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News: Most bank fees not illegal penalties

Posted on 5
February 2014 by
Katy Barnett

I noted in December
last year that the issue of bank fees was back before Gordon J in the
Federal Court. Today, Gordon J has handed down her decision in Paciocco v
Australian and New Zealand Banking Group Limited [2014]
FCA 52. Her original decision on the matter, Andrews v Australian and
New Zealand Banking Group [2011]
FCA 1376, was appealed to to the High Court in Andrews v Australia and
New Zealand Banking Group Limited [2012]
HCA 30. The case was remitted back to Gordon J. Somewhat confusingly,
Paciocco is another representative plaintiff but the action is still the same.
Interestingly, the outcome of Paciocco is very similar to the
trial decision in Andrews. In the trial decision in Andrews, Gordon J
held that only late payment fees were illegal penalties, whereas honour fees,
dishonour fees, overlimit fees and non-payment fees were not illegal penalties.
Despite the High Court’s extension of the doctrine of penalties in 2012, the
outcome of Paciocco was identical: only late payment fees were
penalties. This must be a relief to the bank and to other commercial entities,
but a disappointment to the consumers.

The late payment fees were capable of being a penalty because for the
purposes of the common law penalty doctrine they were payable on breach and for
the purposes of equitable penalty doctrine laid down in Andrews by the
High Court, they were collateral to the main obligation (to pay the credit card
bill on time). They were intended to be in terrorem of the other party;
in other words, they were intended to scare the other party into paying the bill
on time. They were extravagant and unconscionable charges because they did not
reflect the losses the bank made as a result of the failure to pay on time.

The honour fees, dishonour fees, overlimit fees and non-payment fees were
held not to be penalties, but genuine service fees. Gordon J said these fees
were pursuant to a request from the customer for a service, and the customer
agreed with the bank to pay the fees. At common law, they were not penalties
because they did not arise upon a breach of contract. At equity they were not
collateral stipulations. The liability to pay the fee did not arise because of a
failure of the main stipulation, and ANZ was not bound to meet the customer’s
‘request’. Rather the customer got an extra service for a greater fee (so it was
an alternative stipulation). Consequently there was no need to assess whether
the fees were extravagant and unconscionable.

Moreover, the ANZ was not unconscionable in charging the fees under the
former Fair
Trading Act 1999 (Vic) or under the ASIC
Act 2001 (Cth). There was no dishonesty, oppression or abuse on the
part of the bank. The customers understood what they were agreeing to, and were
not under any compulsion to overdraw. Nor were the terms unjust under the Credit
Code or unfair contract terms for the purposes of the Australian Consumer
Law.

The remedy granted to the plaintiff was an action for money had and received
for fees insofar as the plaintiff had paid more than the cost to the bank of the
late payment. The late payment fees were said to be made pursuant to a mistake
of law. Related to this, one matter which may be of concern to the ANZ was
Gordon J’s decision that the Limitation
of Actions Act 1958 (Vic) only began to run once the plaintiff
discovered that he had paid the money over under a mistake of law (see s
27 of the Limitation of Actions Act, cf s
5 of the Limitation of Acts Act). Consequently the limitation
period only began to run once the Andrews litigation was commenced,
notwithstanding that a number of the penalty fees had been paid more than six
years before the action commenced. This may open banks to claims dating back
some time in relation to late payment fees.

It will be interesting to see the ramifications for this decision in respect
of other class actions against banks. The
Age reported today that another class action against banks is in the
wings, with 170,000 plaintiffs and an estimated claim value of up to $200
million. It is not clear what proportion of that class action relates to late
payment fees, but according to Paciocco, these late payment fees would
be likely to be penalties if the clauses are similar in form to those in the ANZ
contracts.

I suspect today’s decision may be appealed to the Full Federal Court and may
end up  before the High Court again. It may be a while before the
application of the penalties doctrine is fully clarified in Australia.

This
entry was posted in News, Opinions by Katy
Barnett. Bookmark the permalink.

About Katy Barnett
Katy Barnett is an Associate Professor at
Melbourne Law School. She was awarded her PhD in 2010, and it was published in
2012 by Hart Publishing as a monograph entitled Accounting for Profit for Breach
of Contract: Theory and Practice. In 2013 she was a visiting scholar with
Brasenose College, Oxford as part of the Melbourne-Oxford Faculty Exchange.

View all posts by Katy Barnett →

2 thoughts on “News: Most bank fees not illegal
penalties”

Katy Barnett on 11 February 2014 at 4:14 pm
said:

Apparently bank customers in New Zealand are mounting cases against New
Zealand banks in relation to fees: see here.

Katy Barnett on 20 February 2014 at 8:53 am
said:

An interesting tidbit from this DLA Piper commentary on the case – the grand total of
the representative plaintiff Paccioco’s loss is…$640.

Comments are closed.

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