FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) [2021] FCA 956

ORDERS

THE COURT DECLARES THAT:

1.    During the period from around 13 January 2015 until around 23 November 2015, Phoenix, in trade or commerce, in connection with the supply or possible supply of certain online vocational education and training (VET) courses to consumers, engaged with respect to each consumer in conduct, being the Phoenix Marketing System (as defined by paragraph [73] of the Amended Statement of Claim), that was unconscionable, thereby separately contravening section 21 of the Australian Consumer Law (ACL), being Schedule 2 of the Competition and Consumer Act 2010 (Cth), in respect of each consumer, in the circumstances set out below:

(a)    the purpose of Phoenix, in marketing to consumers, eliciting enrolment applications from them, and enrolling them in online VET courses, was to maximise the number of consumers enrolled who received VET FEE-HELP, so as to maximise the revenue to Phoenix from the Commonwealth via the VET

FEE-HELP Assistance Scheme;

(b)    Phoenix displayed a callous indifference as to whether the consumers it sought to and did enrol were within the target cohorts for the courses, satisfied the eligibility criteria for those courses, were suitable for the courses, whether the consumers had reasonable prospects of successfully completing the courses and whether the course delivery was adequately resourced;

(c)    consumers to whom brokers and agents marketed the online VET courses were more likely to include vulnerable individuals as compared with other individuals within the Australian community;

(d)    the tactics employed on behalf of Phoenix in soliciting enrolment applications were unfair and high pressure;

(e)    the representations made on behalf of Phoenix by brokers and agents to consumers that:

(i)    in order to receive a free laptop all the consumers needed to do was to sign up to an online VET course which was free; and

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

were misleading; and

(f)    completed enrolment forms were a necessary precursor to a consumer being enrolled in an online VET course or courses and exposed to a debt or likely debt where they were an Eligible Student or Purported Eligible Student.

2.    During the period from around 13 January 2015 until around 23 November 2015, Phoenix, in trade or commerce, in connection with the supply or possible supply of online VET courses to consumers, engaged with respect to each consumer in conduct, being the Phoenix Enrolment System (as defined by paragraph [86] of the Amended Statement of Claim), that was unconscionable, thereby separately contravening section 21 of the ACL in respect of each consumer, in the circumstances set out below:

(a)    the purpose of Phoenix, in marketing to consumers, eliciting enrolment applications from them and enrolling them in online VET courses was to maximise the number of consumers enrolled who received VET FEE-HELP, so as to maximise the revenue to Phoenix from the Commonwealth via the VET

FEE-HELP Assistance Scheme;

(b)    Phoenix displayed a callous indifference as to whether the consumers it sought to and did enrol were within the target cohorts for the courses, satisfied the eligibility criteria for those courses, were suitable for the courses, whether the consumers had reasonable prospects of successfully completing the online VET courses and whether the course delivery was adequately resourced;

(c)    consumers to whom brokers and agents marketed the online VET courses were more likely to include vulnerable individuals as compared with other individuals within the Australian community;

(d)    many consumers were exposed to incurring a debt or a likely debt even though the online VET courses were unsuitable to them or they were unsuitable to the online VET courses; and

(e)    consumers were often deprived of the reasonable opportunity to withdraw from the online VET course before the census date for each unit of study had passed and therefore deprived of the opportunity to avoid incurring a debt or likely debt to Phoenix or the Commonwealth.

3.    During the period from around 13 January 2015 until around 23 November 2015, Phoenix, by the conduct of its brokers and agents, in trade or commerce, in representing to Consumers A, B, C and D (as set out in the Amended Statement of Claim), in order to encourage them to enrol in its online VET courses that:

(a)    if they enrolled in an online VET course, they would receive a free laptop; and

(b)    the online VET courses were free or in the case of Consumer A, free until she earned a particular amount; and

(c)    the consumer would not incur a debt by enrolling in one or more of the online VET courses;

engaged in conduct that was false or misleading or deceptive in contravention of each of sections 18 and 29(1)(i) of the ACL.

4.    During the period from around 13 January 2015 until around 23 November 2015, Phoenix, in trade or commerce, in connection with the supply or possible supply of online VET courses to Consumers A, B, C and D, engaged in conduct that was unconscionable, thereby contravening section 21 of the ACL, in the circumstances set out below:

(a)    each of the consumers was a vulnerable person and in a weaker bargaining position than Phoenix;

(b)    Phoenix enrolled each of the consumers in one or more online VET courses for which the consumer was not suited and for which she or he did not have the skills or work experience necessary to successfully complete;

(c)    Phoenix, by the conduct of its brokers and agents, in trade or commerce, represented to each consumer, in order to encourage her or him to enrol in its online VET courses:

(i)    that if the consumer enrolled in an online VET course, she or he would receive a free laptop; or

(ii)    that the online VET courses were free or in the case of Consumer A, free until she earned a particular amount; and

(iii)    that the consumer would not incur a debt by enrolling in one or more of the online VET courses;

thereby engaging in conduct that was false or misleading or deceptive in contravention of each of ss 18 and 29(1)(i) of the ACL.

5.    During the period from around 13 January 2015 until around 23 November 2015, CTI aided, abetted, counselled or procured Phoenix’s contraventions of s 21 of the ACL in connection with the Phoenix Marketing System (as defined by paragraph [73] of the Amended Statement of Claim), or was directly or indirectly knowingly concerned in, or a party to those contraventions.

6.    During the period from around 13 January 2015 until around 23 November 2015, CTI, in trade or commerce, in connection with the supply or possible supply of online VET courses to consumers, engaged with respect to each consumer in conduct, being the Phoenix Enrolment System (as defined by paragraph [86] of the Amended Statement of Claim), that was unconscionable, thereby separately contravening s 21 of the ACL in respect of each consumer, in the circumstances set out below:

(a)    the purpose of CTI, in marketing to consumers, eliciting enrolment applications from them and enrolling them in online VET courses was to maximise the number of consumers enrolled who received VET FEE-HELP, so as to maximise the revenue to Phoenix from the Commonwealth via the VET FEE-HELP Assistance Scheme;

(b)    CTI displayed a callous indifference as to whether the consumers it sought to and did enrol were within the target cohorts for the courses, satisfied the eligibility criteria for those courses, were suitable for the courses, whether the consumers had reasonable prospects of successfully completing the online VET courses and whether the course delivery was adequately resourced;

(c)    consumers to whom brokers and agents marketed the online VET courses were more likely to include vulnerable individuals as compared with other individuals within the Australian community;

(d)    many consumers were exposed to incurring a debt or a likely debt even though the online VET courses were unsuitable to them or they were unsuitable to the online VET courses; and

(e)    consumers were often deprived of the reasonable opportunity to withdraw from the online VET course before the census date for each unit of study had passed and therefore deprived of the opportunity to avoid incurring a debt to Phoenix or the Commonwealth.

THE COURT ORDERS THAT:

7.    Subject to the following orders and to further order of the Court, pursuant to s 37AI of the Federal Court of Australia Act 1976 (Cth) and in order to prevent prejudice to the proper administration of justice, the reasons of Perry J in this proceeding delivered on 13 August 2021 (Reasons for Judgment) not be made available to or published to any person save for the following:

(a)    Court staff and any other person assisting the Court;

(b)    the applicants, commissioners, and staff of the first applicant, staff of the second applicant, and barristers and external solicitors retained by the applicants for the purposes of the proceeding;

(c)    the liquidators of the respondents, and barristers and external solicitors retained by them for the purposes of the proceeding;

(d)    the amicus curiae and solicitors instructing the amicus curiae for the purposes of the proceeding;

(e)    the additional liquidators of the first respondent, and barristers and external solicitors retained by them for the purpose of performing their functions in relation to the first respondent;

(f)    support staff of the persons listed in sub-paragraphs 7(b) to 7(e) above; and

(g)    insofar as the relevant parts of the Reasons for Judgment refer to them, persons referred to in the judgment.

8.    To the extent that the Reasons for Judgment refer to information which may be confidential to, or in respect of, a third party, if necessary an extract from the Reasons for Judgment containing that confidential information may be disclosed to the relevant third party for the purpose of obtaining instructions as to confidentiality.

9.    No later than five (5) business days following delivery of the Reasons for Judgment, the applicants’ external legal advisors are to provide to the liquidators of the respondents a copy of the Reasons for Judgment which identifies any alleged confidential information. Such identification is to make clear:

(a)    the person to whom the information may be confidential;

(b)    the basis on which the information may be confidential; and

(c)    the means by which or the manner in which the issue of confidentiality may be addressed.

10.    No later than eight (8) business days following delivery of the Reasons for Judgment, the liquidators of the respondents are to respond to the copy of the Reasons for Judgment provided pursuant to order 9 above, outlining:

(a)    their position in relation to the confidentiality issues identified by the applicants’ external legal advisors pursuant to order 9; and

(b)    any additional confidentiality issues, identifying:

(i)    the person to whom the information may be confidential;

(ii)    the basis on which the information may be confidential; and

(iii)    the means by which or the manner in which the issue of confidentiality may be addressed.

11.    No later than ten (10) business days following delivery of the Reasons for Judgment, the external legal advisors for the Applicants and the liquidators are to jointly provide the Court with an agreed version of the Reasons for Judgment identifying any proposed redactions of allegedly confidential information and the basis for the proposed redaction of the confidential information or, in lieu of agreement, the external legal advisors for the Applicants and the liquidators are to separately provide the Court with versions of the Reasons for Judgment identifying any proposed redactions of allegedly confidential information and the basis for the proposed redactions of the allegedly confidential information.

12.    Nothing in these orders prevents a person in sub-paragraphs 7(a) to 7(g) above reporting on the Reasons for Judgment in a manner that does not identify an individual referred to therein.

13.    There be liberty to apply on short notice.

THE COURT NOTES THAT:

14.    The matter is listed for case management on Monday, 30 August 2021 at 4:30pm where, among other things, it is anticipated that a timetable will be set for the determination of any penalties and other relief sought by the applicants.

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

REASONS FOR JUDGMENT

PERRY J:

1.    INTRODUCTION

1.1    Overview of the issues

1    The applicants, the Australian Competition and Consumer Commission (the ACCC) and the Commonwealth, seek declarations, pecuniary penalties, and orders for non-party redress pursuant to s 239 of the Australian Consumer Law (ACL), being Sch 2 of the Competition and Consumer Act 2010 (Cth) (the CCA), against the respondents, Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (Phoenix) and Community Training Initiatives Pty Ltd (Subject to Deed of Company Arrangement) (CTI).

2    While the respondents were in administration, on 7 October 2016 I granted leave to the applicants under s 444E(3)(c) of the Corporations Act 2001 (Cth) (the Corporations Act) to proceed against the respondents on the condition that the applicants do not seek to enforce any pecuniary penalties, any injunction pursuant to s 232(6)(a) of the ACL requiring monies to be refunded, and any costs order in their favour, without further leave of the Court: 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 (Phoenix (No 1)). An appeal against that decision was dismissed on 29 September 2017 by the Full Court in Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155.

3    In broad terms the applicants allege that from around 13 January 2015 until around 23 November 2015 (the relevant period), Phoenix and CTI engaged in conduct in connection with the supply of vocational education and training (VET) courses to consumers that was unconscionable in contravention of s 21 of the ACL. In particular, the applicants seek to establish a “system of conduct … whether or not a particular individual is identified as having been disadvantaged” (s 21(4)(b), ACL) that was, in all of the circumstances, unconscionable contrary to s 21(1) of the ACL. The applicants also seek to establish specific contraventions vis-à-vis four individual consumers, consumer witnesses A, B, C and D, as illustrations of the allegedly unconscionable systems in operation. It is further alleged that the respondents engaged in misleading and deceptive conduct in marketing the online courses to the four consumer witnesses contrary to ss 18 and 29(1)(i) of the ACL on the basis that the actions of the Agents concerned are to be attributed to Phoenix under s 139B(2) of the CCA.

4    Initially, the respondents sought to defend the matter and filed a defence on 1 May 2019 (Defence).1 That defence responded to the statement of claim as originally filed on 5 March 2019 (SOC).2 Subsequently by leave granted on the first day of the trial (5 November 2019), the applicants filed and served an amended statement of claim (ASOC). Those amendments, as I later explain, were few in number and largely did not affect the case to which the defence had pleaded. Nonetheless, as no amended defence was filed to the ASOC, references have been included also to the SOC where admissions or other pleadings contained in the defence are relevant.

5    On 9 August 2019, the respondents filed a notice submitting to any order of the Court save as to costs on which they requested an opportunity to be heard. Nonetheless, as the applicants accept, s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act) applies, and consequently it remains necessary for them to prove their case on the balance of probabilities, having regard to the gravity of the matters alleged. As the applicants also accept, it is therefore incumbent upon them to establish the necessary elements of the statutory causes of action on the balance of probabilities by clear and cogent evidence, given the seriousness of the matters alleged and their potential to give rise to the imposition of pecuniary penalties: Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709 (Get Qualified) at [8] (Beach J); Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408 (Empower) at [5] (Gleeson J); Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982 (AIPE (No 3)) at [61] (Bromwich J). In discharging that onus, the applicants rely upon a voluminous body of evidence from a number of different sources. This included approximately 50 witnesses spanning expert witnesses, ex-employees, consumers, ACCC investigators, and other lay witnesses, extensive business records such as enrolment and student activity records and data, enrolment forms, complaints, records of complaint handling, policies, and internal correspondence. As such, the ACCC’s case was not only circumstantial but included important direct evidence of the internal workings of the respondents, as was the case also in AIPE (No 3) where similar allegations were upheld.

6    While acronyms and particular terms are defined during the course of these reasons, for convenience a glossary is also included at Appendix 1 to these reasons. A comprehensive table of contents has also been included in Appendix 4. For clarity, I note that each of the appendices (1 to 4 inclusive) comprise part of my reasons for judgment.

1.2    Summary of key aspects of this decision

7    Given the length of this decision and the scale of the evidence canvassed, it is helpful at the outset to provide a brief introduction to, and summary of, some of the key findings. This does not, of course, supplant my detailed reasons which follow and of its nature, involves a degree of repetition.

8    Phoenix was an approved VET provider with 378 enrolled students in face-to-face courses before it was purchased by the Australian Careers Network (ACN) Group in January 2015.

9    Following its acquisition, the key officers of Phoenix and CTI (and the parent company, ACN), Mr Ivan Robert Brown and Mr Harry Kochhar (also known as Harpreet Singh), acted swiftly to radically reorientate Phoenix’s operating model so as to offer for the first time, online diplomas nationally to many thousands of consumers under the banner of “myTime Learning”. Central to the respondents’ plans for rapid growth was the deployment of hundreds of Agents across the country through contracts with Brokers, who primarily employed high-pressure sales tactics, including the offer of inducements and the making of misrepresentations, so as to persuade thousands of consumers to sign up to Phoenix’s Online Courses largely through door-to-door sales. The consumers targeted included Indigenous Australians, people from non-English speaking backgrounds, with a disability, from regional and remote areas, from low socio-economic backgrounds and/or who were unemployed at the relevant time.

10    It is no coincidence that consumers from these target groups also fell within the demographic groups to which reforms to the Commonwealth’s VET FEE-HELP loan scheme were directed. These reforms had liberalised the scheme so as to make VET an end in itself as opposed to a pathway to higher education, in order to increase participation in VET by people from these demographic groups. As such, while in itself the targeting of consumers from these groups was not necessarily unconscionable, a not insignificant proportion of such consumers were likely to be vulnerable. Conscionable marketing and enrolment systems therefore needed to incorporate measures to mitigate the inherently higher risk that members of these demographic groups may be unsuitable for an online diploma, or require additional support in order to have a reasonable opportunity of successfully completing an online diploma.

11    Provided that a student was entitled to VET FEE-HELP assistance under cl 43 of Sch 1A of the Higher Education Support Act 2003 (Cth) (the HES Act) (an Eligible Student), the fees for these courses were paid directly to the VET provider by the Commonwealth. In return, the Eligible Student would incur a debt to the Commonwealth via a loan scheme for the cost of the course, together with a loan fee. However, the debt would become repayable through the tax system by the students concerned once they began to earn more than a minimum amount. Safeguards existed under the scheme which the VET provider was required to observe in order to ensure that students were fully informed about their rights and liabilities under the VET FEE-HELP loan scheme before embarking upon a course and incurring the liability. This included ensuring that no liability for a debt to the Commonwealth would arise until the census date had passed. This key element of the scheme was intended to afford each student a “cooling off” period within which to ensure that she or he wished to pursue the unit of study or course and that it was suitable for them.

12    However, once the census date had passed, neither the student’s liability for the debt nor the making of payments to the VET provider depended upon the student actually embarking on the course in which they were enrolled. Furthermore, if approved by the Department of Education and Training (the Department or DET), VET FEE-HELP payments could be made to the VET provider in advance on the basis of the VET provider’s estimate of the amount of VET FEE-HELP to which it expected to be entitled during the calendar year. These features of the VET FEE-HELP scheme in particular rendered it ripe for ruthless exploitation by unscrupulous agents and brokers and VET providers, as Mr Brown candidly explained in a radio interview in April 2016. Hundreds of millions of dollars in revenue under the scheme were potentially available to a VET provider, without the provider actually affording any meaningful educational service to its “students”.

13    That is precisely what occurred in this case. The figures are telling.

(1)    Between mid-January and mid-November 2015, at least 11,393 consumers were enrolled in 21,413 online courses with Phoenix, with most being enrolled in two diplomas concurrently despite each diploma involving a full-time study load.

(2)    Phoenix was paid over $106 million by the Commonwealth under the VET FEE-HELP assistance scheme in advance payments pursuant to cl 61(1) of Sch 1A to the HES Act, and claimed to be entitled to a further amount of approximately $250 million in payments from the Commonwealth.

(3)    Only nine of the 11,393 enrolled consumers formally completed an online course with Phoenix. Indeed, only a very small number of the 11,393 enrolled consumers even attempted a unit of study of their courses, while some were unaware that they were enrolled at all and many remained enrolled even after requesting cancellation.

14    This was achieved first by the deployment without any effective training, monitoring or control, of a veritable army of at least 548 Agents engaged by the Brokers with whom the respondents contracted to market Phoenix’s Online Courses. The Brokers and Agents were highly incentivised by substantial commissions payable only after the census date to prey on vulnerable consumers likely to sign up unaware that an offer presented to them as a great deal to obtain a free laptop or other inducement, was in fact a very bad deal under which they would incur substantial debts. In particular, the Agents and Brokers (and respondents on whose behalf they acted) targeted vulnerable consumers whose general attributes meant they were less likely to understand their rights and obligations under the VET FEE-HELP scheme, to interrogate the misinformation they were given, and to resist the inducements offered to them for signing up. Far from reining in the unethical conduct of the Brokers and Agents or responding with a “root and branch” reappraisal of their operating model, among other things, the respondents actively sought and rewarded the submission of hundreds and even thousands of enrolment forms weekly by Brokers and increased the commission payable to the worst offending Broker.

15    Secondly, despite being aware from the outset of the risks (duly realised) of ineligible and unsuitable candidates applying for enrolment by deploying this marketing system, the respondents engaged in conduct which included enrolling consumers without verifying their eligibility or suitability for the course, their capacity to speak English, or even whether they intended to undertake the course. Directions were regularly given by Mr Brown and Mr Kochhar to bypass measures intended to protect against such risks, such as instructing staff not to undertake telephone verifications of enrolment applications, to overlook “red flags” when telephone verifications were in fact conducted, and not to check for suspicious patterns in enrolment forms indicating that they may have been forged. Moreover, a significant number of consumers were enrolled after the commencement date of their online course(s) without any extension to the relevant census date, or were enrolled on, shortly before, or after the census date so as to deprive consumers of the statutorily mandated “cooling off” period. Furthermore, staff who repeatedly raised concerns with Mr Brown and Mr Kochhar about these and other issues, including suspected Broker and Agent misconduct, and endeavoured to address them, were undermined, sidelined, bullied, subjected to verbal abuse, and directed to ignore the problems and to act against their conscience.

16    Not surprisingly, the flow of complaints by consumers and consumer advocates throughout the relevant period was unrelenting. Furthermore, as the respondents’ conduct increasingly came to the attention of the regulators, they sought to conceal what was truly occurring by, among other measures, statements of compliant policies which they knew were not in fact observed (“guff” as such statements were described in internal correspondence), the impersonation of student activity on Phoenix’s learning management system, and the backdating and falsification of student records on an industrial scale.

17    This conduct, together with other evidence, established that the focus of key officers of Phoenix and CTI was upon attaining the highest possible levels of enrolment so as to generate and retain revenue derived from VET FEE-HELP payments, rather than genuinely attempting to provide education and training to those ostensibly enrolled in online courses offered by Phoenix. As such, the respondents’ focus was upon presenting the appearance of compliance with precisely the kinds of measures required to protect and support consumers, but not upon implementing such measures in circumstances where to have done so would have undermined their business model and significantly impacted upon revenue. As Bromwich J found in AIPE (No 3) at [688], equally in this case it was both an accepted and anticipated part of the respondents’ business model that a very high proportion of students would pass the census date and incur a VET FEE-HELP debt in circumstances where it was predictable that they would never require training and support. This was a highly profitable outcome for the respondents who therefore were not required to, and did not, invest in the staff and resources which would have been required to train and support over 11,000 genuine students enrolled in over 21,000 full-time diplomas.

18    I have concluded that in all of the circumstances, the respondents engaged in a marketing system and an enrolment system which were separately “unconscionable” within the meaning of s 21 of the ACL. Both systems were informed by the desire to maximise profit over even modest levels of engagement by consumers with their courses, and by a callous indifference, among other things, to the suitability and eligibility of consumers to undertake the courses in which they enrolled. I also find that Phoenix has, by the conduct of its Brokers and Agents, engaged in conduct with respect to Consumers A, B, C, and D that was false or misleading or deceptive in breach of ss 18 and 29(1)(i) of the ACL and in conduct that was unconscionable, thereby contravening s 21 of the ACL.

1.3    The applicants’ multipronged approach to proof of the alleged contraventions of the ACL

19    The applicants relied upon a number of different sources of evidence, accepting both that cogent evidence was required to prove the systems of unconscionable conduct and that that evidence must be representative of the systems across the whole cohort of consumers enrolled in Phoenix Online Courses (Applicants’ Closing Submissions dated 21 November 2019 (ACS) at [36]). The various strands of evidence relied upon may be summarised as follows:

(1)    the evidence of eleven ex-employees of the respondents as to the development, emergence, and operation of the respondents’ marketing and enrolment systems and the callous indifference allegedly shown, among other things, towards consumers’ capacity to successfully complete the courses in which they were enrolled;

(2)    the expert evidence of Ms Jana Scomazzon on VET online diploma courses including those offered by Phoenix (being an expert in evaluation and quality assurance of VET courses, and VET policy and product development and evaluation);

(3)    the evidence of ACCC investigators;

(4)    the contemporaneous documentary record (the chronological tender bundle (Exhibit A-1) (TB), the supplementary tender bundle (Exhibit A-4) (STB) and other documents in electronic form) including:

(a)    internal correspondence involving key officers of the respondents, Mr Ivan Brown and Mr Harry Kochhar, said to demonstrate that the business model was “rotten to the core” to the knowledge of the senior officers of Phoenix;

(b)    complaints from consumers and others on behalf of consumers and the respondents’ responses and approach to those complaints and the issues which they raised;

(c)    contracts between CTI, Phoenix and Brokers, and contracts between Brokers and Agents; and

(d)    investigations, inquiries and the audits by various State, Territory and Commonwealth regulators;

(5)    the evidence of 24 individuals who were either approached by Agents on behalf of Phoenix in 2015 or subsequently assisted consumers who had been approached, including the four individual consumer witnesses the subject of specific alleged contraventions of the ACL said to illustrate the systems in operation;

(6)    the formal audit of the reported enrolment data for 2015 and 2016 undertaken by McGrathNicol on 16 September 2016 at the behest of the Department in accordance with cl 26(2) of Sch 1A to the HES Act for the purposes of determining Phoenix’s entitlement to payments under the HES Act, including to consider the veracity of the enrolments that had been obtained (Forensic Audit of the Phoenix Institute of Australia Pty Ltd (Administrators Appointed) dated 16 September 2016) (the MGN Audit Report);3 and

(7)    expert evidence analysing data and statistics from various datasets maintained by the Department, CTI and Phoenix, including as to course completion rates, the extent to which students’ suitability to undertake the Online Courses was assessed, problems with enrolment forms, and the lack of student engagement with the Phoenix Online Courses.

20    The data analysis is of particular significance in establishing the systemic nature of the impugned conduct. Notably in some instances, the data analysis covers the complete cohort of consumers enrolled with Phoenix, while in other cases statistically relevant representative samples selected at random are relied upon. This evidence (and the expertise of the expert witnesses to address the subjects on which they express their opinions) is dealt with later in these reasons.

21    The Court Book (CB), which was comprised of the pleadings and affidavit evidence of 47 witnesses, constituted 9 folders provided in hard copy and electronic format including the exhibits to those affidavits. In addition, the applicants relied upon a tender bundle (TB) and supplementary tender bundle (STB) which cumulatively comprised 29 folders and was also supplemented by documents and files in purely electronic form (such as, eg the electronic Supplementary Broker Tender Bundle (Exhibit A-5)). The tender bundle and supplementary tender bundle are accompanied by a lengthy separate Narrative Chronology providing a chronological analysis of the documentary tender, interspersed by witness accounts, together with a Detailed Chronology in table format and the applicants’ Dramatis Personae. The presentation of this voluminous body of material in readily workable, user-friendly format clearly involved a substantial, but necessary, amount of planning and work, and was of very great assistance to the Court.

1.4    The structure of these reasons

22    The following structure has been adopted in these reasons.

23    Chapter 2 of these reasons explains the respondents’ background and their relationship to the other companies in the ACN Group, as well as identifying the key officers within the respondents and the ACN Group of companies and their interests in the respondent entities.

24    Chapter 3 sets out the procedural history including the respondents’ initial defence of the proceeding, the appointment and role of amicus curiae, Dr Higgins SC, following the filing of a submitting appearance by the respondents, a preliminary issue of procedural fairness which ties in with certain aspects of the pleadings history, and suppression and non-publication orders made in the proceeding.

25    Chapter 4 gives an overview of the applicants’ pleaded case, key aspects of which are:

(1)    the alleged Profit Maximising Purpose over the interests of customers;

(2)    the alleged Callous Indifference to the suitability of customers for the Phoenix Online Courses or even whether they wished to undertake them;

(3)    the Target Communities and their attributes; and

(4)    the Phoenix Enrolment and Marketing systems which are said separately to be unconscionable systems within s 21 of the ACL or in the alternative, cumulatively to establish unconscionable conduct contrary to s 21.

26    Chapter 5 explains the principles by which it is determined whether Phoenix engaged in unconscionable conduct contrary to s 21 of the ACL.

27    Chapter 6 explains the VET FEE-HELP assistance scheme and the statutory obligations imposed upon VET providers by the HES Act, the National Vocational Education and Training Regulator Act 2011 (Cth) (NVETR Act), and legislative instruments including, in particular, the VET Guidelines, the Registered Training Organisation (RTO) Standards, the VET Administrative Information for Providers, and the Australian Qualifications Framework (AQF) which governs the design and learning outcomes of VET accredited courses. It also identifies the inherent vulnerability of the scheme to exploitation by unscrupulous VET providers and Brokers and Agents, such as I find occurred in this case.

28    Chapter 7 deals with the Phoenix Online Courses. This chapter describes the learning outcomes specified for the diploma level courses and their target cohorts under the Training Package Qualification Rules published on the National Register of VET and the AQF. It also considers the mandatory admission requirements for enrolment under these statutory instruments and as specified by Phoenix.

29    The evidence of ex-employees of CTI as to recruitment and enrolment practices undertaken by the respondents are detailed in Chapter 8 of these reasons. In this chapter, I make findings based upon the evidence of the ex-employees on certain important themes, including as to:

(1)    the different groups within CTI responsible for undertaking the various tasks involved in managing relationships with the Brokers and Agents engaged in recruiting potential students and in the enrolment process;

(2)    the respondents’ lack of capacity to properly verify the extraordinary volume of enrolment applicants for the Online Courses submitted by Brokers and Agents, and instructions from key officers of the respondents, Mr Ivan Robert Brown and Mr Harry Kochhar, to the Data and Telephone Verification Teams to bypass the proper verification and assessment processes;

(3)    the setting of weekly student enrolment targets of up to 1,000 to 5,000 students by Mr Brown and Mr Kochhar; and

(4)    patterns in enrolment forms submitted by Brokers and Agents indicative of fraudulent behaviour by them and the responses by Mr Brown and Mr Kochhar when these concerns were drawn to their attention by ex-employees.

30    The evidence of former trainers and assessors is considered in Chapter 9. This evidence is striking in, among other things, establishing the extraordinarily high trainer-to-student ratios and the steps engaged in by the respondents to hide these ratios from the regulators.

31    Chapter 10 provides a comprehensive chronological account of the operations of Phoenix over the relevant period, included the nature and ever-escalating stream of complaints received by the respondents about unethical conduct by Brokers and Agents, the way in which the respondents responded to the complaints, the initial audit of Phoenix’s compliance initiated by the then CEO of Phoenix, Mr Bill Gale, and the actions of the regulators ending in the deregistration of Phoenix as a RTO including the audit by the Australian Skills Quality Authority (ASQA).

32    Chapter 11 addresses the question of whether the conduct of the Brokers and Agents is to be attributed to Phoenix, including a discussion of the legal principles relevant to s 139B(2) of the CCA.

33    Chapter 12 considers the evidence of the 24 consumer witnesses including the alleged contraventions of the ACL with respect to Consumers A, B, C and D. In addition to the allegation that the respondents were in breach of s 21 of the ACL with respect to Consumers A to D, this chapter also considers whether Phoenix engaged in misleading or deceptive conduct contrary to ss 18 and 29 of the ACL in the case of these consumers and the legal principles governing that question.

34    Chapter 13 considers the data analysis evidence relied upon by the applicants in support of their systems unconscionability case. This Chapter addresses the expertise of the various expert witnesses addressing this topic, the methodologies which they adopted, and the source of their data, in the course of considering the following issues:

(1)    the available data sets;

(2)    the lack of successful course completion;

(3)    the enrolment of students in multiple courses;

(4)    the findings from the MGN Audit Report;

(5)    the enrolment forms and how they were analysed;

(6)    Pre-Training Review (PTR)/Language, Literacy and Numeracy (LLN) tests and discrepancies observed in the completion of these test indicative of fraudulent conduct;

(7)    the results of analysing the enrolment forms;

(8)    the absence of student engagement with the Phoenix Online Courses as revealed by FinPa, Phoenix’s online learning platform;

(9)    the analysis of FinPa withdrawal notes and cancellation notes; and

(10)    the analysis of telephone verification calls by CTI to consumers and the absence thereof.

35    The remaining chapters draw the evidence together to determine whether the applicants have established the various elements of their case that the respondents engaged in unconscionable conduct contrary to s 21 of the ACL by reason of the Phoenix Marketing System and the Phoenix Enrolment System (the systems unconscionability allegations), namely:

(1)    the Profit Maximising Purpose (Chapter 14);

(2)    the Callous Indifference (Chapter 15);

(3)    the Target Communities and their Likely Attributes (Chapter 16);

(4)    the Phoenix Marketing System (Chapter 17); and

(5)    the Phoenix Enrolment System (Chapter 18).

36    My conclusions on the applicants’ systems unconscionability case are contained in Chapter 19.

2.    THE RESPONDENTS AND RELATED COMPANIES

2.1    Phoenix, ACN and CTI

37    The first respondent, Phoenix, was established in 1998 and was then known as the Ikon Institute.4

38    On or about 16 February 2005, Phoenix was registered as a National VET Regulator (NVR) RTO under s 17 of the NVETR Act by the NVR, the Australian Skills Quality Authority (ASQA), and thereby became a RTO within the meaning of cl 1 of Sch 1 to the HES Act.5 It was approved as a VET provider under Div 3 of Sch 1A to the HES Act with effect from around 5 November 2009.6

39    ACN was incorporated on 17 March 2014.7 Phoenix was acquired by ACN on 12 January 2015 and remains a wholly-owned subsidiary of ACN.8 Following the acquisition, ACN derived its primary revenue from the operations of Phoenix.9 On 23 November 2015, ASQA notified Phoenix that it would be deregistered as a RTO.10

40    The second respondent, CTI, was also a wholly-owned subsidiary of ACN at all relevant times11 and was renamed VIA Network in October 2015, as advised in an email to all CTI staff on 16 October 2015.12 CTI operated as the marketing arm for the 11 RTOs owned and operated by ACN, including Phoenix.13 Over the relevant period, CTI managed relationships with Brokers and Agents and enrolments into Phoenix’s Online Courses on behalf of Phoenix via CTI’s Client Relationship Management Team (CRM Team), Data and Quality Team, Telephone Verification Tea, as well as the course trainers. That relationship was formalised in an agreement dated 1 July 2015 pursuant to which CTI agreed on a “non-exclusive basis” to:

(a)    market or promote the RTO’s [Phoenix’s] VET courses of study;

(b)    recruit persons to apply to enrol in the RTO’s VET courses of study;

(c)    provide information and/or advice on the RTO’s VET courses of study;

(d)    provide information and/or advice on the VET FEE-HELP scheme;

(e)    accept an application to enrol from, or enrol, any person on the RTO’s behalf;

(f)    refer a person to the RTO for the purposes of enrolling in a VET course of study or VET unit/s of study; and

(g)    provide career counselling to a person on the RTO’s behalf.14

41    CTI and ACN operated out of an office located at Spotswood in Victoria.15

42    ACN, CTI, CLI Training Pty Ltd trading as CLI Training (CLI) and Phoenix went into administration on 21 March 2016 and became subject to a Deed of Company Arrangement on 4 May 2016.16

2.2    Key officers/controlling minds of Phoenix, CTI and the ACN Group

43    As the applicants contend, Mr Ivan Brown and Mr Harry Kochhar were controlling minds of CTI and Phoenix.

44    Mr Ivan Brown established the parent company, ACN, and a number of companies in the ACN Group, together with Mr Atkinson Prakash Charan.17 Mr Brown was the CEO and managing director of ACN at all relevant times,18 and had been appointed as a director and company secretary of ACN on 17 March 2014 when ACN was incorporated.19 Mr Charan sought to exit the Group through the sale of his shares in ACN via the public offering in November 2014 and, while he retained a 4.1% shareholding in ACN, it is not alleged that he had any ongoing role in any of the companies the subject of this litigation during the relevant period.20

45    Mr Brown was appointed as a director of Phoenix with Mr Stephen Williams when Phoenix was acquired, in place of Mr Martin Peake who ceased to hold office as the sole director of the company at the same time.21 Mr Brown was also the Chief Executive Officer of the “myTime Learning” division of Phoenix from August 2015 to 21 March 2016, being a separate division established in August 2015 and vested with responsibility for offering the Online Courses.22 In addition, Mr Brown was:

(1)    a director of CTI from 7 September 2013, as well as the company secretary of CTI for the periods 7 September 2013 to 30 September 2014 and 4 September 2015 to 26 October 2015;23 and

(2)    a director of CLI which was another of the suite of ACN’s wholly-owned subsidiaries and conducted marketing activities on behalf of Phoenix in respect of its Online Courses.24

46    Mr Brown’s expertise and experience in the VET sector is described in the 2015 ACN Annual Report as follows:

Mr Brown is the CEO and co-founder of Community Training Initiatives and has been instrumental to its growth and success. Mr Brown has had a substantial career working in the VET sector in executive management roles. He holds a Masters of Business Administration (Finance), Graduate Certificates in Management (Learning), Vocational Education and Training, Management and Human Resource Management and a Graduate Diploma in Community Sector Management. He is a Fellow of the Australian Institute of Management.25

47    The other directors of CTI over the relevant period were Mr Stephen Ray Williams (from 30 September 2014), Mr David Keith Green (30 September 2014 to 4 September 2015) and Mr Wayne Norman Treeby (from 26 October 2015).26

48    In the case of ACN, the other members of the Board of Directors during the relevant period were:

(1)    Mr Stephen Ray Williams (Chair) (from 27 August 2014);

(2)    Mr Raymond Keith Griffiths (from 27 August 2014 to 16 October 2015);

(3)    Mr Craig Graeme Chapman (from 27 August 2014);

(4)    Ms Samantha Martin-Williams (from 27 August 2015 to 27 November 2015); and

(5)    Mr Bruce MacKenzie (from 27 August 2014 to 19 January 2015).27

49    Mr David Green held the position of company secretary and Chief Financial Officer (CFO) of ACN.28

50    Mr Brown also had a significant interest in ACN throughout the relevant period.

51    First, the Prospectus issued by ACN dated 26 November 2014 advised that:

Importantly, your Chief Executive Officer, Ivan Brown, who is a co-founder of Community Training Initiatives and one of two major Existing Shareholders will continue to hold 23,267,974 Shares comprising 27.78% of the Company on completion of the Offer.29

52    Secondly, the 2015 ACN Annual Report disclosed that Mr Brown has “an indirect interest in 23,288,874 Shares (which are directly held by IBT Holdings Pty Limited as trustee for the IBT Holdings Family Trust, an entity controlled by Ivan Robert Brown) as well as an indirect interest in 8,700 Shares through Ivan Brown Superannuation Fund Pty Ltd.”30 Mr Brown was a director of IBT Holdings Pty Limited.31 A notation to the Directors’ Report contained in the ACN 2015 Annual Report at p. 24 records that “[t]he shares in ACN were issued to Mr Brown as part of the group reconstruction wherein Mr Brown received shares in ACN in exchange for his shares in entities that were rolled-up into the ACN Group as part of that transaction”. The share capital identified in the ACN company search dated 7 November 2019 is comprised of 74,895,834 ordinary shares with the amount paid being identified as $113,378,401.00.32

53    Mr Brown was based in CTI’s office in Spotswood in the western suburbs of Melbourne and had an office on the first floor next door to Mr Kochhar, who was also based in Spotswood.33 The close physical proximity of their offices is indicative of how closely Mr Brown and Mr Kochhar worked together, which is to be expected given their responsibility for day to day governance of the corporate group.

54    Mr Harry Kochhar (also known as Harpreet Singh)34 was the Chief Operating Officer (COO) of:

(1)    ACN from September 2014 to December 2015;

(2)    Phoenix from January 2015 to December 2015; and

(3)    CTI from April 2014 to December 2015.35

55    Mr Kochhar’s experience and expertise, including in the VET sector, is described as follows in the 2015 ACN Annual Report:

Mr Kochhar has significant experience in RTOs, encompassing 10 years in senior management positons, including strategic management roles and operational management roles. Most recently, Mr Kochhar held the role of operations manager for Aegis Services Australia Limited, a global business process outsourcing company with over 55,000 employees.

Mr Kochhar has been involved in the application, implementation and stakeholder management of funded and fee for service programs. His experience includes defining and monitoring project budgets, identifying market needs and executing strategy to fulfil labour market needs.

Mr Kochhar has extensive practical training experience through his training roles with William Angliss Institute of TAFE, Holmes Institute, Sarina Russo Institute & Sarina Russo Schools, MCIE and Futurum Australia.36

56    Mr Kochhar resigned as COO from Via Network on 4 December 201537 but continued to work on a retainer as a consultant. 38 There is no evidence that Mr Kochhar had any shareholding in either of the respondents.

3.    PROCEDURAL HISTORY

3.1    Initial pleadings

57    The applicants filed an originating application on 20 November 2015, together with an affidavit annexing a proposed draft concise statement. On 9 February 2016, the respondents filed a concise response. (The applicants’ concise statement was subsequently filed on 17 February 2016 after the commencement of amendments to the Court’s Commercial and Corporations Practice Note (C&C-1).)

3.2    The DOCA and leave to proceed

58    On 21 March 2016, the directors of the respondents, with other companies in the ACN Group, resolved to place the companies into voluntary administration. Under s 435C of the Corporations Act, the administration ended on 24 May 2016 when a Deed of Company Arrangement (DOCA) was executed by companies in the ACN Group, including the respondents. By force of s 444E of the Corporations Act, a person bound by the DOCA cannot proceed with a proceeding against the respondents until the DOCA terminates, save with leave of the Court and in accordance with such terms (if any) as the Court imposes.

59    By an interlocutory application dated 29 August 2016, the applicants sought orders pursuant to s 444E(3)(c) of the Corporations Act that leave be granted (to the extent that leave was required) to proceed against the respondents. The grant of leave was opposed by the respondents.

60    On 21 October 2016, I held in Phoenix (No 1) that leave to proceed should be granted to both applicants on condition that they did not seek to enforce any pecuniary penalties, any injunction pursuant to s 232(6)(a) of the ACL requiring monies to be refunded, or any costs order in their favour, without further leave of the Court. As earlier mentioned, an appeal against that decision was dismissed.

3.3    Amendments to the pleadings

61    On 8 December 2017, the applicants filed an amended originating application and amended concise statement which omitted some of the relief sought as a result of the grant of leave to the applicants to continue the proceeding against the respondents. Annexures A and B to the amended concise statement comprised particulars of the Profit Maximisation and Enrolment Conduct and particulars of the Agency Relationship between Brokers and the respondents respectively, such particulars having been requested by the respondents.

62    The parties thereafter embarked upon a protracted course of correspondence in which the respondents sought additional particulars. The additional particulars sought concerned, among other things, the issue of causation of loss or damage which forms part of the applicants’ cause of action pursuant to s 239.

63    The applicants subsequently applied for leave to file a proposed further amended originating application (FAOA) pursuant to r 8.21 of the Federal Court Rules 2011 (Cth) (FCR) and a proposed further amended concise statement pursuant to r 16.53 of the FCR. The application was taken to be an application to amend in terms of Annexures A and B respectively to the applicants’ written submissions filed on 22 June 2018, as amended by [4] of the applicants’ submissions in reply dated 20 July 2018. At the hearing of that application on 23 July 2018, I granted leave to the applicants to amend the amended originating application in terms of the FAOA, and to amend in part the further amended concise statement. I also set down a timetable permitting the parties to endeavour to reach agreement as to the remaining, more controversial proposed amendments.

64    On 11 September 2018, I made orders setting down a timetable for the hearing of an interlocutory application by the applicants for leave to file a proposed second further amended concise statement. On 9 October 2018, the parties advised the Court that, in light of the decision of the Full Court in Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155; (2018) 362 ALR 66 (Unique (FCAFC)) delivered on 19 September 2018, the applicants intended to file an affidavit annexing a revised second further amended concise statement. The application was heard on 1 February 2019.

65    By an email to the Court dated 19 November 2018, the parties provided the Court with draft short minutes of order which provided for the filing of an affidavit annexing a proposed statement of claim. On 1 March 2019, the applicants’ solicitors advised by email that the respondents consented to the filing of a statement of claim and second further amended originating application (SFAOA) in the forms attached to that email. I made orders granting leave to the applicants to do so by 4 March 2019.

66    On 1 May 2019, the respondents filed a defence.

3.4    The respondents’ submitting notice and issues raised by the respondents’ counsel prior to withdrawing from the matter

67    At the case management hearing on 31 July 2019, (then) counsel for the respondents, Mr Brennan, referred to the affidavit of Mr George Georges affirmed on 30 July 2019, which was read for the purposes of the case management hearing, in which Mr Georges explained (at p. 76) that the respondents would shortly file a notice of termination of their solicitors’ retainer. That notice was filed on 13 August 2019.

68    Before withdrawing from the case, Mr Brennan drew a number of matters to the Court’s attention which he submitted may be of assistance to the Court.39 Mr Brennan first explained that while the applicants correctly characterised some of the respondents’ conduct as a “rort”, the difficult issues before the Court were whether the evidence established an unconscionable system and, if so, the extent of that system and the extent of the relief which might then be available under the ACL.

69    Mr Brennan then said that while he did not intend to make submissions, it may assist the Court to consider the following three matters:40

(1)    First, Mr Brennan submitted that difficult factual issues arose in determining what inferences could properly be drawn about the conduct of all or some of the Brokers and Agents (and ultimately, the conduct of the respondents) from “evidence which focuses upon misconduct by small subsets of agents [or] of a small subset of brokers”.41 Mr Brennan also identified difficult factual issues relating to the impact of the alleged failure by the second respondent, by the deliberate choice of its management, to apply the student verification system to all enrolments.

(2)    Secondly, Mr Brennan identified mixed issues of fact and law concerning the vulnerability of consumers, including the consumers in this proceeding, in light of recent High Court and Full Court authorities, and made remarks about the administration of vocational education policy. Mr Brennan explained that in so doing, he sought to give “colour” and context to the Court’s eventual consideration of the vulnerability of consumers.

(3)    Finally, Mr Brennan referred to legal issues which may arise in applying s 239, ACL, which concerns orders to redress loss or damage suffered by non-party consumers. I note that by orders made on 31 July 2019, the question of liability in the proceeding is to be heard separately from the question of relief other than declaratory relief.

70    On 9 August 2019, the respondents filed a notice submitting to any order of the Court save as to costs.

3.5    The appointment of the amicus curiae

71    At the case management hearing on 14 August 2019, Ms Sharp SC, senior counsel for the applicants, submitted that the Court would be assisted by the appointment of amicus curiae as a contradictor on the legal issues surrounding systems unconscionability.42 By orders made on 28 August 2019, Dr Higgins SC was appointed as amicus curiae under r 1.32, FCR. The Court wishes to express its gratitude to Dr Higgins for her valuable assistance.

72    The amicus curiae was provided with a copy of the pleadings and the High Court’s decision in Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1 (Kobelt), as well as the transcript of the case management hearing on 31 July 2019 at which Mr Brennan made concluding remarks, as explained above.43

3.6    The grant of leave to amend the statement of claim

73    By an email to the Court dated 25 October 2019, the applicants provided the Court with an agenda for the case management hearing on 28 October 2019 which included an item, “Application re Amended Statement of Claim”. At that case management hearing, Ms Sharp SC, senior counsel for the applicants, explained that the applicants sought to amend the statement of claim “to correct errors and to bring the pleading into alignment with the evidence”, save for one significant amendment.44

74    That significant amendment was to designate Ms Nidhi Bagga as an additional controlling mind of the respondent companies as a result of the applicants’ further review of the documents, where previously only Mr Brown and Mr Kochhar had been identified as controlling minds.45 On the first day of the trial, however, the applicants ultimately did not press the application for leave to amend the ASOC in this respect.46

75    Leave otherwise to amend the statement of claim was granted on the first day of the trial. In reaching the view that the amendments were appropriately allowed, I took into account the fact that the amendments were not extensive, and did not alter the nature of the applicants’ case or seek any additional relief. Rather, they sought to supplement existing pleadings with additional factual details in line with the written submissions filed before the hearing, as well as omitting certain allegations that were no longer pressed.47 In particular, the amendments:

(1)    identified the consumers to whom the Diploma of Community Services Work offered by Phoenix was directed and its course requirements with greater particularity;48

(2)    identified a further face-to-face course offered by Phoenix prior to its acquisition by ACN;49 and

(3)    added the allegation that Phoenix failed to withdraw a significant number of enrolled consumers who sought to cancel their enrolment and continued to claim VET FEE-HELP payments in respect of those consumers.50

3.7    A preliminary issue of procedural fairness

76    In the context of the discussion at the case management hearing on 28 October 2019 about the proposed amendments to the ASOC to include Ms Bagga as a controlling mind of the respondents, I raised an issue with the applicants’ counsel and the amicus curiae concerning procedural fairness to Mr Brown and Mr Kochhar (as well as, then, Ms Bagga), who were alleged by the applicants to be the controlling minds of the respondents and in respect of whom allegations of a most serious nature were made. Notwithstanding that these individuals are not parties to the proceeding, in circumstances where the respondent companies are subject to a DOCA and had filed a submitting notice, I was concerned to ensure that they were afforded procedural fairness and had the opportunity to be heard in a real and practical sense such that they could, if they so wished, apply to intervene in this proceeding.

77    On 4 November 2019, the amicus curiae and the applicants filed separate short submissions addressing this issue. Given that, as explained above, the applicants did not ultimately press the amendments to the statement of claim to include Ms Bagga as a controlling mind of the respondents, it is not necessary to consider the procedural fairness issue in relation to Ms Bagga. With respect to Mr Brown and Mr Kochhar, the applicants submitted:

It is commonplace – and almost inevitable in large documentary cases – that observations are made about non-parties to litigation (who are also sometimes not even called as witnesses) in judicial reasons …

(Applicants’ note concerning procedural fairness dated 4 November 2019 at [11], citing Ashby v Slipper [2014] FCAFC 15; (2014) 219 FCR 322 at [320] (Siopis J).)

78    The applicants contended that this proceeding has been properly constituted as to the parties, and that all parties interested or concerned in the relief claimed are before the Court.51 The applicants emphasised that Mr Brown and Mr Kochhar are not parties to the proceeding, will not be bound by any of the orders sought by the applicants, if granted, and that the respondents had not sought to adduce any evidence from Mr Brown or Mr Kochhar save for a statutory declaration relating to the veracity of student data.52

79    The applicants also submitted that when this proceeding was commenced in November 2015 and the respondent companies had not yet entered into administration, Mr Brown and Mr Kochhar were named in the concise statement. The applicants submitted that as senior management of the respondents, both individuals have been on notice of the allegations of their involvement in the conduct the subject of the proceeding since its commencement.53 I note that while the defence was filed after the respondents had entered into administration, the respondents filed their concise response prior to entering into administration. The evidence also establishes that while Mr Kochhar left the respondents’ employment in December 2015, he remained thereafter in a consulting capacity.

80    The amicus curiae also submitted that the present proceeding was properly constituted as to the parties. In addition, Dr Higgins SC addressed the issue of whether the relevant individuals have been accorded any, and an appropriate, opportunity to be heard. In her submission, on the available material, there was a basis to conclude that Mr Brown and Mr Kochhar have, at relevant times, been sufficiently on notice of the allegations against them to have received a real and practical opportunity to be heard had they sought to do so.54

81    I agree for the reasons given by Dr Higgins SC that Mr Brown and Mr Kochhar have been afforded procedural fairness, and the opportunity to be heard in a real and practical sense.

3.8    Suppression and non-publication orders under s 37AF, FCA Act

82    On 12 February 2016, while this proceeding was docketed to Yates J, his Honour made orders, by consent, relating to the anonymisation of the ex-employee witnesses. Order 1 of those orders provided that “[a]ny statement given by any Former Employee to the applicants or their legal representatives … be filed as … confidential”, and was followed by several other protective orders.

83    At the commencement of the trial, the applicants sought more extensive suppression and non-publication orders in order to ensure the confidentiality of personal information relating to consumers enrolled in Phoenix Online Courses and potential students, such as their names, addresses and dates of birth.55 The applicants handed up short minutes of order which provided for the following regime.

(1)    Under proposed orders 1 to 3, order 1 of the orders made on 12 February 2016 would be vacated. In its place, until 29 November 2019, only parties to this proceeding, their experts and legal representatives, and the Court would be able to inspect the documents listed in Annexure A to the short minutes. Annexure A identified a large number of documents including, for example, the tender bundle and supplementary tender bundle, and a number of affidavits, exhibits and annexures in the Court Book.

(2)    Proposed order 4 of the short minutes permitted the applicants, between 5 and 29 November 2019, to uplift and amend the tender bundle to remove documents which were not referred to in the course of the hearing or in written submissions. (The deadline was later extended to 3 December 2019 by orders made on 19 November 2019.)

(3)    Under proposed order 5 of the short minutes, upon receipt of a non-party inspection request relating to any of the documents identified in Annexure A, the Registry was to notify the applicants’ solicitors of the request, and within 2 business days the applicants would advise the Registry of their position in relation to the access request. If the access request was opposed by the applicants, the applicants would file an interlocutory application and submissions within 5 business days of being notified of the request.

(4)    Proposed order 6 required that any non-party intending to disclose “confidential student information” (which was given a detailed definition in notation 1 to the orders including, for example, name, signature, date of birth, address and tax file number) which had been referred to in open Court must notify the applicants’ solicitors of that intention. Orders 5 and 6 were to operate until 31 October 2020.

84    Section 37AF(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) relevantly empowers the Court, on grounds permitted by s 37AG, to restrict the publication or disclosure of information tending to reveal the identity of any person who is related to or otherwise associated with any party in a proceeding (s 37AF(1)(a)), or information that relates to a proceeding before the Court and comprises evidence or information about evidence (s 37AF(1)(b)(i)). Under s 37AF(2), the Court may make such orders as it thinks appropriate to give effect to an order made under s 37AF(1).

85    In light of the large volume of evidence containing confidential student information and the sensitivity of that information, particularly given the vulnerability of enrolled consumers and potential students, I was satisfied that these orders were necessary to prevent prejudice to the proper administration of justice within the meaning of s 37AG(1)(a) of the FCA Act. I have taken into account that a primary objective of the administration of justice is to safeguard the public interest in open justice (s 37AE). However, as the Chief Justice explained in Minister for Immigration and Border Protection v Egan [2018] FCA 1320, while the principle of open justice “involves justice being seen to be done … [o]pen justice is not an absolute concept, unbending in its form. It must on occasion be balanced with other considerations, including but not limited to considerations such as the avoidance of prejudice in the administration of justice or the protection of victims.”

86    Accordingly, I made orders in terms of the short minutes of order at the commencement of the trial on 5 November 2019. Annexure B to these orders comprised a one-page notice including an extract of order 6, and was placed on the door of the courtroom on each day of the trial. I have also substituted the names of consumers with pseudonyms, for the same reasons.

3.9    Evidence initially omitted from the Court Book

87    The Court Book was received into evidence in electronic form as Exhibit A-2.56 On 13 November 2019, Mr White, junior counsel for the applicants, explained that certain documents, being the curriculum vitae of Ms Scomazzon and other attachments, were not included in the filed version of the Court Book57 and handed up a hard copy volume entitled “Attachments to Annexure JS-1 to the affidavit of Jana Scomazzon affirmed 11 September 2019”. On 5 February 2020, in response to an enquiry by the Court, the applicants confirmed that this volume was intended to be admitted into evidence, and provided an electronic copy of these documents. On 6 February 2020, I made an order including that bundle of documents in evidence as part of the Court Book.

4.    OVERVIEW OF THE APPLICANTS’ PLEADED CASE

4.1    The radical changes effected to Phoenix’s operations following its acquisition by ACN

88    In early 2015, ACN purchased Phoenix. By this time, CTI was a wholly-owned subsidiary of ACN. As the applicants allege, following the acquisition of Phoenix, there was a radical reorientation in Phoenix’s operating model. Prior to the acquisition Phoenix had offered only face-to-face classes for 300–400 students at any given point in time. Upon acquiring ACN, however, the respondents embarked upon recruiting many thousands of consumers Australia-wide to enrol in online courses in new subjects with Phoenix trading under the banner of “myTime Learning”. For each of these courses, Phoenix charged fees of $18,000 to $21,000.

4.2    Brokers and Agents marketing the Phoenix Online Courses

89    Phoenix and CTI marketed the Phoenix Online Courses by engaging third parties referred to by the applicants and in these reasons as Brokers. As the respondents admitted:

(1)    between 16 January 2015 and 1 June 2015, CLI (another entity in the ACN Group of companies) entered into standard form contracts on behalf of Phoenix with at least 28 marketing entities which authorised those entities to act for or at the direction of CLI to recruit students into the Online Courses (the CLI Broker Contracts); and

(2)    between 1 July 2015 and approximately 23 November 2015, Phoenix entered directly into standard form written contracts with at least 29 marketing entities, some but not all of whom had previously entered into CLI Broker Contracts, and these authorised those marketing entities to act for or at the direction of Phoenix to recruit students into the Online Courses (the Phoenix Broker Contracts).58

(Together, the CLI/Phoenix Broker Contracts.)

90    Annexure A to the ASOC (reproduced in Appendix 2 below) identifies the Brokers in question, the dates on which they entered into the contracts, and key terms of the contracts, with the agreements themselves being reproduced in the tender bundle. Every Broker negotiated its own commission with Phoenix and, while different, they were all substantial with the highest being 35%. As will become apparent, the existence and size of the commissions is one of the features relied upon by the applicants to establish the Profit Maximising Purpose.

91    The Brokers in turn entered into contracts with at least 548 entities and individuals (the Agents) to recruit consumers into the Online Courses (the Agent Contracts).59 Particulars of each agent contract are set out in Annexure B to the ASOC and reproduced in Appendix 3 to these reasons.

92    For reasons I later explain, I agree with the applicants’ submission that the Brokers and Agents were plainly agents of Phoenix such that their conduct is properly attributed to Phoenix pursuant to s 139B(2) of the CCA.60

4.3    Target Communities and Vulnerable Consumers

93    The applicants further allege that the marketing of the Phoenix Online Courses occurred in circumstances where Phoenix and CTI were aware of reforms to the VET FEE-HELP assistance scheme introduced by the Commonwealth in late 2012 and early 2013 in order to increase the VET participation rates of Indigenous Australians, and people from non-English speaking backgrounds, with a disability, from regional and remote areas, from low socio-economic backgrounds, and/or not currently engaged in employment (the Target Communities).61 It is also alleged that Phoenix and CTI were aware that the consumers to whom the Brokers and Agents marketed the Online Courses were likely to include the Target Communities and that some members of those communities were likely to have low LLN results, low levels of formal education, and low levels of computer literacy (Vulnerable Consumers).62

4.4    The Profit Maximising Purpose and Callous Indifference

94    As earlier adverted to, an essential aspect of the applicants’ unconscionability case is that Phoenix and CTI were driven by a Profit Maximising Purpose which prioritised maximising the number of consumers enrolled in Phoenix Online Courses who received VET FEE-HELP, so as to maximise the revenue to Phoenix from the Commonwealth via the VET FEE-HELP assistance scheme. In furtherance of that purpose, it is alleged that in eliciting enrolment from consumers and then enrolling them in the Online Courses, Phoenix and CTI were callously indifferent as to whether:

(a)    the consumers were in the target cohorts of the online courses;

(b)    the consumers satisfied the eligibility criteria for those courses;

(c)    the online courses were suitable for the consumers and the consumers were suited to the courses, having regard to their formal education, previous work experience, and literacy, numeracy and computer skills;

(d)    the consumers had reasonable prospects of successfully completing the online courses in respect of which they applied to be enrolled;

(e)    the consumers meaningfully participated in the Online Courses, including any assessments;

(f)    Phoenix had appropriate trainer to student ratios;

(g)    there was a reasonable prospect that a consumer enrolled in an online course which required a work placement could secure a work placement; and

(h)    Phoenix was capable of inspecting those work placement venues,

(the “Callous Indifference”).63

95    The applicants also allege that, when the level of complaints against Phoenix came to the attention of regulators including the ACCC, the respondents engaged in a desperate attempt to cover up their unconscionable conduct and to mislead the regulators, including by falsifying documents and dates, in order to maximise their profits from the VET FEE-HELP assistance scheme.

96    In this regard, the applicants contend that there were two stages to a consumer enrolling in an online course. First, Brokers or Agents marketed the courses to consumers face-to-face and elicited a series of completed enrolment forms from the consumers, by which the consumers sought to be enrolled. At the second stage, the consumers were supposed to be vetted by CTI following which they would be enrolled if they successfully passed the vetting process. However, while that was the system in theory, among other difficulties little or no effort was in fact made at the vetting or verification stage to ascertain the suitability of consumers to undertake the Online Courses or to ensure that mandatory admissibility criteria were met.

97    On this basis, the applicants allege that two relevant systems were in play, which were unconscionable separately and cumulatively, namely the Phoenix Marketing System and the Phoenix Enrolment System.

4.5    The Phoenix Marketing System

98    The applicants allege at SOC/ASOC [73] that there were eight essential features of the Phoenix Marketing System which consisted of Phoenix directly, and indirectly via CTI and CLI:

73.1    engaging Brokers and Agents to market its Online Courses to consumers as its agents, by way of unsolicited, “face[-]to[-]face” marketing;

73.2    engaging Brokers and Agents to obtain:

73.2.1    completed Online Course enrolment application forms;

73.2.2    completed Request for VET-FEE HELP Assistance forms [this was sometimes known as a Commonwealth Assistance Form or “CAF”];

73.2.3    completed LLN test sheets;

73.2.4    completed “Pre-training Review” (PTR) forms;

73.2.5    federal or State-issued ID and proof of citizenship or of permanent humanitarian residency status; and

73.2.6    completed Agreement to Tuition Fees forms,

(collectively, the Enrolment Forms);

73.3    engaging Brokers and Agents to represent to consumers that:

73.3.1    in order to receive a free laptop all the consumers needed to do was sign up to a Phoenix (or myTime) Online Course; or

73.3.2    the Online Courses were free, or free unless the consumer’s income was in an amount which they were unlikely to earn on complet[ion] of a course, or at all;

73.4    engaging Brokers and Agents to obtain, from the vast majority of applying consumers, completed Enrolment Forms applying to enrol in more than one Online Course, notwithstanding that each Online Course had an EFTSL [(equivalent full-time study load)] of 1.0;

73.5    providing financial incentives to the Brokers and Agents to maximise the number of completed Enrolment Forms for Online Courses; and

73.6    failing to:

73.6.1    train or adequately train the Brokers and Agents in their obligations under the ACL;

73.6.2    train or adequately train the Brokers and Agents in their obligations to comply with the RTOs Standards; and

73.6.3    instruct or require the Brokers and Agents to ascertain whether the consumer was suited to the Online Course and the Online Course to the consumer;

73.7    failing to ascertain whether the consumer was suited to the Online Course and the Online Course to the consumer;

73.8    Brokers or Agents often completing the LLN and PTR forms themselves, or coaching the consumers on how to complete these forms, when these forms were ostensibly designed to determine a consumer’s ability to undertake and interest in an Online Course

(collectively, the Phoenix Marketing System).

99    It is alleged at ASOC [74] that the Phoenix Marketing System was deployed on consumers in circumstances where:

74.1    Phoenix had the Profit Maximising Purpose and the Callous Indifference;

74.2    some consumers were likely to be Vulnerable Consumers;

74.3    notwithstanding the above, the tactics employed by the Brokers and Agents in soliciting enrolment applications were unfair and high pressure;

74.4    the representations made by the Brokers and Agents to consumers that:

74.4.1    in order to receive a free laptop all the consumers needed to do was sign up to a Phoenix (or myTime) Online Course; and

74.4.2    the Online Courses were free, or were free unless the consumer’s income was in an amount which they were unlikely to earn on complet[ion] of a course, or at all;

were misleading; and

74.5    completed enrolment forms were a necessary precursor to a consumer being enrolled in an Online Course or Online Courses and exposed to [a] debt or likely debt [to the Commonwealth upon receiving a loan by way of the VET FEE-HELP assistance scheme] where they were an Eligible Student or Purported Eligible Student.

100    In these circumstances, the applicants allege that the conduct of Phoenix constituting the Phoenix Marketing System was unconscionable and Phoenix thereby contravened s 21 of the ACL. Furthermore, the applicants plead that CTI monitored and liaised with the Brokers on behalf of Phoenix and received the enrolment forms from them. It is the applicants’ case that CTI aided, abetted, counselled, or procured Phoenix’s contraventions and was knowingly concerned in these contraventions, such that CTI is also liable for the contraventions by s 224(1) of the ACL.64

4.6    The Phoenix Enrolment System

101    The applicants also allege that the function of considering enrolment applications and enrolling consumers in online courses was performed on behalf of Phoenix by CTI within the scope of its actual or apparent authority.65 The essential features of the Phoenix Enrolment System employed by CTI are alleged66 to have consisted of it processing completed enrolment forms procured by the Brokers or Agents and enrolling consumers in Phoenix Online Courses in circumstances where CTI:

86.1    often enrolled the consumer without first contacting the consumer, meaning that CTI was unable to verify any of [the] following matters:

86.1.1    the consumer’s identity and citizenship status;

86.1.2    that the consumer intended to enrol in the Online Course or Online Courses;

86.1.3    whether the Online Course or Online Courses were suitable for the consumer and the consumer was suited to the Online Course or Online Courses;

86.1.4    the consumer’s capacity to speak and understand English;

86.1.5    that the consumer had completed the LLN and PTR forms without improper assistance from the Broker or Agent;

86.1.6    in instances where the consumer had purportedly applied for more than one simultaneous full-time Online Courses [sic], how the consumer was planning on being able to complete all of those Online Courses;

86.1.7    where the consumer was an Eligible Student or Purported Eligible Student, that he or she understood:

86.1.7.1        the nature of the VET FEE-HELP Assistance Scheme; and

86.1.7.2        the amount of debt or likely debt he or she would incur to Phoenix and the Commonwealth respectively; or

86.1A    often did not verify the matters pleaded in paragraph 86.1 above where the consumer was contacted [by CTI] prior to enrolment; and

86.2    often did not confirm that a trainer or assessor had marked the consumer’s LLN test;

86.3    often enrolled consumers without ascertaining whether:

86.3.1    the consumers were within the target cohort of the particular Online Course or Online Courses …; and

86.3.2    the consumers satisfied the eligibility criteria for the particular Online Course or Online Courses ….

86.4    enrolled consumers in the Diploma of Community Services and the Diploma of Early Childhood Education and Care without regard to whether:

86.4.1    the consumer would be able to secure a workplace placement, which was an essential aspect of each of those Online Courses; and

86.4.2    Phoenix or CTI had the capacity to inspect each such workplace and observe the student in the workplace;

86.4    usually enrolled consumers in more than one Online Course, despite each course having an EFTSL of 1.0;

86.6    often charged enrolled consumers duplicated and unnecessary fees for particular units of study;

… [pleaded examples omitted]

86.7    often enrolled a consumer in an Online Course:

86.7.1    after the Commencement Date, without extending the census date;

86.7.2    on or shortly before the census date, without extending the census date; or

86.7.3    after the census date; and

86.8    often sent a consumer:

86.8.1    his or her log-in details for the Online Course (which enabled the student access to the materials for the Online Course) less than 7 days before the census date or on or after the census date; and

86.8.2    a laptop around 4 to 6 weeks after the census date,

such that the consumer did not have a reasonable opportunity, between his or her enrolment date and the census date, to audit the Online Course and determine whether to withdraw prior to the census date.

(Emphasis added.)

102    The applicants also allege that the Phoenix Enrolment System was deployed on consumers in circumstances where:

87.1    Phoenix had the Profit Maximising Purpose and the Callous Indifference;

87.2    some consumers were likely to be Vulnerable Consumers;

87.2A    many consumers were exposed to incurring a debt or a likely debt … even though the Online Courses were unsuitable to them or they were unsuited to the Online Courses;

87.3    the Phoenix Marketing System existed; and

87.4    Eligible Students and Purported Eligible Students were often deprived of the reasonable opportunity to withdraw from the Online Course before the census date had passed and therefore the opportunity to avoid incurring a debt or a likely debt …67

103    In these circumstances, the applicants allege that the conduct of CTI constituting the Phoenix Enrolment System was also unconscionable and CTI thereby separately contravened s 21 of the ACL with respect to each consumer.68 Furthermore, the applicants plead that as CTI’s conduct was engaged in on behalf of Phoenix and within the scope of its actual or apparent authority, CTI’s conduct is taken to be Phoenix’s conduct by virtue of s 139B(2) of the CCA such that Phoenix equally contravened s 21 of the ACL with respect to each such consumer.69 In the alternative, the applicants contend that the conduct of Phoenix comprised by the Phoenix Marketing System and the Phoenix Enrolment System was, in all of the circumstances, a system of unconscionable conduct contrary to s 21 of the ACL,70 and that CTI aided, abetted, counselled or procured this conduct and was knowingly concerned in it such that it is also liable to pay a penalty for that conduct.71

4.7    The four individual consumer witnesses

104    In addition, the applicants allege that Phoenix made representations to four individual consumers (Consumers A, B, C, and D) who were enrolled in Phoenix Online Courses that were misleading or deceptive, or likely to mislead or deceive, in contravention of ss 18(1) and 29(1)(i) of the ACL. They also allege that the conduct of Phoenix’s agents vis-à-vis Consumers A, B, C and D, was unconscionable and contravened s 21 of the ACL. The evidence of these consumers, as well as 20 additional consumers, is relied upon by the applicants to give direct evidence of the marketing and enrolment processes utilised by the respondents in an illustrative, rather than representative, way.

105    In common with the approach adopted by Bromwich J in AIPE (No 3) at [11], I refer to these consumers as “consumer witnesses” and not as students because, for reasons which will become apparent, the evidence plainly established that none of them were suitable to be enrolled as a student by Phoenix.

5.    STATUTORY UNCONSCIONABILITY: LEGAL PRINCIPLES

5.1    Introduction

106    Section 2 of the CCA provides that the object of the Act is “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.” One of the means by which this object is implemented by the CCA is to proscribe unconscionable conduct in Pt 2-2 comprising ss 20 to 22A in Chapter 2 (General Protections) of the ACL.

107    Equivalent provisions were enacted in Subdiv C of Div 1 of Pt 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) comprising ss 12CA, 12CB and 12CC. These provisions relevantly mirror the terms of ss 21, 22 and 22A of the ACL save that the ASIC Act provisions apply only to conduct in connection with the supply or acquisition of financial services, and were recently considered by the High Court in Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525 (Paciocco (HCA)) and Kobelt. As the amicus curiae and the applicants agreed, the construction of unconscionable conduct adopted with respect to the “materially identical” provisions of the ASIC Act (ss 12CA, 12CB and 12CC) applies with equal force to ss 20, 21 and 22 of the ACL: Kobelt at [87] (Gageler J); see also Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40 (Quantum Housing) at [36] (the Court).

5.2    Unwritten law of unconscionability (s 20, ACL)

108    Section 20 of the ACL picks up the unwritten law of unconscionability and provides context to the statutory concept of unconscionability enacted by s 21. Section 20 reads:

(1)    A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.

Note:    A pecuniary penalty may be imposed for a contravention of this subsection.

(2)    This section does not apply to conduct that is prohibited by section 21.

109    It is well established that, in referring to “unconscionable, within the meaning of the unwritten law”, s 20 picks up the equitable concept of unconscionable conduct but imposes an additional statutory sanction: Kobelt at [82] (Gageler J); see also eg Explanatory Memorandum to the Competition and Consumer Legislation Amendment Bill 2010 (Cth) (the 2010 Explanatory Memorandum) at [2.13]. The equitable doctrine of unconscionable conduct was explained by Kiefel CJ, Bell, Gageler, Keane and Edelman JJ in Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85 in the following passage:

38. A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests [citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462 (Mason J)]. The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring “victimisation”, “unconscientious conduct”, or “exploitation”. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.

(See also eg Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 462 (Mason J); Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 at [124] (the Court); Kobelt at [15] (Kiefel CJ and Bell J)) and [81] (Gageler J).)

110    It follows that equity sets a high bar for the setting aside of transactions on the ground of unconscionable conduct.

5.3    Statutory unconscionability (ss 21 and 22, ACL)

111    Section 21(1) also proscribes unconscionable conduct, but the proscription is freed from the requirements which constrain the equitable concept of unconscionability. That subsection provides that:

(1)    A person must not, in trade or commerce, in connection with:

(a)    the supply or possible supply of goods or services to a person (other than a listed public company); or

(b)    the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

(Emphasis added.)

112    Section 21(3) provides that for the purpose of determining whether a person has contravened subsection (1):

(a)    the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

(b)    the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

113    Importantly, s 21(4) sets out the intention of Parliament in relation to the interpretation of s 21 of the ACL, being to “clarify, rather than alter, the effect of the statutory prohibition of unconscionable conduct” (2010) Explanatory Memorandum at [2.18]). That subsection provides that:

(4)    It is the intention of the Parliament that:

(a)    this section is not limited by the unwritten law relating to unconscionable conduct; and

(b)    this section is capable of applying to 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; and

(c)    in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:

(i)    the terms of the contract; and

(ii)    the manner in which and the extent to which the contract is carried out;

and is not limited to consideration of the circumstances relating to formation of the contract.

114    The 2010 Explanatory Memorandum explained the role of the interpretative principle introduced by s 21(4)(a) as follows:

2.19    … Paragraph 21(4)(a) of the ACL makes it clear, on the face of the statute, that statutory unconscionable conduct may, where appropriate, continue to develop independently from the equitable and common law doctrines …

115    In this regard, it was established even before s 21 was amended that statutory unconscionability in the predecessor provision to s 21, namely s 51AB of the Trade Practices Act 1974 (Cth) (TPA), was not limited by the equitable doctrine concerning unconscionable conduct: Australian Competition and Consumer Commission v CJ Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491 at [24]; Australian Competition and Consumer Commission v Radio Rentals Ltd [2005] FCA 1133; (2005) 146 FCR 292 at [24].

116    However, the extent to which the concept of unconscionability enacted by s 21(1) had moved away from equitable doctrine was a significant point of difference between the amicus curiae and the applicants at the trial. Specifically, the amicus curiae contended that special disadvantage remains an essential element of statutory unconscionability, contrary to the applicants’ position. Subsequently, that debate was resolved by the Full Court’s decision in Quantum Housing, as I explain below, which rejected the proposition that special disadvantage is a necessary, as opposed to relevant, element of statutory unconscionability having regard, in particular, to s 21(4)(a) of the ACL.

117    With respect to s 21(4)(b) of the ACL, the 2010 Explanatory Memorandum explained that:

The unconscionable conduct provisions of the ACL are not limited to individual transactions. Rather, the focus of the provisions is on conduct that may be said to offend against good conscience; it is not specifically on the characteristics of any possible ‘victim’ of the conduct (though these may be relevant to the assessment of the conduct).

(Emphasis in the original.)

118    The 2010 Explanatory Memorandum also observed at [2.21] that, in line with recent case law (citing Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 (National Exchange)), “conduct may be unconscionable even where there is no ‘victim’ identified”. The purpose of s 21(4)(b) was therefore to embody in legislation the point made in National Exchange by “indicat[ing] Parliament’s intention that the provision may apply whether or not there is an identified person disadvantaged by the conduct or behaviour” (2010 Explanatory Memorandum at [2.23]). In this regard, s 21(4)(b) plainly departs from the position in Equity, reflecting the different purpose served by s 21, being to prescribe normative standards enforceable by the statutory regulator in the public interest. This contrast between the equitable and statutory concepts was highlighted by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199 (Paciocco (FCAFC)):

280. … it is important to recall that Equity operated to set aside or not enforce a particular transaction between the parties. The conduct and circumstances that gave rise to equitable relief related to the parties themselves, and to the transactional setting in which they found themselves. This is to be contrasted with s 12CB [of the ASIC Act], which, in para (4)(b), provides that the section is capable of applying whether or not a particular individual is identified as having been disadvantaged by the conduct.

119    A non-exhaustive list of factors which the Court must consider in determining whether particular conduct was, objectively speaking, unconscionable for the purposes of s 21 is contained in s 22(1) which provides that:

(1)    Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:

(a)    the relative strengths of the bargaining positions of the supplier and the customer; and

(b)    whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c)    whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and

(d)    whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and

(e)    the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and

(f)    the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and

(g)    the requirements of any applicable industry code; and

(h)    the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and

(i)    the extent to which the supplier unreasonably failed to disclose to the customer:

(i)    any intended conduct of the supplier that might affect the interests of the customer; and

(ii)    any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and

(j)    if there is a contract between the supplier and the customer for the supply of the goods or services:

(i)    the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and

(ii)    the terms and conditions of the contract; and

(iii)    the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and

(iv)    any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k)    without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and

(l)    the extent to which the supplier and the customer acted in good faith.

120    The applicants submitted that ss 22(1)(a), (c), (d), (i) and (l) were particularly relevant in the present case.72

5.4    What is meant by unconscionable conduct for the purposes of s 21, ACL

121    First, as the applicants and the amicus curiae accepted, the statutory question posed by s 21(1) is whether the conduct in question is objectively to be characterised as “unconscionable” in the sense that it is “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”: Kobelt at [92] (Gageler J); see also eg NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98; (2016) ATPR ¶42-531 (NRM Corporation Pty Ltd) at [163] (citing Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [36]) and Empower at [717]. This means, as Gageler J further explained in Kobelt at [93] that an assessment of whether conduct is unconscionable is “… informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society”, including respect for the dignity and autonomy and equality of individuals and the cultural diversity of communities. Similarly, in the earlier, oft-quoted judgment of Allsop CJ in Paciocco (FCAFC), his Honour had explained that:

296. The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation’s legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.

122    The views of the Full Court on unconscionable conduct in Paciocco (FCAFC) were affirmed on appeal by the High Court and no doubt was cast upon the correctness of Allsop CJ’s statements of principle: Paciocco (HCA) at [292]–[294] (Keane J) (with whose reasons French CJ and Kiefel J agreed at [2] and [70] respectively), and [181]–[191] (Gageler J).

123    More recently in Quantum Housing at [89], the Full Court of the Federal Court explained in line with these principles that:

… the values and considerations that inform the answer to a question whether conduct is against business conscience will be drawn from the values and considerations that one finds in the text, structure and context of the statute, in particular those in s 22, from statutes relevant to consider in the context of the conduct in question: Lux (2013) ATPR 42-447 at [23] and Medibank 267 FCR at 605 [241], and from the informing norms of equity and the common law, many of which need no restating by any Parliament, nor by any honest business person to another in their dealings. The Chief Justice sought to set some of these out in Paciocco 236 FCR at 274–75 [296]–[298]. These are not considerations outside the statute. They are basal values and considerations of equity and the common law in which the statute sits. Most are matters which honest business people understand and do not need expressly to require of each other (Paciocco [296]) …

124    Secondly, while an allegation of unconscionability is a serious allegation about the conduct of a person or corporation in business (Unique (FCAFC) at [155]), unconscionability “is not limited to the worst kind of unconscionable conduct. There may be more or less serious examples. That will reflect in penalty” (Quantum Housing at [92]). Thus, as the Full Court continued in Quantum Housing at [92]:

The task is an evaluation of the impugned conduct to assess whether it is to be characterised as a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable. In any particular case, it should be recognised that if the evaluative answer be “no: it is not unconscionable”, the court is concluding that by an Australian business conscience the conduct was conscionable and is not to be deterred by penalty.

125    Thirdly, in Quantum Housing the Full Court unanimously held that:

4. … Whilst some form of exploitation of or predation upon some vulnerability or disadvantage of people will often be a feature of conduct which satisfies the characterisation of unconscionable conduct under s 21, such is not a necessary feature of the conception or a necessary essence in the embodied meaning of the statutory phrase.

(See also Quantum Housing at [36].)

126    In so holding, the Full Court:

78. … reject[ed] the proposition that ratio or seriously considered obiter dicta of a majority of the High Court, indeed, of any justice of the Court in Kobelt (other than Keane J) requires in any case that for conduct to be unconscionable by reference to ss 12CB and 12CC of the ASIC Act (or ss 21 and 22 of the ACL) there must be found some form of pre-existing disability, vulnerability or disadvantage of which advantage was taken.

79. The notion of what is a “pre-existing” vulnerability or disadvantage as we described it at [36] above introduces a requirement that the so-called victim of the conduct brings to the relationship an attribute of vulnerability in some factor and to some degree. Such vulnerability or disadvantage will often exist: as it did in the Anangu people in Kobelt. But their Honours’ reasons in Kobelt (other than Keane J) do not express that requirement as a matter of principle as to the meaning of s 12CB (s 21).

127    The Full Court also held that the judgments of the Federal Court and other intermediate appellate courts were contrary to the proposition that the taking of advantage of a special disability is an essential ingredient of statutory unconscionability (Quantum Housing at [80]–[81]). Rather, the Full Court held that the words “unconscionable” and “conscionable” “have an ordinary meaning, derived from the inner human sense of doing right” (at [87]), with some of the human values which inform an Australian business conscience having been set out in Paciocco at [296] (quoted above). It follows, their Honours held, that:

91    Predation on vulnerability, taking advantage of disability or disadvantage and victimisation may be found in business, as in other fields of human life. Such behaviour does not, however, exhaust the meaning of against conscience. The kinds of consideration in s 22 and the kinds of circumstance to which the Chief Justice referred in Paciocco 236 FCR at 274–75 [296]–[298] are apt to inform evaluations about business standards that the courts are required by Parliament to make. They may be contestable judgments; they may be by reference to a standard that is not definable; but they are evaluative judgments that Parliament commands be made. That they are the subject of a civil penalty requires that the boundary of impugned conduct be reasonably known to the subject. This last factor reinforces the proposition that it is no light matter, indeed it is a serious matter, to have one’s conduct impugned as against or as offending conscience. Business people understand such things, as do ordinary people. They need no definition to assist them. “Unconscionable” is the language of business morality and unconscionable conduct is referable to considerations expressed and recognised by the statute. The word is not limited to one kind of conduct that is against or offends conscience. Surely to predate on vulnerable consumers or small business people is unconscionable. But why is it not also unconscionable to act in a way that is systematically dishonest, entirely in bad faith in undermining a bargain, involving misrepresentation, commercial bullying or pressure and sharp practice, using a superior bargaining position, behaving contrary to an industry code, using significant market power in a way to extract an undisclosed benefit that will harm others who are commercially related to the counterparty? The proposition that such conduct (not all of which might be seen to be present here) is not unconscionable by an Australian statutory business standard of conscience because the counterparty to the business transaction suffered from no relevant pre-existing disadvantage, disability or vulnerability (other than, perhaps, having a decent degree of trust and faith in its business counterparty’s honesty and good faith) is difficult to accept, unless one posits a narrow defined meaning of “unconscionable” that remains hinged in some way to the structural form of the equitable doctrine as expressed in cases such as Kakavas 250 CLR at 439–440 [161]. The history, text and structure of the Act is contrary to such a conclusion. It is not to be derived from the meaning of the word “unconscionable”.

128    The Full Court’s emphasis upon the seriousness of a finding of statutory unconscionability as conduct well outside acceptable commercial behaviour, despite its decoupling from the equitable doctrine, resonates with the caution sounded by Gageler J in Kobelt at [90] that the normative standard of statutory unconscionability is not “equity-lite”. Thus, it “does not allow a court to adopt a process of reasoning which starts with the equitable conception of unconscionable conduct, involving exploitation of a special disadvantage, and then uses considerations identified in s 12CC to water down the court's assessment of what amounts to a special disadvantage or to allow the court to arrive more easily at an assessment that conduct amounts to exploitation” (Kobelt at [90] (Gageler J)).

129    The correctness of the Full Court’s approach notwithstanding the absence of a special disadvantage was said to be illustrated by the circumstances in Quantum Housing itself. As the Full Court held:

… Here the facts that were agreed for the penalty hearing are such as to permit the conclusions (substantially drawn by the primary judge) that the respondents engaged in deliberate systematic conduct of misusing their superior bargaining position by dishonestly misleading commercial counterparties (referred to as the investors of no proven particular vulnerability other than from their place in the relevant commercial circumstances) and pressuring the investors by imposing entirely unjustified and unnecessary requirements upon the investors as their contractual counterparties, thereby clearly exhibiting a dishonest lack of good faith, all in order to extract for at least one of them financial benefits which were surreptitious and undisclosed to the investors.

130    Fourthly, the prohibition in s 21 is informed by the considerations prescribed by s 22(1) which are broader than those otherwise taken into account in assessing equitable unconscionability: Kobelt at [83]–[84] (Gageler J) (by analogy). In this regard, Gageler J in Kobelt agreed with the Full Court in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; (2013) ATPR ¶42-447 (Lux (FCAFC)) at [23] and [41] that:

87. … The correct perspective is that s 12CB [of the ASIC Act] operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of a court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standard in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances.

131    Fifthly, the answer to the question posed by s 21(1) turns, as the section expressly provides, upon an assessment of “all the circumstances”: Paciocco (HCA) at [188] (Gageler J); Kobelt at [87] (Gageler J); Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 (Tonto Home Loans) at [291] (Allsop P (as his Honour then was)). This involves, as the Full Court explained in Lux (FCAFC) at [44] “standing back and looking at the whole episode”. Thus, in Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College) (No 3) [2021] FCA 737 (Captain Cook College), Stewart J explained at [77] with respect to a systems unconscionability case that “it is wrong to approach a system case by seeking to isolate each integer of the system and reach a conclusion whether each is unconscionable in isolation. Clearly it is the system as a whole as constituted by, potentially, many inter-related integers that is to be assessed.”

132    It also follows from the requirement to have regard to all of the circumstances that no single factor is determinative: see eg Paciocco (HCA) at [292]–[294] (Keane J) (with whose reasons French CJ and Kiefel J agreed at [2] and [70] respectively); see also Empower at [713] (Gleeson J). Thus, for example, the mere existence of a disparity in bargaining power between the supplier and the customers is not sufficient to establish that the supplier’s conduct was unconscionable: Paciocco at [293] (Keane J).

133    Equally, it does not necessarily follow from the fact that consumers entered voluntarily into contracts for the sale of goods or services that the conduct of inducing them to do so was conscionable in all of the circumstances, as Kiefel CJ and Bell J explained in Kobelt at [57]–[58] referring by example to Lux (FCAFC). In Lux (FCAFC), the Full Court held that Lux Distributors Pty Ltd engaged in unconscionable conduct contrary to s 51AB of the TPA and its successor, s 21 of the ACL, arising from the sale of vacuum cleaners by direct salespeople to three elderly women in their own homes. The sales practice employed against the women and held to be unconscionable by the Full Court in Lux (FCAFC) involved a deceptive ruse to gain access to their homes and, once access was gained, a sales technique was employed which was designed to create a real sense of obligation from the subtle vulnerability of the householder to buy an expensive item which they did not really want or need: Lux (FCAFC) at [27]–[28], [39] and [44] (the Court). In reaching that conclusion, the Full Court took into account that the supply of the vacuum cleaners was in breach of provisions of the ACL and state laws requiring sellers making unsolicited calls on potential consumers to disclose their purpose and leave upon request. Equally here non-compliance with the regulatory framework applying to VET providers such as Phoenix and governing the VET FEE-HELP loan scheme is an important aspect of assessing whether the relevant conduct was unconscionable for the purposes of s 21 of the ACL.

134    Sixthly, while the umbrella to s 22(1) states that the factors listed at (a) to (l) are matters to which the Court “may” have regard, the word “may” in this context imports a requirement: see Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421 at [72] (Besanko J). As such, regard must be had to all of the considerations listed in s 22(1) to the extent that they are relevant to the particular case. As Gageler J held in Paciocco (HCA) by analogy with respect to the factors specified in s 12CB(2) of the ASIC Act relevant to assessing whether conduct in connection with the supply of financial services is unconscionable:

189. The word “may” in s 12CB(2) of the ASIC Act was not permissive but conditional. The import of s 12CB(2) was to spell out that circumstances relevant to the determination of whether conduct was objectively to be characterised as “unconscionable” according to the ordinary meaning of that term might or might not include, in respect of particular conduct, all or any of the particular matters referred to in s 12CB(2). The provision made clear that, where any one or more of those matters existed in respect of particular conduct, each of those extant matters was to form part of the totality of the circumstances mandatorily to be taken into account for the purpose of determining the statutory question posed by s 12CB(1). The provision did not leave it open to a consumer who alleged that conduct of a supplier was in breach of s 12CB(1) to pick and choose. The customers could not choose to rely on matters referred to in s 12CB(2)(a) and (b), yet to ignore matters referred to in s 12CB(2)(c), (d) and (e).

135    In this regard, Kiefel CJ and Bell J explained in Kobelt at [14] that the values which inform the standard of conscience set by s 12CB(1) of the ASIC Act (and by analogy, s 22(1) of the ACL) include those identified by Allsop CJ in Paciocco (FCAFC) at [296] and quoted above. Thus, Allsop CJ observed in Paciocco (FCAFC) at [285] that the matters in s 12CC of the ASIC Act “assist in setting a framework for the values that lie behind the notion of the relevant conscience of the parties in trade or commerce identified in s 12CB. Those values and conceptions can be seen as: fairness and equality: see paras (a), (b), (d) – (k); a lack of understanding or ignorance of a party: para (c); the risk and worth of the bargain: paras (e) and (i); and good faith and fair dealing: para (l).”

136    Furthermore, the matters specified by s 22(1) of the ACL “[have] the potential to bear positively or negatively on the characterisation of conduct as conduct that is or is not unconscionable” (Kobelt at [83] (Gageler J); see also eg National Exchange at [40] (the Court)). Equally the absence of any of the matters listed in s 22(1), such as the absence of undue influence, pressure, unfair tactics, or dishonesty, will also bear upon the assessment of whether the supplier’s conduct involves such a departure from accepted community standards as to render it unconscionable (Kobelt at [58]–[59] (Kiefel CJ and Bell J)). In this regard, it must be borne in mind that the statutory proscription does not require suppliers to act in an altruistic or disinterested way with consumers; nor necessarily in their customers’ best interests (Kobelt at [75] (Kiefel CJ and Bell J), [100] (Gageler J), [117] (Keane J)). The subject matter of the ACL, being the regulation of trade and commerce in furtherance of the objects specified in s 2 of the Act, suggests otherwise. As Keane J observed in Kobelt by analogy:

117. … the purpose of s 12CB of the ASIC Act is to regulate commerce. The pursuit by those engaged in commerce of their own advantage is an omnipresent feature of legitimate commerce. A trader does not, generally speaking, stand in a fiduciary relationship with his or her customers, and good conscience does not require a trader to act in the interests of others. To say that the respondent was pursuing his own commercial interests with a view to profit is to state the obvious, but also to say very little as to whether he engaged in unconscionable conduct. In particular, it does not assist in discerning whether the conduct in question exhibits those features which distinguish unconscionable conduct from the legitimate pursuit of self interest.

137    In short, as Allsop CJ said in Paciocco (FCAFC):

306. As Deane J said in Muschinski v Dodds 160 CLR at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in Subdiv C and ss 12CB and 12CC or the other statutes with which this case is concerned should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.

5.5    System or pattern of behaviour

5.5.1    Characterisation of a system or pattern as unconscionable

138    The amicus curiae’s submissions as to the characterisation of a system or pattern as unconscionable were not in issue and afforded particularly helpful guidance. As such, I have drawn from those submissions in explaining the issue of characterisation.

139    The Full Court in Unique (FCAFC) held that “[a] ‘system’ connotes an internal method of working, a ‘pattern’ connotes the external observation of events” (at [104] (cited with approval by Nettle and Gordon JJ in Kobelt at [143])). In line with this, in the earlier decision in Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 1045 (EDirect) (concerning a mobile phone telemarketing scheme using overseas call centres), Reeves J construed the word “system” according to its ordinary meaning as “an assemblage or combination of things or parts forming a complex or unitary whole; … a co-ordinated body of methods, or a complex scheme or plan of procedure”: Macquarie Dictionary” at [91]. As his Honour continued, “[t]o similar effect, Dixon CJ said of the word ‘scheme’ that it ‘connotes a plan or purpose which is coherent and has some unity of conception’: see Australian Consolidated Press Limited v Australian Newsprint Mills Holdings Limited (1960) 105 CLR 473 at 479”. Similarly, in Australian Competition and Consumer Commission v Unique International College [2017] FCA 727 (Unique (FCA)) Perram J held that a system encompasses “an internal process … deliberately adopted”, while “the phrase ‘pattern of behaviour’ will also cover those situations where a process emerges without necessarily ever having been expressly articulated”: at [757].

140    As the amicus curiae submitted, in certain cases the nature of the system will readily disclose inequity of a kind which supports a finding that the conduct involved in the system is unconscionable (Amicus’ Closing Submissions dated 23 October 2019 (Amicus’ CS) at [18]). National Exchange is an example of such a case, with the inequity of the transactions being evident on their face (National Exchange at [33]). A further example of a system of conduct which readily disclosed its unconscionable character was that alleged 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) which I discuss in more detail below. That case concerned the marketing of alleged cures for premature ejaculation and erectile dysfunction. As the amicus curiae submitted, that decision indicates that in certain circumstances where the systemic conduct targets an attribute common to members of a class, the question of whether or not any individual actually suffers disadvantage may be immaterial to a finding that the system was unconscionable, as may idiosyncrasies of individual members of that class (Amicus’ CS at [20]–[22]; Unique (FCAFC) at [65] and [133]). Equally, the directed and deliberate use of unfair sales tactics and other forms of plainly unconscionable conduct may, if integral, make systems conduct unconscionable irrespective of individual outcomes.

141    Yet another possible scenario is that which confronted Gleeson J in Empower where the targeting of disadvantaged groups was both consistent with the purposes of the relevant government policies with respect to the VET FEE-HELP assistance scheme and apt to result in exploitable conduct. The approach adopted by Gleeson J remains relevant despite the ACCC’s reliance on it in the event that special disadvantage was an essential feature of statutory unconscionability, which the binding decision in Quantum Housing has made clear is not the case.

142    First, Gleeson J held at [729] that a system of conduct or pattern of behaviour may be unconscionable “even though not every individual affected by the conduct or behaviour is or has been disadvantaged by the conduct or behaviour. What appears to have been significant was that the conduct targeted a group to take advantage of their likely, although not certain, vulnerability”. The Full Court’s decision in National Exchange, to which Gleeson J referred, is an example of a system held to be unconscionable in this sense. In National Exchange, ASIC alleged that, in sending unsolicited off-market share offers to members of a demutualised company to buy shares at a price which was substantially less than the market price, National Exchange had engaged in unconscionable conduct contrary to s 12CC of the ASIC Act. The Full Court held on appeal that National Exchange had engaged in unconscionable conduct because, among other reasons, it had taken advantage of the fact that there would be some people among the target company’s members whom National Exchange perceived to be vulnerable and would accept the offer against their commercial interests. As the Full Court held:

43. National Exchange set out to systematically implement a strategy to take advantage of the fact that amongst the official members there would be a group of inexperienced persons who would act irrationally from a purely commercial viewpoint and would accept the offer. They were perceived to be vulnerable targets and ripe for exploitation, as they would be likely to act inadvertently and sell their shares without obtaining proper advice, and they were a predictable class of members from whom Tweed could procure a substantial financial advantage by reason of their commercially irrational conduct. This is not a case of shrewd commercial negotiation between businesses within acceptable boundaries. The conduct can properly be described as predatory and against good conscience. This is not a case of obtaining a low price by shrewd negotiation. It is predatory conduct designed to take advantage of inexperienced offerees. The primary emphasis is on the conduct of the offeror towards the offeree in deciding whether conduct is unconscionable. The law is not, of course, intended to protect the reckless or the unreasonable and, as Spigelman J stated in Attorney General of NSW v World Best Holdings Ltd [2005] NSWCA 261 at [121], “[u]nconscionability is a concept which requires a high level of moral obloquy”. The concept of unconscionability is, however, concerned to prohibit conduct such as that of the offeror in this case, which was directed at exploiting the targeted recipients. There is a strong element of moral obloquy in this case.

143    Secondly, Gleeson J in Empower held that the evidence did not establish that Empower’s processes were deliberately designed to take advantage of vulnerable consumers and there was no actual direction per se to use unfair sales tactics or encouragement to make misleading representations (Empower at [750]). However, Gleeson J held that its processes “reflected a callous indifference to considerations of consumer protection, including whether recruiters complied with the ACL or whether they duped consumers into enrolling in an online course and incurring a VET FEE-HELP debt, for the purpose of deriving income from VET FEE-HELP” (Empower at [750], emphasis added). This inference in turn supported a conclusion that the system was unconscionable. As her Honour explained:

751. … at least in the period June to mid-December 2014 Empower conducted a system or engaged in a pattern of behaviour comprising: (a) using recruiters who were practically untrained, who received no ACL training and who were remunerated on a commission basis for securing enrolments; (b) offering inducements to enrol, particularly the Google Chromebooks; and (c) making unsolicited consumer agreements with no process for ensuring compliance with the relevant provisions of the ACL. These features of Empower’s system, when coupled with cursory verification of students’ bona fides by telephone and no LLN testing, meant that it was essentially a matter of luck whether a consumer would enrol with an adequate understanding of the services acquired and the debts that would be incurred. The system enabled Empower to receive substantial income pursuant to a government funded scheme intended to improve the lives of members of the community by providing them with education and, consequently, improved employment prospects.

144    On this basis, Gleeson J held at [751] that:

[W]here the system was directed to enrolling students from a disadvantaged sector of the community – who were vulnerable to being misled or deceived – in order to accrue very substantial financial benefits to Empower, and where the system reflected a callous indifference to the consumer protection considerations I have identified above, a conclusion that, by its operation of that system, Empower engaged in conduct that was, in all the circumstances, unconscionable is justified.

145    In effect, therefore, as the amicus curiae submitted (Amicus’ CS at [43]–[44]), where a system of conduct designed and implemented by a respondent, while not directing, nonetheless accommodates unconscionable conduct, it is incumbent on the respondent to integrate measures into its system to ensure that those under its direction adhere to consumer protections. A system which fails to integrate such measures into its system as a result of indifference to consumer protection considerations may, on this approach, constitute conduct against conscience by reference to societal norms. As the amicus curiae submitted, “[t]he same conscience that operates to restrain a party from engaging in unconscionable conduct and to compel it to make amends where it has done so, can also operate to require that party to take steps to mitigate the risk that unconscionable conduct will figure in systems under its control” (Amicus’ CS at [44]).

146    Importantly on this approach, as the applicants contend, a system of unconscionability for the purposes of s 21 of the ACL was established where:

(1)    there was a cohort of consumers which included those labouring under a special disadvantage (vulnerable consumers);

(2)    the respondent knew this;

(3)    in designing and operating its system, the respondent “paid little regard to the educational needs of any of its students, including the most vulnerable and those requiring the greatest guidance and support in making an informed choice about what was in their best interests” (ACS at [96]);

(4)    the system included features which accommodate the exploitation of the special disadvantage or disadvantages; and

(5)    the respondent failed to take steps to guard against exploitation of the vulnerable consumers.

147    A similar line of reasoning in AIPE (No 3) also led to a finding of unconscionability against the education provider, AIPE. In that case, the ACCC and the Commonwealth alleged that AIPE engaged in an unconscionable system of conduct contrary to s 21 of the ACL, as well as unconscionable conduct contrary to s 21 with respect to 13 individual consumers. Relevantly for present purposes, the applicants alleged that AIPE operated a system for enrolling consumers in courses eligible for VET FEE-HELP loan assistance without regard to their suitability for the courses. In common with the present case and the circumstances in Empower, the system employed by AIPE was to use agents and their employees to sign up consumers which AIPE then enrolled in a manner described by Bromwich J as “somewhat akin to a real estate agent, who facilitates a sale, but leaving the sale contract to take place between the vendor and purchaser” (AIPE (No 3) at [8]).

148    While the first step in the regulator’s case in AIPE (No 3) was that disadvantaged persons were targeted for enrolment, their case did not stop at that point. As Bromwich J explained, “[t]here were ways and means of carrying out such targeting that would be unobjectionable and in keeping with the deliberate liberalising of the VET FEE-HELP scheme by the government, or at least could not be shown to be objectionable even if shown to be troubling” (at [169]). Rather, his Honour explained that the substance of the applicants’ case was that the VET FEE-HELP program design “was unconscionably exploited for profit by AIPE in a way that inevitably was productive of harm to consumers who were enrolled as students who were never likely to, and in the much greater part never did, in fact partake of the courses” (ibid). That case was upheld by Bromwich J. As his Honour found:

686. The main conclusion to be drawn from this evidence is that, despite the efforts of the employee witnesses and some of their staff to improve AIPE enrolment practices to avoid unsuitable consumers being enrolled as students, the highest level of AIPE was concerned with high levels of enrolment rather than even modest levels of successful study. The overall conclusion is that Mr Khanche [(the CEO of AIPE)] and thus AIPE were fully aware that most of the consumers who were enrolled as online students were not partaking of the course in which they were enrolled, and that this was largely the situation from the moment that enrolment took place.

149    Key aspects of the business model employed by AIPE were that:

(1)    AIPE was only willing to have the appearance of taking steps to confine the imposition of VET FEE-HELP debts to genuine students but did not in fact want or allow that to happen if it had any significant impact on enrolments (at [687]);

(2)    it was an accepted and anticipated part of the business model that a very high proportion of consumers who were enrolled would pass the census date and incur a VET FEE-HELP debt in circumstances where it was not only predictable that they would never need any student support, but it was also a highly profitable outcome (at [688]);

(3)    a significant number of consumers enrolled as students never commenced the courses in which they were enrolled (at [689]); and

(4)    despite the substantial increase in enrolments, the fact that there was no substantial increase in staff numbers demonstrated that AIPE understood that the great bulk of consumers enrolled as students who were withdrawn after the census date were unsuitable to be enrolled or not genuine students such as by reason of being told that enrolment was a means of getting a “free” laptop (at [690]).

150    Thus his Honour held that given the predictable effect of AIPE’s business model on vulnerable prospective consumers, the business model was unconscionable: “[i]t was incumbent on AIPE to conduct any recruitment from this disadvantaged pool of consumers in a way that did not take advantage of their vulnerability. That was the legal and practical framework in which AIPE was operating” (at [691]).

151    In reaching this conclusion, Bromwich J rejected the submission by AIPE that the regulator had tacitly assumed without evidence that the consumers enrolled as students were vulnerable contrary to the Full Court’s caution in Unique (FCAFC) at [235] against making such stereotypical assumptions. Rather, his Honour held in AIPE (No 3) at [772(6)] that:

This overlooks what the Full Court said in Unique at [135] to [136]. The applicants’ unconscionabil[i]ty case relied upon general attributes of the disadvantaged consumers who were targeted to be enrolled, in the sense of being less able to detect defects in the information they were given, and to resist becoming enrolled in a course despite being unsuitable. Any member of society who was told, for example, that a course was “free” when it was not free of a debt burden, or that a laptop was for use in such a course (or otherwise) was “free” when in fact it too was provided in the context of and upon the condition that a debt burden was assumed, could well be encouraged to enrol in such a course. The burden of the applicants’ case is that persons from disadvantaged backgrounds, who were targeted in accordance with the liberalised VET FEE-HELP scheme, were more likely to be misled by such conduct and therefore to become enrolled, even if they were also not suitable to be enrolled in the first place. This was not an improper or silent assumption, let alone one relying upon stereotypes, but rather a normal understanding of differential capacity, and therefore vulnerability, to be misled by conduct of the kind that the applicants rely upon.

152    His Honour characterised the vulnerability of which advantage was taken as “the vulnerability of a general class of consumer with an inherently higher risk of being unsuitable to be enrolled as a student, rather than having features specific to one consumer but absent from another” (at [692]) and held that:

692. … The outcomes and events pointing to that general vulnerability, and thus particular and special disadvantage, was not left to speculation, or generalisation, but rather was repeatedly raised by each of the three employee witnesses, sought to be rectified and thwarted or otherwise undermined by the most senior decision-makers at AIPE …

5.5.2    Proof of a “system of conduct or pattern of behaviour”

153    Issues regarding the proof of an unconscionable system of conduct or pattern of behaviour under the ACL were the subject of close consideration by the Full Court recently in Unique (FCAFC). It is therefore helpful to consider this decision in some detail.

154    The ACCC alleged that Unique, a RTO, had engaged in a system of conduct or a pattern of behaviour in connection with the supply of online vocational educational courses to consumers under VET FEE-HELP which was unconscionable contrary to s 21 of the ACL. Aspects of the conduct relied upon included the offering and provision of “free” iPads and laptop computers. Unique ran 428 recruitment sites. The regulator led evidence as to the marketing conduct used in relation to six individual students at three of those sites but did not lead evidence as to how the nominated consumers had been selected in those towns from amongst the thousands of consumers enrolled with Unique across the relevant period. The primary judge, Perram J, held that absent that information, the Court could not “rationally conclude that what took place in those towns was generally representative” (Unique (FCA) at [721]).

155    However, Justice Perram considered that other evidence led by Unique and unrelated to four towns in which ‘sign-up meetings’ were held established “certain more limited systemic features” namely:

721. … first, the gift of computers to proposed students on signing up (either directly as a gift before 31 March 2015 or on a purported loan basis after that date); secondly, the use of incentives for its own staff to encourage them to sign up students; and thirdly, the holding of sign-up meetings at the targeted locations.

156    His Honour concluded that he could not rationally extrapolate anything as to a system from his findings concerning the targeted locations, but nevertheless proceeded to find that a system had been proved on the basis of the evidence concerning the four recruitment sites. (As the amicus curiae submitted, on appeal the Full Federal Court found that a thread of the argument that these events were somehow representative of a broader system or pattern remained in his Honour’s reasoning.) In particular, Perram J held that the gifting of laptops, the incentivising of recruitment, and the holding of recruitment meetings were “the result of considered decision making by senior management within Unique” and constituted a system within the meaning of s 21(4) of the ACL (Unique (FCA) at [774]–[777]). His Honour also found that Unique had targeted disadvantaged individuals by reference to indigeneity, remoteness and social disadvantage (whether that targeting was deliberate in its original conception or not, and despite not being satisfied as to the method by which the targeting was undertaken). Perram J concluded that the applicants had succeeded in establishing within the meaning of s 21(4) of the ACL, the existence of both a system and a pattern of behaviour with these four features (Unique (FCA) at [777]). Perram J further found that, while these features would not necessarily be unconscionable, when deployed against a targeted group of disadvantaged persons different issues arise. His Honour concluded that:

778. … In terms of s 22(1), it seems to me relevant to note in an assessment of the system that the targeted cohort consisted of people who were unlikely to understand the documentation involved (s 22(1)(c)) and that the use of the gift of a free (or ‘lent’) computer was apt to confuse this particular cohort into thinking a very bad deal was a good one – in my opinion an unfair tactic within the meaning of s 22(1)(d). The effect of the system in (b) to (d) was to supercharge the exploitation of the disadvantaged group which was being targeted (and also Unique’s remarkable profits). The system was unconscionable within the meaning of s 21.

157    The Full Court overturned this finding on the basis that the evidence could not support either the existence of the system or its characterisation as unconscionable (Unique (FCAFC) at [92]). Much of the Full Court’s judgment in Unique (FCAFC) necessarily addresses the use of evidence of individual consumers as representative of a wider pool of consumers to whom the allegedly unconscionable conduct was directed, as I have explained. In particular, the Full Court held that the evidence of six student witnesses out of more than 3,600 students and from four out of 428 sites was not capable of establishing the representative case advanced by the ACCC in the absence of evidence about how the sites or students were chosen or how they might be representative or random (Unique (FCAFC) at [162], [208]–[209]). That issue does not arise in this case because, as in AIPE (No 3), the ACCC and the Commonwealth expressly disavowed advancing the individual consumer evidence as representative evidence (AIPE (No 3) at [150] (Bromwich J)). Nonetheless, as I have foreshadowed, the decision provides valuable guidance on issues of proof in the context of an unconscionable systems case.

158    First, the Full Court in Unique (FCAFC) held that:

104. … How a system or a pattern is to be proved in any given case will depend on the circumstances. It can, however, be said that if one wishes to move from the particular event to some general proposition of a system it may be necessary for some conclusions to be drawn about the representative nature or character of the particular event.

159    Thus, the appropriate method for proving the existence of a system will depend on the facts of the case and the form of the pleading, and the extent of the probative exercise undertaken may be significant (Amicus’ CS at [10]–[11]). As Bromwich J explained in Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521 (AIPE (No 1)):

11. … 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 activities of a respondent.

160    Secondly, after discussing the difficulties which may arise in a systems unconscionability case, including as to the relevance of analytical evidence, the differences between proving an individual consumer case as opposed to a system case, and the potential complexities in assessing the evidence, the Full Court in Unique (FCAFC) observed that:

126. None of the above is to set the burden of proving a system case too highly. As we discuss below unconscionability is a serious issue to which the terms of s 140(2) of the Evidence Act 1995 (Cth) are relevant. Some assertions of unconscionability will be more serious than others. That is inevitable due to the fact- and context-specific evaluation that is necessary to undertake by reference to the values recognised by the statute. Regard should also be had to the ability of a party to prove or disprove the existence or nature of any system: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969.

161    Section 140 of the Evidence Act, to which the Full Court referred, provides that:

(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.

(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

(a) the nature of the cause of action or defence; and

(b) the nature of the subject‑matter of the proceeding; and

(c) the gravity of the matters alleged.

162    In particular, s 140(2)(c) reflects the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 that the seriousness of an allegation made, and the gravity of the consequences flowing if the allegation is made out, bear upon whether the allegation is established to the reasonable satisfaction of the decision-maker. Thus with respect to proof of an allegation of unconscionable conduct, the Full Court held in Unique (FCAFC):

155.    There is no third standard of proof: see Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 at 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ). No doubt an allegation of unconscionable conduct is a serious allegation, to use the plurality’s characterisation in Neat Holdings, and this explains its inclusion in r 16.42. (Though a court rule is not helpful in the construction and interpretation of a statute). To behave unconscionably should be seen, as part of its essential conception, as serious, often involving dishonesty, predation, exploitation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism. None of these terms is definitional. … These are descriptions and expressions of the kinds of behaviour that, viewed in all the circumstances, may lead to an articulated evaluation (and criticism) of unconscionability. It is a serious conclusion to be drawn about the conduct of a businessperson or enterprise. It is a conclusion that does the subject of the evaluation no credit. This is because he, she or it has, in a human sense, acted against conscience. The level of seriousness and the gravity of the matters alleged will depend on the circumstances. Courts are generally aware of the character of a finding of unconscionable conduct and take that into account in determining whether an applicant has discharged its civil burden of proof. …

163    Furthermore, as the amicus curiae submitted, an approach to proving the existence of a system which relies upon evidence of conduct in relation to particular individuals may require consideration of the intersection of proof of such a system and the tendency evidence provisions of the Evidence Act: Unique (FCAFC) at [206]–[207]; AMI at [92] (North J); and Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51 at [67] (Sackville J (Whitlam and Mansfield JJ agreeing)).

164    Thirdly, the Full Court in Unique (FCAFC) discussed the decision of North J in AMI. In that case, the ACCC alleged that AMI engaged in unconscionable conduct contrary to s 51AB of the TPA and subsequently s 21 of the ACL. An appeal against this decision was dismissed: NRM Corporation Pty Ltd. The contravening conduct was said to be the offering of treatments for premature ejaculation and erectile dysfunction using nasal spray and later oral strips. AMI’s revenue for this program ranged between $40 and $55 million between 2008 and 2010 (AMI at [102]). Its method was telephone sales. The ACCC seized approximately 3 million recordings of such calls, and adduced a sample of them in evidence.

165    Relevantly to the question of the existence of an unconscionable system or pattern of behaviour, North J held that AMI had designed a selling strategy to target the anxiety and distress of men seeking treatment for these conditions, and that its salespeople were trained to use “high-pressure selling techniques” using methods likely to frighten men into agreeing to the treatments, including telling men of adverse physical consequences if they did not agree to the treatment (such as shrinkage of the penis and psychological impotence) (AMI at [891]–[894]). The threat of dire medical and social consequences placed pressure on men to accept the treatments (AMI at [894]). North J held that there was no scientific evidence that the sprays were effective treatments, nor were men warned about the side effects (AMI at [558], [894], [931]).

166    North J found with respect to the system employed by AMI as a whole that:

939. 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.

940. In addition, the 168 individual cases demonstrated some features which occurred in most of those cases, such as the offering of medications being limited to the AMI and NRM medications, the failure of doctors to diagnose an underlying cause or refer patients to GPs or specialists for those causes or presenting conditions, and the use of high-pressure selling techniques by salespeople. The individual cases also involved some features which were specific to those cases, such as the refusal of refunds in particular cases.

941. The conduct which has been found to have been unconscionable existed in most of the 168 individual instances. Certainly, the most serious unconscionable conduct existed in most cases. That is not to say that all of the unconscionable conduct existed in all 168 cases. However, all the conduct found to have been unconscionable was sufficiently widespread to justify the relief sought…

942. … the ACCC did not set out to show that the patients in each of the 168 cases suffered some disadvantage. Proof of unconscionable conduct depended on what AMI and NRM did, whether or not it had an effect on the individual patient. For instance, some of the Annexure B patients did not enter into agreements at all. That did not mean that, for example, in using high-pressure selling techniques in attempting to procure contracts, AMI and NRM did not engage in unconscionable conduct. The circumstances that no contract was concluded may bear on whether the Court would grant relief, but it does not prevent a finding that AMI and NRM engaged in unconscionable conduct. So much is clear from National Exchange and, now, s 21(4)(b) of the ACL.

167    The approach of North J in AMI was approved by the Full Court in Unique (FCAFC) at [132], in holding that in principle there was no reason why evidence as to what occurred in the circumstances of a number of individual consumers could not also be adduced as evidence to prove a system. However, the Full Court continued:

133    Nevertheless, the circumstances of the alleged unconscionable conduct, and the evidence adduced, will be critical. The proportion or distribution or some other feature that the individual consumers can be seen to represent of the entire consumer class may be important. Whether the class can be said to have substantially common relevant characteristics, or not, will also matter. In AMI, the class (men seeking treatment for impotence) all had a number of common characteristics which were what gave rise to their vulnerabilities. More individual attributes – level of education, literacy, socio-economic grouping – did not, or could be seen not to, matter. How many of the transactions involving individual consumers reveal features said to be part of the “system” will be important. Obviously, the more features which self-evidently have an unconscionable character, the easier it will be to prove an unconscionable system. For example, in AMI, some of the features included:

(a)    the training of salespeople in methods which were likely to frighten men into agreeing to buy the treatment programs;

(b)    the remuneration of salespeople by commission and the failure to disclose this fact in a context where men believed they were consulting a medical practice, which would characteristically have patient welfare as a primary concern;

(c)    the “unduly harsh” refund terms, which required parties to try all treatment options (including invasive self-treatment procedures) before becoming entitled to a refund or cancellation of debts, and the strict enforcement of such terms;

(d)    the exploitation of the doctor/patient relationship, which created an inherent power imbalance and was combined with concealment of the lack of scientific basis for the medications sold; and

(e)    the use of long-term contracts with consumers, in circumstances where this was without medical justification and was not necessary to protect the legitimate interests of suppliers.

134    Further, the nature of the evidence adduced from those responsible for the alleged design and implementation of the system will be important. In AMI at [891], North J summarised his findings about the evidence about Dr Vaisman:

Dr Vaisman knew that men who suffered from ED or PE generally felt anxious about their condition. He believed that they felt frustrated, ashamed, dissatisfied, distressed, and that they suffered from low self-esteem. Dr Vaisman targeted these characteristics as a method of pressuring patients to agree to treatment programs. Salespeople were trained by him to take advantage of these feelings as a means to sell treatment programs.

135    Most critically, the nature of the allegations of unconscionable conduct will govern how probative the evidence of individual consumers will be. The more generic the alleged conduct, and the less the unconscionability depends on the attributes of consumers, the more probative evidence about what happened to a number of consumers may be. An example is EDirect and its telemarketing scripts and calls: the attributes of consumers did not play such a central role in those allegations. The facts of AMI are another example. The vulnerabilities of the male consumers were generic vulnerabilities, which could be said to arise from the very situation of seeking treatment from AMI: they were concerned about their sexual performance.

(Emphasis added.)

168    The Full Court in Unique (FCAFC) contrasted the case before it with AMI, holding that:

136. … the vulnerabilities of the consumers were very much dependent on their individual circumstances: their levels of education, their literacy and numeracy, whether they had intellectual impairments, what was explained to each of them and what was not, and whether they had access to the internet and whether they understood how to operate a computer. These were not matters about which inferences could be drawn without sufficient evidence.

137    In AMI, the Court again had the scripts used in the telemarketing calls, and samples of the recordings of the calls. The unconscionable nature of the conduct was, at least in part, demonstrable from the contents of this evidence. That is not the case in the current appeal – for example, the scripts about the enrolment process and the programs were not found by the primary judge to contain, and were not suggested on appeal to contain, anything that could be said to be a feature of unconscionability.

(Emphasis added.)

169    In the fourth place, the Full Court concluded in Unique (FCAFC) as to the approach to proving the existence of an unconscionable system that:

150    In conclusion, what the authorities demonstrate, unsurprisingly, is that the debate about whether or not a corporation or an individual has engaged in conduct that reveals a “system” or “pattern of behaviour” will be highly fact-specific, and will rely to a significant extent on the forensic exercise the regulator chooses to undertake to prove the existence of the system, as well as any forensic exercise the respondent undertakes by way of answer. The same is true of the characterisation of conduct as unconscionable. In a case like Kobelt, both parties adduced lay and expert evidence about whether it was correct to describe what Mr Kobelt did as unconscionable. ASIC persuaded the primary judge, but not the Full Court.

151    In upholding the appeal, we are not to be taken as deciding that a regulator needs to adduce evidence which covers a majority of consumers affected by the alleged conduct, nor as deciding that some kind of representative or random sampling method cannot be adopted to prove the existence of a system. Rather, it is clear from the cases we have discussed that all those methods and others are open, and may be sufficient depending on the particular circumstances of the case.

152    Nor are we to be taken as deciding that evidence of what occurred to individual consumers is incapable of being used to prove a system. As North J said in AMI, depending on how that evidence is presented, and the use sought to be made of it, it may not be tendency or coincidence evidence at all. If it is (and whether or not this is so will need to be determined on a case-by-case basis) then a regulator should be aware of the need to comply with the provisions of the Evidence Act.

153    Proving that a characterisation of unconscionability is appropriate also requires careful attention to precisely what it is about the class of consumers that is relied upon. The more that individual characteristics of consumers are said to be what makes them vulnerable, the greater the need for evidence about individual consumers is likely to be. The more that unconscionability depends on specific interactions between the respondents and consumers, the more likely it is that a level of representative evidence will be required. Where, as in the current appeal, the features of the alleged “system” depended on what happened at various enrolment sites, what was said and what was not, and what attributes those who attended and enrolled had, it is unlikely that an unconscionable system case can be proven without more attention being paid by the regulator to the need to prove representativeness of individuals, or to have a sufficient sample of individual consumers, or expert evidence, which addresses these matters.

170    Crucially, in determining the characteristics of those targeted and the kind of evidence required to demonstrate special disadvantage, the Full Court in Unique (FCAFC) emphasised the need to avoid the making of unwarranted stereotypical assumptions and identified the kind of evidence which may be necessary to establish an unconscionable system so as to avoid the difficulties encountered by the ACCC in Unique:

165. Even if Indigenous or poor or unemployed people were “targeted”, that would at one level only be to focus upon the expressed aims of the government policy. It is important also not to make unwarranted stereotypical assumptions about these groups of people. It was a feature of many of the submissions of the ACCC, even if sometimes only implicit, that either the individual consumers and the conduct towards them could be taken as representative or, if not, assumptions of vulnerability should be made about all those “targeted”. It was this latter silent assumption that not only underpinned many of the ACCC’s submissions but also [778] of his Honour’s findings. The use of gifts of laptops or iPads, the use of incentives to staff to encourage them to sign up students and the holding of sign-up meetings (see [774](b), (c) and (d) of the primary judgment), which could be an otherwise inoffensive system (see the second sentence of [778]), became unconscionable because of the targeting of Indigenous, remote and socially disadvantaged communities (without knowing anything at all in the evidence about those communities).

166    Unique submitted, and we accept, that the equivocal nature of the evidence was, in fact, recognised by the primary judge when at [653] he found there were matters that were left “rather up in the air” by the evidence. We accept Unique’s submissions that those matters were central to the system case, and in particular whether Unique’s conduct could be described as unconscionable.

167    What could have brought the evidence down out of the air? It should not be thought that we are of the view that the task was Herculean. Apart from Ms Martin there was no educational expert. In Kobelt, for example, there was considerable expert evidence about the Indigenous communities themselves. An educational expert might have explained how online courses operate in an education sense: the kinds of facilities necessary for a student to tackle them successfully and the levels of literacy necessary.

168    An educational expert might have given an opinion on the fact, well-established in the evidence as the ACCC submitted, that although Unique’s revenue increased from $40,301 in 2013 to $33,779,726 in 2015, its expenditure on staff and resources did not increase at all. How, one might have asked an expert, would a program in a business such as this, enrolling more than 3,600 students to participate in online courses from remote locations and knowing many students might face literacy and social challenges, have been appropriately planned, resourced and delivered? Assertions from the bar table about the accounts were of no assistance. …

169    … What was required to characterise a system as unconscionable was some coherent evidence of what a proper system would look like compared to any inadequacy of Unique’s system (on this hypothesis).

170    An expert familiar with the government policy could also have contextualised the policy which led to the changes in the VET FEE-HELP program, the assumptions underlying how it would be delivered and to whom, and what support the policy contemplated would be given to students, especially those in remote locations or with particular educational, or economic, disadvantage. The “failures” alleged in [22] of the ASOC could have been explored, at a systemic level, and through Unique’s own documentation, with Unique’s witnesses. A larger cohort than six individual consumers and four locations could have been selected. At the very least, evidence about how and why these consumers and locations were selected could have been adduced. A properly prepared representative sample could have been used.

(Emphasis added.)

171    In line with this, the Full Court held that the fact that the proportion of Indigenous students enrolling in Unique’s programs in NSW “far outstripped even the higher proportions of Indigenous students enrolling in VET programs across the country” was “equivocal in terms of what they prove. The numbers are just as capable of proving that Unique was ‘targeting’ its enrolments to those whom the Commonwealth had identified should be targeted” (Unique (FCAFC) at [183]). Furthermore, the Full Court held that to infer exploitative conduct from these figures “makes an unarticulated and suppressed assumption about the necessary vulnerability of the Indigenous communities approached” (ibid). Nor was there any direct evidence about what Unique’s employees knew about the demographic make-up of the locations they visited, the basis on which they chose particular locations over other locations, or whether they recruited Indigenous staff in order to exploit their family or community relationships despite the onus of proof resting squarely upon the ACCC (Unique (FCAFC) at [196]). The Full Court also held that “[e]vidence of what occurred on numerous occasions, in different places and at different times, with different students, would all be admissible to prove the existence of such a system or pattern” (Unique (FCAFC) at [207]).

172    Justice Bromwich in AIPE (No 3) accepted that the regulator’s case did not suffer from the defects in the regulator’s case in Unique which had led the Full Court to allow the appeal. Bromwich J identified two potential difficulties relevant to the pleading and proof of a systems unconscionable conduct case, namely:

60. …The more general or abstract the system or behaviour that is alleged and proven, the harder it may be to establish that it has the character of being unconscionable for want of necessary detail to show that is so, or that it has the necessary pervasive and proscribed character. By contrast, too granular an approach may more readily demonstrate isolated instances of contravening conduct, but may fall short of showing that any overall proscribed system or behaviour took place. …

173    However, his Honour found that these difficulties had been addressed by the approach adopted by the regulator in AIPE (No 3) in “draw[ing] all of the threads of evidence together” (at [60]). That evidence included in particular the evidence of ex-employees and business records such as enrolment records and data, enrolment forms, complaints and records of complaint handling, as well the evidence of 13 individual consumers which was relied upon only to illustrate by detailed examples the unconscionable way in which the system worked overall “at the enrolment coalface” (at [163]; see also at [44]). As such, his Honour held that the evidence of the individual consumer witnesses “was helpful and made for a stronger case for the applicants”, but, in contrast to Unique, “was not indispensable and not used as evidence that of itself was representative of the system or pattern” (at [163]).

174    Furthermore, unlike Unique, the applicants’ case in AIPE (No 3):

167. … has the additional pleaded and proven dimension of a positive motive to deliberately enrol students who would not be likely ever to partake of study and to keep them enrolled until the census date, or at least deliberately to keep and maintain in place an enrolment system which produced that outcome. That motive has been shown to have been acted upon, even if not overtly discussed, because, when the problem of unsuitable students being enrolled and remaining enrolled past the census date was pointed out, steps were either not taken to alleviate it, or were overridden or watered-down when they resulted in a reduction in the rate of such enrolments continuing to the census date. It needs to be kept steadily in mind that the applicants did not need to prove intention to produce a particular outcome. But the character of the regime by which the outcome was produced has to be shown to be unconscionable.

(Emphasis added.)

175    Thus, while the ACCC’s systems case in Unique (FCA) was “overwhelmingly circumstantial”, Bromwich J held that the ACCC’s case in AIPE (No 3) was not only circumstantial but included “important and far-reaching direct evidence” of the internal workings of AIPE (at [170]). His Honour concluded on this issue that:

170. … This was not a case of extrapolation from what was done to individual students: cf Unique at [74]. Rather, the evidence of what was done to individual consumers was illustrative of how the pattern of behaviour by AIPE played out in the field, avoiding that being left only to inference or abstract evaluation. The totality of evidence supports a reasonable inference that the pattern of behaviour was widespread, and thereby had a widespread effect, contributing to a very high proportion of that type of enrolment. The ACCC did not have to go so far as to eliminate every other possible explanation – that would be to impose a standard of proof beyond the balance of probabilities.

171.    The evidence was more than enough to prove that it was an inevitable outcome of the enrolment system that unsuitable consumers would be enrolled as students, which it actively resisted changing in a way that would limit, let alone avoid, that outcome being highly prevalent. This materially assists the applicants’ unconscionabilty case. There is nothing compelling to suggest any other significant cause for this extreme outcome, so as to stand in the way of this conclusion. The liberalised nature of the post-2012 VET FEE-HELP scheme does not provide as good an explanation and may safely be put to one side, because disadvantage is better understood as a barrier to, rather than a cause of, unsuitable enrolment. The applicants’ evidence went far enough to remove as any reasonable explanation that the outcome arrived at was due simply to the inevitable consequence of disadvantaged persons having a higher rate of failure than other members of the community. What mattered in this case was how such persons came to be enrolled in the first place. That exercise in blaming the consumers was, to my mind, a most troubling and almost patronising conclusion to reach in any event, but one that can be reduced to, at most, a minor and inconsequential explanation in this case.

6.    VET FEE-HELP AND THE REGULATORY FRAMEWORK

6.1    Importance of the regulatory framework

176    As earlier explained, in Unique (FCAFC) the Full Court (Allsop CJ, Middleton and Mortimer JJ) described unconscionability as “a fact-specific and context-driven application of relevant values by reference to the concept of conscience” (at [104]). Among those factors which may be relevant, the Full Court considered in Lux (FCAFC) that “in assessing the conscionability or not of a particular instance of such selling, the compliance with public regulations will be centrally important” (at [73]).

177    In this case, that assessment falls to be made against the regulatory framework governing VET FEE-HELP and VET providers such as Phoenix, as the applicants contend.

178    First, it is necessary to understand the vulnerabilities in the VET FEE-HELP system which rendered it open to exploitation, such as occurred in Empower, AIPE (No 3), and Captain Cook College, and in the present case.

179    Secondly, in the context of considering the alleged Callous Indifference and whether there was a lack of good faith among other factors, the legislative background is necessary to consider,, among other things:

(1)    the alleged discrepancy between the target cohorts to whom the diplomas were directed and those who were in fact enrolled;

(2)    alleged non-compliance with requirements such as the prohibition on the offering of inducements to prospective students and the requirements for the provision of vital information to prospective students about their rights and obligations under the VET FEE-HELP system and capacity to withdraw prior to the census date;

(3)    alleged non-compliance with enrolment procedures and in particular those directed at determining whether consumers enrolled in Phoenix Online Courses met statutory admissibility requirements and Phoenix’s own mandatory admissibility requirements; and

(4)    the alleged reckless indifference as to whether the mandatory work placements necessary to complete the Diplomas of Community Services and of Early Childhood Education and Care were feasible given, for example, the volume and location of consumers enrolled in those qualifications.

180    Thirdly, Mr Brown and Mr Kochhar were well aware both of the vulnerabilities in the VET FEE-HELP system to exploitation and of Phoenix’s obligations as a RTO under the HES Act and associated delegated legislation and guidelines, including with respect to the conduct of Agents and Brokers marketing its Online Courses. I have earlier referred to Mr Brown and Mr Kochhar’s relevant experience and qualifications, as disclosed by them in ACN’s 2015 Annual Report.

181    In addition, when Phoenix was acquired Mr Brown was the CEO of ACN and Mr Kochhar was the COO of ACN which already owned a number of RTOs and would have been in receipt of regular HELP Newsletters issued by the Student Support Branch of the Department from at least December 2014 and throughout the relevant period. These warned of the prevalence of unethical practices being engaged in by Brokers and Agents marketing courses to the public, of RTOs’ obligations to guard against such practices, and of legislative amendments.

182    Furthermore, on 11 February 2015, Mr Brown made a Senior Authorised Officers’ Statutory Declaration of Adherence to the HES Act including that he had read and fully understood the HES Act and associated legislative guidelines applying to approved providers, and declared that Phoenix was willing, able and agreed to comply with the requirements in the HES Act and legislative instruments including the quality and accountability requirements and those associated with the entitlement to HELP assistance.73 He also completed a Fit and Proper Person Requirements declaration as required by cl 7.1(b) of Attachment A to the 2015 RTO Standards.74

6.2    The Commonwealth VET FEE-HELP assistance scheme

183    The applicants plead relevant features of the VET FEE-HELP assistance scheme and associated regulatory framework in the SOC/ASOC at [11]–[28]. While not admitted by the respondents, they are not controversial (as the applicants submit).

184    The HES Act provides for the Commonwealth to support higher education and certain vocational education and training through financial assistance to students, generally extended in the form of contingent loans, in order to remove upfront cost barriers to tertiary education. At the relevant time, as the overview in ss 3–10 of the HES Act explains, that assistance was afforded by the following schemes to students:

(a)    HECS-HELP assistance for student contribution amounts;

(b)    FEE-HELP assistance for tuition fees;

(c)    OS-HELP assistance for overseas study;

(d)    SA-HELP assistance for meeting student services and amenities fees imposed by higher education providers.

185    The VET FEE-HELP assistance scheme comprised effectively an “offshoot” of the FEE-HELP assistance scheme and was directed towards certain specific targeted groups, as I explain below.

6.2.1    Enactment of the VET FEE-HELP assistance scheme and the target communities

186    The VET FEE-HELP assistance scheme was introduced on 1 January 2008 by the Higher Education Support Amendment (Extending VET FEE-HELP for VET Diploma, Advanced Diploma, Graduate Diploma and Graduate Certificate Courses) Act 2007 (Cth). Pursuant to that scheme, the Commonwealth provided financial assistance to students studying higher level VET courses by way of advancing loans to students that paid their tuition fees (VET FEE-HELP Loans). As Perram J observed in Unique (FCA) at [5], the phrase “VET FEE-HELP” is a shorthand expression for Vocational Education and Training FEE Higher Education Loan Program.

187    Substantial amendments were made to the HES Act in late 2012 and early 2013 by the Higher Education Support Amendment (Streamlining and Other Measures) Act 2012 (Cth) (the 2012 HES Amendment Act) and the Higher Education Support Amendment (Further Streamlining and Other Measures) Act 2013 (Cth) (the 2013 HES Amendment Act) (together the 2012/2013 HES Amendment Acts). The purpose of these amendments was to increase the VET participation rates of people from specific demographic groups which correlate with those identified in the SOC/ASOC as the “Target Communities” (see at [93] above). As the Explanatory Memorandum to the Higher Education Support Amendment (Streamlining and Other Measures) Bill 2012 (Cth) explained (under the heading “2. The problem”):

Since its inception in 2008, take-up of VET FEE-HELP by RTOs, and thus students, has been below Government expectations. This has limited the extent to which VET FEE-HELP can fully achieve its objectives, including improving VET access and participation, consequently limiting the HELP scheme’s ability to realise its full potential in supporting national skill reform and productivity agendas.

…

The low take-up of VET FEE-HELP is an equity issue. People from identified demographic groups have a lower participation rate in education and training. These groups include Indigenous Australians, and people from a non-English speaking background, with disability, from regional and remote areas, from low socioeconomic backgrounds, and people not currently engaged in employment. Increased student take-up of VET FEE-HELP is key to lifting VET participation amongst these groups nationally.

188    The Explanatory Memorandum identified VET FEE-HELP’s “complex administrative policies and processes for RTOs [as] a major contributing factor to the low participation rate”, explaining that “[w]hile stakeholders are supportive of the rigorous requirements in place to ensure only high quality RTOs are approved, perceptions about the burden of administrative compliance has contributed to deterring would-be VET FEE-HELP applicants”.