Forest Hill Farm owner sentenced to home detention for free range egg deception

Mr John Garnett, owner of now-defunct Northland egg producer Forest Hill Farm, has been sentenced to 12 months home detention and 200 hours community service in the Whangarei District Court today for falsely packaging and selling cage eggs as free range or barn-laid eggs.

In June, Mr Garnett pleaded guilty to 20 Crimes Act charges brought by the Commerce Commission.

In sentencing, Judge Harvey said he considered it to be very serious offending and had resulted in the public being severely let down. He indicated that public confidence would be diminished by this deliberate offending over a considerable period of time which was done to deceive customers.

Between April 2010 and November 2011 Mr Garnett and his company packaged cage eggs into cartons labelled as “free range” or “barn-laid” eggs and sold those eggs to retailers. The retailers, including several large supermarkets in Auckland and Northland, believed the contents were genuine and as described on the cartons, so sold them to customers. The Commission estimates that Forest Hill Farm made an additional $376,000 from the sale of over 206,000 dozen falsely labelled eggs with a retail value in excess of $1 million.

“We considered the conduct in this case to be very serious as it was calculated and deliberate. We only became aware of Mr Garnett’s actions after members of the egg producing industry made a complaint to the Commission,” said Commerce Commission Consumer Manager Stuart Wallace. “The conduct was also particularly deceptive because it was impossible for the public to detect – you can’t tell the difference between a cage egg and a barn-laid or free range egg by looking at them.”

“Consumers who purchased these eggs were subject to a serious breach of trust by the trader. It’s likely that consumers who purchase free range eggs do so as a matter of principle, as they are significantly more expensive than cage eggs.  We think consumers are entitled to trust what traders tell them, particularly where the consumer has no way of independently verifying the claims being made.”

“Not only have consumers and retailers been misled, but there is also the potential harm caused to other businesses in the industry. Mr Garnett’s actions might have a negative impact on the reputation of all free range egg producers as consumers lose confidence in their products,” said Mr Wallace.

“The Commission is pleased by the sentence handed down in the case as it sends a clear message to the business community that those intending to defraud the public will be caught and the penalties can be serious,” concluded Mr Wallace.

Background

W.E. Garnett Limited, trading as Forest Hill Farm, produced only cage eggs. As part of its supply contracts with some supermarkets, it was also required to provide free range eggs. To do this, it purchased some free range eggs from free range egg suppliers. However, during the period of offending, there was a substantial shortfall in the free range eggs purchased by Forest Hill Farm compared with the free range eggs the company sold.

The 20 charges are one charge per month for the period from April 2010 to November 2011. During this period, the Commission calculated that there was a shortfall of over 206,000 dozen eggs between the free range eggs sold by Forest Hill Farm and the free range eggs it purchased.

The Crimes Act offence Mr Garnett pleaded guilty to is s240 of the Crimes Act:

Obtaining by deception or causing loss by deception
(1) Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—
(a) obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or
(b) in incurring any debt or liability, obtains credit; or
(c) induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or
(d) causes loss to any other person.
(2) In this section, deception means—
(a) a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—
(i) knows that it is false in a material particular; or
(ii) is reckless as to whether it is false in a material particular; or
(b) an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or
(c) a fraudulent device, trick, or stratagem used with intent to deceive any person.

The Commerce Commission enforces the Fair Trading Act which includes criminal offences. However, occasionally the Commission may decide that conduct in a fair trading investigation warrants charges under the Crimes Act.

Some of the factors the Commission considered when making the decision to lay charges under the Crimes Act in this case was that the conduct was deliberate, sustained, and a significant breach of consumer trust. It only stopped when a whistle-blower alerted the industry who commenced an investigation and made a complaint to the Commission.

This is only the second time the Commission has laid charges under the Crimes Act for alleged breaches of the Fair Trading Act. The first was in a recent case of false billing practices known as pro forma invoicing: http://www.comcom.govt.nz/the-commission/media-centre/media-releases/detail/2013/company-director-sentenced-for-pro-forma-invoicing.