Is Your Business ACL Compliant?

Court orders record $26.5M penalty for breach of Australian Consumer Law

Introduction

On 20 September 2019, the Federal Court of Australia ordered Cornerstone Investment Aust Pty Ltd (in liq) (Cornerstone) to pay record penalties totalling $26,500,000 and compensation of approx. $56,000,000. [1]

In an earlier decision, on 19 September 2018, the Federal Court of Australia found Cornerstone had engaged in a system of unconscionable conduct and had displayed ‘callous indifference’ to the existing system of consumer protections. [2]

This penalty is more than double the previous record of $12,000,000, levelled at We Buy Houses Pty Ltd in 2018 for false or misleading representations. [3]

These judgments reflect the Australian Competition and Consumer Commission's (ACCC)'s immense resolve to enforce recent amendments to the Australia Consumer Law (ACL) legislation providing for the substantially increased penalties.

The Case

Cornerstone was a provider of VET-FEE-HELP funded Diploma courses, charging its clients up to $15,000 per course. It marketed and sold these courses using face-face marketing, including door-door sales to consumers in remote communities and low socio-economic areas in New South Wales, Western Australia, Victoria, Queensland and South Australia, including Indigenous communities. [4]

The Penalty Order – Aggravating Factors

The Court held that Cornerstone’s system of conduct was ‘demeaning and predatory’. [5]

Justice Gleeson held at [86]:

"Cornerstone’s contravening systemic conduct is particularly serious in the present case for at least the following reasons.

First, Cornerstone engaged in the contravening conduct for an extended period - some 6 months. In that time, thousands of consumers were affected.

Secondly, Cornerstone’s conduct caused significant financial loss to consumers and the Commonwealth.

Thirdly, consumers were at a significant disadvantage in terms of bargaining position, and were otherwise vulnerable to being misled or deceived.

Fourthly, Cornerstone’s conduct was unfair to consumers, in circumstances where Cornerstone knew that its consumers may have come from disadvantaged sectors of the community (because that was its stated target demographic).

Fifthly, Cornerstone’s conduct involved a callous indifference to consumer protection, including whether consumers were “duped” into enrolling in online courses.

Cornerstone’s conduct evidences a widespread failure to ensure that it had adequate processes to identify suitable students, capable of completing the courses in which they were enrolled, in circumstances where students would incur a significant debt. The revenue Cornerstone derived from the VET FEE-HELP Scheme provided a motive for Cornerstone to engage in exploitative practices, or to condone or turn a blind eye to such practices by its recruiters.”

The New Penalty Regime – The Greater of Three

The decision is an example of the new provisions under the ACL being enforced and applied. These provisions provide for higher maximum penalties for breaches, including unconscionable conduct, making false or misleading representations, and the supply of consumer goods or certain services that do not comply with safety standards or which are banned:

For corporations, the determination of the maximum penalty is the greater of:

 $10,000,000;
three times the value of the benefit received; or
10% of annual turnover in preceding 12 months, if the Court cannot determine the benefit obtained from the offence. [6]

For individuals, maximum penalties have also increased, from $220,000 to $500,000.

Importantly, these amendments follow a trend in introducing penalties proportionate to the benefit derived from the wrongdoing, or the size of the offender.

Conclusion

It is clear that the ACL should not be treated as a “cost of doing business”. The new penalty provisions may now cost you and your business!

If you wish to ensure your ACL compliance programs are up to date and staff are adequately trained to minimise the risk of a large financial penalty, GPA law can assist you with any question you may have. Contact us on (02) 9262 4471 for a free no obligation consultation.




[1] - Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1433.
[2] - Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408, [46120].
[3] - Australian Competition and Consumer Commission v We Buy Houses Pty Ltd (No 2) [2018] FCA 1748. 
[4] - As above n 2, 153 (1). 
[5] - As above n 1, 78.
[6] - Competition and Consumer Act 2010 (Cth) Sch 2, ss 151, 156, 224.

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Date posted: 2020-06-18