Paciocco v Australia and New Zealand Banking Group Limited¹
The decision
On 5 February 2014 Justice Gordon in the Federal Court handed down her decision in class action proceedings concerning the question of whether various fees and charges levied by Australia and New Zealand Banking Group (ANZ) to its customers, should be struck down as penalties.
The High Court decision
This case follows on from the High Court’s decision in Andrews v Australia and New Zealand Banking Group Limited² which was handed down in September 2012, in which the High Court found that the doctrine of penalties is not restricted to situations where an amount is payable upon a breach of contract. Rather, the Court found that the doctrine of penalties in equity can apply to situations where a party is obliged to make a payment upon the failure of a stipulation which does not by itself involve a breach of contract, where the payment obligation is security for a primary obligation.
The matter was then remitted to Justice Gordon to make rulings on whether various ANZ charges and fees should be struck down as penalties.
Late payment fees struck out
Justice Gordon found that the credit card terms under which late payment fees were levied by ANZ to its customer, Mr Paciocco (as a representative customer) on his credit card constituted a penalty and should be struck out. Her Honour found that the liability to pay the late payment fee arose upon a breach of contract, and was collateral to a primary obligation to make a payment by a particular date.
Her Honour found that the actual loss suffered by ANZ by reason of Mr Paciocco making a late payment (and thereby incurring the late payment fee of $35.00) was less than $3.00, and that the disproportionality meant that the late payment fee was extravagant, exorbitant, and unconscionable.
ANZ did achieve some success, however, given that Justice Gordon ruled that various other fees and charges levied on customers were not penalties.
The limitations defence
ANZ also raised a limitations defence in relation to levies imposed more than six years prior to the commencement of the proceedings. Justice Gordon rejected the limitations defence, finding that Mr Paciocco was entitled to an extension of the limitation period based on a provision of the Victorian Limitations legislation³ that enables the limitation period of six years to be extended in cases of mistake. Her Honour rejected ANZ’s claim that in this case, the mistake was as to a matter of law, and not fact, and could not be relied upon by Mr Paciocco.
Lavan Legal comments
There are seven other banks in addition to the ANZ that are being sued for similar relief, in class actions brought by customers. Justice Gordon’s decision is an important one, and clearly opens the door to the banks being liable to meet multi-million dollar claims by customers.
The ultimate liability of the various banks will not be known for some time, having regard to the difficulties in assessing the quantum of damages, and the prospects of appeals being brought.
¹ [2014] FCA 35
² (2012) 247 CLR 205; [2012] HCA 30
³ Limitations of Actions Act 1958 (Vic)
