The High Court decision of Productivity Partners Pty Ltd (trading as Captain Cook College) & Anor v Australian Competition and Consumer Commission & Anor[1] clarifies the law regarding unconscionable conduct and accessorial liability, highlighting the intent necessary for a finding of unconscionability, and the knowledge required for management to be held liable in connection with the actions of a company.

Background

Captain Cook College (College) is a tertiary education institution, offering online vocational education and training (VET) courses funded through a Commonwealth loan program.

Each unit of study at the College had a respective census date, being the date before which students could withdraw from the unit without having to pay for the course under the Vocational Education and Training Fee Higher Education Loan Program (VFH) scheme. This census date lapsed two weeks after the commencement of the relevant unit.

Traditionally, the College recruited students through course advisors, who, by virtue of their commission structure, were strongly financially incentivised to recruit students and ensure that they passed their first census date. This created a known risk of misleading recruitment, which was exacerbated by the College’s online campus mode, which prevented in person contact.

The College’s senior managers were aware of this ‘unsuitable enrolment risk’.

Under the College’s enrolment system:

a quality assurance call was made to each prospective student, with the purpose of ensuring that the person understood the commitment they were making under the VFH scheme, and to ascertain any barriers that the person may have in completing the course; and additionally
students’ attendance to online classes would be monitored over the first few weeks of study, and, if they were unengaged in the course, they would be contacted, or, if uncontactable, automatically withdrawn before the census date.

From April 2015, the College experienced declining enrolments. This in turn affected the commission of the recruitment agents.

To address this issue, on 7 September 2015, the College ceased making quality assurance calls upon enrolment and withdrawals based on lacking attendance.

Instead, the College allowed the course adviser to initiate an inbound quality assurance call with a college admissions officer, meaning that the course advisor was present for the call.

The College went from having a few hundred students in total to having a few hundred enrolling every week. This in turn caused a growth in revenue of 225% from August to September.

The number of unsuitable students for their associated course also increased. The College having 1859 students from July 2015 to May 2016 who progressed through at least one census date and thus incurred a VFH debt despite having no contact with the College since their initial quality assurance call.

The Australian Competition and Consumer Commission (ACCC) alleged that:

the College, by removing appropriate precautions preventing unwitting and unsuitable students from enrolling in VET courses, engaged in unconscionable conduct in breach of section 21 of the Australian Consumer Law (ACL);
the College’s parent company, Site Group International Limited were liable for the unconscionable conduct, and
the College’s COO/ CEO, Mr Blake Wells (Mr Wells), was also accessorily liable for the unconscionable conduct.

Mr Wells argued that, whilst being aware of the conduct engaged in by the College, he was not aware that this conduct did, in fact, breach statutory thresholds for unconscionable conduct.

On first instance and on appeal to the Court of Appeal of the Federal Court, the courts found in favour of the ACCC. The College and Mr Wills appealed to the High Court.

Court Findings

There were unchallenged aspects of the court of first instance and Court of Appeal judgements.

The primary judge’s finding that the changes to the enrolment system caused drastic changes in the number of unsuitable students being enrolled and the number of students that incurred debts despite a lack of engagement in the course was not challenged on appeal.

The Court of Appeal’s finding that the practices prior to amendment exposed a risk of unsuitable student enrolment also remained unchallenged. As did a finding that removing the safeguards of automatic unenrolment was against conscience, particularly because around 50% of students had withdrawn from their course either automatically or voluntarily prior to the first census date.

In regards to Mr Wills’ appeal the Court finding that Mr Wills was a key driver of many of the College’s changes to improve financial performance and had been made aware of, and oversaw some of the changes to the enrolment process was not appealed.

The issues dealt with by the High Court on appeal for the purposes of this article are:

Issue: Whether a finding of unconscionable conduct can be made without reference to matters listed in section 22 of the ACL?

The College argued that:

the Court of Appeal erred in failing to sufficiently consider the matters listed in section 22 of the ACL;
section 22 provides a list of matters to be considered when determining whether a company acted unconscionably, thus limiting the scope of what constitutes unconscionability.

The High Court held that:

a court does not need to consider all factors in section 22, but only the relevant factors, to the extent that they are relevant, considering the alleged unconscionable conduct in its totality;
the actions of a company will only be deemed unconscionable if the conduct rests outside of societal expectations of corporate conduct to an offensive extent. A fundamental aspect of unconscionable conduct is its immorality;
the court outlined failure to prevent a risk of misconduct materialising is sufficient to be held liable for unconscionable conduct, where that risk is foreseeable.

Issue: Whether a person can be deemed an accessory to unconscionable conduct without knowing that the conduct was legally considered unconscionable?

Mr Wells argued that, while he was aware of the College’s changes to its enrolment procedures, he was not aware that this behaviour would be deemed unconscionable and should thus not be deemed an accessory.

The High Court concluded that the alleged accessory need only be aware of the central circumstances that constituted the primary breach. They do not need to have known that the conduct in fact amounted to a breach or the consequences deriving from the conduct.

The court’s rationale was that corporations think through their business models, and therefore an exploitative business practice is assumed to have been made with that intention.

Therefore, in relation specifically to unconscionable conduct, the accessory need not have known that the conduct was unconscionable, but did need to have been aware of the primary matters that made the conduct unreasonable or immoral.

The alleged accessory must, however, have intended to engage in the conduct that amounts to the primary contravention.

The High Court to determined that Mr Wells was accessorily liable, as he was aware and gave effect to the course of conduct, knowing the risks of doing so and it did not matter if he was unaware that the conduct would be legally deemed unconscionable.

Significance

This matter highlights to executives the threshold elements needed to be held accessorily liable for the actions of your company. Knowledge of alleged unconscionable conduct and its unsuitableness in the circumstances is sufficient to be held liable by a court.

If you wish to discuss this further please contact:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Inshani Ward
Senior Associate
T: +61 3 9611 0110 | M: +61 413 557 157
E: iward@sladen.com.au

Charles Cooper
Seasonal Clerk
E: ccooper@sladen.com.au

[1] [2024] HCA 2