Key takeaways 

• Act fast on product safety risks: The Federal Court reaffirmed that businesses must move quickly when potential safety issues arise. Delaying a voluntary recall while awaiting further regulatory guidance is unlikely to be viewed favourably, particularly where consumer safety is at risk.
   
• Strong compliance systems are essential: A major factor behind the $14 million penalty was City Beach’s failure to have effective systems and processes to identify, escalate and manage product safety obligations. Businesses should regularly review their product compliance frameworks and governance arrangements. 
   
• Low profits from non-compliance will not shield businesses from significant penalties: The Court confirmed that penalties are not determined solely by the financial benefit obtained from the contravening conduct. Serious safety risks, compliance failures and the need for deterrence can justify substantial penalties.
   
• The ACCC remains focused on product safety enforcement: The decision signals that the ACCC will continue to pursue significant penalties for product safety breaches, particularly where products pose risks to children. Businesses supplying consumer goods should expect close scrutiny and ensure compliance with mandatory safety standards.
   

City Beach has lost its appeal against the $14 million penalty imposed by the Federal Court of Australia for supplying non-compliant button battery products. The decision reinforces how important it is for suppliers and manufacturers to act quickly when they identify safety risks with consumer products and, on a day-to-day basis, have a meaningful system in place to identify and manage product safety obligations. It contains some stark warnings for businesses about how to deal with product safety risks and, as a result, should be essential reading for businesses that sell any kind of consumer products. In this article, we unpack the judgment and its implications for such businesses.

Background: the non-compliant products 

Following an investigation by the ACCC, Fewstone Pty Ltd t/as City Beach (City Beach) admitted that, in the period from 22 June 2022 to 24 October 2024, through its physical and online stores, it sold 57,278 products which did not comply with the mandatory standards that apply to all consumer goods that are powered by a button battery (Mandatory Standards). 

In the usual way, the ACCC commenced proceedings against City Beach and the parties filed a Statement of Agreed Facts. At trial, the Federal Court imposed a $14 million penalty on City Beach, the first such penalty for breaches of the Mandatory Standards. 

City Beach's appeal 

City Beach appealed the size of the penalty ordered by the Federal Court. While it relied on 11 separate appeal grounds, for the purposes of this article, we’ll focus on the following key arguments that City Beach raised in support of its position that a lower penalty should have been ordered:

• contrary to the primary judge’s findings, City Beach did not delay in conducting a voluntary recall;
• City Beach’s financial position and modest financial benefits necessitated a lower penalty;
• in all the circumstances, the penalty was manifestly excessive.

Delays matter 

City Beach argued that the primary judge erred in finding that it delayed commencing a voluntary recall of the products until 12 February 2024, when the ACCC informed it that it expected such a recall to occur. It argued that this finding contradicted the fact that, in the period leading up to 12 February 2024, City Beach identified non-compliant products, engaged with the ACCC and sought guidance regarding a voluntary recall process, and that it was waiting for further direction from the ACCC before proceeding. 

The Full Court rejected this argument, finding it ‘difficult to understand’ because, in October 2023, the ACCC wrote to City Beach reiterating the ACCC’s concerns and, under a heading ‘What you need to do’, the ACCC stated that the ACCC expected City Beach to take immediate action to address the issue including by conducting a voluntary recall. Notwithstanding this, City Beach did not commence the recall for a further 4 months, as it argued it was waiting for further direction from the ACCC before proceeding. 

City Beach also challenged the primary judge’s finding that its lack of urgency in seeking to recall the non-compliant products was “condemnable”.  City Beach submitted that these findings failed to properly account for its engagement with the ACCC and the steps it had undertaken following the ACCC's initial compliance inquiries. The Full Court disagreed, noting it was clear on the evidence that:

• there was no evidence to suggest that the ACCC communicated to City Beach that it should wait for the ACCC’s response before conducting a recall;
   
• for several months prior to 1 March 2024 (when the recall began), City Beach was aware that it had sold numerous potentially dangerous button battery products;
   
• accordingly, City Beach could, and should, have commenced a voluntary recall months earlier than it did.

The Court accepted that the primary judge was entitled to view the delay critically, particularly given the risks posed by button battery products to children.

The modest profit does not equal a modest penalty

City Beach argued that its average annual profits and the ‘relatively modest’ financial benefits it obtained as a result of the contravening conduct meant that the penalty imposed was excessive and/or oppressive. In particular, it argued that the primary judge:

• failed to give sufficient weight to the relatively modest financial benefit obtained from the contravening conduct - City Beach's direct profit from the sale of more than 57,000 non-compliant products totalled just $34,368 across three financial years; and
   
• erred in considering whether the penalty is oppressive by reference to City Beach’s average annual profits alone, rather than by reference to all relevant factors.

The Full Court dismissed these arguments, finding that the primary judge expressly considered the revenue and profit generated by the contravening conduct and that the direct financial benefit of contravening conduct does not need to be a critical factor in every penalty assessment. Further, the Court found that the primary judge was entitled to refer to City Beach's profitability when considering whether the penalty was oppressive and that the penalty assessment had appropriately involved consideration of the relevant circumstances as a whole.

A large penalty was appropriate 

Finally, City Beach argued that the $14 million penalty imposed was manifestly excessive in the circumstances of the contraventions and the financial benefit obtained. It submitted that the penalty fell outside the appropriate range and the primary judge had erred in imposing it. The Full Court rejected that argument, finding that the penalty was justified by the following factors:

• the ‘extraordinary failure’ of City Beach to have any system whatsoever in place to ensure that it complied with its obligations in relation to the Mandatory Standards;
   
• the failure (or absence) of any internal processes to bring these matters to the attention of the most senior management;
   
• City Beach’s delay in conducting a voluntary recall;
   
• the fact that, despite City Beach commencing a voluntary recall on 1 March 2024, it continued to sell products covered by the recall product lines after this date;
   
• the very significant safety risk that the conduct posed to thousands or potentially tens of thousands of young Australian children; and 
   
• the significant size of City Beach, as indicated by the number of stores, its annual revenue and its annual profit.

What does this decision mean for businesses? 

This decision reinforces the importance of acting quickly when a product has an actual (or possible) safety issue. In particular:  

• Urgency of voluntary recalls: The Court's comments on City Beach's delayed recall reinforce the importance of acting quickly when potential product safety issues are identified. Businesses should not wait for regulatory approval or detailed guidance before taking action, especially where the ACCC has already indicated that immediate steps are expected.
   
• No compliance system is a major risk: A key factor in the penalty was City Beach's failure to have any meaningful system in place to identify and manage product safety obligations. The decision reinforces that businesses are expected to understand and comply with applicable safety standards, and that a lack of compliance processes can significantly increase enforcement risk.
   
• ACCC product safety enforcement remains a priority: Following its success at first instance and now on appeal, the ACCC can be expected to pursue further proceedings in relation to product safety non-compliance. Businesses supplying products used by young children, particularly those with button batteries, should expect heightened regulatory attention, with these products identified by the ACCC as one of its product safety priorities for the 2026 financial year.