Update on the law of unconscionability and accessorial liability

Introduction

For the first time, the High Court of Australia has considered accessorial liability in the context of unconscionable conduct. In the decision of Wills v Australian Competition and Consumer Commission [2024] HCA 27 (Wills) handed down earlier last month, the Court provided important clarity on the status of both unconscionable conduct and accessorial liability in Australia.

Key Takeaways:

The case highlights that company directors should ensure that they are adequately discharging their duties. This includes:

(a)  ensuring not to turn a blind eye to changes that may be happening within the business that may point to clients or customers inadvertently being misled; and

(b)  when making a significant change to systems and processes within the business, considering the adverse impacts they may have, especially on clients or customers.

It is important to remember that in proceedings of this nature, there is no requirement for there to be an intention to mislead or act unconscionably in order for the accessory to be found liable. Removing safeguards or systems that may increase the risk that clients or customers are misled can still amount to unconscionable conduct.

Background

In 2018, the ACCC instituted a proceeding against Productivity Partners Pty Ltd trading as Captain Cook College (the College), alleging that it engaged in systemic unconscionable conduct arising out of its abuse of the Commonwealth Vocational Education and Training Fee Higher Education Loan Program (VET FEE-HELP Scheme).

The ACCC was successful at first instance and on appeal in establishing that the College engaged in a system of unconscionable conduct in contravention of section 21 of the Australian Consumer Law (ACL).

The College provided online courses that typically cost between $13,000 and $20,000 and were funded through the VET FEE-HELP Scheme.

The College set a ‘consensus date’ two weeks after the beginning of an online course, on which date any student who was still enrolled would incur a debt to the Commonwealth pursuant to the VET FEE-HELP Scheme. Irrespective of whether or not any student enrolled after the consensus date continued with or completed their course, the College would be paid tuition fees by the Federal Government.

Risk of Exploitation

This payment structure, along with the ease of registering for an online course, created a risk the College would be incentivised to encourage students to register for courses which they would never ultimately continue, or in somecases even start. This risk was exacerbated by so-called “course advisors”, who were marketing and sales agents employed by the College and paid on a commission basis upon a student staying enrolled in the course until after the consensus date.

To alleviate this risks, the College employed two key control systems:

(a)  firstly, prior to the consensus date, admissions officers of the College were required to call any students enrolled in courses and ensure that the student understood the loan commitment as well as identifying any potential reasons as to why the student may not be suitable to undertake the course; and

(b)  if a student did not engage with the online materials and remained uncontactable prior to the consensus date, they would be automatically withdrawn,

(collectively, the Safeguards).

Removal of the Safeguards

In September of 2015, in the midst of declining enrolment rates, the College removed the Safeguards. In the months that followed, the College’s vocational loan revenue increased by 255%, between August and September. Revenue for the month of December 2015 was more than 5000% greater than the average for July and August 2015.

Between July 2015 and May 2016, there were 1,859 students who incurred a debt by being enrolled past the consensus date that had not been in contact with the University since initial contact. Prior to that, between January and June 2015, there was not a single student that incurred a VET FEE-HELP debt without being in contact with the College.

Unconscionable Conduct

Section 21 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL) prohibits engaging “in conduct that is, in all of the circumstances, unconscionable”. Although unconscionable conduct is not expressly defined, the prohibition has been noted to go as far as to cover systems of conduct or patterns of behaviour, whether or not a particular individual is identified as being disadvantaged by the conduct.  

It was upheld on appeal to the High Court that the system of conduct employed by the College, particularly in respect of removal of the Safeguards, was identified as a system of unconscionable conduct in contravention of the ACL.

The College submitted that a change to a system which results in an increased risk that misconduct will go undetected, with a lack of intention that the misconduct actually occurs, is not a contravention of section 21 ofthe ACL. This ground was unsuccessful, with the High Court finding that regard can be had, in determining whether unconscionable conduct has occurred, to the circumstances that were reasonably foreseeable at the time of the conduct occurred. Here, the increased risk of misconduct being undetected was a reasonably foreseeable consequence of the conduct, meaning that it was unconscionable without the need for any intention that the misconduct occur.

On appeal, the College also put forward an argument that that section 22 of the ACL limits the scope of section 21 of the ACL. Section 22 sets out a list of matters to which the court can have regard to when determining whether a party has acted unconscionably. This ground of appeal was unsuccessful, with the High Court confirming that section 22 of the ACL does not require a Court to evaluate the impugned conduct by considering every factor listed in the provision, only those relevant to the situation.

Accessorial Liability:

Pursuant to section 224(1)(e) of the ACL, accessorial liability provides for pecuniary penalties where a person has been directly or indirectly “knowingly concerned in, or party to” a contravention of the ACL, including unconscionable conduct.

In Wills, Mr Wills was the Chief Operating Officer of Site Group International Ltd (Site), the owner of the College. He played a significant role and was described as the “key driver” of change in the removal of the Safeguards implemented prior to September 2015 by the College. It was held by the Court that Mr Wills:

(a)  knew of the potential risk surrounding the College’s business model, as well as the importance of the risk management strategies in mitigating those risks;

(b)  was aware of, and a driving force in the removal of the risk management strategies;

(c)   was aware of the profit maximising purpose of the changes; and

(d)  following removal of the Safeguards, was aware of the increase in enrolments and in turn revenue, as well as the ongoing risk of course advisor misconduct.

Mr Wills contended on appeal that in order to be an accessory to the College’s misconduct, he needed to be aware that the conduct of the College amounted legally to unconscionable conduct under the ACL. In dismissing this ground, the High Court reaffirmed the decision in Rural Press Ltd v Australian Consumer Commission (2003) 216 CLR 53, citing the longstanding principle that it is not necessary for the accessory to ‘recognise’ that the conduct is in contravention with the relevant legislation.

In these circumstances, the High Court upheld the decision of primary judge and Full Court that Mr Wills was an accessory to the College’s unconscionable conduct.

Pursuant to Section 139B of the Competition and Consumer Act 2010 (Cth), Mr Wills’ knowledge and conduct was also attributable to Site, meaning that Site was knowingly concerned, or a party to, the College’s misconduct.