow for a breach of a condition or warranty cannot be excluded, it is limited to the replacement or repair of the goods; and

Arrow shall not be liable in any way whatsoever for indirect or consequential loss or damage whatsoever.

It eventuated that Arrow had unknowingly obtained mosfets which were not actually manufactured by Vishay and did not have the requisite breakdown voltage. After DTI claimed that some of the power supply units were failing, Motium questioned the quality of the mosfets. Motium engaged a contractor to replace the mosfets after determining that the mosfets were the problem.

Motium commenced proceedings in the District Court of Western Australia, claiming that Arrow had engaged in misleading and deceptive conduct by representing that the mosfets would be manufactured by Vishay. Justice Scott dismissed this, finding that it was not a representation as to existing facts. Because the representation was regarding future matters, it was necessary for Motium to show that Arrow had no reasonable basis for making the representation at the time. This was not done.

Motium also claimed $77,689.30 in damages for breach of contract. While Justice Scott was willing

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to concede that the limited liability provisions above did not excuse Arrow from its obligation to supply mosfets in accordance with the description in the contract, he did find that Arrow's liability for "indirect or consequential loss or damage" was effectively excluded.

Justice Scott concluded that Arrow had failed to supply the mosfets in accordance with the description in the contract, and thus was in breach of contract. However, he refused to make an order for the damages claimed by Motium because it had failed to prove that the damage was a result of Arrow's breach. In particular he highlighted that the identity of the manufacturer was irrelevant to any loss suffered by Motium, and there was insufficient evidence to establish that the mosfets had in fact caused the power supply units to fail.

Motium appealed against Justice Scott's findings to the Western Australian Supreme Court, also arguing that it should not have to pay 75% of Arrow's costs.

The Court unanimously agreed that Motium had failed to make out any of its grounds of appeal. It affirmed that the right to recover damages

depended on whether Arrow, or a reasonable person in Arrow's position, would have realised:

that the loss claimed by Motium was sufficiently likely to flow from its breach; or

that such a loss would have been within Arrow's contemplation.

Given that Arrow was never informed of the use to which the mosfets would be put, or that they were to be supplied to a firm in the United States, the costs involved in replacing the power supply units was not one that Arrow should reasonably have had in contemplation as a likely consequence of its breach.

Given Arrow's breach of contract, the Court was willing to award nominal damages in the sum of $100; while this had not featured in Motium's claim, the Court held it was not necessary for Motium to expressly seek such an order. Motium, on the other hand, complained that it was also entitled to an order for costs. The Court dismissed this application, ruling that enabling a party to recover costs where its claims have substantively failed was contrary to the promotion of the efficient and cost-effective use of judicial resources.

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4�

Success for mesothelioma sufferer despite relatively low exposure to asbestos cement dust

Lowes v Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) [20��] WASC 287

A few intense visits to a contaminated site were enough to cause or materially contributed to the plaintiff's malignant peritoneal mesothelioma.

Commencing some time between �968-�970 and ending in �97�, Amaca dumped uncovered asbestos cement waste in various locations at the Castledare Boys Home at the request of the Christian Brothers. The asbestos cement dust was primarily used by the Christian Brothers to build a miniature railway which was accessible to both the general public and the orphans who lived with the Brothers. On no more than six occasions the plaintiff visited the site with his family, and the plaintiff’s mother recalled the plaintiff playing in piles of whitish material which was found to be asbestos waste.

Duty of care

Despite not knowing about a number of aspects of the relationship

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between asbestos exposure and mesothelioma (such as safe levels of exposure), Amaca was found to have known by May �965 that a relationship between exposure to asbestos and mesothelioma existed. Furthermore, the defendant also knew that risks associated with asbestos dust were relevant to the disposal of asbestos waste. As a consequence of this knowledge, the court found that the defendant owed a duty to exercise reasonable care in disposing the asbestos cement waste from June �968. Although it may not have been possible for the defendant to eliminate all possible exposure to the waste, the duty extended to taking reasonable steps to avoid exposure.

The court found that it was reasonably foreseeable that children would visit the site and “there was a risk of personal injury from exposure to asbestos cement waste… if the defendant did not use reasonable care in disposing of the waste material.”

Breach?

Amaca was held to have breached its duty of care by choosing to transport the waste to the Site and by not supervising or monitoring how the waste material would be used after it had been dumped. Additionally, Amaca did not have control over the site where the material was dumped, and knew that children had access

Negligence

Negligence

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to the grounds (including residents at the Boys Home as well as children visiting the miniature railway).

Amaca was found to not have taken any systematic steps to cover or wet the waste after it had been dumped, nor did Amaca warn visitors thatAmaca warn visitors that warn visitors that asbestos cement waste had been dumped there or of the possible risks from exposure to the waste.

Causation

In addition to the court finding that the plaintiff came into contact with the asbestos cement dumped at the Site, the defendant successfully established that the plaintiff also had ambient exposure during the first 20 years of his life. Accordingly, the plaintiff needed to prove on the balance of probabilities that it was the defendant’s breach that caused the harm suffered (see Amaca v Booth [20�0] NSWCA �44).

Because of the nature of mesothelioma and its extended latency period, the plaintiff was unable to establish that but for being exposed to the asbestos fibres at the

site during his childhood he would not have contracted the disease. Instead, the court used an alternative (but pre-established) test finding on the balance of probabilities that the defendant’s breach “caused or materially contributed to the development of his mesothelioma” (see Justice Gaudron in Bennett v Minister of Community Welfare (�992) �76 CLR 408 at 420; see also Seltsam v McGuiness [2000] NSWCA 29).

Because the plaintiff’s exposure at the site was found to be intense, and playing with asbestos constituted an episode of substantial exposure, the plaintiff satisfied the requirement that the defendant’s breach caused or materially contributed to the development of his mesothelioma.

Conclusion

Despite the plaintiff only visiting the miniature railway half a dozen times as a child, this case demonstrates that a causal link may still be found despite infrequent exposure to material containing asbestos cement waste.

Negligence

45Negligence

Reasonable care required when operating machinery

Mungis (No 2) Pty Ltd (in liq) v Still [20��] NSWCA 26�

A company was found to have breached its duty of care by failing to instruct a contractor how to use the emergency buttons on a plastic moulding machine.

A company who hires contractors may owe them a duty of care, depending on the degree of control exercised over the contractor.

Mr Still was employed with a labour hire company, who assigned him to work in a factory owned by Mungis (No 2) Pty Ltd. One of his duties was to remove scrap plastic from the waste compartments of plastic thermoforming machines. The scrap plastic was then recycled.

Mr Still was injured when he attempted to force open an access door to remove scrap plastic from a machine. Mr Still was removing scrap plastic from the machine while the mains power was switched off. The normal procedure was to put the in/out lever to the “out” position which cause the plate and the spindle to extend outwards under pneumatic

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pressure. Mr Still put the lever to the “out” position, but because the mains power was turned off, the spindle did not extend out.

After removing the waste, Mr Still forgot to return the lever to the

“in” position. This would not have been possible if the power had been on as the spindle in the extended position would have prevented the door from closing.

When power was restored to the machine, the spindle extended under pneumatic pressure. While working at a nearby machine Mr Still noticed scrap plastic accumulating and protruding on the mesh casing of the machine. Mr Still attempted to open the door to remove the excess waste plastic, but because the door was jammed Mr Still had to force the door in order to open it. As he was doing so, the door flew open and struck him on his knees, knocking him to the concrete floor and causing injuries to his back, hip and leg.

Reasonable care

Despite Mungis submitting that a reasonable person in the position of Mr Still would have shut down the machine by either pressing the large red emergency shut down switch or turning the power off at the source, both the primary judge and the Court of Appeal found in favour of Mr Still because:

46Negligence

he had not been instructed on the dangers of opening the compartment door when the machine was in operation;

he had not been instructed on the dangers of leaving the lever in the

"out" position;

he had not been instructed on the need to use the emergency stop button in the event of plastic building up inside the door; or

Mungis had failed to install an automatic in/out lever.

Reasonable care required that instructions of this kind be given and additionally that an automatic lever be fitted to the machine.

Contributory negligence

On appeal Mr Still cross-claimed that he should not have been found guilty of contributory negligence and bear 25% of the responsibility of the accident.

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At first instance Mr Still was found to have contributed to a substantial degree to his own injuries because:

even uninstructed, Mr Still should have used the emergency switch button; and

he must have seen the switch on many occasions in which he used the machine over a number of months.

The Court of Appeal did not alter the primary judge’s apportionment of responsibility (25% responsibility caused by the respondent) because Mr Still did not show that the exercise of the primary judge’s discretion was

“unreasonable or unjust.”

Even if a safety warning may seem obvious or simple, a company may be found to have breached its duty of care if emergency procedures have not been explained as part of training for contractors.

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A slippery slope for “dangerous recreational activities”

Vreman and Morris v Albury City Council [20��] NSWSC �9

A City Council was found not to have breached its duty of care to users of a skate park despite a recent paintjob making the skate park more slippery.

An activity can carry a low risk of injury in a statistical sense but still be inherently dangerous.

In March 2006, Albury City Council painted the concrete surface of the West Albury skate park with a polyurethane paint to combat graffiti, inadvertently making the skate park more slippery than the previously unpainted concrete.

Jade Vreman and Joshua Morris were both injured in separate accidents while riding their BMX bikes at the skate park during April 2006. As a result of their accidents, Mr Vreman became a tetraplegic while Mr Morris suffered head injuries. They alleged that the Council was negligent in not engaging an engineer before applying any paint or in failing to sandblast the surface in order to remove the graffiti as an alternative to painting it.

Mr Vreman and Mr Morris were found to be competent BMX riders who

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regularly visited the skate park without injury on both their bikes and skateboards before it had been painted. The parties agreed that the surface was more slippery after the park had been painted.

In accordance with section 5L of the Civil Liability Act 2002 (NSW), the Council successfully established a defence that bike riding at the skate park was a dangerous recreational activity with an obvious risk of injury and that it should not be held liable for the plaintiffs’ injuries.

Dangerous recreational activity

It was not disputed that BMX riding is a recreational activity; however, whether it should be classed as a dangerous recreational activity was challenged. A recreational activity will be dangerous if it involves a significant risk of physical harm.

The plaintiffs claimed that because the number of injuries presented to Victorian Hospitals as a result of BMX accidents is “statistically insignificant”, it should not be considered dangerous. Justice Harrison disagreed, accepting the Council’s submissions that an activity could be statistically “safe” while still being a fundamentally dangerous activity – such as parachute jumping.

Materialisation of obvious risk

Section 5F of the Civil Liability Act sets out the test to determine whether

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the risk of injury is obvious. This includes determination of whether the activity would contain a risk of obvious harm to a reasonable person in the position of the plaintiff and is a matter of common knowledge. A risk may still be obvious even if it has a low probability of occurring.

Both of the plaintiffs agreed that the surface of the skate park was more slippery once it had been painted and this increased the risk of getting hurt. Justice Harrison considered that a reasonable teenager who was a competent BMX bide rider and familiar with the skate park would have “been able to form his or her own conclusions about its suitability for riding upon in those circumstances”.

Accordingly the accidents were found to be a materialisation of an obvious risk of a dangerous recreational activity, meaning that the Council was not liable.

The Council’s risk warning

In a separate defence, the Council also submitted to the court that it should not be found negligent because of a warning sign at the skate park which advised users to not exceed their skill level, to take care and to only use the park during daylight existed at the time of the accident.

Under section 5M of the Act, the defendant does not owe a duty of care to another person who engages in a recreational activity if there was a risk warning. The warning need not be specific but must warn of the general nature of the particular risk.

The Court found that the sign at the skate park didn’t amount to a risk warning because it did not warn against the nature of the risks even in a general sense (eg. the risk of catastrophic injury and/or the risks associated with a slippery surface).

Breach of duty

Notwithstanding the conclusion regarding the Act and dangerous recreational activity, Justice Harrison also considered whether the Council had breached its duty of care to the plaintiffs in accordance with the general principles of negligence, and concluded that it had not. This was because the risk was not foreseeable on the basis that while the risk of falls in the general sense was not insignificant, the increased risk associated with the risk of falls was insignificant.

Further, he held that there was no clear causal link between the accidents and the painting of the concrete surfaces.

Negligence

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Noxious gas appeal just a cloud of steam

Koljibabic v BHP Billiton Nickel West Pty Ltd [20��] WASCA 87

Court dismisses a personal injury claim after evidence fails to support worker's allegation of exposure to noxious gases.

The Western Australian Supreme Court of Appeal upheld a decision of the District Court, dismissing the appellant’s claim for damages for personal injury alleged to have been caused by exposure to noxious gases while he was working at the respondent’s Kalgoorlie nickel smelter in July �996.

During the afternoon of 26 July �996 while working at the smelter, the appellant alleged that he observed a “mist… just like a white cloud” descend across the control room. In the days after this event, the appellant reported feeling nauseous, dizzy, a spinning head and sparkling stars in front of his eyes. The appellant was prescribed antibiotics and received treatment for the flu despite being convinced that he had suffered exposure to noxious gases. In September �996 the appellant began to experience a trembling in his right arm which was diagnosed to be psychological in origin.

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Central to the appellant’s argument was the allegation that the cloud contained SOSO2 or some other noxious chemical which had affected the appellant while working at the smelter.

The trial judge rejected the appellant’s contention that he had been exposed to unsafe levels of noxious gases and held that the cloud did not contain unsafe levels of SOSO2. He found that the cloud was created by steam from the slag granulation process. Additionally, the symptoms suffered by the appellant were not consistent with indicators of exposure to SOSO2, which include eye, nose and throat irritation. Although the appellant contended that his failure to display the usual symptoms of eye, nose or throat irritation was due to acclimatisation to SOSO2, it was held that he would have still exhibited the symptoms described if exposure occurred at any significant level.

Although the appellant had been exposed to odour at the smelter, the trial judge was not satisfied that the appellant had been exposed to noxious gases which could have caused him injury.

Psychiatric disorder

Subsequent to symptoms displayed by the appellant, he also claimed to be suffering from a psychiatric illness

as a result of the alleged exposure. The trial judge held that the appellant had a chronic anxiety disorder as a result of his conviction that he has suffered injuries from exposure to toxic substances, despite no exposure occurring. As the psychiatric disorders were not caused by exposure to SOSO2 or exposure to any toxic substances, it was unnecessary to consider whether such disorders were reasonably foreseeable.

Causes of the cloud

The area where the cloud was observed by the appellant was tested for SOSO2 three days later on 29 July �996. During this testing a cloud similar to the one on 26 July �996 was observed and tested. No gases were detected, and it was concluded that the cloud was created by steam.

Duty of care

Because there was nothing in the evidence to suggest that the appellant had been exposed to any unsafe levels of SOSO2, no breach of duty on behalf of the respondent had been made out.

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Key contacts

Gary BersonPartner – PerthT +6� 8 9426 8420F +6� 8 948� �[email protected]

Ian BloemendalPartner – BrisbaneT +6� 7 �292 72�7F +6� 7 �22� [email protected]

Jocelyn KellamPartner – SydneyT +6� 2 9�5� 4��9F +6� 2 8220 [email protected]

Colin LovedayPartner – SydneyT +6� 2 9�5� 4�9�F +6� 2 8220 [email protected]

Stuart ClarkPartner – SydneyT +6� 2 9�5� 4�58F +6� 2 8220 [email protected]

Ross McInnesPartner – SydneyT +6� 2 9�5� 4�7�F +6� 2 8220 [email protected]

Andrew MorrisonPartner – MelbourneT +6� � 9286 65�7F +6� � 9629 [email protected]

Greg WilliamsPartner – SydneyT +6� 2 9�5� 4798F +6� 2 8220 [email protected]

John CollinsPartner – SydneyT +6� 2 9�5� 4��9F +6� 2 8220 [email protected]

Robert CutlerPartner – SydneyT +6� 2 9�5� 4�04F +6� 2 8220 [email protected]

Scott CrabbPartner – PerthT +6� 8 9426 84�0F +6� 8 948� �[email protected]

Paul FitzpatrickPartner – PerthT +6� 8 9426 84�6F +6� 8 948� �[email protected]

Jim FitzSimonsPartner – SydneyT +6� 2 9�5� 4�99F +6� 2 8220 [email protected]

Richard HoadPartner – MelbourneT +6� � 9286 69�6F +6� � 9629 [email protected]

Chris McLeodPartner – MelbourneT +6� � 9286 62�4F +6� � 9629 [email protected]

Simon NewcombPartner – BrisbaneT +6� 7 �292 724�F +6� 7 �22� [email protected]

Mary StillPartner – SydneyT +6� 2 9�5� 4�49F +6� 2 8220 [email protected]

Alexandra WedutenkoPartner – CanberraT +6� 2 6279 4008F +6� 2 6279 [email protected]

Product Liability

Intellectual Property

www.claytonutz.com

Canberra

Level 8 Canberra House40 Marcus Clarke Street Canberra ACT 2601T +61 2 6279 4000F +61 2 6279 4099

Sydney

Level 34No. 1 O’Connell StreetSydney NSW 2000T +61 2 9353 4000F +61 2 8220 6700

Melbourne

Level 18333 Collins Street Melbourne VIC 3000 T +61 3 9286 6000 F +61 3 9629 8488

Brisbane

Level 28 Riparian Plaza71 Eagle StreetBrisbane QLD 4000 T +61 7 3292 7000 F +61 7 3221 9669

Perth

Level 27QV1 Building 250 St. Georges Terrace Perth WA 6000T +61 8 9426 8000 F +61 8 9481 3095

Darwin

17–19 Lindsay Street Darwin NT 0800 T +61 8 8943 2555 F +61 8 8943 2500

Hong Kong

703 - 704The Hong Kong Club Building3A Chater RoadCentral Hong KongT +852 3980 6868F +852 3980 6820

Product Risk Year in Review 2011 is available at www.claytonutz.com then select Product Liability/Publications_BrochuresThis publication is current as at May 20�2. It is intended to provide general information on legislation, issues and case law. The contents do not constitute legal advice and should not be relied upon as such. Specialist legal advice should be sought in particular matters. Persons listed may not be admitted in all states. Reproduction of any part of this work is welcomed, provided the source is acknowledged. ISBN � 8764�6 �0 � © 20�2 Clayton Utz

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