In an important decision, the Full Federal Court of Australia has held that conduct alleged to be unconscionable is to be assessed against a normative standard of conscience, permeated with accepted and acceptable community values.
This community based standard clarifies the scope of the unconscionable conduct provisions of the Australian Consumer Law. This decision is likely to encourage the Australian Competition and Consumer Commission (ACCC) to maintain unconscionable conduct as an enforcement priority.
The recent Full Federal Court decision in relation to the ACCC's appeal against the judgment of Justice Jessup in ACCC v Lux Distributors Pty Ltd (Lux case), is a significant victory for the ACCC in its fight against businesses engaging in unconscionable conduct.
Background to the Case
The ACCC's action against Lux Distributors Pty Ltd (Lux) involved allegations that between 2009 and 2011, Lux sales representatives engaged in unconscionable conduct in relation to the sale of new vacuum cleaners to five elderly consumers at their homes, under the auspices that they were being offered a free vacuum cleaner maintenance check. Upon entry into their home, the Lux representatives conducted a brief check of the existing vacuum cleaner before showing the elderly women the new model vacuum cleaner and using sales tactics for an extended period to induce them into purchasing the new model, which costed more than if the machine was purchased at retail stores.
The ACCC alleged that Lux contravened section 21 of the Australian Consumer Law (ACL) and its former provision (section 51AB of the Trade Practices Act 1974), which prohibits a person, in trade or commence, in connection with the supply or possible supply of goods or services to another person, from engaging in conduct that is, in all the circumstances, unconscionable.
At first instance, Justice Jessup found that Lux did not engage in unconscionable conduct. His Honour based this view on a number of findings, including that Lux's sales tactics were traditional methods which customers would be expected to be aware of; the Lux sales representatives were entering the houses to complete free maintenance checks; and consumers who may have felt pressured had the benefit of a 10 day cooling-off period.
The ACCC appealed the decision in relation to three of the five consumers who were subject to the sales tactics contending that, amongst other things, His Honour set the bar for unconscionable conduct too high by requiring conduct to have a "moral tainting"; by giving insufficient weight to the primary purpose of the Lux representative's approach, which was to sell a new vacuum cleaner; and by placing too much emphasis upon the existence of a cooling-off period, which should not negate the fundamental unconscionable conduct breach.
On appeal, the Full Federal Court agreed with the ACCC and found Lux engaged in unconscionable conduct in breach of s21 of the ACL. Relevantly, the Full Court found that in assessing whether conduct was "unconscionable" or "not done in good conscience", one does not need to establish a high degree of moral culpability. The conduct in question must be assessed against a normative standard of conscience, which requires:
accepted and acceptable community values
in the context of consumer dealings, the requirements of honest and fair conduct, free of deception
notions of justice and fairness as well as vulnerability, advantage and honesty.
The Full Court also held:
the "norms and standards of today require business who wish to gain access to the homes of people for extended selling opportunities to exhibit honesty and openness in what they are doing, not to apply deceptive ruses to gain entry". Despite the trial judge's view that there were no direct lies told by the Lux representatives, the Full Court held that the sales tactics used to gain entry and induce a sale were not justifiable
the process of selling under the pretence of a "free maintenance check" was unconscionable. As the Lux representatives gained entry to people's homes by deception and spent time to be "helpful", the Full Court said this created an inequality in bargaining power because the consumer was less inclined to ask the representative to leave
the trial judge should have found that the primary purpose of the visit into a home under the guise of a "free maintenance check" was to sell a vacuum cleaner and this deception tainted all conduct thereafter
the trial judge failed to give weight to the deception that unfairly deprived each of the women a meaningful opportunity to decline to have the Lux representative enter the home
the Lux representatives who were given the opportunity to enter the house obtained a position of strength over the consumer
the trial judge did not give sufficient weight to the legislative provisions (namely, Lux's failure to comply with door to door selling provisions) which would otherwise provide fairness in the selling process.
Additionally, the Full Court said the trial judge placed too much significance upon the statutory cooling-off period in dismissing the ACCC's argument of unconscionable conduct. The existence of cooling-off periods would not counter the unconscionable conduct that had taken place.
Lux's conduct was therefore unconscionable having regard to the bargaining strengths between the parties and the deceptive and pressuring sales tactics employed by its sales representatives. The pecuniary penalty to be imposed on Lux is yet to be decided and will be the subject of further submissions.
In a number of earlier cases, a person needed to have a "special disadvantage" in order to be susceptible to unconscionable conduct. This envisaged circumstances which seriously affected the ability of the person to make a judgment as to his or her best interests . However, in the Lux case, the Full Federal Court did not seek to identify whether the elderly consumers suffered from any special disadvantage.
The Full Federal Court instead evaluated the conduct of Lux's sales representatives against a "normative standard of conscience" permeated with "accepted and acceptable community values", which in the circumstances of this case required honesty, fair dealing and no deception.
This renewed emphasis upon the conduct of the alleged perpetrator, rather than whether the alleged victim possessed a special disadvantage, represents an important development in the statutory offence of unconscionable conduct.
Implications for Business
Before this decision, the meaning of the word "unconscionable" was the subject to differing views which resulted in differing judgments. Some cases appeared to require the alleged victim to suffer from a "special disadvantage" and the alleged perpetrator's conduct needed to be unfair or unreasonable, but also involve some moral tainting. However, the court has now provided further clarity by assessing the relevant conduct by reference to the norms and standards of society in terms of honesty and fairness.
Accordingly, businesses should ensure its selling practices and dealings conforms with the community's general standards of fairness. Particular attention should be paid to reviewing systems and the training of sales staff to ensure they are aware of the new context by which their conduct will be measured.
Following this successful appeal and consistent with the ACCC's express enforcement priorities, the ACCC Chairman has alluded to continued enforcement action, especially in cases involving "vulnerable consumers and where there have been other breaches of consumer protection provisions of the ACL".