FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90
IN THE FEDERAL COURT OF AUSTRALIA | |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Appellant | |
AND: | LUX DISTRIBUTORS PTY LTD (ACN 054 882 852) Respondent |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
2. Orders 1 and 2 of the orders made by the Federal Court on 8 February 2013 be set aside and in lieu thereof it be ordered that:
(a) The Court declares that in or around February 2010, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Hazel Oxley at her home on 12 February 2010, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 51AB of the Trade Practices Act 1974 (Cth).
(b) The Court declares that in or around September 2010, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Mavis May at her home on 23 September 2010, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 51AB of the Trade Practices Act 1974 (Cth).
(c) The Court declares that in or around July 2011, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Margaret Baird at her home on 5 July 2011, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 21 of the Australian Consumer Law.
(d) The applicant’s application for relief in relation to the conduct of Lux in connection with the promotion and supply of a Lux vacuum cleaner to:
(i) Mrs Hazel Oxley in or around February 2010;
(ii) Mrs Mavis May in or around September 2010; and
(iii) Mrs Margaret Baird in or around July 2011,
otherwise be remitted for hearing by a judge of this Court.
(e) The respondent pay the applicant’s costs in respect of Mrs Baird, Mrs Oxley and Mrs May.
3. The respondent pay the appellant’s costs of this appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).
VICTORIA DISTRICT REGISTRY | |
GENERAL DIVISION | VID 141 of 2013 |
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA |
BETWEEN: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Appellant
|
AND: | LUX DISTRIBUTORS PTY LTD (ACN 054 882 852) Respondent
|
JUDGES: | ALLSOP CJ, JACOBSON AND GORDON JJ |
DATE: | 15 August 2013 |
PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
THE COURT:
1 The Australian Competition and Consumer Commission (the ACCC) appeals against the dismissal of proceedings in which it sought declarations, penalties and other relief including injunctions against the respondent, Lux Distributors Pty Ltd (Lux), asserting contraventions of s 51AB of the Trade Practices Act 1974 (Cth) (TPA) and s 21 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL) arising out of the sale of vacuum cleaners by direct salesmen to three elderly women in their own homes. The case at first instance was brought in respect of five elderly women; the appeal is in relation to three only.
2 The question for the primary judge and this Court on appeal is whether in connection with the supply of a vacuum cleaner to each of Mrs Baird, Mrs Oxley and Mrs May, Lux engaged in conduct that was, in all the circumstances, unconscionable.
3 With respect to the primary judge, and giving due weight to the evaluative conclusion drawn by him, we are unable to agree with him that there was no unconscionability involved. It will be necessary to say something in due course about the approach of the primary judge. First, it is necessary to say something of the statutory context in which the conduct took place.
The relevant statutory provisions
4 As noted, the ACCC’s case was that, in connection with the supply of a vacuum cleaner to each of Mrs Baird, Mrs Oxley and Mrs May, Lux engaged in conduct that was, in all the circumstances, unconscionable. It alleged a contravention of s 51AB of the TPA in relation to Mrs Oxley and Mrs May and a contravention of s 21 of the ACL in respect of Mrs Baird.
5 As will become apparent, these laws of the Commonwealth cannot be considered in isolation. Laws of the States (and the ACL) reinforce recognised societal values and expectations that consumers faced with direct salespersons will be dealt with honestly, fairly and without deception or unfair pressure.
Unconscionable conduct prohibited
6 Section 51AB of the TPA governs the conduct in February 2010 insofar as it concerned Mrs Oxley, and the conduct in September 2010 insofar as it concerned Mrs May. That section was relevantly in the following terms:
51AB Unconscionable conduct
(1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a 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 corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person (in this subsection referred to as the consumer), the court may have regard to:
(a) the relative strengths of the bargaining positions of the corporation and the consumer;
(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation;
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;
(d) 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 corporation or a person acting on behalf of the corporation in relation to the supply or possible supply of the goods or services; and
(e) 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 corporation.
(3) A corporation shall not 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 corporation 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 corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person:
(a) the court shall not have regard to any circumstances that were not reasonably forseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.
(6) A reference in this section to the supply or possible supply of goods does not include a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce.
(7) Section 51A applies for the purposes of this section in the same way as it applies for the purposes of Division 1 of Part V.
7 Section 51AB of the TPA was replaced by s 21 of the ACL, which governed the conduct of Lux in July 2011 insofar as it concerned Mrs Baird. That section was in the following terms:
21 Unconscionable conduct
(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.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
(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:
(a) the relative strengths of the bargaining positions of the supplier and the consumer; and
(b) 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
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) 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
(e) 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:
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.
(6) A reference in this section to the supply or possible supply of goods does not include a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce.
(7) Section 4 applies for the purposes of this section in the same way as it applies for the purposes of Division 1 of Part 3 1.
Direct selling legislation
8 The ACCC’s case as to unconscionability relied, in part, upon particular aspects of the impugned conduct which were said to have contravened statutory requirements applicable to direct sales transactions. The ACCC pointed to contraventions identified by the primary judge (see [53], [62], [84] and [129] of the reasons) which were not challenged on appeal.
9 Accordingly, it is necessary to identify the relevant Commonwealth and State statutory provisions applicable to direct selling transactions and the relevance of those provisions in assessing the alleged statutory unconscionability before the Court.
Commonwealth direct selling legislation
10 The Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 should be noted. The memorandum had a chapter on unsolicited selling and a chapter on comparative provisions. The chapters pointed out some of the inequalities in the bargaining power involved in the conduct of door-to-door selling. The objective of regulation was to promote the operation of fair and efficient markets, by providing appropriate consumer protection, where the consumer is subject to vulnerability or disadvantage due to the nature of the sales process. The vulnerability of the consumer to the salesperson in her or his own home arises from the difficulty in putting an end to the sales process once the salesperson is in the home, especially after that person has spent time and undertaken persuasive effort in a sales process or “pitch”. People can simply agree to things to put the situation at an end. These are not new revelations referable only to the operation of the ACL. They concern the basic psychology of salesmanship, taught by life experience and common sense, once entry has been gained to the privacy of a person’s home. Ingratiating solicitude, just as much as high-pressure bullying sales tactics, may lead to a feeling of necessitous acceptance, especially by a polite and accepting person. In other words, special or particular care and attention to a customer can be just as effective as a sales tactic as high-pressure bullying. Further, the acquisition of comparative information is not often possible in the home, and reliance is necessarily placed on the truthfulness of the salesperson’s information. Critical to the success of the sales conduct is the gaining of entry into the home, the winning of the confidence of the customer, and remaining long enough to persuade the customer to buy; entry into the home and length of time in the home are critical factors.
11 The supply of the vacuum cleaner to Mrs Baird was an unsolicited consumer agreement for the purposes of s 69 of the ACL. That made s 74 of the ACL relevant:
74 Disclosing purpose and identity
A dealer who calls on a person for the purpose of negotiating an unsolicited consumer agreement, or for an incidental or related purpose, must, as soon as practicable and in any event before starting to negotiate:
(a) clearly advise the person that the dealer’s purpose is to seek the person’s agreement to a supply of the goods or services concerned; and
(b) clearly advise the person that the dealer is obliged to leave the premises immediately on request; and
(c) provide to the person such information relating to the dealer’s identity as is prescribed by the regulations.
Note: A pecuniary penalty may be imposed for a contravention of this section.
12 Section 72 of the ACL defined “negotiation” as follows:
72 Meaning of negotiation
A negotiation, in relation to an agreement or a proposed agreement, includes any discussion or dealing directed towards the making of the agreement or proposed agreement (whether or not the terms of the agreement or proposed agreement are open to any discussion or dealing).
13 Thus, s 74 of the ACL was directed to a dealer, as soon as possible, and, in any event, before starting to negotiate, telling the person of his or her (true) purpose of supplying goods or services. “Negotiation” was defined broadly to include a “dealing directed towards” the making of the agreement. In many, if not most, cases (and it was the position here), this will require the dealer to disclose his or her purpose at the point of calling upon the customer. Clearly the provision is designed to require the truthful disclosure of purpose effectively at or about the point of entry into the home, and before the passage of any time. This can be seen to be directed to the fairness of any subsequent bargaining process and the avoidance of pressure upon the householder by the presence of the person in the home. A clear choice is to be offered at or about the point of entry: the dealer is required to say, “I am actually here to try to sell you a vacuum cleaner.”
14 Section 74 of the ACL was relevant to Lux’s conduct, insofar as it concerned Mrs Baird.
State direct selling legislation
Queensland
15 Mrs Oxley lived in Maryborough, Queensland.
16 Section 62 of the Fair Trading Act 1989 (Qld) prohibited the taking of any money or other consideration from a consumer (under a prescribed contract) before the expiration of a cooling-off period prescribed by that Act. Mrs Oxley’s contract with Lux was a prescribed contract to which ss 62 and 64 of the Fair Trading Act 1989 (Qld) applied.
17 Section 64 of the Fair Trading Act 1989 (Qld) provided as follows:
64 Duties of dealers
(1) A dealer who calls at premises for the purpose of negotiating a contract to which this division applies or for an incidental or related purpose shall leave the premises at the request of the occupier of the premises or any person acting with the actual or implied authority of the occupier.
Maximum penalty—100 penalty units.
(2) A dealer who calls on a person for the purpose of negotiating a contract to which this division applies or for an incidental or related purpose shall, as soon as it is practicable to do so -
(a) make known to that person the purpose of the call; and
(b) produce to that person an identity card setting out -
(i) the dealer’s full name and address; and
(ii) if the dealer is not the supplier - the supplier’s full name and address.
Maximum penalty—100 penalty units.
18 Both these provisions can be seen as attempts to prevent unfairness in direct sales transactions.
Victoria
19 Mrs May lived in Forest Hill, Victoria.
20 Under ss 62B and 62E of the Fair Trading Act 1999 (Vic) the length of time a supplier may remain on “off-business-premises” seeking to negotiate a “contact sales agreement” was regulated and there was a requirement to inform the consumer of various matters. Mrs Oxley’s contract with Lux was a “contact sales agreement” to which ss 62B and 62E of the Fair Trading Act 1999 (Vic) applied.
21 Sections 62B and 62E were in the following terms:
62B Duty not to remain on premises for long periods
(1) Subject to subsection (2), a supplier or person acting on behalf of a supplier who is carrying on negotiations at a premises which may lead to a contact sales agreement or for an incidental or related purpose must not remain on the premises for more than one hour.
Penalty: 120 penalty units, in the case of a natural person.
240 penalty units, in the case of a body corporate.
(2) Subsection (1) does not apply if the supplier or person acting on behalf of the supplier remains on the premises with the consent of the person with whom the negotiations are being conducted and the consent complies with subsection (4).
(3) Subsection (1) does not apply in the case of a party plan (within the meaning of section 62A).
(4) A consent under subsection (2)—
(a) must be in writing; and
(b) must only apply to a period of one half hour; and
(c) must not be given during a period referred to in section 62A(1).
(5) More than one consent may be provided under subsection (4).
(6) Nothing in this section limits the operation of section 62C.
…
62E Duty to inform
Before commencing negotiations which may lead to a contact sales agreement, a supplier or person acting on behalf of a supplier must orally inform the person with whom the negotiations are being conducted that the supplier or person acting on behalf of a supplier—
(a) is not permitted to remain on the premises for more than one hour unless the person with whom the negotiations are being conducted consents in writing to an extension in accordance with section 62B(2) or the negotiations are in the course of a party plan (within the meaning of section 62A); and
(b) must leave the premises if requested to do so by the occupier of the premises, or any person acting with the actual or implied authority of the occupier, or the person with whom the negotiations are being conducted.
Penalty: 120 penalty units, in the case of a natural person.
240 penalty units, in the case of a body corporate.
22 Again, both these provisions can be seen as attempts to prevent unfairness.
The place of these laws in the evaluation of unconscionability
23 The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops “silently and unconsciously from one age to another”, shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct.
Facts
Introduction
24 It is important to appreciate that the case run by the ACCC was individually directed to the conduct that concerned each individual customer. No reliance was placed on tendency or coincidence evidence, and there is no call to consider the operation of ss 97 and 98 of the Evidence Act 1995 (Cth).
Common facts
25 Whilst it is important to understand that each alleged contravention had to be considered separately, there were common features to each case brought out by the institutional practices of Lux. The method employed by Lux was described by the primary judge in [2] – [3] of his reasons as follows:
So far as is relevant in this case, the method employed by the respondent to make sales of its vacuum cleaners was broadly in accordance with the following. Using either its existing customer database (developed, for example, from previous sales) or the telephone directory, a member of the respondent’s staff would make a telephone call to a householder. The terms of the calls that were made in the present case were the subject of only very general evidence by the householders concerned, and were the subject of no evidence from the respondent’s staff member, or staff members, who made the calls. However, in evidence was a copy of the script which those staff members were instructed by the respondent to follow when making these calls.
That script commenced as follows:
Hi, is Mr or Mrs XXXXX there please?
Great!
Hi Mr(s) XXXXX, my name is ##### and I’m calling on behalf of Lux Distributors, we look after all the Lux vacuum cleaners.
How are you today Mr(s) XXXXX?
<Respond to their response>
NOW,
The main reason for my call today is we have someone in your area tomorrow giving a FREE maintenance check to all vacuum cleaners. What kind of cleaner do you use?
<Wait for them to answer>
Fantastic, now what would be the best time for us to check it for you, XXam or XXpm?
As will be apparent, the indication given to the householder was that a representative of the respondent would call by for the purpose of making “a free maintenance check” on the householder’s existing vacuum cleaner. After the passage set out above, the script then dealt with various alternative courses that the conversation might take, in the event that the householder responded in ways which were negative, discouraging or indifferent. There is no need to refer to them here, since there is nothing in the evidence in the present case upon which I could find that any of the conversations upon which the applicant relies took a course that would make one or more of these alternative passages in the script relevant. For the moment, it will be sufficient to say that each of the five elderly women whose circumstances are relevant did agree to have a representative of the respondent call at her home for the purpose of carrying out a free maintenance check on her existing vacuum cleaner.
26 Of course, the person who would be sent out to any person who agreed to a free maintenance check was a sales agent who would attend the home to carry out a maintenance check as part of an attempt to sell the person a new vacuum cleaner. Stripped of any nicety, the telephone call was, at best, a deceptive half truth. It was plainly designed to create an expectation of a free service by someone who was otherwise intending to be in the area. This expectation and acceptance of the invitation for a free maintenance check was plainly designed to gain entry for the sales person to the home of the customer for the purpose of selling a vacuum cleaner. The ACCC’s case was that the offer to carry out the free maintenance check was a ruse to get the representative past the door, and the first part of the conduct that would lead seamlessly to the creation of an apparent need for a replacement machine. The primary judge appeared to accept the factual premises of this argument at [16] of the reasons, but said that he could not conclude that Lux’s representatives had no genuine intent to carry out a maintenance check.
27 To this, two things can be immediately said. First, the maintenance check was a ruse to gain entry to the home, and a deceptive ruse. Secondly, of course the representatives intended to carry out the maintenance check: it was the first part of a body of conduct that saw the representative remain in the home long enough to win the confidence of the person and to convince the person that the tests he had conducted disclosed the need for a new vacuum cleaner. The free maintenance check was the first part of this conduct.
28 The importance of the success of the deception was illuminated starkly in the evidence of Mr Farquhar, the representative who attended upon Mrs Baird. He was asked about the conduct of the maintenance check and then the subsequent comparison of Mrs Baird’s existing vacuum cleaner against the new Lux model (described as an efficiency check). He accepted that when he arrived he would not tell the homeowner that he was there to sell a vacuum cleaner. The following exchange took place in cross-examination.
And you don’t tell them that when you arrive?---No.
Why not? --- Because we don’t. We never have and we don’t.
Isn’t that because if you told them that they might say, “I’m not interested”?--- Yes; they would all say that.
They would all say that?---They would all say that.
So you don’t tell them that because you won’t get the opportunity to sell them a vacuum cleaner?---That’s right.
It seems to me, Mr Farquhar, that you are tricking them into letting you into their home; what do you say to that?---Well, that’s your opinion.
…
And so you deliberately don’t tell them that’s the reason; isn’t that right?---That’s right.
And the reason you don’t tell them is so that they won’t say no; isn’t that right?---Yes.
So why isn’t that a trick?---I think most people, you know, in Melbourne, in Australia, know who the Electrolux man is and who the Lux man is and what they do and what they’ve done over the years, and pretty well common knowledge that we sell vacuum cleaners.
So you mean - - -?---That’s my response to that.
- - - you mean they would expect you to try and sell them a vacuum cleaner?---Yes.
And therefore no need to tell them; is that your point?---Yes.
29 One need not attribute Mr Farquhar’s candour to the other two representatives. The evidence does reveal, however, from the experience and perception of one representative, what can be otherwise clearly inferred from the nature of the call and the creation of a business opportunity in gaining entry into the home of a customer.
30 Further, none of the Lux representatives was qualified or equipped to conduct anything more than a cursory maintenance check, although the primary judge concluded that they had experience and a facility with vacuum cleaners beyond that of the householder.
Mrs Baird
31 The brief personal circumstances of Mrs Baird were described by the primary judge at [109] – [110] of the reasons:
Margaret Baird was 89 years old in July 2011. She had lived alone at her then address since about 1987. She was in receipt of a war widow’s pension, and, it seems, an associated service which she received from the Department of Veterans’ Affairs was cleaning her house for her, which was done every fortnight by contract cleaners. At the date which is relevant to this proceeding, the cleaner who came to assist her was a man called Vincent. In between Vincent’s fortnightly visits, Mrs Baird also did some cleaning as required.
Mrs Baird had purchased a Lux vacuum cleaner more than 10 years previously for a price which, by her recollection, was “about $300”. This vacuum cleaner was working well for Mrs Baird in 2011, and Vincent had never said that there was anything wrong with it. She had not considered replacing it or having it serviced.
32 Mrs Baird received a call offering her a free service. She agreed to a visit, but said to the caller, “But I am not going to buy a new one”. Her consent to receive the representative into her home was limited to the undertaking of the free service. Mr Farquhar attended. He was bound by s 74 of the ACL to state his purpose as soon as practicable upon calling on Mrs Baird. He did not carry a new vacuum cleaner. He attended in apparent compliance with the undertaking offered and accepted. He was permitted entry on this basis. He did not say that he was there to sell Mrs Baird a vacuum cleaner.
33 Once inside (having contravened s 74 of the ACL by failing to state his purpose) he carried out his standard routine. This was described by the primary judge at [112] – [117] of the reasons. To a degree, the events in the home were unremarkable. Mr Farquhar did not exert any form of overt pressure, rather, he undertook the maintenance test and offered a comparative efficiency test which required him to get a vacuum cleaner from his car. He demonstrated the new vacuum cleaner, comparing its suction to Mrs Baird’s machine. Her machine did not perform as well as the new vacuum cleaner. She asked about price; he said she would get a discount. They talked of other brands. The primary judge’s findings at [118] reflect the success of the sales conduct of Mr Farquhar. It is to be recalled that Mrs Baird had said that she would not buy a new vacuum cleaner.
34 Mr Farquhar arrived and was invited into Mrs Baird’s home by the deceptive ruse. Mr Farquhar then contravened s 74 of the ACL, a provision intended to prevent his entry into the home otherwise than on the basis of the clearly stated (truthful) purpose of the visit. Whether or not Mr Farquhar knew of the purpose of s 74 of the ACL, he understood with great clarity the importance of maintaining silence about the true purpose of his visit until he had sought to persuade Mrs Baird of her need for a new product. At [118] of the reasons, the primary judge set out the effect of Mr Farquhar’s sales conduct on Mrs Baird:
After the demonstration, Mrs Baird felt it was too late for her to say that she was not going to purchase the new vacuum cleaner, “because he had unpacked everything out of the box”. In her affidavit, she said: “I felt that it would be too hard for him to pack it all back up and I did not feel comfortable asking him to box it up and leave.” Mr Farquhar handed Mrs Baird some paperwork for the purchase of the new vacuum cleaner and, she said in her evidence, “I felt like I had already agreed to buy it”. She told him that, if he thought she needed the new vacuum cleaner, she would buy it. Mr Farquhar said the new vacuum cleaner would cost $2,270, which included the $300 discount that he had mentioned, and a trade-in on her old vacuum cleaner. Mrs Baird was shocked by that price, and told Mr Farquhar that it was “very expensive”. But she felt that, by then, she was “too far in” and that there was no way for her to turn around and back out of the purchase at that stage. That was because Mr Farquhar had gone to the trouble of unpacking the new vacuum cleaner, and had already started filling in the paperwork.
35 Mr Farquhar asked Mrs Baird whether she wanted to call a family member. She said they were all away, although some were not. Mrs Baird then executed the standard form contract. There was a notice above the space for signature as follows:
important notice to the purchaser.
you have a right to cancel this agreement within ten (10) days from and including the day you signed the contract. important details about your rights are set out in the cancellation notice provided with this agreement.
36 Mrs Baird provided Mr Farquhar with her bank details.
37 The primary judge described Mrs Baird’s feelings later in the day and the exchanges she had with her cleaner and another person at [121] as follows:
Later in the same day, Mrs Baird looked at all the different accessories that came with the new vacuum cleaner, and realised that she did not know what most of them were for. She felt foolish for having purchased an expensive vacuum cleaner that she did not know how to use fully. About a week later, Vincent came to clean Mrs Baird’s house. She said to him “I have a new toy for you”. However, he did not see the new arrival in that light. Indeed, he told Mrs Baird that he was not going to use it. He asked her, and she informed him, how much she had paid for this vacuum cleaner. A day or so later, Mrs Baird also informed a lady called Jenny, who sold Avon products in that area, how much she had paid for the vacuum cleaner. After that, Jenny made a telephone call, and then informed Mrs Baird that the respondent would organise a refund for her.
38 The money she paid was later refunded. She received back an old vacuum cleaner in place of her own that had been taken.
39 From the above facts, the following can be stated: the sales method practised on an 89-year-old woman left her with the feeling that it was too late to say that she could not buy. Mr Farquhar had, no doubt skilfully, undertaken his selling by unpacking and demonstrating the new model, thereby creating in an elderly woman a subtle but real sense of obligation to buy. Such feeling is generated by the solicitous conduct of the sales person going to such trouble in her home over a period of time. Once access was gained to the home of the elderly Mrs Baird, she was prevailed upon by a long process of demonstration and selling interaction to buy something expensive that she did not really want. The subtle vulnerability of Mrs Baird in her own home was made possible only by a deception, compounded by a contravention of a provision designed to protect her from the very process that was used to prevail upon her. She had said (during the telephone call) she did not want to buy. Mr Farquhar knew why he should keep his true purpose to himself. By doing so, he was able to prevail upon Mrs Baird.
40 Within hours, Mrs Baird felt foolish for buying an expensive item that she did not know how to use. The opportunity to successfully practise such sales techniques was only made possible, first, by the deceptive ruse of the phone call that brought Mr Farquhar to Mrs Baird’s door, and then by the contravention of s 74 of the ACL by Mr Farquhar compounding the continuing operation of the deception of the call. Once inside the home of Mrs Baird, Mr Farquhar’s conduct (no doubt skilful) was sufficient to make her feel compelled to buy something she did not really want. The primary judge accepted that the 1½ hours Mr Farquhar was in Mrs Baird’s home, the trouble he had apparently gone to, and the dynamics of the interaction were such as to “push her over the edge” to buy a vacuum cleaner more elaborate, more complicated, and far more expensive than her needs required: [124] – [128] of the reasons.
41 In our view, the above conduct was unconscionable. It is unnecessary to deal with the cases on s 51AB of the TPA and s 21 of the ACL in any detail. The word “unconscionability” means something not done in good conscience: for example, Hurley v McDonald’s Australia Ltd [1999] FCA 1728 at [22]; ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; 253 ALR 324 at [113]; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291], [293], and the cases discussed therein. No argument was put that required any consideration of the authorities. Notions 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.
42 The above conduct that takes advantage of a deceptive ruse practised on an 89-year-old woman living alone was unconscionable.
43 The primary judge did not consider that the conduct was unconscionable. With respect, we cannot agree. We will deal more fully with the primary judge’s reasons later. For now, it can be said that, in our respectful view, his Honour failed to give adequate importance to the means of gaining access to Mrs Baird’s home, by the deceptive phone call and contravention of s 74 of the ACL. The consequences of the opportunity to enter the home and the cumulative effect of the 1½ hours of Mr Farquhar’s efforts were described by the primary judge at [128] of the reasons:
I accept that Mrs Baird made her purchase because Mr Farquhar’s demonstration was so involved, and so elaborate, that she felt uncomfortable about sending him on his way without a sale. But she appears to have come to that position quite late in the piece since, at the point where Mr Farquhar showed her the dirt on his black cloth, her position was still that she did not want a new vacuum cleaner because her existing one worked fine. Perhaps Mrs Baird became caught up in the momentum towards a purchase created by the demonstration and by Mr Farquhar’s sales task generally. But that is why the law – reflected in the respondent’s contract – provides for cooling-off periods. People of all ages sometimes have second thoughts. A sale should not generally be regarded as having been achieved by unconscionable conduct merely for the reason that the purchaser has, in effect, been persuaded to proceed against his or her own better judgment when it is a specific term of the contract that the purchaser has the right to cancel within the cooling-off period.
44 This passage also reflects too much significance to the cooling-off period (imposed by law). It is all the conduct which must be assessed. Standing back and looking at the whole episode, it was unconscionable to obtain a sale by prevailing upon an elderly woman after 1½ 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, here compounded by a contravention of a law designed to protect the householder by having the true purpose of the visit disclosed.
Mrs May
45 Mrs May’s personal circumstances were set out by the primary judge at [65] of the reasons:
Mavis May was 93 years old in September 2010. She lived alone, and had done so at the same address since the death of her husband 40 years ago. She had purchased an “Electrolux” vacuum cleaner in January 1995, this investment having been made from a door-to-door salesman at a cost of $485. That machine had functioned well, and Mrs May had not contemplated having it serviced.
46 Mrs May also received the deceptive phone call from Lux. She agreed to receive someone because she thought it might be time to have her cleaner checked.
47 Mr Manga attended Mrs May’s home. He commenced the maintenance check. He offered to conduct the suction or efficiency test, comparing Mrs May’s machine’s performance with a demonstration model taken from his car. Mrs May said that Mr Manga told her that her machine was dangerous. He denied this. Though Mrs May was firm about this, the primary judge refused to make a finding that it was said, relying upon s 140(2) of the Evidence Act 1995. No appeal was brought against this finding. The sales process lasted over an hour. Mrs May agreed to buy, although she protested at the price initially given to her until $600 was taken off to reduce the price to $2,050.00. Mrs May’s feelings upon Mr Manga leaving the home were described by the primary judge at [78] of the reasons as follows:
By the time that Mr Manga left Mrs May’s house, she felt “completely exasperated”. She felt that Mr Manga had talked her into purchasing the new vacuum cleaner, and she was angry at herself for purchasing something that was so expensive. She realised that she would never use most of the accessories that came with the new machine. On the same day, Mrs May received a call from her sister, Lorna Fankhauser. She told Ms Fankhauser about the purchase of the vacuum cleaner, and, later again on the same day, Ms Fankhauser’s daughter, Rhonda Smith, called to discuss the purchase of the vacuum cleaner with Mrs May. On the following Sunday, 26 September 2010, Ms Smith and her husband visited Mrs May, and together they looked at the paperwork which had been executed by Mrs May and Mr Manga. Mrs May then decided to seek a refund from the respondent, and asked Ms Smith to assist her in that regard.
48 The contract she signed had the notice of the cooling-off period adjacent to the place for signature.
49 With the assistance of Ms Smith, the sale was undone.
50 This reaction of a 93-year-old woman illuminates the nature of the selling process and the vulnerability of an elderly person to the wearing down of over an hour’s interaction of this kind. That process was able to be engaged in after an opportunity was gained by the same deception that was practised on Mrs Baird.
51 Under the Fair Trading Act 1999 (Vic), Mr Manga was not permitted to remain on the premises for more than an hour without written consent given before an hour had expired: s 62B. Mr Manga did not obtain such consent, nor did Mr Manga inform Mrs May (as he was required to do under s 62E) before commencing negotiations that he was not permitted by law to remain on the premises for more than an hour without consent.
52 In our view, the above conduct was unconscionable. An opportunity to sell a product through extended demonstration in the home was obtained by deception. The representative contravened a provision of State law designed to limit the time that the selling technique could be practised. In those circumstances, the 93-year-old householder was prevailed upon to buy the product against her better judgment in a state of exasperation. This was unconscionable.
Mrs Oxley
53 Mrs Oxley’s personal circumstances were set out by the primary judge at [48] as follows:
Hazel Oxley was 82 years old in February 2010. She lived in a three-bedroom house in Maryborough, Queensland, where she had lived alone since 2004. She had purchased an “Electrolux” vacuum cleaner in the 1970s, this investment having been made from a travelling salesman who came to her home and demonstrated the machine which he was selling. Mrs Oxley purchased a “Lux” vacuum cleaner in 2003, again from a travelling salesman who demonstrated the new machine. She retained the tax invoice which she had signed on 10 July 2003, and this indicated that she had paid $1,356 for that vacuum cleaner. Mrs Oxley never had any problems with the vacuum cleaner which she purchased in July 2003. She could not recall her weekly cleaning lady, Beverley, ever informing her of any problems with that vacuum cleaner.
54 Mrs Oxley also received a telephone call from a Lux representative. The same deception was involved. She accepted the offer of a free inspection.
55 Mr Walton attended her home, presumably the next day. He was invited inside and carried out a brief inspection of Mrs Oxley’s vacuum cleaner. She agreed to a demonstration of a new Lux vacuum cleaner. Mr Walton told her that her machine was not cleaning properly. He then persuaded her to buy a new vacuum cleaner with a discount and trade-in of her old machine for $1,999.00. She gave Mr Walton a cheque.
56 The contract had the notice of the cooling-off period adjacent to the place for signature.
57 Mrs Oxley gave evidence (which the primary judge accepted) that she would not have allowed Mr Walton to visit her home had she known that he would attempt to sell her a vacuum cleaner. Mrs Oxley’s reaction after purchasing the machine was recounted by the primary judge at [54] of the reasons as follows:
Some time after she had bought the new vacuum cleaner, Mrs Oxley “felt upset about the purchase because I could not really afford the new Lux vacuum cleaner and felt I had been talked into purchasing it”. She decided that she did not want to keep it. She felt “stupid” for having done so, but was “too embarrassed to admit it”. Then, about two weeks after the purchase, Mrs Oxley’s cleaning lady, Beverley, told her that the power head was too big and clumsy, and that she could not get it around the furniture properly.
58 Mrs Oxley thereafter enlisted her son’s assistance in obtaining a refund of the money she had given Mr Walton. She received a used vacuum cleaner back, but it was not her own.
59 The taking of the cheque from Mrs Oxley by Mr Walton was contrary to s 62(1) of the Fair Trading Act 1989 (Qld). No case was run by the ACCC that Mr Walton contravened s 64(2) of the Fair Trading Act. The case that was put was that at no time was Mrs Oxley told of her right to ask Mr Walton to leave.
60 In our view the above conduct was unconscionable. Once again, an opportunity to sell a product through extended demonstration in the home was obtained by deception. Mr Walton would not have been allowed into Mrs Oxley’s home had she been told the truth. Given that opportunity, Mr Walton was able to use his skill to prevail upon Mrs Oxley to buy a vacuum cleaner using a selling technique that left Mrs Oxley feeling as though she had been talked into buying something that she could not really afford.
The approach of the primary judge
61 A number of factors can be seen to have influenced the primary judge in his conclusion that Lux’s conduct was not unconscionable. The women were not targeted as elderly people. Age, of itself, was not a special disadvantage. Each woman, despite her age, was able to decide matters for herself, being “no-nonsense” and “not pliable” (Mrs Oxley), “of her own mind” and “independent” (Mrs May), and having “a reasonable command of matters” and “not an innocent” (Mrs Baird). The purpose of carrying out the maintenance check was real. Lux’s activity of door-to-door selling was conventional and traditional, being something of which consumers were aware. The women were familiar with the products, vacuum cleaners. The contracts contained a cooling-off period. There was little imbalance in bargaining strength. Indeed, at [22] the primary judge said that the longer the house call lasted, the more the representative stood to lose in time, and so the weaker was his position. The length of time that the representative stayed was no more than “irritation” for the women, and a general necessity for the Lux representative to undertake the whole process. None of the other sales tactics was unfair. The contraventions of the Commonwealth and State provisions were unlikely to have affected the “course” or the “dynamics of the interactions”. In all the circumstances, Lux’s conduct did not have sufficient moral tainting to amount to unconscionable conduct. Indeed, the conduct was “quite benign”.
62 As appears from the above expressions of our own view of the conduct, we do not agree with the primary judge’s conclusions. A number of matters reveal, with respect, errors in his Honour’s approach.
63 First, the whole conduct of Lux was seen not to be unconscionable largely because of a focus on individual acts and interactions in the human dialogue between the representative and each of the women. No direct lies were told by the visiting representatives. They did their jobs as salesmen with women, though of advanced years, who, to a degree, were able to look after themselves. That way of looking at the matter gave little weight to the fact that the opportunity to practise skilled selling techniques on elderly people in their homes was gained only by deception. The norms and standards of today require businesses who wish to gain access to the homes of people for extended selling opportunities to exhibit honesty and openness in what they are doing, not to apply deceptive ruses to gain entry.
64 Secondly, the process of selling, building from the “free maintenance check” to the comparison test, and the creation of a sense of need for a new machine, takes time. That is not a disadvantage to the representative. Rather, the passage of time and the apparent effort in solicitous assistance by the representative creates the subtle pressure upon the householder which, it can be inferred from the findings, each woman felt. Mrs Baird was perhaps the best exemplification of this. The subtle inequality of bargaining power is gained by the representative through the householder being unwilling to ask the person to leave, especially as he is being so “helpful”. The process reaches the point where, like Mrs Baird, the householder feels pressured or obligated to buy. In some circumstances, this may not be unconscionable. Here, these representatives gained entry by deception. Two of them compounded that by contravening provisions requiring them to either state their purpose or state that they could not stay for longer than one hour.
65 Thirdly, the primary judge’s conclusion that it could not be said that the Lux representatives had no genuine intention of carrying out a maintenance check can be accepted. That, however, does not absolve Lux from its deception as the primary judge seems to have done. Of course the representatives intended to carry out the maintenance check. It was the first stage in the process of selling by advancing the creation of the need to buy. That in some, even a majority of, cases the test is carried out and the householder wants no more contact, or the vacuum cleaner is sufficiently new or efficient as to be an unlikely candidate for the subsequent comparison test, is neither here nor there. The primary purpose of each representative was to sell a vacuum cleaner, not to carry out a free maintenance check. The initial deception, the ruse, was critical to the creation of the opportunity to sell and was the launching pad for all that followed. This deception tainted all the conduct thereafter.
66 Fourthly, the primary judge failed to give weight to the effect of the deception that unfairly deprived each of the women of a meaningful opportunity to decline to have the representative enter her home.
67 Fifthly, the primary judge wrongly assessed the relative bargaining strengths of the parties. The opportunity to enter and remain in someone’s home creates a real position of strength for the seller. The reactions of the women, especially Mrs Baird, exemplify the psychology of the selling process. That bargaining advantage was obtained by deception, one that was compounded, in the case of Mrs Baird and Mrs May, by contraventions of Commonwealth and State law.
68 Sixthly, the primary judge failed to give weight to the contravention of legislative provisions intended to ensure fairness in the process of selling. The contraventions were different in respect of each woman. There was a contravention by Mr Walton in accepting money from Mrs Oxley before the expiry of the cooling-off period: see [59] above. That revealed a failure to attend to Mrs Oxley’s rights.
69 Mr Manga contravened three obligations: to inform Mrs May that he was required to leave immediately if she asked him to do so, to inform her that he required her written consent to stay for more than an hour, and to leave her home after an hour, since he did not have that written consent: see [51] above. These were matters that went to the heart of the efficacy and fairness of the selling process. They should have been given significant weight. The cross-examination of Mr Manga indicated that he had no real understanding of these obligations. The primary judge sought to assess what causal effect these contraventions had and concluded that compliance would not have altered events. Two things can be said about this. First, though the primary judge had the advantage of seeing Mrs May, it is difficult to accept that the contraventions would have had no effect. Secondly, and more importantly, it is a speculative inquiry that does not diminish the importance of the contraventions. These provisions were directed to the fairness of the process and the regulation of matters affecting the relative bargaining strengths of the parties. They were breached; that conduct, in the face of the standards set by Parliament, compounded significantly the fact that the representative obtained the opportunity to sell by a deception.
70 Mr Farquhar contravened s 74 of the ACL by failing to tell Mrs Baird that his purpose was to seek to sell her a vacuum cleaner and that he was obliged to leave her home on request: see [32] above. Both these things should have been said while he was at the door and before he began the free maintenance check. Once again, the primary judge sought to assess what causal effect these contraventions had, and concluded that it was “unlikely” that either had any impact upon the dynamics of the interactions or any real contribution to the resolution of the question of unconscionability. We have the same two difficulties as we did with those concerning Mrs May. First, given Mrs Baird’s express desire not to accept a vacuum cleaner seller (as opposed to someone conducting a free maintenance check) and her reasons for buying, the conclusion that these contraventions had no causative impact is unconvincing. The likely causative impact was best expressed by Mr Farquhar in his own evidence to which we have referred. In any event, once again, the contraventions were of a provision designed to regulate the fairness of the process. The contraventions were important to the inquiry about unconscionability.
71 Breaches of statutes regulating direct selling must be seen as important: see [23] above. The vulnerability of people to pressure by skilled sales persons who gain entry into their homes is sought to be regulated in furtherance of fairness and the elimination of aspects of vulnerability. In assessing the conscionability or not of a particular instance of such selling, the compliance with public regulations will be centrally important.
72 Seventhly, the primary judge gave too much weight to the cooling-off periods in the contracts. First, these were required by law. Secondly, there was no evidence that any of the women was told of the right. Thirdly, it does not ameliorate or lessen what has gone before. One does not look to the conduct that was earlier practised (entry by deception, contravention of relevant legislation, and lengthy sales technique leading to people feeling prevailed upon to buy), and reduce or ameliorate its character as unconscionable because, if the householder knows of it, she or he can get out of the contract.
73 There is significant force in the ACCC’s central submission that the overall error in the primary judge’s evaluation can be seen if one takes from his Honour’s conclusion that a company in the position of Lux may, in trade and commerce, act conscionably by dealing with consumers in the following manner:
(a) obtaining entry to homes of consumers by deception;
(b) obtaining and maintaining entry into the homes of consumers by contravention of statutory provisions directed to the selling techniques, the entry into the home, the remaining in the home, and the fairness of the transaction;
(c) thereby depriving the consumer of the opportunity to deny entry to the sales person on the true basis for the visit;
(d) exploiting the position it has deceptively obtained by transforming the home visit from a stated purpose to the true purpose of making a sale;
(e) as long as the consumer is given a one-week cooling-off period in the contract.
We disagree. Such conduct is unconscionable.
74 In all the circumstances, the sale of a vacuum cleaner by a Lux salesman to each of the three elderly women was unconscionable. For the above reasons, the orders we would make are as follows:
1. The appeal be allowed.
2. Orders 1 and 2 of the orders made by the Federal Court on 8 February 2013 be set aside and lieu thereof it be ordered that:
(a) The Court declares that in or around February 2010, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Hazel Oxley at her home on 12 February 2010, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 51AB of the Trade Practices Act 1974 (Cth).
(b) The Court declares that in or around September 2010, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Mavis May at her home on 23 September 2010, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 51AB of the Trade Practices Act 1974 (Cth).
(c) The Court declares that in or around July 2011, in trade or commerce and in connection with the promotion and supply of a Lux vacuum cleaner to Mrs Margaret Baird at her home on 5 July 2011, the respondent engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 21 of the Australian Consumer Law.
(d) The applicant’s application for relief in relation to the conduct of Lux in connection with the promotion and supply of a Lux vacuum cleaner to:
(i) Mrs Hazel Oxley in or around February 2010;
(ii) Mrs Mavis May in or around September 2010; and
(iii) Mrs Margaret Baird in or around July 2011,
otherwise be remitted for hearing by a judge of this Court.
(e) The respondent pay the applicant’s costs in respect of Mrs Baird, Mrs Oxley and Mrs May.
3. The respondent pay the appellant’s costs of this appeal.
I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and Justices Jacobson and Gordon. |
Associate:
