No gear change: High bar to prove unconscionable conduct reinforced in ACCC v Mazda appeal

The Federal Court has confirmed the high bar for proving unconscionable conduct, dismissing an appeal by the Australian Competition and Consumer Commission (ACCC) to overturn the trial judge's finding that Mazda Australia Pty Ltd (Mazda) did not act unconscionably towards its customers. The Full Court upheld the decision of Justice O'Callaghan, agreeing that while Mazda had engaged in misleading and deceptive conduct, its actions fell short of the high standard required to prove unconscionable conduct at law.

At first instance: the trial

The ACCC commenced the original proceeding against Mazda in 2019, alleging Mazda engaged in unconscionable conduct and made false or misleading representations in its dealings with customers who bought new vehicles between 2013 and 2017.¹

Mazda's customers had made complaints of faults within the first one to two years of purchase, including loss of power, stalling, and complete engine failure. At trial, the ACCC did not try to prove that the vehicles had major faults under the provisions of the Australian Consumer Law (ACL). Instead, the ACCC focused on establishing that Mazda misled customers as to their legal rights by not properly considering whether the faults were major failures before telling consumers they were not entitled to a refund or replacement vehicle.

Justice O'Callaghan found that Mazda had made 49 separate false or misleading representations to nine customers, who had each experienced significant faults with their recently purchased Mazda vehicles. While His Honour accepted that the customers had suffered harm and characterised Mazda as having given customers "the run around" and delivering "appalling customer service", he did not accept that Mazda had engaged in unconscionable conduct.²

Our previous article provides more detail on Justice O'Callaghan's decision and proceedings issued by the ACCC against other car manufacturers.

Unconscionable conduct on appeal

In its appeal, the ACCC sought to overturn the trial judge's dismissal of its unconscionable conduct claim. The ACCC alleged Mazda's conduct was unconscionable because:³

• the customers in question were in a substantially weaker bargaining position relative to Mazda;
• the consumers were vulnerable and disadvantaged, given they had paid significant amounts to purchase the vehicles and were entirely dependent on Mazda as to how faults and requests with new vehicles were dealt with;
• Mazda took advantage of that vulnerability and disadvantage; and
• Mazda's continued refusal to provide a refund or replacement vehicle at no cost caused harm to the customers.

The Full Court (in a 2-1 decision) affirmed Justice O'Callaghan's decision. While agreeing Mazda's conduct was serious and reflected poorly on it, in relation to unconscionable conduct, the Full Court considered:⁴

"The conduct of Mazda, relied upon by the ACCC, did not involve dishonesty, predation or exploitation. It did not demonstrate a lack of good faith, trickery or sharp practice. Nor did it involve an exercise of economic power in a manner worthy of criticism."

In its reasons, the Full Court held that Mazda's conduct did not diverge sufficiently from acceptable business practices to constitute unconscionable conduct because:⁵

• Mazda did not act dishonestly, noting the ACCC expressly disavowed any allegation of dishonesty or fraud by Mazda;
• the conduct relied upon by the ACCC did not involve deception in the form of a ruse or a scheme by sales representatives to gain access to a consumer for the purpose of achieving sales pursuant to explicit directions from their employer;
• the ACCC did not advance a "systems" case or expose evidence of any systemic conduct by Mazda; rather, it advanced the individual cases albeit involving the same type of conduct;
• the absence of a "systems" case meant that the court had to assess Mazda's conduct in respect of each customer, not as a system or pattern of conduct in respect of a class or group of customers, which would have been more significant; and
• perhaps impliedly criticising the ACCC, the ACCC did not seek to prove that each customer's vehicle suffered a major failure.

Key takeaways

The Full Court's decision reinforces the high bar set to prove unconscionability.

Despite Mazda's conduct being described as "appalling" and reflecting poorly on the business, the court held the conduct "did not sufficiently diverge from community standards of acceptable business practices."⁶

While providing further clarity as to the requirements to establish unconscionable conduct, the decision also suggests the outcome could have been different if there had been evidence of a system or pattern of conduct by Mazda. In this regard, this case serves as a timely reminder to automotive and the consumer goods sector to ensure compliance with the ACL, and in particular:

• the increased willingness of the ACCC to pursue consumer protection enforcement action against the automotive industry and consumer goods sector more broadly; and
• the ongoing need to review guidance for customer service staff and processes in place in respect of consumer warranties and guarantees.

The outcome of this appeal should not be read as a loss on the part of the ACCC.

The decision clearly communicates the need to prioritise and meet consumer protection regulatory obligations. Although the ACCC did not prove unconscionable conduct, strong findings were made against Mazda for engaging in misleading and deceptive conduct, both at trial and confirmed on appeal. The value of taking a proactive approach to ensure compliance with the Australian Consumer Law is clear. Failing to take steps to ensure compliance can lead to significant business interruption, costly enforcement action, and substantial financial penalties in the event a contravention is proven.

If you require guidance on your business's responsibilities under Australian Consumer Law, please reach out to Regulatory & Investigations partner, Sarah Fregon, or our one of the members of our team for further information and advice.

¹ Media release: Mazda in court for alleged unconscionable conduct and false or misleading representations. ACCC, 31 October 2019.

² Australian Competition and Consumer Commission v Mazda Australia Pty Ltd (2021) 159 ACSR 31 [135].

³ Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2023] FCAFC 45 [44].

⁴ Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2023] FCAFC 45 [57].

⁵ Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2023] FCAFC 45 [559]-[562].

⁶ Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2023] FCAFC 45 [555].

Image by Svyatoslav Lypynskyy on AdobeStock.