ANZ wins its appeal on late fees in High Court

ANZ wins its appeal on late fees in High Court

On 27 July, the High Court of Australia delivered a very important decision.
In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28), the High Court dismissed the the class action appeal by Maurice Backburn-funded claimant Lucio Paciocco that the late fee charged for late payment on credit card accounts amounted to a common law penalty.


In this long running battle, the late fee charged by the ANZ (and many other banks and financiers also did likewise)applied regardless of the actual amount overdue if the payment (consisting of the ‘Monthly Payment’ together with any ‘Amount Due Immediately’) shown on the statement of account was not paid on time. When the case was originally taken before the Federal Court, the late fee was $35 per event but in December 2009, this was later reduced to $20.
Prior to this case, the Courts have relied almost exclusively on an old English case, Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79 (the “Dunlop case”), which provided that the essential characteristic of a penalty was for a claim greater than a genuine pre-estimate of damage. In other words, the penalty sum is extravagant and unconscionable in amount in comparison with the greatest loss that could possibly be proven to have followed from the breach of contract.
Note: If a clause is a penalty, it is void to the extent it exceeds the actual loss suffered by the contracting party.

Why is this case important?

The High Court’s 4-1 ruling is 119 pages long and is important for two reasons:

  1. it sets a new standard of doctrine that differs from the old case law in that this decision now allows for a wider view of losses to be taken into consideration; and
  2. it’s a departure from the UK’s common law standard.

This decision doesn’t just affect the bank(s) but affects any business that charges fees for contractual breaches. There will no doubt be future cases but I would suggest some possible consequences may be:

  1. liquidated damages clauses will be much harder to challenge; and
  2. seeing far more expert evidence being required to show that the fee is or isn’t penal in nature.

In finding for the bank, the High Court’s ruling alters the doctrine of penalties that came out of the Dunlop case. The majority of the bench accepted the ANZ’s argument that the fee was not a penalty as it also included the recovery of amounts that could not be recovered in a claim for damages. In this case, these amounts were for loss provisioning and increases in regulatory capital costs whereas Maurice Blackburn’s argument relied solely on its estimate of the ANZ’s operational costs.

From an industry perspective and probably more importantly, the Court found the late payment fee did not amount to either:

  1. unconscionable conduct;
  2. an unjust transaction; or
  3. an unfair contract term.

Does this mean you can now charge what you want?

No it most certainly doesn’t. If you charge a fee that is clearly extravagant or exorbitant “by reference to the obligee’s legitimate interest in the performance of the contract assessed by the greatest loss that could conceivably be proved to have followed from a breach or failure to comply”, you will most likely find a Court and your EDCR provider would argue it is penal in nature. If it is a penalty, then it still remains unenforceable.

The vast majority of the case centred around Mr Piococco’s credit card account for his business, although his consumer credit card account also was brought into play. In that regard, it’s interesting to note that the Court found the Maurice Blackburn placed too much reliance on s.76(2) and in particular, sub-clause (e) of the National Credit Code to argue the late fee was unjust. This section states:

76 Court may reopen unjust transactions

(2) In determining whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following: …..
(e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee;
It must also be noted the Court compared and noted the requirements of s.12CB(2)(b) of the ASIC Act which although somewhat similar, isn’t exactly identical.
If you have any doubts as to whether any of your fees could be regarded as a penalty, we strongly suggest you seek legal advice.

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