Federal Court puts the brakes on ACCC’s unconscionable conduct case against Mazda
The ACCC’s unconscionable conduct case against Mazda has hit a speed bump in the Federal Court.
In the recent Full Court decision in Australian Competition and Consumer Commission v Mazda Australia Pty Ltd, the Full Court has arguably raised the threshold required for poor commercial conduct to be unconscionable. The Full Court found that, despite making misleading representations to customers, giving customers the ‘run around’ and engaging in ‘appalling customer service’, Mazda’s conduct was not unconscionable. This is the first Full Court consideration of an ACCC claim against a major company concerning its dealings with consumers following the Court’s previous confirmation that questions of morality are not factors to be taken into account when deciding if conduct is ‘unconscionable’ under the Australian Consumer Law (ACL).
Background to proceedings
The proceedings arose from Mazda’s dealings with nine customers who bought new Mazda vehicles between 2013 and 2017. Those customers experienced faults with their new vehicles within the first year or two of purchase, including vehicles going into ‘limp mode’ or losing power, engine failures, starter motor failures and stalling issues. One vehicle had three engine replacements over four years, and another was off the road for four months within a six-month period. Affected customers were forced to contact Mazda multiple times over months and even years as they continued to experience vehicle faults. When customers approached Mazda about these faults, Mazda repeatedly refused to provide a refund or replacement at no cost. It ultimately pressured customers to accept lesser solutions than those to which they were entitled under the ACL.
The ACCC commenced proceedings against Mazda, alleging that:
- it engaged in misleading and deceptive in breach of the ACL by reason of the statements made by its sales representatives and customer service representatives to the nine consumers
- in making those statements and having regard to its conduct towards those customers, Mazda engaged in unconscionable conduct.
The ACCC’s unconscionable conduct case
The ACCC alleged that Mazda engaged in a broad suite of conduct with those nine customers that amounted to unconscionable conduct. In particular, the ACCC alleged that:
- the customers were in a weaker position to Mazda and also vulnerable and disadvantaged because they had outlaid a significant amount of money in connection with the new vehicles
- Mazda made false and misleading representations about the customers’ rights under the consumer guarantees enshrined in the ACL
- Mazda refused to provide a refund or replacement vehicle at no cost to the customer;
- Mazda failed to give any proper consideration as to whether the faults made the vehicles unfit to drive
- Mazda gave the customers limited time to consider some of the offers made during the course of the customers’ communication with Mazda
- Mazda’s ongoing refusal to provide a refund or free replacement vehicle caused harm to the customers.
Trial judge's decision
Justice O’Callaghan found that various statements made by Mazda representatives to the nine customers about their rights to a refund or replacement vehicle gave rise to implied representations that were false or misleading. By way of example, he noted that, in respect of one customer’s insistence that their car had suffered a ‘major fault’ and that the customer was entitled to a refund or a new vehicle, a Mazda representative said that Mazda was only required to fix the vehicle. Justice O’Callaghan held that the statement implied that the customer did not have the ability under the ACL to obtain a refund or replacement vehicle, which is incorrect.
although Mazda’s conduct can accurately be characterised as constituting what I describe as appalling customer service, and although customers were rightly frustrated at Mazda’s delays and excuses for not squarely addressing their complaints and their requests for a refund or replacement vehicle, Mazda’s conduct was not, in my view, to be characterised as unconscionable.
Appeal to the Full Court
The ACCC appealed the trial judge’s dismissal of its unconscionable conduct claim. In addition to the conduct outlined above, it argued that Mazda engaged in unconscionable conduct because it:
- failed to comply with its own internal ACL compliance standards
- made no sufficient attempt to seek technical advice about the particular issues experienced by the customers
- decided that, in most instances, its interests were best served by engaging in commercial negotiations which had no regard to the parameters or requirements of the consumer guarantee provisions of the ACL
- sought to dissuade the customers from continuing with their requests for a refund or replacement vehicle.
The Full Court's decision
The Full Court dismissed the ACCC’s appeal (in a split 2-1 judgment) finding that, that while Mazda’s conduct did not reflect well on Mazda and its representations were misleading, the conduct did not amount to unconscionable conduct. In particular, the Court held that, while Mazda’s conduct was serious and did not reflect well on it, the conduct relied upon by the ACCC did not diverge sufficiently from community standards of acceptable business practices (so as to amount to unconscionable conduct) because:
- Mazda did not act fraudulently or dishonestly, nor did it engage in ‘trickery or sharp practice, predation, exploitation, unfairness of a significant order, an absence of good faith or the exercise of economic power in a way worthy of criticism’
- the ACCC did not argue, nor was there any evidence of, any systemic conduct on the part of Mazda (we address this issue further below)
- the ACCC abandoned its initial strategy of proving each of the customers’ vehicles actually suffered major failures.
In essence, the Full Court confirmed that the bar for a company to be found to have engaged in unconscionable conduct remains high.
Did the ACCC make an error in not running a ‘systems’ case or seeking to prove a ‘major failure’?
As mentioned, the ACCC did not run a ‘systems’ or ‘patterns’ case in that it didn’t allege that Mazda had a deliberate strategy for its customer service representatives to minimise Mazda’s exposure to provide refunds or replacement vehicles to customers. Accordingly, the Court had to assess Mazda’s conduct regarding each customer, which made it ‘not as significant as it otherwise might have been’. Consequently, the Court held that Mazda’s conduct fell short of the standard for unconscionable conduct.
The Court appeared to impliedly criticise the ACCC for not running a ‘system’ case, perhaps undeservedly so. These types of cases are difficult to run given the level of evidence needed to establish that a large company like Mazda had a system for dealing with customers that involved deliberately misleading customers and giving them the ‘run around’. It may be that the ACCC did not have the evidence to run the proceedings in this manner.
Additionally, the Court seemed to impliedly criticise the ACCC for not seeking to prove that each of the customers’ vehicles suffered major failures. The lack of this evidence meant that the ACCC could not prove that the customers were entitled to a full refund or replacement in each case. In a practical sense, we can understand why the ACCC might have abandoned these allegations, as the relevant vehicles had been purchased by customers many years before the proceedings went to trial and were repaired many times. In the intervening period, the vehicles may have been on-sold or further repaired, and, as such, the vehicles and/or parts may not have been available for examination by the ACCC’s experts.
What does this mean for the future?
Arguably, this decision signals to large corporations that they can, in effect, get away with being obstructive and giving customers the ‘run around’, as long as they don’t mislead customers or have a deliberate ‘system’ for doing so.
The immediate question is whether the ACCC will file a special leave application for an appeal to the High Court. It’s possible the ACCC may want to seek clarity from the High Court on the scope of unconscionable conduct on the present factual scenario, in a similar way to ASIC in its 2019 proceedings against Lindsay Kobelt – which left open the question of moral obloquy being a necessary element of unconscionable conduct.
Alternatively, the ACCC may push for further legislative change to create a positive obligation for companies to inform consumers about their rights under the consumer guarantee regime. Currently, there is no obligation under Australian law to keep companies, particularly better-resourced and informed businesses (such as Mazda), accountable in this regard.
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