FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521

ORDERS

THE COURT ORDERS THAT:

1.    Subject to the condition in paragraph 2 of these orders, leave be granted to the applicants to continue proceedings against the respondent in liquidation pursuant to s 500(2) of the Corporations Act 2001 (Cth).

2.    The applicants must not seek to enforce any orders for pecuniary penalties, refunds (pursuant to section 232(6)(a) of the Australian Consumer Law (contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth)), or costs, made against the respondent, without first obtaining the leave of the Court to do so.

3.    Costs of the first applicant’s interlocutory application be costs in the cause.

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

REASONS FOR JUDGMENT

BROMWICH J:

1    This is an application by the first applicant on behalf of both applicants for leave to continue proceedings brought against a company that has since gone into voluntary liquidation. The application is required by s 500(2) of the Corporations Act 2001 (Cth), which provides:

After the passing of the resolution for voluntary winding up, no action or other civil proceedings is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

2    The applicants are the Australian Competition and Consumer Commission (ACCC) and the Commonwealth of Australia. The respondent is Australian Institute of Professional Education Pty Limited (in liq) (ACN 126 628 215).

3    The applicants commenced proceedings against the respondent on 1 April 2016. On 6 October 2016, directors of the respondent resolved to wind up the company and liquidators were appointed on the same date. The liquidators oppose leave being granted, at least at this stage, and in any event as to particular aspects of the relief sought.

4    The present application for leave to continue the proceedings was filed on 25 October 2016, but the hearing of it, originally scheduled to take place in November 2016, was delayed on the liquidators’ application until March 2017. By agreement it was delayed again until it was heard on 2 May 2017. For the reasons that follow, leave should be granted to continue the proceedings, subject to conditions.

The substantive proceedings and key evidence in this application

5    The substantive proceedings brought against the respondent arise from it being the provider of vocational education courses which were eligible for Commonwealth funding by way of student loans under the Higher Education Support Act 2003 (Cth). The applicants allege that the respondent engaged in conduct in connection with the supply of those courses to consumers that was unconscionable and misleading or deceptive, or likely to mislead or deceive, in contravention of ss 18, 21 and 29(1) of the federal version of the Australian Consumer Law (ACL), which is in schedule 2 to the Competition and Consumer Act 2010 (Cth). Payments were made to the respondent, pursuant to the loans scheme, in excess of $210 million, although the sums in dispute are some subset of that amount.

6    It is convenient to reproduce and adopt for the purposes of this application the succinct summary of the loans scheme provided by Perry J in Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) [2016] FCA 1246; (2016) 116 ACSR 353. While that decision is the subject of an appeal to the Full Court with judgment reserved, I am not aware of any challenge to the characterisation her Honour gave to the scheme, and in any event it appears to conform with the burden of submissions before me, and my own reading of the provisions. The references to the respondent in that case, Phoenix, may be read as having the same application to the respondent in this case. Her Honour said:

3.    BACKGROUND

3.1    The VET FEE-HELP assistance scheme

11    Under the Higher Education Support Act 2003 (Cth) (the Higher Education Support Act), an eligible student who enrolled in one or more of the Phoenix courses and satisfied the criteria in cl 43 of Sch 1A to the Higher Education Support Act was entitled to a Commonwealth student loan known as ‘VET FEE-HELP’. By virtue of cl 55 of Sch 1A to the Higher Education Support Act, the amount of any such loan was paid directly to the provider of vocational education and training (VET) courses in discharge of the student’s liability to pay the VET tuition fees. As such, under the scheme a student entitled to a VET FEE-HELP loan incurred a debt to the Commonwealth for each unit of study in which she or he was enrolled (s 137-18(1) and (3), Higher Education Support Act). The debt amounted to 120% of the loan (s 137-18(2), Higher Education Support Act) and the student was liable to repay the debt even if she or he did not complete the course. However, the student would become liable to repay the debt only when her or his income exceeded the minimum income threshold (being $53,354 in the period 1 July 2014 to 30 June 2015).

12    In addition, under cl 61 of Sch 1A, the Secretary may determine that an advance is to be made to a VET provider of an amount “expected to become payable under a provision of this Schedule to the provider”. However, under cl 61(1A), the Secretary had power to vary or revoke a determination that an advance be made if satisfied that the provider had not complied with Sch 1A and the regulations, having regard to matters specified in cl 61(1B). Furthermore, under cl 61(2), if the advance exceeds the amount that becomes payable, an amount equal to the excess may be deducted from any amount that is payable or to be paid or recovered by the Commonwealth from the provider as a debt due to the Commonwealth.

7    The provisions in the Higher Education Support Act for auditing for compliance with the requirements of the loan scheme are contained in cl 26 of Schedule 1A of that Act as follows (the term “VET provider” marked with an asterisk being defined in Schedule 1):

(1)    The Minister may require a *VET provider to be audited:

(a)    about compliance with any or all of the following requirements:

(i)    the *VET financial viability requirements;

(ii)    the *VET fairness requirements;

(iii)    the *VET compliance requirements;

(iv)    the *VET fee requirements;

(v)    other requirements for VET quality and accountability set out in the *VET Guidelines; or

(b)    about any or all of the following matters relating to *VET courses of study provided by the VET provider:

(i)    …

(ii)    the veracity of enrolments in those courses of students who receive VET FEE-HELP assistance for VET units of study forming part of those courses;

…

…

(2)    The audit must be conducted:

(a)    by a body determined in writing by the Minister; and

(b)    at such time or times, and in such manner, as the Minister requires.

…

(3)    The provider must:

(a)    fully co-operate with the auditing body in the course of its audit; and

(b)    pay to the auditing body any charges payable for such an audit.

…

8    An audit of the respondent is presently underway in respect of the 2015 and 2016 years.

9    It is convenient to adopt the global summary of the applicants’ case contained in their written submissions in support of this application. The applicants allege that:

(1)    From 1 May 2013, the respondent began to offer, sell and market online courses to students living in low socio-economic communities across Australia, including in rural towns, remote communities and communities with significant indigenous populations. Each course cost at least $12,000 (an amount that is disputed) and many students were enrolled in two courses.

(2)    At all times, an eligible student who enrolled in one or more of the respondent’s courses was entitled to a Commonwealth student loan (called VET FEE-HELP). The loan was not paid by the Commonwealth to the student, but paid directly to the respondent in discharge of the student’s liability to pay course fees.

(3)    A student entitled to a loan will incur a debt to the Commonwealth for each unit of study in which he or she is enrolled. The debt amounts to 120% of the loan. The student is liable to repay the debt even if he or she does not complete the course. Repayments are only required when a minimum income threshold is met, which in the period from 1 July 2014 to 30 June 2015 was $53,345.

(4)    Most of the students who enrolled in one or more of the respondent’s courses applied for and obtained a loan.

(5)    The respondent, via contractors, deliberately recruited students who were unlikely to complete, or even begin, its courses and did not explain to most students the nature of their loan obligations if they enrolled in a course. The applicants’ case is that most of the students did not know that they are incurring a debt to the Commonwealth or when that debt would have to be repaid.

10    The case brought by the applicants seeks to rely upon the ability of the ACCC to bring an unconscionable conduct case based upon a “system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour”: see s 21(4)(b) of the ACL. To that end, the applicants bring an important aspect of their case on what amounts to a representative basis to prove a system of conduct or pattern of behaviour, relying upon a very small percentage of the total number of students enrolled in the respondent’s courses. Even if the number of student witnesses dramatically increases from the present, it will still be a number well below 100 and perhaps well below 50, as against enrolments in 2013 and 2014 in excess of 8,000, out of a total enrolment of some 16,000.

11    It may be observed that there are inherent difficulties in the applicants seeking to establish an overall system of conduct or pattern of behaviour based upon a relatively small sample of the alleged contravening conduct. A clear and sound evidentiary and legal basis is required before the conduct of a sample can safely form the basis of a conclusion that it is sufficient, and in particular, sufficiently representative, to prove the existence of an overall system or pattern applicable to the balance of the activities of a respondent. Such a case has been run by the ACCC previously and is the subject of a reserved judgment, the contents of which are likely to be informative on this topic.

12    The expert relied upon by the applicants unfortunately died earlier this year. The Court was also informed that the applicants are also endeavouring to expand the pool of student witnesses.

13    The system of conduct or pattern of behaviour case is not central for all aspects of the relief sought by the applicants, such as the declarations and pecuniary penalties (although perhaps relevant to quantum if that point were to be reached), but it is indispensable for a key aspect of the relief sought by the applicants in respect of any wider pool of students beyond the relatively few being brought forward as witnesses. The decision for leave does not entail either endorsement or disapproval of this aspect of the applicants’ case: as noted above, such a case has already gone to trial and awaits judgment. In any event, such a conclusion falls beyond the scope of the present adjudication. Such a case is both conceptually possible and contemplated by the ACL. It is sufficiently viable conceptually for the purposes of consideration of leave to endeavour to prosecute such a case. Whether such a case should go to trial and ultimately succeed is a matter for determination by way of the ordinary processes of the Court, in common with any other case litigated. A decision to grant leave does not preclude the respondent from advancing any other procedural remedies available to it in the course of the proceedings, with all the usual hurdles and risks, including as to costs.

14    Because the respondent is now in liquidation, the applicants no longer seek an injunction that the contravening conduct cease, compliance program orders or publication orders as provided for under ss 232, 246(2)(b)(i) and 246(2)(d) of the ACL respectively. The ACCC continues to seek pecuniary penalties under s 224 of the ACL. Both applicants seek declarations of contravention, of engaging in unconscionable conduct, and costs. To that point, the controversy is one of timing, with the liquidators asserting that there is no urgency in the obtaining of that relief given that the respondent is no longer trading and is no longer an authorised education provider.

15    In reliance on the system of conduct or pattern of behaviour aspect of their case referred to above, the applicants also seek injunctions requiring the respondent to refund the student loan payments previously paid by the Commonwealth, a declaration as to enrolment agreements being void, and a declaration as to agreements between consumers and the Commonwealth being void, under s 239 of the ACL. Section 239(1) permits this Court to make such orders beyond damages as considered appropriate. If such declaratory relief was granted, it would have the effect of extinguishing the student loan debts to which it applied, freeing those students from any liability to repay the Commonwealth. The relief is sought subject to certain triggers apparently designed to ensure that students who successfully completed the respondent’s courses are excluded unless they were in some way relevantly misled.

16    An important feature of the applicants’ case is that the conduct and representations upon which it relies are not alleged to have been made by employees of the respondent, but rather by individual service providers contracted to enrol students in the respondent’s courses in return for a commission payment. The respondent admits the formal aspects of the scheme by way of an amended response to the applicants’ concise statement. However, it denies that it engaged in any system of conduct or pattern of behaviour for marketing to and enrolling students that was unconscionable, that it engaged in conduct that was misleading or deceptive, that the individual service providers contracted by it to enrol students were its agents or sub-agents, or that any of the representative students relied upon by the applicants had suffered loss or damage by reason of the conduct alleged.

17    The respondent denies that the Commonwealth is entitled to be repaid the as yet unquantified amounts referred to in the applicants’ concise statement, but on present indications the applicants will likely be seeking findings of liability, if not immediate enforcement, amounting to many millions of dollars.

18    It is apparent that the proposed proceedings will require resolution of whether or not the conduct alleged to be carried out by the individual service providers contracted by the respondent in fact occurred, whether it occurred in a significant number of instances, and, for the broader relief, whether it constituted a pattern of behaviour having the features relied upon by the applicants. If each of those things is established, there will be live questions as to whether responsibility for that conduct can be sheeted home to the respondent, especially given the denial of any agency relationship. A collateral but highly important issue concerns the structure of the Commonwealth loan scheme and whether it, in effect, simply allows outcomes for individual consumers of the kind alleged to have taken place because of its particular provisions and apparent design features.

19    On any view, there is a myriad of complicated factual and legal issues that will require resolution. The applicants did not dispute evidence relied upon by the respondent to the effect that its own costs in defending the proceedings were likely to be a very substantial problem, probably in excess of $1 million, even before consideration is given to any adverse costs orders that may be made.

20    A further complication arises from the way in which the loans scheme allowed education providers to claim for and be paid upon the basis of estimates, which were then the subject of reconciliation against final student loan entitlements. That in turn usually requires a determination of valid enrolments of some kind. At the end of the reconciliation process, the education provider might be entitled to additional payment due to underestimating enrolments or it may have been overpaid. If an overpayment had taken place, that could be offset against future payments, or it could be sought to be recovered by the Commonwealth. At the time of hearing this application, there was an audit process taking place in order to reconcile the last advance payments against enrolments. In the correspondence in evidence, the liquidators express doubt that the absence of a student being bona fide is any impediment to the prior payment of loan moneys to the respondent being lawful and therefore passing muster for audit and reconciliation purposes, due to the structure and terms of the legislation. Whether directly or collaterally, that may be an issue falling for determination in these proceedings.

21    As relevant to the principles and submissions discussed below, the following should also be noted:

(1)    much of the relief sought by the applicants cannot be the subject of lodgement as a proof of debt in the liquidation (namely declarations, injunctions and civil penalties), which is an important consideration because that usual form of relief is to that extent not available without leave;

(2)    while the audit and reconciliation process presently remains underway, there is no suggestion of any multiplicity of any other actions – the only other form of litigation that is possibly in contemplation concerns judicial review proceedings on issues of construction and application of the Higher Education Support Act in relation to the audit and reconciliation process underway, especially in relation to the issue raised by the liquidators of the need for students to be shown to be bona fide;

(3)    while neither party placed any weight on the composition of the creditors, it is relevant that approximately 98% of all unsecured debts referred to in the liquidators’ evidence are owed to Commonwealth entities, which is at least a relevant consideration, although clearly not determinative – the prejudice to the remaining unsecured creditors remains and is undeniably significant;

(4)    these proceedings are not between competing commercial interests, but involve matters of public interest of the kind averted to in the authorities discussed below;

(5)    the proceedings are not significantly advanced, although limited weight can be given to this factor because the liquidators took steps to delay their progress six months ago by successfully postponing the hearing of this application to permit more time to consider the position of the company;

(6)    the assets available to the liquidators are quite meagre and are likely to be fully dissipated by the proceedings if they are permitted to continue, which is likely to eliminate any prospect of a return to the unsecured creditors;

(7)    the respondent paid a dividend of some $34 million to its owner corporation, which money has been voluntarily held without dissipation – it is unclear whether any of that money will be able to be recovered and made available to creditors, or whether the continuation of these proceedings will help or hinder the prospect of that occurring; and

(8)    the owner corporation in receipt of the dividend of about $34 million has offered to fund the liquidators’ defence of these proceedings, capped at $2 million, which the liquidators say is not enough and is subject to conditions that the liquidators are not presently willing to accept, especially as to that quantum.

Legal principles for leave to continue proceedings

22    As Foster J pointed out in Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) [2016] FCA 1471 at [14], the legislation is silent as to the principles to be applied in determining an application for leave. In refusing leave, his Honour conveniently summarised the principles emerging from several of the leading authorities:

15    In Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 at 315–317, McPherson J, when sitting as a judge of the Full Court of the Supreme Court of Queensland, summarised the relevant principles. I extract the following relevant propositions from his Honour’s summary:

(a)    A decision granting or refusing leave to proceed against a corporation in liquidation involves the exercise of a judicial discretion;

(b)    The prohibition against commencing or proceeding with an action or other proceeding against a company once a winding up order is made or the company is placed into liquidation is a feature of companies legislation of long standing;

(c)    Without the relevant restriction, a corporation in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well as in some cases completely unnecessary. This explanation has been accepted in a number of Canadian cases and was also accepted by Street J in Re AJ Benjamin Ltd (In Liq) [1969] 2 NSWR 374 at 376, (1969) WN (Pt 1) (NSW) 107 at 109–110;

(d)    Generally, what is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge who determines that appeal de novo;

(e)    A claimant should proceed by way of lodgment of a proof of debt unless he or she can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute; and

(f)    It is impossible to state in an exhaustive manner all of the circumstances in which leave to proceed may be appropriate. However, in the past, those circumstances have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved and the stage to which the proceedings, if already commenced, may be progressed.

16    These remarks of his Honour were approved by the Full Court of this Court (Wilcox, Burchett and Beazley JJ) in Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 554–555.

17    In Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22], I said:

In Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484, Lee J discussed the relevant considerations which should ordinarily guide the exercise of the discretion to grant leave to proceed against a corporation in liquidation. The following considerations may be extracted from his Honour’s judgment:

(a)    The purpose of having a requirement for leave is to prevent a corporation in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily.

(b)    In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action.

(c)    For leave to be granted, it must be shown that there is a serious or substantial question to be tried and a real dispute between the parties. Leave will not be granted where the applicant does not have a genuine claim or where the claim would be futile.

18    One factor of importance in deciding whether leave to proceed should be granted is whether the relevant corporation was insured against the liability in respect of which the plaintiff is suing (Re Sydney Formworks Pty Ltd (In Liq) [1965] NSWR 646 at 651; (1965) 82 WN (Pt 1) (NSW) 558 at 564 per McLelland CJ in Eq).

23    While the protection of the interests of creditors is undoubtedly important, it is wrong in principle to regard that consideration as being of itself determinative of an application for leave in all cases. As was pointed out by the Full Court in Vagrand Pty Ltd (In liq) v Fielding (1993) 41 FCR 550 at 552, while the availability of assets for the purposes stipulated by companies legislation is important, it is overstating the position to suggest that the right to pursue relief under trade practices legislation must always give way to that consideration. Their Honours observed at 552-3:

It is true that, upon a winding up of a company, the appointed liquidator comes under an obligation to take control of the company’s assets and realise them for the benefit of the creditors, after payment of all proper outgoings. But the liquidator takes the assets subject to such liabilities as then attach to them. …

The point, of course, is that the assets come to the liquidator with their history and inherent characteristics. Although the liquidator takes the assets on behalf of the creditors, third parties retain any rights which enure to them as a result of that history or those characteristics. …

We do not suggest that, in a case where the desired relief is otherwise unavailable, an applicant is automatically entitled to leave under s 371(2) of the Companies Code, or its equivalents. The question of leave is always a matter of discretion. But the circumstance that relief is not otherwise available to an applicant must always be a significant factor in favour of leave.

24    The last point above was applied by Bennett J as part of the reason for granting leave (under the parallel provision in s 471B of the Corporations Act) in Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790; (2008) 68 ACSR 561 at 565 [11].

25    In this case, the source of the money received by the respondent and how it came to it cannot be ignored. That is especially so when wider public interests are concerned, and in this case the issue of the possibility, yet to be determined, of many students being left with substantial liabilities, which on the applicants’ case should never have been visited upon them. Of course, that may not be the conclusion ultimately reached, but it is the position that the applicants seek to vindicate.

26    Because these are proceedings brought by the ACCC as the regulator in relation to consumer protection and by the Commonwealth in its capacity as the public funder of an aspect of the vocational education system, consideration must be given to the public interest factors relied upon by them favouring the grant of leave, including as to the purposes of such proceedings (mainly focusing on the regulator aspect) as follows:

(1)    the purpose of a civil penalty, and thus of such proceedings, is primarily if not wholly protective in promoting the public interest in compliance, by putting a price on contravention that is sufficiently high to deter repetition by the contravener [not a factor in this case] and by others tempted to contravene: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476 (the CFMEU civil penalty case) at 490 [55], quoting Trade Practices Commission v CSR Ltd (1991) ATPR 41–076 at 52,152;

(2)    capacity to pay any penalties imposed was not a proper or relevant consideration: Australian Competition and Consumer Commission v Leahy (No. 2) [2005] FCA 254; (2005) 215 ALR 281 at 285 [11];

(3)    even if a company is in liquidation, it may still be appropriate to order that it pay penalties as a measure of the Court’s disapproval of the contraventions and as a measure of the seriousness in which they are regarded, including for the purposes of general deterrence: Australian Competition and Consumer Commission v SIP Australia Pty Limited [2003] FCA 336; (2003) ATPR 41-937 at 47,077-8 [59] – it was not suggested that this principle was diminished in a material way by such penalties not ultimately being recoverable by reason of the respondent being in liquidation;

(4)    the ACCC as the body enforcing the civil penalty provisions in question has a real interest in seeking declaratory relief to vindicate a public right that the ACL has been breached: Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885; (2001) ATPR 41-801 at 42,630 [30]; Australian Competition and Consumer Commission v Pacific Dunlop Limited [2001] FCA 740; (2001) ATPR 41-823 at 43,098-9 [63]-[69] – a point that may be seen to apply equally in respect of the other relief sought; and

(5)    there is a significant public interest in declarations of contravening conduct and imposition of penalties being on the public record in aid of deterrence, which is not defeated by the fact that the company is in liquidation and unable to pay the penalties: Secretary, Department of Health and Ageing v Prime Nature Prize Pty Ltd (in liq) [2010] FCA 597 at [22]-[23].

Issues, arguments and resolution

Applicants’ case

27    The applicants’ case for the grant of leave, advanced in the context of the principles outlined above, was that the proceedings were in the public interest and could not be pursued by way of lodging a proof of debt. In relation to the declarations, it was submitted that they serve to vindicate the ACCC’s claim that the respondent contravened the ACL, are of assistance in clarifying the law, promote general deterrence and may serve to inform consumers of the dangers arising from conduct of the kind said to have been engaged in by the respondent. Additionally it was said that there was a particular public interest and pragmatic factor in the aspect of the case by which declarations were sought to render void the enrolment contracts and cancel the debts that the students owed to the Commonwealth, as well as in preventing the liquidators from seeking to enforce enrolment agreements against individual students.

28    In relation to the 2013 and 2014 years, some 8,000 students were enrolled in the respondent’s courses with the help of loan payments, with those students incurring debts to the Commonwealth totalling almost $99 million. Of that sum, the Commonwealth was asserting an overpayment of almost $8 million on the basis of reconciling advances with enrolments. It was apparent, from evidence of student complaints made to the Commonwealth Department of Education and Training, that debts have been recorded against tax file numbers by the Australian Taxation Office. Some students have written to the Department seeking to have their debts remitted. While it may be the case that few if any of the 8,000 or so students enrolled in 2013 and 2014 have reached the earnings threshold so as to be required to make repayments, such debts once incurred are required to be disclosed as liabilities by students when applying for personal loans, home loans, investment property loans, equity loans and various other loans. The interests of those students are therefore currently affected by having been enrolled in the respondent’s courses.

29    It was submitted on behalf of the applicants that at least a proportion of the debts incurred by some 8,000 students would be cancelled if the applicants succeed in their case, which was a powerful factor in favour of the grant of leave.

30    It was acknowledged that there is a significant dispute between the parties about the reconciliation between the advance payments and the final entitlement for the 2015 and 2016 years. That process may be protracted. It was submitted that any decision made by the Department which is adverse to the respondent on this subject may itself be the subject of proceedings which may take a significant time to be resolved. In the meantime, the important declarations and other remedies sought would be put on hold, including the cancellation of debts incurred by students who were enrolled in courses prior to the period of that covered by that dispute, namely in 2013 and 2014. It was submitted that there was a public interest in the ACCC being able to conduct and complete these proceedings expeditiously, especially as the proceedings had already been stayed since the beginning of October 2016 when the liquidators were appointed. It was therefore submitted that the proceedings should not remain stayed pending the outcome of the 2015 and 2016 reconciliation process, or any judicial review and appeal. Additionally, the relief sought in the current proceedings was wider than any relief that could be obtained through the audit reconciliation process. In particular, that administrative process would not determine whether the conduct of the respondent was unconscionable, no pecuniary penalties would be ordered and therefore there would be no deterrent factor. The reconciliation process also would not lead to the making of declarations that the enrolment agreements are void and would therefore not resolve the legal position between individual students and the respondent.

31    Considerable emphasis was placed on the deterrent aspect of pecuniary penalties, in line with the authorities discussed above.

32    On the topic of prejudice to creditors, it was submitted that the grant of final relief would not in itself prejudice those interests. The applicants were amenable to a condition not to enforce any pecuniary penalties, the refund remedy sought pursuant to s 232(6)(a) of the ACL, or any costs order in their favour, without further leave of the Court.

33    It was submitted that the sole prejudice to creditors identified was the costs in defending the proceedings, but it was noted that the liquidators are not yet in a position to form a view as to whether it is in the interests of the creditors for the proceedings to be defended and have not therefore made a decision to defend the proceedings in the event that leave is granted.

34    Finally it was submitted that while the costs in defending the litigation would be significant, they were not sufficiently significant to outweigh the foregoing considerations in favour of allowing the proceedings to proceed in a timely way. Overall, it was submitted that the public interest in favour of leave outweighed the considerations against.

Respondent’s case

35    One of the key submissions made on behalf of the respondent against exercising the discretion in favour of granting leave was the existence of similar proceedings concerning “materially identical” allegations against other VET providers. It was said to follow that the public interest in general deterrence would be met by any declarations made in those proceedings. I reject that argument. A selective and perhaps inconsistent approach to enforcing breaches of the law is not in the public interest and is not facilitative of general deterrence. In any event, each case against each education provider turns on its own facts and it cannot be assumed that the issues will be the same. Moreover, as was pointed out on behalf of the applicants, at least one of those cases involves conduct on the part of the employees rather than on the part of contractors, making that particular aspect significantly different. Further, if the rights and interests of the individual students previously enrolled with the respondent is to have any weight or significance, the fact that other students enrolled with other education providers may obtain the benefit of those proceedings, while the students enrolled with the respondent may not, rather tells against that being a reason for not granting leave.

36    It was submitted that the Corporations Act mandates a detailed scheme for the determination of the rights of individual creditors, with the requirement for leave being integral to the scheme. It was submitted that the purpose of the provision is to prevent a company’s assets being dissipated by unnecessary litigation. There is little doubt that leave would not be given for litigation considered to be unnecessary. However that begs the question, rather than answering it. The question raised by the respondent is whether these proceedings can properly be described as “unnecessary”. I do not accept that is a proper description for these proceedings.

37    It was also submitted that the grant of leave is a departure from the ordinary process of lodging a verified proof of debt with the liquidators. However, again, that is only a significant consideration if either there is no aspect of the proceedings in relation to which leave is sought which goes beyond the matters that can be the subject of a proof of debt, or to the extent that such matters do extend beyond that, they are not viable or otherwise not significant. That is not the present situation, notwithstanding the potential difficulties that stand in the way of success for the applicants.

38    In relation to the second reason, being the various public interests advanced on behalf of the applicants, it was submitted on behalf of the respondent that the ACCC’s potential vindication and the potential clarification of the law should not be placed ahead of the statutory scheme directed to ensuring that creditors are properly protected. It was also submitted that the interests of general deterrence and informing consumers of the dangers arising from conduct of the kind said to have been engaged in by the respondent implied that these proceedings have a unique and powerful role to play in the applicants’ regulatory strategy, which was described by counsel for the respondent as being greatly exaggerated. Rather, it was submitted, the public interest should be seen only in terms of the determination that particular conduct has contravened the ACL. This was said to not be a significant public interest factor because of there being other education providers the subject of similar proceedings. As has already been pointed out, that is not a significant factor, if it is a factor at all.

39    It was submitted on behalf of the respondent that the public interest in cancelling the debts owed to the students should not carry weight because of uncertainty as to how that might be achieved arising from the form of the current pleadings and the small number of students relied upon. In my view, that is a no more than a pleading point which, if taken successfully, would stand as a barrier to that aspect of the claims being advanced, but is not of itself a reason for not granting leave to seek to vindicate such a claim expressly provided for by statute. It was not suggested that there would not be a significant benefit to affected students if declarations were to be obtained voiding the loan agreements and in effect cancelling the debts owed to the Commonwealth. I do not regard the case brought in that regard as being sufficiently lacking in merit as to be of itself a reason not to grant leave, although it may be that the applicants have some way to go in developing that case and ensuring that it is ultimately viable.

40    The third reason advanced against the grant of leave was said to have two aspects. The first aspect was that a pecuniary penalty and declarations may be sought and ordered as an independent matter and secondly that there was no urgency in bringing that aspect of the case forward.

41    It was submitted that in all the circumstances there was no reason, or insufficient reason, to disturb the statutory framework giving rise to the statutory stay. Properly considered, that submission rises no higher than asserting the obligation on the part of the applicants to discharge the onus of showing that leave should be granted.

42    It was submitted that the proceedings were likely to be unnecessary and duplicative of the audit and reconciliation process. It was submitted that there was an overlap between the present proceedings, the audit that was underway, a separate departmental student refund list, the 2015 and 2016 reconciliation, and the limited group of complainants. It was submitted that this may involve overlapping groups of students as well as overlapping entitlements. It was pointed out that the liquidators had to respond to the legislative requirements, including dealing with complaints within a limited timeframe. However, the arguments put on behalf of the applicants that those processes cannot deliver the same outcomes, let alone for the potentially wider pool of students able to be positively assisted by the relief that the applicants seek, should be accepted. In all circumstances, the presence of the alternative administrative processes and the possibility of judicial review in relation to the reconciliation process in particular, do not provide in and of themselves a compelling reason not to grant leave. Indeed, it may be that these proceedings will be a better vehicle by which to address what has been described as the bona fide student issue.

43    It was pointed out that a reason to refuse leave is that the resources available to the company are relatively meagre and the cost of the hearing, if leave were granted, would be quite considerable, relying upon Katingal Pty Limited v Amor [1999] FCA 317; (1999) 162 ALR 287 at 288 [4] and Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123 at 128. It was pointed out that the evidence of the liquidators was that there was approximately $2.9 million in cash on hand as at 18 April 2017, with the potential availability of $1.08 million in priority or protected amounts payable. The total value of the claims of unsecured creditors was approximately $80 million, with the liquidators not yet calling for or admitting those claims and excluding the reconciliation and also outstanding employee entitlements. Any recovery from the dividends paid would amount to a maximum of $34 million. It did not appear that there was an insurance policy that would respond to the claims made in the proceedings. It was submitted, and it is accepted, that, if defending these proceedings, the respondent would incur substantial costs in meeting the allegations put by the applicants.

44    The undisputed evidence of the liquidators was that the costs of reviewing the applicants’ evidence, preparing the respondent’s evidence and defending the proceedings would likely to be in the range of $750,000 to $1 million, plus GST. Provision would also have to be made for any potential adverse costs orders made against the respondent during or after the proceedings. It follows that it was not in doubt that the grant of leave would prejudice the unsecured creditors of the respondent (approximately 98% of whom by value are Commonwealth entities). It was also submitted that the time spent defending the proceedings may result in a delay to the resolution of the audit, the student refund list, the reconciliation and the complaints. The offer to provide funding was acknowledged, but it was also pointed out that the conditions were presently not agreed to.

45    It was submitted that there was no prejudice arising from the maintenance of the stay on proceedings at least until the other procedures referred to are completed. It was submitted that it was unclear how a delay could be prejudicial other than to the alleged public interest concerns, given that the outcome of those processes was the reconciliation of the amounts due by the respondent. While the proceedings might render those processes otiose, the inverse is also true. The key difference was that those processes are already apparently well advanced, even if the bona fide dispute remains, while the current proceedings have not progressed very far.

Consideration

46    After weighing up the principles, the facts and circumstances and the competing submissions, I am of the view that the applicants have the better argument and that the factors favouring the grant of leave comfortably exceed those against. In particular, I am satisfied that the applicants’ case involves serious questions to be tried as to the relief sought by way of declarations of contravening conduct and pecuniary penalties and, with some reservations, as to the representative nature of the evidence sought to be relied upon to establish a system of conduct or pattern of behaviour. While the aspect of the applicants’ case concerning an alleged system of conduct or pattern of behaviour may not ultimately be successful, there is a sufficient foundation for it to be brought, albeit subject to the usual supervision of the Court.

47    While it is true that there is prejudice to the creditors, mainly by way of costs in defending the proceedings, it is by no means certain that they will be defended. Either way, the public interest factors identified by the applicants are compelling. Even if the proceedings are defended and costs incurred, as the authority of the Full Court in Vagrand indicates, the liquidators have to take the respondent company as they find it. In this case, the totality of the assets available to the creditors are assets which were arguably obtained, at least in significant measure, by a process which the applicants allege was, at least in a civil sense and civil penalty sense, illegal. Whilst interests of creditors are significant and important and must be given due weight, in the circumstances of this case, the public interest factors identified by the applicants outweigh that consideration by a significant margin. It is true that the applicants are at some risk of aspects of their case not succeeding; however, this is true of this kind of litigation generally. In the absence of these proceedings, and more particularly in the absence of these proceedings succeeding, the position remains that, so far as the law and society is concerned, the respondent has done nothing wrong. It is in the community interest that the proceedings continue to resolution in order to determine whether or not that is so, especially when such large sums of public money have been expended and when those behind the respondent appear to have secured some $34 million in dividends. It is in the public interest that there be a proper determination one way or the other.

Conclusion

48    Leave will be granted by way of appropriate orders drawn up in accordance with these reasons, made subject to formal undertakings given by the applicants referred to above.

49    While ordinarily the costs of an interlocutory application of this kind would follow the event, my preliminary view is that the costs of this application should be costs in the cause. However, I will give the applicants an opportunity to make submissions to the contrary within seven days, or in lieu thereof to advise my associate that such an application is not made. The respondent will have a corresponding period in which to respond to any such application.

Associate:

Dated:    18 May 2017