The High Court finds that exception fees can constitute a penalty

John Andrews & Ors v Australia and New Zealand Banking Group Limited [2012] HCA 30

Background

This case concerns a class action by customers of Australia and New Zealand Banking Group Limited (ANZ) in relation to various fees charged on certain ANZ products.  The applicants commenced proceedings in the Federal Court of Australia (FCA).  They sought, amongst other remedies, declaratory relief that certain provisions in the banking products between them and ANZ operate as penalties and are consequently void.  They claimed repayment of the fees. 

The applicants contended that the “honour fees”, “dishonour fees”, “non-payment fees” and “over limit fees” (collectively, Exception Fees) were imposed upon or in default of the occurrence of stipulated events but were “out of all proportion” to the loss or damage which may have been sustained by ANZ.  ANZ claimed that “matters of legal history…demonstrate the inapplicability of that doctrine” to the case at hand.

At first instance

At first instance, and by way of interlocutory application, the FCA was put three questions to answer in determining the question of whether the Exception Fees could be classified as penalties:

  • whether the fees were payable upon breach of contractual obligations owed to ANZ (Question 1); or

  • whether it has been the responsibility of the applicants to see that the circumstances occasioning the imposition of the fees did not arise (Question 2).

If either of these questions are answered in the positive, then:

  • whether such fees were capable of being characterised as penalties (Question 3).

The FCA followed the decision in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 (Interstar) and held that:

  • out of the Exception Fees, only the “late payment fees” were payable upon a breach of contract (in answer to Question 1); 

  • because these “late payment fees” were payable upon breach of contract, they were capable as being characterised as penalties (in answer to Question 3);

  • in relation to the balance of the Exception Fees, that:

    • these were not payable upon breach of contract (in answer to Question 1);

    • it was not the responsibility of the applicants to see that the circumstances occasioning the imposition of the Exception Fees did not arise (in answer to Question 2); and

    • as Questions 1 and 2 were answered in the negative, there was no need to answer Question 3.

The applicants sought leave to appeal to the Full Court of the FCA on the grounds that all of the Exception Fees should be capable of being characterised as penalties. The High Court, under the Judiciary Act 1903 (Cth) removed the application for leave and heard the application for leave, and the appeal, itself.

The decision

Last week, the High Court granted the applicants leave to appeal and allowed the appeal. 

The High Court rejected the proposition that the penalty doctrine applies only where there has been a breach of contract (that is, Questions 1 and 2 need to be answered).  The only issue that needed to be determined is whether such fees were capable of being characterised as penalties (Question 3).

Lavan Legal comment

The High Court Justices unanimously found that the fact that some of the fees did not arise upon a breach did not prevent them from being characterised as penalties.  The question as to whether the Exception Fees are actually penalties has been remitted back to the FCA and will be determined on further hearing.

Lavan Legal will continue to monitor developments in this case which is of significant importance to all lenders.