The recent case of Paciocco v Australia and New Zealand
Banking Group Limited (Paciocco) has provided some much needed
guidance on the 2012 High Court case of Andrews and Others v
Australia and New Zealand Banking Group Ltd (Andrews).
We previously reported on the matter of Andrews, which extended the reach of the penalty
doctrine to compensation arrangements, whether or not associated
directly with a breach of contract.
Paciocco clarified many of the issues raised by
Andrews. What should be taken from Paciocco is
a requirement to pay a sum will not be a penalty at law or in
equity unless it is 'extravagant and unconscionable in amount
in comparison with the greatest loss that could conceivably be
a penalty can also arise in respect of fees payable to secure
the performance of a party's obligation.
Paciocco broadly dealt with the characterisation of
late payment fees and honour, dishonour, non-payment or over limit
A central question for the Federal Court was whether the
requirement to pay the fee was security for performance by the
customer of other obligations to ANZ, or a fee charged in
accordance with pre-existing arrangements depending on whether ANZ
chose to provide something more and further to the customer.
Late payment fees
It was held that the late payment fees charged by ANZ on Mr
Paciocco's consumer credit cards constituted a penalty at
common law and in equity.
The liability to pay the late payment fee was contingent upon a
breach of contract or alternatively, the payment was designed to be
a disincentive to the customer making late payments on his credit
This payment was an additional detriment that was assessed to be
extravagant and unconscionable and far in excess of what might
conceivably be the damage ANZ would suffer as a consequence of the
late payment. As the fees were not a reasonable pre-estimate of
ANZ's loss, they were found to be unenforceable penalties.
This was because, regardless of how late the customer was, the
same fee was charged. The Court determined the quantum of the loss
to be between $0.50 and $5.50. The fees were $20 or $35.
Honour, dishonour, non-payment or over limit fees
The honour, dishonour, non-payment or over limit fees charged by
ANZ were characterised by the Court differently to the late payment
fees and were held to not be a penalty.
The Court considered the requirement to pay these fees was not
triggered by a breach of contract, but arose as a result of, and in
exchange for, something more than or different from what had
originally been agreed to by ANZ and the customer (i.e. allowing
the customer to exceed the agreed credit limit).
The Court also found that the provision was not designed to
secure or encourage a particular outcome that was favourable to
ANZ, such as customers staying within their credit limits.
This case is currently under appeal by both ANZ and Mr Paciocco.
We will keep you updated as to findings of the appeal.
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).