FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd [2016] FCA 445

ORDERS

THE COURT ORDERS THAT:

1.    The applicants file and serve on the respondent a further amended concise statement, addressing the matters raised in the Court’s reasons published today, by 13 May 2016.

2.    The further amended concise statement be permitted to exceed 5 pages in length.

3.    The respondent file and serve any amended response to the further amended concise statement by 27 May 2016.

4.    The applicants file and serve all documentary evidence upon which they will seek to rely by 2 June 2016.

5.    The time for the filing and serving of the respondent’s lay evidence and all documentary evidence upon which it will seek to rely be extended to 15 June 2016.

6.    The time for the applicants to file and serve expert evidence be extended to 25 May 2016.

7.    The time for the respondent to file and serve expert evidence be extended to 8 July 2016.

8.    The time for the applicants to file and serve expert evidence in reply be extended to 29 July 2016.

9.    The parties agree on discovery categories by 3 June 2016.

10.    Subject to agreement on discovery categories in accordance with Order 9, the parties are to give discovery by 29 July 2016.

11.    In the event that the parties are unable to agree on discovery categories by 3 June 2016, the parties are to file and serve written submissions of no more than 5 pages on the question of discovery categories, such question to be determined on the papers.

12.    The matter be listed for a further case management hearing on Thursday, 11 August 2016 at 9:30 am.

13.    The parties be granted liberty to restore on 3 days’ notice.

14.    The applicants pay the respondent’s costs of the notice of motion.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GLEESON J:

1    By interlocutory application dated 8 April 2016, the respondent (“Empower”) sought orders striking out portions of the applicants’ (“ACCC”) amended concise statement (“ACS”) and amended schedule of contraventions (“ASoC”).

2    The ASC and ASoC were filed in accordance with the Court’s commercial and corporations national practice area draft practice note (“draft practice note”), and pursuant to orders made on 17 December 2015, including an order granting leave to the ACCC to proceed by way of concise statement.

3    Empower contended that the relevant portions of the ACS and the ASoC are “evasive or ambiguous and/or likely to cause prejudice, embarrassment or delay in the proceeding”. At the hearing of the interlocutory application, it proposed an order that the ACCC file a further amended concise statement or a statement of claim that would enable Empower to know “the metes and bounds of the case it has to answer”.

4    The ACCC disputed Empower’s contentions and opposed the orders sought.

BACKGROUND TO ACCC’S CLAIM

5    Since at least March 2015, Empower has carried on the business of marketing and supplying online education courses to consumers. The courses have included a diploma of management course and a diploma of business. These courses consisted of eight units of study comprising an eight month full-time period of online study at a tuition cost of $14,800.00.

6    A student who enrolled in one of the courses and satisfied the criteria in schedule 1A of the Higher Education Support Act 2003 (Cth) (“HES Act”) was entitled to a loan under the Commonwealth’s VET FEE-HELP Assistance Scheme for each unit of study. The Commonwealth paid Empower the amount of VET FEE-HELP in discharge of the student’s liability to pay the tuition cost for each unit. Empower was required to identify a date for each unit of study after which a student enrolled in the unit of study and who was entitled to VET FEE-HELP incurred a debt to the Commonwealth. The debt amounted to 120% of the loan, even if the student did not complete the unit of study in which they were enrolled. The student was liable under the HES Act to repay the debt when their income exceeded the minimum repayment income. The minimum repayment income was $51,309.00 during the 2013–2014 financial year, $53,345.00 during the 2014–2015 financial year and $54,126.00 during the 2015–2016 financial year.

7    In the period from 1 March 2014 to 31 October 2015, Empower Institute enrolled approximately 10,000 students into its courses under the VET FEE-HELP scheme and consequently received approximately $90 million in VET FEE-HELP payments from the Commonwealth.

THE ACCC’S CASE

Originating Application

8    The originating application filed on 8 December 2015 seeks, in summary, the following relief:

(1)    A declaration that, during the period from March 2014 until at least June 2015, Empower engaged in conduct in connection with the supply or possible supply, or marketing of the supply, of vocational education courses to consumers that was unconscionable within the meaning of s 21 of the Australian Consumer Law (contained in sch 2 of the Competition and Consumer Act 2010 (Cth)). The proposed declaration identifies nine elements of Empower’s alleged conduct.

(2)    A declaration that, during the same period, Empower, by the conduct of its “recruiters” made representations that were false or misleading or deceptive in contravention of ss 18, 29(1)(g) and 29(1)(i) of the Australian Consumer Law.

(3)    A declaration that, during the same period, Empower by the conduct of its recruiters, engaged in conduct in contravention of ss 74, 76, 78 and 79 of the Australian Consumer Law.

(4)    Injunctive relief including an injunction pursuant to s 232 of the Australian Consumer Law, requiring Empower to refund to the Commonwealth “any amount paid by the Commonwealth to Empower to date in purported discharge of the liability” of certain consumers to pay a VET tuition fee for the unit or course. The relevant consumers (“aggrieved consumers”) are any person who:

(a)    was enrolled in an Empower course between 1 March 2014 and at least 30 June 2015;

(b)    has incurred a debt to the Commonwealth under the VET FEE-HELP Scheme in respect of that enrolment; and either

(c)    as at the date of the order, has not completed any unit in the course in which they were enrolled and does not inform Empower in writing within a specified period that they wish to remain enrolled in the course; or

(d)    notifies Empower in writing that they received false information from an Empower recruiter at the time of their enrolment in a course and that they wish to have their enrolment cancelled.

(5)    Costs.

(6)    Pecuniary penalties.

(7)    Orders for “non-party consumer redress” pursuant to s 239 of the Australian Consumer Law, or s 21 of the Federal Court of Australia Act 1976 (Cth), which declare that:

(a)    any enrolment agreement between an aggrieved consumer and Empower in respect of the course of any unit of study within the course be void;

(b)    any agreement between the aggrieved consumer and the Commonwealth under the VET FEE-HELP Assistance Scheme in respect of the course or any unit of study within the course be void; and

(c)    the Commonwealth’s liability to pay Empower the amount of the loan made to the aggrieved consumer in discharge of the consumer’s VET liability, be annulled.

(8)    Publication orders.

(9)    An order that Empower establish a compliance program, to promote compliance with the Australian Consumer Law.

9    Based on the originating application, the nine elements of the conduct which the ACCC seeks to impugn are:

1.1.    offering inducements to consumers to enrol in the courses, including making cash payments to consumers and providing consumers with free laptop computers;

1.2.    providing training and instruction to its recruiters in relation to the marketing of its courses and recruiting consumers;

1.3.    [Empower’s] recruiters targeting particular locations, including rural and remote towns and indigenous communities and areas with significant populations of low socioeconomic status, to market the courses to consumers and to enrol consumers in the courses;

1.4.    [Empower’s] recruiters marketing the courses to consumers, including by having the recruiters calling on consumers at their homes, targeting and approaching consumers entering and exiting Centrelink offices and also conducting group marketing sessions in private homes and at public venues, including public clubs and bars, each for the purpose of enrolling consumers in the courses;

1.5.    [Empower’s] recruiters making various representations to consumers including that:

1.5.1.    the courses were free, or were free unless the consumer’s income was in an amount which they were unlikely to earn on completion of a course, or at all;

1.5.2.    in order to receive a free laptop computer they needed to sign up to a course and provide identification and personal information;

1.5.3.    the courses were specifically for Aboriginal people;

1.6.    providing financial incentives to recruiters in order to maximise the number of consumers enrolled by them in the courses;

1.7.    [Empower’s] recruiters failing to explain or adequately explain to consumers:

1.7.1     the nature of the Commonwealth VET FEE-HELP Assistance Scheme …; or

1.7.2.    the existence and nature of their obligations if they received assistance under the VET FEE-HELP Scheme; or

1.7.3.    that they would have a debt to the Commonwealth after the census date for each unit of any course in which they were enrolled, or the amount of the debt;

1.8.    enrolling in its courses consumers:

1.8.1.    who could not access or use email;

1.8.2.    who could not use a computer;

1.8.3.    who could not use and did not have access to the internet;

1.8.4.    who did not have adequate literacy or numeracy skills; and/or

1.8.5.    for whom the courses were not suitable, and which they were unlikely to be capable of completing; and

1.9.     engaging in this conduct to maximise the revenue derived by Empower from payments to it from the Commonwealth under the VET FEE-HELP Scheme.

10    It is plain from the nine elements set out above that the ACCC’s case against Empower is based substantially upon the conduct of Empower’s recruiters. Consequently, an important issue in the case is the basis on which it will be contended that Empower is legally responsible for the conduct of those recruiters. That basis may differ as between Empower and various recruiters.

Amended Concise Statement

11    The ACS is arranged under the following headings:

(1)    The important facts giving rise to the claim.

(2)    The relief sought from the Court.

(3)    The primary legal grounds for the relief sought.

(4)    The alleged harm suffered.

12    Paragraphs 5 to 12 of the ACS sets out alleged facts concerning Empower’s marketing and enrolment process (“marketing and enrolment process”) as follows:

5.    From 1 March 2014 to 30 June 2015 (the period), Empower sought to maximise the number of consumers in respect of whom Empower received VET FEE-HELP payments from the Commonwealth through a system of conduct consisting of the process for marketing and enrolling consumers in its courses (the marketing and enrolment process).

6.    The marketing and enrolment process involved Empower offering inducements to consumers to enrol in a course. In the period from 1 January 2014 to at least 14 April 2015, these included free laptop computers and cash payments.

7.    The marketing and enrolment process involved Empower entering into written contracts with at least 23 sales companies (marketers) to market its courses and recruit consumers. Empower paid its marketers a commission for each student they recruited in an amount ranging from $1,000 to $3,700 plus GST. Empower’s written contracts required the marketers to apply to it in writing and to obtain its written approval to sub-contract any of their obligations. Empower did not enforce this requirement. The marketers engaged at least 116 brokers to market Empower’s courses and recruit consumers. Empower accepted enrolments of consumers from the marketers and the brokers (together the recruiters).

8.    Empower provided training and instruction to the recruiters in relation to the marketing of its courses and recruiting consumers, but did not provide adequate training or instruction to the recruiters in relation to compliance with the Australian Consumer Law (ACL).

9.    During the period, the recruiters targeted particular locations, including rural and remote towns and indigenous communities and areas with significant populations of low socioeconomic status. The recruiters conducted face-to-face marketing by calling on consumers at their homes, approaching consumers at Centrelink offices, conducting group marketing sessions at public venues including public clubs and bars and in consumers’ homes, each for the purpose of recruiting consumers to enrol in Empower’s courses. The recruiters also paid Aboriginal persons to assist in recruiting Aboriginal consumers to enrol in courses.

10.    In the course of marketing courses and recruiting consumers, the recruiters made various false or misleading representations set out in paragraph 1.5 of the Amended Originating Application, including that the courses were free. The recruiters did not explain or did not adequately explain to consumers the VET FEE-HELP scheme, the nature of their obligations if they received VET FEE-HELP, or that they would have a debt to the Commonwealth after the census date for each unit of a course. The recruiters did not inform or did not adequately inform consumers about the nature and content of the courses, including that they were delivered via an online learning platform. The recruiters continued to enrol consumers even after being advised by the consumer that they did not intend to undertake the course.

11.    Empower was aware of the marketing and enrolment process and the implementation of the process.

12.    Before enrolling consumers, Empower did not require assessment or did not require adequate assessment of the literacy, numeracy or computer skills of consumers, or whether they could use or had access to an internet connection or email so as to determine whether they were capable of undertaking or completing a course. Nor did Empower prescribe any minimum formal educational qualifications, or minimum number of years of schooling for consumers to be eligible to enrol in a course. Empower enrolled consumers who were not capable of undertaking and completing the course in which they were enrolled.

13    The division of recruiters into “marketers” and “brokers” in para 7 of the ACS is likely to be significant in determining Empower’s legal responsibility for the conduct of its recruiters.

14    Paragraphs 13 to 17 makes allegations of examples of Empower’s marketing and enrolment process in operation, by reference to four individuals. Paragraphs 18 and 19 summarise the relief sought.

15    Paragraphs 20 to 25 set out the primary legal grounds for the relief sought. Importantly, para 20 alleges that:

…each of the recruiters marketed the courses and recruited consumers as an agent of Empower, such that their conduct is taken to have been engaged in by Empower pursuant to s 139B(2)(a) or (b) of the [Competition and Consumer Act 2010 (Cth)].

16    Section 139B(2) provides, relevantly:

(2)    Any conduct engaged in on behalf of a body corporate:

(a)    by a director, employee or agent of the body corporate within the scope of the actual or apparent authority of the director, employee or agent; or

(b)    by any other person:

(i)    at the direction of a director, employee or agent of the body corporate; or

(ii)    with the consent or agreement (whether express or implied) of such a director, employee or agent;

if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of this Part or the Australian Consumer Law, to have been engaged in also by the body corporate.

17    The harm allegedly suffered, set out at para 26 of the ACS, is:

Consumers who enrolled in a course suffered or are likely to have suffered loss or damage, including in the form of a debt to the Commonwealth in respect of a course which was unsuitable for them and which they were unlikely to be capable of completing, or taking advantage of in the future. The Commonwealth suffered loss or damage in the form of payments to Empower for courses which consumers did not commence or complete.

Schedule of Contraventions

18    The ASoC is an amended version of a schedule first filed pursuant to an order made on 17 December 2015. That order provided:

3.    The Applicant file and serve schedules of contraventions by 29 January 2016, listing:

a)    the date and substance of each contravention referred to in paragraph 21 of the Concise Statement; and

b)    the date, representor and substance of the contraventions referred to in paragraph 24 of the Concise Statement and the Respondent’s alleged state of knowledge of and complicity in each contravention.

19    This order was intended to clarify the case against Empower, insofar as it concerns the conduct of the recruiters. The ACCC recognised this in the following notation to the ASoC:

In preparing the Schedules below, the [ACCC has] understood Order 3 of her Honour’s Orders to be directed to the relationship between Empower and the recruiters that gives rise to Empower’s liability for the alleged contraventions. Where applicable, the [ACCC has] identified the statutory basis of the relationship between Empower and the recruiters pursuant to s 139B(2) of the [Australian Consumer Law].

20    The ASoC sets out the following summary of the alleged contraventions:

SUMMARY OF CONTRAVENTIONS ALLEGED

Unconscionable Conduct

One contravention of s 21 of the [Australian Consumer Law], or in the alternative s 20 of the [Australian Consumer Law], in relation to the implementation of the marketing and enrolment process.

Four contraventions of s 21 of the [Australian Consumer Law] in respect of each of Consumers A, B, C and D.

Misleading or deceptive conduct and false or misleading representations

Four contraventions of s 29(1)(i) in respect of each of Consumers A, B, C and D.

Four contraventions of s 18 of the [Australian Consumer Law] in respect of each of Consumers A, B, C and D.

Unsolicited consumer agreements

One contravention of s 74 of the [Australian Consumer Law] in respect of Consumer D.

Three contraventions of s 76 of the [Australian Consumer Law] in respect of each of Consumers B, C and D.

Three contraventions of s 78 of the [Australian Consumer Law] in respect of in respect each of Consumers B, C and D.

One contravention of s 79 of the [Australian Consumer Law] in respect of Consumer B.

21    The first schedule in the ASoC sets out 16 items said to constitute the first contravention.

22    The first nine items in the first schedule are headed “Conduct engaged in by Empower in implementing the marketing and enrolment process”. Each item is noted as “direct conduct of Empower”. The items are:

(1)    Offering inducements to consumers, including free laptop computers and cash payments.

(2)    Entering into written contracts with marketers (who were in turn permitted to sub-contract their obligations to brokers), to market its courses and recruit consumers.

(3)    Paying its marketers a commission for each student they recruited in an amount ranging from $1,000 to $3,700 plus GST.

(4)    Providing training and instruction to recruiters in relation to the marketing of its courses and recruiting of consumers.

(5)    Not providing adequate training or instruction to recruiters in relation to compliance with the Australian Consumer Law.

(6)    Not requiring assessment and, after May 2015, not requiring adequate assessment, of the literacy, numeracy or computer skills of consumers.

(7)    Not requiring assessment, or not putting in place adequate systems to accurately assess, whether consumers could use or had access to an internet connection or email so as to determine whether they were capable of undertaking or completing the course.

(8)    Not prescribing any minimum formal educational qualifications, or minimum number of years of schooling, for consumers to be eligible to enrol in a course.

(9)    Accepting the enrolments of consumers from marketers and brokers, notwithstanding the matters described above and below.

23    The next seven items are headed “Conduct engaged in by Empower’s recruiters in implementing the marketing and enrolment process”. Each item is noted as “s 139B(2) – recruiters acted as agents of Empower within actual or apparent authority”. The items are:

(1)    Offering inducements to prospective students in the form of cash payments, including by paying Aboriginal persons to assist in recruiting Aboriginal consumers to enrol in courses.

(2)    Targeting particular locations, including rural and remote towns and indigenous communities and areas with significant populations of low socioeconomic status, including by calling on consumers at Centrelink offices and conducting group marketing sessions at public venues including public clubs and bars and in consumers’ homes.

(3)    Making false or misleading representations to consumers that:

(a)    the courses were free, or were free unless the consumer’s income was in an amount which they were unlikely to earn on completion of a course, or at all;

(b)    in order to receive a free laptop computer they needed to sign up to a course;

(c)    the courses were specifically for Aboriginal people.

(4)    Not explaining or not adequately explaining to consumers the VET FEE-HELP scheme, the nature of their obligations if they received VET FEE-HELP, or that they would have a debt to the Commonwealth after the census date of each unit of a course.

(5)    Not informing, or not adequately informing, consumers about the nature and content of the courses, including that they were delivered via an online learning platform.

(6)    Continuing to enrol consumers even after being advised by the consumer that they did not intend to undertake the course.

(7)    Not have regard to or not have adequate regard to the literacy, numeracy or computer skills of consumers.

Evidence

24    In support of its case, the ACCC has served 21 affidavits and one proof of evidence to be given by Rodney Gordon. Of this material, 19 affidavits and the proof of evidence are consumer evidence on which the ACCC proposes to rely as examples of the operation of the alleged marketing and enrolment process. According to the ACCC’s written submissions on the application, it intends to seek leave to rely on two further consumer affidavits including one from Mr Gordon, whose proof of evidence has been served.

ACCC’s explanation of its case in submissions

25    Para 7 of the ACCC’s submissions states:

The [ACCC alleges] that [Empower] developed and implemented a marketing and enrolment process which was designed to maximise the number of consumers it enrolled in its VET FEE-HELP courses and the payments it received from the Commonwealth for those enrolments (the marketing and enrolment process). The marketing and enrolment process is alleged to include the following elements operating in combination:

(a)    [Empower] entered into written contracts with marketers, who engaged brokers, to market and recruit consumers to [Empower’s] courses.

(b)    [Empower] incentivised the recruiters [sic] to enrol as many consumers as possible by using a commission based pay structure.

(c)    [Empower] offered inducements to consumers to enrol in courses, including free laptops and cash. The recruiters offered consumers cash.

(d)    [Empower] provided inadequate training to recruiters in relation to compliance with the consumer protection provisions of the [Australian Consumer Law].

(e)    The recruiters targeted particular locations to market its courses, including indigenous communities and areas with significant populations of low socio-economic status.

(f)    The recruiters made false or misleading statements to consumers, including that the courses were free.

(g)    The recruiters did not explain, or did not adequately explain, to consumers that they would have a debt to the Commonwealth after the census date for each unit of a course.

(h)    The recruiters paid Aboriginal persons to assist in recruiting Aboriginal consumers to enrol the courses.

(i)    [Empower] enrolled consumers in courses who were not capable of undertaking and completing the course in which they were enrolled.

(j)    [Empower] was aware of the marketing and enrolment process and the implementation of the process.

26    The submissions reiterated a statement made in correspondence that the ACCC’s case is that the allegedly unconscionable marketing and enrolment process affected “an unknown but significant portion of the 10,000 students enrolled by [Empower]”.

EMPOWER’S COMPLAINTS

27    As articulated by Mr Sirtes SC, senior counsel for Empower, the following aspects of the ACCC’s case remain insufficiently stated:

(1)    The case based on the marketing and enrolment process.

(2)    The facts founding the alleged relationships of agency between Empower and the recruiters.

(3)    The facts relied on to allege Empower’s awareness of various aspects of the conduct of the recruiters said to form part of the marketing and enrolment process.

28    Mr Sirtes SC argued that the ACCC has failed to articulate how the alleged conduct of recruiters, said to form part of the marketing and enrolment process, forms part of a system of conduct developed or implemented by Empower. He submitted that the ACCC should clarify whether all parts of the alleged process are said to have been part of Empower’s design and, if not, how they can be alleged to form part of a system. He referred, in particular, to the statement in the ACCC’s submission (set out at para 25 above) that the marketing and enrolment process “include[s] the following elements operating in combination”. Mr Sirtes SC complained that the words “operating in combination” raises questions about, rather than clarifying how the conduct of the recruiters is alleged to form part of a process said to have been implemented by Empower. Is the “combination” merely the result of temporal proximity, or is it a matter of Empower’s design?

29    Mr Sirtes SC also questioned whether the contention, in para 7(c) of the ACCC’s submissions that the recruiters offered consumers cash, formed part of the alleged marketing and enrolment process. That matter is referred to at item 10 of sch 1 to the ASoC, but is not mentioned in the ACS.

30    On the questions of agency and awareness of recruiters’ conduct, Mr Sirtes SC submitted that his client is entitled to understand how the ACCC’s case is put because it affects the extent of Empower’s alleged involvement in the conduct of its recruiters.

31    Mr Sirtes SC noted a footnote to the ACCC’s submissions that the ACCC’s evidence “will be that [Empower] directed the targeting of locations”. He noted that, in another footnote, the ACCC stated:

[Empower] directed and permitted recruiters to target particular locations where vulnerable consumers were likely to be located. [Empower] was also aware of the large number of consumers being enrolled in its course, as well as the low completion rates of its student.

32    There was a complaint made in the written submissions filed on behalf of Empower about the scope of the evidentiary case based on the marketing and enrolment process. Empower sought “the closed list of specific ‘exemplars’ upon which the [ACCC relies] as establishing the “system” and the basic facts relied on in respect of each exemplar, as has been pleaded in respect of consumers A, B, C and D”.

ACCC’s responses to Empowers complaints

33    The ACCC contended that its “system or pattern of conduct” case is sufficiently disclosed, and conforms with the way that the ACCC pleaded and successfully ran its case in Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368; [2015] ATPR 42-498 (“AMI”). Dr Pritchard SC, senior counsel for the ACCC, argued that Empower’s response to the ACS demonstrated that Empower understands the case against it.

34    In AMI, North J held that the respondents’ conduct was unconscionable and concluded, at [939], that:

The ACCC demonstrated that AMI and NRM designed a system of conducting business which included some general elements. The nature of the advertising, the process by which patients interacted with AMI and NRM, the role of salespeople and their remuneration by commission, the contract terms and relevant refund policies, and the length and cost of treatment programs, were all matters which AMI and NRM implemented systemically and marked the way they conducted business. These systemic features could be seen in the individual cases which the ACCC proved.

35    The ACCC noted that in Australian Competition and Consumer Commission v EDirect Pty Limited [2012] FCA 1045, Reeves J accepted that the ACCC could run a “system” case, saying at [92]:

…I consider that the ACCC may prove this system by aggregating the presence of those critical features in the multiplicity of discrete dealings that involved the 3,000 (approximately) calls the whole group of EDirect telemarketers made to potential customers.

36    The ACCC contended that it is plain from the ASoC that one contravention of s 21 is alleged involving the development and implementation of a single marketing and enrolment process (which included the use/engagement of recruiters said to be agents of Empower).

37    The ACCC acknowledged that it is an element of the alleged system that Empower was aware of the marketing and enrolment process and its implementation. However, it said that it was not required to prove knowledge to establish a contravention of s 21 of the Australian Consumer Law.

38    As to the question of agency, the ACCC submitted that this is a question for evidence. It noted that Empower has in its possession its contracts with the various marketers.

LEGAL PRINCIPLES

39    Paragraph 5.4 of the draft practice note states, relevantly:

The purpose of a concise statement is to enable the applicant to bring to the attention of the respondent and the Court the key issues and key facts at the heart of the dispute and the essential relief sought from the Court before what might be the considerable cost of preparation of detailed pleadings is incurred.

40    Paragraph 5.5 provides:

If a concise statement is filed with the originating application, no further originating material in support (whether by statement of claim or affidavit) is required to be filed until the Court orders that to be done.

41    Paragraph 5.6 of the draft practice note stipulates that the concise statement must not exceed five pages. Paragraph 5.8 of the draft practice note encourages applicants to select the use of a concise statement, rather than a statement of claim or an affidavit (both of which would generally be much more detailed documents), unless it is clearly not an appropriate mechanism.

42    The draft practice note provides for a case management hearing or hearings to follow the filing of a concise statement. The aim of case management hearings is to identify the issues at the earliest possible stages: para 6.6 of draft practice note, and to establish the most appropriate way to prepare the case for trial and any alternative dispute resolution process: para 6.9 of draft practice note.

43    The concise statement, as explained by the draft practice note, bears similarities to the “Fast Track Statement” provided for by the current Federal Practice Note CM8. By para 4.2 of that practice note, the Fast Track Statement must, “avoiding undue formality”, state in summary form:

(a)     the nature of the dispute;

(b)     the issues that the applicant believes are likely to arise in the proceeding;

(c)    the applicant’s contentions, including the material facts upon which the applicant intends to rely (which must be stated with adequate particulars), the relief claimed and the legal grounds for that relief.

44    In Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 5) [2016] FCA 167 at [8], Edelman J said:

A fast track statement is intended to ensure that the dispute is presented in an efficient, cost effective, and expeditious manner and without unnecessary formality. It is a move towards a transparent, simple, plain English legal procedure. But it does not abandon natural justice. A party remains entitled to be informed of the essential allegations made against him or her, including the material facts upon which the allegations are based: Federal Court Rules 2011 (Cth) (“Federal Court Rules”) r 16.02(1)(d).

45    The ACCC accepted that it should identify the material facts necessary to ensure the basic requirement of procedural fairness: Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286.

Particulars of conditions of mind

46    Rule 16.43 of the Federal Court Rules 2011 provides:

(1)    A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies.

(2)    If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge.

(3)    In this rule:

condition of mind, for a party, means:

(a)    knowledge; and

(b)    any disorder or disability of the party’s mind; and

(c)    any fraudulent intention of the party.

47    In Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 527 at [9] to [11], a Full Court stated:

9.    It has long been the case, in various jurisdictions, that particulars are to be provided of facts and circumstances relied upon to support a plea that something ought to have been known (see Fox v H Wood (Harrow) Ltd [1963] 2 QB 601 at 604 and Smith v Littlemore (1996) 15 WAR 289 at 300). Knowledge itself has usually been treated differently. Knowledge of, or recklessness towards falsity, by way of example, may usually be pleaded as the material fact without particularisation (see Ritter v North Side Enterprises Pty Ltd [1975] HCA 18; (1975) 132 CLR 301 at 304). Allegations of fraud, or the involvement of persons in statutory breaches sufficiently analogous to allegations of fraud, on the other hand, have required the provision of quite specific particulars.

10.    The reason for not being required to particularise knowledge is not fully explained in the cases. It may be assumed that, on the one hand, there is the obvious difficulty of knowing what is inside another’s mind. On the other hand, there may be instances where the evidence to be relied upon to establish knowledge could be identified by particulars. That evidence might be an admission or a communication, written or oral, that could only give rise to the relevant state of mind. In appropriate cases, the provision of particulars has been ordered when sought.

11.    There are sound reasons for requiring knowledge to be particularised, at least in relation to the kind of allegations made in the Statement of Claim. Proving a director’s actual knowledge of the essential ingredients of a contractual or tortious breach or statutory contravention is a prerequisite to the director’s personal liability. For statutory breaches, it is well established that, in order to be an accessory or to be knowingly involved in a contravention, a person must have intentionally participated, having knowledge of the essential matters constituting the contravention (see Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661). That is not imputed or constructive knowledge but, rather, actual knowledge. It would not usually be sufficient to establish a statutory breach to show that a person said to be an accessory to such a breach wilfully shut his or her eyes to the obvious (see Giorgianni v The Queen [1985] HCA 29; (1985) 156 CLR 473). Actual knowledge of suspicious circumstances and failure to make enquiry may be different (see Pereira v Director of Public Prosecutions (1988) 63 ALJR 1 at 3). However, actual knowledge of suspicious circumstances is not pleaded in the Statement of Claim in the sense required for accessorial liability.

(Emphasis in original.)

48    Practice & Procedure High Court and Federal Court of Australia (LexisNexis, subscription service) at p 44, 805, [r 16.43.10] (service 249) contains the following comment:

It is respectfully suggested that any question of particulars of a state of mind raises a difficulty. Inevitably, all that can be given are particulars of facts and circumstances from which the state of mind is to be inferred. This seems to be an exceptional case in which the court accepts that it is appropriate to order that particulars be given of the evidence by which a fact (the state of mind) is to be proved.

Particulars of agency

49    An agency is a fiduciary relationship. It may arise by an express or implied manifestation of assent on behalf of the principal that the agent should act on the principal’s behalf so as to affect the principal’s relations with third parties. Bowstead & Reynolds on Agency (20th ed., Sweet & Maxwell, 2014), para 1-001, sets out the following basic proposition:

Where the agent’s authority results from a manifestation of assent that he should represent or act for the principal expressly or impliedly made by the principal to the agency himself, the authority is called actual authority, express or implied. But the agency may also have authority resulting from such a manifestation made by the principal to a third party; such authority is called apparent authority.

50    Allegations that “recruiters” acted as Empower’s agent, with its actual or apparent authority may be based upon an express or an implied assent from Empower to a recruiter, or to a consumer, that the recruiter is authorised to act for Empower. That assent may be written or oral, or partly oral and partly in writing. If it is implied, there may be a variety of circumstances by which the assent is implied. Those circumstances may be able to be identified by reference to occasions and to the substance of what occurred on those occasions.

51    The degree of particularity required to inform Empower of the case made against it is a matter which depends upon the nature of the allegations: Police & Nurses Credit Society Ltd v Burgess Rawson (WA) Pty Ltd [2006] FCA 1395. In some cases, a party may be unable to give full particulars, for example, where it is not in possession of the relevant documents. Full particulars may only be available after discovery in some cases.

CONSIDERATION

The ACCC’s “system” case

52    In my view, the ACCC has sufficiently identified facts which, if proved, may be characterised as a system of conduct. The system is the alleged marketing and enrolment process. The ACCC’s case is not based on a mere aggregation of discrete transactions. The marketing and enrolment process is alleged to include a policy set by Empower of offering “inducements” to consumers to enrol in a course, the payment of commissions to marketers, Empower’s failure to enforce a requirement that markets obtain written approval to sub-contract their roles and Empower’s provision of training and instruction to recruiters (presumably marketers and brokers, although this is a matter which should be clarified if necessary).

53    The contention in the ACCC’s submission that Empower incentivised recruiters is reflected in para 1.6 of prayer 1 in the originating application. However, there are no facts alleged relevant to this claim, except the alleged payment of commissions to marketers. Empower is entitled to know whether any other facts are relied upon. If there are no other relevant facts, the ACCC should clarify the scope of para 1.6 of prayer 1 in the originating application which refers to “recruiters” and not only marketers. If the ACCC intends to make other allegations, it should identify, in its concise statement, the alleged facts underpinning its case that Empower incentivised recruiters, being both marketers and brokers. These facts should address whether the case is that all recruiters were incentivised in the same way over the duration of the period of the alleged contravention, or whether there were differences in the manner in which recruiters were incentivised. It should also identify, in its concise statement, the occasions on which Empower allegedly directed recruiters to target particular locations and the substance of the alleged directions.

54    Similarly, the occasions on which it is alleged that recruiters offered consumers cash should be identified. The occasions on which it is alleged that recruiters paid Aboriginal persons to assist in recruiting Aboriginal consumers (referred to in para 9 of the ACS) should be identified.

55    I accept Mr Sirtes SC’s submission that the ACCC’s case for including the conduct of recruiters as part of Empower’s marketing and enrolment process should be clarified in the concise statement. Empower is entitled to know whether the case is based on anything other than the alleged agency relationship between the recruiters and Empower and the recruiters’ conduct of which Empower was allegedly aware. To the extent that it will be alleged that Empower caused or procured that conduct (apart from acts done to create an agency relationship, which is addressed below), the ACCC should identify, in its concise statement, the particular acts by or on behalf of Empower that are said to support that allegation. It should also identify any other facts, matters or circumstances, by which it is alleged that the conduct of recruiters formed a part of Empower’s marketing and enrolment process. The ACCC should also clarify whether its case is that the system was implemented in a uniform manner by all recruiters, or whether there were differences in the way the system was implemented.

Evidence in support of the ACCC’s “system” case

56    The ACCC has identified the “closed list” of specific “exemplars” from which the system is to be inferred, being the 19 consumers who have provided affidavits, Mr Gordon (who has provided a proof of evidence) and one other consumer who will provide an affidavit.

57    I am not satisfied that it will be useful for the ACCC now to provide a summary of the basic facts contained in those affidavits, which will be said to exemplify the system. In my view, the facts are not sufficiently complex to justify that work. However, the concise statement should clarify the extent to which it is alleged that the marketing and enrolment process was designed by Empower, and the extent to which it allegedly developed over a period of time. To the extent that the case is that the process developed, the ACCC should identify the facts concerning the alleged inclusion of various elements in the process.

Facts constituting the recruiters as Empower’s agents

58    A critical part of the ACCC’s case is that Empower engaged in unconscionable conduct by developing and implementing a system which involved the conduct of third parties, namely, the recruiters (comprising marketers and brokers).

59    At the moment, it is not clear how the ACCC’s case on agency is put, beyond the fact that the ACCC will rely on written contracts between Empower and the marketers. The ACCC’s submissions noted that it will be part of the ACCC’s evidentiary case that Empower was unaware that many recruiters were performing marketing and enrolment services on its behalf. In my view, having regard to the centrality of the issue of agency in the ACCC’s case, and the serious allegations of misconduct by Empower’s alleged agents, Empower is entitled to know how it is alleged that the various recruiters, both marketers and brokers, were its agents. This is not simply a matter of identifying the evidence upon which the ACC will rely. It involves identifying the facts underlying the present allegations that the recruiters acted with Empower’s “actual or apparent authority”, noting that, as explained above, the facts underpinning these alternate allegations will necessarily be different.

Facts relied on to allege Empower’s awareness of recruiters’ conduct

60    It appeared from submissions made on behalf of the ACCC that one of the bases for Empower’s alleged awareness is complaints made to Empower about the conduct of its recruiters. That submission raises a question about whether the ACCC’s case is based upon an awareness of all recruiters’ conduct throughout the implementation of the marketing and enrolment process, or whether the case may be that Empower’s alleged awareness evolved over time, or concerned only the conduct of some recruiters.

61    In my view, Empower is entitled to the best particulars that the ACCC is able to prove of Empower’s awareness of the activities of recruiters that are said to form part of the marketing and enrolment system. This will include the various facts of which Empower was allegedly aware and when those facts were known to Empower.

Alternative case based on Empower’s direct conduct.

62    The concise statement should specify which conduct is referred to in para 22 of the ACS.

CONCLUSIONS AND CASE MANAGEMENT

63    I will make orders to give effect to these reasons and for the further case management of the matter. The effect of my orders will be that the further amended concise statement will be more than five pages long. The conclusion that the further amended concise statement required additional detail does not necessarily mean that the original concise statement was insufficient for the purpose for which it was intended. Rather, as a result of the preparation of the matter and the process of case management, the need for further detail to clarify the issues in the proceeding has been identified.

Associate:    

Dated:    29 April 2016