Australian Securities and Investments Commission v Kobelt [2018] HCATrans 252 (4 December 2018)

Last Updated: 18 December 2018

[2018] HCATrans 252

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A32 of 2018

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

LINDSAY KOBELT

Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
NETTLE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 4 DECEMBER 2018, AT 10.01 AM

Copyright in the High Court of Australia
MR S.P. DONAGHUE, QC, SolicitorGeneral of the Commonwealth of Australia: May it please the Court, I appear with my learned friends, MS K.E. CLARK and MS P.P. THIAGARAJAN, for the appellant. (instructed by Australian Securities and Investments Commission)

MR T.J. NORTH, QC: If the Court pleases, I appear with MR H.M. HEUZENROEDER, on behalf of the respondent. (instructed by Lempriere Abbott McLeod)

KIEFEL CJ: Yes, Mr Solicitor.

MR DONAGHUE: Your Honours, this appeal concerns the operation of the statutory unconscionability provisions in sections 12CB and 12CC of the ASIC Act with respect to one version of an informal system of credit known as “bookup” that is common in remote Australia. Your Honours will see the three grounds of appeal at page 463 of the appeal book. In essence, they raise the three main topics which we address.

The first ground of appeal, in substance, concerns whether, in assessing unconscionability, the vulnerability of the respondent’s customers and the customers in question are overwhelmingly indigenous persons who, on the findings, are impoverished, most of whom are unable to read, unable to add up and with low levels of financial literacy – whether that vulnerability was outweighed by their basic understanding of the bookup system and their voluntary entry into it.

The second ground concerns whether or not the Full Court erred in overturning the primary judge’s findings in relation to predation and exploitation and in the weight that the Court attached to the absence of dishonesty and the finding that the respondent acted with “a degree of good faith”.

The third concerns whether the Court erred in relying upon what it called “historical and cultural norms and practices” to excuse behaviour which, we submit, would otherwise be unconscionable.

KIEFEL CJ: Mr Solicitor, to what extent, if any, does your case rely upon the primary judge’s findings which are the subject of the notice of crossappeal?

MR DONAGHUE: Your Honour, very little is the answer to that. The central submission that we make is that the factors that made Mr Kobelt’s customers vulnerable and that therefore led them to be willing to voluntarily enter into the bookup arrangement, contrary to their interests, were wrongly treated by the Full Court as excusing what would otherwise have been unconscionable conduct anywhere else in modern Australian society.

With respect to the crossappeal, your Honours are aware Mr Kobelt seeks special leave to crossappeal in relation to the section 29 issues in relation to the National Credit Code. In the event that special leave is granted Ms Clark will address our submissions in reply on that topic if that is convenient to the Court.

KIEFEL CJ: We might be assisted, though, by your outlining at least the extent to which your case draws upon those findings.

MR DONAGHUE: Yes, I will do that in the course of

KIEFEL CJ: Thank you.

MR DONAGHUE: In essence, my submission on that will be that we do not need, as part of the unconscionability case, to rely upon a finding that the provision of credit was in breach of the Credit Code. We do rely on the finding that the arrangement involved expensive credit but the Full Court accepted that we were permitted to do that and that is a separate issue from the breach of the Code.

Your Honours, there is no dispute that in an unconscionability case of this kind close consideration of the facts is necessary in order to determine whether the claim has been established, and for that reason I propose to take your Honours to the facts in some detail, as is apparent from the oral outline that your Honours have. I propose to do that by reference to the findings of the primary judge. While some of those findings were specifically challenged, in our submission, none of them were relevantly disturbed, although the Full Court did characterise some of the undisturbed findings somewhat differently.

So, if I could start the facts with some matters of geography. The appeal is concerned with Mr Kobelt’s general store, Nobby’s, which is located in the town of Mintabie in South Australia. Mintabie is very remote. It is located about 1,100 kilometres north of Adelaide in an enclave within the APY Lands. The majority of Mr Kobelt’s customers resided in two remote indigenous communities on the APY Lands, being the communities of Mimili and Indulkana.

If your Honours turn to page 28 of the appeal book, you will see in paragraph 72 that in order to get to Mintabie from Mimili and Indulkana, the distances involved were quite considerable, so by the main roads in one case 165 kilometres one way, and in the other 116 kilometres one way. I will not take your Honours to it. It was possible to do the journey by unsealed back roads more quickly, but even then it was 70 kilometres and 86 kilometres. So there were substantial distances involved in moving backwards and forwards from the communities to the township. At paragraph 73 you will see the finding that some of the bookup customers resided much further away than those already considerable distances.

The evidence is that both Mimili and Indulkana have within them community stores that do sell goods and food but that there are no mainstream banking facilities available anywhere on the APY Lands. Your Honours may have seen from the judgment that the primary judge visited those – he visited not just Mimili and Indulkana but Mintabie and there is a detailed account of that view at paragraphs 248 to 265 of the judgment – I do not need to take your Honours to it but the upshot of it was that the primary judge accepted evidence to the effect that the overwhelming characteristic of the residents of those communities was their poverty.

If your Honours go back to page 14 of the appeal book, right at the start of the judgment, you will see – and I am here turning now to the characteristics of the store – that Mr Kobelt conducted the general store under the names “Nobby’s Mintabie General Store” and had done so for some time, he had done so since the mid1980s. At paragraph 19 of the judgment on page 17 of the appeal book, he runs the store:

with the assistance of his partner . . . his son . . . Nobbys sells a range of goods including food, groceries, general goods, fuel and second hand cars.

At paragraph 21 on the same page:

Nobbys has a customer base of about 600 Aboriginal persons each year, of whom about 200 frequented the store each week . . . The majority of customers who use Bookup –

come from the two communities that I have mentioned, the:

residents of the APY Lands . . . comprised about 80% of the store’s patronage.

At paragraph 71 on page 28 of the book it is recorded that all but one of the customers to whom Mr Kobelt provided bookup were indigenous persons and nearly all of them were residents of the APY Lands. Mr Kobelt did extend credit to nonAboriginal persons but on different arrangements.

Your Honours will have noted that amongst the goods sold by Nobby’s was secondhand cars, and you see some more details about that on page 18 of the appeal book at paragraphs 24 to 25. Paragraph 24:

A significant part of the business of Nobbys since about 2000 has been the sale of second hand cars. Some customers pay cash but most have bought their cars on Bookup.

There are some details in paragraph 25 about volumes, so just picking up – the relevant allegations here concern the period from, I think, about 2008 to 2015. But just picking within that a window from July 2011 to 31 October there were 105 car sales to 92 different customers, nearly all to the Anangu, and the cars are cheap $2,500 to $7,800, with a median price of $5,600. In paragraph 26, they are cheap because they are old. Most have driven more than 200,000 kilometres and so are not subject to statutory warranties. All of that is relevant really because it is the purchase of cars that provides the occasion for the bookup transactions that are at the heart of the appeal.

In terms of the characteristics of Mr Kobelt’s clients, if your Honours turn to page 108 of the appeal book at paragraph 423, you will see there the finding that most of the customers and ASIC’s case related to 117 customers most of the customers had the characteristics that I am about to take your Honours to. His Honour avoided the word “overwhelming” as being imprecise but said:

I am satisfied that most of the 117 customers are of this kind. This allows for there being some exceptions. It is not possible to be more particular other than to say that I consider the exceptions are likely to be a clear minority.

You also see there the finding that the judge was satisfied that Mr Kobelt knew of the characteristics that I am about to take your Honours to. So, going back to the previous page at 417 we see the finding that Mr Kobelt had acknowledged:

that less than half of his customers are able to read

and the inference that the reading ability of those who could read was compromised. At paragraph 418:

the majority of the 117 customers were impoverished in the sense of having no, or only limited assets, and only limited incomes –

which was a matter conceded. At 419:

the majority of the 117 customers also had low levels of financial literacy . . . By reason of the limitations on their literacy, numeracy and ability to communicate in English, the Anangu do not have the competence of most Australians in the wider community to make informed decisions concerning the use of financial services.

There was an example given from the evidence of the expert who was called Dr Martin in relation to the purchase of a car suggesting that, by and large, the Anangu people would not in making a purchase of that kind look at capacity to pay, comparative prices, whether it was a good deal, whether they could afford the weekly repayments, any of those matters.

There was indeed evidence, I will not take your Honours to it, but at page 247, one of the residents of Mimili had not heard of the concept of a bank loan so that was the kind of evidence that his Honour is referring to when he says very low levels of financial literacy. At paragraph 620 of his Honour’s judgment, and this is really a pivotal paragraph in the conclusion on the unconscionability case, in our submission, you find those factors that I have just taken your Honours through being correctly characterised as:

the vulnerability of many of the Bookup customers arising from a combination of factors: the remoteness of their communities; the limitations on their education; their impoverishment; and the limitations on their financial literacy.

Then a sentence further down:

Mr Kobelt’s Bookup system involves taking advantage of these circumstances.

Then a few lines further down:

while providing some benefits to the customers, provided considerable advantages to himself.

BELL J: If one looks at the critical analysis and the issues that are before us, one must have regard to the preceding paragraph and the competing contentions. His Honour there says that he recognises that:

the Court should not impose a view of what is appropriate for the Anangu –

and he recognises:

The freedom of action of the Anangu as citizens of Australia and their entitlement to make decisions in their own interests -

and it is the tension between paragraphs 619 and 620 that is very much at the heart, is it not?

MR DONAGHUE: I fully accept that that is so and ultimately, your Honour, our submission is that when one is looking at the question of unconscionability as opposed to undue influence that the fact that people in a vulnerable group might voluntarily choose to enter into a transaction of a certain kind is not an answer to the unconscionability allegation because the focus is on the conduct of the person who takes advantage of that vulnerability and in some respects it is not surprising that the Anangu people in question in this case voluntarily entered into this arrangement in light of the absence of alternatives and the factors that I have already gone to - they did not know of any alternatives; they did not know the extent to which advantage was being taken of them.

So we will ultimately submit that, while I accept that that tension is there, those factors were wrongly used by the Full Court as excusing behaviour that Justice Wigney acknowledged quite openly would not have been acceptable elsewhere in Australian society and that that is a misuse in principle of those

BELL J: You opened on two matters. You described the conduct as contrary to the interests of the Anangu and as conduct that elsewhere would not be tolerated, having regard to the norms of modern Australian society.

MR DONAGHUE: Yes.

BELL J: So we take it from that that your argument depends on an assessment in determining the content of unconscionability in this context of what is in the interests of the Anangu people, and do you do that by reference to modern Australian society and its norms?

MR DONAGHUE: Yes, we submit that one tests the question of whether there was a departure from the normative values incorporated in the standard of unconscionability by reference to modern Australian values.

GAGELER J: Mr Solicitor, you have effectively given us particulars of vulnerability.

MR DONAGHUE: Yes.

GAGELER J: What are the equivalent particulars of taking advantage?

MR DONAGHUE: I am about to come to them. So, if I do not, I will summarise them, but I am about to take your Honours through those facts, and to do so in the context of describing the way the bookup system worked to your Honours.

I have already taken your Honours to the paragraph that said the provision of credit to the 117 customers were all – using the bookup system – were all indigenous. If your Honours then turn to paragraph 24 – sorry, page 24 of the book at paragraph 54. This is really by way of giving your Honours an overview before I come to the details. Not only were there a significant number of customers involved, but the amounts of money that went through the bookup system were quite substantial.

So, in paragraph 54 you see again, just with a period of time of around two and a half years picked out, there was about nearly $1 million through 85 of those customers went through this arrangement so it is plainly not trivial. And the focus of it was, as I said earlier, that there was bookup provided for food and groceries but the case, substantially, related to people who used the bookup system to purchase cars and then, for the reasons that will follow, food and grocery purchases at Nobby’s followed from that arrangement, for reasons I will come to.

With respect to the key components of the system, we have set them out in paragraph 5 of our outline. The starting point was – and your Honours see this on page 18, paragraph 28 and following, that:

Mr Kobelt required, as a condition of the provision of credit, that his Bookup customers provided him with a debit card . . . linked to the bank account into which their wages or Centrelink payments were made as well as their PIN.

So, he required the provision of both the cards and the PINs which were held until Mr Kobelt determined that the debt had been paid. In terms of what he did with the cards and the PINs, at paragraph 38, on page 21:

he would require the customer to hand over to him their key card and to tell him the PIN . . . Mr Kobelt would put each key card in its own resealable plastic bag. He would stick a piece of masking tape to the outside of the plastic bag on which he would write the customer’s name, their PIN and, in most cases, some details of when payments would be made into the accounts –

At the end while I am here, your Honours, at the end of that paragraph you will see a finding:

that at least half of . . . [the] customers were recipients of Centrelink benefits.

Having obtained the cards and the PINs and stored them in that way, what then happened is described at paragraph 29, and following, that he retained the cards:

until the debt was paid. He used the key card and the PIN in one of two EFTPOS machines . . . to access the customer’s account, usually on the day on which payments were made into the account or shortly afterwards.

And, what he then did was that he:

withdrew the whole, or nearly the whole, of the available funds –

that were paid into the account. At paragraph 31, it is recorded that:

Mr Kobelt’s evidence was that he agreed with the Bookup customers that he would take the whole of the money in their account from time to time on the basis that he would then allow them to use half for their own purposes. However, he retained that half in his own account. He did not transfer it elsewhere for the customer’s use. With relatively few exceptions, the customers could obtain access to that money only by coming back to Nobbys to make their purchases of food or groceries, or to obtain cash, or, by a process which I will describe later . . . a “purchase order” to another store . . . The 50:50 arrangement was not –

reduced to writing.

GORDON J: Before you go on, Mr Solicitor, I notice that you enter this factual identification of the elements of book-up at this point. Do you make anything of what is set out in paragraph 51 and that is in a sense the way in which the arrangement was set up from the start? As I understand it, there were three phases. There was a phase where it was entirely verbal. It then shifts to some form of written authority, which is itself in some instances incomplete.

MR DONAGHUE: I do not rely on it because we submit that this system was unconscionable at all three stages throughout that period of time because of the characteristics that I am relying on. So it was worse at the earlier stages, but the steps that were

GORDON J: But is it not an element of your system in the sense that there is a lack of documentation?

MR DONAGHUE: Yes. Certainly that it so, but the lack of documentation that we focused on is a lack of documentation not at the level of authority but at the level of individual withdrawals. So we do not make the case that Mr Kobelt was not authorised to withdraw the money using the system. Our submission is that the system itself, which included obtaining authorisation from this group to take all of their money on the day that it was paid into their account, was unconscionable.

EDELMAN J: Even though it was done with their written authority?

MR DONAGHUE: Even though it was done with authority - that is right.

KEANE J: Is that because they could have used the money themselves?

MR DONAGHUE: Yes, indeed, and I am about to come to some of the facts about that, but there were other ways they could have accessed the money. At the moment, your Honours, I have noted the fact that Mr Kobelt’s evidence was that he agreed that he would keep half in effect to repay the debt and that the other half would be, even though in his bank account rather than the customer’s, available to be withdrawn for goods. In fact, the court and the Full Court did not accept that the arrangement worked in that literal way. So that at paragraph 59 of the primary judge’s reasons he says in terms:

It is obvious that the 40% entitlement was not applied in a literal way. Instead, I consider that the Kobelts used it as a guideline as to the maximum amount of the Bookdown –

or redrawing:

which they would allow.

Then at paragraph 60:

in some cases, Mr Kobelt may have referred, when putting in place a Book-up arrangement, to a “50:50” or “half and half” split . . . but think it probable, and so find, that more often than not Mr Kobelt told the Bookup customers only that they could have “a little bit”, or even only that they could have “some” food or groceries.

GORDON J: Sorry - this is my point.

MR DONAGHUE: I may have misunderstood your Honour’s question.

GORDON J: So we are back to the beginning. Is that right? I understood when I read that paragraph there is a finding about the lack of precision of the arrangement when it was set up.

MR DONAGHUE: Certainly, your Honour, I do rely on that. I have misunderstood your Honour’s questions about - as going to the authority at the start.

GORDON J: No, not the authority but the elements of the system which are said to be unconscionable.

MR DONAGHUE: Well, we certainly do rely on this because the effect of what happened in this respect is that not only was the arrangement not fully explained and this 50/50 arrangement was operated only loosely but the effect of it was that what Mr Kobelt referred to as the customer’s half – and I should interpolate there that it was accepted below that there was no suggestion that money was held on trust for the clients; indeed, it was affirmatively argued that it was not, and you see that at 521 of the judgment – that even the customer’s capacity to obtain their 50 per cent, if we loosely call it that, was limited by the Kobelts’ discretion as to whether or not they were prepared to allow a little bit or some food and groceries to be withdrawn. I will come to some more evidence about how that discretion was utilised in just a moment.

In terms of the way that the withdrawals actually worked, at paragraph 43 you will see that what happened was withdrawals occurred usually on the day that the customer had indicated payments into the account would be made. In the customer’s absence, Mr Kobelt used the key card and PIN at one of the EFTPOS machines to make withdrawals. Because he did not know exactly how much money had been paid into the account – and this is paragraph 46 – the process was:

made the withdrawals early in the day, before or shortly after Nobbys opened –

commonly at midnight or 1.00 am - and the finding was:

I am satisfied that the Kobelts made the withdrawals at these times so as to preclude the customers having the opportunity, or at least any practical opportunity, to access the monies by other means, for example, by internet or telephone banking.

KIEFEL CJ: Did they have the knowledge and ability to undertake these - internet and telephone banking?

MR DONAGHUE: The evidence was – and I will not take your Honours to it, but it is 252 and 255 – that there was access to internet banking in Mimili, that there was a facility set up in Mimili for that purpose.

KIEFEL CJ: They were quite capable of doing that?

MR DONAGHUE: Well, there is no finding to that effect in relation to the groups but what his Honour found was that there was – and you see this at the end of 48 - in effect, a competition between the Kobelts and the customers as to who could – I am looking at the last line of 48 – “make the withdrawals first”. So that the primary judge apparently was satisfied that it was possible for the customers to access their money and that the reason that the Kobelts accessed the money very early on the day of the payments was to win that competition for access to the funds.

EDELMAN J: What is the legal nature of the arrangement? It is obviously not a trust. How would you characterise the legal nature of the authorised arrangement between the Kobelts and the customers in terms of withdrawals?

MR DONAGHUE: Your Honours, the system itself, the bookup system – and I hope I am not avoiding your Honour’s question – is an unusual form of the provision of a credit facility, and I think we are in the territory of the relevant provisions of the Act, CB and CC, because it is accepted that this is a kind of financial product that was made available to people who used it. It may be that it could be characterised in other ways, but I do not think we need to characterise it in any other way for the purpose of our case.

EDELMAN J: It is effectively an authorisation to receive – or a promise to make a payment in exchange for the provision of future goods or services.

MR DONAGHUE: I am not sure, your Honour, on that example who is making the promise to make the payment.

EDELMAN J: Or promise to allow a payment.

MR DONAGHUE: A promise to allow a payment to be made. It is a consent to allow someone to take funds in payment for the earlier provision of the car but on the basis of an informal understanding that some part of those funds will be allowed to be repaid so as to provide the necessities of life.

Now, I should say in relation to that finding I have just been emphasising about the midnight and 1.00 am matters that the Full Federal Court did not overturn that finding of fact but downplayed the significance of that factor, so that the Full Court said well, that does not go to the heart of the evaluation of the process, the time at which the money was withdrawn. It said that at paragraph 259 of the plurality judgment. In our submission, that overlooks the fact that as the primary judge found in 46, that the timing was significant because of its effect in precluding customers otherwise accessing what Mr Kobelt described as their 50 per cent.

BELL J: Would that depend on whether there was evidence that the customers wanted to access the money in their account and in a sense lost that opportunity because of the way this system was set up? I mean, there was evidence called in ASIC’s case from Dr Martin that touched on this question of the difficulty in a sense for some Anangu of having cash in their accounts, of children going hungry late in the pay cycle, that being alleviated by a system which at least it seemed some were happy with. Now, when you say that the Full Federal Court wrongly underestimated the significance of the evidence of the competition, surely it requires some evidence that in truth there was competition to make that submission good?

MR DONAGHUE: Well, your Honour, in my submission, the findings at 46 and 48 demonstrate that the primary judge was satisfied of such competition. In relation to the matters your Honour puts to me about some customers finding it advantageous, I am going to come to that in relation to our third of ground of appeal, because in fact the evidence was that there was only one witness who said that they used bookup in order to obtain that advantage. So we submit that the evidentiary foundation for the idea that bookup was being used for that purpose was very thin.

BELL J: Well, that may be so, but equally, coming back to the matter that I am raising with you, to the extent that you say the Full Court erred in the weight it gave to the evidence, surely it invites attention to what the positive evidence was that the prompt withdrawals deprived the Anangu of something they wanted.

MR DONAGHUE: There is, I think, some evidence about that. Would your Honour excuse me for one moment?

BELL J: Yes.

MR DONAGHUE: Your Honour, I might come back to that, if I may. I think there is some evidence bearing on that topic. In some respects, your Honour, even if I cannot find specific evidence to that effect, in my submission, it was plainly open to the primary judge to infer, just from the fact of the evidence of withdrawals at midnight or 1.00 am, that that is an odd thing to do, particularly when you see that what was involved in a moment was using the EFTPOS machine to withdraw the money and that it is difficult to understand why Kobelt would have engaged in that arrangement if it was not for the purpose of getting access to the money before the money was otherwise withdrawn from the account. That is, we submit, the natural inference to draw.

BELL J: In a circumstance where there is evidence from a source such as Dr Martin about a practice, that does not occur so widely in modern Australian society, of people being beset by younger relatives to give them their cash, that might bear on the question of whether, when you speak of competition to get funds out of the account, your submission assumes competition between a person whose account it is and Mr Kobelt and not a person whose account it is being importuned by someone humbugging them.

MR DONAGHUE: Someone humbugging them and attempting to access the funds of a person whose card and PIN number are not available and so is not likely to be able to give them cash. It may be that there is telephone banking or internet banking type options for some kinds of transactions, but once the PIN and the card had been given up, to the extent that there was a protected element to the scheme there and one could obtain that protected element by handing over the card but not the PIN and then one could answer the humbugging by saying, “I cannot access the cash and my card has

BELL J: “I cannot transfer the cash to you

MR DONAGHUE: Yes.

BELL J: by internet banking to your account”.

MR DONAGHUE: Your Honour, whether or not that is so from the perspective of the customer and other people who might want to access the funds, from the Kobelt’s perspective, in my submission, the only real inference to draw is that they were in competition with whoever else might be trying to get money out of the bank account of the customers and that they operated the system in that way.

EDELMAN J: Is that really a system submission or is that a submission about the way in which this system was implemented on particular instances?

MR DONAGHUE: It was the way it was generally implemented. So, it is a submission about the implementation of the system because the evidence was, as your Honour sees in the first sentence of 46:

generally made the withdrawals early in the day –

Commonly made:

withdrawals between midnight and 1 am.

So, it was not a oneoff. It was a common feature of the way the system worked.

EDELMAN J: But, if one were, just for the moment, to assume that there was nothing wrong with a system that permitted withdrawals with authority to cover the purchase of goods, subject to future necessities, what change would need to be made to that system – as a generalised system – in order to prevent this conduct which you say is the “taking advantage”?

MR DONAGHUE: It is part of the “taking advantage”. This is an element of the wider submission that we make under the general label of the withdrawal conduct, that part of the “taking advantage” was to operate this scheme in such a way that not just a fixed percentage – say, 50 per cent – was taken from the income in order to pay down the debt. But, everything was taken and it was taken at the first available opportunity, then exposing the customers to the need for an exercise of discretion by Mr Kobelt in their favour to allow them to get anything to get food or other necessities of life, petrol all dependent on the favourable exercise of Mr Kobelt’s discretion.

So, what would need to change – if the system, as a whole, was fine, including the withdrawal of the 100 per cent of the money, then probably my submission goes nowhere, but in the context where we say that the withdrawal of the 100 per cent of the money was part of the “taking advantage” of this group, this submission is a component of why it worked to take advantage of the disadvantage of the target group.

EDELMAN J: So, a system could have been legitimate or not unconscionable if, for example, it involved the taking of a smaller percentage of the money or an authorisation to take a smaller percentage of the money only?

MR DONAGHUE: Yes. And, your Honours will have seen in writing, it is no part of ASIC’s case to say that no kind of bookup system can operate. We do not say that at all. We do submit that a system that operates involving the provision of a card and a PIN number and an authority to take all of the money, is unconscionable, not just for Mr Kobelt but for anyone. But, we accept that there are ways of structuring a system and a system that said, I will disclose the credit charge, I will pay a reasonable proportion of my income every month to pay down the debt, certainly, for example, doing it by direct debit facility, ASIC would have no difficulty with a system of that kind.

BELL J: And, a bookup system that involved the handing over of the key card and disclosure of the PIN, does ASIC accept that that could, in some circumstances, be a scheme that would not be unconscionable?

MR DONAGHUE: Your Honour, I think I would have to answer that question, yes, because the unconscionability assessment depends upon an assessment of all of the circumstances.

BELL J: Yes.

MR DONAGHUE: But, we do say that the provision of the card and the PIN is a bad start for a bookup scheme. ASIC would not favour a bookup scheme that has those components. And, insofar as those components are common, they should not be allowed to continue.

BELL J: But they are presently common features of the scheme, are they?

MR DONAGHUE: Well, I think on the evidence – on the findings below I would have to say yes, that those particular features are prevalent. But we submit that, to diverge slightly, bookup has evolved with the technology so that bookup systems originally started in the 60s or 70s in relation to social security cheques where there was no capacity for people in remote indigenous communities to cash the cheque and so a cheque was provided to the storekeeper and the bookup system springs up.

In that context it is easier to see why the whole of the cheque was being provided to the storekeeper but as cheques have passed away substantially the PIN number system and cards have been substituted. There is no reason, in our submission, why keeping up with the technology a system of direct debts that would not historically have been available could not now be deployed to achieve the legitimate objectives of someone in Mr Kobelt’s situation. In other words

GORDON J: Can I just pick that up? I know I keep going back to this but if that is right then does that not require from the outset agreement and clear identification of what the terms are to enable the authorisation of what is to be withdrawn by the direct debit?

MR DONAGHUE: It would, if such a system were to be put in place.

GORDON J: So if you are looking at the contrast between this system and what you would say would not fall foul of 12CC and 12CB, one would have clear terms and arrangement terms, disclosure of the credit charges, no need to provide the facility in the way it is provided here – is that not where you have to get to?

MR DONAGHUE: Well, it is not where I have to get to in order to show that this system was unconscionable, but I absolutely accept the contrast your Honour is drawing between a system I say would be acceptable and it would have all of those differences from this arrangement. I am agreeing with what your Honour is putting to me.

GORDON J: So it is in a sense a form of bookup system; it is just a form of bookup system which has inbuilt into it the protections you would expect to provide to the vulnerable?

MR DONAGHUE: Yes, precisely.

GAGELER J: Mr Solicitor, do I understand the structure of your argument to be that the features we see in paragraph 5 of your outline – 5.1 through to 5.6 – are the features that you say constitute the taking advantage of the vulnerability?

MR DONAGHUE: That is correct. That is why I answered as I did earlier.

GAGELER J: Thank you.

MR DONAGHUE: And, in particular, 5.2 and 5.5.

GAGELER J: Will you at some stage – you do not have to, but I am really just asking – relate those features to the terms of section 12CC?

MR DONAGHUE: I will. Can I come back to complete the withdrawal conduct submission? At paragraph 47, your Honours will see the way that it worked:

Mr Kobelt did not know, and had no means of ascertaining the balance in the customer’s account. Accordingly, the process of withdrawal usually involved trial and error. Mr Kobelt would attempt a withdrawal of a certain amount, say $200. If that was successful –

he would try again:

until the attempted withdrawal was unsuccessful –

and then he would reduce the amount he attempted to withdraw and keep going. So that is when we say it drained all or almost all, that it was by that trial and error process that you see summarised in paragraph 47.

That process had the consequence on one occasion of the events that were described in the courts below as the “CBA glitch incident” and there has been a debate in the courts below as what use could properly be made of this incident because this was a oneoff episode. The episode is described at paragraphs 92 and following and in effect what happened was that the Commonwealth Bank’s payment system had a fault so that when Mr Kobelt adopted that trial and error system that I have just described, he was able to continue withdrawing funds well beyond the funds that were available in the accounts in question and so he was clearly aware of the fact that he was withdrawing much more than was normally able to be withdrawn by the process that he operated but continued withdrawing that money and there was some, you see at 95, $56,944.00 withdrawn on that occasion.

Our submission is not that the CBA glitch is part of the system, because it obviously was not but that the events on that day are informative as to the implementation of the system and the

KIEFEL CJ: Or his state of mind.

MR DONAGHUE: Yes.

KIEFEL CJ: Well, that is where we come to the question of the relevance of state of mind to statutory unconscionability.

MR DONAGHUE: Indeed, which is raised by the second ground but what one has is a finding by the primary judge at 550 of the book which is on page 136 that:

Mr Kobelt took advantage of that glitch so as to withdraw a total of $56,944 from his customers’ CBA accounts, even though he had no authority to do so (at least with respect to a significant proportion). Mr Kobelt’s attitude was to transfer to himself whatever moneys were available in the customers’ accounts, and it is difficult to avoid the conclusion that he was on this occasion preying on the customers with CBA accounts to his own advantage.

So it does, we submit, shed some light on the way that Mr Kobelt was administering or implementing his system, subject to the relevance at that point.

KIEFEL CJ: Mr Solicitor, just to be clear, would he be preying on the customers or the bank. Whose money was it?

MR DONAGHUE: Well, he was overdrawing the customers’ account and they paid the overdrawn fees and, as I understand it, your Honour, it took some time for their accounts to get back into, well, until he returned the funds

KIEFEL CJ: So, they had to pay the over

MR DONAGHUE: They had to pay the overdrawn fees.

NETTLE J: It is at 96 of the judge’s findings.

MR DONAGHUE: Yes, indeed.

KIEFEL CJ: Yes, thank you.

MR DONAGHUE: Thank you, your Honour.

GORDON J: Just so I am clear, Mr Solicitor, when you say that this is evidence of him preying on the customers, it is also evidence, is it not, of, in a sense, as I understood your pleaded case or the way in which you put it, of the defects in the system?

MR DONAGHUE: Yes, it was a direct consequence of the way the system worked. I accept that, your Honour.

BELL J: The fact that a system has defects, how does that tie in under 12CB or CC in relation to your systems case? I mean, in much the same way you point to the poor record keeping, but absent any evidence of taking improper advantage of people by reason of not keeping proper records, it is not clear – well, certainly not clear to me – how you bring that within the system case.

MR DONAGHUE: Well, your Honour, in this way, that if one looks at the – looking, as 12CB requires us to do, at all of the circumstances in assessing the unconscionability, if one has a system that not only involves providing the keycard and PIN and providing authority for all of the funds to be taken, but one then combines that with a system where the record keeping is so poor that it is extremely difficult to tell at any given time what amounts have been withdrawn, how much is owing - and there were findings to this effect - that you could not in any realistic way interrogate the – a customer could not say, “Well, how much is owing on my debt?” at any given time, Mr Kobelt’s system was not such as would enable an answer to be given to that question.

So it is part of the taking advantage of the vulnerable to say, “Not only am I going to take all of your money, but I’m then going to account for it so poorly that you can’t have any degree of confidence that I’m using it properly and appropriately for the purpose that you’ve authorised”.

BELL J: But there is no finding of inappropriate or improper use, is there?

MR DONAGHUE: Well, there is certainly no finding of dishonesty

BELL J: Yes.

MR DONAGHUE: and there was a finding of a degree of good faith in the implementation of the system. But that, in my submission, does not prevent the way the system was implemented, including the recordkeeping dimension of it, as being one of the circumstances that bears on the conscionability of the overall system. In terms of the record keeping, your Honours might have seen – or should have seen I hope - attached to our submissions some examples of the diaries that – so if your Honours have – at the end of our written submissions there should be about six or seven pages of diary extracts. These are extracted from the exhibits below.

KIEFEL CJ: Especially chosen for effect in some cases?

MR DONAGHUE: Well, reflective of some of the points about what happened on some occasions when cards were cancelled. The primary judge gives an explanation of how these records should be read at paragraphs 41 and following, and the substance of the explanation was first, do not attach any significance to the dates in the diary because these records were just being kept in old diaries, so the fact that it says “February 2007”, for example, is not meaningful in terms of understanding the record.

But in essence the system was, if your Honours look, for example, at the second of the pages just because it is a little less chaotic than some of the others – the system was that down the lefthand column Mr Kobelt would record the numbers. So if your Honours have the document that finishes “0026” in the top righthand corner, you can see there is a name of a customer, the registration number of the vehicle and down the lefthand side you get deductions, so as Mr Kobelt deducts by trial and error the $200, et cetera, he marks them down that column. When he gets to the end of one column, he starts again to the immediate right and continues in that way. Then on the other side of the page there was some kind of record kept when customers were permitted to book down or redraw for the purpose of groceries and matters of that kind.

But it is no exaggeration, in my submission – sorry, before I make that submission, the other thing about record keeping your Honour should note is at paragraph 49 that following the trial and error process:

Mr Kobelt put the EFTPOS printed record . . . in the plastic bag containing the customer’s key card. He kept these until the bag became too full (usually after two or three months), at which time they were simply discarded. This meant that Mr Kobelt no longer had the means of showing customers the documents evidencing his withdrawals.

So all we had was the notations in the diary. All of that, we submit, comfortably supports the finding at 69 that the record keeping:

was rudimentary . . . the manner in which Mr Kobelt made the entries makes it difficult to understand the state of a customer’s account at any one time . . . Many of the entries were illegible or only barely legible.

I do not put this as a dishonesty submission but as the primary judge found at 484 it did reflect the fact that:

Mr Kobelt conducted his business with “little or no insight into the importance of providing a true and proper account to his customers”.

NETTLE J: The practical effect of which seems to be manifest in 474.

MR DONAGHUE: Indeed. In that part of the judgment one sees some suggestion that sometimes amounts were misallocated between customers and matters of that kind as well. With respect to the credit charge, the finding was that there was an undisclosed and very expensive credit charge you see that at 492 – and while there was debate in the Full Court about whether or not ASIC was entitled to rely upon that charge the Full Court resolved that debate in ASIC’s favour at paragraphs 207 through to 210.

Those features that I have described to your Honours had the effect of tying customers to Mr Kobelt in a way that gave him a significant control, in our submission, over three significant aspects of his customers’ lives. One, he could control how much his customers could spend at any given time and if your Honours go, for example, to page 146 of the book at 598 and following, the finding is the:

system created a circumstance in which his Book-up customers were dependent on a favourable exercise of his goodwill. They were placed therefore in a position of some vulnerability. Mr Kobelt controlled how much the customers could spend at any one time (even when they had not used the whole of the notional 50% said to be available for them) and the kinds of goods or services they could purchase.

There was evidence from one of the Anangu that she found that humiliating. There were some examples of arbitrary decisionmaking. It is true, and your Honours will see this at 453 of the judgment, which is back at page 116, that Mr Kobelt’s evidence, which was accepted, was that he:

never refused food to a customer from whose account he had withdrawn all of the money. He did, however, limit the goods –

that could be purchased. So generally he limited to milk, bread and meat but did not permit items such as sweets and chips. So there is control being exercised by Mr Kobelt over the discretionary spending of his customers including, as was noted at 599, in some cases arbitrary limits on bus tickets, for example.

But also, and importantly, the effect of the system was to tie customers to a very significant extent to the Nobby’s store because once all their money was gone and in Mr Kobelt’s account, by far the easiest way to access it was by going to his store and have him allow them to bookdown again for the purchase of necessities of life. So back at page 25 of the book, at paragraph 58, there was evidence of:

several of the Anangu witnesses referred only to being able to Bookdown “a little bit” and not to an understanding that they had an entitlement to 50%.

But the system operated to tie to Nobby’s store unless the customer used one of the mechanisms that was available. So there was evidence that it was at least sometimes possible to obtain a cash advance from Mr Kobelt, although at paragraph 87 of the judgment you will see that Mr Kobelt sometimes charged a fee for a cash advance. And there was also a practice involving or called purchase orders.

The findings of fact below and in the Full Court both refer to the purchase order charge being $10. My instructions are that it was agreed it was either sometimes $5 or sometimes $10 so that that finding might require some modification. But the basic system was that people could go into a different store in the APY Lands and have the store owner ring up Mr Kobelt who, for a fee, would agree in effect to reimburse the other store for a purchase that was made at that store.

The significant limitation on that being that those purchase order arrangements were not available at all of the stores in the APY Lands, including in particular they were not available at the store in Mimili because there was a dispute between – so you have people who were living in Mimili unable to shop in Mimili because of their participation in the system and therefore having to undertake the long journey from Mimili to Mintabie.

BELL J: But in relation to the other stores that would not accept the purchase orders that was by reason of the pendency of the litigation, was it not?

MR DONAGHUE: Other than the Mimili store?

BELL J: Yes.

MR DONAGHUE: No. Some of the stores are communityrun stores and the communityrun stores adopted a policy of not accepting the purchase orders at some point in time – I am not sure – at a later point, and then later because of the litigation.

KIEFEL CJ: It was after he was subject to investigation, was it not?

MR DONAGHUE: Yes. So, the tying effect was not complete because of the possibility of cash advances in some circumstances for a charge and purchase orders for a charge but it was significant.

GORDON J: The position with cash advances, though, was equivalent to me going to a bank and putting my PIN in – my card in, my PIN, and getting my cash out. Under this system they were charged getting their own money back.

MR DONAGHUE: Yes, that is exactly right. I am not putting it as a substantial alleviation of the system. I am trying to be accurate in terms of the limits of the tying conduct which, we submit, were significant and perform an important part of the “taking advantage”. Finally, your Honour

EDELMAN J: Although you said that money was not held on trust.

MR DONAGHUE: Was not held on trust, that is right.

EDELMAN J: Yes. So, it would not be the same as charging them for access to

MR DONAGHUE: Their own money.

EDELMAN J: Yes.

MR DONAGHUE: Yes.

EDELMAN J: It is, in effect, a waiver of a contractual – it is a $10 fee that has been paid to waive a contractual arrangement that has been made.

MR DONAGHUE: That the store owner gets to keep all of the money?

EDELMAN J: Yes.

MR DONAGHUE: Except that the arrangement is the store owner gets to keep all of the money except that he will let you have some of it back in some circumstances.

EDELMAN J: Yes.

MR DONAGHUE: So, it is one of the – it may be strictly that, I will let you have some of the money back in some circumstances, either by letting you have a little bit of goods from my store or by paying certain amounts for cash or purchase orders.

Finally, on the facts, your Honour, in relation to particular facts relating to Mr Kobelt’s subjective position, I think I have already taken your Honours to 423 where there was a finding that he knew about the various characteristics of disadvantage that I have highlighted. At 456, on page 117 of the appeal book, there is a finding that:

Mr Kobelt did not otherwise indicate an exercise of oversight by him of the amount . . . He seems to have been indifferent to whether his customers could afford the commitment which they were undertaking, having regard to their financial position more generally.

There is a finding at paragraph 559, on page 138, and this is the finding that I have mentioned in passing earlier:

I accept that Mr Kobelt acted with a degree of good faith. However, I do not accept that he acted in an altruistic or disinterested way. He was at all times pursuing his own interests, and did so even when that was to the detriment of his customers.

Then, finally, the finding at 620 that I have already taken your Honours to which is an express finding that the bookup system involved taking advantage of the circumstances of vulnerability that I have identified.

BELL J: Can I just understand the significance of the finding of very expensive credit? That is in relation to the motor vehicles.

MR DONAGHUE: Yes.

BELL J: It might be that it would be difficult for a person living on the APY Lands – dependent on social security, with no assets – to acquire a motor vehicle on credit that is not expensive credit. I think there was evidence that the thing that some people in the APY Lands prize more than anything else is a motor vehicle. So that when one is looking at features of the scheme that are unconscionable, for the purposes of the statutory concept, what is the significance of very expensive credit absent any indication – more expensive than credit available to a poor person in modern Australian society who has no assets?

MR DONAGHUE: Not only was the credit very expensive, it was undisclosed. It may be that had the arrangement been disclosed and that this was the only way that credit was able to be provided that in and of itself the expensive nature of it would not be a critical factor although on a different part of the case your Honour will understand that once there is a credit charge there, there are licensing requirements.

BELL J: I thought we went to this at the very beginning.

MR DONAGHUE: Well, I am not saying that as part of my unconscionability case. I am saying that there will be consequences not part of the unconscionability case for providing credit which would need to be overcome by someone in those circumstances. But if some

BELL J: My question is directed to the unconscionability system case and to the significance of a finding of very expensive credit.

MR DONAGHUE: Well, divorced from undisclosed, I think it would be limited.

BELL J: Thank you.

GAGELER J: Am I now understanding that you have an extra particular of unconscionability that is nondisclosure of something?

KIEFEL CJ: That would mean that the authority was limited, would it not?

MR DONAGHUE: Your Honour, I will just check my

GORDON J: The way I think I put it to you, Mr Solicitor, at the start was in a sense it is nondisclosure of the credit charge whether it is expensive or not, hence some of the problems, as I understood the way you put it, about the way it was set up, that is, the imprecision of both the terms, their understanding of the terms, their ability to understand them together with in a sense what it was that they were being charged.

MR DONAGHUE: Being charged, yes. That is how I was trying to put it. It may be that I should have added the word “undisclosed” expensive credit charge to 5.4.

GAGELER J: So is it the nondisclosure rather than the expensive nature of it is

MR DONAGHUE: I think the nondisclosure is, as the debate has highlighted, perhaps the more significant than the expensive. I am not keen to

NETTLE J: Why is not the expensive nature of it significant in itself?

MR DONAGHUE: I was about to say I am not keen to jettison the expensive nature of it because it is part of the circumstances that characterise the overall scheme. I think, as Justice Bell was putting to me, I could not say that expensive by itself is a problem, but that does not mean that expensive combined with a number of other factors is not relevant to the overall assessment.

NETTLE J: But surely even for a bomb in the outback, 25 per cent is red hot, is it not?

GORDON J: It comes back to making an informed decision of someone voluntarily entering into an arrangement that

MR DONAGHUE: Well, indeed, voluntarily entering into an arrangement to buy a bomb in the outback, as your Honour puts to me, which on the material in the judgments, obviously they were without warranties, as I mentioned, because of their age so there are broken down cars all strewn along the roads and some these customers are buying more than one car a year. So, in that context, the amount that one is paying by reason of the credit charge is significant, we submit.

EDELMAN J: We do not have, do we, the pleaded particulars of the system that was said to amount to it being unconscionable at trial?

MR DONAGHUE: No, I do not think we do. No doubt I can track them down if your Honour would be assisted.

EDELMAN J: All I am asking is whether your selection of particulars of unconscionability is the same as or a subset of those that were run at trial?

MR DONAGHUE: Your Honour, the answer to that is that I believe that they are, subject to the fact that there was a debate on appeal in some cases about whether we had gone outside the pleaded case and in some circumstances the Full Court concluded that, and indeed this credit charge topic is one example of it, that issue had been well and truly joined at trial on the question and that ASIC was permitted to rely on it as part of its case.

EDELMAN J: As part of the credit being expensive or as part of the credit charge being nondisclosed.

MR DONAGHUE: Expensive, your Honour. We will check whether we pleaded undisclosed. We certainly pleaded expensive. Your Honours, can I turn now to the statute which your Honours will see behind tab 4 in the joint book of authorities. The version that you have behind tab 4 is the version as at 2012. As I mentioned earlier, the relevant period of the conduct spans July 2008 up until July 2015 and there were amendments to the ASIC Act during that period of time but the case was conducted below on the basis that the 2012 amendments were not material. Your Honours will see that recorded by the Full Court at paragraph 175 and by the primary judge at 213, so that is the version of the Act that we submit that your Honours should work from.

Behind that tab, tab 4 at page 110, you see section 12CA and CB being the two prohibitions in Subdivision C of Division 2 of Part 2, section 12 CA dealing with the unconscionable conduct within the meaning of the unwritten law, from time to time, but then in subsection (2), the provision that:

This section does not apply to conduct that is prohibited by section 12CB -

which ASIC allege was this case, so the focus is on CB requiring:

A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of financial services to . . .

. . .

engage in conduct that is, in all circumstances, unconscionable.

There was no issue at trial that the bookup system did involve the supply or possible supply of a financial service and your Honour will see that recorded at paragraph 215 by the primary judge. I can take your Honours through the pathway but the relevant pathway ends with section 12BAA(7)(k). Now, that is the reason we say that it is a financial service.

With respect to 12CB(1), in its terms the section is directing attention to conduct that is in all the circumstances unconscionable. We do not understand there to be any real contest as to the applicable legal principles in relation to a provision of that kind. Your Honours looked at those principles quite recently in Paciocco. “Unconscionability” means something not done in good conscience, having regard to the norms of the society in question and requires an evaluation of facts by reference to that normative standard. I should note a couple of the provisions in subsection (4)(a), statutory unconscionability:

is not limited by the unwritten law of the States and Territories –

which is, of course, not to say that the unwritten law is not relevant. The authorities accept that it provides guidance as to what is unconscionability within the meaning of the statute but the statute is not to be limited.

In (b) you have the reference in terms to the systems case and the fact that it is not necessary to identify a particular individual as having been disadvantaged by the conduct and, of course, that was the nature of the case that ASIC made and ultimately relied upon at trial. The individual case has not been pressed.

And, finally, in paragraph (c) there is what we submit is an endorsement of the fact that where conduct relates to a contract one can in making the unconscionability assessment look not at matters that include “the terms of the contract” and in (ii):

the manner in which [it is] and the extent to which –

it “is carried out”. So that that, we submit, supports our proposition that it is permissible to look at matters of implementation, notwithstanding that this is a systems case in making the unconscionability assessment.

The ASIC Act then, in section 12CC, assists in identifying or giving content to the normative value inherent in an assessment of unconscionability by identifying a nonexhaustive list of relevant factors to be considered. And, of course, I will not take your Honours to it, but in Paciocco the Court emphasised that one should look at all of them rather than make a selection, and we submit that that is what the primary judge appropriately did.

Part, in our submission, of the explanation for where the Full Court went wrong is that, in our submission, the Full Court focused very heavily on two particular matters in that list. One being, in paragraph (1)(d):

whether any undue influence or pressure was exerted –

and the other being the final factor in paragraph (l):

the extent to which the supplier and the service recipient acted in good faith.

And I will develop that submission shortly. Our submission on ground 1

EDELMAN J: Sorry, just before you do – my recollection is that it was common ground in the Full Court, was it not, that these factors and an assessment of these factors and a weighing of these factors is not a House v The King or a belated type of discretion that a trial judge has, that the only element of latitude that a trial judge would have is in the finding of fact that underlies each of those factors.

MR DONAGHUE: Yes, which needs to be given appropriate weight in some context, although, perhaps, less weight in a systems context than others – because it will not be individual credit. But, that is right. As I understand it, no one suggests that it is a House v The King error. It is an evaluative judgment to be made having regard to all of those factors. But an evaluative judgment that ultimately has a right or wrong answer.

In our submission, the Full Court got the wrong answer because their Honours failed to give due weight to the special disadvantage on vulnerability and failed to give due weight to that special disadvantage and vulnerability because of the great significance that their Honours attached to voluntariness and the absence of undue influence. The Full Court did not overturn the primary judge’s finding of vulnerability. So, if your Honours would go to the – I have taken your Honours to 620 at the primary judge’s judgement – but if you go in to the Full Court’s judgment now to paragraph 268 on page 309 of the book

KIEFEL CJ: That might be a convenient point for our morning break.

AT 11.15 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.31 AM:

KIEFEL CJ: Yes, Mr Solicitor.

MR DONAGHUE: Your Honours, I was taking you to page 309 of the appeal book, paragraph 268 in the Full Court’s reasons, to make the point which you see in the middle of that paragraph right near the middle of the page that the Full Court say:

we accept that the Nobbys’ customers were vulnerable in the sense pleaded by ASIC (at [67] above), but they understood the bookup arrangements and voluntarily entered into them.

The “sense” pleaded by ASIC at paragraph [67] above is focusing on impoverishment, limited income, low financial literacy, the matters that I have already emphasised to your Honours. So there was not any dispute about vulnerability. The question was, was there unconscionability notwithstanding that vulnerability? The Full Court held that there was not, for seven reasons that it sets out starting from the previous page, the bottom of page 307 where it says, notwithstanding the careful evaluation by the trial judge:

even giving due weight to his evaluation, we consider . . . it was erroneous –

for the reasons then given in no particular order, the first of which is that Mr Kobelt’s system was not unique and its features were not out of the ordinary, and I have accepted that to be so. The second deals with the cultural factors point that Justice Bell raised with me, which is our third ground of appeal, and I will come back to it. The next set of reasons are the focus of our first ground, so that:

ASIC did not contend and the primary judge did not find that the appellant had adopted forms of “undue influence –

So that is a reason against unconscionability is put as the absence of a finding of undue influence. Then the fourth, the absence of dishonesty is put as a finding against unconscionability. Then the fifth and sixth reasons, which are the only two in the list that are emphasised by the Full Court as particularly significant, so:

Fifth, and significantly, despite the disadvantages of the Nobbys’ customers, including low levels of financial literacy, they understood the basic elements –

And sixth, they “voluntarily entered into the bookup” system which is identified or described as a – that voluntary entry “is a powerful consideration against a finding of” unconscionability. Then the seventh reason is the predatory and exploitative issue which is the second ground of appeal to which I will come. So, if I could focus in the next part of my submissions on the findings at third through to sixth, which are matters that were also emphasised by Justice Wigney in his Honour’s separate reasons which I will not take your Honours to, but particularly the relevant paragraphs are 316, 355 and 384.

Our submission, your Honours, is that that reasoning is erroneous because the fact that a customer understands the basic elements of the system and voluntarily enters into it, while that might well be inconsistent with a finding of undue influence, is not inconsistent with a finding of unconscionability because it is undue influence that bears upon circumstances in which the will of the vulnerable party has been overborne. So a finding of undue influence is inconsistent with independent and voluntary action.

By contrast, it is not inconsistent with a finding of unconscionability. So while we, of course, accept that undue influence is there in the list of relevant matters in 12CC(1)(d), the reason that it is there, in our submission, is because if undue influence or pressure has been exerted, that is a factor that points in favour of a finding of unconscionability because of the overlap between those doctrines.

But the absence of that factor cannot properly be deployed as if it points against a conclusion of unconscionability because there are occasions where – and I am about to take your Honours to two of them – the Court has made it clear that, while there is overlap, it is perfectly possible to establish unconscionability in the context of a transaction that is both understood and voluntarily entered into by the people who enter into it because nevertheless, despite that voluntary conduct, advantage has been taken of the special disadvantage of the person who is acting voluntarily.

So in our submission the Full Court, with respect, just misused the absence of undue influence and the existence of a basic understanding voluntarily entered into because those matters, properly analysed, should not have been treated as negating unconscionability.

GAGELER J: But absence of undue influence is surely a factor that can and must be taken into account. Is it your point that it is simply going to the weight that was attached to it?

MR DONAGHUE: In my submission, where undue influence is present, it is a factor in favour; where it is absent, it is neutral. It does not weigh against a conclusion of unconscionability.

GAGELER J: The section says “whether”.

MR DONAGHUE: I accept that, your Honour, but that does not mean analytically that a factor that is capable, where present, of establishing or of weighing heavily in favour of unconscionability does not mean that where absent it should be taken into the mix as cancelling out matters which would otherwise support a favour of unconscionability.

GAGELER J: You are ascribing weight to it in both of those descriptions. Are you putting your argument at the level of an irrelevant consideration that is taken into account?

MR DONAGHUE: No, your Honour, because it is clearly a relevant consideration. It is there in the list. It is just that it cannot, in my submission, properly be used by a mode of reasoning that says, looking at 12CC, because undue influence is a relevant factor I will conclude, despite the special disadvantage of honourability of this group, that the absence of undue influence makes me feel more confident that there was no unconscionability.

KIEFEL CJ: But, that is not just a question of logic. That is a question of statutory construction, is it not? You are saying that the words “whether any undue influence or pressure was exerted on” is reference only to a positive finding that it occurred rather than that it did not occur.

MR DONAGHUE: Because its absence will just mean that one of the paths by which unconscionability might be established is not available on the facts of this case. So, it is relevant to the analytical process in that it will be said, I could possibly find unconscionability by several different paths and one of those paths is not open here on the facts because there was no undue influence. But, that is not to say that the other paths are not engaged and it is not an argument against the analysis of the other kinds.

BELL J: When one looks at the six points, they are – one would understand – to be read together. So, you isolate the sixth point and you say the fact of voluntary entry into the arrangements does not negate unconscionability. But, you look at that in light of the second point – that the bookup system had advantages for the customers. And, when you look at that and at the absence of undue influence – and the fact that the system was understood and voluntarily entered into and conferred advantages – one can start to see that even though in modern Australian society this is an unusual arrangement, it might be difficult to characterise it as unconscionable in a context that has regard to not a vulnerable individual but an entire vulnerable population living in a remote place that has, historically, developed a particular mode of working with money that is, broadly speaking, understood and that they are content with and that confers some advantages on them. Surely, those are matters that you need to look at collectively.

MR DONAGHUE: Your Honour, I accept that their Honours advanced a number of reasoning that they put together into the mix for the evaluative conclusion that had to be drawn. As your Honour understands, we attack that second finding at 262 on the basis that what the Court did – on a very thin evidentiary foundation – very much over elevated those advantages because, ultimately, there were other ways – and the trial judge explored some of these ways in his reasons in some paragraphs I will refer you to shortly – of achieving some of the advantages, such that they were, to the vulnerable customer group.

The particular system that was adopted conferred considerable advantages on Mr Kobelt and that was what caused the trial judge to say – considerable advantages that, on the findings, went well beyond protecting any legitimate business interest that he had. And, that is, obviously, also a relevant factor in terms of (1)(b) – a person with a far superior bargaining position putting in place a system that confers advantages upon him – that go well beyond the legitimate – is unconscionable, in our submission.

GAGELER J: Can we just go back a step?

MR DONAGHUE: Yes.

GAGELER J: Where does the superior bargaining position come from?

MR DONAGHUE: Where does Mr Kobelt’s superior bargaining position

GAGELER J: Yes.

MR DONAGHUE: From the fact that his customer base has all of the characteristics that I identified earlier, so he is dealing as a store manager with a group of customers who are impoverished – lack financial sophistication, often cannot read, write or add and he is putting in place a system for the provision of credit for that group. In my submission, there is a manifest difference in the bargaining position of Mr Kobelt and the customers.

GAGELER J: And is it part of your case to relate some of the features of the bookup system to which you have drawn our attention to or perhaps all of those features to paragraph (b) of section 12CC(1)?

MR DONAGHUE: Yes, it is. I think all of them, certainly the “tying” conduct and the withdrawal conduct are squarely within (1)(b). I am reminded that the trial judge also made a finding as to bargaining position at 515.

GAGELER J: Yes, thank you. And do you have a finding also about 12CC(1)(b)?

MR DONAGHUE: Subsection (1)(b), I do. I was going to come to it. Your Honour, I can do it now. You will see it at 616, on page 150:

Mr Kobelt’s arrangements go well beyond what can be regarded as reasonably necessary to protect his own legitimate interests. It may be true that the arrangements mitigate to some extent the boombust cycle of expenditure of some of the Anangu, but there are other methods by which the customers can address that circumstance. They are not dependent on Mr Kobelt for that purpose.

That is a summary of a part of the judgment, which I might efficiently deal with now, starting at

KIEFEL CJ: Mr Solicitor, section 12CC(1)(b) in its reference to conditions which the supplier requires could in this context only refer to the requirement of the credit card and PIN, could it not?

MR DONAGHUE: And the authority to take all of the money.

KIEFEL CJ: And the authority, yes – those

GORDON J: That ties in with the next bit. And does that also bring about this lack of precision? I do not understand what – in 265:

they understood the basic elements –

What are the basic elements of the system that the Full Court is talking about there?

MR DONAGHUE: Never identified, your Honour, although obviously not including the credit charge. But certainly the card, the PIN, probably I think the withdrawal of the whole amount seem to be the basic elements. Beyond that, it is not clear exactly what their Honours

GORDON J: Just so that I am clear, I just want to make sure I understand your submission: is it reliant on your view or your submission to read that as being referable to paragraphs 5.1 to 5.6 that you have got in your oral outline of argument?

MR DONAGHUE: Is it right to read the basic elements as including all of them?

GORDON J: Yes.

MR DONAGHUE: I think not. For example, it certainly includes 5.1 and 5.2. 5.3, I do not believe there is evidence that the customers knew anything much about the recordkeeping that Mr Kobelt – most of them could not read and add, so I do not think we would submit that they were aware of the recordkeeping aspects of it. They, clearly, were not aware of the expensive credit card charge. So when the Full Court is saying they are aware of the features, in my submission, your Honour should read that as referring to 5.1, 5.2 and 5.5.

KIEFEL CJ: In relation to 12CC(1)(b), if one was having regard to the legitimate interests of the supplier, would you have to take into account the fact that the loans for the cars were unsecured and that they had no other means of income, the customers had no other means of income?

MR DONAGHUE: Would one have to take certainly the first of those is something that could permissibly be taken into account, the unsecured nature of

KIEFEL CJ: Well, the second one goes to the level of risk.

MR DONAGHUE: Yes. Your Honour, in my submission, the primary judge dealt with this in quite some detail and there is no reason to think that he ruled any of that out. He dealt with this topic at 130 of the appeal book from 517 and following. The learned primary judge, in our submission, quite rightly worked his way through the various factors in 12CC(1) and at 130, 517 and following, you see his analysis of whether or not the scheme went beyond what was necessary to protect Mr Kobelt’s legitimate interests. There is an analysis of various different other ways, Centrepay and direct debit arrangements, payday payments and other things that could have been done. Interestingly, in relation to direct debits, at 531 and 532, you will see he has tried it on one occasion and it:

worked appropriately (“very good actually”) –

he said:

Mr Kobelt agreed that a system of instalment payments by direct debits from the customers’ accounts would work well “if [the customers] could organise it”.

And he said:

That’s why I like your idea if they would be direct debited.

So, his evidence was not that there was any problem from the perspective of protecting his legitimate interests in adopting a system that was far less disadvantageous to his customers and it all resulted in the conclusion at 538 on this ground that even though the other arrangements:

may not have been available in all cases, or, even if available, may not have been satisfactory in all cases. I am satisfied, however, that they serve to indicate that Mr Kobelt’s requirement that he obtain possession of customers’ key cards and PINs and that he be permitted (absent a contrary instruction from a customer) to withdraw the whole of the available balance in the customer’s account from time to time, went well beyond what was reasonably necessary for the protection of his own legitimate interests.

So, that is then reflected in the finding at 616 and we rely heavily upon it. I was about to take your Honours to two cases to support my submission that the great weight the Full Court gave in the findings at 265 and 266 to understanding of basics elements and voluntariness was wrong.

The first case is this Court’s decision last year in Thorne v Kennedy [2017] HCA 49; (2017) 91 ALJR 1260, in volume 2 of the joint book of authorities behind tab 17, and if your Honours, when you have that, could turn to page 1272 under the heading “Unconscionable conduct”. Your Honours might recall that the plurality judgment of five of your Honours found, on the facts of this case, both undue influence and unconscionable conduct and your Honour Justice Gordon found unconscionable conduct but not undue influence. Having looked at the case recently I will not remind your Honours of the facts but you will see at paragraph [37] no controversy as to the general principles and in [38] one needs:

special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”.

And taking:

advantage of that special disadvantage.

Then in paragraph [39], turning to the relationship between unconscionability and undue influence by reference to Amadio, your Honours in the plurality refer to the fact that the same circumstance:

can result in the conclusion that the person –

has been guilty of both. And then at paragraph [40] – and this is the paragraph on which I particularly rely “Although” the doctrines:

overlap, they have distinct spheres of operation. One difference is that although one way in which . . . special disadvantage . . . can be established is by a finding of undue influence –

which explains, in our submission, 12CC(1)(d):

there are many other circumstances that can amount to a special disadvantage which would not establish undue influence.

And your Honours then endorse Justice Mason’s observation in Amadio:

In the latter –

that is undue influence:

the will of the innocent party is not independent and voluntary because it is overborne. In the former [unconscionability] the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage –

So that, we submit, is, in the clearest of terms, a finding that independent and voluntary conduct can constitute unconscionability. That point was – or this line of analysis – was developed by your Honour Justice Gordon. If your Honours turn to paragraph [86], which is on page 1281, your Honour emphasises the different focuses of the two doctrine – undue influence is focusing on:

“the quality of the consent or assent of the weaker party”.

Unconscionability is focusing on the conduct of the stronger party and the:

taking advantage of some special disability or disadvantage –

And then, two pages on at paragraph [94]:

the focus on the free exercise of an independent and voluntary will demarcates undue influence from unconscionable conduct. In contrast to undue influence, establishing a special disadvantage or disability for the purposes of unconscionable conduct does not require asking whether the weaker party lacked the capacity to exercise independent judgment.

Then, a few pages on, again, on page 1285, paragraph [115], your Honour picks up the same passage from Amadio that I have already noted.

EDELMAN J: Is not one difficulty with the submission is that 12CC(1)(d) is not just concerned with undue influence but also concerned with undue influence or pressure?

MR DONAGHUE: Pressure, yes.

EDELMAN J: And pressure is something that could – or duress – that could exist in circumstances not just of voluntariness but of an extreme desire to do the particular act to which the pressure relates.

MR DONAGHUE: I accept that that is so. But, even in the context – a disadvantaged group might have an extreme desire to act in a way that is manifestly contrary to their interests and if they have such an extreme desire – and a person takes advantage of it – they act unconscionably, notwithstanding possibly not only the existence of an extreme desire but a basic understanding of the transaction that is being entered and undoubted voluntary entry into it which is, we submit, this case.

So, the fact that there may have been a client group who were quite happy to enter into a financial arrangement of this type – perhaps given the history of that – does not grapple, in our submission, with the question of whether or not Mr Kobelt acted unconscionably in entering into the arrangement going well beyond what was necessary to protect his legitimate business interests. And, the Full Court’s reasoning to the contrary is reasoning that knocks out, if you like, the pathway to unconscionability that goes through pressure through an undue influence type approach but does not deal with the other way of establishing unconscionability that Justice Mason identified in Amadio, which is closer to the kind of thing one sees at issue in a number of the unconscionability cases.

So, perhaps I will not take your Honours to it, but there is a decision of the Full Court in Lux – ACCC v Lux – which is included in the material which your Honour Justice Gordon will remember. It is a decision of the Full Federal Court which concerned the sale of vacuum cleaners, doortodoor sale of vacuum cleaners to elderly women. And, the Full Court found that, notwithstanding that the women were able to decide matters for themselves, no nonsense, not pliable, knew their own mind, were independent, nevertheless unconscionability was established when a deception was used to gain entry to the home that was then exploited to create a situation where the women in question felt under pressure to buy a new vacuum cleaner.

Now, there was no suggestion in that case that the customers in question were confused or lacked understanding of what they were doing. They meant to buy the new vacuum cleaners that they purchased, but nevertheless unconscionability was established because advantage was taken of the position of special disadvantage the Court found to exist.

Similarly, in Amadio there was no suggestion on the part of the bank of dishonesty or undue influence. The finding was that the bank officer just closed their eyes to the vulnerability of Mr and Mrs Amadio and, in those circumstances, it was unconscionable to allow the bank to take advantage of the special disadvantage that was found to exist.

This Court’s decision in Bridgewater v Leahy is another example. It was passive acceptance of the benefit that was the unconscionability, notwithstanding the absence of undue influence. So, in our submission, too much weight was given to the absence of paragraph (d) in the Full Court’s reasoning process because of the elision between undue influencetype reasoning and unconscionability reasoning.

In our submission, particularly in circumstances where the special disadvantage or the vulnerability that has been found is one that caused the primary judge to find that the limitations on literacy and numeracy ability to communicate in English meant that the Anangu did not have the competence of most Australians to make informed decisions as to their use of financial services. The proposition that voluntary entry into a financial transaction should be given great weight in answering an unconscionability case is just to explain away the very vulnerability that called for protection on the facts that were before the court.

Your Honours, we respectfully embrace the learned primary judge’s analysis, starting at 507 of the judgment on 128 of the appeal book, which is the part of his Honour’s judgment where he works through the section 12CC(1) factors, and I do not propose to repeat that entire analysis. We submit that the facts that I have – and I have to some extent anticipated some of this in answering questions from your Honours – but the factors that, in our submission, attract the greatest weight in the analysis are the imbalance in the strengths of the bargaining position for the reasons that I have addressed in answering Justice Gageler’s question earlier which, in our submission, was as a significant balance.

(b) is perhaps the most important, and I have made my submissions about that already, but in circumstances where Mr Kobelt’s system went well beyond what was reasonably necessary to protect his legitimate interests, the fact that there may have been incidental benefits of some kind to the customer base, being benefits that could have been at least substantially obtained by using a different system – we are not saying there is to be no bookup system that can be provided in remote communities. We are saying there should be a system that does not go beyond what is reasonably necessary for the legitimate interests of the provider.

EDELMAN J: I am still struggling with what that system could have been in light of the findings at 538 on 134. The trial judge goes through a number of the possibilities but concludes:

that arrangements of the kinds just outlined may not have been available in all cases, or, even if available, may not have been satisfactory in all cases.

MR DONAGHUE: In all cases.

EDELMAN J: So, what alternative was there to preserve a system of bookup for which there was demand?

MR DONAGHUE: Your Honour, in my submission that summary paragraph at 538, in my submission, should be read as suggesting, well there is not a one size fits all answer, but there are a range of different mechanisms that are available that could be put in place that would adequately answer the problem, at least in most cases. And, in my submission, the fact that it might be possible that there might be some cases which would present problems, is not a reason to say, well, all of the alternatives must therefore be rejected and the existing bookup system must be maintained.

GORDON J: So in 524, the primary judge says I am going to look at that question by addressing the potential of alternatives. He then goes through what he says “I mention some of” them, Centrepay, direct debits, et cetera, which gives rise to the conclusion that you were just taking us to at 538. Is that the extent of the findings on the alternatives?

MR DONAGHUE: I believe it is, your Honour, yes. But which, in my submission is enough for his Honour to have illustrated there are other ways of grappling with this problem. And as I have already mentioned

BELL J: Other ways that would get an impoverished member of the APY Lands whose last bomb had failed another one, if that is what that person wanted and placed a premium on and was important, having regard to his or her manner of living on the APY Lands.

MR DONAGHUE: The findings about direct debit at 531 to 533 seem to suggest that Mr Kobelt thought the direct debit scheme was actually quite good. It does not suggest that he thought that that scheme was unworkable in terms of the kind of arrangement that could be put in place to continue his business model. And that is why, I submitted earlier, that ASIC would have no difficulty with the bookup scheme that was structured in a different way. It would have to be, as Justice Gordon put to me, with a greater level of upfront clarity about how the arrangement was going to work and it should not involve direct debiting of the whole income certainly, unless there is a higher level of disclosure and consent to that.

GORDON J: Can I ask a practical question which is sort of out of left field but is directed to this very issue? I know that you do not wish to confront the section 29 argument, but in a sense if it had been done properly consistent with section 29 and the obligations imposed on it, none of this would have been necessary, would it, that is, that you would not have, in effect, needed to look at this unconscionable conduct question.

MR DONAGHUE: Well, indeed, because there would be licensing arrangements and breach of licence. That is all that is

GORDON J: So to go back to looking at the alternatives, one would have a system in place which would comply with those requirements, a system in place which would have a licence and have mechanisms in place to assess suitability or unsuitability, as the relevant provision provides?

MR DONAGHUE: Certainly that is the case in relation to any bookup system that involves credit because that

GORDON J: Involves a car – credit, correct?

MR DONAGHUE: It needs to involve credit

GORDON J: Correct.

MR DONAGHUE: in order to engage that licensing regime, and there are bookup systems that possibly do not or

GORDON J: We are dealing with a credit system here because that is the agreed position, as I understand it. In trade or commerce, the provision

MR DONAGHUE: I accept that that is so. I answered the Chief Justice’s question as I did earlier this morning because, in my submission, ASIC’s case on unconscionability can succeed without any need to include as one of the elements of that case the statutory standards that one finds in the credit case. But I think in answering a question your Honour Justice Bell asked me earlier, there are other statutory ways of approaching this problem and I accept that from the time when the Credit Act came in, which was some years after the commencement of this whole arrangement, it did provide an alternative path.

BELL J: But just to be clear, your concession in answer to the Chief Justice was a concession that conformed to the way the case was run in your pleaded case?

MR DONAGHUE: Yes. I will confirm that that is right, but that is correct.

KIEFEL CJ: So is the result for Mr Kobelt that he will be penalised in relation to section 29 and unconscionable conduct?

MR DONAGHUE: Well, that he breached both standards, yes.

KIEFEL CJ: Yes.

MR DONAGHUE: And unless he is granted special leave and succeeds, we won at both levels below on the section 29 point, so the primary judge found that he breached both standards, and that is the finding that we seek to restore.

NETTLE J: Presumably, totality would apply for the

MR DONAGHUE: Yes. I was about to say it does not follow that there be double punishment or anything of that kind. Your Honours, I am conscious of the time. I have somewhat abbreviated my submissions on 12CC, but we do respectfully adopt what the trial judge said and I think I have emphasised what I wish to say about the key factors in 12CC. Your Honours will note (1)(j) includes matters, particularly (j)(iii) and (iv), which appear to focus attention on implementation matters and (i) focuses on failure to disclose aspects of the intended conduct, which picks up some of the matters I think that your Honour Justice Gordon has been putting to me.

GAGELER J: Can I ask one question about paragraph (e), the finding at 551. This concerns the expensive credit. As I interpret what his Honour has said, he has not made a finding that Mr Kobelt’s credit was more expensive than another credit provider’s credit had been.

MR DONAGHUE: The finding that was made I think was a rejection of the argument Mr Kobelt was running that his system was cheap. So I accept what your Honour says. He finds it is objectively expensive but not relatively more expensive.

GAGELER J: Thank you.

BELL J: Your pleaded systems case, I think, did not rely on the undisclosed nature of the expensive credit.

MR DONAGHUE: Yes, that is right, and in the break I sought to clarify the position and I think the position was not only did we not plead the undisclosed; we did not actually plead the expensive but expensive then became an issue at trial, principally

KIEFEL CJ: That you were not required to amend

MR DONAGHUE: That we were not required to amend it.

NETTLE J: Mr Solicitor, at 489 there is a finding that it is expensive relative to personal loan rates.

GORDON J: That is repeated at 492:

providing credit of a very expensive kind.

MR DONAGHUE: Yes. There was evidence of that comparison I answered Justice Gageler as I did because I do not believe, and I will be corrected if I am wrong, that there was evidence as to the availability of those alternative forms of credit to people with the characteristics of this client group. So objectively, yes, in practice that was not clear.

Your Honours, could I move to our second ground, which is the predation, exploitation point and start this ground by saying that your Honours will note that one does not find either word in section 12CB or CC. So to an extent that language which obviously is found in some of the general law cases is a gloss on the statute. The primary judge, in our submission, made the findings that he made about predation and exploitation using those words, we submit, really to mean nothing much more than taking advantage of the disadvantage.

So if your Honours turn to 148 of the appeal book you see in connection with particular features of the bookup scheme that we have emphasised, so in relation to the “tying” conduct

GORDON J: Did you say page 148?

MR DONAGHUE: I did. Sorry, I will go back to the bottom of 147, at paragraph 606.

GORDON J: Thank you.

MR DONAGHUE: So the tying conduct is:

very much to Mr Kobelt’s own commercial advantage in that he secures trade for Nobbys. Were the customers not tied to Nobbys, they may well have chosen to shop at one or other of the community stores in the APY Lands or in Marla. The tying of such a significant number of customers to Nobbys constituted, in my opinion, a form of exploitation of the Anangu customers.

That is the exploitation finding. Later, on that same page, at 609, we have the predation finding in the context of the taking of the whole of the income and the tying conduct. So the second sentence:

Mr Kobelt’s requirement that he have access to the whole of the customers’ incomes, and his tying of the customers to Nobbys, is a form of predation.

His Honour, over the page, again, at 620, in the summary paragraph that I have already taken your Honours to in the middle of that paragraph puts it in terms expressly of “taking advantage of the circumstances”. That, in my respectful submission, is the right question in the context of unconscionability. It is not necessary to show predatory or exploitative behaviour. It is necessary to show the existence of a special advantage of which someone takes advantage.

BELL J: Unconscientious advantage.

MR DONAGHUE: Unconscientious advantage. There is no reason in the context of section 12CC to require anything more than that. The Full Court disagreed with those findings that I have just taken you to, and you see this at 308 of the book, through to 309, paragraphs 267 and 268, where their Honours say:

we are not satisfied that the appellant’s conduct was predatory in the relevant sense –

the relevant sense not being expressly explained by their Honours for reasons that are then given. For example, at 267(1), it is not clear, it is said, how the requirement that he have access to the whole of the income in practical terms was a disadvantage over and above holding the debit cards. That finding, with respect, ignores the availability of the internet and telephone banking that was identified.

Also there were – your Honour Justice Bell asked me about paragraphs concerning whether Kobelt was taking the whole of the money and doing so at strange hours in order to win the competition for funds and Mr Kobelt in fact acknowledged in his evidence that the reason that that was happening was to stop others accessing the money first. So on page 22 of the book, at paragraph 46:

Both Mr Kobelt and Timothy generally made the withdrawals early in the day, before or shortly after Nobbys opened.

I have taken your Honours to this paragraph. But the last four lines of the paragraph:

Both in his s 19 examination and in his evidence in chief, Mr Kobelt acknowledged that that was his purpose –

that is, to preclude the customers having access. So Mr Kobelt clearly thought that there were realistic means of access for his customers to obtain their funds and he was, acting as he did, responding to that perceived threat.

So the predation finding was in a sense picked off by reference to a few particular complaints that the Full Court made. I have dealt with one, the CBA glitch. It is true it was not part of the system, but it was relied on as part of the implementation thereof and it is said that the lack of disclosure of the credit charges was not the gravamen of the case. Well, that is true, but it does not really answer the taking advantage of finding that the primary judge made. As to tying, the answer is given in the next paragraph at 268 and it comes back, in my submission, to nothing more than understanding of the basic elements and voluntary entry. So it collapses back to the findings at 264 to 266 that I have already addressed.

GAGELER J: Mr Solicitor, how do you deal with Justice Wigney’s basic point which on one view is really what the joint judgment is saying, and that is that the – well, he brings it together probably in paragraph 384 of his judgment. His basic point is that the customers actually wanted the benefits of this system. They basically understood it and they wanted it to continue. It is say by Justice Wigney that the primary judge failed to give any weight to that consideration, or failed to give sufficient weight to that consideration. How do you deal with that?

MR DONAGHUE: In this way, your Honour, that a group of people who have access to credit in one way, and one way only, and have never known any other way of having access to credit or any other way of – may desire a system to continue, notwithstanding the fact that that system is evidently against their better interests because it would be possible to put in place a system that gives them the benefits that they want, which is the reason that they want the system to continue, without the disadvantages, but they do not know that, and the reason that they do not

EDELMAN J: That is the direct debit system, is it not?

MR DONAGHUE: Yes, that is the direct debit system, a system of bookup that does not go beyond the legitimate interests of the provider. So, to privilege the voluntary view of the disadvantaged group that “this is what we want” is to fail to account for the fact that one of the elements of the disadvantage is the lack of financial literacy that would be necessary to know that there were other ways this could be done that they would prefer if they knew that they existed.

So, for ASIC in a case like this to say – and Justice Wigney was evidently concerned to avoid paternalism and we recognise the force of that concern – but it is not a concern that should be used, in our submission, to countenance an outcome that says because this group of people does not know that there are better systems that would serve their interests, we will allow the less good system to continue.

BELL J: Did Mr Stauner, the financial counsellor, identify a practical alternative system? I mean, it is one thing to say one can come up with systems that would have been better, but I do not find a clear finding from the trial judge in relation to that so that the issue of paternalism might be thought to be a live one. It is one thing for the regulator with the best intentions having regard to modern Australian society to go onto the APY Lands and raise the matters that you raise, and it is another thing to look at why it is members of a community by and large appear to understand the rudiments of this system and be satisfied with it.

MR DONAGHUE: Your Honour, ASIC has been dealing with bookup in remote communities for a long time.

BELL J: Yes.

MR DONAGHUE: This case was a case where ASIC sought to establish that this system did not meet the statutory standard. The product of that was that it was not embarked on a program of establishing to the court all of the different kinds of better systems that could be run. But my instructions are that there are systems that are running in other places in remote Australia and that ASIC is content are compliant with the statutory standard. So, in our submission, one does not really have very much in the evidentiary record, in this case, to go on in terms of what all the full range of alternatives were – they just were not put in evidence before the court.

But, in my submission, your Honours should not decide the case on the footing that it is Kobelt’s system or nothing. It was, in my submission, not – the primary judge was, in my submission, perfectly correct in saying “I acknowledge the paternalism concerns but, nevertheless, what it happening here is the taking advantage of a highly vulnerable group by a system that cannot be defended” because really the notion that all of Mr Kobelt’s bookup customers were prepared to cede to him complete control of their income in terms of the necessities of life, their capacity to acquire their money, is one that is so confronting that, as Justice Wigney recognised, we would never conceive of allowing a system like that to continue.

BELL J: But Justice Wigney had regard to the norms that apply in the APY Lands. Justice Wigney, as I understand his Honour’s analysis, was not looking through the lens, exclusively as you put it, of modern Australian society and what is viewed as acceptable. He was having regard, in looking at the circumstances, to the circumstances in which people living on the APY Lands find themselves and to the evidence – when one turns to the primary judge’s findings at appeal book 141, paragraphs 574, and following, dealing with demand sharing – his Honour accepted the cultural practice of demand sharing gives rise to importuning of those who have money available to them – or who are perceived to – including to the point of bullying. The financial counsellor talks about “humbugging” as an:

ongoing problem in communities across the APY Lands

MR DONAGHUE: But, your Honour, it is important not to overstate how far that went. So, your Honour has referred me to 574 and following, and it is true that there is a finding about demand sharing being embedded but over the page at 578, Dr Martin was asked about:

whether Nobby’s customers may regard leaving their key cards at Nobbys as part of a strategy to avoid demand sharing –

and his evidence was very qualified. He thought it was “plausible”

BELL J: It was qualified when one reads it because of the difficulties one might think, Mr Solicitor, of the members of the Anangu speaking explicitly about that as a problem. That is at least one way surely of reading it.

MR DONAGHUE: Possibly, your Honour, but not the only way of reading it because at 582, not only was there little evidence of engagement in bookup in order to achieve the benefit of avoiding demand sharing but there was very little evidence to indicate that the Anangu actually regarded demand sharing as a problem that they needed to avoid. That was why one ended up with the conclusion that his Honour drew over the page at 585:

I accept that the Book–up system may have some advantages in addressing demand sharing . . . but consider that these should not be overstated

and the availability of other mechanisms to avoid demand sharing.

BELL J: His Honour also appears to have accepted Mr Renouf’s evidence at 502 and Mr Renouf was describing again a practice of humbugging. It does not seem to have been in issue that that was a practice and it would not be

MR DONAGHUE: Not that it was a practice but what was in issue – what ASIC was putting in issue was whether or not the existence – there are two questions. One question is to what extent does this system actually respond to that problem, the humbugging problem or the boombust expenditure problem? The primary judge’s finding was that it responds to it to some extent but it should not be exaggerated.

He also found that by giving over the PIN and the card and having all of the income withdrawn, that was actually a matter that could exacerbate demand sharing because the people who had lost access to all of their funds in that way were then in a position where there was a cycle that caused them to need to participate in the same conduct. So it was not all one way. But even if one says that these are problems that can be addressed in part through bookup, it does not follow that Mr Kobelt’s bookup system was the only or the best or the most appropriate way of addressing those problems.

So a finding of unconscionability in this circumstance recognises that when someone ties a person to their shop and takes all of their income and therefore controls their discretionary expenditure that is unconscionable. There may well be other things that could be done and, indeed, the finding that I just went to suggested that the primary judge was conscious of other matters, other ways that the problem can be addressed if it needs to be addressed that do not go so far as to endorse a system of the kind that Mr Kobelt was operating.

Really, that is at the heart of our ground 3 because if it is permissible to say we will address this question not through the current norms and values of Australian society but through what is historically acceptable on the APY Lands, the consequence of that is to say what is acceptable to a group of people who have a severe financial and educational advantage by reason of a long history, of which your Honours are well familiar, in relation to the treatment of indigenous people in Australia, has the consequence that they get less protection from financial conduct that would otherwise be unacceptable and, in our submission, your Honours should not read the Act in that way.

BELL J: Modern Australia might recognise notions of the agency of people on the APY Land to make decisions about what suits their needs in a context that does have regard to their cultural norms and to their history.

MR DONAGHUE: But they can only make a decision if they have a choice and there was no evidence that they did have a choice, that there was any alternative system being proffered to them. Certainly there was no suggestion that Mr Kobelt vary his system at the discretion of the people concerned. I have taken your Honours to the finding he required them to hand over the PIN and the key card numbers and to tell them when the income was coming in.

So accepting the value of agency, in our submission there is an appropriate role for minimum standards in the provision of financial services and the result of this case, in the event that Mr Kobelt’s system is found to be unconscionable, will be to prevent that offering and in that way, we submit, to lay the ground for different offerings of a kind that the Anangu will then be free to choose between. But it does not, in our respectful submission, protect their agency to say that the “take it or leave it” offering that was available from Kobelt and that the evidence was broadly the case in Mintabie more generally is a standard that should be accepted simply because they chose it, there being no other course of action available to them.

Your Honours, one of the questions raised by ground 2 of the notice of appeal concerns the finding of good faith or the degree of good faith which I took your Honours to earlier. It is obviously not a very emphatic finding of good faith but it is what it is in terms of the way the primary judge phrased it. To an extent that - we do not deny the relevance of that as a permissible matter to consider, it is in the list in 12CC(1), the extent to which the supplier and service recipient acted in good faith, but it obviously given its inclusion in that list of matters to be taken into account in the mix in the evaluation, is not a factor that is of itself decisive and the absence of dishonesty or good faith, while again a matter that might well point strongly to the taking advantage of a special disadvantage, is not an essential ingredient.

Your Honours will be aware of the debate that has taken place in the case law over a period of time about the role of moral obloquy in relation to statutory unconscionability. In our submission, the Full Court here was correct in the way that it dealt with that concept in that it held at paragraph 193 on page 292 that:

Moral obloquy has a role to play, but it is not to be used as a substitute for the statutory words -

referring to the Full Federal Court in Paciocco. There is a, we respectfully submit, helpful analysis of this question in a recent judgment of the New South Wales Court of Appeal in a case called Ipstar which is behind tab 12 in the joint book. I will not take your Honours to it but Chief Justice Bathurst at 195 and Justice Leeming at 275 to 278 both address the current state of the law on this topic and in effect say the term may be of assistance insofar as it emphasises departure from community standards as objectively understood but it is not helpful insofar as it suggests a need for dishonesty or something more than the taking advantage of the special disadvantage. Your Honour Justice Edelman was a party to a judgment in the Full Federal Court in Kojic which reached the same conclusion.

I do not know that I need to say anything more about ground 2. Ground 3, which is the cultural factors I have already significantly addressed, your Honours will have seen the cultural factors that were identified – there were two: demand sharing, and boom and bust expenditure. The primary judge gave an account of those two practices at 565 to 567, and 575 to 578, but I am sure your Honours appreciate what is involved in them.

The plurality found that there were – and your Honours will have already seen this at 262 – as the second reason that their Honours gave for overturning the primary judge – that there were advantages which were difficult to quantify but which were on the evidence present. It is not entirely clear precisely what evidence their Honours were referring to there.

Justice Wigney’s approach focused much more heavily on these factors and if I could ask your Honours to turn to his judgment, starting at page 324. At 329 is the proposition your Honour Justice Bell has been putting to me:

What the wider Australian society and its culture institutions might regard as disadvantageous and unfair might be regarded by an Anangu person as in fact advantageous and reasonable.

His Honour gives then some examples in the couple of paragraphs that follow. Their concern about avoiding paternalism is identified at 332. Then at paragraph 349 on page 329:

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 –

Then his Honour at 378, on page 338, accepted the primary judge’s findings concerning discretionary control of the income as:

an incident of the system. It may also be accepted that it was potentially disadvantageous and open to abuse.

But it was not abused, on the evidence.

NETTLE J: Well, it was, was it not? There were overdrawings and miscreditings and

MR DONAGHUE: Well, indeed, and on occasions by the CBA glitch, for example, but it was not, I am sorry, “widely or systematically abused” is what his Honour says in the middle of that paragraph, on the basis that he “never refused food”:

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 transaction. The Anangu people who engaged in bookup . . . freely chose to effectively appoint him as a “broker” in respect of their spending and financial affairs.

That, your Honours, is a finding that the system was acceptable because the Anangu chose to place Mr Kobelt in control of all of their spending and financial affairs, a finding that his Honour accepts on the next page at 383:

At first blush, the terms, nature . . . 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 . . . in its proper historical and cultural context.

So, in effect, in our submission, that is a fairly clear finding that a system that would be unacceptable in mainstream Australian society is acceptable because the Anangu chose it, in circumstances where there is an undisturbed finding that the Anangu lacked the financial knowledge of most people in Australian society necessary to make decisions as to – or the financial literacy as to financial arrangements that are in their best interests.

EDELMAN J: Except there is a step missing there, and the step missing is that they would not have chosen it if they had had the financial literacy that might be prevalent in mainstream Australian society. In other words, that there was an alternative out there that would have met their needs and their requirements that was more advantageous to them.

MR DONAGHUE: Your Honour, the way that I am putting it is that to say this arrangement, which is unacceptable in mainstream society, is acceptable because it was chosen might be a sound argument if there was proof of choices that were available to this group and that where it could be said, in a meaningful sense, notwithstanding the lack of financial literacy available more generally, you can see that they understood enough of the system and have made a choice. But, in the absence of evidence of that kind, to justify the standard acknowledged to depart from mainstream standards by reference to choice, is to take one of the key components of the vulnerability of the group and to use it to excuse what is, we submit, otherwise inexcusable.

BELL J: One other way of looking at it is to understand that when his Honour refers to the Anangu’s preference to use Mr Kobelt as a broker, he is making some findings in relation to the expert evidence that was before the primary judge in Dr Martin’s report. And, when one looks at that finding, in the context of the history and cultural traditions of the Anangu, it is not a simple matter of people who, necessarily, lack an understanding of modern Australian financial arrangements but something that is rather more deeply embedded. So, the notion that the Anangu chose to have a broker conducting their financial affairs, seems to reference that material in Dr Martin’s report, does it not?

MR DONAGHUE: Yes, but that material is – in my submission, it misreferences it because that material is about explaining why there is not a desire for financial loan documents and matters about the kind of documents that you might need if you are going to get credit from a bank. What his Honour is using it here to explain is – he is transferring the idea of having a broker in relation to financial transactions and to say, let us have a broker who controls every aspect of your expenditure of money in your daily life. It controls your shopping. It controls whether you can have a bus ticket to go from one town to another. In my submission, the evidence about the brokering of personal financial transactions goes nowhere close to supporting the level of daytoday control over life that Mr Kobelt was exercising by reason of this scheme.

GORDON J: Does your reference earlier to paragraph 582 about overstatement of the cultural and historical significance, is that also part of this complaint about this argument? That is

MR DONAGHUE: Yes.

GORDON J: So, I just want to make sure I understand it because I think it impacts on this argument as well. As I understand your position, you say the judgment – the trial judge recognises that there is demand sharing, recognises that these practices are part of the culture of these people. But by reference to the findings in this case – is that the way it is put it is not something which, in effect, justified or explained their entry into the bookup system in a large majority of cases.

MR DONAGHUE: Indeed, so one sees that in the paragraph your Honour mentioned but one sees it at 573 which is dealing with boombust – the primary judge finds:

I do not regard the avoidance of improvident spending as a justification for Mr Kobelt’s conduct, even though it may in part be an incidental benefit –

So, he is effectively saying, well, maybe – the effect was to reject the submission that this conduct could be justified because of the alleviating effect it had on cultural practices. The primary judge found, we submit correctly, that there was, at most, incidental benefits and that those incidental benefits did not explain the conduct.

GORDON J: Then perhaps go to the next stage as I understand the argument you have put to us I just want to make sure I have got this clear. The second limb was that not only did that cultural practice exist and was the subject in the way in which you have described are those findings but because of the bookup system there was an additional finding that it actually, in some aspects, increased demand sharing. Am I right? Is that the way it is put?

MR DONAGHUE: Yes, I think that is correct and you see that at 584.

GORDON J: Then, the third limb, as I understand it, which – I just want to make sure that these are the same arguments that are put by you to meet the analysis of Justice Wigney is that there were alternative systems capable of being used to address, in a sense, those very same cultural issues which did not have the disadvantages attached to them that you have sought to identify.

MR DONAGHUE: I certainly do say that, your Honour, but I do not know that I need that as part of my case because ultimately the question for your Honours is did Mr Kobelt take advantage of the special disadvantage of this group and if he put in place this system in a way that was not causally related to the cultural practices that are said to justify it, so he did not do it to address those problems and the customers did not use it to address those problems

GORDON J: I do not know about that and the reason why I ask is 12CC(1)(e) which I think Justice Gageler took you to.

MR DONAGHUE: Your Honour, it is not part of our case to say that already in existence in Mintabie there is an acceptable bookup arrangement.

GORDON J: No, that is not what I am – that is not what 12CC(1)(e) is directed at, is it?

MR DONAGHUE: Well, it seems – I read it as directed to the question of what were the other options available at the time to the person who acquired the services. So, I cannot say that there were other options available at the time of the kind that I submit would be appropriate to people shopping in Mintabie but I do not need to say that. What I do submit in terms of the wider analysis, really, and the way that Justice Wigney dealt with it was in addition to the points that your Honour has just put to me we do say that to say – to excuse the otherwise inexcusable on the basis of cultural practices of this kind is to assume an informed choice in circumstances where there is no reason to assume the informed and there is no reason to identify the choice, that neither of things were present.

So, the mode of reasoning that was adopted or the use that was made of the cultural practices produces a lower standard of protection in circumstances where there is no warrant for that. Your Honours, I see the time. Unless your Honours have anything further, we otherwise rely on our written submissions.

KIEFEL CJ: Thank you. The Court will adjourn until 2.15.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

KIEFEL CJ: Yes, Mr North.

MR NORTH: If your Honours please. If I can just indicate the flow of the argument, I would like to deal with the unconscionability issues and my learned junior will deal with the question of the unlicensed credit issues and the seeking of leave in the crossappeal, if that is convenient to the Court.

KIEFEL CJ: Yes, thank you.

MR NORTH: By way of a preliminary observation if I might say this, as was required under 12CB, what the Full Court did is analyse, we respectfully say, all of the relevant circumstances and in doing so took into account all those circumstances allocating out whatever the appropriate weight in their opinion was required.

Some parts of this are demonstrated and some of the material you have already been taken to, so I will not trouble you to a great extent in relation to it, but may I simply illustrate that the position in relation to the plurality is found at the core court book at 307 and following where you go to paragraph 260.

In doing so, the court set out what was asserted at page 306 through to the top of page 307 what were regarded as the 13 advantages as perceived for the system, and again I do not see the need to read those out. These are all relevant to the grounds below, which were grounds 4 and 9. In so doing, the court, in its reasoning, starting at 261 on page 307, stated that insofar as this bookup system was concerned, the appellant’s position – that is, the respondent here – was that it is neither recent or a unique system, so that the system which was operating at Nobby’s was not regarded as a unique system.

The bookup in its various forms that had been practised in regional or remote areas in Australia was a bookup system which, in its features, was not considered to be, we respectfully say, out of the ordinary and other storekeepers in Mintabie also traded in the same fashion.

The way in which our friends have dealt with the issue of weight is that they seek to divide up the seven other points which are made in relation to paragraph 262. The other points which are also relevant are the questions of predation at 267 and exploitation at 268. In doing the appropriate procedure under the authorities of weighing all those circumstances, they come to a conclusion at 269 that:

The matters that can be put on the other side must be acknowledged, but in view of the matters that we have identified –

they come to the conclusion that:

we do not think that the appellant’s conduct can be characterised as unconscionable.

Justice Wigney also in the court below did the same thing. He, with respect, identified all the relevant issues, and if I might demonstrate that by taking you in the first instance to the 11 points which the primary judge gave as reasons for concluding unconscionability at page 327. Each of those points which he looked at, and accessing those in relation to the relevant weight and giving consideration to those matters in relation to the systems case pleaded in relation to the Nobby’s system as identified in the pleadings, each of those matters were analysed, each 11 matters, including questions of excessive charging which I will come back to in a moment, if I might. Finally, he then determines at 387 that:

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 bookup system was unconscionable.

We respectfully say that the evaluative judgments which were required to be taken into account were a proper assessment of what occurred based on the facts and circumstances identified by the trial judge in the primary judgment below. There is a suggestion in our friend’s submissions to this Court that an issue arose in relation to whether or not voluntariness trumped the question of vulnerability and that is set out in their submissions in paragraph 31. With respect, we would say to our friend’s submissions that there is no issue in respect of trumping one issue over another as all circumstances must be taken into account. I would like to come back and deal with the question of voluntariness as a separate item, if I might.

May I now address you in relation to a question for the sake of convenience to assess issues in relation to vulnerability and deal with grounds 1 and 2 together as they are combined in the overall assessment process of taking all circumstances into account at one time. There is a short summary of what in fact the system was at Nobby’s found at page 315 which is in paragraph 291 which identifies the essential elements of the bookup system.

The pleader’s case in relation to this bookup system – the pleading is, in fact, available if I might draw your attention to it. I know there were some questions earlier this morning in relation to what part or parts of the case were taken into account. There is a volume which is called “Respondents further book of materials”. The pleading – the amended statement of claim – is at page 197. The relevant pleading of Nobby’s credit facility is shown at that page in paragraph 4. It deals with agreeing “to sell goods” – this is the selling of the goods in trade and commerce between the supplier, Mr Kobelt, and the recipients, the supply recipients, in the conduct which is articulated by virtue of this pleaded system of Nobby’s credit facility.

The elements are that there was an agreement for payment of all or part for goods which the customer had provided for the purpose, a debit card and a PIN. Then in 4.2, Mr Kobelt:

took possession of the relevant debit card –

and recorded the PIN – is in 4.3. He then also recorded as a basis of the time in which the periodical payments might be made into the account of the relevant customer.

It is significant that this Court understands and it is not the subject of debate in the factual scenario at the trial that Mr Kobelt’s conduct in relation to those matters identified in 4.1 to 4.4 was for the purposes of extracting money from the customer’s bank account to repay a debt which the customer in fact owed to Mr Kobelt. So that the debts that were to be provided were on the basis of a system whereby the card and the PIN number were used in what Justice Wigney described as a crude form of running account with Mr Kobelt secured by the card and the PIN insofar as that security was provided, given the ability of the customers to change their banking authorisation or to remove the source of that supply by transferring it to other accounts.

It is, with respect, to say this, that the transaction in question is a simple one and it actually, for the customer’s purposes, suited the customer’s needs and was regarded, according to the expert opinions, as an essential service for the Anangu. The essential service was one in which the ordinary transactions took place in a store in Mintabie where a transaction would occur orally, not one which was one normally transacted on the basis of any documentary material and not one which was on the basis of anything other than, leaving aside motor vehicles for a moment, where goods were placed in a store on display and the customers would enter into the transaction by walking through the store, selecting the goods which the customer wanted and placing them adjacent to the cash register at which stage they were rung up and the swivel display identified the price.

The bookup system was the subject of discussion simply by reference, for instance, where the Aboriginal customer would say “Book up” or “ticky”, which is the Aboriginal version for the same thing, and that the facilitation of the tab was, as has been suggested, a running account where he would access that amount to repay debts over a period of time.

This, with respect to the position, is not complex. It is simple. It suited the customers in their trade and commerce and it suited and benefited them because it provided a form of credit which, on the material before the court below, was not otherwise available. It was a transaction which suited the benefit of what is described as a deeply embedded indigenous cultural value and norm or practice which was available in this customer’s region of Australia, being the mainstream Australia including its Aboriginal citizens.

KIEFEL CJ: Mr North, was there a finding that it provided a form of credit not otherwise available?

MR NORTH: Yes, there is a finding which I will take you to, but the position in relation to the customer’s choice, we would respectfully say, is the relevant issue in relation to unconscionability. The availability of alternative sources was, for want of a better description, left in the air in the sense that the position was that there was no other financial institution or banking institution available in the region of the APY Lands for the purposes of supply of an alternative form of credit.

KIEFEL CJ: So you are submitting that the reference to a choice is some kind of hypothetical?

MR NORTH: It is something illusory, or you can imagine many alternatives - even a direct debit suggested scenario may not have been an appropriate one, given the issues associated with questions of vulnerability applying in respect of the way in which the Aboriginal customers made their choice as to how they transacted in relation to this matter, and I will come back to that, if I might, in a moment.

So just if I can complete a quick overview of the actual pleading - Nobby’s credit facility is therefore identified. If we move through the pleading but quickly, you will see that the operation is dealt with in paragraph 10 to be in trade and commerce identifying the relevant paragraphs. Insofar as the question of vulnerability is concerned, paragraphs 13 and 13A are the relevant matters to take into account.

Pausing there for a moment in relation to vulnerability, what should be understood is that we will take you to material which the primary judge relying upon the expert evidence of Dr Martin and Mr Renouf found that in the circumstances of this simple transaction, the Aboriginal customers understood what was in their best interests insofar as this bookup system was concerned.

That is to say that they took into account their own circumstances and their own choices, and what was described in the expert evidence as “agency” or “mutuality”. Mutuality is a significant issue because, in the customer’s perspective in this case, the position which the customer takes is that the way in which they overcome the circumstances of trying to understand what a version of mainstream Australia might like in financial institutions and banking institutions, the Aboriginal customers in this case selected what suited them. They had, in their circumstance, a question of strategies employed by them to deal with the appropriate way in which they could use their dependency on the provision of social service welfare to them.

They had to have the assistance of Mr Kobelt in this case as he acted in the interpersonalisation which was required in the transaction to assist and it has even been said by Dr Martin that there was involved in that transaction a type of care and nurturing which applied in relation to the way in which the system operated. So their choice and the agency involvement was a relevant matter.

Now, if you identify in paragraph 13A, for instance, that the APY Lands are comprised of remote communities that on its own is not a vulnerability. That is a matter of the choice of the Anangu where they wish to reside and where in fact in this instance the supplier wished to reside. For the Aboriginal customers it was regarded as a part of what they say is country and for Mr Kobelt he supplied to a predominant group of Anangu people. The mere fact that the Anangu are deficient in or limited in assets or deficient in and impoverished in relation to the amount of income, there was in fact sufficient income for the purposes of this Nobby’s system to work.

It worked on the basis that there would be a regular payment of social security payments into their account. When the social security payments were in fact made it was the subject of the rudimentary system that there would be an authorisation, which is not disputed, for the removal of the amount of money which came into that process by trial and error using an EFTPOS machine.

The situation was that, irrespective of their net asset position or their ability to generate income or indeed their view of what was required for financial literacy, the relevant levels of financial literacy from an Anangu perspective may not be the same as what is required by a person who lives in any one of the major cities in Australia and, as Justice Wigney said, in Adelaide for instance there is a different context or perspective at the time in which the trade and commerce is being conducted between the supplier and the relevant person who is engaging in that

KIEFEL CJ: Mr North, could I interrupt for a moment? How many of the individual customers gave evidence?

MR NORTH: The only number was four, of the individual customers who were named as the relevant persons who were the subject of specific unconscionability allegations in specific instances. Those matters were dealt with in paragraphs 23 through to the end of the pleading and that is the case which was not pressed or abandoned at the trial. There were two other persons who were called to give evidence on top of that. So the total of them was six of the class of named persons. For specific instance, only four of the five gave evidence.

KIEFEL CJ: And as you say, it was abandoned in favour of the system case.

MR NORTH: In favour of solely a systems case, not a specific instance of any unconscionability being able to be demonstrated. The reason for that, with respect, was the way in which their evidence was given at trial. The only person who then actually interviewed other Anangu was Dr Martin, who interviewed 17 other people or perhaps part of the subset of those persons who in fact gave evidence and he drew conclusions and gave expert evidence about them and the significance of the relevant norms they used and historical perspective of the system operating and their desire for it.

May I say just one other thing in relation to the position? There is the suggestion that there are approximately 600 and there is also the suggestion that there were 200 using it on an annual basis or a regular basis made in the trial. So of the 200, 117 of those were the bookup customers and the balance of the customers, being Anangu, were able to or made a choice that they would keep the card and use it for the purpose of EFTPOS transactions which took place at the store. So there was an alternate.

KIEFEL CJ: But they were not car purchases.

MR NORTH: They were purchases by the Anangu who did not book up.

KIEFEL CJ: But these people who kept their cards and had EFTPOS transactions they had not purchased a car which

MR NORTH: They had their own card, which they utilised at the time of the transactions.

NETTLE J: Motor car, had not bought a motor car from Mr Kobelt.

MR NORTH: For the purposes of a motor car, the motor car transactions which were in cash would have been the subject of the utilisation of a card. If cash was available, insofar as the transaction was for the purposes of bookup, then the same bookup arrangement would take place. Even if the card would be provided the PIN would be there, there would be a small deposit paid and the transaction would take place in accordance with the way in which other goods were traded.

So the question which is then dealt with in the pleading in 14 is the withdrawal conduct. The withdrawal conduct is merely to suggest that there were limited funds available in the remaining account after the moneys were taken. It was authorised but the important point to understand is that, despite the fact that funds were removed to pay the debt, there was, on a continuous basis, as paragraph 17 of the pleading identifies, an ability to obtain additional credit.

Additional credit which was in fact available occurred in many different ways. If the customer had an issue in relation to the customer’s need for travel or there was a specific instance where the customer wanted a bus fare paid or there were instances where customers were resident in other areas, goods in 17.2 were capable of being acquired in other stores, save for the one in which there was a dispute between the relevant traders. There was also a position where cash advances were in fact made by Mr Kobelt on request. It is common ground, as it is suggested in 18, that:

From time to time, Mr Kobelt agreed to the requests –

He had a very good reason to do so. The customers had a relationship with him in which he was regarded as, and given an Aboriginal name of Tjilbi, which was referred to as old man. His interpersonal relationship with them was the key factor that Dr Martin concentrated on as the core element in relation to the transaction which showed the interpersonal relationship to a level of mutuality where each was helping the other. The supplier of the goods would sell the goods and the purchaser – the Anangu – would be able to take that supply and utilise credit which was not otherwise available.

The provision of additional credit, properly understood, led to what was articulated to be a discretionary issue in paragraph 19. And the question of the exercise of the discretion, which we respectfully say should be understood, was the mere existence of that discretion, and because we sought further particulars of the actual exercise none were provided and none were proven that there was any issue in relation to the way in which discretion was in fact exercised over a period of time.

GAGELER J: Mr North, I may be misunderstanding this. I did not understand the SolicitorGeneral to rely on the provision of additional credit as one of the features of the bookup system which led it to be unconscionable.

MR NORTH: It is a relevant matter because one comes to the final paragraph that deals with the actual suggestion of a breach and unconscionable conduct in 21, sir. And you will see that, as articulated, this case was confined. It was:

issuing the Nobbys’ Credit Facilities –

That is the PIN and the card being provided:

extending additional credit –

which is set out in 17; 18 he is agreeing; and 19 is discretionary factor. And engaging in what is called the withdrawal conduct as defined, as I indicated, in paragraph 14 which is the providing of the drawdown of the funds, but also having the facility to vary the contractual understanding or the custom and usage contract which was in place by having further moneys and additional instalments by additional credit periodically provided either by the same consequence of walking through the store, looking at the shelves, taking the items up to cash register and saying in the second week of the cycle for the dependency on welfare payments that you can have further credit available to you under the 50/50 arrangement, even though the funds were held in the account.

EDELMAN J: Do you say that the only extent to which a tying element formed part of the unconscionability case at trial was through this extending of additional credit or was the case as run one that involved issues of being tied to Nobby’s Store.

MR NORTH: Well, I think it was confused, if I am trying to be fair to our friends. The tying effect, as we understood it, may have had two consequences; one was that the customers were tied to the store because of preference, choice. They, like all purchasers do when they go to the store in the next door neighbourhood or the one which is convenient or the person that they trust, they will go and shop there regularly.

The other tying effect is that the card itself was left for the purposes of the mutuality arrangement which was in place because of the interpersonal transaction and that is the relevant matter that Justice Wigney focused on when he both agreed with the plurality and then said and there is a furthermore significant area which he wanted to elaborate on or elucidate further facts about and that is that the very essence of this transaction for an assessment of unconscionability within the statute, requires one to understand the interrelationship between the supplier and the recipient of the supply, being the Anangu, and that relationship, with respect, was found correctly by the Full Court not to be one which was unconscionable for the reasons which are articulated by the Full Court in the way in which they derive their own decision and those matters, sir, are the tying effect properly understood.

The suggestion of tying by the use of the PIN is not unusual that store owners will seek to tie people through loyalty cards or very many illustrations of the way in which commerce is sought to be generated and connected into a supplier. But, in this instance, the fundamental core relationship with respect to the way in which the Anangu traded with the storekeeper was that mutuality and interpersonal relationship which was fundamental to an understanding of the cultural norms and values in the historical context and why it is that bookup, even this bookup, was regarded by the Anangu as a deeply embedded cultural phenomenon which was so significant that everybody understood it and it was an institution as it was described by Dr Martin, similar to the institution of marriage which we are used to where the relationship is effectively a joint one of some significance where each party seeks to take the benefit of the transaction using some form of extended credit in a rudimentary way but not overbearing.

Now, the material before the Court which was taken into account had some factors which we respectfully say would tend to lead to a significant finding of no unconscionability in the ordinary circumstances. I have already illustrated that this case was left in a position with little evidence by the appellant here seeking to establish its system and in fact having not pressed its individual cases it depended upon a position where there was little material available to judge that circumstances which we respectfully say are of some significance in the way in which the case went forward.

I wanted to identify a matter which comes out of Dr Martin’s report which Justice Wigney highlighted. May I ask the Court to close the respondent’s further book of materials? And, if I can please ask the Court to turn to page 321, and I would like to ask the Court to give consideration to the aspects – the final three aspects – identified in paragraph 311, the first of which, it was identified, was that the position was that the Anangu as:

residents of the APY Lands –

did not, necessarily, have the degree of:

financial literacy to have an informed understanding of the nature and terms of credit arrangements generally –

in the wider society. But, it:

would not be in a position to have an informed understanding of the advantages and disadvantages of credit arrangements offered by general Australian financial institutions, Anangu customers do nonetheless have a limited understanding of the nature and terms of the bookup arrangements offered by Mr Kobelt. In particular, they understood that they had to leave their debit card and provide their PIN to Mr Kobelt, and that Mr Kobelt would withdraw money from their accounts –

So, this was made clear by Dr Martin as the expert called by ASIC in the case.

The second aspect was the matter that I have, really, already dealt with which is the interpersonal position. But, it is also an interpersonal negotiating position, not from an inferior perspective as both parties were in a mutuality seeking to work out what was the best in the circumstances, and that interpersonal position enabled negotiation between the respective parties. And, as is indicated, they were, however, unlikely to question the level or challenge the basic parameters. The term “basic elements” or “basic parameters” is a term used by Dr Martin in his expert evidence and I will come back to demonstrate how that is.

That can be seen that the position was that most Anangu regarded this as “normal” and “usual” practice, something which was “taken for granted” – not unusual or, in a sense, derogatory or predatory, or exploitative, in any real way to the circumstances in which the Nobby’s facility was made available in these circumstances of trade at this region. And:

Finally, the interviews that Dr Martin conducted with several Anangu suggested to him that “they supported bookup in general and were positively disposed to Nobby’s Credit Facility in particular”. Dr Martin got no sense at all in his interviews that any of those individuals “felt that the terms on which Nobby’s provided credit to them were unjust, unfair or unreasonable”.

So, the position is that the individual understanding of the recipients of the supply regarded the transaction as returning the position just, fair and reasonable, not unconscionable.

EDELMAN J: That is not the test, is it?

MR NORTH: It is not the test but it is a factor. It is those matters that led to the further factual findings which identified below where there was no pressure, did not contend that there was undue influence. ASIC’s position was there was no exerted undue pressure in respect of that on the bookup customers. Each understood the basic elements of the bookup system and must have considered it appropriate to their needs. There was no evidence to suggest any of the 117 customers encompassed by the system were not in the same position.

And there is a specific finding that Mr Kobelt treated the customers well and they were well disposed to him. In fact, the trial judge, relevantly, found that there was a perspective of kindness in the treatment which was allocated by Mr Kobelt to his customers.

NETTLE J: Mr North, at 329 Justice Wigney observed that anyone else in Australia would think this was highly “disadvantageous and unfair”. And it is only because – these are my words – that Anangu, living in a remote part of Australia, that are used to putting up with these sorts of conditions, that it should be regarded otherwise. I thought that was the sense of the SolicitorGeneral’s case, which is not to detract from it, just to try to summarise it as briefly as I can. What the Aboriginals thought and all the rest of it may well be true and, to a large point, it was found to be true by the trial judge, but the crux of the matter is can it be right that when wider Australia would think this to be outrageous, because we are dealing with Anangu in the far northwest, it is not.

MR NORTH: Well, my respectful submission is that one weighs the factors together and looks at the cultural practices and the position is that the Anangu, plainly, had a different conception and different attitude towards the use of the debit card. It was not regarded as, with respect, members of the Court or I would regard a debit card, as something which we need to secure or there might be a jeopardy if it falls into other hands. It was something which was regarded by the Anangu, as Dr Martin said, as a resource which was capable of being pledged to facilitate the transaction. And those matters were at the heart of the supply arrangement, as led in the evidence of Dr Martin as the expert who was called in the circumstances.

Perhaps I should take you, briefly, to Dr Martin’s evidence if I might. You will find that, again, in the core bundle. You will also find the material in relation to Mr Renouf, who is the person who wrote the article for ASIC. I will come to that in a moment if I might.

The reference, for instance, to basic parameters or basic elements, if one turns to page 55 you will see where that has its genesis at, for instance, paragraph 147. The document is in relation to the question which was answered as to whether there was ability to understand negotiations and the terms of the transaction. May I ask the Court to draw its attention, if you would, to page 54, at the top of that, and the position probably is better if I go to the bottom of page 44 at paragraph 141 first.

GORDON J: Sorry, Mr North, I do not understand where we are. Can you just tell me what page we are on now, please?

MR NORTH: We are on page 53, paragraph 141, your Honour.

GORDON J: Thank you.

MR NORTH: You will see that insofar as the:

section on Aboriginal ‘agency’, I stated that on the basis of my interviews with Anangu, my opinion is that many see shopping at the various establishments at Mintabie as exercising agency in the sense in which I defined it, which includes the capacity and willingness of individuals to exercise choices in accordance with what they perceive to be in their own interests -

not one which is imposed by a judicial mind reviewing materials but what is in the interests of the perspective of the customers themselves. He then says over the page at the top of page 54:

Given that my opinion as expressed in paragraphs 88-93 is that the personalisation of financial transactions by Anangu is a core principle through which their agency is realised in the structuring of social and economic relationships, then consequentially I believe it reasonable to draw the inference that Anangu would well understand this aspect of Nobby’s Credit Facility and the provision of Additional Credit.

So, there was a basic understanding of the process irrespective of vulnerability issues that may have been identified in the pleading but that understanding, with respect, led to a position where the view

GORDON J: The next paragraph is the one that gives the qualification to that, is it not?

MR NORTH: Yes, the next is the question which was asked as to a broader understanding and that is that the actual terms and some have expressed suggestions of - the interviewees expressed that Nobby’s had ripped the off. We must say that others in the same volume dealing with Dr Martin had also said the position was that Mintabie’s was the preferred store because it was cheaper but it is a system case, not one that identifies particular instances.

By way of further illustration, may I just pick one person. If I can ask the Court to go to page 63 dealing with Mr Edwards, one of the witnesses and rather than take the Court’s time up, can I just identify that Mr Edwards in paragraph 172 recognised that it was a good idea and that Mr Kobelt had treated the Anangu well. In 173 it was suggestive of how he exercised his discretion by permitting him to use the card for purposes other than what was the standard transaction.

The position then came to the circumstance which is that repeated by Justice Wigney and if I can get the Court to move to page 68 at paragraph 189. From the interviews it was reasonable to draw the inference and express in support of general:

and were positively disposed to Nobby’s Credit Facility in particular. I got no sense at all in my interviews that any of these individuals felt that the terms on which Nobby’s provided credit to them were unjust, unfair, or unreasonable -

which is the part quoted. The reference previously was to identify the relevant questions. Justice Gordon asked me about the way in which this issue was to be determined at paragraph 142. The actual questions are set out at 122 on page 48. There are a few more paragraphs of this document that I would seek to show you before we move to another point.

The position which I put before in relation to the institution of bookup and how it was embedded, may I draw the Court’s attention to page 39 and paragraph 94. This is where the source of the institution and its embeddedness in a wellestablished practice:

referring to the extension of credit to Aboriginal people for the purchase of goods by a person operating a business.

May I also, on the same area, go to page 38 and ask the Court to give consideration to paragraphs 89 and 90? The facts and circumstances which are identified in the instructions, Dr Martin says:

there is direct and ongoing interpersonal engagement by its Anangu customers with Nobby’s personnel, including through the cycles of obtaining, extending, and negotiating debts and repayments, which appear to be intrinsic to that system. As described, they are of a different and more personal character than the processes involved in obtaining and repaying credit from a normal Australian financial institution . . .

Anangu interviewees referred to this personalised character of the provision of credit by Nobby’s. ‘Face to face’ contact and talking rather than relying on paperwork were perceived as ‘Anangu ways’ (customs). As a consequence of my interviews, it is my view that Anangu perceive that Lindsay Kobelt ‘helps’ them and that he has become almost ‘part of the family’. In my opinion, such statements can be understood as recasting a commercial transaction into a personalised Anangu framework in which such transactions are seen as demonstrating care and nurturance.

So that the transaction in question which is called upon for analysis in relation to the Nobby system is one which does not bespeak at all of a circumstance of unconscionability but one of caring, an interpersonalisation where one person cares for the other.

If we take Mr Kobelt’s position, he lives in the area. His whole income structure has a dominance of Anangu customers. If he did not treat them well, what would occur, as we say in our outline, is what happened to Mr Stanley, who did not. They would not frequent the store and he had to close his store down.

Mr Kobelt’s position was that he was regarded as part of the family and was given the name “Old Man”. He had a different perspective in relation to the transaction and it was that that swayed the Full Court, with respect, over and above the circumstances which had been found by the trial judge.

The questions of mutuality and the values as being ones which are incorporated and using brokers as a tying effect are also found at page 37 at paragraph 86, where it deals with the question of a particular form of mutuality, with storekeepers and his family, in which they structure certain financial and purchase dealings through personalised rather than market derivative relationships. The material also is suggestive of the use, as Justice Bell said this morning, of the utilisation of persons as brokers for the purposes of conducting transactions and that is shown in paragraph 87.

The importance of understanding the case is also to understand what the expert had said was the incommensurability of the values and understandings of those practices. This is the last reference, if I might just give it to you, on page 31. It deals with what is called the intersection and it is an intersection where Anangu, as members of the wider Australian community, being members, chose how they would interrelate to what is the intersection in an anthropological sense between the systems and concepts used by the Anangu as opposed to those which are used more generally in relation to the general Australian society’s financial system as one sees in paragraph 70 and in particular in paragraph 71 where one particular accommodation and adaption by the Anangu to the intersection between their values and that of the wider Australian society was this personalisation of financial transactions.

It is, with respect, the very reason why ground 3, which is put forward by ASIC in this Court, was not a basis in which one could come to a view that cultural practices were not relevant to have regard to. In fact, the trial judge at page 149 at paragraph 611 said:

Regard must be had to the cultural practices of the Anangu and of their circumstances more generally which differentiates them from customers in the rest of Australia.

That is the fulcrum on which the case went forward at trial. There being very limited evidence of the establishment of any formal or other system, the expert evidence was not the subject of any contradictory material and it was, with respect, considered that in fact in their submissions for the appeal at paragraph 52 the appellant has accepted that cultural matters are relevant considerations for the operation of section 12CB.

In that position, we respectfully say once one understands the proper formulation of the transaction between Mr Kobelt and his Anangu customers, even if it is different from what would be a perspective in mainstream society, you must have regard to the whole circumstances of the case including the particular matters which are relevant to the way in which the trade was conducted by the supplier and the recipients of that supply and, in these circumstances, those historical and cultural norms and practices that not only bespeak of benefits – there may be some detriment associated with it – but the position is that the benefits as far as the Anangu were concerned well overrode any suggestion of a detriment because what Justice White did in the primary case is he postulated a position where, even if subjectively the Anangu had those views, he would take a different view in relation to questions of the handing over a PIN because there was a potential for abuse or a potential for some wrongful use of the card.

EDELMAN J: Why could not all of the cultural and historical factors that you are talking about be accommodated within a system, for example, that involved a direct debit and the same sort of personalised transaction could take place, the same sort of contact, the same community relationship could take place but with a direct debit instead of the system that was chosen here?

MR NORTH: I think the answer is that the embedded practice – which was the provision of the card and the PIN – also took into account the matters which are not disputed in this Court. They are the boom and bust cycle and the need for a positive budgeting and the demand sharing issues.

EDELMAN J: What do you then say about paragraphs 582 to 584 on page 143, particularly at 582, where none of the Anangu witnesses:

said that it was the desire to avoid –

demand sharing that:

was the reason they engaged in Bookup or that they shopped at Nobbys.

MR NORTH: It may have been limited evidence from the Anangu but the position was made clear by Dr Martin and by Mr Renouf as their experts. There was limited material called but with respect to the position the evidence of some of the Anangu witnesses expressly referred to gave a reference to the need for provision to..... Perhaps the best way to answer that is to do what Justice Wigney did and refer to what is found in the report of Dr Renouf, which is also found in the respondent’s further book of materials. That is at 93 of this book.

There is a general description which is no different from the general description pleaded. The benefits and the problems are identified. You will see, for instance, on page 93, under “Benefits and problems”, there is:

often the only way such consumers can have access to credit. It is also a convenient way of managing money over a fortnightly or weekly payment cycle for consumers who lack financial management skills or are affected by cultural pressure to immediately share resources when they are available.

If one goes over to 94 – and I made reference previously to “essential service” - may I just identify where that is found in Mr Renouf’s – ASIC’s report – where he says at the bottom, just above the words, “This project” – that sentence:

It should be noted, however, that for many Indigenous consumers “book up” is perceived as offering an essential service given the lack of alternative financial services available to them.

Then, if I can go over to the top of page 95:

The practice of running up a tab with a store or other merchant has existed for many hundreds of years. With increasing access to credit cards and EFTPOS over the past 25 years, this kind of informal credit is much less widespread than it once was, although there remain many instances of shops, cafés –

that have the same system. In the historical context at page 97, the social context is also described. You will see under “Cultural practices” that:

Indigenous use of financial services and book up 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”.

Then there is the reference to:

“The pattern of sharing food, cash and other resources –

in the kinship arrangements – which I do not need to read. I made reference previously to the position in relation to sharing, or pledging, the card as a resource. That is found at 298, in the following paragraph. The motivations are dealt with at page 99 and, there is - we respectfully say one of the motivations is that there is no store credit otherwise available. There is also – just near the bottom of the page, secondlast sentence:

There may be other factors such as a reluctance to use or hold case, a belief that book up can help with budgeting or that it is a way to protect resources from demands from kin.

We respectfully say that these matters were not the subject of a contest. The historical matters

KEANE J: Mr North, could I just ask - page 99 I notice it says that banks have closed down:

the banking outlet and the store which offers bookup are the same business.

Just in terms of direct debit, was there evidence that there was a bank facility available?

MR NORTH: I am told there is an ATM at Mimili and that the relevant persons did not wish to use it because it is like attracting the next of kin to be there when you extract the funds. As soon as the extraction of funds occurs the kinsharing arrangement, known as “humbugging” or “demand sharing” occurs immediately. There is therefore an importance of, even in the travel, from that place over to the further distance to Mintabie to transact in a circumstance where you have the interpersonal relationship with Mr Kobelt and the position is that you take the goods and he has the card. It is a builtin defence mechanism to the request because the simple answer to the next of kin when you are humbugged is that “Mr Kobelt has the card and the PIN, and I can’t access my money”.

So I understand that access in some instances to the ATM where required was placed at the insistence of money managers, Mr Stauner, where there was a direct debit facility and that would be assisted by another form of agency from him supplying those services to the relevant customers. So that the question of the interrelationship issues are fundamental to the understanding of unconscionability within the section, we respectfully say.

GAGELER J: Mr North, you took us to page 99 to some text that accompanies footnote 16. I just want to know what the footnote refers to.

MR NORTH: Yes, there is a joint paper that is referred to – I will just have it identified. Perhaps if we could find the answer to that, your Honour – I am not sure that I can take it any further than we understand it to be a submission which was put in before him for the purposes of him delivering the report as a report for ASIC. So I do not know the answer, but I will see if I can find the answer for your Honour.

Now, I am probably skipping around a little bit, but I wanted to deal with the matter that was raised this morning, if I might. That is the issue that essentially deals with a question of what is taken up as the fifth point, dealing with the way in which the primary judge dealt with the question of expensive credit.

The finding in relation to expensive credit is significant for the purposes of understanding what takes place in respect of the sale of motor cars and only motor cars, not other goods. All other goods, including cars which are not the subject of cash transactions, there is a “no fee” and “no interest” charges position in relation to these transactions. It is only

NETTLE J: Except for purchase orders and bus tickets?

MR NORTH: Yes, a purchase order is a different facilitation where Mr Kobelt takes the responsibility to pay the other store and the fee - the $5 or $10 fee is in respect of him having to effectively pass the funds over and then wait for an ability to further remove the fund which had been requested in respect of that other store from the utilisation of the

KIEFEL CJ: But it is not his funds that are being

MR NORTH: Yes, it will be his funds in his account – in Mr Kobelt’s account. He will then record an added debit responsible to be paid by the relevant Anangu customer so that that fund will be removed upon further funds being deposited from

KIEFEL CJ: Or, put it another way, there is no risk involved to him, unless there are no funds in the customer’s account.

MR NORTH: With respect, Chief Justice, there is a risk involved with Mr Kobelt because, as Mr Stauner said, some Anangu had determined to cancel cards and there was evidence that 30 of them over a period – it is not clear from that evidence whether it was at the Nobby’s Mintabie store but others in the APY Lands where a position was that money managers assisted in the cancelling of the card, therefore, there was no further interpersonal relationship any more where the funds would then be capable of being taken out of the account to pay the debt which was owed.

GORDON J: But putting aside those moneymanager circumstances where the card was cancelled, there was no risk to Mr Kobelt. On the purchase order he received a fee of $5 or $10 in circumstances where there was no risk.

MR NORTH: Yes, the position was that that charge, comparatively, was less than there would have been normally for any other form of credit being provided by any other credit institution.

GORDON J: It is not credit; this is him having taken the funds from the account earlier in the cycle and being asked to pay for a good purchased at another store on the 50/50 deal.

MR NORTH: Yes, it is taking the fund, your Honour, from Mr Kobelt’s account and paying that amount of money where he then has to run the risk of having that fund come back to him in relation to the normal transactions.

GORDON J: I do not understand that.

KIEFEL CJ: But surely he would not give a purchase order unless he knew he was going to be able to repay himself?

MR NORTH: Well, he hoped that he would have the facility over a long period of time.

KIEFEL CJ: Well, he would know, would he not? Depending upon the state of the records, he should know.

MR NORTH: Yes, he would assess the customer who made the request because there was, in fact, an interpersonal relationship. If it was a customer – some of the customers expressed dissatisfaction. I think only three – sorry, six who had complaints over the whole period. The position is that that interpersonal relationship was a key factor between the supplier and the credit recipient because if there was an element of mutuality in existence there was almost a position where he would recover the funds in most instances. However, some did not.

It should be understood by the Court that there were in fact bad debts but he never sought to enforce any of them. We give you the reference to that. This is not a step in the positioning between the interpersonal relationships and the mutuality that existed where Mr Kobelt would seek to enforce his rights for repayment of debt. He did so via the facility of the relationship and the holding of the PIN and the card for the purposes of future access but bad debts were in fact incurred and we have given illustrations of those within the book of further documents as they are in fact recorded at page 101. If I might take the Court then to expensive credit to which I was moving to, if that is

BELL J: Mr North, just one question before you do.

MR NORTH: Yes.

BELL J: It is the primary judge found that whilst he accepted Dr Martin’s evidence and I think Mr Renouf’s evidence about demand sharing, his Honour said but really there was a demand sharing issue arising out of the bookup because when the person returned to their home they might be importuned for the things that they had purchased. Where do we find the evidence for that? Is that in Dr Martin’s report or Mr Renouf’s report?

MR NORTH: I do not think there is a lot, with respect, to the position of the persons who were called that were then the subject of not being pressed. For the purpose of individual illustrations, this matter was not dealt with in any real formal way in the systems case by actual evidence. It was a perception that demand sharing was an omnipresent position and was therefore available for both money and other resources but it ignores the fact that the Aboriginal customers, the Anangu, were strategic in the dealing with demand sharing issues and that one of the reasons why they travelled to the store was their ability to do so without the - what was called the abundance of surveillance which occurred within the tribal culture where everybody knew everybody else’s business and everybody was watching everybody else and when you were away, even though you took back goods when you put them into the household, you may have been able to treat them in a different fashion than what you were doing normally. But if you were transacting at the ATM it would be a different issue. If you were shopping together it might be a different issue but the ability to say “I don’t have my card” was the reason for the cultural imperatives that led the Anangu to go into that transaction.

GORDON J: My difficulty with that, Mr North, is what Justice Edelman took you to at 582 to 583 where there are at least two findings. One is - and I think I put these to the SolicitorGeneral just before lunch - that those cultural matters were not the reason why, at least on the evidence given, that they entered into the bookup arrangement and secondly, that at least in some part it in effect exacerbated or created a separate form of demand sharing.

MR NORTH: Well, there may well have been a separate form of demand sharing.

GORDON J: There are two aspects to it. One is just to pick you up on the first point about this inexplicable link that you have made, and then the second is that it itself had its own problem.

MR NORTH: Well, I think my answer at 582 and 583 is that these were the limited number of illustrations available in the systems case as called. They really do not assist much by way of drawing any conclusion. The position, with respect, is that just following when he deals with the voluntary conduct, he takes on board the issues as previously illustrated for demand sharing and boom and bust cycle, and at 588 and 589 and 591 on pages 144 and 155 he accepts that the evidence in the trial:

of the Anangu witnesses indicated that each understood the basic elements of their Bookup arrangement with Nobbys and had consented to him making withdrawals from their account using their key and PIN. Whether rightly or wrongly and whether well informed or not, each must have considered it appropriate to their needs.

Then he identifies the position of the freedom of the Anangu, as we put in our submission, that one should have concern about the commercial issues of dealing with uncertainty where we submit that Anangu customers have a right to buy and sell and acquire goods at stores. Even though they may have vulnerabilities they are able to make decisions concerning their own lives, which is accepted. But what is then said in the last sentence of 589 is:

Accordingly, the Anangu customers’ own subjective views are not conclusive of the conscionability –

With respect, determinative in a fashion in relation to taking into account all of the circumstances, otherwise issues such as a paternalistic view of the way in which they reach their decisions is one of the matters which was the subject of criticism by Justice Wigney in his decision. At 591, for instance:

I accept that many of the Bookup customers were satisfied with the arrangements. That is evidenced, in part, by the fact that several used the Bookup arrangement more than once and had returned their key cards and PINs to Nobbys. There are undoubtedly features of the Bookup system which several of the Bookup customers find attractive.

EDELMAN J: Just on the point you mentioned earlier about the boom and bust cycle, that is not necessarily a factor that requires this particular system, is it? The boombust cycle could be accommodated despite ordinary direct debit, could it not?

MR NORTH: The issue with the boom and bust cycle, your Honour, is this, that having regard to the fund of money that is placed in the account I think it was even determined as “sitdown money” when it was provided – it is a resource and it is usually used instantaneously in Aboriginal society. It is the position of the interpersonal relationship, as you see from the evidence, where the boom and bust cycle is minimised because there is a further transaction or another transaction which takes place where there is a debt owed.

The customer goes back into the store and wants further funds in the cycle and it is provided. There is a discussion at the till, where you are taking things that are not necessarily available and the customer has a choice of booking up or otherwise removing those items such as lollies, chips and cans of coke and the like, which were not fundamental to the process of budgeting. Those matters, I think, are matters which are relevant to the interpersonal relationship issues which I have been talking about, which show the position is not unconscionable.

NETTLE J: Mr North, Justice Bell asked you a question about 584 a few moments ago as to this further or alternative demand sharing which might result from the bookup system. You referred to the judge’s supposition about that and the absence of evidence to support it. I note the judge says in the last couple of lines of 584 that he was fortified in his view to some extent by your own pleading, which is mentioned at 594. Is that a fair supposition in view of what was pleaded?

MR NORTH: With respect, we did plead those matters but they were dealt with by the expert evidence, which I have taken the Court to – Dr Martin and Mr Renouf. The boombust cycle was a matter which was taken into account as a matter which would have driven the Anangu customers to the benefits of the

NETTLE J: No, I was thinking more of the fact that when 100 per cent of a person’s social security benefit is taken out, he is left to cadge off his relatives to get by for the next month – referred to at 594.

MR NORTH: Yes, the position is that, as pleaded, there were requests for additional funding, which was granted. That is what paragraph 18 says.

NETTLE J: At 16.6.5 of the defence, the judge refers at 594 to his reasons.

MR NORTH: Yes. We respectfully say that in the end there was adequate evidence for those matters in 16.6 from the expert evidence and Mr Kobelt’s position is that he did not refuse any additional store credits.

NETTLE J: Thank you.

GORDON J: Is that right, Mr North? I was just looking at that. This is purchase orders. Is that what you are talking about?

MR NORTH: That is the additional store credit as I understand it, or further advances –

GORDON J: Sorry. I am just trying to work out what that picks up. We have three forms of credit being provided at the moment. We have, what I will call, the bookup which is the opposite to the bookdown.

MR NORTH: Yes.

GORDON J: We have the purchase orders and then we have the cash advances - because the purchase orders set out by the trial judge at 78 through to 87 would seem to suggest that refusals were made.

MR NORTH: Yes. I think it is part of the system that was pleaded, your Honour, because paragraph 4 identified the key factors of the issuing and then in paragraph 20 of the pleading it went further insofar as it was extending additional credit in the terms of 17, 18 and 19. It is that additional credit which we respectfully say was not the subject of a refusal or there was no evidence led that suggested any refusal of any credit

GORDON J: That is why I am asking you because if you pick up 17.2 which is “goods from other stores” it is on page 205 of the further materials -17.3 is cash advances.

MR NORTH: I think it is 16.6.8, a general practice to return debit cards that had been provided to facilitate provision of store credit to customers. I think there is a reference to the provision – it is often asked for additional

GORDON J: Mr North, leave it and we

MR NORTH: I am sorry, I cannot directly answer that issue. Just so that it is clear, I think, your Honour, that there may be an interplay between what is said to be bookup and bookdown and that they are the terms used to describe the same service. As I understand it, for instance, people sometimes say “book up, ticky or book down” which is meant to be the same thing.

KIEFEL CJ: Where are we then in relation to your aspect of the argument?

MR NORTH: I was just about to go – I was going to take you to expensive credit.

KIEFEL CJ: Yes, I recall that a little while ago.

MR NORTH: If I could just do that by illustrating the point, if I might. This was dealt with at page – this is the core court book now, 333, your Honours, and it is down the bottom of the paragraphs at 363 over to 365. The fifth point deals with the question of expensive credit and you were taken to the judgment at 618 where the issue of expensive credit was dealt with and the relevant statutory provision was 12CC(1)(e).

In this instance one needs to understand what is the genesis of this issue of expensive credit, if I might say so. If I could ask the Court to turn to pages 141 to 144 – I may have the wrong page reference, I am sorry. I beg your pardon, page 40 of the core court book. So this deals with at page 40 at paragraph 133 under the heading “Mr Kobelt’s determination of the purchase price” and deals with secondhand motor vehicles. In particular can I draw the attention of the Court to 135:

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 that 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.

The position in relation to the list price is as is required under the relevant provisions of the Secondhand Dealers Act applicable in South Australia. The position in relation to the examination of the expense as to the credit is then found at 139 through to 144 and the position is that the focus of attention is as articulated at 144, with Timothy Kobelt giving evidence in a section 19 examination when he was asked:

So who’s got the final say on how much you the sell cars [for]?

There was a reference to his father:

Unless they’ve got cash, then whatever is on the paperwork I know I can drop a thousand dollars off straightaway (sic) without asking him.

So the position of the added impost for expense was not the subject of any detailed analysis in a systems case at all and it was not pleaded, that matter, and the undisclosed basis was conceded just before lunch as not being a pleaded issue in relation to the systems case. There is nothing undisclosed about this conduct. It is simply, you would understand, in the ordinary course of a purchase of a car. Most people in Australia would ask for a discount and if they were able to pay cash they would want to ask more, and most traders would facilitate that arrangement and, with respect, it is that issue which then led to the trial judge saying, “Well, that’s an expensive form of credit charge”. It is responded to by Justice Wigney in 364 and 365 at page 334 and he says, in terms:

There was, however, no evidence concerning the exact price of the cars which were purchased by the 117 customers, or the difference between the bookup 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 bookup system involved any credit charge, let alone a credit charge of an expensive kind, in respect of the 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 bookup system was of a particularly expensive kind. It may be readily accepted, as Besanko and Gilmour JJ have found, that the expense or otherwise of credit supplied under the bookup 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 the evidence of 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 bookup 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 bookup 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.

With respect to the position, we would say that a review of the pleadings demonstrates that exact point and that the issue of the implementation, as it was discussed, of the bookup system put by our friends is not one with merit in the circumstances because there was no reason for there to be a close analysis in the circumstances in which somebody would be able to be authorised by their father to simply drop the price because cash was offered in the circumstance where an owner and a customer may have had a windfall from gambling or some other source of endeavour or a tax return or something along those lines.

That facilitation would be obviously to the benefit of the Anangu and probably necessarily to the detriment of the supplier who may have wanted to get the car off his books and to show that there was an ability to demonstrate a sale transaction which is beneficial to, for the purposes of other Anangu purchasing the car.

With respect to the issue of the matter dealing with the second notice of appeal which is the issue of predation and exploitation, that matter was also dealt with by Justice Wigney and in the same vein we respectfully say that the issue was one in which all three judges had the same view and it deals with the question of the tying effect and it is found at page 338 of Justice Wigney’s judgment at paragraph 379 where it is:

neither the “tying” effect of Mr Kobelt’s bookup 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.

In the same way as it was referred to by the plurality at paragraphs 267, 308 and 309, it goes to deal with both predation and exploitation and in 268 deals with the tying effect and it is said it:

is neither predatory nor does it involve exploitation in the relevant sense.

They accept some version of vulnerability:

in the sense pleaded by ASIC . . . but they understood the bookup arrangements and voluntarily entered into them. They knew they could bring those arrangements to an end and some did. We accept that the tying effect of the conduct was advantageous to the appellant, but there were also advantages to the Nobbys’ customers.

The position was therefore one which the court concluded after taking those matters into account and all of the relevant circumstances:

we do not think that the appellant’s conduct can be characterised as unconscionable.

Can I say something briefly about the question of the appropriateness of the test. With respect, we agree with the learned SolicitorGeneral that there was little debate about the version of the authorities and what they said. There were some matters which we highlighted in our submission which we respectfully say are relevant to the question of the commercial certainty issues and the issue which was articulated as trumping.

With respect to the position of giving rise to commercial certainty, as the Court would appreciate in the Full Court in Paciocco, the position was that Justice Allsop identified a number of those matters which facilitate a consideration of the evaluative judgment necessary for the purpose of unconscionability, one of commercial certainty in transactions. We respectfully agree that that is so, in particular with Anangu.

If the position is that the vulnerability in fact trumps the voluntariness then one can rhetorically ask: if that vulnerability is understood, the trade and commerce necessarily will not flourish. A certainty in commercial transactions, even for people with vulnerability is a relevant matter because they are entitled to trade like anybody else does. Even people with disabilities, to the extent of a position where they need some assistance, are able to trade in this country and so are the Anangu. The position is dealt with by us in suggesting that there is a need for a higher consideration to the level of unconscionability as required.

KIEFEL CJ: Perhaps it is more that the level of scrutiny would be raised where there is deep vulnerability.

MR NORTH: Yes, that is so. We respectfully agree. The relevant way this Court has looked at it on previous occasions is to identify what is described as not assessing it in a careless or partisan manner. That was Justice Keane’s view. The judgment in the book of authorities is at page 720, paragraph 290. Justice Gageler adopted a similar test of a “high degree of moral obloquy” in the judgment book at page 689, paragraph 188.

It simply in our position shows that the court will not normally be the person who regulates prices or looks at in a commercial perspective the terms of the relevant transaction. The parties to the transaction determine those issues, as they did with the Anangu and Mr Kobelt. The ordinary position is that the court would normally only intervene when there is in fact some sharp practice – no suggestion of sharp practice in this case. Good faith, there is a suggestion of - and no undue influence or exerted pressure there is a suggested position, but no sharp practice. We respectfully say that is part of the functioning with a free market.

In this respect we thought we would assist you by another judgment. The only reason why we bring it to your attention is it seemed to us to uniquely put the proposition about what is the proper way to assess unconscionability. It is a decision of Justice Bryson in Burt v Australia & New Zealand Banking Group Ltd. We have copies available - if we could, please, provide them to you. I will only be brief in referring to the matter.

It dealt with a question of a guarantee for a Mrs Burt, who was an 87yearold person. She, in the case, was unsuccessful but the test issue which was articulated is found at page 53,598 and if you can drop down the first paragraph, about halfway down:

Unconscionability is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person’s legal rights.

Here I just interpose. Mr Kobelt has not and has never relied on his legal rights.

Previous judicial experience and established grounds on which reliance on legal rights would be unconscionable are reliable bases on which to act, and the Court is not authorised to take idiosyncratic approaches. Unconscionability is a test which the Court has a duty to apply as part of a general law, acting judicially and in conformity with approaches taken by the courts generally. The courts enforce legal rights except in circumstances which are so far out of the ordinary course, so much an enormity and a departure from ordinary standards of conduct that the position of a person who relies on legal rights should rightly be adjudged as unconscionable.

We respectfully say that that is a neat and fine summary of the way in which the unconscionability issues are determined and it is also relevant if you go to page 53,597, just in the paragraph on the righthand side, the last sentence:

It would not be justice to her –

that is Mrs Burt:

or to persons in similar situations, to make entry into such transactions unduly difficult.

To accede to the position of ASIC in relation to this appeal would be for the Anangu, putting them in a position where their ability to enter into transactions which were voluntary, informed, not considered unjust or unreasonable for them – to prevent them from having that service available to them. The matters which we respectfully say are for determination then are not to place a court in doing anything other than what occurred in the case, that is, where in this instance the Court was called upon to assess all of the relevant facts and circumstances in the test as I identified.

Now, I have not taken you through to the issues dealing with all of the relevant matters but I have identified where Justice Wigney takes each matter that the trial judge took into account and puts a contrary view in each instance. We would respectfully say he adopts exactly the reasoning of the plurality in the case, three judges of the Full Court of the Federal Court of Australia looking at the same system

KIEFEL CJ: How much time are you allowing for the application for special leave, Mr North?

MR NORTH: I am just about finished, if I might, Chief Justice. So I do not think I will be long but I am just about finished. The only other matter I wanted to deal with was the issue of discretion. It does not seem to be at the forefront of the position on this appeal, if I might say so in respect of the way in which the case has unfolded before you and the submissions, but we respectfully say that ASIC never sought to establish the extent to which issues of withdrawal conduct in a discretionary sense were actually dealt with and, therefore, in an absence of any systemic abuse or a pattern of abuse, we respectfully say that the matter in 19 of the pleaded case which is to be taken into account for the purposes of a contravention really goes nowhere in the end.

We say that there is an issue which was raised in relation to the way in which evidence was treated in the Full Court when they considered the matter. We respectfully say that the same material is also available in this Court where it was submitted that the findings of fact of the trial judge below were not disturbed on appeal. What was the subject matter of the position was that the trial judge’s way of vis-à-vis.....was the subject of criticism of those facts and in the combined weight and force in which the factual determinations pointed away from unconscionability, that was the matter that eventually made the Full Court determine that in the question of the exercise of applying weight, there was a proper basis for it.

There was a suggestion also dealing with flexibility issues. We respectfully say that in relation to flexibility it was comprehensively dealt with – I think I have outlined before when Justice Wigney at the court book reference 329, paragraphs 348 and following and the position is that in the interplay between the customer and the supplier there were interactions, oral, at the shop, for normal goods which were a constant variation supplied for the benefit of both the customer and the storekeeper. There is no suggestion that inflexibility would have been a detriment or that the customer could have decided if he wished to not to trade or he could have decided if he wanted to, cancel the card or move the accounts.

KIEFEL CJ: Have you not dealt with these matters earlier?

MR NORTH: We have dealt with them, yes, your Honour. In those circumstances, those are the matters which we put on behalf of the respondent to this appeal, but can I ask my learned junior to address you.

KIEFEL CJ: The Court will hear you on the application for special leave in the first place.

MR HEUZENROEDER: Thank you, your Honour. I think I can deal with it fairly briefly. We seek special leave to crossappeal as provided by the rules instanter in the hearing. In relation to the application test, that has been set out in paragraph 2 of the reply in the crossappeal and we rely upon that test. It is a different test from the usual

KIEFEL CJ: Well, it is put against you that in relation to this particular breach that there is no question of principle and that you are seeking to review findings of fact and in your reply submissions you seek to see an overlap between ASIC’s unconscionability case and findings made in this regard.

MR HEUZENROEDER: Yes.

KIEFEL CJ: But, as I understand the Solicitor-General, it is said that the unconscionability case does not depend upon any finding with respect to these breaches.

MR HEUZENROEDER: Well, there were two ways in which ASIC could establish contraventions. One was to establish that there was a charge loaded into the purchase price of the vehicle as a matter of fact. That has been the subject of submission in the unconscionability case and that is the overlap.

KIEFEL CJ: This is the expense of financing?

MR HEUZENROEDER: Yes. Then there was an alternative route.

KIEFEL CJ: But I am sorry: is not the respondent’s argument in that respect that that is simply not open? It is not open on the pleadings to ASIC to raise that argument. Is that not the point taken on the unconscionability case?

MR HEUZENROEDER: My understanding was that ASIC was pressing contention in relation to expensive credit.

EDELMAN J: The SolicitorGeneral conceded in submissions that “expensive” did not mean expensive by comparison with something else.

MR HEUZENROEDER: Yes, and he also conceded that the issue of it being undisclosed was not a relevant matter but, in my submission, the issue of there being a charging fact, which is a separate issue from the instalments issue, is still live in the case that the SolicitorGeneral presses, as I understand it. If that is the case, then there is an overlap to that extent. If the finding of the Court is that on that issue there was in fact no charge as a matter of fact then that throws up the question as to whether the alternative route for ASIC on what I will call the compendiously the instalments argument, was correctly decided.

EDELMAN J: Mr Heuzenroeder, I do not understand that submission. Whether there was an interest charge as a matter of fact, or whether there was not an interest charge as a matter of fact, that does not say anything about unconscionability one way or the other, if the interest charge was less than or equal to a market charge, does it?

MR HEUZENROEDER: Well, if the finding was – sorry, I will go back a step. That charge is based solely on the fact that there is a price differential. If the finding of the Court is that it is not, in fact, a charge, rather it is a discount which is provided to cash purchasing customers with respect to a motor vehicle, then a particular finding which is of relevance in the unconscionability case, as a matter of fact, would be undermined. Now, I cannot put the submission higher than the fact that part

KIEFEL CJ: They are not exactly the same points though, are they?

MR HEUZENROEDER: That is exactly the same point and that deals with half of the issue on the crossappeal, and

KIEFEL CJ: You have to go much further for the crossappeal.

MR HEUZENROEDER: Yes. We accept that then there is a question of law in relation to the interpretation of the word “instalments” and on that front we say it is a matter of general public interest. It has not been determined other than this in this case before. It relates to a provision of consumer credit around Australia and on – as we seek to make good in our reply to the crossappeal submission, if the present interpretation is allowed to go forward, it will create a situation where all sorts of fairly informal arrangements will be the subject of potential penalty and it could give rise to anomalous and difficult circumstances.

In those circumstances we submit that there is a matter of public interest in construing this federal legislation for the first time and that is the basis upon which, we say, that there is – this matter has a special nature requiring the attention of the Court in the crossappeal.

KIEFEL CJ: Is it not likely to be a question of mixed fact and law in every case?

MR HEUZENROEDER: There is a sense in which the matter is purely a question of construction and I can go into the provisions in due course in a moment, but to put it concisely, the historical meaning of instalments was considered by the trial judge to be unduly technical and narrow. If one accepts that proposition then the question is how broad can the definition be cast and it is a question of drawing a line around it.

We say as a matter of law, and pure law, that an instalment must be an arrangement which identifies the perimeters of what would be a breach of contract, that is to say if someone fails to make an instalment, it constitutes a breach of contract and that is a bright line which the outer definition of concept of an instalment can have.

That, in my submission, is a matter of pure law and if that proposition is accepted then the findings in the courts below would, we submit, be overturned because the arrangement is not one where, if Mr Kobelt fails to operate the card, it could sensibly be said that the Anangu customer is in breach of contract. It is outside the parameters of defining what a breach of contract is and therefore we submit it is not an instalment. That, in a nutshell, is the nature of the argument as a pure question of law.

Then we point to an application of the facts to the law and in particular the arrangement whereby there was an ongoing negotiation as identified in our written outline where customers come back, ask that matters be changed, the evidence is that in most instances customers will be accommodated. It is not a situation where you can tie down any definition to quantum in the amounts of payment or identification of rests when the payments ought to be made.

In those circumstances, continuing negotiation and an ad hoc adjustment of the amounts that are due and the timing of when they are due intuitively does not meet what one would understand to be instalments and, in my submission, going more into the heart of the argument, it does not meet the mischief of what the Act seeks to cover, in particular would it be of assistance if I actually went to the provisions?

KIEFEL CJ: We are still on your application for special leave not the substantive argument - as much as you need for your application for special leave. It is a matter for you.

MR HEUZENROEDER: In our submission, when one goes to section 5 of the National Credit Code which is in volume 1 of the joint book of authorities at page 216, there is an interrelationship between sections 5 and section 11 of the Act. The relevant type of way in which this was said to be a credit activity, which is the key that attracted the potential of the application of the Act, was on the basis that it was a credit contract. I will not take the Court to it but that is in section 6, item 1 in the Act, not the Code. The question then was in section 4 at page 316, what the meaning of the credit contract was and it is a key aspect that it must be:

the provision of credit to which this Code applies.

That is then dealt with in section 5 and in subsection (1) there is an identification in 1(c) that:

a charge is or may be made for providing the credit –

Now, just pausing to identify purpose and mischief in the Act, clearly fee free interest free credit is not a matter that one would expect to be regulated by a licensing system with detailed provisions. So it is the charge which is the mischief and obviously it is a charge where a credit provider can gain a financial advantage in a credit transaction.

Then one goes to section 11 of the Act and there is a deeming process where in subsection (1) you have a gateway provision, which is this deeming - section 11 applies if there is a credit or a deferral of consideration that is payable by instalments, and that is the key issue of law, and where the price exceeds the cash price of the goods. If one then goes to subsection (3), the word “is” in the chapeau and then read that with paragraph (d) following subsection (3), one sees:

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.

Now, “cash price” is also defined and that is on page 340 of the joint bundle. It is in two parts. One is:

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 –

and then paragraph (b) is, if you cannot ascertain that – I am dealing with this.....then the market price for the goods or services. Now, in my submission, if one considers the usual situation where there is deferred consideration, say one goes into a store and seeks to purchase a sound
system or something like that, there will be a marked price which will be the cash price and then there might be an arrangement whereby you can pay for it by instalments and there will be a price differential which is different from the cash price.

In the normal course of events, the instalment payments will have inherent in them the internal rate of return for the credit advanced and it makes entire sense to have this deeming provision operate. However, in contrast to that situation, when one does not have any definition around when one could breach an instalment payment because the payments are made by the creditor operating the card and further the rests between payments are inherently uncertain and the amounts of payments are inherently uncertain and the subject of ongoing negotiation, one cannot necessarily identify an internal rate of return with respect to the provision of that credit.

In those circumstances, intuitively there is not the situation where the deeming provision would make sense in operating and, in my submission, that then points to the fact that one needs to put a bright line around the outer boundary of the meaning of “instalment payment” to be at least a situation where the failure to make an instalment constitutes a breach of contract.

If that is accepted as a matter of law, then on the facts of this case there were not instalment payments and therefore the matter is one where there ought not to have been contraventions. Those are my submissions on special leave to crossappeal.

KIEFEL CJ: We will hear from Ms Clark in relation to the application for special leave.

MS CLARK: I will be very quick, if the Court pleases. There is no overlap between the primary appeal and the crossappeal, with the one exception that Justice Gordon has pointed out: had Mr Kobelt had a licence and had he complied with those licence conditions, it is ASIC’s submission that it would be very unlikely that he would have engaged in any unconscionable conduct. But putting that to one side the issue of the provision of credit being unlicensed is not a particular that was pleaded by ASIC and it is not being relied on now. That is separate of course to the expensive charge credit but, in my submission, the expensive charge issue is a different one to the issue of whether it was licensed or not. There is nothing further I wish to say on the grant of leave.

KIEFEL CJ: The Court will adjourn briefly to consider the course it will take.

AT 4.11 PM SHORT ADJOURNMENT

UPON RESUMING AT 4.14 PM:

KIEFEL CJ: The Court is of the view that there is no question of general principle which would warrant the grant of special leave. Special leave to crossappeal is refused. Reply, Mr Solicitor.

MR DONAGHUE: Yes, your Honours, I will be as quick as I can. First, the question of choice, which was a major theme in particularly the early part of my learned friend’s submission and the need to respect the choices of the Anangu, it was submitted that the Anangu customers of Mr Kobelt chose a system of credit that suited them. In our submission, it is certainly the case that they chose a system where the choice was between Mr Kobelt’s system of credit and no credit at all and that that was the only meaningful choice that was available to them on the evidence before the court and that a choice of that kind is not one that your Honours should treat or accord any particular significance in assessing the conscionability of the bookup system that was on offer.

Your Honours were taken at some length through Dr Martin’s report in order to support, amongst other things, the proposition that the Anangu had a sufficient understanding of the system to make that choice and you were taken in particular to the finding at 312 of the primary judge’s reasons. Could I ask your Honours to go back to one paragraph in that report? So it is in the respondent’s further book of materials, the same page that was the basis for that finding, so it is page 52 of the third book which is paragraph 43 of the report.

What had been picked up in the judgment was what you see at paragraph 138, at the bottom of that page, so that the customers had a limited understanding – by which Dr Martin meant they understood that they had to leave their card and their PIN number – and that in order to repay the debt money would be withdrawn. That is what they understood. But if your Honours go up the page a little to 136, Dr Martin expressed the view:

that most Anangu residents in the APY Lands communities would not have an informed understanding of the nature and terms, and consequently of the advantages and disadvantages, of credit provision options available in the general Australian society. For this reason . . . neither would most Anangu have an informed understanding of the nature and terms of the financial aspects of Nobby’s Credit Facility. In my opinion, neither would most Anangu have the basis to come to an informed understanding of the advantages and disadvantages of the financial aspects of Nobby’s Credit Facility, since such an understanding would be predicated upon a comparative knowledge

Your Honours, given that you should not, in our submission, attach significance to the choice because it was a choice between a deficient system that took advantage of the special disadvantage of the customers and nothing, and, in those circumstances where there was an obvious need for credit, for some of the reasons your Honour Justice Bell put to me in relation to the provision of cards, one can understand why the choice was made.

But, in our submission, the Court should insist that there is a role here under the ASIC Act for the enforcement of a minimum standard. So that if credit is to be provided – and there is no reason to think it cannot be provided in accordance with the minimum standard that the Act sets – a choice can be made between a system that does not go well beyond the legitimate business interests of the provider and that conforms with the normative standard reflected in 12CB of the ASIC Act. That is our first point.

Our second point concerns Dr Renouf – sorry, I do not think it is Dr Renouf, Mr Renouf – the Renouf report that is in the same book of materials. Your Honours have been given just a few pages of that document. It is not an expert report and it was not before the court as such. You can see from the index that this Renouf report was a report prepared in March 2002 so it was prepared well before any of the issues in play in this litigation were conceived. It is, in fact, an ASIC report largely in the nature of an issues paper designed to raise awareness about bookup and encourage submission and thoughts about reform of the process. So to characterise it as expert evidence is, we submit, quite wrong.

BELL J: It was material that the primary judge relied on but that was – do I take it

MR DONAGHUE: It was background material about the general nature of bookup.

BELL J: Yes, Mr Renouf did not give evidence.

MR DONAGHUE: No. So it was in evidence before the court, but the idea that it is an expert account is not right.

GAGELER J: It is a business record from which inferences can be drawn.

MR DONAGHUE: A business record, your Honour

GAGELER J: Well, perhaps there are other terminologies since I looked at these provisions, but it is a public record.

MR DONAGHUE: It is a public record prepared by ASIC. It is ASIC report 12, bookups and consumer problems, and it sets out in various ways some of the history of bookup and some of the research about how it works and different ways that it is provided and a variety of background matters that were relevant to the issues in play here but it does no more than that. I raise it simply so your Honours are not under any misunderstanding as to what it shows.

As to the minor but specific question your Honour Justice Gageler asked about footnote 16, footnote 16 refers to two things: submission 11 this is on page 99 of the book. McDonnell 2001 is an unpublished conference paper and submission 11 is a submission by Ms Siobhan McDonnell who was working for the Centre for Aboriginal Economic Policy Research. That is what those

GAGELER J: Were they in evidence?

MR DONAGHUE: I believe not, your Honour.

GAGELER J: Thank you.

MR DONAGHUE: In relation to Dr Martin, your Honours were taken through a partial account of what one finds in his report. He also gave evidence and was crossexamined. That set of submissions ended with our friends saying, having emphasised the interpersonal nature of the points that Dr Martin made, that actually what Mr Kobelt was doing was not unconscionable, it was a caring and interpersonalised relationship that he had with his customers.

That submission just cannot stand with the findings of fact that were made by the primary judge and I will not take your Honours back through all of them but if I could note a number of the critical ones. At 138 of the appeal book at paragraph 559 – this is the degree of good faith paragraph – where the primary judge finds:

I do not accept that he –

Mr Kobelt:

acted in an altruistic or disinterested way. He was at all times pursuing his own interests, and did so even when that was to the detriment of his customers. His conduct on the occasion of the CBA glitch is one example and the steps he and Timothy took to ensure that the customers did not have any opportunity to access their own money is another.

He was, as your Honours might recall – this is 459 but you do not need to go there – found to be indifferent to whether his customers could afford the commitments they were taking on. He was found at 620 to have taken advantage of the various vulnerable factors.

Our friends made a particular point about the fact that he had never taken enforcement action against the people who cancelled their PINs. If your Honours go to page 31 of the appeal book you will see the primary judge’s findings about that. At paragraph 90 you see that:

With one exception, Mr Kobelt did not take enforcement action against these customers.

These are the ones who cancelled their PINs or had their income paid into different accounts:

He appreciated that it was not in his commercial or reputational interest to do so. Instead of confronting the customer, Mr Kobelt thought it better to wait and hope that the customer would in time –

return to the system and he could resume making withdrawals. Then at paragraph 91 you see the kinds of entries that were made in the diaries when these occasions occurred, and your Honours saw some examples of that

BELL J: I do not understand there is any difference between you on that. Surely, the finding at 90 is consistent with Mr North’s submission about the interpersonal nature of the relationship and the fact that - the colourful entries hardly add to the argument.

MR DONAGHUE: Well, they do not sit well, in my submission, with the notion that there was a caring and interpersonal relationship with Mr Kobelt and his customers. That does not look like what that

KIEFEL CJ: It might be a little more complicated than that.

MR DONAGHUE: The submission I think went well beyond, in my submission, what the primary judge would have supported. Finally, the case that Mr Kobelt advances is largely premised on an assumption that but for the bookup system, as he operated it, there was no other answer to the cultural problems of demand sharing and boom and bust. As to that, your Honours might note that in this Court in paragraph 37 of our friend’s submissions there is an acknowledgment that notwithstanding the bookup system demand sharing would continue and, indeed, it is advanced in paragraph 37, as we understand that paragraph, as partly explaining why the debts could be paid quite quickly:

customers were able to devote a large proportion of their income to repayment, in circumstances where resources were shared amongst kin and there was a low cost of rent –

So there seems to be an acknowledgment consistently with the primary judge’s finding that while a large part of the relevant communities might have had their PIN cards held by Mr Kobelt there was then a capacity for demand sharing to continue to occur amongst those people who still had access to funds.

So it is not readily to be inferred that the system actually was an answer to demand sharing. But even if it was, if the problem is that when people have access to their PINs and cards they are susceptible to humbugging, then it would be perfectly possible to solve that problem by a system well short of that adopted. A card could be lodged with Mr Kobelt without a PIN number and without authority to take all of the funds and that would solve that problem. The card could be lodged elsewhere, with MoneyMob, for example, in Mimili. So there are options available to deal with that problem that do not explain or justify the system that Mr Kobelt adopted.

As to boom or bust, there were express findings made about other means to address that problem, particularly at AB 140, paragraphs 570 and 571. This is where the primary judge is dealing directly with the boom and bust issue and he deals on page 140 with some of the evidence about that problem, to the extent that it was shown to exist and then says at 570:

There were other means –

to address the matter:

without submitting themselves to Mr Kobelt’s control –

For example, there was evidence that:

Centrelink could, on request, make payments of pension weekly, rather than fortnightly –

So one of the options is to change the gap so that there is less of a need to smooth out between payments. Another option at 571, there is a Centrelink BasicsCard available to be used for some goods rather than others. So, again, there was evidence and findings in relation to alternatives. Our final point, your Honours

EDELMAN J: Sorry, just before you move on to that, do you say that a direct debit type system would also smooth out a boombust type cycle?

MR DONAGHUE: Yes, your Honour, subject to the point that I am about to make. It would depend exactly how it is set up. But the point that the primary judge made at 569 is that this whole system only affects boombust at all to the extent that Mr Kobelt exercises control not only over the 50 per cent that he takes to assign to the cars but over their 50 per cent as he called it, because unless Mr Kobelt is controlling the money that is supposed to be available to the customer to use for their own necessities of life then there is no answering of the boom and bust problem. So this system only helps in that respect at the cost of people subjecting themselves to Mr Kobelt exercising, as the primary judge put it, a significant degree of control over the daytoday lives of his customers.

To the extent that a direct debit system left customers with 50 per cent of their income still available to be used as they wished, then I would accept in answer to your Honour Justice Edelman’s question that it might not be an answer to the boombust problem but there are other answers, as dealt with in 570 and 571. If the Court pleases, those are our submissions.

GAGELER J: Mr Solicitor, before you sit down, do you have anything to say about the judgment of Justice Bryson to which we were taken?

MR DONAGHUE: No, your Honour, other than it is a single judge in 1994. This Court has dealt with the principles on a number of occasions since then but I do not understand what is said to be fundamentally different but we submit they are the guide as to the principles is what your Honours have said in Thorne and Paciocco. If the Court pleases.

KIEFEL CJ: The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders and otherwise to 10.00 am.

AT 4.28 PM THE MATTER WAS ADJOURNED