The current state of authority concerning contraventions of s 21 by reason of a system of conduct or pattern of behaviour
103 In Kobelt v Australian Securities and Investments Commission [2018] FCAFC 18 at [176]-[178] the Full Court explained the introduction of s 21(4) and its equivalent provision in s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth), in terms we respectfully adopt:
Section 12CB of the ASIC Act was amended by the Competition and Consumer Legislation Amendment Act 2011 (No 184 of 2011) to add (among other amendments) s 12CB(4)(b) which is in the following terms:
(4) It is the intention of the Parliament that:
(a) …
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour;
…
This amendment commenced in operation on 1 January 2012. The Explanatory Memorandum for the Bill, when dealing with an identical amendment to the Australian Consumer Law (Schedule 2 to the Australian Competition and Consumer Act 2010 (Cth)), stated that the unconscionable conduct provisions of the Australian Consumer Law are not limited to individual transactions. After referring to the decision of the Full Court of this Court in Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 (National Exchange) (a case we will consider shortly), the Explanatory Memorandum stated:
2.23 … However, it follows from the principle that a specific person need not be identified that a special disadvantage is not a necessary component of the prohibition.
2.24 To emphasise this point, paragraph 21(4)(b) of the ACL indicates Parliament's intention that the provision may apply whether or not there is an identified person disadvantaged by the conduct or behaviour. This ensures that the focus is on the conduct in question, as opposed to the characteristics of a particular person, or the effect of the impugned conduct on that person.
In his Second Reading Speech, the Parliamentary Secretary to the Treasurer said:
The final interpretative principle to be introduced by the bill is that the prohibition on unconscionable conduct applies to systemic conduct or patterns of behaviour and that there is no need to identify a person at a disadvantage in order to attract the prohibition.
Unconscionable conduct is not limited to individual transactions or events …
This interpretative principle ensures that conduct, rather than individual transactions or events, is the focus of the provisions.
104 The extension of s 21 by para (4)(b) to a "system of conduct or pattern of behaviour" which is unconscionable removes the necessity for revealed disadvantage to any particular individual. A "system" connotes an internal method of working, a "pattern" connotes the external observation of events. These words should not be glossed. 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. The notion of unconscionability is a fact-specific and context-driven application of relevant values by reference to the concept of conscience: see Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; 236 FCR 199 and Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; 249 FCR 421. It is an assessment of human conduct. A system of conduct requires, to a degree, an abstraction of a generalisation as to method or structure of working or of approaching something. If s 21(4)(b) is to be engaged, it is the system that is to be unconscionable. Nevertheless, the concept of unconscionability (even of a system) is a characterisation related to human conduct by reference to conscience, informed by values taken from the statute. As Cardozo J said (speaking for the Court) in Lowden v Northwestern National Bank & Trust Co 298 US 160 at 166 (1936) (albeit in a very different context): "A decision balancing the equities must await the exposure of a concrete situation with all its qualifying incidents. What we disclaim at the moment is a willingness to put the law into a straitjacket by subjecting it to a pronouncement of needless generality." This expression of legal technique in the firmly gentle style of that great judge only reflects what other great judges of the tradition of Equity have said, such as in the passage of the judgment of Dixon CJ, McTiernan J and Kitto J in Jenyns v Public Curator (Qld) [1953] HCA 2; 90 CLR 113 at 119 adopting what Lord Stowell had said in The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567: "A court of equity….looks to every connected circumstance that ought to influence its determination upon the real justice of the case." These expressions of legal technique should be recalled when the temptation arises to seek to re-define in short terms the words chosen by Parliament that require the application of general values to factual and contextual circumstance by reference to the notion of conscience.
105 Although there has been comparatively little consideration of the function and operation of s 21(4) in a principled way, a number of previous "system" case decisions bear examination, in terms of how the regulator sought to prove a system case, and how the Court dealt with the evidence adduced.
106 Australian Competition and Consumer Commission v Excite Mobile Pty Ltd [2013] FCA 350; ATPR 42-437 was a proceeding brought under s 51AB of the Trade Practices Act 1974 (Cth), concerning the marketing, sale and supply of mobile telephone services through a telemarketing company based in India and other call centres in Asia. Potential customers were contacted by telemarketers and offered, through the use of scripts, an enticement to contract, namely the "gift" of a phone and holiday vouchers. Excite itself did not appear to contest the allegations, but the named individual respondents did appear and contested the case against them. Mansfield J did not consider what constitutes a system or pattern of behaviour in his reasons for judgment, but the level of evidence provided by the ACCC provides some occasion for comparison with the present appeal.
107 In terms of the nature of the evidence, on the uncontested case, Mansfield J described it in the following terms at [16]:
The ACCC provided 10 examples of telemarketing calls and / or mobile contracts that were selected as follows. The first and last customers of Excite Mobile were chosen. The remaining eight customers were selected by choosing the last customer of every second month in which there was a recording available.
108 His Honour also noted at [131]:
… There was no submission that the documentary or electronic evidence was inaccurate or selective. In particular, the sampling of various telemarketer calls as random, and therefore representative, in general terms, was also not challenged.
109 Another aspect of the unconscionable conduct in this case was Excite's debt recovery process. In terms of the evidence relied upon, Mansfield J stated (at [48] and [49]) the ACCC submitted evidence of 136 recordings with 98 different customers involving one of Excite's employees, and three recordings involving another employee, and the evidence about which consumers succumbed to the debt recovery pressure related to the agreements of approximately 90 customers.
110 There is no magic in these numbers: however, on any view, they demonstrate two matters. First, the selection of evidence of individual consumers through a random or representative process, with the process disclosed on the evidence. Second, the use of evidence about a reasonable number of individual consumers so that, even if intuitively, a Court could exclude hypotheses of coincidence or lack of representativeness, and could, because of the number of individual consumers about which evidence was led, safely perceive a "pattern". What happened with 80 consumers, even on a hypothetical sample of thousands (the estimated total number of consumers in Excite is not set out in the evidence), may well be sufficient evidence for a Court to decide whether or not there is a pattern.
111 In contrast, can conduct in relation to six consumers establish a "pattern of behaviour" or a "system"? As we explain below, in a known class of more than 3,600 consumers, and on the limited evidence before the primary judge, we would find they could not, at least not without persuasive evidence about how the six could be said to be representative of the 3,600.
112 The allegations in Australian Competition and Consumer Commission v Keshow [2005] FCA 558; ASAL 55-142 have some factual parallels with the current proceeding. Keshow was also a Trade Practices Act case, concerning a person Mansfield J described as a "humbugger", who travelled through Indigenous communities in the Northern Territory, purporting to sell and supply children's educational materials and, at a later time, household goods as well. At [3], Mansfield J described the conduct in the following terms:
… He took advantage of the lack of education and commercial experience of those in the communities in doing so. In many instances, the educational materials were not needed or useful having regard to the age of the child or children of the consumer. The products he contracted to provide were most commonly not supplied, or not supplied in their entirety. Whether a contract to provide educational materials was met was haphazard. The payment arrangements in each instance involved an open-ended periodic payment authority, procured at the instance of the respondent, and authorising payment on the day which Centrelink or like benefits were regularly received by the particular complainant or other community resident. The respondent in a number of instances continued to receive periodic payments well after the value of the goods to be provided by him (whether or not they had been provided) had been received. In fact, there is no evidence to show that the respondent maintained adequate records of what products had been sold to which consumers, whether the products had been provided, as agreed, or what had been paid for them.
113 There were eight individual complainants from three Aboriginal communities, together with evidence from three people with some level of responsibility with one of the communities (Amoonguna). The evidence was that the respondent also visited other communities in the Northern Territory, including Hermannsburg, Meekatharra and communities at Katherine and Tennant Creek. However, it would appear the total number of consumers was not nearly as large as in the current appeal.
114 There was also a transcript of a lengthy interview with the respondent: it was from this evidence that Mansfield J said (at [76]) that there was other evidence of the respondent's dealings with customers other than the complainants. At [78], Mansfield J drew a series of inferences from the respondent's interview about his dealings with all his customers. The respondent's bank records and an analysis of those records were also in evidence. As Mansfield J noted, the evidence was ultimately uncontested by the respondent. There was also opinion evidence from an anthropologist, given on several levels: about the complainants individually, then concerning the complainants as a group and as members of their communities, and lastly concerning Indigenous consumers in remote communities in the Northern Territory as a class. On this last matter, the anthropologist's evidence extended to evidence of published socioeconomic information as to the characteristics of the communities in which the complainants lived, and published information about the educational and financial literacy of persons living in such communities.
115 However, as Mansfield J pointed out at [87], no generalisations could be made from this kind of evidence about all the residents in these communities, and their levels of education and financial literacy. We respectfully agree, and this is part of the difficulty with the point at which the ACCC's evidence before the primary judge stopped, in terms of what it disclosed about Unique's students. The Court must be careful to resist invitations to make findings that may involve the stereotyping of people living in certain locations, or in certain kinds of communities.
116 The same point was made by Drummond J in Australian Competition & Consumer Commission v IMB Group Pty Ltd (ACN 050 411 946) (in liq) [2002] FCA 402. IMB Group concerned a long-running and elaborate development scheme for a sporting and entertainment venture in Logan City, a local government area in the southern Brisbane metropolitan area in South East Queensland in the 1990s. The proponents of the scheme conceived of forming a syndicate for the purpose of entering a team in a national rugby league competition, and then developing a sporting and entertainment project centred on that team, whilst also taking advantage of the (then) recent relaxation of laws in Queensland about poker machines in sporting venues. Funding was to be generated through the sale of investment policies to individuals. It was the marketing and sale of these investment policies which were at the centre of the unconscionable conduct allegations.
117 More than 3,200 policies were sold by IMB, generally after purchasers attended seminars conducted by IMB, but also through door-to-door canvassing and telemarketing. Although initially the ACCC foreshadowed calling about 70 people who had purchased policies, in the end it called only 15 witnesses in this category. In contrast, the respondents foreshadowed calling 1,340 witnesses, 1,302 of whom were respondents to questionnaires, having attended meetings convened by IMB's legal representatives, and having then answered questionnaires either at the meetings or at home. From this, the respondent proposed to call 439 witnesses to give evidence. Drummond J did not allow this, and instead what happened was that the District Registrar randomly selected forty of these witnesses from the entire 439 and the parties agreed to Drummond J relying on his Honour's assessment of their evidence as an indication of the likely effect of the evidence of all 439 (see reasons at [40]). The ACCC is recorded in Drummond J's reasons as having made "trenchant criticism" of this exercise and the reliability of these witnesses because of the way they were "recruited". In the end, the respondents called 71 witnesses, including the "questionnaire" witnesses who had been randomly selected. The respondent enjoyed some success in defending many of the ACCC's allegations about the way the investment policies were marketed and sold, Drummond J concluding at [291]:
There is such a mass of evidence contradicting the limited body of evidence produced by the Commission in relation to the issues concerning Council approval raised in pars 22 and 23 of the Commission's pleading that I am not prepared to find that the Commission has made out any case within pars 22 and 23 of its pleading.
118 We set this out as another example of how a representative sample of witnesses might be procured during a trial. IMB Group also demonstrates that once a regulator embarks on an undertaking to prove a system case, or a pattern of behaviour, then a number of forensic issues and challenges will arise, which in some cases may lead to the system case not being capable of being proved. Respondents are entitled to be given an opportunity properly to test the evidence of a system case against them - which is precisely the considerable forensic exercise IMB undertook in the case before Drummond J.
119 At [20], Drummond J said this about the "class" of consumers said to be the target of the sales strategies:
… This class can be identified in general terms as residents of the Logan City area possessing the characteristics referred to in this "2001 Rugby League Syndicate" document. Some marketing occurred further afield, in Rockhampton and Moranbah in central Queensland (in about March 1992), in the Camu Aboriginal Community in far North Queensland (in about July 1992) and in parts of New South Wales, though most activity was concentrated in Logan City. But, as the evidence in this case demonstrates, it is wrong for the Court charged with determining whether conduct contravenes the provisions of s 52 the TPA to assume that the class of persons likely to be exposed to the relevant conduct fits some homogeneous stereotype conveyed by expressions such as "mum, dad and the kids in the middle to lower socio-economic group". As Hill J said in Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 49:
"In the end, the question is not whether account is to be taken of the effect of the conduct upon the gullible, but whether the conduct in question is misleading or deceptive."
120 At [134], Drummond J said:
While no one suggests that the Community was made up entirely of sharp business people, there is no justification to assume, on the limited evidence before the Court, that the Camu Community conformed to the stereotype of a non-functional indigenous community subsisting on welfare benefits and open to exploitation. If the Commission had established by evidence that the Camu Community was like that, then there would be little doubt that Glenn Ivers and Backo's activities would warrant the Commission's description of "appalling exploitation". Residents, as I have said, were members of an Aboriginal co-operative community engaged in banana growing. Mothe said he joined the IMB scheme, not because of club membership, but because he thought the scheme offered a good investment opportunity. That contradicts point (vi) in the Commission's submission. He was aware, however, that investment success was not guaranteed and that the scheme was still "at the planning stage". The reaction of the thirty to forty of the Community who attended Ivers and Backo's presentation was that about twenty members, including the administrator Mothe and the treasurer/secretary Shepherd, bought a total of about five policies while ten to twenty other members were not persuaded to invest. That does not suggest an obviously gullible audience. The Community's response to the seminar does not appear, on the limited evidence available, to be much different from the reaction of Logan City residents who attended IMB seminars at Springwood.
121 Returning to Keshow, it is of some significance that the kind of expert evidence adduced before Mansfield J extended well beyond the individual complainants. Nor was it simply statistical data, as Professor Vinson's was. At [101]-[106], Mansfield J made findings of unconscionable conduct in relation to the individual complainants. At [107], Mansfield J set out his findings in relation to all the respondent's customers (other than the complainants):
I have also reached that view with respect to each of the respondent's dealings with the respondent's customers in the Northern Territory. Obviously, those persons would have differing degrees of exposure to commercial and business transactions and differing facility in communicating in English; some would in general terms have understood the nature of the periodical payment forms, and many would not. Consequently, as with the transactions involving the complainants, not all the factors to which s 51AB(2) directs attention would operate to point to unconscionable conduct on the part of the respondent in his dealings with each of the respondent's customers. But my findings as to the respondent's way of operating, to which I have referred in detail above, also lead to the conclusion that his conduct in relation to each of the respondent's customers was unconscionable as that term is used in s 51AB(1) of the TP Act.
122 At [108], Mansfield J explained why he did not rely on the anthropological evidence for his conclusions as to the individual consumers, although his Honour stated that the anthropological evidence supported his findings. He did not rely on the anthropological evidence for his findings about the respondent's other customers, we assume, for the reasons given at [87] of his reasons, to which we have referred above.
123 Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 1045, a decision of Reeves J, concerned a mobile phone telemarketing scheme, again using overseas call centres. It was decided after sub-s (4) was inserted into s 21 of the ACL. Features of the scheme included offers of bonuses to potential customers if they entered into mobile telephone contracts, such as mobile telephones, televisions and laptop computers, and claims that the telemarketer had been "referred" to the consumer by someone the consumer knew. Obtaining names and numbers of people consumers knew, so that further "referrals" could be undertaken was a key part of the scheme. The ACCC's allegations concerned EDirect's conduct in relation to eight identified consumers. It also ran a system case. Aside from evidence about the transactions relating to the eight consumers, there was also evidence of the scripts of the sales component of the telemarketing calls, and there were recordings of 3,000 calls to potential customers. EDirect did not defend the proceeding at trial, but had filed a defence in which it made substantial (but far from complete) admissions going to the ACCC's system case. Reeves J records (at [88]) the ACCC's submissions:
Relying on what the Full Court said in National Exchange (see at [70]-[71] above), Mr Burnside submitted that it was not necessary for a particular individual to be identified to make out this type of unconscionable conduct. Instead, he submitted EDirect employed a high pressure sales system that was directed to an unnamed group or class of persons that could be expected to include members who were vulnerable or susceptible to EDirect's sales process in the way described in the ACCC's statement of claim.
(emphasis added)
124 Reeves J found the ACCC had not proven a system of high pressure sales. He found (at [94]-[95]) that the scripts did not establish enough features of any such system, and further held that the ACCC's evidence about the 3,000 calls also did not establish there was a high pressure sales system. Reeves J rejected (at [97]-[107]) the ACCC's detailed evidence (from several witnesses within the ACCC) about their analysis of the 3,000 call recordings, where (for example: see [98] of Reeves J's reasons) six ACCC officers "randomly listened to and noted features of [the] telemarketing call recordings". Spreadsheets of the results were created and adduced in evidence. It is not necessary to describe the detail of Reeves J's criticism of this evidence: suffice to say his Honour found it lacking in several respects. Part of his Honour's conclusions were reached after listening, as part of the trial, to approximately a dozen recordings played in court (see [103]). Reeves J concluded at [107]:
It is true, as Mr Burnside submitted, that the ACCC does not need to show that EDirect employed the system of conduct in question in the majority of the 3,000 recordings, but only in a "significant number" or "a non-trivial number over the period". However, focusing on the number of telemarketing calls tends, in my view, to distract from the fundamental issue. That is, as stated above (at [91]), whether the ACCC has shown that the critical features of EDirect's sales system as pleaded in its statement of claim were present in combination in a sufficient proportion, or number, of the recordings such that it has proved, on the balance of probabilities, that the high pressure and relentless system which is central to this issue, existed as a fact. Because of the deficiencies in the ACCC's analysis I have outlined above, I do not consider that analysis proves that fact. …
125 Of course, these findings are specific to the proceeding in which they are made, and depend on the evidence in that proceeding. However, the comparison with the evidence before the primary judge in this case illustrates the difficulties we see with the ACCC's approach in the present proceeding in three ways. First, in the present case, there was no analytical evidence at all of the kind in EDirect. Secondly, EDirect provides an illustration (and only an illustration, but nevertheless instructive) of how an individual consumer case and a system case may require very different kinds of evidence. Thirdly, even if there had been distinct analytical evidence, the approach taken by Reeves J in EDirect illustrates that the Court's assessment of such evidence may well be a complex task, and the presence of such evidence is far from certain to discharge the ACCC's burden of proof.
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 it 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.
127 The AMI case (Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368; ATPR 42-498) was brought by the ACCC against a corporation trading as Advanced Medical Institute (AMI), its Chief Executive Officer, director and shareholder, Dr Jacov Vaisman, and two doctors engaged by AMI. We note that an appeal against this decision was dismissed: NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98. 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. Its method was telephone sales: men were "treated" over the telephone. The ACCC seized some 3 million recordings of these calls, and adduced a sample of them in evidence. Amongst the Court's findings, relevantly to the question of the existence of a system or pattern of behaviour that was unconscionable, the Court found AMI had designed a selling strategy to target the anxiety and distress of men seeking treatment for these conditions, and its salespeople used "high pressure selling techniques", including telling men of adverse physical consequences if they did not agree to the treatment (such as that their penis would shrink and they would suffer "psychological impotence"). The Court found there was no medical evidence that the sprays were effective treatments, nor were men warned about the side effects.
128 The AMI decision is of some assistance because in that proceeding the respondent made not dissimilar submissions in closing argument to the first two grounds of Unique's appeal in this proceeding. North J records that submission at [83]-[84] of his Honour's reasons:
In their final written submissions the respondents argued
80. The ACCC brought forward a case based on particular patients, not a business practice or tendency case. For that reason, the case must be determined in relation to each transaction. There can be no elision or inferences drawn or tendency reasoning. The respondents repeatedly asked that the ACCC make its case clear, and a tendency or business practice case was expressly disavowed. It is the particularized case that the respondents are meeting. Therefore, while it is possible for there to be a finding of unconscionable conduct where no particular consumers are identified, that is not the case brought and is not the relief sought by the ACCC. Instead, the ACCC seeks relief in relation to particular transactions with particular patients identified in Annexures B and C. Only those transactions are relevant.
This submission repeated an argument which was raised by the respondents on several occasions in directions hearings and in a strike-out application filed by the respondents on 12 October 2011 in the pre-trial management process. On each occasion the ACCC explained that its case was not limited in the way submitted by the respondents.
129 His Honour rejected AMI's submission, finding that at all times the ACCC had conducted the proceeding both on the basis of allegations of unconscionable conduct in relation to a number of individuals (approximately 168 "consultations" in all), but also as a system case. His Honour's approach to the argument about tendency evidence (at [92]) is one with which we agree, and return to in our consideration of ground 4 below.
130 At [95], North J extracted part of the ACCC's closing submissions, where the ACCC examined how it sought to use the evidence it had adduced, both as to individual consumers and as to AMI's "generic" conduct:
In its written submission dated 10 July 2013 regarding the scope of its case, the ACCC sought to justify selecting the 168 cases as follows:
By saying "AMI/NRM had, and implemented a business model" we are not suggesting, nor do we need to say or prove, that AMI or NRM engaged in this conduct (implementation of a plan) all or most of the time. To conclude that AMI and NRM implemented a business model does not, of necessity, require or imply reliance on tendency (similar fact) evidence.
We do not mean, nor do we say, that "this is how AMI/NRM usually or typically acted", or "these examples are typical of what you would find if you sampled any instance or time during the period". We simply say, and mean, that AMI and NRM did certain things generically and certain things 170 times, and that those things, taken together (or separately or in more limited combination) reflected their intention - their 'model', and therefore their attitude towards consumers.
131 North J accepted this approach: see [939]. It is worth extracting his Honour's findings at [939] to [942] on the system in total, because they illustrate the nature of the evidence he considered:
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.
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.
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, as discussed later in these reasons for judgment.
Although the point has been made elsewhere in these reasons for judgment, it is useful to repeat at this point that 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.
132 With respect, we consider his Honour was correct to do so. In principle, there is no reason why evidence about what happened in the circumstances of a number of individual consumers cannot also be adduced as evidence to prove a system.
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.
136 In contrast, in the present appeal, 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.
138 The final case we should consider is the Full Court's decision in Kobelt (noting that special leave to appeal has been granted). Relevantly, Kobelt concerned findings of contravention of s 12CB(1) of the ASIC Act, which is materially identical to s 21. The appellant, Mr Kobelt, was a long term resident of Mintabie, an opal mining area excised from, but surrounded by, the Anangu Pitjantjatjara Yankunytjatjara Lands (APY Lands). Mr Kobelt had conducted a general store at Mintabie (called "the Nobbys") since the mid-1980s. He also conducted a second-hand car business from the premises, mostly selling to Aboriginal people who were residents of the APY Lands. If customers wanted credit (whether to buy the second-hand cars Mr Kobelt sold, or for other purchases such as food and groceries), they had to participate in what was called a "book-up" system. Mr Kobelt also used the "book-up" system to provide cash advances to customers, or to issue purchase orders customers could use at other stores on the APY Lands, if the distance to travel to Mintabie was too great. Briefly, the book-up system involved customers giving Mr Kobelt their debit card (or "key card"), and their PIN for this card. This card accessed the account in which customers' Centrelink payments were made. Mr Kobelt would keep the card until the debt was paid. As amounts were paid into the account, Mr Kobelt would withdraw all of the amounts, or nearly all of them. He would keep about half, and apply it to the customer's debt to him, and would make the other half (more or less) available to the customer to use at the store, or take in cash. However, the customer had to come to the store to get his or her half. Without going through the details of the primary judge's findings, the "book-up" system was conducted relatively informally, with little by way of written records, no application form and so forth.
139 Just in relation to the sales of second-hand cars, the evidence was that, between 1 July 2010 and 30 November 2012, Mr Kobelt withdrew a total of just under $1 million from the accounts of 85 customers to whom he had provided book-up. All but one of the customers who used Mr Kobelt's book-up facility in the relevant period were Indigenous, and nearly all were residents of the APY Lands.
140 ASIC's unconscionability case rested on the book-up system as the "system" or "pattern" of behaviour for the purposes of s 12CB(1) of the ASIC Act. The system was alleged to have two components: the giving of credit/deferral of payment on provision of the customer's debit card and, secondly, the way Mr Kobelt withdrew money from the accounts to satisfy the debt. ASIC also relied on individual contraventions of s 12CB(1) in relation to five individuals, four of whom gave evidence, although ultimately ASIC did not press for findings about these five customers. ASIC's case expressly relied on the disadvantages of Indigenous people living on the APY Lands, who, the Full Court said at [67], "in the overwhelming majority of cases, had very limited or no net assets, had very limited net income and had low levels of financial literacy". The Full Court noted that, by the end of the case, much of this was not disputed by Mr Kobelt.
141 At [69] the Full Court said:
The primary judge considered the evidence with respect to the characteristics of the Nobbys' customers at some length. Before doing so, he indicated that he accepted that proof of ASIC's system case did not require proof of the individual circumstances of each customer to whom the system applied. We do not think that that observation had any effect on his conclusions, but we would note that the observation is true, but only to a point. Section 12CB(4) of the ASIC Act provides that s 12CB is capable of applying to a system of conduct or pattern of behaviour whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour. However, where an applicant's case is that the unconscionable conduct relates to a group which is disadvantaged, then it must prove that disadvantage. In any event, that was the case pleaded and conducted by ASIC.
142 The same anthropologist as had given evidence before Mansfield J in Keshow gave evidence in Kobelt. The Court conducted views of the communities in which some of the customers lived, and the stores (including Mr Kobelt's store). The Court also heard evidence from a financial counsellor working in these communities, including evidence about how the financial counsellor assisted about 30 Indigenous people to cancel their key cards and to obtain replacement key cards and PINs. The Court also had evidence from the operator of another general store on the APY Lands, who did not offer any such book-up facility, or any other form of credit.
143 Mr Kobelt called evidence from an academic from Adelaide University, with expertise in mathematical statistics. His evidence was that, using the Full Court's description at [104]:
…one could not draw inferences concerning the Nobbys' customers unless they were randomly selected. They were not randomly selected and were the subject of a form of "sample selection bias". Professor Golnek gave his opinions as to why the Nobbys' customers could not uncritically be regarded as a random and, therefore, representative sample of all Anangu.
144 He also gave evidence that no valid inferences as to the characteristics of the Nobbys' customers, generally, could be drawn from the circumstances of the four individual witnesses called by ASIC.
145 While acknowledging the criticisms of Professor Golnek had force, the primary judge eventually concluded that most of the 117 customers had the characteristics alleged by ASIC and that included low levels of financial literacy.
146 On appeal, the Full Court appeared to accept the method adopted by the trial judge, but disagreed with the primary judge's characterisation of the appellant's conduct as unconscionable: see for example [268]-[269], [288].
147 There were 14 grounds of appeal, and most were particular to the circumstances of the case and do not inform our consideration of the present appeal. It is fair to say that in Kobelt, as we have explained, there was a range of different kinds of evidence, tending very much in different directions. As the Full Court's discussions of the grounds of appeal reveal, there were aspects of the evidence which supported the way Mr Kobelt operated, such as the book-up system and his holding of people's debit cards, being a way for people to avoid the "demand-sharing" practices which operated in many Indigenous communities: see for example [239]-[252]. In other words, the evidence on both sides fully explored the characteristics of a majority of the consumers/customers who used the book-up system offered by Mr Kobelt, as well as exploring the merits and flaws of the system itself, from an evidentiary perspective that included expert evidence from a range of sources going to the substantive characteristics of both the system and the consumers who used it. The evidentiary picture was more complex and nuanced than in the present proceeding.
148 It is worth, however, referring to ground 8 of the appeal, which dealt with issues not dissimilar to those raised by Unique. The Full Court dealt with this from [228] of its reasons. Mr Kobelt contended that only six Anangu gave evidence and a finding of special disadvantage because of a low level of financial literacy was not open with respect to the 117 Nobbys customers. The argument was rejected at [232]:
We reject the appellant's argument. The primary judge had evidence which supported his conclusion that most of the Nobbys' customers had low levels of financial literacy. The appellant's own evidence was that half of his customers could not read and more than half could not add up (at [283]). Furthermore, it was reasonable for the primary judge to conclude that even in the case of those who could read, their ability to do so was likely to be compromised. The primary judge also referred to the evidence of remoteness, his observations on the view, the evidence of Messrs Stauner and Kilpatrick and the evidence of the appellant himself. Of course, each item of evidence might be limited in effect. For example, it could be said that by virtue of his position, Mr Stauner was most likely dealing with the most vulnerable. Nevertheless, the primary judge was entitled to consider the accumulated force of the evidence and when that is done, we do not think that there is any error in the finding which he made. Ground 8 of the Notice of Appeal is rejected.
149 In our opinion, the nature, scope and extent of the evidence in Kobelt was qualitatively different from that adduced in the present case.
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.