Introduction

On 5 February 2014, Justice Gordon delivered her judgment in the Federal Court Class Action commenced by customers of Australian and New Zealand Banking Group Limited (the Bank) who alleged that certain fees charged by the Bank were penalties or otherwise unconscionable under the Victorian Fair Trading legislation, Australian Securities and Investments Commission Act, Australian Consumer Law or Consumer Credit Code and could not be legally enforced.

The judgment is the second in a series of group proceedings commenced by law firm Maurice Blackburn.  It follows a unanimous decision of the High Court in Andrews v ANZ1 in which the Court held that certain fees charged by the Bank were capable of being characterised as penalties at common law and equity. The High Court held that in determining whether the character of a bank fee is a penalty it is necessary to assess whether the fee is to secure performance of a primary obligation or for further services and accommodation by the bank.  In the case of further services, the fees will not be regarded as a penalty.  If the fee is charged to secure performance of an existing obligation it will only be enforceable if it is a genuine pre-estimate of the damage suffered by the bank by reason of the customer’s non-performance of his obligations.

Credit Card fees

Justice Gordon applied the principles outlined by the High Court in Andrews v ANZ and held that the late payment fees charged by ANZ on lead applicant Mr Paciocco’s consumer credit cards constituted penalties at common law and in equity and were therefore unenforceable.  She held that the fees were extravagant and therefore unenforceable.

Other fees

Justice Gordon also addressed the character of honour, dishonour, non-payment or overlimit fees charged by ANZ and held that they were of a different character to the credit card fees and did not constitute penalties at common law or in equity.  Nor did they contravene statutory unconscionable conduct provisions.  Her Honour found that the liability to pay each arose as a result of and in exchange for something more than and different from what was agreed in the primary stipulation and they were not penal in nature. The payments were genuine service fees legally charged under contract.  Although not required to do so, the Court determined that the fees were not otherwise extravagant and unconscionable.  

Quantum

The court ruled that the lead applicant was entitled to the difference between the loss incurred by the Bank resulting from the late payment and the fee charged to him, plus interest.  Her Honour accepted the evidence adduced by the lead applicant that ANZ’s losses were between $0.50 - $5.50 and the fees charged were either $20 or $35 and were therefore extravagant.

Her Honour’s decision has clarified the approach which the court will adopt in similar class actions brought against the big 4 banks and other Australian retail banks. Those class actions are said to be brought on behalf of 180,000+ group members and are funded by litigation funder Bentham IMF Pty Ltd.   We anticipate that the decision will encourage settlement discussions between the parties and provide clarity on the likely approach the court will adopt to certain fees charged.

The decision has potential broad application beyond financial institutions, to other service providers including telecommunications, electricity and gas corporations who charge late fees for non-payment.  Plaintiff law firms will be looking for other targets and businesses who charge late fees should be looking carefully at their terms and conditions to determine whether they are at risk of breaking the law.  Insurers should be looking at their book of business carefully to see what classes of business they insure as there may be a flood of claims in this space.

Limitation period

Finally the Bank sought to rely upon the 6 year limitation period to seek to avoid liabilities for fees charged more than 6 years before the proceeding was commenced. Her Honour rejected this defence noting that the late payment fees were said to have been made by the lead applicant as a result of a mistake of law. Justice Gordon held that for the purposes of determining the limitation period, time commenced to run when the lead applicant discovered that he had paid money over to the Bank under a mistake of law, which in his case was when the Andrews case was first decided. The effect of the limitation period defence being ruled out is to expand the period over which, and thus the amount of, payments which may be recoverable to potentially go back many many years.