Australian Securities and Investments Commission v Kobelt
[2016] FCA 1327
•9 November 2016
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Kobelt [2016] FCA 1327
File number: SAD 100 of 2014 Judge: WHITE J Date of judgment: 9 November 2016 Catchwords: CONSUMER LAW – alleged contravention of s 29 of the National Consumer Credit Protection Act 2009 (Cth) by engaging in a credit activity without a licence – sale of second hand vehicles on credit – whether the National Credit Code applied to the provision of credit – whether the difference between the price at which the vehicles were sold on credit (the Book‑up price) and the lesser price at which they were sold for cash constituted a charge for the provision of credit within the meaning of s 5 of the Code – whether repayments made at varying times and in varying amounts constituted “instalments” within the meaning of s 11 of the Code.
Held: The difference between the cash price and the Book‑up price constituted a credit charge and the repayments were instalments for the purposes of s 11. Contraventions of s 29 established.
CONSUMER LAW – alleged contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) – Respondent provided credit to indigenous customers by way of “book‑up” – whether his conduct constituted a system of conduct or pattern of behaviour which was unconscionable – elements of the system included the Respondent taking possession of the customers’ debit cards and PINs and transferring to himself in repayment of the customers’ debt the whole, or nearly the whole, of the credit balance in the customers’ accounts from time to time – consideration of factors within s 12CC of the ASIC Act.
Held: Respondent’s conduct in the book‑up system was unconscionable.
Legislation: Australian Curriculum, Assessment and Reporting Authority Act 2008 (Cth) ss 5, 6
Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12CC, 12GH, 19, 76, 155
Consumer Credit (New South Wales) Act 1995 (NSW) s 5
Consumer Credit (Queensland) Act 1994 (Qld)
Credit Act 1984 (NSW) s 14(2)(b)
Credit Act 1985 (ACT) s 14(2)(b)
Credit Act 1987 (Qld) s 16(2)
Credit Act 1984 (WA) s 14(2)(b)
Evidence Act 1995 (Cth) ss 53, 54, 59, 60, 64(3), 69, 87(1), 135, 136, 140
National Consumer Credit Protection Act 2009 (Cth) ss 5, 6(1), 29, 36
National Credit Code ss 3, 4, 5, 10, 11, 12, 13, 17, 65, 204, 325
Second‑Hand Vehicle Dealers Act 1995 (SA) ss 16(1), 17, 23
Second‑hand Vehicle Dealers Regulations 1995 (SA)
Second‑hand Vehicle Dealers Regulations 2010 (SA)
Cases cited: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27
Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51
Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90
Australian Securities and Investments Commission v Cash Store Pty Ltd (in liq) [2014] FCA 926
Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132
Blomley v Ryan (1956) 99 CLR 362
Bridgewater v Leahy (1998) 194 CLR 457
Briginshaw v Briginshaw (1938) 60 CLR 336
Ceva Logistics (Australia) Pty Ltd v Redbro Investments Pty Ltd [2013] NSWCA 46
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25
Fry v Lane (1888) 40 Ch D 312
Geeveekay Pty Ltd v Director of Consumer Affairs Victoria [2008] VSC 50; (2008) 19 VR 512
Guthrie (as liq of Ult Ltd (Rec Apptd) (In Liq)) v Radio Frequency Systems Pty Ltd [2000] WASC 152; (2000) 34 ACSR 572
Harrington‑Smith on behalf of the Wongatha People v State of Western Australia (No 2) [2003] FCA 893; (2003) 130 FCR 424
Helby v Matthews [1895] AC 471
Hoare v Rennie (1859) 5 H&N 19; 157 ER 1083
Howell v Evans (1926) 134 LT 570
Johnson v Smith [2010] NSWCA 306
Jones v Barkley [1781] 2 Dougl 685; 99 ER 434
Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392
Kingston v Preston [1773] 2 Doug KB 689; 99 ER 487
Lee v Butler [1893] 2 QB 318
Lee v The Queen [1998] HCA 60; (1998) 195 CLR 594
Louth v Diprose (1992) 175 CLR 621
Paciocco v Australian and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199
Paciocco v Australian and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 333 ALR 569
Provident Capital Ltd v Bortolin Papa (No 1) [2011] NSWSC 460
Quick v Stoland (1998) 87 FCR 371
Reynolds v Katoomba RSL All Services Club Ltd [2001] NSWCA 234; (2001) 53 NSWLR 43
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; (2002) 234 FCR 549
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699
Walker v Consumer, Trader and Tenancy Tribunal of New South Wales [2013] NSWSC 1432
WJ Allan and Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189
Date of hearing: 9-12, 15-18 and 23-26 June 2015 and 1 and 2 July 2015 Date of last submissions: 10 July 2015 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 627 Counsel for the Applicant: Mr T Duggan SC with Ms N Charlesworth Solicitor for the Applicant: Australian Securities and Investments Commission Counsel for the Respondent: Mr DA Trim QC with Mr H Heuzenroeder Solicitor for the Respondent: Lempriere Abbott McLeod
Table of Corrections 24 February 2017 On the cover page, the name of Counsel for the Respondent “Heuzenroder” is replaced with “Heuzenroeder”. 24 February 2017 In paragraph 14, the word “was” is replaced with “were”. ORDERS
SAD 100 of 2014 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Applicant
AND: LINDSAY KOBELT
Respondent
JUDGE:
WHITE J
DATE OF ORDER:
9 NOVEMBER 2016
THE COURT ORDERS THAT:
1.The matter is adjourned to a date to be fixed by the Court for determination of relief and costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
Introduction
[1]
The evidence in the trial
[10]
Mintabie and Nobbys Store
[18]
Book-up system
[24]
Elements of the Book-up system
[28]
Purchase orders
[78]
Cash Advances
[86]
Travel expenses
[88]
Cancellation of key cards
[89]
The withdrawals on 14 December 2010
[92]
The February 2011 incident
[98]
Nobbys’ profit and loss statements
[109]
Section 29 of the NCCP Act
[112]
The contracts between Mr Kobelt and his customers
[126]
The price differential
[132]
Mr Kobelt’s determination of the purchase price
[133]
An alleged change of practice
[138]
The statements of Mr Kobelt’s solicitor
[146]
Assessment of the evidence concerning the alleged change of practice
[154]
The sale by instalments
[173]
The effect of the application of s 11
[196]
The position without applying s 11
[199]
Summary on s 29
[210]
Unconscionable conduct – the “system” case
[211]
Section 12CB of the ASIC Act
[213]
The conduct in question
[228]
Nobbys’ Book-up customers
[235]
Remoteness
[240]
The view
[248]
Evidence from a financial counsellor
[266]
The Mimili Store manager
[275]
Mr Kobelt’s evidence as to customer characteristics
[283]
The Anangu witnesses
[291]
AH and AW
[295]
Customer B
[320]
Customer D
[328]
Ronny Brumby
[336]
Rhoda Pearson
[361]
ABS statistics
[378]
NAPLAN results
[384]
Anthropological evidence and statistical analysis
[388]
Findings as to the characteristics of the 117 customers
[417]
Mr Kobelt’s evidence
[426]
Mr Kobelt’s credibility
[430]
Practices at Nobbys
[453]
Mr Kobelt’s record keeping
[458]
Comparative interest rates
[485]
Use of Book-up by others
[497]
Evaluation
[506]
Relative strength of bargaining positions: s 12CC(1)(a)
[507]
Conditions not reasonably necessary to protect Mr Kobelt’s legitimate interests: s 12CC(1)(b)
[517]
Centrepay
[525]
Direct debit
[531]
Payday payments
[534]
Employer deductions
[537]
The alternatives: summary
[538]
Understanding of documents: s 12CC(1)(c)
[541]
Absence of undue influence or pressure or unfair tactics: s 12CC(1)(d)
[547]
The cost of alternative but equivalent financial services: s 12CC(1)(e)
[551]
Consistency of conduct to like service recipients: s 12CC(1)(f)
[552]
Willingness to negotiate terms and conditions: s 12CC(1)(j)
[554]
Acting in good faith: s 12CC(1)(l)
[557]
Other factors listed in s 12CC(1)
[560]
Non-compliance with the Code
[562]
Improvident spending
[565]
Demand sharing
[574]
Customers’ voluntary conduct
[586]
Absence of complaints
[590]
Centrelink loans
[594]
Mr Kobelt’s discretionary control
[598]
The “tying” effect of the conduct
[603]
Paciocco
[608]
Conclusion on unconscionability – the “system” case
[611]
Unconscionable conduct – the secondary case
[625]
Conclusion
[627]
WHITE J:
Introduction
The respondent, Mr Kobelt, conducts a general store at Mintabie under the name “Nobbys Mintabie General Store” (Nobbys). Mintabie is in the far north of South Australia, being about 1,100 km north of Adelaide. It is located on an opal field which is part of an area excised by lease to the Government of South Australia from the Anangu Pitjantjatjara Yankunytjatjara Lands (APY Lands).
As part of his business, Mr Kobelt sells second hand motor vehicles and provides credit to customers by way of “Book‑up”.
The applicant (ASIC) alleges that Mr Kobelt’s conduct since 1 July 2011 in providing credit to purchasers of motor vehicles contravenes s 29 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act). Section 29 prohibits a person from engaging in a “credit activity” if the person does not hold a licence authorising the person to engage in the credit activity.
In addition, ASIC alleges unconscionable conduct by Mr Kobelt in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by his conduct since at least 1 June 2008 in requiring, as a condition for his provision of credit to purchasers of cars or goods at Nobbys, that the customers provide him with a debit card linked to a bank account into which their income is paid together with the customer’s personal identification number (PIN) relating to the card, and his later conduct in using the card and the PIN periodically to withdraw all or nearly all of the monies in the account in reduction of the customer’s debt. With one exception, each of the customers in question is an indigenous resident on the APY Lands or in adjacent regions.
ASIC’s primary allegation is that Mr Kobelt’s conduct since at least 1 June 2008 in providing credit and in making use of the debit card in the way just outlined in relation to at least 117 of his indigenous customers constitutes a system of conduct or pattern of behaviour within the meaning of s 12CB(4) of the ASIC Act which is unconscionable. This part of ASIC’s case did not turn on the circumstances of any individual customer. ASIC’s secondary allegation was that Mr Kobelt’s conduct in relation to Book‑up in the case of four customers was unconscionable. In order to protect the privacy of these customers, they were referred to in the pleadings and in the evidence as Customers A, B, C and D. In fact, two persons comprise Customer A as they are a husband and wife. I will refer to the husband as AH and to the wife as AW.
Ultimately, ASIC did not press for findings on its secondary case.
ASIC seeks by way of relief the grant of declarations and injunctions, the imposition of civil penalties and publicity orders.
For the reasons which follow, I am satisfied that ASIC has made good its allegations. Mr Kobelt did, in the period commencing on 1 July 2011 and continuing until at least April 2014, contravene s 29(1) of the NCCP Act by engaging in credit activity within the meaning of s 6(1) of that Act when he did not hold a licence authorising him to do so.
Further, Mr Kobelt did, in the period commencing on 1 June 2008 and continuing until at least July 2015, engage in a system of conduct or pattern of behaviour within the meaning of s 12CB(4)(b) of the ASIC Act which was unconscionable within the meaning of s 12CB(1)(a) of the ASIC Act. The system is the Book‑up system which Mr Kobelt implemented at Nobbys. I have said that the conduct continued until July 2015, because that is when the trial in the action was concluded.
The evidence in the trial
A large amount of documentary evidence was tendered at the trial. ASIC led evidence from 15 witnesses. With the exception of six Anangu witnesses, the evidence in chief of these witnesses was provided in writing, although in some cases there was some additional oral evidence in chief. Four of the witnesses were not required for cross‑examination. These were Ms Bretherick from the Commonwealth Bank of Australia (CBA), Mr Grant from Australia Post, Mr Holmes who was previously employed by ASIC, and Mr Mills from Westpac Banking Corporation (Westpac). The witnesses who were required for cross‑examination were Mr Marchese and Mr McCabe (both from ASIC), Mr Stauner, Mr Kilpatrick and Dr Martin. I indicate now that I regarded the evidence of Mr Marchese, Mr McCabe, Mr Stauner and Mr Kilpatrick as being honest, reliable and useful. Given the criticisms made by Mr Kobelt of aspects of Dr Martin’s evidence, I will defer consideration of his evidence to later in these reasons. I observe, however, that notwithstanding his criticisms, Mr Kobelt’s final submissions relied to a not insignificant extent on the evidence of Dr Martin.
The evidence of the six Anangu witnesses was taken in Marla.
Mr Kobelt gave evidence himself and adduced evidence from his former solicitor, Mr Proud, Professor Glonek (who has expertise in mathematical statistics) and from Mr Jorgensen (a forensic accountant).
In making my assessment of the evidence and of ASIC’s claims, I have had regard to s 140 of the Evidence Act 1995 (Cth) and to the approach discussed in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361‑3.
The transcripts of an examination of Mr Kobelt by ASIC pursuant to s 19 of the ASIC Act were admitted into evidence pursuant to s 76 of the ASIC Act.
Much of the evidence concerning Mr Kobelt’s Book‑up system and its operation was not contentious. There were, however, distinct differences between the parties on some aspects, and it will be necessary to make findings concerning them.
For reasons of convenience, I will describe Mr Kobelt’s Book‑up system using the past tense. It is to be noted, however, that except when noted otherwise, the system remains current.
During the course of his final submissions, Mr Kobelt asked that the Court provide reasons for some of the rulings made at the commencement of the trial rejecting his objections to some of ASIC’s evidence. Those reasons are contained in Appendix One of these reasons.
Mintabie and Nobbys Store
Mintabie is part of a gazetted precious stones field (opals) and is, in effect, an enclave within the southern portion of the APY Lands. It is 45 km west of Marla, which is located on the Stuart Highway.
Mr Kobelt has operated Nobbys since the mid‑1980s. He does so with the assistance of his partner, Sonia Kobelt, his son, Timothy Kobelt, and some employees. Nobbys sells a range of goods including food, groceries, general goods, fuel and second hand cars.
When Mr Kobelt went to Mintabie in the early 1980s, it had a population of about 1,800 people, nearly all of whom were engaged in one form or other of opal mining. Most were of European descent. Mintabie continued as an active opal field until the early 2000s. The amount of opal mining has declined and the permanent population of Mintabie was about 70 people at the time of the trial. These included one Aboriginal family.
Mr Kobelt estimated that presently Nobbys has a customer base of about 600 Aboriginal persons each year, of whom about 200 frequented the store each week and I infer that that has been the case throughout the period relevant to these proceedings. The majority of customers who use Book‑up come from Mimili and Indulkana, both being communities in the APY Lands to the north‑west of Mintabie. By late 2011, residents of the APY Lands (the Anangu) comprised about 80% of the store’s patronage.
Nobbys is one of three general stores in Mintabie, the others being Sam’s and Scrooge’s.
Sonia and Timothy were either employees or agents of Mr Kobelt acting at the times which are material in these proceedings within the scope of their actual or apparent authority, so that their knowledge and states of mind can be attributed to Mr Kobelt: ASIC Act s 12GH(3); NCCP Act s 325(3) and, for similar reasons, their conduct can be attributed to Mr Kobelt: ASIC Act s 12GH(4); NCCP Act s 325(1).
Book-up system
A significant part of the business of Nobbys since about 2000 has been the sale of second hand cars. Some customers pay cash but most have bought their cars on Book‑up.
In the period between 6 July 2011 and 31 October 2012, Mr Kobelt made 105 car sales using Book‑up. The 105 sales involved 92 different customers. Nearly all of these sales were made to Anangu as Mr Kobelt said that, in the whole period during which he has been selling second hand cars, he had sold only about half a dozen to persons of European descent. The prices of the cars ranged from $2,500 to $7,800. The average and median prices were $5,600 and $5,800 respectively.
Generally, the statutory duty to repair defects (commonly referred to as the “used car warranty”) imposed by s 23 of the Second‑Hand Vehicle Dealers Act 1995 (SA) (the 2H Dealers Act) does not apply to cars sold by Mr Kobelt. That is because in most cases the vehicles have already been driven more than 200,000 km before the sale (s 23(7)).
All of the 105 sales were by credit on the Book‑up system but, as previously noted, there were in addition a small number of other customers who paid the full price at the time of purchase. Those purchasing using Book‑up would usually pay a deposit. These varied between $440 and $3,500.
Elements of the Book-up system
Mr Kobelt required, as a condition of the provision of credit, that his Book‑up customers provided him with a debit card (referred to as a “key card”) linked to the bank account into which their wages or Centrelink payments were made as well as their PIN. A key card is not a credit card. It can be used only to debit amounts from funds present in the customer’s account. Withdrawals cannot be made using a key card without entering the customer’s PIN. The PIN is a unique identifier provided by the issuing financial institution to the customer and, as is well‑known, customers are expected to maintain the confidentiality of their PINs in order to prevent fraud or misuse of their key cards.
Mr Kobelt retained possession of the key card, generally until the debt was paid. He used the key card and the PIN in one of two EFTPOS machines in Nobbys to access the customer’s account, usually on the day on which payments were made into the account or shortly afterwards. Generally, Mr Kobelt withdrew the whole, or nearly the whole, of the available funds. This amount was applied in reduction of the customer’s debt to him.
Mr Kobelt explained that his Book‑up system operated in the following way:
Q:What I’m enquiring about is what arrangement did you come to with Aboriginal customers for payment for those cars if they wanted to Book‑up the purchase price of the cars?
A:I would ask for a deposit and half their – I would ask them what their income was, when they got paid. I would say, well, I want half the money for payment, and the rest you can – other half you can have yourself, food and cash.
Q:The other 50 percent for food or cash. How is that to be accessed by the Aboriginal customer?
A:Either purchase order or they come into the store.
Q:So the entirety of the money in their account would come to you, and you would make the 50 percent available back?
A:Most of the times. They would ask me sometimes to leave X amount in their key card if they were going to Port Augusta or Alice Springs, which I would do.
His Honour: Is the position that, right from the start when you were agreeing to Book‑up of a car, you would agree with the customer that you would take pretty well the whole of what was in their account but say to them that 50 percent of that would be used to reduce the debt on the car and the other 50 percent would be available to them?
A:Yes, available to them. Yes, and I would take – and I would take – if they told me to take all the money out, I would take it out. If they told me to leave some, I would leave some.
As can be seen, Mr Kobelt’s evidence was that he agreed with the Book‑up customers that he would take the whole of the money in their account from time to time on the basis that he would then allow them to use half for their own purposes. However, he retained that half in his own account. He did not transfer it elsewhere for the customer’s use. With relatively few exceptions, the customers could obtain access to that money only by coming back to Nobbys to make their purchases of food or groceries, or to obtain cash, or, by a process which I will describe later, having Mr Kobelt send a “purchase order” to another store. This was the general position, but some customers would place limits on the amounts he was authorised to withdraw. The 50:50 arrangement was not recorded in writing.
ASIC disputed Mr Kobelt’s evidence about the 50:50 arrangement, and it will be necessary to return to that topic.
In his examination by ASIC pursuant to s 19 of the ASIC Act, Mr Kobelt said that he would not provide Book‑up unless the customer provided his or her key card and PIN, although there is one couple whom he trusted enough not to require this. Mr Kobelt said that he required the key card and PIN as “security”. Later, in his s 19 examination, Mr Kobelt said that he did not ask customers for their PIN, instead “they just give it to you”. Similarly, in his evidence, Mr Kobelt said that it was the customers who had offered him their key cards and PINs. I accept that that may have occurred but, as I will indicate later, I am satisfied that, when it does, it is because the customers knew Mr Kobelt’s requirements even without him saying so expressly, and that they provided their PINs only because of those requirements. I do not accept that it was the indigenous customers who initiated the idea of handing over their key cards and PINs in exchange for the provision of credit.
Although there was no explicit evidence on this topic, I infer that use of Book‑up was the only means by which Mr Kobelt provided credit to his Anangu customers. That is to say, the Anangu customers did not have a choice between Book‑up and an alternative credit facility offered by Nobbys.
Mr Kobelt did not grant credit to all who sought it. If he did not know the customer, he would ask them their name, where they lived, what their income was and when it was paid and make his assessment by reference to that information. Sometimes he would refuse credit because one or more members of the customer’s family had previously defaulted in Book‑up arrangements or because the customer came from a community in the APY Lands whose people he regarded as unreliable. In the last 10 years, Mr Kobelt has declined Book‑up to about 12‑15 persons.
If Mr Kobelt did know the customer, he would ask them questions about their income and when it was paid. Sometimes Mr Kobelt refused Book‑up to customers known to him, usually because they had previously frustrated his ability to access the funds in their account by, for example, cancelling the key card or by having their income paid into another account.
Mr Kobelt did not ask customers wishing to use Book‑up (whether they were known or not known to him) to complete any application form. In his s 19 examination, Mr Kobelt said that apart from enquiring about the amount of the customer’s weekly or fortnightly income and when it was paid, he did not make other enquiries such as whether they had Book‑up elsewhere, or had other debts, liabilities or commitments. He said that he did not have to ask about the number of their children or their other commitments because, having been at Mintabie for 27 years, he knew the majority of the customers fairly well.
As indicated, when Mr Kobelt agreed to provide credit, he would require the customer to hand over to him their key card and to tell him the PIN relating to its use. Mr Kobelt would put each key card in its own resealable plastic bag. He would stick a piece of masking tape to the outside of the plastic bag on which he would write the customer’s name, their PIN and, in most cases, some details of when payments would be made into the accounts, for example, “Chq Wed”, “Pen Thurs”, and “Pen Fri”. Entries like this indicated that the customer expected a cheque to be paid into the account on Wednesdays, or that he or she received a payment on the Thursday or Friday in pension week. These were not necessarily payments of pension as Mr Kobelt would use the same descriptor if the person received their wages on the Thursday or the Friday, as the case may be, in pension week. Several of the entries contained terms such as “Chic”, “Chicy”, “Chicky”, “Chichs”, “Chn” and “Ch”. Some of these entries indicated that the customer received Child Support payments in the alternate week to pension week and others that the customer received the payment from some other source on the same day that Child Support payments were made. The entries indicated to Mr Kobelt when funds would be available in the accounts for his withdrawals. I accept Mr Kobelt’s evidence about these matters and that, contrary to ASIC’s submission, the entries did not always indicate that the customer was a Centrelink recipient. However, I also find that at least half of Mr Kobelt’s customers were recipients of Centrelink benefits.
In four cases, the entry on the piece of masking tape was “Bungala” or an abbreviation of that name. This was a reference to Bungala Aboriginal Corporation which, for a time, administered the Commonwealth Development and Employment Project (CDEP). That is an employment training program in respect of which participants receive payment. Some witnesses described it more colloquially as “Work for the Dole”. It seems that another entity, Career Employment, commenced administering the program at a later time.
In some cases, the detail on the masking tape was “Pen Mon 300” or “Bungala $250”. It is not clear whether these entries were an indication of the amount which the customer expected to be paid into their account or a limit which they were imposing on the amount which could be withdrawn by Mr Kobelt from the account.
When Mr Kobelt provided credit in relation to the purchase of a car, he commenced a handwritten record, using for this purpose unused 365 day diaries (the Diaries). Three of these diaries were in evidence (Diary One, Diary Two and Diary Three). Diaries One and Three were unused 2007 and 2010 diaries. Diary Two had no printed days, months or year. The entries which Mr Kobelt made in Diaries One and Three had no correlation with the printed dates in those diaries. The entries in Diary One commenced on 7 May 2009; those in Diary Two on 25 September 2011; and those in Diary Three in November 2012 (and continued to April 2014). The transaction details recorded in the diaries related only to customers who had bought a car on credit although, as will be seen shortly, Mr Kobelt also recorded the purchases by these customers of groceries and fuel, as well as cash advances.
Mr Kobelt entered the name of the customer in the diary, the registration number of the car purchased, the sale price and the amount of the deposit. The corresponding details for each succeeding customer to whom he granted credit would be entered about five centimetres below. Mr Kobelt used the intervening space to record the transactions relating to the first customer.
The next step in relation to the first customer occurred later, usually on the day the customer had indicated that payment into the account was expected. In the customer’s absence, Mr Kobelt would use the customer’s key card and PIN in one or other of the two EFTPOS machines at Nobbys to make withdrawals from the customer’s account. Sometimes the withdrawals were made by Timothy or Sonia Kobelt, but it was not suggested that anything turned on that. For convenience I will continue to refer to Mr Kobelt only.
By one or more withdrawals, Mr Kobelt would take all, or nearly all, of the credit balance in the customer’s account and transfer the money to his own account. He would record (in handwriting and in an abbreviated manner) in a column on the left hand side of the diary, under the customer’s name, the date of the withdrawal and the total withdrawn. For example, an entry of “8/5 500” indicated that Mr Kobelt had withdrawn a total of $500 on 8 May. The withdrawals on subsequent days were recorded in a like manner. When Mr Kobelt ran out of space under the customer’s name in the diary, he would start a second column immediately to the right of the first column and, sometimes, a third column.
The great majority of withdrawals were made on the day on which the customer had informed Mr Kobelt that monies would be paid into the account, ie, pension payment day or the day on which the customer’s wages were paid. Since about mid‑2014, it has mostly been Timothy who has carried out the withdrawals. Before then, it was mostly Mr Kobelt.
Both Mr Kobelt and Timothy generally made the withdrawals early in the day, before or shortly after Nobbys opened. It was also common for Timothy to make withdrawals between midnight and 1 am. I am satisfied that the Kobelts made the withdrawals at these times so as to preclude the customers having the opportunity, or at least any practical opportunity, to access the monies by other means, for example, by internet or telephone banking. Both in his s 19 examination and in his evidence in chief, Mr Kobelt acknowledged that that was his purpose. In the period between 1 July 2010 and 30 November 2012, approximately two‑thirds of the withdrawals from customers’ accounts were made by Mr Kobelt or his agent outside the usual trading hours of Nobbys.
At the time of making the withdrawals, Mr Kobelt did not know, and had no means of ascertaining, the balance in the customer’s account. Accordingly, the process of withdrawal usually involved trial and error. Mr Kobelt would attempt a withdrawal of a certain amount, say $200. If that was successful, he would attempt to withdraw a like amount or perhaps a little less and continue in this way until the attempted withdrawal was unsuccessful because the customer’s account then held insufficient funds. Mr Kobelt would then seek to withdraw a lesser amount, perhaps as little as $50, or even $20, until further attempts were unsuccessful. By this means, Mr Kobelt was able to “interrogate” the account and to take the whole, or nearly the whole, of the credit balance in the account.
Some customers placed a maximum on the amount which Mr Kobelt could withdraw from their account. Mr Kobelt said that he complied with the requests or directions from his customers as to the amount to be withdrawn from their accounts. If they asked him to take the whole amount, he would do so; if they asked him to leave some, he would so. However, the evidence did reveal several occasions when Mr Kobelt had not complied with his customers’ directions and, as already indicated, it was evident that he and Timothy regarded themselves as being in competition with many of the customers as to who could make withdrawals first.
Mr Kobelt put the EFTPOS printed record of the transfer in the plastic bag containing the customer’s key card. He kept these until the bag became too full (usually after two or three months), at which time they were simply discarded. This meant that Mr Kobelt no longer had the means of showing customers the documents evidencing his withdrawals.
Mr Kobelt did not provide any printed record of the withdrawals to the customers, although they had the means of seeing what had occurred from the periodic account statements provided by their bank. Nor did Mr Kobelt provide his customers with periodic account statements.
Until the end of 2010, the arrangements which Mr Kobelt made with his customers for Book‑up appear to have been wholly verbal. Commencing in January 2011, Mr Kobelt had his customers provide an authority which he wrote out using a standard form of expression:
I [name of customer] give Lindsay permission to take money from my Key Card [number of card].
[Signature]
These authorities were written consecutively in an unused 2010 diary. One hundred and fifty one customers gave permission in this way, although there were 21 instances in which the authority, although written in the diary, was not signed by the customer, and there were two instances of customers having signed the diary without any authority having been written above their signature. Mr Kobelt said that the former occurred when a customer left the store before he had completed writing out the authority, and the latter because he had asked the customer to sign following his oral explanation but before writing out the authority. I am prepared to accept those explanations.
Apart from obtaining these authorities and making the entries on the masking tape, Mr Kobelt did not otherwise record in writing the terms and conditions on which he provided Book‑up.
As at 5 November 2012, Mr Kobelt held the key cards of 85 customers which had been provided to him as part of Book‑up. None of the cards had reached its expiry date.
The amounts of money which Mr Kobelt withdrew from the accounts of his customers using their key cards and PINs were substantial. In the period between 1 July 2010 and 30 November 2012, Mr Kobelt withdrew a total of just under $1 million ($984,147.90) from the accounts of 85 customers to whom he had provided Book‑up in respect of the sale of second hand cars.
One of the consequences of Mr Kobelt’s withdrawals of all, or nearly all, of the credit balances in the customers’ accounts, was that they then had no means of acquiring food, groceries and the other necessities of life. Without their key card, it was, in any event, difficult for them to access any remaining balance in their account. Mr Kobelt addressed this circumstance by supplying goods to his customers by way of further Book‑up (or “Book‑down” as it was sometimes called) at Nobbys but, subject to a qualification, generally, he limited the credit allowed for this purpose to no more than 50% of the amount which he had withdrawn from the customer’s account on the occasion of his most recent withdrawal. This meant that the customers had to travel to Nobbys to acquire food and groceries rather than acquiring them from, say, the community stores at Mimili and Indulkana. The amount of credit Mr Kobelt allowed by way of Book‑down was at his discretion, having regard to the amount which the customers booked up and their payment record.
The qualification mentioned in the previous paragraph is that Mr Kobelt would not, generally, allow the customers to access at the one time the whole of the notional 50% which was their entitlement. Instead, his practice was to limit customers’ Book‑down to amounts of $100, $150 or $200, depending on the customer and the amount withdrawn, rather than to 50% of the amount withdrawn, even when that amount exceeded those figures. Mr Kobelt said that he did this in order to ensure that his customers did not spend all their money at once and so would have “something” at the end of the week. In this way, Mr Kobelt controlled the expenditure of his Book‑up customers.
Mr Kobelt did not maintain any record showing the balance available to each customer by reason of the 50% of the withdrawals he had said would be available to them. He said that he was not inflexible in the amount he allowed customers to Book‑up for food and groceries. However, if he had not been able to withdraw money from a customer’s account for a month, he would not allow any further Book‑up of groceries or fuel.
As already noted, ASIC disputed Mr Kobelt’s account that he had agreed, or would allow, Book‑up customers to have 50% of the amount he had withdrawn from their accounts. It pointed to the absence of any separate recording of the amount available to the customers with the consequence that Mr Kobelt could not have known at any one time the amount of a customer’s accumulated or residual entitlement. It also pointed to the absence of any discernible pattern in the amounts for Book‑down recorded in the diaries. Further, several of the Anangu witnesses referred only to being able to Book‑down “a little bit” and not to an understanding that they had an entitlement to 50%. With one exception, none said that their agreement with Mr Kobelt was for them to have access to 50% of the money he withdrew. I note that Mr Kobelt’s own calculations of the amounts he had allowed by way of Book‑down to four customers (to whom he referred in final submissions on this topic) were less than 50%, although in two cases, only marginally so. ASIC pointed to evidence showing that the amounts of Book‑down were in some cases well less than 50%.
It is obvious that the 50% entitlement was not applied in a literal way. Instead, I consider that the Kobelts used it as a guideline as to the maximum amount of the Book‑down which they would allow. On occasion, some customers were allowed more, but generally the Kobelts tended to limit the amount of Book‑down allowed so that it did not exceed 50% of the amounts which they had withdrawn from the customers’ accounts.
I am prepared to accept that, in some cases, Mr Kobelt may have referred, when putting in place a Book‑up arrangement, to a “50:50” or “half and half” split in his discussions with the Book‑up customers but think it probable, and so find, that more often than not Mr Kobelt told the Book‑up customers only that they could have “a little bit”, or even only that they could have “some” food or groceries. In my assessment, the absence of any formal recording by Mr Kobelt of the amount to which the customers were entitled counts very much against him having agreed expressly that they were entitled to 50%.
When Mr Kobelt allowed a customer Book‑down for food, groceries or fuel, he recorded the credit allowed in the same page in the diary on which he had recorded the Book‑up for the car purchase, but in a column on the right side of the page. When this column was full, Mr Kobelt started a second column to its immediate left.
Thus, at least nominally, the diary entries were a rudimentary form of running account, with a succession of credits and debits, but with the limit on the amount which a customer could Book‑up each fortnight having the effect that the customer’s indebtedness to Mr Kobelt decreased over time.
Mr Kobelt did not record in the diary the balance owed by the customer after each transaction. However, he would calculate the balance from time to time, sometimes when prompted by a customer’s request or when the customer was using Book‑up to acquire another vehicle, and he would record that balance in the Book‑down column. Because Mr Kobelt did not himself know the balance without calculating it, he would sometimes withdraw more from a customer’s account than the customer owed him. That is to say, Mr Kobelt was making withdrawals from customers’ accounts which were unauthorised. This could happen on successive paydays before he realised that the customer’s debt had already been cleared. Mr Kobelt would make a reimbursement when he realised that too much had been taken from a customer’s account.
When the customer had cleared the debt, Mr Kobelt would record “Pd” in the diary page, as an abbreviation for “paid”.
It is difficult to discern from the evidence the average or typical periods for which Mr Kobelt retained his customers’ key cards. Other than in circumstances in which Mr Kobelt returned the cards temporarily, to which I will refer shortly, he retained possession of them until the customers’ debts had been discharged. This was usually for an extended period, that is to say, extending for at least several months. The customers were, correspondingly, without possession of their key cards for that period.
The Book‑up diaries did not contain any entry relating to 19 customers for whom Mr Kobelt held a debit card. In one case, a customer’s card was held in the plastic bag relating to another customer altogether, suggesting possibly that the card may have been held and used in relation to the debt of another, although there was no evidence from Mr Kobelt about that.
Sometimes Mr Kobelt would return, temporarily, a key card to a customer before the customer’s debt had been paid in full. This occurred when the customer wished to travel away to, say, Alice Springs, Port Augusta or Adelaide and wished to have their key card with them as a means of obtaining cash. Mr Kobelt generally permitted this. Most customers, but not all, returned their card to Mr Kobelt on their return to the APY Lands.
On other occasions, Mr Kobelt would accede to a request from a customer intending to travel that money be left in the customer’s account, allowing them to withdraw funds personally at a bank.
As is evident from the above, Mr Kobelt’s system of recording transactions on Book‑up was rudimentary. Not only was the system itself rudimentary, but the manner in which Mr Kobelt made the entries makes it difficult to understand the state of a customer’s account at any one time. The handwritten entries were made in a cramped and somewhat chaotic manner and often Mr Kobelt would make entries over printed portions in the diaries. Many of the entries were illegible or only barely legible. Despite this, there is no suggestion that Mr Kobelt maintained his records dishonestly.
In 2014, Mr Kobelt commenced using ledger cards instead of diaries to record the Book‑up transactions. Each customer had his or her own card. Mr Kobelt recorded the name of the customer and, in some cases, the customer’s PIN on the card. Some of the ledger cards contained columns with the printed headings “Date”, “Particulars”, “Debit”, “Credit” and “Balance”. In the column headed “Particulars”, Mr Kobelt recorded very brief details of the transaction, for example, “food” (to indicate the purpose of the Book‑down), “Pd” (to indicate an amount credited to the customer’s account), or “cash” (if the customer had been advanced cash). The amounts shown in the debit and credit columns were the total amount debited or credited to the account, as the case may be, on the identified date. The entries in the “Balance” column, recorded the balance following that day’s transactions.
As already noted, all but one of the customers to whom Mr Kobelt provided the Book‑up facility were indigenous persons, and nearly all of these were residents of the APY Lands. Mr Kobelt did extend credit to non‑Aboriginal persons, but on different arrangements. He did not require non‑Aboriginal customers to provide security and relied on them to pay his account at the end of the week in which the credit was provided or, at the least, at the end of the following week.
The travel by Anangu customers to Nobbys often involved considerable distances. This can be illustrated by reference to the distance of Mimili and Indulkana (where many of the Book‑up customers resided) from Mintabie. The more direct route from Mimili to Mintabie is by a back road, which is often rough, and is approximately 70 km one way. The route by the main road which is mainly on graded roads but includes a segment on the Stuart Highway is approximately 165 km one way. The route from Indulkana to Mintabie by the main road is approximately 116 km one way. Going by a rough back road is about 30 km less. Sometimes customers required fuel for the return journey. Mr Kobelt would provide Book‑down for this purpose, but again generally subject to the amount of credit being provided not exceeding his 50% limit.
Some of the Book‑up customers resided in communities which were much further distant than Mimili and Indulkana. These included Docker River, Uluru, Ernabella, Pipalyatjara, Kanpi, Finke and Wingellina. It is reasonable to infer that for customers residing in those places, a weekly or fortnightly trip to Mintabie was often impractical.
The system of Book‑up I have described above is that applied by Mr Kobelt in relation to credit provided for the sale of cars. Most of the Book‑up related to such sales. However, Mr Kobelt also provided Book‑up for food and groceries to some customers who had not purchased a car. The system by which he did so was the same as that which I have recorded except that Mr Kobelt did not keep records of such Book‑up transactions within the diaries. Instead, Mr Kobelt kept EFTPOS printed records of transfers made in a plastic bag containing the customer’s key card.
Mr Kobelt contended that he had developed the system of Book‑up at Nobbys to meet the needs of his Anangu customers. He referred in this respect to the decline in opal mining at Mintabie. Until the 1990s, some of the Anangu had derived income from “noodling” and selling the opal that they located. Very little noodling occurs now with the consequence that the Anangu no longer have income from that source. Mr Kobelt claimed that he commenced providing Book‑up to address this circumstance, that is, to satisfy a demand from his customers.
This history may explain in part how Book‑up developed, but I doubt that it is a complete explanation. I consider it likely that Mr Kobelt saw that providing Book‑up was a means by which Nobbys could attract and retain customers as the population in Mintabie declined. However, whatever its historical origins, the conscionability or otherwise of Mr Kobelt’s conduct is to be assessed by more contemporaneous circumstances.
A book‑up system is not unique to Nobbys. I will refer later to evidence that forms of book‑up are used elsewhere, both in Aboriginal communities and in rural and regional Australia. It is evident that book‑up arrangements can take a variety of forms. It is appropriate to record therefore that this judgment concerns only Book‑up at Nobbys, and not book‑up systems more generally.
Purchase orders
Some of Mr Kobelt’s customers lived in, and others from time to time travelled to, other communities in the APY Lands. It was often impractical for customers in these circumstances to travel to Mintabie to purchase food and groceries, or it was more convenient for them to make the purchases in their own community or the community they were visiting. In each of these circumstances, the customers had no ready access to cash or credit because Mr Kobelt held their debit card and PIN. Mr Kobelt had a system by which he could make credit available to some of these customers at some community stores in the APY Lands. This involved him issuing, at the customer’s request, a “purchase order” to the store at which the customer wished to shop.
Customers would contact Mr Kobelt by telephone and ask for a purchase order to be issued to a store in a particular community. If Mr Kobelt agreed, he would send by facsimile to the relevant store a purchase order which named the customer, the amount of credit he authorised and often the nature of the authorised purchase, for example “goods” or “cash”. The amounts so authorised varied between $20 and $500. The recipient store would then allow the customer to purchase food or would issue cash to the customer to the amount stated in the purchase order and, in due course, Mr Kobelt would pay the store the amount it had allowed on credit or advanced in cash.
Thus, the purchase orders were in the nature of promissory notes pursuant to which Mr Kobelt undertook to pay the debt owed by the customer to another store in the APY Lands for the purchase of goods or the issue of cash.
Mr Kobelt said that he had never refused a request for a purchase order if it was to be used to purchase food. He has, however, on occasion, sent a purchase order for a lesser amount than that requested by the customer, say, $100 instead of $200, and had told the customer “you’ve already had plenty”.
When Mr Kobelt honoured a purchase order, he made an entry in the Book‑up diary showing the amount he had paid. This was in the nature of a debit to the customer’s account with Mr Kobelt.
In the period between 6 April 2011 and 31 October 2012, Mr Kobelt issued 425 purchase orders for 121 customers with whom he had Book‑up arrangements. The aggregate amount issued was $58,175.98 (Average: $136.68).
Mr Kobelt charged $10 for each purchase order. Accordingly, he earned $4,250 from the 425 purchase orders he issued between 6 April 2011 and 31 October 2012. I observe, however, that Mr Kobelt’s system of providing purchase orders was cheaper than the comparable express money order service provided by Australia Post.
Not all stores in the APY Lands agree to purchase order arrangements with Mr Kobelt. In fact several do not. These include the stores at Fregon (Kaltjiti), Amata, Indulkana and Mimili. The service cannot be used in those cases. Mostly, that is because of decisions made by those stores. However, in the case of the Mimili Store, it is a consequence of a decision by Mr Kobelt in about 2007 after the Mimili Store had defaulted in making payment to Nobbys for goods it had supplied to customers, at the request of the Mimili Store, on credit. This is a significant limitation, given that many of Nobby’s Book‑up customers reside in Mimili. I add that, with the exception of the Mimili Store, Mr Kobelt is willing to send purchase orders to all community stores in the APY Lands.
Cash Advances
From time to time, some customers asked for a cash advance on Book‑up. That is, they asked Mr Kobelt for cash instead of, or as well as, booking up food, groceries and fuel. The amounts involved were generally modest. Subject to the customer not exceeding the 50% limit he had imposed, Mr Kobelt generally accommodated requests of this kind.
I will refer later to evidence indicating that Mr Kobelt charged at least some of these customers a fee for providing cash advances.
Travel expenses
Mr Kobelt has allowed customers to use Book‑down to purchase Greyhound bus tickets to travel away from the APY Lands. In fact, he has arranged the purchase of the tickets for customers as he has a 1300 number to Greyhound. On other occasions, he has sent money via Australia Post to customers so as to allow them to purchase bus tickets to return to the APY Lands. He said that it was rare for him to refuse a request of this kind.
Cancellation of key cards
It is open to the Book‑up customers to cancel their key cards or to have their income paid into a different account. From time to time some did so. Usually action of this kind was taken without any prior notice to Mr Kobelt. The effect was that Mr Kobelt’s next attempt at making withdrawals was unsuccessful.
With one exception, Mr Kobelt did not take enforcement action against these customers. He appreciated that it was not in his commercial or reputational interest to do so. Instead of confronting the customer, Mr Kobelt thought it better to wait and hope that the customer would in time wish to resume Book‑down arrangements with him. At that time he would then insist that he be provided with the customer’s key card and PIN so that he could resume making withdrawals.
Mr Kobelt’s diaries contain a number of derogatory entries concerning customers, for example, “Bitch”, “Slut” and “Get [expletive deleted] No More”. Some of these entries were made by Mr Kobelt and some by his son Timothy. In particular, Mr Kobelt said that the “Slut” entries had been made by Timothy and that he had made the entries of “Bitch”. Entries of these kinds were made when the Kobelts found that the customer had acted to preclude them from accessing the funds in their account, for example, by cancelling the key card or by having their income paid into another account. In later periods, Mr Kobelt stopped using derogatory remarks of these kinds and, instead, used the numerical codes used by the banks to indicate that a withdrawal was not permitted.
The withdrawals on 14 December 2010
Mr Kobelt’s conduct on 14 December 2010 provides an insight into his approach. Many of his Book‑up customers had key cards issued by CBA. On 14 December 2010, CBA had an issue with its cash transfer system (CTS) which meant that some authorised transactions could not be processed by CBA that day. They were instead processed by CBA on the following day.
CBA effected the transfers on 14 December 2010 by a “forced process” which involved an overriding of its normal controls. One consequence of this was that withdrawals and transfers from debit accounts were approved, even though the withdrawals and transfers exceeded the available balance in the customers’ accounts.
In its final submissions, ASIC referred to this temporary condition as a “glitch” in CBA’s CTS.
Mr Kobelt must have been aware of the glitch on 14 December 2010. By a process of withdrawals extending over several hours, he withdrew a total of $56,944 from his customers’ CBA accounts. Although the evidence did not disclose the aggregate amount which Mr Kobelt was usually able to withdraw from the CBA accounts of his customers, I am satisfied that $56,944 was much more than normal, and that Mr Kobelt must have appreciated at the time that that was so.
One of the consequences of Mr Kobelt’s conduct on 14 December 2010 was that some of his customers’ accounts were then in debit, with the further consequence that CBA would not permit any further withdrawals until the accounts were restored to a credit balance. In some cases this took two or more pension payments, that is, four or more weeks. The affected customers were necessarily without any income during this period.
I accept ASIC’s submission that Mr Kobelt could not have thought that his customers authorised him to make these extra withdrawals. That is because there had been no forewarning of the glitch. Mr Kobelt could not have understood that the extra money which was available were pension “bonus payments” and could not, despite his evidence to the contrary, have heard his Anangu customers talking about extra money coming into their accounts. His conduct reveals that his attitude was to transfer to himself whatever funds were available in a customer’s account at any one time.
The February 2011 incident
In February 2011, five Anangu men (Brenton Edwards, Mr Doolan, Customer D, Mr Thornhill and Customer B) went to Nobbys with their employer, Tony Rogers. Mr Rogers is a non‑Aboriginal man and was apparently assisting the five Anangu, as he himself did not use Book‑up at Nobbys. The Court received only limited accounts of what occurred.
Mr Kobelt could recall only one of the five men (Brenton Edwards) asking for his key card to be returned. The fact that Mr Rogers accompanied five Anangu suggests that each may have been making a request of a similar kind to Mr Edwards.
Mr Kobelt said that on the occasion of the attendance of the men, both he and his son Timothy were present. He said that the Anangu were being “dragged around” by Mr Rogers and that he had been “putting the act on”. However, when Timothy said that Mr Edwards’ card would be returned to him if Mr Rogers was “prepared to take the money out of his pay and pay us”, Mr Rogers “just bolted”. Mr Kobelt denied that he or Timothy had refused to return Mr Edwards’ card.
Customer D did not give evidence of this incident but instead gave evidence of another incident when he and other Anangu had gone to the police station at Marla. I will return to the evidence concerning that incident shortly.
Customer B’s account was that Mr Kobelt had returned his card to him at the time but had declined to return the key cards of the others. I think it fair to describe his evidence about the February 2011 incident and the attendance at the Marla Police Station as being vague.
It is not possible to make detailed findings about the events when the Anangu attended Nobbys with Mr Rogers. I am, however, satisfied that Mr Rogers did accompany five Anangu and it seems that he acted as a spokesperson on their behalf. Mr Rogers demanded the return of at least one key card, but that was refused by the Kobelts unless Mr Rogers put alternative arrangements in place. In his evidence, Mr Kobelt acknowledged that he would have been satisfied with Mr Rogers deducting an amount from his employee’s wages and remitting it to Nobbys.
There was also evidence that the South Australian Police at Marla intervened in February 2011 by obtaining at least some of the key cards held at Nobbys and then returning them to their owners. I infer that this occurred after Mr Roger’s attendance at Nobbys and that he may have been instrumental in the making of the complaints.
Again, the evidence about the involvement of the South Australian Police was limited. In his cross‑examination, Customer AH said that he remembered the police at Marla taking key cards away from Nobbys and giving him his key card. He said that later he took his key card back to Nobbys so that he could use it again for Book‑up. Customers B and D gave disjointed accounts which seemed to be to the same effect.
ASIC sought to tender, pursuant to s 64(3) of the Evidence Act, affidavits made by the Customers AH and D in December 2010 and February 2011 to the police concerning Mr Kobelt’s retention of their key cards. These affidavits were marked for identification (Exhibits MFI A24 and MFI A25). I did admit the affidavit of Customer B (Exhibit A26) but invited further submissions as to its use.
I have determined that the affidavits of Customers AH and D should not be admitted into evidence and do revise the ruling with respect to Exhibit A26. It is unnecessary to consider s 64(3) in detail, as I consider that the affidavits should be excluded in any event, pursuant to s 135 of the Evidence Act, as being more prejudicial than probative. The evidence does not disclose in any detail how the deponents came to make the affidavits, whether they had the assistance of an interpreter, and whether anyone else was present when the affidavits were made. Having regard to the evidence from the Customers AH, B and D in the trial, I consider that there is a real possibility that others had a significant hand in the preparation of the affidavits so that their content cannot be regarded as reliable.
Having ruled that the evidence is inadmissible, I have not had regard to the affidavits or to the incident concerning the Police at Marla in February 2011.
Nobbys’ profit and loss statements
The profit and loss statements for the financial years ending 30 June 2010 and 30 June 2011 show that Nobbys is a successful business:
2010 2011 Sales $1,834,600 $1,936,694 Gross profit from trading $370,160 $450,814 Expenses $160,850 $156,244 Profit $234,782 $334,935
The financial statements did not indicate the extent to which the sale of vehicles on Book‑up contributed to the gross profit.
Against this background, I turn first to ASIC’s claim that Mr Kobelt had contravened s 29 of the NCCP Act.
Section 29 of the NCCP Act
Section 29(1) of the NCCP Act, which prohibits a person from engaging in a credit activity without an appropriate licence, came into operation on 1 July 2011. It provides:
A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.
It was common ground that Mr Kobelt has never held a licence to which s 29(1) refers.
A person engages in a “credit activity” for the purposes of s 29(1) if (relevantly) the person is a “credit provider”, that is, a person who provides “credit” under a “credit contract”. This is a consequence of the definition of “credit activity” in s 6(1) of the NCCP Act and the definition of “credit provider” in s 5 of the NCCP Act and in s 204 of the National Credit Code (the Code), which is Sch 1 to the NCCP Act. The term “credit contract” is defined in s 4 of the Code to be a contract under which credit is or may be provided “to which this Code applies”.
The term “credit” is defined in s 3 of the Code as follows:
(1) For the purposes of this Code, credit is provided if under a contract:
(a)payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b)one person (the debtor) incurs a deferred debt to another (the credit provider).
Section 3(2) of the Code specifies that, for the purposes of the Code, the “amount of credit” is the amount of the debt actually deferred.
Section 5 of the Code identifies the provision of credit to which the Code applies as follows:
(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a) the debtor is a natural person or a strata corporation; and
(b)the credit is provided or intended to be provided wholly or predominantly:
(i) for personal, domestic or household purposes; or
(ii)to purchase, renovate or improve residential property for investment purposes; or
(iii)to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
(c) a charge is or may be made for providing the credit; and
(d)the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
...
(4)For the purposes of this section, the predominant purpose for which credit is provided is:
(a)the purpose for which more than half of the credit is intended to be used; or
(b)if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.
ASIC alleges that between 1 July 2011 and 31 October 2012, Mr Kobelt contravened s 29(1) of the NCCP Act by his provision of credit to some 92 customers. Each of these customers purchased at least one vehicle from Mr Kobelt on Book‑up. They are subset of the group of at least 117 customers to whom Mr Kobelt has provided credit since 1 June 2008.
Mr Kobelt admits that the 92 customers purchased vehicles from him after 1 July 2011 on the respective dates alleged by ASIC. He also accepts that, having regard to authorities such as Geeveekay Pty Ltd v Director of Consumer Affairs Victoria [2008] VSC 50; (2008) 19 VR 512 at [34], he provided credit to these customers. Thus, it was common ground that subparas (a), (b) and (d) of s 5(1) of the Code were satisfied in this case. The dispute as to the application of s 5(1) and, accordingly, as to whether Mr Kobelt had contravened s 29(1), went to whether Mr Kobelt had made any “charge” for his provision of credit to vehicle purchasers.
ASIC’s case is that Mr Kobelt did impose a credit charge within the meaning of s 5(1)(c), being the difference between the sale price of vehicles when payment in full was made at the time of sale (the cash price) and the sale price when they were sold on Book‑up. In the former case, the sale price was at least $1,000 less than the Book‑up price, and often much less.
The term “charge” is not defined in either the NCCP Act or in the Code.
ASIC relied on the presumption contained in s 13(1) of the Code:
(1)In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
As can be seen, s 13(1) has the effect that it is to be presumed that Mr Kobelt’s credit contracts with his customers were contracts to which the Code applied unless the contrary is established. Mr Kobelt accepted that he had the onus of establishing the contrary position.
In its opening submission, ASIC indicated that, in addition to relying on the presumption in s 13, it would rely on the decision in Walker v Consumer, Trader and Tenancy Tribunal of New South Wales [2013] NSWSC 1432 as authority for the proposition that a difference between the cash price and the price when sold on credit amounts to a credit charge. It is not necessary to refer to Walker presently as, in its final submissions, ASIC’s primary position was that s 11 of the Code applied in Mr Kobelt’s case.
Section 11 provides:
(1)This section applies to a contract for the sale of goods if the amount payable to purchase the goods under the contract:
(a) is payable by instalments; and
(b) exceeds the cash price of the goods.
(2)This section does not apply to a contract for the hire of goods even if the hirer has a right or obligation to purchase the goods.
(3)For the purpose of deciding whether the contract is a credit contract and, if it is a credit contract, of applying this Code (including Part 6) to it:
(a)a debt is to be regarded as having been incurred, and credit provided, in the circumstances mentioned in subsection (1); and
(b) the debtor is the person who is to make the payments; and
(c) the credit provider is the person who is to receive the payments; and
(d)the charge for providing the credit is the amount by which the amount payable to purchase the goods, together with any other amount payable under the contract, exceeds the cash price of the goods.
(4)This section does not affect the application of this Code to a contract that is, apart from this section, a credit contract.
As can be seen, s 11(1) provides that the section applies to “a contract for the sale of goods” if the amount payable to purchase the goods has the two features specified in the subsection, namely, the amount to be paid to purchase the goods is payable by instalments and that amount exceeds the cash price. In addition, subs (3)(d) provides that, for the purpose of deciding whether the contract is a credit contract and, if it is, of applying the Code to it, the charge for providing the credit is the amount by which the amount payable to purchase the goods exceeds their cash price.
ASIC submitted that s 11 is applicable because the price of the vehicles sold on Book‑up was payable by instalments (subs (1)(a)) and it exceeded the cash price (subs (1)(b)). Mr Kobelt contended that neither element was satisfied.
Before addressing the parties’ submissions about these matters, it is appropriate to identify the contracts in the present case to which s 11 is said to apply and the evidence concerning the price differential for cars sold on Book‑up.
The contracts between Mr Kobelt and his customers
The sale of second‑hand motor vehicles in South Australia is governed by the 2H Dealers Act. Section 17 of that Act imposes requirements in respect of contracts for the sale of such vehicles. Amongst other things, the contracts must be in writing (subs (1)(a)); comprised in one document (subs (1)(b)); contain prescribed information (subs (1)(d)); and a dealer must not submit a contract to a purchaser for signature unless it contains all the material terms of the contract (subs (4)). Until 31 August 2010, Form 3 in the Second‑hand Vehicle Dealers Regulations 1995 (SA) was the prescribed form of contract. Since then, Form 5 in the Second‑hand Vehicle Dealers Regulations 2010 (SA) has been the prescribed form.
ASIC tendered copies of 168 contracts relating to the sale by Mr Kobelt of second‑hand vehicles. It is apparent that Mr Kobelt continued to use Form 3 from the 1995 Regulations until at least 23 November 2011. However, it was not suggested that anything turned on his continued usage of this form after the repeal of the 1995 Regulations became effective on 31 August 2010.
None of the 168 contracts referred to Book‑up, or to the fact that the sales were by credit. Indeed, on one view, some of the printed terms in the Form 3 and Form 5 contracts may be inconsistent with the arrangements which were in fact contemplated by Mr Kobelt and his customers. I refer in particular to cl 4 in the Conditions of the contract:
The buyer agrees that the property in the goods does not pass to the buyer until the price of such goods is paid in full to the seller. The buyer acknowledges that they hold the goods as bailee of the seller until payment is made for the goods supplied by the seller to the buyer. Such goods are held at the risk of the buyer. The buyer is obliged to store the goods so that they are clearly identifiable as the property of the seller.
Although this term suggests that Mr Kobelt retained ownership of the vehicle until the last payment was made on it, the parties to the contracts conducted themselves on the basis that there was a transfer of ownership at the time of initial purchase.
It is possible that the appropriate analysis is that there are two concurrent contracts: one relating to the purchase of the vehicle comprised of the Form 3 and/or Form 5 contract; and another relating to the provision of credit by Mr Kobelt. It is not necessary to explore that question because the term “contract” is defined in s 204(1) of the Code to include “a series or combination of contracts, or contracts and arrangements”. Accordingly, even if there are two separate contracts, s 11 is capable of applying to them as a combination.
If that view be incorrect, then it would be necessary to consider the application of s 12 of the Code which applies to “related contracts” in respect of which the supplier of goods provides credit in respect of their purchase and when the amount to be paid under the contracts is payable by instalments. Section 12 seems to have the same effect (relevantly) as s 11. However, neither party suggested that s 12 may be applicable and it need not be addressed further.
The price differential
The question of whether the amount payable to purchase the second‑hand vehicles on Book‑up exceeded their cash price is essentially one of fact. However, it is appropriate first to have regard to the definition of “cash price” in s 204(1) of the Code:
cash price of goods or services to which a credit contract relates means:
(a)the lowest price that a cash purchaser might reasonably be expected to pay for them from the supplier; or
(b)if the goods or services are not available for cash from the supplier or are only available for cash at the same, or a reasonably similar, price to the price that would be payable for them if they were sold with credit provided—the market value of the goods or services.
The first limb of this definition refers to the price at which the goods may be obtained for cash from the same supplier, whereas the second limb requires a comparison with market value. It is the former which is pertinent in this case.
Mr Kobelt’s determination of the purchase price
Mr Kobelt acquires second‑hand vehicles from a wholesaler in Adelaide. Sometimes he has them transported by truck to Mintabie but it is cheaper for them to be driven. Sometimes Mr Kobelt pays persons to drive the vehicles to Mintabie. On occasion, the drive to Mintabie reveals work which must be done before the vehicles are sold and Mr Kobelt arranges for that to be done in his yard.
When Mr Kobelt offers a vehicle for sale, he attaches to the vehicle the form containing the details required by s 16(1) of the 2H Dealers Act. That includes the price at which the vehicle may be purchased (the list price).
Mr Kobelt determines the list price by first aggregating the price he paid for the vehicle, the transport cost (if any) and the cost of any significant repair work he had caused to be carried out, and then doubling that sum. He then compares the figure so obtained with the prices for comparable vehicles being charged by car dealers in Alice Springs and by a competitor in Mintabie. This may lead him to adjust the figure so that it is a little less than the prices of his competitors. The resultant figure is then displayed in the vehicle as the list price.
This method of price fixation has not changed over the years and Mr Kobelt continues to apply it presently. As can be seen, it does not include any component calculated or identified specifically as a credit charge.
However, ASIC’s case is that the sale price of vehicles embodies a charge for the provision of credit. It says that this is evidenced by Mr Kobelt charging a higher price to those who purchase cars on Book‑up than the cash price. It contends that the difference is a credit charge for the purposes of s 5(1)(c) of the Code.
An alleged change of practice
Mr Kobelt acknowledged that in the past it had been his practice to have different amounts for the cash price and the Book‑up price, but said that he had ceased doing so several years ago. For reasons which I will give shortly, I do not accept Mr Kobelt’s evidence concerning the time at which he ceased the practice.
ASIC relied first on statements made by Mr Kobelt and his son Timothy in the examinations it conducted pursuant to s 19 of the ASIC Act on 4 November 2011. The statements by Timothy Kobelt are to be taken as an admission of Mr Kobelt: Evidence Act s 87(1)(b).
Mr Kobelt gave the following answers in his examination:
Q:... What’s your average profit margin to make sure that it’s profitable for you up there for selling cars?
A:I don’t look at – it’s a hard one to answer. I don’t look at it – what’s my average profit margin. I try to make – on a car, it all depends what – you know, I put the price on the car anyway, so – and if they give me cash, it comes down quite a bit, you know, for a quick turnover, but if ...
Q:If it’s on credit?
A:If it’s on credit, well, I try and make a couple of thousand at least.
Q:On the car?
A:Two and a half – yes.
(Emphasis added)
Later in the examination, Mr Kobelt said as follows:
Q:... You mentioned that you – if you’re selling cars on credit, you try to make a profit of about two and a half thousand dollars each, but if they give you cash for a car, the price comes down quite a bit. Can you give us an approximate – what’s the approximate sort of profit margin you look for in a cash sale for a car? Obviously less than two and a half thousand for ...
A:The other day – I’ll give you an example. On two four-Wheel Drives that were sold, we virtually made nothing on one – and I mean virtually nothing – and the other one I made 1,700.
Q: Ok.
A: And they were done two weeks apart.
In his cross‑examination in the trial, Mr Kobelt said that he had given this example for the purpose of pointing out the difference between a cash sale and a sale on Book‑up. Later, Mr Kobelt appeared to retract this answer in so far as it referred to his practice at 4 November 2011, but acknowledged that his practice in the past had been to charge one price for a cash sale and another when providing credit on Book‑up.
In his s 19 examination, Mr Kobelt also gave the following answers:
Q:In regards to food, do you have – is there a cash price and a book‑up price for food and fuel?
A:A cash price? No, it’s all the same price.
Q:And cars?
A:Well, I’ve explained that. Cars – they get them cheaper if they pay cash.
(Emphasis added)
Timothy Kobelt gave the following answers in the course of his s 19 examination:
Q: So who’s got the final say on how much you sell the cars [for]?
A:[My father’s] got the final – yes, yes. Unless they’ve got cash, then whatever is on the paperwork I know I can drop a thousand dollars off straightaway (sic) without asking him.
Q:If it’s cash?
A:Mm’ Hm.
Q:So if its book‑up you’re looking at least a one thousand dollars more on the price. Is that ...
A:Because it takes longer to pay and that, but they’ve got the cash, so we give them a fair price, a reasonable price.
Q:Leaving aside book‑up prices and cash prices ... from your experience, what’s the price range you see the cars at?
A:Between four and a half to seven thousand, seven thousand, seven thousand price range.
Q:All right. So seven thousand, if it’s a cash price you’re looking at six ... and so forth.
A:Yeah.
Q:Is that right?
A:Yes. It just all depends what sort of vehicles. I had a 2001 Mitsubishi four‑wheel drive, I think – or a Ford Challenger there the other day and that went for a cash price. I actually dropped $2,000 off that.
(Emphasis added)
ASIC also adduced evidence of a statement made by Timothy Kobelt to its investigators one year later when they attended at Nobbys on 5 November 2012 as part of its investigation. Timothy Kobelt told the investigators:
If they bring in the whole amount of money for a car, we will drop at least $1,000 off the price straight away.
As can be seen, these statements by Mr Kobelt and Timothy Kobelt suggested that the practice of applying a price differential between the cash price and the Book‑up price was current at 4 November 2011 and at 5 November 2012.
The statements of Mr Kobelt’s solicitor
As part of its case that Mr Kobelt had a higher price for Book‑up than he did for cars sold for cash, ASIC also relied upon statements made by Mr Kobelt’s solicitor, Mr Proud, in relation to an application by Mr Kobelt for a credit licence in late 2013 and early 2014.
On 4 October 2013, Mr Kobelt lodged with ASIC an application under s 36 of the NCCP Act for a credit licence. It seems that this application was unsigned and did not provide all of the information and attachments which ASIC required. Under cover of a letter dated 30 October 2013, Mr Proud provided ASIC with the signed and dated application form together with a “Systems Plan”, supporting documents and a document entitled “LG Kobelt – Summary of Business”. Mr Proud’s covering letter included the following:
With respect to paragraph 3 of the attachment no terms for the loan [are] stated as the customer’s income may vary from time to time and that will govern the terms of the loan. No interest or fees are charged but as stated in the Application, a credit charge applies being the difference between the cash price for the vehicle and the full price.
(Emphasis added)
On a page in the Systems Plan headed “Background”, Mr Proud stated:
The business will hold an Australian Credit Licence in respect of that part of its business of selling second hand motor vehicles on credit.
The business only operates from the store at Mintabie and the only people involved in motor vehicle sales are its principal, Lindsay Kobelt and his son Timothy who is an employee of the business. The business has been selling vehicles on credit for over 20 years. Timothy Kobelt has been employed in the business for about seven years during which time he has been involved in selling vehicles on credit and he is experienced in that role. ...
The majority of customers are aborigines from nearby aboriginal communities and are generally known to the Licensee through dealings at the store.
Dealings with customers are relatively straightforward. The credit charge forms part of the sale price of the vehicles being the difference between the cash price and the full price of the vehicle. There is no interest charged. Payment is made via Keycards which the customers deposit as security for the instalment payments to be made by the customer and they provide the PIN and authorisation to make withdrawals from the card.
...
(Emphasis added)
Mr Kobelt was indifferent as to whether his customers could, having regard to their financial position generally, afford the commitment to him. I refer to my earlier findings on this topic.
It is not realistic to regard the bargaining positions of the Book‑up customers and Mr Kobelt as being relatively evenly balanced.
The way in which Mr Kobelt implements his Book‑up system adds to the strong impression of unconscionability. The arrangements are largely undocumented; the transactions are poorly recorded; the customers have, at best, only a limited ability to check on the reliability of Mr Kobelt’s records of the transactions he has effected on their accounts; the withdrawals often operate to the customers’ detriment (for example, when Mr Kobelt withdraws amounts to which he is not entitled or does not record in the Book‑up diaries or ledger cards the amounts he has withdrawn); and any audit of what has occurred is not feasible (at least without considerable difficulty). I also observe in this respect that Mr Kobelt does not provide his customers with the protections contemplated by the NCCP Act and the Code.
For these reasons, I consider that ASIC has established that Mr Kobelt contravened s 12CB of the ASIC Act by his conduct in his Book‑up system.
Unconscionable conduct – the secondary case
As noted at the commencement of these reasons, ASIC’s case on unconscionability was made in in two parts. The primary part of the case concerned the Book‑up system generally. ASIC’s secondary case was that Mr Kobelt’s conduct in relation to four customers, A, B, C and D was unconscionable. However, in its final submissions, ASIC did not press for findings on its secondary case.
I am conscious that the prospect of an appeal can, in some circumstances, make it desirable for a trial Judge to address all issues so that the Full Court has findings of fact on all matters. In the present case, given ASIC’s attitude, I consider it unnecessary to prolong the delivery of this judgment by addressing ASIC’s alternative claim.
Conclusion
In summary, ASIC has established that Mr Kobelt did from 1 July 2011 until at least April 2014, contravene s 29 of the NCCP Act in providing credit to purchasers of his motor vehicles and has by his conduct since at least 1 June 2008, contravened s 12CB of the ASIC Act by his conduct in providing Book‑up. I will hear from the parties as to the relief to which ASIC is entitled in light of these findings.
I certify that the preceding six hundred and twenty-seven (627) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate:
Dated: 9 November 2016
Appendix One
Evidence Ruling
1.As mentioned in the substantive reasons, the evidence in chief of ASIC’s witnesses, other than its Anangu witnesses, was in written form. As part of the pre‑trial directions, I put in place a regime for the notification of objections to the written evidence and for written responses by ASIC to those objections. Mr Kobelt’s objections to ASIC’s written evidence occupied approximately 100 pages.
2.In order that the progress of the trial not be disrupted unduly, I informed the parties that I would consider the objections and ASIC’s responses to them in advance of the trial in Chambers and on the papers, and would announce my rulings at the commencement of the trial. That course contemplated the rulings being made in a “summary” way. I did, however, hear oral submissions on the first day of the trial on Mr Kobelt’s objection that much of ASIC’s evidence concerned matters which were outside the scope of its pleaded case. I rejected Mr Kobelt’s submission to that effect and then continued:
His Honour: Now, I haven’t invited, Mr Trim, submissions in relation to [the] other objections and unless you indicate that you wish to be heard now in relation to some of those other objections, what I will do is indicate a ruling on those based on your written material. I say to [the] parties, when I proceed this way, that …
Mr Trim: We don’t want to be heard further.
His Honour: That that doesn’t preclude them making further submissions in respect of particular matters. I emphasise “particular matters”. It is not a chance just to rehearse the whole matter all over again, but I’m conscious that the dealing with objections on the papers perhaps doesn’t give counsel the full opportunity to make objections. The written system is designed to expedite the process. So it’s not to be frustrated, in other words, by a party simply making wholesale submissions on all objections in respect of which the ruling has been indicated. … So in light of that, Mr Trim, do you wish to make any further oral submissions in support of the notified objections?
Mr Trim: No, your Honour.
3.As can be seen, despite my announced intention to make rulings in a summary way, counsel for Mr Kobelt were given the opportunity to make oral submissions in support of the objections before the Court announced its rulings. The Court then went on to announce the rulings. The parties also had the opportunity to make submissions on particular objections after I had announced the rulings. Neither party sought to take up that opportunity.
4.The objections to the evidence of Dr Martin were dealt with separately but in the same manner. I upheld some of the objections and disallowed others. In doing so, I indicated again my willingness, given the means by which the Court had determined the objections, to allow Mr Kobelt to renew his objections with submissions concerning particular matters. Counsel did not seek to take up that opportunity.
5.There matters rested until the penultimate day of the trial when, during the final submissions, counsel for Mr Kobelt requested reasons for the Court’s rulings on his objections to certain documents in the Book of Documents tendered by ASIC (Exhibit A2) and to certain passages in Dr Martin’s report.
6.This request was puzzling for a number of reasons:
(a)if Mr Kobelt was dissatisfied with a ruling made in the summary way outlined above, his counsel had had the opportunity to renew particular objections and to make oral submissions concerning them. Had counsel adopted that course, the particular objections could have been the subject of more detailed consideration than was possible when the multiple objections were considered in a summary way, and oral reasons for the rulings which were maintained could have been given more conveniently at the time;
(b)counsel’s request was not accompanied by any application that the rulings be reconsidered in the light of the evidence which ASIC had led from the Anangu and which was relied upon by ASIC in responding to the objections;
(c)many of the objections were to the effect that a proper basis had not been established for Dr Martin’s opinions because the matters on which he relied constituted inadmissible hearsay. Yet Mr Kobelt’s closing submissions did not identify particular matters on which Mr Martin’s opinions should not be accepted, or given little weight, on this account. The challenge by Mr Kobelt to Dr Martin’s evidence was instead based on the evidence of Professor Glonek concerning Dr Martin’s use of statistics to which I referred in the principal reasons: see [108]‑[123] of Mr Kobelt’s written closing submissions. Moreover, Mr Kobelt’s own submissions relied, to a significant extent, on Dr Martin’s opinions. See, for example, [10], [13]‑[18], [23]‑[28], [30]‑[32], [40], [91], [93] and [96]‑[97] of his written closing submissions;
(d)counsel did not seek any order pursuant to s 136 of the Evidence Act 1995 (Cth) or otherwise limiting the use to which particular evidence could be put.
7.In these circumstances, I have considered it appropriate to give the reasons which I considered, at the time of the rulings, warranted the objections being disallowed. I will do so as briefly as possible.
ASIC’s Book of Documents
Exhibit A2: Tabs L25, L27 and L93
8. Mr Kobelt sought reasons with respect to the Court’s rulings on the documents in Exhibit A2 behind Tabs L25, L27 and L93. ASIC did refer to Tab L93 in a footnote in its final closing submissions but did not otherwise indicate the use to which it should be put. I have not relied upon the documents contained behind Tabs L25 and L27 at all. In these circumstances, any reasons for the rulings would serve no practical purpose. Mr Kobelt’s interest appears to be academic only.
Exhibit A2: The documents behind Tabs L50‑L74
9.These documents in Exhibit A2 comprised reports, summaries, explanatory memoranda and analyses of the NAPLAN results in a number of years for schools in the APY Lands, in particular the schools at Mimili, Ernabella and Amata as well as the school at Yalata.
10.As recorded in the principal judgment, NAPLAN is the acronym for National Assessment Program – Literacy and Numeracy. It is the annual assessment of all students in schools in Australia in Years 3, 5, 7 and 9. The documents in question were compiled and published by the Australian Curriculum, Assessment and Reporting Authority (ACARA). This entity is identified in the documents (L71) as the “independent statutory authority responsible for the overall management of the Australian National Assessment Program, in collaboration with representatives from all States and Territories and non‑Government school sectors”.
11.ACARA is established by s 5 of the Australian Curriculum, Assessment and Reporting Authority Act 2008 (Cth) (the ACARA Act).
12.The functions of ACARA are set out in s 6 of the ACARA Act:
The functions of the Australian Curriculum, Assessment and Reporting Authority are to:
(a)develop and administer a national school curriculum, including content of the curriculum and achievement standards, for school subjects specified in the Charter; and
(b) develop and administer national assessments; and
(c)collect, manage and analyse student assessment data and other data relating to schools and comparative school performance; and
(d)facilitate information sharing arrangements between Australian government bodies in relation to the collection, management and analysis of school data; and
(e)publish information relating to school education, including information relating to comparative school performance; and
(f)provide school curriculum resource services, educational research services and other related services; and
(g)provide information, resources, support and guidance to the teaching profession; and
(h)perform such other functions that are conferred on it by, or under, this Act or any other Commonwealth Act; and
(i)perform such other functions that are ancillary or incidental to the functions mentioned in the preceding paragraphs.
13.As can be seen, these functions include the development and administration of national assessments; the collection, management and analysis of student assessment data and other data relating to schools and comparative school performance; and the publication of information relating to school education, including information relating to comparative school performance.
14.ACARA’s documents describe NAPLAN as:
[A]n annual assessment for all students in Years 3, 5, 7 and 9. It tests the types of skills that are essential for every child to progress through school and life. The tests cover skills in reading, writing, spelling, grammar and punctuation, and numeracy. The assessments are undertaken every year in the second full week in May.
15.ACARA’s documents also indicate that, as part of the National Assessment Program, Australia participates in three international sample assessments.
16.I have relied on some of the documents behind Tabs L50‑L74 published by ACARA. Dr Martin also relied on some of those documents, many of which he had located for himself.
17.Mr Kobelt objected to the admission of this material on hearsay grounds. The initial objection was couched as follows:
The non‑ABS statistics cannot be admitted by s 159 [of the Evidence Act], and constitute double hearsay.
18.When ASIC pressed the tender of the NAPLAN results, Mr Kobelt then elaborated his objection as follows:
The student presumably answers questions, which are marked by teachers, giving results. The results are presumably forwarded to the reporting authority (First degree hearsay, as the teachers are not providing sworn evidence). Someone in the reporting authority then summarises the data and posts it on a website (Second degree of hearsay as the functionary from the reporting authority is not providing sworn evidence). Indeed, who knows how many persons the data is passed through in the reporting authority who are not sworn – it could be 5th or 6th degree hearsay, and could contain errors that cannot be established by cross‑examination.
If adduced for a non‑hearsay purpose, the data [is] meaningless. So soon as a degree of “truth” is asserted, it becomes a hearsay purpose. The mere fact that figures were placed on the internet proves nothing.
The building blocks for the reliability are in issue, and as soon as that occurs, it become inadmissible as survey evidence: Milisits v State of South Australia [[2014] SASCFC 67]; (2014) 119 SASR 538 at [20]. If the results of the census in Aboriginal communities are unreliable (Report of Dr Martin at Annexure 6, para [6]), then there is a clear basis to question the reliability of the NAPLAN testing. See also Professor Glonek’s expert report at pp8‑9.
19.I took the view that the hearsay rule in s 59 of the Evidence Act did not preclude the admission of the documents behind Tabs L50‑L74 because they were business records of ACARA, and therefore within the exception to which s 69 refers. The activities of ACARA come within the definition of a business in the Dictionary Pt 2 cl 1 of the Evidence Act. The reports, summaries, explanatory memoranda and analyses form part of the records kept by ACARA in the course of and for the purposes of its functions. Despite the submissions made on Mr Kobelt’s behalf to the contrary, I do not regard the ACARA documents as containing any representation from an individual student or from a teacher marking the assessments. Instead, they comprise a form of analyses by employees of ACARA of the results of the testing of students who participated in the NAPLAN. Those results may be accurate or inaccurate but they are the product of a systematic form of testing of all students for which ACARA has the overall administration in the exercise of its statutory functions.
20.I observe that Mr Kobelt’s final submissions did not include any submission to the effect that the NAPLAN analyses published by ACARA should be regarded as unreliable.
Dr Martin’s Report
21.Mr Kobelt objected, on a diverse range of grounds, to a number of passages in Dr Martin’s report.
Paragraph 50
22.In this paragraph, Dr Martin said that he considered it to be a reasonable inference that members of the communities at Mimili and Indulkana, and by extension other communities in the APY Lands, had not obtained “a level of literacy, numeracy or other skills which enable[d] them to engage fully with the institutions of the general Australian society”.
23.Mr Kobelt did not object to the admission of that opinion. His objection was to the examples of the opinion which Dr Martin gave in the immediately following two sentences:
For example, a number of interviewees acknowledged that they needed help to check their bank balances, including some whose key cards were at Nobby’s and would drive there or phone to check their balances. None of the specific individuals to whom I showed variously their own authorisations for book‑up at Nobbys, or a redacted copy of such an authorisation, or a redacted copy of my own bank account statement could read or understand the documents.
24.Mr Kobelt objected to the evidence of these examples, saying that “the opinion expressed is based upon assertions of unidentified persons, who are acknowledged to be potentially unreliable by the deponent … [t]he respondent is unable to test the basis of the opinion in cross‑examination, which is unfairly prejudicial, within s 135 of the Evidence Act 1995 (Cth). The evidence is of such little residual value is to be irrelevant … ”. Counsel gave the objection on this ground the shorthand label “modified basis rule”. Counsel referred to Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; (2002) 234 FCR 549 at [10]‑[11]; Harrington‑Smith on behalf of the Wongatha People v State of Western Australia (No 2) [2003] FCA 893; (2003) 130 FCR 424 at [25]; and Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 at [90] for the purpose of establishing, as I understood it, that an opinion of an expert will have so little value as to be irrelevant if there is not a sufficient correspondence between the facts proved or admitted in the trial and the facts assumed by the expert.
25.As already indicated, the Court was asked to make the rulings at (or very close to) the commencement of the trial. At that stage, the Court had made arrangements to travel to Marla, near the APY Lands, in order to facilitate the taking of evidence from members of the Anangu from whom ASIC had foreshadowed leading evidence. These included some of the persons to whom Dr Martin had spoken. I took the view in this circumstance that it would, at the very least and without regard to s 60 of the Evidence Act, be premature to uphold Mr Kobelt’s objection, because of the prospect that the Court would receive evidence in the trial on the very examples given by Dr Martin.
26.When ASIC indicated that it pressed the tender of the two sentences in [50] which were the subject of the objection, Mr Kobelt added a further basis for objection, namely, hearsay. I considered that an objection on this basis did not warrant a ruling that these portions of Dr Martin’s report were inadmissible. First, Dr Martin was entitled to state the basis for his opinion, even though that comprised in part of what he had been told by the Anangu. Once the evidence was admitted for this purpose, s 60 of the Evidence Act applies.
27.Section 60 provides:
60 Exception: evidence relevant for a non‑hearsay purpose
(1)The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact.
(2)This section applies whether or not the person who made the representation had personal knowledge of the asserted fact (within the meaning of subsection 62(2)).
Note: Subsection (2) was inserted as a response to the decision of the High Court of Australia in Lee v The Queen (1998) 195 CLR 594.
(3)However, this section does not apply in a criminal proceeding to evidence of an admission.
Note: The admission might still be admissible under section 81 as an exception to the hearsay rule if it is “first‑hand” hearsay: see section 82.
28.This meant that Dr Martin’s report of what he had been told by the Anangu could constitute proof of the facts stated. See Quick v Stoland (1998) 87 FCR 371 at 377‑8, 382; Lee v The Queen [1998] HCA 60, (1998) 195 CLR 594 at [39]‑[40]; Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25 at [70]; Ceva Logistics (Australia) Pty Ltd v Redbro Investments Pty Ltd [2013] NSWCA 46 at [142]‑[143].
29.Secondly, and in any event, the Court expected to hear evidence from members of the Anangu who could, at least in part, establish the matters reported by Dr Martin. The Court did not know, at the time of the ruling, the extent of that evidence. That is because ASIC had not been required to provide the evidence in chief of its Anangu witnesses in writing. In that circumstance it would, putting s 60 to one side, have been premature to have ruled that these portions of Dr Martin’s report were inadmissible.
30.At the time of the ruling, it seemed that the opinion which Dr Martin expressed in [50] was a matter about which he had considerable experience. It was apparent that Dr Martin relied not just on what he was told by members of the Anangu whom he interviewed in Mimili and Indulkana but upon his own observations and previous experience. It is pertinent to quote in this respect the following passages from Dr Martin’s report:
[8]I lived and worked for 8 years as a community advisor in Aurukun before I trained as an anthropologist. My experience over that period provided me with a deep understanding of a range of matters which are of a direct relevance to this Report. These include understandings of and attitudes towards money and financial transactions amongst Aboriginal people in a remote community, appropriate procedures for a non‑Aboriginal person to ensure that Aboriginal people entering financial transactions are properly informed about them, and the particular mechanisms by which Aboriginal people typically seek to structure and personalise relationships with outsiders in order to access valued goods and services.
[9]The experience also provided a highly relevant grounding for my subsequent training as an anthropologist, and formed an important resource of knowledge which I drew on in the ethnographic background for my doctoral thesis. My anthropological training and subsequent work as an anthropologist, both as a consultant and at CAEPR, have provided me with the tools to extend from that detailed knowledge to a consideration of other Aboriginal groups and communities.
31.I note again that the passages in [50] to which Mr Kobelt objected were only examples of the matters upon which he relied for an opinion to which objection was not otherwise taken.
32.Mr Kobelt did not seek any revision of the Court’s ruling following the completion of ASIC’s evidence. Nor did he contend that s 136 of the Evidence Act should be invoked. It had been open to him to do either, given that the whole of ASIC’s evidence was then known. Had Mr Kobelt done so, his objection could have been determined by reference to that evidence.
Paragraph 58: Communication through a translator
33.In [58] of his report, Dr Martin referred to data in the 2011 Census indicating that “73.9% of the Aboriginal residents of the APY Lands spoke English ‘well or very well’”. He then continued:
However, in my own interactions with Aboriginal people from the APY Lands, including those I interviewed formally or from whom I sought information for the purposes of this Report the majority did not communicate with me in English but rather through a translator.
34.Mr Kobelt did not object to Dr Martin stating as a fact that he had communicated with the majority interviewees using a translator. He objected, however, to what he described as the “implicit opinion” in this passage. I understood Mr Kobelt to be contending that Dr Martin’s statement constituted an opinion that it had been necessary for the majority of his interviewees to communicate using a translator because of a lack of facility with the English language. Mr Kobelt contended that this opinion was based on hearsay.
35.I considered that it was permissible for Dr Martin to give evidence of his own experience and observations when speaking to the Anangu, namely, that he had spoken to the majority of his interviewees using an interpreter. That is a statement of fact. Once the evidence was admitted for this purpose, s 60 applied.
36.The Anangu may have had a variety of reasons for wishing to communicate using an interpreter. I considered that that would be a matter for the Court’s assessment in the trial.
37.As it happened, there was no cross‑examination of the Anangu witnesses who did give evidence to the effect that they were understating their facility in the English language.
Paragraph 62
38.In [62], Dr Martin gave a “summary opinion” as to the financial literacy of the Anangu. He said “very few Anangu people educated entirely in schools located in communities on the APY Lands will have attained a level of literacy, numeracy or other skills which enables them to engage in an informed manner with the institutions of general Australian society, including in its financial institutions”. Dr Martin said that this opinion was based on his own experience and observations in remote Aboriginal communities, and on his observations and interviews in APY Lands’ community. He went on to say that it was supported by publically available socio‑economic data. He referred in particular to the “non‑standard English” spoken by many in the APY Lands and said that that had the consequence that many more technical English terms and concepts which native English speakers take for granted are not necessarily understood.
39.Mr Kobelt’s objection proceeded on the premise that the whole of Dr Martin’s opinion was based on the English spoken by the Anangu as being “non‑standard” and that technical terms and concepts are not necessarily understood. Mr Kobelt then relied upon the same matters which had formed the basis for his objection to [50] and [58] and contended that the “publically available socio‑economic data” did not provide a proper basis for the opinion. To the extent that this objection turned on the same matters upon which Mr Kobelt relied in relation to [50] and [58], my reasoning was the same. In relation to the inferences which could properly be drawn from the publically available socio‑economic data, I considered this to be a matter for submissions in the substantive trial and possibly a matter going to the weight to be attached to Dr Martin’s opinion.
Paragraph 63
40.In [63], Dr Martin recited some information he had learnt from a staff member in MoneyMob Talkabout. Mr Kobelt objected to this material on the basis of relevance and hearsay. I upheld his objection and excluded [63] altogether. As that ruling was favourable to Mr Kobelt, there is no need to provide reasons.
Paragraph 101
41.In [101], Dr Martin expressed the following opinion:
Given this high value accorded motor vehicles, and the other factors discussed in this Report of low personal incomes, the difficulties in saving, and poor financial literacy, in my opinion it is reasonable to propose that potential Anangu buyers of vehicles could seek book‑up as their only means to purchase one. This would be particularly the case if they wanted it immediately (for example, to attend a funeral).
Dr Martin then added:
This concluded opinion is consistent with what a number of interviewees told me.
42.Mr Kobelt objected to this last sentence, asserting that it was “[h]earsay use of information, to bolster opinion”.
43.I disagreed with that characterisation of the last sentence in [101]. Dr Martin was doing no more than saying that the opinion which he had formed, independently, concerning the way in which Book‑up was viewed by the Anangu was not inconsistent with what he had been told by a number of interviewees. Dr Martin was, in effect, informing the Court that he had not withheld a matter of significance (that is, any contrary statements by his interviewees) in accordance with the undertaking which he gave in compliance with Practice Note CM7 cl 2.2. For this reason alone, the statement was admissible for a non‑hearsay purpose and, accordingly, not excluded as hearsay: Evidence Act, s 60.
Paragraph 105
44.In [105], Dr Martin recounted the response of Ms Pumani, a community counsellor and senior Anangu woman to his conducting an interview with a community member outside the Mimili Art Centre. Although Dr Martin had been conducting the interview in full public view, he said that Ms Pumani had insisted that the interview take place in the Art Centre itself where all could hear and make comment on what was being said. Mr Kobelt’s objection to this evidence, as I understood it, was a hearsay objection.
45.I took the view that that objection was not soundly based. ASIC was not leading the evidence for the purpose of proving the truth of what Ms Pumani had asserted, but instead to provide an explanation of the circumstances in which Dr Martin had conducted interviews. That evidence was admissible in the same way that evidence that Dr Martin had conducted interviews on a one on one basis in an office, with the assistance of an interpreter, would have been admissible.
Paragraph 153
46.In [153], Dr Martin said:
It is my experience in Aurukun and other remote Aboriginal communities that interpersonal negotiation and contestation are among the intrinsic characteristics of Aboriginal social process. Related to this in my experience is a strong preference when dealing with service providers to engage with individuals rather than through formal institutional processes. On the basis of my observations and discussions in Mimili and Indulkana, I consider it a reasonable inference that this feature applies also to Anangu in the APY Lands.
47.Mr Kobelt objected to the final sentence in this passage on two grounds. First, he contended that it was an opinion based upon hearsay discussions. That of course does not necessarily make the opinion inadmissible. The second objection was that there was “[n]o identification of what hearsay discussions are relied upon (given that various are double hearsay) and the paragraph fails to disclose [the] reasoning process to arrive at [the] opinions expressed”. I considered that those matters went to the weight to be attributed to Dr Martin’s evidence rather than to its admissibility.
Paragraphs 176‑178
48.In these paragraphs, Dr Martin summarised his interview with Customer D, which he had conducted entirely through a translator.
49.I upheld Mr Kobelt’s objection to [179] in which Dr Martin expressed an opinion about the understanding of Customer D (who, as I noted in the principal reasons, has a history of petrol sniffing). I did so because I was not satisfied that Dr Martin had the expertise to express the particular opinion about Customer D.
50.I considered that it was permissible for ASIC to lead evidence from Dr Martin as to what he had been told by Customer D. ASIC proposed calling Customer D to give evidence in the trial (and did call him). In this circumstance, it seemed that ASIC was not relying upon Dr Martin’s account of what he had been told by Customer D for a hearsay purpose.
Annexure 7
51.Annexure 7 to Dr Martin’s report comprised a report entitled “Baseline Community Profile Mimili” prepared by Langford Consulting Pty Ltd in 2009 pursuant to a commission from the Department of Family Services, Housing, Community Services and Indigenous Affairs.
52.I upheld Mr Kobelt’s objection in relation to the whole of this report, other than Table 5.4. That Table contained a summary of the NAPLAN results for Mimili in the year 2009.
53.This was the same data which had been published by ACARA itself. Its admission or exclusion would have made no difference in the trial given that I had overruled Mr Kobelt’s objections to the admission of the NAPLAN results. In that circumstance, I do not regard it as necessary to publish separate reasons for the admission of Table 5.4. I note, however, that neither party referred to Table 5.4 in the final submissions.
Annexure 8
54.In Annexure 8 to his report, Dr Martin summarised his discussions with, and attempts to interview, some 25 residents of the APY Lands on his visits to Mimili and Indulkana. The summary included a record (in summary form) of what he was told by each interviewee, his own observations of the interviewees and, in some cases, details of the circumstances in which the interviews took place.
55.Mr Kobelt objected to numerous passages in Appendix 8, principally on the basis of hearsay and relevance. I do not intend to give reasons in relation to each individual objection separately. I overruled Mr Kobelt’s objections to Appendix 8 because I did not consider that its contents were being tendered for a hearsay purpose. ASIC, on my understanding, was tendering Appendix 8 as part of its identification of the matters on which Dr Martin had relied in preparing his opinion. Dr Martin himself made this plain in the following passages of his report:
[23]… I took my task to be (in essence) to establish the sociocultural, socioeconomic, and other factors which informed the ways in which the Aboriginal residents of the APY Lands engaged with Nobby’s credit facilities and those of the other Mintabie establishments, and the ways in which they understood and spoke about that engagement.
[24]This requires the recognition of the social, cultural and political context in which information is presented and obtained (for example in interviews) as amongst the factors required for the proper anthropological analysis and evaluation of that information. That is, in this Report, I differentiate between the fact that X said Y happened, from whether or not Y can be shown by evidence not available to me to be factually true.
56.I took the view that the contents of Appendix 8 were admissible for a non‑hearsay purpose. Once admitted, s 60 of the Evidence Act applied.
57.Mr Kobelt’s contention that the evidence was hearsay because it had been provided to Dr Martin via an interpreter failed for the same reason.
58.As to the objections based on relevance, I took the view that these could be better addressed in the final submissions. As it happens, I did not understand either ASIC or Mr Kobelt to rely upon the particular passages which Mr Kobelt had contended to be irrelevant.
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