High Court dismisses ASIC appeal to find that “book-up” credit system is not unconscionable

The High Court of Australia recently held that the provision of “book-up” credit which involved mostly Indigenous customers handing over their keycard and PIN to a general store to make purchases on credit was not unconscionable conduct.


Lindsay Kobelt operated a general store in a remote Aboriginal community, the Anangu Pitjantjatjara Yankunytjatjara Lands. At Mr Kobelt’s store, the book-up system allowed his customers to make purchases on credit and pay later by providing access to their bank account. Mr Kobelt required his customers, who were mostly Indigenous, to provide him with their keycard and PIN linked to the bank account in which they received wages or Centrelink payments.

Mr Kobelt would then withdraw money from their accounts, usually on the day the customers received wages or Centrelink payments. Mr Kobelt’s business also included second-hand car sales which attracted a high credit charge.

ASIC commenced proceedings against Mr Kobelt in the Federal Court of Australia for unconscionable conduct pursuant to ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). At first instance, the Federal Court found that:

  • Mr Kobelt’s book-up system was unconscionable; and
  • Mr Kobelt engaged in unlicensed credit activity when selling second-hand cars on book-up credit.

On appeal, the Full Court of the Federal Court of Australia upheld the finding of unlicensed credit activity in relation the second-hand vehicle sales but found that Mr Kobelt had not engaged in unconscionable conduct. ASIC then appealed to the High Court.

 The High Court decision

ASIC argued that unconscionable conduct involved someone taking unconscientious advantage of a special disadvantage. According to ASIC, Mr Kobelt’s conduct in supplying credit under his book-up system took advantage of vulnerability of his Anangu customers due to their lack of financial literacy, remote location and socio-economic status.

A majority of the High Court found that the book-up system was not unconscionable. According to Chief Justice Kiefel and Justice Bell, s 12CC(1)(d) of the ASIC Act required the court to consider whether there was any undue influence or unfair tactics used against the recipient of the financial service.

Their Honours held that the absence of undue influence, pressure or unfair tactics meant that Mr Kobelt did not obtain an unconscientious advantage in the book-up system.

ASIC also argued that conduct may be unconscionable if the innocent party is subject to a special disadvantage which affected his or her ability to make judgments in their best interests.

ASIC contended that the Anangu customers’ lack of financial literacy coupled with their participation in the book-up system would be unacceptable in mainstream Australian society. However, there was anthropological evidence that the book-up system was widely accepted by Anangu people as it enabled them to access credit which may not necessarily be available to them and helped them avoid ‘humbugging’, which are demands for cash from relatives on days when wages or Centrelink payments were deposited.

The High Court’s reasons for finding that the book-up system was not unconscionable included the following:

  • Mr Kobelt’s Anangu customers understood the basic elements of the book-up system and chose to enter into the credit contract because it allowed them to purchase goods which they otherwise may not have been able to;
  • the Anangu customers chose to maintain that relationship with Mr Kobelt and to continue to participate in the book-up system; and
  • the Anangu customers’ perception that the terms of the book-up system was appropriate, was not a product of lack of financial literacy but rather, a reflection of aspects of Anangu cultural practices that are not present in mainstream Australian society.

While a majority of the High Court found that that Mr Kobelt’s book-up system was not unconscionable, it is noteworthy that there were strong dissenting views that the system was unconscionable because the Anangu customers were particularly vulnerable and disadvantaged due to their impoverishment and lack of financial literacy.

The dissenting justices,  Nettle, Gordon and Edelman, also pointed to the lack of transparency in the system where Mr Kobelt kept rudimentary, incomplete records of the withdrawal transactions, and the power imbalance between Mr Kobelt and his customers as factors indicating that the book-up system was unconscionable.

In particular, justices Nettle and Gordon stated that statutory unconscionability under the ASIC Act is intended to be read broadly.

Practical implications

While this case demonstrated that there may still be a high bar to prove unconscionability, credit providers should still give careful consideration, particularly in the provision of consumer credit, to the following:

  • their potential customers’ vulnerability;
  • whether there is a transparent system in place to account for transactions;
  • whether particular conditions of the credit contract take unconscientious advantage of the customer; and
  • whether less onerous terms of the credit contract are available to protect the credit providers’ legitimate interests.

This article was written by Jia Lee, Senior Associate – Litigation and Dispute Resolution.