Sharp business conduct or unconscionable conduct? The decision in ACCC v Lux

Articles Written by Sar Katdare (Partner), Johanna Croser

The recent decision of the Full Court of the Federal Court in ACCC v Lux is unsurprising in so far as it confirms that the issue of whether conduct is unconscionable under the Australian Consumer Law (ACL) will depend on an assessment of all of the surrounding circumstances.

The critical issue is how that assessment is undertaken and by whom.

The ACCC v Lux case demonstrates that while one court may find that conduct is unconscionable under the ACL, another court may consider that the same set of facts constitutes conduct that is nothing but a sharp and legitimate business practice. Judges' views may reasonably differ on the relative bargaining strengths of the parties, whether conduct is reasonably necessary to protect legitimate commercial interests, the extent of unfair tactics, the implications of breaching other statutory provisions and a party's good faith.

Further, the issue of whether unconscionable conduct requires a degree of "moral tainting" has also been questioned. The decision in ACCC v Lux suggests that such a requirement may be unnecessary - potentially broadening the scope of the prohibition.

The facts in ACCC v Lux

As part of its usual business practice, Lux telephoned a number of elderly women (who were existing customers) to offer them an in-home "free maintenance check" of their existing vacuum cleaners.

While the primary purpose of undertaking the maintenance check was to be in a position to sell the women a new vacuum cleaner, this was not disclosed to them on the telephone.

On attending the homes of the elderly women, Lux conducted a check of their existing vacuum cleaners and then suggested that a new vacuum cleaner would operate better. The "in home" visits took about 1.5 hours and each of the women ultimately purchased a new vacuum cleaner for $1999 or more.

Nothing but a sharp business practice - the trial judge

The trial judge (Justice Jessup) found that Lux's conduct was, on the whole, "quite benign" and did not possess sufficient "moral tainting" to amount to unconscionable conduct.

His Honour was influenced by the following factors:

  • Door-to-door selling was a conventional selling practice of which consumers were aware and the maintenance check was a real service.
  • Each woman, despite her age, was able to decide matters for herself, being "no-nonsense" and "not pliable", "of her own mind" and "independent", and having "a reasonable command of matters".
  • There was little imbalance in bargaining strength as the longer the house call lasted, the more Lux stood to lose and so the weaker its position. The length of the house call was nothing more than an irritation to the women.
  • None of the other sales tactics was unfair.
  • The existence of a cooling off period in the contract of sale was a relevant factor in negating any risk of unconscionable conduct.
  • While Lux was found to have contravened statutory prohibitions under the ACL relating to its selling techniques (the "direct selling" prohibitions), this was unlikely to have affected the "dynamics of the interactions" with the women.

Crossing the line to unconscionable conduct - the Full Court

In a starkly different judgment, the Full Court of the Federal Court (Chief Justice Allsop and Justices Jacobson and Gordon) unanimously held that Lux's conduct was unconscionable in contravention of the ACL.

The Full Court held (on the same set of facts):

  • Lux had been deceptive from the outset by concealing the purpose of each home visit and accordingly this ruse to gain entry "tainted all the conduct thereafter".
  • The opportunity to enter and remain in someone's home created an increasing position of strength for the seller (the Full Court accepted consumer marketing literature on this issue).
  • Breaches of the direct selling prohibitions were critical and must be given weight in assessing the fairness of the conduct.
  • The cooling-off right did not operate to make good conduct that was otherwise unconscionable.

The Full Court considered that according to acceptable community values of honesty and fairness in dealing with consumers, Lux's conduct, in all the circumstances, constituted unconscionable conduct. It did not require a degree of moral tainting in making this finding.

Checking your "sharp" business practices

To the extent that your company potentially engages in any sharp business practices, you should:

  • ensure your dealings with consumers are not dishonest, unfair or misleading;
  • ensure your sales people do not use a ruse to make sales of other products;
  • assess your customer base and take extra care when selling to customers in a disadvantaged position (e.g. elderly or young people, people with a disability or illness, non-English speaking people);
  • monitor and assess complaints and change selling activities (where appropriate) to minimise risks; and
  • seek legal advice to confirm that your business practice is legitimate.
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