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Book-up credit system not unconscionable

19 June 2019

#Dispute Resolution & Litigation

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Book-up credit system not unconscionable

A narrow majority of the High Court has dismissed an appeal by ASIC, finding that a general store owner’s informal ‘book-up’ system that supplied credit to Anangu customers in South Australia’s APY Lands was not unconscionable.

The book-up system allowed the deferral of whole or part payment for goods subject to the owner retaining a customer's debit card and personal identification number linked to their Centrelink payments. It was sometimes the only way for consumers in this area to access credit due to various financial literacy, practical and cultural barriers. ASIC argued that the system was contrary to their interests and exploited the vulnerability and disadvantage of customers, and therefore was a contravention of the proscription of unconscionable conduct under section 12CB of the Australian Securities and Investments Commission Act 2001 (the ASIC Act).

Kiefel CJ and Bell J found that Anangu customers understood the basic elements of the long-standing system. They entered into book-up credit contracts with Mr Kobelt because it enabled them to purchase goods which they may otherwise not have been able to acquire. They held that Mr Kobelt did not obtain an unconscientious advantage of the customers’ vulnerabilities.

They also referred to evidence from an anthropologist that the system was a way that Anangu people had adapted their values and practices to the market economy and that they viewed shopping in this way as an exercise of agency.

Gageler J was also unwilling to accept that the customers were exploited, asserting that they had a choice to enter into the contracts and that ‘continued participation in the book-up system suited the interests of them and their families having regard to their own preferences and distinctive cultural practices.’

Edelman J in dissent held that the fact that customers ‘chose’ Mr Kobelt’s system of credit did not preclude it from being unconscionable as it was a choice between that or no credit at all. Furthermore, he emphasised that the system of credit would be unacceptable in mainstream Australian society and it was even more unacceptable in the APY remote communities lands because it was the only form of credit offered to the highly vulnerable persons there. 

Nettle and Gordon JJ in the minority identified the tension between the voluntariness of the consumers’ entry into the transactions and the benefit they obtained, and their vulnerability on the other hand. Their concerns were that Mr Kobelt’s ‘predatory’ system tied customers to the business and placed them in a position of dependence by ‘[depriving] customers of independent means of obtaining the necessities of life’.

This decision has created the impetus for ASIC to continue consultation with Aboriginal and Torres Strait Islander peoples and educate book-up providers and consumers. In terms of future reform, ASIC will push for better protection against exploitation for consumers in remote communities as part of their Indigenous Outreach Program.

Author: Kim MacKay 


Kim MacKay, Partner 
T: +61 9321 9785

Greg Wrobel, Partner 
T: +61 2 8083 0411 

Paul Venus, Managing Partner 
T: +61 7 3135 0613 

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