Andrews v Australia and New Zealand Banking Group Ltd

[2011] FCA 1376

FEDERAL COURT OF AUSTRALIA

Andrews v Australian and New Zealand Banking Group Limited
[2011] FCA 1376

Citation:

Andrews v Australian and New Zealand Banking Group Limited [2011] FCA 1376

Parties:

JOHN ANDREWS, ANGELO JULIAN SALIBA and GEOFFREY ALLAN FIELD v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)

File number:

VID 811 of 2010

Judge:

GORDON J

Date of judgment:

5 December 2011

Catchwords:

BANKING AND FINANCIAL INSTITUTIONS – history of the law of penalties – penal bonds – rule of law and equity – Statute of William III – Statute of Anne – law of penalties in Australia and United Kingdom – liquidated damages – agreed damages – genuine pre-estimate of damage – requirement of breach – relationship between banker and customer – construction of contract between banker and customer – regulatory framework – product disclosure statements – retail deposit accounts – consumer credit card accounts – commercial credit card accounts – business classic accounts – honour fee – dishonour fee – late payment fee – late payment fee – non-payment fee – overlimit fee

Legislation:

Administration of Justice Act 1925 (Imp)
Administration of Justice Act 1965 (Imp)
Australian Courts Act, 9 Geo IV, c 83 (Imp, 1828)
Australian Securities and Investments Commission Act 2001 (Cth)
Banking Act 1959 (Cth)
Consumer Credit Regulations 1995
Corporations Act 2001 (Cth)
Corporations Amendment Regulations 2005 (No 5)
Corporations Regulations 2001 (Cth)
Instruments Act 1958 (Vic)
National Consumer Credit Protection Act 2009 (Cth)
Supreme Court of Judicature Act 1873 (Imp) 36 & 37 Vict, c 66
Supreme Court of Judicature Act 1875 (Imp) 38 & 39 Vict, c 77
Trade Practices Act 1974 (Cth)

Statute of Anne (1705) 4 & 5 Anne c16 (The Administration of Justice Act 1705)
Statute of William III (1696) 8 & 9 Will 3 c11 (The Administration of Justice Act 1696 entitled “An Act for the Better Preventing of Frivolous and Vexatious Suits”)

Cases cited:

Akbar Khan v Attar Singh [1936] 2 All ER 545
American Express International Inc v Commissioner of Taxation (2009) 73 ATR 173
AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170
Andrews v Australia and New Zealand Banking Group Ltd [2011] FCA 388
Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335
Apex Supply Co Ltd; In re [1942] Ch 108
Associated Distributors v Hall [1938] 2 KB 83
Bank of New South Wales v Laing [1954] AC 135
Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677
Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Camatos Holdings Ltd v Neil Civil Engineering (1992) Ltd [1998] 3 NZLR 596
Campbell Discount Co Ltd v Bridge [1962] AC 600
Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6
Castles v Goodrick and Anor as Executors of the Estate of the late Castles (Unreported, Simos J, 21 August 1998
Charrington & Co v Wooder [1914] AC 71
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Collins v Collins (1759) 2 Burr 820
Commissioner of Taxation v American Express Wholesale Currency Services Pty Ltd (2010) 273 ALR 501
Commonwealth v Amann Aviation (1991) 174 CLR 64
Cooden Engineering Co v Stanford [1953] 1 QB 86
Cuthbert v Robarts, Lubbock & Co [1909] 2 Ch 226
Diakos v Mason [2010] SASCFC 37
Dixon v Bank of New South Wales (1896) 12 WN (NSW) 101
Doman Forest Products Ltd v GMAC Commercial Credit Corp [2007] 29 BLR (4th) 1
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
Esanda Finance Corporation v Plessnig (1989) 166 CLR 131
Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205
Fermiscan Pty Ltd v James [2009] NSWCA 355
Financings Ltd v Baldock [1963] 2 QB 104
First East Auction Holdings Pty Ltd v Mimi Ange [2010] VSC 72
Foley v Hill (1848) 2 HL Cas 28
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603
Friend v Burgh (1679) Rep TF 437
Gunning v Thorne Riddell [1990] B.C.J. No.36
Hardy v Martin (1783) 1 Cox 26
IAC (Leasing) Ltd v Humphrey (1972) 126 CLR 131
Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406
Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292
Jervis v Harris [1996] Ch 195
Joachimson v Swiss Bank Corp [1921] 3 KB 110
Jobson v Johnson [1989] 1 WLR 1026
Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51
Kemble v Farren (1829) 6 Bing 141
Lange v Australian Broadcasting Corporation (1997) 189 CLR 520
Legione v Hateley (1983) 152 CLR 406
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Lipohar v The Queen (1999) 200 CLR 485
Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978
Mandarin Container; Re [2004] 3 HKLRD 554
Maritime Union of Australia v Patrick Stevedores No 1 Pty Ltd (1998) 77 FCR 456
MBF Investments Pty Ltd v Nolan [2011] VSCA 114
Murray v Earl of Stair (1823) 2 B & C 82
Narni Pty Ltd v National Australia Bank [2001] VSCA 31
Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146
News Limited v Australian Rugby League (1996) 64 FCR 410
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359
Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm)
Office of Fair Trading v Abbey National plc [2008] EWHC 2325 (Comm)
Office of Fair Trading v Abbey National plc [2009] EWHC 36 (Comm)
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Pattison v Mudry [1999] OJ No 65
Peachy v The Duke of Somerset (1720) 1 Strange 447
Pearce v Creswick (1843) 2 Hare 286
Philip Bernstein (Successors) Ltd v Lydiate Textiles (Unreported, Court of Appeal UK, Diplock LJ, 26 June 1962)
Philips Hong Kong Limited v The Attorney General of Hong Kong [1993] 1 HKLR 269
Preston v Dania (1872-73) LR 8 Ex 19
Protector Endowment Loan and Annuity Co v Grice (1880) LR 5 QBD 592
Puleston v Puleston (1677) Case 428
Reardon Smith Line Limited v Hansen-Tangen [1976] 3 All ER 570
Reynolds v Bridge (1856) 6 EL &BL 528
Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656
Robophone Facilities Ltd v Blank [1966] 1 WLR 1428
Rolfe v Peterson (1772) 6 Bro PC 470
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45
Ruxley Electronics Ltd v Forsyth [1966] AC 344
Ryan v Bank of NSW [1978] VR 555
Sloman v Walter (1783) 1 Bro CC 418
Smith v Bond (1833) 10 Bing 125
Tall v Ryland (1670) 22 ER 753
The City of Sydney v Streetscape Projects (Aust) Pty Ltd [2011] NSWSC 1214
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
United Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54
Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66
Wallis v Smith (1882) LR 21 Ch D 243
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45
Williams and Glyn’s Bank v Barnes [1981] Com LR 205

Blackshield & Williams, Australian Constitutional Law and Theory: Commentary & Materials (4^th ed, The Federation Press, 2006)
Browne, Ashburner’s Principles of Equity (2^nd ed, Legal Books, 1983)
Bullen E and Leake SM, Precedents of Pleadings in personal actions in the superior courts of common law, (3^rd ed, Steven and Sons, 1868)
Ibbetson DJ, A Historical Introduction to the Law of Obligations, (Oxford University Press, 1999)
Carter JW and Harland DJ, Contract Law in Australia (4^th ed, Butterworths, 2002)
Carter JW and Peden E, “A Good Faith Perspective on Liquidated Damages” (2007) 23 JCL 157
Carter JW and Peden E, “Agreed Damages Clauses – Back to the Future?” (2006) 22 JCL 189
Carter, JW, Carter on Contract, (LexisNexis Australia, Subscription Service)
Loyd WH, “Penalties and Forfeitures” (1915) 29 Harv L Rev 117 at 119
Lewison K, The Interpretation of Contracts (4^th ed, Sweet & Maxwell, 2007)
Meagher R, Heydon D and Leeming M, Equity Doctrines and Remedies, (4^th ed LexisNexis Butterworths, 2002)
Meagher RP, Penalties in Chattel Leases in Finn PD (ed), Essays in Equity, (The Law Book Company Limited, 1985)
McGee J, Snell’s Equity (31^st ed, Sweet & Maxwell, 2005)
Newland W, “Equitable relief against penalties” (2011) 85 ALJ 434
Parkinson P, The Principles of Equity (2^nd ed, Lawbook Co, 2003)
Rossiter CJ, Penalties and Forfeiture: Judicial Review of Contractual Penalties and Relief Against Forfeiture of Proprietary Interests (The Law Book Company Limited, 1992)
Simpson, AWB, “The Penal Bond with Conditional Defeasance” (1966) 82 LQR 392
Story J, Commentaries on Equity Jurisprudence as Administered in England and America (13^th ed, Little, Brain and Company, 1886)
Yale, DEC (ed), Lord Nottingham’s “Manual of Chancery Practice” and “Prolegomena of Chancery and Equity” (1965, Cambridge University Press)
Yale, DEC (ed), Lord Nottingham’s Chancery Cases (Vol 73, Selden Society, 1954)
Yale, DEC (ed), Lord Nottingham’s Chancery Cases (Vol 79, Selden Society, 1961-62)

Date of hearing:

3-6 October 2011

Date of last submissions:

10 October 2011

Place:

Melbourne

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

354

Counsel for the Applicants:

Mr J Gleeson QC with Mr MBJ Lee

Solicitor for the Applicants:

Maurice Blackburn

Counsel for the Respondent:

Mr A Archibald QC with Mr M O'Bryan and Mr R Craig

Solicitor for the Respondent:

Blake Dawson

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 811 of 2010

BETWEEN:

JOHN ANDREWS
First Applicant

ANGELO JULIAN SALIBA
Second Applicant

GEOFFREY ALLAN FIELD
Third Applicant

AND:

AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)
Respondent

JUDGE:	GORDON J
DATE OF ORDER:	5 DECEMBER 2011
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.By 4:00pm on 12 December 2011, the parties bring in orders to give effect to these reasons for decision and for the future conduct of the litigation.   

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 811 of 2010

BETWEEN:

JOHN ANDREWS
First Applicant

ANGELO JULIAN SALIBA
Second Applicant

GEOFFREY ALLAN FIELD
Third Applicant

AND:

AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)
Respondent

JUDGE:	GORDON J
DATE:	5 DECEMBER 2011
PLACE:	MELBOURNE

Table of Contents

A...... INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[1]
B...... LAW OF PENALTIES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[7]
(1).. History – Rule of Law and / or Equity?........ ........ ........ ........ ........ ........ ........ ........ .....	[7]
(a).. Stage One – From the beginning of the 14th century........ ........ ........ ........ ........ .	[8]
(b).. Stage Two – Late 16th and early 17th centuries........ ........ ........ ........ ........ ........	[11]
(c).. Stage Three – From the end of 17th century to the 18th century........ ........ .......	[18]
(d).. Stage Four – 19th century in England and then Australia........ ........ ........ ........ .	[35]
(e).. The law in the United Kingdom immediately before Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79........ ........ ........ ........ ....	[41]
(f)... Dunlop........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[42]
(2).. The Australian Cases........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[45]
(a).. Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[45]
(b).. Breach and the role of damages?........ ........ ........ ........ ........ ........ ........ ........ .......	[47]
(c).. When are Liquidated or Agreed Damages clauses not enforceable?........ ........	[49]
(d).. After Ringrow?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[61]
(i)..... Payments upon termination of an agreement........ ........ ........ ........ ........ ....	[62]
(ii).... Interstar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[68]
(3).. Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[77]
C...... LEGAL FRAMEWORK FOR BANKER – CUSTOMER RELATIONSHIPS........ ......	[81]
(1).. Relationship between Banker and Customer in Contract........ ........ ........ ........ ........ ..	[81]
(2).. Approach to Construction?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[83]
(3).. Regulatory Framework........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[87]
(a).. Period prior to 20 December 2005........ ........ ........ ........ ........ ........ ........ ........ ....	[89]
(b).. After 20 December 2005........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[99]
(c).. Uniform Consumer Credit Code........ ........ ........ ........ ........ ........ ........ ........ ........	[112]
(d).. Codes of Conduct / Banking Practice........ ........ ........ ........ ........ ........ ........ ........	[121]
(i)..... Code of Banking Practice........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[121]
(ii).... ASIC Electronic Funds Transfer Code of Conduct........ ........ ........ ........ ...	[127]
(e).. The Instruments Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[135]
(4).. Other Facts Sought to be relied upon by ANZ........ ........ ........ ........ ........ ........ ........ ..	[141]
D...... EXCEPTION FEES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[143]
(1).. Retail Deposit Accounts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[144]
(a).. Exception Fee No 3 – Saving Honour Fee – 14 February 2006 – Saliba........ ..	[147]
(i)..... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[147]
(ii).... The relevant documents and the relevance of the regulatory framework and other documents........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[150]
0........ . 1. PDS MARCH 2005........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[150]
0........ . 2. SALIBA LETTER OF OFFER........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[159]
0........ . 3. OVERDRAFT TERMS & CONDITIONS DEC 2004........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[160]
0........ . 4. ACCOUNT FEES AND CHARGES JAN 2006........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[165]
0........ . 5. THE RELEVANCE OF THE REGULATORY FRAMEWORK AND OTHER DOCUMENTS........ ........ ........ ..	[167]
(iii)... Proper Construction – Saving Honour Fee?........ ........ ........ ........ ........ ......	[169]
(iv)... Other submissions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[190]
(v).... Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[193]
(b).. Exception Fees No 1, 2 and 4........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[194]
(i)..... Exception Fee No 1 – Saving Dishonour Fee – 13 October 2006 - Saliba........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[195]
(ii).... Exception Fee No 4 – Saving Non-Payment Fee – 15 November 2006 – Field........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[210]
(iii)... Exception Fee No 2 – Saving Dishonour Fee – 26 February 2007 – Andrews........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[216]
(2).. Consumer Credit Card Accounts........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[223]
(a).... Exception Fee No 7 – Late Payment Fee – 28 March 2004 – Andrews........ ..	[224]
(b).... Exception Fee No 8 – Late Payment Fee – 29 June 2005 – Andrews........ .....	[253]
(c).... Exception Fee No 9 – Late Payment Fee – 28 November 2006 – Andrews.....	[260]
(d).... Exception Fee No 5 – Overlimit Fee – 29 November 2006 – Andrews........ ...	[269]
(e).... Exception Fee No 6 – Overlimit Fee – 28 February 2010 – Andrews........ .....	[282]
(3).. Commercial Credit Card Accounts........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[294]
(a).... Exception Fee No 10 – Commercial Card Overlimit Fee – 16 July 2008 – Fields........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[296]
(b).... Exception Fee No 11 – Commercial Card Late Payment Fee – 16 July 2008 – Field........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[309]
(4) Business Classic Account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[313]
(a).... Exception Fee No 12 – Business Honour Fee – 13 October 2005 – Saliba....	[314]
(b).... Exception Fee No 14 – Business Dishonour Fee – 27 October 2005 – Saliba	[325]
(c).... Exception Fee No 17 – Business Non-Payment Fee – 27 October 2006 – Andrews........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[329]
(d).... Exception Fee No 13 – Business Honour Fee – 9 July 2007 – Andrews........ .	[332]
(e).... Exception Fee No 15 – Business Honour Fee – 3 May 2010 – Saliba........ ....	[337]
(f)..... Exception Fee No 16 – Business Dishonour Fee – 4 May 2010 – Saliba........	[349]
E...... ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[354]

REASONS FOR JUDGMENT

A        INTRODUCTION

1                   The applicants were customers of Australia and New Zealand Banking Group Limited (ANZ).  ANZ charged the applicants a variety of fees for overdrafts, overdrawn accounts, dishonour fees and overlimit credit card accounts (the Exception Fees).  The “arrangements” between the applicants and ANZ entitled ANZ to charge the Exception Fees (the Disputed Provisions).  The applicants seek declarations that the Disputed Provisions and / or the Exception Fees are void or unenforceable as a penalty.  The applicants also seek repayment of all or part of the Exception Fees or damages.

2                   This is a representative action.  Separate Questions were identified for resolution:  see Sch A to these reasons for judgment.  The Separate Questions consider specific Exception Fees charged to one of three applicants referred to, respectively, as Andrews, Saliba and Field in relation to an identified ANZ account.  Contrary to the position adopted by the parties during the course of the hearing, the Separate Questions cannot be answered divorced from the regulatory framework in which ANZ conducts its business.  The regulatory framework is relevant because ANZ is a trading corporation.  The relevant statutory framework is imposed federally and, in the context of the Separate Questions, also by the State of Victoria.

3                   It is also important to identify what is not in issue.  ANZ accepted that in considering the law of penalties, the Exception Fees did not constitute a genuine pre-estimate of damage.  However, consideration of the quantum of the Exception Fees and, in particular, whether that Exception Fee was out of all proportion to the likely damage suffered by ANZ was deferred to a later hearing.  Next, these reasons for decision do not consider other accounts offered by ANZ or undertake some general enquiry into the practices of ANZ or any other bank.  They consider only the Separate Questions. 

4                   A number of general observations should be noted at the outset.  As will become evident, the Court’s modern jurisdiction in relation to the law of penalties cannot be divorced from its origins in the wide dispensing power of the Court of Chancery in respect of oppressive bargains.  The law of penalties is a narrow exception to the general rule that the law seeks to preserve freedom of contract, allowing parties the widest freedom, consistent with other policy considerations, to agree upon the terms of their contract.  Equity, however, continues to play a role in the law of penalties, a law which is confined to payments for breach of contract. 

5                   The Court’s task in answering the Separate Questions is to construe the words of the Disputed Provisions in the context of the regulatory framework in which they are intended to, and do, operate and having regard to the law of penalties.  For the reasons that follow, I consider that the Late Payment Fees (Exception Fee Nos 7-9 and 11) are capable of being characterised as a penalty.  On the other hand:

1.the Honour Fees (Exception Fee Nos 3, 12, 13 and 15);

2.the Dishonour Fees (Exception Fee Nos 1, 2, 14 and 16);

3.the Overlimit Fees (Exception Fee Nos 5, 6 and 10); and

4.the Non-payment Fees (Exception Fee Nos 4 and 17),

are not capable of being characterised as a penalty. 

6These reasons for decision will consider:

1.the history of the law of penalties;

2.the current state of the law of penalties in Australia including the continuing requirement for breach and the continuing role of equity;

3.the regulatory framework relevant to the Exception Fees; and

4.each of the Exception Fees and the necessary distinctions to be drawn between them.

B        LAW OF PENALTIES

(1)       History – Rule of Law and / or Equity?

7                   There was little dispute about the historical development.  However, the conclusions the applicants submitted should be drawn from the historical analysis were diametrically opposed to those of ANZ.  The applicants divided the legal history into four stages.  It is convenient to adopt those divisions not because they reflect the only way in which the relevant history may be considered but because the applicants placed considerable reliance upon this historical analysis to support its contention that breach was not a necessary element of the modern law of penalties and that the equitable jurisdiction of the rule against penalties has a continuing role.

(a)       Stage One – From the beginning of the 14^th century

8 The bond, not the modern law of contract, was the context in which the rule against penalties first developed: Newland W, “Equitable relief against penalties” (2011) 85 ALJ 434 at 439 and Simpson, AWB “The Penal Bond with Conditional Defeasance” (1966) 82 LQR 392 at 392-393. Indeed, one historian has suggested that conditional bonds were “the principal device for the framing of substantial contracts” from the 1350s until the 18^th century:  Ibbetson DJ, A Historical Introduction to the Law of Obligations, (Oxford University Press, 1999) p 30 cited in Newland at 439.  One reason why bonds had become common was that they facilitated the lending of money without contravening the then existing canonical prohibition against usuary:  Loyd WH, “Penalties and Forfeitures” (1915) 29 Harv L Rev 117 at 119, Simpson at 414 and Newland at 439.

9                   There were, however, different types of bonds.  A simple bond was a unilateral promise by the obligor to pay a certain sum, or do a certain thing, by a particular date.  A conditional bond, on the other hand, contained a condition of defeasance which, when satisfied, extinguished the primary debt or obligation of the bond:  Newland at 439.  In substance, the bond was a security device:  a mechanism by which parties secured payment of a sum or an act to be done by a certain date and if not, the payment of a larger sum.

10                  The early common law governing bonds was rigid.  It took a strict view of the observance of the underlying condition; if the defendant had met the condition, but after the due date, that would not provide a good defence to the plaintiff’s action upon the bond.  The plaintiff would succeed in recovering the greater amount.  Outcomes were necessarily harsh.  Courts would not rewrite private contracts:  Newland at 440 and Simpson at 411.  As a result, the remedy provided by the early common law went beyond proper and necessary compensation:  see Loyd at 119-122 and Simpson at 395-415 and the authorities cited.

(b)       Stage Two – Late 16^th and early 17^th centuries

11                  Unsurprisingly, there was a place for the intervention of equity.  By the late 16^th and early 17^th centuries, equity would provide relief where there were specific circumstances rendering it unjust that the bond be sued upon in full.  For example, where the obligor had failed to meet the underlying obligation on time due to accident, mistake or extremity; where the default was trifling; or where the payment had in fact been made without the obligor obtaining a cancellation of the bond:  see Loyd at 124-125, Simpson at 416-417 and the authorities cited.

12                  During the latter 17^th century, the scope of equitable intervention further extended.  First, where the bond secured an underlying obligation to pay money, equity would grant relief against performance of the bond on condition that the debtor pay principal, interest and costs.  The relief could be by way of injunction restraining the action at law or execution of a judgment obtained at law.  Indeed, equity would grant a refund of a penalty actually paid; that is, require the obligee to repay the excess over the true principal sum, interest and costs:  Friend v Burgh (1679) Rep TF 437, quoted in Simpson at 417-418.

13                  Where the penalty was due for the failure to perform a covenant, equity would grant an injunction restraining the action at law, or restraining execution upon a verdict, on condition that the defaulting party paid damages.  Equity would then direct an issue for the assessment of damages on a quantum damnificatus which could be joined in an action on the case; alternatively a writ of covenant for damages could be used:  see Loyd at 125, Simpson at 417-418 and the authorities cited.  (These two situations later became the subject of, respectively, the Statute of William III and the Statute of Anne:  see [18]-[25] below.)

14                  The applicants submitted that two aspects of general application emerged from these developments.  First, where the penalty consisted of a bond to secure a money obligation, any disproportion between the amount of the bond and the underlying amount of principal, including interest and costs, attracted the jurisdiction and, secondly, the equitable jurisdiction applied to the full range of conditioned bonds.  I will deal with each in turn.

15                  In relation to the first aspect, the applicants submitted that the proper compensation which equity (as distinct from the law) recognised for failure to meet a money obligation extended as far as, but no further than, the principal sum plus interest and costs.  On the other hand, where the underlying condition or obligation involved some activity which was or was not to be performed, there was greater latitude than with ordinary compensatory damages on a default.  Equity would look to some clear disproportion between the amount of the bond and damages which would be likely to be assessed were the matter remitted to law, before granting relief.  The applicants placed considerable reliance on Tall v Ryland (1670) 22 ER 753 where the bond was conditioned upon the obligor not disparaging the business or goods of the obligee. When the obligor did disparage the goods of the obligee, the Court refused to grant an injunction and remit the matter to a suit for damages at law because the amount of the penalty (some £20) would probably be exceeded by the costs of the suit in equity and at law. However, the Court noted this was not to be a precedent in the case of a bond of £100 or the like. If the bond had stipulated a sum of £100 (being a sum greater than the damages necessary to compensate the obligee), the Court may have moulded the relief to ensure that the amount awarded was in fact limited to compensation.  In the reasons in Tall v Ryland, the Chancery Court acknowledged the latitude of equity.

16                  Now the second aspect contended for by the applicants – that the equitable jurisdiction applied to the full range of conditioned bonds.  The traditional wording of a bond required a fixed sum to be paid under the bond, there being a condition that if a smaller sum was paid on a given date or if certain behaviour occurred or did not occur, the bond would be declared void: see [9] above.  Equity granted relief in respect of such typical bonds even though the underlying matter was expressed in the language of condition and defeasance, rather than in the language of an obligation capable of breach.  The applicants described this change as equity adopting a view of substance over form and not restricting its jurisdiction to breach, or what would later be considered to be a contractual obligation.  That statement is correct, to a point.  Equity did adopt a view of substance over form.  As a result, although the equitable jurisdiction was restricted to breach it extended to include matters expressed in the language of condition and defeasance, rather than in the language of an obligation capable of breach.  What the equitable jurisdiction did not do was extend “to the full range of conditioned bonds”, whatever that phrase means.

17                  So, for example, equity granted relief against the performance of a penal bond but in relation to the different bonds – a bond securing performance of a covenant or a bond securing an underlying obligation to pay money (see [9] above) – the relief granted was different.  The former was addressed in Prolegomena of Chancery and Equity (Yale, DEC (ed), Lord Nottingham’s “Manual of Chancery Practice” and “Prolegomena of Chancery and Equity” (1965, Cambridge University Press) p 275) when Lord Nottingham (the Lord Chancellor from 1673 to 1682) described the equitable jurisdiction to grant relief against performance of such a bond as follows:

Bond for £1000 for performance of covenants is forfeitable at law by any breach, though the damages of that breach be not £10.  Yet equity will not suffer any advantage to be taken of this bond beyond the true damnification ... So that a penal bond to secure the performance of covenants is not much better security than a mere covenant, as equity now orders.

See also Puleston v Puleston (1677) Case 428 in Yale, DEC (ed), Lord Nottingham’s Chancery Cases (Vol 73, Selden Society, 1954) p 295, cited in Meagher R, Heydon D and Leeming M, Equity Doctrines and Remedies, (4^th ed LexisNexis Butterworths, 2002) at [18-010]. 

(c)       Stage Three – From the end of 17^th century to the 18^th century

18                  The significant change to the common law jurisdiction at the end of the 17^th century and the beginning of the 18^th century was the enactment of the two penalty statutes; the Statute of William III (1696) 8 & 9 Will 3 c 11 (The Administration of Justice Act 1696 entitled “An Act for the Better Preventing of Frivolous and Vexatious Suits”) and the Statute of Anne (1705) 4 & 5 Anne c 16 (The Administration of Justice Act 1705):  see also Collins v Collins (1759) 2 Burr 820. Indeed, the equitable jurisdiction to grant relief against performance of a bond was to a great extent superseded by these statutes: see Browne, Ashburner’s Principles of Equity (2^nd ed, Legal Books Pty Ltd, 1983) at 264. 

19                  The effect of the Statute of William III was summarised in Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66 at 72:

… in an action upon a bond (and this includes a penalty clause in a contract) conditioned for the performance of a contract the plaintiff must assign a breach, or as many breaches as he thinks fit, of the condition, and though he is entitled on proving a breach to judgment for the full amount of the penalty he can only recover by execution the amount of the damages proved to have been sustained by the breach or breaches assigned.  The result of suing for the penalty is therefore that the plaintiff recovers proved damages, but never more than the penal sum fixed.

20                  As the passage makes clear, the statute was (and remains) concerned with actions upon bonds with special conditions.  These provisions apply to covenants and agreements in writing containing a penal sum for non-performance.  In those circumstances, a plaintiff must assign or suggest breaches and can only recover damages for the breaches so assigned or suggested:  Bullen E and Leake SM, Precedents of Pleadings in personal actions in the superior courts of common law, (3^rd ed, Steven and Sons, 1868), at 116. 

21                  The Statute of Anne was quite different.  The difference between the statutes of William III and Anne were described in Yale DEC (ed), Lord Nottingham’s Chancery Cases, (Vol 79, Selden Society, 1961-62) p 29 as follows:

These Acts of 1697 and 1705 allowed the plaintiff suing successfully on a penal bond to enter judgment for the whole sum, but provided that he should state the breaches, and restricted him from recovering more than he proved as damages.  The judgment as to the balance secured him against further possible breaches.  [The Statute of William]  The defendant was, on his side, entitled to plead a payment of principal and interest against the form of the obligation.  [The Statute of Anne]. 

(Emphasis added.)

22                  Where a bond falls within the Statute of Anne, it does not fall within the Statute of William III:  Smith v Bond (1833) 10 Bing 125 at 132 citing Holroyd J in Murray v Earl of Stair (1823) 2 B & C 82 at 317-318. So, for example, annuity bonds, and bonds for money payable by instalments, are within the Statute of William III. Why? Because they depend on the provision in the Statute of William III that judgment should stand as a security for future payments of the annuity, or the further instalments which might become due, as the case may be: Smith v Bond at 131. Such bonds are to be contrasted with a bond for the payment of a principal sum and interest on a fixed date. Once principal and interest are due, the Court may stay the proceedings and relieve the defendant and there is no need for the judgment to stand as a security for the future. As Bramwell B said in Preston v Dania (1872-73) LR 8 Ex 19, a common money bond is within the Statute of Anne, and not within the Statute of William III, “because only one breach can be assigned, and the penal sum is not for the non-performance of several covenants”.

23                  On whether a bond falls within the Statute of William III or the Statute of Anne, Murray v Earl of Stair (1823) 2 B & C 82 at 317-318 is instructive. In that case, their Honours stated that:

It is now, however, fully established by decided cases, that bonds for the payment of annuities, or of money by instalments, are within the [Statute of William III]; but that bonds for the payment of a sum certain, at a day certain, are not within it.  Bonds for the payment of annuities are clearly within the provision, that the judgment shall stand as a security for future payments.  Before the statute a Court of Equity could only put a value upon the annuity, but could not effect that which is now done by the statute.  A bond for the payment of a sum certain, at a day certain, is not within the Statute of William, for in order to ascertain the precise sum due in such a case, computation only is necessary, and intervention either of a jury, or a Court of Equity is unnecessary.

…

The [Statute of William] seems to have contemplated bonds by the condition of which more than one act was required to be done; for it directs that the judgment shall be for the penalty, but that execution shall be for the damages assessed only, and that the judgment shall remain as security for further damages that might occur.  The main object of the Legislature was to make it unnecessary for parties to go into a Court of Equity to obtain relief.  Now, where the penalty was a security for the doing of several acts, it became the debt at law by the non-performance of any one.  And it was necessary therefore for a party to apply to a Court of Equity for relief, which was granted upon the terms of paying what was due in conscience … it is perfectly clear that if this bond be within the [Statute of Anne] it is not within the [Statute of William].

…

The mischief contemplated by the [Statute of Anne] was that where a bond was conditioned for the payment of a lesser sum at a day certain, and payment was not made at the day, the penalty became the debt at law; and payment after the day could not be pleaded in a Court of Law in bar of the action; and even pending the action, the payment of the principal, and interest, and costs, would not be a ground for discontinuing it, but the obligor of the bond was driven to a Court of Equity. Here, before the [Statute of Anne], the obligor would have been obliged to apply to a Court of Equity for relief if he had not paid the money at the day. This is therefore clearly a bond within the mischief contemplated by the [Statute of Anne].

…

[The Statute of William] is highly remedial, and calculated to advance justice and to give relief to plaintiffs up to the extent of the damage sustained, and to protect defendants from the payment of more than what is justly due, and ought not to be so construed, as to compel plaintiffs to put unnecessary matter on the record.  It appears to me that a suggestion is required in two cases; first, where upon the first breach, all that may become due is not payable, as in the case of an annuity or money payable by instalments, and then justice requires that the party should recover only what is due, which cannot be ascertained without a suggestion.  The second case is where the damages are unliquidated, and must be ascertained by the verdict of a jury, as in cases of breaches of covenant.

24                  Under the Statute of William III, where an action was commenced at law upon a bond or any penal sum for the non-performance of a covenant or agreement in any indenture, deed or writing, and judgment was given for the plaintiff, then if the defendant paid into court damages to be assessed by reason of the breaches, together with costs and expenses, the defendant would be discharged from further execution on the bond.  The concept of breach was central.  Rossiter CJ in Penalties and Forfeiture: Judicial Review of Contractual Penalties and Relief Against Forfeiture of Proprietary Interests (The Law Book Company Limited, 1992) at p 11 explained it in the following terms:

The plaintiff suing on a bond or on any penal sum for breach of covenant in any indenture, deed or writing, could recover judgment in the usual way.  However, upon the plaintiff assigning or alleging specific breaches, the jury was to assess the damage suffered.  If the defendant paid into court, at any time before execution, the amount of the damages plus costs, stay of judgment was entered in the court record.  The judgment acted as security for the damages thus suffered.

25                  Under the Statute of Anne, however, where an action for debt was brought under a bond which had a condition or defeasance whereby the bond would become void upon payment of a lesser sum at a particular time, then payment by the obligor of the principal plus interest could be pleaded in bar of the action as if the condition or defeasance had been strictly met; and if the payment was made in court during the action together with costs it would constitute full satisfaction and discharge of the bond:  Rossiter at 12.

26                  The applicants submitted that the Statute of William III reflected that limb of equity’s jurisdiction which focused on bonds or penalties referable to the non-performance of a covenant or agreement to do or refrain from any activity and that the Statute of Anne reflected equity’s jurisdiction which focused on money bonds where the amount payable under the bond exceeded the underlying amount.  The statutes were dealing with different types of bonds.  Moreover, the applicants’ submission ignores the object of the statutes.  The statutes were practical and procedural.  They streamlined relief against penalties.  Where proceedings were brought at law by the obligee, the obligor would obtain from the court of law the relief for which otherwise it would have needed to institute a separate suit in equity to obtain.  It is necessary to keep these distinctions at the forefront of any consideration of the Australian law of penalties because the provisions still form part of the law of Victoria under the Instruments Act 1958 (Vic) (the Instruments Act).  The content of those provisions and their relevance are considered later in these reasons under the heading Regulatory Framework at [(C)(3)] below.

27                  The applicants then submitted that three further matters should be noted about this stage in the administration of the common law as affected by the statutes:

1.the circumstances grounding relief at common law were essentially those previously recognised in equity;

2.the approach of substance over form was carried over from equity into the common law as demonstrated by the Statute of Anne.  In money bonds where the stipulation was expressed in the traditional language of a conditional bond, whereby the bond would become void upon payment of the lesser sum at a certain time, relief was available whenever the bond required payment of a larger sum than the underlying amount stipulated.  Thus, common law relief against money bonds was available in respect of instruments which did not in terms impose an obligation to pay the lesser sum;  terms which did not reflect a promise or what would later become a term of a contract; and

3.thirdly, the procedural reforms, and expansion of the common law, did not abolish the jurisdiction in equity.

28                  At one level, these propositions are unexceptional.  It is true that the circumstances grounding relief at common law were essentially those previously recognised in equity, that the Statute of Anne adopted the approach of substance over form and that the procedural reforms and expansion of the common law did not abolish the jurisdiction in equity.  But what follows from acceptance of those propositions was not made clear by the applicants.  What, in my view, does not follow is some general proposition that common law relief against money bonds was available in respect of instruments which did not in terms impose an obligation to pay the lesser sum; terms which did not reflect a promise or what would later be construed as a term or condition of a contract.

29                  The applicants referred to four cases from the 18^th century as some support for the propositions they identified.  The first was Peachy v The Duke of Somerset (1720) 1 Strange 447 where relief against forfeiture of a copyhold estate was granted upon the making of due recompense.  One ground for seeking relief was in respect of the non-payment of rent or fines.  Relief was granted because the forfeiture was by way of security.  The Lord Chancellor said at 453:

The true ground of relief against penalties is from the original intent of the case, where the penalty is designed only to secure money, and the Court gives him all that he expected or desired.

This case does not advance the understanding of the historical development of the law of penalties or provide support for the applicants’ second proposition.  The questions posed by the court were orthodox – whether any of several acts were forfeitures at law and, if so, whether any of them were relievable in equity:  Peachy at 448.  It was an orthodox application of principle and the usual grant of relief.

30                  Next, the applicants cited Collins v Collins (1759) 2 Burr 820. In that case, Lord Mansfield discussed the two penalty statutes. The claim was an action of debt upon a bond where the condition involved the payment to the plaintiff of an annuity for life plus an obligation of maintenance. Lord Mansfield held this satisfied the language of the Statute of William III and, under that statute, allowed judgment to be obtained for the whole penalty. However, execution was stayed so that the plaintiff could not recover more than the debt, interest and costs or any other amounts ascertained as the true damage. Consistent with the title and object of the Statute of William III (see [18] above), the obligor was relieved from the need for an expensive suit in equity.

31                  The applicants submitted that this case was further evidence that people had frequently gone to equity upon conditions in bonds under the Statute of William III and that under the Statute of William III, as well as the Statute of Anne, a broad view of substance over form was taken in bringing conditional bonds within the language of the available relief. Moreover, the applicants submitted that no point had been taken that the condition needed to be expressed as a promise or as a contractual obligation before the relief was available. Those submissions require close analysis. First, as demonstrated earlier, the two penalty statutes were different in substance and effect. The statutes were mutually exclusive: see [22]-[26] above. So, for example, if a bond fell within one statute, it could not fall within the other. Secondly, Lord Mansfield applied the Statute of William III, not the Statute of Anne, and described the operation of that statute as follows (Collins at 825):

A very beneficial remedy, and a very just one to the subject, this is.  The judgment is to be for the whole penalty, and it is to remain as a further security; though, execution is to be stayed on payment of the sum due, &c.  So that the penalty is a security for the debt, interest and costs, upon any future breach.

(Emphasis added.)

As is apparent, there was an agreement in writing between the parties, the penalty was payable upon breach (for non-payment to the plaintiff of an annuity for life or maintenance) and judgment for the whole penalty was retained as security for any future breach.  The substance of the bond, not its form, was critical:  see Collins at 826. That it was described as a “condition” was not determinative. It was a penalty for “breach”.

32                  The third case was Sloman v Walter (1783) 1 Bro CC 418. It was cited as an example of equity granting an injunction to restrain execution upon a verdict at law and requiring a quantum damnificatus to try the real damage.  The plaintiff and defendant were partners in a coffee house.  It was agreed that the business would be conducted entirely by the plaintiff but the defendant would have the use of a room in the house whenever he thought proper.  In order to enforce the agreement, a bond was entered into by the plaintiff to the defendant to pay a penalty of £500.  The plaintiff refused the defendant use of the room and the action was brought for the penalty of the bond.  The Lord Chancellor in Sloman at 419 said the bond was to be considered as a penalty rather than as assessed damages and stated the rule as follows:

The rule, that where a penalty is inserted merely to secure the enjoyment of a collateral object, the enjoyment of the object is considered as the principal intent of the deed, and the penalty only as accessional, and, therefore, only to secure the damage really incurred, is too strongly established in equity to be shaken.

An injunction against a suit for recovery of the bond was continued.  Sloman is an example of the continuing existence of the equitable jurisdiction where the common law would not assist.  In that case, the “condition” was held to be the principal object or real bargain and the penalty intended only to secure the due performance of the principal object.  Again, it was an orthodox application of principle and the usual grant of relief.

33                  The final case cited by the applicants was Hardy v Martin (1783) 1 Cox 26. The plaintiff and the defendant had been partners in a business of brandy merchants. The plaintiff quit the business and sold the lease and goodwill to the defendant and entered into a bond to the defendant to pay a penalty of £600. The condition stated on the bond was that, if the plaintiff did not engage in certain competitive activity for an identified period, the bond would be void. The defendant obtained a verdict for the penalty at law. Lord Loughborough said equity would not regard the penalty as the price for doing what he had expressly agreed not to do:  Hardy at 26-27. The Court restrained the plaintiff from competing even if he had paid the penalty and moderated the damages to the real injury. The conditional bond did not contain any promise. However, properly construed, the Court concluded this was “an agreement not to sell brandy, with a penalty for selling it”: at Hardy at 27. The penalty was treated as security for the performance of the real object of the bargain – for the plaintiff not to sell brandy. The injunction was granted and the Court directed an issue to be tried quantum damnificatus.  Significantly, the Court distinguished an earlier decision in Rolfe v Peterson (1772) 6 Bro PC 470 where land had been demised to a lessee to do with the land as he thought proper; if he used it one way, to pay one rent and if another way, another rent. The Court distinguished Rolfe by stating that it did not involve an agreement not to do a thing with a penalty for doing it and, accordingly, it was apparent why equity would not interfere:  Hardy at 27.

34                  Before leaving this stage in the development, it is necessary to consider one further aspect.  In relation to the third contention (that the expansion of the common law did not abolish the jurisdiction in equity) the applicants identified two groups of cases where equity retained jurisdiction.  First, where the obligee chose to bring his suit in equity under an available bill on the bond itself, thereby enabling the obligor to raise by way of defence the equitable matters and, secondly, where the obligor would need to seek affirmative relief which would be available only in the court of equity: for example, where the obligee had already obtained a verdict and execution through the common law court, or had exercised a self help remedy and obtained payment under the bond, it would be the court of equity that granted relief:  see Loyd at 126 and Simpson at 418-421 and the authorities cited.  In my view, the cases identified by the applicants do not assist.  The first example simply reflected a choice of suit having been made by the obligee.  The second reflected the procedural nature of the remedy:  see [22]-[26] above.  In any event, there is no doubt that the equitable jurisdiction continues to exist – indeed, the applicants and ANZ agreed on that aspect.  The area of dispute between them was the extent of the operation of the continued equitable jurisdiction in relation to the law of penalties in Australia in 2011.  That issue will be addressed later in these reasons for decision:  see [45]-[80] below.

(d)       Stage Four – 19^th century in England and then Australia

35                  By the 19^th century, the general principle that developed was described by Story J in Commentaries on Equity Jurisprudence as Administered in England and America (13^th ed, Little, Brain and Company, 1886) at [1314] as follows:

… In short, the general principle now adopted is, that, whenever a penalty is inserted merely to secure the performance or enjoyment of a collateral object, the latter is considered as the principal intent of the instrument, and the penalty is deemed only as accessory, and, therefore, as intended only to secure the due performance thereof, or the damage really incurred by the non-performance.  In every such case, the true test (generally, if not universally,) by which to ascertain whether relief can or cannot be had in Equity, is, to consider whether compensation can be made or not.  If it cannot be made, then Courts of Equity will not interfere.  If it can be made, then, if the penalty is to secure the mere payment of money, Courts of Equity will relieve the party, upon paying the principal and interest.  If it is to secure the performance of some collateral act or undertaking, then Courts of Equity will retain the bill, and will direct an issue of Quantum damnificatus; and, when the amount of damages is ascertained by a jury, upon the trial of such an issue, they will grant relief upon payment of such damages. 

(Citations omitted and emphasis added.)

36                  Two conclusions can be drawn about where the law of penalties had reached by the end of the 19^th century.  First, breach was a necessary element of the law of penalties (Kemble v Farren (1829) 6 Bing 141 at 148; Reynolds v Bridge (1856) 6 EL & BL 528 at 541; Protector Endowment Loan and Annuity Co v Grice (1880) LR 5 QBD 592 and Wallis v Smith (1882) LR 21 Ch D 243) and second, consistent with that view, cases dealing with the non-performance or satisfaction of a condition upon which payment of the bond was required were treated or characterised as a breach of contract: see [29], [30], [32] and [33] above.

37                  A significant change in the 19^th century was the passing of the Judicature Acts in England in 1873 and 1875:  Supreme Court of Judicature Act 1873 (Imp) 36 & 37 Vict, c 66 and Supreme Court of Judicature Act 1875 (Imp) 38 & 39 Vict, c 77.  These were a procedural reform that enabled a single court to exercise all the jurisdiction which had separately lay in courts at common law and in equity.  Where there was a conflict, the rules of equity prevailed.  As the applicants submitted, this reform was of the same character as the two penalty statutes.  The substantial difference was that it now operated across the entire jurisdictions at common law and equity.  (Indeed, ultimately the penalty statutes ceased to be necessary and were repealed in the United Kingdom:  Jobson v Johnson [1989] 1 WLR 1026 at 1039; Administration of Justice Act 1925 (Imp) and Administration of Justice Act 1965 (Imp)).

38                  The description of the effect and operation of the Judicature Acts is significant.  The Judicature Acts did not extinguish the equitable jurisdiction or fuse or merge it with the jurisdiction at common law. Rather the two systems were administered concurrently in the same courts, with equity prevailing where there was a conflict. The effect was that a single court could grant relief to the obligor whether he or she was a defendant or a plaintiff in the action; however the principles upon which the relief would be granted were those which had been developed over the centuries at common law and in equity: see, by way of example, s 29 of the Supreme Court Act 1986 (Vic); s 25 of the Supreme Court Act 1933 (ACT); ss 57-63 of the Supreme Court Act 1970 (NSW); ss 61-69 of the Supreme Court Act 1979 (NT); ss 244 and 249 of the Supreme Court Act 1995 (Qld); ss 20-28 of the Supreme Court Act 1935 (SA); s 24 of the Supreme Court Act 1935 (WA); s 10 of the Supreme Court Civil Procedure Act 1932 (Tas).

39 Upon reception in Australia, the entirety of the jurisdiction in England became part of Australian law including the common law, the two penalty statutes, and the additional jurisdiction in equity. Section 24 of the Australian Courts Act, 9 Geo IV, c 83 (Imp, 1828) provided that all laws and statutes in force within the realm of England on 25 July 1828 should be applied in the courts of New South Wales (then including what is now Victoria and Queensland) and Van Diemen’s Land “so far as the same can be applied within the said colonies”.  Thus, the penalty statutes were incorporated into the law of New South Wales (and upon its succession, Victoria):  see Blackshield & Williams, Australian Constitutional Law and Theory: Commentary & Materials (4^th ed, The Federation Press, 2006) at 135.7.

40                  The Judicature Act system was enacted in Australia at various times.  In Victoria, that occurred in 1883: Judicature Act 1883 (Vic).  Accordingly, at various times there were different procedural mechanisms by which the penalty jurisdiction would be exercised in different states.  So, for example, between 1883 and 1972, in Victoria, a single court could grant relief to the obligor whether he was plaintiff or defendant, whereas in New South Wales at that time the relief would be granted separately either in the common law court or in the equity court, depending on the circumstances including whether the obligor was plaintiff or defendant.

(e) The law in the United Kingdom immediately before Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

41The law in the United Kingdom, immediately before Dunlop, could be summarised as follows:

1.Relief against penalties was granted by a single court which applied the jurisdiction which had been developed previously both in the common law courts and equity courts, and where there was a conflict, gave priority to the equitable principles.

2.Whether at common law or equity, to ascertain whether the jurisdiction was available, it was necessary to prefer substance over form: it was not a question of precisely how the contract or other arrangement between the parties was worded.  The question was whether, in substance, the parties were treating either the payment of the sum of money, or the doing or not doing of an act by a party, with a stipulation to pay a sum of money if that did not occur being inserted by way of security for performance of that payment of the sum of money, or the doing or not doing of that act by that party. 

3.Where the substance of the agreement was the payment of money, identifying whether the stipulation for the payment of money was in the nature of a penalty was straightforward.  The law had a settled position that the proper compensation was for the obligor to pay principal, interest and costs.  Any stipulation that a larger sum of money was to be paid would be penal.  The law, whether at common law or equity, would treat the larger sum as being inserted by way of security for payment of the lesser sum; it would not permit the obligee to recover the larger sum.

4.The mechanism by which the relief would be played out in the case of a stipulation for the payment of money would still depend upon the timing of the defence.  If the full principal plus interest and costs had been paid prior to the action, it constituted a complete defence.  If the money was brought into court during the action, together with costs, that would be treated as a full discharge.  If the verdict had been given and the obligee was at the stage of execution, relief could be obtained against execution on the payment of the principal plus interest and costs.

5.On the other hand, where the substance of the agreement was the doing or not doing of an act, in determining whether the requirement to pay a stipulated sum was penal, the law would enquire into whether it could be justified as a genuine attempt by the parties at the date of entering the contract to estimate and liquefy the damages which might flow from the failure to perform.

See also Jobson v Johnson [1989] 1 WLR 1026 at 1039 and Newland at 443. This description records, as was the fact, that the penalty doctrines preceded 19^th century views of freedom of contract.  As will become evident, that emergence of the freedom of contract has, on some occasions, become difficult to reconcile with the law of penalties.

(f)       Dunlop

42                  The next significant event was the decision in Dunlop.  That case concerned an agreement for the supply of tyres under which the defendant promised to pay £5 as liquidated damages for every article sold or offered in breach of its obligations, inter alia, not to sell below listed prices and not to supply persons on a suspended list.  The decision at first instance, which was ultimately upheld in the House of Lords, saw the damages assessed by application of the net amount stipulated in the contract to the number of breaches.  It was held that there was no reason to suspect that ₤5 did not reflect a true bargain to assess damages.

43                  It is appropriate to set out the following passage in Lord Dunedin’s speech at 86-87 (cited by the High Court in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656):

…

2.The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

3.The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach.

4.To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive.  Such are:

(a)It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

(b)It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. …

(c)There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage”.

(Citations omitted.)

44                  In addition to the above propositions from Lord Dunedin’s speech, the following emerges from Dunlop:

1.the exercise involves an enquiry into the substance and the reality of the thing and the real nature of the transaction to determine the object of the obligee in stipulating for the sum:  Lord Atkinson at 92;

2.where the damages which may arise out of a breach of contract are of their nature uncertain, the law permits the parties to agree beforehand on the amount to be paid on breach in determining whether the sum being paid is a penalty.  It will not be a bona fide pre-estimate of damage if the sum stipulated is in excess of any actual damage which could possibly or probably arise from the breach or if the parties have stipulated for the payment of a larger sum in the event of a breach of an agreement for the payment of a smaller sum:  Lord Parker at 97;

3.where the damage for the breach of a covenant to pay a fixed or definitely ascertainable sum is capable of exact definition, the substitution of a larger sum for that smaller ascertainable sum will not be a pre-estimate of damage, but a penalty:  Lord Parmoor at 101.

(2)       The Australian Cases

(a)       Introduction

45                  Before turning to the Australian cases, a number of matters should be noted.  The heading to this section does not read “the law of penalties in Australia”.  There is a good reason for that; there is a distinct and relevant Australian regulatory framework which must be taken into account and which is considered at [(C)(3)] below. 

46                  Next, it is important to recognise that there is now a single common law (in the sense of judge-made law – both common law and equity) within Australia: Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51 at 113; Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 563; Lipohar v The Queen (1999) 200 CLR 485 at [43]-[44]. Whether the jurisdiction is being exercised across separate courts at common law and equity, or in a single court, the principles are the same, consisting of the full set of propositions that have been developed at common law and in equity over the centuries. There is, however, one necessary qualification to that general principle – the statutes peculiar to particular states or territories. In the present case, as will become evident, that qualification is relevant: see [135]-[140] below.

(b)       Breach and the role of damages?

47                  The primary remedy for a breach of contract is an award of damages:  News Limited v Australian Rugby League (1996) 64 FCR 410 at 517. The object of such an award of damages is to compensate for loss and damage occasioned by breach: Commonwealth v Amann Aviation (1991) 174 CLR 64 at 98. The object of an award of damages is not to punish the party in breach: Maritime Union of Australia v Patrick Stevedores No 1 Pty Ltd (1998) 77 FCR 456 at 471; cf Ruxley Electronics Ltd v Forsyth [1966] AC 344 at 353 (Lord Bridge) and 365 (Lord Lloyd with whom Lords Keith and Mustill agreed).

48                  Consistent with those general principles, parties to a contract are entitled (and often do) stipulate in the contract an amount that will be payable by one to the other in the event of breach:  Dunlop at 97 (Lord Parker) and 101-102 (Lord Parmoor). Such clauses have been described as “agreed damages” clauses: Carter, JW, Carter on Contract, (LexisNexis Australia, Subscription Service) at [43-070] (Update 30); Carter JW and Peden E, “A Good Faith Perspective on Liquidated Damages” (2007) 23 JCL 157 and Carter JW and Peden E, “Agreed Damages Clauses – Back to the Future?” (2006) 22 JCL 189.  These clauses are generally enforceable provided they fix a sum which is a genuine pre-estimate of loss or damage – sometimes described as “liquidated damages”.  These clauses obviate the need to prove in court the amount of loss or damage suffered as a result of a breach.  Courts have recognised that such clauses are mutually beneficial to the parties; providing certainty in respect of their rights and obligations without the need for costly litigation or, at the very least, minimising the cost of litigation:  AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170 at 193; Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1447 and The City of Sydney v Streetscape Projects (Aust) Pty Ltd [2011] NSWSC 1214 at [384].

(c)       When are Liquidated or Agreed Damages clauses not enforceable?

49                  The preceding paragraph states that agreed damages clauses are generally enforceable.  It is therefore necessary to explore when such clauses are not enforceable and why.  This lies at the heart of the determination of the Separate Questions. 

50                  ANZ submitted that an agreed damages clause will not be enforceable if it is a penalty.  In defining a “penalty”, ANZ referred to two decisions in the High Court:  Legione v Hateley (1983) 152 CLR 406 at 455 and Ringrow at 662-663. It is necessary to consider both of these cases in some detail. In Legione v Hateley at 445, Mason and Deane JJ stated that:

A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation;  it consists of the imposition of an additional or different liability upon breach of the contractual stipulation …

51                  Similarly, in Ringrow at [10], Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ unanimously stated:

The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach.

(Emphasis added.)

52                  Much of the applicants’ arguments in this case centred on what the High Court meant by standard application and sought to identify what was non-standard.  The applicants submitted that the reference to “standard application” amounted to an acknowledgement by the High Court that there was, and remains, some other class of penalty which could be struck down and that this other class was one in which breach was not a necessary element.  It was and remains inappropriate to select a phrase, as the applicants did, from one case and then seek to elevate it into an acknowledgement by the High Court that there is some other class of penalty which could be struck down and that this other class just happened to be (or include) the class of cases into which the applicants’ individual claims fell.  That is, a class of cases in which breach was not a necessary element.  Ringrow provides no support for the applicants’ submissions.

53                  First, the facts in Ringrow.  Ringrow purchased a service station from BP Australia.  Under a related agreement, the POSA, the site was to be operated by Ringrow under the BP brand.  If Ringrow breached the POSA, BP was entitled to terminate it and claim liquidated damages.  Liquidated damages were to be calculated by reference to the expected profits of BP over the balance of the term of the agreement.  At various times, Ringrow purchased fuel from a supplier other than BP and on-sold that fuel to the public.  That was a breach of the POSA.  BP gave Ringrow notices of breach of condition, followed by notice of termination of the POSA.  Subsequently, BP gave Ringrow notice that it intended to exercise its contractual rights under another agreement (an option deed) to buy back the service station site.  Clause 1.2(a) of the option deed provided that the option was only exercisable if the POSA “is terminated”.  Clauses 2.1 and 2.5 of the option deed provided that the price to be paid by BP was the market value of the site without reference to the goodwill.  The POSA provided that if the option was exercised, liquidated damages for breach were not payable.  Ringrow contended that cl 1.2(a) was “void and unenforceable” because it operated as a penalty for breach of the POSA.  The High Court rejected that contention.  As will be apparent, the facts in Ringrow were fundamentally different from those that must be considered for the purposes of the Separate Questions. 

54                  Next, the so called “standard application”:  see Ringrow at [10] extracted at [51] above. The High Court described the law of penalties as being attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach: at [10]. This “standard application” had, as its foundation, the speech of Lord Dunedin in Dunlop at 86-87: see [43] above. In Ringrow, the correctness of the passage in Lord Dunedin’s speech and, in particular, “the principles governing the identification, proof and consequences of penalties in contractual stipulations” were not challenged:  Ringrow at [12]. As the High Court said at [12]:

The formulation has endured for ninety years.  It has been applied countless times in this and other courts [eg, O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 368, 378, 399, 400; Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 at 520; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 190; Stern v McArthur (1988) 165 CLR 489 at 540; Esanda Finance Corporation Ltd v Plessnig (1989) 166 CLR 131 at 139, 143, 145]. In these circumstances, the present appeal afforded no occasion for a general reconsideration of Lord Dunedin’s tests to determine whether any particular feature of Australian conditions, any change in the nature of penalties or any element in the contemporary market-place [See eg AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 190] suggest the need for a new formulation. It is therefore proper to proceed on the basis that Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd continues to express the law applicable in this country, leaving any more substantial reconsideration than that advanced, to a future case where reconsideration or reformulation is in issue [O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 400; cf at 392; AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1989) 15 NSWLR 564 at 566, 574].

55                  That passage requires close analysis.  The High Court recognised that there may be a particular feature of Australian conditions, a change in the nature of penalties or an element in the contemporary market-place that could suggest the need for a new formulation.  The list cannot be seen as exhaustive.  However, whatever may provide a reason for a new formulation, at that time, it had not arisen.  The only indication of the kinds of reasons that the High Court then had in mind was contained in the footnoted reference to AMEV-UDC Finance Ltd at 190 where Mason and Wilson JJ emphasised the importance of freedom of contract so that an agreed sum is only characterised as a penalty if it is out of all proportion to damage likely to be suffered as a result of breach. In my view, the High Court did not suggest that breach was not an essential element or would not otherwise be necessary. Indeed, this passage relied upon by the applicants provides no support for the applicants’ contention that breach is not an essential element. At its highest, it reinforced the principle, developed as far back as the late 16^th and early 17^th centuries of preferring substance over form so that even where there was no express contractual promise to perform a condition, the doctrine of penalties was applied where such a promise could readily be implied such as in the case of penal bonds:  see [16] above.  There was nothing to suggest that a breach, or conduct in the nature of breach, was not necessary.

56                  Why then did the High Court refer to the law of penalties in its “standard application”?  What fell outside this so called “standard application”?  In my view, that question was answered in Ringrow at [21] by the High Court itself when it stated:

The respondent did not contest the appellant’s submission, for which there is authority [Forestry Commission (NSW) v Stefanetto (1976) 133 CLR 507 at 519, 524; Jobson v Johnson [1989] 1 WLR 1026 at 1034-1035, 1042; [1989] 1 All ER 621 at 628, 634; Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 at 555], that Lord Dunedin’s statement applies not only to cases where money is payable but also to cases where money’s worth (including property) is transferable on a particular event.  In that extended application, Lord Dunedin’s statement requires a different approach from that employed in typical penalty cases. 

(Emphasis added.)

57                  As that passage identified, the law of penalties addressed two different cases – (1) cases where money is payable (referred to by the High Court as the standard application or typical penalty case:  Ringrow at [10] and [21]) and (2) cases where money’s worth (including property) is transferable on a particular event (referred to by the High Court as the extended application:  Ringrow at [21]). The latter has, on occasion, been referred to as encompassing relief against forfeiture. Given the different nature of the relief sought, it was inevitably necessary to adopt a different approach for each type of case. That difference in approach was explained by the High Court in Ringrow at [21] as follows:

In typical penalty cases, the court compares what would be recoverable as unliquidated damages with the sum of money stipulated as payable on breach. 

In [extended application] cases … one relevant comparison would be between the price payable by the respondent to the appellant on retransfer of [the service station site] and the actual value of what is transferred. 

(Emphasis added.)

However, the comparison itself and a mere difference, or suspicion of difference, was not and is not sufficient.  There has to be something “extravagant and unconscionable” in the value of what is transferred compared to the price to be received or a “degree of disproportion” sufficient to point to oppressiveness:  Ringrow at [21]. In assessing the extravagance and oppressiveness, the High Court stated that it was necessary to be able to compare the price to be paid and the value of what was to be transferred: Ringrow at [22].

58                  Put another way, the law of penalties requires the court to determine whether the payment for non-observance of the contract is payable in terrorem.  That is, as a punishment to deter breach of the contractual obligation:  see Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 at 9-10. As expressed by Lord Dunedin in Dunlop, “[t]he Court must find out whether the payment stipulated is in truth a penalty or liquidated damages” (emphasis added): at 86; see also O’Dea at 400.

59                  As ANZ submitted, there is extensive and longstanding authority in Australia and the United Kingdom that the law of penalties has no application to a contractual provision requiring a payment on the happening of an event that does not constitute a breach of contract.  Those authorities include, in chronological order, In re Apex Supply Co Ltd [1942] Ch 108 at 109; Campbell Discount Co Ltd v Bridge [1962] AC 600 at 613-614 (per Viscount Simonds); Philip Bernstein (Successors) Ltd v Lydiate Textiles (Unreported, Court of Appeal UK, Diplock LJ, 26 June 1962); United Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54 at 66-67 (per Harman LJ); IAC (Leasing) Ltd v Humphrey (1972) 126 CLR 131 at 140-144 (per Walsh J, with whom Barwick CJ and McTiernan J agreed); Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205 at 224 (per Lord Roskill, with whom Lords Diplock, Elwyn-Jones, Keith of Kinkel and Brightman agreed); AMEV-UDC Finance Ltd at 184, 189-190 and 211 (per Mason, Wilson JJ and Dawson J (in dissent on the primary issue));  Jervis v Harris [1996] Ch 195 at 206-207 (per Millet LJ, Otton LJ and Sir Stephen Brown P); Office of Fair Trading v Abbey National plc [2008] EWHC 875 at [295] (per Andrew Smith J); Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 at [106] (per Allsop P, with whom Giles and Ipp JJA agreed); Fermiscan Pty Ltd v James [2009] NSWCA 355 at [134]-[136]; Diakos v Mason [2010] SASCFC 37 at [16] and [18] (per Gray J, with whom Duggan and Kelly JJ agreed) and First East Auction Holdings Pty Ltd v Mimi Ange [2010] VSC 72 at [151] and [157] (per Hargrave J). See also Rossiter at 66; McGee J, Snell’s Equity (31^st ed, Sweet & Maxwell, 2005) at 294; Carter JW and Harland DJ, Contract Law in Australia (4^th ed, Butterworths, 2002) at [2216]; Lewison K, The Interpretation of Contracts (4^th ed, Sweet & Maxwell, 2007) at [16.01]; Parkinson P, The Principles of Equity (2^nd ed, Lawbook Co, 2003) at [819]; Meagher RP, Penalties in Chattel Leases in Finn PD (ed), Essays in Equity, (The Law Book Company Limited, 1985), p 52. 

60                  Finally, for the sake of completeness, it should be noted that Lord Dunedin’s statement of the law of penalties in Dunlop, including the “breach” requirement, has also been adopted in:

1.Canada:  see Gunning v Thorne Riddell [1990] B.C.J. No.36 at [26]-[27] (approved on appeal); Pattison v Mudry [1999] OJ No 65 at [49]-[50] and Doman Forest Products Ltd v GMAC Commercial Credit Corp [2007] 29 BLR (4th) 1 at [121]-[125] and [134];

2.New Zealand: see Camatos Holdings Ltd v Neil Civil Engineering (1992) Ltd [1998] 3 NZLR 596 at 606; and

3.Hong Kong:  see Philips Hong Kong Limited v The Attorney General of Hong Kong [1993] 1 HKLR 269 at 277-278 and Re Mandarin Container [2004] 3 HKLRD 554 at 559.

(d)       After Ringrow?

61                  The High Court has not considered the law of penalties since Ringrow.  However, judicial statements that breach is not an essential element, before or after Ringrow, are rare: see Campbell Discount at 629-631 (per Lord Denning); AMEV-UDC Finance Ltd at 197-198 (per Deane J) and Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406 at [74] (per Brereton J) (but overturned on appeal in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292). Each of these cases was confined to a particular fact situation – payments upon termination of an agreement. I will deal with this particular fact situation first and then turn to consider Interstar in greater detail.

(i)        Payments upon termination of an agreement

62                  The context of judicial statements that breach is not an essential element (see [61] above) has been confined to the applicability of the law of penalties to provisions of lease and hire purchase agreements governing the consequences of termination of the agreements.  One question raised in these cases is whether the law of penalties has any application to contractual provisions that operate upon termination of the agreement, where the right to terminate the agreement is exercisable on the occurrence of a number of events, some of which constitute breaches of contract and some of which do not.  As ANZ submitted, while these cases help define the boundaries of the law of penalties, they have no direct application to the Separate Questions.  It is not alleged by the applicants, and it is not the fact, that any of the Fees were payable upon termination of the relevant customer contracts.

63                  In relation to contractual payments upon termination, the state of the authorities is that the law of penalties is applicable where the agreement is terminated for breach of contract: Cooden Engineering Co v Stanford [1953] 1 QB 86 at 96-97 and 116 (per Somervell LJ and Hodson LJ); Campbell Discount at 614-615, 621, 631 and 632 (all members of the House of Lords supported the application of the law of penalties in those circumstances); United Dominions Trust (at 64, 67 and 69 (per Lord Denning MR, Harman LJ and Salmon LJ); O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 367, 375, 382-383, 391 and 397-398 (all members of the High Court supported the application of the law of penalties in those circumstances): AMEV-UDC Finance Ltd and Esanda Finance Corporation v Plessnig (1989) 166 CLR 131.

64                  Conversely, the law of penalties has been held to have no application to contractual payments that arise upon termination of the agreement where the agreement is terminated on the occurrence of an event that does not constitute a breach of contract: Associated Distributors v Hall [1938] 2 KB 83 at 87-88 (per Slesser LJ, with whom Scott LJ and Clauson LJ agreed); IAC (Leasing) Limited v Humphrey (1972) 126 CLR 131 at 142-143 (per Walsh J, with whom Barwick CJ and McTiernan J agreed).

65                  In Campbell Discount, the House of Lords considered the question whether the law of penalties would apply to contractual payments upon termination if the agreement had been terminated at the election of the hirer.  Viscount Simonds (at 613) and Lord Morton of Henryton (at 614) decided that the provision would not be a penalty.  Lord Radcliffe did not decide the question:  see 625-626.  Lord Denning concluded that the law of penalties should be applicable in those circumstances for the reason that the payment would be due upon the non-performance of a condition:  at 629-631.  Lord Devlin concluded (obiter) that the law of penalties would apply for the reason that if the provision requiring the payment to be made was unenforceable as a penalty in one set of circumstances, it must be unenforceable in all circumstances:  at 634.

66                  In O’Dea, only Gibbs CJ and Brennan J referred directly to the question whether the law of penalties would apply if the agreement had been terminated at the election of the hirer (that is, without breach).  Gibbs CJ left the question open (at 368) and Brennan J’s reasons favoured the view that the law of penalties did not apply in those circumstances:  at 390-392.

67                  In AMEV-UDC Finance Ltd, the High Court considered a lease agreement containing substantially the same provisions as those considered in O’Dea.  It was accepted that the provisions constituted a penalty on the authority of O’Dea.  The issue considered by the Court was the measure of damages available to the lessor as a consequence of terminating the lease agreement and repossessing the leased equipment, given that the relevant contractual provisions governing that event were unenforceable as a penalty.  Accordingly, the question that was decided by the High Court in AMEV-UDC Finance Ltd is not directly relevant to the initial hearing in this proceeding. Relevantly for present purposes, the reasons of Mason and Wilson JJ support the conclusion that the law of penalties is confined to sums agreed to be paid upon a breach of contract: at 184 and 189-190. Dawson J (in dissent on the primary issue) expressed similar views, concluding (at 211) that:

Treatment of the termination of an agreement upon breach in the same way as the breach itself for the purpose of determining whether a stipulated payment is capable of amounting to a penalty has no extended application.

It would seem clear that a provision calling for the payment of money by one party on the occurrence of a specified event, rather than upon breach by that party, cannot be a penalty.

Only Deane J (also in dissent on the primary issue) expressed the view that the law of penalties extended beyond payments for breach of contract (or upon termination for breach of contract):  at 199-200.

(ii)       Interstar

68                  What then is left?  The applicants placed considerable reliance upon the decision in Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406 where Brereton J, at first instance, held that the provision in issue was a penalty. That decision was overturned on appeal by the New South Wales Court of Appeal in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292. The losing party to the appeal was granted special leave to appeal by the High Court but the parties settled just before the High Court was due to commence hearing the substantive appeal. It is necessary to consider Interstar in some detail.

69                  Interstar were finance companies engaged in lending, and procuring the lending of moneys on the security of mortgages.  The other entity, Integral, was a “mortgage originator”, which found and brought to Interstar applications for loans to be secured by mortgage.  If a loan was made to a loan applicant, Integral managed the ongoing servicing of the loan:  Interstar at [1]. In March 2003, and then again in November 2005, Integral entered into a “Loan Origination and Management Agreement” with Interstar (the LOMA1 and LOMA2 respectively).

70                  Under each LOMA, Interstar agreed to pay to Integral an upfront fee on settlement of a loan introduced by Integral and an ongoing “originators fee” calculated as a percentage of the outstanding balance of the loan introduced by Integral, payable monthly (conventionally called “trailer commission”).  Under each LOMA, cl 6 included an obligation on Integral “to act honestly in its dealing with all parties and not engage in misleading, deceptive or unethical conduct”:  Interstar at [11]-[12].  Clause 20.1 of each LOMA entitled Interstar to terminate the agreement in various circumstances including the insolvency of Integral, a breach of the agreement by Integral or a change in control of Integral:  Interstar at [20]. Clause 20.3 provided for the consequences of termination. Clause 20.3(c) of each LOMA provided that Interstar could terminate the LOMA where Integral or its representative had engaged in any proven misleading or deceptive conduct in relation to a loan or where Interstar considered, in its reasonable opinion, that Integral or its representative had engaged in deceptive or fraudulent conduct in relation to a loan:  Interstar at [20]. In March 2006, Interstar gave Integral notice under each LOMA that it was exercising its right of termination under cl 20.3(c) because it had formed the opinion that Integral had engaged in deceptive conduct in relation to loan application files: Interstar at [24]. Integral contended that Interstar was not entitled to terminate the LOMAs and alternatively, if it was, cl 20.3(c) was void as a penalty.

71                  The trial judge (Brereton J) held cl 20.3(c) was void as a penalty:  Integral at [79]. Brereton J decided that the law of penalties was applicable to cl 20 of the LOMA. His Honour concluded (Integral at [71]) that a contractual provision entitling a party to terminate a contract on various events such as death or insolvency of the other party was susceptible to the law of penalties because they:

… serve to secure the interests of the [terminating] party in receiving performance of the main promise of the contract ... Their effect is that the [other] party's entitlement to continue to enjoy the benefit of the contract is conditional upon its not committing any event of default ....

His Honour reached that conclusion notwithstanding that the right to terminate the agreement was not conditioned on a breach of contract and that no right to damages resulted from the occurrence of the event entitling termination:  Integral at [71]. (It is important to note that Brereton J failed to adopt fully Deane J’s expanded formulation of the law of penalties: that the stipulated payment contains an element of compensation for the economic loss or damage which might be sustained by the other party by reason of the particular occurrence or default: AMEV-UDC Finance Ltd at l99-200.)

72                  Brereton J held the law of penalties encompassed not only an obligation to pay a monetary sum but extended to obligations to transfer property:  Integral at [12], [74] and [78].  What was new, and what was rejected by the Court of Appeal, was the view expressed by Brereton J that the law of penalties was not limited in its application to circumstances where a contract is terminated for breach but that its scope extended to circumstances where a contract is terminated pursuant to a right to do so upon occurrence of an event of default which the non-terminating party had, in substance, an obligation to avoid:  Integral at [74]-[76]. 

73 Putting to one side the role of precedent (an issue addressed in further detail at [75]-[76] below), with respect to Brereton J, I reject the contention that the law of penalties extends to circumstances where a contract is terminated pursuant to a right to do so upon occurrence of an event of default which the non-terminating party had, in substance, an obligation. It finds no support in history, in the decided cases in Australia, the United Kingdom, Canada, Hong Kong or New Zealand (see [60] above) and, finally, and no less importantly, it is a phrase or concept devoid of certain meaning. Given the importance and rising significance of the freedom of contract since the late 19^th century, it would be contrary to that trend to now expand the law of penalties in the manner proposed by Brereton J and, in particular, in a way which is at best uncertain and at worst ambiguous.

74                  A number of points may be made about the decisions at both first instance and on appeal in Interstar.  First, as has already been noted, Brereton J founded his ultimate decision on alternative bases:  that the disputed sum was payable on breach or, if it was not, it was nonetheless governed by the law of penalties because the disputed sum was payable in respect of a matter within the non terminating party’s field of obligation.  The former analysis represented an orthodox engagement of accepted principles.  The latter conclusion, however, upon which the applicants placed great emphasis, was evidently intended to travel beyond any requirement for breach.  The central difficulty presented by this alternative analysis is to understand what exactly is meant by the notion of “a field of obligation”.  If, by that expression, it meant something larger than, and different from, a contractual stipulation which the party concerned has breached, how can the relevant “field of obligation” be marked out except by reference to terms and conditions of the contract which impose obligations on the parties?  As the facts in Interstar demonstrate, the better analysis of that case may well be that the non-terminating party had acted in breach of its obligations under the LOMAs and that it was the occurrence of that breach as reasonably determined by the terminating party that founded, underpinned, constituted and was a necessary requirement for termination.  That analysis of the case was not adopted by the Court of Appeal.  Instead, the Court of Appeal concluded that it was appropriate to confine attention to the fact that the terminating party reasonably held a certain opinion and to set aside from consideration the facts and circumstances (including the conduct of the non-terminating party) that founded the opinion reasonably held by the terminating party:  Interstar at [154]-[157].

75                  For present purposes, it is enough to say of Interstar that analysis by reference to breach was in my opinion reasonably open, and if that is the proper construction of the LOMAs (and I consider it is the better view), it is unnecessary to heed the warning of the Court of Appeal at [106] that:

The intermediate appellate authorities in Australia, the persuasive view of a unanimous House of Lords, existing High Court authority and other views expressed in the High Court constrained the primary judge (and constrain this court) to limiting the application of the doctrine of penalties to circumstances of breach of contract.

See also Diakos v Mason at [16] and [18]: see [59] above.

76                  If, however, the Court of Appeal was right to conclude that the facts and circumstances do not yield to an analysis founded on breach, it then is important to recognise, as the Court of Appeal did, that to extend the law relating to penalties to such circumstances is not a step that is open to this Court:  see Interstar at [159]-[160] and Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335 at [91]-[94].

(3)       Conclusion

77                  What the applicants sought to do was to construct an argument, based not only on old decisions but also the historical origins of the law of penalties, that the law of penalties is not confined to payments upon breach but extends to payments upon conditions or events lying within the area of obligation of the party required to make the payment.  That enterprise carried at least as much risk as that warned against by Mason and Wilson JJ in AMEV-UDC Finance Ltd at 183 and 186.

78                  The modern jurisdiction cannot be divorced from its origins in the wide dispensing power of the Court of Chancery in respect of oppressive bargains:  Meagher, Heydon and Leeming, at [18-095].  The law of penalties, confined (as it is) to payments for breach of contract, is a narrow exception to the general rule whereby the law seeks to preserve freedom of contract, allowing parties the widest freedom, consistent with other policy considerations, to agree upon the terms of their contract.  As stated in Ringrow at [31] and [32] in the joint judgment of Gleeson CJ and Gummow, Kirby, Hayne, Callinan and Heydon JJ:

The law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships ...  Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed.  That is why the law on penalties is, and is expressed to be, an exception from the general rule.  It is why it is expressed in exceptional language.

See also Thomas JA in Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445 (at [26]) that “[t]he surveillance of courts over contracts is not based upon any underlying approval or disapproval of incentives or disincentives, which are a natural part of commercial arrangements”.

79                  Courts have consistently rejected a jurisdiction in equity to interfere with contractual freedom on the generalised ground that the provision in question is harsh or constitutes a hard bargain:  see, by way of example, Campbell Discount at 614 per Viscount Simonds and at 626 per Lord Radcliffe; Export Credits Guarantee at 224 per Lord Roskill; Meagher, Heydon and Leeming, at [18-100].  Instead, courts have developed equitable and common law principles in particular, well recognised, circumstances to prevent contracts being used as a means of taking unfair advantage of persons in positions of vulnerability, particularly the principles relating to unconscionable conduct, undue influence and duress.

80                  Indeed, the parties agreed that equity had a continued role to play in a number of circumstances where the common law would otherwise operate harshly or unconscientiously.  In those circumstances, equity would operate remedially and apply its restitutionary principles to overcome the consequences of a party having paid a penalty.  For present purposes, it is neither necessary nor desirable to seek to classify that jurisdiction as concurrent or auxiliary:  see Meagher, Heydon and Leeming, at [1-095]. 

C        LEGAL FRAMEWORK FOR BANKER – CUSTOMER RELATIONSHIPS

(1)       Relationship between Banker and Customer in Contract

81                  It is trite that the relationship between a banker and a customer is in contract:  Foley v Hill (1848) 2 HL Cas 28. Such contracts have been described as:

… ordinary commercial contracts to be construed and applied according to their terms, and in accordance with a ‘basic principle of the common law of contract … that parties to a contract are free to determine for themselves what primary obligations they will accept’.

Williams and Glyn’s Bank v Barnes [1981] Com LR 205 at 209 (quoting Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848) cited with approval in Narni Pty Ltd v National Australia Bank [2001] VSCA 31 at [19].

82                  Unsurprisingly, the contractual terms are important; it is a contract usually with many terms (Joachimson v Swiss Bank Corp [1921] 3 KB 110 at 127) but from which the following core banking law principles derive:

1.A savings or deposit account is in law a loan to the banker:  Pearce v Creswick (1843) 2 Hare 286; Dixon v Bank of New South Wales (1896) 12 WN (NSW) 101; Akbar Khan v Attar Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank’s undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law;

2.The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer’s account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan:  Cuthbert v Robarts, Lubbock & Co [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of NSW [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and [2001] VSCA 31 at [21];

3.A written order by a customer which requires the bank to pay a greater amount than the balance standing to the credit of the customer may be declined.  There is no obligation on the bank to pay a cheque unless there is a sufficient balance in the account to pay the entire amount or unless overdraft arrangements have been made which are adequate to cover the amount of the cheque:  Bank of New South Wales v Laing [1954] AC 135 at [154]; Office of Fair Trading v Abbey National plc [2008] EWHC 875 at [45] and Narni [2001] VSCA 31 at [12];

4.If a customer with no express overdraft facility draws a cheque which causes his account to go into overdraft, the customer, by necessary implication, requests the bank to grant an overdraft on its usual terms as to interest and other charges:  Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 at 982.

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62);

(2)       Approach to Construction?

83                  During argument, the parties argued their respective positions by contending, in effect, that the court was faced with choosing between a label for various provisions; a “contractual obligation”, a definition of the limits of ANZ’s obligation to honour the client’s instructions or merely “advisory or explanatory”. 

84The issue for resolution may be posed, adopting the language of Allsop P in Fermiscan at [134]:

… through the process of construction of the contract and an examination of the inherent circumstances is, … the clause … contractually intended to operate as a deterrent against breach, the object of the clauses being to prevent the commission of the breach or the contract by coercing compliance (“in terrorem” – see point 2 in Lord Dunedin’s statement of principle at [43] above) or … was [it] intended as an agreed pre-estimated sum representing compensation to be paid upon breach and addressing the consequences of breach … .

85                  A court’s approach to construction of relevant provisions does not involve a “choice” between labels or placing the provisions in one box or another box.  The court’s approach is to construe the words of the provisions in the context of the regulatory framework in which they are intended to, and do, operate.  As the High Court said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]:

This Court, in Pacific Carriers Ltd v BNP Paribas [(2004) 218 CLR 451], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction [Pacific Carriers at [22]].

86It is to that task that I now turn. 

(3)       Regulatory Framework

87                  In Australia, banker-customer relationships or contracts are subject to a regulatory (constitutional, statutory and other) framework.  In the context of the Separate Questions, the relevant statutes included the Corporations Act 2001 (Cth) (the Corporations Act), the Uniform Consumer Credit Code (the UCCC) (in existence from 1996 until 1 July 2010) and the Instruments Act. In addition, in the context of the Separate Questions, there were at least four complicating factors – the applicable legislative provisions changed over time, the applicable legislative provisions applied to some but not all banker-customer relationships, the regulatory framework varied between the States and territories and, finally, there were in existence voluntary codes of conduct which lacked statutory force but which ANZ agreed governed its conduct. None of the regulatory framework was addressed by the parties until after the hearing, in response to a direct request from the Court.

88                  It is necessary to address the regulatory framework relevant to determination of the Separate Questions by reference to the following topics:

1.the period prior to 20 December 2005;

2.the period after 20 December 2005;

3.the UCCC;

4.the Codes of Practice / the Banking Code; and

5.the Instruments Act.

(a)       Period prior to 20 December 2005

89 Subdivision B of Div 2, Pt 7.9 of the Corporations Act contained the requirement for a Product Disclosure Statement (PDS) to be given: s 1012B of the Corporations Act. The PDS regime applied in respect of “financial products”. A “credit facility” was not a financial product to which the regime applied: s 765A(1)(h)(i) of the Corporations Act and reg 7.1.06 of the Corporations Regulations 2001 (Cth) (the Regulations). A “credit facility” included the provision of “credit” (see reg 7.1.06(1)):

1.for any period;

2.with or without prior agreement between the credit provider and the debtor;

3.whether or not both credit and debit facilities are available; and

4.that is not, relevantly, a deposit-taking facility made available by an Australian Deposit-Taking Institution (of which ANZ was one) in the course of its banking business (other than a retirement savings account) (see s 764A(1)(i)), unless the whole or predominant purpose of that facility is, or is intended to be, the provision of credit.

“Credit” was defined broadly as a contract, arrangement or understanding under which payment of a debt owed by a person to a credit provider is deferred, or under which a person incurs a deferred debt to a credit provider, including any form of financial accommodation and an article known as a credit card or charge card: reg 7.1.06(3).

90 It was common ground that Pt 7.9 of Div 2 of the Corporations Act did not apply to Exception Fees 5 to 11 because the consumer and commercial credit card accounts which gave rise to those fees fell within the carve-out of a “credit facility”: see reg 7.1.06(1). These accounts were therefore not subject to the PDS regime in Pt 7.9 of the Corporations Act.

91 The parties agreed that, prior to 20 December 2005, the product disclosure regime in Pt 7.9 of Div 2 of the Corporations Act applied to:

1.ANZ’s retail deposit accounts; and

2.ANZ’s business accounts offered to small businesses,

(collectively, the Retail Products), that were issued on or after 11 March 2004. 

92 Implicit in that agreement is that ANZ’s Retail Products were deposit-taking facilities within the meaning of s 764A(1)(i) of the Corporations Act. Of note, while some of the Retail Products, specifically the Access Advantage Accounts, and Andrews’ Business Classic Account, had approved overdraft limits (see [145] and [313] below), there was no evidence that “the whole or predominant purpose of [each] facility was, or was intended to be, the provision of credit”. Accordingly, those accounts did not fall within the carve-out of a “credit facility” exception in s 764A(1)(i) of the Corporations Act and the PDS regime applied to those accounts.

93What then were the requirements of the PDS regime?

94 Section 1013A, in subdiv C of Div 2, Pt 7.9 of the Corporations Act described who must prepare the PDS. The title, “Product Disclosure Statement”, had to be used on the cover of, or at or near the front of, a PDS but, in any other part of the document, could be abbreviated to “PDS”: s 1013B of the Corporations Act.

95 Subdivision C of Div 2, Pt 7.9 of the Corporations Act also contained the main content requirements of a PDS: ss 1013C, 1013D and 1013E of the Corporations Act. The “main requirements” were prescribed by s 1013D and included in s 1013D(1):

… a Product Disclosure Statement must include the following statements, and such of the following information as a person would reasonably require for the purpose of making a decision, as a retail client, whether to acquire the financial product:

(a)       a statement setting out the name and contact details of:

(i)        the issuer of the financial product; and

…

(b)information about any significant benefits to which a holder of the product will or may become entitled, the circumstances in which and times at which those benefits will or may be provided, and the way in which those benefits will or may be provided; and

…

(d)       information about:

(i)the cost of the product; and

(ii)any amounts that will or may be payable by a holder of the product in respect of the product after its acquisition, and the times at which those amounts will or may be payable; and

…

(f)information about any other significant characteristics or features of the product or of the rights, terms, conditions and obligations attaching to the product; and

…

96Section 1013D(2) of the Corporations Act further defined s 1013D(1)(d) as follows:

For the purposes of paragraph (1)(d), an amount will or may be payable in respect of a financial product by the holder of the financial product if:

(a)the holder will or may have to pay an amount in respect of the product; or

(b)       an amount will or may be deducted from:

(i)a payment to be made by the holder; or

(ii)a payment to be made to the holder; or

(iii)an amount held on the holder’s behalf under the financial product; or

(c)an account representing the holder’s interest in the financial product will or may be debited with an amount.

It includes an amount that the holder will or may have to pay, or that will or may be deducted or debited, as a fee, expense or charge in relation to a particular transaction in relation to the financial product.

97 Section 1013D(4) of the Corporations Act stated that the regulations may provide that a subsection of s 1013D(1) does not apply in a particular situation or that particular information is not required by a provision of s 1013D(1) in a particular situation or generally or, conversely, that a more detailed statement of the information is required by a provision of s 1013D(1) in a particular situation or generally. Next, s 1013E provided (subject to some exceptions not presently relevant) that a PDS “must also contain any other information that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, whether to acquire the product”. Neither ANZ nor the applicants submitted that there were any regulations which modified the contents of a PDS in the context of ANZ’s Retail Products.

98 Other relevant provisions of subdiv C of Div 2, Pt 7.9 of the Corporations Act should be noted. The PDS must be dated (s 1013G) and may consist of two or more separate documents given at the same time: s 1013L of the Corporations Act.

(b)       After 20 December 2005

99 In addition to the above provisions which remained in force, with effect from 20 December 2005, a new s 1012D(7A) was inserted into the Corporations Act by reg 7.9.07FA of the Corporations Amendment Regulations 2005 (No 5) (Cth). Section 1012D(7A) does not appear in the consolidated Corporations Act but in the Regulations. The effect of s 1012D(7A) is not agreed.

100 ANZ submitted that the effect of s 1012D(7A) was to exclude ANZ’s Retail Products from the PDS regime in Pt 7.9 of Div 2 of the Corporations Act. The applicants submitted that the PDS regime in Pt 7.9 of the Corporations Act relevantly continued to apply at the time Fees 1 to 4 and 12 to 17 were charged. As these reasons for decision demonstrate, ANZ’s submission should be accepted, save that the exclusion was prospective, not retrospective.

101 Section 1012D of the Corporations Act set out various exemptions from the requirement to provide a PDS to a customer. Paragraph (7A) set out exemptions for certain specified products as follows:

(7A)In a recommendation situation, an issue situation or a sale situation, the regulated person does not have to give the client a Product Disclosure Statement for the financial product if:

(a)       the product is:

(i)        a basic deposit product; or

(ii)a facility for making non-cash payments (see section 763D) that is related to a basic deposit product; or

(iii)      a travellers’ cheque; and

(b)the regulated person has provided information about the cost of the product (if any) to the client; and

(c)the regulated person has informed the client as to whether or not any amounts will or may be payable by the holder of the product, in respect of the product, after its acquisition; and

(d)the regulated person has asked the client whether or not the client would like further information about the amounts mentioned in paragraph (c); and

(e)if the client indicates that the client would like the further information mentioned in paragraph (d) – the regulated person has provided that information.

(Emphasis added.)

102 “Basic deposit product” was defined in s 761A of the Corporations Act. Relevantly, for present purposes, it stated:

basic deposit product means a deposit product that is a facility in relation to which the following conditions are satisfied:

(a)the terms applicable to the facility (the governing terms) do not permit the amount from time to time standing to the credit of the facility to be reduced otherwise than in consequence of one or more of the following:

(i)a withdrawal, transfer or debit on the instruction of, or by authority of, the depositor, not being on account of entry fees, exit fees or charges for the management of the funds (but this does not exclude charges for the maintenance of the facility itself);

(ii)a payment of charges or duties on deposits into, or withdrawals from, the facility that are payable under a law of the Commonwealth or of a State or Territory;

(iii)a payment that a law of the Commonwealth, or of a State or Territory, requires to be made out of the facility;

(iv)a payment that an order of a court requires to be made out of the facility;

(v)the exercise of a right to combine accounts;

(vi)the correction of an error;

(vii)any other circumstances specified in regulations made for the purposes of this subparagraph;

…

(Emphasis added.)

Section 1012D(7A) exemption apply?

103 First, s 1012D(7A) applies not just to any circumstance in which a basic deposit product is either recommended, issued or sold to a retail client but only where, inter alia, the additional cumulative requirements set out in subparas (b) to (c) have been satisfied.  Most notably, the effect of subparagraphs 1012D(7A)(d) and (e) (see [101] above) is that ANZ will only be relieved of the obligation to provide a PDS where:

1.ANZ has asked its customer whether or not the customer would like further information about amounts payable in respect of the product after its acquisition; and

2.if the customer has indicated he or she would like such information, ANZ has provided such information.

104 ANZ adduced no evidence that the conditions set out in s 1012D(7A)(d) and (e) were satisfied in respect of ANZ’s dealings with the applicants. For that reason alone, the applicants submitted that the exemption did not apply to the Exception Fees charged in relation to the Retail Products. I reject that submission.

105 For the reasons that follow, regardless of whether or not the exemption in s 1012D(7A) applied, the PDSs in existence in relation to each Retail Product prior to 20 December 2005, considered in further detail below, continued to apply. Put another way, there was nothing in s 1012(7A) which amended or altered the legal force of the PDSs issued in relation to Retail Products prior to 20 December 2005. Section 1012(7A) was prospective, not retrospective. So much is clear from the express words of s 1012(7A): see also Item [8] of the Explanatory Statement for Select Legislative Instrument 2005 No. 324.

106 Put another way, the product disclosure regime in Pt 7.9 of Div 2 of the Corporations Act applied (relevantly) to the issue of a financial product (see ss 1012B and 1012D of the Corporations Act). In the context of ANZ providing deposit products, ANZ is taken to “issue” the deposit product when it first issued, granted or otherwise made available the product to the customer: see s 761E(2). The subsequent variation of the terms of the basic deposit product issued to the customer did not constitute the “issue” of a financial product and did not, therefore, attract an obligation to give a new PDS to the customer.

107 What then was the legal effect after 20 December 2005 of a PDS issued after 11 March 2004 but prior to 20 December 2005? A PDS issued by ANZ in accordance with Pt 7.9 of Div 2 of the Corporations Act (as it existed prior to 20 December 2005) applied at the time the Exception Fees were charged in relation to the Retail Products, even if the relevant fee was charged after 20 December 2005. It applied because under s 1017B(1A)(a) of the Corporations Act (as it existed prior to 20 December 2005) a PDS was required to be issued by ANZ disclosing “any material change to a matter, or significant event that affects a matter, being a matter that would have been required to be specified in a [PDS]”, a PDS was in fact issued by ANZ in relation to each of the Retail Products and each PDS was not withdrawn or amended before the relevant Exception Fee was charged.

108                Therefore, a question for determination is the proper construction of each PDS in light of the changing operation of the product disclosure regime in Pt 7.9 of Div 2 of the Corporations Act.

109                In that context, s 1017D(7A) stated that a PDS was not required for certain specified products which included “basic deposit products” (BDPs) and facilities for making non-cash payments (NCPFs) related to BDPs (such as ATM cards, telephone banking and internet banking).  The reasons for this exemption included that BDPs were considered to be relatively low risk and well understood financial products, the organisations offering the BDPs and related NCPFs were licensed, subject to oversight by the Australian Securities and Investments Commission (ASIC) and subject to industry codes such as the Code of Banking Practice and ASIC’s Guide to Good Transaction Fee Disclosure for Bank, Building Society and Credit Union Deposit and Payments Products:  see Item [8] of the Explanatory Statement for Select Legislative Instrument 2005 No. 324.  In other words, there was “an increasing amount of information available for consumers on fees charged by banks … that [was] displayed on websites in a well-presented and comprehensible manner”:  see Item [8] of the Explanatory Statement for Select Legislative Instrument 2005 No. 324. This was a statutory reflection of the general position about the risk profile of “basic deposit products” expressly referred to in s 1013F of the Corporations Act as a factor to be considered. In any event, for the reasons stated above, the PDS that existed prior to 20 December 2005 continued to apply to the Retail Products after 20 December 2005 subject to any amendments notified to the customers including the amendments prescribed by s 1017B of the Corporations Act.

110 That conclusion also deals directly with ANZ’s submission that Pt 7.9 of Div 2 of the Corporations Act does not apply to a BDP with an overdraft facility and therefore does not apply to the Retail Products in issue in the Separate Questions. The definition of “basic deposit product” in s 761A(a)(i) does extend to include a deposit account with an overdraft facility where, as here, ANZ customers authorised ANZ to debit their retail deposit account with the expenses referred to in cll 14 and 15 of the ANZ Assured & Personal Overdraft – Terms and Conditions.  However, that exemption is prospective, not retrospective (see [105] above), and each financial product was issued prior to 20 December 2005.

111Finally, although it is not determinative, it should be noted that:

1.in September 2006, ANZ continued to describe the documentation for its Retail Deposit Products as “Product Disclosure Statement”:  see [122(7)] below; and

2.in March and December 2006, ANZ continued to describe the documentation for its business transaction accounts as “Product Disclosure Statement”:  see [122(6)] and [122(9)] below. 

(c)       Uniform Consumer Credit Code

112                From 1996 until 1 July 2010, the UCCC also applied where credit was provided by a credit provider (which included ANZ) to an individual for predominantly personal, domestic or household purposes:  see s 6 of the UCCC.  Accordingly, at all relevant times the UCCC was applicable to:

1.the Assured Overdraft facilities held by the applicants; and

2.the consumer credit card accounts held by the applicants.

(collectively, the Retail Credit Products).  It therefore applied to the accounts the subject of the Exception Fees No 1-9 (inclusive). 

113                The UCCC formed part of a legislative scheme that involved the enactment of adopting legislation by the states and territories.  Queensland was the state nominated to enact the UCCC and the regulations to the UCCC.  The Queensland Parliament enacted the Consumer Credit (Queensland) Act 1994 (Qld) which incorporated the UCCC. The Consumer Credit Regulations 1995 (the UCCC Regulations) were made under Pt 4 of the Consumer Credit (Queensland) Act 1994 (Qld).

114                Initially all other Australian states and territories introduced legislation adopting the Queensland Code, except Western Australia which passed “alternative but consistent” legislation to the Queensland Code:  see Consumer Credit (New South Wales) Act 1995; Consumer Credit (Victoria) Act 1995; Consumer Credit (South Australia) Act 1995; Consumer Credit (Western Australia) Act 1996; Consumer Credit (Northern Territory) Act 1995; Consumer Credit Act 1995 (ACT) and Consumer Credit (Tasmania) Act 1996.  Finally, it should be noted that the UCCC was replaced by the National Credit Code (NCC) from 1 July 2010 (which is after the date of all 17 Exceptions Fees).  The NCC largely replicates the UCCC.  The NCC is a schedule to the National Consumer Credit Protection Act 2009 (Cth).

115                Section 12 of the UCCC provided that a “credit contract” must be in the form of a “written contract document” signed by the debtor and credit provider or a written contract signed by the credit provider and constituting an offer to the debtor that is accepted by the debtor in accordance with the terms of the offer.  An offer may be accepted, inter alia, by the debtor or a person authorised by the debtor “accessing or drawing down credit to incur a liability”:  s 12(2) of the UCCC.  The UCCC Regulations could prescribe other ways of making a credit contract that did not involve a written document:  s 13 of the UCCC. 

116                The phrase “credit contract” was defined in s 5 of the UCCC as “a contract under which credit is or may be provided, being the provision of credit to which this Code applies”.  Section 6(1) of the UCCC relevantly further stated:

This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into -

(a)the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and

(b)the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and

(c)a charge is or may be made for providing the credit; and

(d)the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.

(Emphasis added.)

See also ss 6(2)-(5) of the UCCC. 

117                Section 7 of the UCCC further stated that the Code did not apply to the provision of credit, if under the contract, inter alia:

(1)Short term credit.  This Code does not apply to the provision of credit if, under the contract –

(a)the provision of credit is limited to a total period that does not exceed 62 days; and

(b)the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5% of the amount of credit; and

(c)the maximum amount of interest charges that may be imposed or provided for does not exceed an amount (calculated as if the Code applied to the contract) equal to the amount payable if the annual percentage rate were 24% per annum.

(2)Credit without express prior agreement.  This Code does not apply to the provision of credit if, before the credit was provided, there was no express agreement between the credit provider and the debtor for the provision of credit.  For example, when a cheque account becomes overdrawn but there is no expressly agreed overdraft facility or when a savings account falls into debit.

118                Accordingly, the UCCC applied to the Retail Credit Products but not overdraft facilities which were not the subject of express prior agreement:  see [117] above.  None of the Exception Fees subject to the UCCC involved an overdraft facility which was not the subject of express prior agreement.

119                Significantly, s 14 of the UCCC provided that, prior to offering or entering into a credit contract, the credit provider must give the debtor a precontractual statement (which may be the proposed contract) setting out the matters required by s 15 of the UCCC.  Section 15 of the UCCC, headed “Matters that must be in contract document” stated that the contract document must contain, inter alia:

1.the credit provider’s name:  s 15(A);

2.if the amount of credit to be provided is ascertainable, the amount and the persons or bodies to whom it is to be paid:  s 15(B)(a);

3.if the amount of credit to be provided is not ascertainable, the maximum amount of credit agreed to be provided, or the credit limit under the contract, if any:  s 15(B)(b);

4.the annual percentage rate or rates under the contract: s 15(C);

5.the method of calculation of the interest charges payable under the contract and the frequency with which interest charges are to be debited under the contract:  s 15(D);

6.a statement of the credit fees and charges that are, or may become, payable under the contract, and when each such fee or charge is payable, if ascertainable.  The amount of any such fee or charge if ascertainable and, if not, the method of calculation  of the fee or charge, if ascertainable:  s 15(G)(a)(b);

7.if the annual percentage rate or rates or the amount or frequency of payment of a credit fee or charge or instalment payment under the contract may be changed, or a new credit fee or charge may be imposed, a statement or statements to that effect and the means by which the debtor will be informed of the change or the new fee or charge:  s 15(H);

8.if the contract is a contract under which a default rate of interest may be charged when payments are in default, a statement to that effect and the default rate and how it is to be applied.  If the default rate under the contract is determined by referring to a reference rate, the name of the rate or description of it, the margin or margins (if any) above or below the reference rate to be applied to determine the default rate and when and where the reference rate is published or, if it is not published, how the debtor may ascertain the rate and the current default rate:  s 15(J);

9.a statement that enforcement expenses may become payable under the credit contract (if any) in the event of a breach:  s 15(K);

10.any information or warning required by the regulations:  s 15(O).

120                Regulations 13, 14 and 15 of the UCCC Regulations prescribed certain matters for the purposes of s 15 of the UCCC.  For the purposes of s 14 of the UCCC (pre-contractual statements), reg 13 repeated a large part of s 15 of the UCCC.  Regulations 14 and 15 prescribed additional information that was to be provided. 

(d)       Codes of Conduct / Banking Practice

(i)        Code of Banking Practice

121                ANZ adopted a voluntary Code of Banking Practice published by the Australian Bankers’ Association (the Banking Code).  It lacked and continues to lack statutory force.  The Banking Code, in its current form, was first published in August 2003.  It was slightly amended in May 2004 and has not been amended since.  The amendments in May 2004 did not amend the paragraphs that follow. 

122                ANZ accepted that the Banking Code applied to ANZ’s dealings with individual and small business customers.  Indeed, a statement to the following effect:

Code of Banking Practice

If you are an individual or a small business (as defined in the Code of Banking Practice) ANZ is bound by the Code of Banking Practice when it provides its products and services to you.

appeared in each of the following relevant documents:

1.ANZ Credit Card Conditions of Use (March 2004) (Credit Card Conditions of Use March 2004);

2.ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004) (Overdraft Terms & Conditions Dec 2004);

3.ANZ Saving & Transaction Products – Product Disclosure Statement (March 2005) (the PDS March 2005);

4.ANZ Credit Card Conditions of Use (April 2005) (Credit Card Conditions of Use April 2005);

5.ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (July 2005) (Business PDS July 2005);

6.ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (March 2006) (Business PDS Mar 2006);

7.ANZ Saving & Transaction Products – Product Disclosure Statement (September 2006) (the PDS September 2006);

8.ANZ Credit Card Conditions of Use (September 2006) (Credit Card Conditions of Use September 2006);

9.ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (December 2006) (Business PDS Dec 2006);

10.ANZ Business Banking – Finance Conditions of Use (September 2006);

11.ANZ Commercial Card Terms and Conditions (August 2007) (Commercial Card Terms Aug 2007);

12.ANZ Credit Cards Conditions of Use (December 2009) (Credit Card Conditions of Use Dec 2009); and

13.ANZ Business Banking – Business Transaction Accounts Terms and Conditions (December 2009) (Business Account Terms Dec 2009).

123                The Banking Code required ANZ (and ANZ agreed) to provide specified information to its customers.  First, ANZ agreed to “provide general information about the rights and obligations that arise out of the banker and customer relationship in relation to banking services”:  para 2.1(c).  The information was to be provided in “plain language”:  para 2.1(d).  “Banking service” was defined in para 40 to mean, relevantly, “any financial service or product provided by [ANZ] in Australia to [the customer]”.  The Banking Code also required ANZ (and ANZ agreed) to monitor external developments relating to banking codes of practice, legislative changes and related issues:  para 2.1(e).  ANZ also agreed that it would act fairly and reasonably towards the customer in a consistent and ethical manner and, in doing so, would consider the customer’s conduct, ANZ’s conduct and “the contract between us”:  para 2.2.

124                In the context of the “laws” that govern the banker and customer relationship, the Banking Code stated that:

1.ANZ “will comply with all relevant laws relating to banking services” including those concerning consumer credit products and other financial products and services:  para 3.1(a)(b);

2.if the Banking Code imposes an obligation on ANZ in addition to obligations applying under a relevant law, ANZ will also comply with the Code except where doing so would lead to a breach of the law:  para 3.2;

3.in addition to a customer’s rights under the Banking Code, a customer retains any rights the customer may have under Federal laws including the Trade Practices Act 1974 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) and Ch 7 of the Corporations Act and under state and territory laws, especially the UCCC and Fair Trading Acts: para 4.

125 Paragraph 10 of the Banking Code was headed “Terms and Conditions”. That phrase was defined in the Banking Code to mean “those terms and conditions specifically applied by [ANZ] to a banking service but does not include any other terms and conditions that may apply by operation of law”: para [40]. In addition to agreeing to provide expeditiously to a customer a copy of the terms and conditions, full particulars of the standard fees and charges and particulars of the interest rates applicable to any banking service (para 10.1), ANZ also agreed that the terms and conditions of the banking services would, inter alia:

1.be distinguishable from marketing and promotional material:  para 10.2(a); and

2.be consistent with the Code:  para 10.2(c).

126                Paragraph 10.4 of the Banking Code stated that ANZ would include, where relevant, the following in the terms and conditions applying to a banking service:

(a)the standard fees and charges that then apply;

(b)the method by which interest, if any, is calculated and the frequency with which it will be credited or debited;

(c)       the manner in which you will be notified of changes to:

(i)        the terms and conditions;

(ii)       fees and charges; and

(iii)      interest rates;

(d)       if appropriate, the fact that more than one interest rate may apply;
…

(i)a statement that information on current interest rates and standard fees and charges is available on request;

…

(Emphasis added.)

The phrase “standard fees and charges” was defined as the “fees and charges normally charged by [ANZ] in respect of a banking service”.

(ii)       ASIC Electronic Funds Transfer Code of Conduct

127                ANZ also subscribed to the voluntary Electronic Funds Transfer Code of Conduct issued by ASIC on 1 April 2001 (the EFT Code).  It was amended on 18 March 2002 and 1 November 2008 and has not been amended since.

128                The EFT Code applied to funds transfers initiated by giving an instruction, through electronic equipment, to an account institution (which included ANZ) to debit or credit an account maintained by the account institution, defined as an “access method”:  see cll 1.1(a) and 1.5. 

129ANZ accepted that the EFT Code applied.  Indeed, a statement to the following effect:

ANZ warrants that it will comply with the requirements of the Electronic Funds Transfer Code of Conduct.

appeared in the following relevant documents:

1.Credit Card Conditions of Use March 2004;

2.The PDS March 2005;

3.Credit Card Conditions of Use April 2005;

4.Credit Card Conditions of Use September 2006;

5.The PDS September 2006;

6.ANZ Business Banking – Finance Conditions of Use (September 2006); and

7.Credit Cards Conditions of Use Dec 2009.

130                Although the substantive part of the EFT Code (Pt A) did not apply to an account that was designed primarily for use by a business and established primarily for business use (cl 1.3) a statement to the following effect:

For non-business customers only, ANZ warrants that it will comply with the requirements of the Electronic Funds Transfer Code of Conduct.

appeared in the following documents:

1.Business PDS July 2005;

2.Business PDS Mar 2006; and

3.Business PDS Dec 2006.

131Moreover, the Business Account Terms Dec 2009 contained the following statement:

For business customers holding products under the ANZ Commercial Card Facility Terms and Conditions or the ANZ Business One Terms and Conditions and for personal accounts accessed using ANZ Internet Banking for Business, ANZ warrants that it will comply with the requirements of the Electronic Funds Transfer Code of Conduct.

132                Clause 2.1 of the EFT Code required account institutions (which ANZ is) to prepare for their users clear and unambiguous “Terms and Conditions” applicable to EFT transactions which reflect the requirements of the EFT Code.  The phrase “Terms and Conditions” was not defined in the EFT Code.

133                Clause 2.3(a) and (d) of the EFT Code required account institutions to provide users with specified information, including: 

1.any charges for the issue or use of an access method, separate from activity or other charges applying to the account generally;

2.a description of any credit facility, which may be accessed by the user through electronic equipment using the access method.

134                In addition, cl 3 of the EFT Code imposed obligations on account institutions (including ANZ) when they wished to vary or modify the EFT Terms and Conditions.  The relevant provisions of the EFT Code have remained the same since 2001. 

(e)       The Instruments Act

135Next, the Instruments Act. Section 30 of the Instruments Act relevantly states:

(1)In any action on any bond or on any penal sum for non-performance of any covenant or agreement in any indenture deed or writing the plaintiff may assign as many breaches as he thinks fit and may recover not only such damages as have been usually awarded in such cases, but also damages for such of the said breaches so assigned as the plaintiff proves to have occurred; and judgment may be entered as nearly as may be as heretofore has been usually done in such actions.

…

(3)If the defendant after judgment and before execution pays into the court where the action is brought to the use of the plaintiff such damages together with the costs of the action, or if by reason of any execution the plaintiff is fully paid or satisfied all such damages together with his costs of the action and all reasonable charges and expenses for the said execution, further proceedings in the said judgment shall be stayed.  But notwithstanding in each case such judgment shall remain as a further security to answer to the plaintiff such damages as are sustained for further breach of any covenant or agreement in the same indenture deed or writing contained, and upon any such breach the plaintiff may summon the defendant or his executors or administrators to show cause before the court why execution should not be had or awarded upon the said judgment, upon which there shall be the like proceeding or such other proceeding as the court may order for inquiry as to such breaches and assessing damages thereon; and upon payment or satisfaction in manner as aforesaid of such future damages costs charges and expenses as aforesaid all further proceedings on the said judgment shall to the like extent again be stayed.

(4)Where an action is brought upon any bond which has a condition or defeasance to make void the same upon payment of a lesser sum at a day or place certain, if the obligor has before the action brought paid to the obligee the principal and interest due by the defeasance or condition of such bond, though such payment was not made strictly according to the condition or defeasance, yet it may nevertheless be pleaded in bar of such action; and shall be as effectual a bar thereof as if the money had been paid at the day and place according to the condition or defeasance and had been so pleaded.

(5)If at any time pending an action upon any such bond with a penalty the defendant brings into court all the principal money and interest due on such bond and also all costs properly chargeable by the plaintiff against the defendant in respect of any actions or suits upon such bond, the said money so brought in shall be deemed and taken to be in full satisfaction and discharge of the said bond; and the court shall give judgment to discharge every such defendant of and from the same accordingly.

136 This section was the modern enactment of the Statute of William III and the Statute of Anne. Actions upon bonds with special conditions subject to the Statute of William III are in Victoria now governed by ss 30(1)-(3) of the Instruments Act. Actions upon common money bonds subject in the past to the Statute of Anne, are now subject in Victoria to ss 30(4) and (5) of the Instruments Act. It is necessary to address each statute (or in this case, ss 30(1)-(3) and then ss 30(4) and 5 of the Instruments Act) in turn.

137 The effect of the Statute of William III (now enshrined in Victoria in ss 30(1)-(3) of the Instruments Act) was summarised in Wall v Rederiaktiebolaget Luggude: see [19] above. As that case made clear, the Statute of William (ss 30(1)-(3) of the Instruments Act) remains concerned with actions upon bonds with special conditions. These provisions apply to covenants and agreements in writing containing a penal sum for non-performance. In those circumstances, a plaintiff must assign or suggest breaches, and can only recover damages for the breaches so assigned or suggested: Bullen and Leake at 116.

138 The Statute of Anne (now enshrined in ss 30(4) and (5) of the Instruments Act) was and remains quite different. Section 30(4) applies where a “condition or defeasance” of a bond is that it will be voided if payment of a lesser sum on a certain date and place is made. Section 30(5) applies where an action is pending against a defendant in respect of a penal bond. These provisions apply defensively where an action is brought against a defendant in respect of a bond. In those circumstances, it is sufficient to declare for a penalty without assigning any breach of the condition: Bullen and Leake at 116; Smith v Bond (1833) 10 Bing 125 at 132.

139 These differences between the Statutes of William III and Anne are long standing and of practical and legal significance: see [19] and [25] above. However, as ss 30(1)-(3) of the Instruments Act makes clear, it now extends beyond bonds to actions “on any penal sum for non-performance of any covenant or agreement in any indenture deed or writing”. The only Australian authority to consider a provision equivalent to s 30(1) was Simos J in Castles v Goodrick and Anor as Executors of the Estate of the late Castles (Unreported, Simos J, 21 August 1998).  His Honour stated:

I note that the statute of William III referred to by counsel for the defendant was repealed by the Imperial Acts Application Act 1969 which enacted in substitution therefor s 33 of that Act, subs(1) of which is in the following terms:-

33.(1)In any action on any bond or on any penal sum for
non-performance of any covenant or agreement, the plaintiff may assign as many breaches as he thinks fit, and may recover not only such damages as have been usually awarded in such cases, but also damages for such of the said breaches so assigned as the plaintiff proves to have occurred.

Although it is unnecessary for me to decide the question it may well be that the general effect of s 33 and, in particular, subs (1) thereof, is that when a claim is made at common law to recover “any penal sum for non-performance of any ... agreement” the plaintiff is not entitled to recover the full amount of the “penal sum” (penalty) but is entitled to recover “not only such damages as have been usually awarded in such cases, but also damages for such of the said breaches so assigned as the plaintiff proves to have occurred.”  In that event it may well be that the position under that section is, in general, the same as the position in equity.

140 As the preceding analysis makes clear, the relevant provisions of the Instruments Act continue to be applicable and, in doing so, adopt and restate the necessary requirement of breach.

(4)       Other Facts Sought to be relied upon by ANZ

141                Numerous ‘facts’ were sought to be tendered by ANZ as relevant to the proper construction of the documents governing the banker-customer relations relating to the Exception Fees in issue.  ANZ submitted that such ‘facts’ were relevant to the surrounding circumstances in which the contracts giving rise to the Exception Fees were entered into.  Most of those generalised ‘facts’ were directed towards how ANZ assesses, approves and authorises transactions.  ANZ submitted that these ‘facts’ were relevant, inter alia, to ANZ’s contention that the Exception Fees were not charged for breach of contract and were charged for services supplied to customers by ANZ.  The applicants objected to the tender on the grounds of relevance. 

142                In construing the words in a contract, evidence of surrounding circumstances may be relevant:  see Charrington & Co v Wooder [1914] AC 71 at 82; Reardon Smith Line Limited v Hansen-Tangen [1976] 3 All ER 570 at 574; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 618; MBF Investments Pty Ltd v Nolan [2011] VSCA 114 at [195]-[203]. That evidence is not admissible to contradict the language of the contract when it has a plain meaning: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 62-63; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; cf Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 at [46], [83], [122] and [238]. That is this case – there is no ambiguity in the contractual terms. Moreover, and no less importantly, ANZ made no attempt to tie the generalised ‘facts’ concerning bank practices to the 17 Exception Fees. Nor did ANZ submit that these were ‘facts’ known to both parties prior to entering into the contract: cf Codelfa at 352. For those reasons, ANZ’s tender of these documents is rejected on the grounds of relevance.

D        EXCEPTION FEES

143                Different fees were charged for different events and for different types of accounts:  see Sch C.  The Exception Fees will be addressed under the following headings, in chronological order within each heading:  Retail Deposit Accounts, Consumer Credit Card Accounts, Commercial Credit Card Accounts and Business Classic Accounts.  Each Exception Fee is considered by reference to the documents relevant to that fee and in the context of the legal framework for banker-customer relations discussed above. 

(1)       Retail Deposit Accounts

144                Retail deposit accounts are offered to retail customers.  The ANZ Access Advantage Account is a Retail Deposit Account, specifically a transaction account or “everyday” account. 

145                Three specific accounts are relevant.  The specific accounts and, where relevant, the pre-arranged credit limit are listed below:

1.In October 2004, Saliba opened an Access Advantage Account (Saliba’s Access Advantage Account).  As at 13 February 2006 and 12 October 2006, Saliba’s Access Advantage Account had an ANZ Assured Overdraft Facility with an approved overdraft limit of $1,000.  The relevant Exception Fees are No 1 and 3:  see [195]ff and [147]ff below.

2.In August 1991, Andrews (jointly with his wife) held an Access Advantage Cheque Account (Andrews’ Access Advantage Account).  As at 23 February 2007, Andrews’ Access Advantage Account had an approved overdraft limit of $500.  The relevant Exception Fee is No 2:  see [216]ff below.

3.In February 1996, Mr Field opened a saving account, now known as an Access Advantage Account (Field’s Access Advantage Account).  As at 15 November 2006, Field’s Access Advantage Account had an ANZ Assured Overdraft Facility with an approved overdraft limit of $1,000.  The relevant Exception Fee is No 4:  see [210]ff below.

146                The Separate Questions concern one honour fee, two dishonour fees and one non-payment fee charged on these Access Advantage Accounts.  Each fee is considered in turn.

(a)       Exception Fee No 3 – Saving Honour Fee – 14 February 2006 – Saliba

(i)        Introduction

147                As at 10 February 2006, the closing balance of Saliba’s Access Advantage Account was a debit balance of $964.60.  On 13 February 2006, three separate deposits (of $165, $360 and $480) were credited to Saliba’s Access Advantage Account.

148                On or about 13 February 2006, ANZ received a request for a payment to be made from Saliba’s Access Advantage Account, by way of a direct debit, of $1,246.11 (described on the account statement as being “TO AUS MORTGAGE SEC”).  ANZ honoured the direct debit.  The effect of the direct debit was that the debit balance increased to $1,205.71 (which was $205.71 in excess of the approved overdraft limit of $1,000).  On 14 February 2006, ANZ charged to Saliba’s Access Advantage Account a Saving Honour Fee of $29.50.

149                As at 14 February 2006, the following documents were said to be relevant to the operation and maintenance of Saliba’s Access Advantage Account and pursuant to which the Saving Honour Fee was charged:

1.ANZ Saving & Transaction Products – Product Disclosure Statement (March 2005) (the PDS March 2005);

2.ANZ Personal Banking Account Fees and Charges (January 2006) (the Account Fees and Charges Jan 2006);

3.Letter of Offer from ANZ to Saliba dated 3 December 2004 (the Saliba Letter of Offer); and

4.ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004) (Overdraft Terms & Conditions Dec 2004).

The parties agreed that the documents listed in subparagraphs 1 and 2 above were relevant but did not agree on which parts of the documents were relevant or the legal effect of them.  In relation to the documents listed in subparagraphs 3 and 4 above, ANZ rejected the contention that they were relevant in whole or in part.  As will be self evident, the content and construction of these documents must be considered in the context of the legal (constitutional, statutory and regulatory) framework set out above.

(ii)      The relevant documents and the relevance of the regulatory framework and other documents

1.        PDS MARCH 2005

150                The first document, the PDS March 2005, contained terms and conditions for accounts which did not include a credit facility, including the ANZ Access Advantage Account. 

151                The cover stated that it contained terms and conditions, that it was to be read in conjunction with the “ANZ Personal Banking Account Fees and Charges Booklet”, and that the two documents together formed the Product Disclosure Statement. At the time of Saliba’s Honour Fee, the relevant Account Fees and Charges document was dated January 2006: see [149(2)] above. As a PDS, the documents were required to contain the information set out in Pt 7.9 of the Corporations Act: see [93]-[98] above. The Introduction to the PDS March 2005, under the heading “If you are opening a new account, this PDS will apply immediately”, also stated:

In addition to the PDS, other terms and conditions, including those implied by law, apply.  To the extent permitted by law, this PDS shall prevail in the event of any inconsistency.

If the law implies terms and conditions which cannot be excluded, ANZ’s liability under those implied terms and conditions will be limited to the maximum extent permitted by law.

152Clause 5 of the PDS March 2005, entitled “Bank Fees and Charges”, stated:

All ANZ accounts are subject to specific account related fees and charges.  Other general fees and charges may also apply to your account for other services or account activity.  ANZ offers fee free transaction banking on some accounts under certain conditions.  ANZ may also waive fees under certain conditions.

If ANZ fails to collect a fee to which it is entitled, ANZ has not waived its right to collect the fee for future transactions of the same nature. 

For information about:

•specific account fees and charges (including the types of transactions you can make, monthly withdrawal quotas and specific fee amounts);

…
Please refer to the ‘ANZ Personal Banking Account Fees and Charges’ booklet.

For information about other general fees and charges, please refer to the ‘ANZ Personal Banking General Fees and Charges’ booklet.  This booklet is available from any ANZ branch or on-line at 2.12 of the PDS March 2005, entitled “Provision of Credit”, stated that:

[1] ANZ does not agree to provide any credit in respect of your account without prior written agreement, which (depending on your account type) can be through an ANZ Equity Manager Facility, an Overdraft Facility or an ANZ Assured facility.  [2] It is a condition of all ANZ accounts that you must not overdraw your account without prior arrangements being made and agreed with ANZ. 

[3] If you request a withdrawal or payment from your account which would overdraw your account, ANZ may, in its discretion, allow the withdrawal or payment to be made on the following terms:

•Interest will be charged on the overdrawn amount at the ANZ Retail Index rate plus a margin (refer to ‘ANZ Personal Banking Account Fees and Charges’ booklet for details);

•an Honour Fee may be charged for ANZ agreeing to honour the transaction which resulted in the overdrawn amount (refer to ‘ANZ Personal Banking Account Fees and Charge’ booklet for details);

•the overdrawn amount, any interest on that amount and the Honour Fee will be debited to your account; and

•you must pay the overdrawn amount and pay any accrued interest on that amount and the Honour Fee within seven days of the overdrawn amount being debited to your account.

…

(Emphasis added.)

For the ease of reference, the sentences have been numbered, eg [1]. The bracketed numbers did not appear in the original document. The sentence numbered [2] was defined in the Amended Fast Track Statement (AFTS) as the “Saving Overdraw Condition”.

154                The parties referred to cl 2.3 of the PDS March 2005 entitled “Cheques”.  Under the subheading “When should a cheque be dishonoured or payment refused”, s 2.3 stated that “at [ANZ’s] discretion, a cheque may be dishonoured or payment refused where there are insufficient funds in the account…”.  Clause 2.3 does not apply to Exception Fee No 3.  Exception Fee No 3 concerned a direct debit being honoured, not a cheque being dishonoured.

155                Clause 2.5 of the PDS March 2005, entitled “Withdrawing or transferring money”, stated that “[u]nless otherwise noted, you may withdraw money from your account (provided your account contains sufficient funds)”.  The phrases “direct debit” and “periodical payment” were defined in cl 2.6 as follows:

A direct debit is a debit from your ANZ account that you arrange through a merchant or other service provider.
A periodical payment is a debit from your ANZ account, which you instruct ANZ to make to the account of another person or business.

…

156In cl 2.7, entitled “Crediting of withdrawals and deposits”, it stated:

Generally, any transaction made on your ANZ account will be processed to your account on the same day provided it is made before the following times:

…

A Dishonour Fee is also charged if you authorise a third party to direct debit your account and payment is not made because there are insufficient cleared funds in your account.

A Non-Payment Fee is charged if you have authorised a Periodical Payment that is not made because there are insufficient cleared funds in your account.

(Emphasis added.)

Clauses 2.3 and 2.7 of the PDS March 2005 (to the extent it refers to a Dishonour Fee) were collectively referred to in the AFTS as a “Saving Dishonour Event”.  The other aspect of cl 2.7 dealing with the Non-Payment Fee was referred to in the AFTS as the “Periodical Payment Dishonour Event” or the “Saving Periodical Payment Dishonour Event”. 

157                Finally, cl 8, entitled “Electronic Banking Conditions of Use”, stated that ANZ may cancel a card or electronic access without prior notice if, amongst other things, the account has been overdrawn or is otherwise considered out of order by ANZ as follows:

Cancellation of Cards or Electronic Access
ANZ may cancel any card, CRN or electronic access:

Øwithout prior notice if:

§…

§the account has been overdrawn, or you have exceeded your agreed credit limit; or …

…

Withdrawal of Electronic Access
ANZ may withdraw your electronic access to accounts … without prior notice if:

…

Øany one of the accounts is overdrawn or will become overdrawn, or is otherwise considered out of order by ANZ;

…

158                Clause 8 also contained a subclause headed “Processing instructions – general” which provided, inter alia:

The account holder authorises ANZ to act on the instructions you enter into electronic equipment.  Any electronic transaction made by you cannot be cancelled, altered or changed by you unless allowed by the applicable terms and conditions.

2.               SALIBA LETTER OF OFFER

159                By the Saliba Letter of Offer (see [149(3)] above), ANZ offered Saliba an “ANZ Assured credit facility”, being one of the prior arrangements referred to in cl 2.12 of the PDS March 2005:  see [153] above.  The Saliba Letter of Offer stated, amongst other things, that:

1.the terms of the credit facility were set out in the letter and the Overdraft Terms & Conditions Dec 2004, the latter which is considered below;

2.the Credit Limit, described as the “maximum amount of credit”, was $1,000;

3.for “Repayments”, “Payments must be made so the daily closing unpaid balance after processing of all transactions, interest and fees does not exceed your credit limit”;

4.the “Default rate”, being the rate of interest on amounts borrowed in excess of the overdraft limit, was 4% per annum above the standard rate on interest rate charged;

5.the letter did not contain all of the pre-contractual information required to be given to Saliba and that more information was contained in the “accompanying ANZ Assured & Personal Overdraft Terms and Conditions booklet”. 

3.               OVERDRAFT TERMS & CONDITIONS DEC 2004

160                The Overdraft Terms & Conditions Dec 2004 (see [149(4)] above), contained “the general terms and conditions for” the “ANZ Assured” credit facility.  The full contract comprised the general terms set out in the booklet and any individual terms as outlined in a letter of offer.  It also included the statement that the booklet did not “contain all of the pre-contractual information required to be given to you.  The rest of the information is contained the covering Letter of Offer”.  The term of the facility was addressed in cl 1 of the Overdraft Terms & Conditions Dec 2004.  It stated that:

317                The Business PDS July 2005 contained the terms and conditions for, inter alia, the Business Classic Account.  Under the heading “Withdrawals” it stated:

You can withdraw money from your accounts by using your linked ANZ Access Card or ANZ Credit Card at any ANZ Night & Day Bank ATM.  Your withdrawal limit using this method and EFTPOS is a combined total of AUD$1,000 per ANZ Access Card per day.

This means that you can use each ANZ Access Card to withdraw AUD$1,000 per day via an ATM or EFTPOS from the account(s) to which it is linked provided the account(s) contain sufficient cleared funds.  If you need to withdraw additional cash via an ATM or EFTPOS you will need to make prior arrangements with your branch.

…

318Under the heading “Fees”, it stated:

Information on all current standard fees and charges, together with fee free thresholds, is contained in the ‘ANZ Business Banking Transaction Accounts Fees and Charges’ booklet available from any ANZ branch.  Fees incurred will be charged to your account monthly, …

If ANZ fails to collect a fee to which it is entitled, ANZ has not waived its right to collect the fee for future transactions of the same nature.  ANZ may waive fees under certain conditions.

319Under the heading “When may a Cheque be Dishonoured or Payment Refused?”, it stated:

At the bank’s discretion, a cheque may be dishonoured or payment refused where:

ØThere are insufficient funds in the account of the drawer;

Ø…

ANZ may charge a dishonour fee.

This clause does not apply to Exception Fee No 12.  Exception Fee No 12 concerned a direct debit being honoured, not a cheque being dishonoured. 

320“Overdrawing” and “Overdraft Facility” were addressed separately as follows:

Overdrawing
[1] Unless you have made prior arrangements with ANZ your account should have a credit balance at all times.  [2] If you overdraw the account (or overdraw the approved limit) and ANZ dishonours your withdrawal a fee will be charged to your account.  [3] If you overdraw and ANZ in its discretion honours your withdrawal you will be charged an Honour Fee and interest on the overdrawn balance.  [4] Refer to the ‘ANZ Business Banking Transaction Accounts Fees and Charges’ booklet for details.

[5] You should inform ANZ as soon as possible if you are in financial difficulty. 

Overdraft Facility
If you require credit, a Business Overdraft Facility can be arranged on your account.  …  All applications are subject to ANZ’s normal credit approval criteria.

For the ease of reference, the sentences have been numbered eg [1]. Those bracketed numbers did not appear in the original document.

321Finally, under the heading “Electronic Banking Conditions of Use”, it stated, inter alia:

Cancellation of Cards or Electronic Access

ANZ may cancel any card, CRN or electronic access:

Øwithout prior notice if:

…

§the account has been overdrawn, or you have exceeded your agreed credit limit …

Withdrawal of Electronic Access

ANZ may withdraw your electronic access to accounts … without prior notice if:

…

Øany one of the accounts is overdrawn or will become overdrawn, or is otherwise considered out of order by ANZ …

322                Finally, the Business Account Fees and Charges July 2005.  Under the heading “Associated Fees and Charges”, the following entries appeared:

Honour Fee

Ø…

ØFor all other accounts   $37.70

Charged on each occasion that the account is overdrawn or exceeds its maximum credit limit without prior arrangement with your ANZ Manager.
…
Outward Dishonour Fee          $37.70 per dishonour
Charged when a cheque written, direct debit, or periodic payment from your account is dishonoured due to the lack of cleared funds in your account.

The sentence marked [3] in [320] together with this paragraph headed “Honour Fee” were defined in the AFTS as the “Business Honour Fee” giving rise to a “Business Honour Event”.

323                The parties submitted, and I accept, that there is no material difference between the content in [320] above and that considered in relation to Retail Deposit Accounts at [153], [154], [161], [173], [174], [202] and [220] above. 

324 For the reasons given in relation to Exception Fee No 3 at [147] above (which concerned a Saving Honour Fee), the answers to question 4 of the Separate Questions in relation to Exception Fee No 12 are:

(a)       No.

(b)       No.

(c)       Not necessary to answer.

(b)       Exception Fee No 14 – Business Dishonour Fee – 27 October 2005 – Saliba

325                As at 25 October 2005, the closing balance of Saliba’s Business Classic Account was a credit balance of $1,175.84.  On 26 October 2005, an ATM withdrawal of $50 was made from Saliba’s Business Classic Account.  On or about 26 October 2005, ANZ received a request for a payment to be made from Saliba’s Business Classic Account, by way of a cheque (No 001083) drawn on the account, in the amount of $2,288.

326                If the cheque had been honoured, it would have had the effect of overdrawing Saliba’s Business Classic Account to the extent of $1,162.16 (in circumstances where there was no approved overdraft limit for the account).  On 27 October 2005:

1.the cheque was dishonoured, with effect from 26 October 2005;

2.the entry in the account relating to that cheque was reversed, with effect from 26 October 2005; and

3.ANZ charged to Saliba’s Business Classic Account a Business Dishonour Fee of $37.70.

327                As at 27 October 2005, the documents which contained the express written terms regarding the operation and maintenance of Saliba’s Business Classic Account, and pursuant to which the Business Dishonour Fee was charged comprised those described in [316] above.

328                The parties accepted that there was no relevant distinction between this fee and Exception Fee No 12 although this concerns a Dishonour Fee.  I agree.  For the same reasons, the answers to question 4 of the Separate Questions in relation to Exception Fee No 14 are:

(a)       No;

(b)       No;

(c)       Not necessary to answer.

(c)       Exception Fee No 17 – Business Non-Payment Fee – 27 October 2006 – Andrews

329                On 21 November 2006, ANZ charged to Andrews’ Business Classic Account a Business Non-Payment Fee of $35.  The underlying facts which led to the imposition of this fee are not apparent from the account statements.  The applicants submitted, and I accept, that it is open to conclude that on or about 21 November 2006, a periodical payment which Andrews had previously authorised to be made from his Business Classic Account was not made because of insufficient funds or alternatively, insufficient available credit in the account to make the payment.  Thus, on 21 November 2006, ANZ charged Andrews’ Business Classic Account a Non-Payment Fee of $35. 

330                As at 21 November 2006, the documents which contained the express written terms regarding the operation and maintenance of Andrews’ Business Classic Account, and pursuant to which the Business Non-Payment Fee was charged, relevantly comprised:

1.Business PDS Mar 2006;

2.ANZ Business Banking – Transaction Accounts Fees and Charges (March 2006);

3.ANZ Periodical Payment authority dated 5 August 2005, signed Mr Andrews and Carol Ann Andrews;

4.Letter of Offer from ANZ to Andrews and Carol Ann Andrews trading as Hamilton Place Books dated 24 June 2005;

5.ANZ Business Banking - Finance Conditions of Use (September 2006). 

331                The parties further submitted, and I accept, that there are no material differences between the provisions in the documents listed in [330] above and the provisions in the documents which applied to Exception Fee No 12:  see [316]-[323] above.  Thus, for the same reasons, the answers to question 4 of the Separate Questions in relation to Exception Fee No 17 are:

(a)       No.

(b)       No.

(c)       Not necessary to answer.

(d)       Exception Fee No 13 – Business Honour Fee – 9 July 2007 – Andrews

332                As at 5 July 2007, the closing balance of Andrews’ Business Classic Account was a debit balance of $24,977.30. 

333On or about 6 July 2007:

1.two deposits were made to Andrews’ Business Classic Account (totalling $1,549.35);

2.three payments, by way of internet banking funds transfers, were made from Andrews’ Business Classic Account (totalling $183); and

3.ANZ received a request for a payment to be made from Andrews’ Business Classic Account, by way of a cheque (No 001647) drawn on the account in the amount of $4,157.37.  ANZ honoured the cheque.

334                The combined effect of the transactions was that, as at 6 July 2007, the closing balance of Andrews’ Business Classic Account was a debit balance of $27,768.32 (which was $2,768.32 in excess of the approved overdraft limit of $25,000).  On 9 July 2007, ANZ charged to Andrews’ Business Classic Account a Business Honour Fee of $37.70.

335                As at 9 July 2007, the documents which contained the express written terms regarding the operation and maintenance of Andrews’ Business Classic Account, and pursuant to which the Business Honour Fee was charged, relevantly comprised:

1.Business PDS Dec 2006;

2.ANZ Business Banking – Transaction Accounts Fees and Charges (December 2006); and

3.the documents listed in [330(4) and (5)] above. 

336                The parties accepted that there was no relevant distinction between this fee and Exception Fee No 12.  I agree.  For the same reasons, the answers to question 4 of the Separate Questions in relation to Exception Fee No 13 are:

(a)       No.

(b)       No.

(c)       Not necessary to answer.

(e)       Exception Fee No 15 – Business Honour Fee – 3 May 2010 – Saliba

337                As at 29 April 2010, the closing balance of Saliba’s Business Classic Account was a credit balance of $270.32.

338On the following day, 30 April 2010:

1.a deposit was made to Saliba’s Business Classic Account (in the amount of $400);

2.ANZ received a request for a payment to be made, by way of a direct debit, in the amount of $131.22 (described on the account statement as being “TO ST ANDREWS INS RCVBM0032”); and

3.ANZ received a request for a further payment to be made, by way of a direct debit, in the amount of $2,781 (described on the account statement as being “TO DEFT PAYMENTS RENT PAYMENT701122”).

ANZ honoured the direct debits.

339                The combined effect of the transactions was to overdraw Saliba’s Business Classic Account to the extent of $2,241.90 (in circumstances where there was no approved overdraft limit for the account).  On 3 May 2010, ANZ charged to Saliba’s Business Classic Account a Business Honour Fee of $37.70. 

340                As at 3 May 2010, the documents which contained the express written terms regarding the operation and maintenance of Saliba’s Business Classic Account, and pursuant to which the Business Honour Fee was charged, relevantly comprised:

1.Business Account Terms Dec 2009; and

2.ANZ Business Banking – Transaction Accounts Fees and Charges (December 2009) (Business Account Fees and Charges Dec 2009).

The two documents comprised the terms and conditions.

341                The Business Account Terms Dec 2009 contained the terms and conditions for, inter alia, the Business Classic Account.  Under the heading “Withdrawals” it stated:

You can withdraw money from your accounts by using your linked ANZ card at any ATM or EFTPOS terminal that accepts the card.  A daily withdrawal limit applies to card transactions …

…

342Under the heading “Fees”, it stated:

Information on all current standard fees and charges, together with fee free thresholds, is contained in the ‘ANZ Business Banking Transaction Accounts Fees and Charges’ booklet available from any ANZ branch.  Fees incurred will be charged to your account monthly, …

ANZ may waive fees under certain conditions.  If ANZ fails to collect a fee to which it is entitled, ANZ has not waived its right to collect the fee at a later date with notice to you; or for future transactions of the same nature. 

343Under the heading “When may a Cheque be Dishonoured or Payment Refused?”, it stated:

At the Bank’s discretion, a cheque may be dishonoured or payment refused where:

Øthere are insufficient funds in the account of the drawer;

Ø…

ANZ may charge a dishonour fee.

This clause does not apply to Exception Fee No 15.  Exception Fee No 15 concerned a direct debit being honoured, not a cheque being dishonoured. 

344Under the heading “Informal Overdraft Facility” it stated:

For the purposes of this clause the following definitions apply:

‘Informal Overdraft’ means an amount advanced to you under the Informal Overdraft facility.

‘Informal Overdraft facility’ means the informal short-term credit facility ANZ may provide to you pursuant to this clause if a debit to your account (excluding a periodical payment) would, if processed, result in either:

Øyour account becoming overdrawn; or

Øthe approved limit on your account being exceeded.

When any debit (excluding a periodical payment) is initiated which, if processed, would result in either:

Øyour account becoming overdrawn; or

Øthe approved limit on your account being exceeded,

you are deemed to request an Informal Overdraft.

…

ANZ will consider your request and assess your eligibility for an Informal Overdraft based on ANZ’s credit criteria.  You will be charged an Informal Overdraft Assessment Fee for this service …

345Finally, under the heading “Electronic Banking Conditions of Use”, it stated, inter alia:

15.      Cancellation of Cards … or Electronic Access

(a)       ANZ may cancel any card, … CRN or electronic access:

ØWithout prior notice if:

…

§the account has been overdrawn, or you have exceeded your agreed credit limit …

16.      Withdrawal of Electronic Access

(a)ANZ may withdraw your electronic access to Accounts … without prior notice if:

…

ØAny one of the Accounts is overdrawn or will become overdrawn …

346                That brings us to the Business Account Fees and Charges Dec 2009.  Under the heading “Associated Fees and Charges”, the following entries appeared:

Honour Fee  $37.70
Charged for considering a request for an Informal Overdraft where you satisfy ANZ’s credit criteria for an Informal Overdraft, and the balance of your Informal Overdraft facility exceeds $50 at the time of your request or will exceed $50 after the debit requested has been processed.

Outward Dishonour Fee  $37.70 per dishonour
Charged for considering a request for an Informal Overdraft where you do not satisfy ANZ’s credit criteria for an Informal Overdraft.

347                Before turning to the parties’ respective submissions and the proper construction of the documents, a careful reader of the documents will notice that although the language of the section headed “Informal Overdraft Facility” has changed and now refers to a “service”, the name of the fee for that so called service has not – it is still called an “Honour Fee” and a “Dishonour Fee”.

348                The applicants submitted that there was no relevant distinction between this fee and Exception Fee No 6.  I disagree.  Exception Fee No 6 gave rise to an Overlimit Fee and concerned quite different provisions.  ANZ submitted that since the changes in December 2009 (referred to in [341]-[347] above), it was abundantly clear that a business customer did not breach its contract with ANZ if it initiated a transaction that would overdraw the account.  I agree.  I do not consider that there is any material difference between this fee and the fee charged on Retail Deposit Accounts:  see [323] above.  For the same reasons, the answers to question 4 of the Separate Questions in relation to Exception Fee No 15 are:

(a)       No.

(b)       No.

(c)       Not necessary to answer.

(f)       Exception Fee No 16 – Business Dishonour Fee – 4 May 2010 – Saliba

349                The closing balance of Saliba’s Business Classic Account, as at 30 April 2010, was a debit balance of $2,241.90, in circumstances where there was no approved overdraft limit for the account:  see [313] above.

350                On 3 May 2010, ANZ received a request for a payment to be made from Saliba’s Business Classic Account:

1.in the amount of $80.25 (described on the account statement as being “TO GMHBA 99028”); and

2.in the amount of $484.10 (described on the account statement as being “TO TOYOTA FINANCE 12038055”).

The combined effect of the direct debits, had they been honoured, would have been to overdraw Saliba’s Business Classic Account to the extent of $2,843.95 (in circumstances where there was no approved overdraft limit for the account). 

351On the following day, 4 May 2010:

1.both direct debits were dishonoured, with effect from 3 May 2010;

2.the entries in the account relating to those direct debits were reversed, with effect from 3 May 2010; and

3.ANZ charged to Saliba’s Business Classic Account a Business Dishonour Fee in respect of each reversal of $37.70.

352                As at 4 May 2010 the documents which contained the express written terms regarding the operation and maintenance of Saliba’s Business Classic Account, and pursuant to which the Business Dishonour Fee was charged, relevantly comprised the documents referred to in [340] above.

353                The parties accepted that there was no relevant distinction between this fee and Exception Fee No 6.  I agree.  For the same reasons, the answers to question 4 of the Separate Questions in relation to Exception Fee No 16 are:

(a)       No.

(b)       No.

(c)       Not necessary to answer.

E        ORDERS

354                The parties will be directed to bring in orders to give effect to these reasons for decision and for the future conduct of the litigation by 4:00pm on 12 December 2011. 

I certify that the preceding three hundred and fifty-four (354) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate:

Dated:       5 December 2011

SCHEDULE A – SEPARATE QUESTIONS

1.In respect of each of the Saving Exception Fees listed in Schedule B:

(a)Was the Saving Exception Fee payable upon breach of any or all of the provisions stated in sub-paragraphs 46(a), (b) and (c) of the AFTS (Saving Provisions) (as alleged by the applicants in paragraph 46 of the AFTS)?

(b)       In the alternative:

(i)was the occurrence or default of occurrence of the events set out in the Saving Provisions (Saving Event), as a matter of substance, treated by ANZ and the applicant who incurred the Saving Exception Fee, as lying within the area of obligation of that applicant in the sense that it was that applicant’s responsibility to see that the Saving Event did or did not occur; and

(ii)was that applicant obliged contractually to pay or forfeit or suffer the retention of the Saving Exception Fee upon or in default of the occurrence of the Saving Event,

(as alleged by the applicants in paragraphs 55 and 56 of the AFTS)?

(c)If the answer to either paragraph (a) or (b) above is yes, is the Saving Exception Fee capable of being characterised as a penalty by reason of that fact?

2.In respect of each of the Card Exception Fees listed in Schedule B:

(a)Was the Card Exception Fee payable upon breach of any or all of the provisions stated in sub-paragraphs 47(a), (b), (c) and (d) of the AFTS (Card Provisions) (as alleged by the applicants in paragraph 47 of the AFTS)?

(b)In the alternative:

(i)was the occurrence or default of occurrence of the events set out in the Card Provisions (Card Event), as a matter of substance, treated by ANZ and the applicant who incurred the Card Exception Fee, as lying within the area of obligation of that applicant in the sense that it was that applicant’s responsibility to see that the Card Event did or did not occur; and

(ii)was that applicant obliged contractually to pay or forfeit or suffer the retention of the Card Exception Fee upon or in default of the occurrence of the Card Event,

(as alleged by the applicants in paragraphs 55 and 56 of the AFTS)?

(c)If the answer to either paragraph (a) or (b) above is yes, is the Card Exception Fee capable of being characterised as a penalty by reason of that fact?

3.       In respect of each of the Commercial Card Exception Fees listed in Schedule B:

(a)Was the Commercial Card Exception Fee payable upon breach of any or all of the provisions stated in sub-paragraphs 48(a), (b), (c) and (d) of the AFTS (Commercial Card Provisions) (as alleged by the applicants in paragraph 48 of the AFTS)?

(b)       In the alternative:

(i)was the occurrence or default of occurrence of the events set out in the Commercial Card Provisions (Commercial Card Event), as a matter of substance, treated by ANZ and the applicant who incurred the Commercial Card Exception Fee, as lying within the area of obligation of that applicant in the sense that it was that applicant’s responsibility to see that the Commercial Card Event did or did not occur; and

(ii)was that applicant obliged contractually to pay or forfeit or suffer the retention of the Commercial Card Exception Fee upon or in default of the occurrence of the Commercial Card Event,

(as alleged by the applicants in paragraphs 55 and 56 of the AFTS)?

(c)If the answer to either paragraph (a) or (b) above is yes, is the Commercial Card Exception Fee capable of being characterised as a penalty by reason of that fact?

4.In respect of each of the Business Exception Fees listed in Schedule B:

(a)Was the Business Exception Fee payable upon breach of any or all of the provisions stated in sub-paragraphs 49(a), (b) and (c) of the AFTS (as alleged by the applicants in paragraph 49 of the AFTS), and/or upon breach of the provision stated at sub-paragraph 36(i) of the AFTS (Business Provisions)?

(b)       In the alternative:

(i)was the occurrence or default of occurrence of the events set out in the Business Provisions (Business Event), as a matter of substance, treated by ANZ and the applicant who incurred the Business Exception Fee, as lying within the area of obligation of that applicant in the sense that it was that applicant’s responsibility to see that the Business Event did or did not occur; and

(ii)was that applicant obliged contractually to pay or forfeit or suffer the retention of the Business Exception Fee upon or in default of the occurrence of the Business Event,

(as alleged by the applicants in paragraphs 55 and 56 of the AFTS)?

(c)If the answer to either paragraph (a) or (b) above is yes, is the Business Exception Fee capable of being characterised as a penalty by reason of that fact?

SCHEDULE B – IDENTIFIED EXCEPTION FEES

A.The Saving Exception Fees are:

(i)the Saving Dishonour Fee incurred by the Second Applicant on 13 October 2006 on his Access Advantage Account particularised at paragraph b. of the Particulars to paragraph 9(c) of the AFTS;

(ii)The Saving Dishonour Fee incurred by the First Applicant on 26 February 2007 on his Access Advantage Cheque Account particularised at paragraph a. of the Particulars to paragraph 8(c) of the AFTS (referred to in Schedule 10, Part 1 to the AFTS but erroneously described therein as a “Saving Honour Fee”);

(iii)The Saving Honour Fee incurred by the Second Applicant on 14 February 2006 on his Access Advantage Account particularised at paragraph b. of the Particulars to paragraph 9(c) of the AFTS; and

(iv)The Saving Non-Payment Fee incurred by the Third Applicant on 15 November 2006 on his ANZ Access Account particularised at paragraph a. of the Particulars to paragraph 10(d) of the AFTS.

B.The Card Exception Fees are:

(i)The Overlimit Fee incurred by the First Applicant on 29 November 2006 on his ANZ First Low Interest Visa credit card account particularised at paragraph c. of the Particulars to paragraph 8(c) of the AFTS;

(ii)The Overlimit Fee incurred by the First Applicant on 28 February 2010 on his ANZ First Low Interest Visa credit card account particularised at paragraph c. of the Particulars to paragraph 8(c) of the AFTS;

(iii)The Late Payment Fee incurred by the First Applicant on 28 March 2004 on his Qantas ANZ Visa Gold credit card account particularised at paragraph b. of the Particulars to paragraph 8(c) of the AFTS;

(iv)The Late Payment Fee incurred by the First Applicant on 29 June 2005 on his ANZ First Low Interest Visa credit card account particularised at paragraph c. of the Particulars to paragraph 8(c) of the AFTS; and

(v)The Late Payment Fee incurred by the First Applicant on 28 November 2006 on his Qantas ANZ Visa Gold credit card account particularised at paragraph b. of the Particulars to paragraph 8(c) of the AFTS.

C.        The Commercial Card Exception Fees are:

(i)The Commercial Card Overlimit Fee incurred by the Third Applicant on 16 July 2008 on his Business One credit card account particularised at paragraph c. of the Particulars to paragraph 10(d) of the AFTS; and;

(ii)The Commercial Card Late Payment Fee incurred by the Third Applicant on 16 July 2008 on his Business One credit card account particularised at paragraph c. of the Particulars to paragraph 10(d) of the AFTS.

D.       The Business Exception Fees are:

(i)The Business Honour Fee incurred by the Second Applicant on 13 October 2005 on his Business Classic Account particularised at paragraph c. of the Particulars to paragraph 9(c) of the AFTS;

(ii)The Business Honour Fee incurred by the First Applicant on 9 July 2007 on his Business Classic Account particularised at paragraph d. of the Particulars to paragraph 8(c) of the AFTS;

(iii)The Business Dishonour Fee incurred by the Second Applicant on 27 October 2005 on his Business Classic Account particularised at paragraph c. of the Particulars to paragraph 9(c) of the AFTS;

(iv)The Business Honour Fee incurred by the Second Applicant on 3 May 2010 on his Business Classic Account particularised at paragraph c. of the Particulars to paragraph 9(c) of the AFTS;

(v)The first of the two Business Dishonour Fees incurred by the Second Applicant on 4 May 2010 on his Business Classic Account particularised at paragraph c. of the Particulars to paragraph 9(c) of the AFTS; and

(vi)The Business Non-Payment Fee incurred by the First Applicant on 21 November 2006 on his Business Classic account with Business Overdraft Facility Account particularised at paragraph d. of the Particulars to paragraph 8(c) of the AFTS. 

SCHEDULE C – SUMMARY OF EXCEPTION FEES IN ISSUE

Exception Fee No	Account Holder	Account Type	Name of Fee	Date Fee Charged	Fee Type	Name of Document(s) relevant to specific fee	Exception Fees covered
1	Saliba	Access Advantage	Saving Dishonour	13.10.2006	Saving Exception	ANZ Saving & Transaction Products – Product Disclosure Statement (September 2006)	1, 2 and 4
						ANZ Personal Banking Account Fees and Charges (August 2006)	1, 2 and 4
						Letter of Offer from ANZ to Mr Saliba dated 3 December 2004	1 and 3
						ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004)	1, 2, 3 and 4
2	Andrews	Access Advantage	Saving Dishonour	26.02.2007	Saving Exception	ANZ Saving & Transaction Products – Product Disclosure Statement (September 2006)	1, 2 and 4
						ANZ Personal Banking Account Fees and Charges (August 2006)	1, 2 and 4
						ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004)	1, 2 and 3
3	Saliba	Access Advantage	Saving Honour	14.02.2006	Saving Exception	ANZ Saving & Transaction Products – Product Disclosure Statement (March 2005)	3
						ANZ Personal Banking Account Fees and Charges (January 2006)	3
						Letter of Offer from ANZ to Mr Saliba dated 3 December 2004	1
						ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004)	1 and 2
4	Field	Access Advantage	Saving Non-Payment	15.11.2006	Saving Exception	ANZ Saving & Transaction Products – Product Disclosure Statement (September 2006)	1, 2 and 4
						ANZ Personal Banking Account Fees and Charges (August 2006)	1, 2 and 4
						ANZ Assured & Personal Overdraft – Terms & Conditions (December 2004)	1, 2, 3 and 4
5	Andrews	First Low Interest Visa	Overlimit	29.11.2006	Card Exception	ANZ Credit Card Conditions of Use (September 2006)	5
						ANZ Personal Banking Account Fees and Charges (August 2006)	5
6	Andrews	First Low Interest Visa	Overlimit	28.02.2010	Card Exception	ANZ Credit Cards Conditions of Use (December 2009)	6
						ANZ Personal Banking Account Fees and Charges (December 2009)	6
7	Andrews	Frequent Flyer Visa	Late Payment	28.03.2004	Card Exception	ANZ Credit Card Conditions of Use (March 2004)	7
						ANZ Personal Banking Account Fees and Charges (October 2003)	7
8	Andrews	First Low Interest Visa	Late Payment	29.06.2005	Card Exception	ANZ Credit Card Conditions of Use (April 2005)	8
						ANZ Personal Banking Account Fees and Charges (March 2005)	8
9	Andrews	Frequent Flyer Visa	Late Payment	28.11.2006	Card Exception	ANZ Credit Card Conditions of Use (September 2006)	9
						ANZ Personal Banking Account Fees and Charges (August 2006)	9
10	Field	Business One	Commercial Card Overlimit	16.07.2008	Commercial Card Exception	ANZ Commercial Card Terms and Conditions (August 2007)	10
						ANZ Commercial Cards Fees and Charges (May 2007)	10
						Letter of Offer from ANZ to Olden 1 dated 27 November 2007	10
11	Field	Business One	Commercial Card Late Payment	16.07.2008	Commercial Card Exception	ANZ Commercial Card Terms and Conditions (August 2007)	11
						ANZ Commercial Cards Fees and Charges (May 2007)	11
						Letter of Offer from ANZ to Olden 1 dated 27 November 2007	11
12	Saliba	Business Classic	Business Honour	13.10.2005	Business Exception	ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (July 2005)	12 and 14
						ANZ Business Banking – Transaction Accounts Fees and Charges (July 2005)	12 and 14
13	Andrews	Business Classic	Business Honour	09.07.2007	Business Exception	ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (December 2006)	13
						ANZ Business Banking – Transaction Accounts Fees and Charges (December 2006)	13
						Letter of Offer from ANZ to Mr Andrews dated 24 June 2005	13
						ANZ Business Banking – Finance Conditions of Use (September 2006)	13
14	Saliba	Business Classic	Business Dishonour	27.10.2005	Business Exception	ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (July 2005)	12 (minus addition) and 14
						ANZ Business Banking – Transaction Accounts Fees and Charges (July 2005)	12 and 14
15	Saliba	Business Classic	Business Honour	03.05.2010	Business Exception	ANZ Business Banking – Business Transaction Accounts Terms and Conditions (December 2009)	15 and 16
						ANZ Business Banking – Transaction Accounts Fees and Charges (December 2009)	15 and 16
16	Saliba	Business Classic	Business Dishonour	04.05.2010	Business Exception	ANZ Business Banking – Business Transaction Accounts Terms and Conditions (December 2009)	15 and 16
						ANZ Business Banking – Transaction Accounts Fees and Charges (December 2009)	15 and 16
17	Andrews	Business Classic	Business Non-Payment	21.11.2006	Business Exception	ANZ Business Banking – Business Transaction Accounts Product Disclosure Statement (March 2006)	17
						ANZ Business Banking – Transaction Accounts Fees and Charges (March 2006)	17
						ANZ Periodical Payment Authority dated 5 August 2005	17
						Letter of Offer from ANZ to Mr Andrews dated 24 June 2005	17
						ANZ Business Banking – Finance Conditions of Use (September 2006)	17