Penalties put to bed. For now.
ANZ shareholders are breathing a little more easily following the High Court's long awaited decision in Paciocco & Anor v Australia and New Zealand Banking Group Limited  HCA 28.
On the other hand, ANZ customers probably aren't sharing the joy after the High Court dismissed the appeal from the Full Federal Court, confirmed the Court's approach in Andrews and held that the late payment fee charged by ANZ on credit card accounts was not a penalty or otherwise unconscionable, unjust or unfair under the relevant statutory prohibitions.
Back in March 2016, his Honour Justice McDougall of the NSW Supreme Court gave a rather helpful paper on the long-running class action litigation involving ANZ and its various unsympathetic customer Late Payment fees (access here) and summarised many of the concerns raised by commentators around the apparent uncertainty the High Court had created with its 2012 decision in Andrews.
His Honour made the following observations about the decision in Andrews:
“The Dunlop test has not been overruled; its scope has simply expanded, but it remains operative today. The test now operates in such a way that clauses requiring a stipulated sum to be payable, even in the absence of a breach of contract, may be classified as a penalty. On this basis, any clause which provides for a sum stipulated to be payable on the breach or failure of a covenant, may constitute a penalty. This applies to all types of contracts.”
In other words, things were not as extreme as claimed by many commentators.
In Paciocco, it was not in contention that the late payment fee under scrutiny was capable of constituting a penalty because it was imposed at common law, upon breach of contract, or in equity, to secure the performance of another contractual requirement. Accordingly, the Court was focusing on the applicable test to determine whether a sum paid on default is to be characterised as a penalty. The majority held that the overarching test appropriate in a case of this kind is whether such a sum is 'out of all proportion' to the business and financial interests of the party which it is the purpose of the provision to protect. Importantly, the test is not confined to loss in damages resulting directly from the breach in question.
Perhaps not a whole lot has changed. Many businesses in a range of sectors (not just the banks) will take comfort knowing that a wide range of legitimate business interests can be protected by penalty clauses and increased commercial certainty seems assured. On the other hand, the customers will continue to pay their late payment fees to the banks and, after six years, the ANZ class actions would appear to be at an end.