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The long arm of the Australian Consumer Law catches up with Educators

The Australian Consumer Law (ACL) exists to protect consumers from unfair practices or contract terms by any entity engaged in trade or commence. Two recent cases brought against educational institutions highlight the effect of the ACL in the context of the provision of education, and some of the traps for education providers to watch out for.

In Lang & Ors v Yesodei HaTorah College, the Langs brought a claim against Yesodei College for, among other things, a breach of s18 of the ACL which provides that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive”.

The Langs had originally enrolled their two sons, Yaakov and Binyomin, at Yesodei College (an Orthodox Jewish school) in 2009 when Yaakov was in year 1, and Binyomin was in the year below. Between 2010 and 2012 the school records disclosed that Binyomin was exhibiting challenging and disruptive behaviour, which escalated to include violent behaviour towards other boys and, on one occasion, towards a teacher.

The College reached out to the Langs on several occasions strongly suggesting that they seek professional advice from a mental health practitioner for how to best manage Binyomin’s behaviour. The Langs declined to do so. They felt Binyomin’s behaviour was as a result of the College’s failings, stating that he did not act up at home. In early 2013 the Langs wrote to the College to advise that they would be withdrawing both boys from Yesodei, making it clear in their correspondence that they were dissatisfied with how the College principal, Mr Segal, dealt with Binyomin’s behavioural issues.

In mid-2016 the Langs became aware that Mr Segal was resigning from the College, and they reached out to the College Board expressing an interest in re-enrolling both boys. By letter dated 25 July 2016, the College wrote to the Langs:

We acknowledge receipt of your expression of interest to reenrol your sons Binyomin and Yaakov Yisrael.

Please note that we cannot consider any application for re-enrolment of either or both of your sons until your outstanding debt of $50,010 from the year(s) 2010/2011/2012 as per the attached statement is paid in full in immediately available funds.

Once that amount has been paid into the YHT account (account details are on the attached invoice), we will contact you regarding further consideration of, and the conditions applicable to, your re-enrolment applications.

The Langs paid the outstanding sum in February 2017. On 13 February 2017, the College emailed the Langs advising that it had started the enrolment process and would be in contact with the Langs as soon as possible.

In June 2017, the College adopted a new enrolment policy, which included a provision that, other than in exceptional circumstances, it would not accept lateral admissions from other educational institutions. In December 2017, the College advised the Langs that, in accordance with the terms of this policy, it could not progress the boys’ applications any further.

The Langs claimed that the letter dated 25 July 2016 comprised of a representation that the College would undertake a process whereby it would assess the merits of the boys’ enrolment application and decide whether or not to grant it. Although the case failed due to the Court rejecting that this framing of the representation was made out on the facts, the Court considered whether, had the representation alleged been made out on the facts, it was misleading and deceptive.

Ultimately the Court found that, at the time the representation was made to the Langs, it was accurate and true, and the College genuinely intended to consider the enrolment applications on their merits. The Langs’ claim was dismissed. However, had they succeeded, the Court said that the value of the loss to the Langs would be the $50,010 paid to the College, notwithstanding that this was an outstanding debt which the College otherwise had a legal right to pursue. The fact that the College had elected not to pursue this debt through legal avenues indicated that it intended to write off the debt, and would have done so had the Langs not written expressing an interest in reenrolment.

This case serves as a reminder to educational institutions not only to act honestly and ethically in their representations to students and their parents, but also to be especially mindful of representations made to parents in situations where parents are being asked to make a payment of any sort.

In Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College), the ACCC took action against Captain Cook College under the ACL alleging unconscionable, misleading and deceptive conduct. In that case, the College had implemented a new system for enrolments which, the Court found, the College knew was likely to result in a significant increase in the number of students enrolled who had no ability or intention to undertake studies at the College.

The College’s previous enrolment system had involved engaging “Course Advisors” (CAs) to solicit new enrolments through sales and marketing tactics. The CAs were incentivised by a commission structure which rewarded them financially for enrolling students who then stayed past census date. As a result, the College was aware that there was an incentive for CAs to enrol students who might not be suitable, and that CAs might engage in misleading and deceptive conduct towards prospective students to induce them to enrol. An example of misleading and deceptive conduct known to take place by CAs was the promise to prospective students that the course on offer was “free”, without adequately explaining that the student would incur a debt to the Commonwealth Government which would pay the cost of tuition fees through the VET-FEE-HELP (VFH) scheme.

Prior to 2015, the period in which the ACCC alleged the unconscionable conduct took place, the College mitigated the risk of misleading conduct by their CAs by having a system in place whereby 48 hours after receiving an enrolment application, a “quality assurance” call from the College would be made to the student to ensure their suitability for enrolment. In addition, the College had a policy of automatically withdrawing students who were uncontactable or who had not engaged with their online courses prior to the census date.

In 2015, both these systems were removed by the College, resulting in a revenue increase of over 5,000%. In fact, the College had to stop accepting new enrolments as it had reached the cap on payments through the VFH scheme.

The Court ultimately found that the College had engaged in unconscionable conduct towards these consumers by knowingly and deliberately removing safeguards to protect the students from enrolling in a course which they were not suited to or had no intention of completing, and as a result incurring VFH debts associated with that course. The Court was not swayed by the submission of the College that such admission practices were common throughout all Colleges, and that Captain Cook College was acting no differently to its competitors. The Court said “the fact that something is a common practice in the particular sector of the market does not mean, necessarily, that it is not unconscionable. To put it differently, just because everyone is rorting a poorly designed and/or administered scheme does not mean that no one’s rorting is unconscionable.”

While the unconscionable nature of the College’s conduct in in this case might seem obvious on the facts, it serves as a timely reminder to educational institutions to carefully analyse their marketing tactics to ensure that prospective students (or their parents) are fully aware of the financial commitment they are making when enrolling at the institution, as well as carefully considering whether the institution can adequately provide the education promised through the marketing pitch.

To paraphrase the words of the judge, in a refrain every teacher has undoubtedly repeated many times, “just because someone else is doing it, doesn’t mean that you should too.”

For help with a review of your enrolment policies and marketing practices, please contact Lucinda Gunning or Stephanie McLuckie.

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