FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2023] FCA 859

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent is to pay to the Commonwealth of Australia pecuniary penalties of:

(a)    $100,000,000.00 in respect of the conduct in contravention of s 21 of the Australian Consumer Law (the ACL) by the Phoenix Marketing System (as defined by paragraph [73] of the Amended Statement of Claim);

(b)    $300,000,000.00 in respect of the conduct in contravention of s 21 of the ACL by the Phoenix Enrolment System (as defined by paragraph [86] of the Amended Statement of Claim);

being penalties cumulatively totalling $400,000,000.00 for the said contraventions.

2.    The second respondent is to pay to the Commonwealth of Australia pecuniary penalties of:

(a)    $7,000,000.00 in respect of the conduct in contravention of s 21 of the ACL by the Phoenix Marketing System (as defined by paragraph [73] of the Amended Statement of Claim);

(b)    $30,000,000.00 in respect of the conduct in contravention of s 21 of the ACL by the Phoenix Enrolment System (as defined by paragraph [86] of the Amended Statement of Claim);

being penalties cumulatively totalling $37,000,000.00 for the said contraventions.

3.    The first respondent is to pay to the Commonwealth of Australia pecuniary penalties of:

(a)    $180,000.00 in respect of the conduct in contravention of ss 21 and 29 of the ACL with respect to Consumer A;

(b)    $285,000.00 in respect of the conduct in contravention of ss 21 and 29 of the ACL with respect to Consumer B;

(c)    $285,000.00 in respect of the conduct in contravention of ss 21 and 29 of the ACL with respect to Consumer C;

(d)    $250,000.00 in respect of the conduct in contravention of ss 21 and 29 of the ACL with respect to Consumer D;

being penalties cumulatively totalling $1,000,000.00 for the said contraventions with respect to Consumers A, B, C and D.

THE COURT DECLARES THAT:

4.    Pursuant to s 239 of the ACL and s 21 of the Federal Court of Australia Act 1976 (Cth), in respect of each consumer:

(a)    who was enrolled in a Phoenix course BSB50207 Diploma of Business, BSB50215 Diploma of Business, BSB51107 Diploma of Management, BSB51915 Diploma of Leadership and Management, CHC50113 Diploma of Early Childhood Education and Care, and CHC50612 Diploma of Community Services Work, between 13 January 2015 to 23 November 2015 inclusive; and

(b)    by whom, or in whose name, a request for VET FEE-HELP Assistance from the Commonwealth in respect of that enrolment was made; and

(c)    has completed one or more units of study in the course in which they were enrolled (Completion Student);

that:

(d)    any enrolment agreement between the Completion Student and Phoenix in respect of the course or any unit of study within the course is void ab initio; and

(e)    the Completion Student’s liability to pay a VET tuition fee to Phoenix for the unit of study or course (VET liability) is annulled; and

(f)    any associated liability of the Completion Student to the Commonwealth in relation to VET FEE- HELP assistance and the loan fee in respect of that VET FEE- HELP assistance is annulled.

THE COURT FURTHER ORDERS THAT:

5.    Pursuant to s 237 of the ACL, any liability of the Second Applicant to pay the amount of the loan made to any consumer falling with the description at paragraphs 4(a) and (b) above (Phoenix Student) to Phoenix in discharge of the Phoenix Student’s VET liability is annulled.

6.    The respondents are to pay the applicants’ costs as agreed or assessed.

7.    In the absence of agreement as to the orders otherwise required to give effect to these reasons:

(a)    on or before 4pm on Monday 21 August 2023 the applicants, and the respondents if so advised, are to file and serve an outline of written submissions not exceeding 5 pages in length in support of their respective proposed orders and attaching their proposed orders; and

(b)    final orders will be determined on the papers without a further oral hearing, unless the Court otherwise orders.

8.    There be liberty to apply.

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    By these proceedings, the applicants, the Australian Competition and Consumer Commission (the ACCC) and the Commonwealth, seek declarations, pecuniary penalties, compensation orders, orders for non-party redress, and costs, 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). Those orders are variously sought under the Australian Consumer Law (ACL), contained in Sch 2 of the Competition and Consumer Act 2010 (Cth) (the CCA), and the Federal Court of Australia Act 1976 (Cth).

2    The ACCC is the statutory authority responsible for enforcing the Competition and Consumer Act 2010 (Cth) (the CCA). At all relevant times, Phoenix was a registered training organisation (RTO) approved to offer VET FEE-HELP loans in relation to its vocational education training (VET), and was therefore a VET Approved Provider. From 12 January 2015, Phoenix was a wholly owned subsidiary of a publicly listed company, Australian Careers Network Limited (ACN). CTI (renamed VIA Network in October 2015) was also a wholly-owned subsidiary of ACN. CTI operated as the marketing arm for the eleven registered training organisations (RTOs) owned and operated by ACN, including Phoenix.

3    On 13 August 2021, I made declarations that each of the Respondents had engaged in conduct in connection with the supply of online VET courses to consumers that was unconscionable in contravention of s 21 of the Australian Consumer Law (ACL) during the period 13 January 2015 to 23 November 2015 (Relevant Period): Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (No. 4) [2021] FCA 956 (Phoenix (Liability) or J).

4    In so finding, I held that the business model adopted by Phoenix with respect to its online courses was “pursued ruthlessly” through marketing and enrolment systems which “were the product of calculated design born out of sheer avariciousness … and callous disregard” for the interests of many thousands of consumers enrolled in Phoenix’s online courses (J[1271] and [1352] respectively). That conduct exploited reforms made to the Commonwealth’s VFH loan scheme which were designed to benefit disadvantaged and vulnerable Australians, for massive financial gain. Specifically, Phoenix received payments of $106 million in VFH payments from the Commonwealth over the relevant period, and asserted an entitlement to a further amount of approximately $250 million in VFH payments from the Commonwealth. The $106 million received by Phoenix has never been repaid.

5    Furthermore, as the ACCC submits (at Applicants’ submissions (AS), [3]):

The damage caused to 11,393 consumers [who enrolled in Phoenix’s online courses] was immense. For a significant period of time, each of these consumers carried substantial debts (often over $43,000 in loans and fees) in their personal taxation records, towards which they were required to make payments if they reached certain income thresholds. The total student debts – in terms of both loan amounts and loan fees – exceeded $428 million. They also suffered the humiliation of being taken advantage of, the stress of undertaking courses to which they were not suited and which were not suited to them, and the obvious loss of opportunity to undertake other courses which would have given them vocational skills and qualifications suited to their needs.

6    It is not surprising that I concluded that the conduct of both respondents was “grossly exploitative and at times dishonest, and … lacking in any respect for the dignity and autonomy of the vulnerable consumers who were targeted” (J[1352]).

7    I also declared in Phoenix (Liability) that during the relevant period Phoenix, by the conduct of its Brokers and Agents, engaged in conduct with respect to four consumers (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.

8    The ACCC seeks penalties under s 224 of the ACL against Phoenix and CTI in respect of the two systems employed by Phoenix and CTI which I held to be unconscionable in Phoenix (Liability), namely: the Phoenix Marketing System and the Phoenix Enrolment System. The systemic unconscionability across these two systems was on an extraordinary scale. Specifically in Phoenix (Liability), I held at [1353] that the ACCC had established 22,786 contraventions of s 21 of the ACL, being two contraventions in respect of each of the 11,393 enrolled consumers for whom VET FEE-HELP payments were made. As such, the maximum penalties in respect of the contraventions available against each Respondent under the ACL as at the relevant time would exceed $25 billion. In this regard, I note that a new penalty regime was introduced with effect from 1 September 2018 by the Treasury Laws Amendment (2018 Measures No 3) Act 2018 (Cth). That new regime does not apply in this case.

9    Given the gravity of unconscionable conduct in this case, the ACCC submits that penalties producing a very high level of deterrence are required. As the ACCC accepts (at AS [48]), specific deterrence is not a relevant consideration in the present case, given that both respondents are in liquidation and that the ACCC will not be able to prove any penalties imposed against Phoenix and CTI in their respective liquidations: see Corporations Act 2001 (Cth) s 553B; Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liquidation) (No 3) [2017] FCA 1018 at [78] (Beach J); Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544 at [31] (Gleeson J). Nonetheless, the ACCC submits that the public interest will be served by the imposition of very substantial penalties, given the egregious nature of the contravening conduct, so as to operate as a strong general deterrent against similar conduct: cf Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 96 ALJR 426 at [106] (Edelman J); Cornerstone at [32]. As Beach J pertinently observed in Get Qualified (at [1]):

In recent years, the education sector has been infected by the parasitic practices of operators preying upon the vulnerable and the unwary. They have taken unconscientious advantage of those who commendably have sought to improve themselves and their qualifications. It is to be expected that when such practices are exposed to judicial scrutiny, the Court will grant the relief necessary to eradicate such behaviour. Specific [where relevant] and general deterrence are the primary objectives of such relief, with the Court's protective jurisdiction a necessary adjunct.

10    The ACCC submits that when the various factors relevant to calculating penalties are considered, it is apparent that this case of systemic unconscionability is of the gravest kind, and that there are no mitigating factors. As such, the ACCC submits that the highest penalties ever imposed under the former penalty regime by way of general deterrence are warranted for the unconscionable systems in the range of $330 to $400 million against Phoenix, and in the range of $29 to $35 million against CTI.

11    In this regard, and acknowledging the magnitude of the penalties sought, the ACCC submitted (at AS [7]) that:

penalties of this order can be seen to be necessary when settled penalty principles are applied to the disturbing facts of this case – the astonishing scale of the unconscionable conduct of both Phoenix and CTI and the immense financial gains and losses against which deterrence falls to be assessed. The ACCC submits that the scale of the payments which Phoenix and CTI claimed for their unlawful conduct is such that lower penalties would not have appropriate deterrent value. Accordingly, to impose lower penalties simply because penalties of this magnitude have not previously been imposed would be to avoid, not apply, settled principles. Such an approach would have the perverse effect that the very scale of the unconscionable conduct in issue may serve to “cap” the penalty that will be imposed, and would thereby undermine the necessary deterrent message. Future wrongdoers should be on notice that misconduct on an epic scale will be sanctioned by a commensurate pecuniary penalty.

12    In addition, the ACCC seeks penalties in the following ranges against Phoenix in respect of the contraventions in relation to each of the four individual consumers:

(1)    Consumer A – $150,000 to $200,000

(2)    Consumers B and C – $250,000 to $300,000

(3)    Consumer D – $200,000 to $250,000

13    The applicants also seek declaratory relief pursuant to s 239 of the ACL for a limited number of students who had completed one or more units of study in a Phoenix online course (Completion Student). By that declaratory relief, the applicants seek (amongst other things) an annulment of any liability by the Completion Student to the Commonwealth in relation to the VET FEE-HELP assistance and the loan fee. The applicants also seek compensation orders and costs.

2.    OVERVIEW OF CIVIL PENALTIES IMPOSED AND OTHER RELIEF GRANTED

14    For the reasons set out below, I have awarded the following penalties by way of general deterrence:

(1)     against Phoenix in the following amounts:

(a)    $100 million in respect of its conduct in contravention of s 21 of the ACL by the Phoenix Marketing System as defined in [73] of the Second Further Amended Originating Application (SFAOA);

(b)    $300 million in respect of its conduct in contravention of s 21 of the ACL by the Phoenix Enrolment System as defined in [86] of the SFAOA; and

(2)    against CTI in the following amounts:

(a)    $7 million in respect of its conduct in contravention of s 21 of the ACL by the Phoenix Marketing System as defined in [73] of the SFAOA;

(b)    $30 million in respect of its conduct in contravention of s 21 of the ACL by the Phoenix Enrolment System as defined in [86] of the SFAOA.

15    In concluding that penalties in these amounts are appropriate, I agree with Bromwich J that “[s]ubstantial penalties are called for when a commercial enterprise systematically predates on both a government education support scheme designed to help disadvantaged members of the Australian community, and consequently, upon those consumers”: Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 5) [2021] FCA 1516; (2021) 397 ALR 208 (AIPE (No 5)) at [1]. A penalty of $150 million was awarded in that case in relation to the overall system of unconscionable conduct. The greater penalties which I have decided should be imposed in this case reflect the fact that the conduct by the respondents in this case is even more egregious, and the associated benefits to the respondents and loss to consumers and the Commonwealth, even more serious. Indeed, as counsel for the applicants submitted at the hearing, it is difficult to think of a more serious case of unconscionability that has come before this Court.

16    I have also awarded penalties against Phoenix for the contraventions of ss 21 and 29 of the ACL with respect to the individual consumers by way of general deterrence:

(1)    $180,000.00 for the contraventions with respect to Consumer A;

(2)    $285,000.00 for the contraventions with respect to Consumer B;

(3)    $285,000.00 for the contraventions with respect to Consumer C; and

(4)    $250,000.00 for the contraventions with respect to Consumer D;

17    In addition, I have made consumer redress orders under s 239 of the ACL effectively voiding any enrolment and annulling any VFH liability and loan owed by any student who was enrolled in a Phoenix Online Course and completed one or more units of study in the course in which they were enrolled. I further agree that orders should be made under s 237 of the ACL for the payment of compensation to the Commonwealth in the sum of $104,138,195.00 in reliance upon my findings in Phoenix (Liability) as to the unconscionable conduct engaged in by Phoenix in respect of all 11,393 students enrolled in Phoenix Online Courses. In my view, the Commonwealth is entitled to compensation in this amount on the basis that the Commonwealth is unable to recover any payments for VFH debts from the 11,393 consumers who were enrolled in the Phoenix Online Courses, because each of the enrolled consumers is presumed to be entitled to relief, and is not required to pay their VET tuition fees, in light of the Court’s finding in Phoenix (Liability) at [1353]-[1354].

18    Finally, subject to hearing from the respondents, I consider that an order should be made providing (to the extent necessary), that the applicants may seek to prove Phoenix’s and CTI’s liability to pay the amounts awarded by way of compensation and costs in the liquidations of Phoenix and CTI, as unsecured creditors.

3.    BACKGROUND

19    The key aspects of my decision in Phoenix (Liability) were summarised at J[8]-[18] and are conveniently repeated here.

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.

4.    PRINCIPLES GOVERNING THE IMPOSITION OF PECUNIARY PENALTIES UNDER THE ACL

4.1    Power to impose a penalty and relevant matters to be considered in imposing the penalty: s 224, ACL

20    The power to impose a pecuniary penalty is governed by s 224 in Part 5-2 of the ACL entitled “Remedies”. Under ss 224(1)(a)(i) and (ii), the Court may order a person who has contravened, relevantly, ss 21 (which concerns unconscionable conduct) and 29 (which concerns false or misleading representations about goods or services) to pay such pecuniary penalties, in respect of each act or omission by the person, as the Court determines to be appropriate.

21    Section 224(2) of the ACL provides that in determining the appropriate pecuniary penalty the Court “must have regard to all relevant matters including”:

(a)    the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)    the circumstances in which the act or omission took place; and

(c)    whether the person has previously been found by a Court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct.

22    Section 224(2) therefore sets out certain mandatory factors to be considered in determining the appropriate penalty. Without endeavouring to be exhaustive, the following considerations are also potentially relevant:

(1)    the size of the contravening company and its financial position;

(2)    the degree of market power that the contravening company has, as evidenced by its market share and ease of entry into the market;

(3)    the deliberateness of the contravention and the period over which it extended;

(4)    whether the conduct was systematic or covert;

(5)    whether the contravention arose out of the conduct of senior management or at a lower level;

(6)    whether the company has a corporate culture conducive to compliance with the CCA including the ACL as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and

(7)    whether the company has shown a disposition to cooperate with the ACCC.

(See e.g. Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761; 282 (2011) ALR 246 at [11] (Perram J); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Limited [2015] FCA 330; (2015) 327 ALR 540 (Allsop CJ) at [8]-[9].)

23    As Allsop CJ observed in Coles Supermarkets at [9], there is a degree of overlap between these factors and the statutory mandatory considerations in s 224(2). However, as his Honour further explained, “These factors do not necessarily exhaust potentially relevant considerations; nor do they regiment the discretionary sentencing function”: ibid. Nor should the Court address its consideration of relevant matters in a regimented or formulaic way. As Wigney J stated in Australian Competition and Consumer Commission v Visa Inc [2015] FCA 1020; (2015) 339 ALR 413 at [83], “to do that would impermissibly constrain or formalise what is, at the end of the day, a broad evaluative judgment”: see also e.g. Australian Competition and Consumer Commission v Homeopathy Plus! Australia Pty Limited (No 2) [2015] FCA 1090 at [22] (Perry J).

4.2    Each respondent should be separately penalised

24    The first issue raised by the applicant’s submissions is whether each respondent should be separately penalised. I accept the applicants’ submission that the penalties must take account of the fact that there were two active respondents with different levels of responsibility for each of the systems found to be unconscionable in Phoenix (Liability).

25    First, while members of the same corporate group (J[39]-[40] and [88]), Phoenix and CTI performed distinct roles in the overall scheme giving rise to the contraventions, and it was only through these distinct actions that the Phoenix marketing and enrolment systems operated. Specifically in Phoenix (Liability), I held that:

(1)    During the Relevant Period, Phoenix was an RTO and VET Approved Provider which offered diplomas nationally in online full-time courses, trading under the banner of “myTime Learning”: J[9] and [247]-[250]. Following its acquisition by ACN on 12 January 2015 and the immediate and radical reorientation in Phoenix’s operating model thereafter, ACN derived its primary revenue from Phoenix’s operations: J[39] and [88].

(2)    On the other hand, CTI “operated as the marketing arm” for Phoenix and ten other RTO’s owned and operated by ACN: J[40]. Specifically, 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 Team, as well as the course trainers”: J[40]. That arrangement between CTI and Phoenix was formalized in an agreement dated 1 July 2015: ibid.

26    Secondly, Phoenix separately contravened s 21(1) of the ACL in relation to each and every enrolled online diploma student in respect of both the Phoenix Marketing System and the Phoenix Enrolment System over the relevant period: declarations [1] and [2]. In addition, Phoenix contravened ss, 18, 21(1) and 29(1)(i) in relation to Consumers A, B, C and D: declarations [3] and [4].

27    On the other hand, CTI aided, abetted, counselled or procured Phoenix’s contraventions of s 21 of the ACL, in relation to the Phoenix Marketing System: declaration [5]. For that reason CTI is liable to separate pecuniary penalties for that conduct. CTI also directly contravened s 21(1) of the ACL in relation to each enrolled student in relation to the Phoenix Enrolment System: declaration [6].

28    Thirdly, the fact that a deliberate choice was made by the ACN group to arrange its affairs such that separate subsidiaries had different roles in the marketing and enrolment of “students” in Phoenix’s online courses does not involve any element of double punishment for the same or substantially similar conduct: see by analogy, Australian Competition and Consumer Commission v Origin Energy Limited [2015] FCA 55 at [62]-[64] (White J); cf Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [1999] FCA 1175 at [39] (Weinberg J). It can be inferred, as in Origin Energy, that this structure was deliberately adopted because it was considered advantageous to ACN’s and the respondents’ business model. Thus, having taken the benefits of that structure, it is (as the applicants contend at AS [17]) appropriate that the respondents also assume the burden of that structure, including the imposition of separate penalties. In other words, as White J held in Origin Energy at [64], having adopted that structure presumably to their advantage, “it does not seem appropriate to ignore their separate status” in imposing a penalty. Furthermore and importantly, the imposition of separate penalties in this case is intended to reflect the different culpability of Phoenix and CTI: ibid.

29    Thus, as the applicants submit, this is not a case where it is appropriate for the Court to apportion responsibility by asking who was the “lead” contravener. As the Full Court relevantly held in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159; (2017) 258 FCR 312 at [391]:

the one principle to be discerned [from the case law] is that each contravenor must be separately responsible for its own course of conduct. This is not just a discretionary factor. The legislature has indicated that the contravenor should be subject to the “appropriate” pecuniary penalty — the “appropriateness” is to be determined by reference to the contravenor’s own conduct and the acts and omissions of that person.

30    Accordingly, I agree that it is both appropriate and necessary to impose separate penalties on CTI and Phoenix so as to reflect their respective involvement in the contraventions, and the benefits gained and the losses occasioned by their conduct. In so doing, I am mindful that the imposition of separate penalties is required in the present case in order to appropriately tailor the penalty to each respondent’s degree of culpability for its contraventions.

4.3    The primary objective of deterrence

31    The purpose of civil penalties “is primarily if not wholly protective in promoting the public interest in compliance”: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [55] (French CJ, Kiefel, Bell, Nettle and Gordon JJ (with whose reasons Keane J agreed at [79])); see also Pattinson at [9] and [15] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). In civil penalty matters, retribution has no part to play: Pattinson at [39].

32    Thus as Keane, Nettle and Gordon JJ explained in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3; (2018) 262 CLR 157 (ABCC) at [116] (with whose reasons Kiefel CJ agreed at [50]):

Other things being equal, it is assumed that the greater the sting or burden of the penalty … the more potent will be the example that the penalty sets for other would-be contraveners and therefore the greater the penalty's general deterrent effect. Conversely, the less the sting or burden that a penalty imposes on a contravener, the less likely it will be that the contravener is deterred from further contraventions and the less the general deterrent effect of the penalty. Ultimately, if a penalty is devoid of sting or burden, it may not have much, if any, specific or general deterrent effect, and so it will be unlikely, or at least less likely, to achieve the specific and general deterrent effects that are the raison d'être of its imposition.

33    Such considerations are especially relevant where the benefit in contemplation is, as in this case, profit or other material gain: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25 at [151] (the Court). As the Full Court held in Reckitt, “the greater the prospect of gain to the contravener, the greater the sanction required, so as to make the risk/benefit equation less palatable to a potential wrongdoer and the deterrence sufficiently effective”: ibid.

34    It follows that the statutorily prescribed and other penalty factors to which I later refer fall to be considered in the context of setting a penalty of appropriate deterrent value so as to ensure that the penalty is not regarded relevantly by others as an acceptable cost of doing business: see e.g. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [66] (French CJ, Crennan, Bell and Keane JJ); Commonwealth v Director, Fair Work at [110] (Keane J); Pattinson at [17] and [66] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). As, for example, the Court held in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 (Singtel Optus (FCAFC)) at [62]-[63]:

There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. …

Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention.

35    These principles have been emphasised also in other matters imposing penalties for unconscionable conduct in other VFH provider cases: Australian Competition and Consumer Commission v Acquire Learning and Careers Pty Ltd [2017] FCA 602 [51]–[53] (Murphy J); Get Qualified at [31] and [61] (Beach J); Cornerstone at [41] (Gleeson J); AIPE (No 5) [19(d)] and [20] (Bromwich J).

36    It follows from these principle that where “deterrence is the object, the penalty should not be greater than is necessary to achieve this object; severity beyond that would be oppression”: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 at 293 (Burchett and Kiefel JJ). As Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ recently held in Pattinson at [10]:

What is required is that there be “some reasonable relationship between the theoretical maximum and the final penalty imposed”. That relationship is established where the maximum penalty does not exceed what is reasonably necessary to achieve the purpose of s 546 [of the Fair Work Act 2009 (Cth) conferring power to impose civil pecuniary penalties]: the deterrence of future contraventions of a like kind by the contravenor and by others.

(Footnotes omitted.)

37    Thus the High Court in Pattinson held that the penalties imposed by the primary judge were appropriate “because they were no more than might be considered to be reasonably necessary to deter further contraventions of a like kind by [the contravenors] or others. They represented a reasonable assessment of what was necessary to make the continuation of the CFMMEU’s non-compliance with the law, amply demonstrated by the history of its contraventions, too expensive to maintain” (at [9] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ); see also at [40]). However, as their Honours then proceeded to explain, there is no place for the notion that a civil penalty must be proportionate to the seriousness of the conduct comprising the contravention or that the maximum penalty should be reserved for the most serious examples of offending (at [40] and [49]-[55]).

38    The High Court further explained with respect to types of considerations that may be taken into account in the setting of an appropriate civil penalty at [46]-[48] that:

an “appropriate” penalty is one that strikes a reasonable balance between oppressive severity and the need for deterrence in respect of the particular case. A contravention may be a “one off” result of inadvertence by the contravener rather than the latest instance of the contravener’s pursuit of a strategy of deliberate recalcitrance in order to have its way. There may also be cases, for example, where a contravention has occurred through ignorance of the law on the part of a union official, or where the official responsible for a deliberate breach has been disciplined by the union. In such cases, a modest penalty, if any, may reasonably be thought to be sufficient to provide effective deterrence against further contraventions.

The penalty that is appropriate to protect the public interest by determine future contraventions of the Act may also be moderated by taking into account other factors of the kind adverted to buy French J in CSR. For example, where those responsible for a contravention of the Act express genuine remorse for the contravention, it might be considered appropriate to impose only a moderate penalty because no more would be necessary to incentivise the contravener is to remain mindful of their remorse and their public expressions of that remorse to the court. …

It is not necessary to multiply examples further. It is sufficient to say that a court empowered by s 546 [of the Fair Work Act] to impose an “appropriate” penalty must act fairly and reasonably for the purpose of protecting the public interest by deterring future contraventions of the Act.

39    Whilst Pattinson arose in the context of industrial penalties, the reasoning of the plurality is equally apt to apply with respect to civil penalties which arise under s 224 of the ACL: viagogo AG v Australian Competition and Consumer Commission [2022] FCAFC 87 at [129]–[131] (Yates, Abraham and Cheeseman JJ).

4.4    General deterrence considerations in the present case

40    First, as I have stated, given that Phoenix and CTI are now in liquidation, there is no role for specific deterrence. However, general deterrence considerations continue to apply and for this reason it is appropriate to impose a meaningful penalty even though there is no prospect that Phoenix and CTI will pay the penalties. For example, as I held in Australian Competition and Consumer Commission v Birubi Art Pty Ltd (in liq) (No 3) [2019] FCA 996:

22    Given that Birubi is in liquidation, it is unlikely that Birubi would be able to pay any pecuniary penalty in any event. However, even if Birubi were not already in liquidation, it follows from this and other authorities to like effect that the fact that the penalties proposed would have significantly exceeded Birubi’s annual income … and may have caused it to become insolvent, would not have constituted a mitigating factor that might have justified a lesser penalty if the Court were satisfied that penalties at the level proposed were necessary in order to have the appropriate deterrent effect.

23    Nor, as the ACCC submits, should the fact that Birubi is now in liquidation dissuade the Court from assessing appropriate penalties because they may still have an important general deterrent effect even though they may not be recovered. For reasons I develop below, that deterrent effect is of particular importance in the present context given the economic, social and cultural harms to Indigenous Australians which may flow from businesses misrepresenting the provenance of art and souvenirs as Australian Indigenous art and artefacts. Thus, as the Full Court explained in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liq) [2007] FCAFC 146; (2007) 161 FCR 513:

20.     … a court may impose a penalty on a company in liquidation if, to do so, would clearly and unambiguously signify to, for example, companies or traders in a discrete industry that a penalty of a particular magnitude was appropriate (and was of a magnitude which might be imposed in the future) if others in the industry sector engaged in the same or similar conduct. …

24    By way of illustration, the Full Court referred to the decision of O’Loughlin J in Australian Competition and Consumer Commission v The Vales Wine Company Pty Ltd (1996) ATPR 41-528 (Vales Wine) in which his Honour observed that even though the company was in liquidation and there would be no hope of recovering any penalties or costs, that should not dissuade the Court from assessing appropriate penalties to “serve as a warning throughout the wine industry and elsewhere of the attitude of the Court to offences of this nature” (at 42,776).

(See also Australian Competition and Consumer Commission v SIP Australia Pty Limited [2003] FCA 336; (2003) ATPR 41-937 at [59] (Goldberg J); Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 at [20]-[28] (Yates J); and Australian Communications and Media Authority v Limni Enterprises Pty Ltd (formerly known as Red Telecom Pty Ltd) [2022] FCA 795 at [62] (Perry J).)

41    Secondly, while the particular government program exploited by Phoenix and CTI has been replaced by a different type of student loan program for the skill sector, a strong message of general deterrence is still appropriate. As the applicants submit, quite apart from this particular program, the fundamental point remains that it is critical that businesses do not regard programs involving large government expenditure directed to achieving important social purposes “as an invitation to engage in cynical profiteering and exploitation” (AS [25]).

42    Thus, the applicants contended that the penalties which the ACCC seeks in this case (AS [27]):

achieve the primary and fundamental goal of general deterrence, having regard to the scale and nature of the contravening conduct in issue and, in particular, the value of the vast gains that the conduct was designed to generate and the vast harms that it was liable to cause. The significant penalties sought against both Phoenix and CTI will serve to operate as a meaningful deterrent for other businesses that may be similarly tempted by gains of this magnitude to target vulnerable consumers and exploit them via government funded programs. Although the VFH scheme under which the conduct took place has ceased, there always remains an ongoing risk that unscrupulous actors may engage in similar conduct, especially in relation to large-scale government-funded schemes.

4.5    Maximum penalty

43    As I have noted, civil penalties require “some reasonable relationship between the theoretical maximum and the final penalty imposed”: Pattinson at [10]. It is therefore necessary, in assessing the appropriate penalty, to identify the maximum penalty. In this case the maximum penalty for each contravention by a corporation of a provision in Parts 2-2 and 3-1 of the ACL was, at the time of Phoenix and CTI’s contraventions, $1.1million: see item 2 of s 224(3), ACL.

44    As the Phoenix Marketing and Enrolment Systems touched and operated upon all of the consumers enrolled in Phoenix Online Courses and in respect of whom Phoenix claimed VET FEE-HELP payments (J[1353]), the number of contraventions here is such that, as the applicants submit, “the theoretical maximum penalties … are staggering” (AS [39]). Specifically, Phoenix contravened s 21 of the ACL on 11,363 occasions as a result of the Phoenix Marketing System and on 11,363 occasions as a result of the Phoenix Enrolment System, giving a total of 22,786 contraventions: J[1353]. This means that the theoretical maximum penalty in respect of Phoenix’s contraventions exceeds $25 billion. For the same reasons, CTI’s contraventions are also subject to a theoretical maximum penalty in excess of $25 billion. In this regard, the ACCC accepted that “by reason of the sheer number of contraventions, the theoretical maximum is vastly greater than would be necessary to secure deterrence, even on the appalling facts of this case, and so is of little assistance in setting penalty” (AS [29]). There is therefore no meaningful maximum penalty to be applied in this case. The assessment of the appropriate range for penalty is best assessed by reference to other factors (see e.g. Reckitt at [157] by analogy) including:

(1)    the payments in fact made by the Commonwealth to Phoenix which totalled $106m, bearing in mind that this sum has not been repaid and that there is no realistic prospect that it will be repaid;

(2)    the gross benefits to which Phoenix asserted an entitlement including the $106m which was in fact paid to Phoenix, totalling approximately $360m; and

(3)    the losses to enrolled consumers who were exposed for a significant period to total debts exceeding $428m (see the affidavit of Byron Vickers, data analyst, Skills Programs Compliance Branch (previously the VFH Compliance Branch) Skills and Training Group of the Department, affirmed 3 March 2022 (Vickers affidavit) at [20]).

45    As to the last of these propositions, I note that the Commonwealth has now re-credited the Non-Completion Students’ HELP balances with the amount of VFH assistance and remitted their VET FEE-HELP debts. The third party redress orders which I have made will have the consequence that this will be true for all enrolled consumers, i.e., including the Completion Students, being those who completed a unit of study in a Phoenix Online Course in which they were enrolled.

4.6    The same conduct cannot be penalised twice

46    Section 224(4)(b) of the ACL provides that:

If conduct constitutes a contravention of 2 or more provisions referred to in subsection (1)(a):

…

(b)    a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.

(Emphasis added.)

47    Section 224(4)(b) is directed to preventing multiple, and therefore cumulative, penalties being imposed on one contravener for the same conduct that constitutes a contravention of two or more provisions of the Act. As a unanimous Full Court explained Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [219] with respect to s 76(3) of the Competition and Consumer Act 2010 (Cth) (which is an analogue of s 224(4)):

For the purposes of the application of s 76(3) the actual conduct that constitutes a contravention of one provision must be the “same conduct” that constitutes the contravention of the other provision [for that provision to be enlivened].

(See also Australian Competition and Consumer Commission v Jetstar Airways Pty Limited (No 2) [2017] FCA 205 at [13]-[17] (Foster J).)

48    In applying these principles, I agree with the applicants’ submission that, in this case:

it is perfectly orthodox to impose separate penalties for the contraventions of s 21 (and s 29) relating to the four identified consumers and for the contraventions of s 21 relating to the unconscionable systems. This is because the “conduct” relied upon in the contraventions relating to the individuals was different to the conduct relied upon which established the systemic unconscionability (which was also conduct that differed as between the affected 11,393 consumers) (that is, it is not, and cannot be characterised as, the “same conduct” as required by s 224(4)).

(AS [34]; emphasis added.)

4.7    The course of conduct analysis

49    In Pattinson, six members of the High Court explained that, while concepts of retribution are immaterial in the context of fixing an appropriate civil penalty (at [45]):

some concepts familiar from criminal sentencing may be usefully deployed in the enforcement of the civil penalty regime. In this regard, concepts such as totality, parity and course of conduct may assist in the assessment of what may be considered reasonably necessary to deter further contraventions of the [Fair Work] Act. On behalf of the CFMMEU, the rhetorical question was asked, on several occasions, how it was that proportionality as a principle of sentencing did not translate to the civil penalty regime when other concepts familiar in criminal sentencing such as totality, parity and course of conduct have been accepted as relevant. A compelling answer to that rhetorical question was provided by the Commissioner’s counsel. Proportionality in this context has a normative character foreign to the purpose of the power, whereas concepts such as totality, parity and course of conduct are analytical tools which assist in the determination of a reasonable application of the law. Although these analytical concepts have been developed in the context of the punishment of crime, unlike proportionality, they are not so closely tied to retribution as to be incompatible with a civil penalty regime focused on deterrence.

50    The course of conduct principle has frequently been applied in imposing penalties for breaches of the ACL, particularly where, as here, the number of legally distinct breaches is large: see e.g. Reckitt at [139]-[145] (the Court); and Singtel Optus (FCAFC) at [51]-[55]. This principle was explained by the Full Court in Yazaki as follows:

The course of conduct or one transaction principle means that consideration should be given to whether the contraventions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a “concurrent” or single penalty should be imposed for the contraventions. The principle was explained by Middleton and Gordon JJ in Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 194 IR 461 at [41]:

the principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is the same criminality and that is necessarily a factually specific enquiry.

51    As I explained in Birubi, the course of conduct principle is a “tool of analysis” (at [66]). In civil penalty proceedings this analytical tool can, but need not necessarily, be used in the particular case: Cement Australia at [424] (the Court).

52    It is plain from my findings in Phoenix (Liability) that the Phoenix Marketing System and the Phoenix Enrolment System should not be treated together as comprising a single course of conduct because they do not involve the same conduct. As the applicants submit, the Phoenix Marketing System was directed to eliciting signed enrolment application forms from consumers via the deployment of a veritable army of marketing brokers and agents “operat[ing] much like a dragnet, hauling in manipulated and unsuspecting consumers and enticing them to lodge enrolment applications for VET courses" (AS at [39]). This conduct was anterior to the Phoenix Enrolment System which was deployed at a later stage with respect to each consumer and involved different conduct.

53    Under the VET-FEE-HELP scheme and under Phoenix’s own policy manual (with which Phoenix never in fact intended to comply (J at Section 10.12.5)), the process of enrolment was intended to operate as a safeguard. In particular, among other things, the enrolling officer was required to confirm that the consumer understood that they were enrolling to undertake an online course and would assume a debt to the Commonwealth by reason of that enrolment, satisfied eligibility requirements, that the consumer was equipped to undertake the course, and that the course was suitable for the particular consumer.

54    However, in furtherance of their insatiable quest for profit, the respondents deliberately disregarded and circumvented this safeguard through the Phoenix Enrolment System including (as I found in Phoenix (Liability)) by:

(1)    enrolling consumers without verifying them (at [1280]-[1285]);

(2)    enrolling consumers without adequate verification (at [1286]-[1290]);

(3)    failing to confirm consumers’ Language, Literacy and Numeracy (LLN) test results (at [1291]-[1294]);

(4)    failing to ensure consumers were within the target cohorts and satisfied eligibility criteria (at [1295]-[1298]);

(5)    failing to consider work placements (at [1297]-[1298]);

(6)    extensively enrolling consumers in more than one course (at [1299]);

(7)    extensively charging students for unnecessary units of study (at [1300]-[1302]);

(8)    enrolling students too close to the census date at [1303]-[1308]; and

(9)    providing log-in details or laptops to consumers shortly before or after the census dates (at [1309]-[1318]).

Considered cumulatively, in Phoenix (Liability), I considered these features of the enrolment system to be unconscionable, independently of Phoenix’s Marketing System.

55    Furthermore, the respondents’ respective levels of culpability with respect to the Phoenix Marketing System and the Phoenix Enrolment System were different. Accordingly, as the applicants submit, if the two systems were grouped together as a single course of conduct, this would fail to reflect the differing levels of responsibility and culpability attributable to Phoenix and CTI with respect to each system (AS at [41]).

56    Applying this course of conduct analysis, in my view it is correct to characterise:

(1)    the 11,363 contraventions of section 21 of the ACL by each respondent relating to the Phoenix Marketing System as constituting one course of conduct for each respondent; and

(2)    the 11,363 contraventions of section 21 of the ACL relating to the Phoenix Enrolment System as constituting another course of conduct for each respondent.

57    In this regard I would emphasise that applying the course of conduct analysis in this way does not convert many separate contraventions into a single contravention; nor does it impose a “de facto limit” upon the available maximum penalty: see Yazaki at [231]-[232]. Rather, it reflects the fact that the 11,363 contraventions with respect to the Phoenix Marketing System represent “essentially the same criminality”: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 194 IR 461 at [41]. So too for the 11,363 contraventions occasioned by the Phoenix Enrolment System. Ultimately, in so holding, I recognise that the object remains to ensure that the penalties imposed are of appropriate deterrent value: Cement Australia at [424] (the Court); Pattinson at [10].

58    Finally, I agree with the submission by the ACCC that separate penalties should be levied for each of the four individual consumers. Those contraventions were separately pleaded and proved, and my findings that the contraventions were established were based on the particular circumstances pertaining to each consumer (see especially Chapter 12 of Phoenix (Liability)). As the applicant submitted, that wrongdoing was “proved by reference to different consumers being affected in different ways, at different times and in different places” (AS at [44]). There is no basis in my view for treating these four contraventions as a single course of conduct.

4.8    The effect of compensation orders and the penalty calculation

59    As Bromwich J held in AIPE (No 5) at [19(e)], compensation orders “serve a fundamentally different function, being redress, rather than prevention or deterrence: see [Commonwealth v Director, Fair Work] at [24], where compensation was described as a ‘competing consideration’ of prevention and deterrence”.

60    Compensation may and should be taken into account in determining the quantum of a penalty where compensation ameliorates the loss or damage caused by the contravening conduct and reduces the wrongdoer’s unlawful gains: AIPE (No 5) at [19(e)]. However, those considerations have no relevance here. That is because in reality neither respondent will be able to pay any compensation even though the applicants press the prayer for compensation.

4.9    Approach to considering the relevant considerations to arrive at an appropriate penalty

61    The manner in which the various considerations are to be considered and weighed in the ultimate setting of an appropriate penalty is well settled. As I explained in Birubi:

78    … in common with criminal sentencing, the process of arriving at the appropriate civil penalty under the ACL (and its predecessor, the Trade Practices Act 1974 (Cth)) involves an intuitive or instinctive synthesis of all of the relevant factors rather than a sequential mathematical process: [Australian Competition and Consumer Commission v] Coles Supermarkets [[2015] FCA 330; (2015) 327 ALR 540] at [6] (Allsop CJ). This does not of course mean that all of the considerations which are relevant to criminal sentencing are also relevant to assessing an appropriate civil penalty. Rather it is the process itself which is the same. Instinctive synthesis in this sense was helpfully described by McHugh J in Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 as meaning:

51.    … the method of sentencing by which the judge identifies all the factors that are relevant to the sentence, discusses their significance and then makes a value judgment as to what is the appropriate sentence given all the factors of the case” (at [51])

(See also by analogy Barbaro v The Queen [2014] HCA 2; (2014) 253 CLR 58 (Barbaro) at [34]-[35] (French CJ, Hayne, Kiefel and Bell JJ).)

79    This does not mean that the final result is a “gut reaction”, as the Full Court explained in Reckitt at [175]. Rather, it must be the outcome of a reasoned and transparent process.

(Emphasis added.)

62    Finally, as I held in Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2019] FCA 797; (2019) 136 ACSR 603 with respect to the totality principle:

59    … the Court must consider all of the contravening conduct and determine whether the total penalty for each offence aggregated together exceeds that which is proper for the entire contravening conduct involved (the totality principle): Mill v The Queen (1988) 166 CLR 59 (Mill) at 63 (the Court) (by analogy). As such, the totality principle operates as a final check of the penalties to be imposed on the respondent, considered as a whole. As Goldberg J explained in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 (Safeway Stores) at 53:

The totality principle is designed to ensure that overall an appropriate sentence or penalty is [imposed] and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved.

60    The application of the totality principle will not necessarily result in a reduction in the penalty. Rather, as the parties submit, in cases where the Court considers that the cumulative total of the penalties to be imposed would be too high or too low, it should alter the final penalties to ensure that they are “just and appropriate”: Safeway Stores at 53 (quoting Mill at 63).

(See further Pattinson at [45]).

5.    CONSIDERATION OF RECOGNISED PENALTY FACTORS IN RELATION TO THE UNCONSCIONABLE SYSTEMS

5.1    Mandatory factors relevant to penalty

5.1.1    The nature and extent of the acts or omissions and any loss or damage suffered (subs 224(2)(a))

5.1.1.1    The nature and extent of the acts or omissions

63    There are a number of key points as to the nature and extent of the conduct and the loss and damage suffered.

64    First, the Phoenix Marketing and Enrolment Systems “were the product of calculated design born out of sheer avariciousness…”: (Phoenix (Liability) at [1352]).

65    Secondly, the ACCC submits (at AS [53]), and I accept, that:

the scale of the rort was vast. This is the largest VET provider case – in terms of the number of students affected by the unconscionable conduct, the volume of courses in which they were enrolled and the sum of money in question – to ever move through this Court. The unit of study completion rates by Phoenix was the equal worst amongst VET Providers at that time and it had the highest average of enrolments per student for VET Providers enrolling students in the same period.

(Citing the affidavit of Haylee Marlene Jones, affirmed on 29 June 2018 at [11]-[16], and the affidavit of Geoffrey Koochew, affirmed on 23 August 2019 at [11]-[14]).

66    Thus, in her affidavit affirmed on 29 June 2018 at [30], Hayley Marlene-Jones, Director, Data and IT Section, VET Student Loans Branch (VETSL Branch), Commonwealth Department of Education and Training, included a table, prepared by her, which compared the unit of study completion rates for students enrolled in the Phoenix online courses and the average unit of study completion rates for students enrolled in the same courses with other VET providers at the time. That table provided as follows:

67    By way of further explanation, as I found in Phoenix (Liability) at [1192]-[1193]:

the data analysis evidence highlights the incredibly poor educational outcomes achieved by all but a handful of the many thousands of consumers enrolled in Phoenix’s Online Courses, This is itself indicative of callous indifference by Phoenix and CTI to each of the pleaded Callous Indifference components. At the risk of repetition, the evidence establishes that:

(1)    of the 21,413 Online Courses in which 11,393 VET FEE-HELP consumers were enrolled, only 9 consumers completed the courses;

(2)    8,944 of 11,393 consumers (ie 78.5%) showed no evidence of any activity [by students] in FinPa [the Phoenix online learning platform], while in the case of 16,956 courses out of 21,413 courses (ie 79%), there was no evidence of activity in FinPa; and

(3)    there was evidence of activity in FinPa in only 1.77% of all of the units of study in which the 11,393 consumers were enrolled.

…

As the applicants submit, these results are even more stark when it is considered that much of the evidence of consumer activity in FinPa was falsely generated by staff and agents of Phoenix and CTI at the direction of the respondents, as opposed to the consumers themselves…

(See also Phoenix (Liability) at [1141].)

68    Furthermore, in his affidavit affirmed on 23 August 2019 at [14], Geoffrey Koochew, Director, Data and Reporting Section, VETSL Branch, Department (Koochew Affidavit), gave evidence based on his analysis of data extracted from the relevant databases that:

(1)    Phoenix had an average of 1.86 enrolments per student, which was the highest average of all VET providers recorded in the relevant databases for the period 13 January 2015 to 22 March 2016; and

(2)    85.8% of all students recorded in the relevant databases as enrolled with Phoenix were enrolled in more than one course with Phoenix, that is, as I found in Phoenix (Liability) (at [1128]):

(a)    10,013 students out of a total of 11,678 students were enrolled with Phoenix in two courses;

(b)    three students were enrolled in three courses; and

(c)    four students were enrolled in four courses.

69    Indeed, the fact that the consumers enrolled in Phoenix online courses were set up not only to fail, but largely not to engage with their courses, was an essential aspect of Phoenix’s business model in its merciless pursuit of profit. As I found at J[17], in comments which bear repeating:

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.

70    Thirdly, the contravening conduct occurred for close to a year from 13 January 2015 to 23 November 2015, the number of people affected by the unconscionable conduct was substantial, and the conduct was deliberate and systemic in character.

71    Fourthly, I explained the Phoenix Marketing System and the Phoenix Enrolment System in Phoenix (Liability) at [1321]-[1322] as follows:

On the one hand, the Phoenix Marketing System focused upon the direct, unsolicited approaches made by Agents to consumers to elicit enrolment forms from them for enrolment in Phoenix Online Courses in furtherance of the Profit Maximising purpose, with a Callous Indifference to their suitability for the courses, on the basis of misleading representations, and using high pressure and unfair tactics. In effect, this first aspect of the applicants’ systems case might loosely be described as focused upon “recruiting students” and “capturing them in the [Phoenix] net”. In respect of the Phoenix Marketing System, the conduct of the Agents and of the Brokers who engaged them is attributed to Phoenix, which contracted with the Brokers initially through CLI acting on its behalf and subsequently directly. The applicants also allege that CTI was directly or indirectly knowingly concerned in that system and/or aided, abetted, counselled or procured the contraventions by Phoenix.

On the other hand, while also pursued in furtherance of the Profit Maximising Purpose and with the Callous Indifference, the Phoenix Enrolment System was concerned with what happened after submission of the enrolment forms by the Brokers to CTI. This aspect of the applicants’ systems case focused upon the processing of the enrolment forms and enrolling of consumers in Phoenix’s Online Courses, including in multiple full-time courses, in circumstances where, among other things there was systemic non-compliance with the safeguards mandated by the VET FEE-HELP legislative scheme and by Phoenix’s policies for ensuring that students had an opportunity to make informed decisions about whether courses were suitable for them, for vetting unsuitable candidates, and for ensuring that consumers who were enrolled would have the support they required to undertake the courses. This system also included charging enrolled consumers duplicated and unnecessary fees for particular units of study. The applicants’ primary case is that Phoenix and CTI (which acted on behalf of Phoenix in enrolling consumers) contravened s 21 of the ACL.

72    By way of explanation, the “Profit Maximising Purpose” is a reference to Phoenix and CTI’s purpose of maximising the number of consumers who received VET FEE-HELP so as to maximise Phoenix’s revenue from the Commonwealth through the VET FEE-HELP assistance scheme (Phoenix (Liability) at [1175]). In turn, the reference to the “Callous Indifference” refers to the fact that, in eliciting enrolment from consumers and then enrolling them in the Phoenix 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

(Phoenix (Liability) at [94].)

73    I found that both the Profit Maximising Purpose and the Callous Indifference were “overwhelmingly" established by the evidence: Phoenix (Liability) at [1175] and [1191] respectively.

74    While both the Phoenix Marketing System and the Phoenix Enrolment System were highly egregious, the ACCC sought larger penalties for the Phoenix Enrolment System for the reasons that (at AS[55]):

The conduct underpinning the Phoenix Enrolment System was that which most directly led to the losses incurred and the benefits gained – it crystalised the effects set in motion by the marketing system. It calls for larger penalties than the Phoenix Marketing System. The very purpose of the separate enrolment step was to act as a final check that the courses were suitable for the consumers and the consumers were willing to and were capable of undertaking the courses, and yet in practice the enrolment system operated to compound the unconscionability already enacted towards the consumers. While the trial judge held at J[1320] that the two systems “worked in tandem” and involved “overlap”, it was the enrolment system that perfected the contravening conduct in the sense of crystallising the harm to consumers and reaping the benefits for the contraveners: see J[1322]; see also J[97]. The ongoing and repetitive nature of this conduct in the face of effectively negligible completion rates compounded the aggravating nature of the conduct.

75    I agree with the ACCC that for these reasons it is appropriate to award larger penalties against Phoenix and CTI with respect to the Phoenix Enrolment System.

5.1.1.2    Loss to the Commonwealth

76    The loss to the Commonwealth is substantial, with the Commonwealth having paid over $106m to Phoenix in VET FEE-HELP payments, none of which has been (and most probably will never be) recovered.

77    This occurred through the respondents’ ruthless exploitation of a central feature (now shown to be a vulnerability) in the VFH scheme, being the census date. In effect, the census date feature of the scheme was intended to afford a consumer a “cooling off” period after enrolling in a VET course. The duration of that period, which was set by the VET provider, was required to be equivalent to at least 20% of the course duration: Phoenix (Liability) at [198]. However, “[o]nce 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…” (Phoenix (Liability) at [199]; emphasis in the original). Key features of the manner in which the respondents exploited this aspect of the VFH scheme were that:

(1)    the Phoenix Marketing and Phoenix Enrolment systems “worked in tandem with the apparent intention of maximising Phoenix’s profit by ensuring the enrolment of as many customers as possible who were unlikely to engage with the Online Courses and unlikely to appreciate the consequences of their enrolment such that they would withdraw prior to the census date” (Phoenix (Liability) at [1320]);

(2)    the vast majority of students were enrolled into two diploma courses, thereby doubling Phoenix’s entitlement in respect of each student recruited (see above); and

(3)    Phoenix claimed VET FEE-HELP payments for subsequent VET units of study without the students having first completed (or indeed even logged into) earlier VET units of study in their courses (Koochew affidavit at [26]-[27]).

5.1.1.3    Economic loss and damage suffered by enrolled consumers

78    Each of the 11,393 consumers enrolled in one or more of the Phoenix online diploma courses are aptly described as victims of the Phoenix Marketing and Phoenix Enrolment systems. Phoenix charged fees of between $18,000-$21,000 for each course. As I have noted, most students were enrolled in two diplomas (described as “doubles” by officers of the respondents, Mr Brown and Mr Kochhar), despite each diploma involving a full-time load. It is therefore no exaggeration to say, as does the ACCC, that the students were “set up to fail” by the respondents’ conduct (AS at [62]). Yet this deliberate tactic of enrolling students in “doubles” not only had consequences for the VET FEE-HELP payments sought by Phoenix from the Commonwealth; it also doubled the level of debt in fact owed by the students to the Commonwealth once the census date in relation to each course (being each course component of the diploma) had passed.

79    The evidence establishes that these debts have now largely been re-credited by the Commonwealth under a legislative redress scheme so as to remedy the economic losses suffered by consumers as a result of the respondents’ misconduct (Vickers affidavit). However, as the ACCC submits, this re-dress is in no way attributable to the respondents and therefore does not mitigate the penalties which might otherwise be imposed.

5.1.1.4    Non-economic loss and damage suffered by enrolled consumers

80    Phoenix’s unconscionable conduct also caused consumers to suffer non-economic loss and damage.

81    First, and it bears repeating, the blatant predation on consumers, including the high pressure, door-to-door sales techniques employed, was “grossly exploitative and at times dishonest, and … lacking in any respect for the dignity and autonomy of the vulnerable consumers who were targeted” (J[1352]).

82    Secondly, it can be inferred that the assumption of debts of the magnitude incurred by consumers enrolled in the online courses would have caused many consumers enormous stress, as in many cases would the sales techniques employed. The likely stress, anxiety and general consternation caused by Phoenix’s conduct can readily be inferred from, and was often explicit in, the numerous complaints received by Phoenix during the relevant period (see, eg, Phoenix (Liability) at [592]-[613]).

83    Thirdly, as the ACCC submits (AS [66]):

the students did not receive what was sold to them and what they incurred debts for. Instead, these students were in every sense set up to fail in their courses: the courses were not suited to them; minimal effort was made to confirm that the students satisfied course admission eligibility requirements; and the courses were not properly resourced or tailored to their needs. Indeed, as her Honour held at J[1221], the “unconscionability of recruiting consumers who plainly did not meet the eligibility requirements or were enrolled in courses for which they were not suited is apparent from the 40% withdrawal rate after the census date had passed.”

84    The course engagement and completion statistics to which I have referred also starkly illustrate this point.

85    Fourthly, I accept the ACCC’s submission that consumers who were enrolled in the Phoenix online courses may have lost the opportunity to undertake study elsewhere which may have improved their skills and qualifications and positively impacted their employment prospects.

5.1.2    The circumstances in which the contraventions took place (subs 224(2)(b))

86    I have earlier set out the summary from Phoenix (Liability) explaining the circumstances of the offending. The circumstances in which the Phoenix Marketing System unconscionability contraventions took place, and CTI’s involvement in those contraventions, are set out in my reasons in Phoenix (Liability) at [1323]-[1348]. The circumstances in which the Phoenix Marketing System unconscionability contraventions by Phoenix took place, and CTI’s involvement in those contraventions, are set out in my reasons in Phoenix (Liability) at [1349]-[1351].

87    I have given very significant weight to the circumstances in which the contravening conduct by the respondents took place. As I have explained, this was offending of the worst kind. Such egregious contraventions emphasise the need to impose a substantial penalty in order to send the strongest possible message of deterrence to others who might seek to exploit and rort government programs. In this regard I agree with the submissions by the ACCC (AS [71]) that:

The objective seriousness of the contravening conduct is significantly heightened by the fact that the conduct involved the cynical exploitation of a government program that was designed to help socially and economically disadvantaged members of society boost their skills and increase their opportunities to secure a place in the workforce. In simple terms, this was a “rort” on a massive scale and one which was made all the worse by the fact that to perpetrate the rort it was necessary to take advantage of a large cohort of vulnerable consumers.

5.1.3    Whether the respondents have previously engaged in similar conduct (subs 224(2)(c))

88    Neither of the respondents have engaged in similar conduct in the past; nor did either have a history of prior contraventions. However this is because the respondents were effectively special purpose vehicles designed to perpetrate the rort. In particular, as I held in Phoenix (Liability) prior to its acquisition by ACN in January 2015, Phoenix was a small registered RTO and VET provider offering face-to-face courses only to approximately 400 students: Phoenix (Liability) at [88]. Its operations changed radically and immediately on its purchase by ACN: ibid. Thus, on acquiring Phoenix, the key officers of Phoenix and CTI (and the parent company, ACN) “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” and to persuade thousands of consumers to sign up to Phoenix’s courses through the deployment of hundreds of agents across the country using unscrupulous, dishonest, high-pressure sales techniques (J[9]).

89    In these circumstances, the absence of prior contraventions and the fact that the respondents had not engaged in similar conduct in the past is not a factor that should attract any reduction in the penalty.

5.2    Other factors relevant to penalties

5.2.1    General

90    As I have earlier explained, there are other relevant factors that have been identified and applied in the authorities concerning the determination of civil penalties: see e.g. Pattinson (at [18] (Kiefel CJ and Gageler, Keane, Gordon, Steward and Gleeson JJ). These were elaborated upon by the Full Court in NW Frozen Foods at 292-293. However, it is important to emphasise that these factors are neither exhaustive nor otherwise confine the Court’s discretion: Coles Supermarkets at [9] (Allsop CJ); Pattinson at [19].

91    Furthermore, the Full Court has observed that these other factors, “which relate to both the objective features of the contravening conduct and the subjective circumstances of the contravener, may be taken to be relevant because they directly bear on the assessment of the penalty that is necessary to achieve general and specific deterrence”: Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; (2021) 284 FCR 24 at [150] (the Court). It follows that the various factors under s 224 of the ACL and in the authorities relevant to setting the penalty amount fall to be considered in the context of setting a penalty of appropriate deterrent value so as to ensure that the penalty cannot be regarded by the respondents and others merely as an acceptable cost of doing business or an economically rational choice: see further by analogy TPG  Internet at [66] (French CJ, Crennan, Bell and Keane JJ); Singtel Optus (FCAFC) at [62] (the Court); and Pattinson at [17] and [66].

5.2.2    The size and financial position of the respondents

92    I set out the key points regarding the ACN Group’s operations during the financial year ending 30 June 2015 at J[664]. In particular, amongst other matters, I noted the following.

(1)    In furtherance of the radical re-orientation of Phoenix’s business following its acquisition by ACN, the number of employees in the ACN Group of companies had increased from 60 to over 540 (ACN 2015 Annual Report at p. 3).

(2)    The ACN Group’s revenue increased 390% to $85.2 million compared to the previous financial year (ACN 2015 Annual Report at p. 17), with Phoenix accountable for $54,922,880 of that revenue (Phoenix Financial Report 2015 at pp. 6 and 15).

(3)    The operating result of the Group for the financial year was a net profit of $17.3 million compared to the previous financial year of $1.4 million (ACN 2015 Annual Report at pp. 17 and 32).

(4)    Phoenix contributed $11,383,216 to the Group’s net profit after, among other things, payment of a “management fee expense” in the sum of $18,326,000 to CTI for services provided to Phoenix.

(5)    The dividends paid by Phoenix to shareholders in the sum of $11 million, as well as the management fee expense, were paid from the VET FEE-HELP progress payments received in July 2015.

(6)    On 25 August 2015, the directors of CTI declared a fully franked final dividend of $10,887,341 (13c per share) to be paid on 23 September 2015 (compared to $nil in 2014) (ACN 2015 Annual Report at pp. 17 and 65).

93    As such, following its acquisition by ACN, Phoenix became the “workhorse” of the corporate group (as the ACCC described it), receiving a massive revenue stream from its exploitation and rorting of the VFH scheme. CTI shared in the benefits of this revenue stream through the imposition of a substantial management fee. In addition, with its deployment of a “veritable army of at least 548 Agents” engaged by the Brokers with whom the respondents contracted to market Phoenix’s Online Courses (J[14]), clearly Phoenix and CTI had very substantial operations. Nonetheless, it would be inaccurate to characterise Phoenix and CTI as substantial players in VET education. As I have noted, the respondents failed to provide any education to an overwhelming majority of consumers enrolled in the Phoenix Online Courses or indeed to have the resources necessary to provide education services to the vast number of enrolled consumers (J[1271]).

94    However, as both respondents are now in liquidation, I accept the ACCC’s submission that this factor is not a particularly significant consideration. It is only relevant to the extent that “size may also be relevant to general deterrence because other potential contraveners are likely to take notice of penalties imposed on companies of a similar size”: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) [2005] FCA 254; (2005) 215 ALR 281 at [9] (Merkel J).

5.2.3     The deliberateness of the respondents’ conduct

95    The deliberateness with which the contraventions throughout the relevant period were undertaken by the CEO, Ivan Brown, and the CFO, Harry Kochhar, as controlling minds of the respondents, highlights the morally abhorrent nature of the contraventions. As the ACCC submits, this deliberateness is a key factor in characterising this conduct as falling in the worst category of cases, and emphasises the need for very substantial penalties indeed to be imposed by way of general deterrence.

96    In this regard, I held at J[1271] that, while the VET FEE-HELP scheme was directed towards the disadvantaged demographic groups:

it was no part of the VET FEE-HELP scheme for persons from these or any other demographics to be enrolled in courses irrespective of whether they were capable of successfully completing them and/or had any intention of attempting to do so. Yet that is precisely the business model adopted by Phoenix which it pursued ruthlessly through the Marketing System and … the Phoenix Enrolment System. So much may be inferred from the fact that at no time during the relevant period did the respondents have anything like the resources necessary to provide training and assessments and in the case of the Service Diplomas, work placements, for the volume of consumers being recruited.

(Emphasis added.)

97    The deliberateness of Phoenix’s conduct is further illustrated by its systemic falsification of records to avoid detention and ensure the continued flow of revenue from the VET FEE-HELP scheme (see e.g. J at sections [10.15.5] and [10.19.3]). This conduct was pursued by Phoenix instead of taking steps to rectify the egregious conduct being undertaken by agents in the field selling Phoenix Online Courses and to ensure compliance with the safeguards which the enrolment system should have provided. Indeed, not only were Mr Kochhar and Mr Brown well aware of the systemic issues, but they actively encouraged the contravening conduct by, for example:

(1)    incentivising misconduct by Brokers and Agents through payment of substantial commissions to them for each successful enrolment once the census date was passed, payment of the highest commissions to those Brokers who were known to be the subject of the most complaints, and the rewarding of Brokers and Agents to enrol consumers in “doubles” (J at [952] and [1327]); and

(2)    the giving of directions to employees not to comply with enrolment safeguards (J[1183]).

I address these aspects of the conduct further below in the context of considering senior management involvement in the contraventions.

5.2.4    Whether the respondents had a corporate culture conducive to compliance with the CCA

98    The respondent’s corporate culture was, as the ACCC submitted, the antithesis of a culture conducive to compliance with the ACL. Despite being well aware of what was required to comply, “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” (J[17]; emphasis added). Building on the ACCC’s helpful summary, key aspects of the toxic culture within Phoenix and CTI included the following (AS [81]):

(1)    the manifest failure of the CEO and CFO to take steps to address an “ever- escalating stream of complaints made to Phoenix by consumers and consumer advocates” (at J[893]);

(2)    the steps taken by Phoenix to mislead the vocational training regulator the Australian Skills Quality Authority (ASQA) once it was notified of an audit of Phoenix’s compliance, including through concealing Phoenix’s student engagement rate by instructing the owners of the learning platform, FinPa, to turn off a homepage feature which would alert ASQA to the low number of student log-ins onto the platform, and by artificially inflating its trainer-student ratio (see, for example, J[715]-[736]);

(3)    the bullying employed by Phoenix and CTI’s senior management in the face of concerns raised by staff members about Phoenix’s conduct, the control exerted over staff as to who they could speak with and with whom they could hold meetings so as to silo information about the respondents’ conduct, and the pressure placed upon staff to meet extraordinary weekly enrolment targets at the cost of compliance with enrolment safeguards (J at sections 8.1.1 and 8.2);

(4)    the widespread “double charging” of consumers who were enrolled in more than one diploma where both diplomas involved a common unit (at J[1300]); and

(5)    the payment to Brokers of significant incentives of almost $39 million during the Relevant Period (at J[695]), notwithstanding Phoenix and CTI’s knowledge of the widespread dishonest, high pressure sales techniques being used by Brokers and Agents, and the escalating number and seriousness of complaints about their conduct.

5.2.5    Covert conduct that was systemic and deliberate

99    As is clear from the above analysis, the Phoenix Marketing and Enrolment systems found to be unconscionable were fundamental to the business model adopted by Phoenix and CTI to maximise enrolment numbers and thereby increase the revenue stream from VET FEE-HELP. In order to avoid detection and deceive the regulators, the respondents engaged in systemic and deliberately covert conduct, thereby compounding the morally reprehensible nature of the contraventions. Examples of this conduct include the following:

(1)    the deception of ASQA among other things by:

(a)    urgently instructing FinPa to turn off the feature which automatically displayed student engagement numbers on the learning platform’s home page in order to hide the low number of enrolled consumers who had actually logged on to Online Courses, from ASQA during a compliance audit (J[1224]); and

(b)    following regulatory action in in October 2015, artificially inflating the number of trainers/assessors by representing to ASQA that individuals who were not engaged as trainers were engaged as such in order to create the appearance of an improved trainer to assessor ratio (J[1234]-[1235]);

(2)    engaging in a fraudulent Student Log-on Project using students’ log-in details without their knowledge or permission in order to mask poor student engagement by giving the impression that consumers enrolled in Phoenix Online Courses were actively engaged in the courses when they were not (J at Section 10.11.5); and

(3)    conducting a “large-scale falsification of records in order to cover up massive compliance failures” by backdating the marketing of forms and altering enrolment dates and signatures following the respondents’ receipt of notice of an ASQA audit (J[1183]). This conduct was intended to conceal from the regulator (among other things) the enormous backlog in marking LLN and PTR forms which should have been undertaken in order to assess the eligibility and suitability of consumers applying to enrol in the online diplomas to engage in the courses: ibid.

100    Furthermore, on 21 February 2017, Mr Brown signed a statutory declaration that VET student data which had been submitted to the Department in respect of units of study with a census date during 2015 for the purposes of the VET FEE-HELP Assistance Scheme “was true and correct in every particular; and that as at the census date each and every student was enrolled a genuine student in the unit(s) of study they were reportedly enrolled in” (Supplementary Tender Bundle Tab 1260). That statement is now known to be demonstrably false.

5.2.6    Senior management involvement in the conduct

101     I found in Phoenix (Liability) that Phoenix and CTI’s senior management, and in particular the CEO, Mr Brown, and CFO, Mr Kochhar, directly orchestrated and implemented the contravening conduct by, among other things:

(1)    in the case of Mr Brown, personally signing the agreements with Brokers and Agents which incentivised the targeting of vulnerable consumers whose general attributes meant that they were less likely to understand their rights and obligations under the VET FEE-HELP scheme, to interrogate the misinformation they were given by the agents and brokers, and to resist the inducements offered to them for signing up (J[14], [513], [693] and [750]). The Brokers and Agents were incentivised to engage in such conduct by means of substantial commissions payable only after the census date, as I have earlier explained and held in Phoenix (Liability) (ibid);

(2)    either bullying staff into carrying out directions with which staff members had raised concerns, or hiding the true purpose of the directions given to staff members (at J[288] and [312]-[317]);

(3)    directing CTI staff not to undertake telephone verifications of consumers before enrolment, not to check whether consumers completed enrolment forms personally, and to override quality assurance processes despite clear indications that the forms may have been completed by Agents instead of the consumers (J[1182], [1184]-[1185]);

(4)    setting high weekly targets for Brokers and Agents to obtain completed enrolment forms from consumers for its Online Courses and actively encouraging Brokers and Agents to obtain applications from consumers to enrol in multiple online courses despite the fact that each of the Phoenix Online Courses had a full course load (J[1177], [1179]); and

(5)    setting exceptionally high weekly targets for CTI staff to enrol the consumers recruited by the Brokers and Agents despite being aware that these targets were unattainable unless CTI staff departed from standard enrolment processes and procedures. At times the weekly targets were as high as 2000-5000 enrolments and were reflected in Phoenix’s requests for increases in the 2015 Advanced Payment Determination for VET FEE-HELP payments to it by the Commonwealth (J[1180]-[1181]).

102    Furthermore, Phoenix’s senior management were well aware from late January and early February 2015 of complaints from consumers and consumer groups about the conduct of Brokers and Agents in the field (at J section 10.8). However far from taking proactive steps to address the issues raised in the escalating flood of complaints, they rewarded and encouraged the offending Brokers and Agents by awarding them higher commissions in subsequent contracts (e.g. at J [14]). In this regard, I found that (at J[1338]-[1339]):

the approach of senior management when complaints were drawn to their attention is a cogent indicator of the attitude prevailing at Phoenix and CTI. The reluctance exhibited to act on complaints and the failure to put in place measures to address systemic issues repeatedly raised in complaints is telling evidence that the outcome complained of was an accepted feature of Phoenix and CTI’s way of “doing business” or indeed a desired or intended outcome (AIPE (No 3) at [83] by analogy). When the complaints about unethical conduct by Brokers and Agents were brought to Mr Brown and Mr Kochhar’s attention by employees, they sought to brush them aside, bullied staff for raising their concerns, and sidelined staff including senior management such as Mr Gale, then CEO of Phoenix, and Ms Crittenden, the Director of Operations, Quality and Compliance. As a further example, Ms Blefari, Group Compliance Manager, was instructed to make her reports to the ACN Board “much shorter and more general” following a number of compliance reports submitted by her to the Board setting out, in detail, her concerns about compliance issues relevantly with respect to Phoenix.

Furthermore, when complaints of serious misconduct by Brokers and Agents on behalf of Phoenix came to the attention of various regulators, a reactive approach was adopted by Phoenix/CTI. This primarily involved denying that there were problems, responding with “guff”, cancelling some enrolments the subject of complaints but often only where threats were made of taking the complaints to the police or a regulator, blacklisting individual “rogue agents” reactively, and attempting to delegate Phoenix’s responsibility for the conduct of Agents to the Brokers. Otherwise, the active encouragement by Mr Brown and Mr Kochhar to Brokers to supply up to thousands of enrolment applications each week continued, and Phoenix and CTI took steps to endeavour to conceal, through dishonest means, what was actually occurring. These steps included:

(1)    falsely representing that Phoenix/CTI ensured that all Brokers and Agents were given induction training;

(2)    falsely representing the action taken in response to complaints against Agents and Brokers, and the safeguards allegedly in place to vet Brokers and Agents and protect the interests of consumers;

(3)    directing employees of CTI to ignore suspicious patterns in enrolment documentation submitted by Brokers; and

(4)    falsifying and backdating enrolment documents submitted by Brokers and student support plans on an industrial scale.

103    I agree with the ACCC’s submission that, insofar as the involvement of senior management is concerned, this case has much in common with Volkswagen, where the primary judge concluded, as recorded by the Full Court at [82], that:

the $75 million “agreed penalty” which had been jointly submitted by Volkswagen and the Commission was “not sufficient to meet the overriding objects of specific deterrence and general deterrence required in matters such as this and is manifestly inadequate”: Judgment at [273]. His Honour then summarised the particular features that had led him to that conclusion: the “egregious nature of the consumer fraud perpetrated by [Volkswagen]”; the fact that the “fraud” was “calculated” and “perpetrated by senior management”; the fact that it involved a “very serious deception of Australian government regulatory authorities”; the fact that the “impact on consumers was very significant” and the fact that “excessive emissions of NOx are harmful to humans and to the environment”; the fact that Volkswagen had shown no contrition.

An appeal from the primary judge’s decision in Volkswagon was dismissed by the Full Court.

5.2.7    Whether the respondents have shown a disposition to cooperate with the authorities responsible for the enforcement of the ACL in relation to the contravention

104    Whether the contraveners have shown a disposition to cooperate with the authorities responsible for the enforcement of the ACL in relation to the contravention is a factor which can properly be taken into account in mitigation of penalty: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liq) [2007] FCAFC 146; (2007) 161 FCR 513 at [61] (Moore, Dowsett and Greenwood JJ). For example, in Jetstar at [84]-[87], I held that the respondent was entitled to a significant discount in penalty given the degree of its co-operation with the ACCC from the outset which had saved the ACCC from incurring substantial costs in connection with the proceeding and conserved valuable court resources. This co-operation included the respondent:

(1)    admitting that it made representations contrary to ss 18 and 29(1) of the ACL as alleged by the ACCC;

(2)    taking steps to remove the representations from its website;

(3)     reviewing its policies and procedures; and

(4)    reviewing complaints over the relevant period.

105    However, neither the evidence nor the procedural history of this matter disclose any disposition on the part of Phoenix or CTI to co-operate with the ACCC. Indeed, the ACCC’s chronology of the litigation (at AS[86]-[93]) with which I agree, reveals the contrary:

On 9 February 2016, the Applicants filed an interlocutory application seeking, inter alia, orders in relation to the rights of former employees of the Respondents to furnish information to the ACCC in relation to the proceedings, following unsuccessful attempts to agree such orders on a consent basis with the Respondents.

On 29 August 2016, once the Respondents had gone into administration, the Applicants applied for the leave of the Court under s 444E(3)(c) of the Corporations Act 2001 (Cth) to continue the proceedings. The Respondents opposed this application [J[59]]. When that opposition failed, the Respondents [unsuccessfully] appealed Perry J’s decision of 21 October 2016 to grant leave, thereby causing years of delay in the finalisation of this matter. Thereafter, there were protracted disputes about pleadings issues.

On 11 December 2017, the Applicants filed an Amended Originating Application and Amended Concise Statement. As part of the amendment of the Concise Statement, the Applicants filed:

(a)    particulars of the Profit Maximisation Conduct and Enrolment Conduct; and

(b)    particulars of the agency relationship between Phoenix and its brokers.

On 28 March 2018, the Respondents sought further and better particulars of the Amended Concise Statement [J[62]], which the Applicants provided.

On 24 May 2018, the Applicants filed an interlocutory application for leave to file a Further Amended Originating Application and a Further Amended Concise Statement, which the Respondents opposed.

On 23 July 2018, the Applicants were granted leave to file a Further Amended Originating Application and some amendments to the proposed Further Amended Concise Statement [J[63]]. Notwithstanding the amendments and the provision of particulars, the Respondents continued to maintain that the case against them was “unclear”. This ultimately led to the Applicants seeking to file a Statement of Claim. On 1 February 2019, Perry J heard the Applicants’ application for leave to proceed by way of a Second Further Amended Originating Application and Statement of Claim. Ultimately, on 4 March 2019, Perry J granted the Applicants leave by consent to file the Second Further Amended Originating Application and Statement of Claim [J[65]].

On 4 March 2019, the Applicants were granted leave to file a Second Further Amended Originating Application and a Statement of Claim.

Eventually, on 9 August 2019 – being almost four years after the proceedings were commenced – Phoenix and CTI filed a submitting appearance. They made no admissions, thereby putting the Applicants to full proof of their case.

(Footnotes omitted.)

6.    THE APPROPRIATE PENALTY FOR THE UNCONSCIONABLE SYSTEMS CONTRAVENTIONS

6.1     Range of penalties sought by the ACCC

106    The ACCC submits that, in all of the circumstances, penalties in the following ranges are appropriate:

107    Having regard to the considerations which I have set out above and for the reasons set out below, I accept that penalties at the highest levels of those for which the ACCC contends, or penalties close thereto, should be imposed with one exception. I consider that a substantially higher penalty should be imposed for CTI of $7 million with respect to its Phoenix Marketing Systems contraventions of s 21 of the ACL.

6.2    Appropriate penalties against Phoenix

108    The ACCC explained the reasons for the different penalties which it proposed for Phoenix with respect to the Phoenix Marketing system ($80-100m) and Phoenix Enrolment system ($250-300 million) as follows (at AS[100]):

While separate penalties should be imposed for each course of conduct, it is important to ensure that the penalties are each directed to distinct and non-overlapping conduct so that there is no ‘double-counting’. Taking each separately:

a.    The penalties proposed for the Phoenix Marketing System can be seen to be appropriate to having regard to the specific conduct which comprised that system, the degree of exploitation which it entailed, and the fact that it was engaged in with a view to “setting up” the effectiveness (to Phoenix) of the Phoenix Enrolment System with all the benefits and harms that would attend it. The Phoenix Marketing System should be penalised with an eye to the expected gains, and the risk of loss, were enrolments to follow. However, as the marketing system did not, in and of itself, generate the enrolments and the resulting financial benefits and harms, the proposed penalties are considerably lower than the proposed penalties for the Phoenix Enrolment System. Nonetheless, very substantial penalties are warranted for the Phoenix Marketing System in its own right because, even considered alone, it was unlawful conduct warranting a very strong deterrent message.

b.    The penalties proposed for the Phoenix Enrolment System are significantly greater. This was the conduct which brought the expected benefits and harms to fruition. As noted above, the Phoenix Enrolment System was deployed at a later point in time and involved quite different conduct to the Phoenix Marketing System. The process of enrolment was supposed to operate as a safeguard. As the findings in the Liability Judgment make plain, the enrolment system was perverted and offered no “check” as had been intended. The enrolling officer was supposed to confirm that the student understood that they were enrolling to undertake a course and would assume a debt by reason of that enrolment, satisfied eligibility requirements, was equipped to undertake the course and that the course was suitable for the particular student. Instead, that process was corrupted and these safeguards were disregarded as the Respondents sought only to maximise profits. Were it not for the fact that separate penalties are to be imposed for the Phoenix Marketing System which set-up and enabled the Phoenix Enrolment System, even higher penalties would have been necessary for the latter.

(Emphasis added.)

109    I agree for these reasons that it is appropriate to set significantly higher penalties for the Phoenix Enrolment System. Specifically, while the Phoenix Marketing System was the “dragnet” used by Phoenix to capture as many enrolment applications as possible, it was through implementation of the Phoenix Enrolment System that Phoenix achieved its goal of maximizing profits by creating a massive revenue stream from the Commonwealth via the VET FEE-HELP assistance scheme and thereby caused significant loss to consumers and the Commonwealth.

110    The appropriateness of the total penalties and the fact that they would not involve any kind of “double counting” of the conduct for each system could be tested in a number of ways, relevantly, by reference to:

(1)    the gross benefits of $359 million claimed by Phoenix from the Commonwealth;

(2)    the benefit of the $106 million in fact received by Phoenix from the Commonwealth;

(3)    the loss suffered by the Commonwealth of approximately $106 million; and

(4)    the penalties which would be appropriate to conduct of the kind in question which was engaged in with respect to individual consumers.

111    I consider each of these in turn below.

6.2.1    The gross benefits claimed by Phoenix in the sum of approx. $359 million

112    The gross benefit claimed by Phoenix was approximately $359 million comprised of:

(1)    $106,667,172 in advance VET FEE-HELP assistance payments by the Commonwealth by about September 2015 (J[771]); and

(2)    a further $236 million claimed by Phoenix on and from 30 September 2015, but not paid to it by the Commonwealth (J[636] and [1181]).

113    I accept the submissions of the ACCC that, in order to achieve the necessary general deterrence objective, it is appropriate that the claimed gross benefits “set the floor [but not the ceiling] of the penalty since the revenue that was obtained and was sought to be obtained by Phoenix was wholly attributable to its contraventions of s 21” (AS[105]). In this regard, I make the following observations.

114    First, an actual benefit in excess of $106 million was received by Phoenix.

115    Secondly, it is appropriate to include in the calculation of what the ACCC has termed “the gross benefit”, monies sought to be obtained by Phoenix from the Commonwealth but not in fact paid to Phoenix because the contraventions of the ACL were uncovered. This is because, as Bromwich J held in AIPE (No 5) at [19(d)]:

Any penalty must address the potential judgement call a company may make that conduct would not be detected, or if detected, would only incur a penalty in respect of the wrongfully gained benefits. The penalty should be more than a mere disgorging of profit, otherwise it may be thought to be worth the risk given the difficulties in detection and successful litigation.

On that basis, penalties in relation to Phoenix should exceed the $359 million sought to be obtained by Phoenix as a result of its contraventions in order to achieve the necessary deterrent effect.

116    Thirdly and related to the last point, Phoenix was dogged in pressing its claim for payment of further VET FEE-HELP amounts. So much is demonstrated by the correspondence between the Department and the administrators, Ferrier Hodgson, from 2016-2018 identified in Annexure A to the applicant’s submissions on relief and tendered at the hearing. That correspondence concerned the Department’s investigation of Phoenix’s claim to “entitlements to VET-FEE-HELP payments”. Throughout the correspondence, Phoenix continued to reject, and was highly critical of, the Department’s investigations. In one letter dated 28 March 2018, for example, representatives for Phoenix stated that:

Whatever the process that has been undertaken, it is concerning that, against the background of the vast array of documents provided by Phoenix and the documents produced in response to the warrants executed by the Australian Federal police (to which the Department has had access), we are now in a position in our deed administration where it is necessary to call into question the adequacy of the processes that have been undertaken by the Department in collating and analysing information available to it, particularly as the work undertaken can be demonstrated as being clearly so 'off the mark’.

(Emphasis added.)

117    Plainly, despite the concerns raised about inaccurate data and unscrupulous practices, Phoenix persisted unrelentingly in its claim to be paid the further VET FEE-HELP amounts: see also letters to the Department from Ferrier Hodgson dated 28 March 2018 (TB vol. 24 tab 1046) and 4 June 2018 (TB vol. 24 tab 1048).

118    Further, Phoenix unsuccessfully commenced proceedings in the Federal Court against the Commonwealth on 14 December 2015 seeking among other things an order to compel the Department to pay the advance VET FEE-HELP amounts to Phoenix that had been deferred in the sum of $40 million. This proceeding was dismissed with costs on 4 March 2016: Phoenix Institute of Australia Pty Ltd v Commonwealth of Australia [2016] FCA 190.

119    Moreover, in the letter from the administrators for Phoenix and CTI pursuant to the deed of arrangements (the Deed Administrators) to the creditors dated 26 February 2020, the Deed Administrators advised that if the ACCC were wholly or partly unsuccessful in the present proceeding, and if litigation funding could be obtained, further negotiations or litigation in relation to the $253 million of VET FEE-HELP payments purportedly owing to Phoenix could be pursued by Phoenix in liquidation (CB vol. 2 at tab 22, p. 1700). Indeed the Deed Administrators and their advisors expressed the view “that Phoenix had a strong claim worthy of pursuit”: ibid.

120    I therefore accept the ACCC’s submission that, absent the damning decision in Phoenix (Liability) holding that the respondents had utilised unconscionable systems in order to exploit the VET FEE-HELP system in the ruthless pursuit of extraordinary profits, the likelihood is that Phoenix would have persisted with its claim against the Commonwealth for payment of the outstanding $253 million. The important point, as the ACCC submits, is that the respondents asserted that they had taken all of the steps required to trigger an entitlement to payment of the deferred, additional $253 million. In those circumstances the appropriate starting point for the assessment of the penalty against Phoenix should be approximately $360 million.

6.2.2    The received benefits of the conduct in the sum of $106 million

121    While Phoenix received $106 million as a result of its conduct, general deterrence considerations in the case of particularly grave contraventions may require penalties amounting to many multiples of the profits made. This is particularly so where, as here, the company went to great lengths to conceal the contravening conduct and mislead the regulator. As the Full Court held in Volkswagen (at [152]):

Indeed, in cases where the contravening conduct is concealed and not easily detected, deterrence (both general and specific) may justify a penalty that is many multiples of the profits made from the contravening conduct. If the contravening conduct is concealed and the risk of detection is low, a penalty equivalent to or just exceeding the profits earned may be regarded by the contravener as “an acceptable cost of doing business” on a strict cost–benefit analysis because of the overall likelihood of financial gain from the conduct. That principle has been long recognised in the context of cartel contraventions, which are typically concealed and difficult to detect … The principle is equally applicable in the context of contraventions of the Consumer Law that involve concealed conduct.

(Citations omitted.)

122    As the ACCC submits, in pricing the risk of contravention, a company might be expected to allow for the possibility that contraventions will not be detected and penalised. As a result, if the penalty were only to deprive the wrongdoer of the benefits obtained through the contravening conduct, it may encourage companies to “gamble” on not being caught. Indeed, irrespective of whether proactive steps are taken to conceal the contraventions, there are many circumstances, as here, where the contravening conduct occurs in essentially private dealings between a market player, on the one hand, and vulnerable consumers, on the other hand. These circumstances, of themselves, increase the potential for the contravening conduct to go unreported and therefore creates an environment in which companies may be encouraged to take the risk that their conduct will not come to light. As Colvin J helpfully explained in Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2020] FCA 23 at [97]:

In other instances, the contravening conduct may be in the open in the sense that its character is evident from the nature of dealings with third parties who can raise complaint. In such cases, it may not be the clandestine nature of the conduct but rather imbalances in financial standing and access to legal or commercial advice that may both facilitate the conduct and make it less likely to be scrutinised. So too, instances where the contravening conduct involves engendering a sense of trust may make complaint less likely. Although such conduct is, in one sense, in the open, the vulnerability of one party may be an aspect that makes the conduct of a kind which may lead to potential gain without the risk of being brought to account. Therefore, the extent to which the conduct involves an exploitation of such imbalances and their potential to generate gains through contravening conduct is an important part of assessing the level of civil penalty that is required in order to fulfil the primary object of deterrence.

123    As the ACCC contends, these considerations, coupled with the extraordinarily grave features of the case, lend further force to the appropriateness of setting total penalties against Phoenix substantially above the amount in fact received by Phoenix from the Commonwealth through its completely unscrupulous exploitation of the VET FEE-HELP assistance scheme.