Australia: Sucked in - Full Court clarifies unconscionable conduct provisions in the ACL in ACCC v Lux Distributors Pty Ltd

In an important appeal judgment handed down on 15 August 2013, the Full Federal Court has provided guidance on the application of the prohibition against unconscionable conduct contained in s 21(1) of the Australian Consumer Law (ACL) (and its precursor, s 51AB(1) of the Trade Practices Act 1974 (Cth)). The ACCC Chairman, Rod Sims has described the judgment as a "significant decision" which "represents a positive outcome for consumers and serves as a warning for businesses." Corrs Chambers Westgarth acted for the ACCC in the proceeding.

The decision comes at a time when the judicial approach to the statutory concept of unconscionable conduct has been unsettled, with some viewing the Court as being inappropriately influenced by the common law concept of unconscionable conduct in its approach to statutory unconscionable conduct. The decision is of particular significance because it:

  1. makes clear that the Court may find sales tactics that were once regarded as legitimate and commonplace to be unconscionable in contravention of the ACL;
  2. is the first Full Court judgment concerning the application of the ACL's prohibition on unconscionable conduct to transactions involving the making of "unsolicited consumer agreements"; 1
  3. underscores the importance of considering the nature of the respondent's conduct, rather than the consumer's response to that conduct, in determining whether the respondent has engaged in statutory unconscionable conduct. The fact that conduct has come to bear on a defiant or resilient consumer will not necessarily militate against a finding of unconscionable conduct in contravention of the ACL;
  4. puts to rest any argument that a statutory cooling off period which applies to a sale will act to ameliorate unconscionable conduct in securing that sale;
  5. clarifies that the Court's inquiry of "all the circumstances" of the impugned conduct cannot be carried out by considering each circumstance singularly and without also considering its interaction with the other circumstances of the conduct. The individual circumstances of impugned conduct which may not of their own warrant the label of unconscionable, may interact with other circumstances to create a continuum of conduct which does warrant such a characterisation;
  6. establishes that legislation which exists to protect vulnerable consumers may be used as a measure of "societal norms" against which the impugned conduct may be measured; and
  7. makes clear that businesses which engage in sales activities in a consumer's home will be held to a high standard and will risk contravening the prohibition on unconscionable conduct if they fail to act in a manner which is honest and fair and free of deception.

The Full Court's decision has implications for those businesses involved in "door to door" and "in home" sales. The decision also means that risks will arise for any business which uses sales tactics which contravene standards set by consumer protection legislation, even tactics which may have in the past been regarded as conventional.

The decision concerns the ACCC's successful appeal from the trial decision to dismiss the ACCC's case against Lux Distributors Pty Ltd (Lux). We set out below some further detail about the first instance judgment and the ACCC's appeal.

THE TRIAL JUDGE'S DECISION

On 10 May 2012, the ACCC commenced a proceeding against Lux in the Federal Court of Australia alleging that Lux had engaged in conduct in relation to the sale of vacuum cleaners to five elderly women in their homes that was, in all the circumstances, unconscionable. At trial, the following key facts were established in relation to Lux's sales tactics:

  • Lux sold its vacuum cleaners in accordance with a standard method, which commenced with a telephone call from one of its representatives to a consumer, who Lux selected from its customer database or a telephone directory.
  • The Lux representatives who conducted the telephone calls followed a script during the call, in which they offered to have a Lux representative attend at the consumer's home to conduct a "free maintenance check" on their vacuum cleaner. During the telephone call, Lux did not disclose that the real purpose of the attendance was to attempt to sell a new Lux vacuum cleaner if the opportunity arose.
  • A Lux representative subsequently attended at the homes of consumers who agreed to Lux's offer of a "free maintenance check".
  • None of the Lux representatives were qualified or equipped to conduct anything more than a cursory maintenance check of vacuum cleaners. None of the Lux representatives stood to earn any remuneration for their attendances unless they sold a vacuum cleaner, which would entitle them to a commission.
  • In the course of the home visits, each of the women agreed to purchase a new Lux vacuum cleaner at a price of $1,999 or more.

For medical reasons, the ACCC did not seek to call evidence from two of the five women who it alleged had been the subject of Lux's conduct and instead relied on the evidence of family members and documents recording Lux's transactions with them. At trial, the trial judge ruled that some of this evidence was inadmissible. This highlights a major evidentiary obstacle faced in establishing unconscionable conduct; vulnerable consumers may, due to illness or frailty, be unable to give critical evidence in relation to impugned conduct.

The evidence in relation to the three women who were able to attend to give evidence at trial established that:

  • Once inside the home, each of the Lux representatives conducted a form of maintenance check of the consumer's existing vacuum cleaners. If the consumer agreed, the Lux representatives then proceeded to conduct a comparison test, using a current model demonstration Lux vacuum cleaner. The comparison test was structured so that the current model Lux vacuum cleaner would outperform the existing vacuum cleaner.
  • During the course of their attendance on the homes of the three women, the Lux representatives contravened obligations imposed on them by relevant State and Commonwealth legislative provisions regulating the making of "unsolicited consumer agreements". For example, one Lux representative was found to have breached s 74 of the ACL, which required him, as soon as practicable (and in any event, before starting to negotiate) to clearly advise the consumer that his purpose was to seek her agreement to a supply of goods, and that he was obliged to leave the premises immediately on request.
  • Although a statutory cooling-off period applied to each of the vacuum cleaner purchases (and was referred to in a written contract signed by each of the consumers), none of the three women were aware of its existence or effect and the Lux sales representatives did not draw it to their attention.
  • Each of the three women was alone with the Lux representative throughout the entire visit, which extended, in each case, for a period of between 1.5 and 2 hours.

On 8 February 2013, the trial judge dismissed the ACCC's proceeding. The trial judge found that the ACCC had failed to establish that Lux had engaged in unconscionable conduct in its dealings with all five women because in His Honour's view, Lux's conduct was in many respects, "quite benign" and did not display the high degree of "moral tainting" or "obloquy" which the Courts have read as implicit in s 51AB of the TPA and now s21 of the ACL. His Honour found that:

  • The consumers were not targeted on the basis of their "age or personal circumstances". In any event, the age of each consumer was not "as such" a "special disadvantage". To the contrary, each consumer, despite her advanced age, impressed the trial judge as being "no-nonsense", "not pliable", "of her own mind", independent in matters of money management, "in reasonable command" of matters and "not an innocent".
  • While it was a substantial purpose of Lux's representatives to make a sale of a new vacuum cleaner, there was also the purpose of first carrying out the promised "free maintenance check".
  • Lux's sales tactics were "conventional and traditional", and the women would have been "aware" of such tactics. Further, the consumers were familiar with the products being offered by Lux; the vacuum cleaners were nothing "new-fangled".
  • A ten day cooling-off period applied to each of the contracts which Lux invited the consumers to make and Lux's conduct should be considered in this context.
  • There was little imbalance of bargaining strength as the consumers' weakness (in being unaware that a sale was being solicited, in being less knowledgeable about vacuum cleaners, etc) was matched by the representatives' increasing need to achieve a sale. Indeed, due in part to the personal conduct of the consumers (such as their tactical "ambling and protesting" or their making of "confronting" observations about Lux vis-à-vis its competitors), the consumers may in fact have been in a stronger bargaining position than Lux's representatives.
  • The length of time that Lux's representatives stayed in the consumers' homes was nothing more than an "irritation" (for the consumer) or a "general" necessity (for the Lux representative); it was not an unfair or pressure sales tactic nor were other sales tactics – such as switching to a sales pitch after having gained entrance to the consumer's home by promising a free maintenance check, evading direct questions about price or offering discounts.
  • The breaches by Lux's representatives of laws regulating door-to-door transactions were unlikely to have affected the "course" or the "dynamics" of the interactions between the representatives and the consumers.

THE APPEAL

The trial judgment highlighted uncertainty about the scope and operation of the prohibition on unconscionable conduct in the ACL and, in particular, the level of "moral tainting" required for unconscionable conduct. It also raised questions about the extent to which the consumer's response to impugned conduct was relevant to the Court's inquiry into allegations of unconscionable conduct and whether the statute requires a consumer to have suffered something akin to a common law wrong for it to be contravened. Of further concern was the fact that His Honour had given weight to the existence of a statutory cooling off period while giving little weight to Lux's contraventions of the statutory protections which apply to "unsolicited consumer agreements".

The ACCC filed an appeal in relation to the trial judge's findings in respect of Lux's conduct towards the three women who had given evidence at trial.

In a unanimous decision, the Full Court, comprising Allsop CJ, Gordon and Jacobson JJ allowed the ACCC's appeal and made declarations that Lux had engaged in conduct that was in all the circumstances unconscionable. The Court said:

  1. To establish that conduct is unconscionable, what must be shown is something "not done in good conscience... Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question." In this case, societal norms required honest and fair conduct free of deception. Lux had failed to meet these norms in its dealings with the three women.
  2. The trial judge failed to give adequate consideration to the deception Lux had engaged in by failing to disclose the primary purpose of the representative's attendance at the women's homes, "it was critical to the creation of the opportunity to sell and was the launching pad for all that followed. This deception tainted all the conduct thereafter" and "deprived each of the women of a meaningful opportunity to decline to have the representative enter her home". In this regard, the Full Court noted that at trial one of the Lux representatives had accepted that when he arrived at a consumer's home he would not tell the consumer that he was there to sell them a vacuum cleaner because, if he did, they would all say "I'm not interested".
  3. The statutes regulating "direct selling" exist "in furtherance of fairness and elimination of aspects of vulnerability". Breaches of such legislation should have been "centrally important" to an assessment of Lux's conduct.
  4. Sales tactics which involved remaining in the women's homes for lengthy periods exerted a subtle pressure on the women. Such tactics should have been regarded as pressure sales tactics in circumstances where the representatives gained entry by deception.
  5. The opportunity to enter and remain in someone's home created "a real position of strength for the seller". Again, the Court considered it relevant that this bargaining strength was obtained through deception.
  6. The trial judge gave too much weight to the existence of the cooling off period. The cooling off period "does not ameliorate or lessen what has gone before".

The Full Court ordered that the ACCC's application for relief in relation to Lux's conduct towards the three women be remitted for hearing by a Federal Court judge.

Footnote

1Section 69(1) of the ACL defines "unsolicited consumer agreement" as an agreement for the supply of goods to a consumer that is made as a result of negotiations between a dealer and consumer at a place other than the business or trade premises of the supplier of the goods, in circumstances where the consumer did not invite the dealer to come to that place for the purposes of entering into such negotiations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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