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.
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. The courts have held, in a somewhat circular fashion, that it involves things “not done in good conscience”. It 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”.
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.
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:
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. In particular:
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.
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