By a 4:3 majority, the High Court of Australia has upheld the Full Federal Court's decision regarding the actions of a storekeeper who provided a "book-up" credit service to indigenous residents in rural South Australia. It found that this did not amount to unconscionable conduct within the meaning of s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
The issue at the heart of Australian Securities and Investments Commission's (ASIC) appeal revolved around the difference between the standard of unconscionability under the "unwritten law" and under the ASIC Act.1
In this respect, section 12CB(4)(a) expressly provided that "this section is not limited by the unwritten law...relating to unconscionable conduct" (emphasis added), and section 12CC identified a range of matters to which the Court may have regard in determining whether there has been a contravention.
In dismissing the appeal, Kiefel CJ and Bell J, Gageler J and Keane J all held that statutory unconscionability entailed no less a standard of moral wrongdoing than under the "unwritten law". In their dissenting opinions, Nettle and Gordon JJ and Edelman J separately criticised this approach as unduly narrow and restrictive.
In turn, their Honours' approaches to this central issue informed their assessments of a key subsidiary issue, namely the weight to be given to the voluntariness of a "weaker" party's conduct in determining whether a "stronger" party has behaved unconscionably. Aside from adding to the wide body of case law on the subject of what does and does not constitute unconscionable conduct, this case will also attract interest in its treatment of expert anthropological evidence in informing the voluntariness of the decisions made by a "weaker" party – which may have wider application to the question of "voluntariness" beyond the facts in question in this case.
From the mid-1980s until 2018, Mr Kobelt operated "Nobbys", a small convenience store in the remote town of Mintabie, South Australia, selling a range of goods including food, groceries, fuel and second-hand cars. Mr Kobelt offered his indigenous customers from remote communities in the Anangu Pitjantjatjara Yankunytjatjara Lands (Anangu customers) a form of credit known as "book-up".
Under the book-up system, customers gave Mr Kobelt their debit cards and PIN details, authorising him to withdraw their funds to repay their debts in return for the further supply of goods over the interval between successive pay days. At least half of the Anangu customers were dependent on Centrelink benefits as their main source of income, with many being both illiterate and innumerate. The book-up system was only offered to the store's Anangu customers, with Mr Kobelt extending credit to his non-indigenous clientele on different terms.
ASIC brought proceedings in the Federal Court relevantly alleging that Mr Kobelt operated his book-up system in breach of s 12CB(1) of the ASIC Act. This section prohibits a person engaging in conduct in connection with the supply of financial services that is, in all the circumstances, unconscionable.
In the trial heard by White J, evidence showed that Mr Kobelt would withdraw all or nearly all of the available funds his Anangu customers on the day their accounts were credited. Half of the funds went towards reducing the customer's debt, while the other half was retained as "book-down" available for customers' use to spend at his store, for cash from his store, or for spending elsewhere by way of purchase order (for which a fee was charged). The provision of book-down was within Mr Kobelt's discretion.
ASIC successfully established a breach of the ASIC Act, with White J ordering that Mr Kobelt pay a penalty of $100,000 to the Commonwealth, concluding that while the system provided some benefits to the Anangu customers, it took advantage of their poverty and lack of financial literacy, tying them to his store in an exploitative and predatory way.
The judgement handed down following an appeal to the Full Court of Besanko, Gilmour and Wigney JJ in mid-2017 unanimously allowed the appeal in relation to unconscionability. Besanko and Gilmour JJ relied on a number of White J's findings but disagreed with his conclusion that Mr Kobelt had behaved unconscionably because:
- The customers had a basic understanding of the book-up system;
- They voluntarily entered into the arrangements and understood that they could frustrate them at will (e.g. by cancelling their debt cards or directing payments to other cards);
- Mr Kobelt had acted without dishonesty, with a degree of good faith; and
- Mr Kobelt had not exerted undue influence on customers.
In a separate judgment, Wigney J added that insufficient consideration had been given to expert evidence led by ASIC, namely that of social anthropologist Dr Martin, who gave evidence of Anangu cultural practices explaining why the Anangu customers had "chosen" to engage in the book-up system.
Findings of the High Court
Special leave was granted on the sole issue of whether Mr Kobelt, in adopting a system of supplying book-up credit to 117 Anangu customers, had engaged in conduct that could be described as unconscionable within the meaning of s 12CB(1) of the ASIC Act. ASIC's grounds of appeal invited consideration by the High Court of the relevant standard of unconscionability under the ASIC Act as compared to the "unwritten law", as well as scrutiny of the Full Court's approach to the voluntariness of the Anangu customers, and their subjective assessment of their best interests, in dealing with Mr Kobelt.2
The relevant standard of unconscionable conduct
It was common ground amongst their Honours that in equity – i.e. the "unwritten law" as referred to in the statute – a finding of unconscionable conduct requires the "unconscientious taking advantage of a special disadvantage", variously described as victimisation, exploitation or predation.3 When considering the standard imposed by the ASIC Act, however, their Honours held divergent views.
In their joint judgment, Kiefel CJ and Bell J simply stated that the term "unconscionable" bore its ordinary meaning, having been deliberately chosen by Parliament.4 Their Honours did not consider that the question of the existence of a lower standard under the ASIC Act arose on the appeal (nor whether statutory unconscionability no longer requires the taking advantage of a special disadvantage).5 In separate opinions, Gageler and Keane JJ also considered that Parliament's appropriation of the terminology of equity – i.e., the word "unconscionable" – in fixing the normative standard in s 12CB did not authorise a dilution of the equitable conception of unconscionable conduct to produce a form of "equity-lite".6 In their judgments, it was the range of remediable conduct (as identified in the circumstances to which the Court may have regard) that was broader than under the unwritten law – such that the requisite gravity of conduct need not only be that of a stronger party exploiting some special disadvantage per the "unwritten law". But the overall standard of unconscionability itself did not change under the statute.7
In their two dissenting judgments, both Nettle and Gordon JJ, and Edelman J considered that based on the legislative history of s 12CB, the concept of unconscionable conduct under the ASIC Act was broader than the unwritten law, both in terms of the range of conduct it captured and, by implication from their judgments, the standard it imposed.8 Edelman J went one step further,finding, not only, that s 12CB permits consideration of, but does not mandate the taking advantage of that special disadvantage, but also that the "bar over which conduct will be unconscionable must be lower [under the statute] than that developed in equity [i.e., the unwritten law]" (emphasis added).9
The agency of the Anangu customers in dealing with Mr Kobelt
The differences in opinion regarding the statutory threshold for unconscionable conduct appeared to inform their Honours' determination of the key subsidiary issue, namely the existence and relevance to the appeal of any "choice" said to have been exercised by the Anangu customers in dealing with Mr Kobelt.
The majority agreed with the Full Court's reasoning that the Anangu customers exhibited a basic understanding of the system, including its advantages, and were not "tied" to Mr Kobelt, as argued by ASIC, in a cycle of dependence.10 Gageler J found, for instance, that "[t]hose of the Anangu people who chose to maintain their relationship with Mr Kobelt ... evidently considered that continued participation in the book-up system suited the interests of them and their families having regard to their own preferences and distinctive cultural practices".11 Likewise, Kiefel CJ and Bell J considered it a "large submission that the provision of book-up credit on terms which suited Mr Kobelt's adult Anangu customers and which enabled them to purchase a consumer good which they valued highly [was] to be characterised as objectively against their interests".12
Central to the majority's reasoning was evidence of the cultural factors that in their Honours' opinion informed the decisions of Anangu customers to enter into book-up arrangements. At trial, White J heard anthropological evidence to the effect that for the Anangu people, there were distinct advantages which flowed from the book-up system, explicable by reference to Anangu social and cultural norms. To varying extents, both the Full Court and majority in the High Court relied on this evidence and considered that book-up served to ameliorate the consequences of "demand sharing" (community members demanding cash from those who have it) and "boom and bust" spending (spending money when it became available without regard to medium-long term consequences), allowing the Anangu customers to exercise agency and realise a preference for face-to-face financial services. In other words, Mr Kobelt's services were simply fulfilling a demand.
In their dissenting judgments, both Nettle and Gordon JJ, and Edelman J considered that the focus ought instead to have been on Mr Kobelt's conduct and the manner in which the customers' willingness or intention was produced, rather than the voluntariness of the Anangu customers' conduct.13 The expert anthropological evidence, in their Honour's views, was wrongly treated by the Full Court as excusing what would otherwise have been unconscionable conduct in mainstream Australian society, namely an "appalling" abuse of power on the part of Mr Kobelt. 14 In the words of Edelman J, the decision to obtain credit by book-up in the circumstances of the case was in truth "Hobson's Choice" – a choice without a practical alternative – with the relevant "demand" arising, itself, from the particularly vulnerable circumstances of the persons in question.15
At the very least, the case adds to a growing body of case law on what constitutes statutory unconscionability, affirming, by a slim margin, the "narrow" orthodox approach to the inquiry, which is decided on a case by case basis.
However, the case may have broader implications than that. On one view, the case provides grounds to resist a finding of unconscionability on the basis that "choices" were made "voluntarily" by reason of the very circumstances which rendered the person vulnerable to making such a "choice" in the first place (a Hobson's choice according to Edelman J). That reasoning could extend to the provision of mainstream financial services, together with a myriad of other circumstances in which "demand" is driven by reason of a the vulnerability of particular persons. In sum, while an arrangement may be objectively against someone's interests, if, because of a basic understanding, someone chooses to participate in a scheme conferring some degree of benefit/incidental benefit, then this subjective understanding (informed by a position of disadvantage in the relationship) may stand in the way of a finding of unconscionable conduct.
Given that the case was so narrowly decided, it discloses a fracturing of judicial opinion as to whether the statutory bar for unconscionable conduct is lower than the equitable doctrine. While statutory embodiments of the doctrine, such as those in s 12CB of the ASIC Act appear narrow in application, there is no doubt scope for the dissenting opinions of Nettle and Gordon JJ, and Edelman J to be picked up in future cases to justify a broadening of the principle in alignment with what their Honours perceive to be the clear intent of Parliament. Whether or not Australia shifts towards a broader application of the statutory charge of unconscionable conduct remains to be seen. For now, this case demonstrates, in the immediate term, the risks of running a case of statutory unconscionability in a legal landscape that is divided.
 See s 12CB(4)(a) of the ASIC Act.
 See Kiefel CJ and Bell J at  and  for ASIC's grounds of appeal.
 Per Keane J at  citing, among other authorities, the High Court's decisions in Thorne v Kennedy  HCA 49; (2017) 91 ALJR 1260 and Kakavas v Crown Melbourne Ltd  HCA 25; (2013) 250 CLR 392. See also Kiefel CJ and Bell J at , Nettle and Gordon JJ at - and Edelman J at -.
 At ,  (per Kiefel CJ and Bell J).
 At - (per Kiefel CJ and Bell J).
 At - (per Gageler J) and - (per Keane J).
 At - (per Gageler J) and - (per Keane J), the latter addressing the statute's application to a "system of conduct".
 At ,  (per Nettle and Gordon JJ) and -, - (per Edelman J).
 At  (per Edelman J).
 See -, - (per Kiefel CJ and Bell J); See also , - (per Gageler J) and - (per Keane J).
 At  (per Gageler J).
 At  (per Kiefel CJ and Bell J).
 At , - (per Nettle and Gordon JJ) and  (per Edelman J). See generally, on the issue of voluntariness, , -, - (per Nettle and Gordon JJ).
 At  and  (per Edelman J).
 At ,  (per Edelman J).
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