Australia's largest class action
7 September 2012
The Acting Dean, Professor Greg Tolhurst comments on the High Court's decision that ANZ's honour, dishonour or over-limit fees, charged when customers exceeded their account limits, could be characterised as a penalty rather than a fee for a service.
In an interview with ABC TV's 7:30, Professor Tolhurst asserts, "It's not an understatement to say that this will send shockwaves through the banking community'.
Prior to this decision it was the view that a sum could only be considered a penalty if it was payable on a breach of contract and then only if it was extravagant and did not represent a genuine pre-estimate of the loss suffered. This could be circumvented by making sums payable on events other than breach. The High Court has rejected that view, whether a sum is a penalty or not is a question of substance not form. However, the High Court did not determine whether the fees in question in this case were penalties that matter now goes back to the Federal Court for determination based on the principles set out by the High Court.
According to reports,170,000 banking customers are part of the eight class actions that Law Firm, Maurice Blackburn is running against the banks.
The decision of the High Court does not mean that every payment under a contract is open to the charge of being void as a penalty. If the sum falls due under a contract as payment for a service then it is generally safe even if the buyer agreed to pay well above the market rate for that service. However, if a sum is payable for the purpose of securing some other performance under a contract then it is vulnerable to being held to be a penalty whether payable on breach or not and it will be a penalty if it is extravagant to the interest that is intended to be protected.
No doubt this decision might be championed by consumers but whether that turns out to be the case will depend now on the Federal Court. Nevertheless there will be a concern in the commercial community that the decision evidences an inherent uncertainty in Australian commercial law. Principles that have been relied on for a long time can be suddenly swept aside so that even having a good culture of compliance within an industry will not necessarily protect you. This might renew calls in some circles for a codification of commercial law similar to the Uniform Commercial Code in the United States and similar to the current proposal for a codification of Australian contract Law.Professor Tolhurst was also interviewed by China Central Television (CCTV)
Contact: Greg Sherington
Phone: +61 2 9351 0202