5.5.2 Proof of a "system of conduct or pattern of behaviour"
153 Issues regarding the proof of an unconscionable system of conduct or pattern of behaviour under the ACL were the subject of close consideration by the Full Court recently in Unique (FCAFC). It is therefore helpful to consider this decision in some detail.
154 The ACCC alleged that Unique, a RTO, had engaged in a system of conduct or a pattern of behaviour in connection with the supply of online vocational educational courses to consumers under VET FEE-HELP which was unconscionable contrary to s 21 of the ACL. Aspects of the conduct relied upon included the offering and provision of "free" iPads and laptop computers. Unique ran 428 recruitment sites. The regulator led evidence as to the marketing conduct used in relation to six individual students at three of those sites but did not lead evidence as to how the nominated consumers had been selected in those towns from amongst the thousands of consumers enrolled with Unique across the relevant period. The primary judge, Perram J, held that absent that information, the Court could not "rationally conclude that what took place in those towns was generally representative" (Unique (FCA) at [721]).
155 However, Justice Perram considered that other evidence led by Unique and unrelated to four towns in which 'sign-up meetings' were held established "certain more limited systemic features" namely:
721. … first, the gift of computers to proposed students on signing up (either directly as a gift before 31 March 2015 or on a purported loan basis after that date); secondly, the use of incentives for its own staff to encourage them to sign up students; and thirdly, the holding of sign-up meetings at the targeted locations.
156 His Honour concluded that he could not rationally extrapolate anything as to a system from his findings concerning the targeted locations, but nevertheless proceeded to find that a system had been proved on the basis of the evidence concerning the four recruitment sites. (As the amicus curiae submitted, on appeal the Full Federal Court found that a thread of the argument that these events were somehow representative of a broader system or pattern remained in his Honour's reasoning.) In particular, Perram J held that the gifting of laptops, the incentivising of recruitment, and the holding of recruitment meetings were "the result of considered decision making by senior management within Unique" and constituted a system within the meaning of s 21(4) of the ACL (Unique (FCA) at [774]-[777]). His Honour also found that Unique had targeted disadvantaged individuals by reference to indigeneity, remoteness and social disadvantage (whether that targeting was deliberate in its original conception or not, and despite not being satisfied as to the method by which the targeting was undertaken). Perram J concluded that the applicants had succeeded in establishing within the meaning of s 21(4) of the ACL, the existence of both a system and a pattern of behaviour with these four features (Unique (FCA) at [777]). Perram J further found that, while these features would not necessarily be unconscionable, when deployed against a targeted group of disadvantaged persons different issues arise. His Honour concluded that:
778. … In terms of s 22(1), it seems to me relevant to note in an assessment of the system that the targeted cohort consisted of people who were unlikely to understand the documentation involved (s 22(1)(c)) and that the use of the gift of a free (or 'lent') computer was apt to confuse this particular cohort into thinking a very bad deal was a good one - in my opinion an unfair tactic within the meaning of s 22(1)(d). The effect of the system in (b) to (d) was to supercharge the exploitation of the disadvantaged group which was being targeted (and also Unique's remarkable profits). The system was unconscionable within the meaning of s 21.
157 The Full Court overturned this finding on the basis that the evidence could not support either the existence of the system or its characterisation as unconscionable (Unique (FCAFC) at [92]). Much of the Full Court's judgment in Unique (FCAFC) necessarily addresses the use of evidence of individual consumers as representative of a wider pool of consumers to whom the allegedly unconscionable conduct was directed, as I have explained. In particular, the Full Court held that the evidence of six student witnesses out of more than 3,600 students and from four out of 428 sites was not capable of establishing the representative case advanced by the ACCC in the absence of evidence about how the sites or students were chosen or how they might be representative or random (Unique (FCAFC) at [162], [208]-[209]). That issue does not arise in this case because, as in AIPE (No 3), the ACCC and the Commonwealth expressly disavowed advancing the individual consumer evidence as representative evidence (AIPE (No 3) at [150] (Bromwich J)). Nonetheless, as I have foreshadowed, the decision provides valuable guidance on issues of proof in the context of an unconscionable systems case.
158 First, the Full Court in Unique (FCAFC) held that:
104. … How a system or a pattern is to be proved in any given case will depend on the circumstances. It can, however, be said that if one wishes to move from the particular event to some general proposition of a system it may be necessary for some conclusions to be drawn about the representative nature or character of the particular event.
159 Thus, the appropriate method for proving the existence of a system will depend on the facts of the case and the form of the pleading, and the extent of the probative exercise undertaken may be significant (Amicus' CS at [10]-[11]). As Bromwich J explained in Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521 (AIPE (No 1)):
11. … there are inherent difficulties in the applicants seeking to establish an overall system of conduct or pattern of behaviour based upon a relatively small sample of the alleged contravening conduct. A clear and sound evidentiary and legal basis is required before the conduct of a sample can safely form the basis of a conclusion that it is sufficient, and in particular, sufficiently representative, to prove the existence of an overall system or pattern applicable to the balance of activities of a respondent.
160 Secondly, after discussing the difficulties which may arise in a systems unconscionability case, including as to the relevance of analytical evidence, the differences between proving an individual consumer case as opposed to a system case, and the potential complexities in assessing the evidence, the Full Court in Unique (FCAFC) observed that:
126. None of the above is to set the burden of proving a system case too highly. As we discuss below unconscionability is a serious issue to which the terms of s 140(2) of the Evidence Act 1995 (Cth) are relevant. Some assertions of unconscionability will be more serious than others. That is inevitable due to the fact- and context-specific evaluation that is necessary to undertake by reference to the values recognised by the statute. Regard should also be had to the ability of a party to prove or disprove the existence or nature of any system: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969.
161 Section 140 of the Evidence Act, to which the Full Court referred, provides that:
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject‑matter of the proceeding; and
(c) the gravity of the matters alleged.
162 In particular, s 140(2)(c) reflects the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 that the seriousness of an allegation made, and the gravity of the consequences flowing if the allegation is made out, bear upon whether the allegation is established to the reasonable satisfaction of the decision-maker. Thus with respect to proof of an allegation of unconscionable conduct, the Full Court held in Unique (FCAFC):
155. There is no third standard of proof: see Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 at 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ). No doubt an allegation of unconscionable conduct is a serious allegation, to use the plurality's characterisation in Neat Holdings, and this explains its inclusion in r 16.42. (Though a court rule is not helpful in the construction and interpretation of a statute). To behave unconscionably should be seen, as part of its essential conception, as serious, often involving dishonesty, predation, exploitation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism. None of these terms is definitional. … These are descriptions and expressions of the kinds of behaviour that, viewed in all the circumstances, may lead to an articulated evaluation (and criticism) of unconscionability. It is a serious conclusion to be drawn about the conduct of a businessperson or enterprise. It is a conclusion that does the subject of the evaluation no credit. This is because he, she or it has, in a human sense, acted against conscience. The level of seriousness and the gravity of the matters alleged will depend on the circumstances. Courts are generally aware of the character of a finding of unconscionable conduct and take that into account in determining whether an applicant has discharged its civil burden of proof. …
163 Furthermore, as the amicus curiae submitted, an approach to proving the existence of a system which relies upon evidence of conduct in relation to particular individuals may require consideration of the intersection of proof of such a system and the tendency evidence provisions of the Evidence Act: Unique (FCAFC) at [206]-[207]; AMI at [92] (North J); and Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; (2000) 106 FCR 51 at [67] (Sackville J (Whitlam and Mansfield JJ agreeing)).
164 Thirdly, the Full Court in Unique (FCAFC) discussed the decision of North J in AMI. In that case, the ACCC alleged that AMI engaged in unconscionable conduct contrary to s 51AB of the TPA and subsequently s 21 of the ACL. An appeal against this decision was dismissed: NRM Corporation Pty Ltd. The contravening conduct was said to be the offering of treatments for premature ejaculation and erectile dysfunction using nasal spray and later oral strips. AMI's revenue for this program ranged between $40 and $55 million between 2008 and 2010 (AMI at [102]). Its method was telephone sales. The ACCC seized approximately 3 million recordings of such calls, and adduced a sample of them in evidence.
165 Relevantly to the question of the existence of an unconscionable system or pattern of behaviour, North J held that AMI had designed a selling strategy to target the anxiety and distress of men seeking treatment for these conditions, and that its salespeople were trained to use "high-pressure selling techniques" using methods likely to frighten men into agreeing to the treatments, including telling men of adverse physical consequences if they did not agree to the treatment (such as shrinkage of the penis and psychological impotence) (AMI at [891]-[894]). The threat of dire medical and social consequences placed pressure on men to accept the treatments (AMI at [894]). North J held that there was no scientific evidence that the sprays were effective treatments, nor were men warned about the side effects (AMI at [558], [894], [931]).
166 North J found with respect to the system employed by AMI as a whole that:
939. The ACCC demonstrated that AMI and NRM designed a system of conducting business which included some general elements. The nature of the advertising, the process by which patients interacted with AMI and NRM, the role of salespeople and their remuneration by commission, the contract terms and relevant refund policies, and the length and cost of treatment programs, were all matters which AMI and NRM implemented systemically and marked the way they conducted business. These systemic features could be seen in the individual cases which the ACCC proved.
940. In addition, the 168 individual cases demonstrated some features which occurred in most of those cases, such as the offering of medications being limited to the AMI and NRM medications, the failure of doctors to diagnose an underlying cause or refer patients to GPs or specialists for those causes or presenting conditions, and the use of high-pressure selling techniques by salespeople. The individual cases also involved some features which were specific to those cases, such as the refusal of refunds in particular cases.
941. The conduct which has been found to have been unconscionable existed in most of the 168 individual instances. Certainly, the most serious unconscionable conduct existed in most cases. That is not to say that all of the unconscionable conduct existed in all 168 cases. However, all the conduct found to have been unconscionable was sufficiently widespread to justify the relief sought…
942. … the ACCC did not set out to show that the patients in each of the 168 cases suffered some disadvantage. Proof of unconscionable conduct depended on what AMI and NRM did, whether or not it had an effect on the individual patient. For instance, some of the Annexure B patients did not enter into agreements at all. That did not mean that, for example, in using high-pressure selling techniques in attempting to procure contracts, AMI and NRM did not engage in unconscionable conduct. The circumstances that no contract was concluded may bear on whether the Court would grant relief, but it does not prevent a finding that AMI and NRM engaged in unconscionable conduct. So much is clear from National Exchange and, now, s 21(4)(b) of the ACL.
167 The approach of North J in AMI was approved by the Full Court in Unique (FCAFC) at [132], in holding that in principle there was no reason why evidence as to what occurred in the circumstances of a number of individual consumers could not also be adduced as evidence to prove a system. However, the Full Court continued:
133 Nevertheless, the circumstances of the alleged unconscionable conduct, and the evidence adduced, will be critical. The proportion or distribution or some other feature that the individual consumers can be seen to represent of the entire consumer class may be important. Whether the class can be said to have substantially common relevant characteristics, or not, will also matter. In AMI, the class (men seeking treatment for impotence) all had a number of common characteristics which were what gave rise to their vulnerabilities. More individual attributes - level of education, literacy, socio-economic grouping - did not, or could be seen not to, matter. How many of the transactions involving individual consumers reveal features said to be part of the "system" will be important. Obviously, the more features which self-evidently have an unconscionable character, the easier it will be to prove an unconscionable system. For example, in AMI, some of the features included:
(a) the training of salespeople in methods which were likely to frighten men into agreeing to buy the treatment programs;
(b) the remuneration of salespeople by commission and the failure to disclose this fact in a context where men believed they were consulting a medical practice, which would characteristically have patient welfare as a primary concern;
(c) the "unduly harsh" refund terms, which required parties to try all treatment options (including invasive self-treatment procedures) before becoming entitled to a refund or cancellation of debts, and the strict enforcement of such terms;
(d) the exploitation of the doctor/patient relationship, which created an inherent power imbalance and was combined with concealment of the lack of scientific basis for the medications sold; and
(e) the use of long-term contracts with consumers, in circumstances where this was without medical justification and was not necessary to protect the legitimate interests of suppliers.
134 Further, the nature of the evidence adduced from those responsible for the alleged design and implementation of the system will be important. In AMI at [891], North J summarised his findings about the evidence about Dr Vaisman:
Dr Vaisman knew that men who suffered from ED or PE generally felt anxious about their condition. He believed that they felt frustrated, ashamed, dissatisfied, distressed, and that they suffered from low self-esteem. Dr Vaisman targeted these characteristics as a method of pressuring patients to agree to treatment programs. Salespeople were trained by him to take advantage of these feelings as a means to sell treatment programs.
135 Most critically, the nature of the allegations of unconscionable conduct will govern how probative the evidence of individual consumers will be. The more generic the alleged conduct, and the less the unconscionability depends on the attributes of consumers, the more probative evidence about what happened to a number of consumers may be. An example is EDirect and its telemarketing scripts and calls: the attributes of consumers did not play such a central role in those allegations. The facts of AMI are another example. The vulnerabilities of the male consumers were generic vulnerabilities, which could be said to arise from the very situation of seeking treatment from AMI: they were concerned about their sexual performance.
(Emphasis added.)
168 The Full Court in Unique (FCAFC) contrasted the case before it with AMI, holding that:
136. … the vulnerabilities of the consumers were very much dependent on their individual circumstances: their levels of education, their literacy and numeracy, whether they had intellectual impairments, what was explained to each of them and what was not, and whether they had access to the internet and whether they understood how to operate a computer. These were not matters about which inferences could be drawn without sufficient evidence.
137 In AMI, the Court again had the scripts used in the telemarketing calls, and samples of the recordings of the calls. The unconscionable nature of the conduct was, at least in part, demonstrable from the contents of this evidence. That is not the case in the current appeal - for example, the scripts about the enrolment process and the programs were not found by the primary judge to contain, and were not suggested on appeal to contain, anything that could be said to be a feature of unconscionability.
(Emphasis added.)
169 In the fourth place, the Full Court concluded in Unique (FCAFC) as to the approach to proving the existence of an unconscionable system that:
150 In conclusion, what the authorities demonstrate, unsurprisingly, is that the debate about whether or not a corporation or an individual has engaged in conduct that reveals a "system" or "pattern of behaviour" will be highly fact-specific, and will rely to a significant extent on the forensic exercise the regulator chooses to undertake to prove the existence of the system, as well as any forensic exercise the respondent undertakes by way of answer. The same is true of the characterisation of conduct as unconscionable. In a case like Kobelt, both parties adduced lay and expert evidence about whether it was correct to describe what Mr Kobelt did as unconscionable. ASIC persuaded the primary judge, but not the Full Court.
151 In upholding the appeal, we are not to be taken as deciding that a regulator needs to adduce evidence which covers a majority of consumers affected by the alleged conduct, nor as deciding that some kind of representative or random sampling method cannot be adopted to prove the existence of a system. Rather, it is clear from the cases we have discussed that all those methods and others are open, and may be sufficient depending on the particular circumstances of the case.
152 Nor are we to be taken as deciding that evidence of what occurred to individual consumers is incapable of being used to prove a system. As North J said in AMI, depending on how that evidence is presented, and the use sought to be made of it, it may not be tendency or coincidence evidence at all. If it is (and whether or not this is so will need to be determined on a case-by-case basis) then a regulator should be aware of the need to comply with the provisions of the Evidence Act.
153 Proving that a characterisation of unconscionability is appropriate also requires careful attention to precisely what it is about the class of consumers that is relied upon. The more that individual characteristics of consumers are said to be what makes them vulnerable, the greater the need for evidence about individual consumers is likely to be. The more that unconscionability depends on specific interactions between the respondents and consumers, the more likely it is that a level of representative evidence will be required. Where, as in the current appeal, the features of the alleged "system" depended on what happened at various enrolment sites, what was said and what was not, and what attributes those who attended and enrolled had, it is unlikely that an unconscionable system case can be proven without more attention being paid by the regulator to the need to prove representativeness of individuals, or to have a sufficient sample of individual consumers, or expert evidence, which addresses these matters.
170 Crucially, in determining the characteristics of those targeted and the kind of evidence required to demonstrate special disadvantage, the Full Court in Unique (FCAFC) emphasised the need to avoid the making of unwarranted stereotypical assumptions and identified the kind of evidence which may be necessary to establish an unconscionable system so as to avoid the difficulties encountered by the ACCC in Unique:
165. Even if Indigenous or poor or unemployed people were "targeted", that would at one level only be to focus upon the expressed aims of the government policy. It is important also not to make unwarranted stereotypical assumptions about these groups of people. It was a feature of many of the submissions of the ACCC, even if sometimes only implicit, that either the individual consumers and the conduct towards them could be taken as representative or, if not, assumptions of vulnerability should be made about all those "targeted". It was this latter silent assumption that not only underpinned many of the ACCC's submissions but also [778] of his Honour's findings. The use of gifts of laptops or iPads, the use of incentives to staff to encourage them to sign up students and the holding of sign-up meetings (see 774, (c) and (d) of the primary judgment), which could be an otherwise inoffensive system (see the second sentence of [778]), became unconscionable because of the targeting of Indigenous, remote and socially disadvantaged communities (without knowing anything at all in the evidence about those communities).
166 Unique submitted, and we accept, that the equivocal nature of the evidence was, in fact, recognised by the primary judge when at [653] he found there were matters that were left "rather up in the air" by the evidence. We accept Unique's submissions that those matters were central to the system case, and in particular whether Unique's conduct could be described as unconscionable.
167 What could have brought the evidence down out of the air? It should not be thought that we are of the view that the task was Herculean. Apart from Ms Martin there was no educational expert. In Kobelt, for example, there was considerable expert evidence about the Indigenous communities themselves. An educational expert might have explained how online courses operate in an education sense: the kinds of facilities necessary for a student to tackle them successfully and the levels of literacy necessary.
168 An educational expert might have given an opinion on the fact, well-established in the evidence as the ACCC submitted, that although Unique's revenue increased from $40,301 in 2013 to $33,779,726 in 2015, its expenditure on staff and resources did not increase at all. How, one might have asked an expert, would a program in a business such as this, enrolling more than 3,600 students to participate in online courses from remote locations and knowing many students might face literacy and social challenges, have been appropriately planned, resourced and delivered? Assertions from the bar table about the accounts were of no assistance. …
169 … What was required to characterise a system as unconscionable was some coherent evidence of what a proper system would look like compared to any inadequacy of Unique's system (on this hypothesis).
170 An expert familiar with the government policy could also have contextualised the policy which led to the changes in the VET FEE-HELP program, the assumptions underlying how it would be delivered and to whom, and what support the policy contemplated would be given to students, especially those in remote locations or with particular educational, or economic, disadvantage. The "failures" alleged in [22] of the ASOC could have been explored, at a systemic level, and through Unique's own documentation, with Unique's witnesses. A larger cohort than six individual consumers and four locations could have been selected. At the very least, evidence about how and why these consumers and locations were selected could have been adduced. A properly prepared representative sample could have been used.
(Emphasis added.)
171 In line with this, the Full Court held that the fact that the proportion of Indigenous students enrolling in Unique's programs in NSW "far outstripped even the higher proportions of Indigenous students enrolling in VET programs across the country" was "equivocal in terms of what they prove. The numbers are just as capable of proving that Unique was 'targeting' its enrolments to those whom the Commonwealth had identified should be targeted" (Unique (FCAFC) at [183]). Furthermore, the Full Court held that to infer exploitative conduct from these figures "makes an unarticulated and suppressed assumption about the necessary vulnerability of the Indigenous communities approached" (ibid). Nor was there any direct evidence about what Unique's employees knew about the demographic make-up of the locations they visited, the basis on which they chose particular locations over other locations, or whether they recruited Indigenous staff in order to exploit their family or community relationships despite the onus of proof resting squarely upon the ACCC (Unique (FCAFC) at [196]). The Full Court also held that "[e]vidence of what occurred on numerous occasions, in different places and at different times, with different students, would all be admissible to prove the existence of such a system or pattern" (Unique (FCAFC) at [207]).
172 Justice Bromwich in AIPE (No 3) accepted that the regulator's case did not suffer from the defects in the regulator's case in Unique which had led the Full Court to allow the appeal. Bromwich J identified two potential difficulties relevant to the pleading and proof of a systems unconscionable conduct case, namely:
60. …The more general or abstract the system or behaviour that is alleged and proven, the harder it may be to establish that it has the character of being unconscionable for want of necessary detail to show that is so, or that it has the necessary pervasive and proscribed character. By contrast, too granular an approach may more readily demonstrate isolated instances of contravening conduct, but may fall short of showing that any overall proscribed system or behaviour took place. …
173 However, his Honour found that these difficulties had been addressed by the approach adopted by the regulator in AIPE (No 3) in "draw[ing] all of the threads of evidence together" (at [60]). That evidence included in particular the evidence of ex-employees and business records such as enrolment records and data, enrolment forms, complaints and records of complaint handling, as well the evidence of 13 individual consumers which was relied upon only to illustrate by detailed examples the unconscionable way in which the system worked overall "at the enrolment coalface" (at [163]; see also at [44]). As such, his Honour held that the evidence of the individual consumer witnesses "was helpful and made for a stronger case for the applicants", but, in contrast to Unique, "was not indispensable and not used as evidence that of itself was representative of the system or pattern" (at [163]).
174 Furthermore, unlike Unique, the applicants' case in AIPE (No 3):
167. … has the additional pleaded and proven dimension of a positive motive to deliberately enrol students who would not be likely ever to partake of study and to keep them enrolled until the census date, or at least deliberately to keep and maintain in place an enrolment system which produced that outcome. That motive has been shown to have been acted upon, even if not overtly discussed, because, when the problem of unsuitable students being enrolled and remaining enrolled past the census date was pointed out, steps were either not taken to alleviate it, or were overridden or watered-down when they resulted in a reduction in the rate of such enrolments continuing to the census date. It needs to be kept steadily in mind that the applicants did not need to prove intention to produce a particular outcome. But the character of the regime by which the outcome was produced has to be shown to be unconscionable.
(Emphasis added.)
175 Thus, while the ACCC's systems case in Unique (FCA) was "overwhelmingly circumstantial", Bromwich J held that the ACCC's case in AIPE (No 3) was not only circumstantial but included "important and far-reaching direct evidence" of the internal workings of AIPE (at [170]). His Honour concluded on this issue that:
170. … This was not a case of extrapolation from what was done to individual students: cf Unique at [74]. Rather, the evidence of what was done to individual consumers was illustrative of how the pattern of behaviour by AIPE played out in the field, avoiding that being left only to inference or abstract evaluation. The totality of evidence supports a reasonable inference that the pattern of behaviour was widespread, and thereby had a widespread effect, contributing to a very high proportion of that type of enrolment. The ACCC did not have to go so far as to eliminate every other possible explanation - that would be to impose a standard of proof beyond the balance of probabilities.
171. The evidence was more than enough to prove that it was an inevitable outcome of the enrolment system that unsuitable consumers would be enrolled as students, which it actively resisted changing in a way that would limit, let alone avoid, that outcome being highly prevalent. This materially assists the applicants' unconscionabilty case. There is nothing compelling to suggest any other significant cause for this extreme outcome, so as to stand in the way of this conclusion. The liberalised nature of the post-2012 VET FEE-HELP scheme does not provide as good an explanation and may safely be put to one side, because disadvantage is better understood as a barrier to, rather than a cause of, unsuitable enrolment. The applicants' evidence went far enough to remove as any reasonable explanation that the outcome arrived at was due simply to the inevitable consequence of disadvantaged persons having a higher rate of failure than other members of the community. What mattered in this case was how such persons came to be enrolled in the first place. That exercise in blaming the consumers was, to my mind, a most troubling and almost patronising conclusion to reach in any event, but one that can be reduced to, at most, a minor and inconsequential explanation in this case.