Unconscionable conduct and systems liability – it’s about process and outcomes

High Court Decision: Productivity Partners Pty Ltd v Australian Competition and Consumer Commission; Wills v Australian Competition and Consumer Commission [2024] HCA 27

Key takeaway points:

• In 2018, the Australian Competition and Consumer Commission instituted a proceeding against education provider Productivity Partners Pty Ltd (trading as Captain Cook College) alleging it had engaged in systemic unconscionable conduct.
• The High Court found Productivity Partners Pty Ltd (trading as Captain Cook College) (the Company) engaged in unconscionable conduct in breach of section 21 of the Australian Consumer Law (ACL) by removing safeguards designed to protect students to maximise its own profits.
• This decision serves as a reminder that the law provides constraints on how far you can push a commercially powerful position to achieve a profit and that care must be taken to have a focus beyond profit when adopting a business strategy.
• In this article we review the connected circumstances that influenced the court’s determination on the justice of the case and present our key takeaways from the decision.

Overview

The High Court found Productivity Partners Pty Ltd (trading as Captain Cook College) (the Company) engaged in unconscionable conduct in breach of section 21 of the Australian Consumer Law (ACL) by removing safeguards designed to protect students to maximise its own profits. The conduct now clearly prohibited by section 21 is more broad ranging than many thought. Here we explore the relevant facts and impact of this decision to present our key takeaways on unconscionable conduct and systems liability.

Impact of this decision

For conduct to be considered unconscionable under the ACL there is no requirement for exploitation of a special disadvantage, or the proving of a particular intention or mental state of any person at the company, simply that the relevant behaviour is outside the norms of acceptable commercial behaviour to such a degree as to be offensive to conscience. The court will assess relevant conduct in ‘all the circumstances’ and where relevant, the list of factors and matters set out in section 22, and whether there is ‘moral obloquy’, or sharp practice. A specific victim is also not required, the focus is less on any particular transaction or event, and more on the structures and methods put in place and their likely consequences as a manifestation of corporate intent.

The totality of the circumstances is vital to understand what is required to be done, or not done, to satisfy the required standard of behaviour. Assessing unconscionability calls for a precise examination of the particular facts that looks to every connected circumstance that ought to influence the court’s determination upon the real justice of the case.

Relevant facts

The Company offered and provided online vocational education and training funded through a Commonwealth scheme known as the VET FEE-HELP (VFH) scheme.

The ACCC alleged that the Company engaged in conduct, or a pattern of behaviour, in respect of persons who enrolled in the Company’s online courses that was, in all the circumstances, unconscionable in contravention of section 21 of the ACL.

The relevant conduct was that, during the period of 7 September 2015 to 18 December 2015, the Company changed its process for enrolment by removing two system controls which had previously ameliorated known risks of unwitting or unsuitable persons becoming enrolled and remaining enrolled at the date on which VET fees became claimable from the Commonwealth under the VFH scheme.

The High Court found that the Company had engaged in unconscionable conduct as it had designed its systems (or rather a system of controls was dismantled) to achieve greater profits, which were not reasonably necessary to protect its legitimate commercial interests, where it knew or ought to have known that the consequent increase of revenue would come, necessarily and inevitably, at the expense of unwitting or unsuitable students who would gain no benefit from their enrollment.

Key takeaways

The key takeaways from this decision are that:

1. A company can be held liable for unconscionable conduct under section 21 of the ACL if its systems are designed in a way that maximises benefit to the business while risking or actually causing harm to consumers with no corresponding or appropriate benefit to them and without protecting a legitimate commercial interest.
2. Guidance as to allowable conduct can be taken from relevant industry codes and standards, for example the Franchising Code.
3. It is irrelevant whether the risk or harm was intended by the company.
4. It can be relevant whether or not a party acted in good faith in all the circumstances.
5. There is not any prohibition on being profitable or doing a good deal, however getting one over on someone or sharp practice may now be prohibited if it is unfair to do so in all the circumstances.
6. Thorough record keeping and in turn discovery will be required in any litigation.
7. Advice should be sought on appropriate measures and procedures to put in place and the reasons for them should be recorded.

Personal liability for those ‘knowingly concerned’

If a party is found to be knowingly concerned in the unconscionable conduct of a corporation, they can be found to be personally liable for a pecuniary penalty and disqualification as a company director.

A CEO during the relevant period was found to be knowingly concerned in the contravention of section 21 of the ACL by the Company. He was aware that changing the Company’s systems would involve an increase in unsuitable students being enrolled as a necessary end to achieve increased profitability. He therefore was found to have intended to be involved with the essence of the conduct that was found to be unconscionable and therefore liable as an accessory.

Closing statements

This decision serves as a reminder that the law provides constraints on how far you can push a commercially powerful position to achieve a profit and that care must be taken to have a focus beyond profit when adopting a business strategy.

In our upcoming Redes our Disputes experts will cover the court’s findings on the scope and nature of accessorial liability in more detail as well as how management, directors, companies, and franchisors can protect themselves whilst still adopting a strong commercial approach.