On 23 March 2023, the Full Court of the Federal Court of Australia (Full Court) dismissed appeals by the ACCC and Mazda Australia. The appeals sought to overturn the first instance decision.
The Full Court decision clarifies the approach the Court might take in assessing false or misleading representations and unconscionable conduct. In particular, the Court emphasised:
- for false and misleading representations about a consumer’s rights, an entity must have reasonable grounds for making the representation at the time it was made;
- for unconscionable conduct, the Court may place emphasis on:
- whether the conduct involves dishonesty, predation, exploitation or deliberateness; and
- the conduct of the party, and whether that conduct gives rise to any other contraventions of the ACL including the nature of the conduct and the contraventions.[1]
Background and primary judgment
In November 2021, Justice O’Callaghan found that Mazda Australia had engaged in misleading and deceptive conduct and had made false or misleading representations in breach of both ss 18 and 29(1)(m) of the ACL. However, the Court declined to find that Mazda’s conduct amounted to unconscionable conduct under s 21 of the ACL.
A summary of this first instance judgment can be found in our earlier blog here. Relevantly for the appeal, the main categories of misrepresentations considered by the Court was as follows:
- that the faults with the consumers’ vehicles were not major failures under the consumer guarantee provisions of the ACL and consumers were not entitled to a refund or replacement vehicle (Opinion Representation).
- that consumers were not able to obtain a refund or replacement vehicle under the ACL because Mazda was entitled to repair the vehicle regardless of the number of repair attempts, the time it took for repair, and the consumers’ rejection of the vehicles;
- Mazda was not required to provide a refund or replacement vehicle because of the age and/or mileage of the vehicles; and
- a major failure under the ACL for motor vehicles was limited to a failure of a major component of the vehicle.
Grounds driving the appeals
Mazda alleged that the primary judge had erred on a number of grounds, including:
- that the conversations between Mazda and consumers did not convey the alleged representations, or, that if they did such representations were not misleading, deceptive or false under the ACL;
- that the Opinion Representations did not necessarily convey any implied representation that Mazda had reasonable grounds for making the representation. This was said to be because statements of opinion do not necessarily carry an implied representation that there is a reasonable basis for the opinion, and because the Opinion Representation did not convey implied representations of reasonable grounds;
- if the Opinion Representations were made and they carried an implied representation that they were based on reasonable ground, there were reasonable grounds in the circumstances. This was because no consumer had proved that they were in fact entitled to a replacement or refund under the ACL, and therefore Mazda was entitled to refuse to provide such a remedy; and
- that offering consumers an option as a remedy which falls short of their rights under the ACL does not implicitly deny the existence of such rights.
The ACCC appealed against the primary judge’s dismissal of its case concerning Mazda’s alleged unconscionable conduct. The ACCC’s case was that the primary judge had erred in failing to:
- use the correct judicial technique in assessing whether the conduct was unconscionable by failing to undertake a ‘sufficient and precise examination of the facts and the connection or relation between those facts’)[2];
- appropriately take into account his Honour’s prior findings in relation to Mazda’s misleading and deceptive and false and misleading representations;
- appropriately give weight to his Honour’s findings that misleading and deceptive and false and misleading representations did occur; and
- provide adequate reasons for his Honour’s conclusions that Mazda did not engage in unconscionable conduct.
Igniting thoughts on the character of misleading and unconscionable conduct
False or misleading representations
The Full Court unanimously dismissed Mazda’s appeal and agreed with the primary judge that Mazda had made false or misleading representations in its interactions with customers. The Court held that it was open to Justice O’Callaghan to find that each claim had been substantiated. In upholding the judgment at first instance, the Full Court outlined the following principles:
- The ACCC abandoned its case that the Opinion Representations were statements of fact and were false. Accordingly, it was sufficient for the ACCC to establish that Mazda (considering the information it had available to it at the time) had no reasonable grounds to express the Opinion Representations. Whether there was in fact a major failure with the goods or whether the consumer was entitled to an ACL remedy was immaterial to whether the Opinion Representations were misleading.[3]
- The fact that a representation later becomes true or reasonable grounds later become known to the representor does not, of itself, mean that there was a reasonable ground for making such a representation at the time.[4] The relevant enquiry is whether the representor had facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation at the time of the representation being made.
- The primary judge did not base the finding that there were no reasonable grounds for making the Opinion Representations on Mazda’s failure to follow its own procedures.[5] Rather, the primary judge correctly based his finding on Mazda’s failure to undertake “any consideration of whether the consumer guarantee provisions in the ACL may have been engaged by the serious and persistent faults notified by the Consumers to the Mazda customer service representatives.”[6]
- The fact that a consumer is unaware that the representations are false does not alter the misleading nature of the representation.[7]
- A consumer’s knowledge or assertion of their ability to bring legal proceedings or make a complaint to a regulatory body does not offset the misleading nature of representations which imply the consumer did not have a right under the ACL to obtain a refund or replacement.[8]
- The fact that representations made were expressions of opinion by “call centre staff”, as opposed to representations of legal advice or of formal decisions, does not negate the seriousness of the representation. This is because consumers may still have inferred that the representation was the settled, considered and approved position of Mazda.[9] Further, the Full Court did not consider the Mazda staff who expressed those opinions to the consumers to be mere “call centre staff”. Rather, they were more properly understood to be case managers who had specific responsibility to deal directly with disaffected consumers and in those circumstances, the consumers were entitled to consider those staff as having some authority to speak on behalf of Mazda.[10]
Unconscionable conduct
Despite the dismissal of the ACCC’s appeal by Justices Mortimer and Halley (with Justice Lee in dissent), the majority found that sufficient reasons were not provided as to why the primary judge rejected the unconscionable conduct claim.[11] In particular, further reasons should have been given to the parties in light of the primary judge’s findings that Mazda had contravened ss 18(1) and 29(1)(m) of the ACL and his Honour’s acceptance of the ACCC’s submissions as to the significance and characterisation of Mazda’s conduct.[12]
However, after reviewing the agreed facts, the majority affirmed the primary judge’s finding that Mazda’s conduct did not sufficiently diverge from community standards of acceptable business practices such that it could be characterised as unconscionable conduct.[13]
In confirming this position, the Court emphasised that while Mazda’s failures were serious, the conduct did not involve “dishonesty, predation or exploitation” nor did it “demonstrate a lack of good faith, trickery or sharp practice” or “an exercise of economic power in a manner worthy of criticism”.[14] Notably, the ACCC had not argued that Mazda’s conduct involved any dishonesty or fraud,[15] or that the conduct was systemic.[16]
Their Honours also stated that while compliance with the law is part of the acceptable standard of conduct, lack of compliance with ss18 and 29 of the ACL is not necessarily tantamount to unconscionable conduct.[17] The Court observed that it would depend on context and the nature of the representation[18] and the ACCC’s case may have been different if it had established that the consumers were in fact entitled to refunds or replacements under the ACL[19] or if the conduct had been part of a deliberate strategy to minimise Mazda’s exposure to providing refunds or replacements.[20]
Justice Lee’s dissenting opinion
Justice Lee concurred with the majority that the primary judge failed to provide adequate reasons in relation to the unconscionable conduct claim. However, his Honour held that it was instead appropriate to remit the case for a new trial in relation to this aspect of the case.[21] His Honour considered the reasoning of the primary judge and noted that in the context of the agreed facts, the conduct of Mazda was against good conscience. His honour could not accept that Mazda’s conduct was “anything other than a marked divergence from what is right and proper” and “the norms of acceptable commercial behaviour as to be against conscience”.[22]
Justice Lee noted that there was a tendency to overcomplicate the “evaluative task” when considering unconscionable conduct claims.[23] His Honour stated that the task of the Court is not to assess dishonesty but rather whether there has been “a significant departure from commercial norms so as to be against conscience.”[24]
Zooming in on the key takeaways
Businesses should be vigilant in ensuring compliance with the ACL consumer guarantee regime. More specifically, motor vehicle businesses should closely review and monitor compliance, having regard to both the Mazda decision and the ACCC’s 2023-24 Enforcement Priority of improving industry compliance with consumer guarantees, with a focus on high value goods including motor vehicles and caravans.
In relation to the risk of making false or misleading representations:
- Businesses should always ensure that they have reasonable grounds for making representations about consumers rights under the ACL at the time the representation is made. It will not necessarily be a defence to identify reasonable grounds that later become known to the business to justify the accuracy of the representation.
- A representation about a consumer’s ACL rights may still be misleading even in circumstances where it has not been established that a consumer is in fact entitled to any remedy under the consumer guarantee regime of the ACL. As the Court explained:
Irrespective of whether in fact the faults with the Consumers’ were major failures under the consumer guarantee provisions of the ACL and irrespective of whether in fact the Consumers were entitled to a refund or a replacement at no cost under those provisions, the ACCC could succeed if it was able to establish that the information available to Mazda at the time each Opinion Representations was conveyed, did not objectively provide Mazda with reasonable grounds to express the representation.[25]
- Informing consumers of their right to complain to the ACCC or bring legal proceedings will not cure any false or misleading representations separately made in relation to their rights under the ACL[26]
In relation to the risk of engaging in unconscionable conduct:
- the Full Court’s decision demonstrates that the following factors may be important (although not necessarily determinative or essential) considerations in the assessment of whether conduct amounts to being ‘unconscionable’ under s 21 of the ACL:
- the conduct involves a contravention of another provision or law, for example, if the ACCC had established that the vehicles had in fact suffered major failures and appropriate remedies were not offered or that Mazda’s conduct was not appropriate in this context;[27]
- the conduct involves dishonesty, predation or exploitation; and
- the conduct involves a deliberate strategy by the respondent, for example, to minimise its exposure to providing refunds or replacements.[28]
With the meaning of “unconscionable conduct” continuing to be subject to judicial interpretation, further clarification may be expected down the road.
This post was written by Eimear O’Sullivan and Wilson Huang
Image credit: Rockingham Mazda, February 2020 / Calistemon, Wikimedia / CC4.0 / Remixed to B&W and resized
[1] See, eg, [563], [578] and [584].
[2] [528]-[529]
[3] [105]
[4] [108]
[5] [110]
[6] [111]
[7] [74]
[8] [77]; [177] and [181]
[9] [93]-[94]
[10] [93].
[11] [471]
[12] [471]; [518]
[13] [472]
[14] [557]
[15] [559]
[16] [561]
[17] [563]
[18] [563]
[19] That is, if the ACCC had not abandoned, and had successfully proven, that the vehicles had in fact suffered ‘major failures’ as defined under the ACL. See, eg, [578]-[581]
[20] [584]
[21] [635]
[22] [654]
[23] [651]
[24] [651]
[25] [105]
[26] [449], [181], [77]
[27] [562]; [572]
[28] [584] – [585].
