Commercial Transactions - Business Law Assignment, Summer 2019-20

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Homework Assignment
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This Business Law assignment addresses a case involving Cornerstone Investment Pty Ltd and its breaches of the Australian Consumer Law (ACL). The assignment analyzes the company's unconscionable conduct, misleading representations, and the exploitation of vulnerable customers through the VET FEE-HELP scheme. It details the ACCC's findings, the court's rulings, and the penalties imposed, including the potential liability of the company's directors. The assignment also examines the specific breaches of the ACL, such as sections 21, 29, 15, and 74-79, and the implications of these breaches. Furthermore, it discusses the legal framework for pecuniary penalties and the factors considered by the court in determining the appropriate amount. The assignment concludes by arguing for the prosecution of the directors and the compensation owed to affected consumers and the Commonwealth.
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Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Authors Note
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Table of Contents
Answer to question A:................................................................................................................2
Answer to question B:................................................................................................................3
Answer to question C:................................................................................................................4
Answer to question D:................................................................................................................5
Answer to question E:................................................................................................................7
Answer to question F:................................................................................................................8
References:...............................................................................................................................10
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2BUSINESS LAW
Answer to question A:
According to the ACCC it was revealed that during the month of September 2018 the
federal court in its decision ruled that Cornerstone Investment Pty Ltd which traded as
empower institute had indulged in an unconscionable conduct and made false or misleading
representation to students that were enrolled in the diploma courses. The main reason where
the conduct of Cornerstone was found to be unconscionable because the regulator had found
that Empower had enrolled more than 6000 students into its courses from the month of march
2015 to October 20151. Majority of whom it claimed as “vulnerable customers” as they were
lured with the incentive of free laptops and cash rebates, ignorant of the fact that they were
actually occurring substantial amount of debt ultimately.
The liability of the federal court judgement noted that., at least during the period of
June 2014 to the period of mid December 2014, Cornerstone had targeted majority of the
vulnerable consumers. This organized a system which produced very large amount of
enrolments in the vocational education and training (VET) courses. As a result, there were
large amount of revenues in the form of commonwealth “VET FEE-HELP” payments. Over
that period of six months, empower had signed more than 4000 customers leading to “VET
FEE-HELP” payments by the commonwealth to Empower in excess amount of $55 million.
Even after this fact, only 42 of the enrolled students were able to complete the course in
which they were enrolled2.
The conduct of Cornerstone reflected an insensitive indifference to thoughts of
customer protection. It also included whether its recruiters compiled with the rules of ACL or
1 Paterson, Jeannie Marie, and Gerard Brody. "“Safety net” consumer protection: using prohibitions on unfair and
unconscionable conduct to respond to predatory business models." Journal of consumer policy 38.3 (2015): 331-355.
2 Fels, Allan, and Matthew Lees. "Unconscionable conduct in the context of competition law with special reference to
retailer/supplier relationships within Australia." Abusive Practices in Competition Law. Edward Elgar Publishing, 2018.
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3BUSINESS LAW
whether they simply duped the consumers in enrolling in an online course and incurring a
huge amount of “VET FEE-HELP” debt, with the objective of deriving income from the
“VET FEE-HELP”3. During the relevant period, Empower, indulged in the system of conduct
or arrangement of behaviour in marketing and employing customers to VET FEE HELP
funded course offered by it, which in every circumstances was very unconscionable and also
in contravention of the “sec 21 of the ACL”.
Answer to question B:
The conduct of Cornerstone was misleading because it used recruiters that were
practically not trained and also did not received any kind of ACL training. These recruiters
were remunerated on a commission basis for getting enrolments. It offered inducements to
customers to enrol, especially Google Chromebooks and made unsolicited customer
agreements that did not contained any process for assuring compliance with the relevant
provision of the ACL. Even though the company was not designed deliberately to take the
advantage of the vulnerable customers, the system mainly targeted disengaged members of
society and areas that contained significant population of persons with lower social-economic
status. These consumers were disadvantaged both in terms of financial and educational
aspects. They were consequently very much vulnerable to trickery and inducements.
Cornerstone carried out only cursory verification relating to the bona fides of
customers it had enrolled and the appropriateness of its courses for those customers4.
Cornerstone did not conduct any testing of language, literacy and numeracy skills of
customers which it had enrolled. Cornerstone was unsympathetically indifferent towards the
consideration of customer protection such as whether its recruiters adhered with the ACL or
3 Pearson, Gail. "Further challenges for Australian consumer law." Consumer Law and Socioeconomic Development.
Springer, Cham, 2017. 287-305.
4 Thampapillai, Dilan, et al. Australian commercial law. Cambridge University Press, 2015.
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whether those recruiters fooled customers into enrolling and later incurring huge amount of
“VET FEE-HELP” debt. In this manner it can be stated that the conduct of Cornerstone was
unconscionable and misleading. Furthermore, it was in contravention of the “section 21 of
the ACL”.
Answer to question C:
Combined with the systemic misconduct, Cornerstone breached the ACL in several
serious ways in respect of fifteen individual customers that included making a false as well as
misleading representations under “section 29 (1) (g) and section 29 (1)(i) of the ACL”. It
also engaged in the misleading and deceptive act which breached “section 15 of the ACL”,
leading to the breach of unwanted customer agreement provisions given under the “section
74-76, 78 and 79 of the ACL”5. The company here Cornerstone also engaged in the
unconscionable conduct which again breached “section 21 of the ACL”.
Cornerstone hardly had any kind of corporate culture to adhere with the ACL. In
contrary to this, as previously noted the process of Cornerstone replicated an uncaring
indifference towards the consideration of customer protection. As it was noticed, Cornerstone
did not provide any kind of instruction or training to the recruiters on how the company can
market its courses in the manner that adhered with the ACL6. Neither did the company
provided any kind of instruction to its recruiters in providing any kind of guidance on how
the company can act in agreement with the obligation that arose in pursuant to the section 18
and section 29 of the ACL nor did the company followed any unsolicited customer agreement
provision given under the provision of ACL.
5 Corones, Stephen, and Philip H. Clarke. Australian Consumer Law Commentary and Materials. Thomson Reuters
(Professional), 2015.
6 Tynan, Daniel. "Australian consumer law [Book Review]." Bar News: The Journal of the NSW Bar Association Summer
2015 (2015): 78.
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Answer to question D:
As given under the legal framework of “section 224 (1)(a), (ii) and (iv) of the ACL”,
the law court has ordered that an individual that has breached, relevantly the “section 21, 29,
74-76 and 79 of ACL” to pay such amount of “pecuniary penalty”, in relation to each act or
omission by an individual as the court of law may consider it appropriate. At the time of
breaching the law, under “section 224 (3) of the ACL” it is provided that maximum penalties
of $1.1 million can be imposed when finding that a person is held liable for the contravention
of “section 21” “unconscionable conduct” and under “section 29” “false representation.
Furthermore, when a corporate body is found to be breaching “section 224 (3) of the ACL” a
maximum penalty of $50,000 can be imposed in relation to breach of “subsection 74-76, 78
and 79” for unsolicited customer agreement provision7.
Empower was found to be indulged, over the period of around six months in the
system or the pattern of behaviour that were in breach of “section 21 of the ACL”. On the
basis of reasoning that was made by the court in the case of “Australian Competition and
Consumer Commission v Ford Motor Company of Australia Ltd (2018)” the maximum
amount of penalty that can be imposed in respect of the contravention of conduct cannot be
restricted to maximum penalty of $1.1 million which is available for a single breach of
“section 21”8. With respect to the features noticed in the case of Empower System and the
total number of students that were enrolled but failed to finish the single unit of study, the law
court does not has any difficulty in stating that Cornerstone was involved in unconscionable
conduct which impacted a wide number of customers that were enrolled throughout the
relevant period. The court did not any difficulty in accepting that it may impose the penalty
7 Waye, Rachel. "Penalties increased under Australian Consumer Law." Bulletin (Law Society of South Australia) 40.9
(2018): 12.
8 Thampapillai, Dilan. "THE AUSTRALIAN CONSUMER LAW." Australian Commercial Law (2015): 374.
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6BUSINESS LAW
which is more than $1.1 million in relation to the Cornerstone complete unconscionable
conduct.
In the current situation of Cornerstone, there is a presence of multitude of
contraventions and organization of unconscionable conduct is found to have created an effect
on large set of customers. It is not possible or helpful in computing mathematically the
maximum amount of penalty that can be imposed. In the present situation of ACCC v.
Cornerstone Investment Aust Pty Ltd (in Liq) (No 5) [2019] FCA 1544” the function of the
deterrent is not defeated by the fact that company is presently in liquidation and would not be
able to pay penalty9. Apart from the noteworthy preventive effect, there is an independent
public interest in the public record of contraventions and penalties supports that granting of
leave to proceed against the company which is in liquidation.
As the breach of ACL was admitted, there was no such separate liability judgements
as present in this case. There is a common public interest which simply justifies the
imposition of pecuniary penalties in the present case to help in locating the egregious nature
of infringement conduct and to function in the form of general warning.
As it has been explained above, it is right to impose a penalty on the Cornerstone
despite the fact that the company is undergoing liquidation10. To justify the imposition of
pecuniary penalty on Cornerstone it can be stated that the process of the company portrayed
an uncaring indifference towards the customer protection that is referred above. Cornerstone
mainly prioritised profit and revenue over the provision of courses which the students were
capable of completing it. Cornerstone contravention conduct was very much viewed as
9 Drew, Sharon. "Consumer law and legal costs." Precedent (Sydney, NSW) 146 (2018): 35.
10 Rollins, Adrian. "Medibank actions' unconscionable': ACCC." Australian Medicine 28.6 (2016): 6.
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critical component of its business functions that resulted in large amount of customer losses
and huge amount of revenues at the cost of Australian taxpayers.
Having regard to all the arguments that is set out above, the complete unconscionable
conduct of Cornerstone was very much serious and warrants the imposition of large amount
of penalties11. The conduct of Cornerstone affected majority of the 4,094 non-completed
course students that are highly improbable to have submitted the substantial amount of “VET
FEE-HELP” liabilities without taking any kind of right steps to receive the corresponding
amount of benefit to complete the study for which the liabilities have occurred in the non-
existence of unconscionable conduct. Having regard to this circumstances, there is no such
hesitation of accepting the fact that a penalty of $25 million is needed to make sure that an
appropriate warning generates an outcome against this.
Answer to question E:
The directors of the Cornerstone should be prosecuted as well. This is because Mr
Yang has rejected the recommendation from one of his staff to re-introduce the LLN testing
for the students as his was mainly accountable for quality and compliance management12. The
Quality and Compliance Manager also advised the director to introduce a minimum amount
of standard for enrolling students in its courses, which was eventually rejected. Cornerstone
did not have any kind of procedure for assuring that customers were capable of thinking or
completing the courses beside the verification scripts. Before the year 2015, the recruiters of
Cornerstone were not given with any type of training in respect of the content of courses that
11 Burdon, Thyme. "When the company line is unlawful: An overview of systemic unconscionable conduct." Bulletin (Law
Society of South Australia) 40.9 (2018): 22.
12 Zeccola, Carina. "Australian consumer law [Book Review]." Ethos: Official Publication of the Law Society of the
Australian Capital Territory 236 (2015): 42.
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8BUSINESS LAW
was conducted by Empower. This mainly included the requirements of completing the course
or relating to important aspect of “VET FEE-HELP” scheme for the customers.
The director of the company did not have any kind of system in place to assure quality
and compliance. Certainly, the directors of the company or the senior management of
Empower did not made any kind of effort to assure that the recruiters received sufficient ACL
training or to make sure that Empower had the procedure of making sure that unsolicited
customer agreements were made in agreement with the ACL13. The directors of Cornerstone
should be prosecuted as well because of the insignificance reflected in the system of the
company represents the callous indifference of Empowers senior management as well.
Answer to question F:
In respect to the “section 237 of the ACL”, the ACCC seeks order in favour of
consumers that;
a. Cornerstone should pay the compensation of $55,810,203.82 to the Commonwealth in
relation to the recognized 4094 consumers that failed to complete the course in which
they were enrolled and also have their “VET FEE-HELP” debts remitted by
commonwealth pursuant to the “HES Act”14.
b. Cornerstone should pay the compensation of $515,860 to commonwealth being the
sum of “VET FEE-HELP” payments that is made by Commonwealth to Cornerstone
in relation to the VET liability of 35 customers that are enrolled during the period and
those that have completed one or more units of study with Empower15.
13 Thampapillai, Dilan. "UNCONSCIONABLE CONDUCT." Australian Commercial Law (2015): 432.
14 "Australian Competition And Consumer Commission V Cornerstone Investment Aust Pty Ltd (In Liq) (No 5) [2019] FCA
1544", Judgments.Fedcourt.Gov.Au (Webpage, 2020)
<https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2019/2019fca1544>
15 "Www8.Austlii.Edu.Au", Www8.Austlii.Edu.Au (Webpage,2020)
<http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2019/1544.html>
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9BUSINESS LAW
c. Any unpaid liability of commonwealth to pay the same to Cornerstone the sum of
loans that was made to non-completion students, in order to discharge them of their
VET liability, till it is annulled.
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References:
"Australian Competition And Consumer Commission V Cornerstone Investment Aust Pty
Ltd (In Liq) (No 5) [2019] FCA 1544", Judgments.Fedcourt.Gov.Au (Webpage, 2020)
<https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/
2019/2019fca1544>
"Www8.Austlii.Edu.Au", Www8.Austlii.Edu.Au (Webpage,2020)
<http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2019/1544.html>
Burdon, Thyme. "When the company line is unlawful: An overview of systemic
unconscionable conduct." Bulletin (Law Society of South Australia) 40.9 (2018): 22.
Corones, Stephen, and Philip H. Clarke. Australian Consumer Law Commentary and
Materials. Thomson Reuters (Professional), 2015.
Drew, Sharon. "Consumer law and legal costs." Precedent (Sydney, NSW) 146 (2018): 35.
Fels, Allan, and Matthew Lees. "Unconscionable conduct in the context of competition law
with special reference to retailer/supplier relationships within Australia." Abusive Practices
in Competition Law. Edward Elgar Publishing, 2018.
Paterson, Jeannie Marie, and Gerard Brody. "“Safety net” consumer protection: using
prohibitions on unfair and unconscionable conduct to respond to predatory business
models." Journal of consumer policy 38.3 (2015): 331-355.
Pearson, Gail. "Further challenges for Australian consumer law." Consumer Law and
Socioeconomic Development. Springer, Cham, 2017. 287-305.
Rollins, Adrian. "Medibank actions' unconscionable': ACCC." Australian Medicine 28.6
(2016): 6.
Document Page
11BUSINESS LAW
Thampapillai, Dilan, et al. Australian commercial law. Cambridge University Press, 2015.
Thampapillai, Dilan. "THE AUSTRALIAN CONSUMER LAW." Australian Commercial
Law (2015): 374.
Thampapillai, Dilan. "UNCONSCIONABLE CONDUCT." Australian Commercial
Law (2015): 432.
Tynan, Daniel. "Australian consumer law [Book Review]." Bar News: The Journal of the
NSW Bar Association Summer 2015 (2015): 78.
Waye, Rachel. "Penalties increased under Australian Consumer Law." Bulletin (Law Society
of South Australia) 40.9 (2018): 12.
Zeccola, Carina. "Australian consumer law [Book Review]." Ethos: Official Publication of
the Law Society of the Australian Capital Territory 236 (2015): 42.
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