Lucio Robert Paciocco and Another v Australia and New Zealand Banking Group Ltd

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: French CJ,Kiefel J,Gageler J,Keane J,Nettle J
• Judgment Date: 27 July 2016
• Neutral Citation: [2016] HCA 28
• Docket Number: M219/2015 & M220/2015
• Date: 27 July 2016

[2016] HCA 28

HIGH COURT OF AUSTRALIA

French CJ, Kiefel, Gageler, Keane AND Nettle JJ

M219/2015 & M220/2015

Lucio Robert Paciocco & Anor

Appellants

and

Australia and New Zealand Banking Group Limited

Respondent

Representation

D F Jackson QC with M B J Lee SC and W A D Edwards for the appellants (instructed by Maurice Blackburn)

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

Australian Securities and Investments Commission Act 2001 (Cth), ss 12BF, 12BG, 12CB, 12CC.

National Consumer Credit Protection Act 2009 (Cth), Sched 1 s 76.

Fair Trading Act 1999 (Vic), ss 8, 8A, 32W, 32X.

Paciocco v Australia and New Zealand Banking Group Limited

Banker and customer — Rule against penalties — Consumer credit card accounts — Late payment fees — Where late payment fees were $35 and $20 — Where costs actually incurred by respondent upon failure by first appellant to make timeous payment of amounts owing were approximately $3 — Where late payment fees not genuine pre-estimates of damage — Where respondent alleged it could conceivably have incurred loss provision costs, collection costs and regulatory capital costs as a result of first appellant's default — Whether late payment fees penalties — Whether late payment fees extravagant, exorbitant or unconscionable — Whether late payment fees out of all proportion to interests damaged — Whether respondent's legitimate interests confined to reimbursement of expenses directly occasioned by first appellant's default.

Contract — Rule against penalties — Essential characteristics of a penalty — Whether sum disproportionate to actual loss suffered amounts to a penalty — Whether sum incorporating loss too remote to be recoverable in action for damages amounts to a penalty — Relevance of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79.

Trade practices — Consumer protection — Late payment fees — Unconscionable conduct — Unjust transactions — Unfair terms — Whether late payment fees unconscionable, unjust or unfair.

Precedent — Apex courts of foreign jurisdictions — Status of unwritten law of United Kingdom in Australia.

Words and phrases — ‘exorbitant’, ‘extravagant’, ‘genuine pre-estimate’, ‘in terrorem’, ‘late payment fees’, ‘liquidated damages’, ‘out of all proportion’, ‘penalty’, ‘unconscionable’, ‘unconscionable conduct’, ‘unfair terms’, ‘unjust transactions’.

1 French CJ. These appeals concern the enforceability of late payment fee provisions in contracts between the first appellant and the respondent bank in relation to consumer credit card accounts. The terms of the impugned provisions are set out in the reasons for judgment of Nettle J 1. Broadly speaking they required the cardholder, following receipt of a monthly statement of account, to make the ‘Minimum Repayment’ set out on each statement by the due date shown on it. A ‘Late Payment Fee’ was to be charged to the credit card account if the minimum monthly payment, plus any ‘Amount Due Immediately’ shown on the statement of account, was not paid by a specified date.

2 The first appellant, Lucio Paciocco (‘Mr Paciocco’), held consumer credit card and deposit accounts with the respondent, Australia and New Zealand Banking Group Limited (‘the Bank’). The second appellant, Speedy Development Group Pty Ltd, is a company controlled by Mr Paciocco. It held a business deposit account with the Bank. All of the accounts were charged various fees by the Bank. The consumer and business deposit accounts were charged honour fees, dishonour fees and non-payment fees. The consumer credit card accounts held by Mr Paciocco were charged over-limit fees and late payment fees. Both appellants were applicants in representative proceedings against the Bank under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The appellants alleged that the provisions for the various fees were unenforceable as penalties and, alternatively, that their inclusion contravened various statutory provisions relating to unconscionable conduct 2 and, with respect to Mr Paciocco only, unjust 3 and unfair contract terms 4. The primary judge, Gordon J, found that the provisions for the late payment fees were penalties at common law and in equity. It was therefore not necessary for her Honour to deal with the statutory claims regarding the late payment fees. Her Honour held that none of the other fees constituted a penalty, nor contravened any of the identified statutory provisions 5. On appeal, the Full Court of the Federal Court held that the late payment fees were not penalties and did not fall within any of the statutory categories of unconscionable conduct, unjustness or unfairness. The Full Court

upheld the primary judge's findings with respect to the other fees 6. That conclusion is not challenged in these appeals. These appeals, by grant of special leave from the Full Court's decision, are concerned only with the correctness of that decision in respect of the late payment fees. The facts relevant to the appeals and the evidence of contending expert witnesses at trial are set out in the judgment of Gageler J and it is unnecessary to repeat them here. For the reasons given by Kiefel J and, in relation to the statutory claims, for the reasons given by Keane J, I agree that the appeals to this Court should be dismissed. I will, however, add some comments to that concurrence.

3 The question whether various fees charged by the Bank to its credit card customers were unenforceable as penalties was raised in an earlier representative proceeding before Gordon J, sub nom Andrews v Australia and New Zealand Banking Group Ltd. An application for leave to appeal from an interlocutory decision of Gordon J in those proceedings 7, to the Full Court of the Federal Court, was removed into this Court pursuant to s 40(2) of the Judiciary Act 1903 (Cth). The interlocutory decision responded to separate questions asked by the applicants in that case. They included questions whether honour, dishonour, non-payment and over-limit fees, and the late payment fees in issue in these appeals, were payable on breach of the relevant contract by the customer, or upon the occurrence of events amounting to a default under the contract which the customer had an obligation to avoid, and whether they were capable of being characterised as penalties by reason of either of those facts 8. The framing of those questions required consideration of whether the unwritten law making penalties unenforceable was limited to cases in which the putative penalty was enlivened by a breach of contract. The primary judge held that the rule against penalties was limited to penalties arising out of breach of contract, that only the late payment fees were payable upon breach, and that the rule could therefore only be applied to those fees. In so doing, her Honour properly followed the decision of the Court of Appeal of the Supreme Court of New South Wales in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd9.

4 This Court, on the removed application for leave to appeal from her Honour's interlocutory decision, granted leave to appeal and allowed the appeal. The Court held that equitable relief against penalties had not been subsumed into

the common law rule and that the rule against penalties was not limited to cases arising out of a breach of contract 10.

5 Subsequently, the present appellants commenced these proceedings, which were also heard before Gordon J as the primary judge. In Andrews, the Bank did not seek to appeal against her Honour's finding in her interlocutory decision about how the alleged penalty provision with respect to late payment fees operated 11. There was no attempt to argue in this Court that the penalty provisions in the consumer credit card accounts to which Mr Paciocco was a party operated any differently 12. This case thus came to this Court as one involving characterisation of a provision for payment of a fee which was, if enforceable, enlivened upon a breach of contract. As Gageler J points out, the decision in Andrews and that of the House of Lords in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd13 set out the governing principles so far as they apply to penalties for breach of contract 14.

6 A difference has emerged since the decision in Andrews between the Supreme Court of the United Kingdom and this Court in relation to the scope of the law relating to penalties. It is not necessary to reflect upon the merits of the different positions as the present appeal on the penalty question falls within essentially undisputed territory. It is, however, desirable to say something about the fact of divergence between our jurisdictions, which have an historical connection that Australia does not have with any other jurisdiction.

7 In Cavendish Square Holding BV v Makdessi15, Lord Neuberger of Abbotsbury PSC and Lord Sumption JSC (with whom Lord Carnwath JSC

agreed) held that the rule against penalties was confined to cases arising out of contractual breach. Their disagreement with the scope of the law as stated in Andrews was emphatic, describing the decision as ‘a radical departure from the previous understanding of the law’ 16. Their Lordships' language echoed that of Menzies J in this Court half a century earlier in Uren v John Fairfax & Sons Pty Ltd17 when he declared the limitation on recovery of exemplary damages prescribed by Lord Devlin in Rookes v Barnard18 to be ‘a radical departure from what has been regarded as established law.’ It is not necessary for present purposes to engage with that characterisation of Andrews19. Gageler J expresses the view that it was incorrect and based upon a misunderstanding of the scope of what was actually decided in Andrews20. In any event, emphatic disagreement between our jurisdictions in relation to the common law and...