Paciocco & Anor v Australia and New Zealand Banking Group Limited

[2016] HCATrans 010

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M219 of 2015
No M220 of 2015

B e t w e e n -
LUCIO ROBERT PACIOCCO
First Appellant
SPEEDY DEVELOPMENT GROUP PTY LTD (ACN 006 835 383)
Second Appellant
and
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)
Respondent

FRENCH CJ
KIEFEL J
GAGELER J
KEANE J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 5 FEBRUARY 2016, AT 9.59 AM

(Continued from 4/2/16)

FRENCH CJ: Yes, Mr Archibald.

MR ARCHIBALD: If the Court pleases, before I return to the second Dunlop test may I deal with three short matters. A question arose yesterday as to the change between the level of $35 for the ANZ late fee and the move to $20 as the level of the ANZ late fee ‑ ‑ ‑

NETTLE J: $23 or $20?

MR ARCHIBALD: $20. There was a question as to whether there was any evidence about the change. The change did occur but it was nothing to do with an agreement between banks. The evidence shows in volume 3 at page 1092 that there was a management board meeting of the Bank on 10 August 2009. Item 4 in the minutes of that meeting at page 1093, line 26, shows the topic of “Exception Fees” was addressed, a paper was tabled and there was:

General discussion about competitor announcements which have changed the competitive environment for exception fees. The range of initiatives taken by the competitors is not all consistent.

At the subsequent meeting of the management board the topic was again addressed. That meeting occurred on 7 September. The minutes are at page 1120. At 1122, item 6, line 52, again deals with “Exception Fees”. The second dot point shows that:

Exception fees have become a major focus for media, lobby groups and politicians so change on consumer customers is mandatory.

At 1123, line 14:

Consumer group focus was about transparency and for the customer to have control.

And at line 30:

Exception fee recommendations included –

line 33 –

Late payment $35 to $20.

That change was adopted and implemented in December 2009.

KEANE J: It is interesting that customers who do not overdraw still want people to be charged if they did.

MR ARCHIBALD: Yes.

KEANE J: Probably reflects the perception that someone has to pay.

MR ARCHIBALD: User pays, no cross‑subsidies, focus the burden where – the burden that imposes the cost, focus it on those who caused the burden, yes. The second matter concerns product costs. Yesterday my learned friend, Mr Jackson, at transcript line 2104 observed that the primary judge had rejected product costs as not being “increased because of any particular late payment”. Then he made the submission that the Full Court nevertheless considered that “the product costs should have been taken into account” and he referred to paragraphs 173 and 175 of the Full Court judgment. I just want to try and clarify the position about product costs.

At trial, ANZ sought to rely upon three categories of cost – provisioning costs, extra regulatory capital costs and operational costs. There were three items within operational costs. One was collections costs. The second was inquiries costs and the third was product costs. The trial judge rejected both inquiries costs and product costs and, on appeal, we did not pursue those two categories. We did not pursue inquiries in product. We maintained contentions in relation to collections costs. Our notice of appeal for the Full Court shows that in ground 10 at page 1399 in volume 4.

Within collections costs, there were two areas that were addressed – fixed and variable. Sometimes variable costs were called incremental costs. Sometimes fixed costs were called structural costs. So that a reference to structural costs is a reference to that component of collections costs constituted by what can generally be called fixed costs. But the Full Court was not asked to address or entertain product costs at all. It was asked to address the topic of structural costs.

The difference between the product costs and the collections costs is made clear in the reference that my friend gave to the Court in that passage in the transcript in Mr Inglis’ evidence – volume 2, page 456. My friend referred to product costs being of the order of $1 – that is true – at line 26, but Mr Inglis’ collections costs are dealt with at line 21 where they range between about $4 and $33.

So when the Full Court at paragraph 173 was referring to structural costs, it was referring to that component of collections costs concerned with fixed collections costs. It was not referring at all to product costs and nothing in that paragraph, nor the other paragraph my friend referred to, paragraph 175, suggests or could be taken otherwise; both paragraphs refer expressly to collections costs.

So, the short point is product costs were not before the Full Court. Nothing the Full Court said or did involved the Full Court finding contrary to the trial judge’s finding that product costs should be taken into account. The third matter to deal with briefly concerns the two provisions my learned friend referred to in the supplementary appeal book at page 1653. These are provisions found in the conditions of use of the Bank for 2006.

My friend referred to clause (29)(a) which appears at about line 24 on page 1653. Clause (29)(a) is a familiar type of clause. It relevantly provides that in the event of the account holder being in default, the bank has an option to make the outstanding balance “immediately due and payable”. One sees that at line 30. That provision does none of the work which the late fee provision does. First, it does not operate automatically. It is an option.

FRENCH CJ: How does ANZ do that?

MR ARCHIBALD: By notice. The provision says at line 33:

by ANZ giving the account holder notice in accordance with any applicable law.

So ANZ will say “you are in default, we give you notice that the ‑ ‑ ‑

FRENCH CJ: So that is just the letter that comes afterwards?

MR ARCHIBALD: Yes. Pro forma letter, no doubt, yes. But all that that does is make the outstanding due and payable. It does not address in any way the costs occasioned by the increase in credit risk attendant upon the failure to make timely payment. If ANZ were to sue in consequence of exercising the clause (29)(a) right it could not include in its claim, assuming the absence of a late fee provision, any claim for provisioning costs, regulatory capital costs or collections costs. All that that clause does is give it an entitlement to recover the money sum. So it is doing separate work. There is no overlap between those provisions.

The second clause referred to was clause (29)(c), which appears at line 38 in the left‑hand column on 1653. It is dealing with, as the clause says, “enforcement expenses”, line 41. Enforcement expenses are expenses in the nature of the exercise of rights which the Bank has, line 39, “arising from any default”.

FRENCH CJ: This does not pick up collection calls then on your submission?

MR ARCHIBALD: No. There is no right to make a telephone call conferred upon the bank in the event of default. It is a different area; it is litigation costs. And that type of clause is common with banks because there are arguments as to whether the bank has an officer who organises litigation and whether the bank’s costs of that officer are recoverable as litigation costs and this clause seeks to address that issue. That is debt recovery.

The clause is not dealing with collections which are, in essence, expenses seeking to mitigate the increase of credit risk that has occurred. It is contacting people, urging them to make the payment that they are tardy in making, so to bring the account back into order, to regularise the account, have the money come in and, correspondingly, redress the increase in credit risk that has otherwise occurred – that is what the nature of the cost is – and fielding inquiries about the consequences of late payment that customers make and matters of that kind. That is the description accorded to collections costs given by the Chief Justice in paragraph 175 of his Honour’s reasons for judgment.

So those two clauses are doing different work. There is no overlap and there is no reason by the existence of those clauses that the late payment fee should be seen to have characteristics of being penal because of the existence of these other provisions.

Now, may I return to the second Dunlop test. We say that there are two separate streams of consequence for this Bank – a bank – arising from non‑payment of a portion of a credit amount on a due date. The first is the simple non‑receipt of the moneys that ought to have been paid, the fact of non‑receipt. That has the consequence that the bank does not have, for redeployment or relending, funds which it was entitled to have available to it. That in concept gives rise to a loss of use claim, a Hungerfords loss of use claim – the disadvantage of not being able to redeploy advantageously moneys that ought to have been received.

Now, the bank does receive interest on the money that was not the subject of timely payment, the monthly minimum payment, but that interest is not interest because a default has been committed. It is interest in the ordinary course because the terms of credit cards’ usage provide that everybody pays interest on the amount outstanding if the full amount is not paid on the due date. You get an interest‑free period, but if the full amount is not paid on the due date you pay interest on everything. That is the interest that is engaged in these circumstances where a portion is not paid; ex hypothesi the full amount is not paid.

That interest may or may not, being at the ordinary rate – there is no differential rate of interest where an amount has not been the subject of timely payment; there is no increment in the interest rate. So the ordinary interest rate may or may not satisfactorily redress the loss caused by the failure to receive timely payment of the moneys. It may be the moneys could have been redeployed at a greater interest rate than the ordinary credit card ‑ ‑ ‑

NETTLE J: It is hard to think it would be greater than the credit card rate. I suppose anything is possible.

MR ARCHIBALD: Anything is possible. That is not at issue. The point is that we are not concerned with a loss of use claim. There may be satisfactory redress and maybe more than satisfactory redress, for all one knows, but that is the first stream of consequences.

The second stream of consequences, which is quite separate and distinct, is the series of costs that are incurred inevitably by the bank – any bank – by reason of the increased credit risk. It is the admirable aphorism of Justice Colman in the Lordsvale Case to the effect that riskier credit is costlier credit; higher risk, higher cost for the institution providing the credit.

Here, where there is a non‑payment, we know that signals a higher risk for the account and therefore costs are incurred in the nature of the provisioning in regulatory capital and so on, and I will make submissions on that later. They are losses of this kind. They are not loss of use claims. They are not claims for loss of use of the moneys that ought to have been received on time. It is a separate stream of claim – it is not a Hungerfords claim – but ordinary, unliquidated damages for costs occasioned to the bank of a financial kind.

There is within the increased regulatory capital cost a loss of use claim or an opportunity cost because the funds used to lift the regulatory capital could have been used elsewhere and on the evidence more advantageously because regulated capital attracts the lower rate of return. So there is, we accept, a loss of use claim in there, but it is loss of use of the funds put into regulatory capital that is the basis of the loss, not loss of use of the funds that ought to have been paid, and they will be different amounts.

So the submission is that the late fee is addressing a separate stream of costs independently of the obligation to discharge in part the outstanding debt, the credit amount. That assists one to understand that the function of the late payment fee is not to impose upon the customer an obligation to pay a greater money sum than the primary obligation to pay a money sum. The late fee performs a separate and discrete function independently of the debt. There is no coalescence between the subject matter of the late fee and the outstanding debt. So we say that the learned Chief Justice was correct at paragraph 137 of his judgment when dealing with the character of the claim – this is page 1463 of volume 4 – his Honour was correct to say here:

there is not the demand for a larger sum upon failure to pay a smaller sum; it is a fee payable on late payment –

et cetera. So it is not a provision of a character which engages rule 4(b) in Dunlop, and one notices at paragraph 138 on the same page, 1463, that his Honour said:

The fee was not conclusively a penalty by [reason of] the second rule of construction. During argument on appeal, Mr Paciocco and SDG [Mr Paciocco’s company] broadly agreed with this.

There has been a substantial shift from that position to the position taken in this Court but the answer that his Honour the Chief Justice gave was the correct answer, rule 4(b) is not engaged.

FRENCH CJ: A fee is imposed each successive month of default.

MR ARCHIBALD: For the separate failure in the subsequent month.

FRENCH CJ: Even though the amount may not have changed.

MR ARCHIBALD: Yes, there is still an obligation in the succeeding month to pay on the due date whatever the minimum amount payable on that ‑ ‑ ‑

FRENCH CJ: Although will it become immediately due and payable by reason of the letter from the previous month anyway.

MR ARCHIBALD: Well, if there were one. I mean ‑ ‑ ‑

FRENCH CJ: Yes.

MR ARCHIBALD: ‑ ‑ ‑ the evidence does not show how often that option is exercised, one suspects it is rare because the Bank wishes to have customers ‑ ‑ ‑

FRENCH CJ: Let us assume that the amount outstanding has not changed from one month to the next. The fee remains the same.

MR ARCHIBALD: The quantum of the fee does not change.

FRENCH CJ: Yes.

MR ARCHIBALD: Yes.

FRENCH CJ: And the following month, and so on. Does the successive default in relation to the same amount, is that linked to the provisioning argument?

MR ARCHIBALD: Yes, I am going to provide some short material to the Court about it, but what is done is to look at the account and look at the behaviour on that account and give it a score which is referable to the risk which it presents.

FRENCH CJ: So that goes up with each successive month of default.

MR ARCHIBALD: Yes, yes, the extent or the recurrence of failures affects adversely the behaviour and therefore aggravates the risk that the amount will not in due course be paid and therefore leads to a necessity ‑ ‑ ‑

FRENCH CJ: You say that also then feeds into, albeit it may be a very small influence, feeds into the regulatory capital exercise.

MR ARCHIBALD: Yes, it has the influence. It might be very, very small but it is an identifiable influence which Mr Inglis dealt with, yes, so that the frequency and the number of failures to make timely payment will aggravate the risk. That means you have to further reduce the value of the receivable, in light of that risk, and that requires a greater provision on the one hand, than would otherwise be the case and a greater increment to regulatory capital than would otherwise be the case, yes.

Now, the argument of the appellants in respect of rule 1 and rule 2 in Dunlop is that rule 1 in Dunlop applies to claims for unliquidated damages and only to those claims and rule 2 applies to claims for liquidated damages and only to those claims. For the reasons we have advanced that attempted dichotomy is unsound. But one observes in any event in relation to this case that the circumstances of late payment give rise to a claim for unliquidated damages for the claims if they were to be made - for the costs of additional provisioning, extra regulatory capital and collections costs are claims for unliquidated damages.

The first two were and are controversial. The third was and is controversial as to part, as to structural or fixed, to try to simplify it. But the third collections costs as to variable, was and is uncontroversial. The appellants accepted at first instance and on appeal, that variable collections costs were recoverable - unliquidated damages.

As we know, her Honour found that there was a valid claim by the Bank for unliquidated damages for variable collections costs. Her Honour included that in her Honour’s judgment. This is where the $3 comes from. The appellants have not sought to – did not seek to appeal from her Honour’s decision that unliquidated damages of $3 were recoverable.

So, the short point is that even if it were the case that the appellants were right and that rule 2 was engaged, if one had a claim only for liquidated damages that is not this case for there has been found to be a claim for liquidated damages.

NETTLE J: For unliquidated?

MR ARCHIBALD: Yes.

NETTLE J: I am sorry, I just misheard you.

MR ARCHIBALD: Yes, unliquidated. The collections costs needed detailed proof to arrive at a quantum. Mr Regan’s evidence was directed to that. Mr Inglis’ evidence was directed in part to that. Her Honour, on the evidence of those gentlemen, made a finding. We cavil with the quantum of the finding and, we say, structural costs should have been included as well – fixed costs, overheads should have been included, but the irreducible minimum is, as a matter of non‑controversy between these parties, there was and is that element of claim at the least. The rest is controversial. So, even on the appellants’ own argument, rule 4(b) cannot apply here.

Ground 4(c) of the appellants’ notice of appeal is directed to the admission made by the Bank that it did not determine the quantum of late fees by reference to a sum recoverable as unliquidated damages. The admission is found in paragraph 39(a) of the defence, volume 1, page 135. I have already said a little about this point and I do not want to take much more time on it. But, as a matter of content, it was not an admission that there was not a genuine pre‑estimate of loss. It was an admission that the amount of the late fee had not been arrived at by reference to the likely damages that would be recovered in the event of a claim being made. It is not necessary to go to the pleading to find the content of it.

His Honour, the Chief Justice sets out the text at paragraph 139 of the judgment at page 1463 and his Honour’s conclusion on the point at paragraph 140 was that:

It was no more than an admission of fact that the ANZ did not act in the fashion identified.

We submit that that is sound. It does not follow from the fact that that admission that there was an admission that there was not a genuine pre‑estimate of damage and it does not follow from that, in any event, that, therefore, the fee was a penalty for the reasons we advanced yesterday that the expression “genuine pre‑estimate of damage” is no more than a description of a provision which is not penal.

One might note that in ParkingEye it was explicitly conceded, it seems, by the car park operator there that the £85 charge was not a pre‑estimate but perhaps one step further than the admission made by the bank here – it is paragraph 97, page 1413, letter G ‑ yet as the Court knows, in ParkingEye the fee was held not to be a penalty.

So the argument is not advanced for penalty by observing that ANZ made the admission that it properly made. There were huge ramifications about discovery and evidence were that admission not made, and the admission was made early on when there was a quest for early determination of these issues.

FRENCH CJ: So when you say that a genuine pre‑estimate of damages is descriptive of a clause which is not penal, there must be some content, must not there, in terms of at least the relationship between the amount and the conceivable loss, or within some reasonable error range of that.

MR ARCHIBALD: Well, yes, but as the Chief Justice said, the genuine pre‑estimate is really no more than the reflex of what is penal, and therefore if it is not penal it will have compensatory characteristics and therefore there will be elements of quantum and ‑ ‑ ‑

FRENCH CJ: It will not be characterised as penal if it has compensatory characteristics.

MR ARCHIBALD: No, but even if there is, if you like, over‑compensation, it does not follow from a degree of ‑ ‑ ‑

FRENCH CJ: I understand that point, yes.

MR ARCHIBALD: Yes, so that is it, your Honour. Again, as I think I submitted yesterday and as Lords Neuberger and Sumption observed in their judgment in the Cavendish part of the decision, the question really is, is it penal? The question is not, is it a genuine pre‑estimate of damage, for the reasons we have advanced.

Now, if one turns to the alternative argument of the appellants that if it is the case that rule 1 in Dunlop does apply, it was misapplied, it is perhaps important to look closely at how the Full Court did resolve the question before it in relation to extravagant. The essential conclusion of the court was that the appellants had not discharged the burden of proof of extravagance which lay upon them.

That was so in significant part because the appellants did not adduce evidence as to the conceivable loss. Their evidence was directed to the actual experienced loss. They did not address, as at any point of time, date of contract, date of breach, anything, what the conceivable loss was. It was the circumstance that that dimension of their evidence was absent that is at the heart of the court’s findings. Could I take the Court to the Chief Justice’s reasons, paragraph 147, at page 1465, lines 22 to 32? His Honour says:

That the assessment of extravagance . . . is an essential element of the penal character is clear. Also clear is that the assessment must be done as at the time of entry into the contract ‑

His Honour gives the reason for that ‑

This is different from working out what damage can be proved from a particular breach after the event.

At paragraph 150, page1466, there is an observation as to the limit of parameters of Mr Regan’s evidence, lines 18 to 22:

He [Mr Regan] did not attempt to look forward to assess what conceivably could be the damage –

So there are two elements, one, looking forward but, importantly, two, conceivably the damage. Then at 184, page 1475, line 38:

The significance of the above is, however, the necessary conclusion that Mr Paciocco and SDG failed to prove by this expert evidence –

that is, Mr Regan’s evidence –

that the late payment fees were extravagant and exorbitant in the relevant sense. Mr Regan did not essay that task; his criticisms of Mr Inglis may, in some points of detail, have been legitimate; but Mr Inglis’ perspective was correct –

And perhaps 186, the final conclusion:

It was not proved that the late payment fee (as one of the so‑called exception fees) was extravagant and unconscionable.

So, if it matters, the real essence is the insufficiency of the appellants’ evidence rather than the sufficiency of ANZ’s evidence to disprove extravagance. The essence of the argument before the Full Court, brought by the appellants, was seeking to sustain as correct the conclusions of the primary judge at paragraphs 150 and 155, to which the Court has been taken. That is paragraph 150, page 1215, lines 51 to 53, and 155, page 1217, lines 14 to 16. I will not take the Court to them again at the moment, but these are the paragraphs where her Honour said that the provision in regulatory costs fees had the character of accounting costs and not, if you like, real costs and they were part of the costs of running the Bank. It was on that foundation that her Honour had rejected the costs. At paragraph 49 of the appellants’ written submissions –

FRENCH CJ: That was nothing to do with the regulatory side of it, was it? You mentioned the word “regulatory” in that context. This is just a provision.

MR ARCHIBALD: There is the provision and the regulatory costs.

FRENCH CJ: Regulatory costs is down the track.

MR ARCHIBALD: I am sorry, to put it more fully, regulatory capital costs.

FRENCH CJ: Yes.

MR ARCHIBALD: But her Honour’s reasons there addressed both elements of costs and her Honour rejected both of them for those two essential reasons and the argument in the Full Court was whether those reasons were sound. In this Court in paragraph 49 of the written submissions there is an endeavour to portray her Honour’s reasons in those paragraphs as turning on remoteness issues.

NETTLE J: She does say they are too remote.

MR ARCHIBALD: No, she does not, nowhere. It was not the issue. It is not there and it is not even in the Full Court reasons because the argument in the Full Court was not a remoteness argument. It was seeking to sustain these costs and the issue before her Honour at those two paragraphs was an issue as to the character – the character of the costs. Were they costs of a character that was susceptible of being recoverable at law? That is what her Honour’s reasons turned on and the Full Court, correctly, in our submission, rejected that reasoning and found at paragraphs 164 as to provisioning and at 167 as to regulatory capital costs, that they were costs of a kind that were worthy of compensation.

KEANE J: Do you say that even if they would not have been recoverable by action as liquidated damages, they are nevertheless relevant to a genuine pre‑estimate of damage - which is the language of the test, not damages - so that if there is a loss that is not likely to succeed, not likely to be recovered by an action in court, it is nevertheless the kind of loss against which a party is entitled to protect itself by its contract?

MR ARCHIBALD: Yes, we say it is unnecessary to go that far but if it were to be necessary, yes, we do. These are costs that are plainly incurred by the Bank; there is no argument about their being incurred. We say they are incurred in the ordinary course, they are of the appropriate character to attract redress in the ordinary way recoverable as damages for breach of contract, unliquidated damages but recoverable. If the matters not too remote they have the requisite character, but they are recoverable. They are real costs. But if for some reason they were not to be recoverable, they are nevertheless costs in respect of which a legitimate interest plainly exists and are able to be protected by an agreed clause of this kind. The costs may not be ‑ ‑ ‑

KEANE J: On one view that would be a good reason to have a clause of this kind.

MR ARCHIBALD: Yes, we make that exact submission. If it be the case that they are not recoverable at law that makes all the more legitimate the interest in protecting those unarguably incurred costs by having a provision of this kind in there to protect against. The inability to recover might exist for two reasons. One may be conceptual; the other may be the difficulty of proof in isolating that the individual activity has a particular contribution to those costs.

We say it is not the case here, but that may be part of the argument against us. If that were to be sound, then just as in Dunlop it is legitimate to protect your system, your then resale price maintenance system, by including a provision to deal with the individual case even if it is difficult to prove what injury the individual activity occasions to the subject matter to be protected, here the subject matter to be protected is the millions, perhaps even hundreds of millions of dollars of these costs that are occasioned across the credit card system, the revolving credit system, and the behaviour which obviously occurs amongst credit card customers..

If for some reason an individual suit were brought, there would be an impediment, either conceptual or practical, to recovery, that would be perhaps the best reason to include a clause of this kind. It certainly saves the cost and trouble of litigation for everybody about trifling matters. People do not go to court for $35, one hopes.

NETTLE J: But you would have to be able to characterise the contract as in effect evincing an objective intention that that clause should compensate for those kinds of costs, would you not?

MR ARCHIBALD: By reference to not just the terms but the inherent circumstances. I think the argument was put at some stage yesterday, perhaps fleetingly, that all one looks to is what is written in the clauses of the contract. Therefore, if one looked across at clause (29)(a) and clause (29)(c) and one saw some other clauses doing similar work, therefore, from the face of the contract you could conclude that the late fee was a penalty.

We say the exercise is not limited in that way. One looks to the inherent circumstances and, without elaborating on them too much now, the inherent circumstances are plainly that the contract is between a financial institution and a customer and the inevitable circumstances of that financial institution are that the institution is subject to prudential and regulatory parameters and those prudential and regulatory parameters impose upon it these losses, these provisioning losses and regulatory capital increments. The inherent circumstances also include, plainly we submit, the notion that riskier credit is more costly credit – just those fundamentals.

GAGELER J: Does the reference to “inherent circumstances” encompass the same idea as the reference to the matrix of fact that we often see in contractual interpretation cases?

MR ARCHIBALD: Lord Wilberforce was not in the Lords at the time of Dunlop. We have the phrase in Dunlop, and I think it may have come from Clydebank; I am not sure. It is of a similar ilk to matrix material. It is probably a little broader.

GAGELER J: The real question in my mind is whether it goes beyond the facts or circumstances reasonably within the contemplation of both parties at the time of entering into the contract.

MR ARCHIBALD: It likely would, but here, of course, one would understand that in light of the principles of the law of contact and limb one of Hadley v Baxendale takes to be in the contemplation of both parties, all parties, those losses which occur naturally in the ordinary course.

Although the lay customer might not have the, if you like, insight and sophistication to be alert to the precise mechanism by which these financial costs are incurred, the customer is, so to speak, taken to contemplate those matters, but Hadley v Baxendale does not require an appreciation, in any event, of the precise mechanism by which loss occurs. All that is required is that there be an appreciation of the kind of loss that might be incurred, and here what would be taken to be the kind of loss to be incurred would be financial costs of some nature to a bank by reason of not receiving money when it should have received it.

Even the lay person must be conscious that a bank not having money that the customer agreed to pay it on a particular day causes some dislocation of the bank and the customer would also know that people who do not pay on time are necessarily to be regarded as customers who present a different credit risk profile than one who unerringly pays year after year, month after month, on time. That is not much.

KEANE J: Well, whatever view one takes of the surrounding circumstances, or inherent circumstances, it is clear that each customer is receiving credit card facilities. No one suggests that any customer could think that his or her credit card was unique or that the terms of the standard contract that are proffered are unique or that the terms, in terms of interest, are unique and they are in no way affected by the system, the mass dissemination of the product to however many customers hold credit cards.

MR ARCHIBALD: Yes. Precisely so, and one of the virtues that is seen in standard form contracts and provisions of a type that agree an amount to pay is that you avoid the aggravation to transactions costs, that if you sought to engage with any particular customer on particular terms, it just becomes non‑viable and it is to the disadvantage of the customer as much as to the disadvantage of the bank to attempt anything otherwise.

So, every individual account customer must be taken to appreciate as part of the inherent circumstances that they are part of a system which is coping with a credit card, revolving credit facility type operation, to which one does not need to say millions but it is the fact, but the customer must appreciate that there are many, many such cards and all are being treated on the same footing. There is a variety of bank fees associated with any relationship with the bank, there is a mix of them, but provisions of a kind which seek to allocate costs burdens on a user pays basis are entirely apposite.

FRENCH CJ: In the end, our focus has to be upon the function or operation of the provision.

MR ARCHIBALD: Yes, and unless it is proven by the appellants that that operational function is punitive is not calculated to have a compensatory function but it is punitive to seek to coerce – I use an extreme form of word just for the sake of identifying it here – to coerce payment on time. Not to get a late fee in to address costs that have been incurred but to coerce payment on time. Unless that is the function, it is non‑punitive.

FRENCH CJ: How does what the parties are taken to have known, or intended, feed into that?

MR ARCHIBALD: Because of the adoption by the law of the test, as simple as can be, that it is extravagance which is indelibly indicative of a punitive function, absent extravagance that the law will not discern punitiveness in the function or operation of the clause. That is the course that the law has taken. It may be thought in some ways to be a little simplistic but it is deeply settled in the law.

KIEFEL J: It is an imputed intention, is it not, in order to describe the extent of the legitimate interest that the parties can be taken to have in mind?

MR ARCHIBALD: Yes, it is the commensurability point. Is it incommensurate with the legitimate interest available for protection? If it is commensurate, even if it is generous commensurability, it can be seen to be non‑punitive.

May I come to the costs that have been the subject of consideration? Might I deal first with collections costs? As I have already submitted, the variable component – or some aspects of the variable component of these costs were non‑controversial. Mr Regan’s evidence was directed to that topic. His conclusion was that really some variable costs should be recognised. His variable costs really consisted only of the wages of the personnel who were part of the collections team, so it was a narrow view of variable costs. That view found favour with her Honour and that was the subject of her Honour’s reasons and her Honour’s allowance of amounts of varying levels for particular late fee events affecting Mr Paciocco’s account.

But the Regan evidence was not directed to conceivable loss of any kind, whether conceivable variable collections costs or other collections costs, just the actual experienced loss according to Mr Regan’s criteria from the events that occurred. Mr Inglis’ evidence did address conceivable loss in respect of collections costs – in respect of collections activity ordinarily incurred in a variety of scenarios. It is the scenarios, the different scenarios, that provide the conceivable integer.

Her Honour the primary judge at paragraph 157, page 1217, lines 40 to 43, observed that on Mr Inglis’ evidence ‑ which she did not embrace ‑ but on Mr Inglis’ evidence, “In many scenarios, the collections costs” alone exceeded the fee. The Full Court held that collections costs confined to telephone costs also might be seen to exceed the fee. Can I take the Court to paragraph 175 at page 1472? At lines 11 to 15 the Chief Justice recorded that in Mr Inglis’ calculation of the maximum amount of costs – so this is the conceivable leg of the analysis –

In his calculation of the maximum amount of costs that ANZ could conceivably have incurred or could incur as a result of an event giving rise to an entitlement to charge an exception fee . . . Mr Inglis used only what he called “common costs” which were costs shared across activities but which varied with the changes of scale in activity. He excluded what he called “joint costs” being costs that did not vary with changes in scale of activity. This excluded many overhead costs; and he excluded what he called “unrelated costs” being costs relating to parts of the business that had no connection with credit cards.

Just pausing there, the scenario the court is looking at is Mr Inglis’ analysis of conceivable collections cost losses, but excluding joint costs altogether, including common costs which themselves excluded many overhead costs. So this analysis will include some, but not many, overhead costs, but no joint costs. At line 23 his Honour the Chief Justice continued that:

Mr Inglis’ calculation of collection costs . . . were mainly the costs of contacting customers by telephone and in handling and responding to customer queries from late payment events.

That was the passage I alluded to earlier this morning. Then at the end of paragraph 175, lines 39 to 41:

The calculation of collection costs was principally the cost of telephoning which time could vary from 1 minute to 20 minutes.

Then in paragraph 176 at the foot of the page, lines 53 to 60:

If one accepts the lower of Mr Inglis’ calculations ($2.09 per minute) that can be seen to eliminate many overhead costs and if one recognises that calls could last from 1 minute to over 20 minutes with the average call for the 19^th quintile of customers being 20 minutes, the cost of collection (looking forward) might be seen to exceed the fee.

So the court identifies that on what I will call a moderate, if not conservative, portion of Mr Inglis’ analysis, if one looks to collections costs only, one can see that the cost of collection may exceed the fee without more.

That material really comes from the joint report of Mr Regan and Mr Inglis. Could I take the Court to volume 1 of the appeal book at page 425? It is the sheet after the fold‑out pages, very close to the end of the volume, if one has the hard copy volume. This report was prepared by both gentlemen. Page 425 records, first, the Inglis analysis and, second, the Regan analysis. One sees in bold at line 14 that Mr Inglis’ first calculation of a permanent cost of telephone calls is $2.85. But then in the text to the right of that column there is language which shows the taking out of costs which bring the total costs down to $13.2 million and if one divides that by the total call minutes appearing in line 12, $6‑odd million, one gets the $2.09 per minute cost.

The next thing to notice about this is what the court referred to and what the court adopted at paragraph 175 was only the average call time for that quintile of customers. If you were looking for maximum conceivable in the customer sector, which is not the very top of the scale, they do not go to an extreme form of maximum conceivable but pull it back a bit, within that 19th quintile what Mr Inglis has on this analysis is not the maximum conceivable call time for that group of customers, it is an average. So the average, of course, reflects the existence of calls of much longer duration and therefore much greater costs, which is why we say this analysis is a moderate, not an extreme one.

As to the circumstance of the call being of average duration, one can see that from Mr Inglis’ late payment report in volume 2 at pages 561 to 562. Could I take the Court briefly to that passage in his report? At page 561, one sees paragraph 8.30. Mr Inglis says he has:

been provided with TOS data for the Early Stage, Mid Stage and Late Stage teams . . . [and] this data allows me to identify . . . in each of the three stages of Collections, a maximum conceivable total [cost] per account –

And at page 562, one sees in table 8‑6 the costs that are being dealt with. So, for early stage collections, the average duration of the telephone call is 20.67 minutes and that is where the figure of one to 20 minutes comes in the reference in paragraph 175 of the Chief Justice’s judgment. That is the measure that his Honour adopted for the purposes of this exercise.

What one observes, therefore, is that the Court proceeded upon the footing of early stage collections and the costs associated with those. They were the lowest level of interface with customers – the shortest call duration of interface with customers and, therefore, the lowest level of cost. One sees that clearly from table 8‑6 because the early stage collections has a call time of 20 minutes – mid stage 43 and late stage 58 ‑ with different cost consequences. If one were really applying to the full extent the approach ordained by Dunlop to find the maximum conceivable loss without going too far, one would likely take the average of late stage collections and find much higher costs.

So, the conclusion of the Court in the paragraphs we referred to is, for that reason in our contention, a moderate one and, of course, looks only to collections costs excluding most overheads. It is not easy to see, as the Chief Justice said, why one would exclude structural – why one would exclude fixed. This is not an occasion to have a full argument about what one would include in the nature of costs, but if you allow the wages costs – the operator – why would you not allow the cost for the desk the operator uses or the telephony device the operator uses, or the rent or part of the rent of the room in which the operator sits? Why would you, one asks rhetorically, exclude these costs? They were excluded by her Honour and they were not necessary to be included on the Full Court test.

But if one simply looks at what may be conceived by persons at the time of entering into a contract as to prospective collections, activity and costs that might emerge over the course of the contract in the event of a late payment, one can see even within the collections cost arena only there is clearly a prospect of substantial costs being incurred where, for whatever reason, there needs to be a lot of call activity with a customer over a late payment.

So really by looking only at this fairly narrow sector of the material that was assembled by Mr Inglis one can see, in our submission, the soundness of the view that, even on those costs alone, there is likely a handsome surplus on many occasions over the quantum of the fee. The way in which the appellants have sought to deal with that is to say, in paragraph 51 of their written outline, that the question that Mr Inglis was asked to address was skewed for the reason that it addressed conceivable costs. The contention is that he should have been asked to address likely damage. That is the proposition. The reference given to support that is Ringrow, paragraph 10. But Ringrow, in our submission, is not saying that and it lends no support to the contention. Might I just briefly take the Court to Ringrow (2005) 224 CLR 656 at 662, paragraph 10. The paragraph reads:

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.

The appellants have taken the two words “damage” and “likely”, reversed them, and have submitted that that is the test. But Ringrow, paragraph 10, in our submission, is restating in its own language Dunlop test 1.

NETTLE J: It is a little difficult to see why the evidence of the goodwill at the time of repurchase was relevant if that were so, is it not?

MR ARCHIBALD: Yes, it is.

NETTLE J: It is a strange decision in light of that principle.

MR ARCHIBALD: Yes. But the word “likely” qualifies the causative element of this proposition, not the quantum of the damage – damage likely to be caused. Yet our friends say, or they seem to be saying it is a revision of the concept of Dunlop rule 1 and now we just look at likely damage, not maximum conceivable loss. So our submission is Mr Inglis was asked the right question and paragraph 51 of the appellants’ submission is unsound.

Can I turn to provisions and regulatory capital costs? The argument that is sought to be advanced, it seems in this Court, is an argument about remoteness. The evidence is, in our submission, that the costs in question, provisions and increased regulatory capital requirements, were costs ordinarily incurred by the Bank in its BAU operations – business as usual.
Month after month, these systems work through these behavioural scorecards. They identify the risk that is being encountered with the funding that has occurred and bring in provisions and identify additional regulatory capital requirements.

They are necessarily incurred because, as to provisions, the Accounting Standards require it. The prudential business principles would cover it, but it is non‑controversial that AASB 139 required these provisions to be made. It is not suggested the provisions were made otherwise than in conformity with the standard.

As to the regulatory capital requirements, they are the consequence of regulation – put simply, Basal III – and again there is no suggestion that what was being done was in disconformity with or otherwise did not follow the regulatory requirements. Where losses of that kind are incurred in the ordinary course, as I submitted a little earlier, the parties are taken to contemplate those losses.

We have provided to the members of the Court a short note concerning Mr Inglis’ evidence on loss provisions and regulatory capital. The sheet seeks to express in short compass what is involved in the process of arriving at an appropriate loss provision and an appropriate regulatory capital provision. Perhaps the important thing for present purposes is that both calculations are at an individual account level.

Loss provisions, of course, are dealing with expected losses. We shortly explain those matters at paragraph 12(a) of our written outline of submissions. Regulatory capital deals with losses that are not expected, but for regulatory purposes and to protect those who deal with banks there are requirements to make provision by having capital allocated tier 1, tier 2, tier 3, and in assets which are very, very safe and therefore attract low returns. That is the work of these two separate requirements.

The determination of the provisions in both instances is conducted at an individual account level. The important notion is labelled “B1 provision” and that is essentially a provision which has as its ingredients for each individual account the elements set out in paragraph 3. The last element in paragraph 3: the potential credit exposure is simply looking at the individual account and seeing what its account balance is or what the limit of it is. The exposure at default and the loss given default are statistical figures applied to the individual account.

The predicted default, as paragraph 4 explains, is a predicted default for the particular account arrived at by assessing features of that account performance that lead to it being described as “a behavioural score”. Having arrived at that score for the individual account, that account is then allocated to a cohort. That cohort has the predicted default parameter which is then used to apply back to the individual account.

NETTLE J: But these are calculated as averages are they not, across the cohort?

MR ARCHIBALD: No, no. That is what I was seeking to ‑ ‑ ‑

NETTLE J: Well, that is why I want to ‑ ‑ ‑

MR ARCHIBALD: ‑ ‑ ‑ put to your Honour, yesterday. I think the detail appears from the paragraphs that are referred to in paragraph 4.

NETTLE J: Well, just going to that, at 474 of the appeal book where 5.19 appears, taking first the predicted default, the PD, it is a statistical probability. Now that, as you say, is allocated by reference to the credit risk of the particular customer. They are put into the cohort by reference to what is assessed to be their PD.

MR ARCHIBALD: Yes, but because of their ‑ ‑ ‑

NETTLE J: Individual behaviour.

MR ARCHIBALD: ‑ ‑ ‑ virtual identicality of behaviour as between ‑ ‑ ‑

NETTLE J: Them and others in cohort.

MR ARCHIBALD: Yes, but they are there because they are the same, or almost the same.

NETTLE J: I understand.

MR ARCHIBALD: Yes.

NETTLE J: Then moving to EAD, the exposure at default, that is calculated on an average basis across the cohort?

MR ARCHIBALD: It is a statistic, derived I think, your Honour, not exclusively from that cohort but by long experience over time with many, many accounts so I perhaps have only been cavilling with the notion of average. A statistic will give you a number but it may not be truly an average. That is all.

NETTLE J: At paragraph 5.26 of the report at page 476, it says:

the EAD for current consumer card accounts was 93.91%.

MR ARCHIBALD: Yes.

NETTLE J: So, it is by reference not just to the cohort but all current consumer accounts.

MR ARCHIBALD: Yes, yes, so that one applies the accumulated experience to the particular account. Yes.

NETTLE J: Yes. Then going to the next item in the formula, the loss given default, or LGD, being the expected loss in the event of default, that is an average, at least it appears to be from 5.28 at page 477.

MR ARCHIBALD: I think, and I am not sure that it makes a difference, we would again characterise it as the statistical result of long and broad experience which brings into account and there may be weightings within this exercise, which mean it is not an average in a crude sense, weightings that will give you the statistical value at the end of the day. But one is using that knowledge to identify what features attend the particular account.

NETTLE J: Just starting at 5.17:

The Bank uses a Collective Provision to account for currently unidentified losses on pools –

Is not the EAD, or loss - I beg your pardon, the LGD the LGD for the pool?

MR ARCHIBALD: No. Perhaps the sequence of these paragraphs is not ideal but your Honour sees from paragraph 2 that once you have the B1 provision for the individual account it is then and only then put into the collective provision, so it will have its own precise influence on that collective provision, an influence which is unique to that particular account.

It may be very, very small but it is having that influence. All that it means is the Bank does not put in six million entries to find out what provision should be made. It aggregates them at an antecedent point and then uses the collective provision to see what adjustment should be made for the month.

NETTLE J: It does appear from 5.27 and 5.28 that the LGD and the PCE are averages assessed across the cohort.

MR ARCHIBALD: Well, yes, your Honour, but they are identified as the appropriate percentage or whatever the measure is for that account.

NETTLE J: Or for that cohort of accounts.

MR ARCHIBALD: I think the cohort is confined to the PD. I think EAD and LGD are not being applied to a cohort but to the account, but the parameter which is applied, the EAD and the LGD, is derived from accounts other than the account to which it is applied; many, many accounts over time.

NETTLE J: It may not matter but it may, so can I persist? At 5.18 in the second sentence:

The Bank allocates each account to a pool based on its attributes and the customer behaviour exhibited on that account.

MR ARCHIBALD: Yes, that is to arrive at the ‑ ‑ ‑

NETTLE J: Which cohort he goes into?

MR ARCHIBALD: To arrive at the predicted default.

NETTLE J: Is it not just that one looks at the particular account and says, well, having regard to its attributes and its behaviour, it should be allocated to the particular cohort?

MR ARCHIBALD: Yes, but once you have that value, all four parameters are used at the individual account level.

NETTLE J: Well, then to 5.19:

The B1 component of the Collective Provision is calculated as “the present value of the expected losses . . . likely to have arisen over the Emergence Period ‑ ‑ ‑

MR ARCHIBALD: Yes, paragraph 2, once one has the B1 provision for the particular account one puts it into the collective provision.

NETTLE J: So is B1 calculated individually by reference to the individual EAD, LGD and PCE, or is it calculated by reference to the averages for the cohort to which the customer is dispatched?

MR ARCHIBALD: B1 is calculated by reference to the four parameters of paragraph 3. PCE is unique to the account. EAD and LGD are not unique to the account. They are derived over time from experience, but identified as being therefore appropriate to apply to the particular account. PD is arrived at by developing a behavioural scorecard, applying that to the appropriate cohort, seeing what the risk factor is for that cohort, and then bringing the PD numeric value back into the individual account and putting the whole lot then into a collective provision.

NETTLE J: So, just to be clear on that - I understand about the PD – the EAD is individually calculated for the particular customer?

MR ARCHIBALD: EAD will be provided by many, many accounts over a long time. It is the Bank’s experience of exposure of default.

NETTLE J: What, this class of customer, or this customer?

MR ARCHIBALD: No, for the – well, that class of customer and perhaps even more broadly, that value is then applied to the individual account.

NETTLE J: All right. The loss given default is individually calculated for the customer, or is it on an average or ‑ ‑ ‑

MR ARCHIBALD: No, it is the same as EAD, yes.

NETTLE J: So it is individually calculated?

MR ARCHIBALD: No, it is a numerical value derived from experience over time which is then applied as apposite to this account. So it is a statistical number or value derived from features of accounts other than the individual account.

NETTLE J: PCE is, you say, specifically the greater amount of the limit or account balance for the particular customer, not an average.

MR ARCHIBALD: Yes, there is no exogenous information that is referred to for the purposes of applying PCE.

NETTLE J: It is just the amount of this man’s outstanding account?

MR ARCHIBALD: Or limit, whichever is the greater.

NETTLE J: Yes, thank you.

MR ARCHIBALD: Then the B1 provision is used for regulatory capital. There are differences. Of course, it is a totally different kind of loss but it uses – with some modification it is the same methodology.

GAGELER J: I am sorry, Mr Archibald. While we are talking about the kind of loss and sticking with the loss provision for a moment, at the conceptual level what is being measured by the accounting standard, as I understand, is the value of the existing asset, that is, the value of the debt to the Bank.

MR ARCHIBALD: Yes, the receivable, as I call it, yes.

GAGELER J: Is it part of your argument that the decrease in the value of the chose in action would be recoverable in an action for damages at law in addition to the amount owed on the chose in action? There would be an element of double counting, would there not?

MR ARCHIBALD: Yes. The simple answer would be no, you could not double recover. But for the reasons I was advancing earlier this morning that which is recognised by the impairment of value of the receivable is separate from recovery of the debt itself. It is a different loss, and it endures for the year in which the provision is made, and that has its own consequence for the profitability – there is a time value of money issue involved but it has a consequence for profitability during that year. The bottom line profit and loss is reduced.

GAGELER J: But that seems to be a flow‑on consequence, potentially. It is not measured by Mr Inglis. What Mr Inglis here is measuring, as I understand it, is simply the decrease in the value of the choses in action.

MR ARCHIBALD: Yes.

GAGELER J: I can understand that that decrease in value might have consequences for the business, but in this respect he does not appear to be measuring those flow‑on consequences, or those flow‑on effects of the decrease in value.

MR ARCHIBALD: But they are linear. If I have a receivable, before the late payment fee has a value of $100, as a result of the late payment fee and applying the B1 provision, it comes to have a value of $90. If I tried to sell that debt on the market – not the whole business as my friend was contemplating - the same would apply, but if I tried to sell that debt fragment it will only command $90 instead of $100 and I therefore have a less marketable asset than I otherwise have.

This is a version of market‑to‑market requirement. What would it bring in the marketplace? So I have a decreased ability to turn to account my receivable, and that, because of the accounting standards, flows into the balance sheet and my balance sheet on my example will have - current assets receivables will be $10 less by reason of this individual account alone, because, being a bank, my receivables are part of my inventory I turn over it also will reduce my profit by $10. So it has those consequences. Mr Inglis refers to them but does not extend his calculation, but, as we would understand the evidence, it is linear in character.

FRENCH CJ: I can understand an argument that diminution of the debt as a marketable asset reflects a loss but many of the other aspects of which you speak have to do with simply reporting of a risk which may manifest, ultimately, if you had to factor off, sell off the debt. The provision is, in essence, a reporting of an impairment which measures the risk, if you like, that you will not get full recovery.

MR ARCHIBALD: If you look at the stakeholders and if you look through the corporate entity, the stakeholders suffer a $10 reduction in the value of their investment in aggregate.

KIEFEL J: But in relation to these accounts, is it a risk that does not eventuate?

MR ARCHIBALD: One does not know. It may or may not. But the circumstance that there may be cases where the risk does not crystallise does not derogate at all from the reality and immediacy of the occurrence of the additional provision and the impact that that has.

I will try to come back to your Honour Justice Gageler’s question. If one looks in terms of double recovery, we would not for a moment suggest you could not have double recovery, but the extent to which the late fee provisioning element reflects the time value of money may mean that there would be a component of double recovery because I have had some earlier recoupment of something reflecting the impact of the tardiness of payment but it may be the time value would mean you would compute – if you were looking at a double recovery situation – it in a non‑linear fashion. It might not be full double recovery because of the impairment I have suffered.

A lot of this goes back to the notion of the interest which is protectable. If there be some feature here which would mean that one would be unable to recover a component of the provision in cost because of these features, that would not detract at all from the legitimacy of the interest in protecting against this phenomenon where one has recurrence of this kind of behaviour across the customer base and the impact of a significant kind on the level of provisions and, therefore, upon the profitability of the company.

Different considerations, I accept, attend the regulatory capital matter and I will come to those in a moment. But we do submit that this extra provisioning is a real loss which has real consequences for the Bank and its investors in every area in which it is incurred and it would not be suffered but for this behaviour.

FRENCH CJ: What difference does it make in terms of characterisation? Suppose you take out provision and leave in collection costs and regulatory burden?

MR ARCHIBALD: It is not imperative for us to succeed in any way to show that you can put two of these elements together. Each, we submit, would be sufficient in itself. I return to the point that I made at the outset of the submissions on this point. The reason that the Full Court decided against the appellants was not because of insufficiency of the Bank’s evidence to prove extravagance; it was because of insufficiency of the appellants’ evidence to prove extravagance. I intended to say insufficiency to prove non‑extravagance. I may not have put it that way though.

In other words, the answer to this case does not depend at all on Mr Inglis’ evidence. The appellants do not seek to make their case out of Mr Inglis’ evidence; they seek to make it out of Mr Regan alone. Mr Regan’s evidence simply cannot establish extravagance. In the Dunlop sense, extravagance has to be a conceivable loss and Regan does not touch that. The appellants have not sought to make an alternative fall‑back case. If we cannot succeed on Mr Regan alone, we will pluck these elements of Mr Inglis’ evidence out and put the two together and we prove extravagance that way. They have never sought to make that case.

In a sense, we can accept everything about a criticism of Mr Inglis and say if that is so, they still fail. We do not approach it that way. We do say Mr Inglis does sustain it, but it is not critical. Within Inglis, as I have been drawing attention to, the collections material alone would suffice to show non‑extravagance if we had to show it.

NETTLE J: Mr Archibald, forgive me, could I go back to the mundanity of the calculations. Notwithstanding what you have said thus far, it does seem to me, with respect, that the calculation at paragraph 5.19 is a global calculation for the total portfolio or pool to which the customer is allocated and that so much apparently is made clear at 5.63 and following. Thereafter the global calculation is taken from the Bank’s figures. Mr Inglis then works out an average monthly for the population which he then ascribes to the appellant.

MR ARCHIBALD: Can I have that looked at further, your Honour?

NETTLE J: Yes, thank you. From what you have just said, it may not be important, but it may.

MR ARCHIBALD: Yes, I will have that checked and I will make a further submission, if I am able to. Could I have provided to the Court a sheet headed “Mr Paciocco’s Actual Late Payments”.

I have just submitted that if one takes Mr Inglis’ evidence as to any of the cost categories one would discern from his evidence that the fee was non‑extravagant by reference to the cost category separately. That submission is on the footing that one looks at the conceivable loss. The sheet that the Court has been provided with is not addressing conceivable loss but actual loss. It uses the actual loss figures prepared by Mr Inglis in his reply report dealing with the late payment events. Where one has numerical values in columns that are designated B, F and N, they are drawn from her Honour’s annexure 3 to her Honour’s reasons at page 1353 so they are, in effect, her Honour’s findings of Mr Inglis’ evidence as to actual cost on an average basis for the late payment events which did occur.

Here, if one aggregates on the actual basis, not looking at the maximum conceivable but the actual experienced basis, Mr Inglis’ findings in respect of the three cost categories, one sees in every case they exceed the fee. For card account 9522 the average cost per event over the period 2006 to 2013 was $50‑odd and for card account 9629, between the period 2010 to 2013, the aggregate cost was $35‑odd. One keeps in mind that the fee amount was $35 until December 2009 for each of those cards and, therefore, at all times for the purposes of card account 9629 the fee was $20.

GAGELER J: If we were to take out the provision costs, where would we be?

MR ARCHIBALD: If you take out the provision costs for card account 9522 one has a figure of approximately $28 for the whole period. For the period after December 2009, that would exceed the fee. For the period before 2009 it would be somewhat under and, for card account 9629, if one takes out the provisioning costs one is at about $8.36 when the fee amount is $20.

But we remind the Court that what is looked for is extravagance in light of the circumstance that the amount is greater than the maximum conceivable loss. If your maximum conceivable loss is $28 and the fee is $35, it does not follow that that fee is extravagant because one is looking for something in excess and finding in the total amount the indicia of punitiveness. Here, we are dealing – I mean they are not unnoticeable amounts but they are, in terms of non‑community, relatively modest levels of amounts.

NETTLE J: Mr Archibald, the trial judge excluded regulatory capital costs because she had excluded provisions costs.

MR ARCHIBALD: Yes.

NETTLE J: If, as Justice Gageler suggests for the sake of argument, one were to say, well, you are not entitled to provision costs, does it necessarily follow that you are not also entitled to regulatory capital cost?

MR ARCHIBALD: No. It is a cost of a very different kind. The regulatory capital cost means that as a matter of fact – not just a matter of paper record – but as a matter of fact, there was shown, by reference to the regulatory criteria, to be an imperative to bring across from another location assets of a certain value to be put into regulatory capital and to remain there to maintain the requisite ratio.

NETTLE J: Are those regulatory capital requirements informed by the provisions which you set for bad and doubtful debts?

MR ARCHIBALD: Not by the provisions but by the methodology which establishes the provisions.

NETTLE J: So, the amounts of the provisions do not bear on the amount of regulatory capital.

MR ARCHIBALD: In the sheet we provided to the Court, one observes from paragraph 6 that the same formula is used – the B1 formula but elements are calculated differently and we give some references for that. But, having taken that figure which gives you the impaired value – the reduction in value of the receivable – one takes that integer, not what you did with it in provisioning, one takes the impaired value and feeds that into the ratios required for regulatory capital. So it goes off in a different direction.

NETTLE J: Does it follow then that if, in truth, these figures are worked out on a global basis so too are the regulatory capital provisions?

MR ARCHIBALD: Yes, in the sense your Honour has been putting to me, yes.

NETTLE J: Therefore, if you are attempting to ascribe the contribution, as it were, of the appellant towards the increase, you either do it on some sort of average basis or a specific basis?

MR ARCHIBALD: Well, it is specific to the account but the value of the contribution that one attributes – that that account has to the global figure – is arrived at by reference to those elements, some of which are not unique to the account. If I were in Court – if I were suing on this and I am complaining that I have had to add to my regulatory capital by reason of this customer’s late payment event, of course I would have to use statistics to guide me as to what is an accurate reflection.

NETTLE J: I understand your point about a reasonable estimate. I am just trying to get the basics worked out.

MR ARCHIBALD: Indeed, it would be a much more unreliable indicator of the contribution of the account to the need for regulatory capital to use consideration of the account alone without the advantage of accumulated experiences.

NETTLE J: I do not wish to be sounding opposing that, I just want to say, lest I be in error, that as I understand the evidence at the moment, the regulatory capital provision increase is driven by the increase in provision for bad or doubtful debts and that the amount ascribed to this appellant by Mr Inglis is worked out on the same sort of averaging basis as he does the provisions.

MR ARCHIBALD: It is worked out from the same methodology. In the discourse on the provisioning, one was looking at the way in which this formula will give you a value indicating the impairment of the reduced value of the asset. If one just stops there, having arrived at that figure, there are then two things that can be done with that figure. One is to make a provision in light of that reduced value; the other is to look at regulatory capital. One could do for regulatory capital purposes what one does with the information even if one never made a provision. So they do use the same database but the regulatory capital increment is not dependent upon a provision having been made.

NETTLE J: Yes, thank you.

FRENCH CJ: It is dependent upon recognition of the impairment.

MR ARCHIBALD: Yes, and no more, and no more. If the accounting stand was reversed and banks were told they were not permitted to make a provision, you would still, on the regulatory arm, make your increment to required regulatory capital.

NETTLE J: In claiming, as it were, the increase in regulatory capital, you claim a full increase rather than something discounted by reference to the chance that you may not have been able to put it to use at a higher rate, do you? It is a loss of opportunity. There seems to be no discount of vicissitudes – putting it simply.

MR ARCHIBALD: The calculation is the difference between the rate of return obtainable on the regulatory capital ‑ ‑ ‑

NETTLE J: And what you would have got for credit cards.

MR ARCHIBALD: I am not sure if it is credit cards but I think it is the required rate of return on the Bank’s capital, which is either achieved or exceeded by other uses.

NETTLE J: Well, that is the same assumption; it is exceeded by credit cards.

MR ARCHIBALD: Well, it may not be.

NETTLE J: Yes, I understand. Thank you.

MR ARCHIBALD: The appellants contend that the Chief Justice was wrong in disregarding Mr Regan’s evidence. Our submission is that as a matter of general principle, it must be right that evidence of actual loss will not provide or help provide an answer as to what a maximum loss may be conceived to be, for the individual experienced occurrence may be far from the conceivable occurrence and the statement of principle in Clydebank upon which his Honour relief must be sound in that respect.

Lord Woolf in Philips expressed a different view, as the Court has been reminded. His Lordship does not explain why such evidence may be valuable and as a general proposition it would seem to be difficult to support. One does observe from page 280 in the Hong Kong reports at line 28, in Philips there was, unusually, no contention that the agreed liquidator damages exceeded the loss incurred. It may have been one of those cases in which in fact the loss exceeded the liquidated damages.

It is possible that some factor associated with that curiosity in that case led his Lordship to make the observation that he did, but I accept that that is speculative. But his Honour does not develop the foundation upon which the proposition is advanced.

The Chief Justice of course did not discount entirely the entirety of Mr Regan’s evidence. As he said at paragraph 184, page 1475, Mr Regan’s criticisms of Mr Inglis’ evidence “may, in some points of detail, have been legitimate”. So there were areas where he did have something to say that was apt to be taken into account. But the fundamental problem was that Mr Regan did not look at conceivable loss and it is for that reason we submit that his Honour was right in not finding Mr Regan’s evidence able to assist.

We would accept, however, that where the evidence does show that the actual damage from the breach in question did cause loss which exceeds the impugned fee, that fact of itself must be an indicator of non‑extravagance, for if you have a breach and the breach causes greater loss than the fee, what you are being told is that the fee is set at a level less than the actual loss recoverable at law, and such a loss could not be extravagant, for anything which is recoverable at law must be in the nature of proper compensation. That is why we have provided the table of Mr Inglis’ assessment of actual loss, to show that phenomena.

So we would accept that, in those circumstances, different considerations may attend, but perhaps those matters were not present to the Chief Justice’s mind. Certainly no exercise before the Chief Justice was done of the kind that I have just provided to this Court.

Could I then deal with legitimate interest? The reasons of the Chief Justice are expressed in terms of interests worthy of protection and his Honour invoked passages to that effect in the foundational authorities in the area, for that was the notion in Clydebank, it was the notion of Lord Atkinson in Dunlop, pages 91 to 93, especially 92, point 5, and it is the notion in Andrews. It is the notion in Andrews. May I take the Court to Andrews? That case is reported, as I have said earlier this morning, at 247 CLR 205. I refer the Court to paragraph 75 at page 236. The Court there is referring to Lord Atkinson’s speech in Dunlop and the Court observes in the final sentence at paragraph 75 that:

The critical issue . . . was whether the sum agreed was commensurate with the interest protected by the bargain.

In our submission, the Court is there endorsing and adopting the approach of his Lordship and Justice Allsop. The Chief Justice, in his reasons in this matter, are relevantly at paragraph 103 of the reasons for judgment, at page 1455, lines 17 to 30; his Honour said:

The object and purpose of the doctrine of penalties is vindicated if one considers whether the agreed sum is commensurate with the interest protected by the bargain ‑

His Honour cites Andrews, paragraph 75, Dunlop, Lord Atkinson, Clydebank at various points and Public Works Commission v Hills. His Honour continued:

This is not to say that the enquiry is unconnected with recoverable damages; but the question of extravagance and unconscionability by reference, as Lord Dunedin said in Dunlop, to the greatest loss that could conceivably be proved to have followed from the breach, is to be understood as reflecting the obligee’s interest in the due performance of the obligation ‑

and then there is reference again to Hills. More recently, such an approach is reflected in the judgment of the Supreme Court in Cavendish Square. We refer the Court to the reasons for judgment of Lord Neuberger and Lord Sumption at paragraphs 75 and 82, Lord Mance at 199, Lord Hodge at 255 and 284 to 285 and Lord Toulson at 293. We are reflecting and drawing upon the cases at the turn of the 19th and 20th century.

Plainly, as his Honour said, the interest spoken of encompasses a claim for common law damages. Here we have submitted that the costs we have identified answer that description. But if, for whatever reason, there be a conclusion that those costs are not within the reach of common law damages for breach of contract here then we say they do fall within the interest protected by the bargain and are commensurate with that bargain.

Because the law in this country is that the penalty doctrine is not confined to cases of breach of contract, it is inevitably the case that the interest protected by the bargain is not confined to damages recoverable for breach of common law. It must be so. As I submitted earlier this morning, if one looks to the legitimate interest here of the Bank, and it be the case that these costs which are incurred are not recoverable in law, then that circumstance serves all the more to establish the fact and degree of legitimacy of the interest protected by a provision such as this. On that score, the costs that we have identified are legitimately protected, albeit that they are not recoverable as common law damages and may therefore be seen to be within a sphere which precludes a finding of extravagance.

FRENCH CJ: If the provisioning is not to be treated as a cost, does it nevertheless fall within the scope of what you would call a legitimate interest?

MR ARCHIBALD: Yes; exactly so, for it is, as we have urged, a real cost.

KEANE J: Even if one were to characterise it as an excessive degree of self‑protection, it is nevertheless understandable as being something entirely inconsistent with punishment of the other side.

MR ARCHIBALD: Yes.

KEANE J: Excessive protection of oneself is not punishment.

MR ARCHIBALD: Financial institutions are commanded not just by regulatory considerations and accounting standards to adopt measures which reflect a prudential attitude to the conduct of their enterprises, particularly, one might think, since 2007 all the more so. Measures of this kind, therefore, reflect that attitude to the responsible conduct of a significant business of this kind in the financial services sector. Where one has a provision of this kind which is directed to addressing – one does not say recouping in entirety – in part, costs which are occasioned by this behaviour of customers other than in conformity with contractual provisions, there is no reason to proceed upon a footing that it is a measure other than a measure which reflects the proper interests of that institution.

KIEFEL J: But, unlike the position in Dunlop where the legitimate interests were really incapable of precise estimation, in this case the question really is whether the estimation is reliable.

MR ARCHIBALD: Yes. I mean, for all the reasons we have urged, our submission is that one can sufficiently establish the contribution of the individual account to these provisions and regulatory capital consequences. If that be so, we would succeed on that ground alone. But if we fail in that respect, we are taken back to a Dunlop type position where it is established that if activity of this kind does occur then there is prejudice to, and impairment of, the integrity of the system which the company had in place. It was just that you could not find the contribution of the individual dealer to that impairment.

KIEFEL J: But the undertaking by Mr Inglis of the exercise is an acceptance, is it not, that this is capable of the loss or effect on the bank’s interest are capable of estimation?

MR ARCHIBALD: Yes, but if perhaps for any reason of the kind that may have been canvassed this morning, those calculations led to a conclusion one could not pin it down in a way that was required in order to achieve recoverability of common law damages, then one does have impossibility of proof because one has gone as far as one can.

KIEFEL J: No, you have proof, not may doubt. You have spoken of proof before as if there was no onus on the bank. But is not the position really one not of ultimate onus but evidentiary shifting? You have a fee which, on its face, unexplained looks rather large compared with the amount in question and one knows that it is applied across the board. It calls for an explanation. The bank provides the explanation. The question is whether the explanation is of sufficient justification. Is that not the position we are in?

MR ARCHIBALD: We submit not because if the Bank had not adduced any evidence, left it to the appellants, and the appellants had led Mr Regan’s evidence as it was, that evidence was incapable of establishing extravagance and is really what the ‑ ‑ ‑

KIEFEL J: But there still would have been the question left for the Bank to meet which was, on its face, the fee looks high, and then the Bank would not have adduced any evidence to meet that presumption.

MR ARCHIBALD: Well, (a) we would submit no, why does one say it is high, why is $35 high, but secondly, in the scenario your Honour puts there would have to be sufficient evidence adduced by the appellants to cause the evidentiary burden to shift, and our submission would have been, in those circumstances, that the evidence the appellants had adduced was insufficient to cause the evidentiary burden to shift.

NETTLE J: Ex facie it would appear to be penal because it is not proportionate either to the amount or duration of the default. Would that not create the presumption to which Justice Kiefel referred?

MR ARCHIBALD: No, and we are not concerned with rule 3 here anyway.

NETTLE J: Put aside rules, just looking at the construction or characterisation of the contract in the circumstances in which it was made, there is a fee which is flat regardless of the amount or duration of default. It calls for an explanation, does it not?

MR ARCHIBALD: Well, no. Where the question is, is it punitive, why does the circumstance that one has a flat fee indicate punitiveness?

NETTLE J: I was thinking of his Lordship Justice Colman, to which you referred this morning and which was embraced by the United Kingdom Supreme Court in Cavendish.

MR ARCHIBALD: Yes, but the fact that one has a flat fee does not mean that it is not addressing a loss. Where a loss is ‑ ‑ ‑

NETTLE J: It is just that his Lordship referred to the contrast between a flat fee on the one hand and the sort of fee with which he was faced on the other, which was ex facie proportionate to the amount and duration of default.

MR ARCHIBALD: Yes, but if one had the material which showed the likely loss was between $200 and $800 and one sets the fee at $35, the fact that you have a flat fee does not mean that, in any respect.

NETTLE J: Of course not, that is why it calls for the evidence that it is between $200 and $800, as her Honour says, is it not?

MR ARCHIBALD: Well, our submission would be, in those circumstances, which have not been entertained in this case, that if one looks at the inherent circumstances which one has in any event from the evidence, one would not conclude that a fee of this dimension would necessarily be reflecting elements of punitiveness.

But put all that to one side, the case has not been conducted on that basis, has not been decided on that basis. We did call evidence, and whether it be from an absence of need to advance some material or a presence of need to advance some material pointing to it, we say the material plainly does that in a way that would address an evidentiary – a need for evidence to deal with the consequences of an evidentiary burden that may have been placed upon the Bank.

NETTLE J: Yes, thank you.

MR ARCHIBALD: We do say that if one views it in a way that there was a need for the Bank to expound sufficiently a foundation upon which a conclusion could be reached on the Bank evidence, we say that that would properly have led to a conclusion of non‑extravagance. The way in which the Full Court approached the matter in this case was plainly to take into account the elements of the Bank evidence in arriving at a conclusion but, ultimately, to found the conclusion on the basis that the appellants had not discharged a burden.

Now, whether that might be taken to have been from Regan evidence alone or an amalgam of Regan evidence and other matters really does not matter. There is that finding which was made by the Full Court and it is not the basis of challenge before this Court. The basis of challenge is to seek to go into matters of remoteness and so on which were issues, not the foundation of the Full Court’s decision.

So, returning then to the legitimate interest point, if for whatever reason, whether it be analogous or not analogous to the Dunlop position, non constat the Bank evidence there is an inability to – it has not been shown that those costs were recoverable as common law damages, there is a sufficient demonstration of legitimate interest to protect, to sustain, the late fee provision as commensurate with that interest.

If one goes back to her Honour the trial judge’s notion of costs of running a bank, we make this submission. If, for some reason, the costs of running – those costs of running a bank are not recoverable as common law damages for breach, those costs should be regarded as within the legitimate interest of the bank to protect by contractual measures. They are, as her Honour was recognising, costs that have to be encountered, and it would be a curious result, in our submission, if they were costs which affected the conduct of the bank’s operations and one could not address them by a voluntary contractual measure.

GAGELER J: Just so I understand it, when you get to the legitimate interest part of your argument, the only legitimate interests you point to are these three categories of costs. Is there something else?

MR ARCHIBALD: We point to them as categories of costs, but if one stands back from the detail to understand what is the interest – to express it other than at a level of particular granularity – one would say the bank is conducting a credit card business for many, many customers. It has contractual provisions with each of those customers which require punctuality in repayment of portion of the credit afforded on a revolving basis to those customers.

In the event that punctuality is not achieved, there are adverse cost consequences for the bank of various kinds. We identify three here. The bank has an interest in addressing, or redressing, the incurrence of those costs. There are a variety of ways, no doubt, in which it might seek to do that. It might seek to charge fees elsewhere and deal with them by some cross‑subsidisation from what I call “innocent customers”. But it has an interest in the conduct of its business and respecting its customer base to channel the foundation of addressing of those costs in the area which occasions those costs. Therefore, if they are costs of running the bank, they are costs of running the bank brought about by this sector of the customer base and it has an interest in responsible conduct of affairs and respecting the conforming behaviour of other customers to make a provision in the area in question.

KEANE J: So if the Bank did not have to deal with this risk and this cost, it could lower rates and get more customers.

MR ARCHIBALD: It could compete more effectively if it had a conforming customer base.

KEANE J: If your client was the only Bank that did not have the risk of late payers amongst its customer base it would presumably, if it was minded to, reduce its rates, get more customers, make more profit.

MR ARCHIBALD: Yes, and I do not say this is the course that would be taken, but there are numbers of stakeholders in the Bank’s business. Apart from its customers, there are its shareholders, and if the Bank did not suffer extra provisioning and extra regulatory costs, it would have a higher profit level and it may consider it apposite to make some elements of that higher profit available to its investors. So it might eventuate in a number of different ways but, certainly, the scenario your Honour Justice Keane puts is one; what I have just put is another.

But each reflects an interest that the Bank has to address and it would be conducive to the advancement of the variety of interests that the Bank has to deal with this phenomenon ‑ an unavoidable phenomenon because of human behaviour, inattention to detail, et cetera ‑ to deal with this phenomenon in a transactionally efficient way that minimises the problem for both bank and customer. There was a welter of evidence before the Court in this case that Mr Paciocco found it convenient to run his accounts in the way in which he did, which included going over limits – not the point here – but having a number of credit cards and running the accounts in this way.

Plainly, from the incidence of late payment phenomena, many customers are not troubled by the presence of the fee and the incurring of the cost because if you look at the product there are numbers of benefits for customers in a variety of ways for which they undertake obligations to pay fees, and on the bank’s side there are risks and rewards, credit risks and fee rewards. There is a mix of these considerations and overall what one has here is a revolving credit product which is attractive to bank customers and attractive to the bank, and one has measures which accommodate the exigencies that can occur in the life of the conduct of the account.

GAGELER J: So if the interest being protected can be said to be the allocation of costs actually incurred in providing the credit card service to the cost centre that is the credit card users, common law causation and remoteness issues just do not arise, do they?

MR ARCHIBALD: They should not, no. May we add this observation? I may have alluded to it yesterday. Every price, every fee, at least other than in a perfectly competitive market, will have some effect on customer behaviour because of the nature of pricing. One may discern an interest in the Bank here which is to encourage – educate customers to remember that they have an obligation to make timely payment, and a fee which has that function is reflecting the Bank’s interest in that area. We do not need to urge it particularly in this case.

But if one looks at the analysis in Cavendish, and perhaps ParkingEye more particularly, this influencing effect of a non‑punitive kind reflected in ParkingEye ‑ the interest of ParkingEye in encouraging behaviour of customers of the car park of a particular kind. Now, if it be said here that there is some influencing effect, that may be so. It may be that it is useful for customers to be reminded in various ways that they should pay on the due date.

FRENCH CJ: A sort of negative incentive.

MR ARCHIBALD: Yes, but not of a punitive kind. Educational or incentivisation perhaps is the concept, but none of this portraying punishment, deterrence in the nature of punishment. It is encouragement to abide by the agreed terms. So, I just mention that as not being essential but I think I was asked to fill out the picture of what the Bank’s interest consists of and we would say, if necessary, it extends to that dimension as well as the others, which are perhaps more hard core and direct.

Might I move then to the statutory claims appeal? As my learned friend drew the Court’s attention to, it was the fact here before the Full Court that statutory claims were advanced in respect of all fees, not confined to late fees, but to all fees. Before this Court the argument is brought back to one in connection with late fees but it was the fact at first instance that the case advanced for the now appellants on the statutory claims fastened on ‑ I think the trial judge identified it as 11 factors ‑ fastened on 11 factors which were identical for all fees.

Her Honour, ultimately, did not need to decide how those 11 factors impacted upon the late fee, but what was alleged was common across all fees, without any distinction being made. And in the Full Court the argument across all fees was again an undifferentiated argument, the gravamen of which, as the learned Chief Justice described it, was extravagance of the fee and not an argument that said, well the over limit fee was extravagant for these reasons and the late payment fee was extravagant for these other reasons. It was a universalisation of the proposition of extravagance linked very tightly to the argument about penalty, for all of the claims.

So one has the phenomenon that the Full Court’s reasons here deal, generally speaking, with all fees at once, for that is the way the case was conducted before the Full Court. But the learned Chief Justice was careful and explicit in stating at paragraph 325 of the reasons, page 1514, that the reasoning applied to all fees, including late fees. His Honour went out of his way to say “including late fees”.

Some of the court’s reasoning draws attention to features of breach. For example, paragraph 332, line 21, and paragraph 335, line 50, where breach is spoken of by the Chief Justice. Of course, it is only applicable to the case of late payment for it was only in respect of late payment fees that any question of breach was found or arose. The treatment of the issues in that somewhat global way is a product of the arguments advanced by the appellants and the particular argument is referred to by his Honour at paragraph 326 of the judgment at page 1514. He said:

The focus of the attack . . . was what was said to be the size and extravagance of the fees, and thus their necessary characterisation as unconscionable, unjust and unfair.

The real proposition put to the Full Court was these fees across the board are extravagant, including late payment fees, and that fact alone and without more yields a conclusion that they are unconscionable, unjust and unfair. It was not the case before the Full Court that there was an argument for extravagance of the late payment fee for any reason differing from the reasons for extravagance of the other fees.

If it be the case here that the Court concludes that the late fee is not penal, the Court will have concluded that it is not extravagant. Extravagance in the field of statutory claims may not be identical with the penalty notion of extravagance, but the argument of the appellants has not sought to elucidate the content of the notion of extravagance in the statutory field. Even if it is a close cousin or something, the likelihood is that a finding of non‑extravagance and inability to demonstrate extravagance for the penalty purposes will feed into the statutory claim. Really, it strikes at the very heart of the argument before the Full Court how one puts, by way of rhetorical submission, it can be extravagant for statutory purposes and non‑extravagant for general law purposes, so one has that observation about the nature of the argument that is advanced.

In this Court, the appellants seek to say that the Full Court failed to recognise the significant difference between the late payment fee and the other fees, the difference being said to reside in the circumstance that the late payment fee was triggered by a breach of contract, whereas the other fees were triggered by what has been held – despite the arguments of the appellants below – not to have been a breach of contract. But the appellants, apart perhaps from a reference to the notion of price, have not sought to articulate what is the significance for extravagance purposes of the late fee being generated by breach and the other fees not now before the Court – not before this Court – not being triggered by breach.

As I have just indicated, perhaps the only thing that has been mentioned is that his Honour, when referring to all the fees, mentioned the notion of price, making the correct observation, in our submission, that the jurisdiction in respect of unconscionability in the statute is not one which seeks to have the Court act as a price regulator. That must be absolutely correct for all elements of unconscionable conduct. Perhaps the proposition is that the late fee is not the price. If that is the contention, we say, in a very real sense, it is a price, an agreed price. It is the agreement of the parties as to the charge for the Bank accepting the burden of the costs flowing from the increased credit risk occasioned by a late payment. It is an agreement as to an amount to be paid in light of those circumstances.

Maybe one cannot call it a price for all purposes, but nothing in substance seems to turn upon that. The Court is no more required in the unconscionable conduct statutory provisions to act as a regulator of margins in respect of charges emerging from cases of breach than in cases of non‑breach. The absence of acting in order to regulate the quantum of contractual burdens is evident.

So there is, in our submission, nothing in that point. It was not the point ever brought before the Full Court and, therefore, it is unsurprising that the reasons of the Chief Justice and the other members of the court simply do not address what is now sought to be raised.

Might I go to the reasons of his Honour in relation to unconscionability? Although it is a little tedious, I think it may be the best way to deal with the matters before the Court by tracking through the paragraphs in which his Honour’s reasoning appears. I have mentioned paragraph 326 at page 1514 where his Honour identifies the focus being on “the size and extravagance of the fees”. At paragraph 330, his Honour says:

The gravamen of the attack, however, was . . . what was said to be the huge disparity between the level of the fees and the costs it sustained by the exception fee events.

So that is true for all the fees but including the late payment fee. His Honour then says at line 60 on page 1514:

The question whether the conduct of ANZ was unconscionable should be looked at from the perspective of all the circumstances.

That, of course, is the content of the language of section 12CB(1):

A person must not . . . engage in conduct that is, in all the circumstances, unconscionable.

His Honour then said:

The circumstances, within reason, would include an assessment of the legitimacy of the fee from the perspective of the bank’s business –

So the first point is his Honour concludes that all the circumstances include the circumstances of the Bank, and our submission is that that is indubitably correct and I am not sure that it is sought to be eroded by the appellants’ argument. The appellants’ argument seems to focus upon a proposition, again not put below, that one can look at the legitimate interests of the Bank but not beyond reason because of the provisions of section 12CB(2)(b). But his Honour, in the passage I have just referred to, is not, in our submission, for a moment to be taken to be suggesting that one can go beyond reason. That is exactly what his Honour says in the sentence:

These circumstances, within reason, would include . . . legitimacy of the fee from the perspective of the bank’s business –

So his Honour is to be seen, in our submission, to be abiding by and conforming with a provision, not drawn to the Court’s attention but conforming with the provision, rather than failing to conform with it. The provision, of course, is one that is not mandatory to have regard to. It is a permissive and facultative provision that one finds in clause 12CB(2) where the section says:

Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) . . . the court may have regard to –

various matters, differing from other subsections such as subsection (4), “may have regard”. So it was non‑mandatory, in any event, but his Honour cannot be seen to be embarking upon a course of reasoning that is in disconformity with the considerations underlying the paragraph to which our friends have referred. Then if one comes to paragraph 331, his Honour says:

Once one realises the broad perspective from which one is required to examine the business conscience of ANZ in charging these fees, one is required to look at the fees from the bank’s perspective, as well as from the perspective of the nominal sum being paid by the customer.

That is really saying that you look at both sides: bank and customer. That must be correct. At 332:

Given that there is more than one perspective from which to view the fees and their size, one cannot conclude, or have a basis to conclude, that ANZ’s conduct was unconscionable substantially based on the size of the fees.

So his Honour is presaging later reasoning which explains why that is so but, essentially, it is expressing or foreshadowing a conclusion that unconscionability either cannot be made out or there is no basis for making it out. In the next sentence his Honour postulates a position but does not decide that it is the case. His Honour says:

If it is legitimate for the purpose of the enquiry to have some regard to the financial effect of a breach arising from provisioning or the cost of increased regulatory capital or the structural costs of collections, the material before the primary judge could not permit a conclusion of such exorbitance as could conceivably found a conclusion of unconscionability.

So his Honour is there saying, quite plainly, I am not deciding that it is the case that you can have regard to these matters but if it were to be the case that you could, then I could not find unconscionability. He then adds:

This is so whatever might be the correct conclusion as to any enquiry as to the damages proved on an incremental cost basis to flow –

So he is really saying it does not matter whether you look at it at a conceivable level or another level and it does not matter whether you look at it on an incremental or non‑incremental you could not find unconscionability. Then, perhaps importantly, he says:

For this enquiry it is not necessary to decide between the evidence of Mr Regan and Mr Inglis, especially given the different perspectives taken by them.
For Mr Paciocco to be in a position to advance an argument that based on the size of the fees ANZ had engaged in unconscionable conduct, he would have to demonstrate that from any reasonable perspective the fees were exorbitant. This he did not do.

So there, in our submission, his Honour is saying no more than that the argument is about size. Unless, in respect of size, you get to the level of exorbitance you just cannot make out unconscionability and that was not done by Mr Paciocco, therefore no unconscionability.

My friend drew attention to the reference to the phrase “from any reasonable perspective.” In our submission, that is expanding the field of inquiry, not narrowing it. What his Honour is saying is that Mr Paciocco, if he could establish exorbitance, by reference to the Bank’s perspective, the customer’s perspective, or anything else that was reasonable – if you could do that, then you may be able to establish unconscionability, but that was not done.

Put in a different way, whether it was not done from the Regan approach and it was not done from the Inglis approach. Neither of the available approaches before the Court could yield a conclusion of unconscionability – could yield a conclusion of exorbitance and, therefore, on price alone could not establish unconscionability. Then there is reference to the price regulator point in the first sentence of 335 but his Honour immediately proceeds to say:

That said, there may be demonstrated in other cases circumstances of, and surrounding, exorbitant exercises of bargaining power that bespeak predation –

and so on. So, his Honour is saying well, the statute is speaking about unconscionable conduct and if you look at conduct to see whether that is generating some unconscionability through exorbitance then there may be a foundation of case, but you cannot confine it to size alone unless you establish exorbitance and that has not been done. I am sorry this is so tedious. Could I continue with paragraph 336? His Honour says the:

different perspectives of the expert evidence should be assessed in the context of the important matters referred to by her Honour at [290] –

which his Honour refers to in his Honour’s paragraph 308, that is at page 1510. These are the matters which were not alleged, therefore not the subject of consideration for the purposes of the argument about unconscionability.

There are nine of them, which the Court sees, and they include such matters as “no allegation of dishonesty, oppression or abuse of a commercially powerful position”, open disclosure of terms and so on and so on; in other words, some of the circumstances which were candidates for consideration but which were not part of the allegations advanced by the appellants. So his Honour said at line 61 on page 1515:

There was no dishonesty; there was no trickery or sharp practice; the fees were fully and not unfairly disclosed; the applicants were not vulnerable, nor were customers generally; the fees could be avoided by the customer –

You did not have to use the card and, if you did use the card, you were able to pay on time. You could avoid the fee by not using the card or not paying on time:

these applicants chose to run their affairs by risking the fees –

that is the feature I was speaking about earlier –

there was no victimisation, predation or taking advantage of the applicants, or, on the evidence of anyone; the bargaining power to set the terms was real, but the customer was not forced to deal with the bank or to incur the fees; there was no lack of good faith by ANZ. Though the fees, from one perspective, may be seen to be high in the eye of the consumer, they were openly charged and can be justified, not irrationally, in the manner contained in Mr Inglis’ reports.

Now, at that point his Honour does seem to be using the Inglis reports as one but only one of the elements that might support the conclusion of unconscionability, but I will go on to explain other features of his Honour’s reasoning. So, at 337 his Honour says:

It cannot be concluded on the evidence before the primary judge that ANZ engaged in unconscionable conduct.

The next paragraph is very important. His Honour says:

Even if it be concluded that Mr Regan’s evidence reflected the only appropriate assessment of ANZ’s legitimate interest in the exception fee events by reference to costs or loss caused by or arising out them, I do not consider the conduct by ANZ to have been unconscionable.

So, what his Honour’s saying here is, I have not yet decided that I am able to take into account the Inglis material but all the indications are the Inglis material are against unconscionability. There are many matters to be taken into account, not just the size of the fee, the 336 matters.

It is open to Mr Paciocco to establish exorbitance from any perspective that is reasonable. Assume that the Regan perspective is available and reasonable; using Regan, I do not find unconscionability. Now that must be the best case for the appellants, and his Honour said on that basis there is no unconscionability.

Such an approach by her Honour cannot have transgressed section 12CB(2)(b) had it been in issue, which it was not. It could not have transgressed 12CB(2)(b) because the Regan evidence became the subject of her Honour’s conclusions in her judgment whereby she allowed the recovery of damages for variable collections costs. Those variable collections costs could not be said to be more than were reasonably necessary for the legitimate interests of the Bank. It could not be so where those damages have been held to be recoverable under the general law for breach.

Recovering damages to which one is entitled by law cannot be beyond what is reasonably necessary for your own legitimate interest. So, insofar as the arguments in this Court have sought to harness 12CB(2)(b), they cannot succeed on the Regan scenario. Similarly, in this Court, the appellants have sought to rely on section 12CB(4)(a):

the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention –

Applying the Regan analysis cannot involve the taking into account of, or having any regard to, circumstances not reasonably foreseeable. The Regan perspective is confined to variable collections costs held by her Honour to be recoverable under the general law for breach of contract. Ex necessitate, the finding of her Honour must be that they were not too remote to be recoverable, had that been an issue which it was not. The contractual law of remoteness turns on, and then one Hadley v Baxendale, costs caused naturally and directly in the ordinary course and, thereby, taken to be in the contemplation of the parties.

A test of reasonable foreseeability is a more liberal test. It allows of matters that are unusual rather than usual, and any interest that is properly protected by reference to the law of contract for recovery of damages for breach could not involve having regard to circumstances not reasonably foreseeable. So the reasoning in 338 of his Honour is reasoning which cannot, in our submission, fall foul of 12CB(2)(b) and cannot fall foul of 12CB(4)(a). His Honour the Chief Justice then continued with other permutations of his Honour’s analysis. He said at 341:

That the fee is extravagant or exorbitant for the purposes of penalties doctrine does not necessarily lead to a conclusion of statutory unconscionability.

We submit that is correct; his Honour explains why that is so. At 343 his Honour says:

Without revisiting all the circumstances . . . I would not conclude that ANZ’s conduct was unconscionable.

Then his Honour gives some reasons as to circumstances which bear upon that view extending beyond there the circumstance as to the size of the fee. Paragraphs 343 through to 346 deal with those considerations. Then his Honour says at 347:

In all the circumstances, in particular –

and sets out various matters –

I do not consider the conduct of ANZ to have been unconscionable.

and mentions again the price regulator point. So, none of that, in our submission, involved his Honour pinning to a conclusion of unconscionability the Inglis evidence, and only the Inglis evidence. Indeed, it is not clear that he ever ultimately used the Inglis evidence. What he did do was test it by the best case that the appellants had, Regan perspective, and concluded that that was insufficient. That finding of his Honour is not attacked on this appeal.

FRENCH CJ: That might be a convenient moment, Mr Archibald.

MR ARCHIBALD: If the Court pleases.

FRENCH CJ: The Court will adjourn until 2.00 pm.

AT 12.43 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 1.57 PM:

FRENCH CJ: Yes, Mr Archibald.

MR ARCHIBALD: If the Court pleases. On the assumption that the Full Court for the purposes of its conclusions on the question of unconscionability did rely upon the Inglis perspective, then it would follow that nothing in or signalled by section 12CB(2)(b) has been disregarded or is inconsistent with the elements of that section on the Inglis evidence, provisioning for losses or something well within what was reasonably necessary to protect the Bank’s legitimate interest in that regard.

Again, assuming that the Inglis evidence was taken into account, nothing in the Inglis evidence involves matters or considerations not reasonably foreseeable for the purposes of section 12CB(4)(a) for, on our contentions, the matters which Mr Inglis addressed were not beyond that which was reasonably foreseeable. He simply addressed in a series of different scenarios costs incurred in the ordinary course directly and naturally by the Bank in respect of the three categories we have referred to. So adopting Inglis does not involve going beyond reasonably foreseeable matters, so that there would be no adoption of an approach which was inconsistent with the command of those sections.

FRENCH CJ: The essence of the case against you, as I apprehend it and I may be stating it too narrowly, is really what is set out in 34 and 35 of the appellants’ submissions, is it not, focusing on, no price for service, disparity, and a reference to community norms and values.

MR ARCHIBALD: Yes, that is so. The learned Chief Justice from paragraphs 259 to about 309 examined the principles extensively in question and addressed the questions of issues of norms. No challenge is made to that analysis of principle by his Honour and nothing in the reasons in implementation of those principles shows any departure from the principles as stated and the only material that one might have to look at norms, in any event, is exhibit 33 which is an unsatisfactory resource for the reasons referred to both by the trial judge and the Chief Justice on appeal.

In any event, as the Chief Justice explains in paragraph 341, extravagance of the fee itself would not suffice. One needs to look at all of the circumstances and the other circumstances that his Honour looks at would deprive the conduct of the quality of being unconscionable, irrespective of the extravagance of the amount. So, it really comes down to that point as well, none of which transgresses in any way the norms of which the appellants seek to speak.

May I move to unjust transactions and unfair terms? There is an unfortunate error in our written outline of submissions at paragraph 47, simply a wrong section reference. Where we refer to section 74(4), we intend of course to refer to section 76(4). It is perhaps apparent. In any event, these are our annotated submissions in the statutory claims appeal, our annotated written submissions, paragraph 47 at page 15 - substitute 76(4) for 74(4) - but the proposition we addressed assumed that we were referring to section 76(4).

Now, as to unjust transactions and unfair terms, the Chief Justice deals with the matter at paragraph 353 and following in his Honour’s reasons adopted by the other members of the court. Paragraph 353 is at page 1520. His Honour there says that:

The real submission was that, in the light of the exorbitance of the fees, the unjustness of the transactions and the unfairness of the terms should have been clear.

Paragraph 354:

The answer . . . is the evaluation of all the circumstances –

Then, in similar fashion to the fashion adopted by his Honour for the purposes of unconscionability, his Honour rehearses, for example, in 357 the other matters that bear upon the analysis and says at the end of that paragraph:

there is no basis to conclude that . . . the provisions were unfair or the transactions unjust.

At 358, he deals with particular matters concerning unfair terms under section 32W of the Act. At 359 and 360, he deals with particular matters arising in respect of unjust transactions under section 76 of the Code. At 361, he says that:

In all the circumstances . . . when one adopts the perspective of Mr Inglis rather than the particular incremental damage analysis of Mr Regan, it cannot be concluded that the transactions . . . were unjust, or that the terms were unfair.

So there, explicitly, his Honour is adopting the Inglis’ attitude and saying, on that footing, no unjustness and no unfairness. But then, as he did in relation to unconscionability, he makes the contrary assumption at 362 assuming that Regan’s evidence is the only appropriate assessment. He says in that paragraph, making that assumption, using Regan only, not infected by any Inglis’ material, using Regan only:

I do not consider the transactions to have been unjust or the terms unfair.

So, again, taking the most favourable foundation for the argument, his Honour concludes against the appellants. Then, furthering the adoption of the Regan assumption, one sees at line 40 on page 1522 the introduction of a consideration of the nature of the assumption – that is the 362 assumption, using Regan only. “Introducing that assumption”, his Honour says:

alters the considerations involved, but not the overall evaluation.

So you arrive at the same result whichever perspective you adopt for unjustness and unfairness. Then the final conclusion is restated at the end of 365:

In all the circumstances –

and he refers to them –

I do not consider the transactions to have been unjust or the terms unfair.

In our submission, that process of analysis is sound. At least on the Regan axis of analysis it cannot fall foul of any of the matters of complaint raised by the appellants and no error can be found in his Honour’s analysis.

May I then, to conclude all that I want to address the Court upon, return to the questions your Honour Justice Nettle was raising this morning. The references on the sheet that was handed to the Court this morning are references drawn from Mr Inglis’ report, but they are drawn from the portion of Mr Inglis’ report in which he identifies what the Bank does in the ordinary course of its business. At paragraph 5.11 on page 472 Mr Inglis has a heading “The Bank’s approach to provisions”. In the succeeding paragraphs he describes what the Bank does in the ordinary course for the purposes of determining what it will do in relation to provisioning.

Then at page 482 Mr Inglis turns from what the Bank does to Mr Inglis’ own methodology to deal with the questions which he was asked to address. Of course, he was asked to address two matters, one of them being what was the maximum conceivable loss – I will give the Court the precise reference - page 439, paragraph 1.4. He was asked to assess the costs – first:

the costs that may have been incurred by ANZ in connection with the occurrence of events that gave rise to an entitlement to charge an exception fee –

and, secondly:

the maximum amount of costs that ANZ could conceivably have incurred –

That was his exercise. So, inevitably, for the purposes of his task he had to look to the future, make estimations, arrive at approximations as best he could with the material he was working from and that is what he is doing from page 482 onwards. He sets out at 5.49 the three analyses that he did for provisioning purposes. The first at line 50 was what he called the “LPE Provision Analysis 1.” That is what he then returns to and explains in a bit more detail at 5.63, to which your Honour Justice Nettle referred. So he is now looking at his exercise. The first analysis he does is to analyse:

the difference in the B1 Provision between the group of accounts incurring Late Payment Events and that not incurring them –

and one sees that a bit more clearly at 5.63. It is indubitably the case and inevitably the case that that involved some averaging. He is really taking two groups and two groups only. But he is not explaining that the Bank does an averaging process for its purposes. It is what he needs to do to look to costs to try to isolate and determine the costs that are involved that are referable to late payment events.

NETTLE J: The Bank only ever deals with it on a global basis, does it not?

MR ARCHIBALD: Built up in the way it is done, but the Bank is never trying to see what costs are attributable. So that is his first process in one, but he does another process to try to help him in his estimation and become a more informed and tutored estimation, and that is the second process that he identifies at line 8 on page 483, and one sees a fuller explanation of that at 5.87. One and two are directed to the first question he was asked. Three, which he sets out at line 30 on 483, is directed to the second question, the maximum conceivable, and he explains that in more detail at 5.113, page 500 of his report. So that is what he is doing. We have sought to explain what the Bank does by reference to Mr Inglis’ articulation of it.

Here Mr Inglis is explaining what he did and it is inevitably the case and it is the case that there are estimations and averages involved in what Mr Inglis was doing. He was doing the best he could, just as one does in litigation. One works with the material you have and use it to get as close as is possible to a precise answer, and that is what he has done. It may not be perfect, but it is the best you can do, and there is no suggestion that there was another route available whereby one could have achieved a more precise or a more explicit identification of costs occasioned by particular accounts.

If the Court pleases, I ask Mr O’Bryan to deal with the notice of contention.

FRENCH CJ: Thank you, Mr Archibald. Yes, Mr O’Bryan.

MR O’BRYAN: If the Court pleases, ANZ’s notice of contention in respect of the penalty appeal can be found at appeal book 4 at page 1615. It concerns the application of section 27 of the Limitation of Actions Act (Vic) to one only of the late payment fees charged to Mr Paciocco, late payment fee number 4.

The issue only requires determination if the appellants are successful in the penalty appeal. Section 5(1)(a) of the Limitation Act (Vic) applies a six‑year limitation period to restitutionary claims. I will return to that in a moment. But it is now common ground that section 5(1)(a) was applicable to Mr Paciocco’s penalty claim as the relevant relief sought is in restitution for money had and received.

The learned trial judge also concluded that section 27(c) of the Limitation Act was applicable. The Full Court agreed. The reasons of the Full Court are set out in the reasons of Justice Besanko and that commences at appeal book 4 at page 1525. I was going to turn to those reasons briefly at the outset.

The text of section 5 of the Victorian Limitations Act is reproduced in those reasons on page 1526 at paragraph 375. Subsection (1)(a) refers to:

actions founded on simple contract (including contract implied in law) –

which is taken to include restitutionary claims. The text of section 27 is reproduced on page 1527 at paragraph 377, and I refer to that briefly:

Where, in the case of any action for which a period of limitation is prescribed by this Act –

Then there are three elements -

(a)       the action based upon the fraud . . .
(b)       the right of action is concealed by the fraud . . . or –
(c)       the action is for relief from the consequences of a mistake –

the same postponement is applied in all three cases and the postponement is that the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it. I do not need to go to the proviso.

Can I turn to the end of Justice Besanko’s reasons at paragraph 396 where his Honour states his conclusions? His Honour concluded at 396 that section 27(c) should be given “an ambulatory construction”. Essentially there are two reasons stated by his Honour for that conclusion. The first is at about line 55. After saying “that the case can be decided on a more general basis”, two reasons are given. The first is that:

The words used in paragraph 27(c) are quite general, and are capable of being given an ambulatory effect.

The second reason is in the next sentence:

Having regard to the inferred objects of s 27(c), I do not think there is convincing reason, not to give the paragraph an ambulatory construction.

His Honour then expands on the object of section 27(c) to which I will return shortly. It is our respectful submission that the ambulatory construction is incorrect. There are five points that we wish to make. They are set out in the summary of the oral argument that has been provided to the Court, and I wish to address each of them briefly, if I might.

The first point is that the legislative history for section 27(c) reveals that the section was not directed to mistakes of law when enacted. The history is summarised by Justice Besanko. I would refer the Court, commencing at paragraph 383 on page 1529. It is uncontroversial that section 27 of the Victorian Act was modelled on section 26 of the English Act of 1939. Section 26 of the 1939 UK Act was enacted following upon the publication by the Law Revision Committee of its interim report which concerned statutes of limitations.

The relevant part of that report is reproduced at paragraph 384. Can I make three observations about paragraph 23 as it is reproduced? The first observation is that the problem being addressed by the paragraph was that the equitable rule of principle postponing the running of time in the case of mistake was not applicable to common law claims, including restitutionary claims in respect of money paid or property transferred under a mistake. That is what is said in the first paragraph of paragraph 23.

As stated in the report, it was decided in Baker v Courage that the equitable rules were not applicable, notwithstanding the Judicature Acts and Baker v Courage was a case involving a restitutionary claim to recover moneys paid under a mistake of fact. The solution to the problem so identified was to enact the equitable rule so that it was applicable to common law actions otherwise governed by the Limitations Act. It was not necessary to legislate in respect of equitable claims because the equitable rule applied to equitable claims and were so applied by the courts and that is the background to the statement in the report that can be seen in the second paragraph:

we recommend that in all cases when relief is sought from the consequences of a mistake, the equitable rule should prevail and time should only run from the moment when the mistake was discovered, or could with reasonable diligence have been discovered.

The statement “should prevail” means prevail in respect of common law claims which the common law had not at that point allowed. The third observation about the paragraph is that the rule to be enacted was intended to be limited and expressly so, the report stated that it was not intended to postpone time in circumstances where the plaintiff was mistaken as to his or her legal rights and that is said in the next sentence.

We desire to make it clear, however, that the mere fact that a plaintiff is ignorant of his rights is not to be a ground for the extension of time. Our recommendation only extends to cases when there is a right to relief from the consequences of mistake.

Again, it is uncontroversial that at the time of that report, an enactment of the UK equivalent to section 27, the common law allowed recovery of moneys paid under a mistake of fact but not at law. The limitation period commenced at the time of payment. Equity would not interfere in cases of that kind.

I will return to the cases of Re Mason and Re Blake which are also referred to in the report a little bit later when I mention Kleinwort Benson but for present purposes, the observation I wish to make about the legislative history is that when section 26 of the 1939 UK Act was enacted, equity did not afford relief and correspondingly did not postpone the running of time in the circumstances of this case and the UK report does not reveal any intention to postpone the running of time in such cases and indeed, to the contrary, the report indicates that the intention was the opposite. That was also the position that prevailed in Victoria when the Limitations of Actions Act 1955 (Vic) was enacted, adopting the provisions of the English Act.

Turning from legislative history to our second point concerning the text of the section, section 27, the second point we make is that it is consistent with the text to confine the meaning to mistake of fact, having regard to the genus of the subject matters dealt with in the section. Paragraph (a) of the section is concerned with an:

action is based upon the fraud of the defendant -

Deception, fraud is a circumstance of fact, typically an intentionally false representation of a fact. So too paragraph (b) is concerned with the right of actions being concealed by fraud, also a circumstance of fact, as in the case of deception and each of the paragraphs (a), (b) and (c) are subject to the same definition of the period of postponement:

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it -

So the section deals with three related topics and deals with them in a common way. There is an identifiable genus in that facts – dealing with facts which are falsely represented to the plaintiff, facts about which the plaintiff is in error but which are discoverable or with reasonable diligence can be discovered.

Our third point is that the object of section 27 ought to be considered in the context of the object of the Limitations Act as a whole and not in isolation from it. I turn back to Justice Besanko’s reasons at paragraph 396. At the bottom of page 1533, his Honour records in the last sentence at the bottom of 1533, an argument advanced on behalf of the Bank to the Full Court, referring:

to the general policy objectives that lie behind Limitation of Actions legislation –

and also refers to a decision of this Court in Brisbane South Regional Health Authority – a passage from Justice McHugh. His Honour observes:

but I think it is the object which lies behind s 27(c) itself which is significant.

His Honour then discusses that object, with respect, largely in the language of the section and restating the language of the section but expresses the view that:

it seems perfectly reasonable, as a general proposition, that time should not run against a person whose cause of action is based on a mistake until that person discovers or could, with reasonable diligence, discover the mistake.

Respectfully, we say that his Honour gave insufficient regard to the object of the Act as a whole, the Limitation of Actions Act as a whole, and in the purpose of section 27 as an exception to the general rule, which is found in section 5. I might mention, in passing, the Interpretation of Legislation Act (Vic) 1984, section 35(a), requires, in a similar way to its Commonwealth equivalent, that an interpretation of an Act reference should be given to a construction that promotes the object of the Act.

We make these short points that the Limitation of Actions Act reflects a balancing of interests. The many rationales for limitation statutes are well recognised. We refer to Brisbane South Regional Health Authority for the reason that Justice McHugh summarises well‑known rationales for limitation statutes. A copy of Brisbane South Regional Health Authority has been provided to the Court and to my learned friend as well.

The passage to which we refer is, as Justice Besanko indicates, at 552, 553. It is probably unnecessary to go to it but these matters are well known – the problem that relevant evidence can be lost at a time, the oppressiveness to a defendant in allowing an action to be brought long after the events giving rise to the action had passed, the importance of people being able to arrange their affairs and utilise their resources on the basis the claims can no longer be made against them including, particularly, for business.

We also refer to an observation of Justice McHugh at page 553 concerning the relationship of exceptions within the Limitations Act, exceptions that allow the running of time, and that they ought not to be construed in a sense above the overarching rules that apply. The limitation provisions, as a general rule, and extension provisions are exceptions to it.

Restitutionary claims are generally subject to a six‑year limitation period. The circumstance of unjust enrichment which underlies restitutionary claims is of itself no answer to the application of the ordinary limitation period. Section 27 is an exception to the usual limitation period. The exception is not framed by reference to restitutionary claims in general. It is framed by reference to three specific circumstances – fraud, fraudulent concealment and mistake. It can be seen from the extrinsic materials that the purpose of the amendment was to postpone time in respect of common law claims for recovery of a payment made under a mistake of fact.

FRENCH CJ: I suppose (b) would pick up a fraudulent misrepresentation by somebody, say an adviser, to a person as to their legal rights. I say “fraudulent” in the sense that it is not an opinion that the person giving the advice holds, but it is designed to defeat or prevent a person from bringing a claim.

MR O’BYRAN: Yes. In my submission, your Honour, as soon as the element of fraud is introduced, it necessarily introduces an element of deception and intent. It is that fact, the fact of deception, which is the heart of fraud and that is a factual matter. The underlying fraud might concern legal advice, but the fraud is a fact because you must prove the deception.

Just to complete that point about the objects, we say that having regard to the important objectives of the Limitations Act as a whole, including in cases of this kind that is before the Court, and having regard to the specific and narrower object of section 27, there is certainly no sound reason to give a priority to the latter and we say there is no basis to presume an object than is wider than the original object at the time of enactment of section 27.

I will develop that just a little bit further in a moment. I would just like to say something first about Kleinwort Benson and return to that, the fourth point we make. We do say that the reasoning in Kleinwort Benson – and this matter was considered previously - Kleinwort Benson, which is before the Court and reported at [1999] 2 AC 349. The equivalent English provision was found, was decided, was extended to mistakes of law as well as mistakes of fact. The lead judgment was given by Lord Goff and I wish to turn to that. It is found at page 387 of the report.

If I could go to point G at the bottom of page 387 where this topic is introduced, it is dealing with section 32(1)(c) of the 1980 English Limitation Act. The terms of section 32 are set out there and the Court will observe they are in virtually identical form to section 27 that we are still dealing with.

Over the page, to 388, in the paragraph beginning at point B there is a brief recitation of the history of section 32, it is a reference back to section 26, which I have taken the Court to, and the Fifth Interim Report of the Law Revision Committee. There is a slightly truncated summary of the conclusion of the committee in the last sentence of that full paragraph:

Having stated that the position was unsatisfactory, it recommended that in all cases when relief was sought from the consequences of a mistake, the equitable rule should prevail.

but without reference to the reservation that was expressed by the committee. Going down to the reasons of Lord Goff, it starts down towards point G, the submission was made on behalf of the councils that the section should be confined to “mistakes of fact”. There is the textual argument that I have made to your Honours that really read together and read with the definition of the postponement it makes more sense to confine mistake to mistake of fact. Lord Goff concludes:

In my opinion, however, this verbal argument founders on the fact that the pre‑existing equitable rule applied to all mistakes, whether they were mistakes of fact or mistakes of law.

Reference is made to Earl Beauchamp v Winn and In re Diplock. Then there are some observations about the potential for problematic outcomes in that event, but that did not stand in the way of his Honour’s construction of the section. I wanted to just pick up that central reason that is advanced concerning the pre‑existing equitable rule. That statement can be accepted. However, as Justice Besanko observed in his reasons at paragraph 386:

Courts of Equity were less concerned about whether the mistake was one of fact or one of law –

But equity did not grant relief or postpone the running of time in all cases of mistake. As a general proposition – this is taken from Justice Besanko’s reasons, which we commend to the Court – relief was condition on a fiduciary relationship or some supervening equity. That is exemplified by cases such as Re Mason and Re Blake, which are both referred to in the Law Revision Committee report.

They were cases involving suits by next of kin in respect of wrongful payments out of an estate either by the Crown or by the executor. Equity intervened by reason of the relationship and obligations of the Crown or the executor respectively to the potential beneficiaries. Significantly, the plaintiff was not the payer and, indeed, the plaintiff was not the person who was mistaken. The person who was mistaken was the Crown or the executor. The beneficiaries suffered because of the mistake.

The plaintiff was the potential beneficiary in that sense so that when equity intervened on the State it was often in very different circumstances but particularly where there was a fiduciary relationship or some other equity. It was well established, as at 1936, that neither law nor equity interfered in cases of money paid under a mistake of law made by the payer, as we have here.

The fact that equity afforded relief on the grounds of mistake of law in certain circumstances, in my submission does not bear upon the intended purpose, scope or operation of section 27(c). The perceived problem that was addressed by the Law Revision Committee in enacting section 27(c) was the running of time in common law claims based on the mistake that I mentioned before. There was no problem to be addressed with respect to equitable claims, and of course section 27 in its opening words applies to limitation periods prescribed by the Limitations Act. It does not have some broader or far‑reaching operations.

Can I just mention in that context Lord Hope’s reasons in Kleinwort Benson can be found at page 416. I do not really need to go to them. They are to the same effect as Lord Goff’s reasons, particularly the reliance on the principle of the breadth of the equitable relief on the basis of mistake.

The fifth point that we make is that there is no lack of coherence in construing section 5(1)(a) of the Limitation Act in an ambulatory manner while construing section 27 as a fixed time provision. Section 5(1)(a), as I said to the Court, deals with restitutionary relief in addition to other heads of relief – contract tort; breach of statutory duty.

But the two provisions, section 5(1)(a) and section 27, are entirely distinct in terms of subject matter, history, text and object. In relation to subject matter, section 5(1)(a) is a general provision imposing a six‑year limitation period across a range of common law actions. In contrast, section 27 is an exception to the rule and it postpones limitation period only for claims fraud, fraudulent concealment and mistake.

In relation to legislative history, section 5(1)(a) predates section 27, predates the existence of section 27. Section 27 was first enacted in the Limitations Act (Vic) 1955 and it was then re‑acted in the current 1958 Act; whereas section 5 can be traced back to earlier times. We do not trace it all the way back but it can be found back in the Supreme Court Act 1928 (Vic). Section 82 of that Act imposes a six‑year limitation period in respect of actions founded on simple contract, including contract implied in law.

The text of section 5(1)(a) of course differs from section 27. Section 5(1)(a) defines a much broader class of causes of action. In regard to object, section 5 serves the objects of limitation statutes as a whole. There is really no basis in the text or legislative history for suggesting a narrower object for section 5, but different circumstances prevail in terms of history and object with respect to section 27.

Finally, can I just say this? The alternative construction, or the broader construction, of section 27 can give rise to undesirable consequences. They are adverted to by Justice Besanko in paragraph 396 of his reasons, referring to transactions considered final and settled might be upset many years after they have taken place on the basis of mistake of law, possibly revealed by subsequent judicial decision which reverses early authority.

The same sorts of problems were identified by the House of Lords in Kleinwort Benson as well. If I could just mention the references in that

context – at pages 364F by Lord Browne‑Wilkinson, Lord Goff at page 389 point B, Lord Hoffmann at page 401 point E, and Lord Hope at 417 point G. Different views might be held about those sorts of concerns from a policy perspective.

However, in my submission, they are of sufficient weight that it is appropriate that the legislature should determine whether the limitation period for common law claims be postponed for mistake of law having regard to the history and the object of the provision. If the Court pleases. I apologise to the Court, I thought the Court had been provided with Brisbane South Regional Health Authority and I am informed that it had not happened. If it would assist, we can hand it up.

FRENCH CJ: A copy, yes, thank you. Thank you, Mr O’Bryan. Yes, Mr Jackson.

MR JACKSON: Thank you, your Honours. May I deal first with the penalty issue? Your Honours, a great deal of emphasis was placed by our learned friends in their submissions on the use of the term “punitive” in relation to penalties and reliance, in particular, was placed on Andrews 247 CLR 216, paragraph 9. May I go to that for just a moment, your Honours? You will see in that the words “in the nature of a punishment” and that was what was seized upon by our learned friends’ arguments. But that expression, of course, has to be read in context and the context is provided, relevantly, by the second part of paragraph 9 where your Honours will see the words:

and consists, upon breach, of the imposition of an additional or different liability.

Also, your Honours, the context is provided for by the elaboration of the notion which appears in paragraph 10 to which your Honours have been taken already. One sees in footnote 33 on that page a reference to Dunlop at page 86 where the nature of a penalty in general terms is discussed.

Your Honours, Andrews also contains the reference to Williston at paragraph 46. May I just say something about Williston? I do not know if your Honours have copies of that. They are there, your Honours. I am just going to take your Honours to a couple of passages in Williston, if I may.

FRENCH CJ: Thank you.

MR JACKSON: Your Honours will see that at page 2184, in paragraph 776, at the bottom of page 2183, speaking about the nature of a penalty:

It is held in terrorem over the promisor to deter him from breaking his promise.

Liquidated damages is also discussed. Your Honours will see in footnote 3 at page 2184, it is said:

Compensation for damages sustained is the legitimate object of such provisions, and where that object is lost sight of and a penalty imposed they will not be given effect by the courts.

GAGELER J: Is this the first edition of Williston?

MR JACKSON: Fourth, your Honour. It is the edition, your Honour, referred to in paragraph 36 of Andrews. Your Honours, could I just say this, that the language which is in footnote 3 on page 2184 appears to be the language of the Court in Andrews. Now, your Honours, if one goes also to the decision in the Clydebank Case and to the reasons for judgment of Lord Robertson, that is [1905] AC, and in particular at page 19, about point 8 on the page. Your Honours will see that he said:

Now the Court can only refuse to ‑ ‑ ‑

FRENCH CJ: We do not seem to have that.

MR JACKSON: I am sorry, your Honour.

FRENCH CJ: Perhaps you can just make specific reference to the text.

MR JACKSON: Yes, it is page 19, it is [1905] AC. The relevant page is page 19, it is about point 8. I am just going to refer to a very short passage in it, your Honour.

FRENCH CJ: Yes, that is all right.

MR JACKSON: Where it is said:

Now the Court can only refuse to enforce performance of this pecuniary obligation if it appears that the payments specified were – I am using the language of Lord Kyllachy – “merely stipulated in terrorem, and could not possibly have formed” “a genuine pre‑estimate of the creditor’s probable or possible interest in the due performance of the principal obligation.”

Your Honours, what I am directing these submissions to is the question of the notion of punishment as such that our learned friends place some emphasis upon. The second thing I wanted to say was in relation to the relationship between the Dunlop 4(a) and 4(b) prescriptions, if I could put it that way.

We would submit that it is important to note in relation to the argument on behalf of the respondent that the class of cases referred to in Dunlop 4(b) is in some way a subset of 4(a), that really no support is given to that notion from the judgments in Dunlop other than such as might be gained from the use of the word “corollary” in 4(b). Corollary is a concept that does involve two elements and one might ask why (a) is not a corollary of (b) as much as saying (b) is a corollary of (a).

But the fact that (b) should not be treated as something which is a subset of 4(a) is quite apparent, in our submission, from two passages in particular in the reasons for judgment of the other members of the House of Lords. If one looks at Lord Parker – and that, your Honours, is [1915] AC at page 97 – you will see in the first paragraph of Lord Parker’s speech that he says:

where the damages which may arise out a breach of contract are in their nature uncertain, the law permits the parties to agree beforehand the amount to be paid on such breach ‑

He says whether it is a penalty or not ‑

must depend on the circumstances of each particular case. There are, however, certain general considerations which have to be borne in mind in determining the question. If, for example, the sum agreed to be paid is in excess of any actual damage which can possibly, or even probably, arise from the breach, the possibility of the parties having made a bona fide pre‑estimate of damage has always been held to be excluded, and it is the same if they have stipulated for the payment of a larger sum in the event of breach of an agreement for the payment of a smaller sum.

speaking of the same result and Lord Parmoor, when one goes to page 101 - I have taken your Honours to the passage before but may I simply mention it - says in the first new paragraph on the page:

There are two instances in which the Court has interfered when the agreed is referable to the breach of a single stipulation.

Then the last paragraph your Honours will see on that page is where he deals with cases of, in our submission, the present kind. May I say, your Honours, if I could go back for a moment to the comments in Williston, in paragraph 783 at pages 2201 and following, Williston is speaking of “rules” which may aid the court in determining whether a sum is liquidated damages.

It appears in that passage that there are multiple rules applicable to different kinds of case and if one comes more specifically to page 2207, you will see a comparison of classifications by Justice Somerville in an Alabama case and what was said by Lord Dunedin in Dunlop. Now, your Honours, there are 10 rules set out by Justice Somerville and if one goes to rule 4 on page 2207 - I might say it is an 1888 case, it is hardly a very novel issue being raised at that point ‑ ‑ ‑

GAGELER J: I am pretty sure this is not the current edition of Williston. I think it is probably from the turn of the 20th century.

MR JACKSON: May I just say, your Honour, that one sees, even at that point – if I could put it that way – that you will see item (4) on page 2207, about point 8 on the page:

Where the payment of a smaller sum is secured by an obligation to pay a larger sum, it will be held a penalty, and not liquidated damages.

At page 2208, two‑thirds of the way down the page, in the paragraph commencing “In applying these rules”:

the controlling purpose of which –

et cetera. There is then a reference to Lord Dunedin, so at least one gets to 1915. You will see, your Honours, that it seems no different from the rule that was referred to as rule No 4 by Justice Somerville. The point we seek to make is that there is not one single test – we have made that point in our written submissions in paragraph 22 – and that it is wrong, we would submit, to regard the Dunlop 4(b) test as entirely subsumed within 4(a). They speak of different categories of case.

Your Honours, it may well be that the 4(b) test originally had particular application to things like money bonds but that species really reflected a rather broader genus. In our submission, if one looks at the substance of the matter here, the amount of the late payment fee was added to the principal, which was due for repayment, interest was thus charged on the principal and the late payment fee and it was a situation which in substance made a larger sum payable on default in paying a smaller sum.

Your Honours, that takes me to the third matter I wish to deal with and that was the question of the burden of proof. Your Honours, some mention was made in the course of our learned friend’s argument as to the burden of proof. If I could just say, the position stated shortly was that the primary judge held that the terms of the Dunlop 4(b) and 4(c) test were satisfied and that the burden then fell upon the Bank – burden in the sense your Honour Justice Kiefel was referring to earlier today.

Could I take your Honours in that regard to what was said by the primary judge at page 1207, paragraphs 119 to 121? Now, your Honours will see in paragraph 119 that her Honour said:

The first category . . . is important in the context of a Late Payment Fee. The same fee was payable regardless of whether the customer was one day or one week late (or longer), and regardless of whether the amount overdue was $0.01 (trifling), $100, $1,000 or even some larger amount . . . That fact alone engaged the third rule of construction in Dunlop –

which refers to the presumption, and then says:

Why? Because there was “a single lump sum –

et cetera. Your Honours, what one sees then in paragraph 120 – she referred to other contractual terms and one of them being the ability to charge interest and then paragraph 121, saying:

That leads to the second rule of construction referred to by Lord Dunedin –

and the result was that, if one goes to paragraph 121, about line 28:

The question which then arose was whether the second part of that rule was met – is the sum stipulated a sum greater than the sum which ought to have been paid? The Applicants said it was, ANZ said it was not.

Then, your Honours, in paragraph 129, one sees that her Honour says in the second sentence:

Having determined that the . . . Fees were prima facie a penalty at law and in equity and given that ANZ admitted that the Late Payment Fee was not a genuine pre‑estimate of damage, the question left to be determined is to what extent (if any) did the amount –

and so on. Your Honours, that left the question and one looking at the question, is one which, prima facie falls upon the Bank to answer. The Bank sought to discharge that burden, your Honours, by relying on the three matters – provisioning costs, regulatory capital and collection costs. Your Honours, these were not matters that one sees in the discussions of the Bank at any time in setting the fees. These are matters that the Bank has sought to adduce evidence on to show, in effect, after the event, that there was some costs that they could take into account.

Your Honours, may I say something – and I will do so as briefly as I can – about each of the three. As to the loss provisions, our learned friend spoke about the true value of money, but in speaking about the true value of money, one does not forget that interest was accruing on these moneys at all relevant times, and it was interest at the rate at which the money would presumably, and one would expect, have been lent out in any event, that is, the rate, to pick one point, 12.24 per cent.

So that the entitlement to interest is an augmentation of the sum to the time value of which reference has been made. It is not just the sum. It is the sum plus interest and, your Honours, in our submission, as the Chief Justice observed to my learned friend, perhaps the real situation is that the need for provisioning is something for reporting other such internal and external purposes. So, in our submission, it was inappropriate to take the provisioning into account. As to regulatory capital, the contention is that a lower rate of interest is employed, or is engaged, because funds are required to be held as such.

Your Honours, the fact of the matter is that one would expect, if the money had been paid, it either would have been lent out at 12.24 per cent or the relevant figure at any time, or in some other way used for the purposes of the Bank. There was in fact interest actually accruing at that rate. Now, Mr Inglis did not take account of the interest so accruing. That that is so - one sees his methodology in volume 2 at page 526 and it is set out in paragraphs 6.64 and following. He did not refer to interest or to the fact that it was always known, one might expect, that if there were a late payment the money which had not been paid on time would be likely to be lent out at the same rate.

Mr Regan, on the other hand – if I could just give your Honours the reference – volume 1 at page 271, about point 40, and pages 280 to 281, referred to the absence of any consideration of interest by Mr Inglis. The primary judge noted that this was the case and that ANZ had submitted that its revenue in this regard or its right to revenue was irrelevant. Your Honours will see that in the judge’s reasons at page 1219, paragraphs 165 to 168.

Your Honours, her Honour was aware that on late payment of the outstanding amount the fact of late payment would attract interest – you will see that in paragraph 168, at page 1219. So, in our submission, it was inappropriate to treat the reserve capital amounts, to which reference has been made, as matters which might amount to a loss on the one hand, damage on the other, so far as the Bank was concerned.

Your Honours, could I come to the third element, the collections cost. The particular point we make is that there was in fact other provision in the contract between the parties for the collection costs and that if there was specific provision – I will come to the detail in a moment, your Honours – for collection costs as one of the elements that were already provided for, then it is very difficult to see a principled reason for saying this is something being taken into account in the late payment fee. Your Honours, could I in that regard go to the supplementary volume, clause (29), at page 1653.

NETTLE J: Mr Jackson, just before you pass from that, with respect to the regulatory capital costs, I had understood until now that the ANZ’s claim never exceeded the differential between the rate earned when the money was put into regulatory capital and its bank rate of return, which it said was at least what it could otherwise have derived from the use of money had it not had to go into the regulated capital reserve. Is that incorrect?

MR JACKSON: No, I think it is correct, your Honour. But what I am saying about it is that it does not take into account the fact that there was already an accruing interest due from the appellant. You will see that this ‑ ‑ ‑

NETTLE J: I understand, thank you.

MR JACKSON: That was the point I was trying to make. Your Honours will recall I referred, I think, in‑chief to a Garraway decision of Justice Heerey where he spoke of the ordinary – spoke in our submission correctly – remedy for non‑payment of money that might otherwise be used as being interest. So there was an accrual of interest. So, your Honour, that should have been taken into account.

Your Honour, I was going to refer to page 1653 in the supplementary volume and to clause (29). Our learned friend’s construction of the provision, in our submission, gave it a rather narrower operation than it intends. May I say first of all, your Honours, that in relation to clause (29)(a), you will that the first sentence defines when the account holder is in default. It says so in the simplest and most all‑encompassing fashion. You are in default:

if you have not met any of your obligations under this . . . contract.

It may require a notice to bring the account to an end, that is the latter part of that provision, but the first sentence says when one is in default. Then, if one goes to clause (29)(c), your Honours will see that it defines – it does not say enforcement expenses and then what can happen. What it defines is - what the later parts of it are enforcement expenses. It says:

Any reasonable amount reasonably incurred or expended by ANZ in exercising its rights in relation to the credit card account arising from any default (including expenses incurred by the use of ANZ’s staff and facilities) are enforcement expenses and become immediately payable by the account holder.

Now, your Honours, that really is a provision of a very considerable breadth. It would seem, prima facie, to cover all the matters which were the collection costs - all fall under that heading and in those circumstances, we would submit, it is inappropriate to seek to justify the late payment fee by reference to the costs which would otherwise be recoverable pursuant to clause (29)(c).

Your Honours, it is a case where, in our submission, each of the three matters relied on by the respondent was not in the end justified, leaving the position that, as the primary judge had in effect said, if one applied the ordinary tests in 4(b) and 4(c), the case was one which was prima facie a penalty and effect should be given to that conclusion.

KEANE J: So the phone call to encourage the client to pay is, you say, exercising rights.

MR JACKSON: Yes, your Honour, yes, because you will see that (29)(a) speaks of there being default. Then going to (29)(c) it says:

in exercising its rights in relation to the credit card account –

Now the rights are to be paid and the question would then be, is it reasonable in amount, is it reasonably incurred or expended.

KEANE J: In the exercise?

MR JACKSON: Yes, of course, your Honour, but why would one not give the – if I can put it hypothetically – why would one not give that its ordinary meaning? It is not speaking just about litigation.

KEANE J: Well, except that exercise of rights has a rather mandatory connotation which cajoling or inviting someone to pay or encouraging them to pay might not have.

MR JACKSON: Well, your Honour, if one ‑ ‑ ‑

KEANE J: Exercising is not really about voluntary, is it? Exercising is imposition.

MR JACKSON: Could I say this, your Honour? If one were looking at a statement of claim, for example, that listed the matters that were claimed as being the expenses falling under the heading of “enforcement expenses” as defined in clause (29)(c) and you had a number of phone calls, the cost of phone calls, things of that kind, the question would in each case be whether they – of course they would be exercising the rights, but if one looks at the words in brackets in (29)(c):

(including expenses incurred by the use of ANZ’s staff and facilities) –

the wide paintbrush is being used, or the coarse quill if one likes that expression, to arrive at it. Now, your Honour, I do not think I can take it beyond that but it is a broad expression and there is not a particular reason why a court would read our submission, read it down.

KEANE J: Mr Jackson, while I have interrupted you, can I just ask: it occurred to me, looking at Williston, that there does not seem to be any case where a late payment fee charged by a bank has been held to be a penalty. Is that right?

MR JACKSON: Your Honour, I can pretend to have read every case there. I suspect I cannot give your Honour a case where it has but, equally, one would think that the rule, say in Dunlop, was sufficiently clear to ensure that the ‑ ‑ ‑

KEANE J: It is just that if your view of the rule were right, one would have thought that a late payment fee would have been established as a penalty by its routine application long ago.

MR JACKSON: Your Honour, the absence of cases suggests that it may well have been.

KEANE J: It rather suggests that it has not been suggested.

MR JACKSON: We have referred in our written submissions to the occasions on which this penalty issue has been to this Court. Your Honours will see that they mostly are ones where they are not the simple case. They are cases that involve questions of other types of forfeitures – and I would put it loosely – and things of that kind. The reason is, we would submit, because they are the more exotic kind and not the simple kind.

KIEFEL J: People do not usually litigate over $35. Is that what you are saying?

MR JACKSON: Indeed, your Honour, even if you multiply it by 26. In our submission, that is a very good reason why one does not see cases where the issue has had to be applied. It may be a different situation if you get large clauses where something goes wrong and you have to pay another 20 million, and, your Honour, if that is the case, the issue may arise starkly.

FRENCH CJ: These things can cut two ways, can they not? That sort of proposition can cut two ways, can it not? It has never been suggested that, for example, you can recover money under a mistake of laws, as in ‑ ‑ ‑

MR JACKSON: Could I come to a mistake of law or come to really what the statute simply says, mistake – mistake, in our submission, being something that the courts hold to be mistakes. But may I come to that. Your Honours, could I just say something about remoteness. The judge introduced her consideration of a quantitative assessment, which she carried out at paragraphs 131 to 169, by referring to principles which she had set out in Part 4, sections E to F of her reasons for judgment. You will see that, your Honours, at paragraph 131, at page 1211.

The matters to which she was referring in paragraph 44 in the earlier part of her reasons, at page 1187, included a citation of the Robophone Facilities v Blank. Your Honours, in that case, Lord Justice Diplock expressly said an amount was a penalty. Perhaps I do not need to take your Honours to the case – if I could just say what his Lordship said. It was a penalty if the stipulated sum is extravagantly greater than any loss which is likely to result from the breach in the ordinary course of things – that is, the damages available under the so‑called first limb in the first rule in Hadley v Baxendale.

Now, her Honour clearly had that in mind, the remoteness question, when making the findings which she did in paragraphs 131 to 169, including in relation to provisioning and regulatory capital. Could I come to what we submit should be the present position. We would submit the present position should be that the Dunlop 4(b) test applies to simple cases falling within its literal words, that is, to cases of breach of contract, at least where the evidence objectively does not disclose that any Hungerfords‑type damage was contemplated by the parties at the time they contracted. We put that in our written submissions in paragraphs 42 and 43.

In this case, your Honours, we would submit there was no such evidence. We have referred to the fact that the contract provided for interest, provided for an indemnity for enforcement costs including those from the use of the ANZ staff and facilities and we would submit the other kinds of alleged costs were not within the ambit of the appropriate comparator, as it were. They were not causally related, recoverable damages.

Could I go to this Court’s decision in Ringrow 224 CLR 656 at 662 for the moment, to paragraph 10. Your Honours will see the observation there by the Court that:

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.

Your Honours, this is, in our submission, a case of the standard application. My learned friend this morning said that a reason why the amounts that can be taken into account in the case of breach of contract – a reason why the amounts that may be taken into account are not limited to common law damages is that the doctrine in Australia operates absent breach of contract – that is Andrews Case.

Your Honours, in our submission, that is not an analysis which should be adopted. May I say this? In non‑breach cases the question is compensation in equity. The provision will still be penal if the amount stipulated is greater than the compensation that would be payable in equity. The principle is really the same in equity and common law except the common law principle is one related to damages.

May I go then to the question of legitimate interest? Our learned friend’s argument, in our submission, draws too much from Cavendish and the references to legitimate interest in that case. Could we make the submission that in the first place the decision in Cavendish is not for, but really against the notion that in the case of non‑payment of money timeously there is an interest of the kind variously defined in our learned friend’s submissions, the kind currently relied upon.

That appears from the passages in Cavendish that were referred to yesterday. May I take your Honours back to them for just a moment? The first one was at page 1387, paragraph 22, where halfway through the paragraph, about letter G:

The four tests are a useful tool for deciding whether these expressions can properly be applied to simple damages clauses in standard contracts.

That is this class of case. Paragraph 25 at page 1389:

The great majority of cases decided in England since the Dunlop case have concerned more or less standard damages clauses in consumer contracts, and Lord Dunedin’s four tests have proved perfectly adequate for dealing with those.

Paragraph 28 at page 1391 between letters C and D:

A damages clause may properly be justified by some other consideration than the desire to recover compensation for a breach. This must depend on whether the innocent party has a legitimate interest in performance extending beyond the prospect of pecuniary compensation flowing directly from the breach in question.

Then if one goes to the bottom of page 1392, paragraph 32, and the top of the next page, it said:

compensation is not necessarily the only legitimate interest –

but one would have to identify what else there may be. If one goes to Lord Hodge who dealt with this issue specifically, your Honours will see that at page – if I could go first to paragraph 247 at page 1463 the last four or five lines of that paragraph:

The focus on the disproportion between the specified sum and damage capable of pre‑estimation makes sense in the context of a damages clause but is an artificial concept if applied to clauses which have another commercial justification.

That was adverted to, in a sense, again by Lord Hodge in paragraph 249 on page 1464 in the fourth line where he said:

Where the obligation which has been breached is to pay money on a certain date, the innocent party’s interests are normally fully served by the payment of the stipulated sum together with interest and the costs of recovery.

Now, the judgments in that case do, in our submission, draw a clear distinction between straightforward damages cases like this, we would submit, and more complicated circumstances. Now, your Honours, every lender has an interest in the very broad sense in repayments of loans being made on time but what it would do with the money if received on time depends on its own circumstances and that is why, as Lord Hodge said at 249, the situation is – the lender is recompensed by payment of the stipulated sum, interest on the amount unpaid and the costs of recovery.

Your Honours, there may be a question as to the evidence which the Court can consider in answering whether there was a specific interest. But one thing that we would submit is clear is there must be evidence about it. It would be impermissible, we would submit, simply to speculate about the existence of an interest. Clearly, one looks at the contract itself and objects, but other evidence does seem admissible. Your Honours will recall that in Dunlop itself evidence was taken from the manager of Dunlop, a Mr Baisley, as to the considerations which induced the appellant “to fix the sum”. That kind of extrinsic material is properly to be regarded as part of the inherent circumstances.

Now, your Honours, the Bank called no evidence to indicate that there was an interest protected otherwise than by common law damages, except that it sought to do so by reference to putting Mr Inglis, in effect, on the task. In our submission, it is difficult to see that there was any interest, except perhaps the ultimate interest of making as much as possible out of the breaches.

There was, of course, some actual evidence as to what interest the Bank was attempting to further by the imposition of this and some related fees. Your Honours will have seen that the primary judge noted in paragraph 127 of her reasons at page 1209 that we had:

relied upon internal ANZ documentation which covered a six year period and included discussion papers –

and so on. Her Honour thought that could be put to one side because it did not assist in determining what she considered to be the real issue, namely, whether the amount stipulated to be paid exceeded the quantum of the loss, et cetera. But, had the case been a Cavendish‑type of case, her Honour would have needed to deal with the material and could I just say, your Honours, the material is summarised by her Honour in an annexure to her reasons which you will see in volume 4 at page 1354 and following.

If I could just refer your Honours, very briefly, to some aspects of it - the point of my so doing is to indicate, really, that one does not see very much, if anything, about provisioning or putting money aside for a capital reserve or for the costs of recovery. Could I just say, your Honours, if one goes to page 1354, paragraph 1 on the page, you will see a reference to:

dishonour fees and periodical non‑payment fees were reduced from $45 to $35 . . . The first objective . . . was to “improve revenue streams”.

If you go to item 5, on page 1354, it says:

Exception fees were stated to represent “a significant part of the Transaction Banking” profit and loss.

At page 1356, item 14, there is a reference to the Bank Fees Bill in the Senate:

Its proposed short title was . . . to limit unfair banking and credit card penalty fees, and for related purposes . . . the Bill was to prohibit a ‘default charge’ which was not “at or below a genuine pre-estimate of the damage –

You will see a reference also to paragraphs 19 and 22. Perhaps if I could just mention a couple of further passages without going to the detail of them – paragraphs 28, 29 and 30 and paragraph 31, particularly the second dot point. If I could go over then to page 1363, paragraph 62, and on the next page, paragraph 65.

Your Honours were referred by our learned friends to page 1123, volume 3. That was showing the decision that was made to reduce $35 to $20 and, in particular, a dot point around line 30. If one looks at that material it seems to show, hardly surprisingly – and I do not say this in any adversely critical way – that the interest of the Bank, so much as it was, was in money and obtaining what it thought it could do.

Your Honours, before I go to the statutory claims, there are a couple of matters I wish to deal with. Could I refer your Honours to paragraph 150 at page 1466 in volume 4 in the Full Court’s reasons? Now, your Honours will see that a reference was made by our learned friends to, about line 20, where speaking about Mr Regan’s evidence, Chief Justice Allsop said:

He did not attempt to look forward to assess what conceivably could be the damage from some (but not this particular) breach of contract.

Could I just say this about it, your Honours? If what his Honour is saying that he had to look at what possible breaches there might be, that is speaking too much in the abstract because what one does have to look at is that the late payment fee only became payable if there were breaches of a particular kind, that is, not paying, to put it shortly, on the due date.

If one is looking to see what conceivably could be the damage, one is looking to see what could conceivably be the damage from not paying on the due date and that is a transaction, month to month, as it were. So, it is not talking about something up in the air, a kind of abstract notion. It is talking about a very simple concept, a concept that if you do not pay on the due date, you have to pay a late payment fee. What is the damage that could be caused by not paying on the due date? The question is as simple as that, but is not one looking at every possible loss cost that might be occasioned by putting them all together, for example.

Your Honour Justice Keane, I think, observed to my learned friend that excessive protection for oneself is not punishment. Well, your Honour, with respect, it may be. If one looks at what is said in Andrews at paragraphs 9 and 10 - I will not go back to it - there is an element of looking at both parties. One obtains protection perhaps, the other incurs an obligation. Looking at the term “punishment” in the way in which it is used in Andrews and the cognate words, your Honour, we would submit that the two considerations are not mutually exclusive.

Could I go then to the statutory claims? In the first place, your Honours, we would submit that there is nothing in the primary judge’s reasons to suggest that her reasons, as our learned friends suggested, were dealing with late payment fees. Indeed, she said she was not. You can see that in paragraph 278 of her reasons in volume 4.

Your Honours, if one goes to the Full Court’s reasons at page 1514, paragraph 326, in our submission, must relate to fees other than the late payment fees because the primary judge had not dealt with that issue at all - and that appears from paragraph 325. There was nothing to attack. If one goes to paragraph 330 at page 1514, it was said:

The gravamen of the attack, however, was the asserted failure to employ what was said to be the huge disparity between the level of the fees and the costs it sustained by the exception fee events.

Your Honours, our learned friends have said these issues were not raised, but that paragraph, those words, seem to be a reference to, for example, section 12CB(2)(b). What else are they talking about really? If one goes to paragraph 331, we would make a similar observation. Each of the three statutory provisions required one to look at the position of the Bank and the customer and all the observations that are made in, for example, 330 and 331, deal with matters germane to that.

Could we also say, your Honours, that if one looks at paragraph 334 on page 1515, our submission is that the test applied there simply does not accord with the test in, for example, 12CB(2)(b). It speaks of “any reasonable perspective” and “exorbitant”. Now, your Honours, our learned friends also – I think I have mentioned this – said section 12CB(2) was not in issue, but if one looks at page 1502 and, for example, paragraph 285, there is quite a long discussion about these provisions. It seems hardly likely that the matters in, for example, paragraph 285 were being considered by the court if the matters were not in issue.

Your Honours, could I say also that if one goes back to page 1516, one sees that there is a – perhaps I might describe it as a “delicate silence” in our learned friend’s submissions as to paragraph 339, and how that is to be interpreted. Your Honours, we have said what we wanted to say about it, but it really does not seem to be in favour of our learned friends.

As to paragraph 362, and the other provisions dealing with unjust and unfair contracts, could I say about paragraph 362, your Honours – it contains no consideration of section 76(2)(m), namely the paragraph which deals with the risks undertaken. We make similar observations about section 32W and 32X. I do not think I need to say more about those, other than that we rely on our written submissions and the oral submissions we made earlier.

Could I then turn, your Honours, to the notice of contention. The issue sought to be raised by the notice of contention is whether section 27(c) of the Limitations of Actions Act 1958 was applicable. Could I take your Honours to that provision for a moment, set out at page 1527. The very narrow issue is whether the word “mistake” in section 27(c) refers only to mistakes of fact.

In our submission, there were difficulties in the argument. It derives no support, first of all, from the primary judge. It derives no support from the Full Court and it derives no support from the judgment of the House of Lords on the cognate provision in Kleinwort Benson. If one goes to the actual terms of section 27 what one sees is that it commences by saying:

Where, in the case of any action for which a period of limitation is prescribed by this Act–

and, going to (c):

the action is for relief from the consequences of a mistake–
the period of limitation shall not begin to run until the plaintiff has discovered . . . the mistake . . . or could with reasonable diligence have discovered it -

We would submit that the term “mistake” simply means, to put it shortly, mistake, but meaning by that such mistakes, such matters, as the law would regard as mistakes. As is apparent from Justice Besanko’s reasons at page 1530, paragraph 386, there were matters where at an earlier point equity might grant relief on the ground of mistake where the common law might not have done so.

This is discussed, your Honours – perhaps I could go to Kleinwort Benson [1999] 2 AC 349, first of all at page 417 in Lord Hope. Your Honours will see that Lord Hope, between letters A and B, says:

There is no difficulty about the language. The word “mistake” appears in the subsection without qualification. There is nothing in the words used in it which restricts its application to a mistake of fact.

Then he goes on to say, in the paragraph commencing above letter D:

But the distinction between mistake of fact and mistake of law as a ground for recovery is not absolute.

He refers to circumstances where there might be recovery - there might be relief where the mistake was one of law. Your Honours, of course, the number of circumstances in which there might be relief on the ground of mistake as a matter of law has no doubt increased, but it is very difficult, we would submit – sorry, I have overused that expression, I think.

In our submission, the view should not be taken that the word “mistake” used in section 27(c) without limitation, without qualification, without the words “mistake of fact” should have - in effect, the words “mistake of fact” or such other mistakes as the Court might have allowed as some identifiable earlier point are the only mistakes to which the provision applies.

Of course, there are some provisions in which it is possible to say what it means is what it meant at the time it was enacted, but why would one treat a situation where you have section 5 applying to all causes of action. You have then section 27 speaking of mistake in relation to ‑ if one goes back to the opening words of section 27:

any action for which a period of limitation is prescribed by this Act –

Why does one treat section 27(c) as having that limited and, with respect, a little difficult, actually define and draw limitation? Now, your Honours, may I refer also to what Lord Goff said in that case at pages 388 and 389. You will see, your Honours, at page 388, about letter D, the contention that was advanced. You will see then between letters F and G the paragraph saying there were two contentions advanced. The second one, just below the letter G:

they submitted that section 32(1)(c) does not on its true construction apply to mistakes of law.

Now, your Honours, if one goes then to the bottom of that page, his Lordship says:

In my opinion, however, this verbal argument founders on the fact that the pre‑existing equitable rule applied to all mistakes, whether they were mistakes of fact or mistakes of law ‑

and, your Honours, then went on to deal with the consideration in the last paragraph of his reasons. In our submission, Justice Besanko was perfectly correct in the conclusion at which he arrived at page 1534, paragraph 396. Your Honour Justice Keane asked a question yesterday, I think, about some American cases. I think your Honour may have been referring to Smiley.

KEANE J: Yes.

MR JACKSON: Smiley was a case, of course, involving a statutory provision. But we think there may be some United States cases which have found late payment fees to be unlawful or penal. I was going to ask: may we supply to the Court and to our learned friends a note dealing with that if we find anything, on the assumption we do – a note whether we do or do not find anything on that within, say, seven days, with our learned friends being able to reply if they wish? Your Honours, could we send your Honours a cover sheet of Williston, showing the edition and year of the chapter that was printed out.

FRENCH CJ: It is as late as 1936 because there is one – yes, you may do that.

MR JACKSON: Thank you, your Honour. Those are our submissions.

FRENCH CJ: Yes, thank you. The Court will reserve its decision. The Court adjourns until 10.15 on 9 February 2016.

AT 3.45 PM THE MATTER WAS ADJOURNED

[2016] HCATrans 10

Key Legal Topics

Areas of Law

Commercial Law

Contract Law

Civil Procedure

Legal Concepts

Appeal

Breach

Contract Formation

Damages

Penalty

Remedies