Lux case: consumer law and unconscionable conduct

In the recent case of Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 (Lux), the Federal Court provides valuable guidance on the meaning of unconscionable conduct under the Australian Consumer Law.

This decision has been hailed as a “significant decision” by ACCC Chairman, Rod Sims, and is likely to have far reaching consequences upon the conduct of all businesses, including with respect to both consumer-to-business and business-to-business transactions.

Under the Australian Consumer Law, section 21 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 this case, sales representatives on behalf of Lux contacted, by telephone, three elderly women and offered each of them “a free maintenance check” for their vacuum cleaners. Upon arriving at their houses, the representatives did not disclose that the true purpose of their visit was to try and sell a vacuum cleaner to them. The representatives were not adequately qualified to conduct vacuum cleaner checks and only conducted superficial checks of the vacuums in which they would perform an “efficiency check” by comparing the existing vacuum cleaners with the new Lux model in which all instances that Lux vacuum cleaner would outperform the existing vacuum cleaners. The representatives remained at the women’s houses for up to 1 ½ to 2 hours engaging in high-pressure bullying sales tactics, ultimately leading to, each of the elderly women buying a Lux vacuum cleaner at a price of $1,999 or more.

In the first instance, the Trial Judge found that Lux had not engaged in unconscionable conduct in the course of its dealing with the women. In his Honour’s view, Lux’s conduct was “quite benign” and failed to meet the necessary level of “moral tainting” required to contravene the prohibition. The Trial Judge found that, amongst other things, age does not constitute a special disadvantage and that all of the women were capable of making decisions for themselves and were familiar with the product. The Trial Judge also found that the longer the Lux representatives stayed at the women’s houses the weaker their position and accordingly there was no significant imbalance in bargaining strength between the parties and, in any event, the sales contracts contained a ten day cooling off period.

On appeal, the Full Court unanimously held that Lux had engaged in unconscionable conduct in breach of the Australian Consumer Law. The Court had regard to the fact that the Lux representatives had breached not only the provisions of the Australian Consumer Law, but also the fair trading legislation of Victoria and Queensland. The Court found that the Trial Judge erred in his decision and noted that, amongst other things, the representatives were placed in a stronger bargaining position once inside the home as the homeowner “feels pressured or obligated to buy” in circumstances where it is difficult for a homeowner to ask the representative to leave as they are “being so ‘helpful’”. Furthermore, the Court found that the Trial Judge gave too much importance to the cooling-off period (which is required by law) and stressed that it is all of the conduct which must be assessed as a whole. These matters coupled with various deceptive conduct and institutional practices of Lux representatives led the Court to its finding of unconscionable conduct.

The Lux decision clarifies the criteria to be used when establishing whether conduct will be found to be ‘unconscionable’. In finding Lux’s conduct to be unconscionable, the Court noted that “[n]otions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question. The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty”.

From the Lux case, it is clear that the norms of society and questions of honesty and fairness, rather than moral judgment, will now be the guiding criteria for the courts when determining whether there has been a breach of the unconscionable conduct provisions in the Australian Consumer Law. These norms and standards will not be considered in isolation as the court may also have regard to other statutory provisions contained in the Australian Consumer Law when assessing these values.