Australia - Full Federal Court clarifies position on penalties On 8 April 2015, the Full Federal Court found in favour of the appellant ANZ in Paciocco v ANZ  FCAFC 50, declaring that the bank's late fees were not penalties, and were therefore enforceable against its customers. In the judgment, the Court imposed a new 'ex ante' (before the event) test for determining whether a fee is 'extravagant and unconscionable', meaning that late fees could be set by reference to the greatest possible loss that could flow from the customer's failure to pay as conceived as at the commencement of the customer's contract with the service provider. The Court also accepted a broad range of possible direct and indirect costs could be taken into account in the ex-ante analysis when calculating the quantum of conceivable losses. Therefore, when assessed against this conceivable loss, the late fees charged by ANZ in this case were held to be reasonable and not extravagant or unconscionable. The Full Federal Court rejected the traditional 'ex-post' (after the event) analysis applied at first instance, which determines whether late fees are extravagant or unconscionable with reference to actual losses stemming from the breaches to which the fees relate. The Court focused on the bank's late payment fees on credit card debts, and otherwise upheld Justice Gordon's first instance findings that honour, dishonour and overlimit fees charged by ANZ were not penalties, unconscionable or unfair. The decision it is a setback for plaintiffs in numerous class actions based on penalties on foot, which are currently stayed pending the final determination in this ANZ case. A High Court appeal seems likely (although a special leave application has not yet been lodged). In the interim, it is important that parties involved in commercial drafting are conscious of the changing law on penalties, particularly when drafting provisions requiring one party to pay an amount in the event of certain contingencies. For example, the payment of an 'early termination fee' to the supplier if the agreement is terminated for convenience early by the customer. The Full Federal Court's decision and the outcome of a possible High Court appeal will be relevant for various providers of consumer services, including telecommunications providers and utilities companies. A copy of the Full Federal Court judgment is available here. For more information, please contact Anne-Marie Allgrove, Toby Patten, Jarrod Bayliss-McCulloch or Grace Loukides.