Paciocco v ANZ [2014] FCA 35

This is the decision in the big litigation-funded class action over bank late fees.

The court held that the late payment fees constituted a penalty because they were properly characterised as payable upon breach and not for further credit since credit had already been extended.

The court further found that the fees were extravagant, exorbitant and unconscionable in comparison with the greatest loss that could conceivably be proved by the bank on the basis of the following:

a) The same fee was payable regardless of how late payment was and regardless of the amount overdue;

b) The fee was the maximum amount the bank thought it could charge and bore no relation to the costs to the bank of late payment; and

c) The bank admitted that the fee was not a genuine pre-estimate of damage.

The court found that the bank could only enforce the fees to the extent of the bank’s proved loss. The bank’s expert report failed to address this issue and addressed instead theoretical costs that the bank could conceivably incur as a result of a late payment which far exceeded the amount of the late payment fee. The court found that the following costs were irrelevant and did not in fact occur in relation to the account holder in question:

  1. increased loss provisioning was irrelevant because any loss provision would have been written down to zero since full payment was received on the account;
  2. increased costs of regulatory capital was irrelevant because they are part of the costs of running a bank in Australia and when banks enforce, they do not sue for increase in loss provisioning or the cost of regulatory capital;
  3. many of the operational costs did not result from late payment.

The court noted:

It is difficult to accept that a prudent bank would allow Exception Fee Events to occur at all if, as claimed, the costs of each event far outstripped the amount of the fee.

The court also found that the accountholder’s claim was not statute barred because the limitation period did not run while the accountholder had the mistaken view that the bank was entitled to charge the fees.

The court accepted the accountholder’s expert’s calculation of the bank’s operational (collections) costs, rounded up to the nearest dollar as the bank’s proved loss and awarded the account holder the amount by which the late payment fees exceeded the bank’s proved loss.

The court found that the honour, dis-honour, overdraw and overlimit fees were not penalties because they did not arise as a result of breach. They were fees charged if the bank chose to provide something more and further to the customer eg in considering whether to approve an overdrawing.

The court said:

The liability to pay each arose as a result of, and in exchange for, something more than and different from what had been agreed in the primary stipulation. They were not penal in nature.

The court found that the bank was not contractually entitled to charge non-payment fees and they were a breach of the bank’s contract with the accountholder and so it was unnecessary to decide whether they were a penalty. The court gave damages for breach of contract in the amount of the non-payment fees charged together with interest.

Statutory Unconscionability
Unconscionable is not defined in the Competition and Consumer Act (or its predecessors) but means something done not in good conscience and that which is irreconcilable with what is right or reasonable. The court held that the honour, dis-honour, overdraw and overlimit fees were not unconscionable.

Unjustness
The court found no Code unjustness (which only applied to overlimit fees on the credit card accounts).

Unfairness
The court found no unfairness under the Fair Trading Act.

Click here to read the full judgment

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