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

File number:

NSD 1471 of 2015

Judge:

PERRY J

    

Date of judgment:

13 August 2021

Catchwords:

CONSUMER LAW – alleged contraventions of s 21 of the Australian Consumer Law – unconscionable conduct in trade or commerce in connection with the supply of goods or services – where the first respondent was a vocational education and training (VET) provider of online courses – whether respondents’ marketing and enrolment systems unconscionable – where marketing and enrolment systems targeted at vulnerable consumers – whether respondents’ purpose in marketing and enrolment systems was to maximise enrolments attracting VET FEE-HELP assistance payments so as to maximise revenue via the VET FEE-HELP assistance scheme – whether respondents displayed a callous indifference to consumers’ eligibility and suitability for the online courses – where consumers often denied a reasonable opportunity to withdraw from the online VET course before the census date for each unit of study had passed – where Brokers and Agents deployed without effective training, monitoring or control – where consumers offered “free” laptops and other inducements to enrol – where Agents made misrepresentations that the online courses were  free or free until the consumer earned a particular amount – attribution of conduct of Brokers and Agents to respondents

CONSUMER LAW – alleged contraventions of ss 18 and 29 of the Australian Consumer Law – misleading or deceptive conduct in trade or commerce – where Phoenix through its Brokers and Agents engaged in false, misleading or deceptive conduct towards four individual consumers in representing that if consumers enrolled they would receive a free laptop and the online courses were free, or free until they earned a particular amount, in contravention of ss 18 and 29 – where Phoenix engaged in unconscionable conduct in connection with the supply of online VET courses to the individual consumers in contravention of s 21 of the Australian Consumer Law – attribution of conduct of Brokers and Agents to Phoenix

Legislation:

Australian Consumer Law (contained in Sch 2 to the Competition and Consumer Act 2010 (Cth)) ss 18, 20, 21, 22, 22A, 29, 224, 232, 239

Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB, 12CC

Competition and Consumer Act 2010 (Cth) ss 2, 4, 84, 139B, 155, Sch 2

Corporations Act 2001 (Cth) s 444E

Education Services for Overseas Students Act 2000 (Cth)

Evidence Act 1995 (Cth) ss 50, 59, 62, 79, 140, 192

Federal Court of Australia Act 1976 (Cth) ss 37AI, 37AF, 37AG

Higher Education Support Act 2003 (Cth) Pt 3-3, ss 3–10, 104-1, 104-5, 104-15, 104-20, 137-18, 154-1, 154-10, 187-1, 238-10, Sch 1, Sch 1A Pt 1, Div 3, Div 4 Subdivs 4-B, 4-C, 4-D, 4-E, 4-F, cll 1, 4, 6, 7, 13, 15, 20, 23A, 24, 26, 29, 29B, 33, 36, 37, 43, 60, 61, 67, 88

Higher Education Support Amendment (Extending VET FEE-HELP for VET Diploma, Advanced Diploma, Graduate Diploma and Graduate Certificate Courses) Act 2007 (Cth)

Higher Education Support Amendment (Further Streamlining and Other Measures) Act 2013 (Cth)

Higher Education Support Amendment (Streamlining and Other Measures) Act 2012 (Cth)

National Vocational Education and Training Regulator Act 2011 (Cth) ss 3, 17, 22, 37, 44, 185, 186, 205

Trade Practices Act 1974 (Cth) s 51AB

Federal Court Rules 2011 (Cth) r 8.21

Explanatory Memorandum, Competition and Consumer Legislation Amendment Bill 2010 (Cth)

Explanatory Memorandum, Higher Education Support Amendment (Streamlining and Other Measures) Bill 2012 (Cth)

Explanatory Memorandum, Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth)

Cases cited:

Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 65 LGRA 362

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

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

Australian Competition and Consumer Commission v Australian Institute of Professional Education (in liq) (No 2) [2018] FCA 1459

Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982

Australian Competition and Consumer Commission v Australian Power & Gas Co Ltd [2013] FCA 1358

Australian Competition and Consumer Commission v CJ Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491

Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405

Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408

Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 1045

Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709

Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; (2013) ATPR ¶42-447

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

Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College) (No 3) [2021] FCA 737

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40

Australian Competition and Consumer Commission v Radio Rentals Ltd [2005] FCA 1133; (2005) 146 FCR 292

Australian Competition and Consumer Commission v Unique International College [2017] FCA 727

Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1

Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132

Briginshaw v Briginshaw (1938) 60 CLR 336

Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Company of Australia Ltd (1931) 46 CLR 41

Commercial Bank of Australia v Amadio (1983) 151 CLR 447

Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72

Ex parte Colonial Petroleum Oil Pty Ltd (1944) 44 SR (NSW) 306

Federal Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74; (2011) 193 FCR 149

Havyn Pty Ltd v Webster [2005] NSWCA 182

Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51

Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392

Lisciandro v Official Trustee in Bankruptcy [1995] ATPR 41-436

Minister for Immigration and Border Protection v Egan [2018] FCA 1320

NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558; (2000) 107 FCR 270

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98; (2016) ATPR ¶42-531

Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199

Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525

Perish v The Queen [2016] NSWCCA 89; (2016) 92 NSWLR 161

Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155

Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85

Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389

Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155; (2018) 362 ALR 66

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Number of paragraphs:

1354

Date of hearing:

5-8, 11-15 and 18-19 November 2019

Counsel for the Applicants:

Ms N Sharp SC with Mr R White and Ms D Forrester

Solicitor for the Applicants:

Australian Government Solicitor

Counsel for the Respondents:

The Respondents filed a submitting notice save as to costs

Amicus curiae:

Dr R Higgins SC

ORDERS

NSD 1471 of 2015

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

First Applicant

COMMONWEALTH OF AUSTRALIA

Second Applicant

AND:

PHOENIX INSTITUTE OF AUSTRALIA PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 084 806 575

First Respondent

COMMUNITY TRAINING INITIATIVES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 157 767 881

Second Respondent

JUDGE:

PERRY J

DATE OF ORDER:

13 august 2021

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]

2    THE RESPONDENTS AND RELATED COMPANIES

[37]

3    PROCEDURAL HISTORY

[57]

4    OVERVIEW OF THE APPLICANTS’ PLEADED CASE

[88]

5    STATUTORY UNCONSCIONABILITY: LEGAL PRINCIPLES

[106]

6    VET FEE-HELP AND THE REGULATORY FRAMEWORK

[176]

7    THE PHOENIX ONLINE COURSES

[247]

8    EVIDENCE OF EX-EMPLOYEES AS TO ENROLMENT PRACTICES UNDERTAKEN FOR THE PHOENIX ONLINE COURSES

[287]

9    EVIDENCE OF TRAINERS AND ASSESSORS

[439]

10    THE COURSE OF EVENTS IN 2015 AND 2016

[491]

11    ATTRIBUTION OF THE CONDUCT OF THE BROKERS AND AGENTS TO PHOENIX

[892]

12    THE CONSUMER WITNESSES

[965]

13    DATA ANALYSIS

[1067]

14    THE PROFIT MAXIMISING PURPOSE

[1175]

15    THE CALLOUS INDIFFERENCE

[1189]

16    THE TARGET COMMUNITIES AND THEIR LIKELY ATTRIBUTES

[1247]

17    THE PHOENIX MARKETING SYSTEM

[1251]

18    THE PHOENIX ENROLMENT SYSTEM

[1279]

19    FINDINGS ON THE SYSTEMS UNCONSCIONABILITY CASE

[1319]

APPENDIX 1: GLOSSARY

APPENDIX 2: LIST OF CONTRACTS ENTERED INTO BETWEEN CLI/PHOENIX AND BROKERS (ASOC, ANNEXURE A)

APPENDIX 3: LIST OF CONTRACTS ENTERED INTO BETWEEN BROKERS AND AGENTS (ASOC, ANNEXURE B)

APPENDIX 4: COMPREHENSIVE TABLE OF CONTENTS

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 curiaes 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 310 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”.

189    The amendments therefore sought to better balance the administrative burden imposed to ensure that effective safeguards are in place for students and public monies, on the one hand, while reducing the barriers to participation by RTOs in VET FEE-HELP on the other hand in order to increase the number and location of RTOs offering VET FEE-HELP and therefore student take-up of loans under the scheme (ibid).

190    Consistently with these objects, the 2012 HES amendments also marked a shift away from a system of VET as a pathway to further higher education, to a system whereby VET was effectively “an end in itself”. As a result, it was no longer necessary for approved course providers to have arrangements with institutions offering a higher education award such as a degree. As the Full Court explained in Unique (FCAFC):

7. One of the changes made by the 2012 legislation was to remove the need for a course to count towards a course at a higher education institution. This was consistent with the rationale for the changes expressed in the extrinsic material we have quoted above. Participation in vocational training was seen as an end in itself, and not only a pathway to higher education. Indeed, a media release from “Skills Australia” in May 2011 described the changes as a “sweeping overhaul of the country’s vocational education and training (VET) system in order to help raise productivity, and address skills challenges that threaten future economic growth and prosperity”.

191    In short, as Bromwich J observed in AIPE (No 3):

4. The VET FEE-HELP scheme was deliberately and significantly liberalised by the government in 2012 for the express purpose of addressing low participation rates of disadvantaged people, including those with a disability, living in regional and remote areas, coming from lower socio-economic backgrounds, from non-English speaking backgrounds, not in paid employment, and Aboriginal and/or Torres Strait Islander peoples. Prior requirements of progression to study at a higher education institution were removed, making vocational training an independent objective.

6.2.2    Overview of the VET FEE-HELP assistance scheme

192    The eligibility criteria and other aspects of the legislative framework pertaining to FEE-HELP Assistance at all relevant times are set out in Pt 3-3 of the HES Act. In turn, Sch 1A of the HES Act provides for VET FEE-HELP assistance to be made available to students undertaking certain accredited VET courses. In addition, the Department published VET FEE-HELP guidelines from time to time as provided for by s 238-10 of the HES Act. The principal guidelines applicable at the relevant time were:

(1)    the VET Guidelines 2013 as amended at 1 July 2014, which were repealed on 1 April 2015;

(2)    the VET Guidelines 2015, which commenced on 1 April 2015; and

(3)    the VET Guidelines 2015 as amended by Amendment No 1 to the VET Guidelines 2015 made on 18 June 2015, which came into effect on 1 July 2015.

193    The guidelines published in April 2015 entitled VET Administrative Information for Providers75 (AIP Manual) are also relevant. The AIP Manual set out the payment arrangements and data reporting requirements for VET providers and contained information to assist VET providers generally to implement the requirements under the HES Act and associated legislative instruments. The scope and structure for each set of data required to be reported to the Department for the VET FEE-HELP data collection 2015 reporting year were specified in a Ministerial Notice issued on 31 July 2014 under cl 24(1) of Sch 1A to the HES Act.76 In September 2015, the DET issued an updated version of the guidance document “VET Administrative Information for Providers”.77

194    The decision of Perram J in Unique (FCA) affords a convenient starting point for considering the statutory scheme. While an appeal against Perram J’s decision was allowed insofar as his Honour had upheld the allegations of unconscionable conduct on the particular facts of that case, Perram J at [5] provides a helpful overview of key features of the VET FEE-HELP assistance scheme during the period 1 July 2014 to 30 September 2015, which also applied during the relevant period in this case:

    it was available to Australian citizens or holders of a permanent humanitarian visa who were resident in Australia, provided that they were enrolled in a full fee paying course approved for VET FEE-HELP …;

    the Commonwealth would pay in full whatever the tuition fee was for each unit of the approved course and would treat the combined amounts as a loan to the student;

    the loan would be repayable through the tax system once the student began to earn more than the minimum repayment income ($53,345 for the period 1 July 2014 to 30 June 2015; $54,126 for the period 1 July 2015 to 30 June 2016) on the income above that amount at a sliding scale of between 4% to 8%. The highest rate became applicable at $99,070 during the relevant period;

    each person had a maximum lifetime amount which could be borrowed through this and other related schemes (such as HECS). This amount was indexed and was $97,728 for the 2015 financial year. The amount which the student had at any time borrowed was specified in an account maintained by the Commonwealth called the FEE-HELP balance;

    there was a 20% loan fee on top of the tuition fee which was also payable to the Commonwealth and which was debited to the student’s FEE-HELP balance; and

    the amount of the student’s FEE-HELP balance was indexed to the Consumer Price Index (‘CPI’).

6.2.3    Student eligibility requirements for VET FEE-HELP assistance and the lifetime cap upon FEE-HELP assistance

195    A student was entitled to VET FEE-HELP assistance under s 104-1 of the HES Act if (and only if):

(1)    the student met the citizenship or residency requirements under s 104-5 of the HES Act in relation to a unit of study, ie the student was an Australian citizen or a permanent humanitarian visa holder who would be resident in Australia for the duration of the VET unit of study;

(2)    the student’s FEE-HELP balance was greater than zero (ie the student had not exhausted her or his lifetime FEE-HELP maximum loan limit as per ss 104-15(1) and 104-20, HES Act);

(3)    the student:

(a)    was enrolled in an eligible VET unit of study as part of a VET course of study on or before the census date (as explained below) for that unit of study; and

(b)    remained enrolled in the unit at the end of the census date;

(4)    on or before the census date, the student had completed, signed, and given to an appropriate officer of the VET provider, a request for Commonwealth Assistance form (CAF or VET FEE-HELP Assistance Form) in the form approved by the Minister (HES Act, Sch 1A, cll 43(1)(h) and 88(3)):78

(a)    in relation to the unit of study; or

(b)    where the course of study of which the unit forms a part is to be undertaken with the provider, in relation to the course of study; and

(5)    the student had provided an appropriate officer of the VET provider with her or his Tax File Number (TFN) and the provider was satisfied that the TFN was a valid TFN, or the student had provided a certificate to the officer indicating that she or he had applied for a TFN (ss 104-1(h) and 187-1, HES Act).79

196    With respect to the second criterion identified above, it is important to emphasise that the VET FEE-HELP assistance limit not only capped the amount of VET FEE-HELP assistance that a student may access during her or his lifetime, but at all relevant times also capped the amount of FEE-HELP assistance which a student could borrow from the Commonwealth over the course of her or his lifetime and, from 1 January 2017, the amount of VET Student Loans (collectively Commonwealth assistance) which a student could borrow. Further, at all material times, a person’s FEE-HELP balance was reduced by the amount of Commonwealth assistance that the person had borrowed from time to time, thereby reducing the amount that the person could borrow in the future under the Commonwealth assistance schemes. In 2015, the FEE-HELP limit, applied then only to FEE-HELP assistance and VET FEE-HELP assistance, was relevantly $97,728 (as Perram J found in Unique (FCA) at [5]).80

6.2.4    The census date

197    As the applicants submit, the census date is a key concept in the VET FEE-HELP scheme. This is because the census date is the date after which a VET student (being an Eligible Student) incurred a debt for the VET unit of study in which she or he was enrolled: see the definition of “census date” in cl 1.3, VET Guidelines 2013 and 2015. Conversely, on and before the census date for a VET unit of study, the consumer could withdraw from the VET unit of study without incurring any financial liability to the VET provider or to the Commonwealth. Thus, cl 8.4 of the 2013 and 2015 VET Guidelines required the VET provider to repay VET tuition fees paid by the student for a VET unit of study if the student withdrew on or before the census date. Not surprisingly, therefore, the AIP Manual emphasised at [3.4] that[s]tudents must be able to clearly identify which census date applies to them”.81 The AIP Manual also emphasised that unless the withdrawal process is online or by email, the census date cannot fall on a non-business day, and that:

VET providers are reminded their administrative processes must support the provision of assistance under the [HES Act] and therefore administrative processes must be in place to allow students to be able to withdraw from units of study on or before the census date. VET provider withdrawal policies and processes or late withdrawal fees must not prevent students from being able to withdraw from units of study on or before the census date.

VET providers should also ensure students are made aware of withdrawal requirements. Staff likely to provide advice to students should also be aware of correct withdrawal procedures, or be able to direct students to accessing correct information regarding withdrawal so that students are not misled.82

198    The obligation to determine the census date lay upon the VET provider. Specifically, during the relevant period, a VET provider was required, pursuant to cl 67 of Sch 1A to the HES Act, to determine a census date for each VET unit of study that it intended to provide each year in accordance with the VET Guidelines. Importantly, however, the VET provider could not determine a census date that was less than 20% of the way between the VET unit of study commencement date as determined by the VET provider and the completion date as determined by the VET provider (cl 7.4, 2013 and 2015 VET Guidelines). In effect, therefore, this aspect of the VET FEE-HELP system was intended to afford a consumer a “cooling off” period for at least an amount of time comprising 20% of the course duration. Thus, as Stewart J explained in Captain Cook College at [18], “[f]or a 28-week unit of study, the first census date could therefore be less than six weeks after the commencement date, and for a 52-week unit of study it could be less than 11 weeks after the commencement date.This enabled the student, without financial detriment, to trial a VET course and determine in an informed manner whether she or he in fact wished to complete the course and incur the financial liability of repaying a loan to the Commonwealth. Furthermore, a VET provider was required to repay any VET tuition fees paid by a student in respect of a VET unit of study if the student withdrew on or before the census date (cl 8.4, VET Guidelines).

199    Once however the census date was passed, the consumer incurred a debt amounting to 120% of the loan regardless of whether or not the student completed or indeed even commenced the unit of study in which she or he was enrolled (albeit that the debt was subject to remission in limited circumstances), as Gleeson J observed in Empower at [20]. This last aspect, as I later explain, was one of two inherent features of the VET FEE-HELP assistance scheme which rendered it liable to be exploited in pursuance of maximum profits to the detriment of consumers enrolling in the courses and the public purse: AIPE (No 3) at [72] (Bromwich J).

6.2.5    Repayment of VET FEE-HELP loans by Eligible Students

200    In 2015, Eligible Students were required to repay their VET FEE-HELP loans on the following terms:

(1)    Eligible Students were required to repay 120% of their VET FEE-HELP loan to the Commonwealth;83

(2)    an Eligible Student with a VET FEE-HELP debt to the Commonwealth was liable to make repayments to the Commonwealth of amounts which were compulsorily deducted from their taxable income once their income exceeded the minimum repayment income for an income year (Minimum Repayment Income);84 and

(3)    the Minimum Repayment Income is calculated in accordance with s 154-10 of the HES Act and was the sum of $53,345 for the period 1 July 2014 to 30 June 2015 and $54,126 for the period 1 July 2015 to 30 June 2016 (as Perram J found in Unique (FCA) at [5]).

6.2.6    A key component in the VET FEE-HELP scheme: the Commonwealth Assistance Form or CAF

201    The requirement that prospective students complete, sign and submit the CAF to the VET provider on or before the census date for the VET unit of study was a key component in the VET FEE-HELP scheme. This is because it was the principal means by which the Government sought to ensure that students were aware of what VET FEE-HELP entailed, and the amount of the loan which they would assume and their obligations to repay it if their request for VET FEE-HELP were approved.

202    This is apparent from the following aspects of the CAF.

203    First, the prospective student was required to complete the form if she or he was requesting VET FEE-HELP assistance for some or all of her or his VET courses of study.

204    Secondly, the form stated in bold and enlarged text on the top of the form:

Before completing this form,

You must read the VET FEE-HELP information booklet,

Available at www.studyassist.gov.au

(Emphasis in the original.)

205    Furthermore, the form required the prospective student to acknowledge her or his obligations, including that “I have read the VET FEE-HELP information booklet and I am aware of my obligations if I receive VET FEE-HELP assistance”, and to sign a declaration that she or he had read the information booklet and understood among other things her or his repayment obligations.

206    The form also stated that “[y]ou will be given a copy of this form for your records”. In furtherance of this, the form itself was in two parts which were in identical substantive terms marked respectively “provider copy” and “student copy”.

207    Thirdly, the VET FEE-HELP Information for 2015 booklet (Commonwealth of Australia, 2014) at page 2 stated, again in large bold text, that:

YOU MUST READ THIS BOOKLET BEFORE SIGNING THE COMMONWEALTH ASSISTANCE FORM BELOW.

WHEN YOU SIGN THIS FORM, YOU DECLARE THAT YOU HAVE READ THIS BOOKLET AND THAT YOU ARE AWARE OF YOUR OBLIGATIONS UNDER VET FEE-HELP.85

208    The booklet then explained in some detail the key points which a person accessing the VET FEE-HELP loan scheme needed to know including the criteria, the importance of the census date, what happens if she or he withdraws from a unit, the 20% fee charged for the loan, the FEE-HELP lifetime limit, and the student’s obligations with respect to repaying the loan.

209    Fourthly and consistently with this, the AIP Manual emphasised the need for the VET provider to provide information about the CAF and VET FEE-HELP assistance, for the student to complete the form, and for the VET provider to check that the form had been correctly completed. Specifically, at [7.4] the AIP Manual provided that:

Paper and electronic forms

The paper Request for VET FEE-HELP Assistance form must be completed and returned to an appropriate officer of the VET provider by all students wishing to access VET FEE-HELP. The VET provider should ensure that students are made aware of these requirements.

Providing students with the VET FEE-HELP Information booklet

Students eligible for VET FEE-HELP must be given a VET FEE-HELP information booklet for the relevant year prior to completing and submitting the Request for VET FEE-HELP Assistance form. Students declare on the request form they have received and read the booklet. Information booklets are available from the department.

Signing the form

Generally, only the student receiving VET FEE-HELP is permitted to sign the Request for VET FEE-HELP Assistance form. However, the VET provider may accept a form that has been signed by a person who is exercising a legal power of attorney for the student.

Checking the form and correcting errors

The VET provider should ensure that students have completed the Request for VET FEE-HELP Assistance form correctly, including the selection of all relevant boxes.

If the VET provider is not satisfied that details on the form are correct, it should attempt to resolve the differences with the student. If this is not possible, the VET provider should reject the form and advise the student that it has not been submitted.

Distributing the form

The student retains the original student copy of the Request for VET FEE-HELP Assistance form. The VET provider should retain the VET provider copy.86

(Emphasis added.)

210    As Bromwich J observed in AIPE (No 3) at [69], it is clear from the design of the VET FEE-HELP scheme that the CAF was intended to be a vital step in the enrolment process and, in particular,to ensure, as much as possible, that consumers as prospective students understood the legal and financial obligations they were assuming by becoming enrolled in a course to which VET FEE-HELP applied.” As Bromwich J continued:

71. … the integrity of the VET FEE-HELP scheme, and in particular the protection of the financial interests of the Commonwealth and of consumers, depended on each and every consumer enrolled as a student being aware of, and understanding, the vitally important features of that scheme as set out in the Assistance Request Form. It was a critical and mandatory safeguard, intended to prevent consumers who were unsuitable for VET study from becoming enrolled and incurring VET FEE-HELP debts. Doubtless that was why consumers were, by lodging that form, taken to declare that they [were] aware of the obligations they were assuming if they received VET FEE-HELP assistance.

6.2.7    Payment of funds by the Commonwealth to a VET provider in respect of VET FEE-HELP loans

211    Under cl 55 of Sch 1A, where a student was entitled to an amount of VET FEE-HELP assistance for a VET unit of study with a VET provider, the Commonwealth was required to lend the student the amount of the VET FEE-HELP assistance and to pay the amount lent directly to the provider in discharge of the student’s liability to pay the VET tuition fee for that unit. The time and manner of the Commonwealth payments to the VET providers, in turn, was at the discretion of the Secretary of the Commonwealth DET and the relevant Minister (cl 60, Sch 1A, HES Act).

212    Mr Geoffrey Koochew, the Director of the Data and Reporting Team, VET Student Loans Branch (formerly the VET FEE-HELP Branch, DET) explained the ordinary procedure in 2015 for the payment of funds by the Commonwealth to a VET provider in respect of VET FEE-HELP loans:

10.1    A VET provider would submit an estimate in HITS [(HELP Information Technology System)] of the amount of VET FEE-HELP that was expected to be provided to entitled students for VET units of study with census dates during the calendar year (refer to paragraph 13.2 of the AIP Manual);

10.2    if a determination was made under subclause 61(1) of Schedule 1A to pay a VET provider VET FEE-HELP payments in advance, the Department then made advance payments of VET FEE-HELP to the provider monthly, based on that estimate (refer to paragraph 13.2 of the AIP Manual);

10.3    following the census date for the unit of study, the VET provider reported, on a quarterly basis, the student liability data being the actual amount of the loans accessed by the provider’s students to the Department through HEIMS [(Higher Education Information Management System)] (refer to paragraph 12.3 of the AIP Manual);

10.4    the VET provider was required to submit a variation to their estimate when they became aware that their estimate was significantly different to the actual amount of loans being accessed (refer to paragraph 13.3 of the AIP Manual);

10.5    the VET provider was required to verify its reported data in HEIMS twice annually in order to confirm the reported data is being complete and correct (refer to paragraph 12.3 of the AIP Manual);

10.6    following the verification of data, the Department ordinarily reconciled the advance payments made during the previous calendar year against the reported data (refer to paragraph 13.4 of the AIP Manual);

10.7    where a reconciliation identified that the amount of advance payments made to a VET provider was greater than the actual amount of VET FEE-HELP assistance payable to the VET provider, the Department could pursuant to subclause 61(2) of Schedule 1A either deduct that amount from further payments to the VET provider or recover the overpayment from the VET provider as a debt due to the Commonwealth (also refer to paragraph 13.4 of the AIP Manual).87

213    In this regard, during the relevant period the respondents claimed that a large number of consumers enrolled in Phoenix Online Courses met the eligibility criteria for VET FEE-HELP assistance while recklessly indifferent as to whether or not in fact they did so, forwarding VET FEE-HELP loan applications on behalf of these consumers and claiming VET FEE-HELP payments with respect to them. For example, many enrolments by Phoenix were not accompanied by the necessary confirmation of citizenship or permanent residency.88 Furthermore, as I also later explain, the evidence identified a large number of enrolled consumers (1,174) for whom there was no request for VET FEE-HELP Assistance form, or CAF, and a further 474 consumers for whom Phoenix claimed VET FEE-HELP payments for subsequent units of study despite the consumers having withdrawn from a unit of study prior to the census date.89

6.2.8    The potential for abuse of the VET FEE-HELP assistance scheme

214    On 26 November 2019, following the conclusion of the trial in this matter, Bromwich J delivered judgment in AIPE (No 3), which, as earlier explained, also involved alleged unconscionable conduct exploiting the VET FEE-HELP scheme. On 2 December 2019, in response to an enquiry by the Court, the applicants and the amicus curiae sought leave to file short written submissions addressing Justice Bromwich’s decision. I made orders in Chambers granting leave to reopen the case for that limited purpose. The amicus curiae and the applicants filed further, helpful submissions on the decision in AIPE (No 3) on 13 and 19 December 2019 respectively.

215    In AIPE (No 3), Bromwich J identified two inherently vulnerable features of the VET FEE-HELP assistance scheme rendering it ripe for exploitation. Those features are also relevant to the present application and I agree with his Honour’s explanation of the significance of these features.

216    The first feature, as I have earlier mentioned, is that an eligible student incurred a VET FEE-HELP debt to the Commonwealth upon the passing of the census date even if she or he had not commenced the unit of study. As Bromwich J explained:

72. … If a person who had been approved for a VET FEE-HELP debt was enrolled as a student with a VET provider as at the census date, but did not in fact ever partake in the course, that provider would get the revenue benefit of the course fees from the Commonwealth, but would not have to incur the variable costs of providing the course to that person, including any related support. That would happen irrespective of whether the person who was enrolled was a bona fide or genuine student or not.

73. To the extent that the outcome of enrolling consumers who were not bona fide or genuine students was able to be maximised across a large enough pool of individuals, the VET provider would obtain revenue for those consumers without needing to employ staff to provide the services that were needed for bona fide or genuine students who did partake of study. This feature therefore created a significant, and reasonably obvious, windfall profit opportunity to a VET provider who wished to exploit it, or was even prepared to let it occur without correction.

74. There was nothing in the express terms of the VET FEE-HELP scheme that prohibited a VET provider from engineering such a windfall profit outcome, and a corresponding debt being incurred by someone who was never a bona fide or genuine student.

217    This vulnerability to exploitation was candidly explained by Mr Brown, CEO of Phoenix, when, in the course of an interview on the ABCs Background Briefing radio program broadcast on 10 April 2016, he told an ABC journalist that:

It states very clearly that students if they’re enrolled before a census date and still enrolled after, so in other words they’re enrolled in the course, even if they don’t participate they are still eligible or liable for the full course cost. Now, there was nothing in relation to participation, there was nothing in relation to completion of any study, and it’s there in information to students that that’s the case. The biggest issue was that then encourages brokers and aggregators to go out and enrol people that have no intention of completing the course. That’s what they’re rewarding, you’re only going to get the behaviour that youre rewarding and they’re rewarding that behaviour. When it comes down to it it’s a lot cheaper to train students who don’t turn up than it is to train students who do.90

(Emphasis added.)

218    As to the significance of the CAF and the potential for exploitation in terms of assessing the evidence, Bromwich J in AIPE (No 3) held that:

77. What was required to be done in relation to the Assistance Request Form is an important tool by which to assess the true character of what was permitted – and even encouraged – to happen by those enrolling individual consumers as students. This was usefully illustrated by the evidence of the individual consumer witnesses considered in some detail below, giving a real world indication of how the system was capable of playing out in reality. Such illustrations mean that the Court does not need to rely solely upon abstract policies or make purely abstract assessments as to what would, on the balance of probabilities, be likely to have happened to any consumer who was enrolled as a student by any recruiter acting for AIPE.

78. The evidence of what actually took place, both at AIPE via the employee witnesses, and by way of illustration in the field with individual consumers, dovetails with AIPE’s enrolment data proving, as far as it goes, the outcome that was produced. It is readily able to be inferred in all the circumstances that the enrolment outcome was either intended or at least accepted to be what the enrolment system produced.

79. The words and conduct of AIPE generally, including by its recruiter agents and by its CEO, Mr Amjad Khanche, must inevitably be inferred to have occurred in the context of awareness of the contents of the Assistance Request Form and both its express and implicit requirements. Alarm bells should have been ringing if there was a concern that consumers were being enrolled as students in circumstances where they might not, did not, or realistically could not, have understood what they were getting themselves into. If alarm bells did not ring, or were not listened to, it can be inferred that this is because inaction was a desirable thing from the point of view of a VET provider like AIPE looking to maximise profit at the expense of the actual provision of educational services – an issue addressed in some detail below.

219    His Honour further considered that:

80. An enrolment process that predictably produced, or even encouraged a situation in which such unsuitable consumers became enrolled would invite close scrutiny to see whether that was, in all the circumstances, unconscionable. The conclusion that the conduct overall was unconscionable would be more readily reached if such an outcome was either intentional or sufficiently predictable or recurrent to require overt steps to be taken to minimise the chance of it occurring. This is so even having regard to the caution to be applied before reaching such a serious conclusion.

81. A VET provider acting in good faith with the VET FEE-HELP scheme, having regard to the centrality of the Assistance Request Form, should have had an enrolment process that would minimise the prospect of consumers who were not likely to be bona fide or genuine students becoming enrolled in the first place, or remaining enrolled as at the census date.

82. A VET provider should have had in place enrolment procedures by its own staff, and by any third party agents and recruiters, that ensured that the Assistance Request Form was brought to the attention of consumers who were prospective students, that its contents were understood and that a declaration was meaningfully given. These procedures should have included monitoring such procedures for their effectiveness. If a consumer was an inactive “student” in the time between enrolment and the census date, that would be a warning sign that the consumer possibly had not appreciated that they had become enrolled as a student, or did not appreciate the debt that they were about to incur. Complaints about the enrolment process would also be a warning sign that the enrolment procedures might not be effective, or might not be properly implemented, or might even be improperly carried out. Examples of consumers being enrolled without having the requisite level of awareness would be illustrative of the malfunctioning of the enrolment system. If complaints to that effect were brought to the attention of senior personnel at the VET provider, and either were not acted upon, or not acted upon effectively, that would tend to indicate that this went beyond a merely unintended and unknown outcome, and was instead accepted to be a feature of the enrolment system that was in place. Enrolment data might rebut that as being an outcome, or contribute to that conclusion.

83. In this context, evidence of complaints made to AIPE about its enrolment processes, even though not admitted as evidence of the truth of the assertions as to what had occurred, is important evidence of AIPE being put on notice of potential problems with its enrolment processes. How such complaints were dealt with may be a cogent indicator of the attitude that prevailed at AIPE, including as to whether and when this was a cause for concern and what action was considered appropriate. Reluctance to act on such a complaint, or the way or basis upon which it was responded to, may be a telling sign of whether the outcome complained about was a source of concern, or just an accepted feature, as well as fixing AIPE with awareness of the issue that had been raised. It may go further in contributing to a conclusion that the outcome was considered desirable, or was even intended.

220    In addition, his Honour considered that:

(1)    the step of ensuring that the terms of the declaration in the CAF were brought expressly to the attention of a prospective student was a strong sign of a good system, while the absence of such a step was a warning sign that the system may be defective whether as a matter of design, intention, predicable consequence, or otherwise (at [84]);

(2)    any demonstrated state of mind was especially relevant because of the obvious and powerful financial incentive to enrol consumers as students who would incur VET FEE-HELP debts producing corresponding revenue, without the consumers being aware of the declaration in the CAF which might have caused them not to be enrolled (pointing out that this class of consumer would produce the greatest profits by bringing in revenue without much in the way of related marginal costs beyond the recruiter’s commission) (at [85]); and

(3)    an inexplicably small number of staff to provide services to a large number of consumers ostensibly of enrolled students, or a lack of any notable increase in staff numbers co-relative to the increases in enrolments, may be a telling indication that it was anticipated that a greater number of staff would not be needed because many such consumers who were enrolled would never need those services. Indeed, his Honour considered that “[i]f the discrepancy between these two statistics was large enough, that, together with other evidence, might support an inference that this was not merely a matter of good fortune or happenstance from the perspective of the course provider, but rather an outcome that was deliberately allowed to happen” (at [86]).

221    The second vulnerable feature of the VET FEE-HELP assistance scheme arose from the lack of any prohibition on VET providers paying commissions, let alone substantial commissions, to Agents and Brokers who recruit consumers for enrolment. Those commissions in turn relied upon the student remaining enrolled only as at the census date at which point the Commonwealth’s liability to pay the loan payment was triggered. As Bromwich J explained in AIPE (No 3):

88. That feature of large recruiter commissions facilitated the windfall profits to VET providers described above. Recruiters acting as an agent for a VET provider had powerful financial incentives to convince every consumer they came across not just to sign up for a course, but to do so in a way that would maximise the likelihood that they would remain enrolled until the census date. That in turn provided incentives to a recruiter to minimise the prospect of enrolment being cancelled before the census date, whether by a student or by a VET provider. This feature would tend to encourage practices that ensured that a consumer being enrolled as a student either did not know that was happening, or did not know about, or understand, the declaration in the Assistance Request Form. It would also tend to encourage the spruiking of the benefits of being a student by half-truths or even overtly false information. That could involve such things as:

(1)    representing to a consumer that a course was free when in fact there would be a debt obligation incurred;

(2)    offering some collateral advantage to a consumer for becoming a student, such as a “free” laptop which was collateral to the debt being incurred, so as not to be truly free at all;

(3)    not telling a consumer that they would incur a debt;

(4)    not telling a consumer about the census date; and

(5)    even not telling a person that they had been enrolled at all (though students unknowingly being enrolled in a course of study does not form part of the unconscionable system alleged against AIPE).

89. The likelihood of any such conduct achieving the objective of a consumer becoming enrolled until at least the census date would potentially be enhanced if the consumer to whom such conduct was directed was in some way lacking the capacity to look after their own interests. It is important to remember that the Commonwealth government had intentionally expanded the reach of VET training to consumers who had historically been excluded by reason of disadvantage. The VET FEE-HELP scheme was intended to address the financial aspect of that disadvantage, in the same way as prior loan schemes had for university education. It was inevitable that a higher proportion of consumers who were bona fide or genuine students might not succeed compared with consumers who did not have to deal with the burden of disadvantage.

90. A VET provider was entitled to target disadvantaged consumers in keeping with the post-2012 liberalised VET FEE-HELP scheme, but was necessarily required to take such consumers as they found them and therefore to proceed upon the basis of their greater vulnerability. The same conduct might be unconscionable in relation to one class of consumers, but not for another, when regard is had to vulnerabilities, either inherent or separately proven.

222    However, as Bromwich J continued:

91. Though the VET FEE-HELP scheme was targeted at disadvantaged groups, service providers and their agents were not permitted to seize upon these vulnerabilities such that consumers were incurring liabilities without their eyes wide open. It is clear that the scheme was only meant to be made available to consumers who were aware of its essential features; that is, course fees being charged, those fees being met by the Commonwealth as a loan, and that loan resulting in a debt being incurred by the student and made repayable once the student’s income was above a particular threshold. Each and every consumer who was enrolled as a student and who remained enrolled past the census date was meant to do so on a sufficiently informed basis, expressly reflected in the declaration in the Assistance Request Form.

92. Similarly, although low language, literacy and numeracy skills was not an express barrier to participation in the VET FEE-HELP scheme, it is obvious that it should not have to be express. Self-evidently, no provider should have been enrolling consumers as students if they did not have the minimum threshold of language, literacy and numeracy skills required to have any realistic possibility of participating in, and completing, a course. To do so would be a cruel hoax to perpetrate on disadvantaged consumers by giving them a false hope of this being a means of improving their lives, because even a remote possibility of success would likely be illusory in these circumstances.

(Emphasis added.)

223    As Bromwich J concluded:

93. If the two features identified above were sought to be taken advantage of, or at least allowed to be taken advantage of, it was in the simultaneous interests of the VET provider and the agents and their recruiters to make sure that as many consumers as possible were signed up as students and remained signed up until the census date. However, only the VET provider stood to gain windfall profits if the consumer never actually partook of the course after that, unless this resulted in the VET FEE-HELP debt later being cancelled despite the census date passing.

(Emphasis added.)

6.3    Requirements with which RTOs and VET providers must comply

6.3.1    Requirements imposed upon a VET provider by the HES Act

224    Part 1 of Sch 1A to the HES Act deals with VET providers.

225    First, in order to be approved by the Minister as a VET provider in the first instance, a body corporate must be a RTO as listed on the National Register (cl 6(1)(c), Sch 1A, HES Act). Conversely, approval as a VET provider must be revoked by the Minister if, as occurred here, the body ceases to be listed as a RTO (cl 29B(1)(a), Sch 1A, HES Act). In addition, the body corporate must also meet the following criteria (among others) under cl 6(1) of Sch 1A:

(d)    the body either fulfils the *VET tuition assurance requirements or is exempted from those requirements under clause 8; and

(da)    the body offers at least one *VET course of study; and

(f)    the Minister is satisfied that the body is willing and able to meet the *VET quality and accountability requirements; and

(g)    the body complies with any requirements set out in the *VET Guidelines; and

(h)    the Minister is satisfied that:

(i)    the body; and

(ii)    each person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the body’s affairs;

is a fit and proper person.

226    Secondly, once approved, a VET provider must comply with the following requirements:

(1)    the VET tuition assurance requirements which are set out (relevantly) in the 2013, and subsequently the 2015, VET Guidelines (cl 7, Sch 1A, HES Act);

(2)    the VET quality and accountability requirements which, as summarised in cl 13 of Sch 1A, are:

(a)    the VET financial viability requirements (see Subdiv 4-B) including the provision of a financial statement for each annual financial reporting period in which a student received assistance under Sch 1A (cl 15, Sch 1A, HES Act);

(b)    the VET quality requirements (see Subdiv 4-C);

(c)    the VET fairness requirements (see Subdiv 4-D);

(d)    the VET compliance requirements (see Subdiv 4-E), namely, the HES Act and regulations, VET Guidelines applying to the provider, and any conditions on the VET provider’s approval (cl 23A, Sch 1A, HES Act);

(e)    the VET fee requirements (see Subdiv 4-F); and

(f)    any other requirements for VET quality and accountability set out in the VET Guidelines; and

(3)    any (other) requirements set out in the VET Guidelines.

227    The VET Guidelines, in turn, required compliance by the VET provider with the RTO standards and the AQF. In particular, from 1 April 2015, cl 4.4 expressly prohibited a VET provider from offering Prohibited Inducements, from engaging or encouraging any other person to offer any Prohibited Inducements, and from enrolling a person in a VET unit or course of study unless the VET provider was satisfied on reasonable grounds that the person was not offered a Prohibited Inducement.91 Prohibited Inducements were defined in cll 4.4.4(ii) and (vii) to include “an electronic device (e.g. tablets, iPads, mobile phones, Wi-Fi, computers and including associated software licences) before or after unit/course completion and “any item not required for educational delivery”.

6.3.2    The RTO standards with which a VET provider, as a RTO, must comply

228    During the relevant period, Phoenix, as a RTO, was also required to comply with:

(1)    the Standards for NVR Registered Training Organisations 2012, which applied until 1 April 2015 (the 2012 RTO Standards);92 and

(2)    the Standards for Registered Training Organisations 2015 made on 20 October 2014, which commenced on 1 April 2015 (the 2015 RTO Standards).93

(Collectively the RTO Standards.)

229    These standards were made pursuant to ss 185(1) and 186(2) of the NVETR Act and formed part of the VET Quality Framework, being a system intended to ensure the integrity of nationally recognised qualifications, as I shortly explain.

230    Of particular relevance to the present case were the 2015 RTO Standards. The purposes of those Standards were to:

1.    set out the requirements that an organisation must meet in order to be an RTO;

2.    ensure that training products delivered by RTOs meet the requirements of training packages or VET accredited courses, and have integrity for employment and further study; and

3.    ensure RTOs operate ethically with due consideration of learners’ and enterprises’ needs.94

231    The 2015 Standards consisted of 8 standards which were, in turn, spelt out in a set of clauses comprising each standard. In order to comply with a standard, a RTO was required to comply with all of the clauses.95 Background information for each standard was also set out in a context statement.

232    First, Standard 1 required that “[t]he RTO’s training and assessment strategies and practices are responsive to industry and learner needs and meet the requirements of training packages and VET accredited courses.” The contextual statement relating to Standard 1 explained that:

Learners, employers and industry must have confidence in the integrity, currency and value of certification documents issued by RTOs, through high quality training and assessment practices that:

    meet the requirements of training packages and VET accredited courses;

    [are] responsive to industry and learner needs; and

    [are] delivered by appropriately qualified trainers and assessors with the right support services, facilities and equipment.96

233    The term “Training Package is defined in the 2015 RTO Standards to mean:

the components of a training package endorsed by the Industry and Skills Council or its delegate in accordance with the Standards for Training Packages. The endorsed components of a Training Package are: units of competency; assessment requirements (associated with each unit of competency); qualifications; and credit arrangements. The endorsed components form part of the requirements that an RTO must meet under these Standards. A Training Package also consists of a non-endorsed, quality assured companion volume/s which contains industry advice to RTOs on different aspects of implementation.97

234    A “VET accredited course” is also defined in the 2015 RTO Standards to mean “a course accredited by the VET regulator in accordance with the Standards for VET Accredited Courses.”98

235    Those clauses of Standard 1 relied upon in particular by the applicants in the present case are as follows:

(1)    by cl 1.1, the RTO’s training and assessment strategies and practices, including the amount of training they provided, were consistent with the requirements of the training packages and VET accredited courses and enabled each learner to meet the requirements for each unit of competency or module in which they were enrolled;

(2)    by cl 1.2, for the purposes of cl 1.1 the RTO determined the amount of training they provided to each learner with regard to the existing skills, knowledge and experience of the learner and the mode of delivery;

(3)    by cl 1.3, the RTO, consistent with its training and assessment strategies, had sufficient trainers and assessors to deliver the training and assessment, and educational and support services to meet the needs of the learner cohorts undertaking the training and assessment;

(4)    by cl 1.7, the RTO determined the support needs of individual learners and provided access to the educational and support services necessary for the individual learner to meet the requirements of the training product as specified in training packages or VET accredited courses; and

(5)    by cl 1.13, the RTO’s training and assessment was delivered only by persons who had the appropriate qualifications.

236    The applicants also placed particular weight upon the following additional standards (see ACS at [137]):

(1)    Standard 2 required that the operations of the RTO were quality assured and specifically, that:

(a)    the RTO ensured that it complied with the RTO Standards at all times (cl 2.1); and

(b)    the RTO had sufficient strategies and resources to systematically monitor any services delivered on its behalf, and used these to ensure that the services delivered complied with the RTO Standards at all times (cl 2.4);

(2)    Standard 4 required that “[a]ccurate and accessible information about an RTO, its services and performance [was] available to inform prospective and current learners and clients”, and specifically, that the RTO ensured that specified information, whether disseminated directly by the RTO or on its behalf, was both accurate and factual, including the requirements that:

(a)    the RTO [made] clear where a third party [was] recruiting prospective learners for the RTO on its behalf” (cl 4.1(e)); and

(b)    included details about any VET FEE-HELP arrangements associated with the RTO’s provision of training and assessment (cl 4.1(k));

(3)    Standard 5 required that “[e]ach learner [was] properly informed and protected” and specifically that, [p]rior to enrolment or the commencement of training and assessment, whichever came first, the RTO provided advice to the prospective learner about the training product appropriate to meeting the learner’s needs, taking into account the individual’s existing skills and competencies” (cl 5.1) (note that a “Training Product” means “AQF qualification, skill set, unit of competency, accredited short course and module);99 and

(4)    Standard 8 required that the RTO co-operated with the VET Regulator and was legally compliant at all times, and specifically under cl 8.2 that the RTO ensured that any third party delivering services on its behalf [was] required under written agreement to cooperate with the VET Regulator:

(a)    by providing accurate and factual responses to information requests from the VET Regulator relevant to the delivery of services; and

(b)    in the conduct of audits and the monitoring of its operations.”

237    Clauses 4.1 and 8.2 in particular emphasise the responsibilities of RTOs such as Phoenix for the agents and brokers engaged by them to recruit consumers.

6.3.3    The Australian Qualifications Framework and the specifications for diploma level courses

238    The “Australian Qualifications Frameworkor AQF is defined in the Dictionary in Schedule 1 to the HES Act to mean:

… the framework for recognition and endorsement of qualifications:

(a)    that is established by the Council consisting of the Ministers for the Commonwealth and each State and Territory responsible for higher education; and

(b)    that is to give effect to agreed standards in relation to the provision of education in Australia;

as in force from time to time.

(See also s 3 of the NVETR Act; and the definition of the AQF in the RTO 2015 Standards).100

239    The first edition of the AQF was released in July 2011. The AQF (2nd ed, January 2013) (the AQF (2nd ed)), which applied throughout the relevant period, explains that it is “the national policy for regulated qualifications in Australian education and training. It incorporates the qualifications from each education and training sector into a single comprehensive national qualifications framework.101 The AQF (2nd ed) further explained that:

The AQF provides the standards for Australian qualifications. It is an integrated policy that comprises:

    The learning outcomes for each AQF level and qualification type

    The specifications for the application of the AQF in the accreditation and development of qualifications

    The policy requirements for issuing AQF qualifications

    The policy requirements for qualification linkages and student pathways

    The policy requirements for the registers of:

-    organisations authorised to accredit AQF qualifications

-    organisations authorised to issue AQF qualifications

-    AQF qualifications and qualification pathways

    The policy requirements for the addition or removal of qualification types in the AQF, and

    The definitions of the terminology used in the policy.102

240    In essence, as Ms Scomazzon, the education expert relied on by the applicants, explained, the AQF defines all nationally recognised qualifications in schools, vocational education and training (TAFE institutes and private providers) and the higher education sectors (mainly universities) in Australia, describing 10 levels of qualifications from Senior Secondary Certificate to PhD.103

241    The AQF is also a key component of the scheme regulating RTOs for the following reasons.

242    First, it was a condition of registration as a RTO under the NVETR Act that the body comply with various standards including the AQF. Specifically, s 22 of the NVETR Act provided that:

(1)    An NVR registered training organisation must comply with the Standards for NVR Registered Training Organisations.

(2)    An NVR registered training organisation must comply with the Australian Qualifications Framework.

(3)    An NVR registered training organisation must comply with the Data Provision Requirements.

243    An additional subsection, s 22(1A), was inserted by the National Vocational Education and Training Regulator Amendment Act 2015 (Cth) with effect from 3 April 2015 and provided that “[a]n NVR registered training organisation must comply with the Quality Standards.”

244    Secondly, a student was entitled to VET FEE-HELP assistance only for courses of study which lead to the award of a VET qualification, being a qualification relevantly at the level of a diploma in the AQF, and complied with the AQF. Specifically:

(1)    as earlier explained, a student is only eligible for VET FEE-HELP assistance if she or he is enrolled in an eligible VET unit of study as part of a VET course of study;

(2)    a “VET course of study” in turn is defined in the Dictionary to the HES Act to mean:

a structured and integrated program of vocational education or vocational training, usually consisting of a number of modules (units of study) or shorter programs, and leading to the award of a *VET qualification.

(3)    a VET qualification, as defined in the Dictionary to the HES Act, means:

(a)    a *VET diploma; or

(b)    a *VET advanced diploma; or

(c)    a *VET graduate diploma; or

(d)    a *VET graduate certificate; or

(e)    a qualification specified by the *VET Guidelines.

(4)    In each case, the VET diploma, VET advanced diploma, VET graduate diploma and VET graduate certificate (as defined in the Dictionary to the HES Act) means a qualification at that level in the AQF and which meets the guidelines for a VET award as set out in the AQF.

245    Thirdly, in deciding whether or not to grant an application for accreditation of a course as a VET accredited course, ASQA (as the National VET Regulator) must consider whether the course meets the AQF, as well as the Standards for VET Accredited Courses (s 44(2), NVETR Act).

246    Finally, the AQF relevantly specifies educational qualifications at Levels 1 to 6 in ascending order of difficulty which correspond to Certificates I, II, III and IV, Diploma and Advanced Diploma respectively. The online courses offered by Phoenix were diploma level courses and therefore at AQF Level 5 requiring advanced skills and integrated technical and theoretical knowledge.104

7.    THE PHOENIX ONLINE COURSES

7.1    Introduction

247    The question of whether the respondents’ conduct is unconscionable falls to be assessed not only having regard to Parliament’s intention to increase the participation rate of specific demographic groups of vulnerable people in education and training by the 2012/2013 reforms the VET FEE-HELP scheme. Equally significant in assessing this question are the target cohorts for the online diplomas offered by Phoenix and the high level of difficulty involved in successfully undertaking courses at the diploma level. Thus the fact that Phoenix was marketing only full-time diplomas to these vulnerable groups serves to highlight the need for effective systems to be devised and implemented from the start to ensure that only those consumers who are eligible and have a reasonable chance of successfully completing the course are enrolled and that proper support mechanisms are in place to meet their needs. As such, this Chapter explains the learning outcomes specified for diploma level courses under the AQF and the target cohorts and mandatory admission requirements for each of the Phoenix Online Courses.

248    The specific VET Online Courses offered by Phoenix during the relevant period were:

(1)    the Diploma of Business identified under the AQF by the code BSB50207;

(2)    the Diploma of Business, AQF code BSB50215, which was offered from 1 June 2015 and superseded the Diploma of Business BSB50207;

(3)    the Diploma of Management, AQF code BSB51107;

(4)    the Diploma of Leadership and Management, AQF code BSB51915, which was offered from 26 June 2015 and superseded the Diploma of Management BSB51107;

(5)    the Diploma of Early Childhood Education and Care, AQF code CHC50113; and

(6)    the Diploma of Community Services Work, AQF code CHC50612.

(The Online Courses.)

249    These courses were all offered under the banner of “myTime Learning”.105

250    Each of these courses was defined by Phoenix as having an equivalent full-time study load (EFTSL) of 1.0, meaning that the study load was intended to be completed on a full-time basis over an academic year. Yet, as I later find, the vast majority of Phoenix “students” were simultaneously enrolled in two online courses. The course fees for each online course were between $18,000 to $21,000.106 Different courses were delivered in different stages of VET units of study and components of the course fee were levied per VET unit as detailed in the SOC/ASOC at [29]–[34] and admitted in the Defence at [8]–[13].

251    According to the 2015 VET FEE-HELP Payment Schedule prepared by Phoenix,107 so-called “students” were divided into Groups, with each Group being assigned a commencement date, census date, and payment date. For example, Group 1 (which embraced the Diploma of Business, the Diploma of Community Services and the Diploma of Early Childhood Education and Care) had a first commencement date of 19 January 2015, a census date of 23 February 2015, and a payment date of 4 March 2015. There was also a Group 2 for each of the Diplomas of Business, Management, Community Services and Early Childhood Education and Care. For example, Group 2 for Diploma of Business students set a commencement date of 23 February 2015, census date of 16 March 2015, and payment date of 25 March 2015. These dates were different from the dates for Group 2 for the Diploma of Management, for example. Groups 3 to 10 similarly specified various cut-off dates.

7.2    The expert evidence of Ms Scomazzon (VET/educational expert)

252    The applicants relied upon the expert evidence of Ms Jana Scomazzon. Ms Scomazzon’s expert report dated 10 September 2019 (Ms Scomazzon’s report) is attached to her affidavit affirmed on 11 September 2019.108 That report was prepared in compliance with the Federal Court Expert Evidence Practice Note (GPN-EXPT) and Ms Scomazzon agreed to be bound by the Harmonised Expert Witness Code of Conduct annexed to the Practice Note.109

253    Ms Scomazzon was awarded a Bachelor of Arts (Honours) Psychology (Research Methodology) from the University of Melbourne and a Postgraduate Diploma of Education (English as a Second Language and Psychology) also from the University of Melbourne.

254    She has worked in VET for 26 years and is an expert in: evaluation and quality assurance; VET policy development and evaluation, product, and practice; and in the provision of advisory services during the development of VET programs and product. Her professional background includes research methodology, psychology, teaching adult literacy, developing and implementing professional development for RTOs, and government-appointed skills service organisations.

255    In her capacity as director of the VET consultancy company established by her in 2001, LTG, Ms Scomazzon has worked in diverse industries and sectors with, among others, public and private RTOs, employers, vocational trainers and assessors, compliance managers and literacy specialists, and state and federal industry regulators. This work has drawn on Ms Scomazzon’s expertise in evaluation and strategic reviews, and the preparation and quality assurance of VET endorsed and non-endorsed material and resources.

256    Ms Scomazzon has also served for 20 years as a recognised expert on various government panels established for the purpose of quality assurance in VET, including:

(1)    as a government-appointed training package quality assurer on the government’s Training Package Quality Assurance Panel;

(2)    as a government-accepted evaluator of the alignment of LLN assessment tools to the Australian Core Skills Framework (ACSF);

(3)    as a government-appointed training package equity panellist including review of the sufficiency and suitability of training package content;

(4)    as an equity advisor to the Australian Government Partnerships for Development (GPFD) program – the VET Qualifications Benchmarking and Development Project (2015); and

(5)    as a government-appointed resource evaluator for the then Workplace English Language and Literacy program (2010 to program closure in 2014).

257    I am satisfied that Ms Scomazzon had ample qualifications and expertise on the basis of which to give the opinions which she expressed on the following matters:

(1)    the training package qualification rules for the VET diplomas offered by Phoenix;

(2)    the minimum skills, knowledge and experience ordinarily required to undertake each VET diploma as opposed to those stipulated by Phoenix in its Course Overview and Training and Assessment Strategy (TAS);

(3)    any additional skills, knowledge and experience, or tools or facilities required ordinarily by a student to undertake an online VET diploma;

(4)    the sufficiency of Phoenix’s enrolment application form, PTR form and LLN assessment;

(5)    the appropriate trainer/assessor-to-student ratios for each VET diploma offered by Phoenix based on Phoenix’s course delivery schedule; and

(6)    necessary requirements for those VET diplomas requiring a work placement.

258    In essence, Ms Scomazzon concluded that first, the course duration indicated in Phoenix’s documentation mostly underestimated the time required to complete a course. Secondly, she considered that the target student profiles set out in Phoenix’s Course Overview documents indicated a level of skill, knowledge and experience which was insufficient to commence, let alone successfully complete, diploma level qualifications. Thirdly, in her view there was no indication in the Phoenix documentation that the digital and other skills, knowledge and experience which a student would require to complete a VET diploma online were identified or supported. Nor was there any indication that the digital equipment and facilities required for online training and assessment were available to students. Fourthly, she considered that the Phoenix enrolment forms, PTR forms and LLN assessments were not adequate to sufficiently identify students’ existing skills, knowledge and experience and the necessary support services.

259    I note, however, that Ms Scomazzon did not consider that she was qualified to express an opinion on the benefit or otherwise to a student from enrolling in dual VET diplomas of business, management, or leadership and management.110 However she did express a view, which I accept, that the justification for dual enrolment in the Diploma of Early Childhood Education and Care (CHC50113) and Diploma of Community Services Work (CHC50612) appeared scant, as the industry sectors to which the qualifications relate are different, as are the employment pathways into and from the two qualifications.111 Ms Mason, the Data and Quality Manager at CTI for part of the relevant period, was of the same view (see at [391] below). Yet, of the 3,110 consumers enrolled in Phoenix’s Diploma of Early Childhood Education and Care and the 3,497 consumers enrolled in its Diploma of Community Services Work where the first census date fell between 1 January and 11 November 2015, 2,226 consumers were enrolled in one of more units of study for both diplomas.112

7.3    Learning outcomes specified for diploma level courses under the AQF

260    Completion of any of the Online Courses offered by Phoenix led to the award of a VET qualification, such that each course was a “VET course of study” as defined in the Dictionary in Sch 1 to the HES Act.113 Each course was also a diploma level course and was therefore designed to achieve the learning outcomes at Level 5 of the AQF.114 In this regard, the AQF explained that:

The purpose of the Diploma qualification type is to qualify individuals who apply integrated technical and theoretical concepts in a broad range of contexts to undertake advanced skilled or paraprofessional work and as a pathway for further learning.115

261    The AQF further explained that:116

Diploma qualifications must be designed and accredited to enable graduates to demonstrate the learning outcomes expressed as knowledge, skills and the application of knowledge and skills specified in the level 5 criteria and the Diploma descriptor.

AQF level 5 criteria

Summary

Graduates at this level will have specialised knowledge and skills for skilled/paraprofessional work and/or further learning

Knowledge

Graduates at this level will have technical and theoretical knowledge in a specific area or a broad field of work and learning

Skills

Graduates at this level will have a broad range of cognitive, technical and communication skills to select and apply methods and technologies to:

•analyse information to complete a range of activities

•provide and transmit solutions to sometimes complex problems

•transmit information and skills to others

Application knowledge and skills

Graduates at this level will apply knowledge and skills to demonstrate autonomy, judgement and defined responsibility in known or changing contexts and within broad but established parameters

262    The diploma qualification type descriptor explains that the volume of learning for a diploma is typically 1 to 2 years.117 This translates into 1,200 to 2,400 hours which are comprised of:

(1)    hours in supervised structured learning and assessment activity required to sufficiently address the content of a unit (called “nominal hours”) to acknowledge that progress can vary between learners; and

(2)    hours in unsupervised learning and assessment activities that contribute to achieving the course outcomes but are not supervised by a RTO trainer or assessor (such as private study and/or assignment work, non-supervised work experience, and field placement).118

263    The specific entry requirements and packaging rules for each of these diplomas are set out in the Training Package Qualification Rules (the Packaging Rules) which, during the relevant period, were prepared by the Industry Skills Councils on behalf of the Commonwealth Government and published on the National Register of VET (National VET Register).119

264    Furthermore, the AQF provides that the diploma qualification may be issued only by an organisation authorised by an accrediting authority to do so, and which meets any government standards for the sector. In particular, the AQF provides that the issuing organisation is responsible for ensuring the quality of the learning outcomes and satisfactory completion by graduates of any requirements for the award of the qualification.120

265    It follows that Phoenix was required to deliver qualifications that complied with the Packaging Rules set out in this framework and in particular, with the AQF specifications for the diplomas offered by Phoenix. However, as I later explain, the expert evidence of Ms Scomazzon121 establishes that they failed to do so.

7.4    Target cohorts for the Phoenix Online Courses under the Packaging Rules and mandatory Phoenix admission requirements

7.4.1    Preliminary

266    The respondents admitted the target cohorts for each of the Phoenix Online Courses as set out in the National VET Register (which I explain below), as well as the number of VET units of study and their delivery in stages in each of the Online Courses, as pleaded in the SOC.122

7.4.2    General skills requirements

267    Self-evidently, as the Online Courses were delivered online, it was essential for students to have the necessary hardware and software, a student email address, access to the internet, potentially cloud-based technology, and a degree of computer literacy.123 Ms Scomazzon explained that the last of these would need to include the digital skills, for example, to understand terminology used in course materials such as “browser” or “link”, and to understand:

(1)    how to perform basic computer operations such as opening, saving and managing files and folders, using the software applications used by Phoenix and (where applicable) employers during work placements, and to download and send learning and assessment activities;

(2)    how to communicate online including by accessing and participating in webinars (ie online seminars), and communicating with trainers, assessors and peers using email, discussion boards and chats; and

(3)    how to conduct research to satisfy assessment assignments, through accessing and using browsers and using search engines.124

268    In addition, Ms Scomazzon explained that students enrolling in a Phoenix VET diploma would require:

71.2    high level reading and writing skills as most of the training and assessment material is communicated to them in writing – text-based tools, emails, discussion forums, etc.

71.3    initiative, enterprise and time-management skills as there is less structured scheduling and so students need to be self-motivated and independent to ensure regular and sufficient study time

71.4    learning skills to enable students to:

71.4.1    use explicit strategies to organise information and ideas

71.4.2    use a range of techniques to reinforce learning.125

269    Yet Ms Scomazzon found that there was no indication in the Phoenix documentation reviewed by her that these skills and knowledge were identified or supported (as I later explain).126

7.4.3    The target cohorts for the Diplomas of Business, Management, and Leadership and Management

270    Consistently with the fact that the diploma is an AQF Level 5 qualification, the target cohorts for the Diplomas of Business, Management, and Leadership and Management (the Business Diplomas) specified in the Packaging Rules comprised people with substantial experience or with sound relevant theoretical skills and knowledge.

271    Taking each of the diplomas in turn, first the Diploma of Business (AQF code BSB50207) had a target cohort as specified by the Packaging Rules that was: “… intended to reflect the role of individuals with substantial experience in a range of settings who are seeking to further develop their skills across a wide range of business functions” and was a qualification “also suited to the needs of individuals with little or no vocational experience, but who possess sound theoretical business skills and knowledge that they would like to develop” (emphasis added).127

272    The Phoenix TAS for this diploma also stated that the program was delivered over a standard 45-week period and students were to “use a blend of interactive online resources, self-directed reading, summative assessment projects and research activities that combined we have allowed up to 470 hours of Diploma level”.128

273    Secondly, the Packaging Rules specified that the Diploma of Business (AQF code BSB50215) had a target cohort of:

30.4.1 “individuals with various job titles including executive officers, program consultants and program coordinators. Individuals in these roles may possess substantial experience in a range of settings, but seek to further develop their skills across a wide range of business functions”; or

30.4.2 “those with little or no vocational experience, but who possess sound theoretical business skills and knowledge that they would like to develop in order to create further educational and employment opportunities.”129

(Emphasis added.)

274    Thirdly, the target cohort specified in the Packaging Rules for the Diploma of Management (AQF code BSB51107) was to reflect:

the role of individuals who are engaged to manage the work of others or to add value to or review management practices. Their role may be in any industry or organisational setting. Typically people in these roles will have considerable experience in their respective industries or vocational areas and combine an informed perspective of specific work requirements with their managerial approaches. The qualification requires a sound theoretical knowledge base and managerial competencies to plan, carry out and evaluate own work or the work of a team.130

(Emphasis added.)

275    Fourthly, according to the National VET Register, the Diploma of Leadership and Management (AQF code BSB51915) had a target cohort that reflected the role of individuals:

… who apply knowledge, practical skills and experience in leadership and management across a range of enterprise and industry contexts. Individuals at this level display initiative and judgement in planning, organising, implementing and monitoring their own workload and the workload of others. They use communication skills to support individuals and teams to meet organisational or enterprise requirements. They plan, design, apply and evaluate solutions to unpredictable problems, and identify, analyse and synthesise information from a variety of sources131

(Emphasis added.)

7.4.4    The Phoenix mandatory admission requirements for the Diplomas of Business, Management, and Leadership and Management

276    Phoenix also imposed its own mandatory admission requirements for the Business Diplomas.132 These included:

(1)    requirements as to the age of the consumer, namely, that the consumer was at least 18 years of age in the case of:

(a)    the Diploma of Business (BSB50215) from 1 June to 9 September 2015 (reduced to 17 years of age from 10 September 2015);

(b)    the Diploma of Management (BSB51107); and

(c)    the Diploma of Leadership and Management (BSB51915) from 26 June to 31 August 2015, although the target participants were identified as “[a]ge group, typically 25+133 (reduced to 17 years of age from 1 September 2015);

(2)    digital literacy skills and access to a computer or laptop which could be provided by Phoenix in the case of the Diploma of Business (BSB50215), the Diploma of Management (BSB51107), and the Diploma of Leadership and Management (BSB51915);

(3)    minimum school qualifications as follows:

(a)    completion of year 10 or equivalent in the case of the Diploma of Business (BSB50215) from 10 September 2015 and the Diploma of Leadership and Management (BSB51915) from 1 September 2015;

(b)    completion of year 12 in the case of the Diploma of Management (BSB51107) from February 2015;

(I also note that, while it was not a mandatory admission requirement in the case of the Diploma of Business (BSB50215), the Phoenix TAS for this diploma stated that “Phoenix expect that participants in the course will have completed some formal education to at least year 12 (or equivalent)”);134 and

(4)    LLN requirements in all of the Business Diplomas and, in the case of the Diploma of Business (BSB50215) and the Diploma of Leadership and Management (BSB51915) from 10 and 1 September 2015 respectively, LLN skills at ACSF Level 3.

277    As to the last of these requirements, Ms Scomazzon explained that the ACSF was “[a]n Australian Government tool released in 2008 and revised in 2012 that provides a consistent national approach to identifying and developing the language, literacy and numeracy (or ‘core’) skills of reading, writing, oral communication, numeracy and learning in three diverse contexts in which people work, learn and communicate: personal and community, workplace and employment, and education and training.”135 Ms Scomazzon further explained this tool was adopted by many RTOs in their pre-enrolment and training and assessment practices, procedures and templates. It describes five levels of performance ranging from 1 (low level performance) to 5 (high level performance). However, she further explained that:

Because there are only five levels in the ACSF, there is a significant difference between each level. High performance (level 5) describes an autonomous VET student whose LLN levels are sufficient to deal with highly complex verbal and written tasks and texts in a broad range of contexts; who is able to synthesise and evaluate that information. A student at a low level (level 1) in a training and assessment context will need a mentor to provide prompting and advice when working with highly familiar, short and simple tasks and text; and would be able to only locate and recognise that information.136

278    As such, she considered that a student at ACSF Level 3 would struggle significantly when undertaking a course requiring ACSF Levels 4 to 5.137 Added to this, how (one might ask rhetorically) could a person of 17 or 18 years of age who had completed high school only to Year 10 possibly have the considerable experience or sound theoretical knowledge or skills and managerial competencies to fall within the Target Cohorts specified in the Packaging Rules for these diplomas?

279    Finally, additional mandatory Phoenix admission requirements were imposed in the case of two of the Business Diplomas, namely:

(1)    in the case of the Diploma of Management (BSB51107), it was a Phoenix admission requirement from February 2015 that the consumer be engaged in roles that required managing the work of others or to add value/review management practices, and had current skills and knowledge in communication, problem solving and research skills; and

(2)    in the case of the Diploma of Leadership and Management (BSB51915), it was a Phoenix admission requirement that the consumer had 3 years of workplace experience in any industry.

280    While the mandatory admission requirements set out in the preceding paragraph might theoretically have ameliorated the risk that 17 or 18-year-olds with no experience or knowledge base might be enrolled in these diplomas, there is no evidence to suggest that these criteria were in fact applied by Phoenix or those acting on its behalf to screen potential students.

7.4.5    The target cohorts for the Diplomas in Early Childhood Education and Care and in Community Services Work, and mandatory requirements

281    The target cohorts for the Diplomas in Early Childhood Education and Care and in Community Services Work (the Service Diplomas) also reflected the fact that as diplomas, they were at Level 5 of difficulty. There were also, in the case of these diplomas, mandatory admission requirements and a requirement that students must complete a 240-hour work placement imposed by the Packaging Rules.138 In addition, Phoenix imposed certain mandatory admission requirements.

282    First, the Diploma of Early Childhood Education and Care (AQF code CHC50113) had a target cohort that reflected:

the role of early childhood educators who are responsible for designing and implementing curriculum in early childhood education and care services. In doing so they work to implement an approved framework within the requirements of the Education and Care Services National Regulations and the National Quality Standard. They may have responsibility for supervision of volunteers or other staff.139

283    According to the Packaging Rules, the Diploma of Community Services Work (AQF code CHC50612) was targeted at consumers who:

work in roles that usually involve service delivery, either direct client work and/or community education or development projects. Workers at this level operate at an advanced skill level and may also have responsibility for the supervision of other staff and volunteers.140

284    Secondly, and consistently with the target cohort, the Packaging Rules for the Diploma of Community Services Work imposed admission requirements that the consumer:

(i)    had trained and been assessed as competent in two core units of study; namely, Work Effectively in the Community Sector (identified under the AQF with the code CHCCS411C) and Work Effectively with Culturally Diverse Clients and Co-workers (identified under the AQF with the code HLTHIR403C); or

(ii)    had sufficient relevant experience and knowledge of community work and/or community services would likely succeed in a role involving:

A.    application of knowledge with depth in some areas and demonstrate a broad range of technical and other skills;

B.    work in a variety of contexts that involve complexity and choice of actions, including working with culturally diverse clients and co-workers; and

C.    exercise of discretionary judgement and decision making under general guidance; …141

(Errors in the original.)

285    Thirdly, Phoenix also set mandatory admission requirements for each of these courses which were amended on 1 September 2015,142 namely, that the consumer:

(1)    was at least 18 years of age;

(2)    possessed digital literacy skills and had access to a computer or laptop which could be provided by Phoenix (in the case of the Diploma of Community Services Work (CHC50612), from 1 September 2015);

(3)    had work experience or minimum school qualifications as follows:

(a)    in the case of the Diploma of Early Childhood Education and Care (CHC50113) prior to 1 September 2015, the consumer was employed in a childcare role/workplace;

(b)    in the case of the Diploma of Community Services Work (CHC50612) prior to 1 September 2015, the consumer was employed in a community service role or workplace;

(c)    in the case of both diplomas from 1 September 2015, completion of year 10 or equivalent only;

(4)    satisfied LLN requirements and specifically from 1 September 2015, LLN requirements at ACSF Level 3;

(5)    in the case of the Diploma of Early Childhood Education and Care (CHC50113):

(a)    prior to 1 September 2015, the consumer held a current Working with Children Check;

(b)    from 1 September 2015, held or was willing to undertake a Working with Children Check and a National Crime Check (NCC) Work Experience/Work Placement – Healthcare or Vulnerable Groups before undertaking the mandatory work placement; and

(6)    from 1 September 2015 in the case of the Diploma of Community Services Work (CHC50612), held or was willing to undertake a NCC Work Experience/Work Placement – Healthcare or Vulnerable Groups before undertaking the mandatory work placement.

286    Fourthly, as previously mentioned, the Service Diplomas stipulated substantial work placement requirements. Ms Scomazzon explained that where workplace experience is required and outsourced to a third party, in her experience a range of compliance requirements are usually put in place including:

126.1    determining the work requirements of the unit and selecting a suitable workplace

126.2    confirming that the third-party workplace will provide a safe and suitable practical placement

126.3    confirming that the student’s workplace supervisor is suitably qualified to perform the role

126.4    ensuring that the workplace supervisor is suitably qualified to undertake assessment, or arranging a time for a Phoenix assessor to visit for the purposes of assessing Phoenix students

126.5    identifying and planning the assessment requirements and required workplace-based evidence to be produced

126.6    where assessment is undertaken by the workplace supervisor: agreeing assessment procedures and evidence requirements with workplace-based assessor

126.7    constructing evidence templates to ensure appropriate and specified assessment methods and tools are used, and that the assessment is documented according to agreed procedures.143

8.    EVIDENCE OF EX-EMPLOYEES AS TO ENROLMENT PRACTICES UNDERTAKEN FOR THE PHOENIX ONLINE COURSES

8.1    Primary ex-employee witnesses

8.1.1    General observations

287    The primary ex-employee witnesses for the applicants were Mr Bill Gale, formerly the CEO of Phoenix, Ms Janice Crittenden, the Director of Operations, Quality and Compliance at Phoenix, Ms Jennifer Mason, Data and Quality Manager at CTI, Ms (Susan) Lesley Blefari, Group Compliance Manager, and Mr Shaun Lewis, the Contact (Phone) Centre Manager at CTI. Each of these witnesses gave oral evidence, supplementing, expanding upon, and contextualising their affidavit evidence. Their evidence was clear, detailed, and credible. Their evidence as to the essential elements of the applicants’ case was consistent with each other’s, with the contemporaneous documentary evidence, and with the results of the data analysis.

288    Each of these employees when still employed by Phoenix or CTI attempted to raise their concerns with senior management about issues such as the lack of control exercised over Brokers and Agents, non-compliant enrolment documentation submitted by Brokers, worrying patterns in enrolment documentation indicative of fraud, and instructions from Mr Brown and Mr Kochhar to enrol consumers without conducting a telephone verification. Some were also able to take some small steps independently of senior management to investigate and ameliorate specific problems, such as ensuring that no consumers were enrolled in more than two courses. However, when they raised concerns with senior management or took steps like sending non-compliant forms back to Brokers, their concerns were generally brushed aside, ignored, or met with an angry, aggressive response delivered in strong language.

289    In this regard, as I later explain, during the relevant period, these employees were bullied and worked in a highly toxic environment at Phoenix and CTI given, in particular, the unpredictable and abusive behaviour of Mr Kochhar towards them. As a result, they were frequently required to comply with directions with which they disagreed from Mr Kochhar and Mr Brown and some other senior management figures, such as Ms Bagga, or with instructions the true purpose of which was deliberately hidden from them.

290    Furthermore, there was a pattern whereby staff were sidelined when they raised complaints. Steps were also taken to shut down communications between staff, such as stopping interdepartmental staff meetings, and from staff to the ACN Board about serious non-compliance issues such as Mr Brown’s direction through his personal assistant to Ms Blefari to reduce the detail in her compliance reports to the Board. A number of these employees ultimately resigned because they were so disturbed and concerned about what was happening at Phoenix and what they were being asked to do by senior management.

291    As against this context, it is important to acknowledge the considerable courage exhibited by each of these witnesses in giving evidence in this proceeding. Their evidence was of very great assistance.

8.1.2    Mr Bill Gale (CEO, Phoenix)

292    Mr Bill Gale was the CEO of Phoenix from December 2013 until August 2015 when he became CEO of Phoenix Institute of Australia Pty Ltd trading as Phoenix Institute of Higher Education. As I explain below, Mr Gale was quickly sidelined by the new management and from the outset was wholly excluded from oversight of the new Online Courses. That situation was ultimately formalised in August 2015 when Phoenix was restructured into two divisions:

(1)    the Phoenix Institute of Higher Education, of which Mr Gale became CEO which was concerned with face-to-face education only; and

(2)    myTime Learning, of which Mr Brown became CEO, which had exclusive responsibility for the Online Courses.

293    Mr Gale ceased his employment with Phoenix in mid-December 2015, not long after Phoenix ceased offering face-to-face courses.144

294    Mr Gale gave evidence of the acquisition of Phoenix, the changes which he observed following the acquisition, the concerns which he repeatedly raised with senior management, and the engagement of an external compliance consultant, Damien Nash, to conduct an internal audit of the new Online Courses against ASQA standards.

8.1.3    Ms Janice Crittenden (Director of Operations, Quality and Compliance at Phoenix) (employed at Phoenix from 2010 to June 2015)

295    Ms Janice Crittenden worked for different RTOs for approximately 10 years before she began working for Phoenix in around 2010 as a general manager. She held the position of Director of Operations, Quality and Compliance for Phoenix when Phoenix was acquired. In that role, she had responsibility for “checking the qualifications of trainers against the requirements for their teaching a given course, as well as ensuring that all trainers kept up-to-date in their required professional development. This included organising the running of workshops for trainers and bringing in experts to conduct them.”145 Prior to the acquisition, Ms Crittenden was also responsible for the development of Phoenix’s enrolment forms,146 and wrote all of Phoenix’s policy and student manuals, ensuring that they complied with ASQA and Tertiary Education Quality and Standards Agency (TEQSA) requirements. In addition, she was responsible for liaising with the Department and for managing the inflow of VET FEE-HELP funds to Phoenix which was then in the order of $3 million annually.

296    Ms Crittenden’s evidence addressed Phoenix’s operations before and after its takeover by ACN until her decision to retire in June 2015. In particular, she addressed concerns that she raised with senior management about enrolment forms following the acquisition and the responses of senior management to those concerns. Among other things, she observed from Wise.NET that after the acquisition of Phoenix by ACN, enrolments in Phoenix diploma courses increased at an accelerating rate and that many of the consumers were enrolled into more than one online diploma course.147

297    Ms Crittenden resigned by choice from her position at Phoenix in June 2015.

8.1.4    Ms Jennifer Mason (Data and Quality Manager, CTI, 13 February to 31 July 2015)

298    Ms Jennifer Mason gave evidence by affidavit affirmed on 4 May 2016 (the Mason affidavit) and orally. She was the Data and Quality Manager, CTI, from 13 February to 31 July 2015. Prior to that time, Ms Mason worked in the education industry in a variety of roles including as a trainer and assessor, training manager, compliance manager, and data and quality manager. She held a Bachelor of Arts degree from the University of La Trobe, a Certificate IV in Training and Assessment from the North Melbourne Institute of TAFE, and a Diploma of Workplace Training and Assessment. She had also partially completed a Masters in Education and Training at Deakin University.

299    Ms Mason was employed by CTI as the Data and Quality Manager at their main office in Spotswood, Victoria, for the period from 13 February 2015 to 31 July 2015. In that role, she reported directly, and in general on a daily basis, to the COO of CTI, Harry Kochhar, whom she described as her “direct line manager148, as well as reporting occasionally to Ivan Brown as CEO of CTI.149 She oversaw the Data and Quality Team, as I explain below, and in the course of that role, saw many thousands of enrolment applications for Phoenix Online Courses.

300    Ms Mason left her employment with CTI at the end of July 2015 because she did not like the manner in which other staff were treated, and because she “fundamentally disagreed” with CTI’s operations which she regarded as unethical.150 She explained in her evidence that:

I was just sick to my stomach around: we were ripping people off; this is not what education is about. I am a very big believer in education and this is not education and this is making a mockery of something I believe in really passionately. And I am – my father was a police officer. I have come from a very honest background; and it is just not what I am about, at all. So it was really unsettling for me. So I resigned at the four month mark.151

8.1.5    Ms (Susan) Lesley Blefari (compliance consultant from July 2014 and subsequently Group Compliance Manager)

301    Ms (Susan) Lesley Blefari gave oral evidence in chief elaborating upon aspects of her evidence contained in her affidavit affirmed on 14 June 2018.

302    Ms Blefari holds Diplomas in Training and Assessment, Management, and Project Management and has worked with RTOs in compliance since 2005. Her experience included working for the Victorian Taxi Association as a consultant on their RTO operations, as a learning and development business manager for Esset Australia, ARRB Group, and an associated RTO of the University of Wollongong. From December 2012, she worked as a compliance consultant on a contract basis for various RTOs.152

303    Ms Blefari was initially engaged in July 2014 by Mr Kochhar to work for CTI as a contracted consultant on an ad hoc basis. That compliance work consisted of conducting “validations” in which she mapped the assessments and learning outcomes of a course to the requisite performance criteria, knowledge, and skills, in order to ensure that the course was set at the appropriate level and that it covered all aspects of the units of competency. Mr Kochhar was Ms Blefari’s primary contact within CTI for that work.153

304    In early January 2015, Mr Kochhar engaged Ms Blefari on a permanent full-time basis as Group Compliance Manager and she continued to report directly to Mr Kochhar in her new role. As Group Compliance Manager, she was ultimately responsible for the compliance of all of ACN’s eleven RTOs with the relevant government standards including in particular those overseen by ASQA. Ms Blefari was also responsible for completing applications to add new courses to the scope of work that ACN’s RTOs were authorised to perform, as well as acting as a liaison between ACN and ASQA.154

305    Ms Blefari was based throughout her time at CTI in its office in Spotswood. Her office was on the ground floor and, when she commenced in the role as Group Compliance Manager she was the only internal compliance officer employed by CTI. Over time, however, several more compliance officers were engaged by Mr Kochhar to work under her supervision and they also worked on the ground floor of the Spotswood offices.155

306    Ms Blefari’s direct involvement with each RTO in the ACN group varied, and she was primarily involved with another RTO in the group. She explained that most of the routine compliance tasks for Phoenix, such as the conduct of the required annual internal audit for compliance with the ASQA Standards, were conducted by Mr Phillip Bevan and Ms Marie Vassallo who were external consultants engaged by CTI for that purpose.

307    Despite her more limited role in relation to Phoenix, Ms Blefari was frequently approached by other CTI employees and, in particular, Ms Mason, to consult with them about their perception of Phoenix’s lack of compliance with the RTO Standards.156 Ms Blefari said that while initially she was shown enrolment forms only occasionally, as concerns escalated this occurred almost daily.157

308    In August 2015, Ms Blefari was informed by Mr Kochhar that Mr Marco Grandi was taking over as Head of Compliance. Thereafter Ms Blefari did not perform any further compliance work for Phoenix, and the compliance staff who had previously reported to her, then reported to Mr Grandi. Ms Blefari was made redundant from CTI in December 2015.158

8.1.6    Mr Shaun Lewis (Phone Centre Manager, CTI, August 2015 to February 2016)

309    Finally, Mr Shaun Lewis was employed at CTI as the Contact (Phone) Centre Manager in Spotswood from August 2015159 until his redundancy in February 2016.160 Mr Lewis initially reported to Mr Mario Cugliandro, then Head of Client Relations Management, who left not long after Mr Lewis commenced at CTI, and thereafter directly to Mr Kochhar.161 While it was not Mr Lewis’ function to make any calls to potential students, he sat down regularly with each of his team members to listen to the calls being made by them.162

310    Mr Lewis had 12 years’ experience working in different call centres including in the telecommunications and education industries. Immediately before working for CTI, he had worked for a company which developed online educational content for Monash University as a Student Recruitment Manager.163

311    Mr Lewis’ evidence in his affidavit affirmed on 27 June 2018 was supplemented and expanded upon in his oral evidence.

8.2    The toxic working environment at CTI

312    As I have foreshadowed, the evidence of the ex-employees needs to be understood in the context of the toxic, bullying behaviour to which they were routinely subjected at CTI and Phoenix, the control exerted over staff as to whom they could speak and with whom they could hold meetings, and the extraordinary pressure placed upon staff in terms of the volume of work which they were expected to undertake and the hours expected or demanded of them. For example, in explaining the reasons why she left CTI, Ms Mason said that:

So I felt that I looked after my staff well, I felt Le [Quan Dien] looked after her team well, I thought Mario was appropriate, but we weren’t allowed to talk to each other. So Le and I had to talk to each other, but I was instructed to not talk to Mike, not talk to Lesl[ey] Blefari, who was the compliance manager. That’s an odd thing. We tried to set up interdepartmental meetings; they were shut down. And it was a regular occurrence for Harry to come out and scream at the staff and was really unpleasant. When I first started working there, the first week I worked there I worked on a Saturday. The next weekend, I worked all weekend. At one point, I worked 21 days in a row; that was just expected. And they would call you all hours of the day, asking about numbers.164

313    Ms Blefari said that she felt bullied by Mr Kochhar, particularly when she raised concerns about third-party brokers. She said that he would get quite aggressive with her and tell her not to worry, everything would be okay, and to get out of his office.165 She also said that he used meetings with the leaders of each of his teams and CTI, including Ms Blefari, Ms Nidhi Bagga, and Ms Mason, to criticise and abuse them about their performance. These meetings were described by Ms Blefari as “impromptu. … It was never organised. It was just a demand to be in his office within a couple of minutes, and then suddenly it would all – you know, the topic of whatever he wanted to talk about would explode, I guess.”166

314    She said that Mr Kochhar was very aggressive in particular towards Ms Mason:

He was unkind, particularly to Jennifer Mason

… Jennifer was trying to do her job but she – the location was across the – the corridor from him. So he would – I felt that I felt that he was on her back all the time, forcing her to do things that were not right, and that’s – so she and I would have conversations about what is wrong with these PTRs, the fact that they were the same handwriting, and the answers were the same, that – we were enrolling people into multiple diplomas, the ages of the people, all of the things that I said before, and he was very aggressive towards her and other people in the management meeting, depending on what the topic was at the time.167

315    She said that his aggressiveness manifested itself in abusive and unacceptable language particularly towards the training manager and Ms Mason, in swearing at employees, and in “voice volume, running down the stairs, demanding we come up and see him, and then he would tear strips off us for something, and it was – it’s very difficult for me to explain. It was not a nice environment.168 Ms Blefari also explained that criticisms towards her by Mr Kochhar arose when she was “questioning compliance standards or things that I had to do to maintain compliance for the RTO, that I was getting into too much detail and, you know, I am complicating things. So that was regular.”169

316    Mr Lewis’ evidence also highlights the bullying tactics used by Mr Kochhar:

Throughout the whole period I got the sense that – a strong sense that he hated any questions that I had to ask, and I’m a very inquisitive person. I need to understand why – why certain things are being done and when the answers can’t come to me I will continue to ask why. That is my way of learning and my way of understanding and knowing that what I’m doing is correct. He just didn’t like it. So I had to figure it out myself, which is fine, I can do that, but he used to get very angry, and Harry was not the kind of person that you would want angry because he would make sure that he was angry quite publicly at you and quite abusive at you. Which to me I didn’t tolerate, so whenever he did I would – I would tell him to pipe up and ..... himself, but others wouldn’t do that, so that was probably a summary of really how – how our interactions were, your Honour.

[Her Honour] How did he exhibit that anger? [Mr Lewis] Quite physically in – in his body language, and raised voices, verbal abuse. There’s some instances that stick out of my head as pretty bad. At one point it was quite racist, a massive racist slur that occurred with a number of people in the office at a – at a Israeli man which was just horrible, and I just remember going home to my wife saying, “I cannot believe that I work in a place like this – with a person like this”. He was just horrible.170

317    Not surprisingly, this had an impact upon the extent to which Mr Lewis and no doubt other employees felt confident to raise concerns with Mr Kochhar. As Mr Lewis explained:

… it definitely made me think twice about what I took to Harry and – and what I challenged with Harry, and as a result I would say to myself, well, you know what, it’s probably better to ask for forgiveness than for permission with some of these things, so I just – I just did, and fortunately some of them didn’t come up so I didn’t have to explain myself or ask for forgiveness, and I could go home at night thinking, yes, I made a good call on that one. But I just didn’t think the business was making good calls or Harry.

[Ms Sharp SC] And you didn’t feel that there were other people with whom you could raise these issues aside from the people you’ve identified? [Mr Lewis] Yes – no, I – I didn’t really trust anyone until – so Mario I trusted. I think he was great. ... And throughout that time, then, I didn’t trust my peer who was the student success team manager. I didn’t trust Nidhi, I didn’t trust Harry obviously. Ivan was just somebody that you wouldn’t even go towards – go near. You know, Maria [Spiteri] was close to Harry, you know, like I would have to escalate things through her sometimes but I still didn’t feel I could trust her. It was only until Brett [Head of HR] came along did I feel that we had somebody who was actually going to listen and take some action, which I felt that he did but it was too little too late.171

8.3    The groups within CTI undertaking enrolments (the CRM Team, the Data Team, the Phone Team, and the Course Trainers)

318    Within CTI, there were four main groups undertaking the enrolment of consumers in Phoenix Online Courses when Ms Mason commenced her employment with CTI on 13 February 2015.

319    The first group was the Client Relationship Management Team. Ms Mason explained that:

One of the main functions of the CRM Team was to monitor, liaise and engage with third parties (brokers) selling or marketing Phoenix courses. This included liaising with brokers and receiving completed course applications from them. I understood the brokers were the organisations and people who sold the courses to prospective students and collected their course applications. The client relationship managers reported to the manager of the CRM Team (who in turn reported to Harry Kochhar).172

320    As Ms Mason also explained, this team was responsible “for making sure they [ie the Brokers] were doing the right thing, setting up the expectations and liaising directly with them.173 Initially, Ms Karlie Arnold was the manager of that team but Mario Cugliandro took over that position when Ms Arnold took maternity leave.174

321    The second group was the Data and Quality team (Data Team). As the Data and Quality Manager, Ms Mason was responsible for management of the Data Team. This team was initially comprised of 19 personnel, including three staff trained to enrol consumers in the VET FEE-HELP system which oversaw seven RTOs including Phoenix. In time, the Data Team increased to 36 personnel, including five to six staff within the ACN group who were trained to enrol consumers within the FEE-HELP system.175 In this regard, when Ms Mason joined CTI the Data Team had three staff permanently dedicated to processing Phoenix enrolments which had increased to six permanent staff by the time Ms Mason left in July 2015.176 The number of additional staff dedicated to processing Phoenix enrolments increased from time to time depending on the number of applications and directions from senior staff members.177

322    The Data Team was responsible for the following tasks:

(1)    receiving enrolment packs for each student provided by Brokers to their client relationship managers (although initially the Data Team received the application forms directly from the Brokers);

(2)    checking whether the enrolment packs were completed correctly and all of the necessary information had been provided;

(3)    entering student enrolment data into CTI’s student management system, Wise.NET;

(4)    processing cancellations of enrolments or courses;

(5)    entering the student data into the Higher Education Information Management System (HEIMS), which informed the Department of a student’s enrolment into a course;

(6)    transferring the enrolled student into the FinPa learning management system, being Phoenix’s online database by which enrolled consumers could access their learning materials and submit assessments online for marking; and

(7)    sending out Commonwealth Assistance Notices (CANs) to consumers who had been successfully enrolled after the relevant census date had passed.178

323    The third group within CTI concerned with enrolling consumers in Phoenix Online Courses was the phone verification team (the Phone Team). This group had responsibility for calling the consumers identified on application forms which had been received by Phoenix. Management of the Phone Team changed in the middle of 2015. Le Quan Dien was the Student Support & Enquiry Team Leader in the Phone Team at CTI until she resigned in about June 2015.179 Ms Mason’s time with CTI overlapped with that of Ms Dien and Ms Mason worked closely with this group until her resignation in July 2015, speaking several times a day in particular with Ms Dien.180 Subsequently, Mr Lewis joined CTI in August 2015 and commenced as the Contact (Phone) Centre Manager where he remained until February 2016. In that role, Mr Lewis supervised a team of fourteen staff members, whose responsibility it was to conduct the student verification calls.181 As such, the Contact Centre was primarily an outbound call centre even though it had the capacity to receive inbound calls.182 The Phone Team worked in a room next door to the Data Team on the third floor of the Spotswood Offices.183

324    The fourth group within CTI consisted of the course trainers and assessors who were located in the Broadmeadows office. Their role in the enrolment process was to assess and mark the language, literacy, and numeracy tests that CTI received at the Spotswood office as part of the enrolment packs. However, as I later explain, during the period that Ms Mason was at CTI, she only ever observed the course trainers attending the Spotswood office twice to mark LLN tests.184 She also estimated that at best only 20 to 30% of LLNs were marked by assessors before the consumers were entered into the systems.185

8.4    The tasks undertaken by each group within CTI

8.4.1    Receipt of the enrolment packs and verification of student enrolment data by the Data Team

325    From at least mid-February 2015 when Ms Mason commenced working at CTI, there was a process for the enrolment of consumers.186 The Data Team received the enrolment forms, often in bulk, directly from the Brokers or from one of their Agents or sometimes by mail.187 From late March or early April 2015, the Brokers gave the forms directly to the CRM Team to check against the Broker’s student list which then forwarded the forms to the Data Team.188 The enrolment forms included the following documentation:189

(1)    the student course application forms;

(2)    the PTR, being a series of questions for the student about the kind of course the student wanted to do, their understanding about the course, and why they wanted to enrol; 190

(3)    LLN test sheets;

(4)    the request for Commonwealth Assistance Form/CAF;

(5)    after 1 April 2015, a laptop loan application or rejection form; and

(6)    a copy of federal or state issued identification.

326    As I have mentioned, the Data Team were responsible for verifying student enrolment data for consumers enrolled into online learning courses including the Phoenix Online Courses.

327    In order to facilitate the verification process, Ms Mason developed what was referred to as a VET FEE-HELP checklist which was provided to members of the Data Team.191 While there were a number of iterations of the form during Ms Mason’s time with CTI, the checklists comprised a series of tick-a-box questions about whether a student had photographic identification, proof of citizenship, and had completed the request for Commonwealth Assistance Form, the PTR and LLN forms, and the student application form.192 Ms Mason instructed the Data Team members that where these forms were missing a piece of information such as a date of birth, the team member was to complete the form with information already provided by the student elsewhere on the application forms or on their identification. Alternatively, Data Team members or Phone Team members were instructed to contact the student directly by phone to request the information in question. However, if the application was missing a lot of information and could not be completed, then it was to be rejected and the forms given back to the Broker.193

328    As an aspect of this process, the Data Team would check the PTR forms against the requirements in the VET FEE-HELP regulations. However, the Data Team did not have the qualifications to mark the LLN tests. These had to be assessed by appropriately qualified assessors. As Ms Mason explained:

So a student couldn’t access a student loan because they wanted to do a course out of interest. They had to want to have an occupational outcome of it and there were specific questions that the government mandated to that effect. So if a question on a form didn’t meet that requirement my team could refuse that. However, the LLNs my team couldn’t mark those. To mark an LLN, although there’s no – there wasn’t any strict mandate on those requirements back then than there is today, generally it should be done by an assessor, and it should be done by someone who is – had good English and is literate. So all of the members of my team were literate but they weren’t assessors, and by an assessor that means that they must hold either the assessment units within the Certificate IV Training and Assessment qualification or they actually hold the Cert IV in Training and Assessment which was known then as the – either the TAE or the TAA, depending on which version. My team weren’t – they weren’t assessors, nor [were] they trained in that, and for many of them English wasn’t their first language, and so it wouldn’t necessarily be appropriate from a – although they were literate and they could do their jobs, they had sufficient English to be able to transcribe information from a form into a database, it doesn’t mean that they had enough English to be able to assess an LLN.194

8.4.2    Assessment and marking of LLN tests by the course trainers at Broadmeadows

329    Where an application for enrolment passed the VET FEE-HELP checklist, the next step which should have occurred was the assessment and marking of the LLN tests by course trainers. However, the course trainers were based at Broadmeadows.195 Ms Mason gave emphatic evidence both that it would have been inappropriate for the files to have been sent away to be marked and that they never in fact left the Spotswood office to be sent for marking at Broadmeadows.196 Nor, aside from a small number of occasions, did course trainers attend Spotswood to mark the LLN tests. In this regard, Ms Mason explained that trainers only ever came down from the Broadmeadows office twice during her time at CTI to help mark the tests, and as a result there was “a large backlog of unmarked LLN tests”.197

330    Eventually in mid-2015, a trainer was appointed based at Spotswood to mark LLN tests but he worked only three days a week and had other responsibilities.198 As a result, Ms Mason explained that “many LLN tests were never checked or marked, but students were nevertheless enrolled into Phoenix courses”.199 In her oral evidence, Ms Mason estimated that between 70 to 80% (and possibly higher) of the LLN tests were not marked by assessors before the consumers were entered into the systems.200-

8.4.3    Phone Group to call individual consumers

331    Once the Data Team had completed checking an application, it was typically passed on to the Phone Group which was tasked with calling each individual student,201 although the order later changed so that the telephone verification was to occur first, followed by the quality assurance process undertaken by the Data Team.202 Ms Mason (who, it will be recalled, was at CTI until July 2015) explained that the Phone Group:

… would then ring to confirm that the person had, in fact, completed the forms themselves and actually did want to be enrolled and also to make sure that they were aware that they were entering into a loan agreement.203

332    Mr Lewis (who commenced in August 2015 and was the Contact (Phone) Centre Manager) explained the process of calling potential students from that time as follows:

6. Edna Chakrabarty, Manoj Jacob and Olivia Uka, three of the team members I supervised, showed me the process that they undertook in calling potential students. The details from a potential student’s application form were filled out by a separate data team onto a software system called “Podio”. The application forms were then given to the phones team, for which I was responsible. A member of the phones team took an application form, found the matching student record on Podio, and called the potential student to whom that form belonged to confirm details including the potential student’s name, address and email address.

7. The team member then asked a series of “yes or no” questions from a script, including whether the potential student had access to the internet, whether the potential student had completed their enrolment forms themselves, whether the potential student wanted to proceed to enrolment into the course/s for which he or she had applied. If a potential student answered “yes” to each of the qualifying questions then that student’s status was updated on Podio to “confirmed” for each course for which he or she had applied.

8. My colleagues and I placed potential students’ forms into piles in the following categories:

(a)    Potential students yet to be called (first call);

(b)    Potential students for whom one unsuccessful contact attempt had been made (second call);

(c)    Potential students for whom two unsuccessful contact attempts had been made (third call);

(d)    Potential students for whom three unsuccessful contact attempts had been made (uncontactable forms);

(e)    Potential students who had been contacted but had either said they were not interested in continuing to enrolment, or [regarding] whom the members of the phones team had determined [they] should not proceed (cancelled forms);

(f)    Potential students who answered “yes” to each qualifying question and indicated to the phones team that they wished to proceed to enrolment (confirmed forms).204

333    The scripts referred to by Mr Lewis were supplied by Nidhi Bagga, and Mr Lewis had little input into the scripts, aside from making suggestions primarily concerning disabilities which stemmed from Olivia Euka (who managed the applications made by consumers who identified as having a disability).205 Podio was described by Mr Lewis as a “customer relationship tool” which recorded interactions with potential students, their contact details, and the outcomes of any conversations with them.206

334    Mr Lewis explained that each day he or one of his senior team members would allocate a stack of forms from the first, second and third call categories to each of the phone team members and instruct them to call the potential students in the forms given to them on that day.207

335    Finally, Mr Lewis passed the completed forms on to the Data Team then led by Mr Sunny Banga.208

8.4.4    The final steps in the enrolment process by the Data Team

336    As to the final steps in the enrolment process, Ms Mason explained as follows.209

(1)    Following telephone verification, the application form was to be returned to the Data Team which undertook a final check against the VET FEE-HELP checklist for any errors or missing information.

(2)    The student’s application and personal information was then individually uploaded to the Wise.NET student management system following which each applicant was then enrolled into the relevant course on Wise.NET, either individually or in bulk.

(3)    The number of students enrolled in Wise.NET each week ranged from 200 to 2,000 students, with the team routinely enrolling up to 1,000 students per week. If one team within the Data Team required additional staff to upload more students into Wise.NET for a particular college, then other members of the Data Team would assist.

(4)    The Data Team members who were trained to enrol students for VET FEE-HELP assistance, extracted the Wise.NET data of those students and uploaded the information onto the Higher Education Client Assistance Tool (HEPCAT) managed by the DET. This occurred monthly and was necessary only in the case of students receiving VET FEE-HELP. 210 HEPCAT then gave the Wise.NET student data a final independent check or “datawash” before it validated the application for VET FEE-HELP. HEPCAT would reject an application if it had missing or invalid data such as an invalid TFN.

(5)    The validated data was uploaded to the HEIMS database maintained by the Department.

(6)    Ms Mason then directed the students’ details to be entered in bulk onto the FinPa learning database which permitted the student to access and complete their course online. It was at this point that Ms Mason described the students as “officially enrolled”.211 As Ms Mason explained, in essence we “pulled a report out of Wise.NET. We had to modify that report a little bit because FinPa was a fairly unsophisticated system and then we would upload. So basically it pulled out … [t]heir student ID and then it uploaded them and then you assign them into the courses – the relevant courses that they were enrolled in.”212 Importantly, for reasons that are later apparent, all log-in history and student course completion progress was automatically recorded and managed through FinPa.

(7)    Finally, Ms Mason would direct the Data Team to send the student a Commonwealth Assistance Notice within 28 days of the VET FEE-HELP census date to inform them of the loan amount for that census date. Initially, there were three census dates so that three CANs were sent. However, in March 2015, this was changed to two census dates as a consequence of which two CANs were issued after that time.

337    Once the students were enrolled, the enrolment forms were archived by CTI in several rooms within its Spotswood office213 and the students were handed over to the team overseen by Ms Nidhi Bagga.214

8.5    Ms Blefari’s evidence about non-compliance with RTO standards

8.5.1    Non-compliance with RTO standards in recruitment practices and completion of enrolment forms

338    During her time as a Group Compliance Manager, Ms Blefari had serious concerns about the respondents’ compliance with the RTO standards in a number of significant respects.

339    First, Ms Blefari had concerns as to whether or not Phoenix was accurately reporting all of the Brokers who were representing it in recruiting consumers,215 despite it being a requirement (at least from 1 July 2015) that Phoenix identify to ASQA those Brokers representing it. She said that “it was very hazy about how the structure worked and who they [ie the Brokers and Agents] were actually assigned to”.216

340    Secondly, Ms Blefari had concerns about the number and quality of the Brokers and Agents. She shared Ms Mason’s concerns about the significant number of applications submitted by Brokers every week completed in the same handwriting, as I later explain. Ms Mason frequently called Ms Blefari to raise her concerns about the enrolment bundles received by her administration team for prospective Phoenix students including enrolment forms which had not been filled in correctly and similarities in the handwriting on the forms allegedly completed by different students.217

341    On a couple of occasions (including in March 2015), Ms Blefari asked Ms Mason to provide her with a random sample of 10 to 15 Phoenix student enrolment bundles for enrolled students from the rooms in which the archived enrolment bundles were stored.218 On examining those bundles, Ms Blefari reached the view that approximately 50% of the bundles viewed did not comply with the RTO standards in various respects including that:

(a) the students had not ticked some of the boxes on the enrolment forms that they were required to tick; and/or

(b) there was some other data missing from the students enrolment forms, such as the student not filling out the course code for the courses into which they intended to enrol, or giving what appeared to me to be a preferred name rather than their legal name; and/or

(c) the information on the student’s PTR forms did not satisfy me that the student was capable of undertaking the level of study into which they had sought enrolment.219

342    As to the last of these matters, Ms Blefari referred to the requirement that a RTO assess each student’s ability to conduct the course into which she or he had enrolled, as well as the time and level of support that a student would require in order to complete their chosen course or courses. Yet on most of the PTR forms which she examined, she found that:

(1)    very short and simple answers were given to most questions of a few words in length despite the space allocated on the form for answers;

(2)    the students’ highest level of educational attainment was year 10 or below;

(3)    the students had disclosed that they were unemployed;

(4)    in answer to the question about their prior relevant work experience, almost all students wrote “none despite a Diploma of Business or Management, for example, being an advanced course usually undertaken by individuals with some experience in either management or in the supervision of others in a work environment (as I have earlier explained); and

(5)    the students answered “no” to the question about whether they had access to a computer or the internet.220

343    Indeed, as to the second point, Ms Blefari could not recall seeing a single application where the student’s highest level of educational attainment exceeded year 10, despite seeing applications almost on a daily basis.221 She also recalled seeing applications from consumers who had not progressed in their schooling beyond years 8 or 9, and explained that most of the applications were by consumers from non-English speaking backgrounds.222 The latter is supported by the contemporaneous internal documents. For example, in an email from Ms Bagga to Mr Kurt Walters at CTI, Ms Bagga requested that:

Inform Leigh, Laila etc of the same and make sure this is done without waste of time and drama by any trainer.

These students speak diff language and I would prefer Vijay [Dasam] to assist them.223

344    The attached student list recorded some 164 consumers.224

345    Another issue observed by Ms Blefari was that some prospective students were significantly older than students she had seen undertake similar diploma courses in the past, including at least one student who was older than 70 and a number of other forms suggesting that the students were in their 60s.225

346    Ms Blefari spoke with Mr Kochhar a number of times alerting him to the fact that Agents were presenting forms for enrolment into Phoenix courses which she did not believe complied with the RTO Standards. Mr Kochhar would simply respond along the lines of “do not worry about that”, “do not bring these things up”, “do not worry about it, I will deal with it”, or “that is not your concern. Marie [Vassallo] is looking after that.”226 Ms Blefari also sent emails to Mr Kochhar copied to Mr Brown at least two or three times a week detailing areas of non-compliance within Phoenix.227 However, she never received any responses to those emails from Mr Brown and, while Mr Kochhar did not respond by email, he would frequently ask Ms Blefari to see him in his office about the issue. Again his response was that Ms Blefari should not worry about anything to do with Phoenix and that Ms Vassallo would deal with Phoenix.228 Notwithstanding Mr Kochhar’s reassurances, the issues were not resolved and Ms Blefari continued to see forms raising the same compliance issues.229 Indeed, at one meeting called by Mr Kochhar with the team leaders of CTI, he told Ms Blefari, in effect, that “I do not want to keep hearing about these non-compliances. You are just wasting my time and complicating things.”230

347    Eventually, in about August 2015, Ms Mason and Ms Blefari decided that they should send back non-compliant student enrolment bundles to the recruitment agents. They met with Mr Peter Vogel, who was the Head of Sales and Marketing, and directed that forms which were not properly completed be sent back,231 leaving him with a large stack of about 40 to 50 enrolment papers which were incomplete or faulty in order to demonstrate the problem.232 Shortly thereafter, Mr Kochhar called Ms Blefari into his office, saying in an angry and aggressive fashion words to the effect of, “[w]hat do you think you’re fucking doing sending these forms back? What gives you the right to send these back to the salespeople?233

348    Thirdly, Ms Blefari was concerned at reports by Ms Bagga, the Operations Manager for Phoenix, that the unit of competency completion rates for Phoenix students was around only 1% to 2%.234 Ms Blefari interviewed the trainers at Phoenix in order to understand why this was the case, being advised that they could not contact many of the students, in line with the explanation given by Ms Bagga.235 Ms Blefari also raised her concerns about completion rates with Mr Kochhar.236 While this should have sent “alarm bells ringing” that something was seriously wrong with the respondents’ recruitment and enrolment systems, nothing was done to investigate or remedy the problem by the respondents.

349    As I explain later, the types of issues in the recruitment processes engaged in by Brokers to which Ms Blefari referred were also raised time and time again by complaints received by Phoenix and government agencies following its acquisition by ACN. I refer to examples of these in Chapter 10 in the course of explaining the chronology of events. By way of example, in early 2016, the DET received information from the Western Australian police that Phoenix representatives were unlawfully entering Indigenous lands in the Kimberley region of Western Australia and seeking to enrol people with Phoenix in VET FEE-HELP courses.237 Based on this information, Departmental officers went to the Kimberley region to verify this information. Departmental officers also conducted investigations in Perth in Western Australia in late February 2016 and in Dubbo, NSW, in May 2016 based on a number of complaints relating to Broker activities. During the course of those investigations, the DET obtained statutory declarations from Indigenous consumers in those regions who were enrolled in Phoenix courses.238 Their declarations repeat the themes already the subject of voluminous complaints described earlier, including that:

(1)    all of the consumers were offered either a laptop and/or money to sign up for a VET FEE-HELP course;

(2)    17 of the consumers were enrolled in two separate courses;

(3)    none of the consumers had commenced any study;

(4)    of the 10 consumers who gave information about their highest level of schooling, eight had completed only year 9 or year 10, one had completed year 8, and one had completed year 11;

(5)    in most cases, the Broker provided answers for the enrolment verification call with the RTO;

(6)    in most cases the student was not informed of the VET FEE-HELP loan scheme or about the course fees; and

(7)    of the 10 consumers who addressed the issue, nine had no internet access and one had internet access only via mobile phone.239

350    Indeed, Consumer JE gave evidence about her conversation with an Agent for Phoenix signing up Aboriginal people in Dubbo over a number of days in July and August 2015 who asked her to take him around because “I need to sign up 10 people”. When she asked him, “Why don’t you sign up white fellas instead of Aboriginals?”, he responded with words to the effect of “[b]ecause we only want to sign up Aboriginal people that you know.240

8.5.2    Ms Blefari required to restrict information in her compliance reports to the ACN Board

351    Ms Blefari explained that, as Group Compliance Manager, she was required to prepare a document updating the ACN Board at its monthly meetings on the compliance status of each of ACN’s RTOs. The first couple of compliance reports which she submitted set out the compliance issues that had been identified for each of ACN’s RTOs including Phoenix. On these occasions, Mr Brown’s personal assistant, Erin, returned Ms Blefari’s reports to be re-drafted with instructions no doubt conveyed at Mr Brown’s direction, to the effect of “[y]our reports are too detailed. You need to make these much shorter and more general.241 Thereafter, when Ms Blefari reported to the Board that ACN’s RTOs including Phoenix had ongoing ASQA compliance issues, Ms Blefari did not specify what the issues were but would simply report something along the lines of “[t]he compliance team is currently engaging with Phoenix to address some issues with its compliance with the ASQA Standards.”242 In this regard, even though Ms Blefari explained that she felt it was important to provide detail about compliance issues to the Board, she did not feel that she had any choice but to abbreviate her reports. As she explained:

… it was very difficult to argue a point with – with management – with Harry, so it was much easier just to – to go with the flow … Although, that is what my job was – compliance. He was not interested in that detail. Just, you know, get to the point and make it easy … It was easier to go with the flow and get the job done and move on to more – other compliance issues that we had in other RTO[s] than to argue the point, because the argument would not go in my favour … Harry could be aggressive with his language. So … So it was easier to stop and just go along with what the request was.243

352    As she also later explained in her oral evidence, “I was very restricted at CTI. It was a very different environment from a compliance point of view, because RTOs – that’s what it’s all about. We’re delivering education, and we must adhere to the standards. So other RTOs understood the importance of it.244

8.5.3    The lack of training for Brokers and Agents

353    A workshop was finally held for Brokers and Agents at Ms Blefari’s insistence in around August 2015 in the offices of an ACN RTO in a suburb north of Melbourne. While the invitation was extended to all Brokers and Agents, only approximately 30 or 40 attended.245 The purpose of the presentation was to ensure that the Brokers and Agents understood exactly what they should be doing from a compliance perspective. However, Ms Blefari was removed from her role shortly after the workshop and was not given a further opportunity to hold another presentation even though she wanted to do so in order to capture more of the Brokers and Agents.

354    The effect of Ms Blefari’s evidence is that this was the only occasion of which she was aware where any compliance training was extended by the respondents or the ACN Group to the Brokers and Agents. Given Ms Blefari’s role up to September 2015 as Group Compliance Officer, if any other training had been provided to them, no doubt she would not only have been aware of the training, but involved in its organisation. Furthermore, the evidence does not suggest that the respondents were aware of the identity of all of the Agents, let alone that they provided any induction or further professional training to them contrary to representations made to the Department in requests to increase advance VET FEE-HELP payments to Phoenix, to the regulators, and in Phoenix’s own Policy Manual.246

8.6    Ex-employees’ evidence as to the volume of enrolments, multiple enrolments, enrolment targets and instructions to defer phone verification, and work placements

355    The sheer volume of student enrolments rendered it effectively impossible for the verification processes to keep pace with the number of students to be enrolled.247 The evidence establishes that Mr Brown and Mr Kochhar were well aware of this but directed the Data and Phone Teams nonetheless to enrol the students, as I explain below.

8.6.1    Weekly targets for enrolment

356    First, Ms Mason explained that Mr Brown regularly gave instructions to her directly and in team meetings as to weekly targets to be met for the enrolment of new students into Phoenix Online Courses. These targets could be as high as 2,000, 4,000, or even 5,000, new enrolments. Often when these directions were given, Mr Brown and sometimes Mr Kochhar told Ms Mason that no one was to go home until the target was reached. 248 Ms Mason expanded on this in her oral evidence in the following passage:

… the first big target was 3000 [enrolment packs] by the end of the month. We were halfway through the month and I think we enrolled maybe 200 at that point. There was one time when they wanted 1000 in by the end of the week. There [were] several times when they wanted 3000 and there was one time when they wanted 5000, and I would say, “We don’t have that many here. We physically don’t have that many. We have entered everything that we have – that we’re able to enter”, and magically files would appear. So on a Monday we might get told that they wanted 3000 by the end of the week, and I would say, “I don’t have 3000 to enter in …

…And then magically in the middle of the week brokers would walk in with boxes and boxes and boxes of them. 249

357    These instructions were given to Ms Mason normally by Mr Brown and generally it was GG Sales who would provide the additional (and unusually high) 1,000 or 3,000 files by the end of the week which Ms Mason’s team used to call the “magic boxes”.250

358    In this regard, Ms Mason overheard conversations from time to time between Mr Brown and Mr Kochhar with Brokers which she described as follows:

So there would sometimes be – so it was very – the nature of them was very [“]palsy[”], lots of slapping on the backs. And there would be conversations like – so Ivan used to use the word “brother”. So he would say, “Brother, I need – I need 1000 in, or I need these in,” so that he – I would overhear them – him giving those instructions to get them in. And they would say, “Sure thing. We’d get those in.”251

359    In answer to a question about the capacity of her team to enrol so many students in a week, Ms Mason explained that:

We had the ability to shuffle people around. So what would – I would get sometimes members of my team to help out with the telephone team to do the verifications, but Le Quan Dien, who was the team leader of the phone team, and I calculated that we could not possibly do that, because she didn’t have enough capacity in her team, even with my team helping out. And then with my team we – we could throw – sometimes we threw every single resource within my team, with the exception of the filing staff, onto entering data. So there were efficiencies within our systems. The quality checks took about 10 minutes to do, so that wasn’t a huge amount of time. And entering them, what they could do was they could enter all the students’ names in and then bulk and roll literally hundreds of students into the relevant courses at a time. And the guys would – there were efficiencies that we found in – to do it. But it was a tough gig, and people were working from 8 o’clock in the morning until midnight some days, and we worked all weekends as well.252

360    Ms Mason also said that on occasions when her team was given enrolment targets of several thousand students, she often saw Mr Kochhar or Mr Brown meet with Broker representatives in the Spotswood office in the middle of the week, and overheard Mr Brown saying things to Brokers to the effect “Brother could you get me a thousand more by the end of the week?253

361    Ms Mason’s evidence as to the setting of high enrolment targets is supported by the documentary evidence.

362    First, on 16 March 2015 Ms Bagga sent an email to staff with the subject matter “This week VFH”, stating relevantly:

We have a target of about 800 enrolments to be punched in the system in the next few days, as confirmed most of you are workin [sic] on Saturday 21/3/2015. The aim [sic] to try and get a hold of all N/A’s and qualify as many as we possibly can.254

363    On Saturday, 21 March 2015, Ms Bagga emailed Ms Dien and others with the subject heading “Plan of action today 21/3/2015 Saturday”.255 In her email, Ms Bagga stated that “[w]e need to call as many people as we possibly can. Target should be a 100% of N/A’s today”. It is apparent from the email that the reference to “N/A’s” is a reference to consumers who had not answered telephone calls or emails from CTI to verify their enrolment. The email also said “[p]lease note that some of the or most of the people that have not answered the phones from LOG 1 will already be on FINPA and wisenet so we need to give them an appropriate spiel.” Ms Bagga further advised “please be mindful of the census dates as it may have way past [sic]. It is clear from this correspondence that even as early as March 2015, consumers had been enrolled in Phoenix Online Courses and incurred a debt to the Commonwealth for VET FEE-HELP assistance by reason of the census date having passed, despite the fact that it had not been possible to contact them in order to confirm their enrolment. The email also provided a script for those who were to be contacted because they had “never logged in”, whereby the caller from the Phone Team was to offer to assist the consumer to log on and explain that the process would only take a couple of minutes.

364    The pressure to press through as many enrolments as possible in accordance with high targets is also evident, for example, from an email sent on 27 May 2015 from Ms Dien to Ms Desiree Smith of myTime Learning (Client Services Team Leader) in relation to “email verification” which Ms Smith in turn forwarded to Ms Bagga. In her email, Ms Dien advised that:

Just letting you know that this week and last week we have a couple of member [sic] from data team helping us to do vet fee help calls.

You will find that a lot of enrolments, emails haven’t been run through kickbox.

Sorry it’s impossible to fully train everyone as we want to push through thousands of enrolments.256

(Emphasis added.)

365    Consistently with this, Mr Kochhar was kept up-to-date with a weekly report of enrolment figures: see eg the email on 18 May 2015 to Mr Kochhar, among others, containing a weekly report of enrolment figures from Mr Yannis Souvan, CTI Data & Quality Team Leader.257 This pressure increased significantly in July 2015 amid expectations that Phoenix was about to be audited by ASQA, with daily reports being given, as I later explain.

366    The pressure to enrol as many students as possible continued into September 2015. In a telling chain of email correspondence commencing with an email dated 31 August 2015, Ms Bagga wrote thanking her team “for your hard work and dedication and most importantly the commitment you have shown all along. Literally burning the mid night [sic] oil.258 The reason for the congratulations is revealed by the response of Mr Souvan on the following day:

Just off the back of Nidhi’s email …

I also want to thank each and every one of you – we truly did an amazing job and exceeded the expectations that were set for us.

If you don’t already know, with the confirmations that came through from the call centre and the data entry that was completed, we ended up enrolling just over 1200 students in only 2 days!

Awesome work!259

(Emphasis in the original.)

367    Finally, an example of the Brokers setting high targets can be found in the StudyNet 20 Week Sales Plan to sign up 1,275 consumers.260

8.6.2    Inability to process and verify all of the applications and instructions nonetheless to enrol the consumers

368    Secondly, I accept, as Ms Mason explained, that when such targets were set, it was difficult for the Data Team to process the applications and (as I explain below) impossible for the Phone Team to make all of the verification calls within the specified timeframes. On the first few occasions when the teams were directed to enrol thousands of students in a week, Ms Mason raised these issues with Mr Brown. However, he responded to her and Mr Banga (a Team Leader in the Data Team) with words to the effect of “[j]ust enrol the students. The phone verification can come later261 thereby directly instructing staff to bypass critical safeguards intended to ensure that consumers were only enrolled if eligible and the courses were suitable for them. Ms Mason did as she was instructed and did not refer those students to the Phone Team for verification, instead arranging for them to be input directly into Wise.NET, HEPCAT, HEIMS, and lastly, FinPa.262

369    Ms Mason was also informed by Ms Dien that Mr Brown and sometimes Mr Kochhar had instructed Ms Dien not to do phone verifications for those students but just to enrol them, and overheard instructions to Ms Dien to this effect given by Mr Brown and Mr Kochhar.263 These instructions related to verifications for particular Brokers being the Shantey Group, the SM Group, 1-2-3, and GG Sales.264 When Ms Mason raised these instructions with Mr Kochhar and Mr Brown, she was told to enter the students in the system despite the failure to verify them.265

370    Based upon the number of staff members in the Phone Team (three to six people), the average length of each phone call, and the number of times each staff member could make a call between 9:00am to 5:00pm (and later 10:00am to 7:00pm) during the business week, Ms Mason calculated with Ms Dien that:

(1)    at best, a maximum of about 150 students per day could be verified by the Phone Team by telephone; whereas,

(2)    in order to meet, for example, a target of 5,000 enrolments, the Phone Team would have had to verify up to 850 students a day.

371    It follows that it was impossible for CTI to enrol several thousand consumers within a week if it was to follow all of the verification and checking processes.266

8.6.3    Instructions not to verify applications from particular Brokers

372    Ms Mason also refers to an incident in March 2015 where she was advised by Ms Dien that she had been instructed by Mr Brown not to ring any students from a particular Broker because they did not understand English. As a result, Ms Mason spoke with Mr Brown expressing her concerns about the fact that CTI was not ringing the students because of their lack of English. Mr Brown, however, responded they were all elderly Chinese people from a Chinese community centre who only wanted the free laptop and did not intend to study, and said “just enrol them.” Ms Mason then enrolled them as instructed.267 Again, instructions were given directly by Mr Brown to bypass safeguards in place to protect the interests of consumers in line with Phoenix’s obligations under the VET FEE-HELP scheme. Regrettably, the provision of instructions of this kind by Mr Brown and Mr Kochhar emerges as a recurrent theme from the evidence.

373    Mr Lewis who commenced as the Contact (Phone) Centre Manager for CTI shortly after Ms Mason left, also referred to instructions given to him regularly by Mr Kochhar to enter forms into the system as confirmed without calling the consumers to verify their applications for enrolment. Specifically, he said that:

20. In the first few days after I commenced working at CTI, Mario Cugliandro said to me words to the following effect:

Harry will often come in with a bunch of applications that he wants entered into the system as confirmed, but without calling them.

21. Sometime during August, approximately 1-2 weeks after I started working for CTI, Harry Kochhar called me into his office and handed me a pile of several dozen application forms. Harry said to me words to the following effect:

I need you to enter these forms into the system as confirmed, but do not worry about calling them. I am going to do this from time to time, just do it and don’t ask questions.

22. I took those forms from Harry and gave them to one of the members of my team and said to them words to the following effect:

Don’t bother about calling these, just mark them off in Podio as having been confirmed.

23. Harry gave me piles of application forms approximately every one to 2 weeks with the instruction that the forms were to be entered into Podio as “confirmed” without being called. The practice continued until Phoenix’s registration to operate as an RTO was suspended. On each occasion I gave the pile of forms to one of my team members and requested that the student should be entered as “confirmed” into Podio without calling them.268

374    Early on in his employment at CTI, Mr Lewis raised his concerns about enrolling students without calling them, to which Mr Kochhar responded “[d]on’t fucking ask questions. Just fucking do it.”269

375    Mr Lewis also said that the enrolment forms that he was asked to enter without telephone verification frequently emanated from the Broker, Gagan. While Mr Lewis never spoke directly with Gagan, he saw Gagan attending the Spotswood premises on roughly three occasions in the last six-month period of Mr Lewis’ employment with CTI. This included an occasion around December 2015, on which Mr Lewis, on Mr Kochhar’s instructions, collected several boxes of the uncontactable and cancelled forms for loading into Gagan’s car (as I later explain).

376    After Phoenix lost its accreditation, the Phone Team was advised that everything they were doing had to cease “[s]o we could no longer make any calls to any forms that we might have stockpiled, or any forms that were in a first, second or third call pile, and we had to cease any calls that – for any of those, or any new ones that came in – any new applications that came in.”270 Nonetheless, those applications which had not yet been confirmed were input into the system by the Data Team and still handed to the Phone Team, even though the Phone Team could not call the consumers to verify their applications. As such, Mr Lewis explained that “[t]hey just sat on and – and piled up on our shelves.”271 A couple of weeks later, the Phone Team was split into different roles and Mr Lewis was instructed to report to Ms Bagga and Ms Maria Spiteri, Mr Kochhar’s personal assistant, with other team members being moved to a different location and given the task of calling consumers who had been enrolled but had not logged in to their study portal or completed any work “to see what’s holding them back from actually logging in and – and starting their studies.272 They were also instructed to tell the students about “a series of ‘roadshow’ events around the country where those students can go to meet with some trainers and get through the first couple of modules in their courses. You can tell the students that if they do that then they will get a gift voucher273: see further Section [10.18.4] “The “never logged-in reach out” campaign”.

377    Email correspondence in April 2015 corroborates the evidence of ex-employees that enrolment verification procedures were bypassed, and that this was done with Mr Kochhar’s knowledge and at his direction.

378    For example, on 13 April 2015, the Enrolment Officer at CTI, Ms Celine Hong, sent an email, among others, to Ms Dien (copied to Ms Bagga) under the subject heading “VFH Calls – 313” stating:

Just to let you know, by request of Harry I have forwarded all 313 enrolments to the data team (with the exception of withdrawals). It is not necessary to phone them any further as they will be enrolled.274

379    It is evident that the reference to “313” is a reference to 313 Services, which was one of the Brokers engaged by the respondents.

380    Furthermore, on 14 April 2015, Ms Dien circulated an email to members of her team in which she noted that:

Recently, we have been asked to put through quite a few enrolments to data team without qualifying the students.

When this happens, we will need to update our spreadsheet accordingly, change the form location, highlight colour especially in the comment column we need to note that we were advised to put these enrolments through by (Ivan/Harry) without qualifying initial your name, date and time … So that in the future, if something happens, we can always go back and explain ourselves. If anyone other than Harry and Ivan ask us to put through the enrolments without qualifying, we will need to verify with them that this has been approved by Harry.275

381    Later that day, Mr Banga, Data & Quality Team Leader276 at CTI, emailed Mr Kochhar and stated, “[a]s requested, attached is a list of students that you approved for enrolment even though these were not contacted for some reason”.277 Mr Kochhar forwarded this to Ms Bagga a little later that day saying that he would explain it tomorrow. Ms Bagga replied on 17 April 2015

Sure thing.

I hope these are the Not to contact students cos I heard one of the trainers saying the name Ursala[ ](the first one on the list) out loud.

382    In response Mr Kochhar replied “[h]ence we had a conversation yesterday.”

383    Furthermore, internal email correspondence suggests that consumers were enrolled despite unsuccessful attempts before or after enrolment to contact them. For example, in an email on 5 June 2015, Ms Dien forwarded the “uncontactable spreadsheet”.278 In forwarding the spreadsheet to Ms Bagga, ostensibly on Mr Kochhar’s instructions, Ms Dien subsequently advised Ms Bagga on 9 June 2015 that these were the “[g]roup 4 students [who] are uncontactable but have been enrolled”.

8.6.4    Applications for multiple diplomas

384    Thirdly, both Ms Mason and Ms Blefari gave evidence that the vast bulk of applications throughout the relevant period were for dual diplomas.279 No instructions were ever given to Ms Mason not to enrol students in dual diplomas despite the fact that all of the Online Courses offered by Phoenix had an equivalent EFTSL of 1.0. To the contrary, Ms Mason recalled frequently hearing Mr Brown ask Brokers whether they had enrolled “singles or doubles” in discussions about how many students the Broker had enrolled – the reference to “singles” being to students enrolled in single courses, and doubles being to those enrolled in double courses.280 If the Broker said mostly doubles, Mr Brown typically responded along the lines of “[g]ood work brother”, “that’s great work brother” or “well done brother”.281 She also recalled overhearing Mr Brown and Mr Kochhar discuss the question of multiple enrolments:

[Ms Sharp SC] Did you ever have the opportunity to observe any discussions between Mr Brown or Mr Kochhar and the brokers in relation to multiple diploma enrolments?---[Ms Mason] Yes. So it was usually – if they were bringing things into our area, the conversations were usually, “How many have you got? Are they singles or doubles?” Singles was one – an enrolment for one course and doubles was a student that was being enrolled into two courses. At the start, there were also triples and quadruples, which I had an issue with, because that just doesn’t seem fair or possible for a student to complete four Certificate IV – sorry – four diploma level courses within a six to 12 month period. 282

385    As referred to at the end of this passage from her evidence, Ms Mason also saw instances of applications for three or four diplomas to be undertaken by a single student over the same period of time. Initially, while Mr Brown and Mr Kochhar told Ms Mason to “[p]ut them through”, Ms Mason declined to follow those instructions, finding reasons not to process part or all of these applications (such as a lack of appropriate identification).283 Eventually, she raised the issue with Mr Kochhar telling him that it was impossible for a student to complete four diploma courses at once, and he accepted that they should be rejected from then on. Ms Mason then directed the Data Team to advise her if they received any applications for more than two enrolments and never to enrol students into three or more diplomas at the same time.284

386    In this regard, an email from Mr Phillip Bevan (one of two external consultants engaged by CTI on compliance issues) on 5 June 2015 specifically warned Mr Kochhar (and Ms Bagga) about the duration of a “VET Unit of Study” in cases where consumers were enrolled in double diplomas. He pointed out that “[w]here double qualifications are being undertaken by students, ACN should be particularly mindful of these durations, as the study load of the student has effectively doubled”. As such, Mr Bevan emphasised that students undertaking double diplomas “may well be under significant pressure from a volume of learning perspective and explained that “it would be a potential audit argument that ACN is in breach of Volume of learning requirements, evidenced by the percentage of students who do not complete their UoS [(units of study)] on schedule. This will be compounded in cases where students are progressed onto subsequent VET Units of Study without completing the previous one [and thereby incur further debt].285

387    The extent of enrolments in double diplomas was discussed in an email from Ms Bagga to Mr Kochhar on 27 August 2015. In the email, Ms Bagga pointed out that FinPa was not set up to release units in two diplomas after students were enrolled which therefore required manual processing, thereby increasing the burden on her team. In this context, Ms Bagga explained that “[m]ost of” Phoenix’s students “enrol in double diplomas”, and indeed, “95-97% [of] students are double dips”.286

8.6.5    High enrolments in the Diplomas of Community Services and Early Childhood Education and Care despite the impossibility of providing work placements

388    Fourthly, Ms Mason observed that about 4,000 students were enrolled in the Diploma of Community Services, which required the completion of a work placement to pass the course.287 As she explained in her evidence:

84. During my work at CTI, I checked the 12,000 students on FinPa and I saw at least 4,000 students were enrolled into a Diploma of Community Services. I was aware that each student would need to complete a work placement to pass that course. I thought “how can 4,000 students enrolled in the Diploma of Community Services find that that many community service work placements?”288

389    Ms Mason raised her concerns about the viability of finding work placements for all of these students with Ms Bagga, explaining that even if, as Ms Bagga suggested, the students would have to find their own work placements, CTI would still have to inspect every workplace for its suitability and document the inspection in a workplace inspection form.289 Yet Ms Mason never saw any workplace agreements or inspection reports.290 Similarly, when Ms Mason raised the matter with Mr Kochhar, he “pretty much told me to keep my nose out of it.291

390    Ms Mason expanded upon the practical difficulties which enrolling so many students in courses requiring work placements caused in her oral evidence and the response of senior management when she raised these difficulties with them:

… there are two broad methods of work placements for RTOs. One is – actually, there’s three. So one is that people are already employed and they’re in the work placement. Or, two, that you as an organisation have agreements with other organisations to do work placements. So normally what would happen is if you’re in Melbourne and you’re delivering that course, you would have agreements with various child care centres to send students to. And the workplaces have already been vetted and they’ve vetted you as a provider of quality education. The third one is that the students have to find their own placements. So Nidhi [Bagga] told me that all the students had to find their own placements. There is a requirement under the RTO Regulations and I think there were the AQTF 2011 Standards at the time and they changed over to the ones that you mentioned before, the AQTF – sorry, to the RTO Regulations 2015. But there was a requirement that for work placements that you as the RTO are responsible to ensure that that workplace can actually provide the relevant work experience that the student needs. So that means you actually have to inspect the workplace in an audit. As – in an audit, auditors will actually ask to see the agreement. They will – that you have to sign an agreement with the workplace and with the student that by [sic] all parties agree to. And you also have to have inspected the workplace. So, for example, if you’re doing hospitality, you know, they have to have ovens, gas cook stoves, fridges, freezers, all that kind of stuff. So if you’re a bar, you have to have [a] minimum number of requirements. And if you’re a child – early child care centre, you have to have things like a kitchen, you have to have classrooms, you have to have sleep rooms. You have to have, you know, a certain number of toilets. All these things that would make the workplace suitable for work experience students. If a workplace can’t provide all of those things, then you can’t – either can’t put the student there or you can put the student there for the experiences that they can provide and you send them to somewhere else. So sometimes that happens in nursing where a student might – the hospital that they’re going to, if it’s a country hospital, might not have a geriatric section, so they might have to go into a bigger hospital to do work experience in geriatric care. There was not one single inspection form that came my way. Now, they wouldn’t necessarily come my way. They should have been – they probably should have gone Nidhi’s way. I said, “You understand that we have to inspect them personally?” She said, “Yes.” I said, “Do you have the capacity to fly people around the country to do these inspections?” She goes, “Don’t worry about that. That’s my concern.” I said – and I raised several times – I said, “I haven’t received any, you know, agreements. They should come and live with the students’ files.” “Yes, yes. They will. They will.” I said, “Do you have the forms set up?” And there was kind of a non-answer. And I raised it with Harry. … But I saw no evidence that anyone ever did any work experience and that there [were] no agreements in place.292

(Emphasis added.)

391    Ms Mason referred by way of illustration to an incident where one Broker submitted a batch of applications from 180 consumers living in a remote Aboriginal community, each of whom sought enrolment in both the Diplomas of Community Services and Early Childhood Education and Care. When Ms Mason checked the number of childcare centres in the Kalgoorlie area, she discovered that there were only three.293 Ms Mason again elaborated upon her concerns regarding this incident and the impossibility of finding work placements for all of these students as required by the two diplomas in her oral evidence, which it is helpful to set out in full:

the child care one and the community one – they don’t make sense that you would do those together. It’s not a common thing. Community service just normally deals with older children and adults – young adults and older adults. Early childhood is specifically dealing with early childhood. It doesn’t make sense that someone will also do community services. One day, I was walking out the back and by – and the other thing that didn’t – also didn’t sense was that both of those two qualifications required work placements. So there was – they had to go out and get actual experience in a workplace. One day, I was walking out the back of the office where the CRM team worked, and Fiona – I don’t remember her surname – was one of the CRM team members, and she was meeting with one of the brokers and she called me over and she said to me, “Hi.” I don’t remember the broker’s name, but she said he has brought in – Adam. His name was Adam, “He has brought in about 180 application forms” – well, applications for 180 people, I should say, “And none of them have got ID. Can we accept stat decs?” They all had stat decs. By this stage, we weren’t accepting stat decs any more, and I said 180 of them? Where are they from? Kalgoorlie. Kalgoorlie is really not that big of a town. It’s – it’s inflated by people working in the mines. And it struck me as odd and I said, “What are they enrolled in?” They were – every single one of them was a dual enrolment into both the early child care course and the community services one. And that just seemed really odd to me because a town like Kalgoorlie is likely to only have one community services place that people could go and do work placements at, and possibly only has one or two child care services that are outside of the mines. I had previously worked with an organisation that did work for the mines and it’s very restrictive. They wouldn’t – it’s very competitive and there is no way that they would ever allow work experience students into the child care centre at the mine. So that just struck me as really odd. How are 180 people going to get work placements. So I actually did look that up. There was one community services centre and there were three – there were actually more child care centres. But still is [sic] 180 people that have to do placements. At the time, Fiona asked if I could accept them. And I said to Adam, “None of these people have a drivers licence?” He said, “No. It’s really odd.” I said, “Sure is.” And I said, “None of them have ever travelled and have a passport?” He said, “No.” And I said, “None of them have a birth certificate?” No. The birth certificates hadn’t been supplied, either. I said, “I can’t make a decision on that. I have to speak to Mario”, who was the head of the CRM team. I walked into the office where Mario was and he could – there was a window – it was a portable inside the factory area and we could see out to where Fiona and Adam were sitting. I said to Mario, “He has got 180-something applications there and I guarantee that every single one of them is Indigenous.” And he went, “Right.” And he went out and he spoke to them. He came back to me later. Every single one of them was from a remote Indigenous community just outside of Kalgoorlie. And Mario rejected every single one of them and told them that we won’t accept any of those. That’s why they didn’t have ID.294

(Emphasis added.)

392    Eventually, in about April 2015, Ms Mason’s team were instructed by Mr Brown and Mr Kochhar not to enrol anyone who “looked like they were Indigenous or from an Indigenous community”.295 Notably, this occurred only after formal complaints were lodged with the police and ASQA which exposed Broker practices in Darwin in signing people up to Phoenix Online Courses in remote Indigenous communities who were not literate and/or lacked any or an appropriate level of English (see further below).296

393    In about May or June 2015, a number of CTI staff members, including a trainer for the childcare qualification, raised their concerns with Ms Blefari about the lack of any arrangements in place either to find, or to assist students in finding, appropriate work placements to complete their diplomas. Ms Blefari in turn raised this with Mr Kochhar, advising him something needed to be done about this as no one was then tasked with that responsibility.297 Subsequently, two CTI staff members were assigned to find childcare centre placements for Phoenix students. Consistently with this, in early June a recruitment request was received by Falak Jani, CTI Human Resources Officer, who explained in an email to Mr Kochhar on 6 June 2015 that:

Initially we received [a] recruitment request for one individual in the role of Work Placement Officer for myTime Learning. However, due to [the] increasing number of students, the request has increased to at least 2 Work Placement Officers for now and may be more as we have more students. We are facilitating this request and have two shortlisted candidates, one at offer stage and one at reference check stage.298

394    Not surprisingly, however, the staff members ultimately tasked with finding childcare centre placements reported that they were having a lot of trouble in finding enough placements for the volume of students being enrolled.299 Furthermore, Ms Blefari pointed out that because the students were not employed and were enrolled in the Diploma of Early Childhood Education and Care without any relevant background knowledge, they also lacked networks which might otherwise, have assisted them to find work placements.300 Moreover, there was no-one at CTI with responsibility for assisting students in finding placements for the Diploma of Community Services.301

395    The evidence given by trainers and assessors with respect to work placements raised similar issues.

396    As I later explain, Ms Mandy Bennett was a trainer for Phoenix to whom some 500 students were allocated over the four-month period ending in December 2015. It was her evidence that none of those students reached the point of requiring a work placement during that four-month period.302 Yet, Ms Bennett explained that students undertaking the Diploma of Early Childhood Education and Care could begin their work placements after completing only a couple of the early units of competency in the course, including one concerning workplace health and safety. Furthermore, from a practical perspective, she explained that it was necessary for students to commence their work placements at an early stage of their diploma in order to complete the requisite 240-hours placement within the 12-month timeframe for the course, especially given that placements were usually only performed for one or two days a week.303

397    Similarly, Mr Howley, who was a trainer engaged by Phoenix to deliver the Diploma of Community Services Work from May 2015 to February 2016, gave evidence that to the best of his knowledge, none of his students ever did a placement even though he had discussions with them in which he suggested ways in which they might find a placement.304 In this regard, Mr Howley explained that at the colleges where he had worked as a trainer or assessor for the Diploma of Community Services Work before working with Phoenix, the trainers had provided students with:

(1)    a placement agreement between the student, the training organisation and the placement provider which was necessary for the placement to be recognised for the purposes of the course; and

(2)    a placement booklet, being a booklet that the student’s placement supervisor used to record whether the student satisfied particular competencies during the placement.

398    However, during his time at Phoenix Mr Howley never saw, was never asked for, and never provided to, a student, a placement agreement or placement booklet . Nor did he see any hard copy or soft copy records that any students had started or completed a placement.

399    While Mr Howley raised the absence of procedures and documents relating to placements with Ms Bagga, these concerns were brushed aside by Ms Bagga who simply said that when students required placements, they would come up with a strategy.305

8.7    Ex-employee evidence about issues raised during telephone verification calls

400    Mr Lewis explained that each person in his team was expected to make approximately 30 verification calls a day. Issues encountered during the phone verification process would come to Mr Lewis’ attention in a number of ways. First, where issues arose in the course of a telephone call, the issue would be escalated to Mr Lewis because, as Manager of the Phone Team, he would decide whether or not enrolment should proceed or, if the consumer was already enrolled, whether she or he should be withdrawn. Issues also came to Mr Lewis’ attention when he listened in on his team members’ calls for coaching or training purposes and during weekly meetings with the Phone Team.306

401    With respect to the calls themselves, Mr Lewis explained that:

[Some calls were] pretty abrupt – mostly along the lines of “What are you calling for? Leave me alone.” Hang up. They would have been the very quick ones … We would call them. Whereas the longer ones would have been the … duration of the script and then questions that they might have had about them actually wanting to study. So the longer ones were the more legitimate calls where they … felt … I really want to study this course. Or they – they listened to it all because they wanted the laptop.307

402    It was apparent to Mr Lewis and his team from the phone verification calls that many students were being enrolled in courses for which they were not suitable.308 For example, sometimes it was apparent that the consumer could not speak English well, or did not understand what they had signed up for in applying to enrol and, when it was explained to them, wished to withdraw. In some cases, the consumers did not realise that they had actually applied to be enrolled in a course at all and in many cases, they thought that they were simply getting a laptop. The issue of laptops arose multiple times a week and sometimes multiple times a day. Ms Bennett gave similar evidence referring to the fact that on a great many occasions when she contacted students who were not making progress in their course, they told her that they had only signed up to the course to get the free laptop or complained that they had not yet received their laptop.309

403    While Mr Lewis had very little contact with Mr Brown,310 Mr Lewis reported these issues to Mario Cugliandro as Head of Client Relations Management before he left, and to Nidhi Bagga, Harry Kochhar, and sometimes to Maria Spiteri, Mr Kochhar’s personal assistant.311 However, despite the issues being raised, nothing changed and the Phone Team continued to receive calls from consumers raising in particular the laptop issues.

404    Initially, at a team meeting Mr Lewis told his team that if potential students said that they were interested in enrolling only for the laptop, their form should be categorised as cancelled in Podio and placed in the “cancelled” forms pile.312 He gave this direction without consulting with Mr Kochhar because he formed the view that it would not have been “a respected or a liked outcome in the – in the numbers and the success rate of our team” and Mr Kochhar in his view would instruct him not to proceed with the direction.313 In this regard, Mr Lewis explained that:

… as a manager, you have to think of KPIs or key performance indicators for your team. And so for our team, given that what we were trying to achieve was more enrolments, the KPI for the team was – you know, was to focus on enrolments. We did not at that point have any solid KPIs about what they needed to achieve in terms of an X per cent or anything like that, but we were starting to form that. And the direction from Harry to Mario, Mario to me or then directly from Harry once Mario moved on was more successful applications. We needed to increase the success rate.314

(Emphasis added.)

405    Mr Lewis recalled that there was a particularly high volume of cancellations of application forms received from GG Sales, recalling that the Broker in question’s name was Gagan.315

406    Mr Lewis kept Mr Kochhar up-to-date by email on the number of forms processed by the Phone Team in an Excel table broken down into the number of “confirmed” forms, “cancelled” forms, and “uncontactable” forms.316 On a couple of occasions, Mr Kochhar called Mr Lewis into his office asking about the large numbers of “cancelled” forms reported to him. On one such occasion, Mr Lewis had a conversation with Mr Kochhar along the following lines:

Harry: Why do we have so many cancellations?

[Mr Lewis]: A lot of them are because the potential students say they are only really interested in the laptop.

Harry: You need to go easier on this. We need fewer cancellations and to put more people through. If they have agreed to everything else then just move them through the system.317

407    Mr Lewis decided not to take that feedback to his team. Instead, he told the team effectively that “if they are pushing through the questions and they are expressing that they understand, then we should be marking them accordingly, per directions. So I took a twist on what Harry’s direction was and I tried not to be very specific with my team.”318

408    The instructions to Mr Lewis from Mr Kochhar to press ahead with enrolments despite being advised that the consumers had no interest in undertaking the Phoenix Online Courses are demonstrative of a lack of good faith and a deliberate intention to exploit these consumers and the VET FEE-HELP system. They illustrate that this is not simply a case where “red flags”, which should have caused alarm given the large numbers of cancelled enrolments and consumers who could not be contacted, were simply ignored. A similar example of a lack of good faith is evident in the instructions given by Mr Brown to Ms Mason not to withdraw consumers who had not engaged at all with the Online Courses in which they were enrolled, despite the students incurring a debt to the Commonwealth with the passing of the census date for each unit of study (see at [438] below).

8.8    Ex-employee evidence as to the failure to assess LLN tests before enrolment and to put in place the personnel to do so

409    Evidence was given by key ex-employee witnesses, including Ms Mason, about the failure by the respondents to provide for the LLN tests of the vast majority of students to be assessed properly or at all while nonetheless requiring the students to be enrolled.

8.8.1    Small percentage only of LLN tests were assessed and directions to enrol the consumers nonetheless

410    First, the evidence establishes that a small percentage only of LLN tests were assessed by properly qualified assessors. It also establishes that despite Mr Kochhar and Mr Brown being well aware of this, they failed to take action to address the situation and indeed instructed the Data Team to officially enrol the students notwithstanding the non-compliance.

411    In this regard, Ms Mason repeatedly raised the problems with enrolling students whose LLNs had not been assessed with Mr Kochhar and Mr Brown, as well as with Ms Bagga. As Ms Mason explained:

We raised it continuously because people shouldn’t be enrolled into courses if they’re not able to complete that because their English isn’t sufficient, or their literacy skills aren’t sufficient. And VET FEE-HELP was very clear in the guidelines that you couldn’t enrol people who didn’t have sufficient English or literacy skills …319

412    Yet Mr Kochhar’s and Mr Brown’s response was to direct the Data Team to enter students into FinPa even though their LLN tests had not been assessed, saying words to the effect of “they were going to catch up on the LLNs.320 Indeed, as earlier mentioned, Ms Mason, who saw thousands of enrolment packs during her time at CTI, considered that at least 70% to 80% of the enrolment packs were entered into FinPa despite the LLNs not being marked by assessors beforehand.321 In this regard, Ms Mason said that, while her team would put students who were refused into the student management system in order to keep a record of the refusal, they should not have been entered into the FinPa system and the HEIMS system. However, she said that “we were instructed to do those things and we didn’t want to but we followed those rules.322

413    Ms Mason’s evidence that LLN tests were being checked after enrolment is acknowledged in an extraordinary email chain on 6 June 2015 between Ms Bagga and Mr Kochhar: 323 Ms Bagga first suggests that LLN tests drawn to her attention as being “below level” might be “fix[ed]” by giving them back to the Agents, given their interest in retaining payment for the enrolment of those consumers, and asking them to use erasable pens so that the assessors could “correct” the answers. This is proposed by her as a way to avoid “los[ing]” the enrolments which she suggests they obviously do not want to do:

[7:55am – Ms Bagga]

Harris [Faiz, who had been appointed to mark the LLN tests] came up to me yesterday and raised a concern with LLNs.

He got me a small box to look at – some of them were below level.

As you know LLN will need to [be] close to a 100% to be approved or else we need to put a monitoring plan and all the other stuff to ensure students with poor LLN are being catered for and we are making reasonable adjustments.

I suggested to him that he takes those particular LLNs (little box) he had on him up to the CRMs and then they can get the agents to fix them – now also bearing in mind that those might be the ones they have been paid for and may be at least interested in getting done and we obv [sic] don’t want to lose them..

I think an order needs to flow from your level of authority so we are not pinned during audit.

I also suggest we give these agents instructions to use the pens that can be erased. Arm them with pens so before a students [sic] looks for one – they can hand them out one. Or even if the agents are filling the paperwork themselves (which they shouldn’t) they at least have correct answers and again use the pen that can be erased so the person marking can at least rub off and write again to make it appropriate.

That’s the best solution I could think of, we will what you think is deemed appropriate [sic].

Thanks

414    Mr Kochhar does not agree with Ms Bagga’s proposed solutions in the ensuing email chain, but accepts the problems which he says he will attend to:

[9:43am – Mr Kochhar]

I am confused.

How will agent fix the form?

If we give the erasable pens; who will communicate with them? And the word will get out in market fairly quick. Won’t there be 2 diff [sic] handwritings if someone try [sic] to fix those forms after student has done their work?

[11:13am – Ms Bagga]

Agent can write new LLN and PTRs w answers – (given that we are checking them way after the enrolment) for the ones that are below level or else one of the staff will have to do so to keep it compliant. I might not have a logic behind here but a blurt!

In regards to the second parah –

There’s a reason I share my Not so bright ideas with you so you can reflect on them and go what the !!

Fair questions you have asked - I don’t have answers or have the, but they are silly.

This will be solved by online enrolment though but still the existing will need to be worked on. I’ll try and think of more – perhaps some better solution.

NB

[11:19am – Mr Kochhar]

None of those r real solutions. They are patch ups to create further problems.

Thanks for raising. I will attend to it.

Harry Kochhar

(Emphasis added.)

8.8.2    Lack of sufficient course assessors

415    Secondly, it will be recalled that the course assessors were located at Broadmeadows. However, Ms Mason considered that it was bad practice for the LLN tests to be sent away to be marked by assessors because there was a risk that files would go missing. As a result, the LLN forms were not typically sent away from the Spotswood office. However, there was one occasion where two staff members on instructions from Mr Brown and Mr Kochhar took approximately 60 files away, told Ms Mason that it was better that she did not know why they were being removed, and did not inform her of the purpose.324

416    While Mr Kochhar also told Ms Mason on multiple occasions that the Data Team could mark the LLN tests, Ms Mason repeatedly explained that her team was not qualified and did not have the necessary skills to make those judgements.325 It is apparent that her assessment in this regard was correct (see at [328] above).

417    As a result, appropriately qualified assessors should have been sent to the Spotswood office to mark the LLN tests before the students were enrolled. While Ms Mason was told that assessors would be sent over on a regular basis, this occurred only twice and the backlog of LLN tests continued to increase.326 Moreover, on the two occasions when the assessors attended Spotswood to assess the LLN forms, they did not mark them correctly so that, instead of writing the results on the forms themselves, they placed post it notes on the forms which are, of course, removable. Nor did the assessors notify Ms Mason that some of the LLNs were not sufficient and did not pass, and that they had only managed to assess a small percentage of the backlog.327

418    Eventually in June and July 2015 (being the last two months that Ms Mason was employed at CTI), one assessor, Mr Harris Faiz, was appointed to the Data Team to mark the LLN tests at Spotswood.328 While he was a qualified trainer, he was engaged only for two to three days a week.329 However, no-one attempted to mark the large backlog of LLN tests, at least prior to Ms Mason’s departure at the end of July 2015, and following his employment Mr Faiz reported to Ms Mason that he could not even manage to process the many new enrolment applications.330 Mr Kochhar agreed around this time to engage two more people specifically to mark the LLN tests. However, when Human Resources sent the job advertisement to Mr Kochhar for his final approval, Mr Kochhar backtracked on his decision and said effectively that “[w]e are not doing this.331

8.9    Ex-employee observations of troubling patterns in the LLN forms provided by the Brokers and Agents indicative of fraud and Mr Kochhar’s and Mr Brown’s responses

419    The evidence of ex-employees also points to a number of disturbing patterns in the LLN forms provided to them for verification which raised concerns about the possibility of large-scale fraud by Brokers and Agents in signing up potential students. As I later explain, their concerns are borne out by the data analysis evidence.

8.9.1    Batches of LLN/application forms completed in the same handwriting and instructions to stop checking handwriting and signatures

420    First, while the LLN forms were intended to determine whether or not someone was literate and therefore should have been completed by the consumer personally, Ms Mason observed cases where multiple LLN forms for different consumers had been completed in the same handwriting and where the signature on the consumer’s identification looked completely different from the signature on the LLN test.332 Ms Mason described seeing hundreds of LLN tests from the same Broker with only three or four different handwritings. As a result, Ms Mason formed the view that forms were being forged and that the LLN tests were not being completed by the consumers, saying “we couldn’t explain things like statutory declarations that are exactly the same with just names changed over. The LLNs – you know, 20 LLNs with exactly the same handwriting.333 She was concerned that the Brokers were filling out the forms on behalf of the students, in particular the LLN tests, just to get more students enrolled.334 She raised these concerns with Mr Kochhar and explained his response in the following passage of her evidence:

[Ms Mason] At the start he agreed and told us to send them back and that the brokers were sent out to go and get LLN forms from the people. There was one time when he had been – he had had a tipoff and he had paid somebody that – one of the brokers that we had really big concerns over had had a sweatshop, in his terms, set up, so there was an office somewhere in Richmond where they were forging the LLNs. And so they had three or four people doing the LLNs in a – in an office overnight. He – when he was advised that, he asked myself and … after to let him know when they brought – they came in and to bring in the box that they had brought in. And we met with Harry when they came in. He said, “Come on, girls. Come in.” And he said, “I want you to know if there – I want you to check these forms in front of me and tell me if there’s any issues.” We did. So I pulled out 10. I can’t remember how many there was in a box, but it was a photocopy box, so that was enough to fill that. And he – I pulled out the first 10 and eight or nine had exactly the same handwriting on the LLN. So he called that person in and told them that he was not to do that and send them back. But later on we were instructed not to check the LLNs.

[Ms Sharp SC] And who gave you that instruction?--- [Ms Mason] Harry and also Ivan.

Her Honour: And when did that occur? Do you remember?--- [Ms Mason] Yes. That occurred towards the end, so I think that would have been late May or June, to the best – or perhaps July, to the best of my recollection.335

(Emphasis added.)

421    This included instructions to stop checking the handwriting on the LLN tests and, in her last week with CTI, to stop checking the signatures.336

422    Ms Mason’s account is supported by contemporaneous email correspondence in which instructions were given to override quality assurance processes and ignore differences in handwriting and signatures on the enrolment forms.

423    First, on 17 June 2015 Mr Cugliandro emailed CTI’s Data Team, copying in Mr Kochhar, stating that “there has been some confusion in regards to handwriting being different between enrolment and the PTR/LLN”. However, Mr Cugliandro wrote that, having conferred with Mr Kochhar, “we now have clarity. The handwriting in the enrolment form can be different to the PTR/LLN form and they will still be compliant” (emphasis in the original).337

424    Secondly, an email from Mr Cugliandro to Ms Mason dated 25 June 2015, and copied to Mr Kochhar, shows direct instructions to override quality assurance processes. In the email, Mr Cugliandro wrote:

I have had a chat with Harry, regarding the vast amount of enrolments being rejected due to signatures on enrolment paperwork being different to that of ID’s [sic].

It has been decided by Harry that as long as the signatures on all enrolment paperwork are the same, we accept them even if they are different to the ID signatures.

If you could pass this on to your quality check team and team leaders, it would be appreciated.338

425    Ms Blefari also gave evidence about her concerns that the same handwriting was appearing on many of the applications being received from Brokers and said that at any one time, 20 to 30 applications may have been completed in the same handwriting and that this would occur at least two or three times a week over the 12-month period that she was Group Compliance Manager.339 These issues were frequently drawn to her attention by Ms Mason.340 Ms Blefari raised this issue with Mr Vogel and she reinforced with him the importance of students completing their own enrolment forms and that this was something which could not be done under the RTO Standards by the recruiters.341

426    Ms Blefari referred to one occasion when she was sitting in Mr Vogel’s office and two Agents delivered to him a stack of completed enrolment forms approximately 1 foot high. She referred to having previously seen these and other Agents deliver as many as three boxes at a time to Mr Vogel and the administration team.. Ms Blefari raised various issues with the Agent concerned at the time, explaining that:

29. I asked the recruitment agent, who I believe was called Hadi, if I could see some of the forms that he had delivered. I inspected a number of these forms and I saw that the answers to the PTR forms were very short and disclosed that most of the students did not have an education higher than year 10, any work experience relevant to their diplomas, or any current employment. Some of the forms I examined had not been completely filled in, and on one of the forms the student had applied to enrol into three diplomas simultaneously. I picked up one form and said to Hadi words to the following effect :

This student has not filled in the forms in full. They have enrolled into two courses at the one time. Their answers on the PTR form are short, and they say here that they have not passed through to year 10 . How do you expect the students to progress through their courses?

30. Hadi said words to the effect of:

I’ll fix that stuff later.

31. I looked at several more forms and saw that the handwriting on some of them appeared to me to be the same. I had a conversation with Hadi to the following effect:

Lesley: Who has been filling out these forms?

Hadi: We help them fill the forms out. It just makes it quicker.

Lesley: You do realise that it is only the student that is meant to be filling those forms out.342

427    Shortly thereafter, Ms Blefari arranged with Mr Vogel to give the compliance training presentation attended by approximately 30 to 40 Agents covering a range of VET FEE-HELP and ASQA compliance matters, to which I have earlier referred.343 However she continued thereafter to be approached by members of the Data Team showing her examples of forms which had not been completed or had handwriting which appeared to be the same across multiple forms.344

428    Thirdly, many of the complaints received by the respondents throughout the relevant period described the forms being filled out by the Agents (as I explain in the course of setting out the chronology of events in Chapter 10 below). Despite awareness of the issue from an early stage, a system was put in place only in October 2015 to deal with cases where consumers indicated that they had not completed the forms themselves during the verification process, depending upon whether they still wished to proceed with the courses. This process is described in an internal CTI email sent on 9 October 2015 by Ms Rachel McClean, client relationship manager, following discussions between Ms McClean and Mr Kochhar, to over a dozen employees at CTI including Ms Bagga, Mr Banga, Ms Arnold, Mr Mark Woodward (a client relationship manager), as well as Mr Kochhar.345 In that email, Ms McLean explained among other things that where the student indicated during verification that she or he had not completed the forms themselves, “CRM will terminate the sales agent involved and notify the client [ie Broker]”. Ms McClean also advised that the process would take effect immediately because “the sales agents should never have been completing the enrolment forms on behalf of the student”.

8.9.2    Patterns indicative of fraud in statutory declarations to prove identity of consumers

429    As it was not uncommon for applicants not to have a formal identification document such as a driver licence, the Data Team initially accepted statutory declarations. However, that process ceased when the Data Team identified a batch of statutory declarations which appeared to have been forged, having all been witnessed at the same chemist in Perth, Western Australia, on the same day with an identical signature in “the exact same spot”. All of these statutory declarations had been submitted by the same Broker, SM Group. The problem was brought to the attention of Mr Banga and Ms Mason, who in turn raised it with Ms Arnold and Ms Jen Rafter, the liaison person for managing that “client” (ie Broker) relationship. Ms Rafter in turn spoke with one of the consumers concerned and ascertained that she could not speak English. As a result, Ms Arnold, Ms Rafter and Ms Mason met with Mr Kochhar and advised that they wanted to cancel the contract with SM Group as it looked like they were committing fraud. However, Mr Kochhar became very angry and shouted at them, saying that they were not managing the Agents properly and he was going to give the Agents a second chance.346 About two days later, Ms Mason saw Mr Brown meet with one of the Brokers from the SM Group and heard him say words to the effect of “[i]f you’re going to fake it, then fake it right.347

8.9.3    Apparent targeting of consumers in disadvantaged locations

430    Ms Mason also observed patterns in the locations from which applications for enrolment emanated. For example, in one case Ms Mason saw a large number of applications from people in Broken Hill in New South Wales, many of whom lived on the same street.348 I note that Consumer D, her then partner, and her neighbour, Consumer FB, were among those from Broken Hill pressured into enrolling by one of Phoenix’s Agents or Brokers.349 A number of other Indigenous consumers from Broken Hill also gave evidence of being targeted and offered free laptops, free courses and/or monetary inducements to sign up to online courses with Phoenix and/or to assist in signing up anyone else into the courses.350 As a further example, a couple of Agents/Brokers identifying themselves as from Phoenix made inquiries in connection with signing up students for VET FEE-HELP at the Euroa Community Education Centre about contacts or street names of low socio-economic areas in Euroa, Victoria. Not surprisingly, the Centre declined to assist, citing privacy concerns.351 (The Euroa Community Education Centre is a RTO with the Victorian Skills Authority which provides literacy and numeracy training, as well as pathway programs, for disadvantaged learners in the Euroa community.)352

431    Ms Mason explained in her oral evidence that the patterns which she observed raised concerns about whether particularly vulnerable people were being targeted by Brokers and Agents:

… [W]e understood that the primary sales technique that the brokers used, and the agents of the brokers, was doorknocking. So we saw – we also saw that the suburbs that they targeted would tend to be known for having higher levels of poverty and unemployment. So I notice in here I’ve – I’ve mentioned “Broken Hill”, but there were things like – some of the suburbs in Sydney that are really well known for high level Indigenous population and levels of poverty. Sunshine in Victoria, and I had a friend who lived in Sunshine, so was familiar with Sunshine and I knew some of the streets. Sunshine has streets that have got clearly higher levels of poverty and they were signing them up in streets. So we might see 10 people from the one street. And what they were doing – and they were targeting areas that had higher levels of unemployment, because they would be at home and they could take advantage of them by offering them the laptops. Later on, New South Wales banned the use of doorknocking as a – as a tool to sign up students. So – so, all of a sudden, that stopped, because that was their primary technique. So we did see that a lot. 353

432    Furthermore, bearing in mind that one of the questions asked of prospective students in the enrolment documentation was whether they have any medical conditions or other conditions which might impact their training, Ms Mason also saw high levels of students being enrolled with mental health issues. While, as she said, having such issues does not mean that a person is unable to undertake a course, she explained that CTI would verify those enrolments even when it was very clear that the individuals concerned would not have been able to undertake the Online Courses. Ms Mason also gave the example of a person who had been unemployed for a long period of time and had spinal injuries but was signed up to a Diploma of Early Childhood Education and Care despite that diploma being directed towards employment where he would be expected to lift children.354

433    Additional instances of students being pressured to sign up despite disabilities of such a nature as to render them incapable of being able to undertake courses at the diploma level can be found in the evidence of a number of the consumer witnesses.355 Examples included the following:

(1)    Consumer AE left school at the age of 13, had learning difficulties, had been on the disability support pension since the age of 18, and had poor reading and writing skills. A Broker/Agent doorknocking uninvited for Phoenix in the early afternoon offered him and his partner, Consumer JE, free online diploma level courses and free computers.356 Consumer AE explained that he and Consumer JE have a disability, that he has a problem with reading and writing, and that Consumer JE “has a bit of brain damage”, to which the salesperson responded “[y]ou both are able to do the course with no worries at all.”357 Consumer JE was persuaded to sign up. Consumer AE did not sign up after he rang Ms Amanda Watkins from the Euroa Community Education Centre who regularly helped Consumers AE and JE with written communications and applications.

(2)    Consumer JE had brain damage and was also on the disability support pension although she said that she could “read and write ok”.358 She was coached by the salesperson on the answers to give to the questions on the forms and was told that she’d get “a free computer and everything if you do the course. Everything’s free, the government pays for it.”359 Consumer JE also remembered that her partner Consumer AE rang her caseworker because he was concerned that she was filling out a form that he did not want her to. While the caseworker was speaking on loud speaker to the salesperson, she told him that Consumer JE “has an intellectual disability. Do not get her to do the courses”, to which the salesperson responded to the effect of “[d]isability is not really that bad” and hung up.360 When Consumer AE told the salesman that he should listen “because she’s our case worker. [Consumer JE] and I have a disability”, he responded “I’m not listening to anyone cause [sic] I feel she can do the course.361

434    There was also a very substantial number of complaints of targeting consumers who were recent migrants or from refugee backgrounds and/or had little or no English language skills. An acknowledgement of this in the context of Chinese consumers is found in an email from Mr Gagan Sachdeva to Mr Kochhar on 24 June 2015 supplying him with a spreadsheet (containing 101 students enrolled into 195 courses) and stating, “[p]lease find the attached list of all the Chinese students submitted till date [sic]”.362 Mr Kochhar forwarded this email at 5:36pm to Ms Dien and Ms Bagga, with the note “[c]an ring them in chinese”.363 Ms Dien responded by copying in an individual called Mr James Liu to the email thread and asking him to ring the students on that list unless they had been confirmed. As the courses were all in English, undertaking the verification calls in Chinese would, as the applicants submit, undermine the verification process. I also note that the Excel spreadsheet recorded 195 enrolments by consumers, almost all of whom were enrolled in two Business Diplomas with a couple in both of the Service Diplomas, and a very small minority enrolled in only one diploma. The evidence of one of the consumer witnesses, Consumer MN, is a further illustration of the reckless disregard of Brokers/Agents for the capacity of consumers pressured by them to sign up for online courses with Phoenix to be able to communicate orally and in writing in English.364

8.10    Ex-employees’ evidence as to complaints, withdrawals, and lack of student activity in FinPa

435    While she was not supposed to have access to FinPa in order to identify the level of student activity, Ms Mason checked this data with Mr Banga around May/June 2015 and on her last day of work. On both occasions she observed that the number of students who had logged in was extremely low, as was the number who had actually commenced a unit. Thus, while Ms Mason recalled that the FinPa database disclosed that approximately 12,000 students were enrolled in Phoenix by May 2015, only 1,500 were recorded as having logged in.365 While low, that figure was still inflated given Mr Kochhar’s email of 4 May 2015 noting that by that date Mr Mahak Laddha (alone) had “logged in 500-600 students so far”:366 see further below regarding the “Student Log-on Project”. As I later explain in these reasons, Ms Mason’s estimates are broadly supported by the statistical analysis of Mr Leigh Ulpen and Mr Byron Vickers. Equally, the figures provided on 23 June 2015 by Mr Walters to Ms Bagga in a spreadsheet purportedly recording that 1,134 (or 33%) of 4,441 students enrolled had logged in,367 while also low, are unreliable for the same reason.

436    Ms Mason attributed this lack of engagement with the Online Courses to the practice of offering incentives to people to enrol. As Ms Mason explained in her evidence:

At the time when I first joined, it was legal to offer incentives, such as laptops, mobile phones, cash to get people to enrol. It was actually really a common thing, which I found really disgusting. And CTI offered laptops. So there was certainly a lot of students who took the laptops, were told that they wouldn’t have to pay back anything unless they ever earned over the threshold, which at the time was about $53,000. It increases each year, up until last year, when, in fact, it decreased. And so it’s not unusual when you offer incentives that are free for people to take the incentive and then not actually do a single piece of study. So there were – there was no evidence that for a large – for a – well, the vast majority of the students that they ever did a single second of study.368

437    In this regard, it will be recalled the use of such incentives was subsequently prohibited under the VET Guidelines with effect from 1 April 2015 (see at [227] above).

438    Ms Mason raised this concern with Mr Brown as she explained in the following passage of her evidence:

“What are we going to do about the students who are actually not studying?” And he said, “What” – he said, “What’s your recommendation?” I said, “I think we should withdraw them.” And he said, “Do we have to?” I said, “No, we don’t, but those students are going to keep accumulating loan debt.” Because the way the loan worked debt [sic], there was, I think, initially, four census dates but it might have been three. There were four – but I think there were four census dates and as each date passed, you incurred the loan. So if someone hadn’t – if someone had passed their first date and hadn’t done anything, I felt that we should have withdrawn them and not collected any further money from the government for those students. And that way they wouldn’t incur the full loan. He asked me did we have to do that; did the regulations require us to do that or mandate that we do that. I said, “No.” But I said, “Ethically, we should do that.” And I was aware already that there were starting to be investigations into other providers doing VET FEE-HELP and that was one of the issues. Apart from it just being an ethical and good process that you would do that and certainly at another RTO I had worked at, that was certainly the process if people didn’t study then we should push them out of the course from an ethical point of view. And he said, “Well, if we don’t have to do it, we’re not doing it.” So they knew – so they knowingly collected money for students that they knew weren’t studying.369

9.    EVIDENCE OF TRAINERS AND ASSESSORS

9.1    The trainers and assessors employed by Phoenix

439    A second strand of evidence from ex-employees relied upon by the applicants was that given by a number of ex-trainers and assessors employed by Phoenix. Trainers and assessors were variously located at myTime’s Broadmeadows, Dandenong, and Spotswood offices.

440    First, Ms Mandy Bennett’s evidence is contained in her affidavit affirmed on 20 August 2019370 and was supplemented by oral evidence. Before commencing her employment with Phoenix, Ms Bennett had worked at several different RTOs delivering vocational childcare courses in a face-to-face setting. She had no previous experience in conducting training for online students.

441    Ms Bennett commenced work on 17 August 2015 as a full-time trainer for the Diploma of Early Childhood Education and Care for Phoenix. She worked with five other trainers who were delivering the same diploma at the office of myTime Learning located in Broadmeadows. Ms Bennett gave evidence about her attempts to contact students by phone, the nature of her role, and her concerns about the suitability of many consumers with whom she had contact to undertake the courses in which they were enrolled.

442    Ms Bennett also gave evidence about being tasked in September 2015 to sort and mark up to 30 to 50 large boxes of student forms with another childcare trainer. Many of these forms had been completed sometime earlier and were missing information. While she was directed to backdate and “fix” incomplete LLN tests, she refused to do so. I deal with this evidence in the context of the chronology set out in Chapter 10 below.

443    Ms Bennett was dismissed after reporting her concerns about Phoenix’s conduct to ASQA.

444    Secondly, Mr Michael Charles Howley371 was employed as a trainer and assessor in the Diploma of Community Services Work for Phoenix for about nine months commencing in May 2015 and departing in February 2016. He was also located at the Broadmeadows office and reported to Ms Bagga, the Operations Manager at Phoenix. He holds a Bachelor’s degree in Social Science with majors in psychology and sociology from the Bendigo College of Advanced Education, and a Master of Social Work degree from La Trobe University. He has over 10 years of experience in VET.

445    Thirdly, Mr Sandro Capocchi372 was employed from around early September to 20 December 2015 as a trainer for Phoenix trading as myTime Learning and also worked at the Broadmeadows office. He was employed as a trainer for the Diploma of Business and the Diploma of Leadership and Management courses, working as part of a team of 12 other trainers teaching one or both of same, and reported to Nidhi Bagga. His team leader was called Nahla. Mr Capocchi also met trainers from Phoenix’s Dandenong office from time to time when, among other things, he visited to set up video training at that office.

446    Mr Capocchi had worked in teaching diploma level business and management courses since about 2003, including for approximately five years at SWC Training and approximately eight years at Spectra Training, where he taught courses in a face-to-face format. Prior to commencing at myTime Learning, Mr Capocchi had no experience in teaching courses taught purely online.

447    In his role at Phoenix, Mr Capocchi was responsible for the following matters:

(1)    contacting consumers to introduce himself as their trainer and answer any questions regarding the Online Course(s) in which they were enrolled;

(2)    encouraging consumers to begin and progress their online work;

(3)    teaching the consumers, for example, through webinars, emails and online tutorials; and

(4)    assessing and giving feedback on any work submitted by consumers.

448    Fourthly, Mr Nipun Bhargava373 gave evidence of his experiences working for Phoenix from November 2015 to January 2016 as a trainer and assessor for the Diploma of Business course. During this period, he worked for Phoenix three to four days a week from 4:30pm to 7:00pm at the Spotswood office, while also working as a course coordinator for the Advanced Diploma of Leadership and Management at Barkly International College during the day. At Phoenix, he reported to two employees, Lauren and Maria, whose last names he could not recall. Mr Bhargava holds a Master of Engineering degree from the RMIT University.

449    Finally, Mr Brad Matton374 gave evidence about his employment as a trainer with CTI in January 2016 to undertake what was described as an “audit” but left when he formed the view that he was being involved in something dishonest and wanted no part of it. I consider his evidence in the course of considering the chronology of events in Chapter 10 of my reasons below.

9.2    Themes emerging from the evidence of the trainers and assessors

9.2.1    Volume of students assigned to each trainer and assessor

450    The evidence establishes that each of the assessors and trainers was allocated up to 1,000 so-called “students” enrolled in Phoenix Online Courses. While the task of the assessors and trainers should have been to provide training and support to these consumers, in fact their primary task was to attempt to contact them by telephone to encourage them to log on to, and commence, their online courses given that, no matter how minimal their engagement with an online course was, it would be recorded as activity on Phoenix’s learning platform, FinPa. Demonstrating some level of engagement with the courses became increasingly important from the respondents’ perspective as their activities came under scrutiny by various regulators and the pressure placed upon trainers by the respondents to encourage consumers to log on to FinPa increased accordingly. (In this regard, I would emphasise that in referring to enrolled consumers as so-called students, I do not imply any criticism of them. To the contrary, they were enrolled in circumstances which sought to exploit and mislead them. Rather, as a result of the circumstances in which they came to be enrolled, very few were actively engaged in their courses and in fact undertook any studies. They were not therefore genuine students in this sense.)

451    Turning to the experiences of each of the trainers, first, Ms Bennett was initially allocated approximately 200 “students” when she started work at Phoenix in August 2015 but this had increased to responsibility for training over 500 “students” four months later in December. 375 Furthermore many of these had been enrolled for some time before being allocated to Ms Bennett. Another trainer, Rana Karam, had over 1,000 “students” when Ms Bennett started.376 Ms Bennett attempted to contact each of her so-called students by phone on multiple occasions but the majority did not answer the phone or return her calls. Indeed, she gave evidence that only five of the “students” allocated to her were in regular contact by phone and email with her and regularly completed online assignments.377

452    In this regard, Ms Bennett explained that when she tried to call a “student” but received no answer, she would send an SMS message and an email advising that she had called and asking for the student to call her back. However, on most occasions she did not receive any response to those messages. Ms Bennett also said that on many occasions the telephone number was either disconnected or a wrong number, and that when this occurred, she would email myTime Learning administration notifying them that the consumer’s telephone number was incorrect. On some occasions, Ms Bennett would work all day calling the numbers on her list but only make contact with two enrolled consumers.378

453    Similarly, within three weeks of commencing his employment as a trainer for the Diploma of Community Services Work in May 2015, Mr Howley had 603 “students” allocated to him. At this stage, there were only two trainers in the Diploma of Community Services Work. While the number of so-called students allocated to him decreased as more trainers were employed, reaching eight trainers during Mr Howley’s employment, he was still allocated between 120 and 240 “students” at any one time.379

454    Mr Capocchi380 also gave evidence that he was allocated over 200 “students” when he commenced at myTime Learning in early September 2015 and that a large number of those were doing both the Diploma of Business and the Diploma of Leadership and Management. He sought to contact and engage with between 20 to 30 of the “students” allocated to him a day via individual text messages, monthly bulk SMS messages, group emails (which included encouraging messages, links to webinars, and videos), and phone calls. An example of an email of this kind is annexed to the affidavit of Consumer B which was sent on 23 October 2015 to approximately 150 enrolled consumers (including Consumer B) asking them to “[p]lease see below the link to begin your course, log in and get the ball rolling. Please click on this following link to view ‘How to navigate our online learning system.’”381 Through each of these means, Mr Capocchi sought to encourage his “students” to engage with him and with the course. However, roughly 75% of the “students” allocated to him did not respond to the text messages and emails or answer their phones. Furthermore, of those who responded, only a couple typically demonstrated any level of engagement with, or interest in, completing the course. Many of those contacted raised concerns about not being able to do the course because they had not yet received the laptop offered as part of their enrolment or because they did not have access to the internet. During his three months at myTime Learning, Mr Capocchi estimated that fewer than 10 of his so-called students contacted him seeking assistance with their courses and only a small number of assignments (approximately 20) were submitted to him for marking. He recalled that only one student from his group of allotted “students” completed a diploma.

455    Other trainers discussed similar difficulties with him in contacting the so-called students allocated to them and as a result, he and the other trainers “brainstormed” different ways of contacting them. Subsequently, in November 2015 Mr Capocchi became aware that another team had been set up to contact certain “students” who were difficult to reach but he was not a part of that project.

456    Mr Bhargava gave evidence of similar difficulties. When he began working at Phoenix he was given a list of contact details for approximately 100 “students” enrolled in the Diploma of Business. Beginning in November 2015, he tried to call each “student” but was unable to contact about 40 of them because the listed phone number had been disconnected, his calls were not answered, or the call was answered by someone who said that they were not the student on his list. Of the 60 so-called students who he was able to contact:

(1)    15 to 20 complained that they had not received the laptop they were promised and could not do the course without it;

(2)    approximately 10 denied being enrolled in a Diploma of Business course;

(3)    one consumer said words to the effect of “[h]ow did you get my number? I never enrolled in a course. I want to speak to your manager”, while another consumer said effectively “[w]hich course? Where? I have no idea what you are talking about;”

(4)    some consumers said that they did not have the log-in details so could not do the course;

(5)    two consumers said they had no internet access;

(6)    one woman said that her daughter would be doing the assessments for her but she was at work and asked Mr Bhargava to call back later after office hours; and

(7)    a consumer from South Australia said he lacked internet access but his son would be doing the course for him.382

457    In short, Mr Bhargava said that he did not have a single conversation with a “student” in which the course content was discussed, none of the “students” on his list ever submitted an assessment for him to mark, and none completed a unit of study or the course.383

458    It is evident from the documentary record that some steps were taken to recruit further online trainers. In particular, Ms Bagga advised Mr Kochhar by email on 1 May 2015 that CTI had interviewed, reference checked, and shortlisted a candidate for the role of full-time permanent online trainer – Diploma of Management. In response to the question from Mr Kochhar as to whether the interview was “just a sham”,384 Ms Bagga responded:

Not a sham.

I did interview her. I called her the very next day. And I took your suggestion of cheap labour also a desperate measure for me to have trainers and fulfil the vision of caseload per trainer etc etc. She was not too bad but she won’t start till 4 weeks – bogan though but will do …

459    Ms Bagga also noted in an email on 14 May 2015 that she needed “more than 1 trainer for ECEC with the enrolments and the number that’s flowing in … It’s huge!! Comm serv as well… I will need more than 1 as well.385 Following that message, CTI emails were sent to all members of staff on 15 May 2015 outlining vacancies for an “Online Trainer – Diploma of Early Childhood Education and Care” and an “Online Trainer – Diploma of Community Services Work”. The description of the positions explained that in each case, the successful candidate “will be managing a caseload of 200-300 students”,386 consistently with the evidence of ex-employees as to the large numbers of “students” allocated to each trainer and assessor.

460    A similar trainer-to-student ratio was suggested by Ms Bagga in a draft email to a person called “Ahmed” which was sent to Mr Kochhar for his approval on 16 July 2015 setting out “the life cycle of a student’s expression of interest to completion”.387 The ratio referred to was “1:250-300 [ie] one trainer to 250-300 students as an online model”, to which Mr Kochhar responded “Really good. Just change the ratios. Make them less.388 As such, Mr Kochhar effectively acknowledged that a trainer-to-student ratio of one to 250–300 was too high. Following that message, Ms Bagga sent the final version of the email to a person identified only as “Jas” at “aitt.edu.au” on 22 July 2015 identifying the “Student trainer ratio is 1:100 [ie] one trainer to 100 students as an online model.

461    Following notice of the short notice audit, Ms Bagga emailed Phoenix’s compliance consultant, Mr Bevan, on 27 July 2015 inquiring about whether the trainer-to-student ratio of “1:400 [is] too much- given all students don’t log in at the same time and work at their own pace ? Pls let me know ... Trying to tie lose [sic] ends in preparation for audit” (errors in the original).389 Mr Bevan responded shortly thereafter that there were “[n]o set rations [sic] for fee for service students”, and “[i]n short - no issue with 1:400 if the students are getting the support they need – ie all enquiries are being answered promptly, students are getting feedback, all assessments are being marked promptly etc”.

462    High trainer-to-student ratios continued throughout August 2015, as is apparent from an email from Ms Bagga to Mr Kochhar on 26 August 2015 which noted that “[e]ach trainer has around 300 students” and that there were 21 trainers only for the Business and Management courses.390

463    While not as high as these ratios, high trainer/assessor-to-student ratios were also noted in an email from Falak Jani, Human Resources Consultant, to Mr Brown, Mr Kochhar, Ms Bagga and others on 6 November 2015 as follows:

We are expecting 4 more signed contracts on Monday, which will bring us to total of 144 T&A across all 4 quals; which will achieve the target of 1:150 overall. As far as ratio per qual is concerned, we will need 5 more for Bus/Mgmt, 3 more for Comm Serv to make it 1:150 per qual, we are 8 over for ECEC.391

464    Attached to Falak Jani’s email was a spreadsheet containing a table with the following information:392

Courses

Current

Current Active # of T&A

Signed Contracts Received

New Total Active # of T&A

# of T&A Req to meet target of 150 Students per T&A

BSB50207 Dip Business

3713

25

62

87

96

BSB50215 Dip Business

3829

BSB51107 Dip Management

2618

BSB51915 Dip Leadership & Management

4169

CHC50113 Dip Early Childhood Education

4096

13

23

36

28

CHC50612 Dip Community Services

2885

11

6

17

20

Grand Total

21310

49

91

140

144

465    The information in this table records that, as at 6 November 2015, trainer-to-student ratios were considerably higher than the 1:150 target and the 1:90 ratio reported by Phoenix to ASQA. Specifically, if the “Current Active # of T[rainers] & A[ssessors]” is compared with the current number of enrolled consumers, the ratio of trainers to enrolled consumers averaged out to:

(1)    1:573 for the Business Diplomas;

(2)    1:315 for the Diploma of Early Childhood Education and Care; and

(3)    1:262 for the Diploma of Community Services.

466    As the table also demonstrates, even if the number of signed contracts received is taken into account, the numbers still fall well short of the target of 1:150. Moreover, as I shortly explain, in October/November 2015, Phoenix signed up a number of trainers and assessors who never in fact undertook any training for Phoenix. As a result, the number of “Signed Contracts Received” referred to in this table cannot be taken to be demonstrative of any genuine attempt by Phoenix to ensure that appropriate trainer-to-student ratios were in fact achieved.

467    Exceptionally high ratios emerge from the documentary record for February 2016. For example, on 5 February 2016, Mr Walters emailed one of the trainers, Mr Wilkinson, allocating 556 active students to him in the Business Diplomas. On the same day, Mr Walters emailed a trainer named Ms James with a list of 2,811 students distributed between 8 trainers for the Diploma of Community Services Work, including an allocation of 877 students to one trainer and more than 500 students each to two other trainers. Later that day, Mr Walters emailed Ms James with a further list of 3,552 students allocated between 9 trainers for the Diploma of Early Childhood Education and Care in which one trainer was allocated 952 students.393

468    These extraordinary numbers need to be understood in their context. Phoenix had been desperately attempting to increase ostensible student involvement with its courses through its “never logged-in reach out” campaign, the roadshows and inducements offered to enrolled consumers to log in to FinPa and complete a unit in January and February 2016, as well as backdating and falsifying the data in its enrolment packs at an industrial level via its so-called “Rectification Project” in January 2016. Furthermore, by this stage, Phoenix’s approval as a VET provider had been suspended in January 2016, although it was permitted to continue to train existing students, and its Advance Payment Determination for $40 million had been revoked. Furthermore, on 4 February 2016, McGrathNicol were appointed by the DET to undertake a formal audit of reported enrolment data provided by Phoenix to the DET. Understood in this context, the allocations at this time of these extraordinary numbers of enrolled consumers to trainers resulting in manifestly unworkable trainer-to-student ratios almost certainly formed part of Phoenix’s concerted strategy to convince the relevant authorities that it was a legitimate provider of online education in circumstances where, it can be inferred, these consumers had not previously been allocated to any trainer at all.

9.2.2    Nature of the role as a trainer and assessor

469    The evidence of the trainers and assessors was consistently to the effect that their primary role was to endeavour to contact the “students” allocated to them to try to get them to log on to and commence their courses online.

470    Ms Bennett said that she was frequently directed to focus on calling “students” who had not logged in, or had not logged in for a long period (often a number of months), in order to get them to log on to the FinPa and engage in their courses.394 As Ms Bennett explained in her oral evidence:

We were told to continue – keep ringing them. Ring them every day. Start from the oldest that hadn’t logged on for the longest and try and get them to – yes, log on and see if we could assist them in any way and just to get them through. Whatever we had to do was – we just had to get them through.

[Ms Sharp SC] When you say “log on”, log on to what? --- [Ms Bennett] Log on to the FinPa, so the online FinPa platform they’re able to access.395

471    She said that these directions became more frequent and insistent towards the end of her time with Phoenix.396 An example of such a direction was a group email addressed to “MTL Trainers” from Ms Bagga dated 5 August 2015 attaching a call log to be filled in and submitted weekly.397 The email further explained that:

As a trainer you are required to make contact with your students and follow-up on the progress on a daily basis – more so on the slow performing students. Encourage the student to log in while you have them on the phone to you. This will also be a great tool to measure success outcome [sic] as a Trainer and for your student/s.

Each trainer will create a folder under their name on the MTL drive and in that folder you will have this log saved at the end of every week (Friday by COB). It is imperative you get a hold of the NEVER LOGGED in students first off, as the ones you are marking work off [sic] are already being recorded on the LMS [(Learning Management System, ie, FinPa)].398

(Emphasis added.)

472    In line with the instructions in the email, Ms Bennett explained that she was instructed to maintain a spreadsheet recording her interactions with “students”, including whether contact was made with each “student” and whether the “student” had ever logged into FinPa.399

473    Ms Bennett explained that once the “students” logged in, this would register on the FinPa platform and therefore show that the student was participating in the course.400

474    This did not accord with Ms Bennett’s expectations of the role of a trainer which she had been engaged to undertake. As she explained:

When I first started, I was calling the students up but nobody answered the phone and when they did answer the phone they hung up or I found that the phone numbers were the wrong numbers, emails were the wrong emails, so the contact wasn’t there. So, no, it wasn’t [sic] my expectations. I was not on the phone talking to the students, guiding them through their assessments and workbooks because there [were] no students answering the phones.401

475    Ms Bennett explained that her co-workers were in the same position: “That’s all we did all day was ring up our students and we would get the same response: no phone number, the wrong phone number, the wrong email, go and get f’d. You know, it was just – there was no – there was no contact.402

476    The emphasis in the role as trainer upon contacting so-called students who had not logged on to commence their courses online, as opposed to providing learning support to assist genuine students to complete their courses, is highlighted by the following exchange during Ms Bennett’s evidence:

[Ms Sharp SC] Of all the students for whom you were responsible as a trainer at Phoenix, how many do you estimate that you actually provided training to?---[Ms Bennett] One..403

477    The experience of other trainers was similar, as I have earlier mentioned. This evidence is corroborated by the analysis of data extracted from FinPa by a number of experts which revealed an extraordinarily low level of consumer engagement with Phoenix’s Online Courses, particularly when various steps taken by the respondents to hide or artificially inflate the level of consumer engagement are taken into account: see further Section [13.9] below.

9.2.3    Unsuitability of consumers engaged in courses and complaints

478    Even where Ms Bennett was able to contact her “students”, Ms Bennett developed concerns that many did not seem to be eligible or suitable to undertake the Diploma of Early Childhood Education and Care on the basis of the information which they disclosed to her. She gave a number of examples of telephone calls between her and “students” which raised these concerns.404

(1)    Several of the “students” to whom she spoke were aged 65 years or older and were living in aged care facilities. One of those consumers advised her that they were signed up at the supermarket.

(2)    In some telephone calls, when asked about how they were getting on with their study, “students” said that they could not do the course, they had not received their laptop yet, they did not sign up for the course, or they did not have the learning device that they were promised.

(3)    On a few occasions, she spoke to relatives of the “students” whom she was trying to contact. She remembered one telephone conversation where the “students’s” carer advised her that her son who was enrolled had schizophrenia and there was no way that he could do the course. On another occasion, the father of a “student” told her that his child was in a wheelchair and could not do a childcare work placement.

(4)    On several occasions when she mentioned the requirement for those consumers enrolled in the Diploma of Early Childhood Education and Care to be subject to a police check and to obtain a Working with Children Check in order to obtain a work placement, the “students” advised her that they could not do so because they had a criminal record, they were charged with sexual offences, or were “up on breaking and entering”.

(5)    On one occasion, she had a conversation with a “student” who, when asked for their address, advised that they were “living on the street”.

479    Where issues such as these occurred, Ms Bennett made a note on the “student’s FinPa account to notify myTime Learning’s administration that she or he should be withdrawn. However, Ms Bennett observed that sometimes the “student” concerned was not withdrawn immediately, but only after multiple notifications for the withdrawal to be processed had been given.405

480    Mr Howley expressed similar concerns about the suitability of the “students” assigned to him to undertake the Diploma of Community Services.406

(1)    First, he estimated that only approximately 20% of his “students” submitted an assignment for a unit of study and, of those submitted, only 20% were at or above diploma standard based upon the marking guide and example answers provided to trainers in the FinPa database. To the best of his recollection, none of his students completed the Diploma of Community Services Work.407

(2)    Secondly, those “students” to whom he spoke who had not submitted any assignments gave various reasons for not doing so. Mr Howley explained that he usually began his conversations saying something like “Good morning/afternoon, I am Michael, your trainer for the Diploma of Community Services Work at myTime Learning. I see you have not commenced your course yet, how can I help you?” Typical responses which he received would along the following lines: “[t]he agent said I did not have to do any study. I was just told to sign a form for a free laptop”; “I do not have internet access”; “my computer’s been stolen”; “I am the student’s mother. She is not around right now”; or they were not the student.408

(3)    Thirdly, Mr Howley considered that a majority of his allocated students should not have been enrolled into the Diploma of Community Services Work because he considered that their LLN level was lower than the Certificate IV level of language, literacy and numeracy required to embark upon and complete that diploma. His opinion in this regard was based on conversations he had with “students” and on the assignments he marked. Mr Howley referred by way of example, to the fact that many students’ assignments had basic orthographical (spelling) and grammatical errors, suggesting a low LLN level, and used “text speak” such as using “u” in place of “you”.409

(4)    Finally, Mr Howley found that some of his allocated students were not native English speakers and had difficulty understanding and responding to him when he spoke with them. He gave the example of a telephone call he had received from a person identifying herself as a teacher in an introduction to English course at a TAFE in Queensland whose name he could not recall. The teacher said words to the effect of:

We’ve had some Afghan refugees in an introduction to English course signed up to a Phoenix course in the car park after work and we want their debts cancelled and to return the laptops. I can’t believe that your agent would act so unconscionably as to sign up people who cannot even put a sentence together yet.410

Mr Howley told Ms Bagga about the incident and gave her the names of the consumers concerned which had been given to him by the caller.411

481    As to the last of these points, the evidence of one of the consumer witnesses, Consumer MN from Dandenong in Victoria, is an apt illustration of the complete disregard exhibited by Agents/Brokers as to the capacity of consumers signed up to Phoenix courses to communicate in, and understand, written and spoken English.412 Consumer MN (whose evidence was translated) was born in Afghanistan and travelled to Australia when he was about 30 years of age. He could speak “a bit of English, but very simple words [and] ... understand only a few basic words written in English and numbers.”413 When he was given a document which he could not understand, he would go to the Southern Migrant and Refugee Centre in Dandenong for assistance. Consumer MN was placed under significant pressure by Agents/Brokers to sign up to “free courses” with Phoenix and receive a “free laptop” and was in fact signed up, despite saying repeatedly that he did not understand what the sales Agent, Srusti, was saying and that he had no intention of doing the course. To the contrary, the Agent told him that he could “study English to improve his English”.414

482    Mr Capocchi also expressed concern about the suitability of “students” allocated to him to undertake the Diplomas of Business and of Leadership and Management.415 Mr Capocchi considered that the course materials, including the course guides, student handouts, and other mature learning materials such as newspaper articles, for the Diploma of Business and the Diploma of Leadership and Management were pitched at a level appropriate to students who were already working in those fields. However, the majority of “students” to whom he spoke who were enrolled in those courses told him that they were not working right now or were not working in office jobs. As a result, he was worried that they would not be able to complete the courses and worked on making changes to the courses in an effort to make them more suitable for students with no office experience. For example, with some of his colleagues, Mr Capocchi implemented certain initiatives such as setting up webinars to provide students with some experience.

483    Mr Capocchi also recalled contacting a student who was unable to speak English and, as earlier mentioned, contacting a number of students who appeared to lack access to a computer or the internet which were necessary for the consumer to complete the course. He raised these concerns in meetings attended by his team leader and other trainers in his team, and also made recommendations that certain students should be withdrawn from his courses. While those consumers would be removed from his allocation of students, Mr Capocchi did not know whether they were subsequently withdrawn from the courses.

484    Finally, Mr Bhargava said that under his contract with Phoenix, in addition to his hourly rate of pay, he was entitled to a further payment of $10 for every student assessment undertaken where he assessed the “student” as “competent”. However, there was no additional payment for marking a student assessment if the “student” was assessed as “not yet competent”.416 Terms to similar effect offering a $10 additional payment per unit assessed as competent were also included in the contracts provided by Phoenix to two applicants for positions as trainers and assessors in October 2015 who gave evidence in the proceeding417 and in many of the contracts for services between Phoenix and other trainers and assessors.418

485    The evidence of the trainers as to the lack of suitability of many of the “students” contacted to undertake the Phoenix Online Courses in which they were enrolled is corroborated by the evidence of a systemic failure by the respondents to mark LLN and PTR tests prior to enrolling a consumer or at all, of incorrect marking of the LLN and PTR tests, and of Agents coaching consumers or completing the enrolment forms themselves instead of the consumers: see eg the evidence of former employees from CTI in Section [8.8] above and the data analysis evidence discussed in Section [13.7] below.

9.3    Alleged trainers for Phoenix who did not in fact work for Phoenix

486    Finally, evidence was led from two trainers who applied for positions as trainers and assessors with Phoenix. While those trainers never in fact worked for Phoenix, Phoenix held out that they had done so in its submission to ASQA in an apparent endeavour to mislead ASQA as to its trainer-to-student ratios.

487    First, Ms Sharon McDonagh gave evidence that she applied for a position as an online trainer and assessor with Phoenix in 2015 in response to an advertisement on Seek.com.au. A representative from Phoenix contacted her by phone in late October 2015 requesting documents from her including copies of her qualifications, and said that the paperwork was required urgently. On 27 October 2015, a representative from Phoenix offered her the role of “Online Trainer and Assessor” for Phoenix. Shortly thereafter, a representative from Phoenix called her and advised that the contract and paperwork were required urgently and offered to pick it up from her at home if she had trouble scanning and emailing it to Phoenix.419 Ms McDonagh withdrew her application because she became “concerned about the urgency with which Phoenix required [the] documents”, the fact that they were willing to come to her house to collect the documentation which she considered was unprofessional, and upon finding adverse media articles about Phoenix.420

488    As the applicants submit, Ms McDonagh’s evidence contradicts the representation made by Phoenix to ASQA in its 9 November 2015 “Response to ASQA Audit Report on Rectification Evidence” that Ms McDonagh was one of its trainers. In this regard, Phoenix attached a list of trainers/assessors per qualification (attachment 5).421 That list included “Sharon Kearney” which was Ms McDonagh’s legal name prior to about 2017.422

489    Similarly, Mr Keng See Tan was held out to be a trainer in the same report to ASQA despite never undertaking any training by or for Phoenix.423 Mr Tan also applied for a position as trainer and assessor with Phoenix in 2015. He was offered the position on 28 October 2015 and signed and returned the contract from Phoenix, but never heard anything further from Phoenix.424

490    Nor can these be regarded as unique cases. For example, in response to a query from the Trainer File Coordinator for those individuals from a list of 84 trainers who were currently or would be training in 2016 and their last payment date, Ms Roks, the Client Relationship Coordinator for Via Network, responded on 8 December 2015 with an annotated list identifying some 29 trainers who had never been paid and therefore never worked for Phoenix, despite being included on the list.425

10.    THE COURSE OF EVENTS IN 2015 AND 2016

10.1    Phoenix’s operations before its acquisition by ACN

491    As earlier explained, Phoenix was established in the late 1990s. It was registered as a RTO on 16 February 2005 and first approved as a VET provider on 27 October 2009, with effect from 5 November 2009.426 Mr Gale was appointed as CEO of Phoenix in December 2013, having earlier held positions on Phoenix’s Advisory Board and its Corporate Governance Board.427 The Governance Board was effectively an advisory board to Mr Peake, the then owner of Phoenix Institute, on matters pertaining to the running and operation of Phoenix.428

492    Before its acquisition by ACN, Phoenix was a small VET provider offering face-to-face tuition at its campus on Queen Street, Melbourne, to approximately 400 students.429 The courses provided by Phoenix before January 2015 included the Diploma of Clinical Hypnotherapy, the Diploma of Dance Movement Therapy, the Advanced Diploma of Transpersonal Art Therapy, and the Bachelor of Holistic Counselling.430 Class sizes tended to vary from between 6 to 18 students and in any event were no larger than 20 students.431

493    At this time, Phoenix advertised its courses through a course booklet updated annually and at student information nights.432 Several information nights for prospective students were held each year at Phoenix’s Queen Street premises in advance of the start of the courses and they attracted approximately 40 to 50 people.433 Ms Crittenden was responsible for the conduct of these information sessions and would obtain evidence from students to prove their VET FEE-HELP eligibility including passports, birth certificates, and citizenship certificates.434 Prospective students were interviewed subsequently in small groups in order to determine their suitability for their chosen course.435

494    In late 2014, the Commonwealth introduced a formal process for assessing prospective students’ levels of literacy, numeracy, and English language skills, which Phoenix incorporated into its enrolment processes.436 Ms Crittenden completed a unit of competency in addition to her Diploma of Training and Assessment which qualified her to conduct LLN assessments.437

495    Phoenix used a student management software program called Wise.NET administered by an employee, Ms Meena Chopra, to generate reports to enter student data (including enrolments and course completion) into the Higher Education Information Management System (HEIMS).438 The Department in turn used that information to monitor and reconcile student enrolments and VET FEE-HELP payments to Phoenix.439

10.2    Formation of the ACN Group of companies and the Initial Public Offering on 26 November 2014

496    ACN was incorporated on 17 March 2014. On 30 September 2014, ACN acquired 100% of the shares in five related companies including CTI which was identified as the acquirer of the other four companies, namely, Community Employment Initiatives Pty Ltd, Consider This Training Pty Ltd, CLI Training Pty Ltd and The Community Initiatives Group Pty Ltd.440

497    In or around September or October 2014, Mr Peake and Mr Gale were approached by an agent for ACN who informed them that ACN was interested in purchasing Phoenix. A couple of weeks after that meeting, Mr Peake and Mr Gale attended a meeting with the agent, Mr Brown, CEO of ACN, and Mr Kochhar, COO of ACN. During the meeting, Mr Brown told Mr Peake and Mr Gale that if the purchase of Phoenix proceeded, he intended to grow the business quickly and introduce online courses because there was a lot of potential for growth.441

498    On 26 November 2014, ACN published a prospectus (the ACN Prospectus) for an initial public offering (IPO) which sought to raise $54.4 million and offered a share price of $1.70.442 In the prospectus (at p. 8), ACN explained the composition of the ACN Group as at that time:

Australian Careers Network Group consists of three primary business units. The first, Community Training Initiatives, is an unregistered VET provider that partners with RTOs and TAFE institutes to deliver nationally recognised qualifications under partner accreditation. The second, COVE, is a leading Victorian private RTO specialising in small to large vehicle and machine operating licences linked to the construction and warehousing industries, as well as other trade-related qualifications. The third, employment division, which works to align jobseekers with employment vacancies through retraining and up-skilling.

Australian Careers Network Group also includes a number of smaller RTO entities, including the Australian Management Academy, Consider This Training, SMART, Haley College, Heron Access, Loka and ITC.

499    The purpose of the offer was explained in the ACN Prospectus at p. 9 as follows:

The Offer is being undertaken to provide Australian Careers Network Group with broader access to funding opportunities in order to pursue its growth strategies, to enable the founders of the business to realise a portion of the investment, to increase the liquidity of the Shares, and to enable Shareholders to take advantage of the opportunities available in the rapidly growing VET sector.

Ivan Robert Brown and Prakash Charan are the founders of a number of companies in the Australian Careers Network group. Consequently, they are the major shareholders of ACN. Increasingly, the driving force between the business has been Ivan Robert Brown with the role of Prakash Charan becoming more limited over time. The Offer is seen as an opportunity for Prakash Charan to exit the business and, accordingly, Prakash Charan is selling down 21,500,000 Shares under the Offer.

500    The key role that the Brokers and Agents were to play as a part of the strategy to expand the Group was alluded to in the Prospectus and identified as one of ACN’s “key strengths” (at p. 13):

Sourcing students is a key strength, with Australian Careers Network Group growing since 2012 to become one of the largest private training providers in Victoria. This demonstrates the Australian Careers Network Group’s relative effectiveness in growing student enrolment numbers, which is the most important driver of its business.

(Emphasis added.)

501    The IPO was successfully completed in December 2014, raising $15 million of new capital ($13.8 million net of underwriting costs).443 This allowed ACN to fund the acquisition of Training Experts Australia Pty Ltd and Training Synergies Pty Ltd (TEA and TS respectively) at the time of the IPO for $4 million, and Phoenix subsequently for $2.3 million. The ACN 2015 Annual Report explained that “[t]hese acquisitions reflect the execution of the Company’s stated strategy of risk mitigation and revenue diversification through interstate expansion (‘TEA’ and ‘TS’) together with its move into the higher education sector (‘PI’ [ie Phoenix Institute]).444

502    ACN was listed on the Australian Stock Exchange (ASX) in December 2014.445 Mr Kochhar was appointed COO of Phoenix on 6 January 2015 and Mr Brown as a director of Phoenix on 12 January 2015.446

10.3    Steps in preparation for the Online Courses taken in advance of the acquisition of Phoenix

503    While ACN completed its acquisition of Phoenix on 13 January 2015, preparations were well underway by mid-December 2014 to introduce new online courses through Phoenix. In particular, by 16 December 2014, a Trainer’s & Assessor Guide for LLN for BSB & SIR (Business Services and Retail Services) and a Trainer’s & Assessor Guide for LLN for CHC & HLT (Community Services and Health Industry) had been prepared under the Phoenix logo.447 Significantly, these expressly recognised the purposes to be served by LLN indicator tools including the assessment of whether a prospective learner had the appropriate skills to the level of the unit of competency or qualification that the learner proposed to undertake and the identification of those who might require assistance. As the Trainer’s & Assessor Guide for LLN for BSB & SIR, for example, stated:

They can:

    identify learners’ existing LLN skills, including their confidence in using those skills

    identify learners at risk – do their identified LLN skills match the underpinning skills needed to undertake the qualification

    establish learners’ particular core needs (e.g. numeracy, reading and/or writing) and the level of support required

    assist trainers to identify which learners will most likely need assistance during the training, thereby improving retention rates by providing a means for early targeting of learners who are at risk of withdrawing or failing

    give learners an opportunity to request assistance.448

504    The Trainer’s & Assessor Guide for LLN for BSB & SIR also explained that:

Trainers need to identify the underpinning LLN in the units of competency when developing LLN indicator tools.

LLN indicator tools [have] been:

    developed in consultation with vocational trainers

    contextualised to the industry for authenticity, including text types and graphics or visual clues (e.g. graphs, charts and photos) relevant to the industry

    [sic] reflect the specific type of LLN required for the qualification – reading, writing and/or numeracy skills

    [sic] be mapped to the Australian Core Skills Framework (ACSF).449

505    Among other things, the Guide made it plain that the “learner” (and therefore not a Broker or Agent) was to complete each of the indicator tools and that, for example, the numeracy indicator tool should take approximately 40 minutes for the learner to complete.450

10.4    The VET HELP Newsletter 2014 December edition circulated to all contacts in HITS

506    In December 2014, the Student Support Branch of the Department circulated its December edition of the HELP Newsletter.451 That newsletter (and later editions of it during the relevant period) was sent to all of the people listed as contacts in HITS, being the electronic information database used to manage information about higher education providers, including VET providers. The newsletter explained that “HITS is the only contact list utilised by the Department when sending providers important information”, such as information regarding any changes to how payments were managed and therefore that all VET and higher education institutions should ensure that correct contact details are entered into HITS, including for FEE-HELP and VET FEE-HELP. As such, it can reasonably be inferred that a copy of the newsletter was sent to Phoenix and to ACN.

507    The newsletter raised serious concerns about the conduct engaged in by promotional/marketing services acting on behalf of educational providers and emphasised the educational provider’s responsibility for that conduct. First, the newsletter stressed the importance of complying with the legislated requirements regarding electronic Request for Commonwealth Assistance Forms (eCAFs) “particularly where marketing agents, educational agents or partner organisations act in some instances on the provider’s behalf.” In particular, the newsletter highlighted at p. 2 (in line with the purpose of the CAF as explained in Chapter 6 above) that:

Most importantly, persons other than the student may not submit an eCAF on behalf of the student.

It is the submission of an eCAF by the actual student using their unique identifier that is the evidence that the student has signed the form by electronic means and by doing so declares they have read the relevant HELP booklet and understand their obligations.

Should providers be found to be accepting eCAFs that have been populated or submitted by education agents, promotional or marketing services, partner organisations or other RTOs, using information obtained but from individuals over the phone or by other means, the Department may investigate whether a contravention (or an offence) under the Higher Education Support Act 2003 (HESA) framework or any other legal requirements has occurred and take appropriate action.

(Emphasis in the original.)

508    Secondly, the newsletter stated (at p. 2) that:

Unethical practices by agents acting on behalf of providers

Providers are responsible for actions taken by education agents or promotional/marketing services acting on their behalf and must ensure actions taken by them are within the requirements of HESA. Providers will be held responsible for any unethical, misleading or fraudulent behaviour of agents acting on their behalf.

Numerous complaints have been received from students who say they have been misled as to the identity of the institution they will be studying with, as well as some instances where marketing agents have induced students to sign up to courses without students necessarily having a commitment or intention to study, nor an understanding of the HELP debt they will incur.

Complaints received indicate that this has been happening through cold calling and marketing undertaken at locations such as Centrelink offices and shopping centres. The provisions of HESA do not stop a provider (or partner organisation delivering a course on behalf of a provider) from utilising the services of an education agent or a promotional/marketing service. It is understood that many providers have relationships with organisations offering these services. Providers should ensure they are aware of practices undertaken by organisations on their behalf, and can confirm they meet legislated requirements.

Further, as noted in our article regarding electronic submission of request for Commonwealth assistance forms (eCAFs), eCAFs must be submitted by the actual students themselves, after they have had an opportunity to consider the offer of enrolment with a particular institution and read the relevant HELP booklet, and the identity of the institution they are enrolling with must be clear to the student.

(Emphasis in the original.)

10.5    Commencement of the Phoenix Online Courses and engagement of Brokers

509    On 13 or 14 January 2015, Mr Brown and Mr Kochhar visited the Phoenix Queen Street campus where they held a meeting attended by Mr Gale and most of the staff, and announced their plans to introduce online courses under the Phoenix brand operating out of ACN’s Spotswood office.452

510    Phoenix and CLI wasted no time after the acquisition in giving effect to the strategy foreshadowed in the ACN Prospectus of engaging Brokers and Agents to recruit consumers.

511    In a letter dated 14 January 2015, the compliance team of CTI wrote to its “clients”, being the Brokers, identifying certain prerequisites which students seeking to enrol in the Diploma of Community Services Work must meet, namely, a Statement of Attainment or evidence of work experience. Despite acknowledging in the letter that students who do not meet those requirements “cannot be enrolled in [the] Diploma of Community Service[s] [Work](emphasis added), the author candidly stated that “the reality here is that most students will not have these requirements” (emphasis in the original).453

512    The compliance team for CTI again wrote to the Brokers on 18 January 2015 making it clear that they and any Agents engaged by them would be representing Phoenix in recruiting customers. Specifically, the letter advised Brokers that “[t]o streamline and ensure we have the correct people registered with CTI representing Phoenix, a new process will be implemented where by [sic], in order to represent Phoenix for VFH, you and your sub agents will need to be registered with CTI and have a CTI produced ID”. The ID was to bear the Phoenix and myTime Learning logos and websites, and the myTime Learning email and 1300 number, as well as the agent’s name, number, and photograph.454

513    Between 16 January and 1 June 2015, CLI on behalf of Phoenix entered into a number of standard form contracts with Brokers. These included the agreement between CLI and Step 123 Pty Ltd made on 18 January 2015 signed by Mr Brown as the authorised officer of CTI, with a commission of 20% of the VET FEE-HELP loan scheme payments for the sourcing of students.455

514    From at least early February 2015, CTI required Brokers to complete and submit a travel schedule for the following week or month so that each Broker’s client relationship manager was aware of the locations in which all sales representatives were operating and could review their proposed schedules in case there were any issues about those locations.456 However, as later became apparent, the schedules were often delivered late, if at all, or did not record the locations where the Agents marketed Phoenix Online Courses.457

10.6    Internal correspondence in late January 2015 directing non-compliance with identification requirements

515    Clear evidence of the intention to not comply with the identification requirements for VET FEE-HELP emerges from a telling email exchange on 31 January 2015.458

516    The email exchange commenced on 30 January 2015 when the Broker, Mr Anthony (Tony) Tascone, managing director, Alpha Prime Education, emailed Mr Kochhar (copied to Mr Brown) seeking his direction on issues about the identification requirements for students enrolling with Phoenix and accessing VET FEE-HELP. Mr Tascone stated that he had “10 double diplomas sitting on [his] desk from [I]ndigenous Australians all of whom don’t have any of the above ID [being, a birth certificate, passport, marriage certificate or humanitarian visa]”. Mr Tascone also stated that he had been alerted to the fact that the RTO Service Skills Australia in Brisbane was allegedly “not requiring any ID for their VET Fee HELP online courses” and, while not advocating “zero ID”, wondered if there was some middle ground.

517    Later that day Ms Crittenden emailed Mr Kochhar and Mr Gale in relation to the matters raised by Mr Tascone above and pointed out that the VET Administrative Information for Providers which outlines eligibility requirements for VET FEE-HELP “clearly states we must confirm their identity/eligibility”. She explained in unequivocal terms that the options for confirming citizenship/residency “for all applicants”, such as an Australian passport or Australian full birth certificate, were detailed in a link to citizenship.gov.au, and emphasised that “[t]his is not about classroom or distance online learning. It is about eligibility for VET Fee-Help.” That understanding was subsequently confirmed in writing when, on 19 February 2015 Ms Henrietta Johnson of the Department advised in response to a query from Ms Crittenden, that:

If [a] person does not have a birth certificate or passport regardless of whether they are aboriginal it is up to the provider to determine by other forms of documentation the students [sic] citizenship status.459

518    However, following on from Ms Crittenden’s email, on 31 January 2015 Mr Kochhar and Mr Brown exchanged several emails between themselves. Mr Brown queried “how they determine a person [is] not eligable [sic]”:

1.    Is it only if they audit and we dont [sic] have birth cert

2.    Is it if they audit students and prove a person isnt

If its 1. Then we r fucked

If its 2. Then we only need birth cert off huss and faris types and aussie and abos are ok without

519    Mr Kochhar responded “Yes to point 2 option 1”, to which Mr Brown concluded “Ok … So even if dont have id then no problem unless they prove they are not citizens So we can take coons and white ozzies without birth id and will be ok” (errors in the original). Not surprisingly given these instructions, Ms Crittenden’s advice was not respected, as a result of which continued concerns about non-compliance with identification and citizenship eligibility requirements led Ms Crittenden and Ms Mason to conduct further investigations in late February 2015, as I shortly explain.

10.7    Renewal of Phoenix’s RTO Registration on 15 February 2015 and associated documentation

520    I have already referred to Mr Brown making a Senior Authorised Officers’ Statutory Declaration of Adherence to the HES Act on 11 February 2015 and associated Fit and Proper Person Requirements declaration (see at [180] above).

521    On 13 February 2015, the Department wrote seeking information in order to ensure that Phoenix continued to meet the requirements under the HES Act and provided copies of the guidelines for VET FEE-HELP and FEE-HELP variations.460 Mr Moffat, whose email signature at that time identified him as a Contracts Manager at Consider This Training (within the ACN Group), did not reply until 26 March 2015, when he stated, among other things, that “[t]he CEO and Board of Phoenix have not been changed however the board and CEO report to representatives of ACN who also control strategic direction and expansion of Phoenix”.461 The email from Mr Moffat also stated that CTI is not a RTO “but aids with administrative activities including acting as a broker as well as a sales and marketing arm for many of the RTOs within the ACN group. In each case the RTO being represented is clearly identified.

522    On 15 February 2015, Phoenix was granted renewal of its RTO registration under delegation with an expiry date of 15 February 2020.462 At all material times, Phoenix was a VET provider within the meaning of cl 4 of Sch 1A of the HES Act.463

10.8    Complaints and issues arising in late January and February 2015

10.8.1    Mr Gale communicates complaints to Mr Brown and Mr Kochhar and is sidelined in favour of Mr Kochhar

523    Mr Gale only became aware that Phoenix through ACN had started to enrol students in the new Online Courses in late January 2015 when he started to receive reports of complaints about the new Online Courses being offered under the ACN brand.464 He said that “[i]t started off, you know, probably receiving two or three calls a week. It escalated over a period of time.”465 These complaints included that consumers were being offered free laptops and tablets if they signed up for a course and were not being advised that they would incur a VET FEE-HELP debt if they enrolled.466

524    At this time, staff members at the Queen Street campus working at reception and in what Mr Gale called the “enrolments team”, as well as Ms Crittenden, Director of Operations, Quality and Compliance, reported that the Queen Street campus was receiving a significant number of telephone complaints from consumers who had been enrolled, or approached to enrol, in Phoenix Online Courses.467 Complaints were also being received at the Queen Street campus reception from at least the start of March 2015 about people doorknocking and harassing consumers into signing up to the Phoenix Online Courses and asking them to disclose private information such as their TFN.468

525    Over the period from January to around May 2015, Mr Gale was regularly kept informed by email and telephone calls from staff of complaints of this nature.469 Mr Gale instructed Ms Crittenden and other staff to provide details of the complaints to him so that he was aware of the relevant issues and could report the complaints to ACN.470 He also instructed Ms Crittenden and the “enrolments team” staff to direct the more serious complaints and those from distraught prospective consumers directly to him when he was available.471

526    Among other complaints, Mr Gale recalled speaking with a social worker who complained that a client with an intellectual disability had been enrolled into a Phoenix course, and of receiving complaints that disadvantaged Indigenous people were being enrolled in Phoenix courses.472 As a further example, in late February 2015, Mr Gale saw a complaint sent by email to the Phoenix General Enquiries inbox dated 27 February 2015. The author complained that someone who identified as being from “Phoenix University” had knocked at her door stating that she could sign up for a free course and get a free computer for which she would not have to pay anything at all unless she earned a certain amount. The author said that the representative had been so pushy that in the end she had called the police out of fear of the incident escalating.473 Similarly, on 23 April 2015, Mr Gale received an email from a person who had received an unsolicited visit at 6:30pm that day from “a very pushy man suggesting that he was representing your organisation and pretty much demanded that my husband and I enrol in a course so we could ‘benefit’ from a free laptop. Totally inappropriate hour, totally inappropriate and forceful approuch [sic]!474 Mr Gale replied, apologising for the incident, and said that he had passed the information on to those responsible to take appropriate action.475

527    When he received complaints, Mr Gale’s general practice was to collect the complainant’s details (name, contact details and nature of their complaint), and to pass those details on to ACN with the complainant’s consent. He said that he provided these details predominantly to Mr Brown or Mr Kochhar, and increasingly to Mr Brown by telephone, email, or in face-to-face conversations. He also raised them during leadership group meetings at ACN’s Spotswood office which were led by Mr Brown and attended by Mr Gale from approximately the end of January to August 2015.476 However, Mr Gale’s reports of complaints were brushed aside by Mr Brown and Mr Kochhar with words such “leave that with us”, “we’ll handle that”, or “we are putting in place policies to deal with these issues”.477

528    Mr Gale also had a number of conversations with Mr Brown and Mr Kochhar between January and November 2015 in which he raised his concerns about the number and nature of consumer complaints about the Online Courses and the enrolment of consumers into multiple courses. In general, Mr Brown’s response was to seek to reassure Mr Gale that the issues were being fixed and that Mr Kochhar was the one with oversight of those issues.478 Consistently with this, Mr Gale recalled that in early 2015, when he expressed concern to Mr Kochhar about the way in which consumers were being enrolled in the Online Courses, Mr Kochhar instructed him to focus on the face-to-face courses and informed him that ACN was putting policies and procedures in place to deal with the issues.479

529    Such steps to sideline Mr Gale from oversight of the Online Courses understandably lead Mr Gale to be concerned that, despite being listed as CEO of Phoenix on the RTO accreditation forms provided to ASQA, he lacked sufficient access to information about the Online Courses to discharge his obligations as CEO. As a result, he sought and received advice from Mr  Nash in early March 2015, who confirmed Mr Gale’s view that Mr Gale must have access to all aspects of the RTO including to student records, asking rhetorically “[h]ow else can you manage compliance.480 On multiple occasions during 2015, Mr Gale raised with Mr Brown and Mr Kochhar the importance of him knowing what was happening with the online business but on each occasion he was told that the online business was not his responsibility. This led Mr Gale to ask Mr Brown to be removed as CEO of Phoenix save for the face-to-face courses. This was eventually acted upon in August 2015 after further representations were made by Mr Gale to Mr Brown and the ACN Board, as I later explain.481

530    Furthermore, in around February 2015, Mr Brown instructed Mr Gale that no staff from the Queen Street campus were to contact the Department in relation to any complaints received by it; nor was Mr Gale to contact the Department without first informing Mr Brown.482 This instruction was confirmed in an email on 20 February 2015 from Mr Brown to Mr Gale stating:

Can you please ensure that no one other than yourself, with my knowledge, contacts the department in Canberra regardless of the enquiry.

Can this be strictly adhered to forthwith.483

531    At the end of February or in early March 2015, Mr Kochhar arranged for all phone calls and emails to Queen Street to be diverted directly to the Spotswood office, advising Mr Gale that direct queries about face-to-face courses would be referred back to him, but Spotswood would deal with all the other student contacts.484 An email from Mr Brown to Mr Gale and copied to Mr Kochhar on 2 March 2015 confirmed that all calls would be diverted to the CTI call centre, with any “queen st calls” being referred back.485 Following this, for an initial two-week period, all telephone calls and emails (at least, I infer, to the Phoenix General Enquiries email address) were diverted to ACN’s office in Spotswood, pending the establishment thereafter of a dedicated telephone number and address for complaints to be dealt with ACN staff. That notwithstanding, the Queen Street campus continued to receive telephone and email complaints about the Online Courses.486

10.8.2    Sidelining of the Director of Operations, Quality and Compliance, Ms Crittenden, from her responsibilities vis-à-vis the Online Courses

532    Ms Crittenden was aware from the time that ACN acquired Phoenix that it intended to offer new online courses to students. As a result, she emailed Harry Kochhar on a number of occasions requesting details of the new courses because, as Director of Operations, Quality and Compliance for Phoenix, she anticipated that she would have a lot of work to do in order to prepare the courses and their associated policy and enrolment documents.487 However, she received no response to her emails, reflecting what became a familiar pattern of Mr Kochhar sidelining Ms Crittenden. Ms Crittenden finally received information from Mr Moffat on the anticipated training activity for the year which needed to be submitted to the Department in order to obtain VET FEE-HELP funding for the new online courses.488 This information included the names of the courses, the number of times that the courses would be run during the year, anticipated student numbers for each course, and projected VET FEE-HELP funding requirements.489

10.8.3    Enrolments of consumers after the Online Courses had commenced

533    Ms Chopra became aware from Wise.NET in late February 2015 that ACN had started enrolling consumers into the Phoenix Online Courses in which about 80 students were already enrolled. Ms Chopra reported this to Ms Crittenden and showed her details of the students who had been enrolled on her computer. Despite her responsibilities as Director of Operations, Quality and Compliance for Phoenix, this was the first time that Ms Crittenden became aware that consumers had already been enrolled and indeed, she had not at that stage seen or been sent any enrolment forms for them.490 At Ms Crittenden’s direction, Ms Chopra continued to monitor enrolments being entered into Wise.NET for the Online Courses, logging in every one or two days. Ms Chopra reported seeing continuing increases in enrolments and also observed consumers being enrolled into courses for which the commencement date had already passed despite it appearing that there had been no extension to the census dates (cf [197]–[199] above regarding the requirements under the VET Guidelines). Ms Chopra reported these observations to Ms Crittenden who confirmed these matters for herself491 and shortly thereafter wrote to Mr Gale regarding her concerns (see at [553] below).

10.8.4    Non-compliance with identification and citizenship eligibility requirements comes to Ms Mason and Ms Crittenden’s attention

534    Despite Ms Crittenden’s clear advice to Mr Kochhar at the end of January 2015, many of the applications received in February 2015 by Ms Mason’s team, the Data Team, did not include federal or state issued identification or proof of citizenship. As a result, she spoke in about mid-February 2015 with Mr Kochhar and Ms Arnold about the need to ensure that each of the applications provided by the Brokers had either federal or state identification because of the need for her team to confirm the identity of the students.492 Ms Mason also instructed the Data Team to ensure that every application had either federal or state issued identification or it was to be rejected,493 and created the “VET FEE-HELP checklist” (to which I have earlier referred) which the Data Team was instructed to compare against the application form and complete.

535    Continuing concerns about non-compliance with identification and citizenship requirements in enrolment forms received from Brokers led Ms Crittenden and Ms Mason to visit the ACN office at Spotswood in late February 2015 to look at completed enrolment forms of consumers enrolled in the Online Courses. A woman who said that she was in charge of enrolment documentation retrieved, at Ms Crittenden’s request, a stack of enrolment forms approximately one foot high which Ms Crittenden and Ms Chopra started to check. However, before that process was completed, Mr Brown called Ms Crittenden into his office and substantially reiterated the position upon which he and Mr Kochhar had agreed not to insist on compliance. As Ms Crittenden recalled, the conversation was to the following effect:

[Mr Brown]: What are you doing down at Spotswood?

[Ms Crittenden]: I am having a look through the enrolment forms. As the Director of Quality and Compliance for Phoenix I need to check that all of the students have proved that they are eligible for VET FEE-HELP funding. Your enrolment forms only ask for a drivers licence or Medicare card, but this isn’t enough because they need passports, birth certificates or citizenship certificates.

[Mr Brown]: Don’t worry too much about their citizenship documents. If they’re white and their name is John Smith we do not need to worry about their citizenship documents. From my reading of the regulations, a Medicare card and drivers licence is more than enough.

[Ms Crittenden]: We need to check to verify eligibility for VET FEE-HELP funding for everyone. Besides, I just saw an enrolment form for a student with a Vietnamese name who did not have any evidence of his citizenship.

[Mr Brown]: We’ll have a look at that one.494

10.8.5    The internal audit by Damien Nash dated 26 February 2015

536    Following her visit to Spotswood, Ms Crittenden spoke with Mr Gale raising her concerns about how ACN were running the Phoenix Online Courses and requesting that he arrange for Mr Nash to conduct an ASQA audit.495 Mr Gale agreed with this suggestion and on about 20 February 2015, Mr Peake and Mr Gale engaged Mr Nash to undertake the audit.496

537    Mr Nash had previously been engaged by Mr Peake and Mr Gale to provide compliance and audit services to Phoenix. He holds a Bachelor of Economics and Graduate Diploma in Education. His extensive experience in the education sector includes employment as a teacher, a curriculum officer, and a compliance auditor (including for the Victorian Registration and Qualifications Authority). Mr Nash had also undertaken compliance work for Commonwealth RTOs from 2010 when the Commonwealth first introduced a federal registration scheme.

538    In addition, Mr Nash was a member of Phoenix’s Higher Education and VET Advisory Board from about February 2014 until it ceased to operate in early 2016 (although the Board’s last meeting was held on 22 April 2015). The role of the Advisory Board was to review Phoenix’s courses and their compliance with various legislative requirements, including those necessary for VET FEE-HELP accreditation.497 Shortly before he was requested to provide the audit, Mr Nash had attended a meeting of Phoenix’s Higher Education and VET Advisory Board on 18 February 2015498 at which he had drawn the Board’s attention to the need to evaluate the new “VET Standards” to be introduced on 1 April 2015 with respect to “Third Party Agreements”. Mr Nash had also expressed concerns that “[v]olume of learning needs to be discussed, e.g. Advanced Diplomas are supposed to be 18 months in length, ours are 12 months”.

539    In order to undertake the audit, Mr Nash was provided with the “Phoenix Institute Student Handbook 2015499 (prepared only a few days earlier), Phoenix’s Training and Assessment Strategies for each of its four online courses,500 and the assessment tools for one of the units from the Diploma of Early Childhood Education and Care.501 Mr Nash also accessed the Phoenix website and online marketing materials. He attended Phoenix’s Queen Street campus to view documents but did not see any files on Phoenix’s trainers evidencing their qualifications, any student files which under the standards should have included their enrolment forms, LLN tests, completed assessments and other information, or any third-party agreements with the Agents promoting Phoenix’s courses and accepting student enrolments.502

540    Mr Nash provided his audit report (the Nash Audit Report) to Mr Gale and Mr Peake on 26 February 2015.503 Ms Crittenden also received a copy of the audit report at or about the same time.504 It is important to emphasise that Mr Nash’s report was not prepared for this litigation and did not comply with the Court’s Expert Evidence Practice Note. As such, it was not relied upon by the applicants as expert evidence for the purposes of s 79 of the Evidence Act. Rather, the report was relied upon as part of the factual matrix establishing Mr Brown’s and Mr Kochhar’s knowledge of serious issues regarding Phoenix’s compliance with the RTO Standards as at this early stage, including in relation to arrangements with Brokers and Agents. Mr Nash’s qualifications and experience, as well as his role on the Phoenix’s advisory board, are relevant in demonstrating that his views should have been taken seriously at the corporate governance level.

541    In his audit report, Mr Nash measured Phoenix’s compliance with the 2015 Standards for RTOs, which were relevantly applicable from 1 April 2015. Among other things, Mr Nash formed the view that Phoenix was non-compliant in a number of respects. In particular, he found that:

(1)    with respect to Standard 1.3, while TASs had been developed for the qualification, details of the processes for managing work placement requirements and of trainers and assessors were not provided;

(2)    with respect to Standard 1.13, details of trainers were not provided so that there was no evidence that the standard as to the skill and competency levels required of trainers and assessors was met;

(3)    with respect to Standard 2.3 (requiring that RTOs ensure that services provided on their behalf by a third party be the subject of a written agreement), Phoenix was unable to advise who the Agents marketing the courses were apart from one third-party agreement with Advanced Training & Careers Pty Ltd t/a Australian Training Colleges, where no details were provided of such arrangements;

(4)    with respect to Standard 2.4, no system or procedures had been established to monitor the services offered on behalf of Phoenix primarily because Phoenix was not aware of the arrangements made;

(5)    with respect to Standard 4.1(e), there was no evidence that it was made clear to all learners where a third party was recruiting prospective learners for the RTO;

(6)    in relation to Standard 4.1(k), it was unclear that details about any VET FEE-HELP arrangements associated with the RTO’s provision of training and assessment was provided; and

(7)    with respect to Standard 5.1, while a student handbook had been developed, it was not known what process had been established to ensure that learners obtained a copy of the handbook before enrolment.

10.8.6    Tabling of the Nash Audit Report at the Phoenix Governance Board meeting in late February 2015

542    Shortly after receipt of the Nash Audit Report, Mr Gale attended a meeting of the Phoenix Governance Board in late February 2015. At the meeting, he informed the Board that the Queen Street campus had been receiving a number of complaints about the Online Courses and of his concern that the practices for enrolling students in these courses were not in accordance with Phoenix’s usual practices and may be in breach of ASQA standards.505 Mr Nash’s audit report was also presented and discussed at the Governance Board meeting.506 The Board agreed that the Chair of the Phoenix Governance Board, Mr David Davenport, would write to Mr Brown and to the Chair of the ACN Board, Mr Stephen Williams, raising the Phoenix Governance Board’s concerns about student complaints and enrolment practices, as well as the other issues raised in the Nash Audit Report.507

10.8.7    The letter from the Phoenix Board to the ACN Board, dated 27 February 2015

543    In line with what was agreed at the Phoenix Governance Board meeting, Mr Davenport wrote to Mr Williams in the latter’s capacity as Chair of the ACN Board stating that:

As the Chair of the Phoenix Governance Advisory Board I am writing to you to raise our very serious concern regarding compliance, ethical and governance issues that were raised at our Board meeting today. It is our opinion that the Phoenix Institute is in grave and immediate danger of losing its accreditations and licences but also bringing the Phoenix name and brand into disrepute.

The Board was informed today that as soon as these concerns were raised earlier this week an audit was commissioned with an external auditor to uncover the nature, extent and compliance of these practices as listed below.

The audit attached has uncovered a number of non-compliance issues in regard to the new courses placed on scope under the Phoenix auspice.

The most significant of these relate to third-party arrangements of which Phoenix has no detail and would result in our accreditation being revoked.

We have also become aware of unethical marketing practices where prospective students have been offered laptops or tablets to enrol in these courses. One such instance was where a salesman knocking on doors offered a laptop to a mentally handicapped prospective student, took her tax file number and CVN. Her case manager (a social worker) phoned Phoenix to enquire and to object to this practice …

Phoenix staff have also been advised that they can no longer speak to VET Fee Help without first speaking to the ACN Managing Director which compromises efficient and effective operations. 508

544    The letter concluded by requesting that:

We ask that you and your Board come back to us within seven days with a detailed plan as to how these issues and those raised within the audit will be managed within an immediate time frame.

(Emphasis in the original.)

545    A copy of this letter, together with the Nash Audit Report, were later sent by Mr Peake on 27 February 2015 to Mr Andrew Walker, the Director of KHQ Lawyers, (copied to Mr Nash) under cover of an email stating that:

The attached audit outlines some serious non-compliance issues as a consequence of ACN’s actions to date which suggests the Institute is not being managed responsibly and is being put at risk.

I want to discuss the audit report with you and the Boards [sic] letter and my concerns re ACN’s compliance management of Phoenix. I have asked the auditor to also attend the meeting so you will understand the implications of the situation.509

546    Despite the pressing and urgent request made by the Chair of the Phoenix Governance Board in his letter to Mr Williams to provide a detailed plan to address the issues raised in that letter and in Mr Nash’s audit report, no plan, detailed or otherwise, to manage those issues was ever provided by ACN; nor was a plan ever formulated by the respondents and particularly Phoenix which, as the RTO, ultimately bore responsibility for ensuring compliance with the HES Act and subordinate legislation. It can only be inferred from the complete failure at this early stage to address issues of the utmost seriousness that it did not suit the respondents’ (and ACN’s) interests to do so.

547    The only step which ACN apparently took in response was to request Ms Vassallo to review the Nash Audit Report.510 While Ms Vassallo was critical of Mr Nash’s conclusions in her review report dated March 2015 stating that it “made some wild, and at times absurd claims of non-compliance”, nonetheless she did not consider that all of his report could be disregarded. In particular, she referred to:

(1)    the need for the ACN Training Manager to ensure that in line with the new RTO Standards, appropriately qualified trainers and assessors were available to undertake the workload posed by the online enrolments;

(2)    the need for ACN to review Broker monitoring procedures to ensure full compliance with all aspects of the agreements; and

(3)    the need for the ACN training and delivery team to update the TASs in relation to work placement guidelines.

548    There is some force in the applicants’ submission that the nature of the response by Ms Vassallo raises questions about her objectivity.511 However, the critical point is that issues were clearly highlighted by Mr Nash which ought to have been taken seriously by the respondents and even Ms Vassallo did not dispute that some of those issues were properly identified. Furthermore, as Mr Nash correctly observed in an email to Mr Gale on 11 March 2015, MsVassallo’s report:

… really does miss the basic premise that Phoenix Institute of Australia is the RTO, not ACN. The fact that ACN has the necessary staff and documentation does not relieve Phoenix of its obligations under the Standards for RTOs. The CEO of Phoenix Institute is ultimately responsible for compliance, not the CEO of ACN.512

549    The respondents’ failure to develop a plan to address the non-compliance issues identified by Mr Nash and outlined in Mr Davenport’s letter is all the more reprehensible given correspondence received from the Department at around the same time regarding the need to address unethical and exploitative practices with respect to the recruitment of students in the VET sector. Specifically, on 23 and 24 February 2015, the Assistant Minister for Education and Training wrote to all RTOs, including Phoenix, advising of a significant VET reform program.513 In the letter, the Assistant Minister referred, among other things, to “[t]ough new standards that require training providers to make clear to all students what they are signing up for every time their debt level is due to increase and to be responsible for services delivered by brokers on their behalf”. The Assistant Minister also stated that:

In particular, I will be taking strong action to stamp out the abuse of the VET FEE-HELP scheme by people out to make a quick buck at the expense of the vulnerable and the taxpayer. Stakeholders have reported to me, and to the national regulator:

    Students being signed up for “free courses” without knowing there is a loan attached, or the debt they are incurring;

    Students being given inadequate information about census dates, making it harder for them to make informed decisions about the course and debt;

    Students being signed up to courses despite clearly lacking the educational pre-requisites necessary to successfully complete it; and

    Courses of only one unit of study, a miraculously short duration to complete a higher level diploma or advanced diploma course, which results in the full debt load for the whole qualification being levied in one go at the start of the course.

550    This letter was sent by Mailchimp, being a web-based marketing service used to send pro forma letters via email to subscribed mailing lists.514 The evidence of Ms Babic establishes that this letter was:

(1)    emailed to Mr Gale on 23 and 24 February 2015 and was opened on a total of nine occasions, including the first occasion on 23 February 2015; and

(2)    emailed to an address “systemsmanager@phoenix ...” identified as “Meena” (which I infer is Ms Chopra) which was opened on more than 20 occasions, including the first occasion on 23 February 2015.515

551    Even though Mailchimp indicates that the email sent to Mr Brown’s address on 24 February 2015 was not clicked on or opened, I infer on the balance of probabilities that the letter was drawn to his attention and also to the attention of Mr Kochhar given the importance of the information contained in the letter, the fact that the letter was from the Assistant Minister whose portfolio encompassed the VET sector, the number of occasions on which the email was opened, and the governance positions held by Mr Brown and Mr Kochhar within Phoenix and CTI.

552    I therefore agree with the applicants’ submission that there can be no doubt that Mr Brown and Mr Kochhar were well aware by late February 2015, if not earlier, of the need to “rein in” the misconduct of Brokers and Agents and to address other non-compliance issues.516 Yet it can only be inferred from their inaction that they chose not to do so.

10.9    Events in March and April 2015:

10.9.1    Issues with enrolment practices including enrolments after commencement of the Online Courses without extending the census date

553    Problems continued to beset Phoenix’s enrolment practices. On 2 March 2015, Ms Crittenden sent an email to Mr Gale copied to Mr Peake expressing her concerns about the practice of enrolling students after the commencement date without extending the census date. Specifically, in her email Ms Crittenden wrote:

Concern regarding the Census Date for CTI Group 1 enrolments. Currently there are approx 500 enrolments entered into Wise.NET. About 420 of these were entered w.c. [ie week commencing] 23/2/15. Census Date for this Group One is 23/2/15 based on a start date of 16/1/15. If CTI did not start enrolling people until mid February then the Census Date needs to be extended to meet regulations. This can be confirmed by the date of the signatures on the enrolment forms and Application for Vet Fee-Help form. This means that students are being enrolled in the Group 1 after the Census Date is passed. The Census Date is seen as a cooling off period for the student to review their enrolment decision. It is recommended that the Enrolment period Dates for Group 1 be reviewed and a new Census Date calculated that meets the regulation requirements [(referring to VET Guidelines at [7.4.1] VET Administrative Information for Providers)].517

554    Immediately upon receipt of the email, Mr Peake wrote confidentially to Mr Nash via his Gmail account asking for his comments on the compliance, legality and seriousness of the issues raised by Ms Crittenden’s email and indicating that he wished to raise the issues “with the lawyers tomorrow in terms of risk to Phoenix.”518 Mr Peake asked that his Gmail account be used for all future correspondence. Mr Nash responded on 2 March 2015 advising that:

If learners have not been advised of a revised census date and revised completion date, then Phoenix is clearly in breach of the VET Fee Help regulations. The information on Phoenix website indicates a census date which is also the enrolment date which is obviously in contravention of the rules.519

555    On 11 March 2015, Ms Chopra again wrote to Ms Crittenden (copied to Ms Jill Keating) setting out issues regarding CTI online enrolments as per her discussion that morning. These included online enrolments being entered into Wise.NET after the first census date of 23 February 2015. Ms Chopra also stated in the email that:

    I have asked data entry staff at Spotswood a couple of times over the phone and via emails to send me the list of enrolments and the units they have been charged for, but I have not received any reply from them, therefore we cannot reconcile the number of students enrolled with Finance to work out how many students are on VFH. This reconciliation leads to the generation of the DEEWR Report as at 31/3/15.

    Also in my training session with Spotswood staff I requested the data entry staff complete the Client Checklist in the Client Profile in Wise.NET. This has not been done as agreed by CTI staff. This is required so that a check of the students shows if they have applied for VFH. This checklist also indicates if the student has provided their TFN or not.520

556    She also said that many enrolments were missing some crucial data and attached two course examples. Ms Crittenden forwarded that email on 12 March 2015 to an ACN employee who worked in compliance to raise her concerns about some of the enrolments and confirmation of eligibility for VFH.521

557    On 20 March 2015, Ms Jenny Rafter, client relationship manager at CTI, emailed Ms Bagga and others about being alerted to the fact that one of the Brokers, GG Sales, was contacting students directly to “confirm their courses and iPads” and “this was ok’d by Harry [Kochhar] and Ivan [Brown]”.522 Ms Rafter said that she had advised GG Sales (“the client”) that “if their students do not take our calls then the students won’t be processed” and asked GG Sales to contact the students in question to arrange a time for CTI to call them to confirm their enrolments.523 She also said that she would follow the process up with Mr Brown and Mr Kochhar. As the applicants point out in their Narrative Chronology at [34], this appears to be the first of many complaints identifying GG Sales by name (at least in the documentary evidence), which remained Phoenix’s key Broker, bringing in the largest number of enrolment applications during the relevant period.

10.9.2    Meetings of the Phoenix Corporate Governance Board in March 2015 and report to the ACN Board on 16 March 2015

558    The Phoenix Corporate Governance Board met on 12 March 2015. Mr Brown attended the meeting for two agenda items, including agenda item 7 concerning the “Review of Auditors Reports”, and the minutes record the following:

    CEO advised that ACN has now responded to the audit previously undertaken by Damien Nash (tabled in the last PGAB Meeting). The response was provided through an additional audit undertaken on behalf of ACN (tabled) and a letter written by the Chair of the ACN Board, Stephen Williams (also tabled), which was sent to the current Phoenix Chair (Dr Michael Segon).

    The Phoenix Chair explained that he and the ACN Chair are in agreement that the most pressing matter in need of resolution is the clarification of the legal position of both organisations (Phoenix and ACN) and an understanding of where the authority lies.

    ACN CEO, Ivan Brown, addressed the Phoenix Board and:

    Acknowledged that there have been issues and a “vacuum of information between parties”;

    Re-inforced the need for an integration plan detailing what needs to be done and when. Mr Brown advised that this was currently underway and that the integration plan would be shared with Phoenix;

    Noted that where it made sense, processes across both organisations would be streamlined;

    Expressed that very little had been done in the way of progress due to time pressures …524

559    Shortly thereafter on 16 March 2015, Mr Gale provided his “CEO’s Operational Report” to the ACN Board.525 The report addressed a number of issues including the Nash Audit Report and the review of that report by Ms Vasallo , as well as the complaints received by the Queen Street campus concerning enrolment practices in relation to the Online Courses.526 In particular, Mr Gale explained in the report that the Nash Audit Report was requested when it became known that ASQA was likely to conduct an audit given the introduction of a number of new courses and a significant increase in student numbers, and was not intended to be threatening. He also pointed to difficulties in the relationship between Phoenix Queen Street Management (QSM) and ACN, explaining that:

The largest issue is the lack of an integration strategy between Phoenix located at 314 QSM and ACN followed by a communication void.

I would like to stress that Phoenix at 314 are happy to work in concert with ACN however when directives are delivered with no consultations [as] to the likely consequences or impact that makes management difficult. On the few occasions where we have been engaged in meaningful dialogue alternative solutions to that given have been found to solve the problem at hand.

There are also concerns by the Phoenix Board alluded to above as to who is responsible for compliance for those courses under the Phoenix scope at 314 QSM.

560    Mr Gale also observed in the report with respect to Brokers and Agents:

As you are all no doubt aware there are many tales in the media as to inappropriate and unethical practices within the industry. I have personally made your CEO and COO aware of those matters that have been reported to us. It would appear that there is something not quite right. In particular, the engagement practices and oversight of Brokers. I had a further call last week, which involved a Broker, of inappropriate behaviour resulting in the wife of the individual concerned calling the police. She was also unhappy with the outcome when she contacted the Call Centre. This is only one of a number of complaints received that require a preventative risk management strategy.

(Emphasis added.)

561    On 17 March 2015, Mr Brown attended a follow-up Phoenix Governance Board meeting.527 During the meeting, Mr Brown addressed the Board in relation to student complaints about the Online Courses. He said ACN would introduce policies to address the issues arising from student complaints and that Mr Kochhar was in charge of implementing these policies and overseeing the agents.528

10.9.3    First Request to Increase 2015 Advance Payment Determination submitted to the DET on 23 March 2015 and approval on 14 April 2015

562    On 23 March 2015, Phoenix submitted a revised estimate of expected enrolments for 2015 and requested an increase to the 2015 Advance Payment Determination, from $2,410,492 to $75,486,750 (First Request to Increase 2015 Advance Payment Determination).529 This represented a variance between the 2015 Advance Payment Determination and the requested estimate of 3,118%.530 The requested estimate was based upon an assumption of “600 enrolments every 5 weeks” for the remainder of 2015, “with a withdrawal rate after the first census date of 40%”. As the applicants submit, this request corroborates the evidence of the ex-employees as to the setting of high enrolment targets for Phoenix’s Online Courses and the pressure upon the employees to achieve them (Narrative Chronology at [35]).

563    As to actual enrolments as at 3 March 2015, the Request stated that Phoenix currently had:

172 enrolments in BSB50207 Diploma of Business

245 enrolments in CHC50113 Diploma of Early Childhood Education and Care

317 enrolments in CHC50612 Diploma of Community Services Work

564    The Request sought to explain the very considerable increase in the estimate on the basis that Phoenix was now part of a much larger listed company, ACN, and that:

ACN planned for the possibility of this purchase for several months and had strategic and operational plans in place to rapidly increase the students taught at Phoenix.

Having online delivery has allowed us to reach potential students throughout Australia hugely increasing our potential market.

565    With respect to the sales and marketing of the courses, the Request explained that Phoenix had produced a range of flyers for use by “our business development staff and brokers” and identified ACN and the following companies as assisting Phoenix in the sale and marketing of its training courses:

CTI … Provides sales and marketing support to Phoenix in Victoria with a team of business development and marketing staff which currently comprises 14 full-time staff. The sales and marketing team is expanding rapidly …

CLI Training P/L (ACN 164 432 526) … Provides sales support to Phoenix nationwide with 15 full-time call centre staff.

Always Seek Knowledge (ACN 603 432 526) – independent broker. Provides sales support to Phoenix in Queensland.

Alpha Prime (ACN 128 362 952) – independent broker. Provides sales support to Phoenix in Western Australia.

Australian Training Colleges P/L (ACN 321 68 372 38) – independent broker. Provides sales support to Phoenix in New South Wales.

566    I note that this list was manifestly incomplete. By this time, agreements had been concluded between CTI and 16 Brokers, including Step 123, GG Sales, Educational Skills Australia, Let’s Upskill and Let’s Get Qualified. Furthermore, all of the contracts with the Brokers had been signed by Mr Brown as company secretary and a director of CTI.

567    The request also stated that Phoenix had prepared a PowerPoint presentation:

… which we go through with all new sales and marketing staff and with all brokers. It both explains what VET FEE-HELP is and what information students must be presented with prior to them agreeing to undertake training. We check that students have not been given erroneous or incomplete information by continuous random sampling feedback calls. If a student is in any doubt we rectify the situation immediately and retrain the recruitment staff involved.

568    There is no evidence to suggest that these statements in fact reflected the practice being adopted by Phoenix or any associated companies. However, they do demonstrate knowledge of practices which should have been adopted as part of ensuring compliance with the RTO Standards.

569    In response to Phoenix's Request, on or about 14 April 2015 and pursuant to cl 61 of Sch 1A to the HES Act, the DET approved an increase to the advance amount to be paid to Phoenix in 2015 from $2,410,492 to $54,168,001.00.531 While the varied advance amount was therefore approximately $20 million less than requested, the difference between the original estimate and the increase approved for the 2015 advance was extraordinary. Perhaps somewhat surprisingly, the Manager of the Provider Assurance and Systems Branch not only signed off on the recommendation to this effect, but did so on the basis that the Financial Viability Risk Rating for Phoenix was “Low”.

10.9.4    Complaints in late March 2015 raised by the Department with Phoenix

570    On 24 March 2015, Mr Gale forwarded Mr Brown an email which Ms Johnson from the DET sent to him (copying in Ms Crittenden and Mr Moffat) earlier that morning regarding a complaint made by a resident of Victoria about Phoenix’s marketing practices.532 The same email was also sent separately to Ms Crittenden.533 The email from the DET stated in part:

[Mr D] is concerned that the door to door salesman is misrepresenting the course and loan scheme. He asked him how much the course was and was advised $18,000 and that it didn’t matter because if he wasn’t earning over $53,000 dollars the government would pay. He advised the information about the fee structure was on the study assist website. He was not clear on the issue of having to pay the loan back.

[Mr D] wants confirmation that he has not been enrolled in any course with Phoenix Institute and that the contract has been shredded …534

571    The email from the DET continued:

In line with the recent announcement by Senator the Hon Simon Birmingham (Assistant Minister for Education and Training) regarding the unscrupulous marketing behaviour of some private training providers, you may wish to ensure that any marketers engaged by Phoenix Institute to recruit prospective students are adhering to the VET Guidelines 2013.

For your information a copy of the VET reform factsheet can be found at https://docs.education.gov.au/system/files/doc/other/vet_fee_help_reforms_implementation_overview_acc.pdf. The information provided in the complaint raises concerns around Phoenix Institute’s training of its marketing brokers and the practices being undertaken by marketers in recruiting students. The approved VET provider is responsible for the training and actions of its marketing brokers.

572    The announcement by the Assistant Minister referred to in the email from the DET was communicated to VET providers, including Phoenix, by letter dated 19 March 2015 explaining reforms to the VET FEE-HELP scheme and stating that “[t]hese changes have proven necessary as a result of unethical behaviour by a small number of approved registered training providers, along with agents and brokers who have been engaged to recruit potential students under the scheme”.535

573    On 27 March 2015, Mr Gale responded to Ms Johnson’s email regarding the complaint and attached a letter bearing the same date from Mr Brown as CEO of ACN to the DET.536 The covering email from Mr Gale relevantly stated:

Since acquisition ACN have placed 4 new (on-line) courses on scope under the Phoenix Institute RTO brand.

ACN have a broker network which they use across their RTO Network and as such I have asked Ivan Brown to respond to the complaint.

Phoenix Institute has never engaged brokers in the past.537

574    The attached letter from Mr Brown confirmed that [Mr D’s] application form had not been processed and relevantly stated:

We have trained our sales agents in accurately presenting our courses and VET Fee Help. Our agreements with them stipulate how they must behave and not engage in any activities inconsistent with the guidelines and normal ethical behaviour.

In the main, our sales representatives have performed very well. However, in a very small number of cases we find that they may not have fully followed the correct procedure.

Given the number of enrolments we’ve achieved, the percentage of slip ups is indeed very small. The monitoring of and liaison with our sales representatives comes from the highest levels of management within ACN and Phoenix.538

(Emphasis added.)

575    The reference to the “highest levels of management” within ACN and Phoenix includes Mr Kochhar, who had responsibility for managing and overseeing the Brokers and Agents.

10.9.5    Complaints about Broker practices continue and include those pursued by Northern Territory Consumer Affairs on behalf of consumers

576    Despite Mr Brown’s reassurances to the DET, complaints continued to be received in April 2015. 539 The following examples are indicative.

(1)    Ms Katelyn Campbell, myTime Learning, emailed Ms Bagga on 22 April 2015 about a complaint made by a mother in relation to her daughter who had been recently doorknocked and signed up for the Diploma of Business.540 The mother had explained that, despite being aware that her daughter had no interest in the course and no intention of completing it, the Agent told her daughter to sign up for a free laptop and said that she would not have to complete any of the work. The Agent also gave the daughter “a script of what to say when our customer services consultants ring”. Ms Campbell said she had responded by advising that she would withdraw the complainant’s daughter from the course.

(2)    On 23 April 2015, Mr Gale received a further complaint sent to the Phoenix General Enquiries inbox complaining of a “very pushy” Agent for Phoenix who “pretty much demanded that my husband and I enrol in a course so we could ‘benefit’ from a free laptop”. Mr Gale passed this on to ACN (see at [526] above).541

577    Of particular concern were complaints relating to Broker practices in the Northern Territory which became the subject of a series of communications between the respondents and Northern Territory Consumer Affairs (NTCA) starting in April 2015. Ms Ann Holland, a Compliance and Investigations Manager at NTCA gave evidence by affidavit about her investigations into complaints lodged with NTCA about marketing practices engaged in by the Broker GG Sales on behalf of Phoenix, her discussions and correspondence with Mr Gagan Sachdeva of GG Sales and Mr Kochhar in relation to those complaints, and the adequacy of their responses.542

578    On 27 April 2015, Ms Bagga emailed Mr Henrik Hartmann at NTCA, copied to Mr Kochhar, in response to a complaint conveyed by Mr Hartmann, stating that: “[w]e are in the process of starting to consider doing business in [the] Northern Territory however I confirm that we DO NOT have any current representation in the state for now” (emphasis in the original).543 Shortly thereafter on the same day, and inconsistently with the email to Mr Hartmann, Ms Bagga emailed Mr Kochhar, with the subject heading “Issues at NT”. In the email, she outlined some common concerns raised by consumers who had lodged complaints to “Consumer Affairs NT” about marketing practices being deployed in the Northern Territory, including:

    Promoting techniques and the way sales are being conducted – Potential students are being given the hard sell, misleading information is being communicated across and blatant lies are being told at [the] time (This course is completely free, you will get a free laptop and even if you withdraw later on for whatever reason, the laptop is still yours)

    Offering to ‘help’ potential students complete their paper work including photos of the answers on their phones to help them cheat and later say they filled out the form themselves when asked.

    Consultants have not identified who they are (actual company they represent) in addition to the fact that they submit enrolments to Phoenix (MytimeLearning) only

    Not left any follow up cards

    No legitimate IDs

    Some people were even asked to just sign and lured with multiple gadgets for multiple courses.544

579    On the following day, Mr Kochhar forwarded Ms Bagga’s email to Mr Sachdeva of GG Sales. The clear implication is that Mr Kochhar was concerned that these practices were being engaged in by GG Sales. Consistently with this, Ms Holland, then a Senior Compliance Officer at NTCA, rang Mr Sachdeva on 29 April 2015 in relation to complaints received by NTCA about marketing activity undertaken by GG Sales.545 Ms Holland’s contemporaneous notes record that during the course of that call, Mr Sachdeva confirmed that his contract jurisdiction covered the Northern Territory, as well as Victoria, New South Wales, South Australia, and Western Australia.

580    Later that day, Ms Holland telephoned Mr Kochhar regarding the reports of unsolicited sales of VET FEE-HELP training courses to Northern Territory residents and offers of a free laptop, having been given Mr Kochhar’s name and telephone number by Mr Sachdeva. Ms Holland’s handwritten file note of the conversation with Mr Kochhar made shortly after the conversation relevantly records the following:

I advised Mr Kochhar that NTCA had received consumer reports of door to door operators selling training courses for Phoenix Institute in the Darwin region. Consumers are concerned they may have been the subject of some sort of scam because their personal details were taken eg Tax File Number, Drivers License. Consumers claim that operators are saying they can get a free laptop if they sign up for a free training course.

My colleague Henrik Hartmann made enquiries by phone on 23 April 2015 to Phoenix … to establish whether it was a Phoenix campaign. Ms Nidhi Bagga, Operations Manager of Phoenix’[s] online division MyTimeLearning responded by email on Monday 27 April 2015 staing that the unsolicited activity was unauthorised as “I confirm that we DO NOT have any current representation in the state for now”.

I advised Mr Kochhar that through reports we established that GG Sales & Marketing had a team of 5-6 people operating in Darwin.

Mr Kochhar confirmed that Phoenix had an agreement in place with GG Sales & Marketing, a broker company, to promote their business but claimed that and [sic] Nidhi did not know that there was a team operating in the NT when she sent the email. Mr Kochhar said that he called the brokers on Friday 24 April to stop sales campaign [sic] in the NT immediately.

I expressed concern that consumers were vulnerable, [I]ndigenous, on benefits and were being signed up for training courses, not being properly informed, not getting any paperwork about what they were entering into but were in the expectation they would get a free laptop computer. I said that such conduct by the brokers may amount to misleading conduct under the ACL potentially exposing the company to compliance action unless the practice is rectified.

Mr Kochhar said that Phoenix had a rigorous assessment and eligibility process for applications. …

Mr Kochhar assured me that Phoenix was not doing pressure sales. …

Mr Kochhar said that the brokers have been called to stop and will deal with brokers.546

(Emphasis added.)

581    On 12 May 2015, Ms Holland provided a letter by covering email to Mr Kochhar, noting in the letter that Mr Sachdeva of GG Sales & Marketing Pty Ltd had confirmed that “in excess of 50 applications were gathered during the [Northern Territory] campaign and the campaign was terminated on Friday 24 April 2015 at [Mr Kochhar’s] instruction”.547 The complaints concerned unsolicited visits to homes from marketers implying they were government employees offering free laptop computers and free training, failing to provide consumers with the paperwork they had signed, and failing to ensure that consumers were aware that they were signing up for VET FEE-HELP loans. Another example given by Ms Holland concerned an intellectually disabled man who was incapable of comprehending any documents and was asked to contact his bank to obtain his account details. Mr Kochhar was requested to provide information to NTCA by 21 May 2015, including a list of all of the applications received by Phoenix as a result of the Northern Territory campaign (NT campaign), the quality screening processes Phoenix would use to be satisfied that consumers were not misled or offered prohibited inducements, and the steps Phoenix had taken to address the alleged conduct of its marketers.

582    Nonetheless, these issues were not thereby resolved, as follow up calls made by Ms Holland to a number of the consumers in June 2015 revealed, as I later explain.

10.10    The VET Guidelines 2015 commence on 1 April 2015 and Mr Brown is appointed to the VET FEE-HELP Reform Working Group on 22 April 2015

583    On 30 March 2015, the Assistant Minister for Education and Training made the VET Guidelines 2015,548 which relevantly came into effect on 1 April 2015 and repealed the VET Guidelines 2013. As earlier explained, the new Guidelines introduced changes to proscribe the use of specific inducements, such as laptops, vouchers and cash payments, and prohibited a VET provider from enrolling a person in a VET course unless the provider was satisfied on reasonable grounds that the person was not offered a prohibited inducement. Clause [4.4.1.1] specifically stated that the purpose of these requirements was to enable prospective students to select a VET provider based on considerations of quality and price of training.

584    At the same time, in a media release entitled “Time is up for shonky VET spruikers”,549 the Assistant Minister for Education and Training, Senator the Hon Simon Birmingham, explained that in addition to prohibiting the offering of inducements, the VET FEE-HELP reforms were intended to:

    Protect vulnerable students by requiring providers to properly assess students for minimum prerequisite educational capabilities before enrolment.

    Eliminate insidious practices like “nursing home” enrolments.

    Stop marketing agents and brokers “freelancing” to sign up as many students as possible, without the training provider being held responsible for their actions.

    Give students clear information that helps them understand that VET FEE-HELP loans are real debts that impact their credit rating and are expected to be repaid.

585    The Assistant Minister for Education and Training also wrote to the CEOs of all RTOs, including Mr Gale at Phoenix, advising of the new guidelines.550 These messages in turn were reinforced in the Department’s April 2015 HELP Newsletter, which stated, among other things, that the “practice of offering … inducements to prospective students has resulted in many people, including disadvantaged Australians, ending up with a substantial debt with limited or no training outcomes” and that the “[g]uidelines ban inducements like offers of free IPADS, meals, vouchers and prizes”.551 In addition, the Department issued its updated VET Administrative Information for Providers guide (VET AIP),552 providing information in relation to VET FEE-HELP payments (including advance payments) to VET providers. The changes to the VET AIP included updates to highlight restrictions on the use of inducements in VET enrolments in line with the VET Guidelines 2015.

586    It follows that Mr Brown and Mr Kochhar must have been well aware of the prohibition imposed by the VET Guidelines 2015. Further, presumably in response to the new Guidelines, from 1 April 2015, a laptop loan application or rejection form was included in the Phoenix enrolment forms.553

587    Ironically on 22 April 2015, Senator Birmingham wrote to Mr Brown appointing him to the VET FEE-HELP Reform Working Group. Senator Birmingham explained that the role of the Working Group was to advise him and the Department on the implementation of the recent changes to the VET FEE-HELP scheme and further explained that:

As you would be aware, these changes have been necessary to help protect vulnerable students, taxpayers and the reputation of the wider VET sector, from the actions of a small number of unscrupulous VET FEE-HELP approved training providers, and/or their agents and brokers.

… It will provide a vehicle for ensuring that stakeholder concerns are addressed, and that the changes I have announced are implemented in a manner that achieves their aim to protect students and taxpayers, and that restores the reputation of the VET FEE-HELP scheme and VET sector more broadly.554

588    In the letter, the Minister advised that he expected that meetings would be held monthly, with the first to be held on 30 April 2015.

10.11    Events in May 2015

10.11.1    Overview

589    As I explain below, the report of Phoenix’s RTO Compliance Review issued in May 2015 highlighted areas requiring significant improvement as against all RTO Standards. The documentary record also establishes that complaints about Broker practices continued to soar, including about the apparent targeting of vulnerable communities with poor English skills and from disadvantaged socio-economic groups, and people with terminal illnesses and serious disabilities impacting upon their capacity to undertake the courses. Thousands of enrolments also continued to be pushed through.

10.11.2    Phoenix’s RTO Compliance Review (15 May 2015)

590    On or about 15 May 2015, the report of Phoenix’s “RTO Compliance Review” (the RTO Review Report) was issued by Mr  Bevan for Phoenix.555 The summary of the report noted the following:

Phoenix is currently registered for seven training package qualifications and five accredited course qualifications.

As part of its compliance and continuous improvement program, Phoenix has implemented a review of its RTO against the new Standards for RTOs 2015 and other compliance requirements at a national and funding contractual level. The review focused on myTime learning branded course offerings with approximately 2,100 active participants at time of review.

The review highlights that Phoenix requires significant improvement in order to demonstrate compliance against all eight of the new Standards for RTOs 2015, with thirty-eight recommendations for improvement provided.”556

(Emphasis added.)

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