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Exploitative practices not unconscionable.

You know when you rage and are that wild you grind your teeth, bite your tongue and sing people in your head? That is how I have felt writing the words that follow, so much so, that I have done CTRL+find checks to make sure none of my usual four letter words crept in.

A month ago I was having a yarn with Luke Pearson about the High Court case in which Lindsay Kobelt, former owner of Nobby’s Mintabie General Store in the remote South Australian Anangu Pitjantjatjara Yankunytjatjara (Anangu) land was found not to have acted unconscionably. Obviously, we formed the view that such a judgment was ridiculous and likely racist – given our experience as blackfullas – but we know our experience counts for nought when debating white fullas so determined to deny the existence of racism at the individual or systemic level so this required discussion about the law and its application.

The Anangu people live 1,100km north or Adelaide in remote country, undeniably in poverty and vulnerable to unscrupulous business practices as those employed by Kobelt. Kobelt was aware of the unique vulnerability of his customers and, despite this, used a “book-up” system to withdraw almost $1 million from the accounts of 85 of his Anangu customers.

The salient facts of this case are that:

  • In exchange for access to short term small “book-up,” Kobelt required the customers to hand over their debit card where their Centrelink payments were deposited along with the PIN and on the pay date in the early hours (1am) of the morning, would withdraw the entire balance.
  • While the ‘book up’ system was interest free it allowed the customer no control over the administration of their own funds and ensure that their entire fortnightly funds went straight to Kobelt’s store.
  • Separately, Kobelt offered high interest (40+%) second hand care loans, again, with knowledge of the financial vulnerability of the Anangu customers he knew did not have the opportunity to obtain advice on the financial or legal obligations he was imposing.
  • Cars were almost exclusively sold on high interest credit to Anangu customers without any warranty.
  • Kobelt didn’t just offer his unauthorised credit to Anangu people, he offered credit to white people too but white people were offered credit on different terms to that of the Anangu people such as the ability to pay in sums over longer periods, lower interest and with control over when payments were made.

This is a case where the Australian Securities and Investments Commission (ASIC) were willing to expend resources to pursue Kobelt for breaches of consumer law including unlicensed credit activities and unconscionable conduct and issued fines for this conduct.

The High Court determined that predatory conduct such as that engaged in by Kobelt did not amount to unconscionable conduct. I say this high court decision is racist and Kobelt’s appeal was privilege in action.

Why?

Kobelt racially delineated his grant of credit and terms of same on the basis of race, he obtained financial advantage of these credit arrangements despite the ‘book up’ not attracting an interest charge and he knew that his Anangu customers were financially vulnerable without access to advice or alternative financial services. Despite all of these facts being proven, Kobelt had the privilege and resources to appeal ASIC’s position all the way to the High Court to argue that taking advantage of vulnerable Anangu people in this manner was not unconscionable.

So, what is unconscionable conduct?

In simple terms, it is the unfair treatment of one party where the terms are unjust or overwhelmingly one sided. It is a category of abuse of power where one party (the stronger party) has exploited or taken unconscientious advantage of another (the weaker party).

The first case that established this concept at common law in Australia is a famous case called the Amadio Case in which Italian migrants in their 70’s, with limited English skills and little formal education signed mortgage guarantor documentation for their business owner son provided by the Commonwealth bank who knew that the documentation was not understood by the Amadio’s. The business failed and the bank attempted to call upon the guarantee.

The High Court determined that the Amadio’s were at a special disadvantage in dealing with the bank and thus, ‘unconscionable conduct’ became a common law precedent in 1983.

Common law has since established that to be at a special disadvantage or disability at law in dealing with contracts includes, but is not limited to, lack of assistance and education, mental disorder, drunkenness, emotional dependence and unequal bargaining power.

Eventually, statute caught up to common law and unconscionable conduct was prohibited under section 21 of the Australian Consumer Law (which appears in Schedule 2 of the Competition and Consumer Act 2010 (Cth)).

Although what is “unconscionable” is not defined in the statute, factors that the Court may have regard to (set out in Schedule 2) include, among other things, the bargaining power of the supplier and the customer; whether the conditions were reasonably necessary to protect the legitimate interests of the supplier; whether the customer was able to understand the documents; whether any undue influence or pressure was exerted on the customer; and the extent to which the supplier and the customer acted in good faith

ASIC made submissions to the High Court that:

  • Kobelt’s customers ‘were impoverished, could not read, could not add up, and had low levels of financial literacy’ and as such were deemed vulnerable or to be at a special disadvantage;
  • Kobelt knew of this disadvantage and implemented a ‘book-up’ system where he took Anangu customer’s debit cards and PINs and withdrew most if not all of their funds at 1am on the date of Centrelink deposits;
  • The effect of the scheme was that Kobelt controlled how much his customers could spend, the kinds of goods and services they could purchase and the places their money could be used (his store). As such, it tied customers to Kobelt, contributing to and prolonging a dependency relationship which deprived them of independent means of obtaining the necessities of life;
  • Kobelt knew the above facts; seemed indifferent as to whether customers could afford the commitment undertaken; pursued, and was at all relevant times aware of, his own interests; and took advantage of the vulnerability of his customers to bring about “considerable advantage” to himself.
  • The voluntary entry into this arrangement by the customers does not mean that there was an absence of undue influence.

Despite the fact that the Anangu people, living in impoverished conditions with limited language capacity in English and even more limited capacity to read and write, were taken advantage of by Kobelt – the High Court determined that this was not unconscionable.

This judgment sends a clear signal to business owners in remote communities that it is not unconscionable to take advantage of our most vulnerable people.

This decision and the fact that it was not examined within the context of Australia’s insidious racism and the special vulnerability of Indigenous people is demonstrative that the law is structured to ensure that the oppressed will remain so. The system is working as designed and by design, it seeks to oppress other.

So while the Anangu people continue living in poverty without any equitable relief from the Courts for the conduct they were exposed to, Kobelt sits comfortably financially, having made a significant return on their vulnerability.

Do not tell me this country is not structurally racist, the proof is in the precedent.

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