Paciocco v Australia and New Zealand Banking Group Ltd

Facts

The plaintiffs, Mr Paciocco and his company, were customers of ANZ Bank who had been charged various 'exception fees' (including late payment fees on credit cards and honour and dishonour fees on deposit accounts) over a number of years. They brought a representative proceeding claiming the fees were unenforceable penalties or, alternatively, unconscionable or unfair under statute. The fees ranged from $6 to $35 and were charged upon the occurrence of specified customer defaults or exceptions.

Issues

1. Whether the impugned bank fees were unenforceable penalties at common law or in equity. 2. Whether the fees constituted unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth) s 12CB. 3. Whether the fees were unjust contract terms under the National Credit Code.

Holding

The High Court held, by majority, that the exception fees were not unenforceable penalties and did not constitute unconscionable conduct or unjust contract terms, dismissing the appeal.

Ratio decidendi

A contractual stipulation requiring payment of a sum upon breach is a penalty — and thus unenforceable — only if the sum is out of all proportion to, or extravagant and unconscionable in comparison with, the greatest loss that could conceivably flow from the breach; a stipulated sum is not a penalty merely because it exceeds a precise pre-estimate of loss, provided it is a genuine attempt to fix a sum that bears a reasonable relationship to the legitimate interests of the innocent party in the performance of the contract.

Obiter dicta

The majority confirmed that the penalty doctrine extends in equity to stipulations triggered other than by breach of contract in certain circumstances, but declined to resolve definitively whether the equitable jurisdiction was co-extensive with or broader than the common law rule. Gageler J, in separate reasons, emphasised that the touchstone remains whether the sum is a genuine pre-estimate of damage or a deterrent, and queried whether the traditional formulation required refinement in light of the United Kingdom Supreme Court's reformulation in Cavendish Square Holding BV v Makdessi [2015] UKSC 67.

Significance

Paciocco is the leading High Court authority on the modern Australian law of penalties, confirming that the test is whether the stipulated sum is extravagant or unconscionable relative to the innocent party's legitimate interest in performance, and providing authoritative guidance on how courts should assess bank fee clauses and commercial stipulated-remedy provisions.

Key authorities

• Andrews v Australia and New Zealand Banking Group Ltd Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205considered
• Ringrow Pty Ltd v BP Australia Pty Ltd Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656applied
• AMEV-UDC Finance Ltd v Austin AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170applied
• Dunlop Pneumatic Tyre Co v New Garage and Motor Co Ltd Dunlop Pneumatic Tyre Co v New Garage and Motor Co Ltd [1915] AC 79considered
• Cavendish Square Holding BV v Makdessi Cavendish Square Holding BV v Makdessi [2015] UKSC 67considered
• Paciocco v Australia and New Zealand Banking Group Ltd Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199overruled