High Court shifts ground on penalties

Following a High Court ruling handed down yesterday, the bank fees' class action against ANZ will deal with 17 exception fees and not just the one type the Federal Court had said it would rule on.

In December last year, the Federal Court ruled that late payment fees were capable of being penalties, but found for ANZ on the other fees.

The applicants had claimed that each of 17 exception fees was a penalty and each was out of all proportion, or unrelated, to the likely damage sustained by the bank, and that the imposition of the fees was unconscionable.

The Federal Court, however, drew on a House of Lords case, in 1983, to support its ruling that "a party can only be relieved against a penalty if it becomes payable for a breach of contract".

The court ruled that the doctrine of penalties was limited to the circumstances of the breach of a contractual obligation.

Yesterday, the High Court said: "The fact that particular fees were not charged by the respondent, ANZ, upon breach of contract did not render the fees incapable of being characterised as penalties."

The current action is on behalf of about 38,000 class members who were customers of ANZ. In total, the bank fees' class action involves 170,000 customers of eight banks who are claiming repayment of fees worth more than $200 million.

ANZ, like most banks, has cut or eliminated the contested fees in recent years, with the bulk of the row over the level of the prior fees.

In its initial stage, the litigation only involves ANZ as a test case. The plaintiffs have also targeted over major banks and Citi.

The High Court unanimously rejected the proposition that the "penalty doctrine" applies only where there has been a breach of contract.

It said: "The question is one of substance rather than form. The fact that the honour, dishonour, non-payment and over-limit fees were not payable for breach of contract did not prevent them from being characterised as penalties."

ANZ's chief executive Australia, Phil Chronican, said: "Effectively, the High Court has expanded the law of penalty and this will have implications for many Australian businesses.

"It's important to remember that neither today's decision nor last year's Federal Court decision, which was largely in ANZ's favour, has considered whether the fees in question were in fact excessive.

"We have consistently maintained that while we conceded these fees were unpopular, we believe they were a fee for service. There is still some way to go in this class action."