Paciocco v ANZ Banking Group Ltd [2016] HCA 28: Banking: Late Payment Fees

Today in Paciocco & Anor v Australia And New Zealand Banking Group Limited; Paciocco & Anor v Australia And New Zealand Banking Group Limited [2016] HCA 28 (27 July 2016) the High Court of Australia, in a majority decision has dismissed two appeals from the Full Court of the Federal Court of Australia (see Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 (8 April 2015)) . As a result the High Court held that in the first appeal:

• late payment fees charged by the respondent (the ANZ Bank) on its consumer credit card accounts were not unenforceable as penalties;

and in the second appeal has held that:

• imposition of late payment fees did not contravene statutory prohibitions against unconscionable conduct, unjust transactions and unfair contract terms.

Background – At Trial

In the first appeal, the first appellant (Mr Paciocco) was the holder of two consumer credit card accounts (the credit card accounts) with the ANZ Bank, whose terms and conditions for those credit card accounts required Mr Paciocco, on receipt of a monthly statement of account, to pay a minimum monthly repayment. If the minimum monthly repayment plus any amount due immediately was not paid within a specified time, a late payment fee was charged. The late payment fee for the first appellants credit card account was $35 before December 2009 and $20 thereafter. Altogether, 26 late payment fees were charged to Mr Paciocco's credit card accounts.

Mr Paciocco and the second appellant (Speedy Development Group Pty Ltd - a company controlled by Mr Paciocco), were applicants in representative proceedings commenced against the ANZ Bank in the Federal Court of Australia (see Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014) before Gordon J), in which they alleged that the late payment fees, and various other fees charged by the Bank, were unenforceable as penalties. They further claimed that the ANZ Bank:

• engaged in unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Fair Trading Act 1999 (Vic) (the FTA), further that the;
• contracts for the credit card accounts were made by unjust transactions under the National Credit Code (which is a schedule to the National Consumer Credit Protection Act 2009 (Cth)), and finally that the;
• late payment fees were void as unfair terms under the ASIC Act and the FTA.

The appellants and the ANZ Bank each submitted expert evidence as to the losses suffered by the ANZ Bank upon the failure by Mr Paciocco to pay the amounts owing on the credit card accounts by the due date. The expert retained by the appellants provided evidence of the amounts needed to restore the ANZ Bank to the position it would have been in had Mr Paciocco paid the amounts owing on time. The expert retained by the ANZ Bank provided evidence of the maximum costs that the Bank could conceivably have incurred as a result of Mr Paciocco's late payment, which included loss provision costs, regulatory capital costs, and collection costs.

Justice Gordon, the primary judge, held that the approach of the appellants' expert ought to be adopted and that the late payment fees were penalties because, among other matters, they were extravagant and unconscionable in comparison with the greatest loss that could reasonably be proved.

Appeal - Full Federal Court

On appeal (see [2015] FCAFC 50 (8 April 2015)), the Full Court preferred the approach of the ANZ Bank's expert holding that the late payment fees were not penalties because: “. . . among other things, the legitimate interests of the [ANZ] Bank were affected by each of the categories of costs identified by its expert”. Further, the Full Federal Court also rejected the statutory claims raised by the appellants, which had not been considered at trial by Justice Gordon, the primary judge.

High Court Appeal

By grant of special leave, the appellants appealed to the High Court of Australia.

The key ground of appeal in in the first appeal was that:

• the Full Federal Court erred in determining that the charging of the late payment fees by the ANZ Bank was not unconscionable in terms of the ASIC Act and or the FT Act, and in determining that the contractual terms providing for them were not unfair terms for the purposes of the FT Act, or unjust for the purposes of the National Credit Code.

The main grounds of appeal in the second appeal was:

• the Full Federal Court erred in taking the view that the late payment fees were not penalties.

Also the ANZ Bank filed a Notice of Contention in in the second appeal, claiming that the Full Federal Court should have found that the Limitation of Actions Act 1958 (Vic) section 27 did not apply to the first appellant’s claim for restitution in respect of certain fees.

In the first appeal the majority of the High Court dismissed the appeal, finding that the Full Federal Court was correct to characterise the loss provision costs, regulatory capital costs and collection costs as affecting the legitimate interests of the ANZ Bank. Further, the fact that those categories of costs were not recoverable in an action for damages did not alter that conclusion. As well, neither the fact that the late payment fees were not genuine pre-estimates of damage, nor the fact that the amounts charged were disproportionate to the actual loss suffered by itself rendered the late payment fees penalties.

In the second appeal the High Court by majority also dismissed the appeal, rejecting the statutory claims on their merits. 

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Paciocco & Anor v Australia And New Zealand Banking Group Limited; Paciocco & Anor v Australia And New Zealand Banking Group Limited [2016] HCA 28 (27 July 2016)

Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 (8 April 2015)

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

ANZ credit card fee class action dismissed by High Court of Australia (ABC News)

Credit card fees: High Court to rule on if ANZ customers overcharged (Herald Sun)