Legal News & Analysis – Asia Pacific – Australia – Competition & Antitrust

 

Summary

 

• The Full Federal Court has upheld an ACCC appeal and declared that Lux Distributors Pty Ltd (Lux) had engaged in unconscionable conduct when selling vacuum cleaners to three elderly customers at their homes. Further information regarding the decision at first instance is available in our earlier legal briefing. (Unconscionable conduct – as elusive as ever?’ available here.)
• The Full Federal Court’s decision is an important clarification of the standard of conduct imposed by the statutory provisions prohibiting unconscionable conduct in consumer dealings as contained in section 21 of the Australian Consumer Law (ACL) (and its precursor, section 51AB of the Trade Practices Act 1974 (Cth)). (Section 21 of the ACL (and the previous s 51AC of the Trade Practices Act) also prohibits unconscionable conduct in business dealings.)
• In particular, the Court has indicated that in assessing unconscionability:
  1.  the facts will be measured against a standard of conscience, by reference to the norms of society, where that standard is affected by accepted and acceptable community values. In the consumer protection context those values include notions of justice and fairness, as well as vulnerability, advantage and honesty,
  2. the values, norms and societal values revealed by other relevant legislation should be taken into account (in this case, the Commonwealth and State consumer protection legislation, which suggests that consumers should be dealt with honestly, fairly and without deception or unfair pressure), and
  3. all the relevant conduct must be assessed (for example, as in this case, the existence of cooling-off periods in contracts will not negate the effect of any prior deceptive sales conduct).
• Unconscionable conduct cases largely turn on the specific facts of a case. This case has its most direct impact for companies which engage in ‘unsolicited consumer agreements’, as defined in the ACL, such as door-to-door sales activities. The Full Court decision has clear implications for sales practices that seek to obtain access to a customer by a deceptive ruse, particularly for in-house sales.
• The decision also highlights that sales tactics that contravene the requirements of Commonwealth and State consumer protection legislation, will be relevant to the question of whether there has been unconscionable conduct.
• Finally, the ACCC’s success breathes new life into the statutory unconscionable conduct prohibition and helps alleviate concerns that the courts have adopted an overly narrow construction to the statutory protection.

 

Background

 

The ACCC has stated that investigating claims of unconscionable conduct is an ongoing priority area and where appropriate, it will take enforcement action, particularly where the conduct affects vulnerable consumers.

 

The ACCC has previously acknowledged that unconscionable conduct claims are notoriously difficult as they necessarily involve a value judgment. (ACCC Chairman, Mr Rod Sims (9 August 2013), Chairman's address: Law Council of Australia; ACCC Chairman, Mr Rod Sims (15 March 2013), ‘Championing the rights of consumers’.) Further, unconscionable conduct involves a detailed evidentiary inquiry.

 

These difficulties proved to be insurmountable for the ACCC at first instance. The trial judge, Jessup J, dismissed the ACCC’s allegation that, through its door-to-door sales practices, Lux had engaged in unconscionable conduct in relation to five elderly customers. (ACCC v Lux Distributors Pty Ltd [2013] FCA 47 (8 February 2013).)

 

The trial judgment highlighted the unsettled nature of what is meant by ‘unconscionable conduct’ in the ACL, and suggested a very high level of moral culpability or ‘moral tainting’ was required to establish a case of unconscionable conduct.(For more detail regarding the first instance decision, see legal briefing, ‘Unconscionable conduct – as elusive as ever?’ available here.)

 

Nonetheless, the dismissal of the ACCC’s case at first instance, did not deter its resolve to test this area of consumer law, and the ACCC appealed Jessup J’s decision in respect of three of the five elderly customers. The ACCC did not appeal his Honour’s findings in relation to the other two alleged victims who did not give evidence at the trial.

 

The Appeal to the Full Federal Court

 

Overview

 

On appeal, the ACCC was successful and the Full Federal Court found that the Lux representatives had engaged in unconscionable conduct in respect of three elderly customers.(ACCC v Lux Distributors Pty Ltd [2013] FCAFC 90 (15 August 2013).)  

 

The outcome of the case turned largely on the differing approaches which Jessup J and the Full Federal Court took when considering the specific facts.

 

The impugned conduct involved employees of Lux attending the premises of three elderly women (aged in their 80s or 90s) ostensibly to offer a free maintenance check of their existing vacuum cleaner. The Lux representatives tested the customers’ existing vacuum cleaner and conducted a test which compared that vacuum cleaner with a near-new demonstration model. The representatives used the results of the demonstration, together with other selling techniques, delivered while they were in the home for an extended period, to convince the customers to replace their existing vacuum cleaner with the new Lux model.

 

The ACCC considered the maintenance check was a deceptive ruse aimed at getting entry to the person’s house. The Full Court agreed.

 

The importance of the norms of society

 

The Full Federal Court found that while ‘moral tainting’ is relevant, one needs to recognise that it is conduct against the conscience by reference to the norms of society that are in question. In this context, the Court noted that the norms and standards of today require businesses who wish to gain access to the homes of people for direct selling to exhibit honesty and openness in what they are doing.

 

The Full Federal Court considered that the primary purpose of the Lux representatives was to sell a vacuum cleaner, and the proposition of carrying out a free maintenance check was merely a deceptive ruse in order to obtain entry to the homes of the consumers. The Court found that the trial judge failed to give adequate consideration to this initial deception, which was described by the Court as ‘the launching pad for all that followed’.

 

The Full Federal Court considered that each of the elderly customers were labouring under a ‘subtle vulnerability’, by virtue of the fact of the extended presence of the Lux representatives in their homes (which in each case lasted over an hour). The Court was of the view that this extended presence created in the elderly customers a subtle but real sense of obligation to buy. Further, the Court found that the trial judge failed to acknowledge that the opportunity to enter and remain in someone’s home created a position of strength for the seller.

 

According to the Full Federal Court, the trial judge failed to see the conduct as unconscionable, largely because Jessup J focussed on individual acts and interactions in the dialogue between the Lux representatives and the elderly customers, and did not give due weight to the fact that the Lux representatives gained the opportunity to practice their selling techniques on the elderly customers through deception.

 

Relevance of statutory consumer protection context

 

In respect of two of the elderly customers, this subtle vulnerability, obtained through the deceptive ruse, was compounded by contraventions of Commonwealth and State direct selling legislation. The Full Federal Court was critical of Jessup J’s attempt to assess the causal effect which the contraventions of the State legislation had and his conclusion that compliance would not have altered events. The Court noted that contraventions of provisions designed to regulate the fairness of the selling process were important to the inquiry about unconscionability and the assessment of Lux’s conduct.

 

Cooling-off periods

 

The Full Federal Court criticised Jessup J for placing too much emphasis on the statutory cooling-off periods. The Court found that there was no evidence that any of the elderly customers were told of their statutory rights regarding cooling-off periods, and in any event, the existence of a cooling-off period did not ameliorate or negate the effect of the earlier conduct. The Full Federal Court emphasised that all the relevant conduct must be assessed.

 

What does the future now hold?

 

This is a significant victory for the ACCC coming at a time when there have been increasing concerns that the effectiveness of the statutory protection was being undermined by the courts imposing too high a standard. The ACCC’s success on appeal, together with the Full Federal Court’s arguably broader interpretation of the unconscionable conduct provisions, can be expected to add fuel to the ACCC’s determination to bring more test cases in this area.

 

Practical implications

 

The Full Federal Court decision is most significant for clarifying that the level of ‘moral tainting’ required for a finding of unconscionable conduct is not as high as suggested in previous decisions.

 

For companies engaging in ‘unsolicited consumer agreements’, such as door-to-door sales activities, the Court’s approach is particularly relevant. Key issues for these companies that emerge from the decision, include:

 

• securing entrance to a potential customer’s home by means of a deceptive ruse is not consistent with the standard of openness and honesty required by the ACL;
• the length of time a sales representative stays in the home is likely to enhance the ‘subtle vulnerability’ of a consumer who is subject to sales in their home;
• any failure by sales representatives to comply with both Commonwealth and State legislation regulating direct selling will be relevant to the assessment of whether there has been unconscionable conduct; and
• companies cannot rely on a cooling-off period in a contract (especially where it is imposed by legislation) to overcome a conclusion that the conduct is otherwise unconscionable. 

 

For further information, please contact:

 

Chris Jose, Partner, Ashurst
[email protected]shurst.com

 

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