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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.
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.
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