ANZ’s ‘Late Payment Fee’ Victory Narrows Scope for ‘Penalty’ Claims

By Angela McLean

In April this year the ANZ successfully appealed the decision in Paciocco v ANZ, which was the largest class action Australia has seen to date. It was held on appeal that the credit card ‘late payment fee’ was not penal in character, extravagant or unconscionable, when considered in monetary terms against the overall potential loss which could be suffered by the ANZ as a result of a credit card late payment. Additionally, the cross appeal led by Mr Paciocco regarding honour, dishonour, over-limit and non-payment fees was dismissed. Consequently, all five fee types are enforceable, under the guise of ‘agreed damages’ contained within ANZ standard-form account contracts.

‘Agreed damages’ clauses are common in commercial and consumer contracts to relieve the burden of the party in which they favour of proving actual damages for a breach of contract (Cheshire & Fifoot, 2012), or, a breach of an additional promise which is subordinate to the main contract (Andrews v ANZ, 2012). Agreed damages also promote commercial continuity as a contract may remain in place despite a breach, rather than the contract being terminated. Yet a clause, including the monetary sum payable in the event of a breach, will not be enforced if it is objectively determined as oppressive, coercive, extravagant or unconscionable. The recent appeal highlights that a clause may therefore be drafted in consideration of the greatest monetary loss a party may suffer overall to its business as a result of a breach, but is limited to the amount to which a plaintiff could conceivably prove was suffered by the defendant as a result of the breach (Dunlop, 1915). The agreed damages monetary sum must also be assessed at the time of entry into the contract, with future potential loss in mind. Anything outside these parameters may result in the clause being construed as a ‘penalty’, extravagant or unconscionable, or all three, and consequently be unenforceable. Overall, the appeal highlighted that a drafting party can accord for realistic overall loss anticipated in the event of a breach, while restrained against a carte blanche drafting approach should the clause be legally challenged.

In contrast, this appeal also established that a party who the agreed damages clause is in favour of (i.e. the ANZ), is not required to prove they had precisely calculated how the monetary sum was arrived at for the purpose of drafting the clause, or for providing evidence to defend a claim. If a bona fide attempt was made to precisely calculate the monetary sum for the purpose of drafting the clause, this will assist in defending a claim, yet oddly no legal requirement mandates this, leaving a party relatively unaccountable unless a plaintiff, bearing the onus of proof along with the cost and time for litigation, establishes the clause to be beyond the greatest overall loss which can be conceivably proved.

In this appeal provisioning, collection and regulatory costs were held as relevant in the course of ANZ operating a bank, and were included in the calculation of overall loss. This is a significant turning point for Australia, by acknowledging the broader financial effect of a relatively minor breach on a more complex and modern commercial operation than was likely contemplated by the 1915 English case of Dunlop, where the legal principles of contractual ‘penalty’ were established. However, it still remains difficult to ascertain which losses, and to what extent, a court will likely consider relevant to a particular industry, and how far across a corporate structure this may extend.

These points and the decision more generally is a set back for consumer groups and similar class actions against banks, Telcos and utility providers using standard-form contracts. For example, the imbalance of ANZ’s bargaining power was unequivocally rejected on the basis that customers were not prevented from leaving their account contract at any time, albeit it is questionable whether more favourable collective account terms existed elsewhere in the market should a customer have indeed closed their ANZ account. Additionally, it was held irrelevant that the actual loss following a breach was a mere fraction of the actual fee charged, which no doubt will fuel further criticism of the banking sector when making billion dollar profits.

While it appears somewhat unfair to disarm David of his sword against Goliath in respect to a purported power imbalance, it restores a level of commerciality which is much needed for economic continuity. Without it, commercial activity would slow significantly, as many existing contracts involve parties where a significant power imbalance exists, and, litigation would sharply increase, placing further pressure on the judicial system.

The issues raised here and more are likely to be considered by the High Court if special leave for an appeal is granted to Paciocco. This is an opportunity for Australia to provide a modern interpretation of the 1915 principles of Dunlop, where courts have been somewhat reluctant to expand or intervene.

Angela McLean is a final year Bachelor of Laws student at La Trobe University. Her career to date has been with a major Australian bank, predominantly in commercial and high net worth credit risk management.


Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205

Australia and New Zealand Banking Group Ltd v Paciocco [2015] FCAFC 50

Dal Pont, G E, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2015)

Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1914] UKHL 1; [1915] AC 79

Harding-Farrenberg, Rommel, Andrews v ANZ – One Year On and Still No Certainty (2 September 2013)

Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35

Sneddon, N, Bigwood, R, and Ellinghaus, M, Cheshire & Fifoot, Law of Contract (Lexis Nexis, 10th Australian ed, 2012)

Suggested Citation

Angela McLean, ‘ANZ’s “Late Payment Fee” Victory Narrows Scope for “Penalty” Claims’, Law and Justice, 17 September 2015 (La Trobe Law School Blog,





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