Apart from the question of relief in the case of non-breach, as I read it this decision largely leaves Australia and England aligned, and goes nicely together with Cavendish v Makdessi. French, Kiefel, Keane and Nettle all seem to accept the "interest" analysis: the only reason why Nettle dissented, as far as I can see, is that he thought the interest criterion wasn't satisfied here. But this is after an early-morning skim, and I may be missing something.

Andrew

Dear Colleagues;

The High Court of Australia has today handed down its decision in Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28 (27 Jul 2016) http://eresources.hcourt.gov.au/showCase/2016/HCA/28 dealing with the question as to whether “late payment fees” applied to credit card accounts amount to unlawful “penalties” which should be unenforceable. There was also an issue as to whether imposing such fees breached statutory prohibitions on unconscionable or unjust or unfair conduct.

Of the 5 members of the Court who sat on the bench, there was a 4-1 holding (French CJ, Kiefel, Gageler and Keane JJ; Nettle J dissenting) that the relevant fees were not void as penalties. The same split in broad terms was reflected on the statutory issues, the 4 members of the penalty majority agreeing that there was no breach of the consumer protection statutes, though Nettle J, who would have ruled that the transactions were void as penalties, declined to offer an analysis of the statutory points. (A point of interest is that Gordon J had been the trial judge in these protected proceedings, and hence did not take part in the appeal. I am not sure why Bell J was not part of the bench- the case looks to have been important enough to have warranted a full consideration by all members of the court, but perhaps at the outset, since it did not involve any constitutional issues and there was no attempt to overturn a prior decision of the court, it was decided to go with an “ordinary” bench of 5.)

This is not my main area, and I have only skimmed the judgment, but there seem to be slightly differing analyses offered of the purposes of the contractual penalty rule and in what circumstances it will be breached. This is reflected in the fact that, contrary to the recent fairly common practice in the French court, fully reasoned separate judgments are offered by 4 out of the 5 members of the court. (French CJ is the one exception, effectively adopting at [2] what Kiefel J says on penalties, and what Keane J says on the statutory issues.) All members of the majority seem to cast doubt on the traditional “tests” from Dunlop for penalties, but they formulate what the overall test should be slightly differently.

• Eg see Kiefel J at [69]: "the relevant question in this case is whether the Late Payment Fee is out of all proportion to the ANZ's interest in receiving timeous payment of the minimum Monthly Payment;"
• Gageler J at [166]: "whether the stipulation in issue is properly characterised as having no purpose other than to punish;"
• Keane J at [270] (quoting Cavendish Square): "whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party's interest in the performance of the contract"
   

 In essence, though, they reject the view that only the “direct” costs of a contractual breach can be taken into account in determining whether an amount to be paid on breach is an unenforceable penalty; the courts are allowed to consider the broader “on-costs” to a party of the breach, and here ANZ experts had shown sufficient arguable related costs that the amount imposed would not be regarded as unenforceable.

One other point of interest: this decision, being directly on the area of a penalty following contractual breach, does not affect the previous decision of the court in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 that the doctrine of penalties might be applied in equity, outside the area of contractual breach. That decision was regarded as controversial, and subject to criticism by the UK Supreme Court in its subsequent ruling in  Cavendish Square Holding BV v Makdessi  [2015] 3 WLR 1373; [2016] 2 All ER 519. French CJ and Gageler J both have brief comments on the fact that the common law of Australia has now taken a different course to that of the UK, though as I said noting that the difference of opinion was not directly relevant to this case. See esp French CJ at [6]-[10].

The discussion by Gageler J and Keane J of the application of the consumer protection provisions also looks of interest, but for the purposes of this note I haven’t looked at it in any detail.

Regards

Neil

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