In Kobelt v Australian Securities and Investments Commission [2018] FCAFC 18 the Full Federal Court confirmed that Mr Lindsay Kobelt, owner and operator of Nobby’s Mintabie General Store in the remote South Australian APY Lands, had engaged in unlicensed credit activity when selling motor vehicles on “book up”.

However it allowed his appeal against the trial judge’s decision that Mr Kobelt’s system of providing book up was unconscionable. ASIC is considering an appeal on this issue. Background.

UPDATE: ASIC’s High Court appeal dismissed.

Importantly the Full Court considered the scope of regulated credit and whether in this case there was a charge for the shopkeeper’s provision of credit within section 5(1)(c) of the National Credit Code.

For credit to be regulated a charge is or may be made for providing the credit.

Was there a charge for providing credit?

Kobelt disputed ASIC’s allegation that there was a charge for providing the credit and that was one of the critical issues before the trial judge.

Kobelt said that prior to 1 July 2011, there had been a difference between the cash price at which he sold the second-hand motor vehicles and the book-up price (the former was less), but that that practice had ceased on or about that date and that thereafter the prices were the same. The trial judge reviewed the evidence about that matter and firmly rejected the appellant’s case.

Between 6 July 2011 and 31 October 2012, the appellant sold 105 motor vehicles to 92 customers under the book-up system. Most of the sales were to Aboriginal residents of the APY Lands (Anangu) at a price of between $2,500 and $7,800.

The trial judge found that it was Kobelt’s practice, and remained so until at least April 2014, when selling motor vehicles to do so at a reduced price in respect of customers who could pay the purchase price in full at the time of purchase, and the list price to those to whom he provided credit by way of book-up.

As a condition of the provision of credit under the book-up system, Kobelt required the customer to provide to him a debit card which, together with the customer’s personal identification number (PIN), gave access to the bank account of the customer into which the customer’s wages or Centrelink benefits were paid. Kobelt deducted instalment payments when funds became available.

The trial judge said that it was the first limb of the definition of “cash price” which was relevant in the circumstances of this case. He held that because of the difference between the price at which the motor vehicles could be purchased for cash and the book-up price, s 11(1)(b) of the National Credit Code was satisfied in the case of the 92 customers and that the difference between these two amounts was the charge for providing the credit by reason of the operation of s 11(3)(d) of the National Credit Code.

The trial judge said that the phrase “charge … for providing … credit” was not restricted to an interest charge or even to a charge in the nature of interest and that included amounts paid on account of the provision of credit. The primary judge rejected an argument that there was a material distinction between electing to take less than the “market” price for vehicles “for his own commercial reasons”, namely to obviate the risk of default and loading a “market” price with a credit charge.

The majority decision of the Full Federal Court concluded:

“The critical consideration is whether there is a charge for the provision of credit and the fact that there is such a charge is established by the circumstance that a purchaser on book-up paid more for a vehicle than would be paid by a purchaser of the same vehicle who paid cash. …
In our opinion, the purchase of second-hand motor vehicles under the book-up system fell within the terms of s 11 of the National Credit Code. In large measure, we agree with the reasons given by the primary judge for reaching that conclusion. … The parties in this case contemplated payment of the purchase price in parts over a period of time and neither party suggested that these contracts were void for uncertainty. The beneficial purpose of the legislation supports the broader construction as there is every reason to think the National Credit Act and National Credit Code were to apply to a contract where the obligations to pay are less precisely defined as much as they apply to a contract where they are precisely defined…..
The problem for the appellant’s argument is that he undoubtedly provided credit to the customers involved in the book-up system because the payment of a debt was deferred and, if the matter is viewed objectively, it is difficult to avoid the conclusion that the difference between the amount paid in cash and the amount paid under the book-up system where the payment of the debt is deferred, is a charge for deferring the payment of the debt. It is difficult to accept that the result would be any different depending on the thought processes of the seller.”

Must instalments be equal?

The trial judge also addressed the issue of whether the amount payable for the purchase of the motor vehicles by the 92 customers was payable by instalments within s 11(1)(a) of the National Credit Code. The trial judge found that the amounts withdrawn by the appellant varied from fortnight to fortnight and by reason of the appellant’s provision of further credit until the next payday, were not equal in effect.

The trial judge concluded that the word was capable of meaning of successive part-payments, even where the amount of those part-payments may vary.