The Federal Court (Court) has found in favour of the Australian Competition and Consumer Commission (ACCC) in a case against telco Excite Mobile and its directors for misleading conduct, unconscionable conduct and undue coercion.

ACCC Chairman Rod Sims has described the win as a landmark decision on unconscionable conduct. Whilst that may be overstating the position, it is a somewhat useful case in that it adds another example of unconscionable conduct where cases are not common and the term 'unconscionable' is not well defined. It is also a useful reminder of the fact that contracts can be rendered unenforceable by various laws, including the Australian Consumer Law. This needs to be taken into account when reviewing and drafting contracts.

The unlawful conduct in this case relates to sales and debt collection. The conduct was widespread and involved many consumers across Australia.

It involved representations concerning:

  • availability of mobile phone coverage;

  • rights and remedies available to Excite Mobile in relation to debt collection;

  • deceiving consumers into believing their complaints were being handled by a complaints handling organisation (which was fictional); and

  • deceiving consumers into believing that debts were being handled by a debt collection agency and that communications were with a debt collection agency (when in fact they were with Excite Mobile).

The Court found that Excite Mobile and its directors had engaged in misleading conduct, unconscionable conduct and undue coercion.

Unconscionable conduct

There is no clear certain definition of the term 'unconscionable'. It has been described as 'an open-ended concept'.

However, it is well settled that conduct will not be unconscionable merely because it is unfair or merely because one party strikes a better deal than the other party. If this was the position, many business contracts would be undone.

Courts have attempted to give clarity to the term with the following descriptions:

  • serious misconduct or something clearly unfair or unreasonable must be demonstrated;

  • actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable;

  • ordinarily there would need to be an intentional act or at least a reckless act;

  • can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery and misleading conduct, depending on an examination of all the circumstances; and

  • unfair, unreasonable, immoral or wrong.

In the Excite Mobile case, the Court moved away from using words or phrases to describe the meaning of unconscionable conduct and focused on whether the conduct 'in all the circumstances', was unconscionable. For a lawyer, it is a matter of looking at like cases and distilling themes and trends. However, even then, court's decisions in relation to such matters can be notoriously unpredictable, with different judges capable of making different decisions. This has been quite evident over the past year or so with numerous decisions going back and forward during appeals processes, often with unanimous judgments.

The following comments by the Court in the Excite Mobile case provide a useful example of what is considered unconscionable:

  •  I consider that the sales method adopted by Excite Mobile for promotion of its day cap plan was in all the circumstances unconscionable.I
  • t was unfair to such a degree as to attract a strong adverse moral judgment...In reality, upon analysis, except in the case of some limited users of mobile phone services, the Excite Mobile plan was destined to expose its consumers to quite substantial monthly charges but was presented in such a way that it effectively concealed that reality...and it did so when Excite Mobile knew that its plan was not suited to the requirements of the everyday user. •Although I accept that neither (director) set out deliberately to be unfair or to be unconscionable, in my view, its marketing approach judged objectively was cynically indifferent to the interests of its potential customers, and was unconscionable for the reasons given.
  • In addition, there are certain further elements of the contract which, in my view, fortify that conclusion and add to the assessment of its unconscionability. They include the cooling off fee of $75. It is not a fee which bears any relationship to real direct costs…That is also accompanied by the fee of $195 if a mobile phone (including any aspect of the packaging) was damaged. By opening the package containing the phone, the damage fee became payable. Indeed, I think that both those elements of the contract were in any event unconscionable…On the limited evidence on the topic, that damage fee was about double the cost to Mobile Excite of the phone itself. Again, it is hard to resist the finding that it was to operate as a disincentive to “cooling off”. In any event, it is an additional feature which supports the conclusion that the marketing and sale of the Excite Mobile package was unconscionable.
  • I have considered separately the potentially relevant indicia of unconscionability referred to in s 51AB(2) of the TPA (as it then was). They are neither exhaustive, nor necessary, indicia. There is a temptation to substitute for the words of the provision itself other epithets or expressions to give elucidation or substance to its meaning...The overall conclusion I have reached, in the light of those references, is that the sales method of Excite Mobile was, in all the circumstances, unconscionable for the reasons I have given.

Telco industry

ACCC Chairman Rod Sims highlighted the ACCC's focus on the telco industry and related sectors in stating that the 'case confirms the ACCC belief that the telecommunications sector must improve their standards in relation to the proper disclosure and clarity of key terms and conditions to consumers'.

Mr Sims also stated that:

'The conduct of Excite Mobile was outrageous. Inventing a fictitious complaints handling body to deceive customers and creating a fictitious debt collector to coerce the customer to pay an alleged debt to Excite Mobile is unjustifiable and unacceptable.'

The ACCC has been focussed on the telco/internet industries over the past 18 months, particularly in relation to misleading advertising and sales. Earlier this year, Rod Sims announced it would continue to be a focus. This is the first case in which the ACCC is solely pursuing a breach of, and testing, the unfair contract provisions.

The takeout for businesses is to be mindful of the fact that there are laws which can affect the enforceability of a contract, including those contained in the Australian Consumer Law. Businesses need to ensure they review and draft their contracts with this in mind. A great deal can be undone by any one of these laws.