The Australian High Court has revisited the law relating to penalties, and its application to bank charges, in Andrews v Australia and New Zealand Banking Group Limited [2012] HCA 30 (available here).

The issue was whether certain provisions in contracts between ANZ and the applicants were void or unenforceable as penalties, such that the applicants were entitled to repayment of fees they had been charged. Specifically, at issue were the so-called "exception fees", being:

honour, dishonour, and non payment fees charged by the ANZ in respect of various retail deposit accounts and business deposit accounts, and fees identified as over limit ... fees charged by the ANZ in respect of consumer credit card accounts and commercial credit card accounts...

Late payment fees had been determined to be payable on a breach of contract, and therefore capable of being characterised as penalties. This was not appealed.

The Court found that the fact:

  • The honour, dishonour, non-payment and over limit fees were not charged by the [bank] upon breach of contract by its customers
  • The customers had no responsibility or obligation to avoid the occurrence of events upon which these fees were charged, does not render these fees incapable of characterisation as penalties.

This opens the possibility that a larger range of fees charged by banks and other entities will be void as being penalties (to the extent that they are not genuine pre-estimates of loss).

It is yet to be determined whether the fees at issue are in fact penalties. In particular, the Court raised the issue of whether they were truly a penalty (a "stipulation attracting the penalty doctrine") or the payment of an agreed sum for the provision of further accommodation (or refusal of that accommodation), e.g. the extension of an informal overdraft.

Other aspects of the litigation (and similar proceedings against other banks) are also ongoing.