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Focus: Federal Court reverses systemic unconscionability finding against vocational education provider

2 October 2018

In brief: The Full Court of the Federal Court of Australia has overturned a decision by a single judge of the Court which held that Unique International College had engaged in systemic unconscionable conduct under the Australian Consumer Law in connection with the supply of online vocational education courses to consumers in New South Wales. Partner Rosannah Healy (view CV) and Lawyer Oliver Lloyd report.

How does it affect you?

  • The Full Court of the Federal Court of Australia has given further guidance about the nature and scope of evidence required to prove that a respondent has engaged in a system of conduct or pattern of behaviour that is unconscionable (systemic unconscionability).
  • The evidence (whether led through lay witnesses or experts) must show more than that the respondent engaged only in several individual instances of unconscionable conduct. It must also prove on the balance of probabilities that the system was unconscionable as a whole in allowing those instances to occur.
  • Evidence relating to individual consumers may be capable of proving systemic unconscionability. However, the nature of the allegations of unconscionable conduct will govern how probative the evidence of individual consumers is to proving a systemic unconscionability case. Where the nature of the unconscionability depends on the attributes of individual consumers or the specifics of transactions with individuals consumers, it will be important to demonstrate why a sample of cases is representative of the broader population, or otherwise provide a sufficiently large sample of cases.

Background

In October 2015, following an investigation into the training colleges sector, the ACCC took action against Unique International College (Unique),1  a private college that had enrolled over 3,600 students into online courses in 2014-2015, and which was paid approximately $57 million by the Commonwealth for those enrolments as part of its VET FEE-HELP scheme. Unique's sales staff had engaged in door-to-door sales, held sign-up meetings, and had offered free laptops or iPads in certain cases as an incentive for its students to enrol. Several students lived in former Aboriginal missions in country New South Wales.

The consumers were alleged to be vulnerable in these circumstances because they did not understand that they had been enrolled in a Unique course, could not read or otherwise understand the nature of the course or VET FEE-HELP obligations, and could not undertake or complete the course because of their inadequate numeracy, literacy and computer skills.

In June 2017, a single judge of the Federal Court found that, with respect to the six consumers who gave evidence at trial, Unique had either:

  • engaged in misleading or deceptive conduct or made false or misleading representations;
  • engaged in unconscionable conduct; or
  • failed to comply with the statutory requirements in relation to entering into unsolicited consumer agreements.

These were all contraventions of the Australian Consumer Law (ACL). In relation to the misleading or deceptive conduct allegations, the Court found that Unique represented to four of the  consumers that their courses were free, when in fact they were incurring a debt of up to $25,000 per course.

The primary judge also found that Unique had engaged in systemic unconscionability under the ACL by targeting disadvantaged consumers in New South Wales with offers of free laptops and iPads, providing financial incentives to its sales representatives, and hosting sign-up meetings to enrol students.

Unique appealed against the systemic unconscionability finding of the Court, while the ACCC and the Commonwealth sought to extend the finding to conduct that occurred in Victoria and Queensland.

The Full Federal Court decision

In a joint judgment, the Full Court allowed the appeal against the systemic unconscionability finding, on the basis that there was insufficient evidence to support the proposition that Unique's conduct in the individual instances was representative of its conduct more generally such that it could constitute systemic unconscionability. The Full Court held that the primary judge erred by relying on the evidence of these individual consumer cases as a significant part of the evidentiary basis for the systemic unconscionability finding in circumstances where:

  • during the relevant period, Unique enrolled in excess of 3,600 students;
  • those students came from 428 different postcode locations across Australia;
  • there was no evidence that the six individual cases that the ACCC relied on at trial were representative in any way of the approximately 3,600 students, and where the primary judge found he could not rationally conclude the consumers were in any way representative of the whole;
  • the ACCC had expressly declined to adduce evidence as to how the six individuals had been selected;
  • three of the six cases relied upon came from one family group and another two were also from one family;
  • these enrolments were the result of only three 'enrolment events'.2

In addition, relatively little evidence was adduced about Unique's enrolment and marketing processes as a reflection of its general conduct, as opposed to the select 'failures' of those processes in the individual instances of unconscionable conduct.3

The Full Court accepted that evidence relating to individual consumers may be capable of proving systemic unconscionability. However, the circumstances of the individual cases will govern how probative that evidence is. In this case, the nature of the alleged unconscionability largely depended on the attributes of individual consumers, or the specifics of transactions with those individual consumers. In particular, the vulnerabilities of the relevant consumers were dependent on their individual attributes (eg, literacy, numeracy, any intellectual impairments) and the specifics of their dealings with Unique (eg, what was and was not explained to them).  In order to show a link between conduct towards individuals and a system of conduct against a group of consumers in such a case, the Full Court held that there needs to be evidence:

  • about a material proportion of individual consumers;
  • of how and why the individual consumers were chosen;
  • of the representativeness of the individual consumers to the overall consumer population; or
  • a combination of all three.4

As a point of comparison, the Full Court referred to a previous case brought by the ACCC against Advanced Medical Institute (AMI) where the Court accepted that AMI had engaged in systemic unconscionability when making telephone sales of sexual dysfunction remedies. In that case, the vulnerabilities of the male consumers were 'generic vulnerabilities' which arose from the very situation of seeking treatment from AMI and were not vulnerabilities which depended on the specific attributes of individual consumers. Moreover, the ACCC provided evidence of 168 instances of misconduct to support its 'system' case.5 This evidence demonstrated that the company had designed a system of conducting business which included some general elements seen in the individual cases, such as the nature of the advertising, the role and remuneration structure of the salespeople and the contractual terms entered into with the individual consumers.

In Unique, the appeal decision did not alter the trial judge's findings that Unique had engaged in contraventions of the ACL in relation to all six individual consumers called to give evidence by the ACCC.

It now remains for the primary judge to determine the relief resulting from the findings that were not overturned on appeal, including any compensation to the consumers, pecuniary penalties, and repayment of funds paid to Unique by the Commonwealth.


Other updates

On the same day as the Full Court's decision in Unique, the Federal Court found that another college, Cornerstone Investment Aust Pty Ltd (which traded as Empower Institute before going into liquidation in April 2017), engaged in misleading or deceptive and unconscionable conduct, which included a finding that there was a system of conduct or pattern of behaviour that was unconscionable.6 The circumstances of that case were similar to those in Unique, but the evidence on which the primary judge based her systemic unconscionability finding predominantly related to the provider's marketing and enrolment processes as a whole, rather than the discrete cases of individual consumers (although evidence in relation to individual consumers was still led in the proceeding).7

The ACCC is continuing its proceedings currently on foot against other private colleges in the vocational education space, such as the Australian Institute of Professional Education Pty Ltd.

What does this decision mean for similar unconscionability cases?

The Unique decision has clarified the type and sufficiency of evidence required to make good a systemic unconscionability case where the nature of the alleged unconscionable system depends on the attributes of individual consumers, or the specifics of transactions with individual consumers.

Evidence (whether led through lay witnesses or experts) that only shows that the respondent engaged in several individual instances of unconscionable conduct from which the Court is asked to infer a system of conduct or pattern of behaviour which is unconscionable will not be sufficient. For such evidence to be probative of systemic unconscionability, it is at least necessary that the individual instances be proved to be representative of the respondent's conduct towards the broader population.

Moreover, the evidence must prove on the balance of probabilities that the system was unconscionable as a whole in allowing those instances to occur. The ACCC was successful in proving this with respect to Empower Institute at trial because it led evidence in relation to systemic unconscionability by reference to the respondent's organisational policies and processes, rather than by reference only to a small number of individual consumer cases.

We will continue to monitor developments in this space and the approach taken by the ACCC to unconscionability cases in the future.

Footnotes

  1. Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155.
  2. At [161].
  3. At [158]-[160] and [236]-[249].
  4. At [162].
  5. Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368 at [939]-[942].
  6. See Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408.
  7. See [743] of this judgment.


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