Commerce Commission v Honey New Zealand (International) Ltd

• Jurisdiction: New Zealand
• Judge: Judge A A Sinclair
• Judgment Date: 27 May 2011
• Court: District Court
• Docket Number: CRN-2009-004-504773 CRN-2009-004-504775
• Date: 27 May 2011

Commerce Commission

Informant

and

Honey New Zealand (International) Limited

Defendant

CRN-2009-004-504773

CRN-2009-004-5G4774

CRN-2009-004-504775

IN THE DISTRICT COURT

AT AUCKLAND

Sentencing decision for convictions under s13(j) Fair Trading Act 1986 (false or misleading representation concerning the place of origin of goods) — third charge under s13(a) (false or misleading representation that goods are of a particular quality, grade) withdrawn — application for costs under s5 Costs In Criminal Cases Act 1967 (costs of successful defendant) — defendant sold royal jelly capsules as “Made in New Zealand” when majority of ingredients were sourced from China — whether defendant entitled to place reliance on a guideline relating to country of origin aimed at consumers.

Appearances:

A M McClintock for the Informant

A K Rawlings for the Defendant

RESERVED JUDGMENT OF Judge A A Sinclair

INTRODUCTION

1 In September 2009 the Commerce Commission (“the Commission”) laid three informations under the Fair Trading Act 1986 (“the FTA”) against Honey New Zealand (International) Limited (“Honey NZ”). In March 2010 Honey NZ pleaded guilty to two charges laid under s 13(j) of the FTA namely that Honey NZ made false and/or misleading misrepresentations concerning the place of origin of goods. The third charge laid under s 13(a) of the FTA was set down for a defended hearing on 2 May 2011. When the matter came before the Court on 2 May 2011 that charge was withdrawn and sentencing proceeded in respect to the remaining charges.

SENTENCING

(1) Circumstances of Offending

2 The charges under s 13(j) of the FTA relate to representations made by Honey NZ on the labels of its royal jelly capsules (“the product”), marketed and sold as a health supplement in the company's stores in the Auckland and Christchurch regions.

3 The first charge (CRN 4774) relates to representations made on the label of the product purchased by a Commission investigator on 29 February 2008. The second charge (CRN 4775) relates to representations made on the label of the product purchased by a Commission investigator on 26 February 2009. In both cases the label displayed the following wording and images:

• (a) The words “Made in New Zealand”.

• (b) The statement “Honey New Zealand has over a 90 year history working with premium honey bee products gathered from the heart of untouched native forest and wild field areas of New Zealand”; and

• (c) An image of an iconic New Zealand fern on the cap of the product.

4 These representations were false and/or misleading as they implied that the place of origin of the goods was New Zealand when in fact most of the ingredients, including the key ingredient royal jelly, were sourced overseas. Indeed, the only ingredients which were sourced in New Zealand were the purified water used to combine the contents of the capsule and the capsule itself.

(2) Factors to be considered on Sentence

5 The factors to be taken into account in arriving at an appropriate penalty under the FTA were initially set out by Grieg J, in Commerce Commission v L.D. Nathan & Co. Limited 1 In Commerce Commission v Ticketed 2 Abbott DCJ considered the impact of the Sentencing Act 2002 and taking into account this legislation, considered that the relevant factors when imposing a penalty for breach under the FTA, would generally include the following:

• • The objectives of the Act.

• • The importance of the untrue statement which was made or published.

• • The degree of culpability, in the context of wilfulness or carelessness, which will generally involve a consideration of the circumstances in which the statement was made or published.

• • The extent to which the statement departed from the truth.

• • The extent of dissemination of the statement.

• • The extent of prejudice or harm (if any) to consumers or other traders which resulted from the statement.

• • The attitude of the offender in respect of remorse, co-operation with the authorities, and remedial action, in particular in respect of correction.

• • The importance of deterrence, both particular and general.

• • The financial circumstances of the offender,

• • Any guilty plea(s).

• • The previous record of the offender.

• • The effect of any publicity regarding the prosecution and/or the defendant's activities.

• • Where there are two or more defendants, the relationship between them and the respective culpability of each of them (which I note, is not a factor in the present case).

• • Where there are two or more charges, the totality principle.

(3) Application of these Factors

6 As Abbott DCJ noted in Commerce Commission v Ticketek, it is self evident that the purpose of regulatory legislation will always be a relevant factor when imposing a penalty for an offence created by that legislation. The FTA is particularly designed to create an informed market place where consumers are in a position to make decisions fully informed and aware of their options.

7 Each of the representations made on the label reinforced the impression that this was a product originating in New Zealand. This country's royal jelly is believed to be of a higher quality than imported royal jelly because it has higher readings of the active ingredient 10 HDA than found in royal jelly in many other parts of the world. The country of origin is therefore of particular importance to customers in assessing the quality of the product.

8 In an interview with the Commission held on 23 July 2008 the director of Honey NZ Mr Mathew Pringle stated that:

• • Honey NZ was aware that six out of eight ingredients in the royal jelly were sourced from China;

• • Honey NZ had inherited the labels and promotional material for its royal jelly from the company that sold its assets to Honey NZ in September 2006;

• • That while 6 of the 8 ingredients of Honey NZ's royal jelly were sourced from China, the product was actually put together in New Zealand and was therefore justified in using the labels, as he considered that New Zealand is where the product got its essential character, based on New Zealand Food Safety Authority Guidelines (among others); and

• • Koney NZ was willing to change the labelling of its royal jelly product to comply with the Act.

9 The Commission says that Honey NZ was solely responsible for how its product was marketed. The company saw the advantages of using a marketing angle that implied that the product originated in New Zealand and made the decision to use the labels inherited from the vendor company irrespective of their content. The Commission submits that in all the circumstances that conduct must be considered at least to be reckless.

10 Honey NZ strongly disputes this assessment of its culpability. It says that the company relied upon a publicly available guideline and other information and that Honey NZ reached an erroneous view in reliance upon this guideline as to the extent of its legal obligations. The company says that at worst it was careless.

11 Honey New Zealand submits that the circumstances of its offending are similar to those in Commerce Commission v Knight Business Furniture Limited 3. In that case the defendant company was involved in the manufacture and sale of office chairs. The chairs were built in New Zealand but with major components manufactured in Taiwan, China and Italy to the company's specifications. The only parts that were made in New Zealand were the upholstery and padding to the seat and back. The imported parts were assembled in New Zealand. In that case, the company relied upon a booklet published by the Commission containing recommendations by the Commission as to how to represent the origin of goods. The company took a risk that its own interpretation of the Commission's guidelines was able to be justified. Ongley DCJ found that the offending in that case was not wilful but instead, was careless in that the defendant had adopted a favourable interpretation of the guidelines and did not seek professional advice.

12 In the present case, sentencing proceeded on the basis of the summary of facts and counsels' submissions. I was also provided with a copy of the guideline relied upon by Honey NZ. This document was a poster published by Food Standards Australia New Zealand. In small print it is stated that “This poster has been produced as a guide to consumers only. Industry and enforcement agencies should refer to the Food Standards Code”.

13 In Knight the company relied on a Commission pamphlet. In the present case, I do not consider that it was reasonable for Honey NZ to rely upon a poster

stated as being for consumers only and containing a specific direction that those involved in the industry should refer to the Food Standards Code. In the face of such a direction, Honey NZ made no further effort to ascertain its legal obligations in relation to the country of origin description. Having turned its mind to the issue I consider that the company was reckless in then not making proper inquiry or taking legal advice to determine those obligations

14 In my view the statements made on the label departed significantly from the truth. The overall impression created by the three representations was of a product which was wholly made in New Zealand when in reality, it was only the water and capsule itself which were New Zealand sourced. As such the label led consumers to believe that they were buying a superior New Zealand made product when in fact they were not.

15 The product was not a key component of the business of Honey NZ. Between 1 April 2007 and 23 July 2008 the wholesale value of the product supplied for resale was approximately $161,615.48 (excluding GST). The company ceased distribution of the capsules immediately after being put on notice of the Commission's concerns regarding labelling but left remaining stock in shops to be sold. I accept that overall, the extent of prejudice or harm to...