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  FCA 52. Her original decision on the matter, Andrews v Australian and New Zealand Banking Group  FCA 1376, was appealed to to the High Court in Andrews v Australia and New Zealand Banking Group Limited  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.