By: Misha Henaghan, Joseph Lill and Elliot Copeland

At a glance

  • At the end of 2023, a High Court appeal by the Commerce Commission resulted in a Fair Trading Act 1986 (FTA) fine for supplying unsafe goods more than doubling from $87,750 to $195,000.
  • The financial strength of NZME Advisory Limited (NZME) was given weight when determining the increased penalty.
  • There is no prohibition on insurance for FTA penalties, meaning an insurer could be liable for the increased amount.


In 2014, the Commerce Commission issued the Unsafe Goods (Small High-Powered Magnets) Indefinite Prohibition Notice 2014 (UGN). Relevantly, small high-powered magnets that could be swallowed were banned from being sold as toys, games or puzzles in New Zealand.

Between October 2020 and September 2021, a “Buckyball Magnets” product was sold via the GrabOne website. In August 2021, the Commerce Commission was notified of an incident involving an 11-year-old child that had swallowed magnetic balls from a “Buckyball Magnets” set. The child required emergency life-saving surgery to remove the items. An investigation confirmed the magnets were part of the product sold in breach of the UGN via the GrabOne website.

NZME Advisory Limited (NZME), the NZ-based operator of the GrabOne website, withdrew the deal, commenced a voluntary recall of the products, and requested confirmation of compliance documents from the merchant. The merchant confirmed compliance with EU law but could not confirm compliance with the UGN. NZME contacted customers via email and phone calls. They also provided pre-paid courier bags for returns and even completed some door-knocking.

The Commerce Commission charged NZME with a representative charge under ss 31(5) and 40(1) of the FTA. The maximum penalty for this offence is $600,000. NZME entered a guilty plea, and the matter was set down for sentencing.

Sentencing decision and appeal

In the District Court decision, Commerce Commission v NZME Advisory Ltd [2023] NZDC 10908, culpability was set at 20% of the maximum with a starting point of $110,000. With regard to turnover of $5 million dollars, an uplift of $25,000 was applied. The figure of $135,000 was then reduced for compliance, remorse, reparation, and early guilty plea to $87,750.

The sentence imposed was in line with other penalties for this type of offending and reflected the need for consistency in sentencing. The Commerce Commission, however, appealed to the High Court seeking a significantly increased starting point.

The appeal was predicated on the following factors:

  1. insufficient weight given to the presence of actual harm
  2. insufficient weight was given to NZME’s size and resource, and
  3. the conduct was highly careless rather than merely careless.

In Commerce Commission v NZME Advisory Limited [2023] NZHC 3425, Justice Andrew found that the Judge had erred in the original decision. Considering the impact of inflation over time, sentencing levels for FTA offences must increase to maintain the same deterrent effect. After reviewing 27 product safety sentencing decisions from 2015 through to 2023, Justice Andrew said “penalties have remained somewhat stagnant. If anything, they may have gone backwards since the largest fine imposed [in 2017].”

The appeal was allowed, and a new starting point of $300,000 or 50% of the maximum penalty was set. Justice Andrew said the figure was sufficient with regard to NZME’s scale and, stepping back, no adjustment up or down was required. The fine was reduced by 35% for mitigating factors (which were not subject to appeal), with an end sentence of $195,000 ordered.

Key takeaways

Online retailers should take particular care to ensure goods offered for sale via their platforms are compliant. Here, the merchant sourcing and selling the product was based in China and the online retailer based in New Zealand, NZME, became the subject of the prosecution.

These cases remain rare, but the sentence appeal may indicate the Commerce Commission is looking to strengthen its enforcement response. In turn, there may be an increase in these prosecutions.

The High Court sent a clear message that penalties for these offences had become too low. Generally, fines should increase over time to ensure they maintain a deterrent effect, and this had not occurred in the FTA context. Stronger penalties are to be expected for these offences in future.

In common with regulatory statutes (other than the Health and Safety at Work Act 2015), insurance for FTA penalties is not prohibited. This means that the increased penalty may be covered by an insurance policy, and insurers will need to take the increased penalty levels into account in future prosecutions.