In its response to the High Court finding that a ‘book-up’ credit scheme operated in the remote Aboriginal community of Mintabie in the South Australian APY lands was not unconscionable, Consumer Action Law Centre (Consumer Action) says that Australia needs an economy-wide prohibition on unfair trading.
“Unconscionable conduct is a complex legal term, and it is now clear that the highest judges of the land do not agree upon its meaning,” said Consumer Action CEO, Gerard Brody.
In a 4:3 majority decision, the High Court found that the book-up system, which provided purchase of goods and secondhand motor vehicles on credit, did not contravene the statutory prohibition on unconscionable conduct.
The system involved the proprietor of the store, Mr Kobelt, requiring his customers (the Anangu people) to provide him with their debit cards, PINs and details of their income, which he used to withdraw all, or nearly all, of the customer’s money from their bank account on the day they were paid.
“Consumer protection law affects all of us,” says Brody. “It needs to be easily understood and easily applied. It’s very rare that cases make their way to the High Court.
“The fact that there is such division as to the meaning of unconscionable conduct tells us the law is not working to support fair trading.”
In their joint majority judgment, Chief Justice Keifel and Justice Bell focused on a narrow interpretation of unconscionable conduct, requiring that the trader must have exploited or otherwise taken advantage of the disadvantage of their customers. They found that, principally because the customers entered into the credit arrangements ‘voluntarily’ and there was limited evidence of dissatisfaction with the arrangement, it could not be established “…that the respondent exploited his customer’s socio-economic vulnerability in order to extract financial advantage from them”.
In contrast, the minority judgments found that unconscionable conduct was made out. Justices Nettle and Gordon found that Mr Kobelt did unconscientiously take advantage of his customer’s vulnerability, stating:
“…it is because a transaction that is voluntarily entered into by someone under a special disadvantage that unconscionability, including statutory unconscionability, developed, in order to ensure that persons who are vulnerable and unable to protect their own interests are not the victim of conduct by a stronger party in unconscientiously taking advantage of that vulnerability”.
Similarly, Justice Edelman also said it was wrong to conceive that the Anangu customers ‘chose’ the system of credit stating that “the conclusion of unconscionability cannot be avoided by pointing to this so-called ‘choice’ between Mr Kobelt’s system of credit and no credit at all”. This reflects that there were no other options to purchase goods and services leaving book up as the last resort.
Justice Edelman also went further, noting that there are two provisions relating to unconscionable conduct in consumer protection law, and found that the statutory prohibition on unconscionable conduct should not be limited and was intended to develop to address a broader range of unfair or unjust conduct. Justice Edelman sketched out twenty years of law reform which has tried to broaden the prohibition, but ultimately notes that “any lowering of the bar … may only be possible if ‘unconscionable’ is replaced with ‘unjust’ or ‘unfair’’.
In 2017, the Review of the Australian Consumer Law recommended that consideration should be given to whether a prohibition of unfair trading is warranted in Australia. Similarly, in a report on digital platforms released December 2018, the ACCC said that further consideration should be given to a general prohibition against the use of unfair practices to deter businesses from engaging in conduct that consumers are uncomfortable with or that falls short of societal norms. NSW Fair Trading and Commonwealth Treasury are leading an examination of this issue this year.
“The Review of the Australian Consumer Law suggested that uncertainty about unconscionable conduct will be reduced as the courts continue to apply the legal principles to specific circumstances and, in doing so, develop precedents that can be applied to similar cases,” says Brody.
He says that this case demonstrates the difficulty in the courts doing this, given the limitations of the term ‘unconscionability’.
“A prohibition on unfair trading would enable greater consideration of the impact of trading behaviour on vulnerable consumers, rather than the morality of the business’s conduct.
“As the Banking Royal Commission demonstrated, Australians expect businesses to be treating us fairly. It’s time our law more fully met this expectation”.