“They got away with it”.

It’s a common refrain after corporate scandals that end without consequences for individuals aware of or involved in wrongdoing.

But a landmark High Court ruling could radically reshape that.

“It really is a game changer,” says Elise Bant, a law professor at the University of Western Australia, whose model for broadening out how someone can be held responsible was endorsed in the judgement.

“This case is going to be noticed,” adds Alexander Morris, partner at law firm King & Wood Mallesons (KWM). 

“Because really it says — if you’re in senior management, where you have visibility over systems of conduct and patterns of behaviour — you in one sense, need to become the corporate conscience.”

The ruling potentially makes it easier to pin blame on individuals who have had oversight of failures by corporate or government bodies.

That shift will be sending a chill through directors and boards who have knowledge of wrongdoing even if they haven’t been doing it themselves.

All of a sudden, they’re in the frame.

Who holds the blame for ‘predatory business models’?

Previously corporate fraud was difficult to prove. 

Guilty individuals needed to be explicit and deliberate in their wrongdoing, or found to have taken money. 

The High Court decision, dismissing an appeal by a dodgy training college against a finding of “systemic unconscionable conduct”, changes that. (Details of the case are lower in this article).

The court found corporations think and behave through their systems, policies and practices.

So, if a company had what Professor Bant calls a “predatory business model” it can be assumed this was a knowing and deliberate strategy — and that can be penalised through the courts.

In charge? Potentially in trouble

Alexander Morris is often the person executives call after a company receives a prosecution.

A senior corporate litigator, he’s a partner at mega-firm KWM and acts on commercial disputes, class actions and regulatory actions, often for major corporates.

A lot of this centres around the particular charge of “unconscionable conduct”, a finding that a corporation has engaged in a course of conduct or a pattern of behaviour, which is, “in all the circumstances, contrary to commercial norms”.

“It carries what’s described as a ‘taint of moral obloquy’ [outrage]. It’s against community expectations. It’s egregious.”

In non-legal terms: very bad behaviour.

What the precedent could mean, Mr Morris says, is that an executive who knows all of the facts, sufficient for a finding of unconscionability against the company, could themselves be subject to a finding of unconscionability.

One of the reasons this is so substantial is that in the past decade regulators have been successful in holding many major corporates to account over unconsciounable conduct they’ve had what Mr Morris calls “significant difficulties” in showing that same conduct had broken more specific laws.

“What’s really interesting about this case is what the court told us about how you can sheet that responsibility home to the corporate officers who actually understand the totality of the system,” he says.

Holding executives responsible for corporate actions

As an example, five years ago the banking royal commission exposed an astonishing range of scandals that had cost more than 1.6 million Australians a share of more than $4.6 billion.

The scandals were broad, across numerous institutions. But very few individuals found themselves the subject of prosecution. 

The diffuse and complex structure of many corporations has often made it hard to find one culprit. 

In addition, there was a reasonable defence: as decisions were often made by committees or divisions, with multiple groups and individuals agreeing to push forward with a particular plan.  

Professor Bant describes it as like the ‘Where’s Wally?’ picture book, where it is extremely hard to pinpoint the person you’re looking for. 

“Quite often, knowledge in a large organisation is dispersed amongst teams of people,” she says. 

“Nowadays we have massive corporations that operate across a range of different countries and jurisdictions, often through automated and algorithmic processes.”

With more decisions being made, and processes run, without a human in complete control of them, this ruling could potentially keep individuals inside businesses liable for any poor or harmful conduct that results. 

‘Free’ laptops and pressure selling: the landmark case

The competition watchdog took Captain Cook College to Federal Court, alleging it engaged in “systemic unconscionable conduct” around how it enrolled students.

It employed recruiters working for commissions, and without appropriate training and supervision. 

Many recruiters won enrolments through misleading conduct, pressure tactics and offers of “free laptops” and incentives.

Safeguards existed to check students were suitable to undertake the course and understood what they were signing up for.

But those checks were an impediment to enrolments. Recruiters complained about them. So the college removed them. 

Profit skyrocketed.

This additional government funding under the former VET FEE-HELP scheme led to taxpayers funding futile courses that weren’t completed and students being unable to access appropriate training.

The college appealed against their loss, but got rejected by the High Court.

In its judgement, the High Court endorsed the broader model of corporate responsibility developed by Professor Bant. Also contributing was the research of Jeannie Paterson, a professor at the University of Melbourne’s law school.

ACCC win over Captain Cook College upheld

The Australian Competition and Consumer Commission (ACCC) declined to comment on the ruling, or its implications.

“We welcome the upholding of the court’s finding of systemic unconscionable conduct by Captain Cook College as well as the finding that (parent company) Site and (former COO) Blake Wills were knowingly concerned in this conduct,” ACCC commissioner Liza Carver said in a statement. 

“We brought this case because there was clear evidence that Captain Cook College enrolled vulnerable and disadvantaged consumers in courses they were unlikely to ever complete or receive any vocational benefit from despite incurring a large VET FEE-HELP debt. Over 90 per cent of those consumers did not complete any part of their online course, and about 86 per cent of them never even logged into their course.”

The case will now return to the Federal Court for a hearing that determines penalties and costs.

For executives, directors and even the overseers of large government programs — for example, future iterations of something like Robodebt or other system failures — the precedent could mean tougher scrutiny of their actions.