On 8 April 2015, the Full Federal Court in Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 (Paciocco) upheld the entitlement of Australia and New Zealand Banking Group Limited (ANZ) to charge its customers various fees, including late payment fees. This decision overturns Justice Gordon’s first instance judgment in 2014, where her Honour held that ANZ’s late payment fees in banking contracts were penalties.


In 2013, a class action was launched against ANZ challenging the validity of numerous exception fees charged by ANZ on the basis that they were penalties or were the product of unconscionable or unjust conduct. The fees in question included credit card late payment fees, honour, dishonour and non-payment fees, and overlimit fees.

In February 2014, Justice Gordon determined that the credit card late payment fees were penalties, as they were payable upon breach of contract or as a collateral or accessory stipulation as security for a primary stipulation and were not a genuine pre-estimate of damage or loss that ANZ would suffer. They were found to be “extravagant and unconscionable” when compared to the actual loss suffered. However, the other fees in question were found to be of a different character and did not constitute penalties at common law or in equity. The liability to pay these fees was held to arise in exchange for a further service from ANZ.

ANZ appealed Justice Gordon’s decision to characterise late payment fees as penal, and the class applicants cross-appealed on the finding that the other fees were legitimate and not penalties.


On appeal, the Full Federal Court overturned Justice Gordon’s finding that the late payment fees were penalties. The Court otherwise affirmed her Honour’s decision that overlimit, honour and dishonour fees were not penalties, unconscionable or unfair.

The key findings of the Full Federal Court include the following:

  • The late payment fees could not be categorised as penalties as the fees were not extravagant, exorbitant or unconscionable.
  • To assess whether a fee is “extravagant, exorbitant or unconscionable”, the Court should assess the fee against the greatest loss that could conceivably flow from non-payment, assessed at the time the contract was entered into (ex ante) rather than retrospectively (ex post). In this regard, the Court found that Justice Gordon had incorrectly assessed the late payment fees against the actual damage resulting from the breach, which, of course, was not known when the parties entered into the contract.
  • Indirect consequences and costs as a result of non-payment can be taken into account when determining the greatest conceivable loss. Significantly, the Court took a broad view as to the kinds of losses that could be taken into account when conducting an ex ante assessment in respect of the fees in question. In determining the reasonableness of the late payment fees, the Court considered that, among other things, provisioning costs, costs for maintaining regulatory capital and costs related to running a collections apartment could all legitimately be taken into account.
  • The onus lies with the customer to demonstrate that a fee is extravagant or unconscionable as at the time of entering into the contract.
  • The honour, dishonour, non-payment and overlimit fees were charged appropriately as they were fees for additional services.
  • None of the imposed fees breached any statutory prohibitions under the Australian Securities and Investments Commission Act 2001 (Cth), the Fair Trading Act 1999 (Vic) or the National Credit Code relating to unconscionable or unfair conduct. ANZ had properly disclosed the fees, the customers were not considered vulnerable, the fees could have been avoided, and ANZ had acted honestly and in good faith.
  • Exceptions from freedom of contract require good reason to attract Court intervention. As such, there is a high threshold in determining whether a fee is extravagant or unconscionable. If a sum to be paid is not referable to any genuine pre-estimate of loss, but is nonetheless referable to another benefit or part of the bargain, and it is not out of proportion to the attainment of that benefit, no judicial intervention may be necessary.


Late payment fees and other similar fees have been an area of significant business risk since the High Court’s expansion of the doctrine of penalties in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 (Andrews). The Full Federal Court decision upholds freedom of contract as well as the enforceability of contractual provisions entitling banks to charge various fees.

As things stand, the decision represents a major obstacle for plaintiffs in current and future class actions relating to penalties. Whilst the enforceability of a fee will depend on the specific fee imposed, this decision will make it more difficult for a customer to prove that late payment fees and other similar fees are penalties.

Additionally, this decision is of significance, not only to the banking industry, but also to the telecommunications, utilities and other industries which charge fees similar to those considered in Paciocco. ANZ’s successful appeal will for the time being provide some comfort for other institutions that are facing similar class actions in respect of fees charged such as NAB, Citibank, Commonwealth Bank, Westpac, as well as telecommunication companies such as Vodafone, Optus and Telstra.

We note, however, that an application for special leave to appeal to the High Court was filed on 6 May 2015. That process will need to run its course, before there is real comfort as to the application of the penalties doctrine to fees of the kind considered in Paciocco post Andrews.