A recent decision of the Federal Court (ACCC v Lux
Distributors Pty Ltd (No 2)  FCA 903) illustrates the
need for any business engaging in direct selling or marketing
techniques (such as telemarketing or door-to-door sales) to ensure
that potential customers are treated fairly and reasonably to avoid
breaching the Australian Consumer Law
(ACL) and the serious consequences which follow
from such a breach.
Here, Special Counsel Brett Bolton and Law Clerk Amy Detheridge
discuss the Federal Court's decision further.
Lux Distributors Pty Ltd (Lux) implemented a
sales strategy to target elderly women in their 80s or 90s, who
were widowed and living alone. As part of its strategy, Lux created
a scripted telemarketing conversation, offering a free maintenance
check for householders' vacuum cleaners. A sales representative
of Lux would then attend the residence to test the
householder's current vacuum cleaner for maintenance and
efficiency. Notwithstanding the vacuum cleaner was working
effectively, the Lux representative would demonstrate the
inefficiency of the old vacuum cleaner as compared to the expensive
new Lux vacuum cleaner, or tell the householder that their vacuum
cleaner was defective. This led to the elderly ladies in this case
purchasing new Lux vacuum cleaners for around $2,000.00 to
For a more detailed outline of the facts, see our previous
alert in which we discussed the reasons why the Court found
that Lux had acted unconscionably in breach of the ACL and the
Trade Practices Act (TPA).
In addition to the purchasers receiving a refund from Lux, it
was ordered to pay a penalty under the ACL and TPA and is subjected
to restraining and mandatory orders.
In making these orders, the Court had regard to the overarching
objective of deterrence, namely to highlight the fact that
contraventions of the ACL should not be seen as part of "the
cost of doing business".
The Court found that:
Lux was a small family-owned company trading at a loss, with
minimal market share;
Lux's sales technique (which led to the unconscionability
findings) was deliberate. Its scripted telemarketing approach was
at best a half-truth, and was designed to create an expectation of
a free service, whereas its real purpose was for the sales person
to gain entry into households to sell vacuum cleaners;
senior management of Lux, while not aware of specific details
in relation to the individual sales, was responsible for the
telemarketing script and the sales method which was central to the
unconscionability findings. Furthermore, senior management knew
that Lux sales representatives did not earn any remuneration unless
they sold a vacuum cleaner;
Lux had no formal trade practices compliance program in place,
though the sales representatives were given some information
relating to the ACL door-to-door trading requirements and were
required to sign a document to agree to comply with the ACL;
Lux cooperated with the ACCC by providing responses to its
document requests and offering to give further assistance.
The orders against Lux included:
A penalty of $370,000.00, which represented 90% of Lux's
pre-tax profit in the five years to 30 June 2014.
Permanent restraints to prevent Lux from engaging in the same
or similar sales techniques or practices in the future.
The establishment of a Compliance and Training Program at its
own expense for three years which involved:
the appointment of a Compliance Officer;
conducting a risk assessment;
instituting a corporate policy and complaints handling
implementing training procedures for its employees; and
participating in an annual external review conducted by an
independent third party.
The ACCC will supervise Lux's compliance with the
In addition Lux has also suffered negative publicity from the
legal proceedings, which has resulted in a significant decline in
This decision serves as a reminder of the severity of the
consequences of a breach of the ACL, especially where the court
concludes that the breach was deliberate or that the business had
recklessly disregarded its obligations under the law.
Businesses should ensure that any promotions do not cross a 'fine line' between acceptable and misleading or deceptive.
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