The High Court of Australia has stated that bank fees – even where they do not arise on breach of contract by the customer – may still be penalties (and thus unenforceable): Andrews v Australia and New Zealand Banking Group Ltd, [2012] HCA 30. The plaintiffs in this class action sought the recovery of various fees charged by the bank: ‘honour’ (processing), dishonour, non-payment and over-limit fees, as well as late payment charges. Late payment charges, being payable upon breach of contract, were clearly penalties and were not at issue before the High Court. The judge at first instance found that the other charges were not payable on breach or as a result of an event which the customer had an obligation or responsibility to avoid, concluding that it was not necessary to consider whether they were capable of being characterised as penalties. The plaintiffs argued that they should be characterised in that way, because they were imposed on the occurrence of events and were ‘out of all proportion’ to any loss or damage incurred by the bank, for services that were essentially ‘with no content’.

Reaching back to Roman law and the historical development of equity, the High Court noted that the penalties doctrine operates even where there is no express contractual promise to perform a condition. A promise that a condition will be satisfied may, in substance, be a penalty – and subject to equitable relief. That said, contracting parties may agree on a higher payment for further rights or services, and such an ‘alternative stipulation’ will not be considered a penalty. An example comes from an older Australian case where a contract for a single screening of a film provided that any additional screenings were subject to a fee that was four times the original one, but which was not a penalty: Metro-Goldwyn-Mayer Pty Ltd v Greenham, [1966] 2 NSWR 717. Whether the specific fees charged by the bank in Andrews were in relation to valid alternative stipulations or were, in substance, penalties was not decided by the High Court but remitted to the Federal Court for determination.

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