Summary

  • On 8 February 2013, the Federal Court found that the ACCC failed to prove that representatives of Lux Distributors Pty Ltd had engaged in unconscionable conduct when selling vacuum cleaners to five elderly customers at their homes.
  • The case highlights:
    • the unsettled nature of what is meant by ‘unconscionable conduct’ in the Australian Consumer Law, and
    • the importance of accurate and reliable evidence in demonstrating that unconscionable conduct has occurred.
  • The ACCC has appealed against the decision.

Overview

The ACCC has an ongoing priority to investigate claims of unconscionable conduct and, where appropriate, to take court action. The prohibitions against unconscionable conduct in the Australian Consumer Law (ACL) warrant careful attention, particularly in dealings with more vulnerable parties.

In a further example of the difficulty in establishing unconscionable conduct, the ACCC recently failed to convince the Federal Court that Lux Distributors Pty Ltd (Lux) had engaged in unconscionable conduct when it sold vacuum cleaners for prices of up to $2270 to five elderly customers.1

While the outcome of the case turned largely on its specific facts, it exposed how hard it can be for the ACCC to obtain the evidence to establish its case against what the Court held remains a very high standard of moral culpability.

For starters, the concept of unconscionable conduct does not have a settled legal meaning, although it is broadly accepted that it is more than mere unfairness or unreasonableness – there needs to be some element of bad conscience or moral reprehensibility.

In addition, unconscionable conduct involves a detailed evidentiary inquiry. Often alleged victims of unconscionable conduct will labour under some vulnerability, such as advanced age, disability or illiteracy. This can make gathering accurate and reliable evidence that will stand up in court problematic.

Finally, the case shows that proving unconscionable conduct by reference to a system of conduct rather than focusing on the specific instances where unconscionable acts are alleged to have taken place is unlikely to be accepted by a court (although recent amendments may have an impact in future cases).

In a signal of the ACCC’s dissatisfaction with the decision, on 1 March 2013 the ACCC filed a notice of appeal claiming that the trial judge erred in fact and law.

The evolution of unconscionable conduct

There has been significant debate over many years as to whether consumers (and small business) are sufficiently protected from unconscionable conduct. Statutory protection was first inserted into the former Trade Practices Act (TPA) in 19862 and is now in the ACL. There has also been concern that the judicial approach to the statutory protection has been unduly influenced by the traditional common law concept of unconscionable conduct.

As a product of this debate, there have been a number of changes to the law in an effort to define the appropriate level of protection. For instance:

  • in 1993 we saw a new statutory protection introduced3 in addition to the traditional protection under the unwritten law;
  • in 1998 the protection against unconscionable conduct was extended to apply to business dealings;4 and
  • most recently and following the introduction of the ACL in 2011 a provision was included to expressly state (amongst other things) that it was Parliament’s intention that the statutory protection is not limited to the concept of unconscionable conduct in the unwritten law and that the protection can apply to a system of conduct or pattern of behaviour whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour (section 21(4), ACL).

This provision stating Parliament’s intention took effect on 1 January 2012 and therefore, did not apply to the conduct in the Lux case. Nevertheless, it will be interesting to see whether this latest failure to establish unconscionable conduct in respect of a particularly vulnerable class of consumers will again reignite the debate as to what constitutes unconscionable conduct.

Facts of the case

The ACCC commenced proceedings against Lux on 10 May 2012 under section 21 of the ACL and its precursor section 51AB of the TPA. The ACCC sought declarations, penalties and injunctions.

Relevantly, the alleged unconscionable conduct involved an employee of Lux using its existing customer database or other telephone directory to contact a householder ostensibly to offer a free maintenance check of their existing vacuum cleaner. The ACCC challenged whether the offer of a maintenance check was genuine or was merely a ruse to get a ‘foot in the door’.

Each of the five elderly women (aged in their 80s or 90s) agreed to have a Lux representative visit their home for the purpose of carrying out a free maintenance check.

At each of the premises, the representative tested the customer’s existing vacuum cleaner and conducted a test which compared that vacuum cleaner with a near-new demonstration model. The representative used the results of the demonstration together with other selling techniques to convince the customer to replace their existing vacuum cleaner with the new Lux model.

The meaning of unconscionable conduct

The evolution of unconscionable conduct has been outlined above.

In the Lux case, Jessup J noted that the unconscionable conduct provisions in the ACL are accompanied by a non-exhaustive list of matters that a court may have regard to when determining whether the prohibition has been breached (for example, the relative bargaining position of the parties, whether the consumer is able to understand the documents relating to the supply of the good and whether undue influence or unfair tactics where used against the customer).5

However, his Honour acknowledged that the legislation provides no further guidance on the standard or degree of reprehensibility that is required to demonstrate unconscionability.

While Parliament has expressed a preference that the unconscionable conduct provisions are not read down, over time the courts have provided a number of elaborations in relation to the meaning of the provisions. Justice Jessup had regard to these.

After considering earlier cases, his Honour found that it is not sufficient that conduct is objectively unfair, unjust, wrong or unreasonable. The relevant conduct must involve a significant element of ‘moral obloquy’, which will often require some deliberate wrongdoing.

In addition and specific to the Lux case, Jessup J noted that a sale should not generally be regarded as having been achieved by unconscionable conduct merely for the reason that the purchaser has been persuaded to proceed against his or her better judgement where the contract contains specific terms which allow it to be cancelled. This principle is now embodied in the section 21(4)(c) of the ACL which outlines Parliament’s intention that when determining whether conduct to which a contract relates is unconscionable, a court may consider the terms of the contract and the manner and extent to which the contract is carried out.

Evidentiary issues associated with unconscionable conduct cases

In respect of the allegations concerning two of the five alleged victims, the ACCC’s argument faced a major hurdle. Neither of these alleged victims were called to give evidence.

Evidence from key witnesses is crucial to successfully establish unconscionable conduct. Generally, the relevant conduct will be confined to a specific time period where the events take place (i.e. at the home of a customer) and often additional documentary or other evidence will not be available.

Therefore, the accurate and credible recollections of the parties to the transaction must be fulsome and allow the adjudicator of the case to be satisfied that the significant element of moral culpability associated with unconscionable conduct has been established. Unfortunately, in many instances the alleged victims of unconscionable acts (for example, due to their age or disability) may be unable to recount the events with the level particularity required by the court.

In relation to the alleged victims that did not give evidence, Jessup J described this as a severe evidentiary deficiency. In both instances, his Honour was unwilling to conclude that the Lux representatives had engaged in unconscionable conduct merely by reference to Lux’s general system of selling or based on evidence provided by family members that were not present at the victim’s home when the alleged misconduct occurred.

Even in respect of the other three alleged victims, his Honour was not persuaded on the facts that the conduct was unconscionable. His Honour noted that the purchasers of the vacuum cleaners, despite their age, were lucid and able to make their own judgment in relation to the offers made by the Lux representatives. Further, the contracts which the alleged victims entered into contained a notice drawing their attention to a 10 day cooling-off period.

Whether the reluctance to take into account a company’s general system of selling (as demonstrated in the Lux case) will persist into the future is unclear given the statutory statement of Parliament’s intention in section 21(4)(b) of the ACL. As noted above, Parliament has expressly stated that the unconscionable conduct provisions are capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged. 

However, except in more extreme examples where the system is on its face morally questionable, the practical effect of this statement of intention may be tempered by the very high standard required by the courts.

Perhaps acknowledging the evidentiary challenges faced in respect of these two alleged victims, the ACCC’s appeal is being pursued only in respect of the three alleged victims who gave evidence.

What does the future hold?

Some elements of the facts in this case may suggest that the ACCC had identified a ‘home run’ case – this was a matter involving in-home sales of high value consumer goods to elderly consumers who were led to believe that they were going to receive a free maintenance check for their existing vacuum cleaner, but where they were ultimately drawn into a lengthy sales pitch in their homes and sold a new vacuum cleaner.

While some might suggest that aspects of the sale techniques employed by the Lux representatives were harsh and unfair, as the outcome in the casedemonstrates its practices were not necessarily unconscionable. A high standard of moral reprehensibility is required before conduct will be held to be unconscionable. Associated with that high standard is the practical difficulty of gathering sufficient and reliable evidence, particularly where alleged victims may be labouring under some vulnerability.

In a media release regarding the ACCC’s appeal, ACCC Chairman Rod Sims said that ‘unconscionable conduct is an area of priority for the ACCC, particularly where it affects vulnerable consumers.’6

Hopefully the appeal will result in the Full Federal Court providing additional guidance on the standard imposed by the ACL when seeking to prohibit unconscionable conduct.