Home   Publications   Corrs In Brief   ACCC wins Lux unconscionable conduct ... ACCC wins Lux unconscionable conduct appealBy Alistair Newton (Senior Associate) In a significant decision with implications for all businesses, the Full Federal Court has allowed an appeal by the Australian Competition and Consumer Commission (ACCC) in its case against Lux Distributors Pty Ltd (Lux), a seller of vacuum cleaners.  In doing so, the Full Court has provided a measure of clarity on the prohibition against unconscionable conduct in the Australian Consumer Law (ACL). The approach taken by the Full Federal Court may well have implications not only for business-to-consumer agreements, but also to business-to-business arrangements. Unconscionable conduct under the ACL and the ACCC’s allegations Section 21 of the ACL provides that a person must not, in trade or commerce, in connection with the supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable.

In principle, a person can engage in unconscionable conduct by entering into an agreement (such as by taking advantage of a customer’s vulnerability to make a sale) or by their behaviour in the context of a pre-existing agreement or arrangement (such as by insisting on additional benefits not provided for by a relevant written contract). However, the precise meaning of the word ‘unconscionable’ in this context is subject to perennial debate.  cheapest steam vacuum cleanerThe courts have held, in a somewhat circular fashion, that it involves things “not done in good conscience”.  how much is a new kirby vacuum cleanerIt has also generally been understood that for conduct to be unconscionable it must be more than simply unfair or unreasonable and must involve a level of “moral tainting”.bare floor vacuum cleaner ratings

Briefly, Lux was alleged by the ACCC to have engaged in unconscionable conduct in relation to three elderly women in that: It was also relevant that the Lux representatives failed to comply with various State and Commonwealth consumer protection measures, including, in one case, a requirement under the Fair Trading Act 1999 (Vic) not to remain on the premises for more than an hour with written consent and, in another case, a requirement in the ACL to make it clear at the outset that the true purpose of the visit was to sell goods. The trial judge’s decision At trial, Justice Jessop held that Lux had not engaged in unconscionable conduct. In His Honour’s view, Lux’s conduct was in fact “quite benign” and not morally tainted in the way required by the prohibition. In reaching that view, His Honour found that: The ACCC considered that: In a unanimous decision, the Full Court comprising of Chief Justice Allsop and Justices Gordon and Jacobson agreed with the ACCC and held that Lux had indeed engaged in unconscionable conduct in breach of section 21 of the ACL.

The Full Court’s decision rested on the following key findings: to be unconscionable, conduct must be against conscience “by reference to the norms of society” and, in this context, “honest and fair” dealings were required by those norms [1]; the relevant social norms were evidenced by the various consumer protection measures which exist “in furtherance of fairness and elimination of aspects of vulnerability” [2] and with which Lux had failed to comply; the trial judge failed adequately to deal with the fact that, by concealing the true purpose of each visit – i.e. to sell a vacuum cleaner and not to conduct a “free maintenance check” – Lux representatives had been deceptive from the outset, and that deception “tainted all the conduct thereafter” [3]; referring to one of the three particular cases, it was unconscionable to conduct a sale by “prevailing upon an elderly woman after 1 ½ hours of practised selling technique creating a sense of obligation from the subtle vulnerability of the householder, if that opportunity has been gained through deceptive practices...”

the existence of the cooling off right was not relevant – such a right does not operate to make good conduct which would otherwise be unconscionable [5]. Unconscionable conduct cases often turn on their specific facts, and this matter is no exception. However, a number of important lessons may be drawn from Full Court’s decision. The unconscionable conduct provisions in the ACL remain an enforcement priority for the ACCC and it will no doubt be emboldened by the comprehensive victory it achieved in this matter. The Full Court’s decision therefore represents an opportunity for all businesses, but particularly those which may be considered at a higher risk of engaging in unconscionable conduct, to revisit their contracting arrangements and ongoing business practices to ensure that any previous risk assessments are in line with the Full Court’s latest thinking. This decision also comes during a period in which the ACCC faces considerable pressure from business to test the reach of the unconscionable conduct prohibition in a business-to business context, and should be viewed in light of the Federal Coalition’s promise to conduct a “root and branch” review of the effectiveness of the Competition and Consumer Act – of which the ACL is a part – should it win office in the forthcoming election.

[1] ACCC v Lux Distributors Pty Ltd [013] FCAFC 90 at [41].In brief: The Federal Court has provided guidance on the values that might inform 'unconscionability' in future decisions, having allowed an appeal by the Australian Competition and Consumer Commission. The court declared that the sale of vacuum cleaners to elderly women in their own homes, following appointments for 'free maintenance checks' of their existing vacuum cleaners, was unconscionable. Partner Jacqueline Downes (view CV), Senior Associate Rebecca Cope and Knowledge Management Lawyer Julie Playfair report. How does it affect you? Unconscionable conduct remains a high priority for the Australian Competition and Consumer Commission (the ACCC), due to its view of the 'intrinsically deplorable'1 behaviour involved. It will continue to be very active in this area. The societal values that inform other relevant legislation may provide guidance on the way in which the court assesses whether conduct should be held to be unconscionable.

When engaging in door-to-door sales activities, the true sales purpose of the calls should be disclosed up front. You cannot rely on a cooling-off period to excuse otherwise unconscionable behaviour. Chairman Rod Sims recently clarified the ACCC's approach to bringing cases alleging unconscionable conduct, when he said that: unconscionable conduct cases are notoriously difficult since they inevitably involve a value judgment, but we also prioritise them highly due to the intrinsically deplorable behaviour which is the basis for these cases. We think that trying to prevent unconscionable behaviour is one of our most important roles.2 The case concerned the sale of vacuum cleaners by door-to-door salesmen, employed by the respondent, Lux Distributors, to five women aged between 82 and 95, at their homes between April 2009 and July 2011. After making an appointment by phone for a 'free maintenance check' of their vacuum cleaners, Lux salesmen attended the homes of each of the women and, after conducting the maintenance checks, attempted to sell each of the women a vacuum cleaner.

The ACCC commenced proceedings against Lux in 2012, alleging that the sales tactics employed amounted to unconscionable conduct in breach of section 51AB of the Trade Practices Act 1974 (Cth) (for conduct that occurred before 2011) and s21 of the Australian Consumer Law (the ACL). At the time of the relevant conduct3, s21 prohibited a corporation, in connection with the supply of goods or services, from engaging in unconscionable conduct. Subsection 21(2) set out matters to which the court may have regard, including the relative bargaining strengths of the corporation and consumer, whether unfair pressure or unfair tactics were used, and the circumstances under which the consumer could have acquired identical or equivalent goods or services from another corporation. On 8 February 2013, Justice Jessup found that the impugned conduct was not sufficiently 'morally tainted' to have been unconscionable4. His Honour held that, despite the fact the women were not told when making the appointments that the salesmen might try to sell them a vacuum cleaner, they would have been familiar with the concept of the travelling vacuum cleaner salesman as 'part of the Australian domestic landscape'5 .

The discount offered for immediate purchase was not 'unfair and pressure sales tactics', as each contract contained a 10-day cooling-off period, which was, in fact, exercised by some of the women. The ACCC's argument that the women were in a subordinate bargaining position did not hold sway with Justice Jessup, who noted that the longer the salesman took to perform the sales pitch, the more they stood to lose if they did not complete the sale; whereas, in contrast, the women could have sent the salesmen away after the free maintenance check had been completed. His Honour also stated that advanced age is not necessarily an indicator of vulnerability. The ACCC appealed the decision to the Full Federal Court, in relation to the three women who had given direct evidence during the primary proceedings. The court allowed the appeal, declaring that the relevant conduct in each instance was unconscionable. The court examined provisions of the ACL and state legislation applicable to direct selling transactions, for guidance on the values attached to the normative standard of conscience, concluding that the provisions 'reinforce the recognised societal values and expectations that consumers faced with direct salespersons will be dealt with honestly, fairly and without deception or unfair pressure'6.

It noted that the method Lux employed to gain entry to the consumers' homes, being the offer of a free maintenance check, was 'a ruse to gain entry to the home, and a deceptive ruse'7, and that the free maintenance check was merely the first part of a pattern of conduct designed to convince the consumers of the need for a new vacuum cleaner. The court criticised the primary judge's approach8 as: Finally, the court found that if the primary judge's conclusion was correct, a company in the position of Lux may act conscionably by obtaining entry to a consumer's home by deception, deprive the consumer of the opportunity to deny entry, and exploit that position to try to make a sale, as long as there is a cooling-off period in the contract. The court therefore disagreed with the primary judge's position and found that the conduct was unconscionable9. In commenting on the results of the appeal, Rod Sims promised that '[t]he ACCC will continue to take enforcement action if it considers that companies have engaged in unconscionable conduct, particularly in cases involving vulnerable consumers'10.