FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Kobelt [2016] FCA 1561 File number: SAD 100 of 2014 Judge: WHITE J Date of judgment: 13 December 2016 Catchwords: CONSUMER LAW – consideration of declarations to be made for contraventions of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 29 of the National Consumer Credit Act 2009 (Cth) – consideration of the granting of injunctive relief pursuant to s 12GD of the ASIC Act – consideration of non-punitive orders. Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12GD(1), 12GLA National Consumer Credit Protection Act 2009 (Cth) ss 6(1), 29 Cases cited: Australian Competition and Consumer Commission v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 Australian Competition and Consumer Commission v Ozdirect Online Brands Pty Ltd [2009] FCA 1604 Foster v Australian Competition and Consumer Commission (ABN 83 975 695 966) [2006] FCAFC 21; (2006) 149 FCR 135 Date of hearing: 13 December 2016 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 25 Counsel for the Applicant: Mr T Duggan SC with Ms K Clark Solicitor for the Applicant: Australian Securities and Investments Commission Counsel for the Respondent: Mr DA Trim QC Solicitor for the Respondent: Lempriere Abbott McLeod Table of Corrections 24 February 2017 In the penultimate sentence of paragraph 4, the word "conclusion" is replaced with "inclusion". 19 April 2017 In the last sentence of paragraph 9, the word "in" is replaced with "with" and the word "Court's" is replaced with "Courts". ORDERS SAD 100 of 2014 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant AND: LINDSAY KOBELT Respondent JUDGE: WHITE J DATE OF ORDER: 13 DECEMBER 2016 DECLARATIONS 1. In the period between 1 July 2011 and 31 October 2012 in respect of 92 customers, and continuing until at least April 2014, the Respondent contravened s 29(1) of the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) by engaging in credit activity within the meaning of s 6(1) of the National Credit Act when selling vehicles by way of Book-up without holding a licence to engage in that credit activity. 2. The Respondent contravened s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in that, since at least 1 June 2008 and continuing until at least July 2015, in connection with the supply of financial services to customers of Nobbys Mintabie General Store the Respondent engaged, in trade or commerce, in a system of conduct or pattern of behaviour within the meaning of s 12CB(4)(b) of the ASIC Act which was unconscionable within the meaning of s 12CB(1)(a) of the ASIC Act in that the Respondent: 2.1 obtained, as a condition of providing a credit facility, possession of debit cards and personal identification numbers from the customers and thereby obtained control over the withdrawal of monies from the customers' bank accounts; 2.2 on the day on which payments were made into the account or shortly afterwards withdrew the whole, or nearly the whole, of the available funds in the customers' bank accounts; 2.3 withdrew, in some instances, amounts which exceeded those which the customer had authorised and withdrew funds more frequently than some customers had authorised; 2.4 was indifferent as to whether the customers could, having regard to their financial position generally, afford their commitment to him; 2.5 did not provide to his customers periodically true and proper account statements of the transactions he had effected using their debit cards; 2.6 placed the customers in a position in which they were subject to the exercise of the Respondent's goodwill and his control in their everyday lives, including having to ask the Respondent for additional credit to obtain cash from their bank accounts and to purchase goods including general groceries which the Respondent at his discretion, agreed from time to time to provide; 2.7 in relation to debts that had been incurred initially for the purchase of motor vehicles, provided credit of a particularly expensive kind in circumstances in which in most cases customers were not aware that they were being charged for the provision of credit; and 2.8 operated a Book-up system which involved taking advantage of the vulnerability of many of the Book-up customers arising from a combination of factors: the remoteness of their communities; the limitations on their education; their impoverishment; and the limitations on their financial literacy. INJUNCTIONS THE COURT NOTES the undertaking of ASIC that, in relation to any debit cards received from Mr Kobelt pursuant to paragraph 3.2.2 of these Orders, the officers who receive those cards will: (1) provide Mr Kobelt with a receipt specifying the number of debit cards collected and the names of the customers to whom they belong; (2) attend at Mimili and Indulkana and attempt to return to their owners as many of the debit cards as possible in the period 15 to 18 December 2016; (3) return any debit cards not delivered to customers in the period 15 to 18 December 2016 to the financial institution or institutions which issued the cards on 20 December 2016 by delivering the cards to the Adelaide branch of the institution or institutions, or if there is no branch of the institution in Adelaide, by posting the card or cards to the head office of the relevant institution. THE COURT ORDERS THAT: 3. Pursuant to s 12GD(1) of the ASIC Act: 3.1 the Respondent (whether by himself or his agents) be permanently restrained, and an injunction is hereby granted restraining him, whether personally or by his employees or agents from receiving and retaining: 3.1.1 any customer's debit card, or 3.1.2 any customer's debit card personal identification number. 3.2 the Respondent is: 3.2.1 to cease forthwith (whether by himself, his employees or his agents) using customers' debit cards, which as at the date of this order are in his possession, to withdraw funds from the customers' accounts; 3.2.2 by no later than 10 am on Thursday 15 December 2016, to deliver any customers' debit cards which remain in his possession to the Australian Securities and Investments Commission (ASIC) employees who attend Nobby's Mintabie General Store at that time and to destroy any records in his (or his employees' or agents') possession of customers' personal identification numbers. 3.2.3 during the period of 60 days commencing on 15 December 2016, to use his best endeavours to inform any customer whose debit card has been returned to ASIC and who either attends at Nobbys Mintabie General Store or telephones the Nobbys Mintabie General Store that the customer's card has been returned to ASIC and that they should contact Money Mob in their community or ASIC's Indigenous Helpline for advice about their debit card. Non-punitive orders 4. Pursuant to s 12GLA of the ASIC Act the Respondent, is during the period commencing on 17 December 2016 and continuing until 4 March 2017: 4.1 to display, in a visible location at or near the entry to Nobbys Mintabie General Store, a sign not smaller than A3 size in the terms specified in Schedule A; and 4.2 to make available in a prominent place in Nobby's General Store A4 size pamphlets in the terms specified in Schedule A. Case Management Orders 5. The matter is adjourned to 2.15 pm on Monday 20 February 2017 for the hearing of submissions on penalty and costs, including the costs of today's hearing. 6. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. EX TEMPORE REASONS FOR JUDGMENT WHITE J: 1 On 9 November 2016, the Court published its findings that the respondent, Mr Kobelt, had from 1 July 2011 until at least April 2014 contravened s 29 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) in providing credit to purchasers of his motor vehicles and that he had, by his conduct since at least 1 June 2008 and continuing to at least July 2015, contravened s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by his conduct in providing Book-up. The Court then adjourned for further submissions the relief to which ASIC was entitled in the light of those findings. 2 ASIC seeks relief of three kinds, namely, declarations, injunctions and orders concerning publicity of the Court's findings and orders. In addition, ASIC seeks the imposition of penalties and the costs of the proceedings but, by agreement, those aspects of ASIC's claim to relief are to be the subject of a separate hearing. The declarations, 3 The parties are agreed as to the terms of the declaration with respect to the contravention of s 29(1) of the NCPP Act and are agreed substantially on the terms of the declaration with respect to the contravention of s 12CB. There are some matters, however, which require specific consideration. 4 In relation to those parts of the declaration contained in paras 2.4 and 2.6 of ASIC's proposed declaration concerning the contravention of s 12CB, Mr Kobelt contended that the Court should include the words "in relation to debts that had been incurred initially for the purpose of motor vehicles". That led to some submissions from the parties as to whether the inclusion of those words was necessary in order to give effect to the Court's findings in a number of paragraphs within the reasons. It is not necessary presently to go to each of those paragraphs in detail, nor to discuss the respective submissions of the parties. I am satisfied that the inclusion of the words is not necessary to give effect to the Court's findings and so reject the submission of Mr Kobelt to that effect. Otherwise, subject to some alterations of an editing kind, the declarations will be made in the terms agreed upon by the parties. Injunctions 5 ASIC initially proposed, but did not pursue, the issue of an injunction restraining Mr Kobelt from engaging in credit activity as defined in s 6(1) of the NCCP Act unless he held a licence permitting him to do so. It is not necessary to consider that proposed injunction further. 6 The parties were in disagreement, however, as to the form of the rest of the injunctions sought by ASIC. 7 ASIC seeks the issue of an injunction pursuant to s 12GD(1) of the ASIC Act which would have the effect of restraining Mr Kobelt from receiving and retaining any customer's debit card or retaining any customer's personal identification number (PIN) in relation to a customer's debit card. 8 In addition, ASIC seeks an injunction requiring that Mr Kobelt cease immediately using the customers' debit cards which remain in his possession so as to withdraw funds from the customers' accounts, and an injunction of a mandatory kind requiring Mr Kobelt to deliver any remaining customers' debit cards in his possession to ASIC's employees who will attend at the Nobbys Mintabie General Store for the purpose of receiving those cards. It also seeks a consequential injunction directed to the informing of the Indigenous customers of what has happened to the debit cards. 9 Mr Kobelt, on the other hand, submits that an injunction in more limited and general terms would be appropriate, namely, an injunction pursuant to s 12GD(1) of the ASIC Act that he, his employees and agents be restrained from engaging in a system of conduct declared to be unconscionable by the Court's earlier order. By that I understood Mr Kobelt to mean a system having all the features to which the Court's declaration refers. ASIC made a number of criticisms of the form of the injunction proposed by Mr Kobelt, including that it lacked the precision and certainty with which Courts endeavour to express injunctions so that those who are bound by them know precisely what it is that they are permitted to do and restrained from doing; that it lacks certainty because of its reference to the declaration by which a number of aspects of Mr Kobelt's conduct were found to warrant the characterisation that his conduct was unconscionable; and that it would create difficulties of enforcement. 10 I consider that there is force in ASIC's critique of the injunction proposed by Mr Kobelt. In particular, I consider it inappropriate that the terms of the injunction be framed by reference to all aspects of Mr Kobelt's conduct which were found to contribute to the unconscionability of the conduct. To do so would mean that all of those aspects were essential to that finding, in the sense that without those aspects, the finding would not have been made. Plainly, some aspects were at the heart of the conduct found to be unconscionable and others were more peripheral. Accordingly, I do not accept that the form of the proposed injunction put forward by Mr Kobelt is appropriate. 11 During the course of his submissions on behalf of Mr Kobelt, Mr Trim QC referred to the orders of Rares J in Australian Competition and Consumer Commission v Ozdirect Online Brands Pty Ltd [2009] FCA 1604 as an example of the kind of specificity with which courts should endeavour to express injunctions. For the reasons I have already mentioned, I accept that it is appropriate for courts, and for the Court presently, to attempt to be as specific as possible in its expression of the injunction. However, Mr Kobelt did not put forward any alternative formulation of an injunction which would identify with the desired specificity the restraint which would be appropriate in order to give effect to the Court's orders. I accept, as discussed with Mr Trim, that it would be difficult to do so in the manner contemplated by Mr Kobelt. 12 ASIC recognises that in some respects the terms of its proposed injunctions go beyond the precise limits of the conduct found by the Court to be unlawful. That is because its proposed injunctions will relate to all of the debit cards held by Mr Kobelt irrespective of the literacy, education and general awareness of the customers who provided the debit cards and PINs, and whether or not they provided the debit cards to Mr Kobelt in circumstances in which they were fully informed and fully aware of the implications in doing so. 13 I accept that, as a matter of general principle, unless there are particular features of a case warranting a different course, it is desirable for the terms of a restraint to be limited to the conduct which the Court has found to be unlawful. So much is evident from a number of the authorities to which the parties referred me: see, e.g., Foster v Australian Competition and Consumer Commission (ABN 83 975 695 966) [2006] FCAFC 21, (2006) 149 FCR 135 at [35]; Australian Competition and Consumer Commission v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 at [60]-[61]. 14 In the present case, I am satisfied that the form of injunctions proposed by ASIC is appropriate, even though, as I have said, they will have an effect in some respects on every customer who has provided a debit card and PIN to Mr Kobelt. A number of features suggest to me that that is appropriate. 15 First, I refer to an admission made by Mr Kobelt in correspondence to ASIC. Mr Kobelt filed an affidavit in connection with today's hearing on 5 December 2016. On the following day, ASIC wrote to Mr Kobelt's solicitors informing them that they required Mr Kobelt to attend for cross-examination on his affidavit but, at the same time, indicated that it would not press for him to attend if "your client agrees that he has continued to withdraw money from some or all of the debit cards which remain in his possession since the date of the Court's judgment on 9 November 2016". Mr Kobelt's solicitors responded by letter dated 9 December 2016 saying, relevantly: We are instructed to advise that our client has continued to withdraw money for some or all of the debit cards which remain in his possession since the date of the Court's judgment on 9 November 2016. 16 Some debate occurred in the submissions today as to the extent and effect of that admission. Mr Trim acknowledged that the admission had been made in the terms just recited, but indicated that his instructions were that Mr Kobelt had done so only in the presence of the customers. I proceed on two bases in considering the submissions. First, that the effect of the admission and, in particular, the use of the words "has continued to withdraw money", was that Mr Kobelt was admitting that he has continued to withdraw monies in the way which was the subject of the evidence at trial, namely, he is using the customers' debit cards and PINs on the day upon which money was paid into their accounts so as to withdraw the money and transfer it to his own account. The use of the word "continued" in its natural ordinary meaning gives rise to that impression. The second feature is that the "qualification" to which Mr Trim referred in the submissions amounts, on my assessment, to a significant modification of the admission because it would mean that Mr Kobelt is not continuing to make the withdrawals but is instead engaging in a different form of conduct. Given that ASIC did not press for Mr Kobelt to attend for cross-examination in the light of the original admission, I consider that, in assessing whether or not the kind of injunction which ASIC seeks is appropriate, it is appropriate to take into account the effect of the admission made. 17 I am nevertheless satisfied that Mr Trim would not have made the modification to the admission without proper instructions and that those instructing Mr Trim would not have given those instructions unless they understood that to be the position. Nevertheless, I consider it appropriate to proceed on the basis of the admission originally communicated. 18 The second feature is that it is probable that there are relatively few, if any, customers in respect of whom Mr Kobelt's conduct would not be characterised as unconscionable. It is possible that there are some who are sufficiently educated and literate and had in a fully informed sense provided their debit card and PIN to Mr Kobelt. However, I think it appropriate to proceed on the basis that there would be relatively few, if any, customers in that category, especially as none has been identified for the purposes of today's hearing. 19 The next feature is that the conduct of Mr Kobelt in taking the customers' debit cards and PINs and using them in the absence of the customer to withdraw money is at the heart of the conduct found by the Court to be unconscionable. ASIC's proposed injunction goes to that conduct. 20 The next feature is the desirability of the Court's injunction being expressed in a way which is effective and enforceable, so as to achieve the protection of the customers for which it is designed. 21 Finally I take into account that the injunction will not preclude customers with debit cards attending at the Nobby's General Store and making use of their debit cards and PINs in a conventional way. In other words, it will not impinge upon conventional retail activity. 22 The parties differed as to whether or not Mr Kobelt should be permitted to continue doing that which he deposes to having done since 9 November 2016, namely, returning customers' debit cards to them as and when they attend at Nobbys General Store or whether the process should be brought to a conclusion by Mr Kobelt handing over the debit cards to ASIC's officers who will then attend to returning the cards to the customers. On Mr Trim's instructions today, there might be relatively few cards remaining in Mr Kobelt's possession, perhaps of the order of 20 to 30, and I am prepared to proceed on the basis that that is so. It may be also the case that the 20 to 30 cards includes cards belonging to customers who live in more remote locations from Mintabie and in respect of whom it will be difficult for the ASIC officers to return the cards. This will be so especially if the officers attend only at Indulkana or Mimili as is ASIC's proposal. 23 I accept that these are factors which count against ASIC's proposal. On the other hand, I do think there is force in ASIC's submission that the matter should not be able to drift on. That is especially so given that it appears that, on the face of the admission, Mr Kobelt is continuing to make withdrawals from customers' accounts. It is desirable that the position be brought to an end and the ASIC proposal provides a means by which the Court can have some confidence that that will occur in the relatively near future at least in respect of most of the customers whose cards remain at the store. 24 For these reasons, I propose to issue injunctions in the terms proposed by ASIC subject to some editing. Non-punitive orders 25 The parties were agreed in substance as to the form of the non-punitive orders and I will make orders in the terms proposed pursuant to s 12GLA of the ASIC Act. The form of notice to be provided by Mr Kobelt is to be in the terms proposed by ASIC. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: Dated: 22 December 2016