In Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 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. (see case note here). The class action has been referred back to the Federal Court for further hearing.

Justice Gordon decided that only the Late Payment Fees in respect of certain credit card accounts are capable of being characterised as a penalty as they were the only fees charged for a breach of contract. On the other hand she concluded that the Honour Fees, the Dishonour Fees, the Overlimit Fees and the Non-payment Fees were not penalties.

The High Court has decided that the fact that the honour, dishonour, non-payment and over limit fees were not payable for breach of contract did not prevent them from being characterised as penalties.

The High Court unanimously rejected the proposition in a NSW Court of Appeal decision that the penalty doctrine applies only where there has been a breach of contract.

The High Court rejected the limited scope of the penalty doctrine: it decided that the question is one of substance rather than form.

It approved the following statement:

“relief may be granted in cases of penalties for non-performance of a condition, although there is no express contractual promise to perform the condition – apparently on the basis that despite the absence of such an express promise, a penalty conditioned on failure of a condition is for these purposes in substance equivalent to a promise that the condition will be satisfied.”

The ANZ did not appeal against the Federal Court’s finding that the late payment fee was payable upon breach of contract and therefore was capable of characterisation as a penalty.