Australian Securities and Investments Commission v Kobelt  HCA 18.
Between: Australian Securities Commission (ASIC) (Appellant) and Lindsay Kobelt (Respondent)
Judges: Keifel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ.
By a narrow majority (4:3), the High Court decided that Kobelt's provision of a 'book up' system of credit to a remote Indigenous community was not 'in all the circumstances' unconscionable under s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act).
The judges wrote five separate judgments and were divided over two matters:
- the extent of voluntariness that could be attributed to the Indigenous customers who engaged with Kobelt's book up system; and
- whether a breach of the prohibition against unconscionable conduct under s 12CB(1) requires the same standard of unconscionablity as under equity. For conduct to be unconscionable under equity, it must involve taking advantage of a special vulnerability.
Justice Gageler, in the majority, noted how challenging it was to assess a system which had over, a number of years, only occasionally been complained about, and which the anthropological evidence described as an 'intersection' of Anangu culture and that of wider Australian society. Such a system, he commented, while occurring consensually, necessarily involves accomodation and adaptation by the Anangu . Gageler J was disappointed, but not surprised, that the Court could not provide more clarity on what amounts to unconscionable conduct under s 12CB in this instance .
There is no specific legislation that deals with the operation of book up services in Australia (Boyle, p. 4). The Australian Securities and Investments Commission (ASIC) does however provide guidance on best practice for book up credit arrangements (ASIC, Dealing with book up: key facts).
ASIC defines 'book up' as a type of informal credit offered by stores or other traders (ASIC, Dealing with book up: key facts, p. 2). It can be traced back to at least the 1940's when numerous Australian jurisdictions introduced laws that required Indigenous workers to be paid in cash instead of rations. Many cattle station stores responded by giving workers store credit, instead of wages, and so tying the workers to a particular store (ASIC, 2015, p.10).
Book up benefits Indigenous customers who do not have access to other financial services, for reasons of their remoteness or for lack of a credit history. Nevertheless, since 2020, a number of government reports have indicated concerns about this form of credit, including the difficulty of monitoring unscrupulous providers when the law does not require them to keep adequate records (Boyle, pp. 4, 7).
In March 2009, South Australia made a submission that 'the Anangu Pitjantjatjara Yankunytjatjara Executive, Nganampa Health and the NPY Women's Council have all sought to end the book up practice where both the keycard and PIN number are held due to the problems that itcauses' (South Australia, p. 3). Retaining keycards and PINs has the effect of tying customers to a trader, it reduces the viability of Indigenous community stores and impacts the financial standing of customers who may have to pay 'unreasonably high prices' for goods and access to credit (South Australia, pp. 3, 4).
In this context, it was widely anticipated that ASIC's action against Kobelt would clarify how the unconscionable provisions of the ASIC Act apply to book up operations (Boyle, pp. 6, 7).
Since the mid 1980's, Kobelt operated Nobbie's Mintabie General Store in the Anangu Pitjantjatjara Yankunytjatjara Lands of remote north-western South Australia. Kobelt provided book up credit to Anangu customers from the Mimili and Indulkana communities to purchase interest free second-hand cars and goods; the purchase price of a car on book up credit being 'very expensive' compared to the cash price .
In exchange for goods, Kobelt retained a customer's debit card, PIN and income details. He then withdrew the whole, or most, of the customer's money from their bank account, usually early on the day that their wages or Centrelink payment was credited -. Of the money from each withdrawal, Kobelt applied at least 50% to pay down the customer's debt. He made the remainder available, at his discretion, to the customer. At times, if he considered a customer's book up debt to be significant, Kobelt would limit their purchases from the store to milk, bread and meat . Purchase orders were available for a fee of $5 or $10 so that customers could access goods or cash from another store, and cash advances were available for a fixed charge of up to 10%. Kobelt had a base of at least 600 Anangu customers. Two other storers operated in Mintabie, at least one of those offered book up credit to Anangu customers in a way that was not materially different to Kobelt's system .
Kobelt kept rudimentary, chaotic and often illegible handwritten records. He did not give his Anangu customers printed records of the withdrawals, nor did he provide any statements of their book up account. Some customers defaulted on their book up debt by cancelling their keycard or by redirecting their income to a different account. In those cases, with one exception, Kobelt did not try to recover the debt .
ASIC was initially successful against Kobelt in the Federal Court. Justice White found that, from July 2011 to at least April 2014, Kobelt had conducted credit activity without a licence in contravention of s 29(1) of the National Consumer Credit Protection Act 2009 (Cth). White J found also that Kobelt had engaged in conduct that was unconscionable under s 12CB of the ASIC Act from at least June 2008, despite acknowledging that the book up system did provide some benefits to the Anangu customers (see Australian Securities and Investments Commission v Kobelt  FCA 1327 below under References).
On appeal in the Full Court of the Federal Court, Kobelt's conduct was held to be not unconscionable under s 12CB. Towards this judgment, the Court considered the anthropological evidence of Anangu cultural norms, as well as the customers' basic understanding of the book up credit system, their voluntary participation, and their understanding that they could opt out by cancelling their keycard or redirecting their income to a different bank account (see Kobelt v Australian Securities and Investment Commission  FCAFC 18 below under References).
Details of the Judgment in the High Court
The main point of difference between the majority and minority opinions was the extent of voluntariness attributed to the Anangu customers.
The majority (Kiefel CJ, Bell, Gageler and Keane JJ), in three separate judgments, agreed that although Kobelt's book up system was open to abuse, he did not exploit his Anangu customers , , . The judges placed significant weight on the anthropological evidence that described the benefits of Kobelt's book up system to his Anangu customers: the avoidance of boom and bust cycles between income payments and avoidance of the practice of demand sharing or 'hum-bugging' amongst specific categories of Anangu kin. Keifel CJ and Bell J, in keeping with the Full Court's judgment, decided that the Anangu customers perceived the book up as appropriate, not because of their lack of financial literacy, but because it reflected aspects of Anangu culture . Gageler J added that the Court was not able to question the Anangu customers' choice . Keane J similarly noted that although Kobelt's practice of holding customers' keycards and PINS would have been impossible to sustain elsewhere in Australia, Kobelt was not responsible for the cultural pecularities and the demand side of the highly unusual market place in which he operated .
The three minority judges, on the other hand, decided that the cultural context was precisely what made the book up system unconscionable. Edelman J noted:
- Even if there were evidence, which there was not, to support a conclusion that the Anangu customers 'chose' the system of credit for cultural reasons, the conclusion of unconscionability cannot be avoided by pointing to this so-called 'choice' between Mr Kobelt's system of credit and no credit at all ... As the Solicitor General of the Commonwealth rightly said in oral submissions, in what is probably a significant understatement, the system of credit adopted by Mr Kobelt is one that would be unacceptable in mainstream Australian society. It is made less acceptable, not more acceptable, because it was the only form of credit offered, and thus accepted, in remote communities of highly vulnerable persons in need of credit .
The other point of difference was the standard for assessing unconscionable conduct under s 12CB(1) of the ASIC Act.
For Keifel CJ and Bell J, unconscionable conduct under 12CB(1) is conduct that unconscionably takes advantage of a person's special vulnerability . They also noted that ASIC's appeal specifically dealt with whether Kobelt had exploited the vulnerability of his Anangu customers. Accordingly, there was no opportunity to consider whether s 12CB required a lower standard than that required under equity .
On this second point of division, Edelman J outlined twenty years of law reform which has tried to broaden the prohibition on unconscionable conduct under s 12CB. He ultimately noted that 'any lowering of the bar ... may only be possible if "unconscionable" is replaced with "unjust" or "unfair"' .