Andrews v Australia and New Zealand Banking Group Ltd

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Crennan,Kiefel,Bell JJ
• Judgment Date: 06 September 2012
• Neutral Citation: 2012-0906 HCA A,[2012] HCA 30
• Docket Number: M48/2012
• Date: 06 September 2012
• Court: High Court

John Andrews & Ors

Applicants

and

Australia And New Zealand Banking Group Limited

Respondent

[2012] HCA 30

French CJ, Gummow, Crennan, Kiefel and Bell JJ

M48/2012

HIGH COURT OF AUSTRALIA

Andrews v Australia and New Zealand Banking Group Limited

Banker and customer — Penalty doctrine — Consumer and commercial credit card accounts — Honour fee — Dishonour fee — Late payment fee — Non-payment fee — Over limit fee — Whether those fees penalties — Whether penalty doctrine limited to circumstances where there is breach of contract — Significance of law respecting penal bonds — Grounds for equitable intervention — Whether penalty doctrine now wholly a rule of common law.

Equity — Doctrines and remedies — Relief against penalties — Significance of law respecting penal bonds — Whether relief available only in cases of breach of contract — Whether penalty doctrine now wholly a rule of common law.

Words and phrases — ‘bond’, ‘condition’, ‘dishonour fee’, ‘exception fees’, ‘honour fee’, ‘penalty’.

Federal Court of Australia Act 1976 (Cth), Pt IVA, ss 5, 21, 24(1A).

Judiciary Act 1903 (Cth), s 80.

Judicature Act 1873 (UK), s 24(11).

Representation

J T Gleeson SC with J A Watson for the applicants (instructed by Maurice Blackburn)

A C Archibald QC with M H O'Bryan SC for the respondent (instructed by Ashurst Australia)

ORDER

Leave to appeal granted in respect of grounds 1-4 of the amended draft notice of appeal.

The amended draft notice of appeal treated as filed and the appeal treated as instituted and heard instanter and allowed with costs.

Save as to sub-paragraphs (f)(i), (g), (h), (i), (k), (o)(i), and (p)(i) of order 1, set aside orders 1 and 2 of the orders made by the Federal Court of Australia on 13 December 2011, and in their place declare that the circumstances:

• (a) that the honour, dishonour, non-payment and over limit fees were not charged by the respondent upon breach of contract by its customers, and

• (b) that the customers had no responsibility or obligation to avoid the occurrence of events upon which these fees were charged,

do not render these fees incapable of characterisation as penalties.

Set aside the orders with respect to the costs of the Separate Questions made by the Federal Court of Australia on 7 February 2012, and in their place order that the question of costs be reserved for consideration by a judge of that Court.

French CJ, Gummow, Crennan, Kiefel and Bell JJ. In this litigation the applicants challenge the legal efficacy of various bank fees charged to customers.

2 These reasons are organised as follows:

Introduction	[3]–[8]
The penalty doctrine	[9]–[15]
The course of the Federal Court litigation	[16]–[28]
The Interstar decision	[29]–[32]
Bonds, contracts and the meanings of ‘condition’	[33]–[45]
Limited scope of the penalty doctrine?	[46]–[50]
The common law action of assumpsit	[51]–[63]
AMEV-UDC in the High Court	[64]–[68]
The Dunlop Case	[69]–[77]
Conclusion	[78]–[83]
Order	[84]–[87]

Introduction

3 There is pending in the Federal Court of Australia a representative action pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (‘the Federal Court Act’) against the respondent (‘the ANZ’). There are approximately 38,000 group members. In addition there also are pending in the Federal Court six proceedings against other banks which raise the same or similar issues.

4 The prolix pleading filed by the applicants puts their case on various grounds. These include engagement by the ANZ in ‘unconscionable conduct’ in contravention of the Australian Securities and Investments Commission Act 2001 (Cth) and the Fair Trading Act 1999 (Vic) (‘the FTA’), the application of s 32W and s 32Y of the FTA to avoid ‘unfair terms’, and the operation of provisions of the Consumer Credit (Victoria) Code and the National Credit Code with respect to ‘unjust transactions’.

5 These aspects of the litigation are not before the Court. But it may be observed that this pattern of remedial legislation suggests the need for caution in dealing with the unwritten law as if laissez faire notions of an untrammelled ‘freedom of contract’ provide a universal legal value 1.

6 What is immediately material is the claim for declaratory relief under s 21 of the Federal Court Act that certain provisions in contracts between the ANZ and the applicants are void or unenforceable as penalties, and that the applicants and group members are entitled to repayment of fees charged to them under those provisions, as moneys had and received by the ANZ to their use.

7 In this Court the applicants rely upon the doctrine identified with relief against penalty obligations and, on its part, the ANZ refers to matters of legal history to demonstrate the inapplicability of that doctrine to the present case.

8 It is convenient to begin with some reference to settled aspects of the penalty doctrine.

The penalty doctrine

9 Mason and Deane JJ observed in Legione v Hateley 2 that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability.

10 In general terms, a stipulation prima facie imposes a penalty on a party (‘the first party’) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an

additional detriment, the penalty, to the benefit of the second party 3. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation 4. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation

11 It has been established at least since the decision of Lord Macclesfield in Peachy v Duke of Somerset 5 that the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. It is the availability of compensation which generates the ‘equity’ upon which the court intervenes; without it, the parties are left to their legal rights and obligations. The point is illustrated by Waterside Workers' Federation of Australia v Stewart 6. A bond was given by the appellant in the sum of £500 on condition that it pay £50 if and so often as its members in combination should go on strike. Isaacs and Rich JJ 7 emphasised that, whilst refusal to work almost inevitably would cause loss to employers, ‘no one can ever tell how much loss is sustained by not doing business’ and on the principle stated by Lord Macclesfield no relief was to be given against payment of the £50.

12 It should be noted that the primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money 8. Further, the penalty imposed upon the first party upon failure of the primary stipulation need not be a requirement to pay to the second party a sum of money.

13 In Jobson v Johnson 9 Dillon LJ and Nicholls LJ explained that there is no distinction in principle here between a stipulation upon default for the transfer (or the use 10) of property and a payment of money; such a distinction would elevate form over substance. In that case, cl 6(b) of a share sale contract provided that upon default in payment of an instalment of the purchase price the purchaser was obliged to retransfer the shares to the vendors upon payment of a stipulated sum to the purchaser. The Court of Appeal held that cl 6(b) had the characteristics of a penalty clause. It ordered that either the shares be sold by the purchaser and the amount of the unpaid instalments be paid to the assignee of the vendors; or the current value of the shares, the aggregate of the unpaid instalments and amounts charged on the shares be ascertained and, if this was less than the sum presently due from the vendors under cl 6(b), effect be given to cl 6(b).

14 It will already be apparent that an understanding of the penalty doctrine requires more than a brief backward glance. In his reasons in Austin v United Dominions Corporation Ltd 11, after referring to the common law and statutory developments which had occurred by the first half of the 18th century, and noting that the equitable origin of the penalty doctrine was accepted throughout the 18th century, Priestley JA continued:

‘In the latter part of the eighteenth century and through much of the nineteenth century the courts showed restlessness with their longstanding duty to relieve against penalties. This has been attributed to the fact that

during this period the principle of freedom of contract reached its zenith: see Atiyah, The Rise and Fall of Freedom of Contract 12. Whatever the reason, during the nineteenth century the way in which the law concerning penalties originated and the way in which that law became incorporated in the common law were to some extent lost sight of. At the same time the operation of that law was clarified by the recognition of the distinction between a penalty and a genuine pre-estimate of liquidated damages.’

15 The formulation of that distinction between a penalty and a pre-estimate of liquidated damages which was made by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd 13 has been described as a product of centuries of equity jurisprudence 14. It was recently applied by this Court in Ringrow Pty Ltd v BP Australia Pty...