Australian Securities and Investments Commission v Kobelt

[2019] HCA 18

HIGH COURT OF AUSTRALIA

KIEFEL CJ,
BELL, GAGELER, KEANE, NETTLE, GORDON AND EDELMAN JJ

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

LINDSAY KOBELT  RESPONDENT

Australian Securities and Investments Commission v Kobelt

[2019] HCA 18

12 June 2019

A32/2018

ORDER

Appeal dismissed with costs.

On appeal from the Federal Court of Australia

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)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Australian Securities and Investments Commission v Kobelt

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after credited to prevent customers having practical opportunity to access monies – Where respondent applied part of withdrawn funds to reduce customer's indebtedness and made remainder available for provision of future goods and services – Where respondent's record-keeping inadequate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".

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

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]The provision was further amended with effect from 26 October 2018 by the Treasury Laws Amendment (Australian Consumer Law Review) Act 2018 (Cth), Sch 2 items 1‑2 by omitting the words "(other than a listed public company)" from s 12CB(1)(a)‑(b) and omitting s 12CB(5).

   "(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)(b). Nonetheless, it is accepted that, before the introduction of that provision, a system or pattern of conduct by a trader could constitute unconscionable conduct without the necessity to identify the circumstances of, or the effect upon, any particular consumer (a "system case")[2].  ASIC pleaded a system case by reference to the supply of book-up credit to 117 of Mr Kobelt's Anangu customers.  ASIC also pleaded a case that Mr Kobelt's supply of book-up credit to four nominated Anangu customers was unconscionable.  In closing submissions, ASIC did not seek findings against Mr Kobelt in connection with the supply of credit to the four nominated customers.  It confined its case to the system case.

   [2]Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 140‑141 [33] per Tamberlin, Finn and Conti JJ.

10. The primary judge found that Mr Kobelt's conduct in connection with the supply of credit under the book-up system was unconscionable:  Mr Kobelt had chosen to maintain a system which, while it provided some benefits to his Anangu customers, took advantage of their poverty and lack of financial literacy to tie them to dependence on his store[3]. His Honour declared that Mr Kobelt, by his conduct in providing credit under the book-up system at least since 1 June 2008, had contravened s 12CB of the ASIC Act[4].  Mr Kobelt was ordered to pay the Commonwealth a pecuniary penalty[5] in the sum of $100,000.

    [3]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [620].

    [4]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [627].

    [5]ASIC Act, s 12GBA.

    The Full Court

11. Mr Kobelt appealed against the primary judge's orders to the Full Court of the Federal Court of Australia (Besanko, Gilmour and Wigney JJ).  The appeal was allowed in part, and the Full Court set aside the primary judge's orders arising from the finding of unconscionable conduct.  In their joint reasons, Besanko and Gilmour JJ accepted that Mr Kobelt's Anangu customers' poverty and lack of financial literacy made them vulnerable in their dealings with Mr Kobelt[6].  Their Honours were not persuaded, however, that Mr Kobelt's conduct in supplying credit on his book-up terms was unconscionable[7].  The conclusion took into account the primary judge's findings that Mr Kobelt's Anangu customers had a basic understanding of the book-up system, voluntarily entered into book-up credit contracts with Mr Kobelt and understood that they could frustrate the agreement either by cancelling their keycard or by directing that future payments be credited to a different bank account[8].  The conclusion also took into account the primary judge's finding that Mr Kobelt acted without dishonesty and with a degree of good faith and that ASIC did not submit, and the primary judge did not find, that Mr Kobelt exerted undue influence on his Anangu customers to enter into book-up credit contracts with him[9].

    [6]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 730 [228]‑[232].

    [7]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 736 [269].

    [8]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735‑736 [265]‑[268].

    [9]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [263]‑[264].

12. Wigney J agreed with their Honours' analysis and, in separate reasons, his Honour additionally held that the primary judge had given insufficient consideration to anthropological evidence of the cultural practices of the Anangu, which differentiate them from mainstream Australian society, and which serve to explain why Anangu customers chose to engage in book-up arrangements with Mr Kobelt[10].

    [10]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 741 [296].

13. On 17 August 2018, Gageler, Nettle and Edelman JJ granted ASIC special leave to appeal from that part of the Full Court's judgment and orders respecting the claimed contravention of s 12CB(1) of the ASIC Act. As a condition of the grant of special leave, ASIC undertook that it would not seek its costs of the application or the appeal. The appeal is brought on three grounds which variously challenge the weight given by the Full Court to the factors that bear on the evaluative judgment of whether conduct in connection with the supply of credit is rightly characterised as unconscionable.

14. The term "unconscionable" is not defined in the ASIC Act and is to be understood as bearing its ordinary meaning. The proscription in s 12CB(1) is of conduct in connection with the supply of financial services that objectively answers the description of being against conscience. The values that inform the standard of conscience fixed by s 12CB(1) include those identified by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd:  certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made, and:

    "the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage"[11].

    [11](2015) 236 FCR 199 at 274 [296].

15. It is the application of the last-mentioned value with which the appeal is concerned.  In Kakavas v Crown Melbourne Ltd[12] and Thorne v Kennedy[13] it was said that a conclusion of unconscionable conduct requires not only that the innocent party be subject to special disadvantage, but that the other party must also unconscientiously take advantage of that special disadvantage.  This has variously been described as requiring victimisation, unconscientious conduct or exploitation[14]. 

    [12](2013) 250 CLR 392 at 427 [124]; [2013] HCA 25.

    [13](2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13; [2017] HCA 49.

    [14]Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13.

16. ASIC's central submission, underlying each of its grounds, is that:

    "[T]he factors that made Mr Kobelt's customers vulnerable and that therefore led them to be willing to voluntarily enter into the book-up arrangement, contrary to their interests, were wrongly treated by the Full Court as excusing what would otherwise have been unconscionable conduct anywhere else in modern Australian society."

17. The submission takes as a given that entry into book-up credit arrangements with Mr Kobelt was objectively contrary to the interests of his Anangu customers.  It is a submission that accords with the primary judge's analysis that[15]:

    "The freedom of the Anangu to make decisions concerning their own lives must of course be respected.  However, regard must be had to the limited education, disadvantages, and limited financial literacy of the Book-up customers generally, to which I referred earlier.  These placed them in a particularly disadvantageous position relative to Mr Kobelt and diminish the significance which can be attached to the voluntariness of their conduct.  Accordingly, the Anangu customers' own subjective views are not conclusive of the conscionability of Mr Kobelt's conduct."

    [15]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [589].

18. The alternative analysis, favoured by the Full Court, is encapsulated by Wigney J's observation that it is not that Mr Kobelt's book-up system took advantage of his Anangu customers' vulnerability but rather that Mr Kobelt, like the proprietors of other establishments in remote communities who provide book-up credit, was fulfilling a demand.  The observation takes into account factors that are the subject of challenge in each of ASIC's grounds of appeal:  acting with a degree of good faith; absence of undue influence or dishonesty; and the customers' satisfaction with the terms of book-up credit[16].

    [16]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 756 [373].

19. As will appear, determinative of the appeal is the absence of unconscientious advantage obtained by Mr Kobelt from the supply of credit to his Anangu customers under his book-up system. The Full Court did not err in holding that Mr Kobelt's conduct did not contravene s 12CB(1) of the ASIC Act and it follows that the appeal must be dismissed. It is necessary to refer in some detail to the evidence and the primary judge's findings to explain why that is so.

    Mr Kobelt's book-up system

20. Mr Kobelt has had limited education and has lived in a remote community for significant parts of his working life.  From the mid-1980s, he operated a general store in Mintabie, South Australia, under the name "Nobbys Mintabie General Store" ("Nobbys").  Mintabie is situated in the far north of South Australia, approximately 1,100 km from Adelaide in an area excised by lease to the Government of South Australia from the APY Lands.  A range of goods including food, groceries, fuel and second-hand cars was sold at Nobbys.  Almost all of Mr Kobelt's customers were Anangu persons who resided predominantly in two remote communities, Mimili and Indulkana, north-west of Mintabie in the APY Lands.  These customers were characterised by their poverty and their low levels of literacy and numeracy which, relevantly, meant that they lacked "financial literacy".

1. Mr Kobelt supplied credit to his Anangu customers under a book-up system by which payment for goods was deferred in whole or in part subject to the customer supplying Mr Kobelt with the keycard and PIN linked to the account into which the customer's wages or Centrelink payments were credited.  Generally, Mr Kobelt retained possession of the keycard until the debt was repaid, although on occasions Mr Kobelt returned a customer's keycard notwithstanding that the debt had not been repaid.  This might happen if the customer was travelling away from the APY Lands.  On such occasions, the customer returned the keycard to Nobbys on his or her return.  There were two other stores in Mintabie and at least one of these stores provided credit to Anangu customers under a book-up scheme that did not materially differ from that provided by Mr Kobelt.

2. Mr Kobelt, or members of his family who assisted in the running of Nobbys, used the keycard and PIN to access the customer's account and to withdraw the whole or nearly the whole of the available funds ("the withdrawal conduct").  The majority of withdrawals were made early in the morning, before or shortly after Nobbys opened, on the day funds were credited to the account.  Withdrawals were made promptly to prevent the customer having any practical opportunity to access the monies in the account by internet or telephone banking.  Mr Kobelt did not know the amount in a customer's account and the process of withdrawing funds was one of trial and error.  There were occasions when funds had been withdrawn in excess of a limitation placed on Mr Kobelt's authority.

3. Customers were not required to complete any form of application to obtain book-up credit and additional credit was available under the book-up system without further formality.  The withdrawal of funds from Mr Kobelt's customers' accounts was authorised and was subject to an informal understanding that part of the funds would be applied in reduction of the customer's debt and part was in exchange for the provision of future goods and services.  Mr Kobelt applied at least 50 per cent of the funds withdrawn from his customers' accounts to reduce their indebtedness to Nobbys.  Mr Kobelt said that the remaining 50 per cent of his customers' funds was available for the customer's use.  Mr Kobelt did not apply the customers' "entitlement" to 50 per cent of the funds in a literal way; 50 per cent served Mr Kobelt as a guideline for the maximum amount available to the customer's use ("the book-down").

4. Mr Kobelt exercised control over the amount of the book-down, limiting his customers to amounts of $100, $150 or $200 to ensure that they would have "something" at the end of the week.  Mr Kobelt's discretionary control over his book-up customers extended on occasions to the refusal to allow the customer to buy sweets or chips.  The primary judge accepted Mr Kobelt's evidence that he had never refused to supply food to a customer from whose account he had withdrawn all the money.  Generally, such customers were limited to the purchase of milk, bread and meat.

5. Anangu customers had to travel a considerable distance to shop at Nobbys.  Mr Kobelt issued purchase orders which enabled his book-up customers to purchase goods, or to obtain cash, at other stores.  Purchase orders were transmitted by Mr Kobelt to nominated stores and were issued in amounts ranging from $20 to $500.  The customer was able to purchase goods, or obtain cash, at the nominated store and Mr Kobelt settled with the store owner.  Mr Kobelt charged customers a fee of $5 or $10 for the issue of a purchase order.  The fee was less than the fee charged by Australia Post for its express money order service.  Mr Kobelt also provided customers with cash advances under the book-up system.  At least some customers who were given a cash advance paid a fee for the service.

6. Most of the book-up credit provided by Mr Kobelt to his Anangu customers was made in connection with the sale of second-hand motor vehicles.  The sale of these vehicles formed a significant part of Mr Kobelt's business.  The vehicles sold at Nobbys often had been driven in excess of 200,000 km and were not subject to any statutory warranty of repair.  In some instances, purchasers paid for a vehicle in cash.  In these instances, the purchase price was discounted by around $1,000.  More commonly, Anangu customers paid a deposit of between $440 and $3,500 and the balance of the purchase price was repaid under the book-up system.

7. Mr Kobelt maintained that he did not impose any credit charge on goods sold to his Anangu customers.  The primary judge rejected Mr Kobelt's evidence in this respect in relation to the sale of second-hand motor vehicles.  His Honour found that cash-paying customers were able to purchase a Nobbys vehicle at a price around $1,000 less than the stated price.  In truth, his Honour found that book-up customers purchasing second-hand vehicles at Nobbys, for an average price of $5,600, were paying an expensive credit charge.  His Honour's conclusion that Mr Kobelt's conduct was unconscionable took into account the fact that the credit charge had not been made explicit to his book-up customers[17].

   [17]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [551].

8. The evidence did not establish whether car dealers in Alice Springs and Port Augusta, with whom Mr Kobelt compared the prices for his cars, and whom he regarded as his competitors, sold cars to Anangu persons on credit.  The majority of Mr Kobelt's Anangu book-up customers did not own assets which could be pledged as security for a loan.  The primary judge recognised that it would have been difficult for Mr Kobelt's Anangu customers to obtain loans from commercial lenders.  His Honour acknowledged that an advantage of Mr Kobelt's book-up system was that it provided a relatively simple means by which Anangu persons could obtain credit that would not otherwise be available to them[18].

   [18]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [510].

9. Mr Kobelt knew most of his Anangu customers and he was aware of their financial circumstances.  He did not make inquiries about his Anangu customers' capacity to repay the balance of the purchase price of a second-hand car or other consumer good before entering into book-up credit arrangements with the customer.  Over a period of ten years, Mr Kobelt had only refused to extend book-up credit to about 12 to 15 customers.  He had a total customer base of 600 Anangu persons, of whom about 200 visited his store each week.

10. Mr Kobelt's Anangu customers had the capacity to frustrate their book-up credit contracts by cancelling their keycard or by arranging for their Centrelink payments, or wages, to be credited to a different account.  Some customers had done so.  In those cases, with one exception, Mr Kobelt had chosen not to pursue any avenues of debt recovery.  He appreciated that it was not in his commercial or reputational interest to do so. 

11. Mr Kobelt had an unsophisticated approach to many matters, which was manifest in his book-up arrangements.  His record-keeping was rudimentary.  Such records as he kept of book-up transactions were illegible or only barely legible.  Entries were so cramped and chaotic that it was difficult to understand fully the state of the running accounts of the 117 book-up customers at any given time.  Customers were not given any record of withdrawals or account statements.  There was no evidence that any customer had asked to examine Mr Kobelt's records of book-up transactions.  Had such an inquiry been made, the customer would have had considerable difficulty understanding the entries and no means of checking their accuracy.  There was no suggestion, however, that Mr Kobelt maintained his records dishonestly, nor was it part of ASIC's system case that the withdrawal of funds from customers' accounts was not authorised.  And Mr Kobelt's Anangu customers had a basic understanding of his book-up credit system. 

    The anthropological evidence

12. ASIC adduced evidence from Dr Martin, an anthropologist, who at ASIC's request visited Mimili and Indulkana and interviewed a number of Mr Kobelt's Anangu customers.  In his report, Dr Martin explained the "intersection between the distinctive Anangu society and culture of the APY Lands, and the wider Australian society and its culture and institutions (including the legal and financial systems)", observing that there are "varying degrees of incommensurability" between Anangu values and practices and those of the wider Australian society.  Dr Martin stated that the Anangu have adapted their values and practices to accommodate those of the market economy through the personalisation of financial transactions, that is, Anangu consumers prefer to conduct financial transactions through the use of brokers, such as storekeepers.  The face-to-face contact involved in the supply of book-up credit, as distinct from reliance on paperwork, was perceived by Dr Martin's Anangu interviewees as consistent with Anangu customs. 

13. As Dr Martin explained the phenomenon, Anangu customers entrusted Mr Kobelt with their keycards to enable them to exercise "agency" in the sense of the capacity to act and to exercise choice in what was perceived to be the individual's own interests.  Several interviewees reported "that they supported book-up in general and were positively disposed to Nobby's Credit Facility in particular".  Dr Martin got no sense that any of the individuals whom he interviewed "felt that the terms on which Nobby's provided credit to them were unjust, unfair, or unreasonable". 

14. Dr Martin explained that motor vehicles have come to be central to social, ceremonial and economic life among Aboriginal communities in the APY Lands; they provide access to country necessary for hunting and gathering, visiting kin in other communities, increased shopping opportunities away from communities, attending sporting fixtures, attending medical appointments and, importantly, participation in initiation and funerals.  Anangu interviewees told Dr Martin that book-up was the only means by which they could purchase a vehicle.

15. Apart from enabling impoverished Anangu customers to acquire second-hand motor vehicles and other consumer goods on credit, the anthropological evidence pointed to book-up credit as having two particular advantages in light of Anangu culture and practices.  Dr Martin explained that it is common for the Aboriginal residents of remote communities to spend money as it becomes available without regard to the medium- to long-term consequences of the expenditure (the "boom and bust cycle").  The primary judge acknowledged that the limitation that Mr Kobelt placed on the amount which the customer could expend by way of book-down had a beneficial effect in ameliorating the boom and bust cycle. 

16. Dr Martin also explained that an embedded social obligation of the Anangu requires that they share their resources with specific categories of kin ("humbugging" or "demand sharing").  The obligation is a foundational principle of Anangu life:  the giver has a responsibility to share and the recipient the right to share, even to the point of demanding a share.  The primary judge found that money is the subject of demand sharing and Anangu persons who are believed to have access to money may be importuned to the extent of being bullied and exploited to share it.  In this respect his Honour referred to the account of a financial counsellor, Mr Stauner[19]:

    "Humbug [is an] ongoing problem in communities across the APY Lands, this is where family members or friends pressure other members of the community for cash, food, use of their car or telephone without considering the feelings of the other party.  [T]his is also mostly done in the family group where younger members of the family pressure the older members".

    [19]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [576].

17. Mr Stauner had witnessed residents of the APY Lands being subject to immediate demands to share cash withdrawn from an ATM.  The Mimili storekeeper also gave evidence of witnessing behaviour of this description.  According to the storekeeper the practice was common and was not confined to the kin of the resident making the withdrawal. 

18. The primary judge acknowledged that Mr Kobelt's book-up system may confer an incidental benefit on Anangu customers by relieving the pressure of demand sharing.  Nonetheless, his Honour considered that any such advantage should not be overstated[20].  Although all six Anangu witnesses gave evidence of sharing their money with others and of using it to buy goods which were shared with others, none gave evidence of feeling pressured or overborne or of being bullied.  Only one witness gave evidence that the desire to avoid demand sharing was the reason for engaging in book-up credit[21].  Other Anangu witnesses acknowledged that they had felt an obligation to share and that one of the reasons that they liked shopping at Nobbys was that they could do so away from the gaze of others.  Nonetheless, his Honour considered that this evidence fell short of a statement that the reason for engaging in book-up credit was to avoid demand sharing. 

    [20]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [585].

    [21]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [582].

19. A further reason for discounting the significance of demand sharing as an advantage of the book-up system was the primary judge's view that Mr Kobelt's conduct in depriving his customers of access to their own funds increased the likelihood that the customers themselves would engage in a form of demand sharing with those who still had access to funds[22].  His Honour noted the availability of financial counselling to Anangu residents of Mimili and Indulkana through the MoneyMob service[23].  In the circumstances, the finding was that the avoidance of improvident spending did not justify the withdrawal conduct under Mr Kobelt's book-up arrangements.

    [22]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [584].

    [23]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [572].

20. Save for two witnesses who had particular grievances, the primary judge found that Mr Kobelt's Anangu customers considered that he had treated them well and they were well-disposed towards him.  It was evident that they appreciated the ability to buy food in between their pay days[24].  His Honour accepted that many of Mr Kobelt's Anangu book-up customers were satisfied with the book-up arrangement.  This was evidenced, among other things, by the fact that several customers had entered into book-up credit arrangements with Mr Kobelt on more than one occasion, returning to Nobbys to hand over their keycards and PINs[25].

    [24]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [588].

    [25]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [591].

21. The primary judge approached the determination upon an acceptance that "[t]here are undoubtedly features of the Book-up system which several of the Book-up customers find attractive"[26] and "[w]hether rightly or wrongly and whether well informed or not, each [Anangu witness] must have considered [book‑up credit] appropriate to their needs"[27].

    [26]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [591].

    [27]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [588].

22. The primary judge's finding of unconscionability took into account evidence of an occasion when, as the result of the failure of the Commonwealth Bank's computer system, Mr Kobelt had been able to withdraw sums from his customers' accounts which were well in excess of the available balance in those accounts[28].  While this incident ("the CBA glitch") did not form part of the book-up system, his Honour considered that it was difficult to avoid the conclusion that Mr Kobelt had "on this occasion prey[ed] on the customers with CBA accounts to his own advantage"[29].

    [28]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [93].

    [29]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [550].

23. The principal consideration which informed the primary judge's conclusion was that there was no necessity for Mr Kobelt to withdraw the whole of the customer's funds in order to protect Mr Kobelt's legitimate interests[30].  The primary judge identified a number of alternative means by which Mr Kobelt might have protected his legitimate interests while permitting his Anangu customers to purchase goods from Nobbys on credit.  His Honour accepted that these alternative arrangements may not have been available in all cases, or, even if available, may not have been satisfactory in all cases.  Nonetheless, they served to indicate that the book-up system operated by Mr Kobelt went well beyond that which was necessary for the protection of his own legitimate interests[31].

    [30]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [522].

    [31]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [525]‑[538].

24. His Honour found that Mr Kobelt acted with "a degree of good faith" in his dealings with his Anangu customers.  However, this did not mean that Mr Kobelt acted in an "altruistic or disinterested way"[32].  His Honour observed that Mr Kobelt was at all times pursuing his own interests, and that he had done so even when the pursuit of those interests was to the detriment of his customers[33].  While there were aspects of Mr Kobelt's conduct which could be regarded as benevolent, those aspects were, in his Honour's estimate, incidents of arrangements that he put in place for the benefit of his business.

    [32]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [559].

    [33]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [559].

25. His Honour observed that the book-up system operated to tie customers to Nobbys, which conferred on Mr Kobelt a significant commercial advantage[34].  His Honour characterised the tying effect of Mr Kobelt's book-up credit as constituting a form of exploitation and predation[35].  While the supply of credit under Mr Kobelt's book-up system could be seen as a benevolent form of paternalism, it prolonged his Anangu customers' dependence on his exercise of discretionary control over their lives[36].

    [34]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [603].

    [35]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [606], [609].

    [36]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [607].

    The Full Court

26. In overturning the primary judge's finding of unconscionability, the Full Court took into account that Mr Kobelt's book-up system was not out of the ordinary in relation to the supply of credit to Indigenous communities:  at least one of the two other stores in Mintabie supplied book-up credit to Anangu customers.  Their Honours considered that the advantages of the book-up system in alleviating demand sharing and the effects of the boom and bust cycle, while difficult to weigh and quantify, were "undoubtedly present"[37].  They also considered that Mr Kobelt did not exercise any form of undue influence over his book-up customers or make dishonest use of their keycards, and that while his record-keeping was chaotic, there was no suggestion that his records were maintained dishonestly[38].  Significantly, despite the customers' low levels of financial literacy, their Honours noted the finding that the customers understood the basic elements of the book-up system including the withdrawal conduct and that they voluntarily entered into book-up credit contracts[39].  Their Honours found that there was no basis for the primary judge's finding that Mr Kobelt engaged in predatory or exploitative conduct in connection with the supply of credit under the book-up system[40].

    [37]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [262] per Besanko and Gilmour JJ, and see Wigney J's concurring judgment at 741 [296].

    [38]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [263]‑[264] per Besanko and Gilmour JJ.

    [39]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [265]‑[266] per Besanko and Gilmour JJ.

    [40]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735‑736 [267]‑[268] per Besanko and Gilmour JJ.

    The conduct of the appeal

1. The conclusion that a supplier of a financial service has engaged in conduct that contravenes the statutory norm of conscience fixed by s 12CB(1) of the ASIC Act is an evaluative judgment. Nonetheless, it is a judgment that is either right or wrong. It was the duty of the Full Court to conduct a "real review" of the evidence and the primary judge's reasons for judgment[41].  Their Honours were unanimous in concluding that the primary judge erred in finding that Mr Kobelt's conduct in the supply of credit under his book-up system was unconscionable.  That conclusion is challenged on three grounds.  Before turning to those grounds, there should be reference to three features of the proceedings that are not the subject of ASIC's appeal.

   [41]Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679 at 686 [43]; 331 ALR 550 at 558; [2016] HCA 22, citing Fox v Percy (2003) 214 CLR 118 at 126‑127 [25] per Gleeson CJ, Gummow and Kirby JJ; [2003] HCA 22.

2. The first feature is that ASIC's case, below and in this Court, is that unconscionable conduct involves "the existence of a special [dis]advantage of which someone takes ... [u]nconscientious advantage"[42] and that Mr Kobelt's conduct in supplying credit under his book-up system took unconscientious advantage of the vulnerability of his Anangu customers.  In the circumstances, the appeal does not provide the occasion to consider any suggestion that statutory unconscionability no longer requires consideration of (i) special disadvantage, or (ii) any taking advantage of that special disadvantage[43]. 

   [42][2018] HCATrans 252 at 1940-1945.

   [43][295] per Edelman J.

3. Moreover, ASIC made no submission that courts have adopted an unduly restrictive interpretation of the term "unconscionable" contrary to the evident intention of the legislature.  The Court was not taken to the legislative history or other extrinsic materials to make good such a suggestion.  That is, perhaps, unsurprising since, if the legislative intention were to fix a standard for the supply of financial services in trade or commerce lower than that of conduct that answers the description of being against conscience, it is to be expected that the draftsperson would have employed another term.

4. Among other values, that of certainty in the conduct of commercial transactions is reflected in the legislative choice to fix the standard of conscience in s 12CB(1)[44].  Any consideration of "lowering the bar" from that standard should only be undertaken in a case in which the proposition is squarely raised and argued.

   [44]Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 274-275 [296]-[298] per Allsop CJ.

5. The second feature of the proceedings concerns the significance of the finding that the credit provided by Mr Kobelt on the purchase of second-hand vehicles was of a "very expensive kind"[45]. ASIC's pleaded case in connection with the credit charge imposed by Mr Kobelt on the purchase of second-hand motor vehicles was with respect to the alleged contravention of s 29(1) of the NCCP Act. Mr Kobelt's appeal against the primary judge's orders respecting the contravention of s 29(1) was dismissed and special leave to cross-appeal from that dismissal was refused.

   [45]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [492].

6. ASIC did not particularise the credit charge on the purchase of second-hand vehicles in its pleaded case of unconscionable conduct.  Nonetheless, Besanko and Gilmour JJ considered that the amount of the credit charge had been an issue at the trial.  The conduct of Mr Kobelt's defence had made it one:  Mr Kobelt sought to establish that the terms on which he offered credit were better than the terms which his customers could obtain from traditional financial institutions[46].  On the hearing in this Court, ASIC acknowledged that the primary judge's finding was that the credit charge on the purchase of a motor vehicle was objectively expensive, not that it was more expensive than credit available from another credit provider.  ASIC accepted that, divorced from the fact that it was undisclosed, the finding of the expensive credit charge had "limited" significance to its unconscionability case.  As Besanko and Gilmour JJ observed, the lack of disclosure of the high credit charge was not the gravamen of ASIC's unconscionable conduct case.  And as their Honours also observed, "[t]here may be an argument here that it is also relevant that [the Anangu customers] were receiving the motor vehicles at or below market value"[47].

   [46]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 727 [209].

   [47]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 736 [267(3)].

7. ASIC's acknowledgment of the limited significance of the expensive credit charge on the purchase of second-hand vehicles to its system case of unconscionable conduct was appropriate.  The system case was concerned with the provision of credit under the book-up system.  Credit under the book-up system was available for the purchase of second-hand vehicles, food, fuel, general groceries and other services[48].  The essential features of the book-up system which were said to make the provision of credit unconscionable were the withdrawal conduct and the tendency of the withdrawal conduct to tie customers to dependence on Nobbys.

   [48]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 701 [60].

8. The third feature of the proceedings is that the primary judge made no findings with respect to Mr Kobelt's conduct in relation to the supply of credit to the four customers identified as A, B, C and D, who were the subjects of the case which ASIC did not press[49].

   [49]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [625]-[626].

   The grounds of appeal

9. Against this background, we now turn to the grounds on which the appeal is brought:

   (1)The Full Court failed to give "due weight" to the special disadvantage or vulnerability of Mr Kobelt's Anangu customers and gave "undue or disproportionate weight" to the customers' basic understanding of the book-up system, voluntary entry into the book-up contracts, ability to terminate the contracts (albeit by acting in breach of them), and "agency" or freedom of contract.

   (2)The Full Court erred in overturning the primary judge's findings that Mr Kobelt engaged in predation or exploitation; in failing to give "any or due weight" to evidence of Mr Kobelt's "irregular conduct" which, while not part of the "system", was indicative of predation and exploitation; and in giving "undue or disproportionate weight" to the finding that Mr Kobelt acted "with 'a degree of good faith' and not dishonestly or fraudulently".

   (3)The Full Court gave "undue or disproportionate weight" to the incidental benefits or advantages of the book-up system arising from historical and cultural norms and practices of the Anangu community, and did not attach "any or due weight" to the primary judge's findings that these historical and cultural norms and practices contributed to or demonstrated the special disadvantage of some of Mr Kobelt's customers.

10. The legal error that is said to underlie ASIC's first ground is the Full Court's asserted failure to distinguish the principles of undue influence from those of unconscionability under the general law.  The argument directs attention to their differing focus:  undue influence being concerned with the quality of the consent of the weaker party and unconscionability being concerned with the conduct of the stronger party in taking advantage of the vulnerability of the weaker party.  ASIC submits that, while the exertion of undue influence bears on the determination of unconscionability, the absence of undue influence is entirely neutral and the Full Court was wrong to take it into account. 

11. ASIC refers to Australian Competition and Consumer Commission v Lux Distributors Pty Ltd[50] as illustrative of the correct approach. The Full Court of the Federal Court of Australia found that Lux Distributors Pty Ltd ("Lux") engaged in conduct in connection with promotion and supply of vacuum cleaners to three elderly customers that was, in all the circumstances, unconscionable contrary to s 51AB of the Trade Practices Act1974 (Cth) and s 21 of the Australian Consumer Law.  This was so notwithstanding the customers' voluntary entry into the sale contracts.  The normative standard applied in Lux was that of "honest and fair conduct free of deception"[51].  Notably, Lux's sales strategy employed a deceptive ruse to gain access to the customer's home and, once entry was gained, a selling technique that was designed to create a sense of obligation to purchase[52].

    [50](2013) ATPR ¶42-447.

    [51]Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (2013) ATPR ¶42-447 at 43,467 [41].

    [52]Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (2013) ATPR ¶42-447 at 43,465 [27], 43,467 [39], 43,468 [44].

12. Recognition that the supplier of a financial service may engage in conduct that is unconscionable, notwithstanding the recipient's voluntary entry into the contract for the supply of the service[53], does not make the absence of the exertion of undue influence an irrelevant consideration. Section 12CC(1)(d) invites the court to consider "whether any undue influence or pressure was exerted on, or any unfair tactics were used against" the recipient of the financial service (emphasis added) as one of the factors to be weighed in determining whether, in all the circumstances, the supplier's conduct is unconscionable.  The absence of the exertion of undue influence, pressure or unfair tactics bears on the assessment of whether the commercial advantage obtained by the supplier in connection with the supply of the financial service is an unconscientious advantage.

    [53]Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [40]; 350 ALR 1 at 14.

13. For the same reasons, ASIC's challenge in its second ground to the weight given by the Full Court to the finding that Mr Kobelt did not act dishonestly must be rejected.  ASIC argues that, to the extent that notions of moral tainting or obloquy[54] "suggest[] a need for dishonesty or something more than the taking advantage of the special disadvantage" of the recipient, they are unhelpful in applying the statutory standard of unconscionability in the ASIC Act and cognate legislation. The submission does not go anywhere. It may be accepted that conduct in the supply of a financial service may be unconscionable in circumstances in which the supplier's conduct does not involve dishonesty. This is not to say that the absence of dishonesty, or other moral taint, is not a material consideration in determining whether, objectively, the supplier's conduct involves such a departure from accepted community standards in the supply of the financial service as to warrant the characterisation that it is unconscionable[55].

    [54]Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 [121], 584 [124] per Spigelman CJ; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (2013) ATPR ¶42-447 at 43,467 [41], 43,470 [61] per Allsop CJ, Jacobson and Gordon JJ.

    [55]Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 356 ALR 440 at 477 [195] per Bathurst CJ.

14. The Full Court made clear that it approached the determination upon a view that consideration of moral obloquy had a role to play but was not a substitute for the statutory words[56].  Their Honours correctly took into account the findings that Mr Kobelt acted with a degree of good faith and not dishonestly as among the circumstances to which it was necessary to have regard in determining whether his conduct fell below the statutory norm of conscience.

    [56]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 724 [193] per Besanko and Gilmour JJ, 741 [296] per Wigney J.

15. On the hearing, ASIC did not press that part of its second ground that contends that the Full Court erred in overturning the primary judge's findings of exploitation and predation. The argument now put is that a supplier may fall below the standard of conscionability fixed by s 12CB(1) without engaging in predatory or exploitative conduct. The primary judge's findings in these respects are said to "really … mean nothing much more than taking advantage of the disadvantage". There is no warrant for treating the primary judge's reasons in these respects as mere surplusage. They were findings which informed his Honour's conclusion that Mr Kobelt took unconscientious advantage of the vulnerability of his Anangu customers and were consistent with what had been said in Kakavas and Thorne v Kennedy, referred to earlier in these reasons.

16. ASIC's central submission is that the Full Court failed to take into account that conduct may be unconscionable if the innocent party is subject to a "special disadvantage 'which seriously affects the ability … to make a judgment as to [the innocent party's] own best interests'".  The submission is developed in support of the third ground of appeal and focuses on Wigney J's analysis.  In ASIC's submission, his Honour was wrong to approach the determination upon a view that "[w]hat the wider Australian society and its culture and institutions might regard as disadvantageous and unfair might be regarded by an Anangu person as in fact advantageous and reasonable"[57].  The vice in the conclusion, on ASIC's argument, is that it fails to recognise that the Anangu customers' special disadvantage seriously affected their ability to make a judgment as to their own best interests[58].  The Anangu customers' lack of financial literacy and choice to enter into book-up credit with Mr Kobelt, in ASIC's submission, result in the maintenance of a system that would be unacceptable in mainstream Australian society.

    [57]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 747 [329].

    [58]Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13, citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; [1983] HCA 14.

17. The submission assumes that, if Mr Kobelt's Anangu customers had not been wanting in financial literacy, they would not have chosen to obtain credit under the book-up system.  Implicit in Besanko and Gilmour JJ's analysis, and explicit in Wigney J's analysis, is that the evidence does not support that conclusion.

18. According to Dr Martin, it was clear "that there is widespread use of book-up, that there is support for this amongst many" members of the community, and:

    "that book-up is seen by many Anangu as enabling them to access cash, food and other necessities when they are in the bust segment of the boom and bust cycle, or away from their home community, and also to circumvent the difficulties in saving for larger capital expenditures on valued consumer goods (most particularly motor vehicles)".

19. Book-up credit provided Mr Kobelt's customers with the ability to purchase goods, including motor vehicles, notwithstanding their low incomes and lack of assets with which to secure a loan.  While the primary judge canvassed a number of alternative ways in which Anangu customers might have obtained credit, his Honour did not find that the alternatives would serve in all cases.  Not only were alternative forms of credit not necessarily available but, as Wigney J noted, some of the suggested alternatives might not have suited the Anangu.  They may have preferred to enter into a book-up contract because it did not require the customer to deal with bureaucracy or to fill out paperwork and because they liked to deal with Mr Kobelt as a trusted broker[59].  It is a large submission that the provision of book-up credit on terms which suited Mr Kobelt's adult Anangu customers and which enabled them to purchase a consumer good which they valued highly is to be characterised as objectively against their interests.

    [59]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 752 [354].

20. The Full Court's finding was that book-up credit suited Mr Kobelt's Anangu customers for reasons that stemmed from cultural practices and norms and not from their position of special disadvantage.  ASIC's challenge to the weight that the Full Court gave to the advantages of book-up credit is principally directed to the evidence of demand sharing.  ASIC embraces the primary judge's view that this advantage should not be overstated. 

21. The circumstance that only one of the six Anangu witnesses identified the avoidance of demand sharing as a reason for entering into book-up credit arrangements is not to deny that book-up credit was supported by Mr Kobelt's Anangu customers because, among other matters, it relieved them of the pressure of demand sharing.  Dr Martin commented on the reluctance of his Anangu interviewees to disclose personal views about the "institution" of book-up.  He considered it reasonable to infer that within the "Anangu polity" a consensual public account of book-up was to be accorded primacy rather than individual views. 

22. It was Dr Martin's opinion that[60]:  

    "By leaving their keycards with the storekeeper, Aboriginal people can avoid the all-pervasive 'humbugging' for cash from relations, particularly on those days when wages or pensions are known to be deposited electronically into accounts, and they may also accumulate savings."

    [60]KobeltvAustralian Securities and Investments Commission (2018) 352 ALR 689 at 742 [304].

23. The opinion is in line with the Renouf report, which also identified the avoidance of demand sharing as a benefit of book-up credit.  It was open to the Full Court to place weight on the avoidance of demand sharing, together with ameliorating the effects of the boom and bust cycle of expenditure, as advantages of book-up credit which were not the product of the Anangu customers' special disadvantage. 

24. While, as the Full Court acknowledged, the CBA glitch and some instances of other irregular conduct may not have reflected well on Mr Kobelt, their Honours were right to put these instances to one side in considering whether Mr Kobelt's conduct in supplying credit under his book-up system contravened s 12CB(1). Stripped of the findings of predatory and exploitative conduct, ASIC's case relies upon the primary judge's assessment that Mr Kobelt's conduct in withdrawing all of the funds in book-up customers' accounts involved the imposition of a condition that was not reasonably necessary for the protection of his legitimate interests.

25. The primary judge acknowledged that it suited some customers to have Mr Kobelt take the whole of the available balance from their accounts, that some customers may have requested him to do so, that it may have helped customers to deal with humbugging, and that it may have reduced customers' transaction fees.  However, his Honour observed that none of these bore on the reasonable necessity to withdraw the funds for the protection of Mr Kobelt's own interests. 

26. Section 12CC(1)(b) invites the court to have regard to:

    "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".

27. The primary judge's finding was that[61]:

    "I am satisfied, however, that [alternative systems] serve to indicate that Mr Kobelt's requirement that he obtain possession of customers' key cards and PINs and that he be permitted (absent a contrary instruction from a customer) to withdraw the whole of the available balance in the customer's account from time to time, went well beyond what was reasonably necessary for the protection of his own legitimate interests."  (emphasis added)

    [61]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [538].

1. The finding was not that Anangu customers were required, as a result of Mr Kobelt's conduct, to comply with a condition that Mr Kobelt withdraw the whole of the available balance in the customer's account.  The finding was that, under Mr Kobelt's book-up system, credit was supplied on terms which included authorisation to withdraw the whole of the available balance in the customer's account unless the customer placed a limit on the authorisation.  In any event, the conclusion of unconscionability requires consideration of the supplier's conduct in all of the circumstances[62].  Again, the finding that it suited many of his Anangu customers for Mr Kobelt to withdraw all of their funds, for reasons unconnected with the customers' want of financial literacy, bears directly on whether his conduct in supplying book-up credit contravened the statutory norm.

   [62]Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 at 586 [185], 587 [188] per Gageler J, 620 [294] per Keane J; [2016] HCA 28.

2. Mr Kobelt was not required to act in an altruistic or disinterested way in his dealings with his customers.  Nor was Mr Kobelt required to devise an alternative, superior form of book-up credit.  The statutory proscription is on engaging in unconscionable conduct.  The difficulty with ASIC's system case of statutory unconscionability lies in identifying any advantage that Mr Kobelt obtained from the supply of book-up credit that can fairly be said to be against conscience. 

3. The only advantage that the primary judge identified was that book-up credit tied Mr Kobelt's customers to dependence on Nobbys.  His Honour suggested that had the book-up system not created this dependence, Mr Kobelt's Anangu customers might well have chosen to shop at community stores in the APY Lands or in Marla.  Even if true, this would not support a conclusion that the supply of credit on Mr Kobelt's book-up terms took unconscientious advantage of his Anangu customers' vulnerability.  And, as Wigney J noted, Dr Martin's evidence was that Anangu residents of Mimili and Indulkana viewed shopping at Mintabie as an exercise of "agency" because there was a wider choice available at the Mintabie stores, prices were cheaper and travel was not viewed as a disincentive for most Anangu.  Indeed, travel could be seen as advantageous because it entailed visiting "country" and was a "highly social occasion".  There was no evidence that Mr Kobelt's customers considered that they had been exploited because they had had to return to Nobbys. 

4. Contrary to the tenor of ASIC's submission, the Full Court's conclusion that Mr Kobelt's conduct was not unconscionable does not posit a different, lower standard of conscionable conduct in the supply of credit to Anangu consumers than applies to the supply of credit to consumers in mainstream Australian society.  It is a conclusion that takes into account, correctly, all of the circumstances[63] including the evidence of the cultural norms and practices of the Anangu residents of the APY Lands.  Acceptance of this evidence is against the premise of ASIC's central submission, that the supply of book-up credit was objectively contrary to the interests of Mr Kobelt's Anangu customers.

   [63]ASIC Act, s 12CB(1).

5. The basic elements of Mr Kobelt's book-up system were understood by Mr Kobelt's Anangu customers, and those who chose to enter into book-up credit contracts with him appear to have done so because it enabled them to purchase goods which they valued and which otherwise they may not have been able to acquire.  The terms on which book-up credit was supplied were perceived by the Anangu customers to be appropriate.  This perception was not the product of the Anangu customers' lack of financial literacy:  it reflected aspects of Anangu culture that are not found in mainstream Australian society.

6. Book-up credit has a long history in rural and remote Indigenous communities.  In this context, Mr Kobelt's supply of book-up credit was not out of the ordinary.  No feature of Mr Kobelt's conduct in the supply of book-up credit to his Anangu customers exploited or otherwise took advantage of the customer's lack of education and financial acumen.  While Mr Kobelt's book-up credit system was open to abuse, Mr Kobelt did not abuse it.  In the circumstances, the Full Court was right to hold that Mr Kobelt's conduct in connection with the supply of credit to his Anangu customers was not unconscionable.

   Order

7. For these reasons, there should be the following order:

   Appeal dismissed with costs.

8. GAGELER J.   "Unconscionable" is an obscure English word which centuries of use by courts administering equity have transformed into a legal term of art.  In Australia, the central concern of a court administering equity in identifying conduct as unconscionable has long been understood to be to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests[64].

   [64]Blomley v Ryan (1956) 99 CLR 362 at 392, 405; [1956] HCA 81; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; [1983] HCA 14; Bridgewater v Leahy (1998) 194 CLR 457 at 470 [39]-[40], 478-479 [74]-[76]; [1998] HCA 66; Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13; [2017] HCA 49.

9. Section 12CA of the Australian Securities and Investments Commission Act2001 (Cth) ("the ASIC Act") gives statutory expression to that equitable conception of unconscionable conduct. The section's prohibition against engaging in conduct in relation to financial services that is "unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories" operates to impose an additional statutory sanction on conduct that is unconscionable in equity[65].  Suggestions that its reference to conduct that is unconscionable within the meaning of the unwritten law imports some more expansive and less precise denotation[66] are contradicted by extrinsic material explaining the precise choice of statutory language[67] and have been properly refuted[68].

   [65]See Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 62 [5]-[6], 71-72 [40], 73-74 [44]-[46]; [2003] HCA 18; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 397 [2]; [2013] HCA 25; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 271 [281].

   [66]eg, Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 316-319 [43]-[50].

   [67]Australia, House of Representatives, Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum at 8-9 [41]-[44]; Australia, House of Representatives, Parliamentary Debates (Hansard), 3 November 1992 at 2408.

   [68]Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 at [190]; Razdan v Westpac Banking Corporation [2014] NSWCA 126 at [150], citing GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd (2001) 117 FCR 23 at 73-74 [114]-[115], 76 [123], 77 [126].

10. Section 12CB of the ASIC Act does something more. The section's prohibition against engaging in conduct in connection with the supply or possible supply of financial services "that is, in all the circumstances, unconscionable" is expressed to be "not limited by the unwritten law of the States and Territories relating to unconscionable conduct"[69]. Those words make clear that the statutory conception of unconscionable conduct is unconfined to conduct that is remediable on that basis by a court exercising jurisdiction in equity. Furthermore, determination by a court exercising jurisdiction in a matter arising under the section of whether conduct is, in all the circumstances, unconscionable is required by s 12CC to be informed by the numerous considerations specified in that section, each of which has the potential to bear positively or negatively on the characterisation of conduct as conduct that is or is not unconscionable, and each of which must be taken into account if and to the extent that it is applicable in all the circumstances[70].

    [69]Section 12CB(1), (4)(a) of the ASIC Act.

    [70]Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 at 587 [188]-[189], 620 [294]; [2016] HCA 28.

11. Exactly what s 12CB does might be seen in different ways. The section might, on the one hand, be seen to confer statutory authority on a court exercising jurisdiction in a matter arising under it to develop the equitable conception of unconscionable conduct taking into account a range of considerations that are broader than those traditionally taken into account by courts administering equity and that include the considerations specifically identified in s 12CC. The section might, on the other hand, be seen to prescribe a normative standard of conduct, which standard a court exercising jurisdiction in a matter arising under it is required to recognise and to administer having regard to considerations which include those identified in s 12CC. Both perspectives on the operation of the section can be found, sometimes intertwined, in the case law[71]. Examination of the legislative history and pre-history of s 12CB, much of which Edelman J helpfully refers to in his reasons for judgment, yields no real indication of a legislative intention to adopt one view in preference to the other.

    [71]eg, Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 140 [30]; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 266-267 [262]-[263].

12. The difference between the perspectives is diminished when it is recognised that the Commonwealth Parliament can be taken to have understood that "[a]ny standard or criterion will have a penumbra of uncertainty under which the deciding authority will have room to manoeuvre – an area of choice and of discretion; an area where some aspect of policy will inevitably intrude", that "[t]he degree of vagueness or discretion will be affected by what is conceived to be the object of the law and by judicial techniques and precedents" and that, "[g]iven a broad standard, the technique of judicial interpretation is to give it content and more detailed meaning on a case to case basis"[72].  The distinction between a judicially developed standard and a statutory standard developed judicially can in practice be a fine one. 

    [72]Thomas v Mowbray (2007) 233 CLR 307 at 351 [91]; [2007] HCA 33, quoting Zines, The High Court and the Constitution, 4th ed (1997) at 195.

13. The difference in perspective nevertheless bears on how a court exercising jurisdiction in a matter arising under s 12CB goes about determining whether impugned conduct is, in all the circumstances, unconscionable. For reasons which will become apparent, I consider that identification of the correct perspective bears materially on the resolution of this appeal.

14. The correct perspective, in my opinion, is that unambiguously adopted by the Full Court of the Federal Court in relation to materially identical provisions[73] in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd[74]. The correct perspective is that s 12CB operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of a court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standard in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances.

    [73]Section 51AB of the Trade Practices Act 1974 (Cth) and s 21 of the Australian Consumer Law, Sch 2 to the Competition and Consumer Act 2010 (Cth).

    [74](2013) ATPR ¶42-447 at 43,463 [23], 43,467 [41].

15. The Commonwealth Parliament's appropriation in s 12CB of the terminology of courts administering equity in the expression of the normative standard which the section prescribes serves to signify the gravity of the conduct necessary to be found by a court in order to be satisfied of a breach of that standard. "Unconscionability", as has been long and well understood, "is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights"[75]. 

    [75]Burt v Australia & New Zealand Banking Group Ltd (1994) ATPR (Digest) ¶46‑123 at 53,598.

16. Parliament's appropriation of that terminology in s 12CB shorn of the constraints of the unwritten law is indicative of an intention that conduct of the requisite gravity need not be found only in a fact-pattern which fits within the equitable paradigm of a stronger party to a transaction exploiting some special disadvantage which operates to impair the ability of a weaker party to form a judgment as to his or her best interests. The requirement to administer the standard in the totality of the circumstances taking account of the considerations identified in s 12CC is a further indication that the standard has potential application within a range of factual scenarios not all of which would be recognised in equity as giving rise to relief on the basis of unconscionable conduct. For example, whereas undue influence constitutes a distinct (albeit often overlapping) ground for relief in equity[76], under s 12CC(1)(d) the presence or absence of undue influence is one, and only one, of the considerations to be taken into account in determining whether conduct is or is not unconscionable.

    [76]Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [40]; 350 ALR 1 at 14.

17. Important to the resolution of this appeal, in my opinion, is that what Parliament's appropriation of the terminology of equity in the expression of the normative standard in s 12CB does not do is to authorise a court exercising jurisdiction in a matter arising under that section to dilute the gravity of the equitable conception of unconscionable conduct so as to produce a form of equity-lite. The appropriation of the terminology of equity does not allow a court to adopt a process of reasoning which starts with the equitable conception of unconscionable conduct, involving exploitation of a special disadvantage, and then uses considerations identified in s 12CC to water down the court's assessment of what amounts to a special disadvantage or to allow the court to arrive more easily at an assessment that conduct amounts to exploitation.

18. In Paciocco v Australia & New Zealand Banking Group Ltd, I referred to unconscionable conduct within the meaning of s 12CB as requiring "a 'high level of moral obloquy' on the part of the person said to have acted unconscionably"[77].  "Moral obloquy" is arcane terminology.  Without unpacking what a high level of moral obloquy means in a contemporary context, using that arcane terminology does nothing to elucidate the normative standard embedded in the section.  The terminology also has the potential to be misleading to the extent that it might be taken to suggest a requirement for conscious wrongdoing.  My adoption of it has been criticised judicially[78] and academically[79].  The criticism is justified.  I regret having mentioned it. 

    [77](2016) 258 CLR 525 at 587 [188], quoting Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 [121].

    [78]eg, Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 356 ALR 440 at 477 [194]-[195], 495-496 [275]-[278].

    [79]eg, Baxt, "Continuing 'Furore' Over Moral Obloquy and Unconscionability" (2017) 91 Australian Law Journal 809 at 809-810. 

19. What I meant to convey by the reference was that conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience.  To that view of the statutory standard I adhere. 

20. The judgment required of a court exercising jurisdiction in a matter arising under s 12CB is a heavy one. For a court to pronounce conduct unconscionable is for the court to denounce that conduct as offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society. Those values are not entirely confined to, or entirely removed from, the values which historically informed courts administering equity in the development of the unwritten law of unconscionable conduct[80].  They include respect for the dignity and autonomy and equality of individuals.  They include respect for the cultural diversity of communities.

    [80]Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 271 [283].

21. The challenge in the present appeal is to bring such a judgment to bear on a system of conduct which occurred consensually, over a considerable period without more than occasional complaint or expression of dissatisfaction[81], and at what is described in the anthropological evidence as an "intersection" between the distinctive culture of the Anangu people of the Anangu Pitjantjatjara Yankunytjatjara Lands and the culture of wider Australian society.  "An intersection of systems", as was put in that evidence, "necessarily raises the possibility of varying degrees of incommensurability of the values, understandings and practices of those systems in that intersection, as well as varying forms of accommodation and adaptation by the Aboriginal people concerned"[82].

    [81]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [590]-[593].

    [82]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 746 [328].

22. The difficulty of that challenge was present in my mind at the time of participating in the grant of special leave to appeal from the judgment of the Full Court of the Federal Court.  I considered it then to be a factor which weighed against special leave to appeal being granted.  Hard cases test and sometimes strain legal principle.  They do not always lend themselves to elucidation of legal principle in a way that can be predicted to provide precedential guidance of the systemic usefulness generally to be expected from a decision of an ultimate court of appeal.  Special leave to appeal having been granted, it is unsatisfactory but unsurprising to me that the Court should find itself closely divided on the resolution of the appeal.

23. Insofar as they formed part of the "unconscionable system" case pursued by the Australian Securities and Investments Commission ("ASIC") at trial, the details of the "book-up" system provided by Mr Kobelt to Anangu customers, largely from Mimili and Indulkana, at his general store in Mintabie are set out in the reasons for judgment of Kiefel CJ and Bell J. 

24. In evaluating Mr Kobelt's book-up system against the standard which s 12CB prescribes for all conduct occurring anywhere in Australia in connection with the supply or possible supply of financial services, it can immediately be accepted that there are applicable considerations amongst those identified in s 12CC which point in both directions.

25. Pointing towards a conclusion that the book-up system was unconscionable are that Mr Kobelt's bargaining power was stronger than that of his Anangu customers[83], that he treated his Anangu customers differently from his non-indigenous customers[84], and that there were other means by which he might have protected his legitimate interests as a seller of motor vehicles and other goods on credit to his Anangu customers which were less restrictive to his Anangu customers' freedom of action[85].  Leaving aside theoretical alternatives to a system of book-up such as arranging for periodic repayments of indebtedness to be made from customers' accounts by way of direct debit, it can in particular be accepted that protection of his own interests as a creditor created no practical need for Mr Kobelt to withdraw all, or almost all, of the funds paid into his Anangu customers' accounts immediately upon those funds being paid in given his understanding that 50 per cent of the amounts paid into his Anangu customers' accounts would remain available for their own use[86].  His informal method of bookkeeping can be accepted to be one which would have made it difficult for his Anangu customers to keep track of their current state of indebtedness had they been minded to do so[87]. 

    [83]Section 12CC(1)(a) of the ASIC Act. See Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [507]-[515].

    [84]Section 12CC(1)(f) of the ASIC Act. See Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [552]-[553].

    [85]Section 12CC(1)(b) of the ASIC Act. See Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [517]-[538], [616].

    [86]See Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [522].

    [87]Section 12CC(1)(c) of the ASIC Act. See Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [541]-[546].

1. The history of equity's proscription against unconscionable bargains has not been one in which "unconscionable" has had a single, unitary application.  A conscience is the moral force that acts upon an individual with knowledge.  There is no monolithic moral force to conscience.  In the "most common case"[297] of unconscionable conduct in equity in the nineteenth century, the Court of Chancery treated as "unconscionable" any bargain that was not fair or reasonable.  That circumstance involved transactions entered by expectant heirs or reversioners concerning their future or reversionary interests.  The transaction would be set aside unless the other party could prove that the transaction was fair and reasonable[298].  It did not matter that the expectant heir seeking to obtain income by a mortgage of a future or reversionary interest was of mature age[299] and "perfectly understood the nature and extent of the transaction"[300].  There would be a taking of an "unfair advantage"[301], or a breach of "the rule of reasonableness"[302], if any substantial undervalue, sometimes described as a "hard bargain"[303], could be proved.  The same approach, requiring fairness and reasonableness to be proved by the other party, was taken to transactions entered without independent legal advice by the poor and "imperfect[ly] educat[ed]"[304], or the poor and illiquid[305], or the elderly[306].

   [297]Fry v Lane (1888) 40 Ch D 312 at 321.

   [298]The Earl of Portmore v Taylor (1831) 4 Sim 182 at 209 [58 ER 69 at 79]; Bromley v Smith (1859) 26 Beav 644 at 662, 665 [53 ER 1047 at 1054, 1055]; Tottenham v Green (1863) 32 LJ Ch 201 at 205; Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490-491; O'Rorke v Bolingbroke (1877) 2 App Cas 814 at 833; Langdon v Reuss (1883) 4 LR (NSW) Eq 28 at 31; Fry v Lane (1888) 40 Ch D 312 at 320‑321; Rae v Joyce (1892) 29 LR Ir 500 at 509.

   [299]Davis vThe Duke of Marlborough (1819) 2 Swans 108 at 143 [36 ER 555 at 566]; Bromley v Smith (1859) 26 Beav 644 at 664-665 [53 ER 1047 at 1055]; Langdon v Reuss (1883) 4 LR (NSW) Eq 28 at 31.

   [300]Bromley v Smith (1859) 26 Beav 644 at 665 [53 ER 1047 at 1055]; Langdon v Reuss (1883) 4 LR (NSW) Eq 28 at 31.

   [301]Middleton v Brown (1878) 47 LJ Ch 411 at 413.

   [302]Beynon v Cook (1875) LR 10 Ch App 389 at 391.

   [303]Beynon v Cook (1875) LR 10 Ch App 389 at 391; Middleton v Brown (1878) 47 LJ Ch 411 at 413; Rae v Joyce (1892) 29 LR Ir 500 at 509-510.

   [304]Fry v Lane (1888) 40 Ch D 312 at 321, citing Evans v Llewellin (1787) 1 Cox 333 [29 ER 1191] and Haygarth v Wearing (1871) LR 12 Eq 320.

   [305]Wood v Abrey (1818) 3 Madd 417 at 423-424 [56 ER 558 at 560-561].

   [306]Baker v Monk (1864) 33 Beav 419 at 422-423 [55 ER 430 at 431].

2. The liberal approach of equity to characterising as "unconscionable" bargains in this area led to the United Kingdom Parliament's intervention with the Sales of Reversions Act 1867 (UK) (31 & 32 Vict c 4)[307], subsequently adopted in each Australian colony or State[308], which provided that "[n]o Purchase, made bonâ fide and without Fraud or unfair Dealing, of any Reversionary Interest in Real or Personal Estate shall hereafter be opened or set aside merely on the Ground of Undervalue".  That legislation did not alter the meaning of "unconscionability" in equity, but it precluded a conclusion of unconscionable conduct "merely on the ground of undervalue"[309].  Nevertheless, by the mid‑twentieth century, the equitable bar had risen significantly.

   [307]See Beynon v Cook (1875) LR 10 Ch App 389 at 392-393; Sinclair v Elderton (1900) 21 LR (NSW) Eq 21 at 23-24.

   [308]Sales of Reversions Act 1879 (SA), ss 1, 2, 3; Sales of Reversions Law Amendment Act 1884 (NSW), ss 1, 2, 3; Real Property Act 1914 (Vic), s 7; Conveyancing and Law of Property Act 1935 (Tas), s 3(11); Property Law Act 1969 (WA), s 92; Property Law Act 1974 (Qld), s 230.

   [309]See Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490; O'Rorke v Bolingbroke (1877) 2 App Cas 814 at 833.

3. By the mid-twentieth century, the conscience of equity hardened so that mere "unfairness" or "unreasonableness" was not sufficient in any of the various categories.  Claimants had to be subject to some "special" disadvantage – a disadvantage that must seriously affect their ability to make a judgment about their own interests[310].  Moreover, there had to be a "taking of advantage" of that special disadvantage[311].  Although that taking of advantage did not, and does not, require that the victim suffer any "loss or detriment"[312], it required much more than mere unreasonableness, being variously described in Australia as requiring "victimisation" or "exploitation"[313].  In England, in addition to these descriptions the courts also described equity as requiring conduct that is "morally reprehensible"[314] or conduct that "shocks the conscience of the court"[315].  With some exceptions in application[316], these various epithets established a high bar for the vitiation of transactions in twentieth century equity on the ground of unconscionable conduct.

   [310]Blomley v Ryan (1956) 99 CLR 362 at 415; [1956] HCA 81; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; [1983] HCA 14; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 425 [118]; [2013] HCA 25; Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13; [2017] HCA 49.

   [311]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 425 [118]; Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13.

   [312]Blomley v Ryan (1956) 99 CLR 362 at 405.

   [313]See Thorne v Kennedy (2017) 91 ALJR 1260 at 1272 [38]; 350 ALR 1 at 13 and the authorities cited there.

   [314]Boustany v Pigott (1993) 69 P & CR 298 at 303; Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 at 153; Portman Building Society v Dusangh (2000) 80 P & CR D20 at D21-D22; Multiservice Bookbinding Ltd v Marden [1979] Ch 84 at 110.

   [315]Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 at 152. See also Portman Building Society v Dusangh (2000) 80 P & CR D20 at D21-D22.

   [316]See Bridgewater v Leahy (1998) 194 CLR 457 at 493 [123], compare at 471 [42]; [1998] HCA 66.

4. The initial legislation[317] in Australia that prohibited unconscionable conduct in consumer transactions was intended to be reasonably similar to the equitable rule, although it included within its scope the equitable doctrine of undue influence.  As stated by the Attorney‑General in the Second Reading Speech[318] for that initial legislation, the provision was based upon a recommendation from a Green Paper[319], which in turn recommended adoption of the Swanson Committee's recommendation for a statutory proscription based upon the "familiar concept to Australian law" of the equitable doctrine of unconscionable conduct[320].  The Explanatory Memorandum to the initial legislation referred to the exposition of the equitable doctrine of unconscionable conduct in this Court's decision in Commercial Bank of Australia Ltd v Amadio[321] and said that the new provision would "at least" include conduct that would fall within that equitable proscription against unconscionable conduct as well as the equitable doctrine of undue influence[322].

   [317]Section 52A of the Trade Practices Act 1974 (Cth), inserted by the Trade Practices Revision Act 1986 (Cth), s 22.

   [318]Australia, House of Representatives, Parliamentary Debates (Hansard), 19 March 1986 at 1627.

   [319]Evans, Cohen and Willis, The Trade Practices Act: Proposals for Change (1984) at 17 [71].

   [320]Trade Practices Act Review Committee, Report to The Minister for Business and Consumer Affairs (1976) at 67 [9.60].

   [321](1983) 151 CLR 447.

   [322]Australia, House of Representatives, Trade Practices Revision Bill 1986, Explanatory Memorandum at 22-23 [82]-[84].

5. The statutory proscription against unconscionable conduct was applied also to business transactions in 1993[323] by the introduction of s 51AA of the Trade Practices Act 1974 (Cth), which prohibited corporations from engaging in conduct that was "unconscionable within the meaning of the unwritten law". The reference to "unwritten law" was to the equitable doctrine of unconscionable conduct[324]. There was, then, a gap between business transactions, which were covered by the legislative implementation of the equitable doctrine in s 51AA, and consumer transactions, which were covered by the initial proscription, now renumbered s 51AB[325], which was modelled on the equitable doctrine but could potentially go further[326].

   [323]Inserted by the Trade Practices Legislation Amendment Act 1992 (Cth), s 9 and commenced operation on 21 January 1993.

   [324]Australia, House of Representatives, Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum at 8 [41], 9 [44]. See also Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 71-72 [40]; [2003] HCA 18.

   [325]Trade Practices Legislation Amendment Act 1992 (Cth), s 8.

   [326]Australia, House of Representatives, Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum at 9 [47].

6. An example of a case involving a business transaction brought under s 51AA of the Trade Practices Act is the decision of this Court in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd ("Berbatis")[327].  In that case, lessees were in negotiations with the lessors for a renewal of their lease, which was nearing the end of its term.  The lessors knew that the lessees needed a renewal in order to sell their business.  The lessees contracted with a purchaser to sell the business for $65,500 subject to assignment of their lease.  But the lessors refused to assign the lease unless the assignment contained a term discharging them from legal claims and consenting to the dismissal of proceedings against them, to which the lessees were parties, and which were ultimately successful.  The lessees agreed to the terms but continued to take part in the proceedings against the lessors.  The Australian Competition and Consumer Commission alleged that, amongst other claims, the term of the assignment of lease that required the lessees' withdrawal from the legal proceedings was unconscionable.  By a majority, Kirby J dissenting, this Court held that the term was not unconscionable because the lessees were not subject to any special disadvantage[328].

   [327](2003) 214 CLR 51.

   [328](2003) 214 CLR 51 at 64-65 [15], 77 [56], 115-116 [185], compare at 97-98 [115]‑[117].

7. Prior to the commencement of the Berbatis litigation, a Standing Committee of the House of Representatives recommended the enactment of "a significantly strengthened provision to deal with the general problem of unfair conduct" in the form of proscription against corporations engaging in conduct that is "unfair"[329]. The recommendations of the Standing Committee were adopted, although the new provision did not replace "unconscionable" with "unfair". Instead, the new s 51AC of the Trade Practices Act[330] created a "mirror for small business consumers ... [of] the legal rights available to consumers in section 51AB, and incorporate[d] a range of additional matters"[331]. That range of additional matters included six new matters, on top of the five matters replicated from s 51AB, in the non-exhaustive list of matters to which the court could have regard.

   [329]Australia, House of Representatives, Standing Committee on Industry, Science and Technology, Finding a balance:  towards fair trading in Australia (1997) at 11 [1.42], 181 [6.73] (Recommendation 6.1).

   [330]Inserted by the Trade Practices Amendment (Fair Trading) Act 1998 (Cth), Sch 2, item 2.

   [331]Australia, House of Representatives, Parliamentary Debates (Hansard), 30 September 1997 at 8800.

8. In the Second Reading Speech for the Bill that introduced the new s 51AC of the Trade Practices Act, the Minister said that s 51AC was intended to "extend the common law doctrine of unconscionability expressed in the existing section 51AA"[332].  Similarly, the Explanatory Memorandum said that it was "envisaged that [s 51AC] would prohibit [undue influence and unconscionable conduct as understood in equity] but would, in addition, extend to other conduct that is, in all the circumstances, unconscionable"[333].

   [332]Australia, House of Representatives, Parliamentary Debates (Hansard), 30 September 1997 at 8800.

   [333]Australia, House of Representatives, Trade Practices Amendment (Fair Trading) Bill 1997, Explanatory Memorandum at 22.

9. Despite the intention for s 51AC to extend beyond the reach of the existing legislative proscription implementing the equitable proscription, one concern expressed during debate was that the failure to change the language from "unconscionable" to "unfair" would result in a harsher test than that which was recommended[334]. The Minister explained that the words "unconscionable conduct" were chosen for "greater certainty", so that the scope of s 51AC would be extended beyond the equitable proscription by "build[ing] on the existing body of case law"[335].

   [334]Australia, Senate, Parliamentary Debates (Hansard), 1 April 1998 at 1705-1706.  See also Australia, House of Representatives, Standing Committee on Industry, Science and Technology, Finding a balance:  towards fair trading in Australia (1997) at 179-180 [6.69]-[6.72].

   [335]Australia, House of Representatives, Parliamentary Debates (Hansard), 30 September 1997 at 8800-8801.

10. The new s 51AC was described as adding an "exocet missile" to the defensive armoury of small businesses[336]. Some commentators observed that after the enactment of s 51AC the result in Berbatis may very well have been different[337]. But in the decade after the introduction of s 51AC on 1 July 1998, the reality of the application of s 51AC by the courts fell far short of these expectations of Parliament and academic commentators. By 2008, the Senate Standing Committee on Economics reported that it was "in no doubt that section 51AC of the Trade Practices Act has fallen short of its legislative intent"[338].  The Standing Committee observed as follows[339]:

    "[T]he fact there have only been two successful findings under section 51AC over the past decade primarily reflects the courts' narrow interpretation of this section, rather than any great adjustment in business behaviour. There are simply too many allegations where the actions of retail landlords and franchisors appear unethical, and yet there is no legal redress because it is not unconscionable under the legal definition of unconscionable."

    [336]Brown, "The Impact of Section 51AC of the Trade Practices Act 1974 (Cth) on Commercial Certainty" (2004) 28 Melbourne University Law Review 589 at 598‑599, citing Duncan and Christensen, "Section 51AC of the Trade Practices Act 1974: An 'Exocet' in Retail Leasing" (1999) 27 Australian Business Law Review 280 at 280.

    [337]Webb, "Fayre play for commercial landlords and tenants – Lessons for Lawyers" (2001) 9 Australian Property Law Journal 99 at 109; Dean, "ACCC v Berbatis Holdings (2003) 197 ALR 153" (2004) 26 Sydney Law Review 255 at 269.

    [338]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 43 [5.54].

    [339]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 31 [5.4].

11. The Standing Committee noted that s 51AC was "not working effectively because the courts are not interpreting the section as broadly as was the legislative intent"[340], and the "current interpretation of section 51AC sets the bar too high"[341].  The Standing Committee asked "how can the bar be lowered?"[342]  It again considered replacing the word "unconscionable" with "unfair", recognising the "appeal of this proposal" and acknowledging that this may be a "simpler and more efficient amendment to the section" than some other proposals[343].  However, the Standing Committee was concerned about the effect that this would have on the "architecture of statute" and the "uncertainty and confusion" that it would cause among courts and parties to litigation[344]. Instead of changing the language of "unconscionable" to "unfair", the Standing Committee recommended an alternative way for the bar to be lowered. It suggested "clarify[ing] for the courts that unconscionable conduct in section 51AC is broader than the special disadvantage doctrine"[345] by amending s 51AC to provide "that the prohibited conduct in the supply and acquisition of goods or services relates to the terms or progress of a contract"[346].

    [340]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 9 [3.1].

    [341]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 32 [5.6].

    [342]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act1974 (2008) at 32 [5.7].

    [343]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 12 [3.12], 35 [5.18].

    [344]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 35 [5.18].

    [345]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 35 [5.20].

    [346]Australia, Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (2008) at 36 [5.21] (Recommendation 1).

12. The Standing Committee's recommendation was implemented by the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth)[347], which also made equivalent changes to the cognate provision in the ASIC Act[348].  New factors were added, including permitting courts to consider the terms of the contract and the conduct of the supplier in complying with those terms[349].

    [347]Australia, House of Representatives, Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, Explanatory Memorandum at 42 [4.10]-[4.11].

    [348]Australia, House of Representatives, Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010, Explanatory Memorandum at 54 [4.56].

    [349]See Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth), Sch 1, item 1.

13. The final relevant amendments occurred on 1 January 2012[350].  This was after the beginning, but before the end, of the period in respect of which the conduct relevant to this appeal occurred.  However, it was not suggested at trial or on appeal to either the Full Court or to this Court that this timing was of any consequence.  Those amendments followed the report of an expert panel that recommended the introduction of "interpretative principles" to recognise that the statutory proscriptions against unconscionable conduct go "beyond the scope of the equitable and common law doctrines of unconscionability, and are not confined by them"[351].  The expert panel also recommended harmonising or unifying the business and consumer unconscionability proscriptions[352].  Those recommendations were adopted[353].  In the Second Reading Speech for the Bill introducing the amendments, the Minister stated[354]:

    "Courts have tended to stick closely to the traditional equitable concept when applying the statutory prohibitions in sections 51AB and 51AC of the Trade Practices Act and sections 12CB and 12CC of the ASIC Act.

    For example, the common law required victims of unconscionable conduct to establish that they were at a 'special disadvantage' through factors like infirmity, age or a difficulty understanding English, before a court would recognise that unconscionable conduct had occurred.  The present statutory prohibitions on unconscionable conduct sought to remove limitations such as these on the ability of people to seek redress when subjected to unconscionable conduct.

    The bill amends the law to make it clear that the prohibition is not limited to the equitable or common-law doctrines of unconscionable conduct.  The courts should not limit the application of the provisions by reference to ancient common-law doctrines that are not part of the statute book."

    [350]Competition and Consumer Legislation Amendment Act 2011 (Cth), Sch 2, item 4.

    [351]Horrigan, Lieberman and Steinwall, Strengthening statutory unconscionable conduct and the Franchising Code of Conduct (2010) at ix [2.4], 40 [2.4].

    [352]Horrigan, Lieberman and Steinwall, Strengthening statutory unconscionable conduct and the Franchising Code of Conduct (2010) at x [2.8], 41 [2.8].

    [353]Australia, House of Representatives, Competition and Consumer Legislation Amendment Bill 2010, Explanatory Memorandum at 19 [2.7].

    [354]Australia, House of Representatives, Parliamentary Debates (Hansard), 27 May 2010 at 4361-4362.

1. Other interpretive principles were inserted to make clear that the proscription can apply to a system of conduct or a pattern of behaviour and a specific person with a special disadvantage need not be identified[355], and that unconscionable conduct "can extend beyond the formation of the contract to both its terms and the way in which it is carried out"[356].  The Minister said that the introduction of these interpretive principles "will ensure that the courts will have a clear message about the way in which parliament intends the law to apply"[357].  Professor Paterson compared the amended provision with the equitable doctrine and observed that it seemed unlikely that courts applying the statute would "insist on a requirement of a predatory state of mind by the stronger party"[358].

   [355]Australia, House of Representatives, Competition and Consumer Legislation Amendment Bill 2010, Explanatory Memorandum at 24 [2.20]-[2.23].  See also Australia, House of Representatives, Parliamentary Debates (Hansard), 27 May 2010 at 4361.

   [356]Australia, House of Representatives, Competition and Consumer Legislation Amendment Bill 2010, Explanatory Memorandum at 25 [2.24].  See also Australia, House of Representatives, Parliamentary Debates (Hansard), 27 May 2010 at 4362.

   [357]Australia, House of Representatives, Parliamentary Debates (Hansard), 27 May 2010 at 4359.

   [358]Paterson, "Unconscionable bargains in equity and under statute" (2015) 9 Journal of Equity 188 at 209.

2. The same changes were replicated in the unconscionable conduct provisions in the ASIC Act[359]. The cognate provision in the ASIC Act in connection with the supply of financial services in trade or commerce is s 12CB(1), which is set out in full in other judgments.

   [359]Competition and Consumer Legislation Amendment Act 2011 (Cth), Sch 2, item 1. See Australia, House of Representatives, Competition and Consumer Legislation Amendment Bill 2010, Explanatory Memorandum at 25 [2.25].

3. This legislative history clearly demonstrates that although Parliament's proscriptions against unconscionable conduct initially built upon the equitable foundations of that concept, over the last two decades Parliament has repeatedly amended the statutory proscription against unconscionable conduct in continued efforts to require courts to take a less restrictive approach shorn from either of the equitable preconditions imposed in the twentieth century, by which equity had raised the required bar of moral disapprobation. In particular, statutory unconscionability permits consideration of, but no longer requires, (i) special disadvantage, or (ii) any taking advantage of that special disadvantage. Like other open-textured criteria, such as "unfair" or "unjust", there is no clear baseline moral standard for what constitutes "unconscionable" conduct within s 12CB of the ASIC Act. Nevertheless, the history of development of that statutory proscription demonstrates a clear legislative intention that the bar over which conduct will be unconscionable must be lower than that developed in equity even if the bar might not have been lowered to the "unreasonableness" and "unfairness" assessments in the various categories in nineteenth century equity.

   Mr Kobelt's system was unconscionable

4. Although ASIC's case was pursued only as an allegation of a "system"[360] of unconscionable conduct within the broad legislative proscription, the system was pleaded and argued by reference to the circumstances of a number of representative customers.  Even under the stricter equitable test for unconscionable conduct, Mr Kobelt's conduct in relation to any of the six Anangu customers called as witnesses by ASIC should have been sufficient for a finding that his contracts with them were unconscionable in equity.

   [360]ASIC Act, s 12CB(4)(b).

5. One example is the married couple, AH and AW[361].  They had few assets and limited education.  AH received a Centrelink pension, which since 2013 has been a Disability Support Pension.  AW received a Newstart Allowance.  AH could not identify his bank statements when shown them and could not add the numbers in them.  AW had difficulty understanding her bank statements and had not heard of anything called a "bank loan".  She did not know of any way of buying a car other than by Book-up.  When AH was asked why he gave Mr Kobelt his bank card for the Book-up system he replied "I don't know but because of food.  Because I didn't have no food."  AH did not know what Mr Kobelt was going to do with AH's bank card and PIN.  AH and AW used Book-up to purchase four cars in 18 months for amounts ranging from $4,000 to $8,000.  AW explained that when "the car broke down, we get another car, and another car".  The credit charged by Mr Kobelt on the $4,000 car, if repaid with principal over a 12 month period, would have amounted to an effective interest rate of 43%, significantly in excess of unsecured personal loan rates of 14‑15.2% adduced in evidence[362].

   [361]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [295]-[319].

   [362]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [485], [489].

6. The evidence from the other customers is no better.  One customer, Customer B[363], had no assets and only limited education, and gave evidence with the aid of an interpreter.  Together with his wife, he purchased seven cars in a little over two years.  He was not told by Mr Kobelt how much money would be taken from his account or when he would have his bank card returned.  He stopped shopping at a general store in Mimili because Mr Kobelt had his bank card.

   [363]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [320]-[327].

7. Another customer, Ms Pearson[364], who purchased four cars in four years, was too scared to ask Mr Kobelt to withdraw more than $150 or $200 from her own account for her own use because "that was the only limit I was allowed for".

   [364]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [361]-[377].

8. Another customer, Mr Brumby[365], who bought 12 cars from Mr Kobelt over five years and was described in Mr Kobelt's rudimentary records as "slut", was denied funds from his bank account to purchase return bus tickets in what the primary judge described as "an illustration of the control which [Mr Kobelt] could exercise over his Book-up customers"[366].

   [365]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [336]-[360].

   [366]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [350].

9. Mr Kobelt's system of credit was, for some customers, better than nothing.  Customer D, for example, gave evidence that prior to the Book-up system of credit there were times when he went hungry between pension days[367].  Mr Kobelt's offer of credit, including Book-up, without more would not have been unconscionable if it had been offered on terms that were consistent with good conscience, clearly explained as one of a number of possible alternatives, and implemented fairly and transparently.  It could have the benefit, like other, better, systems of credit such as regular direct debits, of smoothing the fluctuations of expenditure between receipts of income[368].  There could also be cultural benefits, such as avoiding a cultural practice and social obligation of "demand sharing" of resources amongst kin[369], although as the primary judge and the Full Court emphasised, there was very little evidence to support the conclusion that any customer entered the Book-up arrangements in order to avoid demand sharing[370].

   [367]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [332].

   [368]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [569]; Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [262], 742 [302], 751 [349].

   [369]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [585], [617]; Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [262], 742 [302], 751 [349].

   [370]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [582]-[583]; Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 715-716 [152], 732-733 [250]-[251], compare at 751 [352].

10. However, the Full Court was wrong to conclude that Mr Kobelt's system of credit was not unconscionable because it had some of these advantages, and was understood by his customers, "chosen" by them and entered into voluntarily[371].  The most basic error in this reasoning is that the choice of Mr Kobelt's system of credit by the Anangu customers was no real choice at all – Mr Kobelt offered them no other alternative.  This reasoning also ignores many of the circumstances of the system of credit that were pleaded and argued before the primary judge.  What was unconscionable was not the mere fact that Book-up was offered, and voluntarily accepted, but the manner in which the system of credit was offered and administered. The manner of offer, and the process of administration, of the system of credit underlie many of the non‑exhaustive factors enunciated in s 12CC(1) of the ASIC Act. Without attention to those factors the assessment of unconscionability becomes a high‑level instinctive reaction that the legislation seeks to avoid. Further still, there is a danger that without close attention to the non‑exhaustive factors the assessment will become a high‑level instinctive reaction informed by the "high bar" imposed by the twentieth century rigour attached to the meaning of unconscionability in equity. The most relevant factors are as follows.

    [371]Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 735 [266], 736 [268]-[269], 749-750 [345], 758 [384], 759 [386].

11. First, there was the extreme difference in bargaining position between the customers and Mr Kobelt (s 12CC(1)(a)).  Many of his customers were impoverished, illiterate and innumerate.  They had little other opportunity to obtain credit.

12. Secondly, the conditions imposed by Mr Kobelt were not reasonably necessary for the protection of his business interests (s 12CC(1)(b)).  There were reasonable alternatives such as direct debit, deductions from wages, direct payments from Centrelink, or possession of bank cards without PINs[372].

    [372]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [525]-[539]; compare Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 752 [354].

13. Thirdly, basic understanding of the credit transaction was impossible because the rates of interest were concealed within the price differential for cars purchased on credit as opposed to purchased with cash, so that, even with high levels of literacy and numeracy, effective interest rates could not be calculated.  Furthermore, customers had no access to records of their debts in order to understand the ongoing system of credit and even those records that were kept were rudimentary (s 12CC(1)(c)).

14. Fourthly, the effective rates of interest, potentially up to 43% for a car sold for $4,000 with repayments taken over 12 months, were, as the primary judge concluded, "very expensive" and were far above market rates for unsecured lending (ss 12CC(1)(e), 12CC(1)(j)(ii)).

15. Fifthly, Mr Kobelt discriminated between his customers (s 12CC(1)(f)).  The Book-up system was the only form of credit that was offered to Aboriginal customers, although other forms of credit were offered to non-Aboriginal customers.  No other form of credit could be negotiated by Aboriginal customers (s 12CC(1)(j)(i)).

16. Sixthly, the undisclosed risks of supplying Mr Kobelt with the customer's bank card and PIN included the possibility of unauthorised withdrawals, including withdrawals with a lack of good faith such as the occasion when Mr Kobelt withdrew $56,944 from his customers' accounts knowing that he did not have authority to make withdrawals of those amounts (ss 12CC(1)(i)(i), 12CC(1)(j)(iv)).

17. Seventhly, to a significant degree the system of credit had the effect of tying Mr Kobelt's customers to make purchases from him (s 12CC(1)(b)).  Those tied purchases were subject to the discretion of Mr Kobelt, who restricted the goods which the customers could purchase and the amount of money that they could withdraw from funds that were not used to discharge their debts to him.

18. Although there was no allegation that Mr Kobelt had exerted undue influence (s 12CC(1)(d)), and although there was no suggestion of dishonest use of the bank cards and PINs or that the records were maintained dishonestly (s 12CC(1)(j)(iv)), when all the elements of Mr Kobelt's system of credit are considered together, as s 12CB requires for a case pleaded and run this way, they point overwhelmingly to a conclusion of unconscionability.

    Conclusion

19. Despite Parliament's repeated attempts to liberalise the application by the courts of statutory proscriptions against unconscionable conduct, and despite recognition at all stages of this litigation that the statutory concept of unconscionability in s 12CB(1) of the ASIC Act is broader than the concept in equity[373], there was not a close focus in this litigation upon the consequences of the difference between a "narrow" and a "broad" application of the concept of unconscionability[374].  The result in this case, from which I dissent, is based upon a narrow application of the concept.  For some, a broad interpretation is not precluded by the linguistic connotations of "unconscionable" because "there is a close association of ideas between the terms unreasonableness, lack of good faith, and unconscionability"[375].  For others, the linguistic connotation of "unconscionable" carries a force well beyond that of unreasonableness or unfairness so that the use of the term "unconscionable" might continue stubbornly to resist any attempt by Parliament to decouple the statutory proscription from its modern, restrictive equitable conception.  If so, any lowering of the bar towards the nineteenth century equitable meaning synonymous with "unfairness" or "injustice" may only be possible if "unconscionable" is replaced with "unjust"[376] or "unfair"[377].

    [373]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [216]; compare Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 724 [192]-[193].

    [374]Berbatis (2003) 214 CLR 51 at 79 [65].

    [375]Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 265. See also Paterson, "Unconscionable bargains in equity and under statute" (2015) 9 Journal of Equity 188 at 212-213.

    [376]Compare Contracts Review Act 1980 (NSW).

    [377]Compare Consumer Rights Act 2015 (UK).  And see Paterson and Brody, "'Safety Net' Consumer Protection:  Using Prohibitions on Unfair and Unconscionable Conduct to Respond to Predatory Business Models" (2015) 38 Journal of Consumer Policy 331 at 353.

20. However, in my opinion, even if the narrow view of unconscionability were applied to ASIC's "system" case, the appeal should be allowed.  The primary judge was correct to conclude that Mr Kobelt's system of advancing and administering credit was unconscionable.  One might ask how it was possible that Mr Kobelt was only able to impose and implement upon the pleaded 117 customers the extraordinarily harsh conditions of his single system of credit.  It is difficult, perhaps impossible, to escape the conclusion that this was only possible because his customers lived in remote communities, were highly vulnerable, and accepted the conditions and implementation because, as appalling as those conditions were, the system was better than no credit at all.

21. On the broad view of "unconscionability" this conclusion should be inescapable. Almost every one of the indicia of unconscionability in s 12CC points to the system being unconscionable. Even if there were evidence, which there was not[378], 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.  If a Hobson's choice, such as that by the Anangu of Mr Kobelt's system of credit, were a significant factor militating against a system being unconscionable then this could amount to a licence to a monopolist to impose, on a "take it or leave it" basis, extortionate terms and conditions on those in need of a service.  It is hard to imagine that this could have been the intention of Parliament.  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.

    [378]Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [582]-[585]; Kobelt v Australian Securities and Investments Commission (2018) 352 ALR 689 at 732 [243]-[244].