On 6 September 2012 the High Court of Australia in Andrews v Australia and New Zealand Banking Group Limited (2012) delivered a decision which has given the green light for consumers to proceed against Australia's banks in the largest ever class action in Australia.

The decision was handed down in relation to claims against the ANZ Bank challenging the legality of certain fees (known as exception fees) charged by ANZ over the past six years. A key question is whether the charges are penalties or whether they relate to services.

The proceedings are part of a wider class action in which separate proceedings raising similar claims have been commenced against 7 other Australian banks with the possibility that 4 further banks will be drawn in. The class actions have been launched on behalf of about 160,000 customers, with claims estimated at over $200m. The class action is being funded by litigation funders IMF (Australia) Ltd.

The progress of the ANZ class action, which is being run as a test case for the proceedings against the other banks, is being watched with great interest by those in the legal, banking and insurance sectors in Australia.

Background

The applicants claim that ANZ's charging of the exception fees either amounts to breaches of contract or that the fees are penalties.

The disputed fees include honour fees, dishonour fees, non-payment fees, late payment fees and over-limit fees charged for retail and business deposit accounts and for consumer and commercial credit card accounts. At first instance in the Federal Court, Gordon J reached the following conclusions:

  • The late payment fees were payable upon breach of contract and were therefore capable of being characterised as penalties
  • The honour, dishonour, non-payment and over limit fees were not charged upon breach of contract and it was unnecessary to consider whether they were capable of being characterised as penalties. Instead, Gordon J held the fees were charged as a consequence of the decision of ANZ to afford or to decline the provision of further accommodation to the customer

The effect of the first instance decision was that a significant portion of the customers' claims could not proceed. The customers appealed this aspect of the decision.

High Court decision

The High Court unanimously allowed the appeal and found that the honour, dishonour, non-payment and over-limit fees were capable of being penalties. It also left open the question of whether the applicants should be entitled to challenge the finding that those fees were not payable upon breach of contract.

Importantly, the High Court confirmed that the scope of the penalty doctrine is not limited to breaches of contract in Australia. In doing so, it overturned previous NSW Court of Appeal authority which had held to the contrary.

The High Court overturned Gordon J's conclusion and held that even the existence of the following facts did not render the exception fees incapable of being characterised as penalties:

  • The fees were not charged by ANZ upon breach by its customers
  • The customers had no responsibility or obligation to avoid the occurrence of events upon which the fees were charged

Implications

It is still relatively early days in the class action proceedings.

While the High Court's decision will allow the consumers to continue with all their claims against ANZ, no determination was made by the Court as to whether the fees are in fact penalties. In addition, neither the High Court nor the earlier Federal Court decision considered the question of whether the fees were excessive.

The effect of the decision is that the proceedings have returned to the Federal Court for further hearing and determinations in relation to the ANZ proceedings.

Very little has happened to date in the proceedings against the other Australian banks, which have been stayed until at least June 2013 pending the ANZ proceedings. The outcome of the ANZ proceedings will not necessarily be determinative of the other class actions, which will still need to be resolved based on the relevant terms and conditions of the specific banking contracts.

For insurers, any judgment entered against the banks may raise interesting questions regarding the insurability at law of the amounts due to the customers as a consequence of the banks' overcharging.

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.