Court Increases NZME Fine To $195,000 In Puzzle Toy Prosecution

The Commerce Commission has successfully argued the original fine imposed on NZME Advisory Limited (NZME) was “manifestly inadequate” and did not appropriately reflect the presence of harm – with the High Court increasing the penalty to $195,000, more than double the original fine.

Commissioner, Anne Callinan, says the fine relating to the supply of magnetic puzzle toys sets an important benchmark for cases of this type, where a large company did not have adequate compliance processes in place and supplied a prohibited product that caused serious harm.

Ms Callinan says the Commission’s view that the original penalty of $87,750 imposed by the District Court was manifestly inadequate was endorsed strongly in the judgment released this week, including that, in the absence of a death caused by a prohibited or non-compliant product, “it is difficult to conceive of a more serious case in terms of the impact of offending on a victim”.

The magnetic puzzle toys, supplied through NZME’s previously owned online store GrabOne.co.nz, were made up of small, high-powered magnetic balls. They were supplied in breach of an unsafe goods notice which prohibits the supply of certain magnets, sold in sets of two or more, that are of a particular size and strength.

The ban exists because if more than one of the magnets are swallowed, they can attract to each other within the body which is extremely dangerous. Unfortunately, in this case, a child swallowed two magnets from one of the magnetic toys supplied by NZME and significant emergency surgery was required to remove them.

In an appeal judgment released by the High Court on Wednesday 29 November, Justice Peter Andrew said product safety compliance is “not a once and done exercise” and that compliance requires “ongoing assessment for updates on the applicable regulatory regime”.

Justice Andrew said the unique and serious conduct identified, together with the need to send a deterrent message to traders in the product safety context, and taking into account inflation, also supported the approach to increase the penalty.

Ms Callinan says product safety cases are about protecting our consumers, often young children, from potentially dangerous and harmful products.

“The fines imposed therefore need to be significant enough to deter businesses’ non-compliance.”

NZME sold 213 of the magnetic toys between October 2020 and September 2021. After being contacted by the Commission, NZME recalled the sets and contacted customers to notify them of the recall.

The starting point for the fine imposed by the High Court on NZME was $300,000. Following discounts for compliance, remorse and reparation (10 per cent), and 25 per cent for the guilty plea (a total discount of 35 per cent), the end penalty imposed on NZME was $195,000.

A copy of the appeal judgment will be available on the Commission’s website.

This is the second case in recent times where the Commission has been successful in an appeal of a fine under the Fair Trading Act. In August 2023, the High Court allowed the Commission’s appeal against the original fine imposed on One NZ (formerly Vodafone NZ) for misleading consumers in the marketing of its FibreX broadband service. There is more information here.

Background

NZME Advisory Limited
NZME Advisory Limited (formerly GrabOne Limited) is a subsidiary company of NZME Limited, a publicly listed company. Prior to October 2021, NZME Advisory Limited owned and operated www.GrabOne.co.nz – which marketed itself as having one of the largest “daily deals” websites, and among the largest ecommerce websites, in New Zealand.

Product Safety Standards and Unsafe Goods Notices
Under the Fair Trading Act, there are safety standards and unsafe goods notices in place which apply to various products, including toys, bikes, and small high-powered magnets. Businesses must ensure that the products they sell meet the relevant requirements before they are supplied.

The Minister of Commerce and Consumer Affairs may declare any goods (or class of goods) to be unsafe if it appears to the Minister that:

• the goods will or may cause injury to any person
• a reasonably foreseeable use (including misuse) of the goods will or may cause injury to any person.

There is more information on the Commission’s website about the

product safety standards and unsafe goods notices here.

Small high-powered magnet sets are unsafe and can’t be sold for personal use. The Unsafe Goods Notice came into force in July 2014 and applies to new and second-hand small high-powered magnets that are supplied, or offered or advertised for supply, in sets of 2 or more for personal use.

Personal use includes magnet sets that form part of:

• a toy, game or puzzle
• construction or modelling kits, or
• jewellery that is worn around the nose or mouth.

Read the unsafe goods notice here.

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