On 15 August 2013, the Full Federal Court handed down its judgment in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, overturning the Federal Court’s decision and taking a rather different approach to the assessment of unconscionable conduct under the Australian Consumer Law, and its predecessor the Trade Practices Act 1947(Cth).

Background

The Australian Competition and Consumer Commission (ACCC) brought proceedings in the Federal Court, claiming that Lux had engaged in unconscionable conduct under s 51AB of the Trade Practice Act 1974 (Cth) and s 21 of the Australian Consumer Law, in the context of selling vacuum cleaners to elderly women in their homes.

In each case, the Lux sales representative followed a “standard routine” for its attendance at the purchasers’ homes, leading to the sale of a Lux vacuum cleaner in each case:1

  • a Lux representative would call the homes of people on their database, asking if they would like to book a “free maintenance check”, being conducted in the householder’s area;
  • the representative would then attend the householder’s home to perform a basic check of the their vacuum cleaner (although the representatives did not have any special qualifications or mechanical training to conduct anything but a “cursory” check, and were remunerated solely on the basis of sales commission);
  • after the check, the representative would ask the householder if they would like to see a “comparison test” between the householder’s current vacuum cleaner and a brand new model, and in comparing the vacuum cleaners, the discussion would turn to a sales pitch, with the representative eventually selling a new vacuum to the householder.

In determining the “standard or degree of reprehensibility” required for conduct to be unconscionable, the trial judge placed emphasis on the need for the conduct to display “a high level of moral obloquy… irreconcilable with what is right or reasonable”.2 

His Honour concluded that the Lux representatives had a “genuine intention” to conduct a maintenance check, rather than just the purpose of selling a vacuum cleaner; that the householders had all purchased vacuum cleaners before and as such were in “familiar territory”, and not at any special disadvantage; and finally he concluded that the statutory ten day cooling-off period applicable to direct sales afforded the householders an opportunity to change their minds. Given those factors, His Honour concluded that the Lux representatives had not engaged in unconscionable conduct.

The Full Court’s decision

The precise meaning of the statutory prohibition against unconscionable conduct has been fraught with uncertainty. The Full Court's decision in this case approach simplifies the approach but does little for the question of certainty. That approach can be summarised easily:3

"The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values… the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting."

In other words, the question of unconscionability is largely a question of whether or not particular conduct would be considered acceptable by reference to today's societal values, norms and community standards. The content of these standards can be informed in part by the relevant regulatory context, such as broader concepts of the Australian Consumer Law. In this case, the Full Court referred in detail to the Explanatory Memorandum to the Australian Consumer Law,and also noted that the Lux representatives had contravened a range of direct-selling provisions in the Australian Consumer Law and State legislation.

The Full Court was clear in its conclusion. The age of the householders was not a special disadvantage, but in the circumstances the practice of gaining access to the womens' homes by a "deceptive ruse" (the pretext of a free vacuum cleaner check) with the underlying purpose of selling the vacuum cleaner, compounded by contraventions of the direct-selling provisions, was unconscionable in the circumstances.5

The Implications

The Lux decision is by no means a change in direction in the actual law; the Full Court only briefly referred to relevant authorities in its decision.6  However, the decision is significant because of the approach taken by the Full Court. The Full Court's renewed emphasis on "community values" and society's current attitude leaves it considerable scope to consider each case in light of the these values.

What was conscionable ten years ago may not be conscionable today. Companies such as Lux can not necessarily rely on years of established conduct or public knowledge of their practices to justify their actions. Plainly, adherence to established legislation is key, and as demonstrated in this case.  Even relatively minor contraventions might give the Court reason to consider that a wider course of “unconscionable” conduct has occurred.

The Full Court’s approach in this case is less “technical” than the trial judge’s approach, focusing on the propriety of the conduct against the norms of society, without overanalysing prior approaches or relying heavily on a requirement for moral taint. Using this approach, past practice and case law may not give accurate guidance to companies looking to assess their future conduct. However, organisational knowledge of consumer law legislation can help inform the scope of conduct that risks contravening the prohibition against unconscionable conduct.