In Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (No 2) [2015] FCA 903 the Federal Court of Australia imposed an unconscionable conduct penalty totally $370,000 on Lux Distributors Pty Ltd for engaging in unconscionable conduct when selling vacuum cleaners to three elderly women as declared by the Full Court of the Federal Court in August 2013.(Background).
The offending conduct involved –
(a) a Lux representative making a scripted telephone call in which they offered to arrange a time for another Lux representative to provide a “free maintenance check” to a prospective customer, which was a “deceptive ruse” to gain entry to the home;
(b) the carrying out of the maintenance check by the Lux representative in the home, which 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 conducted by the Lux representative disclosed the need for a new vacuum cleaner.
The delay in determining the penalty was partly caused by the decision in the Building Industry case in May 2015 which rejected the practice of regulators submitting consent orders for penalties for statutory breaches.
Accordingly in this case while the parties made submissions about appropriate penalties the judge made it clear that the penalty is “as the Court determines to be appropriate”.
Justice Jessup observed:
The penalty to be fixed should be such as to deter the respondent itself from engaging in conduct in contravention of provisions of the ACL in the future and, I would add given the nature of the contraventions found by the Full Court, to provide a real incentive to the respondent to tread cautiously, and in doubtful cases to take legal advice, when minded to deploy unconventional techniques in its quest to maximise the sales of its products. The penalty should also be such as will send a message to other manufacturers and traders that pecuniary penalties attendant upon findings of contraventions of the ACL are not to be regarded as no more than part of the cost of doing business in Australia. …
the respondent is a small, family-owned, business currently trading at a loss. It is a minor supplier in the market for domestic vacuum cleaners in Australia, with a very small market share.
I was told that there has been adverse publicity for the respondent in connection with this proceeding and the Full Court’s findings of contravention. This has caused significant damage to the respondent’s reputation and business, and is likely to have an adverse effect on its business into the future. The proceeding, the findings of contravention and the resultant publicity have coincided with a significant decline in the respondent’s sales and in the size of its operations.
The respondent’s contravening conduct was deliberate, as distinct from inadvertent.
… the respondent’s senior management had responsibility for the script for the initial telemarketing call and the method of selling which involved offering and conducting the free maintenance check, which was central to the Full Court’s findings of unconscionability. The respondent’s senior management was also aware that Lux sales representatives did not stand to earn any remuneration for their attendance on consumers unless they sold a vacuum cleaner, in which case they were entitled to commission.
On the other hand, the present is not in that class of case in which the contravenor not only acts deliberately, but does so knowing that his or her conduct was unlawful, such as, perhaps, a case in which a statement known to be wrong is made in connection with the sale of a product. Here, it was not suggested that the respondent’s management actually knew that the conduct in question was unconscionable. The point is that this is not a case in which the respondent set out to break the law, nor even one in which it engaged in conduct which, had it given the matter a moment’s thought, it must necessarily have appreciated would have amounted to a breach of the law.
I approach the determination of penalties in the present case on the footing that the respondent’s conduct in relation to Mrs May and Mrs Baird involved two contraventions, each separate from the other in form and in substance. The applicant accepted, however, that the totality principle is proper to be applied in this case. In taking that approach, the court is concerned that the totality of the respondent’s liability to penalties is just and appropriate having regard to all of the circumstances, including the linkages, and common factors, that may be observed as between the two contraventions.
For a corporation, the maximum penalty in each case is $1,100,000.
Taking all of the above matters into account, I consider that a just and appropriate penalty for each of the contraventions established in the present case is $185,000. This will result in the respondent having to pay a total of $370,000 in penalties, representing about 90% of its pre-tax profit over the five years to 30 June 2014. On one view, this may be regarded as a harsh outcome for a company involved in two contraventions, but, against the indication given by the legislature that, for the most serious cases, a penalty of $1,100,000 may be imposed for a single contravention, and having regard to the various matters discussed above in these reasons, I have come to the view that the proposed penalties are appropriate.
