FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Unique International College (No 6) [2016] FCA 773 File number: NSD 1277 of 2015 Judge: PERRAM J Date of judgment: 23 June 2016 Legislation Federal Court Rules 2011 (Cth ) rr 16.41, 16.43 Cases cited: Conway v Mercedes-Benz Australia / Pacific Pty Ltd [2010] FCA 72 Date of hearing: 23 June 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: No Catchwords Number of paragraphs: 34 Counsel for the Applicant: Mr N O'Bryan SC, Mr D Tynan and Ms S Patterson Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr D Pritchard SC and Mr R Davies Solicitor for the Respondent: Minter Ellison ORDERS NSD 1277 of 2015 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: UNIQUE INTERNATIONAL COLLEGE Respondent JUDGE: PERRAM J DATE OF ORDER: 23 JUNE 2016 THE COURT ORDERS THAT: 1. The respondent be granted leave to rely upon the affidavits of Mr Singh sworn 21 June 2016 and Ms Veidreyaki sworn 21 June 2016. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRAM J: 1 Yesterday, Wednesday, 22 June 2016 was the twelfth day of the trial and Mr Amarjit Singh, the Chief Executive Officer of the respondent, was due to give his evidence and be cross-examined. The respondent had, before 21 June 2016, served two affidavits of Mr Singh. One was dated 29 April 2016 and the other 3 June 2016. Late on Tuesday, 21 June, the respondent served two further affidavits of Mr Singh, both sworn on 21 June, and two affidavits of a new witness, Ms Melissa Veidreyaki, also both sworn on 21 June. The recent affidavits of Mr Singh are accompanied by very extensive documentary exhibits which exceed 12 lever-arch folders of paper. 2 Mr O'Bryan SC, for the applicants, indicated at the outset of yesterday morning's proceedings that he could not deal in the time then available with the material which had been served and brief debate ensued between the parties before me as to whether the respondent should be permitted to rely on the material or whether it should have prepared and served it much earlier. It became apparent during the course of that debate that its outcome was likely to turn upon a close analysis of the way in which the trial had developed, a topic upon which the parties did not agree. The respondent signalled its desire to put on evidence about the issue. 3 I directed both parties to serve whatever material they proposed to rely upon by 12.30pm on Wednesday, it at that time being around 10.30am, and stood the matter over for argument at 2.15pm yesterday afternoon. At that time Mr Pritchard SC, for the respondent, applied for leave to rely upon the four affidavits, and this was strongly resisted by Mr O'Bryan. The argument concluded at about 4.20pm and I reserved my judgment overnight. The issue between the parties is complex. It has its origins in paragraph 26 of the amended statement of claim. Paragraph 26 is as follows: 26. At all times during the relevant period, Unique engaged in the conduct pleaded at paragraphs 21 to 23 and 25, in the circumstances pleaded in paragraph 24 above, in order to maximise: 26.1. the number of consumers enrolled in Unique courses in respect of whom Unique received VET FEE-HELP payments from the Commonwealth; and 26.2. the revenue to Unique from VET FEE-HELP payments from the Commonwealth. 4 It will be seen that paragraph 26 refers to paragraphs 21 through to 23 and 25. These are as follows: 21. During the relevant period, Unique had a process for marketing Unique courses, and enrolling consumers in Unique courses, which consisted of the following: 21.1. Unique targeted particular locations, including rural and remote towns and indigenous communities and areas with significant populations of low socio-economic status for marketing and enrolling consumers in its courses (the locations); Particulars The locations included Bankstown, Boggabilla, Bourke, Brewarrina, Emerton, Moree, Taree, Toomelah, Walgett, Wagga Wagga, Granville. 21.2. Unique directed its employees to market and enrol consumers in its courses at the locations; 21.3. Unique employees visited the locations with boxes of laptop computers to give to consumers who signed up to a Unique course; 21.4. Unique employees conducted marketing at the locations, including by calling on consumers at their homes and group marketing in private homes, for the purpose of enrolling consumers in Unique courses; 21.5. Unique employees represented to consumers, both at the locations and at Unique's Campus, that in order to receive a free laptop computer they needed to: 21.5.1. sign up to a course; 21.5.2. provide identification and personal information, including their tax file number (identification and personal information); 21.6. Unique employees represented to consumers. both at the locations and at Unique's Campus, that Unique courses were free, or were free unless their income was or reached an amount which they were unlikely to earn on completion, or at all; 21.7. Unique gave free laptop computers to consumers who signed up to a course and provided identification and personal information; 21.8. Unique made incentive payments to its employees based on the number of consumers enrolled by the employee in its courses; 21.9. Unique enrolled consumers, both at the locations and at Unique's Campus, in Unique courses by having them: 21.9.1. sign forms, including: 21.9.1.1. a Request for VET FEE-HELP assistance form; 21.9.1.2. Student enrolment application and agreement form (the forms); 21.9.2. provide identification and personal information; 21.10. Unique took copies of consumers' identification and personal information; 21.11 . by signing the forms, consumers: 21.11.1. entered into an agreement with Unique to be enrolled in a Unique course (enrolment agreement); and 21.11.2.requested VET FEE-HELP assistance from the Commonwealth, which once accepted by the Commonwealth constituted an agreement between the consumer and the Commonwealth pursuant to the VET FEE-HELP Assistance Scheme pleaded at paragraphs 9 to 15 above. 22. In the course of marketing Unique courses and enrolling consumers in Unique courses, Unique employees: 22.1. failed to ascertain whether consumers had the capacity to pay the course fees; 22.2. failed to explain or failed to adequately explain to consumers: 22.2.1. the VET FEE-HELP Assistance Scheme; or 22.2.2. the nature of their obligations if they received VET FEE-HELP assistance; or 22.2.3. that they would have a debt to the Commonwealth after the census date for each unit of the course; 22.3. = failed to ascertain whether or not consumers intended to undertake the course; 22.4. failed to ascertain whether or not consumers understood that they were enrolling in a course; 22.5. failed to ascertain whether or not consumers had read and understood the forms; 22.6. failed to explain or adequately explain to consumers their obligations arising from signing the forms; 22.7. failed to ascertain whether consumers understood their obligations in signing the forms; and 22.8. failed to provide consumers, or all consumers, with copies of the forms that they had signed. 23. By reason of the matters pleaded in paragraphs 21 and 22 above, Unique enrolled in its courses consumers who were likely to include and did include, consumers: 23.1. who did not actually understand that they had been enrolled in a Unique course; 23.2. who could not read or otherwise understand: 23.2.1. the nature of Unique courses, including that study was to be undertaken on an online learning platform; 23.2.2. the nature of their obligations if they received VET FEE-HELP assistance, including that they would incur a debt to the Commonwealth after the census date for each unit of the course, and the amount of the debt; and 23.3. who: 23.3.1. could not access or use an email address; 23.3.2. could not use a computer; 23.3.3. could not use and did not have access to the internet; 23.3.4. did not have adequate literacy or numeracy skills, so as not to be capable of undertaking and completing the course in which they were enrolled. 24. At all times during the relevant period, unless a consumer notified Unique in writing by the census date for the first unit of study that they sought to cancel their enrolment in the course: 24.1. the consumer incurred a VET FEE-HELP debt to the Commonwealth in respect of the unit that they were legally required to pay; and 24.2. Unique became entitled to a payment from the Commonwealth, on behalf of the consumer, of the amount lent to the consumer in discharge of the consumer's liability to pay his or her tuition fee for the unit. 25. Unique: 25.1. accepted VET FEE-HELP payments from the Commonwealth in respect of consumers enrolled in its courses; and 25.2. caused consumers to incur VET FEE-HELP debts in respect of their enrolment in Unique's courses, notwithstanding the matters pleaded at paragraphs 21 to 24 above. 5 When Mr O'Bryan opened the case for the applicants on the first day of the trial, he indicated that they would seek to prove that the respondent had signed up students to its programs in a way which – putting the matter rather loosely for now – was indicative of its neither anticipating that it would educate them nor intending to do so. At the close of this opening, Mr Pritchard submitted that such a case lay outside the applicants' amended statement of claim. There was no occasion to rule upon that matter at that time, and I indicated to counsel that, in my view, the issue would crystallise when the applicants sought to elicit evidence about the case and objection was taken on the grounds of relevance. 6 The anticipated objection occurred on the third day of the trial, Wednesday, 8 June 2016, during the evidence of the witness, Ms Penny Martin, a former employee of the respondent. Ms Martin's progress to the witness box has been a tortuous affair. She had declined, for reasons explained in my judgment of 18 May 2016, to meet with the applicants' solicitors, and they had been unable to furnish a proof of her evidence. I declined to set aside a subpoena to attend to give evidence addressed to her, issued at the request of the applicants' solicitors, in my judgment of 18 May 2016. 7 I declined to do so, as I explained in those reasons, because her unwillingness to meet with the applicants' solicitors was caused by the respondent's refusal to release her from any obligations of confidentiality which bound her not to do so. The inability of the applicants' solicitors to furnish a proof of her evidence was caused by the respondent's own actions. Subject to a matter to which I will return, the applicants were forced into a position where Ms Martin was called, in effect, without knowing what it was that she was going to say. During the course of her examination she began to give evidence which, if accepted, might provide material from which a submission could later be made that the respondent did not anticipate that it would be teaching the students it was enrolling and was not intending to do so. 8 It was at this point that Mr Pritchard objected that evidence of that kind was outside the applicants' pleaded case. I dealt with that objection on the spot. I ruled that the evidence was within paragraph 26 of the amended statement of claim. I also concluded that, as a matter of fact, the respondent was able to deal with Ms Martin's evidence. I said that I would give reasons at a later date as to my interpretation of paragraph 26. I had intended to do so in my final judgment, but the circumstances of the present application make it useful to do so now. Paragraph 26 alleges that the respondent did the activities alleged in paragraphs 21 to 23 and 25 with a particular purpose. That purpose was to maximise the number of consumers who were enrolled and the amount of revenue generated by the VET payments from the Commonwealth. 9 Paragraph 26 does not say that the purpose was to be inferred from the actions alleged in paragraphs 21 to 23 and 25. Rather, it says that the actions set out in those paragraphs were done with the alleged purpose. No particulars were provided as to how the purpose alleged in paragraph 26 was to be proved. It may be that a purpose of that kind is a state of mind to which rule 16.43 of the Federal Court Rules 2011 (Cth) applies. That rule is as follows: 16.43 Conditions of mind (1) A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies. (2) If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge. (3) In this rule: condition of mind, for a party, means: (a) knowledge; and (b) any disorder or disability of the party's mind; and (c) any fraudulent intention of the party. 10 Whether this is so would depend on whether having the alleged purpose in this case involved, or was, a 'fraudulent intention' within the meaning of the definition in subrule 3. It is not necessary to resolve that issue, however. This is because r 16.41 requires a pleading to be delivered with the 'necessary particulars of each claim'. It has been held that this means particulars which are both sufficient to inform an opponent of the case it has to meet, and to prevent that opponent from being taken by surprise at the trial (see, for example, Conway v Mercedes-Benz Australia / Pacific Pty Ltd [2010] FCA 72 at [7] per Katzmann J). 11 Having regard to those principles, the applicants should have provided particulars with paragraph 26, setting out the facts, matters and circumstances from which the alleged purpose was to be inferred. This was, in my view, a default on the applicants' part. On the other hand, despite seeking particulars of other paragraphs in the amended statement of claim, the respondent omitted to seek any particulars of the purpose alleged in paragraph 26. This, so it seems to me, was an oversight on its part as well. The consequence of these joint failures is that paragraph 26 arrived at the trial unconfined by any particulars. 12 One function of pleadings is to define the issues between the parties. The respondent's defence to paragraph 26 was to deny it. The result of that state of the pleadings was that there exists an issue as to whether the purpose alleged by the applicants exists or not. Until the argument yesterday, there was uncertainty as to precisely what the applicants' particular purpose case was. Although at various points it was suggested by Mr O'Bryan to witnesses that the respondent did not, in fact, conduct a real educational institution at all, I apprehended that, when the dust of battle settled, the applicants did not, in fact, advance such a case. Rather, their point was that while some educational activities may have gone on at the college, the respondent did not really expect or intend to deliver much in the way of educational services; its primary aim was to make more VET FEE revenue by signing up more people. Such education as was taking place was, on this view, largely to be seen as happenstance. It seemed to me to be undesirable for the applicants' case in this regard to remain in an unarticulated and embryonic form. I directed during the course of yesterday's argument that the applicants deliver in writing proper particulars to paragraph 26 by 6pm, which they did. Those particulars are as follows: The purpose alleged in paragraph 26 of the Amended Statement of Claim is to be inferred from the following facts: (a) In the relevant period the respondent targeted consumers who had the characteristics, and in the ways, alleged in paragraphs 21, 22 and 23 above. (b) The rate of increase in the respondent's student numbers was much greater than the increase in the number of its teachers during the relevant period. (c) A significant majority of students who enrolled with the respondent during the relevant period never logged on to the respondent's electronic systems, which resulted in a large number of students not participating in or completing their courses. (d) The respondent's revenues during the relevant period grew at a much higher rate than the growth in its expenses and the respondent's profits grew commensurately. (e) The profits earned by the respondent in the relevant period were largely distributed to its shareholders and their associates. 13 Returning then to Ms Martin's evidence, I accepted that her answers went to proving the purpose alleged in paragraph 26. It was relevant to the way the case was then put, which does not, in my view, materially differ from the particulars which have now been provided. The reason for this is that her evidence, if accepted, could prove that the respondent had the purpose alleged in paragraph 26. No doubt that purpose should have been confined by particulars provided under r 16.41 or sought by the respondent, if necessary, under r 16.45, but the fact that this did not occur has had the consequence that the concept of purpose in paragraph 26 was at large in the proceedings. 14 It was for those reasons that I permitted the evidence to be elicited from Ms Martin. As I have already mentioned, I was also satisfied that, in fact, the respondent was in a position to deal with her evidence in this regard. This was because it was in a position to examine her by reference to a number of emails which it had been able to procure from its own systems, and to use them to contradict her evidence, and, indeed, it did so. On the present application, it was not, as I apprehended it, in dispute that the respondent had been afforded a sufficient opportunity to deal with the paragraph 26 case in relation to Ms Martin's evidence. 15 At this point in the trial, the issue of the meaning of paragraph 26 then resubmerged itself and disappeared for a time back into the murky depths of the pleadings; but this was not, regrettably, to prove a permanent state of affairs. On the eighth day of the trial, it came back up for air when Mr O'Bryan put to the respondent's witness, Ms Kang, that the educational materials which she was apparently administering on the respondent's behalf were 'fatuous'. Such a case was within the meaning of paragraph 26, as I have held it to operate. 16 The respondent, not without some reason, took this to involve an allegation that its educational arrangements were non-existent or phony. On the ninth day of the trial, the respondent signalled that it would need to lead fresh evidence, in effect, that its educational courses were not fatuous or merely notional. That was last Friday, 17 June. 17 It was foreshadowed at that time that the material would be produced as soon as possible. The material was finally served on Wednesday night. In the somewhat fraught circumstances of the trial, I do not think that anything much turns on its service that late in the piece. There are limits to what can be physically done during the course of any trial. And in the case of this trial, the parties and the Court have been strenuously endeavouring to complete the evidence by Thursday in circumstances where the whole of the trial was meant to have been concluded last Monday. 18 The Court has been sitting extended hours between 9.30am and 4.30pm in an attempt to accommodate this. The demands on the parties have been very significant. In that circumstance, the service on Wednesday night seems to me to be neither here nor there. 19 Should the respondents be permitted to use this evidence? The applicants submitted that it should not, because paragraph 26 had always been there as the pleaded case. Further, it was said that various other matters must have meant that the respondent should have known that this was the case the respondent would have to meet. These included: (a) some section 155 notices issued by the ACCC prior to the commencement of the proceedings. I do not think that those notices provide any basis for signalling what the issues in the ensuing proceedings might be. Some reference was also made to notices to produce, which I think may be subject to a similar remark. Issues in proceedings are not defined by notices to produce. (b) Ms Martin's television interview last December 2015. It seems to me that all parties have been in possession of an interview Ms Martin gave to A Current Affair last year. I do not think, however, that this provides any assistance in defining what the issues in the case were going to be. For completeness, I do not accept that Ms Martin's interview provides any basis for the claim made by the respondent that the applicants knew by reason of it what her evidence was going to be. There is a significant difference between what a person might say to a television station and what they might say in a courtroom. Although the issue is of no present relevance, I mention it to reject the submission that the applicants had misled the Court by submitting in the lead up to my judgment of 18 May that they did not know what her evidence was going to be. 20 I do not think that either of those matters should reasonably have indicated to the respondent that it had to meet the case with which it now finds itself confronted. Quite apart from that, the solicitor for the respondent, Ms Groshinski, swore an affidavit dated 22 June 2016, which was read before me yesterday, in which she swore that she had not understood, compendiously expressed, paragraph 26 to disclose the case which was now being pursued. I accept that evidence. 21 I also accept that her non-comprehension of the case was reasonable in the sense that paragraph 26, unparticularised, conceals a large array of possible cases on purpose. As I have mentioned above, however, it is a matter in respect of which the respondent should have sought particulars. Finally, mention should be made of paragraph 44 of Mr Singh's affidavit of 3 June 2016, which was as follows: 44. Immediately prior to offering VET FEE HELP Courses, Unique had 6 trainers and assessors. By July 2014 it had 30 trainers and assessors. A copy of an email dated 8 August 2014 which includes a timetable for Diploma of Salon Management classes shows that there were 17 trainers and assessors allocated to Diploma of Salon Management classes at this time. This does not include trainers and assessor that were allocated to other classes for other courses. A copy of this email is included at Tab 38 of Exhibit AS-2. 22 Although this appears to deal in part with the paragraph 26 case now advanced, I am satisfied that it does so as a matter of coincidence and this was not ever its intended purpose. 23 Paragraph 44 appears to have been prepared in specific response to something said in the applicants' opening written submissions. I do not read it as having anticipated the current debate, especially in light of Ms Groshinski's sworn evidence to the contrary. 24 Should the evidence then be allowed to be used? There are, in effect, only three choices: (1) I could refuse to allow the respondent to rely upon the fresh material and to permit the applicants to pursue their now particularised case on purpose in paragraph 26; (2) I could allow the respondents to rely upon the fresh material; or (3), I could prevent the applicants pursuing their now particularised case on purpose, except insofar as it relates to the evidence of Ms Martin. 25 I am comfortably satisfied that I should not embrace option (1). As a matter of fact, the respondent did not know that this case was in the offing until Mr O'Bryan opened on it, nor was that position unreasonable in the absence of any particulars to paragraph 26. Whilst I accept that there was a default in the respondent's camp in failing to seek particulars of that paragraph, that default followed closely on the heels of a corresponding default by the applicants in not providing them in the first place, contrary to r 16.41. If it were the case that the respondent found itself in the position it does by reason of some deliberate strategic decision, which has turned out to be wrong, or by the adoption of a manifestly unreasonable posture, then it might well be open to visit upon it the procedural consequences of its own folly. 26 Indeed, that is the course I took in relation to the gavotte that the respondent danced in relation to the subpoena issued to Ms Martin, but here I see no such folly. It follows that if I were to adopt option (1) I would cause the trial to be conducted in a way which results in a serious breach of the rules of procedural fairness. The only possible result would be a mistrial. Plainly, this cannot occur. Option (1) is not available. That leaves options (2) and (3). Neither of these is in the leastwise attractive and what arises is a somewhat dyspeptic forensic decision. If option (2) is permitted, it is inevitable that the applicants will not be in a position to cross-examine Mr Singh or Ms Veidreyaki. 27 Further, during the course of argument yesterday, Mr O'Bryan indicated that the applicants would wish to employ every tool of forensic investigation on the documents exhibited to Mr Singh's affidavit to explore whether they might not be made up after the event. This is not to be thought a mere theatrical flourish, although the trial has featured plenty of those as well. The applicants have already elicited evidence which, as I apprehend it, lays the foundation, or may lay the foundation, for a submission that some documents emanating from the respondent, in particular some timesheets, are irregular in their generation. I do not know how far that submission will ultimately go or indeed precisely to which issue it does go, but it is relevant at least for the purpose now of accepting that the applicants' desire to go over Mr Singh's material with a fine-tooth comb is not necessarily to be thought an exercise of mere whimsy or frolic. 28 The likely outcome of that process is more delay as further, probably contested, interlocutory skirmishes about the materials take place. On top of that there is the additional difficulty that any delay will have on bringing these proceedings to a conclusion. They were due to be completed last Monday. As it became apparent that this was not going to happen, arrangements were made to extend the trial to finish this Thursday, at least in relation to the evidence. To accommodate that I was removed from an appeals bench, which is sitting today. Two further days for final submissions were found suitable to the parties on 13 and 14 July. 29 Plainly, that timetable is unlikely now to be achieved. This matters because the case was given a degree of expedition at the urging of the respondent. It is embroiled in proceedings in the Administrative Appeals Tribunal about its registration as an educational institution and these proceedings are likely to have some impact upon it. Further, the Commonwealth has, as I understand it, cut the respondent off from further VET funding. Its ongoing business is therefore being impacted by the ongoing nature of these proceedings. At an earlier time I accepted that the respondent was entitled to have this matter determined as promptly as could be accommodated in a manner consistent with the interests of justice. 30 To that end, when the matter was originally listed, I arranged to put aside time to prepare reasons for judgment immediately after the conclusion of the trial, with a view to it being decided by early July. Plainly, this is not going to occur now either. As my diary presently stands, I will have no ability to write a judgment with that degree of expedition as a result of pre-existing commitments I have. It is possible, maybe even likely, that other matters which are presently pending in my docket may settle and time will become available, but whether that is so is merely conjectural at this stage. 31 I accept, therefore, that acceding to any anticipated adjournment application brought by the applicants is likely to cause ongoing prejudice to the respondent. I also accept that the prejudice is not a trivial one. On the other hand, option (3) comes with its own suite of gremlins. The applicants have done no more than lead evidence relevant to their own pleading. They have not sought to expand their case beyond that pleading. It is true, as I have accepted, that the applicants could have better particularised their case, but this is accompanied by a symmetrically arranged and corresponding failure of the respondent to seek those particulars. 32 Viewed from afar, it is hard to avoid the conclusion that the imbroglio which paragraph 26 has become is a dish cooked by two chefs. Then there is the fact that the applicants' case on this issue is plainly far from trivial and involves very substantial amounts of public money. That is no licence, of course, to trample upon the procedural rights of the respondent, but it is relevant in as much as it tells one that what is at stake is significant from the applicants' perspective. There is a practical difficulty too. Evidence on this purpose case has already been elicited. Indeed, whatever happens, Ms Martin's evidence will remain. 33 There may be significant difficulties in excising from the cross-examination of Mr Singh matters going only to his credit from those going to paragraph 26. By that I mean that Mr O'Bryan will undoubtedly seek to cross-examine Mr Singh about the nature of the courses, regardless of the outcome of the paragraph 26 debate, as matters which deleteriously impact upon his credibility. I think on balance this can probably be ameliorated by the extensive use of directions under the Evidence Act 1995 (Cth), but it ought not to be doubted that that is going to be a difficult process, albeit achievable. 34 Neither option (2) nor option (3) provides an outcome that anyone can really be satisfied about. However, I have come to the view that, on balance, it is option (2) which is most consistent with the interests of justice. I therefore accede to the respondent's application to rely upon the fresh material. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 1 July 2016