By: Katrina Hammon, Prashant Kumar
Background
In late 2018, the Commerce Commission began investigating Greenstar Holding Limited (Greenstar) and SDL Trading Limited (SDL) due to concerns that they each supplied retailers with children’s toys that did not meet product safety standards.

In separate proceedings, the Commerce Commission brought charges under sections 30(1) and 40 of the Fair Trading Act 1986 (FTA) against Greenstar and SDL.

These proceedings are a timely reminder for product suppliers and demonstrate the importance of compliance with the FTA and any relevant product safety standards.  Failure to adopt safety checks, a compliance regime and a generally having a culture of compliance contributed to the quantum of fines imposed.

The Commerce Commission investigations and the ultimate decision of the courts highlight that the use of and reliance on warning labels alone may offer little protection for a supplier.

Product safety standards 

Section 30(1) of the FTA states: “If a product safety standard in respect of goods relates to a matter specified in section 29(1), a person must not supply, or offer to supply, or advertise to supply those goods unless that product safety standard is complied with in respect of those goods.”

The Product Safety Standards (Children's Toys) Regulations 2005 (Regulations) state that toys must not be of a size or have parts that can be removed (or break off) that create a hazard if swallowed, inhaled or placed in the mouth.

Section 40 of the FTA sets the maximum penalties for breach of section 30 of the FTA at $200,000 per offence in the case of an individual and $600,000 per offence in the case of a body corporate.

Proceedings and results

Greenstar pleaded guilty to the four charges laid against it for supplying 217 units of different toys that did not comply with the Regulations.

SDL pleaded guilty to a single charge laid against it for supplying 348 fire engine toys that did not comply with the Regulations.

The crux of these cases rest on the fact that the Regulations apply to all “toys manufactured, designed, labelled, or marketed for use by children up to and including 36 months of age whether or not the toys are manufactured, designed, labelled, or marketed for use by children over that age”.

It was not sufficient that both Greenstar and SDL had labelled the toys with choking hazard warnings, or warnings that the toys were not meant for children younger than three years old.  The nature and physical features of the toys were such that they were designed for children under three years of age.

Regarding Greenstar, Judge Blackie in the Manukau District Court said that it “did not carry out any checks of its own to ensure compliance. It simply relied on a warning label” and the “warning must be considered as dangerously misleading and inadequate when the risk factor was so high". Greenstar was fined $54,000.

Regarding SDL, Judge Paul in the Auckland District Court said that despite some compliance efforts, “there was not a critical review of the compliance regime undertaken” and those efforts “were woefully inadequate”. SDL was fined $64,000. It was previously fined $81,000 in March 2018 ­– also for product safety issues.
 
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