CN03 - Record penalties of AUD153 million imposed on training college AIPE

In December 2021, the Federal Court of Australia imposed a record penalty of AUD 153 million on the Australian Institute of Professional Education Pty Ltd ("AIPE") for breaching the Australian Consumer Law.  AIPE was found to have engaged in systemic unconscionable conduct in relation to the enrolment of vulnerable consumers in online diploma courses.

Key takeaways

• Businesses that contravene the Australian Consumer Law can expect the Australian Competition & Consumer Commission ("ACCC") to seek – and the Court to impose - very significant penalties. The record penalties of AUD 153 million imposed on AIPE follow other significant recent penalties (Volkswagen: AUD 125 million; Telstra: AUD 50 million).
• Businesses that deal with vulnerable consumers must take extra steps to minimise risks under the Australian Consumer Law. This includes additional transparency measures, taking into account the vulnerabilities of disadvantaged consumers; training for sales representatives and selling agents; commission / remuneration programs that do not (inadvertently or otherwise) incentivise unfair sales tactics; and monitoring and discipline efforts.

Background

AIPE offered online diploma courses under the Australian Government's Vocational Education and Training Fee Higher Education Loan Program ("VET FEE-HELP") program.  Under the program, the Australian Government would pay the student's full tuition fee to the education provider upfront, which would then need to be repaid as a loan by the student. 

In 2016, proceedings were initiated by the ACCC against AIPE following a joint investigation by the ACCC and NSW Fair Trading into the conduct of private colleges in connection with the VET FEE-HELP program (the ACCC has also successfully pursued a number of other colleges).

In November 2019, the Federal Court held that AIPE had contravened several Australian Consumer Law prohibitions, including the prohibitions on unconscionable conduct and false or misleading representations.  In his decision, Bromwich J found that, from 1 May 2013 to 1 December 2015, AIPE had engaged in the following conduct, in contravention of the Australian Consumer Law: 

• making false or misleading statements that its courses were free (even though consumers would actually incur a debt of up to AUD 20,000 to the Commonwealth);
• offering "free" laptops to students as an inducement to enrol in AIPE courses;
• failing to undertake an adequate assessment of a consumer's suitability for courses (including their literacy, language and numeracy skills);
• failing to give adequate training to its agents and recruiters and failing to properly monitor them, as well as paying their agents and recruiters extraordinary commissions to enrol consumers in AIPE courses, which encouraged the use of unfair tactics; and
• enrolling vulnerable consumers in their courses who were unlikely to be able to complete their course.

This conduct occurred in circumstances where, relevantly:

• AIPE had a business model that resulted in significant revenue through government funded VET FEE-HELP loans, where the majority of those enrolled never actively participated in study. AIPE received over $210 million from the Commonwealth for enrolments under the VET FEE-HELP scheme;
• AIPE disregarded the vulnerabilities of disadvantaged consumers;
• AIPE conducted only a cursory check of the consumers it enrolled and the suitability of its courses for those consumers, and had inadequate systems and processes to ensure that only genuine and suitable students were enrolled;
• AIPE was aware that a high proportion of its students were not genuine and that this was the result of the nefarious practices of its recruiters, including through the use of false or misleading information;
• AIPE was aware that only a small proportion of its enrolled students were participating in their courses; and
• AIPE was "callously indifferent to consumer protection considerations" which were necessary when the system was directed to people who were vulnerable to being misled or deceived.

Record penalty

In December 2021, the Federal Court imposed a pecuniary penalty of AUD 153 million on AIPE.  The penalty comprised AUD 150 million for AIPE's systemic unconscionable conduct, which affected approximately 9,000 consumers, and a further AUD 3 million for "illustrative" unconscionable conduct involving 12 individual consumers.  

The ACCC had sought a penalty of AUD 140 to 170 million for the systemic unconscionable conduct and a further AUD 6 to 7.2 million for the conduct involving the individual consumers; it did not seek penalties for AIPE's misrepresentations.  AIPE made no submissions on the quantum of penalties.

The decision marks the highest total penalty amount ever imposed under the Australian Consumer Law.  Previously, the largest penalty was AUD 125 million, ordered against Volkswagen in December 2019 and upheld by the Full Federal Court in April 2021.  Notably, both these penalties were imposed under the 'old' penalties regime (maximum penalties under the old regime were AUD 1.1 million per contravention; they are now the greater of AUD 10 million, three times the benefit obtained or, if that cannot be determined, 10% of annual turnover in Australia).

In justifying the magnitude of the penalty, Bromwich J stated that a "high level of immorality stood behind the deliberate and protracted unconscionable conduct of a highly predatory nature", and that the penalty ought to serve as "a clarion call as to the consequences of engaging in such behaviour".  As AIPE is in liquidation, general (rather than specific) deterrence was the main consideration. His Honour also highlighted the significant profitability of AIPE's operations, which reinforced the need to impose a penalty that exceeded the gross benefit of the conduct (being approximately AUD 142 million).  

Implications for businesses

Unconscionable conduct that involves deliberate, predatory and blatantly immoral dealings with vulnerable consumers will attract significant penalties, at the highest end of the scale.  

Businesses that deal with vulnerable consumers should ensure that: 

• vulnerable consumers understand what they are purchasing, which may require additional transparency and an assessment of the suitability of their products to particular consumers;
• their sales representatives and agents are adequately trained and understand consumer law risks;
• their sales representatives and agents are not remunerated in a way that incentivises aggressive or unfair sales tactics; and
• they have adequate checks and balances in place to quickly identify and deal with any exploitative (or other problematic) dealings with vulnerable consumers.

With thanks to Stephanie Douvos of Ashurst for her contribution.