Australian Securities and Investments Commission v Vocation Limited (In Liquidation)
[2019] FCA 807
•31 May 2019
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Vocation Limited
(In Liquidation) [2019] FCA 807
File number:
NSD 1679 of 2016
Judge:
NICHOLAS J
Date of judgment:
31 May 2019
Catchwords:
Corporations – continuous disclosure obligations – ASX Listing Rule 3.1 – s 674(2) of the Corporations Act 2001 (Cth) (Act) – listed public company with wholly owned subsidiaries each of which was a registered training organisation (RTO) providing vocational education and training in Victoria in accordance with funding contracts entered into with the Victorian Department of Education and Early Childhood Development (DEECD) – where DEECD reasonably suspected RTOs had breached their funding contract – where DEECD imposed contractual measures pursuant to provisions of funding contracts withholding payment of moneys claimed and suspending new enrolments by RTOs – whether existence of such measures was information that company was required to disclose pursuant to ASX Listing Rule 3.1 – whether a reasonable person would expect such information to have a material effect if it were generally available on the price or value of the company’s shares – whether company contravened s 674(2) of the Act by failing to disclose such information
CORPORATIONS – whether ASX announcement made by company relating to funding contracts and withholding of payments was misleading or deceptive or likely to mislead or deceive – whether company contravened s 1041H by making such announcement
CORPORATIONS – whether completed due diligence questionnaire (DDQ) provided by company to proposed underwriter of proposed equity capital raising was misleading or deceptive or likely to mislead or deceive – whether company contravened s 1041H of the Act by providing DDQ to proposed underwriter
CORPORATIONS – whether directors of company contravened s 674(2A) by causing or permitting company to contravene s 674(2) of the Act by abetting or being knowingly concerned in such contravention
CORPORATIONS – whether directors and officer of company contravened s 180(1) by failing to exercise care and diligence in causing or permitting company to contravene s 674(2) or s 1041H of the Act
Legislation:
Acts Interpretation Act 1901 (Cth) s 2(2), 36
Australian Consumer Law 2010 (Cth) s 18
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth)
Corporations Act 2001 (Cth) ss 180, 674, 676, 677, 708, 708A, 1041H, 1317S, 1318
Trade Practices Act 1974 (Cth) ss 52, 75
Cases cited:
Australian Competition & Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212
Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72
Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liquidation) (2017) 348 ALR 525
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 226 ALR 209
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR
Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502
Australian Securities and Investments Commission v Maxwell (No 2) (2006) 59 ACSR 373
Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (in liq) (2016) 115 ACSR 437
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45
Daniels v Anderson (1995) 37 NSWLR 438
Domain Names Australia Pty Ltd v .au Domain Administration Ltd (2004) 139 FCR 215
Forge v Australian Securities Investments Commissions (2004) 52 ACSR 1
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486
Giorgianni v The Queen (1985) 156 CLR 473
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Grant-Taylor v Babcock & Brown Limited (in liq) (2016) 245 FCR 402
Hamilton v Whitehead (1988) 166 CLR 121
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1988) 39 FCR 546
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216
James Hardie Industries NV v ASIC (2010) 81 ACSR 1
Jubilee Mines NL v Riley (2009) 253 ALR 673
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
McGrath v HNSW Pty Limited (2014) 219 FCR 489
Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1
National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Port Stephens Shire Council v Tellamist Pty Ltd (2004) 135 LGERA 98
Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd (2012) 202 FCR 158
Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1
Re Austpac Resources NL [2010] NSWSC 1438
Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Taylor v Owners – Strata Plan No 11564 (2014) 253 CLR 531
Tesco Supermarkets Ltd v Nattrass [1972] AC 153
Vrisakis v Australian Securities Commission (1993) 9 WAR 395
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1
Yorke v Lucas (1985) 158 CLR 661
Date of hearing:
9-13, 16-19, 23, 25-27 October, 4-8 December 2017, 5-9 February 2018
Registry:
New South Wales
Division:
General Division
National Practice Area:
Commercial and Corporations
Sub-area:
Regulator and Consumer Protection
Category:
Catchwords
Number of paragraphs:
873
Counsel for the Plaintiff:
Mr J Halley SC with Ms A Mitchelmore, Ms J Davidson and Ms C Winnett
Counsel for the Second Defendant:
Mr DB Studdy SC with Mr SA Lawrance
Solicitor for the Second Defendant:
Allens
Counsel for the Third Defendant:
Mr M Pesman SC with Mr JM Wheeldon
Solicitor for the Third Defendant:
Baker & McKenzie
Counsel for the Fourth Defendant:
Mr A Leopold SC with Ms E Holmes
Solicitor for the Fourth Defendant:
Clyde & Co
Table of Corrections
18 June 2019
Para [372] seventh sentence “3 January 2014” be amended to read “3 September 2014”
Para [556] first sentence delete the words “apart from themselves”
Para [596] first sentence “those RTOs” be amended to read “BAWM and Aspin”
ORDERS
NSD 1679 of 2016
BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND:
VOCATION LIMITED (IN LIQUIDATION)
ACN 166 631 330
First Defendant
MARK EDWARD HUTCHINSON
Second Defendant
JOHN SYDNEY DAWKINS
Third Defendant
MANVINDER GRÉWAL
Fourth Defendant
JUDGE:
NICHOLAS J
DATE OF ORDER:
31 May 2019
THE COURT ORDERS THAT:
The proceeding be fixed for a case management hearing at 9.30am on 6 June 2019 for the purpose of:
(a) appointing a date for the hearing of all remaining questions including those arising under s 1317S and s 1318 of the Corporations Act 2001 (Cth), the form of any declaratory relief, all questions of penalty, and all questions of costs; and
(b) to make any ancillary directions in relation to that hearing.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Introduction
[1]
Principal Conclusions
[12]
The Defendants
[13]
The First Defendant – Vocation Limited
[13]
The Second Defendant - Mark Edward Hutchinson (Chief Executive Officer and Executive Director)
[14]
The Third Defendant - The Hon John Sydney Dawkins AO (Non-Executive Chairman)
[18]
The Fourth Defendant - Manvinder Gréwal (Chief Financial Officer and Company Secretary)
[24]
Independent Directors Who Are Not Defendants
[29]
Douglas Halley (Non-Executive Director)
[30]
Michelle Tredenick (Non-Executive Director)
[31]
Stephen Tucker (Non-Executive Director)
[32]
Factual Background
[33]
Business Structure and Board Policies
[33]
Funding Contracts between DEECD, BAWM and ASPIN
[54]
The MMU Investigation
[67]
DEECD’s 3 July 2014 Letter to BAWM
[75]
The Meeting of 10 July 2014
[76]
The 21 July 2014 Response
[80]
The Investment Committee and Board Meetings of 22 July 2014
[82]
DEECD 24 July 2014 Letter to BAWM
[91]
Mr Hutchinson’s Email of 25 July 2014
[99]
The 29 July 2014 Board Meeting
[101]
BAWM 4 August 2014 Letter to DEECD
[107]
DEECD 5 August 2014 Letter to Aspin
[116]
The 11 August 2014 Board Meeting
[119]
DEECD/ASPIN Meeting of 12 August 2014
[123]
The Board Pack
[128]
DEECD Letters to BAWM and Aspin of 15 August 2014
[154]
Request for Increase in Banking Facility
[160]
The 19 August 2014 Board Meeting
[163]
Ms Bonnici’s and Ms Watts’ Correspondence of 20 August 2014
[172]
Release of Appendix 4E
[182]
Email Correspondence of 21 August 2014
[188]
The 22 August 2014 Board Meeting
[203]
The 25 August AFR 2014 Article
[217]
The 25 August 2014 Board Meeting
[219]
The 25 August 2014 ASX Announcement
[227]
Reaction to the 25 August ASX Announcement
[235]
Lander & Rogers’ Advice
[239]
Mr Gréwal’s Cash Flow Forecast
[251]
DEECD’s Letter to Vocation dated 26 August 2014
[262]
Ms Bonnici’s Email of 26 August 2014
[267]
The 26 August 2014 Board Meeting
[270]
Ms Tredenick’s Email of 27 August 2014
[277]
Mr Langtree’s Worst Case Scenario
[282]
Mr Dawkins’ Evidence Concerning Entry Requirements
[300]
Ms Bonnici’s “Talking Points”
[305]
The 28 August 2014 Board Meeting
[306]
Meeting between DEECD and Vocation of 28 August 2014
[308]
Meetings with Banks
[323]
Wendy Bonnici’s Email of 1 September 2014
[337]
Finalisation of Financial Statements
[339]
Mr Gréwal’s Revised Cash Flow
[341]
Terms of Reference
[344]
Ms Tredenick’s Email
[350]
The Equity Capital Raising
[361]
Meeting with Banks on 3 September 2014
[375]
Request for Release of Funds
[382]
The Sunday 7 September 2014 Board Meeting
[384]
Mr Hutchinson’s Email of 7 September 2014
[387]
The 8 September 2014 Meeting with Mr Bolt
[402]
The 8 September 2014 Board Meeting
[425]
Macquarie Bows Out
[434]
Meeting on 9 September 2014 with Banking Syndicate
[439]
The 10 September 2014 ASX Announcement
[451]
Completion of the Placement and Lodgement of the Cleansing Notice
[457]
The Revised Terms of Reference
[458]
The 18 September AFR Article
[464]
The 18 September 2014 ASX Announcement
[472]
The Board Charter
[484]
The Continuous Disclosure Policy
[490]
The Role of JWS
[492]
Section 674(2) – Contravention of Continuous Disclosure Obligations
[508]
The Relevant Statutory Provisions
[508]
The Relevant Principles
[511]
The Relevant Information
[521]
Was the relevant information generally available?
[523]
Mr Sisson’s Evidence
[531]
The Defendant’s Criticisms of Mr Sisson’s Evidence
[550]
Jubilee Mines NL v Riley
[560]
The Additional Information
[567]
Section 674(2A) – Involvement in Contravention of Section 674
[605]
Section 1041H: Misleading and Deceptive Conduct
[621]
Section 1041H: The 25 August 2014 ASX Announcement
[636]
Section 1041H: The DDQ
[659]
The DDQ
[662]
Representation R1
[671]
Was R1 conveyed?
[671]
Was R1 likely to mislead or deceive?
[680]
Representation R2
[685]
Was R2 conveyed?
[685]
Was R2 likely to mislead or deceive?
[688]
Representation R3
[694]
Was R3 conveyed?
[694]
Was R3 likely to mislead or deceive?
[701]
Section 708A of the Act: The Cleansing Notice
[710]
Section 180 – liability of individual defendants for breach of duty
[725]
The Relevant Principles
[725]
Mr Hutchinson
[743]
Section 180(1) – Continuous Disclosure
[743]
Section 180(1) – the 25 August Announcement
[792]
Section 180(1) – The DDQ
[806]
Mr Dawkins
[813]
Section 180(1) – Continuous Disclosure
[813]
Section 180(1) – 25 August Announcement
[849]
Mr Gréwal
[856]
Section 180(1) – The DDQ
[856]
Remaining Issues
[872]
REASONS FOR JUDGMENT
NICHOLAS J:
INTRODUCTION
In this proceeding the plaintiff (“ASIC”) seeks declaratory relief against all four defendants and orders imposing pecuniary penalties on each of the second, third and fourth defendants for alleged contraventions of various provisions of the Corporations Act 2001 (Cth) (“the Act”). ASIC also seeks orders prohibiting each of the second, third and fourth defendants (“the individual defendants”) from managing a corporation for such period as the Court considers fit.
The first defendant (“Vocation”) is a public company, now in liquidation, that was incorporated on 6 November 2013. On that date the second defendant (Mr Mark Hutchinson) was appointed Vocation’s Chief Executive Officer and Executive Director and the third defendant (the Honourable Mr John Dawkins AO) was appointed Non-Executive Chairman. The fourth defendant (Mr Manvinder Gréwal) was appointed as Chief Financial Officer on 6 November 2013 and Company Secretary on 6 December 2014. Mr Douglas Halley, Mr Stephen Tucker and Ms Michelle Tredenick were also appointed Non-Executive Directors of Vocation on 6 November 2013. None of them is a party to this proceeding.
Shortly after its incorporation, Vocation made an initial public offering (“the IPO”) of fully paid shares at a price of $1.89 in accordance with a prospectus issued on 27 November 2013 (“the Prospectus”). The total number of shares issued on completion of the IPO was 200 million, giving Vocation a market capitalisation of $378 million at first listing.
As part of the IPO, Vocation acquired ownership of various other companies (“the merged entities”) that became its wholly owned subsidiaries. The most significant of these were:
• AVANA Group Pty Ltd (“AVANA”), which was founded by Mr Hutchinson;
• BAWM Pty Ltd (“BAWM”), which was founded by Mr Ben Gillingham, Ms Amanda King, Ms Wendy Bonnici and Mr Michael Langtree in 2010;
• Aspin Pty Limited (“Aspin”), which was founded by Mr Brendan Morrissey; and
• Customer Services Institute of Australia Pty Ltd and CSIA Education Services Pty Limited (together “CSIA”), which were founded by Mr Brett Whitford.
The consideration received by the vendors of the shares in these entities (including Mr Hutchinson, Ms Bonnici, Mr Langtree and Mr Whitford or their associates) was partly in cash and partly in Vocation shares. A total of 66 million shares was issued to the vendors and Vocation’s directors, managers and employees. A significant proportion of these shares was subject to voluntary escrow arrangements described in the Prospectus.
Through its acquisition of these subsidiaries, Vocation became a private provider of vocational education and training (“VET”) engaged in student recruitment, education and training delivery. It also provided related services to other VET providers and learning and development businesses. Vocation was listed on the Australian Securities Exchange (“ASX”) and the Chi-X Australian Exchange with trading in its shares commencing on 9 December 2013.
On 10 September 2014 Vocation announced that it would undertake a fully underwritten institutional placement (“the Placement”) of its shares to raise approximately $74 million which occurred that day (“the 10 September Announcement”). Vocation’s shares entered a trading halt which remained in place throughout that day. On 11 September 2014, before the market opened, Vocation announced that the Placement had been completed with approximately $74 million raised. The Placement was fully underwritten by the Australian Branch of UBS AG (“UBS”).
The steps that were taken by Vocation in connection with the Placement included the provision by Vocation to UBS of a due diligence questionnaire dated 10 September 2014 (“the DDQ”) completed and signed by Mr Hutchinson and Mr Gréwal on that date and the provision by Vocation to the ASX on 16 September 2016 of a notice under s 708A(5)(e) of the Act (“the Cleansing Notice”) signed by Mr Gréwal on that date.
Briefly stated, ASIC’s case against the defendants is as follows:
(1) The 25 August Announcement: An announcement was made by Vocation to the ASX on 25 August 2014 (“the 25 August Announcement”) that was approved by Mr Dawkins and Mr Hutchinson (and the other directors) prior to its release. ASIC alleges that the 25 August Announcement was misleading or deceptive or likely to mislead or deceive and that, by making it, Vocation contravened s 1041H of the Act. ASIC also alleges that Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation to make the 25 August Announcement.
(2) The DDQ: ASIC contends that the DDQ conveyed representations that were misleading or deceptive or likely to mislead or deceive and that, by providing the DDQ to UBS, Vocation contravened s 1041H of the Act. ASIC further alleges that Mr Hutchinson and Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation to contravene s 1041H of the Act.
(3) ASX Listing Rule 3.1: ASIC alleges that Vocation contravened s 674(2) of the Act during the period from 28 August 2014 to 18 September 2014 (“the relevant period”) by failing to disclose certain information relating to various funding contracts to which certain of Vocation’s wholly owned subsidiaries were party in accordance with ASX Listing Rule 3.1. ASIC alleges that Mr Hutchinson and Mr Dawkins were directly or indirectly knowingly concerned in Vocation’s contravention of s 674(2) and that they are therefore liable under s 674(2A) of the Act. ASIC also alleges that Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation to contravene s 674(2) of the Act.
(4) The Cleansing Notice: ASIC alleges that the Cleansing Notice was defective within the meaning of s 708A(10) of the Act and that Vocation contravened s 708A(9) of the Act by failing to correct the defective Cleansing Notice. ASIC alleges that each of Mr Hutchinson, Mr Dawkins and Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation to contravene s 708A(9) of the Act.
The individual defendants deny that Vocation contravened s 1041H, s 674(2) or s 708A(9) of the Act, that they are liable under s 674(2A), or that they breached their duties under s 180 of the Act. Alternatively, in the event they are found liable under s 674(2A) or s 180 of the Act, they seek relief under s 1317S and s 1318 of the Act.
After the close of the evidence and the exchange of written closing submissions, ASIC made clear that it did not contend that Mr Hutchinson, Mr Dawkins or Mr Gréwal had actual knowledge that the information which ASIC alleges Vocation wrongly failed to disclose was material in the relevant sense. ASIC also made clear that it did not contend that they were “wilfully blind” to the materiality of the information: cf.Giorgianni v The Queen (1985) 156 CLR 473 at 482. For its part, ASIC contends that Mr Hutchinson and Mr Dawkins may be found liable under s 674(2A) even though they did not know at relevant times that the information in question was material, provided that they had knowledge of circumstances that would lead a reasonable person in their position to conclude that it was material. For reasons I will come to Mr Hutchinson and Mr Dawkins contend that it necessarily follows that the knowledge requirements under s 674(2A), when read with s 79 of the Act, cannot be satisfied.
PRINCIPAL CONCLUSIONS
For the reasons set out below my principal conclusions are as follows:
• Vocation engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H of the Act by providing the DDQ to UBS.
• Vocation contravened s 674(2) of the Act by failing to disclose the “Withholding and Suspension Information” in accordance with the requirements of ASX Listing Rule 3.1.
• Vocation engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H of the Act by making the 25 August Announcement.
• Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation’s contravention of s 674(2) of the Act.
• Mr Hutchinson contravened s 180 of the Act by causing or permitting Vocation’s contravention of s 1041H in relation to the 25 August Announcement and the DDQ.
• Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation’s contravention of s 1041H in relation to the DDQ.
• None of the other contraventions of the Act alleged by ASIC have been established.
THE DEFENDANTS
The First Defendant – Vocation Limited
I have already given a brief overview of the corporate history of Vocation from the time of its incorporation up to and including 18 September 2014. The evidence tells me little, if anything, of what became of Vocation after that date except that it was placed into voluntary administration less than two years after it was listed on the ASX. Vocation was not represented at the hearing of this proceeding. Leave to proceed against the company for declaratory relief only was granted on 13 October 2016. Vocation submitted to any order made in the proceeding save as to costs.
The Second Defendant - Mark Edward Hutchinson (Chief Executive Officer and Executive Director)
Mr Hutchinson holds a Bachelor of Economics from the University of Sydney and a Master of Business Administration from the INSEAD Business School in France. In 2001, whilst completing his final year of undergraduate study, Mr Hutchinson started a business taking people on trips to the Northern Territory as a host and guide. The following year, Mr Hutchinson founded Untamed Tracks Pty Ltd (“Untamed Tracks”) which became a high-end travel and training business. Through Untamed Tracks, Mr Hutchinson developed the Green Skills Institute, a Registered Training Organisation that trained guides in the Northern Territory.
By 2011, Mr Hutchinson had sold the travel component of the business to focus on the training aspect of the business. Mr Hutchinson changed the name of Untamed Tracks to AVANA in 2011. AVANA became a Registered Training Organisation offering a number of certificate qualifications in tourism. At that time, the AVANA group consisted of three Registered Training Organisations: AVANA Learning, Green Skills Institute and Training and Development Australia Pty Ltd, all of which became subsidiaries of Vocation.
As a Registered Training Organisation, AVANA had funding contracts with the various State and Territory government VET funding bodies. Through AVANA, Mr Hutchinson gained experience as a director of a Registered Training Organisation interacting with government VET funding bodies. However, Mr Hutchinson had never run a Registered Training Organisation that was regulated by the Victorian Regulation and Qualifications Authority (“VRQA”).
Mr Hutchinson’s appointment as Vocation’s CEO and Executive Director in 2013 was his first as a director of a listed public company. Mr Hutchinson gave evidence that he was initially reluctant to accept the role of CEO of Vocation due largely to his limited experience in the highly regulated industry in a market of which Mr Hutchinson said he had very little knowledge.
The Third Defendant - The Hon John Sydney Dawkins AO (Non-Executive Chairman)
Mr Dawkins holds a Diploma in Agriculture from Roseworthy Agricultural College and a Bachelor of Economics from the University of Western Australia.
Mr Dawkins was a Labor Party Member of the Australian Federal Parliament for the majority of the period between 1974 and 1994, representing the West Australian seats of Tangney and Fremantle. From 1983 to 1993, Mr Dawkins held Ministries in the Commonwealth Government for Finance, Trade, Employment, Education and Training and Treasury.
In 2000, Mr Dawkins was made an Officer of the Order of Australia for service to the reform of international trade in 2000.
Mr Dawkins has extensive knowledge of and experience in the VET system. Much of his later career was spent in roles that shaped the sector. Relevantly, Mr Dawkins:
• Led reform in his capacity as Minister for Employment that established a nationally consistent system of regulation and introduced competency based training to apprenticeships;
• Chaired the National Quality Council which advised Commonwealth and State Ministers on regulatory issues involving the VET sector, including the management of the Australian Quality Training Framework (“AQTF”), and endorsed “Training Packages” developed by the Industry Skills Council;
• Chaired the Australian Qualifications Framework Council (“AQFC”) which reviewed and managed the Australian Qualifications Framework that applied to secondary schools and universities;
• Chaired VET Australia, a company nominally owned by the Commonwealth, State and Territory Ministers, with responsibility for vocational training and education across state borders; and
• Chaired the National Skills Standards Council (“NSSC”), which was commissioned by the Tertiary Education, Skills and Employment Ministers from all Australian jurisdictions to undertake a review of the standards for the regulation of vocational education and training, focusing on issues of quality.
Following his retirement from politics, Mr Dawkins joined numerous boards of listed and unlisted companies as a director, several of which he chaired. This included publicly listed companies in the energy and resources sectors, property development, school management and medical diagnostics sectors.
Between 1998 and 2002, Mr Dawkins attended several training sessions for directors offered by the Australian Institute of Company Directors as well as a short course offered by Harvard University that focused on Board decision making and responsibilities.
The Fourth Defendant - Manvinder Gréwal (Chief Financial Officer and Company Secretary)
Mr Gréwal was awarded a Bachelor of Accounting and Financial Management in 1991 from the University of Sheffield in the United Kingdom and qualified as a Chartered Accountant in 1994.
In 1991, Mr Gréwal commenced working with KPMG in the Audit Department. Mr Gréwal was in this role across various offices until 2000 when he transferred to the Transaction Services Department in Leeds. In this role, Mr Gréwal was primarily working on financial due diligence projects for clients undertaking acquisitions, divestments and initial public offering projects. Between 2000 and 2004, Mr Gréwal held the position of Manager of the Transaction Services Department, first at KPMG and later at PricewaterhouseCoopers (“PwC”).
In late 2004, Mr Gréwal was promoted to Associate Director at PwC. Two years later, he moved with the company to Sydney to undertake a similar role. In 2012, Mr Gréwal left PwC.
Between 2012 and 2013, Mr Gréwal worked first as a consultant advising on a private capital raising before joining a boutique advisory group where he advised on several corporate projects, including the Vocation IPO. On 6 November 2013, following the completion of Vocation’s IPO, Mr Gréwal joined Vocation as CFO and Company Secretary.
Before his involvement with Vocation, Mr Gréwal had no prior experience with Australian education sector regulators, government departments or the VET sector, though he did advise an American private equity firm on its acquisition of an international education business in 2010. Mr Gréwal gave evidence that as CFO, he did not receive any formal training or briefing on that aspect of Vocation’s business though he “did pick some things up as [he] went along as to how the education and VET sector operated”.
INDEPENDENT DIRECTORS WHO ARE NOT DEFENDANTS
At all relevant times, there were three other independent directors on the Vocation board, none of whom gave evidence. The fact that these three independent directors participated in, and agreed with, various board decisions relating to the 25 August Announcement and the Withholding and Suspension Information (as defined below) during the relevant period is a matter upon which Mr Hutchinson and Mr Dawkins placed considerable reliance when resisting ASIC’s case against them under s 180. That is a matter I will return to later in these reasons.
Douglas Halley (Non-Executive Director)
Mr Halley holds a Bachelor of Commerce, a Master of Business Administration and is a fellow of the Australia Institute of Company Directors. Mr Halley has 30 years’ experience in CFO and CEO positions with major entities across a range of industries. Mr Halley has experience as a director of listed companies including as a director of Fairfax, Corum Group, Kollakorn Corporation and Television & Media Services. In the seven years prior to his involvement with Vocation, Mr Halley also held non-executive positions in a variety of listed, private and not-for-profit organisations. He has also served as chair on several Audit and Risk Committees and was chairman of DUET Group and Foyson Resources Limited while also on the board of Vocation.
Michelle Tredenick (Non-Executive Director)
Ms Tredenick holds a Bachelor of Science from the University of Queensland and is a Fellow of the Australian Institute of Company Directors. Ms Tredenick has over 30 years’ experience as a company director and corporate advisor. At the time of her appointment to the Vocation Board, Ms Tredenick was a director of Bank of Queensland Limited, Chair of IAG NRMA Corporate Superannuation and Chair of Comparehealth Pty Ltd. Ms Tredenick has formerly held various executive roles including as a member of the Executive Committee of National Australia Bank, MLC and Suncorp. Ms Tredenick also operates her own consulting business advising boards and CEOs on strategy and technology and on the successful management of large investment and transformation programs.
Stephen Tucker (Non-Executive Director)
Mr Tucker holds a Bachelor of Economics from the University of Western Australia. Mr Tucker was the CEO of MLC between 2004 and 2013, a Group Executive of the National Australia Bank Wealth Division and a member of the NAB Group Executive Committee from 2010 to 2013. Mr Tucker has been a director on a number of NAB Group Boards, including MLC Ltd, MLC Investments Ltd, JBWere Limited and National Wealth Management Holdings and has also been a non-executive director of two smaller ASX listed companies since June 2014. Mr Tucker was also a board member and minority shareholder of AVANA.
FACTUAL BACKGROUND
Business Structure and Board Policies
The board of directors of Vocation first met in November 2013 and, at about this time, established its procedures and policies. Mr Gréwal was appointed Company Secretary and Company Matters Pty Ltd, for whom Ms Emma Lawler worked, provided administrative support. The board decided that CSIA, BAWM (including its subsidiary Aspin) and AVANA would not be fully integrated until after the end of the 30 June 2014 financial year. As a result, BAWM (and Aspin), CSIA and AVANA continued to be run as separately managed businesses.
The management of BAWM (and Aspin) was based in Melbourne, and AVANA and CSIA in Sydney. It was decided that Ms Bonnici would report to Mr Hutchinson while she continued to manage the BAWM and Aspin businesses as she had prior to the IPO. The BAWM team continued to manage the Victorian business and maintained BAWM’s and Aspin’s relationship with the Victorian Department of Education and Early Childhood Development (“DEECD”), including the management and administration of their funding contracts with DEECD.
Ms Bonnici led the Executive Team as Vocation’s Chief Operating Officer. Mr Langtree was in charge of acquisitions of students by Vocation entities and notifying DEECD of enrolments, which notification was then treated as a claim for, and triggered, funding payments. Ms King’s responsibilities included compliance and quality control. Mr Langtree and Ms King also reported to Mr Hutchinson.
According to Mr Dawkins’ evidence, it was his view, and his practice, that the board collectively should set strategy and not get into the detail of management. It was also his practice at board meetings where a decision was required, to ask the other members of the board if there was any dissent from the decision proposed. If there was no dissent he regarded the decision as unanimous. To the extent there were questions in relation to a decision, no decision was taken until those questions were resolved. He said that to the best of his recollection, there was never a majority decision taken at a Vocation board meeting. None of that evidence was challenged and I accept it.
At an early meeting of the board, the directors adopted a number of policy documents including a Board Charter, a Risk Committee Charter and a Continuous Disclosure Policy. I refer to these documents in more detail later in these reasons.
A Registered Training Organisation (“RTO”) is an entity registered with the federal regulator, or a state regulator, to provide VET services. In 2014 an organisation that wished to offer VET courses and qualifications in Victoria was required to be registered with either the federal body known as the Australian Skills Quality Authority (“ASQA”) or the VRQA. VRQA registration was limited to RTOs domiciled and conducting vocational education and training wholly in Victoria. An organisation that wished to provide such services in other States or Territories of Australia was required to be registered with ASQA.
RTOs typically provide VET courses at a Certificate or Diploma level that are nationally recognised within the AQTF which was managed by the AQFC. The AQTF is a national regulatory scheme that regulated the activities of private training providers, the public TAFE system and certain dual sector universities that combine traditional higher education and VET. Only RTOs can apply for government funding to provide VET courses.
In 2014, Victoria adopted a direct funding model for VET known as the Victorian Training Guarantee (“VTG”) which paid subsidies for training of students directly to RTOs. Victoria was the only State that employed such a model. In other States and Territories, RTOs’ clients tended to be corporate clients paying for the training of their employees, with some individual fee-paying students.
The VTG provided for the State of Victoria, acting through its relevant government department, to enter into contracts with RTOs to fund the provision of vocational training by the RTOs to persons seeking an initial or higher level of qualification. The relevant department was DEECD which administered the VTG through its Higher Education and Skills Group (“HESG”). RTOs were paid based on notification to HESG of their enrolments. Payments were made by DEECD to the RTOs with which students were enrolled.
At the time of the IPO Vocation owned a total of eight RTOs including AVANA, Aspin, CSIA, and BAWM. BAWM was the only Vocation RTO registered with the VRQA and the only one that operated solely in Victoria. The other seven RTOs were all registered with the ASQA. Each of the eight RTOs had a different list of courses and qualifications (sometimes referred to as a “scope”) that it was allowed to offer in accordance with its conditions of registration. However, there was a considerable overlap in the courses that RTOs were qualified to provide.
BAWM carried on business in Victoria under the names “Buildit Learning”, “RTO Edge” and “Diverse Learning” and derived most of its revenue by direct funding model under the VTG. By 2013, BAWM was the largest RTO operating in the Victorian market. Aspin also carried on business in Victoria but on a considerably smaller scale than BAWM.
Ms Bonnici was the Managing Director of BAWM and the Chief Operating Officer of Aspin. She was also the Chief Operating Officer of Vocation until around July 2014 when her title changed to Chief Executive Officer of Vocational Education. She had considerable experience in dealing with VRQA and DEECD as a founder and managing director of BAWM.
During 2014 BAWM conducted trading courses that were funded by DEECD pursuant to a funding contract entered into between DEECD and BAWM for the 2014-2016 calendar years which commenced on 1 January 2014. Aspin also conducted training courses during 2014 that were funded by DEECD pursuant to a funding contract made between Aspin and DEECD for the 2014-2016 calendar years which also commenced on 1 January 2014. The terms and conditions of the two funding contracts (“the Funding Contracts”) were relevantly identical.
At the time of the IPO, BAWM had annual revenue of around $30.0 million to $35.0 million and AVANA and CSIA each had annual revenues of around $10.0 million to $12.0 million. The significance of BAWM to Vocation’s operations was reflected in the proportion of Vocation shares which were issued to acquire BAWM. At the offer price, those shares were worth $165 million of a total market capitalisation of $378 million. When Vocation listed on the ASX, more than two-thirds of Vocation’s annual revenue was generated by the BAWM and Aspin businesses. For the financial year ending 30 June 2014, approximately 80% of Vocation’s revenue was received from DEECD.
Soon after the IPO the directors of Vocation decided that they would not fully integrate the merged entities until after the end of the 2014 financial year. Consequently, in 2014 BAWM (including Aspin), CSIA and AVANA continued to operate their separate businesses. The senior management of BAWM (including Ms Bonnici, Mr Langtree and Ms King) was based in Melbourne, while senior management of AVANA and CSIA was based in Sydney. Mr Hutchinson, to whom Ms Bonnici reported, was based in Sydney.
In May 2014 Vocation acquired another education and training provider known as “Real Institute” (“Real Institute”) for $40.0 million in cash and $7.0 million in Vocation shares with an additional $7.0 million in Vocation shares payable if Real Institute met its 2014 financial year forecast results. Real Institute was a national vocational education provider operating in the logistics and labour hire industries. The acquisition of Real Institute was completed on 31 May 2014.
In June 2014 Vocation entered into an agreement to acquire Endeavour Learning Group (“Endeavour”) which was a provider of vocational and teaching education of national health, wellness, fitness and beauty disciplines. The acquisition of Endeavour was completed on 1 July 2014 for approximately $84.0 million in cash.
The $124 million cash component of Vocation’s acquisition of Real Institute and Endeavour was funded from cash reserves and a debt facility for $123 million that Vocation established with a syndicate of three banks in May 2014. The three banks in the syndicate were Westpac Banking Company (“Westpac”), National Australia Bank (“NAB”) and Commonwealth Bank of Australia (“CBA”).
Vocation made a number of further acquisitions in 2014. In April 2014 it acquired a 50% shareholding in Australian School of Management (“ASM”) and a 100% shareholding of the Australian College of Applied Education for a total consideration of $2.125 million. In September 2014 Vocation acquired the remaining 50% of ASM’s shares.
The Vocation board of directors performed a number of functions through various committees including the Audit and Risk Committee of which Mr Halley was Chairman and Mr Dawkins, Ms Tredenick and Mr Tucker were members, and the Investment Committee, of which Mr Tucker was Chairman and Mr Halley a member.
During the first half of 2014 the directors of Vocation were also investigating a possible acquisition of the Acquire Learning Group (“Acquire”). The proposed acquisition was referred to in Vocation’s board minutes as “Project Aspen”. Acquire was not an RTO but was in the business of training and recruitment. At a board meeting held on 22 July 2014 (discussed below) the board resolved to make a non-binding indicative bid for Acquire in the amount of $800 million.
Funding Contracts between DEECD, BAWM and ASPIN
In 2013-2014, the VET sector was comprised of both government-run and privately-operated RTOs, funded primarily by the Commonwealth, State and Territory governments. RTO access to State government funding was generally made available through funding contracts. In Victoria, pursuant to the Education and Training Reform Act 2006 (Vic), the Secretary of DEECD was authorised to enter into “VET funding contracts” with RTOs for the delivery of such courses.
The breakdown of enrolments by State in Vocation’s Prospectus demonstrated the central significance of Victoria to Vocation’s business. As disclosed in Vocation’s 2014 financial year results presentation, Victorian government funding represented 80% of revenue in the 2014 financial year, albeit that this was estimated to reduce to 40% in the 2015 financial year. In the period between November 2013 and June 2014, BAWM was the largest government-funded provider of VET services in Victoria.
In December 2013, BAWM and Aspin each accepted the terms of the Funding Contracts. The Funding Contracts stipulated general (cl 3) and specific (cl 4) obligations of an RTO with respect to its delivery of Training Services (as defined) to Eligible Individuals (as defined). “Eligible Individual” was defined to mean “an individual who is eligible for governmental subsidised training in accordance with eligibility requirements set out in this VET Funding Contract and related guidelines.” The definition of “Training Services” included relevantly:
…
(b) all related requirements under this VET Funding Contract including but not limited to:
i) determination of eligibility,
ii) completion of student enrolment forms,
… [and]
v) matters that reasonably relate to providing the Training Services.
I do not think there could be any doubt that the requirements with respect to the Pre-Training Reviews were “related requirements” for the purpose of the definition of “Training Services”.
The general obligations in cl 3 of the Funding Contract relevantly included an obligation to comply with the AQTF “and/or the VET Quality Framework including the Standards for NVR Registered Training Organisations as applicable”: cl 3.1(e). Standard 2.1 of the AQTF required an RTO to “establish the needs of clients, and deliver services that meet these needs” while Standard 2.5 stipulated that learners were to “receive training, assessment and support services that meet their individual needs”. Standards 16.1 and 16.5 of the Standards for NVR Training Organisations 2012 (Cth) (“SNVR”) were formulated in the same terms.
In addition to incorporating the obligations of the AQTF and SNVR into the Funding Contract, cl 3.4(b) required an RTO to comply with all requirements in Sch 1 which described “important processes and requirements with which RTOs must comply in delivering government subsidised training under the VET Funding Contract”. These included:
• a requirement that for each Eligible Individual, the RTO conduct a Pre-Training Review which must “ascertain the most appropriate qualification for that student to enrol in, including consideration of the likely job outcomes from the development of new competencies and skills” (cl 4.6(b));
• a requirement that the RTO have a clear and documented business process for conducing the Pre-Training Review “that demonstrates how the RTO determined which qualification/s the student enrolled in and why this was the most appropriate training option for the student” (cl 4.7); and
• a prohibition on the RTO enrolling an Eligible Individual “in a course or qualification that is at an inappropriate level for that student, including but not limited to enrolling students in the Foundation Skills List that would not provide additional relevant competencies” (cl 4.9).
I refer to some of these requirements in more detail later in these reasons.
Clause 3.3(c)(iii) of the Funding Contract required that the RTO know and comply with all policies, procedures and guidelines related to the performance by the RTO of its obligations under the Funding Contract, including the “Statement of Expectations”. The latter document is a document published by DEECD in April 2013 entitled “Statement of Expectations: Principles and Obligations for Government Contracted Training Providers in Victoria”. It included a clause (cl 3.3) headed “Co-operating with the Department to Demonstrate and Verify Compliance” which (inter alia) required the RTO to ensure that appropriate compliance, reporting and auditing controls and systems were in place to meet DEECD’s compliance requirements.
By cl 7.2 of the Funding Contract, the RTO agreed that DEECD’s payment of funds to the RTO was conditional on DEECD being satisfied (and continuing to be satisfied) that the Training Services are being provided by the RTO in accordance with the Funding Contracts.
The Funding Contract also conferred on DEECD a right to “direct the RTO to suspend part or all of the provision of Training Services under this VET Funding Contract” (cl 16.2(a)); and to “withhold, suspend, cancel or terminate payment of any part of the Funds as [DEECD] determines is appropriate until [DEECD] is satisfied the issue has been satisfactorily resolved” (cl 16.2(b)). DEECD could take such action on a number of bases, including, relevantly, if “the RTO has breached, or DEECD reasonably suspects that the RTO has breached, or may breach, a clause of this VET Funding Contract” (cl 16.1(a)).
The Funding Contract included a provision (cl 17.3) entitling DEECD to terminate the contract in various circumstances including, relevantly, if “the RTO commits a Material Breach of this VET Funding Contract”. “Material Breach” was defined to include:
a) failing to meet its obligations regarding:
i) the application of all eligibility criteria to determine Eligible Individuals prior to enrolment;
ii) the application of fees, including as required under any ministerial directions, orders, regulations or guidelines about fees;
iii) the application of fee concessions, fee waivers/exemptions;
iv) specific requirements for all Training Services including Pre-Training Review; Training Plan, and Evidence of Eligibility, Evidence of Concession/Waiver/Exemption, Evidence of Participation, in relation to each Eligible Individual;
v) specific requirements for apprenticeship/traineeship Training Services; and
vi) acting ethically, and not doing or omitting to do anything which may damage, ridicule, bring into disrepute or be detrimental, to the Department, the VET sector, the Victorian government subsidised training market, the Department or the State's name or reputation. A determination in this regard will be made at the absolute discretion of the Department, giving due regard to the obligations of the Department under Statute or otherwise; and made in good faith,
as specified in
vii) this VET Funding Contract;
viii) any ministerial directions, ministerial orders, or regulations in relation to fees issued pursuant to the Act; or
ix) any directions, policies, procedures or guidelines as issued by the Department from time to time; and
The Funding Contract refers to the Market Monitoring Unit (“MMU”) within the Regional Support Group of DEECD. The RTO agreed that the MMU’s purpose was to monitor, analyse and report on matters relating to the efficiency of the government subsidised VET market in Victoria, including competition, price, the quality of training outcomes, and to conduct reviews or investigations into the practices of a particular government subsidised body, including the RTO, through a rapid response team (cl 11.1). The MMU was described in the evidence as an independent division of DEECD.
Apart from BAWM and Aspin, various other Vocation RTOs also had funding contracts with the Victorian government during the 2014 calendar year. These were Learning Verve, Green Skills Institute (“Green Skills”), Training and Development Australia Pty Limited (“TDA”), Real Institute and CSIA Education (“CSIA”). Ms Watts’ oral evidence suggested that CSIA may not have held a Victorian government funding contract during the 2014 calendar year. I am satisfied that CSIA did hold such a contract. There are payment records in evidence that show CSIA was in receipt of VTG funding during that period.
DEECD made payments to BAWM and Aspin monthly and in arrears, with the amount depending on the volume of training delivered and the claims made in respect of eligible individuals. In the six-month period between January 2014 and June 2014, BAWM and Aspin claimed from DEECD in excess of $32.0 million in respect of training delivery under the Funding Contracts.
The evidence shows that approximately 50% of the amount paid by DEECD to BAWM from January to June 2014 (the total paid was approximately $12.0 million) was for the delivery of two courses known as Certificate III in Competitive Systems and Practices (“CSP”) and Certificate III in Warehousing Operations (“Warehousing”) and that approximately 90% of the amount paid by DEECD to Aspin from January to June 2014 (the total paid was approximately $8.3 million) was for the delivery of the Certificate II in General Education for Adults (“CGEA”) qualification.
The MMU Investigation
In June 2014 the MMU carried out an investigation into the course length and structure of various dual programs. As part of that investigation, the MMU reviewed BAWM’s delivery of CSP and Warehousing. This investigation followed a referral by Ms Watts who had identified a significant increase in training delivery by BAWM (and associated funding) for those two qualifications. The researcher who prepared the report consulted with various individuals involved in the marketing and delivery of the CSP and Warehousing program together with Ms Bonnici and Ms King who were respectively described in the report as the Chief Operations Officer, and the Group Executive Education for BAWM.
The MMU report was not relied upon by ASIC as evidence that would justify a finding that BAWM had in fact breached any provision of the Funding Contract. In its submissions ASIC made clear that its case against the defendants did not depend upon it establishing that there had been any breach of the Funding Contract. Rather, as explained by Mr Halley SC, Senior Counsel for ASIC, it did not put this aspect of its case any higher than contending that the evidence established that DEECD had a genuine and reasonable belief that such breaches had occurred and may occur in the future. This was said by the individual defendants to have significant implications for ASIC’s case, a matter about which I will say more later in these reasons.
CSP and Warehousing were delivered by BAWM as a dual program, meaning that units in both courses were taught as part of a single program that resulted in the award of both qualifications upon completion of the program. The dual program as delivered by BAWM was conducted over eight weeks, the first two of which consisted of an intensive two week (10 days) phase of classroom learning, followed by a further six weeks of workplace based learning that was intended to be delivered upon the student entering the workforce upon completion of the intensive phase.
The MMU report raised various issues concerning the length and structure of the CSP and Warehousing dual program. The MMU report stated:
The dual Certificate III in Warehousing and Certificate III in Competitive Systems and Practices is conducted over eight weeks. According to the trainers and the executive staff interviewed students are provided with an intensive two week program (10 days), where students complete a range of units, including the occupational health and safety units required to work in industry.
Number of units delivered
The number of units included in the dual program varies, according to the group, according to the Group Executive Education but the five student files sampled all shared the same program, comprising 38 units. Students in this program were undertaking 27 units in the Certificate III in Warehousing (820 nominal hours), which was nine units more than required to gain a qualification. They were undertaking 11 units in the Certificate III [sic] in the Certificate III in Competitive Systems and Practices, where 10 were required (420 nominal hours). In total the nominal hours being delivered is 1240.
While the RTO Management asserted that industry guided the selection of units and the use of extra units in a qualification, it would appear that quality has been overlooked. Evidence was provided that students attended classes for two weeks (up to 80 hours delivery). There was not a strategy for training and assessment in place that described how the two qualifications are delivered together to ensure that the requirements of the qualifications are met. There was no evidence on the files reviewed that students had completed self-paced learning […] or structured workplace based learning, to explain how the hours claimed by the RTO were justified.
Two full qualifications are awarded at the end of the program.
Time allocated to training and opportunity for practice and consolidation
The training plans provided for the students stated that the scheduled hours allocated to the units were the same as the nominal hours. The lesson plans for the two units of competency reviewed did not substantiate the claim of scheduled hours for each unit. One unit of competency, Apply fatigue management strategies (30 scheduled hours) allocated 30 minutes in the lesson plan. There was no guidance to the trainer or to the student in the resources reviewed regarding activities for the development of skills and knowledge subsequent to the 30-minute training session. A similar picture emerged for the unit Undertake root cause analysis, which is quite a complex unit in the Certificate III in Competitive Systems and Practices. Fifty hours is allocated to this unit in the training plan but delivery in the lesson plan equates to less than four hours. Assessment is carried [sic] in the classroom for the two units.
Workplace based training
The majority of students enter employment after the two weeks, where they continue with their programs. The trainer stated that students might be visited from one to five times during the six weeks they are in the workplace.
There was no evidence in the student files that students were visited at their workplaces or completed training and/or assessment at the workplace. There was no evidence in student files that employers were briefed about their responsibilities for providing learning opportunities at the workplace or that they provided these opportunities.
The program, as described, commences as an Institute based program and then appears to change to a workplace based program. However the RTO did not provide evidence that it is meeting its responsibilities for providing a supportive workplace based program under the AQTF/SNR.
With respect to program design and execution, the MMU report said:
In summary program design and execution does not address the requirements of the qualifications being delivered, from the suitability of students for one program, to insufficient opportunity to develop, practice and consolidate learning, to poor assessment.
The MMU report also contains a section relating to assessment. Assessment for the two units was said to be poor.
The MMU report also included a discussion concerning factors influencing the length of the dual qualification which (according to the report) the RTO acknowledged was delivered in a shorter timeframe in 2014 than in 2013. As to the rationale for delivering the two courses in the form of a dual program, the report said:
Rationale for dual delivery
The dual program arose from a contention that the combination of the two certificates provided greater employment opportunities for students. The RTO management asserted that there was no particular financial advantage in offering the certificates in an integrated program. Instead, it was suggested that because the Certificate III in Competitive Systems and Practices was a complex program that this made the program harder to deliver. However, the evidence reviewed at audit did not suggest that the delivery of this program as delivered by this RTO was particularly complex.
There would appear to be some educational value in combining the two programs as many if [sic] the units chosen complement each other. Some units, however, seemed too similar to offer value to the students. The RTO personnel interviewed stated that this had been identified at a validation session in April 2014 and it was planned to alter the training strategy to remove duplication.
It is important to note that the MMU report also includes some discussion, mostly in the introductory section, concerning the background of students who entered the dual program. The report states:
The students entering this dual program are typically unemployed, either recent school leavers or redundant workers seeking re-training and employment. Their level of experience in logistics or warehousing is not considered when they enter the program. This is problematical for one of the programs - the Certificate III in Competitive Systems and Practices. This qualification has no formal entry requirements but as the qualification description states, ‘This qualification assumes that a learner has current or past work experience where operational or technical skills have already been gained and a supervisory, facilitation or similar level of responsibility exists. The qualification is not suitable for direct entry from school’ (source training.gov.au). The CEO staff confirmed that students were unlikely to be placed in supervisory positions when they first started work. Given this, the qualification is unsuitable for the cohort.
While this passage indicates that the recruitment of students into courses not suitable to their needs was a matter raised in the report, most of the report is concerned with the design, structure and delivery of the dual program. It is apparent that one of the principal concerns MMU had with the dual program was the fact that it involved 10 days of intensive work followed by self-paced learning or workplace based learning, with the latter being relied upon by the RTO to justify funding claims made in respect of a large proportion of the total training hours said to have been delivered. In my view the MMU report was principally focused on the design and the quality of the training delivered in the dual program.
DEECD’s 3 July 2014 Letter to BAWM
On 3 July 2014 Ms Lee Watts wrote to Ms Bonnici. Ms Watts’ letter was headed “Suspected Breach of 2014-16 VET Funding Contract – Withholding Payment of Funds”. The letter, which was addressed to Ms Bonnici in her capacity as Managing Director of BAWM, relevantly stated:
I am writing to advise that, effective immediately, the Department is withholding the payment of Funds to BAWM … under Clause 16.2(b) of your 2014-16 VET Funding Contract.
The right to withhold payment is being exercised in accordance with Clause 16.1(a), as the Department reasonably suspects that the RTO has breached or may breach a clause of the 2014-16 VET Funding Contract.
The Department is taking this action based [sic] a range of information, including information identified by the Market Monitoring Unit, and complaints regarding the marketing, student recruitment, enrolment, pre-training review and training delivery practices of BAWM.
The withholding of payment will continue until such time as the Department is satisfied that the issues identified have been satisfactorily resolved. To this end, I seek to meet with representatives of BAWM to discuss this matter further and confirm your organisation’s obligations under its contracts to deliver government subsidised training.
The letter stated that DEECD reserved all its rights under the 2014-16 Contract.
The Meeting of 10 July 2014
On 10 July 2014 Ms Watts and her colleagues, Mr Peter Graham and Ms Georgina Sneddon, attended a meeting with Ms King and Mr Langtree. Ms Bonnici attended the meeting by telephone. Mr Graham prepared minutes of the meeting at which the findings of the MMU’s Rapid Response Investigation into CSP and Warehousing were discussed.
The minutes indicate that DEECD sought information from BAWM in relation to a number of matters relevant to CSP and Warehousing including course recruitment, marketing, eligibility, pre-training reviews, students’ suitability, mode of training delivery and assessment. The minutes provide an indication of various areas of concern to DEECD with respect to CSP and Warehousing. It is apparent that DEECD expressed its concerns as to whether those courses were appropriate for all of the students who were enrolled in them. In particular, some of the students enrolled in CSP were school leavers for whom it was not considered suitable. It is apparent that it was DEECD’s view that CSP was designed for people who have worked in manufacturing for an extensive period and who are seeking supervisory roles.
DEECD also raised concerns as to the mode of training delivery which included some intense training followed by a lengthy period of “self-directed learning”. DEECD was particularly concerned with the level of support provided to students during that period. Other concerns raised by DEECD related to the suitability of the training provided and assessment and whether this had occurred to an appropriate standard and within relevant timelines.
The minutes conclude with a record of information that DEECD sought from BAWM on the issues raised in the meeting, specifically, what practices were in place to ensure that delivery was relevant to the individual student; what practices were in place to ensure that delivery could be achieved in the time frames outlined; and whether BAWM had sufficient controls in place to ensure the training assessment was thorough and met all requirements.
Because I do not regard Mr Gréwal as a reliable witness, I have serious doubts as to what he was told by Mr Langtree on the morning of 7 September 2014. In any event, I am satisfied that, even if the information provided to Mr Gréwal by Mr Langtree is accurately recorded in Mr Gréwal’s email of 7 September 2014, it did not provide Mr Gréwal with a reasonable basis to make R2.
It would have been apparent to Mr Gréwal (and Mr Langtree) that the suspensions on enrolments were having a significant impact on Vocation’s revenue in August and September 2014 which had not been made up by the time Mr Gréwal came to sign the DDQ. The aim of the trial that had been proposed was to satisfy DEECD, prior to the finalisation of the review, that BAWM and Aspin should be permitted to resume enrolments in some of their courses (but not CSP, Warehousing or CGEA), which might partially restore the revenue stream that had been stopped as a result of the suspensions. Mr Gréwal would have known this at the time he signed the DDQ, and would also have understood that there would be no point in engaging in such a trial unless the continuation of the suspensions was having a significant impact on Vocation’s revenues.
I am satisfied that Mr Gréwal breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R2. He or she would also have understood that a representation to that effect was likely to mislead a person in the position of UBS.
R3
A person in Mr Gréwal’s position exercising reasonable care and diligence would have appreciated that the DDQ conveyed a representation that DEECD had indicated on 8 September 2014 its willingness to pay a substantial part of the withheld funds in the next 7 to 14 days. He or she also would have understood that it was incorrect to state that DEECD had indicated any such willingness, and that DEECD’s willingness to pay any part of the withheld funds depended on the outcome of the review panel’s initial report into CSP, Warehousing and CGEA.
I am satisfied that Mr Gréwal breached his duty under s 180 of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R3. He or she would also have understood that a representation to that effect was likely to mislead a person in the position of UBS.
REMAINING ISSUES
Each of the individual defendants has sought relief under s 1317S and s 1318 of the Act. During the course of the hearing I gave a ruling to the effect that I would determine the individual defendant’s application for relief under s 1317S and s 1318 of the Act at the same time I made my principal findings. That ruling had been opposed by both Mr Dawkins and Mr Gréwal essentially on the basis that it would be difficult to make submissions in support of their case for such relief without the benefit of the Court’s findings. In spite of my earlier ruling, I have decided that I will give each of the individual defendants the opportunity to make further submissions in relation to s 1317S and s 1318 of the Act after they have had time to consider my reasons for judgment and the findings made against them before I determine what, if any, relief should be granted under either of those provisions. Although this involves a change in the approach I had previously indicated I would follow, I do not think it will cause ASIC any prejudice. It was always envisaged that there would need to be a further hearing to consider the question of what, if any, penalty should be imposed on the individual defendants in the event that any of them were found to have contravened a relevant provision of the Act.
In the circumstances, I propose to fix the matter for a further hearing which will deal with all remaining questions in the proceeding including those arising under s 1317S and s 1318 of the Act, the form of any declaratory relief, all questions of penalty, and all questions of costs. There will be an order made fixing a case management hearing at which I will make further orders for the filing of some brief supplementary written submissions and appointing a further hearing date.
I certify that the preceding eight hundred and seventy-three (873) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.
Associate:
Dated: 18 June 2019
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