Bank Customers Have a Win in the ‘Bank Fees Case’: The Impact on Contracts Across the Board.

There are currently a number of class actions before the Federal Court against banks, where customers are claiming that certain bank fees charged are excessive, and that these fees should be paid back to the customers. The damages sought in these class actions exceed $220 million.

 Background

The banks currently charge certain fees (late payment fees on credit cards, dishonour fees, non-payment fees and over limit fees) as exception fees.  The customers who are members of the class actions are claiming that these fees are in fact penalties and as such would be void and unenforceable under the Penalty Doctrine. Commonly, the parties to a Contract agree on the level or nature of compensation payable to the innocent party by the party in breach. Where the stipulated compensation ‘is stipulated as in terrorem of the offending party’ the compensation will be a penalty and unenforceable. The stipulated compensation must be a genuine pre-estimate of the damage caused as a result of the breach.

The Recent Decision

The recent appeal to the High Court  in Andrews & Ors v Australia and New Zealand Banking Group Ltd [2012] has found against ANZ and in favour of the customers. The the High Court has allowed the appeal of the customers against the decision of Justice Gordon of the Federal Court who made preliminary decisions about which of ANZ Bank’s exception fees for a range of banking products may be penalties.

The class action has been referred back to the Federal Court for further hearing.In doing so, the High Court unanimously agreed that there was no basis for the penalty doctrine to be limited to breaches of contract. The exception fees could therefore be characterised as penalties.  It will now be left to the Federal Court to examine the fees and decide if they are an unreasonable estimate of the damage caused.

 The Significance of this Decision

This may mean that provisions in contracts which have relied solely on the fact that the event which triggers them is not a breach of a contract so as to fall outside the Penalty Regime may no longer fall outside of it and will need to be reviewed.  Provisions that may be affected could include: service level abatement clauses in projects, construction and IT; financial services contracts where the contract is overlimit or in arrears; rights to terminate a contract which carry with them the loss of accrued rights; and fees payable on contingent events in business and consumer telecommunications, utilities and financial services contracts such as early termination fees, switch fees and break costs.