Kobelt v Australian Securities and Investments Commission
[2018] FCAFC 18
•15 February 2018
FEDERAL COURT OF AUSTRALIA
Kobelt v Australian Securities and Investments Commission [2018] FCAFC 18
Appeal from: Australian Securities and Investments Commission v Kobelt [2016] FCA 1327
Australian Securities and Investments Commission v Kobelt [2016] FCA 1561
File number: SAD 18 of 2017 Judges: BESANKO, GILMOUR AND WIGNEY JJ Date of judgment: 15 February 2018 Catchwords: CONSUMER LAW – whether the primary judge erred in finding that the appellant contravened s 29(1) of the National Consumer Credit Protection Act 2009 (Cth) by engaging in credit activity within the meaning of s 6(1) of the National Credit Act when selling second-hand vehicles by way of a book-up without holding a licence to engage in that credit activity – whether the purchase of second-hand motor vehicles under the appellant’s book-up system fell within the terms of s 11 of the National Credit Code (contained in Schedule 1 of the National Credit Act) – whether there was a charge for the appellant’s provision of credit within s 5(1)(c) of the National Credit Code
CONSUMER LAW – whether the primary judge erred in finding that the appellant had contravened s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) in that, in connection with the supply of financial services to customers, the appellant engaged in a system of conduct or pattern of behaviour which was unconscionable – whether the appellant’s conduct was unconscionable within the meaning of s 12CC(1) of the ASIC Act – where customers are indigenous residents of the Anangu Pitjantjatjara Yankunytjatjara Lands (APY Lands), and in most cases, have very limited or no assets, limited net income and low levels of financial literacy – where the book-up system is neither recent nor unique – where the book-up system has advantages to customers in terms of alleviating the disadvantages associated with demand sharing and “boom and bust” expenditure – where no undue influence or exerted undue influence – where no dishonest use of debit cards or personal identification numbers (PINs) – where no dishonest maintenance of records by the appellant – where customers have low levels of financial literacy, but basic understanding of the book-up system – where customers voluntarily enter into the book-up arrangements – where customers understand the basic elements of the book-up arrangements – where conduct is not predatory in the relevant sense
CONSUMER LAW – whether the primary judge erred in granting an injunction against the appellant under s 12GD(1) of the ASIC Act
PRACTICE AND PROCEDURE – whether the orders made by the primary judge ought to be set aside – whether an order by the primary judge that the Amended Originating Application brought by the respondent ought to be dismissed
Legislation: Australian Consumer Law (Schedule 2 to the Australian Competition and Consumer Act 2010 (Cth))
Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12CC, 12GD
Evidence Act 1995 (Cth) s 140
National Consumer Credit Protection Act 2009 (Cth) ss 3, 6, 29, 131
National Credit Code ss 5, 11, 13, 17, 204
Second-Hand Vehicle Dealers Act 1995 (SA) ss 16, 23
Cases cited: Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd and Others (2003) 214 CLR 51
Australian Competition and Consumer Commission v Unique International College [2017] FCA 727
Australian Securities and Investments Commission v Kobelt [2017] FCA 387
Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Briginshaw v Briginshaw (1938) 60 CLR 336
Commonwealth Bank of Australia v Kojic and Others (2016) 249 FCR 421
Dare v Pulham (1982) 148 CLR 658
Geeveekay Pty Ltd v Director of Consumer Affairs Victoria (2008) 19 VR 512
House v The King (1936) 55 CLR 499
Kakavas v Crown Melbourne Limited and Others (2013) 250 CLR 392
Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437
Paciocco and Another v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199
Paciocco and Another v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525
Robinson Helicopter Company Incorporated v McDermott [2016] HCA 22; (2016) 331 ALR 550
Walker v Consumer, Trader and Tenancy Tribunal of New South Wales [2013] NSWSC 1432
Dates of hearing: 14 and 15 August 2017 Date of last submissions: 28 August 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 392 Counsel for the Appellant: Mr T North QC with Mr H Heuzenroeder Solicitor for the Appellant: Lempriere Abbott McLeod Counsel for the Respondent: Mt T Duggan SC with Ms K Clark Solicitor for the Respondent: Australian Securities and Investments Commission ORDERS
SAD 18 of 2017 BETWEEN: LINDSAY KOBELT
Appellant
AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
JUDGES:
BESANKO, GILMOUR AND WIGNEY JJ
DATE OF ORDER:
15 FEBRUARY 2018
THE COURT ORDERS THAT:
1.The appeal be adjourned to a date and time during the week commencing 19 February 2018 (to be fixed) for the purpose of hearing the parties as to final orders, including costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BESANKO AND GILMOUR JJ:
INTRODUCTION
This is an appeal from orders made by a judge of this Court. The primary judge made a declaration that Mr Kobelt had contravened s 29(1) of the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) by engaging in credit activity within the meaning of s 6(1) of the National Credit Act when selling vehicles by way of book-up without holding a licence to engage in that credit activity. The primary judge also made a declaration that Mr Kobelt had contravened s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in that in connection with the supply of financial services to customers of Nobbys Mintabie General Store, he engaged in a system of conduct or pattern of behaviour which was unconscionable. The declaration contains eight particulars of the respects in which it was held that Mr Kobelt’s conduct was unconscionable. The declaration of unconscionable conduct is set out below (at [173]). The primary judge also granted an injunction against Mr Kobelt and made an order for the publication of a notice containing information as to the findings and conclusions of the Court. The issues of penalty and costs were adjourned.
The primary judge delivered reasons addressing the substantive issues (Australian Securities and Investments Commission v Kobelt [2016] FCA 1327). He invited the parties to make submissions concerning final relief. He then delivered reasons for the final relief (other than as to penalty and costs) he granted (Australian Securities and Investments Commission v Kobelt [2016] FCA 1561). Unless stated otherwise, a reference in these reasons to the primary judge’s reasons, is a reference to his reasons addressing the substantive issues.
After the Notice of Appeal was filed and served, but before the appeal came on for hearing, the primary judge dealt with penalty and costs. His Honour made orders imposing pecuniary penalties, orders as to costs and an order staying the orders pending the hearing and determination of the appeal (Australian Securities and Investments Commission v Kobelt [2017] FCA 387). No application to amend the Notice of Appeal to challenge these orders has been made by the appellant and, in fact, the orders as to penalty and costs were not mentioned during the hearing of the appeal.
Mr Kobelt now appeals to this Court. He seeks an order that the orders made by the primary judge be set aside and an order that the Amended Originating Application brought by the Australian Securities and Investments Commission (ASIC) be dismissed. The appellant will have to amend his Notice of Appeal to include a challenge to the orders made by the primary judge as to penalty and costs. We cannot see any reason why such an amendment would not be allowed.
THE FACTS GENERALLY
The primary judge set out a general statement of facts. He then made further findings of fact in the context of his consideration of the particular causes of action brought by ASIC. The following is taken from the primary judge’s general statement of facts.
The appellant conducts a general store at Mintabie under the name “Nobbys Mintabie General Store” (Nobbys). Mintabie is in the far north of South Australia, a distance of approximately 1,100 km north of Adelaide. Mintabie 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).
The appellant sells second-hand motor vehicles and provides credit to customers by way of “book-up” as part of his business.
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.
The appellant went to Mintabie in the early 1980s. At that time, the town had a population of about 1,800 people. Most of the population of Mintabie were of European descent and were engaged in opal mining in one form or another. Mintabie continued as an active opal field until the early 2000s. The amount of opal mining has declined and, by the time of trial, the permanent population of Mintabie was about 70 people.
The appellant has been operating 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 motor vehicles.
There are two other general stores in Mintabie known as Sam’s and Scrooge’s.
A significant aspect of Nobbys’ business since 2000 has been the sale of second-hand motor vehicles. Most purchasers purchase the motor vehicles on book-up, although some pay cash. Between 6 July 2011 and 31 October 2012, the appellant sold 105 motor vehicles to 92 customers under the book-up system. Most of the sales were to Aboriginal residents of the APY Lands (Anangu) at a price of between $2,500 and $7,800. The average and median prices were $5,600 and $5,800 respectively. In most cases, the statutory duty to repair defects in s 23 of the Second-Hand Vehicle Dealers Act 1995 (SA) did not apply to the transactions because the vehicles had already been driven 200,000 km before sale. The purchasers of the vehicles sold on book-up usually paid a deposit which varied between $440 and $3,500.
As a condition of the provision of credit under the book-up system, the appellant required the customer to provide to him a debit card (also referred to as a “key card”) which, together with the customer’s personal identification number (PIN), gave access to the bank account of the customer into which the customer’s wages or Centrelink benefits were paid. The customer also provided the appellant with their PIN. The primary judge said in connection with his consideration of PINs generally (at [28]), that it is well known that customers with PINs are expected to maintain the confidentiality of their PINs “in order to prevent fraud or misuse of their key cards”.
The primary judge considered whether the practice of the customers providing to the appellant their key card and PIN was a requirement of the appellant or something offered by the customers. He found that it was the former, even though he accepted that there might have been occasions when a customer handed over his key card and PIN without a request from the appellant. That would have occurred because the customers were aware of the appellant’s requirements.
The appellant kept the key card until the debt was paid. There were two EFTPOS machines in Nobbys and one of those was used by the appellant to access the customer’s account, usually on the day or shortly afterwards, of the customer’s wages or Centrelink benefits being paid into his or her account. It is an important feature of the book-up system conducted by the appellant that the amount he withdrew from the customer’s account was the whole, or nearly the whole, of the amount in the account. An issue at the trial was how the appellant treated the amount he had withdrawn. The appellant’s evidence was that half of the amount he withdrew was applied in reduction of the customer’s debt, and the other half was made available to the customer, albeit that it remained in the appellant’s account. The appellant’s evidence was that he advised the customer of this 50:50 arrangement, although it was not recorded in writing. In order to gain access to the half held in the appellant’s account, the customer would have to return to Nobbys to obtain cash or a purchase order for another store or purchase the food or groceries he or she required from Nobbys. The primary judge found that the customer’s entitlement to 50% was not applied “in a literal way”. He said that the appellant and his family used it as a guideline as to the maximum amount of the book-down (i.e., the provision of money or goods to the customer) which they would allow. Whilst on occasion they allowed more to some customers, generally they adhered to a maximum book‑down of 50%.
The primary judge also found that, acknowledging some exceptions, the appellant did not expressly agree with customers that they were entitled to 50%. More often than not, he told his customers who used book-up that they could have “a little bit” or they could have “some” food or groceries.
Book-up was the only means whereby the appellant provided credit to his Anangu customers.
Customers wishing to use book-up were not required to complete an application form. They were asked by the appellant to provide details of their weekly or fortnightly payment and the day upon which it was paid. They were asked little else. The appellant had refused to make the book-up system available to about 12-15 persons over the last 10 years.
The primary judge found that at least half of the appellant’s customers were in receipt of Centrelink benefits.
The primary judge described the extent to which the appellant kept records of the transactions under the book-up system. For some time, the appellant recorded information in 365 day diaries and those diaries were put in evidence. In 2014, the appellant commenced recording information on ledger cards. It is sufficient at this stage to note the following. First, the book-up diaries did not contain any entry relating to 19 customers for whom the appellant held a debit card. Secondly, the appellant’s system of recording transactions under the book‑up system was described by the primary judge as rudimentary and he said that the manner in which the entries were made, made it difficult to understand the state of a customer’s account at any one time. Thirdly, the primary judge said there was no suggestion that the appellant maintained his records dishonestly.
The primary judge found that the majority of withdrawals by the appellant were on the day the payment into the account was made and early in the day, before or shortly after Nobbys opened. He also found that it was common for Mr Timothy Kobelt to make withdrawals between midnight and 1.00 am. His Honour was satisfied that withdrawals by the appellant were made at the time they were in order “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” (at [46]).
The appellant did not know the amount in a customer’s account so the process of withdrawal by him usually involved trial and error.
The primary judge found that some customers placed a limit on the amount which could be withdrawn from their account, but that on several occasions, the appellant did not comply with the customer’s directions (at [48]). The primary judge made further findings about this topic later in his reasons.
The primary judge found that the appellant did not provide any printed record of the withdrawals to the customers and nor did he provide them with periodic account statements.
The primary judge found that in January 2011, the appellant obtained from a number of his customers a signed acknowledgment that he had their permission to withdraw money from their accounts.
The primary judge found that as at 5 November 2012, the appellant held the key cards of 85 customers which had been provided to him as part of book-up. None of the cards had reached their expiry date.
The primary judge found that the amounts of money which the appellant withdrew from the accounts of his customers using their key cards and PINs were substantial. Between 1 July 2010 and 30 November 2012, the appellant 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 motor vehicles.
The primary judge noted that even on the appellant’s account that he allowed the customer to access up to 50% of the amount the appellant had withdrawn, the appellant exercised control over the amount of book-downs. He would not allow the full amount to be accessed, but rather would allow access to amounts of $100, $150 or $200 so as to ensure his customers did not spend all their money at once and so would have “something” at the end of the week.
The primary judge said that it was difficult to discern from the evidence average or typical periods for which the appellant retained his customers’ key cards. He found that it was for an extended period, “extending for at least several months” (at [65]). On occasions, the appellant would return a key card to a customer even though the customer had not repaid his or her debt in full. This might occur if the customer was leaving the APY Lands. The customer would hand back the card on their return. On other occasions, the appellant would agree 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.
The primary judge found that all but one of the customers to whom the appellant provided the book-up facility were indigenous persons and nearly all of these were residents of the APY Lands. The appellant did extend credit to non-indigenous persons, but on different terms involving no security and payment at the end of the week in which the credit was provided, or the end of the following week.
The primary judge found that travel by Anangu customers to Nobbys often involved considerable distances.
The primary judge noted that most of the book-up provided by the appellant related to the sale of motor vehicles. However, book-up was also provided for food and groceries to some customers. His Honour also noted that there was more than one type of book-up and that his judgment concerned only the book-up at Nobbys “and not book-up systems more generally” (at [77]).
The primary judge described the system whereby the appellant would issue a purchase order to a customer enabling him or her to purchase goods or obtain cash at another store. The need for this arose because of the size of the APY Lands and the fact that some customers did not find it convenient to travel to Nobbys. The purchase order named the customer and was in an amount ranging from $20 to $500. It was sent by the appellant to the store nominated by the customer. The customer could then obtain cash or food from the nominated store in the amount identified and the appellant would settle with the store in due course. The appellant charged the customer an amount of $10 per purchase order and that was cheaper than the comparable express money order service provided by Australia Post. The appellant issued 425 purchase orders totally $58,175.98 (average: $136.68) between 6 April 2011 and 31 October 2012. With the exception of the store at Mimili, the appellant was willing to send purchase orders to all community stores in the APY Lands, although he did not have purchase order arrangements with all stores on the APY Lands. The appellant is involved in a commercial dispute with the Mimili store.
On occasions, customers would ask for a cash advance on book-up and the appellant would provide the advance. The primary judge found that, as to at least some of the customers who were given a cash advance, the appellant charged those customers a fee. The appellant also made book-up available to customers who wished to purchase bus tickets to travel beyond the APY Lands.
The primary judge found that customers could, and in fact in some cases did, cancel their key cards or instructed their employer or Centrelink to pay their periodic payment into a different account.
The primary judge found that there was an incident involving the Commonwealth Bank of Australia (CBA) on 14 December 2010. A number of Nobbys’ customers who used book-up had key cards which had been issued by the CBA. There was a “glitch” in CBA’s system on 14 December 2010 and the appellant was able to withdraw “much more than normal” from the customers’ accounts. The primary judge found that he must have been aware of this at the time. This ultimately had the consequence that the customer’s account could be in debit for a period of time. The primary judge found that the extra withdrawals had not been authorised by the customers and that the appellant’s conduct revealed that “his attitude was to transfer to himself whatever funds were available in a customer’s account at any one time” (at [97]).
It is appropriate to record that this Court was told that the State Government has revoked Mr Kobelt’s licence to occupy Nobbys and that he is in the process of removing his possessions. As it happens, and subject to hearing from the parties, we do not think that this has a bearing on the relief to be granted.
We turn now to summarise the primary judge’s further findings of fact (or elaboration of his earlier findings) and his analysis in connection with the particular causes of action advanced by ASIC.
THE CONTRAVENTION OF S 29(1) OF THE NATIONAL CREDIT ACT
ASIC’s pleaded case was that, in connection with the sale and purchase of second-hand motor vehicles under the book-up system, the appellant had contravened s 29(1) of the National Credit Act. Section 29(1) provides as follows:
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 is common ground that the appellant did not hold a licence authorising him to engage in credit activity as defined in the National Credit Act.
Section 6(1) of the National Credit Act sets out the circumstances in which a person engages in a credit activity in relation to particular types of contract. The relevant contracts in this case are “credit contracts”. The section relevantly provides that a person engages in a credit activity in relation to credit contracts if:
(a) the person is a credit provider under a credit contract; or
(b)the person carries on business of providing credit, being credit the provision of which the National Credit Code applies to; or
(c) …
The National Credit Code which is Schedule 1 of the National Credit Act (s 3 of the National Credit Act) contains definitions of terms used in s 6 and a statement of the circumstances involving the provision of credit to which the National Credit Code applies. Section 5 of the National Credit Code is in the following terms:
(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.
(2)If this Code applies to the provision of credit (and to the credit contract and related matters):
(a)this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and
(b)this Code continues to apply even though the credit provider ceases to carry on a business in this jurisdiction.
(3)For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose
(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.
The appellant admitted that the 92 customers identified by ASIC in its Amended Statement of Claim had purchased motor vehicles from him after 1 July 2011 and on the respective dates alleged by ASIC. He admitted that he had provided credit to these customers (s 3 of the National Credit Code; Geeveekay Pty Ltd v Director of Consumer Affairs Victoria (2008) 19 VR 512 at [34]). The appellant did not dispute that the requirements in paragraphs (a), (b) and (c) of s 5(1) of the National Credit Code were satisfied. The appellant did dispute the allegation that there was a charge for providing the credit and that was one of the critical issues before the primary judge.
The appellant gave evidence that prior to 1 July 2011, there had been a difference between the cash price at which he sold the second-hand motor vehicles and the book-up price (the former was less), but that that practice had ceased on or about that date and that thereafter the prices were the same. The primary judge reviewed the evidence about that matter and firmly rejected the appellant’s case.
His Honour said (at [155] and [169]):
I formed an unfavourable view of Mr Kobelt’s evidence on this topic. I considered that he was not being frank with the Court and was instead seeking to establish, falsely, that the price differential practice had ceased by at least 1 July 2011 when the prohibition in s 29 of the NCCP Act became operative. Both the documentary evidence and the manner in which Mr Kobelt gave the oral evidence justify that conclusion.
…
The inferences arising from the whole of this evidence are overwhelming. They contradict Mr Kobelt’s assertion in evidence in the trial that he had changed his practice up to four years previously. I am not prepared to attribute Mr Kobelt’s oral evidence on this topic to faulty memory, as his counsel submitted. It is implausible that this is a matter about which Mr Kobelt could have been honestly mistaken.
These conclusions of the primary judge are not challenged on the appeal, and, other than noting the strength of the credibility finding, it is not necessary to say anything further about them.
The primary judge found that it was the appellant’s practice, and remained so until at least April 2014, when selling motor vehicles to do so at a reduced price in respect of customers who could pay the purchase price in full at the time of purchase, and the list price to those to whom he provided credit by way of book-up.
The primary judge made findings and observations about how the appellant determined the purchase price of vehicles. They are important to the appellant’s submissions on the appeal.
The appellant acquires second-hand motor vehicles from a wholesaler in Adelaide. On occasions, it is necessary for the appellant to do work on a vehicle.
The appellant attaches to vehicles he offers for sale a form containing the details required by s 16(1) of the Second-Hand Vehicle Dealers Act 1995 (SA) and the details include the price at which the vehicle may be purchased (the list price). The primary judge said the following about how the appellant determined the list price for a vehicle (at [135]-[136]):
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.
Having made these observations, the primary judge addressed the application of s 11 of the National Credit Code. That section is in the following terms:
(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.
The section refers to the cash price of goods and “cash price” is defined in s 204 of the National Credit Code as follows:
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 primary judge said that it was the first limb of the definition of “cash price” which was relevant in the circumstances of this case. He held that because of the difference between the price at which the motor vehicles could be purchased for cash and the book-up price, s 11(1)(b) of the National Credit Code was satisfied in the case of the 92 customers and that the difference between these two amounts was the charge for providing the credit by reason of the operation of s 11(3)(d) of the National Credit Code.
The primary judge addressed the issue of whether the amount payable for the purchase of the motor vehicles by the 92 customers was payable by instalments within s 11(1)(a) of the National Credit Code. The primary judge found that the amounts withdrawn by the appellant varied from fortnight to fortnight and by reason of the appellant’s provision of further credit until the next payday, were not equal in effect.
The rival contentions as to whether the purchase price was payable by “instalments” were, on one hand, that of ASIC that it was sufficient that there were periodic withdrawals from a customer’s account and, on the other, that of the appellant that the periodic withdrawals needed to be (and were not) part payments determined in advance and payable at pre‑determined times.
The primary judge carefully analysed the meaning of the word “instalments” in s 11(1) of the National Credit Code and reached the conclusion that the word was capable of meaning of successive part-payments, even where the amount of those part-payments may vary. He said that having regard to the obvious beneficial purpose of the National Credit Act and National Credit Code, it would be inappropriate to adopt a narrow construction of the word “instalments”. That conclusion meant that ss 5(1)(c) and 11(3)(d) were satisfied and the National Credit Code applied.
His Honour’s reasons may be summarised briefly. First, as to the meaning of the word “instalments”, his Honour, after referring to a number of authorities and former Credit Acts in some States, concluded that the word did not have a fixed and immutable meaning and that construing it to include payments of varying amounts at unspecified intervals is not necessarily “to impute a strained and unnatural meaning to the legislation” (at [180]). Secondly, and in terms of context, his Honour held that other provisions in the National Credit Code were not inconsistent with a broader construction of the word, “instalments”. Finally, in terms of the purposes of the legislation, his Honour considered, as we have said, that the obvious beneficial purpose supported a broad construction of the word. He said that there is no apparent reason for the National Credit Code to apply only to contracts involving instalments of some kinds and not to others.
The primary judge went on to consider the position if s 11 of the National Credit Code did not apply. In those circumstances, it was necessary to consider whether there was a charge for the provision of credit in circumstances in which the word, “charge” is not defined. The primary judge said that the phrase “charge … for providing … credit” was not restricted to an interest charge or even to a charge in the nature of interest and that included amounts paid on account of the provision of credit. The primary judge rejected an argument that there was a material distinction between electing to take less than the “market” price for vehicles “for his own commercial reasons”, namely to obviate the risk of default and loading a “market” price with a credit charge. The primary judge accepted the appellant’s contention that ASIC had made no attempt to establish that the appellant was making a charge for the provision of his credit by inflating the sale price of the vehicles beyond their “market value”, but that, the primary judge said, was not decisive. The matter which was decisive, as far as the primary judge was concerned, was that those to whom the appellant provided book-up paid more in order to provide compensation to him for the risk that he undertook that they may default in the payment arrangement.
UNCONSCIONABLE CONDUCT
ASIC’s Amended Statement of Claim
There is a serious challenge by the appellant to the primary judge’s conclusions on the basis that he relied on matters which had not been pleaded. In those circumstances, we start with an examination of ASIC’s case as pleaded in its Amended Statement of Claim (Statement of Claim).
The Statement of Claim can be divided into two sections. The first section consists of paragraphs 4 to 24 inclusive and the second section consists of paragraphs 24A to 72 inclusive. Paragraphs 1 to 3 are introductory and paragraphs 73 to 75 set out the relief claimed by ASIC.
In Section 1, ASIC alleges a system of conduct or pattern of behaviour which s 12CB(4)(b) of the ASIC Act (effective from 1 January 2012) expressly states is within the terms of s 12CB(1) of the ASIC Act. For the period prior to 1 January 2012, ASIC relies on the section as interpreted in the authorities as capable of applying to a system of conduct or pattern of behaviour. For ease of reference, we will refer to this aspect of ASIC’s case as the system case. ASIC’s system case involves the provision of credit by the appellant to 117 customers under the book-up system. The credit was provided in relation to the purchase of second-hand motor vehicles, food, fuel, general groceries and some services. As we have previously said, ASIC identifies 92 customers involved in the purchase of second-hand motor vehicles between July 2011 and October 2012.
In Section 2, ASIC alleges unconscionable conduct with respect to each of five customers who, to preserve their anonymity, were identified by a letter, being A (a husband (AH) and wife (AW)), B, C and D. The primary judge described this as ASIC’s secondary case. The appellant’s conduct with respect to the five customers was alleged in the Statement of Claim to involve instances of ASIC’s system case of unconscionable conduct or, in the alternative, a series of separate contraventions of s 12CB(1) of the ASIC Act. We mention at this point that the primary judge heard evidence from four of the five customers (AH, AW, B and D) and he found that they were honest witnesses, subject to a qualification in the case of one of them (D) which does not need to be examined in detail (at [294]). However, the primary judge noted that ASIC did not press for findings in relation to its secondary case that the appellant’s conduct in relation to book-up in the case of the five customers was unconscionable (at [625]). In the circumstances, he did not consider it necessary to address ASIC’s secondary case (at [626]).
With respect to ASIC’s system case, there were two major aspects of the appellant’s conduct identified in the Statement of Claim. The first was given the description of “Nobbys’ Credit Facility” and involved the deferral of payment for the purchase of goods on provision by the customer of a debit card linked to a bank account in the name of the customer and the provision of the PIN for the card and details of the amount of the periodic payment into the account and the time at which it is made. The second was given the description of the “Withdrawal Conduct” and involved the appellant, as a means of satisfying the debt due to him, using the relevant debit card and the PIN to withdraw funds from the customer’s bank account and the transfer of funds to accounts owned and operated by him, until there were no, or very limited, funds remaining in the customer’s account. It is alleged that the Withdrawal Conduct usually occurred at or about the day the periodic payment was due to be made and was repeated until the appellant was satisfied that the customer’s debt was extinguished.
Other important aspects of ASIC’s case as pleaded in the Statement of Claim included the disadvantages of the indigenous residents of the APY Lands (paragraphs 13 and 13A) and the consequences of the appellant’s conduct for his customers (paragraph 17), including the fact that the customers were required to ask the appellant for additional credit thereby prolonging the Withdrawal Conduct and its consequences and creating and continuing (it is alleged) “a relationship of dependency between the customer and Mr Kobelt” (paragraphs 18 and 19). There are then pleas by ASIC of the appellant’s knowledge or reckless indifference to the elements of ASIC’s case (paragraph 20). Finally, there is a plea in paragraph 21 of the conclusion for which ASIC contends. It is as follows:
21. By:
21.1. issuing Nobby’s [sic] Credit Facilities to Nobbys Customers, and/or
21.2.extending additional credit to Nobbys Customers under their Nobbys’ Credit Facility in the manner and circumstances pleaded in paragraphs 17, 18 and 19 above; and/or
21.3.engaging in the Withdrawal Conduct in respect of Nobbys’ Customers, as pleaded in paragraphs 14 and 15 above;
Mr Kobelt engaged in conduct that was, in all the circumstances (including Mr Kobelt’s State of Mind pleaded in paragraph 20 above, the Consequences of the Conduct pleaded in paragraph 16 above, and the Circumstances of Nobbys’ Customers pleaded in paragraph 13 above and the matter pleaded in paragraph 13A above) unconscionable within the meaning of s 12CB(1)(a) of the ASIC Act.
Counsel for ASIC make it clear in his oral submissions on the appeal that the critical aspects of ASIC’s unconscionable conduct case against the appellant were the Nobbys’ Credit Facility and the Withdrawal Conduct as described above.
With that introduction, it is necessary to turn to some further findings of fact made by the primary judge, this time specifically in the context of ASIC’s unconscionable conduct case.
The Characteristics of the Nobbys’ Customers
ASIC pleaded that since at least 1 June 2008, the appellant has provided credit to at least 117 customers. The names of those customers are set out in Schedule A to ASIC’s Amended Statement of Claim. As we have said, customers AH, AW, B and D gave evidence. In addition, Mr Ronny Brumby and Ms Rhoda Pearson, who were also customers of Nobbys, gave evidence.
ASIC’s case was that the Nobbys’ customers were indigenous residents of the APY Lands and, in the overwhelming majority of cases, had very limited or no net assets, had very limited net income and had low levels of financial literacy. In addition, ASIC pleaded that the APY Lands was comprised of remote and impoverished communities.
There was considerable evidence at trial about the characteristics of Nobbys’ customers. The main dispute related to whether the overwhelming majority of Nobbys’ customers had low levels of financial literacy. By the end of the case, the appellant did not dispute that a majority of the Nobbys’ customers were impoverished in the sense of having no, or only limited assets, and only limited incomes. Nor was it disputed that the APY Lands were comprised of remote communities.
The primary judge considered the evidence with respect to the characteristics of the Nobbys’ customers at some length. Before doing so, he indicated that he accepted that proof of ASIC’s system case did not require proof of the individual circumstances of each customer to whom the system applied. We do not think that that observation had any effect on his conclusions, but we would note that the observation is true, but only to a point. Section 12CB(4) of the ASIC Act provides that s 12CB is capable of applying to a system of conduct or pattern of behaviour whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour. However, where an applicant’s case is that the unconscionable conduct relates to a group which is disadvantaged, then it must prove that disadvantage. In any event, that was the case pleaded and conducted by ASIC.
The majority of the Nobbys’ customers come from Mimili and Indulkana. To travel from Mimili to Mintabie on the main road is a journey of 165 km and to travel from Indulkana to Mintabie on the main road is a journey of 116 km. The distances on the back roads are 70 km and 86 km respectively. The primary judge said that it was plain that these were remote communities. Journeys from one place to another is an occasion of some expense and road conditions are such that wear and tear on vehicles is significant. The primary judge noted, however, the evidence of Dr David Martin, an anthropologist, to the effect that it is not uncommon for Aboriginal residents in remote communities to travel significant distances to access goods and services and that significant travel is not ordinarily seen as a disincentive for Aboriginal consumers.
The primary judge found that mainstream banking services are not available on the APY Lands. An Anangu wishing to do business with a bank is required to travel to Coober Pedy, Port Augusta or Alice Springs each of which would involve a journey of considerable distance.
The primary judge conducted a view at Mimili, Indulkana and Mintabie. The Court visited the public and community buildings in Mimili. The Court walked past, but did not view the school. One building the Court viewed was a MoneyMob Talkabout (MoneyMob) office. MoneyMob provides advice and information to community members in connection with matters of finance, including the payment of fines, banking, debt recovery, referrals to financial counsellors, budgeting and making the money last until payday. The primary judge said that MoneyMob may see between 25 and 50 people each day.
The primary judge noted that in Mimili most of the employment is directly or indirectly publicly or community funded. He noted that there were no industries and, with the exception of the Arts Centre, no other forms of productive enterprises. He noted that economic opportunities were limited.
The Court viewed the store at Indulkana.
The Court then travelled to Mintabie and viewed the three stores in Mintabie. As we have said, they are Nobbys, Sam’s and Scrooge’s.
The Court did not observe any signs of material wealth in the communities at Mimili and Indulkana. The Court’s observations were to similar effect to the observations of Dr Martin, namely, that the overriding characteristic of the Aboriginal population in the APY Lands is their poverty.
The Court heard evidence from a Mr Bernhard Stauner. Mr Stauner was employed by MoneyMob as a financial counsellor between 13 May 2013 and 14 December 2014. Mr Stauner was based at Amata and he provided education and assistance to the Anangu on the same range of money matters as did MoneyMob in Mimili. The primary judge considered Mr Stauner’s evidence and opinions to be reliable and he accepted them.
Mr Stauner gave evidence of assisting approximately 30 indigenous persons to cancel their key cards and to obtain replacement key cards and PINs. He described low levels of financial literacy among those whom he assisted which was more than 150. He described the characteristics of MoneyMob’s clientele. He said that most of his clientele had difficulty in understanding concepts of budgeting and planning for the future. He gave evidence relating to the understanding generally amongst the Anangu of credit facilities and of the possible financial consequences of book-up arrangements such as those that applied at Nobbys.
The primary judge said that, in considering Mr Stauner’s evidence, he bore in mind that Mr Stauner’s experiences related to people who had particular trouble in controlling their own finances and their characteristics may not necessarily reflect the characteristics of the Nobbys’ customers. He also said that he bore in mind that being based in Amata, Mr Stauner’s contact with customers using book-up at Nobbys may not have been extensive.
The Court heard evidence from Mr Andrew James Kilpatrick. Mr Kilpatrick was an employee of Outback Stores Pty Ltd which had a contract with Mimili Corporation to provide management services at the store in Mimili. Mr Kilpatrick worked as the manager of the store between April 2009 and April 2012. The primary judge considered Mr Kilpatrick to be an honest witness and he accepted his evidence as reliable. Mr Kilpatrick described the range of goods which were sold at the store in Mimili and he described the methods of payment. The Mimili store did not provide book-up or other forms of credit. Mr Kilpatrick described some of the characteristics of the customers at the Mimili Store. Mr Kilpatrick said that the store had purchase order arrangements with some stores, but not with Nobbys.
The appellant gave evidence about the characteristics of his customers. The primary judge accepted his evidence to the effect that half of the customers to whom he sold motor vehicles on credit could not read and that more than half of his customers could not add up.
The primary judge discussed the evidence concerning whether the Nobbys’ customers were in employment or were in receipt of Centrelink benefits. He concluded that, at best, about 50% of those to whom the appellant gave credit on book-up, had employment of some kind at some time. He concluded that at least one half of the appellant’s customers were dependent on Centrelink benefits as their primary source of income.
As we have said, the Court heard evidence from AH, AW, B, D, Mr Brumby and Ms Pearson. The primary judge said that the evidence of these witnesses, who were all Anangu, indicated the characteristics of at least some of the Nobbys’ customers. As we have said, the primary judge said that he considered AH, AW, B and D to be honest witnesses. As to D, the primary judge said that some extra care was necessary in evaluating his evidence.
The primary judge described the evidence given by AH and AW. Both witnesses lived in Mimili. AH has been in receipt of a Centrelink pension from at least 2010 and probably longer. The most expensive of his assets is a television. AW last worked in 1995 and she receives a Newstart Allowance. Each of AW and AH has their own bank account with a debit card and AH’s Centrelink pension and AW’s Newstart Allowance are paid into their respective accounts. AH and AW were involved in book-up for the purchase of motor vehicles and food from the appellant from at least May 2009. The primary judge summarises their motor vehicle purchases and the appellant’s withdrawal of monies from their accounts.
AH said in cross-examination that the appellant had always been good to him and that when he went to the appellant’s store, the appellant was happy to see him. AH said that he commenced using book-up at Nobbys because the Mimili Store did not allow book-up. He had also used book-up at Sam’s in Mintabie providing the proprietor there with his key card and PIN. AH said that he preferred to buy food at Nobbys rather than at the Mimili Store because he could use book-up and for this reason it was better to drive to Mintabie. AH acknowledged that he was aware that the appellant would use his key card to take money from his account and was happy for that to occur, even when the appellant took the whole of the available balance. He acknowledged in cross-examination that he had agreed with the appellant when buying a motor vehicle on book-up that the appellant would use about half of the amount taken from his account to pay for the motor vehicle and the other half should be available for further book-up.
AW said that that appellant was good to her and was happy when he saw her in Nobbys. She said that she still does book-up at Nobbys, but owes the appellant only a small amount. She agreed that she used book-up because it is a means of getting “tucker” and because the appellant is “okay”. She agreed that she knew that the appellant would take money from her bank account on the pension payment days to pay for the book-up. She said that in the past she had from time to time telephoned the appellant to tell him how much of the money to take out of her account on pension day, that the appellant had complied with her requests, and that sometimes he had left money in her account as she had requested. She said that she was happy to go to Nobbys at any time because she loves the shop and would be willing to use book-up again at Nobbys once she has paid off her current debt.
B is married to C and he and his family reside in Mimili. He is in receipt of a Newstart Allowance. The primary judge described the respective motor vehicle purchases of B and C.
B acknowledged that he had known from others in Mimili that he would have to give his key card to the appellant in order to use book-up at Nobbys. He said that the appellant told him that he could have “a little bit” of food on book-up. He also agreed that the appellant told him that he would take money out of his bank account every payday to pay off the book-up. He had understood that he was giving the appellant permission to do so. B said that he thought book-up was good because it allowed him to buy food and fuel between pension days and paydays. He said, however, that there had been times when the appellant had told him that he could not have food on book-up.
D lives in Mimili. He gave evidence that he had been a petrol sniffer for a long period in the past and had suffered some brain damage. The primary judge said that his presentation when giving evidence seemed consistent with that condition. D receives a Disability Support Pension and it is his only source of income. D had purchased one motor vehicle on book-up from the appellant, but that was a long time ago. The transactions relating to that book-up were not included in the book-up diaries tendered in evidence.
D continued to use book-up from time to time at Nobbys, having done so only a few weeks before giving evidence in June 2015. He also used book-up at Sam’s store in Mintabie. D acknowledged that without the ability to use book-up, there would be times when he would go hungry between pension days. D has obtained cash from the appellant to give to the family with whom he resides. He said that the appellant told him how much cash he was allowed to take on each occasion.
Mr Brumby had sources of income other than from Centrelink or wages. The primary judge identified those sources of income.
The primary judge identified Mr Brumby’s motor vehicle purchases from the appellant and noted that on some occasions the purchases were by way of cash and on other occasions they were by way of book-up. The primary judge noted the circumstances surrounding Mr Brumby’s use of book-up. He noted the fact that Mr Brumby had developed firmly adverse views of the appellant and was now critical of many aspects of the conduct in which he perceives the appellant to have engaged. It is not necessary for us to set out the details. The primary judge said that given the antipathy between Mr Brumby and the appellant, he considered it appropriate to be circumspect before accepting all of Mr Brumby’s evidence.
Ms Pearson was employed by Centrelink in Indulkana. The primary judge summarised Ms Pearson’s motor vehicle purchases. He summarised her purchases of food and groceries. Ms Pearson has not done any further book-up at Nobbys since cancelling her key card in mid-2013. The primary judge considered her evidence generally reliable and, save for those matters on which the objective evidence indicated that she was mistaken, accepted her evidence.
ASIC tendered a number of statistics derived from the 2011 Census and other surveys conducted by the Australian Bureau of Statistics (ABS) in support of its case concerning the characteristics of the Nobbys’ customers. It tendered information from the 2011 Census showing characteristics of residents of the APY Lands, Mimili, South Australia, and Australia. The primary judge referred to data published by the ABS in 2012 indicating relatively low levels of attainment in education of residents in the APY Lands. The information suggested that a little less than 40% of the Anangu had either never attended school at all or had attended only to year 8 or below. Only about 7% of the Anangu had completed year 12.
The primary judge referred to the ABS Census of Population and Housing for Aboriginal and Torres Strait Islander Australians published in 2012 which permitted a breakdown of the income of the Anangu aged 15 or more who resided on the APY Lands. He said that this information showed that only 14.8% of Anangu had incomes of over $400 per week, and 61.5% had incomes between $200 and $399 per week. He said that this was consistent with a number of Anangu being unemployed and/or in receipt of social security benefits.
The primary judge also referred to data published on the “My School” website by the Australia Curriculum Assessment and Reporting Authority (ACAR) derived from the National Assessment Program – Literacy and Numeracy (NAPLAN). The primary judge said that this information showed that 78% of year 7 students at Mimili School in 2009 were below the NAPLAN Minimal Standards (NMS) in reading compared with 5% for year 7 students in all Australian schools. The year 9 students in Mimili, 73% were below the NMS for reading, compared with 7% for all Australian schools. In the case of numeracy, 44% of year 7 students at Mimili School were below the NMS compared with 4% for year 7 students in all Australian schools. For year 9 students in Mimili, 18% were below the NMS for numeracy compared with 4% for all Australian schools.
The primary judge noted that the 2011 Census reported that some 14.2% of APY Lands residents spoke only English at home. The other languages spoken at home included Pitjantjatjara (72.1%) and Yankunytjatjara (5.6%).
As we have said, the Court heard evidence from Dr Martin whom the judge described as a well‑qualified social anthropologist and very experienced. He was called as a witness by ASIC.
In April 2014, ASIC retained Dr Martin to provide an opinion concerning A to D who are the subject of its secondary allegation. In July 2014, ASIC expanded its instructions to Dr Martin asking him to consider matters relating to Aboriginal residents of the APY Lands. The primary judge noted that Dr Martin was not asked on either occasion to express an opinion with respect to the 117 customers who were the subject of ASIC’s system case. Instead, he was asked to provide an opinion of the APY Lands residents. ASIC did not provide information to Dr Martin as to the identity and contact details of the 117 Nobbys’ customers.
ASIC instructed Dr Martin to assume certain matters for the purposes of his opinion in relation to the majority of the Anangu customers who entered into book-up arrangements at Nobbys.
Dr Martin conducted three field trips to the APY Lands in April and May 2014 and, in the course of these trips, he spoke to a total of 23 indigenous residents in Indulkana and Mimili.
Dr Martin addressed the existence of social and cultural matters pertaining to the Aboriginal residents of the APY Lands generally, which may impact on their ability or willingness to understand credit arrangements as well as book-up at Nobbys and like facilities, to question or negotiate the terms of transactions with traders, or to lodge a complaint about such terms. He then expressed a number of opinions about the characteristics of Aborigines generally, that is, not just the Anangu. He then expressed a number of opinions about the Anangu.
Dr Martin then said that he believed it to be a reasonable inference that the characteristics of the Aboriginal people in remote communities generally applied to the Anangu residents in Mimili and Indulkana and in the APY Lands more generally. After expressing a number of other opinions, Dr Martin expressed his opinions as to the understanding by the Anangu of the book-up arrangements at Nobbys.
The Court heard evidence from Associate Professor Golnek of the University of Adelaide. He was called as a witness by the appellant. He had undoubted and unchallenged expertise in mathematical statistics and he gave evidence to expose errors he perceived in ASIC’s, and to an extent in Dr Martin’s, use of the ABS and NAPLAN statistics and in their attribution to the 117 customers of the characteristics of the Anangu more generally. Putting the matter very generally, Professor Golnek’s opinion was that one could not draw inferences concerning the Nobbys’ customers unless they were randomly selected. They were not randomly selected and were the subject of a form of “sample selection bias”. Professor Golnek gave his opinions as to why the Nobbys’ customers could not uncritically be regarded as a random and, therefore, representative sample of all Anangu.
Professor Golnek also gave evidence to the effect that no valid inferences as to the characteristics of Nobbys’ customers generally could be drawn from the circumstances of AH, AW, B, C and D.
The primary judge noted that Professor Golnek’s opinions were not contested by ASIC. The primary judge accepted that his criticisms of ASIC’s case, and to an extent, of Dr Martin’s approach were well made. The primary judge said that care must be taken before accepting ASIC’s submissions concerning the characteristics of the 117 customers insofar as they are dependent on inferences being drawn from the characteristics of the Anangu population generally. However, the primary judge said that this did not mean that the profile of the Anangu or of residents of Mimili derived from the ABS statistics and the NAPLAN results were of no utility. His Honour said (at [415]):
… While it cannot be inferred, at least without further enquiry, that all of the 117 customers had the difficulties with the English language, the limited education, the limited incomes, the limited assets and the limited financial literacy of the general Anangu population, the ABS surveys and the NAPLAN results do bear on the probability that they have all or most of these characteristics. The 117 customers constitute just less than 5% of the overall Anangu population. If the elderly and children are excluded from the numbers constituting the general Anangu population, the 117 customers probably constitute 5-10% of the overall Anangu residents. The circumstance that the 117 come from a population which has the general characteristics for which ASIC contended makes it more likely that at least several of them will also have those characteristics. The converse would also be true. If the Anangu population was generally literate, numerate, experienced in financial transactions and familiar with the means by which credit may be obtained generally, one would be less inclined to conclude that the 117 customers lacked those abilities.
In the circumstances, his Honour considered that, subject to the exercise of care which he had mentioned arising from Professor Golnek’s evidence, he considered Dr Martin’s evidence to be generally helpful and reliable.
The primary judge then made his findings as to the characteristics of the 117 customers. His Honour said (at [417]):
ASIC’s submissions concerning the 117 customers did not depend only on the inferences to be drawn from the characteristics of the Anangu generally. I have summarised earlier the other evidence bearing on this topic. That included Mr Kobelt’s own acknowledgement that less than half of his customers are able to read. I also consider it appropriate to infer that the reading ability of those who can read is also compromised.
His Honour said that he was satisfied that most of the 117 Nobbys’ customers had the characteristics alleged by ASIC and that included low levels of financial literacy.
The primary judge nevertheless accepted the appellant’s submissions that the Nobbys’ customers did understand that they could purchase a vehicle or other goods from Nobbys on credit. They understood that the credit arrangement involved them paying later for the vehicle or goods by their providing the appellant with their key card and PIN and authorising him to use it to withdraw money from their bank account as it became available. They understood that the disadvantage arising from the arrangement of them not having access to money for the necessities of life could be addressed by the appellant advancing further credit from time to time. The primary judge accepted that the Nobbys’ customers had an awareness of these aspects of the arrangement at the time they entered into book-up with Nobbys and chose voluntarily to do so. He accepted that it was probable that there were some amongst the 117 customers who had had a reasonable education, who were reasonably articulate and who had some financial awareness, but whom, nevertheless, found the appellant’s book-up arrangements, at least for a time, to be convenient. The primary judge said that, on his assessment, the number of customers satisfying this description was limited.
The Appellant’s Evidence
The primary judge described the appellant’s background and working history. He noted that the appellant had had a limited education and that he himself had lived in a remote community for significant parts of his working life. He had an unsophisticated approach to many matters and this was manifest, among other things, in his book-up arrangements. The primary judge said that, nevertheless, he had the firm impression during the appellant’s evidence that he had a keen appreciation of where his interests lay in the litigation.
The primary judge said that he accepted much of the appellant’s evidence, but there were several aspects of it which caused him to have doubts about his overall reliability.
He referred to his earlier findings whereby he rejected the appellant’s evidence that he had ceased charging a reduced price for motor vehicles sold for cash (and not on book-up) in about mid‑2011. He reiterated that he did not consider this was a matter about which he could be honestly mistaken. He also rejected the appellant’s evidence that he had heard his Anangu customers talking about extra money coming into their accounts before 14 December 2010 when the CBA “glitch” occurred.
The primary judge said that there were other matters causing him to doubt the reliability of aspects of the appellant’s evidence.
First, the primary judge did not accept the appellant’s evidence about whether he charged for a cash advance. He did not regard this part of the appellant’s evidence as truthful and he made a finding that the appellant did charge at least some of his customers at least 10% of the amount he advanced in cash, or which he had outlaid on their behalf.
Secondly, the primary judge referred to cases involving Ms Pearson, Mr Pearson, Mr Doolan and Mr Clothier where the appellant made withdrawals, either more frequently than authorised, or in larger amounts than were authorised.
Use of Book-Up by Others
Book-up is not unique to Nobbys.
The primary judge referred to a report prepared in 2002 by Mr Gordon Renouf for ASIC entitled: “Book up: Some consumer problems”.
Mr Renouf reported that “some form of book up is available in a large number of rural and regional towns in most States of Australia and the Northern Territory, on Aboriginal communities, at stores on pastoral stations and in some regional cities”. The primary judge noted that the book-up described by Mr Renouf in his report has taken various forms, including customers being required to have their social security cheques posted to a store with the expectation that the cheque would be cashed at the store; customers providing direct debit authorities, and customers providing key cards and PINs. The primary judge noted that book-up developed as the entitlement of Aboriginal people to social security payments was recognised in the period between 1958 and 1975 and the consequent receipt by them of such payments. The primary judge noted that the progression to the provision of key cards and PINs seemed to be the consequence of the change in the way in which financial payments are now paid, and financial services provided.
Mr Renouf reported as follows:
Indigenous use of financial services and bookup systems occurs in the context of specific cultural practices and attitudes. The behaviour and preferences of Indigenous consumers cannot be assumed to be the same as “consumers in general”. This has particular effects on the attitudes and practices Indigenous consumers bring to bear on their choice and use of financial services. Westbury … notes that:
“The pattern of sharing food, cash and other resources within Indigenous communities is strategically determined by kinship ties and social alliances which extend beyond families and physical households. … These rules and how they are applied in everyday life are often overlooked or misunderstood and result in policy approaches by service providers that fail to take account of existing community structures and expectations. … For example banks are seen as cash outlets and not savings facilities, there is low cultural emphasis on savings and Centrelink is viewed as a de facto banking service.”
In this context, a key card is seen both as a resource to be shared and a pledge to secure a bookup arrangement. In the same way, if it is necessary to disclose a PIN number to facilitate meeting a cultural obligation, then it should be disclosed regardless of the bank’s strictures, even in cases where they have been perfectly understood.
The primary judge accepted that regard should be had to the features which differentiate Nobbys’ Anangu customers on the one hand, and customers in general, on the other. He noted that these features included different traditions concerning individual and communal property, different conceptions about the entitlement to retain for oneself payments received as an individual, and different practices in the management of money. The primary judge said that account should be taken of those differences in applying the norms which underpin the assessment of the conscionability of the appellant’s conduct.
The primary judge accepted the advantages book-up offers to customers in remote communities and in some regional areas as identified by Mr Renouf. They were that it is often the only way by which indigenous residents can obtain access to credit, it provides a means of managing money over the weekly or fortnightly cycle to those who lack financial management skills, and it is a means by which demand sharing (humbugging) can be addressed. The primary judge noted that there were no banks, credit unions or like institutions in or immediately adjacent to the APY Lands. Credit is not readily available to the Anangu.
The primary judge set out the problems or disadvantages which Mr Renouf identified in terms of the way in which many traders operate book-up. Those problems or disadvantages included the following:
(a)consumers are tied to one retailer for all purchases;
(b)there may be additional or hidden costs;
(c)there are opportunities for price exploitation;
(d)excessive credit may be advanced to consumers;
(e)credit may be advanced to third parties without the consumer’s authority;
(f)the trader may allow the purchase of alcohol on credit in breach of licensing laws;
(g)there may be a lack of transparency or poor record keeping;
(h)consumers have no or limited access to their card or their funds especially when the store is closed;
(i)consumers have no opportunity to learn and practice electronic banking or money management skills;
(j)consumers may remain unaware of Centrelink breaches;
(k)book-up can be a sources of resentment in indigenous communities; and
(l)when key cards and PINs are handed to the trader, consumers are in breach of the bank’s conditions of use of the card and may expose themselves to additional liability if an unauthorised transaction is made on their account.
The primary judge said that there was no evidence of (e) and (f) in the case before him and that ASIC did not rely on (l). The primary judge said that some of the other disadvantages identified by Mr Renouf were apparent in the book-up arrangements at Nobbys.
Practice at Nobbys
The primary judge accepted that the appellant never refused food to a customer from whose account he had withdrawn all the money. However, he did limit the goods which customers with a significant book-up debt could take by way of book-down. Generally, such customers were limited to milk, bread and meat and were not permitted to purchase items like sweets and chips. The primary judge said that, whilst the appellant may have been motivated by kind heartedness, he would, in addition, be well aware that it was not in his commercial or reputational interest to have refused a customer food altogether. The primary judge noted that the appellant also acted with an appreciation of his own commercial interest in deciding whether to release key cards to customers who wished to travel away from the APY Lands temporarily.
The primary judge found that the appellant did not exercise any oversight of the amount which customers could book up in connection with the original purchase of a motor vehicle and that the appellant was indifferent as to whether customers could afford the commitment which they were undertaking, having regard to their financial position more generally.
The Appellant’s Record Keeping
The primary judge accepted a submission that the appellant conducted his business with little or no insight into the importance of providing a true and proper account to his customers. The primary judge found that the appellant’s records of the book-up transactions were inadequate and illegible (at [544]), that a customer had he or she wished could not have checked the reliability of the appellant’s record keeping (at [546]) and that any audit of what had occurred was not feasible “(at least without considerable difficulty)” (at [623]).
The Primary Judge’s Reasons for holding that the Appellant engaged in Unconscionable Conduct
The primary judge began his evaluation of whether the appellant’s conduct was unconscionable by a consideration of the matters which are set out in s 12CC(1) of the ASIC Act.
Section 12CC(1)(a): The relative strengths of the bargaining positions of the appellant and his customers
The primary judge found that the appellant’s bargaining position was relatively stronger than that of his book-up customers. He said that the customers’ lack of assets to offer as security for a loan meant that it was difficult for them to obtain loans from commercial lenders. He said that the vulnerability of the book-up customers added to the disparity in bargaining positions. That vulnerability arose from low levels of literacy and numeracy and difficulty in accessing alternative forms of credit.
With respect to the appellant’s argument that there was no significant disparity in bargaining positions because of a customer’s ability to cancel his or her key card or have their income paid into a different account, the primary judge said that the Court should be slow to conclude that the ability to engage in wrongful conduct had the effect of correcting or ameliorating what was otherwise an imbalance of bargaining power.
Section 12CC(1)(b): Whether, as a result of the appellant’s conduct, the customers were required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the appellant
The primary judge rejected an argument by the appellant that his book-up arrangements were in accordance with “industry standards” and said that no “industry standards” had been proven.
His Honour said that it was not readily to be supposed that a requirement that customers hand over debit cards and confidential PINs to a retailer was reasonably necessary to protect a legitimate interest of the retailer. Nor was it reasonably necessary to protect a legitimate interest of the appellant that, absent a contrary instruction from the customer, the appellant be permitted to withdraw all or nearly all of the money in a customer’s account and transfer it to his own account. On the appellant’s account, 50% of the money was available to the customer and he could have left that amount in the customer’s account. Withdrawing that amount and placing it in his own account was not reasonably necessary to protect a legitimate interest of the appellant.
The primary judge said that, furthermore, there were other repayment arrangements that the appellant could have adopted which were appropriate and which did not involve the customers handing over their key cards and PINs. His Honour referred to a Centrepay facility, a direct debit arrangement, payday payment arrangements and employer deductions. Direct debit and employer deductions are self-explanatory. Payday arrangements involve the handing over of the debit card, but not the PIN, and then attendance by the customer at Nobbys when monies would be withdrawn by the customer and the appellant repaid. Centrepay involved a scheme where, upon certain conditions being met, nominated traders and suppliers would be paid direct by Centrelink. The primary judge accepted that these alternative repayment arrangements may not be available or satisfactory in all cases, but, his Honour said, they served to indicate that the Nobbys’ Credit Facility and Withdrawal Conduct went “well beyond” what was reasonably necessary to protect the appellant’s legitimate interests (at [538]).
Section 12CC(1)(c): Whether the customers were able to understand any documents relating to the book-up arrangements
The primary judge accepted that the appellant’s customers had an understanding of the basic elements of the book-up arrangements. However, because of the deficiencies in the appellant’s records, the customers, had they asked to see the records (and there is no evidence any of them did), would have had considerable difficulty understanding the records, let alone checking their accuracy.
Section 12CC(1)(d): Whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the appellant’s customers by the appellant in relation to the book-up arrangements
The primary judge noted that ASIC did not allege that the appellant exerted any undue influence or pressure on his customers in relation to the book-up arrangements. ASIC did point to certain tactics by the appellant in operating the book-up system.
The primary judge found first, that the appellant worked actively to ensure monies were withdrawn from customers’ accounts before the customers themselves could access the monies which might otherwise be available to them, secondly, that in some cases the appellant withdrew more monies than he was authorised to or he withdrew monies more frequently than he was authorised to, and thirdly, that he took advantage of the CBA “glitch” on 14 December 2010 to withdraw more monies than he was authorised to withdraw.
The primary judge took these matters into account. Whether he did so because he considered them “unfair tactics” within s 12CC(1)(d) is not entirely clear from his reasons.
Section 12CC(1)(e): The amount for which, and the circumstances under which, the appellant’s customers could have acquired equivalent financial services from a person other than the appellant
The primary judge found that the credit provided to the customers by the appellant in connection with the purchase of second-hand motor vehicles was expensive and that this was not made explicit to book-up customers. Later in his reasons, his Honour said that the credit provided by the appellant was of a “particularly expensive kind” (at [618] and see [493] set out below at [209]). The appellant submitted that the primary judge’s finding related not only to the second-hand vehicles, but also to food, fuel, general groceries and other services. It seems to us, reading the reasons as a whole, that the finding relates only to second-hand motor vehicles. His analysis of the cost of the credit is restricted to the second-hand motor vehicles and it is that analysis which formed the basis of his conclusion that the credit provided was expensive. Furthermore, the following facts were admitted in relation to charges, if any, for credit and interest on book-up credit extended by the appellant:
(1)At all relevant times prior to mid-March 2015, upon issuing a purchase order, the [appellant] or his employees would enter the amount of the purchase order in the book up records maintained by the [appellant], together with a fee of $5 or $10 for the service of providing purchase orders to the benefit of the relevant customer;
(2)At all material times, the [appellant] did not (and does not) charge any interest on balances outstanding in respect of the book up credit extended by him; and
(3)At all material times with respect to book credit for items other than motor vehicles, the [appellant] did not and does not levy a charge for the provision of book up credit.
(see exhibit R57 at Tab 134).
In the context of the appellant’s sale of second-hand motor vehicles, the primary judge said (at [488]-[489]):
In cross‑examination, Mr Jorgensen acknowledged that a credit charge of $1,000 for vendor finance on a vehicle purchase of $4,000 for a term of 12 months was equivalent to an interest rate of 25%. He also accepted that, in the event that the total of $5,000 was repaid progressively over the 12 month period, the effective interest rate would be still higher.
Although there was no evidence of the actual effective interest rates in this or like circumstances, they are a matter of mathematical calculation. Assuming a $4,000 vehicle purchase and a $1,000 credit charge, with the aggregate of $5,000 being repaid by regular monthly instalments over a 12 month, 18 month and 24 month period, the effective annual interest rates are 43.4%, 29.5% and 22.4% respectively. Each of these is significantly in excess of the rates for personal loans to which Mr Jorgensen referred.
Section 12CC(1)(f): The extent to which the appellant’s conduct towards his book-up customers was consistent with his conduct in similar transactions between the appellant and other like customers
The primary judge found that the appellant did not treat his customers equally in the sense that he provided goods and services to non-indigenous customers on credit without requiring them to provide a key card and PIN or other security and that some customers were allowed more book-up than others.
Section 12CC(1)(j): The extent to which the appellant was willing to negotiate the terms and conditions of his contracts/arrangements with his customers and other matters identified in the section
The third circumstances element was the “Circumstances of Nobby’s Customers” (ASOC [13]). Those circumstances were alleged to be that, at least in the overwhelming majority of cases, the customers had very limited or no assets, had very limited net income, had low levels of financial literacy (ASOC [13]), and were residents of the APY Lands, which were comprised of remote and impoverished communities (ASOC [13A]).
The primary judge’s reasons for concluding that Mr Kobelt’s book-up system was unconscionable
It is possible to distil the primary judge’s reasons for concluding that Mr Kobelt’s book-up system was unconscionable into 11 main points or propositions. In my view, upon close analysis, a number of those propositions are infected in some way by one or other of the two issues or errors that have already been identified: a failure to give sufficient weight to Anangu culture and practices; and having regard to, or giving excessive weight, to un-pleaded or non-systems considerations. A number of the matters relied on by the primary judge in support of his finding that the system was unconscionable, when closely considered in light of the anthropological and cultural evidence and the pleaded system, provide little or only limited support for the conclusion of unconscionability.
The first point relied on by the primary judge was that Mr Kobelt’s bargaining position was relatively stronger than that of his book-up customers (Judgment at [507]-[516]; see s 12CC(1)(a) of the ASIC Act). The primary judge acknowledged, however, that inequality of bargaining power is not alone sufficient to support a conclusion of unconscionability.
While there undoubtedly was an inequality of bargaining power, it is difficult to see how that consideration was deserving of much weight in the circumstances of this case. That is so for a number of reasons. In particular, as the primary judge found, the customers understood the basic elements of the book-up system and voluntarily entered into them. There is no indication that they wished to bargain with Mr Kobelt about the basic terms of the book-up. The evidence referred to earlier, including Mr Renouf’s report and Dr Martin’s evidence, also showed that book-up systems had become a deeply embedded and normative practice for Anangu in the APY Lands communities, and that there was widespread use and support for it amongst many Anangu. That evidence tended to support an inference that, even if they had more bargaining power, the Anangu customers may not have wanted to, or may have had no reason to, bargain with Mr Kobelt about the basic terms of the book-up.
Further, Dr Martin’s evidence, referred to earlier, was that even if they had little bargaining power, the Anangu customers had some capacity to negotiate with and question Mr Kobelt within the basic parameters of his book-up practices. That was a result of the fact that interpersonal negotiation and contestation were among the intrinsic characteristics of Aboriginal social process, together with the fact that there was a direct and ongoing interpersonal engagement between the Anangu and Mr Kobelt. It should be noted, in this context, that the primary judge accepted that Mr Kobelt applied the book-up system with some flexibility in response to customers’ specific requests (Judgment at [554]-[555]).
The second proposition relied on by the primary judge was that Mr Kobelt’s requirement that he obtain possession of customers’ debit cards and PINs, and that he be permitted to withdraw the whole of the available balance in the customers’ accounts, went beyond what was reasonably necessary for the protection of his own legitimate interests (Judgment at [519]-[520]; see s 12CC(1)(b) of the ASIC Act). As for the requirement that customers hand over their debit cards and PINs, his Honour found that this ran “counter to one of the very purposes of the issue of PINs” and required the customers to trust Mr Kobelt and his family (Judgment at [612]). It also seemed to “reflect a lack of understanding of the precautions which [the customers] should take in their own self-interest” (Judgment at [620]) and put the customers “in jeopardy of misconduct” (Judgment at [422]). As for the withdrawing of all of the funds in the customers’ accounts, his Honour found that this was a “stark” and “extraordinary” feature of the system for which no objective justification had been established in the evidence (Judgment at [613]). His Honour went so far as to find that this feature of the system amounted to a form of predation (Judgment at [609]).
Those findings, however, tended to give insufficient weight to Anangu culture and practices. As for the requirement that customers hand over their debit cards and PINs, the evidence tended to show that this was a basic requirement of most book-up systems, and that this practice had a long history, was widespread, was deeply embedded in Anangu culture and practices, and was accepted to the point that it was essentially taken for granted. The Anangu plainly had a different conception of, and different attitude to, their debit cards. The fact that this practice required the customers to trust Mr Kobelt, and may have reflected a lack of understanding of the precautions which they should take in their own interests, was hardly a weighty consideration given the fact that the primary judge accepted that Mr Kobelt acted in good faith and there was no suggestion of fraud or dishonesty. The evidence showed that, on the whole, the customers did trust Mr Kobelt, and had no reason not to trust him. While the customers may have put themselves in jeopardy of misconduct by handing over their cards and PINs, no such misconduct was alleged. Dr Martin’s evidence concerning the Anangu preference for personalising financial transactions also suggested that the fact that the system required the customers to trust Mr Kobelt was not in any relevant sense detrimental.
As for the requirement that Mr Kobelt be permitted to withdraw the whole balance in the customer’s account, the primary judge’s analysis tended to give insufficient weight to the evidence that suggested that this requirement may have been seen as desirable, or at least not undesirable or unreasonable, by some Anangu because it tended to alleviate the pressures of humbugging or demand sharing, and tended to assist in the management of money over the pay period and avoid the “boom and bust” expenditure cycle.
The primary judge accepted that the system mitigated the “boom and bust” cycle “to some extent”, however he noted that there were other methods by which the customers could address that circumstance. Those other methods included requesting Centrelink to make payments weekly rather than fortnightly, obtaining a Centrelink “BasicsCard” which could not be used for the purchase of certain goods, such as tobacco and alcohol, and seeking the assistance and counselling of organisations such as MoneyMob (Judgment at [570]-[572]). While those may have been other methods by which the customers could in theory have mitigated the issue of the “boom and bust” expenditure cycle, they were not always methods that the Anangu people chose to take up or adopt. The fact remained that the book-up system was perceived to be one way of managing money over a payment cycle. This was seen to be a benefit of the book-up system.
His Honour also accepted that the book-up system “might” reduce some opportunities for humbugging, but noted that this seemed likely to increase the prospect of humbugging in other ways (Judgment at [617]). That appeared to be a reference to his Honour’s finding that a customer returning from grocery shopping in Mintabie would be subject to demand sharing with respect to the groceries that had been purchased, and that a customer who purchased a car on book-up would be subject to demand sharing in respect of the use of the car (Judgment at [584]). There is no doubt that demand sharing was not limited to money. Nevertheless, the fact that demand sharing may have occurred in relation to other goods did not significantly reduce the force of the evidence that one of the perceived benefits of the book-up system was the avoidance of the “all-pervasive”, and what the evidence suggested was the somewhat more pernicious, humbugging for cash.
The primary judge also appears to have given less weight to the evidence of Dr Martin, Mr Stauner and Mr Kilpatrick relating to humbugging for cash because only one of the six Anangu customers called as witnesses by ASIC expressly said that the reason they engaged in book-up was to avoid demand sharing (Judgment at [582]-[583]). The fact that the other witnesses did not say that they entered into book-up arrangements to avoid humbugging does not, however, mean that they did not perceive that to be a benefit of the system. No doubt the main reason they entered into book-up arrangements was because they wanted to purchase a car, and Mr Kobelt’s book-up system was seen as the best means of achieving that objective. Dr Martin referred to that as “agency” or exercising choice. Even putting that consideration to one side, the fact that only one of ASIC’s Anangu witnesses expressly referred to the avoidance of humbugging as being the reason they entered into book-up arrangements may have been more significant had ASIC pressed its case that the specific book-up arrangements with those witnesses were unconscionable. In circumstances where ASIC’s only case was a systems case involving 117 customers, the evidence of Dr Martin and others concerning demand sharing as part of the Anangu system of norms, values and patterns of behaviour should have assumed greater significance.
Finally, in relation to demand sharing, it should be noted that Mr Kobelt’s evidence was that some customers told him that they wanted him to withdraw all the money in their bank accounts “before some of the family got their hands on it”. The primary judge, however, did not attach much weight to that evidence because he regarded it as having a self-serving quality. Even if that be so, Mr Kobelt’s evidence was consistent with the evidence of Dr Martin, and statements in Mr Renouf’s report, concerning the motivation of indigenous people for dealing with stores offering book-up.
In considering whether the imposition of the requirement for the customer to hand over their debit card and PIN, and the requirement that Mr Kobelt be permitted to withdraw all funds in the customer’s bank account, were reasonably necessary, the primary judge had regard to various potential alternatives available to Mr Kobelt. It is perhaps questionable whether some of those supposed alternatives were in fact reasonably available or feasible. The primary judge recognised, for example, that the Centrepay facility was directed to essential services that were unlikely to encompass the purchase of used cars. More significantly, the analysis of those various alternatives tended to ignore the evidence that suggested that Anangu people may have preferred the book-up system to the alternatives because the book-up system involved the personalisation of the relevant financial transaction through the incorporation of Mr Kobelt as a trusted “broker”. It did not involve them having to deal with a bureaucracy, or fill out paperwork.
It is relevant to emphasise, in this context, that the evidence tended to show, and his Honour found, that Mr Kobelt’s Anangu customers knew and understood the basic elements of the book-up system and the way it worked, understood that they had a choice whether or not to enter into book-up arrangements, considered that the system was appropriate to their needs, and were generally well-disposed to Mr Kobelt and considered that he had treated them well. The evidence, and his Honour’s findings, that the Anangu customers voluntarily chose to enter book-up arrangements were entirely consistent with Dr Martin’s evidence concerning what he called “Aboriginal ‘agency’”: “the capacity and willingness of individuals to exercise choices in accordance with what they perceive to be in their own interests”. His Honour was acutely conscious that the freedom of Anangu to make decisions concerning their own lives must be respected (Judgment at [589]) and that the Court should not impose a view of what is appropriate for the Anangu which could be regarded as paternalistic (Judgment at [619]). With the greatest respect, however, it is difficult to avoid the conclusion that parts of his Honour’s reasoning, and the ultimate conclusion of unconscionability, failed to appropriately heed those cautions.
The third point relied on by the primary judge related to whether the customers were able to understand any documents relating to the supply of the financial services (Judgment at [541]-[546]; see s 12CC(1)(c) of the ASIC Act). Mr Kobelt submitted, before the primary judge, that this point had little force given the simplicity of the system and the fact that the customers understood the basic elements of the book-up system in any event. The primary judge accepted the correctness of that submission “[in] a sense”, but found that the fact that there were so few documents detracted from the conscionability of Mr Kobelt’s conduct (Judgment at [542]). It is, however, unclear exactly why that was the case.
Dr Martin’s evidence concerning the Anangu preference for personalising financial transactions tended to support the inference that the Anangu were content with the book-up system precisely because it did not involve significant documentation, but was instead transacted personally through Mr Kobelt as a so-called “broker”. In any event, it is difficult to see how the documentation of the terms and conditions of the system, which the Anangu customers understood in any event, would have advantaged the customers.
The primary judge also referred, in this context, to the inadequacy and illegibility of Mr Kobelt’s records of the relevant book-up transactions. This was a reference to the handwritten diaries and ledgers that recorded withdrawals, payments and further book-ups by each customer. There could be little doubt that the diaries and ledgers were barely legible and difficult to follow. The problem with this finding, however, is that the adequacy of Mr Kobelt’s records of the implementation of each customer’s book-up “account” was not part of the pleaded book-up system. The adequacy of Mr Kobelt’s record keeping was undoubtedly an issue canvassed at trial, as Besanko and Gilmour JJ have pointed out. In my view, however, it does not follow that it was open to the primary judge to have regard to the inadequate record keeping as part of his evaluation of whether the pleaded book-up system was unconscionable.
In any event, the inadequacy of Mr Kobelt’s record keeping was hardly a matter deserving of any significant weight in circumstances where there was no evidence that any customer had ever sought an account of the relevant transactions. Perhaps even more significantly, it is difficult to see why this was a weighty consideration in circumstances where the primary judge accepted that Mr Kobelt did not make dishonest use of the debit cards and PINs, and where there was no suggestion, let alone evidence, that Mr Kobelt maintained his records dishonestly.
The primary judge concluded that Mr Kobelt’s implementation of the system, including the fact that the arrangements were largely undocumented and poorly recorded, “adds to the strong impression of unconscionability” (Judgment at [623]). For the reasons just given, I do not agree.
The fourth point relied on by the primary judge concerned Mr Kobelt’s “tactics” in administering or implementing the book-up system. The primary judge considered that point in the context of whether any undue influence or pressure was exerted on, or any unfair tactics were used against, Mr Kobelt’s customers (Judgment at [547]-[550]; see s 12CC(1)(d) of the ASIC Act). His Honour acknowledged that ASIC did not contend that Mr Kobelt had adopted forms of undue influence or exerted undue pressure (Judgment at [547]). It would appear, however, that his Honour gave at least some weight to three matters that were said to constitute “tactics” in administering the scheme. The first was the fact that Mr Kobelt or his family made the relevant withdrawals at the earliest opportunity. The second was that, at least in some instances, Mr Kobelt made withdrawals that exceeded the customer’s authorisation. Those instances related to only two customers. The third was Mr Kobelt’s conduct in making withdrawals from accounts in circumstances where a “CBA glitch” enabled withdrawals to be made from Commonwealth Bank accounts which resulted in the customer’s accounts going into debit.
As for the first of those matters, it is difficult to see how that “tactic” was deserving of any significant weight in circumstances where the book-up customers were generally aware that the system involved Mr Kobelt withdrawing all the money from their accounts. It also ignores Mr Kobelt’s evidence that if a customer asked for some funds to be left in his or her account, he would generally abide by that request. It does not appear that any, or any material number of Mr Kobelt’s book-up customers were aware that funds were sometimes withdrawn in the early hours of the morning, or if they were aware, that they took exception to this so-called “tactic”, or were otherwise frustrated by it. As for the second and third matters, the short point is that they were isolated incidents. They were not systemic. They were not part of the book-up system. Nor were they pleaded as such.
The fifth point relied on by the primary judge was that “[t]he credit provided by Mr Kobelt is of a particularly expensive kind” (Judgment at [618]). The primary judge initially considered this point in the context of whether the customers could have acquired identical or equivalent financial services from other suppliers (Judgment at [551]; see s 12CC(1)(e) of the ASIC Act).
There are in my view a number of difficulties with this point. The first is that it is at least somewhat questionable whether the evidence was capable of supporting a conclusion that the credit supplied to each, or even a majority, of the 117 “Nobby’s Customers” the subject of ASIC’s systems case was “of a particularly expensive kind”. The finding appears to be based on Mr Kobelt’s evidence that he would usually, but not invariably, offer a discount of at least $1,000 to persons paying for the purchase of a car upfront in cash. Using that figure as the credit charge, the primary judge then calculated the effective interest rate on various assumptions as to the price of the car and the period of time over which the debt was repaid (Judgment at [488]-[490]). There was, however, no evidence concerning the exact price of the cars which were purchased by the 117 customers, or the difference between the book-up price and the cash price for each of those vehicles, or the period of time over which their debts were repaid. There was also no suggestion that the book-up system involved any credit charge, let alone a credit charge of an expensive kind, in respect of credit provided for purchases other than cars.
In any event, it was not part of ASIC’s pleaded systems case that the credit supplied under the book-up system was of a particularly expensive kind. It may readily be accepted, as Besanko and Gilmour JJ have found, that the expense or otherwise of the credit supplied under the book-up system was an issue at trial. The issue appears to have arisen primarily in the context of the alleged contravention of s 29 of the National Credit Act and in the context of evidence led by Mr Kobelt. It was plainly open to the primary judge to consider and reject Mr Kobelt’s contention that the credit was effectively interest free. There is accordingly no merit in this issue as a pure pleading point. It is, however, another thing to say that the expense of the credit was part of the pleaded book-up system. It was not. In my view, if ASIC wished to contend that the expense of the credit provided as part of Mr Kobelt’s book-up system was one of the factors that made the system unconscionable, it was required to properly plead that fact as part of the system. It did not.
The sixth point relied on by the primary judge was that Mr Kobelt did not treat his customers equally: he provided goods and services to non-indigenous customers on credit without requiring them to provide a key card and PIN or other security (Judgment at [553]; see s 12CC(1)(f) of the ASIC Act). I agree with Besanko and Gilmour JJ that this matter should have been pleaded if it was to be relied upon. It was not part of ASIC’s pleaded system. It is also somewhat unclear whether this issue was fully explored in the evidence at trial. It does not appear, for example, that there was any evidence that any of the 117 indigenous customers the subject of the systems case had ever sought and been refused credit which did not involve handing over their debit cards and PINs. Given the anthropological evidence relating to the perceived benefits of the book-up system for the Anangu, it may have been the case that the customers preferred book-up to obtaining credit on any other terms.
The seventh point relied on by the primary judge was that, while Mr Kobelt was flexible in relation to some aspects of the book-up system, he was not flexible in his underlying requirement that customers provide both their debit card and PIN (Judgment at [555]). The primary judge found that Mr Kobelt also implemented the book-up system with some rigidity, including making withdrawals from the customers’ accounts very early in the morning of the relevant pay days so the customers could not access the 50% of the funds which was notionally theirs (Judgment at [556]).
The primary judge had regard to those matters in considering the extent to which Mr Kobelt was willing to negotiate the terms and conditions of the book-up “contract” (s 12CC(1)(j)(i) of the ASIC Act). The finding that Mr Kobelt was inflexible in relation to the basic terms of the book-up system, however, must again be considered in light of Dr Martin’s evidence. As noted earlier, that evidence included that there was direct and ongoing interpersonal engagement between the Anangu and Mr Kobelt which allowed the Anangu to negotiate with and question Mr Kobelt within the basic parameters of the book-up practices. They were, however, unlikely to question or challenge the basic parameters of the book-up system because they were “normative practices” that were seen by most Anangu as being “normal” or “usual” practices that were “taken for granted”. The fact that the basic terms of book-up were not subject to negotiation, therefore, may have been as much due to those cultural considerations as any inflexibility on the part of Mr Kobelt.
The eighth point relied on by the primary judge was that, while his Honour accepted that Mr Kobelt acted with a “degree” of good faith, and that there was no suggestion that he had acted fraudulently or dishonestly, or exerted undue influence, his Honour did not accept that Mr Kobelt acted in an altruistic or disinterested way. Rather, in his Honour’s evaluation, Mr Kobelt was at all times pursuing his own interests, even when that was to the detriment of his customers (Judgment at [557]-[559]; s 12CC(1)(l) of the ASIC Act). His Honour gave the “CBA glitch” as one example of Mr Kobelt pursuing his own interests to the detriment of his customers.
The fact that Mr Kobelt operated the book-up system in good faith and without fraud, dishonesty or undue influence was a powerful consideration. It is difficult to see why individual instances of self-interest, which were not part of the pleaded system, should significantly detract from that consideration. Equally, given that Mr Kobelt was operating a business, it is hardly surprising that he was not acting in an entirely altruistic or disinterested way.
The ninth point relied on by the primary judge was that the book-up customers were vulnerable because of the remoteness of their communities, the limitations of their education, their impoverishment and the limitations on their financial literacy. The primary judge reasoned that, in those circumstances, Mr Kobelt’s book-up system involved taking advantage of the customers’ circumstances (Judgment at [620]).
There could be little doubt that the circumstances of the majority of book-up customers were as described by the primary judge. The finding that Mr Kobelt’s book-up system involved taking advantage of those circumstances, however, tended to ignore the evidence concerning the history and prevalence of similar book-up systems in remote parts of Australia, and the evidence of Dr Martin and others which went some way towards explaining why the Anangu people freely chose to enter book-up arrangements. In short terms, it would appear that book-up systems the same or similar to Mr Kobelt’s system developed precisely because mainstream financial services and credit facilities were either unavailable or unfeasible in many remote indigenous communities. Perhaps more significantly, other forms of credit were not suitable or appropriate to the needs of the indigenous residents of those communities. The book-up system was simple, involved the personalisation of the credit transaction through a broker, and was seen as providing benefits, such as the avoidance of humbugging and assistance in avoiding the “boom and bust” expenditure cycle. In many cases, book-up was really the only realistic way that residents of remote indigenous communities could access credit. As the primary judge found, the majority of book-up customers did not have any assets which could be proffered as security for a loan. It was accordingly unlikely that they could have obtained a loan to purchase a car from a commercial lender.
In those circumstances, it is doubtful that it could fairly be said that Mr Kobelt’s book-up system involved him taking advantage of his customers’ circumstances and vulnerabilities. Rather, he was fulfilling a demand, as was the proprietor of the other store in Mintabie, and the proprietors of many like establishments throughout remote indigenous communities, who provided book-up credit. The finding that Mr Kobelt was taking advantage of his customers’ vulnerabilities also does not sit easily with the primary judge’s other findings that Mr Kobelt exercised a degree of good faith, did not exert any undue influence and was neither fraudulent nor dishonest. There was no evidence that any of Mr Kobelt’s book-up customers considered that they had been taken advantage of. Rather, the evidence tended to suggest that they understood the system and, on the whole, were supportive of book-up and Mr Kobelt’s implementation of it.
The tenth point relied on by the primary judge was that Mr Kobelt’s book-up system maintained a continuing dependence by customers on his store because the customers had little practical alternative but to continue shopping at his store despite the inconvenience of doing so. The system, insofar as it permitted customers to book-up further purchases of food and other necessities, also depended on the favourable exercise of Mr Kobelt’s goodwill and therefore gave Mr Kobelt discretionary control over the lives of his customers (Judgment at [598]). That was said to constitute a form of predation (Judgment at [609]) and exploitation of Mr Kobelt’s customers (Judgment at [620]).
The primary judge’s finding of predation and exploitation, however, again sits uneasily with his Honour’s finding that Mr Kobelt did not exert any undue influence. It also again tends to ignore the cultural or anthropological evidence.
It may generally be accepted that Mr Kobelt’s book-up system had the effect of tying the customers to Mr Kobelt’s store. Because they had no funds left in their bank accounts, the customers had to buy their groceries and other necessities utilising further book-up at Mr Kobelt’s store, subject to their ability to obtain purchase orders for other stores, or get cash advances, from Mr Kobelt. It may also be accepted that this involved some degree of inconvenience for the customers because they were required to travel some considerable distances to Mr Kobelt’s store. That said, Dr Martin’s evidence was that Anangu residents saw shopping at the various establishments in Mintabie, including Mr Kobelt’s store, as exercising “agency” or choice because there was a wider choice and prices were cheaper than at the community stores in the APY Lands (Martin at [77]). Further, while shopping at Mr Kobelt’s store may have involved significant travel, Mr Martin’s evidence was that it was not uncommon for indigenous customers to travel long distances to access goods and services, that travel was not seen as a disincentive for most Anangu, and indeed that travel could be seen as an advantage because it entailed visiting “country” and relatives, and constituted a “highly social occasion”. Those advantages could outweigh the costs of the travel itself. There was no evidence that any of Mr Kobelt’s customers considered that they had been exploited because they had to return to Mr Kobelt’s store.
The system also included provision for Mr Kobelt’s customers to purchase goods at other stores by means of purchase orders. The primary judge noted that Mr Kobelt charged his customers $10 for purchase orders, a cost which his Honour described as relatively expensive. There was evidence, however, that Mr Kobelt’s purchase orders cost less than the express money order service provided by Australia Post. Mr Kobelt also permitted cash advances by way of book-up in certain circumstances.
As for the primary judge’s findings concerning discretionary control, it may be accepted that this was an incident of the system. It may also be accepted that it was potentially disadvantageous and open to abuse. Nevertheless, apart from some very isolated instances of what his Honour described as “arbitrary decision-making” (Judgment at [599]), the evidence did not suggest that Mr Kobelt widely or systematically abused or took advantage of his discretion. The primary judge accepted, for example, Mr Kobelt’s evidence that he never refused food to a customer from whose account he had withdrawn money pursuant to the book-up system (Judgment at [453]). The fact that the system gave Mr Kobelt a degree of discretionary control in respect of the financial affairs and spending of his customers must also be considered in light of the evidence concerning the indigenous preference for personalising financial transactions. The Anangu people who engaged in book-up arrangements with Mr Kobelt freely chose to effectively appoint him as a “broker” in respect of their spending and financial affairs.
In all the circumstances, having regard to the whole of the evidence, neither the “tying” effect of Mr Kobelt’s book-up system, nor the fact that the system gave Mr Kobelt a form of discretionary control over the spending of his customers, could fairly be said to be a form of predation or exploitation.
The eleventh point relied on by the primary judge was that Mr Kobelt provided credit to the book-up customers without complying with the requirements of the Code (Judgment at [562]-[564]). His Honour noted that, amongst other things, to comply with the Code, Mr Kobelt would have been required to make an assessment of whether the advance of credit would be unsuitable for the customer having regard to the customer’s ability to comply with the financial obligations and other matters. I agree with Besanko and Gilmour JJ, for the reasons given by their Honours, that the fact that Mr Kobelt did not comply with the Code, and the considerations that flowed from that, should have been pleaded if they were to form part of the reason for concluding that Mr Kobelt’s book-up system was unconscionable. They were not pleaded as part of the book-up system.
Did the primary judge err in finding that the book-up system was unconscionable?
The legal principles in relation to unconscionability are dealt with at length in the reasons of Besanko and Gilmour JJ. It is unnecessary to add to their Honours’ analysis. There was no real issue between the parties in relation to the applicable principles. Suffice it to say that, in considering the primary judge’s evaluation of whether Mr Kobelt’s book-up system was unconscionable, I have had regard to the detailed elucidation of the concept of unconscionability in, amongst other cases, Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 (Full Court) and (2016) 258 CLR 525 (High Court) and Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421.
The characterisation of conduct as unconscionable involves a quintessentially evaluative judgment. In an appeal from such a judgment, due regard must be given to the advantages the primary judge may have had in hearing the evidence in its entirety as it unfolded at the hearing: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [24] (Allsop J, with whom Drummond and Mansfield JJ agreed). Such a judgment can also only be overturned on appeal if error is demonstrated: “The views and conclusions of the trial judge ultimately have to be shown to be wrong. They should not be laid to one side and a simple re-argument of the case take place”: Branir at [30].
At first blush, the terms, nature and circumstances of Mr Kobelt’s book-up system would appear to bespeak unconscionability. Many, if not most, members of the broader Australian community would probably find some aspects of the system to be surprising, if not extraordinary. It is, however, necessary to consider Mr Kobelt’s book-up system in its proper historical and cultural context. In particular, it is necessary to consider the system in the context of the evidence concerning the values, norms and practices of the Anangu people who comprised Mr Kobelt’s book-up customers.
While that was recognised by the primary judge, to my mind his Honour failed to have sufficient regard to those important contextual matters, failed to give appropriate weight to the actual or perceived benefits of the book-up system to the Anangu customers, and failed to give appropriate weight to the fact that, on the whole, the Anangu people who were Mr Kobelt’s book-up customers understood the basic elements of the system, voluntarily entered into the arrangements, and by and large were content with them. Most wanted the book-up system to continue.
Like Besanko and Gilmour JJ, I also consider that the primary judge erred in finding that Mr Kobelt’s book-up system involved predation and exploitation in the relevant sense. In my opinion, that error came about not only because his Honour failed to have sufficient regard to the evidence concerning the values, norms and practices of the Anangu people, but also because his Honour had regard to elements and incidents that were not part of the pleaded system, such as poor record keeping, the supposedly high credit charges, incidents such as the “CBA glitch” and other isolated incidents relating to individual customers. The findings of exploitation and predation do not sit easily with the primary judge’s findings that Mr Kobelt acted with a degree of good faith and did not adopt forms of undue influence or exert undue pressure on his book-up customers.
There could be little doubt that there were some actual and potential disadvantages and detriments inherent in Mr Kobelt’s book-up system. Equally, however, there were some actual and perceived benefits and advantages for the Anangu customers who voluntarily chose to enter the arrangements armed with an understanding of the basic elements of the system. There was and is undoubtedly considerable scope for book-up systems like Mr Kobelt’s system to be abused by unscrupulous proprietors. There was, however, no evidence that Mr Kobelt widely or systematically abused the system, or unfairly or unreasonably took advantage of his customers, or exerted any undue influence or undue pressure, or acted dishonestly or deceitfully. ASIC chose not to press any claim that Mr Kobelt engaged in unconscionable conduct in respect of any specific customer or customers.
In all the circumstances, having regard to the whole of the evidence, and taking into account the advantages the primary judge had in hearing the evidence in its entirety as it unfolded at the hearing, in my opinion the primary judge was wrong to conclude that Mr Kobelt’s book-up system was unconscionable.
Injunctive relief – appeal grounds 10 and 11
Grounds 10 and 11 of Mr Kobelt’s notice of appeal relate to the injunctive relief granted by his Honour, being paragraph 3 of the orders made on 13 December 2016. Like Besanko and Gilmour JJ, I am of the view that, given the conclusion that the primary judge erred in concluding that Mr Kobelt’s book-up system was unconscionable, it is strictly unnecessary to resolve those grounds.
Were it necessary to resolve the issue in relation to the scope of the appropriate injunctive relief, I would incline towards the view that the injunction granted by the primary judge was too wide. In my opinion, the appropriate injunction should have been limited to restraining Mr Kobelt from continuing to engage in the conduct that constituted or comprised the essential elements of the impugned book-up system. That would include, at least, the conduct defined in the pleading as the “Withdrawal Conduct”, which involved the withdrawal of all, or almost all, of the available funds in the customers’ accounts. The Withdrawal Conduct lay at the very heart of ASIC’s case, and the primary judge’s conclusion, that the book-up system was unconscionable.
The terms of the injunction ordered by the primary judge in paragraph 3.1 of the orders restrained Mr Kobelt from receiving and retaining debit cards and PINs in any circumstances, even if they were not to be used to withdraw all the funds in the customers’ accounts in accordance with the impugned book-up system. The terms of the order in paragraph 3.2.1 required Mr Kobelt to cease withdrawing any funds from any customer’s account in any circumstances; even if, for example, the withdrawal was with the express consent and authority of the customer (and in his or her presence) to repay a debt, and even if the withdrawal represented only a small portion of the funds in the customer’s bank account.
In the circumstances I would prefer not to express any concluded view as to the precise form of an appropriate injunction, and in particular whether the terms of the injunction should have included any of the other pleaded elements of the book-up system, including what I have described as the circumstances elements. I incline towards the view, however, that an injunction which included elements relating to Mr Kobelt’s knowledge or state of mind, and the circumstances of the customers, would be problematic for a number of reasons. It would also be problematic to include conduct that was not part of the pleaded system. That would include, for example, the failure to provide proper account statements (see paragraph 2.5 of the declaration) and the provision of credit of a “particularly expensive kind” (see paragraph 2.7 of the declaration).
CONCLUSION AND DISPOSITION
Like Besanko and Gilmour JJ, I reject Mr Kobelt’s challenge to the primary judge’s conclusion that he contravened s 29(1) of the National Credit Act, and uphold Mr Kobelt’s challenge to the primary judge’s conclusion that he engaged in unconscionable conduct contrary to s 12CB(1) of the ASIC Act. I agree with the order proposed by Besanko and Gilmour JJ. I also share their Honours’ provisional views, subject to hearing from the parties, concerning the final orders that may be appropriate to dispose of the appeal.
I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney. Associate:
Dated: 15 February 2018
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