Australia: Late payment fees - The latest target for class actions. Are you at risk?

Earlier this month the Federal Court gave a boost to several class actions against banks when it ruled late fees charged by ANZ were penalties. It begs the question...which other industries that charge late fees will become targets for class actions?

In Andrews, the High Court changed significantly the accepted understanding of the penalty doctrine in Australia by ruling that a provision can be penal even if it is not triggered by a breach of contract (see Andrews v ANZ - Do all contracts need to be rethought?)

Since then, there has been much uncertainty about how the penalty doctrine operates. Some questions commonly asked are:

  • Will courts be willing to strike down as penalties commercial bargains freely made between sophisticated commercial parties?
  • Where there is no breach of contract, how will a party prove its loss?
  • What will be the event triggering the loss?

(See Andrews v ANZ - One year on and still no certainty)

On 5 February 2014, the Federal Court in Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35 considered some of the issues raised by Andrews in detail.

Paciocco, like Andrews, is a class action brought against ANZ in respect of a number of categories of bank fees, on the grounds that the fees are penalties, unconscionable at law and/or charged in breach of certain statutory provisions which are designed to protect consumers.


The fees in question were seen as falling into two broad groups – (1) late payment fees (Late Fees) and (2) honour, overlimit and dishonour fees (Service Fees). (Certain other non-payment fees were dealt with on a basis unrelated to Andrews, and are not considered here.)

The Court found that Late Fees (which were charged by ANZ when the amount shown on a statement of account was not paid by the due date) were penalties under the common law and in equity.

The Late Fees were held to be contingent upon a breach of contract and collateral to a primary stipulation (to make a payment by a particular date) in favour of ANZ.

Additionally, the Court found that the Late Fees were extravagant and unconscionable on the basis they were substantially in excess of the maximum conceivable loss that might be suffered by ANZ.

A Late Fee of $35 was payable regardless of whether the customer was one day or one week late (or longer), and regardless of whether the amount overdue was trifling or a large amount. The Court assessed the quantum of ANZ's loss at between 50c and $5.50, depending on the fee.

On the other hand, the Service Fees which were charged by ANZ in response to a withdrawal or payment request from a customer, were found to be fees for an additional service, as opposed to a collateral stipulation, and therefore, were not considered penal.


Late fees are not unique to banks. They are common to a wide range of consumer service contracts including:

  • mobile phone contracts
  • energy and water supply contracts;
  • pay TV contracts; and
  • gym memberships.

More complex commercial arrangements also frequently include late fees.

Where a court considers that a late fee is "extravagant and unconscionable" as opposed to a "genuine pre-estimate of damages", then the fee will be unenforceable to the extent the amount exceeds the loss that can be proved. Factors the Court in Paciocco considered significant included:

  • Whether the same fee was payable regardless of whether the customer was one day or one week late (or longer), and regardless of whether the amount overdue was $0.01 (trifling), $100, $1,000 or even some larger amount.
  • The relative bargaining power of the parties, including each party's rights to negotiate or vary the terms of the contract or terminate it.

Importantly (as was the case with certain contracts considered in Paciocco in respect of which late fees were found to be penalties) consumers frequently have no opportunity to negotiate the terms of their service contracts. Where fees are imposed as a result of the inequality of bargaining power between a corporation and its customer, the Court in Paciocco found that this will increase the risk of such fees being found to be penalties.

  • An objective assessment of the possible loss that might be incurred judged as at the time of entering the contract.
  • Expert evidence as to what the quantum of any conceivable loss might be.


ANZ raised limitation defences in respect of certain fees being considered by the Court in Paciocco. ANZ submitted the only relevant fees were those charged in the period 6 years prior to the commencement of the proceeding, in reliance on the Limitations of Actions Act 1958 (Vic).

The Court rejected ANZ's submission, and held that, as the fees were paid under a mistake of law, the limitation period started to run from the day the mistake was discovered. The Court determined this was the day the proceeding commenced. The result is that all late fees charged by ANZ at any time may be affected.


The large amounts in dispute mean an appeal from both sides appears likely. However, on the current state of the law, all late fees of a similar character to the ones charged by ANZ are open to question.

The implications for other financial services institutions are, obviously, significant. The litigation funder, Bentham IMF Ltd, who is funding the ANZ bank fee class action is also funding similar class actions against seven other banks operating in Australia. It has been estimated these eight 'bank fee' class actions, including the ANZ class action, are being run on behalf of approximately 185,000 customers and seek to recover in excess of $240 million in damages.

There is little doubt that the liberal class action regime in Australia (see A class above - The emergence of Australia as a prime class action jurisdiction) has allowed for the significant growth of funded class actions and the targeting of claims where the potential return to the funder is so substantial as to warrant the cost of running a complex class action.

In respect of late fees, the target is currently the banking sector, but there is clearly the potential for the target to widen and spread to other sectors where late fees are commonplace.

In an environment where funded class actions have become the norm (Australia is now the most likely jurisdiction outside North America for a company to face a class action), the importance of reacting early to potential class action claims and developing strategies to avoid, manage and defend class actions has never been more important.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions