Conduct that’s not so Unconscionable?

On Wednesday the High Court found against the Australian Securities and Investments Commission (ASIC) in its unconscionable conduct claim against APY lands general store owner Lindsay Kobelt.

A brief history of the matter and the ‘book-up’ system.
The ‘book-up’ system, used by Kobelt’s store, dates back to the 1940s and is a common practice among Indigenous communities. While not illegal, the book-up system is regulated by ASIC, the National Consumer Credit Protection Act and/or the ePayments Code. Because book up involves a deferred debt for the purchase of goods, it is a regulated credit facility and a financial product under the ASIC act. As such a book up provider is subject to the Australian Consumer Law protection provisions including the prohibition on in engaging in unconscionable conduct, misleading or deceptive conduct or the making of false or misleading statements. In the matter of ASIC v Lindsay Kobelt, the High Court upheld that Mr Kobelt engaged in unlicensed credit activity standards. They could not however, extend so far as to say that his practice, which required his customers to provide him with their debit cards, PINs and details of their income, which he then used to withdraw all, or nearly all, of the customer’s money from their bank account on or around the day they were paid, was unconscionable.

What is the legal definition of unconscionable conduct?
In short, there isn’t one. Instead, unconscionable conduct is a concept that has been developed on a case by case basis over time. Conduct may be unconscionable if it is particularly harsh or oppressive. To be considered unconscionable, the conduct must be more than merely unfair, it must be against conscience as judged in the norms of society. In remote (often indigenous) communities, the book-up is the norm. Moreover, book-up is entrenched in these areas and can be seen as beneficial for individuals within those communities who otherwise would not obtain credit. In considering the steep history of the ‘book-up’ system in APY Lands and the historical understanding of the system within the community, the book keeping of Mr Kobelt and the fact that he did not unduly profit from the system, the High Court could not deem it to be unconscionable.

How does this decision affect me?
ASIC’s pursuit of an outback store owner should ring alarm bells for any business owners who may be aware of or unwittingly be engaging in ‘unconscionable conduct.’ There are several practical tips that we recommend to clients to ensure that they are not involved in such practices. These apply for contractor agreement, supply agreements, or client agreements:
• Ensure that all of your commercial contracts are up to date and in writing
• Ensure that all of your commercial agreements are fully signed and executed
• Consider the vulnerabilities of your clients/ suppliers/ contractors – ensure that your contracts are in plain English and are easy to follow
• Ensure that you clearly disclose important or unusual terms or conditions in an agreement


Should you wish to discuss or review your commercial agreements or are subject to any regulatory enquiry, including ASIC, please feel free to contact us.

Written by Dayna Roberts