Australian Securities and Investments Commission v Kobelt

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Kiefel CJ,Bell J.,Edelman J.
• Judgment Date: 12 June 2019
• Neutral Citation: [2019] HCA 18
• Docket Number: A32/2018
• Date: 12 June 2019

[2019] HCA 18

HIGH COURT OF AUSTRALIA

Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ

A32/2018

Australian Securities and Investments Commission

Appellant

and

Lindsay Kobelt

Respondent

Representation

S P Donaghue QC, Solicitor-General of the Commonwealth, and K E Clark with P P Thiagarajan for the appellant (instructed by Australian Securities and Investments Commission)

T J North QC and H M Heuzenroeder for the respondent (instructed by Lempriere Abbott McLeod)

Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA, 12CB, 12CC.

Trade practices — Consumer protection — Unconscionable conduct — Where s 12CB(1) of Australian Securities and Investments Commission Act 2001 (Cth) relevantly prohibited “unconscionable” conduct in trade or commerce in connection with supply or possible supply of financial services — Where respondent provided “book-up” credit to Anangu customers of general store — Where book-up credit allowed deferral of whole or part of payment for goods subject to respondent retaining customer's debit card and personal identification number — Where respondent used debit card to withdraw whole or nearly whole of wages or Centrelink payments shortly after credited to prevent customers having practical opportunity to access monies — Where respondent applied part of withdrawn funds to reduce customer's indebtedness and made remainder available for provision of future goods and services — Where respondent's record-keeping inadequate and often illegible — Where customers vulnerable due to remoteness, limitations on education, impoverishment and low levels of financial literacy — Where book-up system “tied” Anangu customers to general store — Where customers had understanding of basic elements of book-up system — Where withdrawals authorised by customers — Where customers generally supportive of book-up and respondent's business — Where book-up protected customers from cultural practices requiring sharing of resources with certain categories of kin — Where book-up ameliorated effects of “boom and bust” cycle of expenditure and allowed purchase of food between pay days — Whether respondent's conduct unconscionable within meaning of s 12CB(1) of Act.

Words and phrases — “agency”, “book-up”, “credit”, “cultural practices”, “demand sharing”, “dishonesty”, “exploitation”, “financial literacy”, “humbugging”, “inequality of bargaining power”, “legitimate interests”, “moral obloquy”, “passive acceptance”, “power imbalance”, “special disadvantage”, “standard of conscience”, “system or pattern of conduct”, “transparency or accountability”, “unconscientious conduct”, “unconscionable conduct”, “undue influence”, “unfair”, “unjust”, “unwritten law”, “victimisation”, “voluntary”, “vulnerability”.

ORDER

Appeal dismissed with costs.

On appeal from the Federal Court of Australia

Kiefel CJ And Bell J.

Introduction

1 Residents of some Aboriginal communities located in rural and remote Australia have been accustomed to obtaining credit from storekeepers under arrangements known as “book-up”. Under these arrangements, the customer may be required to give the storekeeper the debit card (“keycard”) linked to the bank account to which the customer's wages or Centrelink payments are credited, and to disclose the personal identification number (“PIN”) for the keycard. The storekeeper is authorised to withdraw funds from the customer's account in reduction of the customer's debt and in return for the supply of goods over the interval between the customer's “pay days”.

2 Book-up credit appears to have developed in association with the extension of social security entitlements to Aboriginal Australians in the late 1950s. Initially, arrangements might have been made for the recipient's social security cheque to be posted to a nominated store in the expectation that it would be cashed in the store and the proceeds applied to the purchase of goods from the store over the course of the succeeding fortnight. The change to the supply of the customer's keycard and PIN is suggested to have come about as the result of changes in the way Centrelink payments and other periodic payments are made.

3 In 2002, the Australian Securities and Investments Commission (“ASIC”) commissioned a report on problems associated with book-up credit (“the Renouf report”). The author observed that, in the absence of alternative appropriate financial services, book-up is often the only means for Aboriginal consumers to obtain access to credit. Book-up credit was described in the Renouf report as “a convenient way of managing money over a fortnightly or weekly payment cycle for consumers who lack financial management skills or are affected by cultural pressure to immediately share resources when they are available”.

4 The issue presented by the appeal is whether the supply of credit to the residents of remote communities in the Anangu Pitjantjatjara Yankunytjatjara Lands (“the APY Lands”), under the book-up system maintained by the respondent, Mr Kobelt, contravened the proscription of unconscionable conduct fixed by s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”).

Sections 12CB and 12CC of the ASIC Act

5 In the form in which it was in force from 1 January 2012 to 25 October 2018 1, s 12CB relevantly provided:

• “(1) A person must not, in trade or commerce, in connection with:

  • (a) the supply or possible supply of financial services to a person (other than a listed public company); or

  • (b) the acquisition or possible acquisition of financial services from a person (other than a listed public company);

  engage in conduct that is, in all the circumstances, unconscionable.

  …

• (3) For the purpose of determining whether a person has contravened subsection (1):

  • (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

  • (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

• (4) It is the intention of the Parliament that:

  • (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and

  • (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and

• (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:

  • (i) the terms of the contract; and

  • (ii) the manner in which and the extent to which the contract is carried out;

  and is not limited to consideration of the circumstances relating to formation of the contract.”

6 Section 12CC(1) contains a non-exhaustive statement of matters to which the court may have regard for the purpose of determining whether a person has contravened s 12CB in connection with the supply, or possible supply, of financial services. Relevantly, these include:

• “(a) the relative strengths of the bargaining positions of the supplier and the service recipient; and

• (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

• (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and

• (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and

• (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and

  …

• (j) if there is a contract between the supplier and the service recipient for the supply of the financial services:

  • (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and

  • (ii) the terms and conditions of the contract; and

  • (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and

  …

• (l) the extent to which the supplier and the service recipient acted in good faith.”

Procedural history

7 ASIC brought proceedings in the Federal Court of Australia (White J) against Mr Kobelt alleging contraventions of s 29(1) of the National Consumer Credit Protection Act 2009 (Cth) (“the NCCP Act”) and s 12CB of the ASIC Act in connection with his supply of credit under the book-up system. Section 29(1) of the NCCP Act, which came into operation on 1 July 2011, proscribes engagement in a “credit activity” without a licence. Mr Kobelt did not hold a licence permitting him to engage in credit activity. The primary judge found that, from 1 July 2011 until at least April 2014, Mr Kobelt contravened s 29(1) of the NCCP Act in the provision of credit to purchasers of second-hand motor vehicles. The breach of s 29(1) of the NCCP Act is not relied upon in support of ASIC's unconscionability case.

8 It is common ground that Mr Kobelt's supply of credit to Anangu purchasers of second-hand motor vehicles and other goods was conduct in trade or commerce and that it was engaged in in connection with the supply of “financial services”. The issue is whether Mr Kobelt's conduct in connection with the supply of credit under his book-up system was, in all the circumstances, “unconscionable”.

9 Prior to amendments which came into effect on 1 January 2012, there was no counterpart to s 12CB(4...