Services

Competition and Consumer Law Alert: Federal Court sounds warning for door-to-door sales people – 20 August 2013

Last week, the Full Court of the Federal Court of Australia allowed an appeal by the Australian Competition and Consumer Commission (ACCC) against a trial judge’s decision that a vacuum cleaner distributor had not acted unconscionably when its door-to-door salespeople had sold vacuum cleaners to several elderly women in their own homes. The case serves as a warning to all direct salespeople and marketers to ensure that they deal with customers and potential customers honestly, fairly and without deception or unfair pressure.

The main issue on appeal before the Full Court of the Federal Court was whether, in connection with the supply of vacuum cleaners to a number of elderly women in their own homes, Lux Distributors Pty Ltd (Lux) had engaged in unconscionable conduct, in breach of the Australian Consumer Law (ACL) and its predecessor, the Trade Practices Act (TPA).

The facts

Lux was a distributor of Electrolux vacuum cleaners. It operated through a network of door-to-door salespeople whose remuneration was solely commission-based. Lux directed its sales people to use either its existing customer database or the telephone directory to contact householders and, upon doing so, to follow this script:

“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, XX am or XX pm?”

All of the sales considered by the Court involved elderly women aged in their 80s or 90s, who were widows and living by themselves. All of the women had agreed to have a Lux salesperson call at their home for the purpose of carrying out a free maintenance check on their existing vacuum cleaner. Using “skilful” sales techniques (which included a comparative efficiency test which demonstrated the superior performance of a new vacuum cleaner compared with the householder’s older machine), the women agreed to buy a new vacuum cleaner for amounts ranging between $2,000 and $3,000.

The trial judge’s finding

The trial judge’s conclusion that Lux’s conduct was not unconscionable or in breach of the ACL and the TPA was based on the following:

  • the women were not targeted as elderly people;
  • their age was not, of itself, a special disadvantage, as each woman, despite her age, was able to decide matters for herself;
  • Lux genuinely intended to carry out the maintenance check;
  • door-to-door selling of vacuum cleaners was a traditional way of doing business, and was familiar to almost all householders;
  • the women were familiar with the product; and
  • the contracts contained a cooling-off period.

In the circumstances, the trial judge concluded that Lux’s conduct was not morally tainted and was in fact “quite benign”.

Decision overturned on appeal

The Full Court of the Federal Court unanimously allowed the ACCC’s appeal and ruled that Lux had in fact engaged in conduct that was, in all the circumstances, unconscionable and in breach of the ACL and the TPA, and remitted the matter to the trial judge for him to decide on the penalties to be imposed on Lux, and the other forms of relief to be granted to the elderly women concerned.

A significant aspect of the Full Court’s approach was its decision to consider other Commonwealth and State statutory provisions which regulated direct selling transactions as part of its assessment of whether Lux had acted unconscionably in breach of the ACL and the TPA. As a result, the Court was able to note and have regard to the following:

  • one of the Lux salespeople had breached the prohibition in section 62 of the Fair Trading Act 1989 (Qld) against taking money from a consumer under a prescribed contract before the expiration of a cooling-off period prescribed by that Act;
  • another Lux salesperson had breached sections 62B and 62E of the Fair Trading Act 1999 (Vic) which regulated the length of time the salesperson could remain in the customer’s home trying to negotiate a sale and required the salesperson to inform the customer of her right to ask the salesperson to leave at the end of that period; and
  • another of the Lux salespeople had breached section 74 of the ACL which required the sales person to tell the home owner, before starting to negotiate, that his or her true purpose was to supply goods or services to the homeowner (ie to make a sale).

Another interesting feature of the Full Court’s judgment was its discussion of what it described as the “basic psychology of salesmanship” and its acknowledgement that, once entry has been gained to a person’s home, special or particular care and attention by the salesperson to the homeowner (described by the court as “ingratiating solicitude”) can in some circumstances be as unconscionable as high-pressure bullying tactics.

The Full Court found numerous faults and errors in the trial judge’s approach:

  1. although none of the salespeople had told lies or bullied the elderly women concerned, the initial telephone call was a deceptive half truth, and the maintenance check was a deceptive ruse designed to gain entry into the person’s home;
  2.  the intention to carry out maintenance checks and the fact that those checks were in fact carried out was irrelevant in circumstances where those checks were the first part of a course of conduct that allowed the salesperson to remain in the home long enough to gain the home owner’s trust and convince them of the need for a new vacuum cleaner;
  3.  the initial deceptive ruse tainted the whole transaction and deprived the home owners of a genuine opportunity to refuse the salesperson permission to enter their home;
  4. once inside the home, the salesperson was placed into a much stronger bargaining position. That entry enabled the salespeople to practice the psychology of the selling process. After performing the test on the home owner’s existing machine, the sales person would then unpack and demonstrate the new model in a helpful and friendly manner, to the point where the home owner felt pressured or obligated to buy because the salesperson had been so “helpful” and also of the “trouble” they had gone to; and
  5. the trial judge gave too much weight to the cooling-off periods in the contracts. These periods were required by law, and there was no evidence that the sales people informed the women of their cooling-off rights at the time of sale. In any event, the existence of a cooling-off period (and its successful exercise in the majority of the cases before the Court, given that most of the women received refunds), did not neutralise conduct that was otherwise unconscionable.

Significance

This decision confirms the following:

  1. the Courts will assess whether or not conduct is unconscionable by reference to “the norms of society”;
  2. as part of that process, the Court will not restrict itself to a consideration of the unconscionable conduct provisions in the ACL, but will consider other legislation in certain circumstances;
  3. here, the Full Court found it necessary to consider Commonwealth and State legislation which regulated direct selling transactions as part of its overall assessment, of whether Lux had engaged in conduct which was unconscionable;
  4. in combination, the direct selling laws and the unconscionable conduct provisions in the ACL reflected an expectation by society that business will deal with consumers honestly, fairly and without deception or unfair pressure; and
  5. the existence and exercise of cooling-off rights will not neutralise the effect of previous conduct which was unconscionable in all the circumstances.

Although this decision deals with the activities of door-to-door salespeople, any business using direct selling or direct marketing techniques (whether by telephone, face-to-face or otherwise) will have to be mindful of the impact of this case on their activities.

For more information about the Lux decision, or for a discussion about how it could apply to you, please contact HopgoodGanim’s competition and consumer law team.

With offices in Brisbane and Perth, HopgoodGanim offers commercially-focused legal advice, coupled with reliable and responsive service to clients throughout Australia and across international borders.