Unconscionable conduct – and considerations for business

The following discussion considers the Australian Competition and Consumer Commission (“the ACCC”) position in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (unreported)). The ACCC had originally sought a ruling from the Federal Court that between the dates of 2009 and 2011, sale representatives employed by Lux Distributors Pty Ltd engaged in unconscionable conduct in the course of selling vacuum cleaners to consumers.

The ACCC alleged that the sales representatives employed by Lux engaged in unconscionable conduct when attempting to sell vacuum cleaners as follows:

1. The sales representatives would attend the home of a consumer by first advising the consumer that the premise of the home visit was to provide a free maintenance check on an existing vacuum cleaner;
2. The real purpose of the visits were to sell the consumers a Lux vacuum cleaner;
3. The three consumers targeted were elderly women who were home alone at the time of the visit;
4. The representatives remained in the home of the consumers for over one and a half hours;
5. The sales representatives did perform a maintenance check on the vacuum cleaners;
6. After the maintenance check the representative demonstrated the Lux vacuum cleaner attempting to demonstrate the inferiority of the consumers existing vacuum cleaner;
7. Each consumer agreed to purchase the Lux vacuum cleaner for a price of approximately $1999.00; and
8. None of the consumers were aware that there was a 10 day statutory cooling off period that applied to their purchase.

The Federal Court ruled that Lux had not acted unconscionably, but the ACCC has appealed this decision, arguing that the judge erred in law by making this finding.

What is unconscionable conduct?

Unconscionable conduct is addressed in Part 2-2 of the Australian Consumer Law (“the ACL”) which is located in Schedule 2 of the Competition and Consumer Act 2010 (Cth).

Section 20 of the ACL provides that:

“(1)  A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.”

This section essentially allows for unconscionable conduct within the meaning of the common law to be remedied by the remedies provided for under the ACL.

Section 21 relates to business to consumer transactions, and provides:
(1)  A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable.
(2)  Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person (the consumer), the court may have regard to:

• the relative strengths of the bargaining positions of the supplier and the consumer; and
• whether, as a result of conduct engaged in by the person, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
• whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
• whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
• the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the supplier.

(3)  A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a person by reason only that the person institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration.
(4)  For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person:

• the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
• the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

Section 22 refers to business to business transactions and while it is important to be aware of these provisions, they will not be considered in this article.
The ACCC provides that unconscionable conduct is generally conduct that would or should not be done in good conscience. It is more than conduct that is unfair or harsh, but extends to conduct that has an element of ‘bad conscience’.

Unconscionable conduct has an intentionally broad definition, which the ACL has avoided limiting by the inclusion of Section 20. However, Section 21 does aim to provide some guidelines, but the definition is still broad ranging and is generally determined on a case by case basis. The Court has said “for conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated” (Cameron v Qantas Airways Ltd (1994) 55 FCR 147) and that “the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably” (Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557).

Some case examples include:

• Lessees of commercial premises were involved in legal proceedings against the lessor for charging excessive outgoings. The Lessees wished to sell their business and assign the lease. The Lessor agreed to the assignment on the basis that the lessees dropped the legal proceedings. The Lessees agreed to this as they were under pressure to sell. The court held that thi8s conduct was not unconscionable under the common law (Australian Competition and Consumer Commission v GC Berbatis Holdings Pty Ltd (2003) 214 CLR 51).
• A franchisor breached s51AC of the then Trade Practices Act by refusing to deliver products to franchisees, deleting some franchisees numbers from the directory without notice to the franchisees, refusing to address dispute matters with franchisees, refusing to provide requisite disclosure documentation and carrying on business in the territories granted to the franchisees (Australiuan Competition and Consumer Commission v Simply No Knead (Franchising) Pty Ltd (2000) 178 ALR 304).
• The seller of a factory employed an agent. The business manager signed a standard form sole-agency agreement which the manager believed appointed the agent as sole agent for a specified term only. However, the agreement contained a clause that even after the expiry of the agreement; the agent was to earn commission from any buyer that the agent introduced to the manager. Two months after the agreement expired, the agent introduced a buyer to the manager and the manager subsequently refused to pay commission. The Court held that the agent had acted unconscionably as the term was not reasonably necessary to protect the agent’s rights and created an open-ended term of the agency relationship, which was unnecessary to protect the agent’s rights to exclusivity (George T Collings v HF Stevens).

How can I avoid treating consumers unconscionably?
It is important for businesses to be careful, especially when entering into consumer transactions with your clients or customers. There are a number of ‘checks and balances’ that can be put in place to avoid finding your business in a situation where it may be accused of acting unconscionably:

• Ensure to disclose all important terms of the contract or document being signed by the parties;
• Give the other party an opportunity to seek independent legal advice before entering into the transaction (where applicable);
• Be aware when your business is in a particularly strong position, such as where you have a greater bargaining position than the consumer;
• Try to provide the consumer the opportunity to negotiate terms of the contract, and avoid using standard form contracts where possible; and
• Have policies and procedures in place to attend to and handle disputes appropriately.

As the definition of unconscionable conduct is broad, it is important always to have policies in place to monitor business practices with consumers to ensure that your business is not unknowingly taking advantage of the weak bargaining position of your consumers, by forcing them to comply with unnecessary terms, using pressure to force consumers to enter into transactions or charging excessive prices for products or services.

If you are unsure whether your business practices could be considered unconscionable, it is advisable to seek legal advice before you act. Nautilus Law Group can assist you in developing checks and balances to ensure that you are treating consumers fairly and not engaging in conduct that could otherwise be considered unconscionable.

Should you wish to discuss this topic further, we welcome you to contact  our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.

Submitted by:  Katrina E. Brown BA JD ATIA TEP SSA