Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30

The High Court has held that certain bank fees charged by ANZ are capable of being characterised as penalties, leaving it open for courts in the future to deem similar fees or charges as void and unenforceable.

Background

There are currently a number of class actions before the Federal Court brought by bank customers claiming that certain bank fees charged by the banks were excessive and should be paid back to customers. The damages sought in the class actions exceed $220 million.

In Andrews & Ors v ANZ [2011] FCA 1376, ANZ customers sought a declaration that these fees should be considered penalties, making them void or unenforceable. A fee is considered a penalty (and therefore unenforceable) if it is not a reasonable pre-estimate of loss. The fees considered in the case included:

  • late payment fees on credit cards; and
  • dishonour fees, non-payment fees and over limit fees (exception fees).

The judge in the primary case held that only fees payable on a breach of contract can be considered a penalty (and capable of being declared unenforceable). It followed that:

  • late payment fees were payable upon breach of contract and therefore were capable of being characterised as a penalty (ANZ has not sought to appeal against this finding); and
  • it was unnecessary to determine whether the exception fees could be characterised as a penalty because:
    • they were not charged by ANZ upon breach of contract by the customer; and
    • the occurrence of the event upon which the exception fees were charged (e.g. overdrawing the account or credit limit) was not an event which the customer had an obligation or responsibility to avoid.

The High Court Appeal

An appeal to this decision was allowed by the High Court which unanimously agreed that there was no basis for the principle that the penalty doctrine is limited to breaches of contract and that the question is one of substance, not form. The exception fees could therefore be characterised as penalties.

The decision as to whether the exception fees are in fact penalties will be left to the Federal Court on further hearing of the matter. In doing so the Court will examine whether the fees were a reasonable pre-estimate of loss suffered by the bank.

Key Messages

  • This decision changes the law – it widens the instances in which fees and charges can be considered penalties and therefore unenforceable.
  • Businesses who charge their customers fees similar to the exception fees considered by this case need to review their fee structures and consider whether:
    • fees exceed the cost reasonably expected to be incurred as a result of the action or breach that attracts the fee. For example, if a bank imposes a fee penalising consumers for missing a payment deadline, and that fee is more than the administration cost or other cost incurred by the bank as a result of the missed payment, then the fee may not be enforceable.
    • the expected administrative or other cost is uniform for all consumers. If this is not the case, a varying fee arrangement should be implemented. Consideration should be given to whether this is commercially practical.
  • This is an important test case which will affect the current class litigation before the Federal Court. While it does not provide a resolution to those proceedings, it allows for far greater damages to be awarded to bank customers should they be successful and may promote further litigation against banks and other businesses who charge similar fees.

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